-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GtAqdep6qQ3bhKE76gMCXrcRpGBUE+GdO+7btx/KBZ/9OAP1GCPn+8EqN1Vfh+TM Bzryufi8cjfFnH6TmEcNOQ== 0000950134-96-005713.txt : 19961031 0000950134-96-005713.hdr.sgml : 19961031 ACCESSION NUMBER: 0000950134-96-005713 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19961030 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED MERIDIAN CORP CENTRAL INDEX KEY: 0000818885 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752160316 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-12823 FILM NUMBER: 96650665 BUSINESS ADDRESS: STREET 1: 1201 LOUISIANA STREET 2: STE 1400 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7136549110 MAIL ADDRESS: STREET 1: 1201 LOUISIANA STREET 2: STE 1400 CITY: HOUSTON STATE: TX ZIP: 77002 S-3/A 1 AMENDMENT NO. 2 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996 REGISTRATION NO. 333-12823 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- Amendment No. 2 To FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- UNITED MERIDIAN CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 75-2160316 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1201 LOUISIANA, SUITE 1400 HOUSTON, TEXAS 77002 (713) 654-9110 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) JOHN B. BROCK CHAIRMAN AND CHIEF EXECUTIVE OFFICER 1201 LOUISIANA, SUITE 1400 HOUSTON, TEXAS 77002 (713) 654-9110 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- Copies to: MICHAEL E. DILLARD, P.C. T. MARK KELLY AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. VINSON & ELKINS L.L.P. 1700 PACIFIC AVENUE 1001 FANNIN STREET SUITE 4100 SUITE 2300 DALLAS, TEXAS 75201 HOUSTON, TEXAS 77002-6760 (214) 969-2800 (713) 758-2222 --------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. ================================================================================ 2 *************************************************************************** * * * Information contained herein is subject to completion or amendment. A * * registration statement relating to these securities has been filed * * with the Securities and Exchange Commission. These securities may not * * be sold nor may offers to buy be accepted prior to the time the * * registration statement becomes effective. This prospectus shall not * * constitute an offer to sell or the solicitation of an offer to buy * * nor shall there be any sale of these securities in any State in which * * such offer, solicitation or sale would be unlawful prior to * * registration or qualification under the securities laws of any such * * State. * * * *************************************************************************** SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED OCTOBER 30, 1996 PROSPECTUS 5,750,000 SHARES LOGO UNITED MERIDIAN CORPORATION COMMON STOCK --------------------- Of the 5,750,000 shares of Series A Voting Common Stock, par value $0.01 per share ("Common Stock"), offered hereby, 3,250,000 shares are being sold by United Meridian Corporation ("UMC" or the "Company") and 2,500,000 shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholders. See "Selling Stockholders." Of the shares of Common Stock being offered hereby, 4,600,000 shares (the "U.S. Shares") are being offered in the United States and Canada (the "U.S. Offering") by the U.S. Underwriters and 1,150,000 shares (the "International Shares") are being offered outside the United States and Canada (the "International Offering" and, together with the U.S. Offering, the "Offerings") by the International Managers. The price to public and underwriting discount per share are identical for both Offerings and the closings for both Offerings are conditioned upon each other. See "Underwriting." The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "UMC." On October 29, 1996, the last reported sale price of the Common Stock on the NYSE was $47 1/8 per share. SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=================================================================================================== PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS - --------------------------------------------------------------------------------------------------- Per Share........................ $ $ $ $ - --------------------------------------------------------------------------------------------------- Total(3)......................... $ $ $ $ ===================================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $465,000. (3) The Company has granted the U.S. Underwriters and International Managers options for 30 days to purchase up to 690,000 and 172,500 additional shares of Common Stock, respectively, at the Price to Public, less Underwriting Discount, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." --------------------- The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, and subject to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York on or about , 1996. --------------------- MERRILL LYNCH & CO. J.P. MORGAN & CO. HOWARD, WEIL, LABOUISSE, FRIEDRICHS INCORPORATED PETRIE PARKMAN & CO. --------------------- The date of this Prospectus is , 1996. 