<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-25058
OCEAN ENERGY, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 72-1277752
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1201 LOUISIANA, SUITE 1400
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 420-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
The number of shares outstanding of the registrant's common stock, all of which
comprise a single class with a $0.01 par value, as of November 10, 1998, the
latest practicable date, was 101,167,184.
<PAGE>
OCEAN ENERGY, INC.
FORM 10-Q
SEPTEMBER 30, 1998
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION ----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statement of Income for the Three Months and
Nine months Ended September 30, 1998 and 1997................ 1
Consolidated Balance Sheet at September 30, 1998 and
December 31, 1997............................................ 2
Consolidated Statement of Changes in Stockholders' Equity
for the Year Ended December 31, 1997 and for the Nine
months Ended September 30, 1998.............................. 4
Consolidated Statement of Cash Flows for the Nine
months Ended September 30, 1998 and 1997..................... 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 20
Item 2. Changes in Securities.......................................... 20
Item 3. Defaults Upon Senior Securities................................ 20
Item 4. Submission of Matters to a Vote of Security Holders............ 20
Item 5. Other Information.............................................. 20
Item 6. Exhibits and Reports on Form 8-K............................... 21
SIGNATURES................................................................... 21
EXHIBITS
Index to Exhibits....................................................... 22
<PAGE>
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Gas sales....................................... $ 51,599 $ 50,127 $ 167,533 $ 145,904
Oil sales....................................... 71,770 85,413 229,801 236,189
Contract settlements and other.................. 620 508 1,745 2,326
----------- ----------- ---------- -----------
123,989 136,048 399,079 384,419
----------- ----------- ---------- -----------
Costs and expenses:
Production costs................................ 43,815 29,475 118,045 87,772
General and administrative...................... 10,861 6,773 31,061 20,326
Depreciation, depletion and amortization........ 70,221 68,226 217,719 174,036
Write-down of oil and gas properties............ - - 218,392 -
----------- ----------- ---------- -----------
124,897 104,474 585,217 282,134
----------- ----------- ---------- -----------
Income (loss) from operations........................ (908) 31,574 (186,138) 102,285
Other income, expenses and deductions:
Interest and debt expense....................... 18,621 13,564 40,562 36,305
Merger costs.................................... - - 39,000 -
Interest and other income....................... (666) (318) (349) (2,430)
----------- ----------- ---------- -----------
Income (loss) before income taxes and
extraordinary item.............................. (18,863) 18,328 (265,351) 68,410
Income tax provision (benefit):
Current ........................................ 707 2,281 3,298 4,955
Deferred........................................ (5,153) 6,521 (91,253) 22,944
----------- ----------- ---------- -----------
Net income (loss) before extraordinary item.......... (14,417) 9,526 (177,396) 40,511
Extraordinary loss on early extinguishment of debt,
net of income taxes................................. - (19,301) - (19,301)
----------- ----------- ---------- -----------
Net income (loss).................................... $ (14,417) $ (9,775) $ (177,396) $ 21,210
=========== =========== ========== ===========
Basic earnings (loss) per share before extraordinary
item, net of income taxes....................... $ (0.14) $ 0.10 $ (1.76) $ 0.44
Extraordinary item per share, net of income taxes.... - (0.21) - (0.21)
----------- ----------- ---------- -----------
Basic earnings (loss) per share...................... $ (0.14) $ (0.11) $ (1.76) $ 0.23
=========== =========== ========== ===========
Weighted average number of
common shares outstanding....................... 100,924 92,465 100,544 92,211
=========== =========== ========== ===========
Diluted earnings (loss) per share before extraordinary
item, net of income taxes....................... $ (0.14) $ 0.10 $ (1.76) $ 0.42
Extraordinary item per share, net of income taxes.... - (0.21) - (0.20)
----------- ----------- ---------- -----------
Diluted earnings (loss) per share.................... $ (0.14) $ (0.11) $ (1.76) $ 0.22
=========== =========== ========== ===========
Weighted average number of common shares and
common share equivalents outstanding............ 100,924 92,465 100,544 96,656
=========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
1
<PAGE>
OCEAN ENERGY, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 14,549 $ 11,689
Accounts receivable
Oil and gas sales............................................. 47,644 75,642
Joint interest and other...................................... 71,248 49,289
Deferred income taxes............................................. 23 1,547
Inventory......................................................... 17,801 11,097
Prepaid expenses and other........................................ 15,855 10,630
----------- -----------
167,120 159,894
----------- -----------
Property and equipment, at cost:
Oil and gas (full cost method)
Evaluated properties.......................................... 2,562,190 2,043,700
Unevaluated properties excluded from amortization............. 374,717 232,726
Other............................................................. 39,270 28,182
----------- -----------
2,976,177 2,304,608
Accumulated depreciation, depletion and amortization.............. (1,313,675) (880,771)
----------- -----------
1,662,502 1,423,837
----------- -----------
Other assets:
Gas imbalances receivable......................................... 5,796 6,227
Deferred income taxes............................................. 102,664 130
Deferred financing costs.......................................... 28,039 19,661
Restricted deposits and other..................................... 36,160 33,246
----------- -----------
172,659 59,264
----------- -----------
TOTAL ASSETS.................................................. $ 2,002,281 $ 1,642,995
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
<PAGE>
OCEAN ENERGY, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------ --------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable.................................................. $ 164,021 $ 188,429
Advances from joint owners........................................ 7,564 8,491
Interest payable.................................................. 29,828 16,476
Accrued liabilities............................................... 8,827 6,572
Current maturities of long-term debt.............................. 951 911
------------ --------------
211,191 220,879
------------ --------------
Long-term debt......................................................... 1,203,340 672,298
------------ --------------
Deferred credits and other liabilities:
Deferred income taxes............................................. 16,205 11,159
Gas imbalances payable............................................ 4,512 5,861
Other............................................................. 8,380 7,461
------------ --------------
29,097 24,481
------------ --------------
Commitments and contingencies
Stockholders' equity:
Common stock...................................................... 1,011 1,001
Additional paid-in capital........................................ 836,524 823,956
Accumulated other comprehensive income (loss) - foreign
currency translation adjustment............................... (8,705) (6,839)
Retained earnings (deficit)....................................... (270,177) (92,781)
------------ --------------
558,653 725,337
------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................ $ 2,002,281 $ 1,642,995
============= ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Retained Total
--------------------- Paid-In Comprehensive Earnings Stockholders'
Shares Amount Capital Income (Deficit) Equity
----------- ------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996................................. 91,741,503 $ 918 $ 632,111 $ (4,257) $ (135,700) $ 493,072
OEI common stock offering................................ 7,254,000 73 177,674 - - 177,747
Common shares issued in exchange for shares tendered
from a prior acquisition............................... 3,461 - - - - -
Exercise of common stock options......................... 1,110,277 10 14,171 - - 14,181
Comprehensive income:
Net income............................................. - - - - 42,919 42,919
Other comprehensive income (loss):
Foreign currency translation adjustment................ - - - (2,582) - (2,582)
----------------------------------------------------------------------
Balance, December 31, 1997................................. 100,109,241 $ 1,001 $ 823,956 $ (6,839) $ (92,781) $ 725,337
Exercise of common stock options......................... 1,055,603 10 12,568 - - 12,578
Comprehensive income:
Net loss............................................... - - - - (177,396) (177,396)
Other comprehensive income (loss):
Foreign currency translation adjustment................ - - - (1,866) - (1,866)
----------------------------------------------------------------------
Balance, September 30, 1998 (Unaudited).................... 101,164,844 $ 1,011 $ 836,524 $ (8,705) $ (270,177) $ 558,653
======================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................. $ (177,396) $ 21,210
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation, depletion and amortization........................ 217,719 174,036
Write-down of oil and gas properties............................ 218,392 -
Amortization of debt issue cost................................. 7,151 2,179
Deferred income tax provision (benefit)......................... (91,253) 10,662
Deferred hedge revenue.......................................... (150) (100)
-------------- ---------------
174,463 207,987
Changes in assets and liabilities:
Decrease (increase) in receivables.............................. 14,874 (18,682)
Increase (decrease) in payables and other current liabilities... (39,669) 42,612
Increase (decrease) in net gas imbalances....................... (918) 144
Other........................................................... 1,286 (5,058)
-------------- ---------------
Net cash provided by operating activities..................... 150,036 227,003
-------------- ---------------
Cash flows from investing activities:
Additions to oil and gas properties............................... (660,317) (596,484)
Additions to other property and equipment......................... (9,481) (5,115)
Net proceeds from sale of assets.................................. 1,097 48,927
Increase in restricted deposits................................... (1,707) (1,632)
-------------- ---------------
Net cash used in investing activities......................... (670,408) (554,304)
-------------- ---------------
Cash flows from financing activities:
Repayment of long-term debt....................................... (893,356) (319,701)
Additions to total debt........................................... 1,424,438 605,120
Deferred financing costs.......................................... (15,433) (3,321)
Proceeds from common stock options exercised .................... 7,583 6,712
-------------- ---------------
Net cash provided by financing activities..................... 523,232 288,810
-------------- ---------------
Net increase (decrease) in cash and cash equivalents................... 2,860 (38,491)
Cash and cash equivalents, beginning of the period..................... 11,689 60,701
-------------- ---------------
Cash and cash equivalents, end of the period........................... $ 14,549 $ 22,210
============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Ocean Energy, Inc.
(OEI or the Company), a Delaware corporation, included herein have been
prepared, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Although certain information normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted, OEI believes that the disclosures are
adequate to make the information presented not misleading.
Effective March 27, 1998, pursuant to the Agreement and Plan of Merger
dated December 22, 1997, United Meridian Corporation (UMC) was merged into the
Company (the Merger). As a result of the Merger, each outstanding share of UMC
common stock was converted into 1.3 shares of OEI common stock with
approximately 46 million shares issued to the shareholders of UMC representing
approximately 46% of all of the issued and outstanding shares of OEI. The
Company's shareholders received 2.34 shares of OEI shares for each share
outstanding immediately preceding the Merger representing approximately 54% of
all of the issued and outstanding shares of OEI. The Merger was accounted for as
a pooling of interests. Accordingly, the consolidated financial statements for
periods prior to the Merger have been restated to conform accounting policies
and combine the historical results of OEI and UMC and have been included in the
Form 8-K filed May 6, 1998.
The accompanying consolidated financial statements of OEI should be read in
conjunction with the supplemental consolidated financial statements and notes
thereto for the year ended December 31, 1997 included in the Form 8-K filed
May 6, 1998.
The financial statements reflect all normal recurring adjustments that, in
the opinion of management, are necessary for a fair presentation.
NOTE 2 INVESTMENT IN OIL AND GAS PROPERTIES
As part of its on-going operations, the Company continually acquires and
sells producing and undeveloped reserves and related assets. Certain
transactions occurring in the periods presented are discussed below.
On January 3, 1997, the Company completed the sale of its interest in the
South Marsh Island 269 field, realizing proceeds of $37.2 million from the sale.
During the nine months ended September 30, 1997, the Company sold various non-
strategic North American properties for total proceeds of $15.4 million. No gain
or loss was recognized on these sales.
On September 15, 1998, the Company acquired additional contract interests
in certain production sharing contracts in Cote d'Ivoire for a net purchase
price of $20.2 million. On March 7, 1997, the Company completed the acquisition
of certain interests in various state leases in the Main Pass Block 69 field for
a net purchase price of $55.9 million. Through September 1997, the Company
acquired additional interests in various properties from several of its
institutional partners. In conjunction with one of these acquisitions, the
Company sold a portion of the acquired interests. The net cost of the additional
interests was approximately $45.1 million. In addition, the Company acquired
interests in other North American properties for total consideration of $15.3
million.
As required under the full cost method of accounting, capitalized costs are
limited to the sum of the present value of future net revenues using current
unescalated pricing discounted at 10% related to estimated production of proved
reserves and the lower of cost or estimated fair value of unevaluated
properties, all net of expected income tax effects. At June 30, 1998, the
Company recognized a non-cash impairment of oil and gas properties in the amount
of $218.4 million pre-tax ($135.4 million after-tax) pursuant to this ceiling
limitation required by the full cost method of accounting for oil and gas
properties, using certain improvements in pricing experienced after period end.
The write-down is primarily a result of the precipitous decline in world crude
oil prices experienced during the second quarter 1998. No write-down was
required during the third quarter 1998.
6
<PAGE>
NOTE 3 FINANCIAL INSTRUMENTS
The Company hedges certain of its production through master swap agreements
(Swap Agreements) which provide for separate contracts tied to the NYMEX light
sweet crude oil and natural gas futures contracts. In addition, the Company has
combined contracts which have agreed upon price floors and ceilings (Costless
Collars). As of September 30, 1998, the fair market value of all hedging
contracts was approximately $4.0 million.
Oil and gas revenues have been increased by $6.4 million and $17.5 million
for the three and nine months ended September 30, 1998, respectively, as a
result of the hedge contracts in place for each period. As of September 30,
1998, the Company's open forward position on its outstanding crude oil Swaps was
1,050 MBbls at an average price of $19.87 per Bbl for the year ended December
31, 1998. The Company currently has no outstanding natural gas swaps.
