<PAGE>
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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] 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.
<PAGE>
LOGO September 5, 1997
[LOGO OF McMoRan OIL & GAS CO. APPEARS HERE]
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
McMoRan Oil & Gas Co. (MOXY) on October 9, 1997 at 9:00 a.m., local time, at
MOXY's executive offices at 1615 Poydras Street, New Orleans, Louisiana. At
this important meeting, you will be asked to approve a comprehensive plan to
recapitalize MOXY and establish a new multi-year $200 million oil and gas
exploration program. In addition, amendments to two benefit programs will be
submitted for your approval. All of these transactions are contingent on
stockholder approval. You do not have to be present at the special meeting and
may vote by completing the enclosed proxy card and returning it in the
envelope provided.
Since May 1994, when MOXY was spun-off from Freeport-McMoRan Inc., MOXY has
explored for oil and gas primarily in the Gulf of Mexico offshore and onshore
area. By the end of 1997, MOXY will have expended essentially all of its
capital resources. In order to raise significant additional capital to fund
its future exploration activities and to find a partner committed to an
expanded, and long-term exploration program, MOXY's management and Board of
Directors have developed a comprehensive plan to enable MOXY to participate in
a broader range of exploration projects.
MOXY has entered into an agreement with Freeport-McMoRan Resource Partners,
Limited Partnership (FRP) to establish a multi-year $200 million oil and gas
exploration program. Because of the long-term nature of this new program, MOXY
will be able to undertake significantly expanded and more diversified
exploration activities primarily offshore in the Gulf of Mexico and onshore in
the Gulf Coast area. Additionally, FRP purchased MCN's interest in the old
MOXY/MCN exploration and development program and has agreed to sell the
interests in the producing properties to MOXY, which will expand MOXY's
reserve base and future cash flow. The exploration properties under the old
MOXY/MCN program will be placed into the new MOXY/FRP exploration program
thereby consolidating its exploration activities.
To obtain additional funding, MOXY intends to undertake a rights offering
whereby stockholders will have the right, but not the obligation, to purchase
additional shares of common stock. Each stockholder would be given, at no
cost, approximately 2.0 rights for each MOXY share held, and each right will
allow the holder to purchase one new share of MOXY common stock for $3.50 per
share. The rights, which are expected to trade on the Nasdaq National Market,
will expire no less than 30 days and no more than 60 days after the rights
offering commences. As a result, MOXY anticipates issuing approximately 28.6
million shares of common stock for an aggregate of approximately $100 million.
FRP has agreed to purchase for the same price any shares not purchased in the
rights offering under its standby commitment, assuring MOXY of the necessary
funds to participate in growth opportunities arising from the new long-term
MOXY/FRP exploration program. MOXY has agreed to pay a $6.0 million fee for
FRP's standby commitment, purchase of the MCN producing properties for resale
to MOXY and the new long-term exploration program, and to grant FRP an option
to purchase such additional shares of common stock as are necessary to provide
FRP with up to a 30% ownership interest in MOXY after giving effect to the
rights offering and standby commitment. Under the terms of the standby
commitment, FRP may acquire as much as 67% of the outstanding common stock of
MOXY if no rights are exercised.
If MOXY's stockholders approve these transactions, MOXY would immediately
commence the rights offering (without any commitment on your part to
participate) and establish the MOXY/FRP multi-year $200 million exploration
program upon closing of the rights offering. If MOXY's stockholders do not
approve these transactions, MOXY would be required to seek from other sources
significant additional capital to continue its exploration activities, as MOXY
and FRP would not establish the exploration program.
The purpose of the special meeting is to approve and adopt the definitive
agreements providing for the rights offering, the new MOXY/FRP exploration
program and the other transactions described above. You are also being asked
to approve and adopt amendments to two benefit plans. Please carefully read
the accompanying proxy statement for a more complete description of the terms
of the proposed transactions.
Whether or not you plan to attend the special meeting, please complete, sign
and date the enclosed proxy card and return it as promptly as possible in the
enclosed envelope. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THE PROPOSALS THAT APPEAR ON YOUR PROXY CARD.
We appreciate your support in this important event.
LOGO
[SIGNATURE OF RICHARD C. ADKERSON
APPEARS HERE]
LOGO
[SIGNATURE OF JAMES R. MOFFETT APPEARS
HERE]
Richard C. Adkerson
James R. Moffett
Co-Chairman of the Board
Co-Chairman of the Board
and Chief Executive Officer
<PAGE>
LOGO
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 9, 1997
SEPTEMBER 5, 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 October 9, 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") pursuant to which FRP may
acquire as much as 67% of the outstanding Common Stock if no Rights are
exercised;
(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 interests in 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 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 September 3, 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
<PAGE>
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 October 9, 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 September 3, 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") pursuant to which FRP may acquire as
much as 67% of the outstanding Common Stock if no Rights are exercised;
(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 interests in 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 exploration
costs and each will have a 50% interest in all revenues and other costs.
On September 3, 1997, the closing sale price of the Common Stock was $4 1/16
per share.
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.
All of the members of the Company's Board of Directors also serve on the
Board of Directors of Freeport-McMoRan Inc., which owns a 51.6% interest in,
and serves as the administrative managing general partner of FRP. As a result,
in considering the recommendation of the Company's Board of Directors,
stockholders should be aware that the Company's Board of Directors have
interests that are in addition to and inherently conflict with the interests
of the Company's stockholders generally.
<PAGE>
At the Special Meeting, holders of shares of Common Stock as of September 3,
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 September 5, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
General................................................................. 1
Recent Developments..................................................... 1
The Special Meeting; Vote Required...................................... 1
Recommendation of the Board of Directors of MOXY........................ 2
Opinion of Independent Financial Advisor................................ 2
The Recapitalization Transactions....................................... 2
Potential Effects of the Recapitalization Transactions on Control of
MOXY................................................................... 6
Interests of Certain Persons in the Recapitalization Transactions and
Conflicts of Interest.................................................. 6
Consequences if the Recapitalization Proposal is not Approved........... 7
Advantages and Disadvantages of the Recapitalization Transactions....... 7
New Benefit Plan Proposals.............................................. 8
Intention of Executive Officers and Directors........................... 8
Market Price of the Common Stock........................................ 8
Selected Financial, Reserve and Operating Data.......................... 9
THE SPECIAL MEETING....................................................... 11
Voting Procedure........................................................ 11
Proxy Solicitation...................................................... 12
Stockholder Proposals................................................... 12
THE RECAPITALIZATION TRANSACTIONS......................................... 12
Background and Reasons for the Recapitalization Transactions............ 12
Recommendation of Board of Directors.................................... 15
Opinion of Independent Financial Advisor................................ 16
The Rights Offering..................................................... 20
The Standby Purchase Agreement.......................................... 21
Stockholder Agreement; Registration Rights.............................. 22
Purchase of MCN Producing Properties.................................... 23
The MOXY/FRP Exploration Program........................................ 24
Potential Effects of the Recapitalization Transactions on Control of
MOXY................................................................... 25
Interests of Certain Persons in the Recapitalization Transactions and
Conflicts of Interest.................................................. 27
Uses of Funds........................................................... 28
Advantages and Disadvantages of the Recapitalization Transactions....... 28
Consequences if the Recapitalization Proposal is not Approved........... 29
Absence of Appraisal Rights............................................. 29
Expenses of the Recapitalization Transactions........................... 30
PROPOSAL TO APPROVE AMENDMENTS TO THE 1994 STOCK OPTION PLAN FOR NON-EM-
PLOYEE DIRECTORS......................................................... 30
Reasons for the Proposed Changes........................................ 30
Summary of the Director Plan as Proposed to be Amended.................. 30
Vote Required for Approval of the Director Plan Amendments.............. 33
PROPOSAL TO APPROVE AMENDMENTS TO THE 1994 STOCK OPTION PLAN.............. 33
Reasons for the Proposed Changes........................................ 33
Summary of the Stock Plan as Proposed to be Amended..................... 33
Federal Income Tax Consequences......................................... 36
Awards Under the Stock Plan............................................. 37
Vote Required for Approval of the Stock Plan Amendments................. 38
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY........................... 39
CAPITALIZATION............................................................ 40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 46
DESCRIPTION OF CAPITAL STOCK.............................................. 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 53
FINANCIAL STATEMENTS...................................................... 55
</TABLE>
ANNEX IMASTER AGREEMENT
ANNEX IISTANDBY PURCHASE AGREEMENT
ANNEX IIISTOCKHOLDER AGREEMENT
ANNEX IVPARTICIPATION AGREEMENT
ANNEX VOPINION OF DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
ANNEX VI 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS, AS PROPOSED TO
BE AMENDED
ANNEX VII1994 STOCK OPTION PLAN, AS PROPOSED TO BE AMENDED
<PAGE>
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 repaying 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.
RECENT DEVELOPMENTS
On August 27, 1997, FTX, which is the administrative managing general partner
of and owns a 51.6% interest in FRP, and IMC Global Inc. ("IGL") announced that
they had executed an Agreement and Plan of Merger dated as of August 26, 1997,
in which FTX and IGL agree to merge with IGL as the surviving entity. The
proposed combination, which is subject to approval by the stockholders of both
companies and several additional conditions, will result in the acquisition of
control by IGL of FTX and, as a result, FRP. The transaction, if consummated,
will not have any impact on the consummation of the Recapitalization
Transactions. FTX and IGL have stated that the merger transaction is expected
to be completed by the end of 1997.
THE SPECIAL MEETING; VOTE REQUIRED
The Special Meeting will be held on October 9, 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.
1
<PAGE>
The Board of Directors has set September 3, 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 14,101,438 shares of Common
Stock issued and outstanding as of the Record Date.
The rules of the Nasdaq National Market require that the Recapitalization
Transactions be approved by the Company's stockholders at the Special Meeting
because FRP may acquire more than 20% of the total number of shares of Common
Stock outstanding as a result of the FRP Purchase Option and the Standby
Commitment. 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."
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.
All of the members of 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. As a result, in considering
the recommendation of the Company's Board of Directors, stockholders should be
aware that the Company's Board of Directors have interests that are in addition
to and inherently conflict with the interests of the Company's stockholders
generally. See "--Interests of Certain Persons in the Recapitalization
Transactions and Conflicts of Interests."
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
MOXY currently has an interest in only two producing fields, which have been
in production for only a short period of time. MOXY will acquire an additional
interest in these producing fields through the purchase of the MCN Producing
Properties as part of the Recapitalization Transactions. In addition, the
Company has incurred significant operating losses to date as a result of its
exploratory drilling and, by the end of 1997, will have expended essentially
all of its capital resources. The Company's exploration activities will
continue to require substantial expenditures and its future financial results
will depend primarily on its ability to locate hydrocarbons in commercial
quantities and on the market prices for oil and gas. The Recapitalization
Transactions are intended to provide MOXY with significant additional capital
to fund its exploration activities and to align it with a partner committed to
an expanded and long-term exploration program with an increased budget
commitment.