3 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), and, in accordance therewith, files reports, proxy and information statements and other information with the Securities and Exchange Commission (the "Commission"). Copies of such materials can be obtained by mail from the Public Reference Section of the Commission, at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such reports, proxy and information statements and other information can be inspected and copied at the public reference facility referenced above and at the Commission's regional offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. The Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as the Company, that file electronically with the Commission. Such reports, proxy statements and other information concerning the Company can also be inspected and copied at the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement, which may be inspected at the Commission's offices without charge, or copies of which may be obtained from the Commission upon payment of prescribed fees. Each statement made in this Prospectus as to the contents of any contract or other document is not necessarily complete and is qualified in its entirety by reference to the copy of such contract or other document filed as an exhibit to the Registration Statement. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents filed with the Commission pursuant to the Exchange Act are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the "1995 10-K"); 2. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; 3. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996; 4. The Company's Current Report on Form 8-K, filed with the Commission on February 16, 1996; 5. The description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A, filed with the Commission on June 15, 1993; and 6. The description of the Company's Preferred Stock Purchase Rights contained in the Company's Registration Statement on Form 8-A, filed with the Commission on February 16, 1996, as amended by Amendment No. 1 thereto on Form 8-A/A, filed with the Commission on March 4, 1996. All documents filed by the Company pursuant to Section 13(a), 13(e), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the Offerings shall be deemed to be incorporated by reference in this Prospectus and shall be deemed a part hereof from the date of filing of such documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for all purposes to the extent that a statement contained in this Prospectus, or in any other subsequently filed document which is also, or is deemed to be, incorporated by reference, modifies or replaces such statement. Any such statement so modified or superseded shall not be deemed to constitute a part of this Prospectus, except as so modified or superseded. The Company will provide without charge to each person to whom this Prospectus has been delivered, on written or oral request of such person, a copy (without exhibits, unless such exhibits are specifically incorporated by reference into such documents) of any or all documents incorporated by reference in this Prospectus. Requests for such copies should be addressed to Secretary, United Meridian Corporation, 1201 Louisiana, Suite 1400; Houston, Texas 77002-5603, telephone number (713) 654-9110. IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements (including the notes thereto) included elsewhere in this Prospectus. Unless the context indicates otherwise, the terms "Company" and "UMC" refer to UMC and its subsidiaries. For definitions of certain terms used in this Prospectus, see "Glossary of Oil and Gas Terms." Unless otherwise indicated, all information contained in this Prospectus assumes no exercise of the Underwriters' over-allotment option. THE COMPANY BUSINESS OVERVIEW United Meridian Corporation ("UMC" or the "Company") is a leading independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas in North America and certain international regions. Since its inception in 1987, the Company has grown through a series of strategic corporate and property acquisitions, and a successful exploration program that has focused on UMC's core operating areas in North America and in certain high potential, international regions. In North America, the Company's production is concentrated in the Gulf Coast, Permian Basin, Mid-continent and Rocky Mountain regions and in Western Canada. Internationally, the Company currently operates in the West African oil and natural gas producing regions of Cote d'Ivoire and Equatorial Guinea. In addition, the Company has been awarded a production sharing contract or petroleum concession agreement ("PSC") on one block and has a contractual arrangement covering PSCs on two adjacent blocks in Pakistan and expects to receive a PSC in Bangladesh. Since January 1, 1996, the Company has initiated significant new oil and natural gas production. Oil production increased 46% to 10.2 Mbopd during the first half of 1996 as compared to 7.0 Mbopd for the similar period of 1995. The majority of this increase was the result of the Company's successful exploration and development activities in Cote d'Ivoire. Natural gas production increased 26% to 157 MMcfd during the first half of 1996 as compared to 125 MMcfd for the similar period of 1995. The majority of this increase was the result of new production from the Gulf of Mexico. The Company's EBITDA increased 89% to $82.7 million in the first half of 1996 from $43.9 million in the comparable period of 1995 as a result of increased production and higher average sales prices for oil and natural gas. UMC expects that it will experience increased natural gas production levels and substantially