Currently, the Company's open forward position on its outstanding natural
gas Costless Collars is as follows:
Contracted Contracted Contracted
Effective Volumes Floor Ceiling
Year From Through (MMBTU/day) Price Price
---- ---- ------- ----------- ----- -----
1999 January December 30,000 $2.10 $2.550
1999 January December 20,000 $2.10 $2.605
1999 January December 40,000 $2.10 $2.630
1999 January December 10,000 $2.10 $2.650
NOTE 4 LONG-TERM DEBT
On July 8, 1998, the Company closed an offering of $500.0 million Senior
and Senior Subordinated Notes receiving net proceeds of approximately $487.8
million, after deducting underwriting discounts and expenses. The offering, made
pursuant to Rule 144A, comprised three separate indentures including $125.0
million of 7 5/8% Senior Notes due July 1, 2005, $125.0 million of 8 1/4% Senior
Notes due July 1, 2018, and $250.0 million of 8 3/8% Senior Subordinated Notes
due July 1, 2008. The proceeds from the offering were used to pay off amounts
then outstanding under the OEI Credit Facility at the closing of the offering.
The excess net proceeds of the offering over the amounts outstanding under the
OEI Credit Facility have since been used for capital expenditures and general
corporate purposes. On September 21, 1998, the Company filed a registration
statement on Form S-4 with the SEC to exchange the Notes for publicly-traded
instruments with identical terms. Such exchange offer was completed on October
23, 1998.
In connection with the aforementioned notes offering, the Company announced
the simultaneous amendment and restatement of the OEI Credit Facility.
Concurrent with the closing of the Merger on March 27, 1998, the Company had
entered into a $750.0 million five-year unsecured revolving credit facility (OEI
Credit Facility) with an initial borrowing base of $600.0 million. In connection
with the $500.0 million notes offering in the third quarter, the OEI Credit
Facility was restated and amended to a $400.0 million, five-year revolving
credit facility, with an initial borrowing base of $300.0 million. As of
September 30, 1998, total borrowings outstanding against the facility were
approximately $189.0 million, leaving approximately $111.0 million of available
credit. On November 10, 1998, the Company received commitments to increase the
borrowing base under the facility to $400.0 million, resulting in available
credit of $211.0 million on a pro forma basis at September 30, 1998.
On July 22, 1997, the Company amended the Indenture governing its 13 1/2%
Senior Notes due 2004 (the "13 1/2% Notes"), removing the principal restrictive
covenants and repurchased approximately $124.8 million of the $125.0 million in
original principal amount of the 13 1/2% Notes for approximately $151.5 million.
This purchase resulted in an extraordinary charge of $19.3 million, net of a
deferred tax benefit of $11.6 million. The extraordinary charge represented the
difference between the purchase price and related expenses and the net carrying
value of the 13 1/2% Notes.
NOTE 5 SUBSEQUENT EVENT -- SERIES A CONVERTIBLE PREFERRED STOCK ISSUE
On November 10, 1998, the Company completed a private placement of 50,000
shares of Series A Convertible Preferred Stock for $38.0 million of oil and gas
properties and $12.0 million cash from one of its institutional investors and
7
<PAGE>
an affiliate of such investor. The Series A shares have a 6.5% cumulative
dividend payable semi-annually beginning April 1, 1999.
NOTE 6 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes a new model for accounting
for derivatives and hedging activities. SFAS 133, which will be effective for
the Company's fiscal year 2000, requires that all derivatives be recognized in
the balance sheet as either assets or liabilities and measured at fair value.
The statement also requires that changes in fair value be reported in earnings
unless specific hedge accounting criteria are met. The Company is currently
evaluating the effect of the adoption of the Statement on its consolidated
financial position and results of operations.
NOTE 7 SUPPLEMENTAL GUARANTOR INFORMATION
Ocean Energy, Inc., a Louisiana corporation (Ocean Louisiana), the
Company's only direct subsidiary, has unconditionally guaranteed the full and
prompt performance of the Company's obligations under certain of the notes and
related indentures, including the payment of principal, premium (if any) and
interest. None of the referenced indentures place significant restrictions on a
wholly-owned subsidiary's ability to make distributions to the parent. Other
than intercompany arrangements and transactions, the consolidated financial
statements of Ocean Louisiana are equivalent in all material respects to those
of the Company and therefore the separate consolidated financial statements of
Ocean Louisiana are not material to investors and have not been included herein.
However, in an effort to provide meaningful financial data relating to the
guarantor (i.e., Ocean Louisiana on an unconsolidated basis), the following
condensed consolidating financial information has been provided following the
policies set forth below:
(1) Investments in subsidiaries are accounted for by the Company on the cost
basis. Earnings of subsidiaries are therefore not reflected in the related
investment accounts.
(2) Certain reclassifications were made to conform all of the financial
information to the financial presentation on a consolidated basis. The
principal eliminating entries eliminate investments in subsidiaries and
intercompany balances.
Certain intercompany notes and the related accrued interest were
transferred from the Company to a newly formed non-guarantor subsidiary
effective as of January 1, 1997. In July 1998, Ocean Louisiana transferred
certain onshore oil and gas properties to Ocean Energy Resources, Inc., a
wholly-owned, non-guarantor subsidiary.
8
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
-------------------------------------------
Guarantor Non-Guarantor Consolidated
OEI Subsidiaries Subsidiaries OEI
------------- ------------- ------------- ------------
1998
- - ----
<S> <C> <C> <C> <C>
Revenues ............................................ $ - $ 70,481 $ 53,508 $ 123,989
------------- ------------- ------------- ------------
Costs and expenses:
Production costs................................ - 27,538 16,277 43,815
General and administrative...................... - 8,655 2,206 10,861
Depreciation, depletion and amortization........ - 41,551 28,670 70,221
------------- ------------- ------------- ------------
Income (loss) from operations........................ - (7,263) 6,355 (908)
Interest expense (income), net.................. 13,897 (3,726) 8,450 18,621
Other credits, net.............................. - (153) (513) (666)
------------- ------------- ------------- ------------
Loss before income taxes............................. (13,897) (3,384) (1,582) (18,863)
Income tax benefit................................... (2,091) (1,397) (958) (4,446)
------------- ------------- ------------- ------------
Net loss............................................. $ (11,806) $ (1,987) $ (624) $ (14,417)
============= ============= ============= ============
1997
- - ----
Revenues ............................................ $ - $ 102,939 $ 33,109 $ 136,048
------------- ------------- ------------- ------------
Costs and expenses:
Production costs................................ - 24,153 5,322 29,475
General and administrative...................... 30 6,438 305 6,773
Depreciation, depletion and amortization........ - 47,923 20,303 68,226
------------- ------------- ------------- ------------
Income (loss) from operations........................ (30) 24,425 7,179 31,574
Interest expense (income), net.................. 21,726 24,965 (33,127) 13,564
Other credits, net.............................. - (217) (101) (318)
------------- ------------- ------------- ------------
Income (loss) before income taxes and
extraordinary item.............................. (21,756) (323) 40,407 18,328
Income tax provision (benefit)....................... (8,819) 16,949 672 8,802
------------- ------------- ------------- ------------
Net income (loss) before extraordinary item.......... (12,937) (17,272) 39,735 9,526
Extraordinary loss on early extinguishsment of debt,
net of income taxes................................. - (19,301) - (19,301)
------------- ------------- ------------- ------------
Net income (loss).................................... $ (12,937) $ (36,573) $ 39,735 $ (9,775)
============= ============= ============= ============
</TABLE>
9
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
-------------------------------------------
Guarantor Non-Guarantor Consolidated
OEI Subsidiaries Subsidiaries OEI
------------- ------------- ------------- ------------
1998
- - ----
<S> <C> <C> <C> <C>
Revenues ............................................ $ - $ 287,214 $ 111,865 $ 399,079
------------- ------------- ------------- ------------
Costs and expenses:
Production costs................................ - 90,426 27,619 118,045
General and administrative...................... 60 27,794 3,207 31,061
Depreciation, depletion and amortization........ - 157,748 59,971 217,719
Write-down of oil and gas properties............ - 218,392 - 218,392
------------- ------------- ------------- ------------
Income (loss) from operations....................... (60) (207,146) 21,068 (186,138)
Interest expense (income), net.................. 21,954 16,612 1,996 40,562
Merger costs.................................... - 39,000 - 39,000
Other expense (credits), net.................... - 69 (418) (349)
------------- ------------- ------------- ------------
Income (loss) before income taxes.................... (22,014) (262,827) 19,490 (265,351)
Income tax benefit................................... (23,991) (61,841) (2,123) (87,955)
------------- ------------- ------------- ------------
Net income (loss).................................... $ 1,977 $ (200,986) $ 21,613 $ (177,396)
============= ============= ============= ============
1997
- - ----
Revenues ............................................ $ - $ 296,317 $ 88,102 $ 384,419
------------- ------------- ------------- ------------
Costs and expenses:
Production costs................................ - 74,221 13,551 87,772
General and administrative...................... 120 19,029 1,177 20,326
Depreciation, depletion and amortization........ - 124,542 49,494 174,036
------------- ------------- ------------- ------------
Income (loss) from operations........................ (120) 78,525 23,880 102,285
Interest expense (income), net.................. 12,086 50,271 (26,052) 36,305
Other credits, net.............................. - (2,223) (207) (2,430)
------------- ------------- ------------- ------------
Income (loss) before income taxes and
extraordinary item.............................. (12,206) 30,477 50,139 68,410
Income tax provision (benefit)....................... (4,915) 28,283 4,531 27,899
------------- ------------- ------------- ------------
Net income (loss) before extraordinary item.......... (7,291) 2,194 45,608 40,511
Extraordinary loss on early extinguishment of debt,
net of income taxes................................. - (19,301) - (19,301)
------------- ------------- ------------- ------------
Net income (loss).................................... $ (7,291) $ (17,107) $ 45,608 $ 21,210
============= ============= ============= ============
</TABLE>
10
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
At September 30, 1998 and December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
--------------------------------------------
Guarantor Non-Guarantor Eliminating Consolidated
OEI Subsidiary Subsidiaries Entries OEI
-------------- ------------ --------------- ------------- -------------
SEPTEMBER 30, 1998
- - ------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets............................ $ $ 90,016 $ 77,104 $ - $ 167,120
Intercompany investments.................. 1,809,888 (67,010) (323,215) (1,419,663) -
Property and equipment, net............... - 831,617 830,885 - 1,662,502
Other assets.............................. 39,595 112,301 20,763 - 172,659
-------------- ------------ --------------- ------------- -------------
Total assets......................... $ 1,849,483 $ 966,924 $ 605,537 $ (1,419,663) $ 2,002,281
============== ============ =============== ============== =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities....................... $ 16,735 $ 135,407 $ 59,049 $ - $ 211,191
Long-term debt............................ 1,009,213 189,031 5,096 - 1,203,340
Deferred credits and other liabilities.... 38 7,290 21,769 - 29,097
Stockholders' equity...................... 823,497 635,196 519,623 (1,419,663) 558,653
-------------- ------------ --------------- -------------- -------------
Total liabilities & stockholders' equity.. $ 1,849,483 $ 966,924 $ 605,537 $ (1,419,663) $ 2,002,281
============== ============ =============== ============== =============
DECEMBER 31, 1997
- - -----------------
ASSETS
Current assets............................ $ 11,480 $ 103,243 $ 56,649 $ (11,478) $ 159,894
Intercompany investments.................. 1,094,737 (19,479) 335,024 (1,410,282) -
Property and equipment, net............... - 1,033,193 390,644 - 1,423,837
Other assets.............................. 5,395 89,189 (35,320) - 59,264
-------------- ------------ ---------------- ------------- -------------
Total assets......................... $ 1,111,612 $ 1,206,146 $ 746,997 $ (1,421,760) $ 1,642,995
============== ============ =============== ============== =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities....................... $ 14,804 $ 180,345 $ 37,208 $ (11,478) $ 220,879
Long-term debt............................ 509,152 147,800 15,346 - 672,298
Deferred credits and other liabilities.... - 27,936 (3,455) - 24,481
Stockholders' equity...................... 587,656 850,065 697,898 (1,410,282) 725,337
-------------- ------------ --------------- -------------- -------------
Total liabilities & stockholders' equity.. $ 1,111,612 $ 1,206,146 $ 746,997 $ (1,421,760) $ 1,642,995
============== ============ =============== ============== =============
</TABLE>
11
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
-------------------------------------------
Guarantor Non-Guarantor Consolidated
OEI Subsidiaries Subsidiaries OEI
------------- ------------- ------------- ------------
1998
- - ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 1,977 $ (200,986) $ 21,613 $ (177,396)
Adjustments to reconcile net income (loss) to
cash from operating activities.............. (22,749) 329,694 44,914 351,859
Changes in assets and liabilities............... 1,814 (49,300) 23,059 (24,427)
------------- ------------- ------------- ------------
Net cash provided by (used in)
operating activities...................... (18,958) 79,408 89,586 150,036
Cash flows used in investing activities.............. - (419,369) (251,039) (670,408)
Cash flows provided by financing activities.......... 18,956 341,607 162,669 523,232
------------- ------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents. (2) 1,646 1,216 2,860
Cash and cash equivalents at beginning of period..... 2 2,653 9,034 11,689
------------- ------------- ------------- ------------
Cash and cash equivalents at end of period........... $ - $ 4,299 $ 10,250 $ 14,549
============= ============= ============= ============
1997
- - ----
Cash flows from operating activities:
Net income (loss)............................... $ (7,291) $ (17,107) $ 45,608 $ 21,210
Adjustments to reconcile net income (loss) to
cash from operating activities.............. (4,501) 140,855 50,423 186,777
Changes in assets and liabilities............... 3,890 20,494 (5,368) 19,016
------------- ------------- -------------- ------------
Net cash provided by (used in)
operating activities...................... (7,902) 144,242 90,663 227,003
Cash flows used in investing activities.............. - (384,476) (169,828) (554,304)
Cash flows provided by financing activities.......... 7,901 199,530 81,379 288,810
------------- ------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents. (1) (40,704) 2,214 (38,491)
Cash and cash equivalents at beginning of period..... 3 47,518 13,180 60,701
------------- ------------- ------------- ------------
Cash and cash equivalents at end of period........... $ 2 $ 6,814 $ 15,394 $ 22,210
============= ============= ============= ============
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On December 23, 1997, the Company announced that it entered into a Merger
Agreement with UMC that provided in part for a stock-for-stock merger of UMC
with and into the Company. Pursuant to the Merger Agreement, at the effective
time of the Merger, the Company's stockholders received 2.34 shares of the
combined company's common stock for each share of the Company's common stock
then owned and UMC stockholders received 1.30 shares of the combined company's
common stock for each share of UMC stock then owned. The Merger, effective
March 27, 1998, was treated as a pooling of interests for accounting purposes.