2
<PAGE>
THE FOLLOWING DIAGRAM OUTLINES THE SIGNIFICANT ELEMENTS
OF THE RECAPITALIZATION TRANSACTIONS:
- --------------- ----------------
| FTX | --------| PUBLIC |
- --------------- | | STOCKHOLDERS |
| 51.6% Owner | ----------------
| |
- --------------- . Purchases $0-$100 million of | . Purchase $100-$0
| FRP |--- Common Stock | million of Common
- --------------- | . Acquires 0%-67% | Stock
| | Ownership through Standby | . Maintain 100%-33%
| | Commitment and FRP | Ownership
| | Purchase Option |
| | . Receives $6.0 million standby |
| | fee |
| ----------- |
| | |
--------- | |
| -----------------------------------
| | MOXY |
| | |
. Funds 60% of most | | . Receives $100 million in |
exploration costs | | gross proceeds ($93 million |
. Receives a 50% | | in net proceeds) from Rights |
interest in | | Offering and Standby |
properties | | Commitment |
| | . Receives up to $64 million |
| | in additional gross proceeds |
| | from the exercise of the FRP |
| | Purchase Option |
| | . Purchases the MCN Producing |
| | Properties from FRP for |
| | $26 million, subject to |
| | adjustment |
| -----------------------------------
| |
| | . Funds 40% of most exploration costs
| | . Receives a 50% interest in properties
| |
---------------------
| $200 million |
| MOXY/FRP |
| Exploration |
| Program |
---------------------
3
<PAGE>
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."
The Rights Offering, if commenced, will be unconditional. MOXY's and FRP's
obligations to consummate the other transactions summarized below as part of
the Recapitalization Transactions will be subject to customary closing
conditions and will not be effected if those conditions are not satisfied or
waived. MOXY's management believes that the conditions to FRP's obligations
under the Standby Purchase Agreement will be satisfied or waived and that the
Standby Commitment will be fulfilled and that MOXY will purchase the MCN
Producing Properties and establish the MOXY/FRP Exploration Program.
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.
It is anticipated that MOXY will issue approximately 28.6 million shares of
Common Stock pursuant to the Rights Offering and the Standby Commitment. The
net proceeds received by the Company from the Rights Offering and Standby
Commitment, after payment of the Standby Fee to FRP and other fees and
expenses, will be approximately $93 million.
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. Assuming that all of the Rights are exercised and
that FRP exercises the FRP Purchase Option in full, MOXY will receive
approximately $64 million from the exercise of the FRP Purchase Option. See
"The Recapitalization Transactions--The Standby Purchase Agreement" and
"Potential Effects of the Recapitalization Transactions on Control of MOXY."
4
<PAGE>
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 contractual rights to 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 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 August 4, 1997, FRP paid MCN, after adjustments, $34.0 million for
such assets together with $12.4 million for the outstanding indebtedness. MCN
is not affiliated with either FRP or MOXY and will no longer have any
involvement or interest in the MOXY/MCN Program.
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 provides that FRP will reimburse MOXY for approximately $290,000 of
overhead 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 for 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 August 4, 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 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 the MOXY/FRP Exploration Program.
MOXY and FRP will commit $200 million for exploration expenditures to be
incurred under the MOXY/FRP Exploration Program, with most exploration
expenditures 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 to occur of the commitment of $200 million for exploration
expenditures or on June 30, 2002. See "The Recapitalization Transactions--The
MOXY/FRP Exploration Program."
5
<PAGE>
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.
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 AND CONFLICTS
OF INTEREST
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. If FRP acquires more than 20% of the outstanding Common Stock
pursuant to the Standby Commitment or the FRP Purchase Option, options to
acquire an aggregate of 846,203 shares of Common Stock with an average exercise
price of $3.11 per share will become exercisable, substantially all of which
are held by directors and executive officers of the Company. Based on the
closing sale price of the Common Stock on September 3, 1997 ($4.0625 per
share), the aggregate difference between the exercise and closing sale price of
such options was approximately $806,000. See "The Recapitalization
Transactions--Potential Effects of the Recapitalization Transactions on Control
of MOXY."
As directors of FTX, members of the Company's Board of Directors have
interests that are in addition to and inherently conflict with those of the
Company's stockholders generally. The Recapitalization Transactions could not
be approved by a committee of "independent" directors of the Company since all
of the Company's directors are also directors of FTX. Accordingly, if a
stockholder were to challenge the directors' approval of the Recapitalization
Transactions, the directors would not likely be afforded the benefit of the
Delaware "business judgment" rule, and their actions would likely be reviewed
under the Delaware "entire fairness" standard, whereby the Company's directors
would be required to prove the fairness of the Recapitalization Transactions to
the Company. Stockholder approval of the Recapitalization Transactions, which
is required by the rules of the Nasdaq National Market, by a majority of the
votes cast by stockholders who are unaffiliated with FTX would be expected to
have the effect of shifting to any stockholder who challenges the directors'
decision the burden of proving that the Recapitalization Transactions were not
fair to the Company. See "The
6
<PAGE>
Recapitalization Transactions--Interests of Certain Persons in the
Recapitalization Transactions and Conflicts of Interest" and "Certain
Relationships and Related Transactions."
In addition, the directors and officers have been granted stock options
subject to approval of the Benefit Plan Proposals and the Recapitalization
Proposal. See "Proposal to Approve Amendment of the 1994 Stock Option Plan for
Non-Employee Directors" and "Proposal to Approve Amendments to the 1994 Stock
Option Plan."
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 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 spread 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 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.
7
<PAGE>
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. If no rights
are exercised, existing stockholders could own as little as 33% of the
outstanding Common Stock. The Board also considered (i) the potential dilutive
effect of the FRP Purchase Option to current stockholders whereby, if following
the Rights Offering FRP has not acquired 30% of the outstanding Common Stock
pursuant to the Standby Commitment, it may acquire 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; and (ii) the potential transfer of control
of MOXY to FRP as a result of the Recapitalization Transactions pursuant to
which FRP may acquire as much as 67% of the outstanding Common Stock if no
Rights are exercised.
The Board of Directors also considered the fact that FRP will have the power
to control or significantly influence the election of directors and all other
matters submitted to the Company's stockholders and otherwise to direct the
business and affairs of the Company if it acquires a significant percentage of
the outstanding shares of Common Stock pursuant to the Standby Commitment or
the FRP Purchase Option. The Company has attempted to limit the potential
adverse impact this may have on the Company and its stockholders by negotiating
the Stockholder Agreement, which imposes certain restrictions on FRP and its
affiliates. The amount of Common Stock acquired by FRP pursuant to the Standby
Commitment and the FRP Purchase Option could also have a negative influence on
an attempt to acquire control of the Company, since the Company's public
stockholders may not have sufficient voting power to approve a potential future
strategic offer for the Company by a third party that might be attractive to
such stockholders. See "The Recapitalization Transactions--Advantages and
Disadvantages of the Recapitalization Transactions" and "--Potential Effects of
the Recapitalization Transactions on Control of MOXY."
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 August 15, 1997, these executive officers and directors
owned, in the aggregate, 1,266,649 shares of the outstanding Common Stock
(representing 9.0% 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 Purchase Agreement) was $3 5/8 per share.
On September 3, 1997, the closing sale price of the Common Stock was $4 1/16
per share.
8
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for the
Company for the six months ended June 30, 1997 and 1996 and for each of the
three years in the period ended December 31, 1996 (since inception). The table
also sets forth unaudited pro forma financial information as of and for the six
months ended June 30, 1997 and for the year ended December 31, 1996 based on
the assumptions described in the footnotes below. The annual historical
information is derived from the audited financial statements of the Company and
the historical information for the six-month periods ended June 30,1997 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>
SIX MONTHS ENDED JUNE 30, 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...... $ 11,188 $ 4,203 $ 1,204 $ 7,410 $ 2,434 $ 2,722 $ 174
Management fees........ 818 818 818 1,636 1,636 545 --
-------- ------- ------- ------- ------- -------- --------
Total revenues.......... 12,006 5,021 2,022 9,046 4,070 3,267 174
-------- ------- ------- ------- ------- -------- --------
Costs and expenses:
Production and
delivery, including
depreciation and
amortization.......... 11,471 5,312 802 4,525 1,500 2,623 --
Exploration expenses... 4,097 4,097 3,871 9,818 9,818 11,756 15,518
General and
administrative
expenses.............. 1,353 1,353 1,384 2,635 2,635 3,687 2,338
Gain on sale of oil and
gas property.......... (2,289) (2,289) -- -- -- -- --
-------- ------- ------- ------- ------- -------- --------
Total costs and
expenses............... 14,632 8,473 6,057 16,978 13,953 18,066 17,856
-------- ------- ------- ------- ------- -------- --------
Operating loss.......... (2,626) (3,452) (4,035) (7,932) (9,883) (14,799) (17,682)
Interest expense........ -- (681) (7) -- (403) -- --
Other income, net....... 249 249 237 424 424 164 2,482
-------- ------- ------- ------- ------- -------- --------
Net loss................ $ (2,377) $(3,884) $(3,805) $(7,508) $(9,862) $(14,635) $(15,200)
======== ======= ======= ======= ======= ======== ========
Net loss per share...... $ (0.06) $ (0.27) $ (0.27) $ (0.18) $ (0.71) $ (1.06) $ (1.10)
Average shares
outstanding............ 42,707 14,136 13,847 42,469 13,898 13,772 13,770
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital......... $ 50,244 $(3,076) $ 2,368 $ 2,972 $ 8,257 $ 15,063
Oil and gas properties,
net.................... 48,489 19,322 14,125 18,231 9,878 17,094
Production loan, less
current portion........ -- 10,980 2,000 12,391 530 --
Total assets............ 111,474 30,627 21,966 30,980 21,633 34,425
Stockholders' equity.... 97,625 4,625 14,052 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 the MCN Producing Properties and repay the Company's debt under
the MOXY/MCN Program, the purchase of certain oil and gas interests 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, and as of June 30,
1997 for the balance sheet data. No effect is given to any exercise of the
FRP Purchase Option.
Assuming the same transactions occurred and the FRP Purchase Option was
exercised in full, the Pro Forma Statement of Operations Data would be
unchanged, with the exception of average shares outstanding and net loss per
share (60,985,000 shares and $0.04 per share for the 1997 period and
60,747,000 shares and $0.12 per share for 1996). Pro Forma Balance Sheet Data
as of June 30, 1997 would change as follows (in thousands):
<TABLE>
<S> <C>
Working capital................. $114,217
Total assets.................... 175,447
Stockholders' equity............ 161,598
</TABLE>
(2) Reflects the period since inception (May 1994).
9
<PAGE>
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 ("Ryder Scott"). For additional information relating to the oil and
gas reserves of the Company and attributable to the MCN Producing Properties,
see note 7 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
FUTURE NET CASH FLOWS
OIL GAS AT A 10% DISCOUNT RATE
------------------ ---------------- --------------------------
MCN MCN MCN
PRODUCING PRODUCING PRODUCING
MOXY PROPERTIES MOXY PROPERTIES MOXY PROPERTIES
------- ---------- ----- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
(BBLS) (MMCF) (IN THOUSANDS)
RESERVE DATA AS OF MAY
31, 1997:
Proved Developed........ 70,442 102,919 6,790 9,638 $10,431 $15,153
Proved Undeveloped...... 55,933 77,443 2,928 3,098 2,814 4,345
------- ------- ----- ------ ----------- -----------
Total................... 126,375 180,362 9,718 12,736 $13,245 $19,498
======= ======= ===== ====== =========== ===========
</TABLE>
- --------
(1) In preparing such estimates, Ryder Scott used prices of $20.21 per barrel
of oil and $2.21 per Mcf of gas, the weighted average prices that the
Company estimates it would have received, assuming production from all of
the properties with proved reserves.