increased oil production through 1997. The Company anticipates that its average daily rate of oil production should increase to 15-18 Mbopd for the fourth quarter of 1996 based upon commencement of Phase I oil production from the Zafiro complex in Equatorial Guinea in August 1996. While year end reserve evaluations will not be available until early 1997, based on the results of the Company's drilling program for 1996, it is expected that acquisitions, extensions, and other additions to reserves for the year will exceed production and reserve dispositions for the Company. The Company's successful exploration program will continue to focus on select areas of high potential and low cost reserve additions, both domestically and internationally. The Company will concentrate its North American exploration program on its interests in 86 offshore blocks in the Gulf of Mexico and in over 132,000 gross acres (22,000 net acres) in the Cotton Valley Reef trend in East Texas. Additionally, the Company has initiated exploration activities utilizing 3-D seismic data in the Permian Basin of West Texas and New Mexico, and in the Williston Basin of North Dakota and Montana. Internationally, the Company will continue to concentrate on the 13 PSCs it either currently holds or is negotiating in Cote d'Ivoire, Equatorial Guinea, Pakistan and Bangladesh, which collectively cover over 12 million gross acres. The Company will act as operator on 12 of these 13 PSCs. UMC currently estimates that it will make capital expenditures in 1996 of approximately $95 million in North America ($50 million, $35 million and $10 million for development, exploration and acquisition activities, respectively), $43 million of which was spent in the first half of 1996. Additionally, UMC estimates that it will make capital expenditures in 1996 of approximately $110 million internationally ($73 million and $37 million for development and exploration activities, respectively), $19 million of which was spent in the first half of 1996. In 1997, UMC expects its capital expenditures to be approximately $80-$100 million for North American activities and approximately $150-$200 million for 3 5 international activities. The actual level of capital expenditures will depend on the success of the Company's drilling activities. RECENT DEVELOPMENTS International. Several factors attributable to the Company's international operations have positively impacted the Company's overall production, reserves, acreage and drilling prospects. These include, among others: (i) additional oil discoveries and initial oil production in Equatorial Guinea; (ii) significant opportunities for future drilling in West Africa; and (iii) new PSCs in Cote d'Ivoire and Pakistan and an anticipated new contract in Bangladesh. Discoveries and Production in Equatorial Guinea. The Company anticipates adding significant reserves and production from its 25% interest in Block B in Equatorial Guinea during 1996. UMC together with Mobil Equatorial Guinea Corporation ("Mobil"), which holds a 75% interest and is the operator of this block, drilled four exploration and five development wells in the Zafiro complex, all of which were successful. Two exploratory wells drilled in 1996 in the Zafiro complex, the Amatista No. 1 and Topacio No. 1, have successfully extended the field three miles to the south. These two wells, plus an additional development well, the Zafiro No. 6, encountered significant known field pay zones and established additional new pay zones where future drilling could add substantial reserves. By late September 1996, production exceeded 40 Mbopd (9 Mbopd net to UMC) from five wells in the Zafiro complex to a floating production, storage and off-loading system ("FPSO"). It is anticipated that the addition of two producing wells, constituting completion of Phase I, should increase production to the FPSO to a rate of as much as 50 Mbopd (11 Mbopd net to UMC) by year end 1996. UMC has initiated Phase II of the development plan on the Zafiro complex which will include the drilling of eight additional wells and the implementation of secondary recovery activities. The planned expenditures in 1997 for Block B are approximately $400 million, of which the Company's share is $100 million. West African Drilling Activity. As a result of the Company's historical drilling success and high quality prospects in West Africa, UMC expects to continue an active drilling program in this area. In Equatorial Guinea, the Company anticipates that in the fourth quarter of 1996 up to three drilling rigs will be used to drill development and exploration wells on the 25% owned Block B and one rig will be used to commence exploratory drilling on the UMC-operated Block D, which is 75% owned by UMC. In Cote d'Ivoire, the Company anticipates using two drilling rigs in the fourth quarter of 1996 to drill development and exploration wells on its 25-45% owned blocks. The West African drilling program contemplates approximately 10-15 exploratory wells and 20-25 development wells during the next 18 months. New Production Sharing Contracts. UMC has entered into several new PSCs which provide significant future exploration and development opportunities. In Cote d'Ivoire, UMC and Shell Exploration B.V. ("Shell"), a unit of the Royal Dutch/Shell Group, executed a PSC in September 1996 for the Entente Block (Block CI-105) covering approximately 512,000 offshore