This financial review summarizes the combined financial condition and
results of operations giving retroactive effect to the Merger and should be read
in conjunction with the Company's supplemental consolidated financial statements
and the notes thereto included in the Form 8-K filed May 6, 1998. The
consolidated financial statements previously filed in the Company's Form 10-K
for the year ended December 31, 1997, have been restated therein to reflect the
combination of the historical results of OEI and UMC and conforming of
accounting policies in accordance with the pooling of interests method of
accounting.
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the Company for
the periods shown:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ------------------------
1998 1997 1998 1997
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Production:
Oil (MBO)
U.S........................................... 3,399 3,192 11,034 8,512
Canada........................................ 121 110 339 322
Cote d'Ivoire................................. 321 250 714 818
Equatorial Guinea............................. 1,669 1,191 4,557 2,870
-------- --------- -------- ---------
Total...................................... 5,510 4,743 16,644 12,522
======== ========= ======== =========
Natural gas (MMCF)
U.S........................................... 24,639 20,788 74,525 57,960
Canada........................................ 2,289 1,940 7,018 5,410
Cote d'Ivoire................................. 1,910 1,452 5,525 3,612
-------- --------- -------- ---------
Total....................................... 28,838 24,180 87,068 66,982
======== ========= ======== =========
Average wellhead sales price, including hedging:
Oil ($ per bbl)
U.S........................................... $ 13.85 $ 18.11 $ 14.48 $ 19.22
Canada........................................ $ 12.08 $ 16.78 $ 12.05 $ 18.16
Cote d'Ivoire................................. $ 11.52 $ 18.41 $ 13.33 $ 18.55
Equatorial Guinea............................. $ 11.70 $ 17.78 $ 12.38 $ 17.97
Average ................................... $ 13.02 $ 18.01 $ 13.81 $ 18.86
Natural Gas ($ per MCF)
U.S........................................... $ 1.85 $ 2.18 $ 2.00 $ 2.28
Canada........................................ $ 1.23 $ 1.20 $ 1.27 $ 1.39
Cote d'Ivoire................................. $ 1.64 $ 1.76 $ 1.67 $ 1.80
Average..................................... $ 1.79 $ 2.07 $ 1.92 $ 2.18
Additional data ($ per BOE):
Production and operating costs (1).............. $ 3.72 $ 2.81 $ 3.26 $ 3.05
General and administrative expense.............. $ 1.05 $ 0.77 $ 1.00 $ 0.86
Oil and natural gas depletion and depreciation.. $ 6.70 $ 7.65 $ 6.89 $ 7.22
- - ---------------
(1) Costs incurred to operate and maintain wells and related equipment, excluding ad valorem and production taxes of $0.53 and
$0.55 per BOE for the three months ended September 30, 1998 and 1997, and $.52 and $0.65 per BOE for the nine months ended September
30, 1998 and 1997, respectively.
</TABLE>
13
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1997
Operating revenues. The Company's total operating revenues increased $14.7
million, or 4%, to $399.1 million for the nine months ended September 30, 1998,
from $384.4 million for the comparable period in 1997. Production levels for
the nine months ended September 30, 1998, increased 32% to 31,155 MBOE from
23,686 for the comparable period in 1997 in spite of significant storm-related
shut-ins of production from the Gulf of Mexico during the third quarter. The
increase in oil and gas revenues is due to increased oil volumes in the Gulf of
Mexico and Equatorial Guinea and overall higher gas volumes, offset by
significant declines in oil and gas prices.
Oil revenues decreased $6.4 million, or 3%, to $229.8 million for the nine
months ended September 30, 1998, from $236.2 million for the nine months ended
September 30, 1997, the result of significantly increased worldwide production
volumes offset by a decline in the average realized price received. Oil
production increased 33% to 16,644 MBO for the first nine months of 1998 as
compared to the same period in 1997 due primarily to increased oil production in
the Gulf of Mexico and Equatorial Guinea. The average sales price before
hedging for oil decreased 32% to $12.78 in the first nine months of 1998
compared to $18.87 in the same period in 1997.
Natural gas revenues increased $21.6 million, or 15%, to $167.5 million for
the nine months ended September 30, 1998, from $145.9 million for the nine
months ended September 30, 1997, the result of increased worldwide production
which more than offset the decline in prices received for gas. Natural gas
production for the nine months of 1998 was 87,068 MMCF, an increase of 30% over
1997 volumes due primarily to increased production in the Gulf of Mexico, Cote
d'Ivoire and Canada and the impact of acquisitions, offset by property sales,
storm-related shut-ins in the Gulf of Mexico and natural production declines in
North America. The average sales price before hedging for natural gas decreased
12% to $1.92 per MCF in the first nine months of 1998 as compared to $2.18 in
the first nine months of 1997.
For the nine months ended September 30, 1998, the Company's total revenues
were further affected by a $17.8 million increase in hedging revenues. In order
to manage its exposure to price risks in the sale of its crude oil and natural
gas, the Company from time to time enters into price hedging arrangements. The
Company's average sales prices including hedging for oil and natural gas for the
nine months ended September 30, 1998 were $13.81 per Bbl and $1.92 per Mcf
compared to $18.86 per Bbl and $2.18 per Mcf in the comparable 1997 period.
Production costs. Total production costs increased $30.2 million, or 34%,
to $118.0 million for the nine months ended September 30, 1998 from $87.8
million for the comparable 1997 period. This increase primarily results from
fluctuations in normal operating expenses, including operating expenses
associated with increased production from new facilities, timing of workover and
maintenance activities, and the impact of property acquisitions. Production and
operating costs (costs incurred to operate and maintain wells and related
equipment, excluding ad valorem and production taxes) increased $.21 per BOE, or
7%, to $3.26 per BOE for the nine months ended September 30, 1998, from $3.05
per BOE in the comparable 1997 period. This unit increase is primarily the
result of the timing of certain workover and maintenance activities.
General and administrative expenses. General and administrative expenses
increased $10.8 million, or 53%, to $31.1 million for the nine months ended
September 30, 1998 from $20.3 million in the comparable 1997 period. This
increase is primarily due to costs of increased corporate staffing associated
with both an increase in drilling activities and the Company's property
acquisitions in 1997. In addition, costs related to a new systems
implementation, partially offset by an increase in the capitalization of a
portion of the salaries paid to employees directly engaged in the acquisition,
exploration and development of oil and gas properties in accordance with the
full cost method of accounting, contributed to the increase. As a result of
these factors, general and administrative expenses per BOE increased by $0.14
per BOE, or 16%, to $1.00 per BOE for the nine months ended September 30, 1998,
from $0.86 per BOE for the comparable 1997 period.
Depreciation, depletion and amortization expense. Depreciation, depletion
and amortization (DD&A) expense increased $43.7 million, or 25%, to $217.7
million for the nine months ended September 30, 1998, from $174.0 million for
the comparable 1997 period. This variance is primarily attributable to the
Company's increased production and related current and future capital costs from
the 1997 and 1998 Gulf of Mexico and international drilling programs and
acquisitions, partially offset by the effect of an increase in proved reserves
resulting from such programs and acquisitions. Oil and gas DD&A decreased $0.33
per BOE, or 5%, to $6.89 per BOE for the nine months ended
14
<PAGE>
September 30, 1998, from $7.22 per BOE for the comparable 1997 period. The non-
cash write-down of oil and gas properties recognized in the second quarter of
1998 contributed to the decrease.
Write-down of oil and gas properties. As required under the full cost
method of accounting, capitalized costs are limited to the sum of the present
value of future net revenues using current unescalated pricing discounted at 10%
related to estimated production of proved reserves and the lower of cost or
estimated fair value of unevaluated properties, all net of expected income tax
effects. At June 30, 1998, the Company recognized a non-cash impairment of oil
and gas properties in the amount of $218.4 million pre-tax ($135.4 million
after-tax) pursuant to this ceiling limitation required by the full cost method
of accounting for oil and gas properties, using certain improvements in pricing
experienced after period end. The write-down is primarily a result of the
precipitous decline in world crude oil prices experienced during the second
quarter 1998.
Interest and debt expense. Reported interest and debt expense increased
$4.3 million, or 12%, to $40.6 million for the nine months ended September 30,
1998, from $36.3 million in the comparable 1997 period. This increase is
primarily the result of an increase in debt levels during the year 1998
resulting from the capital spending program in place for 1998 and lower than
expected cash flows due to the deterioration in product pricing, offset by an
increase in capitalized interest on significant projects in process. Average
total debt outstanding for the nine months ended September 30, 1998 was $938.7
million as compared to $584.7 million for the same period in 1997.
Merger Costs. Merger costs of $39.0 million were recorded in the first
quarter of 1998. These costs consist primarily of investment banking and other
transaction fees, employee severance and relocation costs as well as the write-
off of deferred financing costs related to the former credit facilities replaced
by the OEI Credit Facility in March 1998.
Income tax provision (benefit). An income tax benefit of $88.0 million (of
which $3.3 million is a current provision and $91.3 million is a deferred
benefit) was recognized for the nine months ended September 30, 1998, compared
to a provision of $27.9 million (of which $5.0 million was a current provision
and $22.9 million was a deferred provision) for the nine months ended September
30, 1997. Current taxes include a $2.9 million non-cash provision representing
current taxes incurred in Cote d'Ivoire which, under the terms of the production
sharing contract, will be paid by the Ivorian government from their production
proceeds. The deferred tax benefit for the nine months ended September 30, 1998
is further impacted by the non-cash write-down of oil and gas properties and the
tax treatment of certain merger costs, a portion of which is not deductible for
tax purposes. Consistent with Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes, the deferred income tax provision or
benefit was derived primarily from changes in deferred income tax assets and
liabilities recorded on the balance sheet.
Extraordinary loss on early extinguishment of debt. On July 22, 1997, the
Company purchased approximately $124.8 million of the $125.0 million original
principal amount of the 13 1/2% Notes for approximately $151.5 million. This
repurchase resulted in an after-tax extraordinary charge of $19.3 million,
representing the difference between the purchase price and the net carrying
value of the 13 1/2% Notes.
Net income (loss). Due to the factors described above, the net loss for the
nine months ended September 30, 1998, was $(177.4) million, a decrease of $198.6
million from net income of $21.2 million for the comparable 1997 period.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1997.
Material changes in the results of operations between the three months
ended September 30, 1998 and 1997, primarily reflect the significant increases
in oil and natural gas production volumes offset by decreases in prices received
and other activities as previously discussed. Oil and natural gas production
volumes for the third quarter 1998 were adversely affected by storm-related
shut-ins in the Gulf of Mexico during the period.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following summary table reflects comparative cash flows for the Company
for the nine months ended September 30, 1998 and 1997 (in thousands):
Nine months ended September 30,
-------------------------------
1998 1997
--------- ---------
Net cash provided by operating activities $ 150,036 $ 227,003
Net cash used in investing activities (670,408) (554,304)
Net cash provided by financing activities 523,232 288,810
Net cash provided by operating activities for the nine months ended
September 30, 1998, includes the impact of the non-recurring merger costs.
Capital requirements. The Company's capital investments to date have
focused primarily on exploration, acquisitions and development of proved
properties. The Company's expenditures for property acquisition, exploration and
development for the nine months ended September 30, 1998 and 1997 are as
follows:
Nine months ended September 30,
-------------------------------
1998 1997
--------- ---------
(in thousands)
Property acquisition costs:
Proved..................................... $ 27,828 $ 111,366
Unproved................................... 29,946 55,755
Exploration costs............................ 272,067 154,887
Development costs............................ 297,365 279,332
Capitalized interest on unevaluated properties 21,990 8,094
Capitalized general and administrative costs.. 18,875 10,824
--------- ---------
Total costs incurred.......................... $ 668,071 $ 620,258
========= =========
The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploration, development, production and
abandonment of its oil and natural gas reserves. The Company has historically
funded its operations, acquisitions, exploration and development expenditures
from cash flows from operating activities, bank borrowings, sales of equity and
debt securities, sales of non-strategic oil and natural gas properties, sales of
partial interests in exploration concessions and project finance borrowings. The
Company intends to finance remaining 1998 capital expenditures related to this
strategy primarily with funds provided by operations, borrowings or other
capital market activities.