OPERATING DATA
The following table sets forth summary information with respect to the
production of oil and gas and average sales price received by the Company for
the six months ended June 30, 1997 and 1996 and the years ended December 31,
1996 and 1995. The table also sets forth unaudited pro forma information for
the six months ended June 30, 1997 and the year ended December 31, 1996 that
gives effect to the acquisition of the MCN Producing Properties.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------------ ------------------------------
PRO FORMA(1) PRO FORMA(1)
1997 1997 1996 1996 1996 1995
------------ --------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Production:
Oil (Bbls)............. 23,500 9,400 15,800 72,500 29,000 45,000
Gas (Mcf).............. 4,052,500 1,621,000 306,700 1,577,500 631,000 1,093,000
Average sales price per
unit:
Oil ($/Bbl)............ $21.89 $21.89 $20.76 $22.22 $22.22 $18.83
Gas ($/Mcf)............ $ 2.44 $ 2.44 $ 2.76 $ 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.
10
<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.
One or more representatives of Arthur Andersen LLP, the Company's
independent auditors, will be available at the Special Meeting to respond to
appropriate questions, and those representatives will also have an opportunity
to make a statement.
VOTING PROCEDURE
Stockholders of record at the close of business on September 3, 1997 (the
"Record Date") will be entitled to vote at the Special Meeting. On the Record
Date, there were 14,101,438 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
11
<PAGE>
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.
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 summarizes all of the material terms of the Recapitalization
Transactions. The summaries 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
12
<PAGE>
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 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 spread
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. The Company considered public and
private offerings of equity securities and management discussed these
initiatives with DLJ and other investment banking firms. The Company
subsequently concluded, based on the advice of DLJ and these other investment
banking firms, that the Company's relatively small market capitalization and
ongoing exploratory program made a meaningful conventional public offering
impracticable and that a private offering would involve unfavorable terms and
significant equity dilution to existing stockholders. The Company considered
the acquisition of or combination with other independent oil and gas
companies. The Company concluded that its relatively small market
capitalization made any such acquisition or combination unattractive because
of the absence of attractive opportunities and the probable dilution to the
Company's existing stockholders. Management pursued discussions with MCN and
another oil and gas company about entering into a large, multi-year
exploration program similar to the MOXY/FRP Exploration Program, but neither
was willing to commit to participation on terms acceptable to the Company.
Management considered the possibility of a business plan to generate
exploration prospects and fund their costs by selling partial interests in the
prospects to other companies on a promoted basis. In recent months, management
had presented a number of prospects involved in the MOXY/MCN Program to other
companies in an effort to reduce the MOXY/MCN Program's capital requirements
so that its available resources could be spread over more prospects. This
experience convinced the Company that conducting its future operations on this
basis was not feasible because of the effort required to obtain participants
in the prospects and timing issues resulting from requirements to incur
expenditures, particularly those relating to lease sales, and obtaining
subsequent funding from other companies. Management also considered developing
a drilling program funded by individual investors with high levels of taxable
income. Based on discussions with potential investors and investment advisors,
management concluded that the potential availiability of funds from individual
investors was insufficient to meet the requirements of the Company's business
plan. The Company also discussed its need for additional equity capital with a
number of other financial advisors and financing sources.
In pursuing each of these alternatives, the Board was guided by its belief
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 a MOXY managed exploration program
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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 also believed that in order to
implement its business strategy and create stockholder value, MOXY required
significant additional equity capital and a long-term exploration joint
venture to allow it to participate in an increased number of drilling
prospects.
In 1996, FRP began to pursue the oil and gas business as an additional
growth opportunity and as a hedge for its natural gas purchases. In June 1996,
FRP elected to participate with MOXY in the drilling of the Company's two
onshore Louisiana prospects and in February 1997 agreed to participate with
MOXY in the March 1997 Central Gulf of Mexico lease sale. In February 1997,
MOXY and FRP also began discussing the possibility of entering into a multi-
year exploration program and MOXY's consideration of conducting a rights
offering to raise equity capital. MOXY was represented in these negotiations
by Richard C. Adkerson, its Co-Chairman of the Board and Chief Executive
Officer, and John G. Amato, its General Counsel, who were assisted by MOXY's
technical and administrative staff and outside legal counsel and advised by
DLJ. FRP was represented in these negotiations by Rene L. Latiolais, its
President and Chief Executive Officer, Robert M. Wohleber, its Chief Financial
Officer, and Roger T. Baker, its General Counsel, who were assisted by FTX's
administrative staff and outside legal counsel and advised by Merrill Lynch,
Pierce, Fenner & Smith Incorporated. Following several meetings in February
and March 1997, in early April 1997 FRP submitted a term sheet to MOXY
regarding a proposal to form a multi-year exploration joint venture, serve as
standby purchaser in a rights offering and provide interim financing to MOXY
to purchase the MCN Producing Properties. These discussions continued for the
next several months and consisted of a significant number of large and small
meetings at which the principal terms of FRP's purchase of MCN's interest in
the MOXY/MCN Program, the resale of the MCN Producing Properties to MOXY, the
MOXY/FRP Exploration Program, the Standby Commitment, the FRP Purchase Option
and the Stockholder Agreement were negotiated. Once the discussions with FRP
commenced, management did not pursue further discussions with other potential
industry partners regarding a long-term exploration program but continued to
consider alternate methods of raising equity capital.
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 giving stockholders the opportunity to participate in that
program and 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. The Company's
management also considered entering into a standby purchase arrangement for
the Rights Offering with one or more investment banking firms but concluded
that such an arrangement would not be available at an acceptable cost due to
the Company's limited market capitalization and the size of the proposed
rights offering. Also integral to the Board's decision to pursue the Rights
Offering and the Recapitalization Transactions with FRP 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.
Because MOXY also wished to consolidate its exploration activities into one
joint venture arrangement, in May 1997 management approached MCN regarding
purchasing its interest in the MOXY/MCN Program, including the MCN Producing
Properties. Management desired to acquire the MCN Producing Properties to
provide the Company with additional proved reserves, cash flow and exploration
potential and to facilitate the transition to joint drilling arrangements with
FRP through the
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MOXY/FRP Exploration Program. Moreover, since the Company already owned an
interest in these producing fields, it believed this was an efficient manner
to acquire additional reserves and increase current cash flow. Because of its
focus on adding reserves through an exploratory drilling program, FRP desired
to only acquire the MCN Producing Properties for resale to MOXY. The
discussions with MCN continued until FRP agreed with MCN in July 1997 to
purchase MCN's interest in the MOXY/MCN Program and the MCN Producing
Properties. To facilitate the commencement of exploratory drilling with MOXY
and the formation of the MOXY/FRP Exploration Program, FRP ultimately agreed
to (i) acquire MCN's contractual rights in the MOXY/MCN Program and its
interest in exploratory prospects, which FRP would ultimately dedicate to the
MOXY/FRP Exploration Program, and (ii) acquire the MCN Producing Properties
for resale to MOXY upon completion of the Rights Offering and the Standby
Commitment when MOXY would have sufficient capital to acquire them. The
objective in determining the purchase price of the MCN Producing Properties
between MOXY and FRP was to reimburse FRP for the acquisition price and
carrying costs of the MCN Producing Properties. During the negotiations
between FRP and MCN the exploratory properties were assigned a value of $5.0
million, and MOXY and FRP independently arrived at and assigned the same value
in determining the allocation of the purchase price paid to MCN by FRP between
the exploratory properties and the MCN Producing Properties.
The Subscription Price was determined by negotiations between MOXY and FRP.
The Board of Directors' primary objective in determining the Subscription
Price was to establish a price approximating the recent trading price of the
Common Stock.
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. The Recapitalization Transactions could not be approved by a committee
of "independent" directors of the Company since all of the Company's directors
are also directors of FTX.
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 (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 and
which have additional exploration potential and will facilitate the transition
to joint drilling arrangements with FRP through the MOXY/FRP Exploration
Program; (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
discussed under "--Advantages and Disadvantages of the Recapitalization
Transactions"; (vi) the ability of the Company to drill and control operations
on a significantly larger number of exploratory prospects through the MOXY/FRP
Exploration Program; (vii) the inability of the Board to designate an
independent committee to review the Recapitalization Transactions and the
resulting conflicts of interest; (viii) the fact that as a result of the
Standby Commitment and the FRP Purchase Option FRP could obtain voting control
or significant influence over the direction and control of the Company and
that public stockholders might not have sufficient voting power to approve a
potential future strategic offer for the Company by a third party that might
be attractive to such stockholders; and (ix) the opinion of DLJ described
below under "Opinion of Independent Financial Advisor."
The Board of Directors did not undertake a separate analysis of each of
these factors nor did the Board reach a separate conclusion with respect to
each factor. In view of this and the variety of factors
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considered, the Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its conclusion to recommend that the stockholders approve the
Recapitalization Transactions. In addition, individual members of the Board
may have given different weights to different factors. However, as a general
matter, the Board believed that the opportunity to recapitalize MOXY through
the Recapitalization Transactions and to enter the multi-year MOXY/FRP
Exploration Program outweighed the potential disadvantages described in this
Proxy Statement.
In reaching its conclusion, the Board of Directors did not conduct its own
financial analysis and relied solely on management's reports and financial
analysis and the opinion of DLJ under "Opinion of Independent Financial
Advisor."
All of the members of 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. As a result, in considering
the recommendation of the Company's Board of Directors, stockholders should be
aware that the Company's Board of Directors have interests that are in
addition to and inherently conflict with the interests of the Company's
stockholders generally. See "--Interests of Certain Persons in the
Recapitalization Transactions and Conflicts of Interest."
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. The Master Agreement contemplates the following
transactions will be consummated as the Recapitalization Transactions: (i) FRP
will purchase MCN's contractual rights to 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 September 5,
1997, DLJ delivered an update of its fairness 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 such update, and based upon the
assumptions, limitations and qualifications set forth therein, 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,
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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 if no Rights are exercised 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 (the
"Management Projections"). With respect to the Management Projections, DLJ
assumed that they were 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. The Management Projections assume
that 13 exploration wells and 3 development wells will be drilled in 1997 and
1998 at an estimated total capital cost of $34 million, including the cost of
seismic and leasehold acquisitions. The projections assume a 50% success rate
on exploration drilling and annual production from existing reserves of 3.7
BCFE and 2.8 BCFE in 1997 and 1998, respectively. 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 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. With respect to the acquisition of the MCN Producing
Properties, DLJ noted that such transaction was negotiated between independent
third parties and that the purchase price of $26 million for such properties
was within the range of values obtained by DLJ using an analysis as described
below in the discussion entitled "Pro Forma Analysis."
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
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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. The analyses have been updated in connection with the update of the
DLJ Opinion as of September 5, 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 or
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 Mcfe 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 $1.35 to $2.46. The implied
share prices exclude the impact of values which are less than zero.
Analysis of Comparable Transactions. DLJ reviewed publicly available
information for 15 selected transactions involving the combination of selected
Exploration and Production companies. The 15 transactions reviewed (the
"Comparable Transactions") were: Meridian Resource Corporation/Cairn Energy
USA, Inc., Louis Dreyfus Natural Gas Corporation/American Exploration Company,
Forcenergy Inc./Edisto Resources Corporation, Bellwether Exploration
Company/Torch Energy Advisors, Inc., Domain Energy Corporation/Tenneco
Ventures Corporation, 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 15 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 the last twelve months ("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 Comparable Transactions to
the operating data for the Company, this analysis indicated a high and low
range of implied share prices for the Company of $0.51 to $1.78. The implied
per share prices exclude the impact of values which are less than zero.