deepwater acres. Shell has agreed to reimburse UMC for certain expenses, carry UMC for a significant portion of the initial 3-D seismic costs and, if Shell elects to proceed to the operational phase, carry UMC for a substantial portion of the initial exploration expenses, which are expected to be incurred when drilling begins in late 1997 or early 1998. In Pakistan, the Company has been awarded one block and is awaiting government approval of assignments of interest on two other blocks, covering approximately 4.4 million gross acres, approximately half of which is offshore. UMC's interest in these three blocks, which will be 80% upon approval of the assignments, may be reduced by bringing in other partners prior to beginning drilling, which is expected in 1998. In Bangladesh, UMC is finalizing a PSC on Block 22, a block it anticipates being awarded covering approximately 3.3 million acres. UMC's interest in this block, which will initially be 40%, may be reduced by bringing in other partners prior to drilling. The Company continues to evaluate other worldwide concession arrangements which might provide future exploration opportunities for UMC. 4 6 North America. Several factors attributable to the Company's North American operations have positively impacted the Company's overall production, reserves, acreage and drilling prospects. These include, among others: (i) a natural gas discovery and concurrent accumulation of a major acreage position in the East Texas Cotton Valley Reef trend; (ii) the substantial new natural gas production from the Gulf of Mexico and identification of several new exploratory prospects; and (iii) the exploration in the Permian Basin in West Texas and New Mexico, and the Williston Basin in Montana and North Dakota. Cotton Valley Reef. UMC, together with several companies including Sonat Exploration Company, formed a joint venture in April 1996 to participate in 3-D seismic surveys and exploration and development drilling in the Cotton Valley Reef trend, a prolific natural gas producing region in East Texas. Based upon successful drilling results, the Company has continued to add to its significant acreage position in this area. As of August 1996, UMC had accumulated approximately 132,000 gross acres (22,000 net acres), one of the largest accumulations by any operator in this trend, in which it generally holds a 30% interest. The Company has successfully drilled in 1996 one of two wells on its acreage in this area. During the fourth quarter of 1996, initial gross production from this well, the Watson No. 2, is anticipated to reach 30 MMcfd (6 MMcfd net to UMC). Twelve separate 3-D seismic surveys are planned for this area during the balance of 1996 and 1997. UMC and its joint venture partners plan to drill approximately 10 exploratory wells on UMC's acreage during the balance of 1996 and 1997. Successful exploration results by UMC or other industry participants would likely lead to expanded activity levels in 1997 and 1998. Gulf of Mexico. The Company's natural gas production increased to 157 MMcfd during the first half of 1996 as compared to 125 MMcfd for the similar period during 1995, primarily as a result of its production from the Gulf of Mexico which increased 96% to 55 MMcfd from 28 MMcfd in the same period. The Company has interests in 86 offshore blocks representing approximately 331,000 gross acres (154,000 net acres) in this area on which it may conduct future exploratory drilling. During 1995 and the first half of 1996, the Company has been successful on 21 of 28 exploratory and development wells drilled in the Gulf of Mexico, including 6 of 12 exploratory wells. UMC anticipates drilling 15 exploratory wells in 1996 in the Gulf of Mexico, eight of which have been drilled to date, with 10 to 12 exploratory wells planned in 1997. Permian and Williston Basins. The Company is conducting a new focused exploration program in the Permian and Williston Basins. Based on leads identified from the Company's extensive 2-D seismic database, the Company is initiating 3-D seismic surveys in 12 areas in these regions to identify exploration drilling opportunities in which it generally expects to hold 40-60% interests in these prospects. UMC is currently leasing acreage in areas where it believes new horizontal drilling technology can be applied to existing producing areas to increase production and reserve recoveries as compared to conventional production techniques. BUSINESS STRATEGY UMC's business strategy is to increase reserves and production in a cost effective manner through a drilling program that balances lower risk development and exploratory drilling on UMC's North American acreage with high potential international prospects, supplemented by opportunistic property and corporate acquisitions. Supporting this strategy are: (i) a substantial portfolio of high return exploration opportunities; (ii) a large exploitation inventory; and (iii) a successful history of acquisitions. The Company also anticipates that the continued success of its international activities will continue to move the overall mix of its proved reserves and production toward a more equal balance between oil and natural gas. North America. The Company is aggressively exploiting its North American properties through the integration of advanced 3-D seismic technology, horizontal drilling and geoscience studies. UMC conducts a North American