The Company's capital expenditure budget for 1998 is expected to be
approximately $725.0 million (excluding proved property acquisitions) focused on
the Company's three operating regions. In addition, the Company will evaluate
its level of capital spending throughout the year based upon drilling results,
commodity prices, cash flows from operations and property acquisitions. Actual
capital spending may vary from the capital expenditure budget.
The Company's debt to total capitalization ratio increased to 68.3% at
September 30, 1998, from 48.1% at December 31, 1997. The Company's interest
coverage ratio (calculated as the ratio of income from operations plus DD&A and
impairment of proved oil and gas properties to reported interest expense plus
capitalized interest less non-cash amortization of debt issue costs) was 4.1 to
1 for the first nine months of 1998 compared with 6.5 to 1 for the first nine
months of 1997.
Concurrent with the closing of the Merger on March 27, 1998, the Company
entered into a $750.0 million five-year unsecured revolving credit facility (OEI
Credit Facility) which combined and replaced the Revolving Credit Facility and
the Global Credit Facility. The OEI Credit Facility, which is with a group of
commercial banks, provides for various borrowing options under either a base
rate or Eurodollar margin rates and provided a $600.0 million initial borrowing
base. Borrowings against the facility were repaid in July 1998 with the
proceeds from a $500.0 million Notes Offering made by the Company pursuant to
Rule 144A, which notes were subsequently exchanged for publicly-traded
instruments with identical terms. At that time, the credit facility was amended
and restated to a $400.0 million, five-year revolving
16
<PAGE>
credit facility with an initial borrowing base of $300.0 million. As of
September 30, 1998, total borrowings outstanding against the facility were
approximately $189.0 million, leaving approximately $111.0 million of available
credit.
On November 10, 1998, the Company received commitments to increase the
borrowing base under the facility to $400.0 million, resulting in available
credit of $211.0 million on a pro forma basis at September 30, 1998.
On November 10, 1998, the Company completed a private placement of 50,000
shares of Series A Convertible Preferred Stock for $38.0 million of oil and gas
properties and $12.0 million in cash from one of its institutional investors.
The Series A shares have a 6.5% cumulative dividend payable semi-annually
beginning April 1, 1999.
Liquidity. The ability of the Company to satisfy its obligations and fund
planned capital expenditures will be dependent upon its future performance,
which will be subject to prevailing economic conditions, including oil and gas
prices, and subject to financial and business conditions and other factors, many
of which are beyond its control, supplemented if necessary with existing cash
balances and borrowings under the OEI Credit Facility. The Company currently
expects that its cash flow from operations and availability under the OEI Credit
Facility will be adequate to execute its 1998 business plan. However, no
assurance can be given that the Company will not experience liquidity problems
from time to time in the future or on a long-term basis. If the Company's cash
flow from operations and availability under the OEI Credit Facility are not
sufficient to satisfy its cash requirements, there can be no assurance that
additional debt or equity financing will be available to meet its requirements.
Effects of Leverage. The Company has outstanding long-term indebtedness of
approximately $1,203.3 million as of September 30, 1998. The Company's level of
indebtedness has several important effects on its future operations, including
(i) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of interest on its indebtedness and will not be
available for other purposes, (ii) the covenants contained in the various
indentures require the Company to meet certain financial tests, and contain
other restrictions which limit the Company's ability to borrow additional funds
or to dispose of assets and may affect the Company's flexibility in planning
for, and reacting to, changes in its business, including possible acquisition
activities and (iii) the Company's ability to obtain additional financing in the
future for working capital, expenditures, acquisitions, general corporate
purposes or other purposes may be impaired. None of the indentures place
significant restrictions on a wholly-owned subsidiary's ability to make
distributions to the parent company.
The Company believes it is currently in compliance with all covenants
contained in the respective indentures.
The Company's ability to meet its debt service obligations and to reduce
its total indebtedness will be dependent upon the Company's future performance,
which will be subject to oil and gas prices, general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's future performance will not be adversely affected by such economic
conditions and financial, business and other factors.
OTHER MATTERS
Energy swap agreements. The Company hedges certain of its production
through master swap agreements (Swap Agreements) which provide for separate
contracts tied to the NYMEX light sweet crude oil and natural gas futures
contracts. In addition, the Company has combined contracts which have agreed
upon price floors and ceilings (Costless Collars). As of September 30, 1998, the
fair market value of all hedging contracts was approximately $4.0 million.
Oil and gas revenues have been increased by $6.4 million and $17.5 million
for the three and nine months ended September 30, 1998 as a result of the hedge
contracts in place for each period. As of September 30, 1998, the Company's open
forward position on its outstanding crude oil Swaps was 1,050 MBbls at an
average price of $19.87 per Bbl for the year ended December 31, 1998. The
Company currently has no outstanding natural gas swaps.
17
<PAGE>
Currently, the Company's open forward position on its outstanding natural
gas Costless Collars is as follows:
Effective Contracted Contracted Contracted
---------------- Volumes Floor Ceiling
Year From Through (MMBTU/day) Price Price
---- ---- ------- ----------- ----- -----
1999 January December 30,000 $2.10 $2.550
1999 January December 20,000 $2.10 $2.605
1999 January December 40,000 $2.10 $2.630
1999 January December 10,000 $2.10 $2.650
It is the Company's current intention to commit no more than 50% of its
production on a BOE basis to such arrangements at any point in time. As the
current Swap Agreements expire, the portion of the Company's oil and natural gas
production which is subject to price fluctuations will increase substantially
unless the Company enters into additional hedging transactions.
Price fluctuations and volatile nature of markets. Despite the measures
taken by the Company to attempt to control price risk, the Company remains
subject to price fluctuations for natural gas and oil sold on the spot market.
Prices received for natural gas sold on the spot market are volatile due
primarily to seasonality of demand and other factors beyond the Company's
control. Domestic oil prices generally follow worldwide oil prices which are
subject to price fluctuations resulting from changes in world supply and demand.
Any significant decline in prices for oil and gas could have a material adverse
effect on the Company's financial position, results of operations and quantities
of reserves recoverable on an economic basis.
Environmental. The Company's business is subject to certain federal, state,
and local laws and regulations relating to the exploration for, and the
development, production and transportation of, oil and natural gas, as well as
environmental and safety matters. Many of these laws and regulations have become
more stringent in recent years, often imposing greater liability on a larger
number of potentially responsible parties. Although the Company believes it is
in substantial compliance with all applicable laws and regulations, the
requirements imposed by such laws and regulations are frequently changed and
subject to interpretation, and the Company is unable to predict the ultimate
cost of compliance with these requirements or their effect on its operations.
Under certain circumstances, the MMS may require any Company operations on
federal leases to be suspended or terminated. Any such suspensions, terminations
or inability to meet applicable bonding requirements could materially and
adversely affect the Company's financial condition and operations. Although
significant expenditures may be required to comply with governmental laws and
regulations applicable to the Company, to date such compliance has not had a
material adverse effect on the earnings or competitive position of the Company.
It is possible that such regulations in the future may add to the cost of
operating offshore drilling equipment or may significantly limit drilling
activity. The Company has included approximately $10.0 million in its 1998
exploration and development capital budget to reformat operations for
alternative disposal of water produced from its offshore wells in accordance
with an approved zero discharge plan.
The Oil Pollution Act of 1990 (OPA) imposes ongoing requirements on a
responsible party including proof of financial responsibility to cover at least
some costs in a potential spill. For tank vessels, including mobile offshore
drilling rigs, the OPA imposes on owners, operators and charterers of the
vessels, an obligation to maintain evidence of financial responsibility of up to
$10.0 million depending on gross tonnage. With respect to offshore facilities,
proof of greater levels of financial responsibility may be applicable. This
amount is subject to upward regulatory adjustment up to $150.0 million.
Year 2000 compliance. The Company is currently in the process of evaluating
its information technology infrastructure for the year 2000 (Year 2000)
compliance. The Company's primary information systems are in the process of
being replaced with fully compliant new systems as part of a regularly scheduled
upgrade to meet the Company's growing capacity and performance requirements.
These replacements are expected to be completed by early 1999.
The Company does not expect that the cost to modify and replace its
information technology infrastructure to be Year 2000 compliant will be material
to its financial condition or results of operations. The Company does not
anticipate any material disruption in its operations as a result of any failure
by the Company to be in compliance. The costs of these projects and the date on
which the Company plans to complete modifications and replacements are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued
18
<PAGE>
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans.
The Company currently is surveying the Year 2000 compliance status of its
suppliers and customers. In the event that any of the Company's significant
suppliers or customers do not successfully and timely achieve Year 2000
compliance, the Company's business or operations could be adversely affected.
Forward-looking statements. Certain statements in this report, including
statements of the Company's and management's expectation, intentions, plans and
beliefs, including those contained in or implied by "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Notes to
Consolidated Financial Statements, are "forward-looking statements", within the
meaning of Section 21E of the Securities Exchange Act of 1934, that are subject
to certain events, risk and uncertainties that may be outside the Company's
control. These forward-looking statements include statements of management's
plans and objectives for the Company's future operations and statements of
future economic performance; information regarding drilling schedules, expected
or planned production or transportation capacity, future production levels of
international and domestic fields, the Company's capital budget and future
capital requirements, the Company's meeting its future capital needs, the
Company's realization of its deferred tax assets, the level of future
expenditures for environmental costs and the outcome of regulatory and
litigation matters; and the assumptions described in this report underlying such
forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of
such forward-looking statements, fluctuations in the price of crude oil and
natural gas, the success rate of exploration efforts, timeliness of development
activities, risk incident to the drilling and completion for oil and gas wells,
future production and development costs, the political and economic climate in
which the Company conducts operations and the risk factors described from time
to time in the Company's other documents and reports filed with the Securities
and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
19
<PAGE>
OCEAN ENERGY, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On December 29, 1997, a class action complaint (Newman v. Carson, et al.,
Civil Action No. 16109-NC) was filed in the Court of Chancery of the State of
Delaware, by a person claiming to represent the stockholders of UMC against UMC
and each of its directors. On January 9, 1998, a similar class action complaint
(Ross v. Brock. et al., Civil Action No. 98-00845) was filed in the District
Court of Harris County, Texas, 164th Judicial District by another person
claiming to represent the stockholders of UMC against UMC and each of its
directors. Preliminary settlements have been reached in each of these
complaints, the effects of which are not material to the consolidated financial
statements.
The U.S. Environmental Protection Agency has indicated that the Company may
be potentially responsible for costs and liabilities associated with alleged
releases of hazardous substances at two sites in Louisiana under the
Comprehensive Environmental Response, Compensation and Liability Act. Given the
extremely large number of companies that have been identified as potentially
responsible for releases of hazardous substances at the sites and the small
volume of hazardous substances allegedly disposed of by the companies whose
properties the Company acquired, management believes that the Company's
potential liability arising from these sites, if any, will not have a material
adverse impact on the Company.
In February 1998, the Tulane Environmental Law Clinic (Clinic), claiming to
represent several southeastern Louisiana environmental groups, gave notice that
it intends to file a Clean Water Act citizens' suit against the Company after a
sixty-day waiting period expires in connection with the discharge of produced
water in East Bay. The Clinic claims that the Company is violating the Clean
Water Act by discharging produced water from its East Bay Central Facilities
into Southwest Pass, and has stated that it will seek an injunction to require
the Company to cease its discharge of produced water, and will seek civil
penalties and attorney's fees. If the Clinic were to successfully obtain an
injunction, certain production operations at the Company's East Bay Facilities
could be interrupted until favorable resolution of the issue in court or
accelerated completion of the Company's plan to reformat operations to provide
for alternative produced water disposal. The Company believes that its zero
discharge compliance plan, which permits the temporary continued discharge of
produced water into Southwest Pass through July 1, 1999, is completely lawful as
authorized by a Compliance Order issued by the Louisiana Department of
Environmental Quality, and intends to vigorously defend any such citizens' suit,
if filed. The Clinic has delivered similar notices to other Louisiana coastal
producers.
The Company is a named defendant in lawsuits and is a party in governmental
proceedings from time to time arising in the ordinary course of business. While
the outcome of such lawsuits or other proceedings against the Company cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial position or results of operations of
the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
[A] Exhibits: See Index to Exhibits on page 22.
[B] Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Signature Title Date
--------- ----- ----
/s/ Jonathan M. Clarkson Executive Vice President and November 13, 1998
- - --------------------------- Chief Financial Officer
Jonathan M. Clarkson
/s/ Christopher E. Cragg Vice President and Controller November 13, 1998
- - --------------------------- (Chief Accounting Officer)
Christopher E. Cragg
21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- - ----------- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended, incorporated by reference to Exhibit 99.1 to the Company's
Form 8-K filed with the Securities and Exchange Commission on March 31, 1998.
3.2 Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 99.2 to the Company's Form 8-K filed
with the Securities and Exchange Commission on March 31, 1998.
4.1* Certificate of Designations for the Series A Convertible Preferred Stock of Ocean Energy, Inc.
4.2 Indenture, dated as of July 8, 1998, among the Company, its Subsidiary Guarantors, and U.S. Bank Trust National
Association, relating to the 8 3/8% Series A Senior Subordinated Notes due 2008 and the 8 3/8% Series B Senior
Subordinated Notes due 2008, incorporated by reference to Exhibit 10.22 to the Company's Form 10-Q for the period ended
June 30, 1998 filed with the Securities and Exchange Commission on August 14, 1998.