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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. 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
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
applied a range of risk factors to proved reserves of 85%-100%, to probable
reserves of 50%-100% and to possible reserves of 10%-50%. In each case a range
of pre-tax discount rates of 10%-15% was applied. DLJ determined a range of
values for the Company's exploration acreage based on prices paid for
undelevoped 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 exploration prospects. In its evaluation of the
Company's exploration prospects, DLJ applied a range of risk factors of 0%-70%
and utilized a range of pre-tax discount rates of 15%-20%. 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 (prior to the public announcement of the Recapitalization
Transactions) were $3.938 and $1.813, respectively.
Pro Forma Analysis. DLJ analyzed certain pro forma effects resulting from
the Recapitalization Transactions. In conducting its analysis, DLJ relied upon
certain assumptions provided by management of the Company. Management pro
forma projections assume the Recapitalization Transactions are completed on
October 31, 1997. Material changes to the Management Projections as a result
of the Recapitalization Transactions include the following: (i) acquisition of
the MCN Producing Properties which were assumed to result in increased annual
production in 1997 and 1998 of 1.0 BCFE and 4.0 BCFE, (ii) receipt of net
proceeds from the Rights Offering of $93 million and (iii) additional drilling
including additional exploration wells in 1997 and 1998 and additional lease
acquisitions requiring $51 million in capital expenditures. 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
Recapitalization Transactions. The results of the pro forma analysis are not
necessarily indicative of future operating results or financial performance.
As part of its evaluation of the acquisition of the MCN Producing
Properties, DLJ performed a discounted cash flow analysis of the expected
future cash flows from the MCN Producing Properties. DLJ applied a range of
risk factors to proved reserves of 85%-100%, to probable reserves of 50%-100%
and to possible reserves of 10%-50%. In each case a range of pre-tax discount
rates of 10%-15% was applied. DLJ determined a range of values for the
exploration potential 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
exploration prospects. DLJ applied a range of risk factors of 25%-90% and
utilized a range of pre-tax discount rates of 15%-20%. Based on this analysis,
DLJ determined a high and low valuation range for the MCN Producing Properties
of between $24.1 million and $31.1 million.
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
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perspective on the Recapitalization Transactions and add to the total mix of
information available. DLJ did not form a conclusion as to whether any
individual analysis, 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) 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, FRP and its affiliates 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
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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.
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. In the opinion of Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P., special counsel to the
Company, 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 customary, 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
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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.
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. If the
Independent Committee (as defined below) approves an amendment or
modification, the Stockholder Agreement may be amended or modified by the
Board without stockholder approval.
Non-FRP Stockholder Protections. MOXY has 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 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,
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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.
Right of FRP to Nominate Directors. 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.
Registration Rights. 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.
Although the Company cannot predict the timing or amount of future sales of
Common Stock pursuant to these registration rights or the effect that the
availability of such shares for sale will have on the market price of the
Common Stock prevailing from time to time, sales of substantial amounts of
Common Stock in the public market pursuant to these registration rights or any
other method could negatively affect the market price of the Common Stock.
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 contractual rights to 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 costs attributable to 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 August 4, 1997,
FRP paid MCN, after
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adjustments, $34.0 million for such assets together with $12.4 million for the
outstanding indebtedness. MCN is not affiliated with either FRP or MOXY and
will no longer have any involvement or interest in the MOXY/MCN Program.
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 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 the $26.0 million purchase
price, as adjusted, from August 4, 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 that have been 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.
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 the MOXY/FRP Exploration Program. MOXY and FRP will commit $200 million for
exploration expenditures to be incurred under the MOXY/FRP Exploration
Program, with most exploration expenditures 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 other costs will be shared equally by MOXY and FRP.
MOXY and FRP will receive credits against the $200 million program
commitment for all exploratory costs incurred under the amended MOXY/MCN
Program prior to the establishment of the MOXY/FRP 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 ownership of interests 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 is a summary of all of the material terms of the MOXY/FRP
Exploration Program but 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.
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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 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
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<PAGE>
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.
If FRP acquires more than 20% of the outstanding Common Stock pursuant to
the Standby Commitment and the FRP Purchase Option, outstanding stock options
to acquire an aggregate of 846,203 shares of Common Stock with an average
option price of $3.11 will become exercisable as a result of certain
acceleration provisions in the Company's stock option plans or grant
agreements. Of the currently nonexercisable stock options, approximately 23%,
35%, 24%, 9% and 9% would become exercisable by each of December 31, 1997,
1998, 1999, 2000 and 2001, respectively. The stock options granted on July 14,
1997 will not, however, become exercisable if FRP acquires more than 20% of
the outstanding Common Stock pursuant to the Standby Commitment and FRP
Purchase Option. See "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."
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 "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." If the Independent
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Committee approves an amendment or modification, the Stockholder Agreement may
be amended or modified by the Board without stockholder approval.
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 AND
CONFLICTS OF INTEREST
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 C. Donald
Whitmire, Jr. serves as Controller for the Company and FTX. If FRP acquires
more than 20% of the outstanding Common Stock pursuant to the Standby
Commitment or the FRP Purchase Option, options to acquire an aggregate of
846,203 shares of Common Stock with an average exercise price of $3.11 per
share will become exercisable, substantially all of which are held by
directors and executive officers of the Company. Based on the closing sale
price of the Common Stock on September 3, 1997 ($4.0625 per share), the
aggregate difference between the exercise and closing sale price of such
options was approximately $806,000. Of the currently nonexercisable stock
options, approximately 23%, 35%, 24%, 9% and 9% would become exercisable by
each December 31, 1997, 1998, 1999, 2000 and 2001, respectively. See "--
Potential Effects of the Recapitalization Transactions on Control of MOXY."
As directors of FTX, members of the Company's Board of Directors have
interests that are in addition to and inherently conflict with those of the
Company's stockholders generally. The Recapitalization Transactions could not
be approved by a committee of "independent" directors of the Company since all
of the Company's directors are also directors of FTX. Accordingly, if a
stockholder were to challenge the directors' approval of the Recapitalization
Transactions, the directors would not likely be afforded the benefit of the
Delaware "business judgment" rule, and their actions would likely be reviewed
under the Delaware "entire fairness" standard, whereby the Company's directors
would be required to prove the fairness of the Recapitalization Transactions
to the Company. Stockholder approval of the Recapitalization Transactions,
which is required by the rules of the Nasdaq National Market, by a majority of
the votes cast by stockholders who are unaffilated with FTX would be
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expected to have the effect of shifting to any stockholder who challenges the
directors' decision the burden of proving that the Recapitalization
Transactions were not fair to the Company.
In addition, the directors and officers have been granted stock options
subject to approval of the Benefit Plan Proposals and the Recapitalization
Proposal. See "Proposal to Approve Amendment of the 1994 Stock Option Plan for
Non-Employee Directors" and "Proposal to Approve Amendments to the 1994 Stock
Option Plan."
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. Assuming that all of the Rights are exercised and
that FRP exercises the FRP Purchase Option in full, MOXY will receive
approximately $64 million from the exercise of the FRP Purchase Option. The
net proceeds, together with any proceeds from the exercise of the FRP Purchase
Option, will be used to purchase the MCN Producing Properties, to 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. Assuming that the Rights Offering and Standby
Commitment are consummated in October 1997, the Company anticipates that
approximately $28 million of the net proceeds will be used to purchase the MCN
Producing Properties and that approximately $29 million will be used to repay
indebtedness incurred under the MOXY/MCN Program.
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 spread 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. If no rights are
exercised, existing stockholders could own as little as 33% of the outstanding
Common Stock. The Board also considered (i) the potential dilutive effect of
the FRP Purchase Option to current stockholders whereby, if following the
Rights Offering FRP has not acquired 30% of the outstanding Common Stock
pursuant to the Standby Commitment, it may acquire 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; and (ii) the potential transfer of
control of MOXY to FRP as a result of the Recapitalization Transactions
pursuant to which FRP may acquire as much as 67% of the outstanding Common
Stock if no Rights are exercised. 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.
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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.
The Board also considered the fact that FRP will have the power to control
or significantly influence the election of directors and all other matters
submitted to the Company's stockholders and otherwise to direct the business
and affairs of the Company if it acquires a significant percentage of the
outstanding shares of Common Stock pursuant to the Standby Commitment or the
FRP Purchase Option. The Company has attempted to limit the potential adverse
impact this may have on the Company and its stockholders by negotiating the
Stockholder Agreement, which imposes certain restrictions on FRP and its
affiliates. The amount of Common Stock acquired by FRP pursuant to the Standby
Commitment and the FRP Purchase Option could also have a negative influence on
an attempt to acquire control of the Company, since the Company's public
stockholders may not have sufficient voting power to approve a potential
future strategic offer for the Company by a third party that might be
attractive to such stockholders.
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 acceptable terms, if at all, or that the
Company will be a viable business enterprise.
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, 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.
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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 5,000 shares of Common Stock, or approximately
two times the number of shares underlying each current automatic grant. Since
MOXY's inception in 1994, MOXY's non-employee directors have received four
automatic grants pursuant to the Director Plan providing each non-employee
director with options to purchase in the aggregate 6,624 shares. The Director
Plan Amendments provide a grant on July 14, 1997 of an option to purchase
13,248 shares, which represents two times the number of shares underlying
currently held options under the Director Plan. This option has an exercise
price equal to the fair market value of the Common Stock on the date of grant.
The additional stock option grant and the adjustment in the future stock
option grant will provide each non-employee director with stock options to
purchase approximately the same percentage of outstanding Common Stock
following the consummation of the Recapitalization Transactions that he or she
could have purchased prior to the Recapitalization Transactions. Additionally,
in order for a sufficient number of shares to be available under the Director
Plan for future option grants through June 1, 2003 in accordance with the
Director Plan, 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
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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, and on June 1 of each subsequent year through and including
2003, each Eligible Director will be granted an option to purchase 5,000
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.
Options granted under the Director Plan become exercisable in four equal
annual installments but become fully exercisable upon a "change in control." A
change in control occurs if (i) a person or group becomes the owner of more
than 20% of the Common Stock outstanding pursuant to a tender offer, exchange
offer or series of purchases or other acquisitions, or any combination of
those transactions or (ii) certain changes in the composition of the Board
occur within two years of a tender offer, exchange offer, merger,
consolidation, sale of assets or contested election or any combination of
those transactions. However, the options granted on July 14, 1997 will not
become exercisable by reason of such a change of control if such change of
control is the result of FRP's acquisition of more than 20% of the outstanding
Common Stock pursuant to the Standby Commitment and FRP Purchase Option. As a
result, if FRP acquires more than 20% of the outstanding Common Stock pursuant
to the Standby Commitment or the FRP Purchase Option, currently outstanding
options to purchase an aggregate of 848,703 shares of Common Stock will become
exercisable.
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
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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.
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.
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NEW PLAN BENEFITS
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME AND POSITION UNDERLYING OPTIONS(A)
- ----------------- --------------------
<S> <C>
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
</TABLE>
- --------
(a) Represents grants on July 14, 1997 under the Director Plan Amendments. In
addition, beginning in 1998, annual grants of options to purchase 5,000
shares will be made to each Eligible Director under the Director Plan
Amendments.
VOTE REQUIRED FOR APPROVAL OF 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.
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.
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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.
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
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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.
Pursuant to the stock option agreements under the Stock Plan, options become
fully exercisable upon a "change in control." A change in control occurs if
(i) a person or group becomes the owner of more than 20% of the Common Stock
outstanding pursuant to a tender offer, exchange offer or series of purchases
or other acquisitions, or any combination of those transactions or (ii)
certain changes in the composition of the Board occur within two years of a
tender offer, exchange offer, merger, consolidation, sale of assets or
contested election or any combination of those transactions. However, the
options granted on July 14, 1997 will not become exercisable by reason of such
a change of control if such change of control is the result of FRP's
acuisition of more than 20% of the outstanding Common Stock pursuant to the
Standby Commitment and FRP Purchase Option. As a result, if FRP acquires more
than 20% of the outstanding Common Stock pursuant to the Standby Commitment or
the FRP Purchase Option, currently outstanding options to purchase an
aggregate of 848,703 shares of Common Stock will become exercisable.