exploration program focused on internally-generated prospects, primarily in the Gulf Coast region, including East Texas, and in the Permian and Williston Basins, where the Company believes high success rates and excellent reserve potential exist. The Company manages its domestic exploration risk by applying state-of-the-art technology to identify prospects, emphasizing prospects over which it will have 5 7 operational control. The risks of these prospects are shared with industry partners and a group of institutional investors on terms considered favorable to the Company. The Company has generated a significant number of development drilling opportunities as a result of its exploration efforts and through producing property acquisitions. UMC has identified a large exploitation inventory including over 120 proved undeveloped drilling sites and 560 probable and possible drilling sites. Through June 1996, the Company has participated in drilling 38 development wells, 35 of which were successfully completed. Total capital expenditures for North American activities in 1996 are expected to be approximately $95 million, $43 million of which was spent in the first half of 1996. Capital expenditures in 1997 are expected to be approximately $80-$100 million. International. The Company's business strategy in the international arena is to pursue selected opportunities characterized by low initial costs, high reserve potential and the availability of existing technical data that may be further developed using current technology. The Company believes that it has unique management and technical expertise in identifying international opportunities and establishing favorable operating relationships with host governments. The Company attempts to manage major exploration commitments by negotiating directly with host governments for terms which minimize bonuses and initial work commitments. Additionally, the Company forms joint ventures under which partners provide a significant amount of the initial exploration costs. This strategy permits the Company to limit its capital exposure until commercial development is assured. The Company has identified a large number of exploration prospects on its Equatorial Guinea and Cote d'Ivoire acreage and has two development programs in progress. On Block CI-11 in Cote d'Ivoire, UMC will drill four development wells in 1996 and implement secondary recovery activities and drill additional development wells in 1997. Total capital expenditures for international activities in 1996 are expected to be approximately $110 million, $19 million of which was spent in the first half of 1996. Current plans for the balance of 1996 and 1997 include the drilling of 10-15 exploratory wells and 20-25 development wells. It is anticipated that 1997 capital expenditure levels for international activities will be approximately $150-$200 million, depending in part on the success of drilling activities. Acquisitions and asset management. The Company is continually evaluating opportunities to acquire oil and natural gas properties, primarily focusing on properties that complement its existing reserve base. This focus allows the Company to apply its engineering knowledge and expertise to maximize future development potential and reduce reserve risk associated with a given acquisition. The acquisitions must meet well-defined return, payout and cash flow criteria. Though only $10 million in acquisitions are planned for 1996, the Company will continue to pursue other acquisition opportunities. The Company has acquired over $800 million of properties over the last eight years on behalf of itself and institutional investors. In addition, as part of its business strategy, the Company periodically evaluates and, from time to time, sells certain of its producing properties. Such sales enable the Company to maintain financial flexibility, reduce overhead and operating expenses and redeploy capital to activities which are expected to have higher financial returns. Consistent with this strategy, the Company expects to sell as much as $35 million of non-strategic North American producing properties during 1996. Low cost operating structure. Management strives to maintain a low cost operating structure through the implementation of the aforementioned strategies and by employing an experienced and stable workforce. Controllable cash costs which are continuously monitored by management include production costs and general and administrative expenses. In 1995 UMC's production cost, before ad valorem and production taxes, averaged $0.58 per Mcfe of production and general and administrative expense averaged $0.17 per Mcfe of production. During the first half of 1996, UMC incurred production costs, before ad valorem and production taxes, and general administrative costs of $0.53 per Mcfe and $0.16 per Mcfe, respectively, down from $0.54 per Mcfe and $0.18 per Mcfe, respectively, for the comparable period of 1995. Further per unit cost improvement is anticipated for the balance of 1996 and 1997 as production volumes increase and cost containment efforts continue. 6 8 THE OFFERINGS Shares of Common Stock offered by the Company: U.S. Offering...................... 2,600,000 International Offering............. 650,000 ---------- Total......................... 3,250,000 ========== Shares of Common Stock offered by the Selling Stockholders: U.S. Offering...................... 