4.3 Indenture, dated as of July 8, 1998, among the Company, its Subsidiary Guarantors, and Norwest Bank Minnesota, National
Association (Norwest Bank) as Trustee, relating to the 7 5/8% Senior Notes due 2005, incorporated by reference to
Exhibit 10.23 to the Company's Form 10-Q for the period ended June 30, 1998 filed with the Securities and Exchange
Commission on August 14, 1998.
4.4 Indenture, dated as of July 8, 1998, among the Company, its Subsidiary Guarantors, and Norwest Bank as Trustee,
relating to the 8 1/4% Senior Notes due 2018, incorporated by reference to Exhibit 10.24 to the Company's Form 10-Q for
the period ended June 30, 1998 filed with the Securities and Exchange Commission on August 14, 1998.
4.5 Indenture, dated as of July 2, 1997, among Ocean Energy, Inc., the Subsidiary Guarantors Named Therein and State Street
Bank and Trust Company, as Trustee, relating to the 8 7/8% Senior Subordinated Notes due 2007, incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 (No. 333-32715) filed with the
Securities and Exchange Commission on August 1, 1997.
4.6 Indenture, dated as of September 26, 1996, among Ocean Energy, Inc. (f/k/a Flores & Rucks, Inc.), the Subsidiary
Guarantors Named Therein and Fleet National Bank, as Trustee, relating to the 9 3/4% Senior Subordinated Notes Due
2006, incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
4.7 Indenture, dated as of October 30, 1995, among Ocean Energy, Inc., a Delaware corporation (successor by merger to
United Meridian Corporation), Ocean Energy, Inc., a Louisiana corporation (successor by merger to UMC Petroleum
Corporation) and Bank of Montreal Trust Company, as Trustee, relating to the 10 3/8% Senior Subordinated Notes Due
2005, incorporated by reference to Exhibit 4.20 to United Meridian Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995.
4.8 Indenture, dated as of December 1, 1994, among Ocean Energy, Inc. (f/k/a Flores & Rucks, Inc.), the Subsidiary
Guarantors Named Therein and Shawmut Bank Connecticut, National Association, as Trustee, relating to the 13 1/2% Senior
Notes Due 2004, incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
4.9 First Supplemental Indenture, dated as of March 27, 1998, among Ocean Energy, Inc., a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank and Trust Company, relating to the 8 7/8% Senior
Subordinated Notes due 2007, incorporated by reference to Exhibit 10.11 to the Company's Form 8-K filed with the
Securities and Exchange Commission on March 31, 1998.
4.10 First Supplemental Indenture, dated as of March 27, 1998, among Ocean Energy, Inc. a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank and Trust Company, relating to the 9 3/4% Senior
Subordinated Notes due 2006, incorporated by reference to Exhibit 10.10 to the Company's Form 8-K filed with the
Securities and Exchange Commission on March 31, 1998.
4.11* First Supplemental Indenture, dated as of November 4, 1997, among Ocean Energy, Inc., a Delaware corporation (successor
by merger to United Meridian Corporation), Ocean Energy, Inc., a Louisiana corporation (successor by merger to UMC
Petroleum Corporation), and First Trust of New York, National Association (successor to Bank of Montreal Trust
Company), relating to the 10 3/8% Senior Subordinated Notes Due 2005.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- - ----------- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
4.12 Second Supplemental Indenture, dated as of March 27, 1998, among Ocean Energy, Inc. a Delaware corporation (successor
by merger to United Meridian Corporation), Ocean Energy, Inc., a Louisiana corporation, (successor by merger to UMC
Petroleum Corporation), and U.S. Bank Trust National Association, relating to the 10 3/8% Senior Subordinated Notes due
2005, incorporated by reference to Exhibit 10.12 to the Company's Form 8-K filed with the Securities and Exchange
Commission on March 31, 1998.
4.13 First Supplemental Indenture, dated as of September 19, 1996, among Ocean Energy, Inc. (f/k/a Flores & Rucks, Inc.),
the Subsidiary Guarantors and Fleet National Bank (formerly known as Shawmut Bank Connecticut, National Association),
relating to the 13 1/2% Senior Notes Due 2004, incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed
with the Securities and Exchange Commission on October 10, 1996.
4.14 Second Supplemental Indenture, dated as of July 14, 1997, among Ocean Energy, Inc., a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank and Trust Company, relating to the 13 1/2% Senior Notes
Due 2004, incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
10.1 Employment Agreement, dated as of March 27, 1998, among the Company and John B. Brock, incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on March 31, 1998.
10.2 Employment Agreement, dated as of March 27, 1998, among the Company and James C. Flores, incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K filed with the Securities and Exchange Commission on March 31, 1998.
10.3 Amended and Restated Global Credit Agreement, dated as of July 8, 1998, by and among the Company, Chase Bank of Texas,
National Association ("Chase Texas") as Administrative Agent, Morgan Guaranty Trust Company of New York ("Morgan
Guaranty") as Syndication Agent, Barclays Bank PLC as Documentation Agent, and the other Lenders named therein,
incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q for the period ended June 30, 1998 filed with the
Securities and Exchange Commission on August 14, 1998.
10.4 Amended and Restated Guaranty Agreement, dated as of July 8, 1998, by and among the Company, Chase Manhattan Bank of
Canada as Administrative Agent, Morgan Guaranty as Syndication Agent, Barclays Bank PLC as Documentation Agent, and the
other Lenders named therein, incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q for the period ended
June 30, 1998 filed with the Securities and Exchange Commission on August 14, 1998.
10.5 Amended and Restated Intercreditor Agreement, dated as of July 8, 1998, by and among the Company, OEI Louisiana, Ocean
Energy Resources Canada, Ltd., (Resources Canada), Chase Texas as Administrative Agent and Paying Agent, Morgan
Guaranty as Syndication Agent, Barclays Bank PLC as Documentation Agent, and the other Lenders named therein,
incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q for the period ended June 30, 1998 filed with the
Securities and Exchange Commission on August 14, 1998.
10.6 Amended and Restated Credit Agreement, dated as of July 8, 1998, by and among Resources Canada, the Chase Manhattan
Bank of Canada ("Chase Canada") as Administrative Agent, and the other Lenders named therein, incorporated by reference
to Exhibit 10.6 to the Company's Form 10-Q for the period ended June 30, 1998 filed with the Securities and Exchange
Commission on August 14, 1998.
10.7 Amended and Restated Guaranty Agreement, dated as of July 8, 1998, by and among the Company, Chase Canada as
Administrative Agent, and the other Lenders named therein, incorporated by reference to Exhibit 10.7 to the Company's
Form 10-Q for the period ended June 30, 1998 filed with the Securities and Exchange Commission on August 14, 1998.
10.8 Guaranty Agreement, dated as of July 8, 1998, by and among OEI Louisiana, Chase Texas as Administrative Agent, Morgan
Guaranty as Syndication Agent, Barclays Bank PLC as Documentation Agent, and the other Lenders named therein,
incorporated by reference to Exhibit 10.8 to the Company's Form 10-Q for the period ended June 30, 1998 filed with the
Securities and Exchange Commission on August 14, 1998.
10.9 Third Supplemental Indenture, dated as of March 27, 1998, among Ocean Energy, Inc., a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank and Trust Company, relating to the 13 1/2% Senior Notes
due 2004, incorporated by reference to Exhibit 10.9 to the Company's Form 8-K filed with the Securities and Exchange
Commission on March 31, 1998.
10.10 Ocean Energy, Inc. 1998 Long Term Incentive Plan, incorporated by reference to Exhibit 10.13 to the Company's Form 8-K
filed with the Securities and Exchange Commission on March 31, 1998.
10.11 Petroleum Production Sharing Contract on Block CI-11 dated June 27, 1992 among the Republic of Cote d'Ivoire, UMIC Cote
d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire (including English
translation), incorporated herein by reference to Exhibit 10.5 to Amendment No. 3 to United Meridian Corporation's Form
S-1 (No. 33-63532) filed with the Securities and Exchange Commission on July 20, 1993.
10.12 Production Sharing Contract dated August 18, 1992 between the Republic of Equatorial Guinea and United Meridian
International Corporation (Area A--Offshore NE Bioco), incorporated herein by reference to Exhibit 10.6 to Amendment
No. 1 to United Meridian Corporation's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on
June 18, 1993.
10.13 Production Sharing Contract dated June 29, 1992 between the Republic of Equatorial Guinea and United Meridian
International Corporation (Area B-- Offshore NW Bioco), incorporated herein by reference to Exhibit 10.7 to Amendment
No. 1 to United Meridian Corporation's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on
June 18, 1993.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- - ----------- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
10.14 Production Sharing Contract dated June 29, 1994 between the Republic of Equatorial Guinea and United Meridian
International Corporation (Area C--Offshore Bioco), incorporated herein by reference to Exhibit 10.15 to United
Meridian Corporation's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995.
10.15 Production Sharing Contract on Block CI-01 dated December 5, 1994 among The Republic of Cote d'Ivoire, UMIC Cote
d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire (English translation),
incorporated by reference to Exhibit 10.16 to United Meridian Corporation's 1994 Form 10-K filed with the Securities
and Exchange Commission on March 10, 1995.
10.16 Production Sharing Contract on Block CI-02 dated December 5, 1994 among The Republic of Cote d'Ivoire, UMIC Cote
d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire (English translation),
incorporated by reference to Exhibit 10.17 to United Meridian Corporation's 1994 Form 10-K filed with the Securities
and Exchange Commission on March 10, 1995.
10.17 Production Sharing Contract of Block CI-12 dated April 27, 1995 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire
Corporation and others (English translation), incorporated by reference to Exhibit 10.18 to United Meridian
Corporation's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996.
10.18 Production Sharing Contract dated April 5, 1995 between The Republic of Equatorial Guinea and UMIC Equatorial Guinea
Corporation (Area D--Offshore Bioco), incorporated by reference to Exhibit 10.20 to United Meridian Corporation's Form
10-Q for the period ended September 30, 1995 filed with the Securities and Exchange Commission on August 10, 1995.
10.19 The UMC Petroleum Savings Plan as amended and restated incorporated herein by reference to Exhibit 4.10 to United
Meridian Corporation's (UMC) Form S-8 (No. 33-73574) filed with the Securities and Exchange Commission on December 29,
1993.
10.20 First Amendment to the UMC Petroleum Savings Plan, as Amended and Restated as of January 1, 1993, dated April 18, 1994,
incorporated by reference to Exhibit 10.3 to United Meridian Corporation's 1994 Form 10-K filed with the Securities and
Exchange Commission on March 10, 1995.
10.21 UMC 1987 Nonqualified Stock Option Plan, as amended, incorporated herein by reference to Exhibit 10.3 to UMC's Form S-1
(No. 33-63532) filed with the Securities and Exchange Commission on May 28, 1993.
10.22 Third Amendment to UMC 1987 Nonqualified Stock Option Plan dated November 16, 1993 incorporated herein by reference
to Exhibit 10.4 to UMC's 1993 Form 10-K filed with the Securities and Exchange Commission on March 7, 1994.
10.23 Fourth Amendment to UMC 1987 Nonqualified Stock Option Plan dated April 6, 1994, incorporated by reference to Exhibit
10.6 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995.
10.24 UMC 1994 Employee Nonqualified Stock Option Plan incorporated by reference to Exhibit 4.14 to UMC's Form S-8
(No. 33-79160) filed with the Securities and Exchange Commission on May 19, 1994.
10.25 First Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated November 16, 1994, incorporated by
reference to Exhibit 4.11.1 to UMC's Form S-8 (No. 33-86480) filed with the Securities and Exchange Commission on
November 18, 1994.
10.26 Second Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated May 22, 1996, incorporated by reference
to Exhibit 4.3.2 to UMC's Form S-8 (No. 333-05401) filed with the Securities and Exchange Commission on June 6, 1996.
10.27 Third Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated November 13, 1996, incorporated by
reference to Exhibit 4.3.3 to UMC's Form S-8 (No. 333-28017) filed with the Securities and Exchange Commission on
May 29, 1997.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- - ----------- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
10.28 UMC 1994 Outside Directors' Nonqualified Stock Option Plan incorporated herein by reference to Exhibit 4.15 to UMC's
Form S-8 (No. 33-79160) filed with the Securities and Exchange Commission on May 19, 1994.
10.29 First Amendment to the UMC 1994 Outside Directors' Nonqualified Stock Option Plan dated May 22, 1996, incorporated by
reference to Exhibit 4.4.1 to UMC's Form S-8 (No. 333-05401) filed with the Securities and Exchange Commission on
June 6, 1996.
10.30 UMC Petroleum Corporation Supplemental Benefit Plan effective January 1, 1994, approved by the Board of Directors on
March 29, 1994, incorporated by reference to Exhibit 10.10 to UMC's 1994 Form 10-K filed with the Securities and
Exchange Commission on March 10, 1995.
10.31 Amendment to United Meridian Corporation 1994 Non-Qualified Stock Option Agreement for Former Employees of General
Atlantic Resources, Inc. dated as of April 16, 1996 among UMC and Donald D. Wolf, incorporated by reference to Exhibit
10.22 to UMC's Form 10-Q for the period ended September 30, 1996 filed with the Securities and Exchange Commission on
August 8, 1996.
10.32 Fourth Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated May 29, 1997, incorporated herein by
reference to Exhibit 4.3.4 to UMC's Form S-8 (No. 333-28017) filed with the Securities and Exchange Commission on
May 29, 1997.