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.
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
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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, 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
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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.
37
<PAGE>
NEW PLAN BENEFITS
1994 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME AND POSTIION UNDERLYING OPTIONS
- ----------------- --------------------
<S> <C>
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
</TABLE>
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.
38
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on the Nasdaq National Market 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 the Nasdaq National Market.
The quotes represent "inter-dealer" prices without adjustment or mark-ups,
mark-downs or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
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 September 3, 1997)........... 4 9/16 3 5/16
</TABLE>
On September 3, 1997 the last reported sales price of the Common Stock was
$4 1/16. As of September 3, 1997, there were 11,316 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.
39
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at June 30, 1997 and as adjusted based on the assumptions described in the
footnotes below. 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 JUNE 30, 1997
----------------------------------
MINIMUM MAXIMUM
ACTUAL PRO FORMA(1) PRO FORMA(2)
------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Production loan, including current portion.. $12,620 $ -- $ --
------- ------- --------
Stockholders' equity:
Common Stock, $.01 par value per share;
150,000,000 shares authorized;
14,076,539, 42,648,000 and 60,926,000
shares issued and outstanding,
respectively............................. 141 427 609
Additional paid-in capital................ 48,065 140,779 204,570
Accumulated deficit....................... (43,581) (43,581) (43,581)
------- ------- --------
Total stockholders' equity.............. 4,625 97,625 161,598
------- ------- --------
Total capitalization........................ $17,245 $97,625 $161,598
======= ======= ========
</TABLE>
- --------
(1) Adjusted to give effect to the Rights Offering (assuming full exercise of
all the Rights and no exercise of the FRP Purchase Option) and the
application of the net proceeds therefrom as described in "The
Recapitalization Transactions--Uses of Funds."
(2) Same adjustments as (1) above, except also gives effect to the full
exercise of the FRP Purchase Option.
40
<PAGE>
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 which it can pursue at
offshore lease sales and through farm-in opportunities offshore in the Gulf
and onshore in the Gulf Coast areas.
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 and Vermilion Block 410
fields. MOXY would have expended essentially all of its capital resources by
the end of 1997 on approximately $16 million in currently committed remaining
exploration and development expenditures, including existing properties
Vermilion Block 160, West Cameron Block 616, Grand Isle Block 65 and Eugene
Island Block 19. The primary funding source for these capital expenditures
would have been the MOXY/MCN Program loan. MOXY believes obtaining sufficient
additional capital for any subsequent exploration or development expenditures
on these properties, as well as for additional exploration opportunities yet
to be specifically identified, is necessary to provide enhanced opportunity
for growth in reserves, production and cash flow. If additional capital is not
obtained, MOXY will be forced to forgo such growth opportunities, and a
significant portion of MOXY's cash flow will be dedicated to repaying FRP for
amounts borrowed by MOXY for these currently committed expenditures.
In mid-1996, with the pending 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 and to retire
MOXY's debt incurred in connection with the MOXY/MCN Program (both of which
FRP recently purchased from MCN). Furthermore, the remaining cash proceeds
would
41
<PAGE>
provide MOXY with the funding necessary to participate in the aggregate $200
million multi-year MOXY/FRP Exploration Program (discussed below). MOXY would
retain 100% of the MOXY/MCN Program's 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 the MOXY/FRP
Exploration Program. MOXY and FRP would commit $200 million for exploration
expenditures, most of which would be shared 40% by MOXY and 60% by FRP. All
other costs and revenues 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, which includes MCN's interest in 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 ($5.7
million available at June 30, 1997). Such alternative sources could include
additional equity or debt financing, the sale of all or part of MOXY's assets
(MOXY's share of the net revenues generated from the MCN Producing Properties
is dedicated to repay indebtedness incurred under the MOXY/MCN Program) 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 $10.3 million of cash exploration and development expenditures
during the first six months of 1997, principally consisting of $3.4 million
for development at Vermilion Blocks 160 and 410, $2.2 million for lease
acquisition costs, $1.0 million in drilling and leasehold costs charged to
expense and $3.1 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 recent 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 August 1997, FRP acquired MCN's interest in the program,
and upon completion of the Rights Offering, MOXY will purchase the MCN
Producing Properties, and MOXY and FRP will dedicate all other oil 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
42
<PAGE>
well is currently drilling. The MOXY/MCN Program has a 28% net revenue
interest in this field unit 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 averaged approximately 10 million cubic feet
(Mmcf) of natural gas and 380 barrels of condensate during the second
quarter. 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% net
revenue interest in this field. Daily gross production currently totals
approximately 65 Mmcf of gas.
. MOXY has contracted for a jack-up drilling rig, which is expected to be
available in the third quarter of 1997, for drilling at West Cameron
Block 616/617. The initial discovery well on West Cameron Block 616
encountered several gas-bearing zones with a total of 190 feet of net
gas pay.
. During the second quarter of 1997, the MOXY/MCN Program acquired a 50%
working interest in Eugene Island Blocks 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.
. In July 1997, drilling commenced on the #2 exploratory well at the
MOXY/MCN Program's Vermilion Block 159 prospect. This prospect is
located at a remote location from the existing Vermilion Block 160
platform. The MOXY/MCN Program has a 60% working interest and a 42.3%
net revenue interest in this prospect.
. 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.
. Drilling completed in August 1997 at Grand Isle Block 65 was
unsuccessful in discovering hydrocarbons in commercial quantities. MOXY
is currently evaluating its alternatives regarding this block.
MOXY's drilling activities in the onshore Gulf Coast region have taken place
through its 25% owned joint venture with Phillips and FRP, 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 gas 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 the salt dome geology and potentially limited
reservoir size, production performance will be required to determine the
reserve volumes associated with this completion. The joint venture
partners are assessing additional prospects in the area which may result
in future exploratory drilling.
In July 1997, MOXY committed to a one year contract for a jack-up rig
capable of drilling in water depths of up to 150 feet. In addition, MOXY
signed a one-well contract with an option for additional wells for a jack-up
rig capable of drilling in water depths of up to 350 feet.
In September 1997, MOXY and FRP acquired from FM Properties Inc. (FMPO)
several working interests and numerous overriding royalty interests in oil and
gas properties. FMPO is a publicly traded real estate corporation of which Mr.
Adkerson is Chairman of the Board and Chief Executive Officer. MOXY's share of
the cost was $2.7 million, funded by borrowings available under the MOXY/MCN
43
<PAGE>
Program. Royalty income generated by these properties totaled $1.4 million for
1996, although a single property which generated $0.7 million in 1996 ceased
production in the second quarter of 1997.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
-----------------
1994(1) 1995 1996 1996 1997
------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Revenues (In millions):
Oil and gas sales................. $.2 $ 2.7 $ 2.4 $ 1.2 $ 4.2
Management fees................... -- .6 1.7 .8 .8
--- --------- ------- ------- ---------
$.2 $ 3.3 $ 4.1 $ 2.0 $ 5.0
=== ========= ======= ======= =========
Production quantities:
Gas (Mcf)......................... -- 1,093,000 631,000 306,700 1,621,000
Oil (barrels)..................... -- 45,000 29,000 15,800 9,400
Average realization:
Gas (per Mcf)..................... -- $ 1.63 $ 2.72 $ 2.76 $ 2.44
Oil (per barrel).................. -- $ 18.83 $ 22.22 $ 20.76 $ 21.89
</TABLE>
- --------
(1) Inception (May 1994) through December 31, 1994.
MOXY's revenues upon formation were limited to amounts received from various
overriding royalty interests. In late March 1995, MOXY began production from
its Vermilion Block 160 field. In mid-September 1995, MOXY formed the MOXY/MCN
Program which resulted in 60% of MOXY's revenues in the Vermilion Block 160
field being conveyed to MCN. MOXY's revenues for the first six months of 1997
increased significantly over the 1996 period level as the MOXY/MCN Program
initiated production (primarily natural gas) in December 1996 from the first
of two production platforms at the Vermilion Block 410 field, with production
from the second platform commencing in February 1997 (see operating statistics
above). As noted earlier, upon completion of the Rights Offering, MOXY intends
to purchase the MCN Producing Properties from FRP. See the unaudited Pro Forma
Results of Operations contained in this Proxy Statement.
MCN agreed to pay MOXY a total management fee of $3.0 million covering an
approximate two-year period following formation of the MOXY/MCN Program. MOXY
has recognized this as management fee income equally over this period.
<TABLE>
<CAPTION>
SIX MONTHS
------------
1994(1) 1995 1996 1996 1997
------- ------ ----- ----- -----
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
Production and delivery, including
depreciation and amortization.......... $ -- $ 2.6 $ 1.5 $ 0.8 $ 5.3
Exploration Expenses:
Geological and geophysical.............. $ 6.0 $ 9.8 $ 6.3 $ 3.0 $ 3.1
Exploratory drilling and leasehold
costs.................................. 9.5 2.0 5.6 3.0 1.0
Reimbursement of previously expensed
costs.................................. -- -- (2.1) (2.1) --
------ ------ ----- ----- -----
$ 15.5 $ 11.8 $ 9.8 $ 3.9 $ 4.1
====== ====== ===== ===== =====
Operating loss............................ $(17.7) $(14.8) $(9.9) $(4.0) $(3.5)
Net loss.................................. $(15.2) $(14.6) $(9.9) $(3.8) $(3.9)
Net loss per share........................ $(1.10) $(1.06) $(.71) $(.27) $(.27)
</TABLE>
- --------
(1) Inception (May 1994) through December 31, 1994.
44
<PAGE>
The fluctuations in MOXY's production and delivery costs and depreciation
and amortization expenses are consistent with the changes in production
quantities referenced above. During the second quarter of 1997, the reserves
initially assigned to Vermilion Block 410 were adjusted downward on the basis
of production experience, and additional depreciation of $1.0 million was
recognized. Net capitalized costs of this property approximate its
undiscounted estimated future net cash flows at June 30, 1997.
MOXY's geological and geophysical costs, which consist primarily of costs to
acquire and interpret 3-D seismic data, increased during 1995 primarily
because of the significant acquisition of 3-D seismic survey data covering the
project area owned by MOXY's joint venture with Phillips and FRP. MOXY's
unsuccessful exploratory drilling and leasehold costs fluctuate from period to
period based on the related drilling results and the amount of costs involved
in the project. Exploratory drilling and leasehold costs in 1994 included
costs related to four unsuccessful drilling projects, whereas 1995 included
only one unsuccessful drilling project. There were four unsuccessful drilling
projects during 1996 (one during the first six months of 1996) and one during
the first six months of 1997.
General and administrative expenses totaled $1.4 million for the six-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.
Interest expense totaled $0.7 million for the six-month 1997 period versus
zero for the six-month 1996 period ($0.4 million for the 1996 year versus zero
for 1995 and 1994) reflecting the increased borrowings from MCN (initiated in
mid-1996), to fund MOXY's share of exploration and development expenditures.
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 of Financial Condition and Results of
Operations contains forward-looking statements. All statements other than
statements of historical fact included in this report, including, without
limitation, statements regarding plans and objectives of MOXY's management for
future operations and MOXY's exploration and development activities are
forward-looking statements.