2,000,000 International Offering............. 500,000 ---------- Total......................... 2,500,000 ========== Shares of Common Stock outstanding:(1) Before the Offerings............... 30,798,799 After the Offerings................ 34,048,799 Use of proceeds......................... The net proceeds to the Company from the sale of the Common Stock offered hereby, estimated to be approximately $149 million, will be used to fund planned capital expenditures and for general corporate purposes. Prior to incurring those costs, the Company will use the net proceeds to repay borrowings under the Cote d'Ivoire Facility and also under the Credit Facility. The Credit Facility will remain available for capital expenditures and other general corporate purposes following the Offerings. The Company will not receive any proceeds from the sale of shares by the Selling Stockholders. See "Use of Proceeds." NYSE symbol............................. UMC
- --------------- (1) Excludes 2,892,028 shares of Common Stock reserved for issuance as of August 31, 1996 upon the exercise of outstanding stock options under the Company's stock option plans. 7 9 SUMMARY FINANCIAL DATA The following summary financial data as of and for each of the three years in the period ended December 31, 1995 and as of and for the six month periods ended June 30, 1995 and 1996 are derived from the Consolidated Financial Statements of the Company included herein and are qualified in their entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and notes thereto.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------- -------------------- 1993 1994 1995 1995 1996 -------- --------- -------- -------- -------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues.................................. $ 82,318 $ 97,817 $147,041 $ 68,774 $114,962 Costs and expenses: Production costs........................ 30,539 36,938 42,891 19,481 25,766 General and administrative.............. 8,097 12,504 10,425 5,437 6,519 Exploration, including dry holes and impairments.......................... 6,811 16,187 15,682 7,623 14,711 Depreciation, depletion and amortization......................... 35,938 50,727 53,942 25,828 41,821 Impairment of proved oil and gas properties(1)........................ 10,051 94,793 8,317 -- -- -------- --------- -------- -------- -------- Income (loss) from operations............. (9,118) (113,332) 15,784 10,405 26,145 Interest and debt expense................. (6,532) (9,040) (17,945) (8,729) (11,380) Net income (loss)......................... (10,786) (80,989) 2,099 4,070 8,951 Net income (loss) available to common stockholders............................ (12,284) (80,989) 615 4,070 7,420 Net income (loss) per share of common stock................................... $ (1.06) $ (3.47) $ 0.02 $ 0.14 $ 0.24(2) Weighted average number of shares of common stock outstanding................ 11,588 23,330 29,259 29,035 30,474 OTHER FINANCIAL DATA: EBITDA(3)................................. $ 43,682 $ 48,375 $ 93,725 $ 43,856 $ 82,677 Capital expenditures:(4) Exploration and development............. $ 30,971 $ 52,137 $130,848 $ 50,639 $ 61,592 Acquisitions and other.................. 144,815 130,399 29,979 4,229 615 -------- --------- -------- -------- -------- $175,786 $ 182,536 $160,827 $ 54,868 $ 62,207 ======== ========= ======== ======== ======== BALANCE SHEET DATA (AT END OF PERIOD): Property and equipment, net............... $291,723 $ 424,930 $468,673 $417,804 $459,381 Total assets.............................. 343,223 511,214 578,450 493,940 557,784 Total long-term debt, including current maturities.............................. 92,149 239,634 247,899 189,495 231,608 Stockholders' equity...................... 189,672 171,438 212,312 203,509 229,816
- --------------- (1) Sharp declines in oil and natural gas prices in 1993 and 1994, combined with the implementation of Statement of Financial Accounting Standard ("SFAS") 121 in 1995, resulted in impairments on the carrying value of certain oil and natural gas assets. See Note 3 to the Consolidated Financial Statements of the Company. (2) On July 25, 1996, all of the outstanding shares of Series F Convertible Preferred Stock were converted into 1.845 million shares of Common Stock in accordance with the automatic conversion terms of such shares. Had the conversion of the Series F Preferred Stock occurred at January 1, 1996, the reported earnings per share would have been $0.28 for the six months ended June 30, 1996. (3) Reflects income from operations plus depreciation, depletion and amortization, impairment of proved oil and gas properties, non-recurring costs and exploration expense. EBITDA is presented because it is a widely accepted financial indication of the Company's ability to service and incur debt. EBITDA should not be considered as an alternative to earnings (loss) as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. (4) See Consolidated Statement of Cash Flows included in the Consolidated Financial Statements included herein. 