10.33 Second Amendment to the UMC 1994 Outside Directors' Nonqualified Stock Option Plan dated November 13, 1996,
incorporated herein by reference to Exhibit 4.4 to UMC's Form S-8 (No. 333-28017) filed with the Securities and
Exchange Commission on May 29, 1997.
10.34 Fifth Amendment to the UMC 1987 Nonqualified Stock Option Plan dated November 19, 1997, incorporated by reference to
Exhibit 4.7 to UMC's Form S-3 (No. 333-42467) filed with the Securities and Exchange Commission on December 17, 1997.
10.35 Fifth Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated November 19, 1997, incorporated by
reference to Exhibit 4.8 to UMC's Form S-3 (No. 333-42467) filed with the Securities and Exchange Commission on
December 17, 1997.
10.36 Third Amendment to the UMC 1994 Outside Directors' Nonqualified Stock Option Plan dated November 19, 1997, incorporated
by reference to Exhibit 4.9 to UMC's Form S-3 (No. 333-42467) filed with the Securities and Exchange Commission on
December 17, 1997.
10.37 1994 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.3 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (No. 33-84308) filed with the Securities and Exchange Commission on October 31,
1994.
10.38 1996 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
10.39 Ocean Energy, Inc. Deferred Compensation Plan incorporated by reference to Exhibit 10.24 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
27.1* Financial Data Schedule, included solely in the Form 10-Q filed electronically with the Securities and Exchange
Commission.
</TABLE>
___________________________________________
* Filed herewith
25
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS
FOR THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
OCEAN ENERGY, INC.
OCEAN ENERGY, INC., a corporation duly organized and existing under the laws
of the State of Delaware (the "Company"), DOES HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors of the
Company (the "Board") by the Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), of the Company and pursuant to the provisions
of Section 151 of the General Corporation Law of the State of Delaware, the
Board duly adopted the following resolution on November 4, 1998:
RESOLVED, that pursuant to the authority vested in the Board by the provisions
of the Certificate of Incorporation, the Board hereby creates the Series A
Convertible Preferred Stock (the "Series A Preferred Stock") from the authorized
but unissued preferred stock, par value $.01 per share, of the Company, and the
Board hereby fixes the designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions thereof, of the shares of such Series A Preferred
Stock as follows:
Section I. Designation and Number. A series of fifty thousand (50,000)
shares shall be designated the Series A Convertible Preferred Stock. The number
of shares in such series may be increased or decreased (but not below the number
of shares then outstanding) from time to time by the Board.
Section II. Definitions.
A. For purposes of this resolution, the following terms shall have the
meanings indicated:
The term "Available Cash" still have the meaning given to it in Section VII.C.
The term "Capital Stock" shall mean any and all shares or other equivalents
(however designated) of corporate stock of the Company or the entity in
question, as the case may be.
The term "Closing Date" shall mean November 10, 1998.
<PAGE>
The term "Common Stock" shall mean the Company's Common Stock, par value $.01
per share.
The term "Conversion Price" shall mean the Series A Conversion Price.
The term "Current Market Price" shall mean, as of any date, the price per
share of Common Stock determined by the Company's Board as provided in this
definition. The Current Market Price shall be the average of the daily closing
prices per share of Common Stock for ten consecutive trading days ending no more
than two business days before the day in question (as adjusted for any stock
dividend, split, combination or reclassification that took effect during or
subsequent to such ten trading day period). The closing price for each day shall
be the last reported sales price regular way or, in the event no such reported
sales take place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading, or if not listed or
admitted to trading on any national securities exchange, the average of the
highest bid and the lowest asked prices quoted on the National Association of
Securities Dealers Automated Quotation System; provided, however, that if the
Common Stock is not traded in such manner that such quotations are available for
the period required hereunder, the Current Market Price per share of Common
Stock shall be deemed to be the fair value as reasonably determined by the Board
of the Company. Notwithstanding the foregoing, to the extent the Company sells
Common Stock in a public offering, the Current Market Price with respect to such
transaction shall be the price per share at which the Company sells such Common
Stock before deducting therefrom any discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
The term "Junior Securities" shall have the meaning given to it in Section
VIII.
The term "Liquidation" shall mean any voluntary or involuntary liquidation,
dissolution or winding-up of the Company. Neither the sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all of the property or assets of the Company nor the
consolidation or merger of the Company with or into one or more entities shall
be deemed to be a liquidation, dissolution or winding-up of the Company.
The term "Mandatorily Redeemable Preferred Stock" shall have the meaning given
to it in Section VII.C.
The term "Parity Securities" shall have the meaning given to it in Section
VIII.
The term "Optional Redemption Date" shall have the meaning given to it in
Section VII.B.
2
<PAGE>
The term "Optional Redemption Notice" shall have the meaning given to it in
Section VII.B.
The term "Reclassification" means any capital reorganization of the Company,
any reclassification of the Common Stock, the consolidation of the Company with
or the merger of the Company with or into any other Person, or the sale, lease
or other transfer of all or substantially all of the assets of the Company to
any other Person. The subdivision or combination of shares of Common Stock
issuable upon conversion of shares of Series A Preferred Stock at any time
outstanding into a greater or lesser number of shares of Common Stock (whether
with or without par value) shall not be deemed to be a "Reclassification" of the
Common Stock for the purposes of Section VI.E.4.
The term "Redemption Date" shall have the meaning given to it in Section
VII.C.
The term "Rights" means the rights to acquire Capital Stock or preferred stock
of the Company, or subdivsions thereof, which are issued pursuant to that
certain Rights Agreement of the Company dated December 22, 1997, as amended, or
pursuant to any other rights plan approved by the Board and any amendments
thereto, similar to shareholder rights plans of the type adopted by public
companies, approval of any rights plan by the Board to be conclusive evidence
that such plan satisfies the foregoing and such rights issuable thereunder are
Rights contemplated hereby.
The term "Senior Securities" shall have the meaning given to it in Section
VIII.
The term "Series A Conversion Date" shall have the meaning set forth in
Section VI.D hereof.
The term "Series A Conversion Price" shall have the meaning set forth in
Section VI.C hereof.
The term "Series A Forced Conversion Price" means prior to the third
anniversary of the Closing Date, 175% of the Series A Conversion Price, as then
in effect, and on and after the third anniversary of the Closing Date, 150% of
the Series A Conversion Price, as then in effect.
The term "Series A Preferred Stock" means the Series A Convertible Preferred
Stock, par value $.01 per share, of the Company.
The term "Trigger Price" shall mean, as applicable, (i) in the case of Common
Stock, options, warrants or other rights to purchase or acquire Common Stock,
securities by their terms convertible into or exchangeable for Common Stock
(other than any series of convertible preferred stock) and Capital Stock, other
than any series of convertible preferred stock, of the Company, $12.00 per
share, as proportionately adjusted for all Common Stock stock splits, dividends
paid in Common Stock, reverse splits of Common Stock and other recapitalizations
affecting the Common Stock subsequent to the Closing Date or (ii) in the
3
<PAGE>
case of any series of convertible preferred stock of the Company, the Series A
Conversion Price as then in effect.
B. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them in accordance with generally accepted
accounting principles as of the date the Series A Preferred Stock is
initially issued.
Section III. Dividends. The holders of the then outstanding Series A
Preferred Stock shall be entitled to receive, when and as declared by the Board,
and out of any funds legally available therefor, cumulative dividends at the
annual rate of $65.00 per share, payable semi-annually in cash on April 1 and
October 1 of each year commencing April 1, 1999. Dividends on the Series A
Preferred Stock shall accumulate and accrue on each such share from the date of
its original issue and shall accrue from day to day thereafter, whether or not
earned or declared. No dividend or distribution on any Junior Securities in
cash, shares of stock (other than Common Stock) or other property shall be
declared, set apart for payment or paid unless all previous and current
dividends on the Series A Preferred Stock at the rate specified above shall have
been paid or declared and a sum sufficient for the payment thereof set apart.
Section IV. Preference on Liquidation. Upon any Liquidation, holders of
shares of Series A Preferred Stock shall be entitled to receive payment of
$1,000.00 per share of Series A Preferred Stock held by them plus an amount
equal to all accrued and unpaid dividends thereon, whether or not earned or
declared, to and including the last date on which dividends have accrued thereon
prior to the Liquidation, before any distribution shall be made or any assets
distributed to the holders of any of the Junior Securities. Except as provided
in the preceding sentence, holders of Series A Preferred Stock shall not be
entitled to any distribution in the event of any Liquidation of the affairs of
the Company. If the assets of the Company are not sufficient to pay in full the
liquidation payments payable to the holders of outstanding shares of the Series
A Preferred Stock and all Parity Securities, then the holders of all such shares
shall share equally and ratably in such distribution of assets in proportion to
the full liquidation preference to which each is entitled, including without
limitation, accumulated but unpaid dividends.
Section V. Voting.
A. In addition to the special voting rights provided in paragraph "B" of
this Section V and the voting rights provided by applicable law, the
holders of shares of Series A Preferred Stock shall be entitled to vote
upon all matters upon which holders of the Common Stock have the right to
vote, and shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which such shares of Series A
Preferred Stock could be converted pursuant to the provisions of Section VI
hereof at the record date for the determination of the stockholders
entitled to vote on such matters or, if no such record date is established,
the date such vote is taken, such votes to be counted together with all
other shares of Capital Stock having general voting powers and not
separately as a class. In all cases where the holders of shares of Series A
Preferred Stock have the right to vote separately as a class, all such
holders shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which such shares of
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Series A Preferred Stock could be converted pursuant to the provisions of
Section VI hereof at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken.
B. So long as any Series A Preferred Stock is outstanding, without the
consent of the holders of at least 66 2/3% of the shares of Series A
Preferred Stock then outstanding, voting together as a class, given in
writing or by vote at a meeting of stockholders called for such purpose,
the Company will not (i) create any new class or series of stock having a
preference over the Series A Preferred Stock with respect to dividend
distributions or distributions on Liquidation or (ii) amend, alter or
repeal any provision of the Certificate of Incorporation of the Company so
as to adversely affect the preferences, rights, or powers of the Series A
Preferred Stock.
Section VI. Conversion Rights. The Series A Preferred Stock shall be
convertible into Common Stock as follows:
A. Optional Conversion. Subject to and upon compliance with the
provisions of this Section VI, the holder of any shares of Series A
Preferred Stock shall have the right at such holder's option, at any time
or from time to time, to convert any of such shares of Series A Preferred
Stock into the number of fully paid and nonassessable shares of Common
Stock set forth in paragraph "C" of this Section VI.
B. Automatic Conversion. Each outstanding share of Series A Preferred
Stock shall automatically be converted, without any further act of the
Company or its stockholders, into the number of fully paid and
nonassessable shares of Common Stock set forth in paragraph "C" of this
Section VI, provided, however, that such automatic conversion shall occur
if, and only if, for any 20 consecutive trading days, the closing price of
the Common Stock equals or exceeds the Series A Forced Conversion Price.
C. Conversion Price. Each share of Series A Preferred Stock converted
pursuant to paragraphs "A" and "B" of this Section VI shall be converted
into such number of shares of Common Stock as is determined by dividing (i)
the sum of (A) $1,000.00 plus (B) all accrued and unpaid dividends on such
share of Series A Preferred Stock, whether or not earned or declared, which
such holder is entitled to receive, but has not yet received, by (ii) the
Series A Conversion Price in effect on the Series A Conversion Date. The
Series A Conversion Price shall initially be $15.00. The Series A
Conversion Price shall be subject to adjustment as set forth in paragraph
"E" of this Section VI and as so adjusted is referred to herein as the
"Series A Conversion Price."
D. Mechanics of Conversion. Upon the occurrence of the event specified
in paragraph "B" of this Section VI, the outstanding shares of Series A
Preferred Stock shall be converted automatically without any further action
by the holders of such shares and regardless of whether the certificates
representing such shares are surrendered to the Company or its transfer
agent; provided, however, that the Company shall not be obligated to issue
to any such holder certificates evidencing the shares of Common Stock
issuable
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upon such conversion unless certificates evidencing such shares of Series A
Preferred Stock are delivered to either the Company or any transfer agent
of the Company or the affidavit and indemnity referenced in paragraph "F"
of Section IX hereof with respect to such certificates are delivered to the
Company. The holder of any shares of Series A Preferred Stock may exercise
the conversion right specified in paragraph "A" of this Section VI as to
any part thereof by surrendering to the Company or any transfer agent of
the Company the certificate or certificates for the shares to be converted,
accompanied by written notice stating that the holder elects to convert all
or a specified portion of the shares represented thereby. Conversion shall
be considered to have been effected (i) on the date of the occurrence of
the event specified in paragraph "B" of this Section VI, or (ii) on the
date when a holder of Series A Preferred Stock delivers notice of an
election to convert shares of Series A Preferred Stock to the Company
accompanied by certificates representing such shares, as the case may be,
and such date is referred to herein as the "Series A Conversion Date."
Subject to the provisions of paragraph "E" of this Section VI, as promptly
as practicable thereafter (and after surrender of the certificate or
certificates representing shares of the Series A Preferred Stock to the
Company or any transfer agent of the Company or delivery to the Company of
the affidavit and indemnity referenced in paragraph "F" of Section IX
hereof with respect to such certificates), the Company shall issue and
deliver to or upon the written order of such holder a certificate or
certificates for the number of full shares of Common Stock to which such
holder is entitled and a check in immediately available funds or cash with
respect to any fractional interest in a share of Common Stock as provided
in paragraph "C" of Section IX hereof. Subject to the provisions of
paragraph "E" of this Section VI, the person in whose name the certificate
or certificates for Common Stock are to be issued shall be considered to
have become a holder of record of such Common Stock on the Series A
Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series A Preferred Stock
surrendered for conversion, the Company shall issue and deliver to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Company, a new certificate or
certificates covering the number of shares of Series A Preferred Stock
representing the unconverted portion of the certificate so surrendered.