Important factors that could cause actual results to differ materially from
MOXY's expectations include, without limitation, exploratory drilling results,
economic and business conditions, general development risks and hazards and
risks inherent with the production of oil and gas, such as fires, natural
disasters, blowouts and the encountering of formations with abnormal
pressures, changes in laws or regulations and other factors, many of which are
beyond the control of MOXY. Further information regarding these and other
factors that may cause MOXY's future performance to differ from that projected
in the forward-looking statements are described in more detail in MOXY's Form
10-K for the year ended December 31, 1996.
---------------------
45
<PAGE>
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
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 a services
agreement (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 from MOXY 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 previously expensed exploration costs 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.
In September 1997, MOXY and FRP acquired from FM Properties and dedicated to
the MOXY/MCN Program interests in certain exploration properties for $3.0
million. FM Properties is a publicly traded real estate corporation of which
Mr. Adkerson is Chairman of the Board and Chief Executive Officer. In
addition, MOXY also purchased from FM Properties small interests in a large
number of other oil and gas properties for $1.5 million. MOXY was loaned $2.7
million by FRP under the MOXY/MCN Program to pay its share of the aggregate
purchase price. The purchase price for the oil and gas properties was
determined by negotiations between MOXY's and FM Properties' managements based
on the risk adjusted reserves attributable to the overriding royalty interest,
the acreage of the exploration prospects and the cash flow generated by the
other oil and gas properties.
During 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
46
<PAGE>
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 August 4, 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.
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. See "Description of Capital Stock--
Stockholder Agreement and Registration Rights."
Management believes that each of the transactions discussed in this section
were conducted on terms as favorable to the Company as could have been
negotiated in unaffiliated, third-party transactions.
47
<PAGE>
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 September 3, 1997,
there were 14,101,438 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 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
48
<PAGE>
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 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
49
<PAGE>
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.
50
<PAGE>
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.
51
<PAGE>
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 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. If the Independent Committee approves an amendment or modification,
the Stockholder Agreement may be amended or modified by the Board without
stockholder approval.
Non-FRP Stockholder Protections. 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.
Registration Rights. Any shares of Common Stock acquired by FRP pursuant to
the Standby Commitment or the FRP Purchase Option will be "restricted"
securities within the meaning of the Securities Act of 1933 and cannot be sold
publicly for a period of time without registration under the Securities Act.
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.
Although the Company cannot predict the timing or amount of future sales of
Common Stock pursuant to these registration rights or the effect that the
availability of such shares for sale will have on the market price of the
Common Stock prevailing from time to time, sales of substantial amounts of
Common Stock in the public market pursuant to these registration rights or any
other method could negatively affect the market price of the Common Stock.
52
<PAGE>
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 August 15, 1997 and all shares shown are held with sole voting
and investment power.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF
BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED(1) COMMON STOCK
------------------------ ------------ ------------
<S> <C> <C>
Richard C. Adkerson.......................... 123,554 *
John G. Amato................................ 225,763(2) 1.6
Robert W. Bruce III.......................... 371,388(3) 2.6
Robert A. Day................................ 23,403(4) *
William B. Harrison, Jr...................... 5,798(5) *
Glenn A. Kleinert............................ 19,054 *
Bobby Lee Lackey............................. 18,493(6) *
James H. Lee................................. 15,000 *
Gabrielle K. McDonald........................ 3,723 *
James R. Moffett............................. 750,971(7) 5.3%
C. Howard Murrish............................ 150,351(8) 1.1%
George Putnam................................ 15,401(9) *
B.M. Rankin, Jr.............................. 253,784(10) 1.8%
J. Taylor Wharton............................ 8,575(11) *
All directors and executive officers as a
group (14 persons).......................... 1,985,258 14.1%
Robertson, Stephens & Company Incorporated
("Robertson Stephens")...................... 1,525,500(12) 10.8%
</TABLE>
- --------
* Less than one percent.
(1) Includes shares that could be acquired within sixty days after August 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.
(2) 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.
(3) Includes 310,000 shares held by a limited partnership with respect to
which Mr. Bruce shares voting and investment power.
(4) 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.
(5) Includes 120 shares owned by Mr. Harrison's wife.
53
<PAGE>
(6) Includes 3,643 shares held in a retirement trust for the benefit of Mr.
Lackey.
(7) 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 and
363,964 shares held by a limited liability company with respect to which
Mr. Moffett shares voting and investment power.
(8) 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.
(9) 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.
(10) 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.
(11) Includes 1,252 shares held by Mr. Wharton's wife and 677 shares held by
Mr. Wharton as custodian for his daughters.
(12) 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.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
HISTORICAL FINANCIAL STATEMENTS OF MCMORAN OIL & GAS CO.
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-1
Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996 and
1995..................................................................... F-2
Statements of Operations for the six months ended June 30, 1997 and 1996
(unaudited)
and the years ended December 31, 1996, 1995 and 1994..................... F-3
Statements of Cash Flow for the six months ended June 30, 1997 and 1996
(unaudited)
and the years ended December 31, 1996, 1995 and 1994..................... F-4
Statements of Changes in Stockholders' Equity for the six months ended
June 30, 1997 (unaudited) and the years ended December 31, 1996, 1995 and
1994..................................................................... F-5
Notes to Financial Statements............................................. F-6
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) OF MCMORAN OIL & GAS CO.
Pro Forma Balance Sheet as of June 30, 1997............................... F-12
Pro Forma Statement of Operations for the six months ended June 30, 1997.. F-13
Pro Forma Statement of Operations for the year ended December 31, 1996.... F-14
Notes to Pro Forma Financial Statements................................... F-15
MCN PRODUCING PROPERTIES
Report of Independent Public Accountants.................................. F-17
Statements of Gross Oil and Gas Revenues and Direct Operating Expenses
for the six months ended June 30, 1997 (unaudited) and for the
years ended December 31, 1996 and 1995................................... F-18
Notes to Financial Statements............................................. F-19
</TABLE>
55
<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, cash flow and changes in stockholders' equity 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.
Arthur Andersen LLP
New Orleans, Louisiana,
January 21, 1997
F-1
<PAGE>
MCMORAN OIL & GAS CO.
BALANCE SHEETS (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------
1997 1996 1995
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 7,142 $10,500 $10,323
Accounts receivable and other.................... 4,163 2,249 1,432
-------- ------- -------
Total current assets........................... 11,305 12,749 11,755
-------- ------- -------
Oil and gas properties--successful efforts
method:
Unevaluated.................................... 3,448 2,173 1,869
Proved......................................... 21,778 17,341 8,661
-------- ------- -------
25,226 19,514 10,530
Less accumulated depreciation and amortization... 5,904 1,283 652
-------- ------- -------
Net oil and gas properties..................... 19,322 18,231 9,878
-------- ------- -------
Total assets..................................... $ 30,627 $30,980 $21,633
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities......... $ 12,741 $ 9,411 $ 3,405
Current portion of production loan............... 1,640 366 93
-------- ------- -------
Total current liabilities...................... 14,381 9,777 3,498
Production loan, less current portion............ 10,980 12,391 530
Other liabilities................................ 641 566 --
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, 14,076,539 shares, 13,989,317 shares
and 13,798,784 shares issued and outstanding.... 141 140 138
Capital in excess of par value of common stock... 48,065 47,803 47,302
Accumulated deficit.............................. (43,581) (39,697) (29,835)
-------- ------- -------
4,625 8,246 17,605
-------- ------- -------
Total liabilities and stockholders' equity....... $ 30,627 $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>
SIX MONTHS ENDED YEARS ENDED INCEPTION
JUNE 30, DECEMBER 31, THROUGH
------------------ ----------------- DECEMBER 31,
1997 1996 1996 1995 1994
-------- -------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales....... $ 4,203 $ 1,204 $ 2,434 $ 2,722 $ 174
Management fees......... 818 818 1,636 545 --
-------- -------- ------- -------- --------
Total revenues........ 5,021 2,022 4,070 3,267 174
-------- -------- ------- -------- --------
Costs and expenses:
Production and delivery,
including depreciation
and amortization....... 5,312 802 1,500 2,623 --
Exploration expenses.... 4,097 3,871 9,818 11,756 15,518
General and
administrative expenses. 1,353 1,384 2,635 3,687 2,338
Gain on sale of oil and
gas property............ (2,289) -- -- -- --
-------- -------- ------- -------- --------
Total costs and
expenses............. 8,473 6,057 13,953 18,066 17,856
-------- -------- ------- -------- --------
Operating loss.......... (3,452) (4,035) (9,883) (14,799) (17,682)
Interest expense........ (681) (7) (403) -- --
Other income, net....... 249 237 424 164 2,482
-------- -------- ------- -------- --------
Net loss................ $ (3,884) $ (3,805) $(9,862) $(14,635) $(15,200)
======== ======== ======= ======== ========
Net loss per share...... $ (0.27) $ (0.27) $ (0.71) $ (1.06) $ (1.10)
======== ======== ======= ======== ========
Average shares
outstanding............ 14,136 13,847 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>
SIX MONTHS ENDED YEARS ENDED INCEPTION
JUNE 30, DECEMBER 31, THROUGH
------------------ ----------------- DECEMBER 31,
1997 1996 1996 1995 1994
-------- -------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flow from
operating activities:
Net loss............. $ (3,884) $ (3,805) $(9,862) $(14,635) $(15,200)
Adjustments to
reconcile net loss
to net cash provided
by (used in)
operating
activities:
Depreciation and
amortization...... 4,822 343 741 1,525 --
Exploration
expenses.......... 4,097 3,871 9,818 11,756 15,518
Gain on sale of
Canadian oil and
gas interests..... -- -- -- -- (1,691)
Gain on sale of oil
and gas property.. (2,289) -- -- -- --
(Increase) decrease
in working
capital:
Accounts
receivable and
other........... (2,028) (2,487) (988) (1,347) --
Accounts payable
and accrued
liabilities..... 3,455 3,253 6,954 1,555 340
-------- -------- ------- -------- --------
Net cash provided by
(used in) operating
activities.......... 4,173 1,175 6,663 (1,146) (1,033)
-------- -------- ------- -------- --------
Cash flow from
investing activities:
Exploration and
development
expenditures........ (10,279) (11,105) (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
Proceeds from sale of
oil and gas
interests........... 2,884 2,059 -- -- --
-------- -------- ------- -------- --------
Net cash used in
investing
activities.......... (7,395) (9,046) (18,619) (6,485) (17,077)
-------- -------- ------- -------- --------
Cash flow from
financing activities:
Proceeds from
production loan..... 4,741 1,377 12,927 750 --
Payments on
production loan..... (4,877) -- (794) (127) --
Cash transferred from
FTX................. -- -- -- -- 35,441
-------- -------- ------- -------- --------
Net cash provided by
(used in) financing
activities.......... (136) 1,377 12,133 623 35,441
-------- -------- ------- -------- --------
Net increase (decrease)
in cash and cash
equivalents........... (3,358) (6,494) 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......... $ 7,142 $ 3,829 $10,500 $ 10,323 $ 17,331
======== ======== ======= ======== ========
Interest paid.......... $ 680 $ -- $ 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>
MCMORAN OIL & GAS CO.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
PREFERRED COMMON EXCESS OF ACCUMULATED
STOCK STOCK PAR VALUE DEFICIT TOTAL
--------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Distribution of Common Stock.. $-- $138 $47,219 $ -- $47,357
Net loss.................... -- -- -- (15,200) (15,200)
---- ---- ------- -------- -------
Balance at December 31, 1994.. -- 138 47,219 (15,200) 32,157
Stock payment to CLK and
other...................... -- -- 83 -- 83
Net loss.................... -- -- -- (14,635) (14,635)
---- ---- ------- -------- -------
Balance at December 31, 1995.. -- 138 47,302 (29,835) 17,605
Stock payment to CLK and
other...................... -- 2 501 -- 503
Net loss.................... -- -- -- (9,862) (9,862)
---- ---- ------- -------- -------
Balance at December 31, 1996.. -- 140 47,803 (39,697) 8,246
Stock Payment to CLK and
other...................... -- 1 262 -- 263
Net loss.................... -- -- -- (3,884) (3,884)
---- ---- ------- -------- -------
Balance at June 30, 1997
(Unaudited).................. $-- $141 $48,065 $(43,581) $ 4,625
==== ==== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<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>
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
Basis of Consolidation. Investments in joint ventures and partnerships are
reflected using the proportionate consolidation method in accordance with
standard industry practice.