8 10 SUMMARY RESERVE AND OPERATING DATA The following table sets forth summary information with respect to estimates of the Company's proved oil and natural gas reserves for each of the years in the three year period ended December 31, 1995, as evaluated by Netherland, Sewell & Associates, Inc., Ryder Scott Company and McDaniel & Associates Consultants, Ltd., independent petroleum engineers, and other production, price and cost data for the same three year period and the six months ended June 30, 1995 and 1996. For additional information relating to the Company's oil and natural gas reserves and operating data, see "Business and Properties -- Reserves" in the 1995 10-K, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations" and Notes to Consolidated Financial Statements.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------- -------------------- 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- Total Proved Reserves: Oil (Mbbls)........................... 10,572 22,667 32,439 Natural gas (MMcf).................... 340,843 439,412 438,925 MMcfe (6 Mcf per bbl)................. 404,275 575,414 633,559 SEC Value of Discounted Future Net Cash Flows ($ in thousands)(1)............. $323,568 $318,416 $505,153 Percent of Proved Developed Reserves.... 81% 74% 74% Production Replacement %................ 589% 456% 358% Reserve Life (years).................... 10.8 11.4 10.4 Net Production: Oil (Mbbls)........................... 1,298 1,778 2,760 1,269 1,861 Natural gas (MMcf).................... 29,608 39,669 44,453 22,567 28,609 MMcfe (6 Mcf per bbl)................. 37,396 50,337 61,013 30,181 39,775 Average Net Sales Prices:(2) Oil ($ per bbl)....................... $ 15.31 $ 15.00 $ 16.35 $ 16.65 $ 18.96 Natural gas ($ per Mcf)............... 2.04 1.71 1.53 1.51 2.13 Additional disclosures ($ per Mcfe): Production and operating costs(3)..... 0.64 0.58 0.58 0.54 0.53 Ad valorem and production taxes....... 0.18 0.15 0.12 0.11 0.12 General and administrative expense.... 0.22 0.25 0.17 0.18 0.16 Oil and natural gas depletion and depreciation....................... 0.95 0.99 0.87 0.84 1.04
- --------------- (1) Estimated future net revenue before income taxes reflects future cash inflows less future production costs and future development costs. See Notes to Consolidated Financial Statements. (2) Includes the effects of the Company's hedging activities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." (3) Costs incurred to operate and maintain wells and related equipment, excluding ad valorem and production taxes. 9 11 RISK FACTORS The following factors should be considered carefully together with the information provided elsewhere in this Prospectus in evaluating an investment in the Common Stock offered hereby. This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. See "Disclosure Regarding Forward-Looking Statements." VOLATILE NATURE OF OIL AND NATURAL GAS MARKETS; FLUCTUATIONS IN PRICES Revenues generated from the Company's operations are highly dependent upon the price of and demand for oil and natural gas. Historically, the markets for oil and natural gas have been volatile and are likely to continue to be volatile in the future. Prices for oil and natural gas are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond the control of the Company. These factors include political conditions in the Middle East, the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer product demand, weather conditions, domestic and foreign government regulations, the price and availability of alternative fuels and overall economic conditions. Declines in oil and natural gas prices may adversely affect the Company's cash flow, liquidity and profitability. Lower oil and natural gas prices also may reduce the amount of the Company's oil and natural gas that can be produced economically. It is impossible to predict future oil and natural gas price movements with any certainty. In order to manage its exposure to price risks in the sale of its oil and natural gas, the Company from time to time enters into energy price hedging arrangements covering a portion of its actual production volumes. The Company believes that its hedging strategies are generally conservative in nature. See "Business and Properties" in the 1995 10-K and Note 15 of Notes to Consolidated Financial Statements. RELIANCE ON ESTIMATES OF PROVED RESERVES There are numerous uncertainties inherent in estimating quantities of proved reserves, including many factors beyond the control of the Company. The reserve information set forth in this Prospectus represents only estimates based on reports prepared by Ryder Scott Company, Netherland, Sewell & Associates, Inc. and McDaniel & Associates Consultants, Ltd. as of December 31, 1993, 1994, and 1995. Petroleum engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable oil and natural gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions concerning future oil and natural gas prices, future operating costs, severance and excise taxes, development costs and workover and remedial costs, all of which may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of the future net cash flows expected therefrom prepared by different engineers or by the same engineers at different times may vary substantially. Actual production, revenues and expenditures with respect to Company's reserves will likely vary from estimates, and such variances may be material. See "Business and Properties -- Reserves" in the 1995 10-K. The discounted future net cash flows referred to in this Prospectus should not be construed as the current market value of the estimated oil and natural gas reserves attributable to the Company's properties. In accordance with applicable requirements of the Commission, the estimated discounted