E. Series A Conversion Price Adjustments. The Series A Conversion Price
shall be subject to adjustment from time to time as follows:
1. Other Issuances of Common Stock. If the Company shall issue any
Additional Shares of Common Stock after the Closing Date for a
consideration per share less than the Trigger Price immediately prior
to such issuance, then and in each such case the Series A Conversion
Price shall immediately be reduced to a price determined by
multiplying the Series A Conversion Price by a fraction (i) the
numerator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the day next preceding the
date of such issue, plus (B) the number of shares of Common Stock
which the aggregate consideration received (or by the express
provisions hereof deemed to have been received) by the Company for the
total number of Additional Shares of Common Stock so issued would
purchase at such Trigger Price and (ii) the denominator of which shall
be the
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number of shares of Common Stock outstanding at the close of
business on the date of such issue after giving effect to such issue
of Additional Shares of Common Stock. For the purpose of the
calculation described in this clause "1", the number of shares of
Common Stock outstanding shall include (A) the number of shares of
Common Stock into which the then outstanding shares of Series A
Preferred Stock could be fully converted on the day next preceding the
issue of Additional Shares of Common Stock and (B) the number of
shares of Common Stock which could be obtained through the conversion
of all convertible securities which are convertible on the day next
preceding the issue of Additional Shares of Common Stock. "Additional
Shares of Common Stock" shall mean all shares of Common Stock issued
by the Company after the Closing Date, whether or not subsequently
reacquired or retired by the Company, other than (i) shares of Common
Stock issued upon conversion of the Series A Preferred Stock and (ii)
shares of Common Stock issued to, and options or rights to purchase
Common Stock granted to, current or former management, directors, or
employees of, or consultants to the Company or any subsidiary of the
Company pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board or the Compensation
Committee of the Board. For the purpose of any adjustment of the
Series A Conversion Price pursuant to this clause "1", the following
provisions shall be applicable:
a. Cash. In the case of the issuance of Common Stock for
cash, the amount of the consideration received by the Company
shall be considered to be the amount of the cash proceeds
received by the Company for such Common Stock before deducting
therefrom any discounts, commissions, taxes or other expenses
allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
b. Consideration Other Than Cash. In the case of the
issuance of Common Stock (otherwise than upon the conversion of
shares of capital stock or other securities of the Company) for a
consideration in whole or in part other than cash, including
securities acquired in exchange therefor (other than securities
by their terms so exchangeable), the consideration other than
cash shall be deemed to be the fair value thereof as reasonably
determined by the Board, irrespective of any accounting
treatment; provided, however, that such fair value as reasonable
determined by the Board shall not exceed the aggregate Current
Market Price of the shares of Common Stock being issued as of the
date the Board authorizes the issuance of such shares.
c. Options and Convertible Securities. If, after the
Closing Date, the Company shall grant any options, warrants or
other rights to purchase or acquire Common Stock (whether or not
at the time exercisable), or issue any securities by their terms
convertible into or exchangeable for Common Stock (whether or not
at the time so convertible or exchangeable)
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and the consideration per share for which Common Stock may at any
time thereafter be issuable pursuant to such options, warrants or
other rights or pursuant to the terms of such convertible or
exchangeable securities shall be less than the Trigger Price,
then:
(1) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options, warrants or
other rights to purchase or acquire Common Stock shall be
considered to have been issued at the time such options,
warrants or rights were granted and for a consideration
equal to the consideration (determined in the manner
provided in subclauses "a" and "b" of this clause "1"), if
any, received by the Company upon the grant of such options,
warrants or rights plus the minimum purchase price provided
for in such options, warrants or rights for the Common Stock
covered thereby;
(2) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities, or upon the
exercise of options, warrants or other rights to purchase or
acquire such convertible or exchangeable securities and the
subsequent conversion or exchange thereof, shall be
considered to have been issued at the time such securities
were issued or such options, warrants or rights were granted
and for a consideration equal to the consideration, if any,
received by the Company for any such securities and related
options, warrants or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by
the Company upon the conversion or exchange of such
securities and the exercise of any related options, warrants
or rights (the consideration in each case to be determined
in the manner provided in subclauses "a" and "b" of this
clause "1");
(3) on any change in the number of shares of Common
Stock deliverable upon exercise of any such options,
warrants or rights or conversion of or exchange for such
convertible or exchangeable securities or any change in the
consideration to be received by the Company upon such
exercise, conversion or exchange, including, but not limited
to, a change resulting from the anti-dilution provisions
thereof, the Series A Conversion Price as then in effect
shall forthwith be readjusted to such Series A Conversion
Price as would have been obtained had an adjustment been
made upon the grant of such options, warrants or rights not
exercised prior to such change, or the issuance of such
securities not converted or exchanged prior to such change,
on the basis of such change;
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(4) on the expiration or cancellation of any such
options, warrants or rights, or the termination of the right
to convert or exchange such convertible or exchangeable
securities, if the Series A Conversion Price shall have been
adjusted upon the grant or issuance thereof, then the Series
A Conversion Price shall forthwith be readjusted to such
Series A Conversion Price as would have been obtained had an
adjustment been made upon the grant or issuance of such
options, warrants, rights or securities on the basis of the
issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options, warrants
or rights, or upon the conversion or exchange of such
securities; and
(5) if the Series A Conversion Price shall have been
adjusted upon the grant or issuance of any such options,
warrants, rights or convertible or exchangeable securities,
no further adjustment of the Series A Conversion Price shall
be made for the actual issuance of Common Stock upon the
exercise, conversion or exchange thereof;
provided, however, that no increase in the Series A Conversion
Price shall be made pursuant to subclauses "1", "2" or "3"of this
subclause "c".
d. Notwithstanding the foregoing provisions of this
paragraph "E" of this Section VI, the dividend or other
distributions of Rights to holders of Common Stock shall not be
deemed to be the issuance of Additional Shares of Common Stock
resulting in an adjustment to the Series A Conversion Price until
such time as such Rights become exercisable or exchangeable for
Common Stock.
2. Stock Dividends. If the number of shares of Common Stock outstanding at
any time after the date of issuance of Series A Preferred Stock is increased by
a stock dividend or other distribution payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then immediately after the
record date fixed for the determination of holders of Common Stock entitled to
receive such stock dividend or the effective date of such subdivision or split-
up, as the case may be, the Series A Conversion Price shall be appropriately
reduced so that the holder of any shares of Series A Preferred Stock thereafter
converted shall be entitled to receive the number of shares of Common Stock
which the holder would have received immediately following such action had such
shares of Series A Preferred Stock been converted immediately prior thereto.
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3. Combination of Stock. If the number of shares of Common Stock
outstanding at any time after the date of issuance of Series A Preferred Stock
is decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the Series A
Conversion Price for such series shall be appropriately increased so that the
holder of any shares of Series A Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock which such holder would
have received immediately following such action had such shares of Series A
Preferred Stock been converted immediately prior thereto.
4. Reclassification. In case of any Reclassification, each share of Series
A Preferred Stock shall, after such Reclassification, be convertible into the
kind and number of shares of stock or other securities, cash or property to
which the holder of such share of Series A Preferred Stock would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Series A Preferred Stock immediately prior to the occurrence
of the Reclassification; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the holders
of the shares of Series A Preferred Stock shall be appropriately adjusted so as
to be applicable, as nearly as possible, to any shares of stock or other
securities, cash or property thereafter deliverable on the conversion of the
shares of Series A Preferred Stock.
5. Adjustment Upon Payment of Dividend on Common Stock. To the extent the
Company pays a dividend on Common Stock, other than Rights or a dividend payable
in Common Stock as provided for in Section VI.E.2, the Series A Conversion Price
shall immediately be reduced (i) by the per share amount of cash dividend paid
on the Common Stock or (ii) in the case of a non-cash dividend (other than
dividends of options, warrants or other rights to purchase or acquire Common
Stock for which there has been an adjustment under Section VI.E.1.c), by the
fair value of the per share amount of such dividend as reasonably determined by
the Board.
6. Rounding of Calculations. All calculations under this paragraph "E"
shall be made to the nearest cent or to the nearest one hundredth (1/100th) of a
share, as the case may be.
7. Timing of Issuance of Additional Common Stock Upon Certain Adjustments.
In any case in which the provisions of this paragraph "E" shall require that an
adjustment shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
holder of any shares of Series A Preferred Stock converted after such record
date and before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment required by such
event over and above the shares of Common Stock issuable upon such conversion
before giving effect to such adjustment, and (ii) paying to such holder any
amount of cash
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in lieu of a fractional share of Common Stock pursuant to paragraph "C" of
Section IX hereof; provided, however, that the Company upon request shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares and such cash, upon the
occurrence of the event requiring such adjustment.
F. Statement Regarding Adjustments. Whenever the Series A Conversion
Price shall be adjusted as provided in paragraph "E" of this Section VI,
the Company shall forthwith file, at the office of any transfer agent for
such Series A Preferred Stock and at the principal office of the Company, a
statement showing in detail the facts requiring such adjustment and the
Series A Conversion Price that shall be in effect after such adjustment,
and the Company shall also cause a copy of such statement to be sent by
certified mail, postage prepaid, to each holder of shares of Series A
Preferred Stock at the address appearing on the Company's records. Each
such statement shall be signed by the Company's independent public
accountants. Where appropriate, such copy may be given in advance and may
be included as part of a notice required to be mailed under the provisions
of paragraph "G" of this Section VI.
G. Notice to Holders. In the event the Company shall propose to take any
action of the type described in clauses "1" (but only if the action of the
type described in clause "1" would result in an adjustment in the Series A
Conversion Price), "2", "3, "4" or "5" of paragraph "E" of this Section VI,
the Company shall give notice to each holder of shares of Series A
Preferred Stock affected by such action in the manner set forth in this
paragraph "G" of this Section VI, which notice shall specify the record
date, if any, with respect to any such action and the approximate date on
which such action is to take place. Such notice shall also set forth such
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date
of such notice) on the Series A Conversion Price and the number, kind or
class of shares or other securities or property which shall be deliverable
or purchasable upon the occurrence of such action or deliverable upon
conversion of shares of Series A Preferred Stock. In the case of any action
which would require the fixing of a record date, such notice shall be given
at least ten days prior to the date so fixed, and in the case of any other
action, such notice shall be given at least 15 days prior to the taking of
such proposed action. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of any such action.
H. Treasury Stock. For the purpose of this Section VI, the sale or
other disposition of Common Stock theretofore held in the Company's
treasury shall be deemed to be an issuance thereof.
I. Costs. The Company shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance or delivery of
shares of Common Stock of the Company upon conversion of any shares of
Series A Preferred Stock; provided, however, that the Company shall not be
required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in
a name
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other than that of the holder of the shares of Series A Preferred Stock in
respect of which such shares are being issued.
Section VII. Redemption.
A. Optional Redemption. So long as any shares of Series A Preferred
Stock shall be outstanding and to the extent that the Company shall have
funds legally available for such payment, the Company may, but shall not be
obligated pursuant to this Section VII.A. to, redeem for cash any such
outstanding shares. The redemption price of each share of Series A
Preferred Stock so redeemed shall be an amount equal to the sum of (i) the
product of (A) the number of shares of Common Stock into which one share of
Series A Preferred Stock is then convertible and (B) the Series A Forced
Conversion Price and (ii) all accrued and unpaid dividends. All accrued and
unpaid dividends payable hereunder shall be payable whether or not earned
or declared, to and including the applicable Optional Redemption Date.
B. Procedure With Respect to Optional Redemption. The Company shall, not
less than 30 days nor more than 60 days prior to the applicable redemption
date (an "Optional Redemption Date"), mail written notice (the "Optional
Redemption Notice"), by certified mail, postage prepaid, to each holder of
shares of record of Series A Preferred Stock to be redeemed at such
holder's post office address last shown on the records of the Company. The
Optional Redemption Notice shall state: (i) the total number of shares of
Series A Preferred Stock which the Company intends to redeem; (ii) the
number of shares of Series A Preferred Stock which the Company intends to
redeem from that particular holder; (iii) the applicable Optional
Redemption Date and the applicable redemption price; and (iv) the time,
place and manner in which the holder is to surrender to the Company the
certificate or certificates, as the case may be, representing the shares of
Series A Preferred Stock to be redeemed. On or before the applicable
Optional Redemption Date, each holder of Series A Preferred Stock shall
surrender the certificate or certificates representing such shares to the
Company, in the manner and at the place designated in the Optional
Redemption Notice, and thereupon the applicable redemption price for such
shares shall be payable in immediately available funds to the order of the
person whose name appears on such certificate or certificates as the owner
thereof, and each surrendered certificate shall be cancelled and retired.