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 loan's 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 (average
rate of 10.3 percent for 1996). 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.
F-6
<PAGE>
MOXY's borrowings under this loan are payable only out of the future net
revenues from the program properties, which are dependent on production
levels, oil and gas prices and numerous other factors. Accordingly, no
scheduled maturities or sinking fund requirements are determinable.
In late 1996, MOXY entered into an agreement with a geophysical services
company in which MOXY committed to purchase 3-D seismic surveys covering a
significant number of lease blocks over a multi-year period. MCN did not
participate in this new 3-D seismic program and will have no right to any of
the leases acquired as a result of the new seismic data. MCN will continue to
provide funding for future development costs on the MOXY/MCN Program's
properties without any extension of the program agreement.
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 conveyed one-half of its remaining 50 percent leasehold
interest to Freeport-McMoRan Resource Partners, Limited Partnership (FRP), an
affiliate of MOXY, for $2.1 million. This payment from FRP represented a
reimbursement of previously expensed exploration costs by MOXY in connection
with this project area and accordingly was recorded as a reduction to
exploration expenses. MOXY sold the interest to 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 Fiddler's 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 believes that the above expenses do
not differ materially from those costs which would have been incurred had the
relevant personnel providing these services been employed directly by MOXY.
MOXY has a contract with CLK Company (CLK), a company independently owned by
its employees, to provide geological and geophysical services to MOXY on an
exclusive basis. The contract was amended during 1997 to provide for an annual
retainer fee of $2.2 million ($0.5 million of the annual fee paid in MOXY
common stock, recorded at fair market value), plus certain expenses and an
overriding royalty interest in prospects accepted by MOXY. Costs of services
provided by CLK, included in exploration expenses, totaled $3.1 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>
F-7
<PAGE>
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
-------------------------------------------- ---------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OF OPTIONS REMAINING LIFE OPTION PRICE OF OPTIONS OPTION 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
MOXY's 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 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.
MOXY has provided a valuation allowance equal to these tax assets because of
the expectation of incurring tax losses for at least the near future,
resulting in no tax benefits for the periods presented. The components of
MOXY's deferred taxes follow:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards (expires 2006-2011)...... $ 17,976 $ 12,253
Capital losses (expires 1999)............................. 5,511 5,511
Other tax carryforwards................................... 303 184
Property, plant and equipment............................. 2,272 3,053
Other..................................................... 453 139
Less valuation allowance.................................. (26,515) (21,140)
-------- --------
Total deferred tax assets............................... $ -- $ --
======== ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Commitments. MOXY has expenditure commitments of approximately $8.7 million
in 1997. In addition, MOXY has minimum committed expenditures under a multi-
year agreement with a geophysical company to purchase 3-D seismic surveys
which totaled $2.1 million at December 31, 1996.
F-8
<PAGE>
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
The supplementary information presented below is prepared in accordance with
requirements prescribed by the Financial Accounting Standards Board.
Costs incurred in Oil and Gas Property Acquisition, Exploration, and
Development Activities.
<TABLE>
<CAPTION>
INCEPTION
YEARS ENDED THROUGH
DECEMBER 31, DECEMBER 31,
--------------- ------------
1996 1995 1994
------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition of properties
Proved........................................... $ -- $ -- $ --
Unproved......................................... 2,499 863 575
Exploration costs.................................. 11,672 13,928 14,918
Development costs.................................. 6,507 6,166 3,275
------- ------- -------
$20,678 $20,957 $18,768
======= ======= =======
</TABLE>
Proved Oil and Gas Reserves (Unaudited). 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>
F-9
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows From Proved Oil and
Gas Reserves (Unaudited). MOXY's standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves were
computed using reserve valuations based on regulations prescribed by the SEC.
These regulations provide for the use of current oil and gas prices (escalated
only when known and determinable price changes are provided by contract and
law) in the projection of future net cash flows.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
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 taxes................... 45,581 11,408
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>
Because MOXY has sufficient tax deductions and losses to utilize against
estimated future taxable income, in accordance with FAS 69 no deductions for
future income taxes have been made above.
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. As MOXY's book basis in this property totals approximately $0.6
million, MOXY would recognize a book gain of approximately $2.3 million on the
completion of this sale.
Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Oil and Gas Reserves (Unaudited).
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Beginning of year............................................ $ 8,330 $ 6,413
Discoveries and extensions, less related costs............... 10,837 3,368
Development costs incurred during the year................... 6,985 1,750
Revisions:
Changes in prices.......................................... 12,894 7,815
Accretion of discount...................................... 833 641
Other changes, including revised estimates of development
costs
and rates of production................................. (2,863) (3,083)
Revenues, less production costs.............................. (1,675) (1,589)
Transfer to MCN.............................................. -- (6,985)
------- -------
End of year.................................................. $35,341 $ 8,330
======= =======
</TABLE>
F-10
<PAGE>
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
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 418a 525a 0.04a
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 exploration
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 EVENTS (UNAUDITED)
During March 1997, MOXY was high bidder on seven tracts at the Central Gulf
of Mexico lease sale with bids totaling $5.5 million, with FRP sharing
proportionately in this cost. MOXY fulfilled all conditions associated with
the awarding of these leases as of June 30, 1997, and formal announcement of
the awarding of these leases was made by the Minerals Management Service on
July 1. These leases are not among those acquired by FRP from MCN's interest
in the MOXY/MCN Program. Upon completion of the recapitalization plan
discussed below, these leases will be dedicated to the MOXY/FRP Exploration
Program.
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.
On August 27, 1997 FTX, owner of 51.6 percent of FRP, and IMC Global Inc.
(IGL) announced that they had executed an Agreement and Plan of Merger dated
as of August 26, 1997 in which FTX and IGL agree to merge, with IGL as the
surviving entity. The proposed combination is subject to approval by the
stockholders of both companies and appropriate regulatory approvals. The
merger will have no effect on the proposed MOXY/FRP Exploration Program or the
other transactions between MOXY and FRP discussed above. FTX and IGL have
stated that the merger transaction is expected to be completed by the end of
1997.
In September 1997, MOXY and FRP acquired from FM Properties Inc. (FMPO)
several working interests and numerous overriding royalty interests in oil and
gas properties. FMPO is a publicly traded real estate corporation of which Mr.
Adkerson is Chairman of the Board and Chief Executive Officer. MOXY's share of
the cost was $2.7 million, funded by borrowings available under the MOXY/MCN
Program. Royalty income generated by these properties totaled $1.4 million for
1996, although a single property which generated $0.7 million in 1996 ceased
production in the second quarter of 1997.
F-11
<PAGE>
MCMORAN OIL & GAS CO.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------------
FRP
PROPERTY PURCHASE MAXIMUM
ACQUISITIONS OTHER MINIMUM OPTION PRO
HISTORICAL (NOTE 1) (NOTE 2) PRO FORMA (NOTE 3) FORMA
---------- ------------ -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 7,142 $(41,320) $93,000a $ 58,822 $63,973 $122,795
Accounts receivable and
other.................. 4,163 -- -- 4,163 -- 4,163
-------- -------- ------- -------- ------- --------
Total current assets.. 11,305 (41,320) 93,000 62,985 63,973 126,958
-------- -------- ------- -------- ------- --------
Oil and gas properties--
successful efforts
method:
Unevaluated........... 3,448 1,200 -- 4,648 -- 4,648
Proved................ 21,778 27,967 -- 49,745 -- 49,745
-------- -------- ------- -------- ------- --------
25,226 29,167 -- 54,393 -- 54,393
Less accumulated
depreciation and
amortization........... 5,904 -- -- 5,904 -- 5,904
-------- -------- ------- -------- ------- --------
Net oil and gas
properties............. 19,322 29,167 -- 48,489 -- 48,489
-------- -------- ------- -------- ------- --------
Total assets............ $ 30,627 $(12,153) $93,000 $111,474 $63,973 $175,447
======== ======== ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and
accrued liabilities.... $ 12,741 $ -- $ -- $ 12,741 $ -- $ 12,741
Current portion of
production loan........ 1,640 (1,640) -- -- -- --
-------- -------- ------- -------- ------- --------
Total current
liabilities............ 14,381 (1,640) -- 12,741 -- 12,741
Production loan, less
current portion........ 10,980 (10,980) -- -- -- --
Other liabilities....... 641 467 -- 1,108 -- 1,108
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,
14,076,539 shares
(42,648,000 shares
minimum pro forma and
60,926,000 shares
maximum pro forma)
issued and outstanding. 141 -- 286a 427 182 609
Capital in excess of par
value of common stock.. 48,065 -- 92,714a 140,779 63,791 204,570
Accumulated deficit..... (43,581) -- -- (43,581) -- (43,581)
-------- -------- ------- -------- ------- --------
4,625 -- 93,000 97,625 63,973 161,598
-------- -------- ------- -------- ------- --------
Total liabilities and
stockholders' equity... $ 30,627 $(12,153) $93,000 $111,474 $63,973 $175,447
======== ======== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-12
<PAGE>
MCMORAN OIL & GAS CO.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------------
FRP
PROPERTY PURCHASE MAXIMUM
ACQUISITIONS OTHER MINIMUM OPTION PRO
HISTORICAL (NOTE 1) (NOTE 2) PRO FORMA (NOTE 3) FORMA
---------- ------------ -------- --------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales....... $ 4,203 $6,985 $ -- $11,188 $ -- $11,188
Management fees......... 818 -- -- b 818 -- 818
------- ------ ------- ------- ------ -------
Total revenues........ 5,021 6,985 -- 12,006 -- 12,006
------- ------ ------- ------- ------ -------
Costs and expenses:
Production and delivery,
including depreciation
and amortization....... 5,312 718 5,441c 11,471 -- 11,471
Exploration expenses.... 4,097 -- -- 4,097 -- 4,097
General and
administrative
expenses............... 1,353 -- -- 1,353 -- 1,353
Gain on sale of oil and
gas property........... (2,289) -- -- (2,289) -- (2,289)
------- ------ ------- ------- ------ -------
Total costs and
expenses............... 8,473 718 5,441 14,632 -- 14,632
------- ------ ------- ------- ------ -------
Operating loss.......... (3,452) 6,267 (5,441) (2,626) -- (2,626)
Interest expense........ (681) -- 681d -- -- --
Other income, net....... 249 -- -- 249 -- 249
------- ------ ------- ------- ------ -------
Net loss................ $(3,884) $6,267 $(4,760) $(2,377) $ -- $(2,377)
======= ====== ======= ======= ====== =======
Average shares
outstanding............ 14,136 -- 28,571a 42,707 18,278 60,985
======= ====== ======= ======= ====== =======
Net loss per share...... $ (0.27) $ (0.06) $ (0.04)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-13
<PAGE>
MCMORAN OIL & GAS CO.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------------
FRP
PROPERTY PURCHASE MAXIMUM
ACQUISITIONS OTHER MINIMUM OPTION PRO
HISTORICAL (NOTE 1) (NOTE 2) PRO FORMA (NOTE 3) FORMA
---------- ------------ -------- --------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales....... $ 2,434 $4,976 $ -- $ 7,410 $ -- $ 7,410
Management fees......... 1,636 -- -- b 1,636 -- 1,636
------- ------ ------- ------- ------- -------
Total revenues......... 4,070 4,976 -- 9,046 -- 9,046
------- ------ ------- ------- ------- -------
Costs and expenses:
Production and delivery,
including depreciation
and amortization....... 1,500 413 2,612c 4,525 -- 4,525
Exploration expenses.... 9,818 -- -- 9,818 -- 9,818
General and
administrative
expenses............... 2,635 -- -- 2,635 -- 2,635
------- ------ ------- ------- ------- -------
Total costs and
expenses............... 13,953 413 2,612 16,978 -- 16,978
------- ------ ------- ------- ------- -------
Operating loss.......... (9,883) 4,563 (2,612) (7,932) -- (7,932)
Interest expense........ (403) -- 403d -- -- --
Other income, net....... 424 -- -- 424 -- 424
------- ------ ------- ------- ------- -------
Net loss................ $(9,862) $4,563 $(2,209) $(7,508) $ -- $(7,508)
======= ====== ======= ======= ======= =======
Average shares
outstanding............ 13,898 -- 28,571a 42,469 18,278 60,747
======= ====== ======= ======= ======= =======
Net loss per share...... $ (0.71) $ (0.18) $ (0.12)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-14
<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 June 30,
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. PROPERTY ACQUISITIONS
ACQUISITION OF THE MCN PRODUCING PROPERTIES
In July 1997, FRP agreed to acquire from MCN their contractual rights to
the MOXY/MCN Program, the MCN Producing Properties (for $26.0 million) and
other exploratory properties acquired under the MOXY/MCN Program (for $5.0
million) for the properties total fair market value of $31.0 million, subject
to adjustments. In July 1997, MOXY entered into an agreement with FRP pursuant
to which MOXY will acquire only the MCN Producing Properties for $26.0 million
(subject to adjustment for 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 August 4, 1997 until MOXY's acquisition of
the properties, at an annual rate publicly announced by The Chase Manhattan
Bank plus 2%), and repay all indebtedness incurred by MOXY under the MOXY/MCN
Program. Assuming that the Rights Offering and Standby Commitment are
consummated in October 1997, MOXY anticipates that it would pay FRP
approximately $28 million for the MCN Producing Properties which would result
in an increase to oil and gas properties and a decrease to cash on the pro
forma balance sheet with no impact to the pro forma income statements. In
August 1997, FRP acquired MCN's interest in the MOXY/MCN Program (as discussed
earlier in this Proxy Statement).
MOXY would not have sufficient funds to purchase the MCN Producing
Properties until the completion of the Rights Offering and Standby Commitment.
Therefore, to facilitate the commencement of exploratory drilling with FRP and
the formation of the MOXY/FRP Exploration Program, FRP agreed to acquire MCN's
interest in the MOXY/MCN Program and resell MCN's interest in the MCN
Producing Properties to MOXY upon completion the Rights Offering and Standby
Commitment.
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 FRP's purchase price and the repayment of MOXY's debt
under the MOXY/MCN Program. Because FRP will retain MCN's former interest in
the exploratory properties acquired with the MOXY/MCN Program, no adjustment
is required to the pro forma statements regarding these properties.
ACQUISITION OF THE FM PROPERTIES INC. OIL AND GAS INTERESTS
In August 1997, MOXY and FRP acquired from FM Properties Inc. (FMPO) several
working interests and numerous overriding royalty interests in oil and gas
properties. FMPO is a publicly traded real estate corporation of which Mr.
Adkerson is Chairman of the Board and Chief Executive Officer. MOXY's share of
the cost was $2.7 million, funded by borrowings available under the MOXY/MCN
Program. Royalty income generated by these properties totaled $0.7 million for
the 1997 period and $1.4 million for 1996, although a single property which
generated $0.4 million in the 1997 period and $0.7 million in 1996 ceased
production in the second quarter of 1997.
F-15
<PAGE>
2. OTHER ADJUSTMENTS
a. MOXY intends to consummate the Rights Offering (as discussed earlier in
this Proxy Statement) whereby additional MOXY common stock would be issued
sufficient to raise $100 million ($93 million after offering expenses of $1
million, primarily consisting of legal and financial advisory services, and
the FRP Standby Fee of $6 million).
b. Upon the initiation of the MOXY/FRP Exploration Program, MOXY's 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 indeterminable at this time, no pro forma
adjustment has been reflected.
In addition, the level of MOXY's future exploration expenditures and
general and administrative expenses would be expected to increase following
the consummation of the Rights Offering as MOXY expands its exploration
activities to pursue opportunities it believes exist. The number and timing
of such available opportunities and extent of successful exploration
results thereon, which cannot be predicted, will also govern the timing and
extent of subsequent development and production activities. As a result,
the extent of any such increases cannot be determined at this time.
c. Represents the depreciation and amortization expense calculated using the
acquisition price of the MCN Producing Properties (Note 1).
d. Represents the elimination of the historical interest expense (Note 1).
3. FRP PURCHASE OPTION
Pursuant to FRP's Standby Commitment, FRP has the option to purchase
additional shares of common stock (Purchase Option) so that if following the
Rights Offering it has not acquired 30% of the outstanding common stock
pursuant to the Standby Commitment, it may acquire at the subscription price
such additional shares of common stock as are necessary to provide it with up
to a 30% ownership position in MOXY. The Maximum Pro Forma balance sheet at
June 30, 1997 assumes that 100% of the Rights are exercised by existing MOXY
shareholders and that FRP exercises its Purchase Option to acquire the
necessary number of shares to own 30% of the outstanding common stock.
4. INVESTMENT OF EXCESS CASH
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 MOXY's historical rate for
short-term investments, pro forma net loss would have been $6.2 million ($0.15
per share) for 1996 and $1.7 million ($0.04 per share) for the 1997 period.
Under the Maximum Pro Forma scenario (as described in Note 3), pro forma net
loss would have been $3.0 million ($0.05 per share) for 1996 and $0.1 million
($0.00 per share) for the 1997 period.
F-16
<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-17
<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>
SIX
MONTHS INCEPTION
ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Oil and gas sales......................... $6,285 $3,576 $1,458
Production and delivery................... 718 413 199
------ ------ ------
Revenues over direct operating expenses... $5,567 $3,163 $1,259
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-18
<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 six-month period ended June 30, 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) (20) (946) (479)
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-19
<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
-------- --------
(IN THOUSANDS)
<S> <C> <C>
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 taxes.................. 68,372 17,113
Future income taxes........................................ -- --
-------- --------
Future net cash flows...................................... 68,372 17,113
Discount for estimated timing of net cash flows (10%
discount rate)............................................ (15,360) (4,617)
-------- --------
$ 53,012 $ 12,496
======== ========
</TABLE>
Because the tax position of the predecessor owner will not affect MOXY's
future tax provisions, no deductions for future income taxes have been made
above.
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
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Beginning of period.................................. $12,496 $ --
Transfers............................................ -- 6,985
Discoveries and extensions, less related costs....... 16,256 5,052
Development costs incurred during the period......... 10,477 --
Revisions:
Changes in prices.................................. 19,341 5,364
Accretion of discount.............................. 1,249 --
Other changes, including revised estimates of
development costs and rates of production......... (3,644) (3,646)
Revenues, less production costs...................... (3,163) (1,259)
------- -------
End of period........................................ $53,012 $12,496
======= =======
</TABLE>
F-20
<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
I-2
<PAGE>
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%.
I-3
<PAGE>
(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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<PAGE>
All exhibits to the Master Agreement have been intentionally omitted.
Exhibits A, C and D appear in this proxy statement at Annexes IV, II and III,
respectively. Any stockholder who wishes to view Exhibit B 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
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<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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<PAGE>
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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<PAGE>
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
8.1 Prospects
8.2 Designation of Prospects After Program Term
IX. DRILLING OF EXPLORATORY WELLS
9.1 During Program Term
9.2 After Program Term
X. FARMOUT OR PARTICIPATION AGREEMENTS
10.1 Participation Agreements
10.2 Farmout Agreements
10.3 Trade Agreements
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<PAGE>
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
17.3 Time Period
17.4 Completion Attempt by Participant - Onshore
XVIII. PROGRAM TERM
18.1 Program Term
18.2 Unfunded Prospects
XIV. OPERATIONS AFTER PROGRAM TERM
19.1 General
19.2 Exploratory Wells
19.3 Development Expenditures
19.4 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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<PAGE>
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
24.8 Binding Effect
EXHIBITS
I) PROGRAM OPERATING AGREEMENT (OFFSHORE)
II) PROGRAM OPERATING AGREEMENT (ONSHORE)
III) CERTAIN EXCLUDED AREAS
IV) PROVISIONS CONCERNING TAXATION
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PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
This Participation 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
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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.
17.3 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.
17.4 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
18.1 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.
18.2 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
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the option 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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(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.
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
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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.
22.2 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 following the receipt by
McMoRan of the required approval from the governmental authority.
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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 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.
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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.
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
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contained shall be construed as permitting an assignment contrary to the terms
and provisions of this Agreement.
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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:_______________________________
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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.
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ANNEX V
September 5, 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 final version 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) the Company's definitive proxy
materials dated September 5, 1997 and Amendment No. 2 to the 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
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 (the "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
<PAGE>
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 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-2
<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 5,000 Shares. Each such Option
shall become exercisable with respect to 1,250 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
VI-4
<PAGE>
Members, or entities in which Immediate Family Members are the owners, members
or beneficiaries, as appropriate, are the members, or (v) to a trust for the
benefit of Immediate Family Members; provided, however, that no more than a de
minimus beneficial interest in a partnership, limited liability company or
trust described in (iii), (iv) or (v) above may be owned by a person who is
not an Immediate Family Member or by an entity that is not beneficially owned
solely by Immediate Family Members. "Immediate Family Members" shall be
defined as the spouse and natural or adopted children or grandchildren of the
optionee and their spouses.
Any attempted assignment, transfer, pledge, hypothecation or other
disposition of Options, or levy of attachment or similar process upon
Options not specifically permitted herein, shall be null and void and
without effect.
ARTICLE IX
EXERCISE OF OPTIONS
SECTION 1. Each Option shall terminate 10 years after the
date on which it was granted.
SECTION 2. Except in cases provided for in Article X hereof,
each Option may be exercised by the holder thereof only while the
optionee to whom such Option was granted is an Eligible Director.
SECTION 3. 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 any such taxes
or which may make available to the Company any tax deduction resulting
from the occurrence of such event.
VI-5
<PAGE>
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>
MCMORAN OIL & GAS CO.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR SPECIAL MEETING OF
STOCKHOLDERS, OCTOBER 9, 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 Thursday, October 9, 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. If you wish to vote on items
individually, please also mark the appropriate boxes on the back of this card.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
(continued on reverse side)
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FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as
indicated in [X]
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
ITEM 1--Approval of the
Recapitalization
Proposal as described
in the Proxy
Statement
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 2--Approval of
the proposal
to amend the
1994 Stock
Option Plan for
Non-Employee
Directors
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 3--Approval
of the proposal
to amend the
1994 Stock
Option Plan
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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.
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