In the event less than all of the shares of Series A Preferred Stock
represented by such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
C. Mandatory Redemption. If on the twentieth anniversary of the Closing
Date and on each anniversary of the Closing Date thereafter until the
Series A Preferred Stock is fully retired (a "Redemption Date"), all shares
of the Series A Preferred Stock have not been previously converted or
redeemed and if the closing price of Common Stock into which the shares of
any outstanding series of Series A Preferred Stock are convertible is less
than the applicable Conversion Price for such series of Series A Preferred
Stock for a period of 30 consecutive trading days during the immediately
preceding 12-month period (such series of Series A Preferred Stock being
referred to as
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the "Mandatorily Redeemable Preferred Stock"), then the Company shall, at
the option of each holder of shares of Mandatorily Redeemable Preferred
Stock not converted or redeemed, redeem in cash the lesser of (i) one-fifth
of the shares of the Mandatorily Redeemable Preferred Stock held of record
by such holder or (ii) the number of shares equal to the quotient resulting
from dividing such holder's pro rata share of the Available Cash (as
hereinafter defined) by the redemption price per share. The term "Available
Cash" means the lesser of (A) the amount of cash legally available for the
redemption of stock by the Company or (B) the amount of cash available, if
any, for the redemption of stock by the Company without materially
disrupting the business of the Company as carried on in the normal course,
as determined in good faith by the Board of the Company. Notwithstanding
anything herein to the contrary, if the redemption of any shares of
Mandatorily Redeemable Preferred Stock for which redemption has been
demanded under this Section VII.C would result in a default, an event of
default or an event that with the passage of time or the giving of notice,
or both, would become a default or an event of default under any contract,
agreement, commitment or other contractual obligation to which the Company
is a party, bound or subject to, the Company shall not be obligated to
redeem any of the shares of Mandatorily Redeemable Preferred Stock for
which redemption has been demanded under this Section VII.C. A holder's pro
rata share of Available Cash with respect to shares of Mandatorily
Redeemable Preferred Stock for which redemption has been demanded shall be
determined ratably based upon the respective amounts which would be payable
on such shares if all amounts payable upon redemption of all shares for
which redemption has been demanded were paid in full. The redemption price
per share of the Series A Preferred Stock shall be $1,000.00 plus all
accrued and unpaid dividends as of the applicable Redemption Date, whether
or not earned or declared. Any holder of Series A Preferred Stock may
exercise its option to redeem shares pursuant to this Section VII.C at any
time after an applicable Redemption Date but prior to, and such option
shall expire at 5:00 p.m., Houston, Texas, time on, the 30th day after the
applicable Redemption Date.
D. Procedure With Respect to Mandatory Redemption. A holder of
Mandatorily Redeemable Preferred Stock may exercise its option pursuant to
paragraph "C" of this Section VII by delivering, prior to the expiration of
such option, written notice of redemption to the Company at its principal
executive office, together with all certificates representing shares of
Mandatorily Redeemable Preferred Stock to be redeemed, or the affidavit and
indemnity referenced in paragraph "F" of Section IX hereof with respect to
such certificates, and such transmittal forms, endorsements or stock powers
as may reasonably be requested by the Company. Upon receipt thereof, the
Company will promptly pay, by check or wire in immediately available funds,
the redemption price to the registered holder at the address specified in
the written notice of redemption, or in the event no address is specified,
at the address of the holder as it then appears on the records of the
Company. Subject to the terms of paragraph "C" of this Section VII, in no
event shall the redemption price be delivered later than 60 days after
receipt by the Company of written notice of redemption pursuant to
paragraph "C" of this Section VII.
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Section VIII. Rank. The Series A Preferred Stock shall, with respect to
dividend distributions and distributions upon the Liquidation of the Company,
rank (i) senior to all classes of Common Stock of the Company, to the Company's
Series A Junior Participating Preferred Stock and to each other class of Capital
Stock of the Company or series of preferred stock of the Company hereafter
established the terms of which do not expressly provide that it ranks senior to,
or on a parity with, the Series A Preferred Stock as to dividend distributions
or distributions upon the Liquidation of the Company (collectively referred to,
together with all classes of Common Stock of the Company, as "Junior
Securities"); (ii) on a parity with any class of Capital Stock of the Company or
series of preferred stock of the Company hereafter established the terms of
which expressly provide that such class or series will rank on a parity with the
Series A Preferred Stock as to dividend distributions or distributions upon the
Liquidation of the Company (collectively referred to as "Parity Securities");
and (iii) junior to each other class of Capital Stock of the Company or series
of preferred stock of the Company hereafter established the terms of which
expressly provide that such class or series will rank senior to the Series A
Preferred Stock as to dividend distributions or distributions upon the
Liquidation of the Corporation (collectively referred to as "Senior
Securities").
Section IX. General.
A. All shares of Common Stock which may be issued upon conversion of the
shares of Series A Preferred Stock will upon issuance by the Company be
duly and validly issued, fully paid and nonassessable, not subject to any
preemptive rights, and free from all taxes, liens and charges with respect
to the issuance thereof and the Company shall take no action which will
cause a contrary result.
B. The section headings contained in this resolution are for reference
purposes only and shall not affect in any way the meaning of this
resolution.
C. No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of the Series A Preferred Stock. If more than one
share of Series A Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any share of Series A Preferred Stock, the
Company shall pay a cash adjustment in respect of such fractional interest
in an amount equal to that fractional interest of the then Current Market
Price.
D. The Company shall reserve at all times so long as any shares of
Series A Preferred Stock remain outstanding, free from preemptive rights,
out of its treasury stock or its authorized but unissued shares of Common
Stock, or both, solely for the purpose of effecting the conversion of the
shares of Series A Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of Series A Preferred
Stock.
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E. Shares of Series A Preferred Stock which have been issued and have
been converted, redeemed, repurchased or reacquired in any manner by the
Company shall become authorized and unissued shares of the Company's
undesignated preferred stock, par value $.01 per share, but shall not be
reissued as shares of Series A Preferred Stock.
F. Upon receipt by the Company of (i) an affidavit in form and content
reasonably acceptable to the Company stating that the stock certificate or
certificates representing Series A Preferred Stock have been lost, stolen
or destroyed, and (ii) an indemnity in form and content reasonably
acceptable to the Company that indemnifies the Company against any claim
that may be made against the Company with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed, the Company
shall issue a new certificate or certificates in place of any certificate
or certificates alleged to have been lost, stolen or destroyed.
G. All dollar amounts shall be United States dollars.
H. The Series A Preferred Stock is hereby granted registration rights in
accordance with the terms of Section 8 of that certain Purchase Agreement
dated November 10, 1998, by and among John Hancock Mutual Life Insurance
Company, Hancock Mezzanine Partners, L.P. and the Company.
Remainder of page intentionally left blank
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be signed and
attested by its duly authorized officers this 10th day of November, 1998.
OCEAN ENERGY, INC.,
A Delaware corporation
By:
------------------------
Jonathan M. Clarkson
Executive Vice President
ATTEST:
- - ---------------------------
Robert K. Reeves, Secretary
16
<PAGE>
Exhibit 4.11
UNITED MERIDIAN CORPORATION,
UMC PETROLEUM CORPORATION
and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
successor to
BANK OF MONTREAL TRUST COMPANY, as Trustee
________________
First Supplemental Indenture
Dated as of November 4, 1997
to
Indenture
Dated as of October 30, 1995
________________
$150,000,000
10.375% Senior Subordinated Notes due 2005
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), dated as
of November 4, 1997, is among United Meridian Corporation, a Delaware
corporation (the "COMPANY"), UMC Petroleum Corporation, a Delaware corporation
(the "SUBSIDIARY GUARANTOR"), and First Trust of New York, National Association,
a national banking association (the "SUCCESSOR TRUSTEE"). All terms used herein
but not defined herein shall have the meanings assigned to such terms in that
certain Indenture dated as of October 30, 1995, relating to the Company's
10.375% Senior Subordinated Notes due 2005 (the "INDENTURE").
RECITALS
A. The Company and Bank of Montreal Trust Company, a New York banking
corporation (the "RESIGNING TRUSTEE"), executed the Indenture as of October 30,
1995.
B. On November 4, 1997 (the "RESIGNATION NOTICE DATE"), the Resigning
Trustee gave written notice, as required by Section 6.9(b) of the Indenture, to
the Company of its resignation as Trustee under the Indenture, such resignation
to become effective upon the acceptance of appointment by a successor Trustee
under Section 6.10 of the Indenture.
C. The parties hereto and the Resigning Trustee have entered into that
certain Resignation, Successor Appointment and Acceptance Agreement, dated as of
the date hereof (the "RESIGNATION AGREEMENT"), pursuant to which, among other
things, (i) the Company agrees to accept the resignation of the Resigning
Trustee, as Trustee, (ii) the Company appoints, as of the date of execution of
the Resignation Agreement and this Supplemental Indenture by all parties thereto
and hereto, the Successor Trustee as Trustee under the Indenture; and (iii) the
Successor Trustee agrees to accept the appointment as Trustee under the
Indenture.
D. The parties hereto desire to execute this Supplemental Indenture to (i)
provide for the substitution of the Successor Trustee as Trustee under the
Indenture pursuant to the Resignation Agreement, (ii) provide for the
substitution of the Successor Trustee as Security Registrar and Paying Agent
under the Indenture, and (iii) amend certain provisions of the Indenture in
connection with such substitution as hereinafter set forth.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH, the Company,
Subsidiary Guarantor and Successor Trustee mutually covenant and agree for the
equal and proportionate benefit of all Holders as follows:
1
<PAGE>
ARTICLE ONE
Amendment of Indenture
Section 1.1 Amendment of Indenture. The introductory paragraph of the
Indenture is hereby deleted in its entirety and substituted in lieu thereof with
the following:
INDENTURE, dated as of October 30, 1995, among UNITED MERIDIAN
CORPORATION, a Delaware corporation (hereinafter called the
"Company"), UMC PETROLEUM CORPORATION, a Delaware corporation
(hereinafter called the "Subsidiary Guarantor") and FIRST TRUST OF NEW
YORK, NATIONAL ASSOCIATION, a national banking association, as Trustee
(hereinafter called the "Trustee").
ARTICLE TWO
Section 2.1 Appointment and Acceptance. As of the close of business on the
date hereof, the Company hereby appoints the Successor Trustee as Trustee under
the Indenture with all of the rights, powers and duties heretofore vested in the
Resigning Trustee as Trustee under the Indenture, and the Successor Trustee
hereby acknowledges and accepts such appointment.
Section 2.2 Confirmation. Pursuant to Section 6.10 of the Indenture, (i)
the Company and the Subsidiary Guarantor hereby confirm that the Successor
Trustee is vested with all rights, powers and trusts of the Trustee under the
Indenture, and (ii) upon the request of the Successor Trustee, the Company and
the Subsidiary Guarantor shall execute any and all instruments for more fully
and certainly vesting in and confirming to the Successor Trustee all such
rights, powers and trusts.
Section 2.3 Notice. Pursuant to Section 6.9(f) of the Indenture, the
Successor Trustee, on behalf of the Company, shall give notice of the
resignation of the Resigning Trustee and the appointment of the Successor
Trustee to all Holders in the manner provided in Section 15.5 of the Indenture,
at the expense of the Successor Trustee. Such notice shall include the name of
the Successor Trustee and the address of its Corporate Trust Office.
ARTICLE THREE
Section 3.1 Appointment and Acceptance. As of the close of business on the
date hereof, the Company hereby appoints the Successor Trustee as Security
Registrar for the purpose of registering Securities and transfers and exchanges
of Securities as provided in the Indenture, and as Paying Agent under the
Indenture, with all of the rights, powers and duties heretofore vested in the
Resigning Trustee, as Security Registrar and Paying Agent under the Indenture,
and the Successor Trustee hereby accepts such appointments.
Section 3.2 Confirmation. The Company and the Subsidiary Guarantor hereby
confirm that (i) the Successor Trustee is vested with all rights, powers and
trusts of the Registrar and the
2
<PAGE>
Paying Agent under the Indenture, and (ii) upon the request of the Successor
Trustee, the Company and the Subsidiary Guarantor shall execute any and all
instruments fore more fully and certainly vesting in and confirming to the
Successor Trustee all such rights, powers and trusts.
ARTICLE FOUR
Miscellaneous Provisions
Section 4.1 Duplicate Originals. The parties may sign any number of
copies or counterparts of this Supplemental Indenture. Each signed copy shall
be an original, but all of them together represent the same agreement.
Section 4.2 Separability Clause. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefore against
any party hereto.
Section 4.3 Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
Section 4.4 Successors and Assigns. All covenants and agreements in this
Supplemental Indenture by the Company and the Subsidiary Guarantor shall bind
their respective successors and assigns, whether so expressed or not. All
agreements of the Successor Trustee in this Supplemental Indenture shall bind
its successor.
Section 4.5 Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Section 4.6 Effect of Supplemental Indenture. Except as amended by this
Supplemental Indenture, the terms and provisions of the Indenture shall remain
in full force and effect.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed and their respective corporate seals to be hereunto duly affixed
and attested by their respective officers thereunto duly authorized, all as of
the day and year first written above.
UNITED MERIDIAN CORPORATION
By: /s/ Kevin McMillan
------------------
Name: Kevin McMillan
------------------
Title: Vice President and Treasurer
----------------------------
UMC PETROLEUM CORPORATION
By: /s/ Kevin McMillan
------------------
Name: Kevin McMillan
------------------
Title: Vice President and Treasurer
----------------------------
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
By: /s/ Gretchen L. Middents
------------------------
Name: Gretchen L. Middents
--------------------
Title: Assistant Vice President
------------------------
4
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<PAGE>
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<PERIOD-START> JAN-01-1998
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