future net cash flows from proved reserves are generally based on prices and costs as of the date of the estimate, whereas actual future prices and costs may be materially higher or lower. Actual future net cash flows also will be affected by factors such as the amount and timing of actual production, supply and demand for oil and natural gas, curtailments or increases in consumption by natural gas purchasers and changes in governmental regulations or taxation. The timing of actual future net cash flows from proved reserves, and thus their actual present 10 12 value, will be affected by the timing of both the production and the incurrence of expenses in connection with development and production of oil and natural gas properties. In addition, the 10% discount factor, which is required by the Commission to be used to calculate discounted future net cash flows for reporting purposes, is not necessarily the most appropriate discount factor based on interest rates in effect from time to time and risks associated with the Company or the oil and natural gas industry in general. DEPENDENCE ON ACQUIRING OR FINDING ADDITIONAL RESERVES The Company's future success depends upon its ability to find, develop or acquire additional oil and natural gas reserves that are economically recoverable. The rate of production from oil and natural gas properties declines as reserves are depleted. Except to the extent the Company acquires additional properties containing proved reserves, conducts successful exploration and development activities or, through engineering studies, identifies additional zones behind the casing of a well or additional secondary recovery reserves, the proved reserves of the Company will decline as reserves are produced. Future oil and natural gas production is therefore highly dependent upon the Company's level of success in acquiring or finding additional reserves. There can be no assurance, however, that the Company's planned development projects and acquisition activities will result in significant additional reserves or that the Company will have continuing success drilling productive wells at low finding and development costs. Furthermore, while the Company's revenues may increase if prevailing oil and natural gas prices increase significantly, the Company's finding costs for additional reserves could also increase. See "Business and Properties -- Reserves" in the 1995 10-K and Notes to Consolidated Financial Statements. SUBSTANTIAL CAPITAL REQUIREMENTS The Company has made, and will continue to make, substantial capital expenditures for the acquisition, exploration and development of oil and natural gas reserves. Historically, the Company has financed these expenditures primarily with proceeds from debt and equity financings, cash provided by operating activities, asset sales and sales of partial interests in foreign concessions. The Company currently plans to increase capital expenditures from approximately $200 million in fiscal 1996 to approximately $230 to $300 million in fiscal 1997 principally for anticipated development costs in Western Africa and the Gulf Coast region, including East Texas. Management believes that, after debt service, it will have sufficient cash provided by operating activities, availability under the Credit Facility, the Offerings and other debt financings and asset sales to fund planned capital expenditures in 1997. If revenues decrease as a result of lower oil and natural gas prices or otherwise, the Company may have limited ability to expend the capital necessary to replace its reserves or to maintain production at current levels, resulting in a decrease in production over time. Where the Company is not the majority owner, it may have no control over the timing or amount of capital expenditures associated with the particular project. Additionally, capital expenditures associated with international projects can be significantly greater than those typically associated with the Company's domestic projects. If the Company is not able to fund its capital expenditures, the Company's interests in some of its properties may be reduced or forfeited. If the Company's cash flow from operations is not sufficient to satisfy its capital expenditure requirements, there can be no assurance that additional debt or equity financing, asset sales or sales of partial interests in foreign concessions will be available to meet these requirements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." ECONOMIC RISKS OF OIL AND NATURAL GAS OPERATIONS The Company's oil and natural gas operations are subject to the economic risks typically associated with exploration, development and production activities, including the necessity of significant expenditures to locate and acquire producing properties and to drill exploratory wells. In conducting exploration and development activities, the Company may drill unsuccessful wells and experience losses and, if oil or natural gas is discovered, there is no assurance that such oil or natural gas can be economically produced or satisfactorily marketed. The presence of unanticipated pressure or irregularities in formations, miscalculations or accidents 11 13 may cause the Company's exploration, development and production activities to be unsuccessful, resulting in a total loss of the Company's investment in such activities. DRILLING RISKS The nature of the oil and natural gas business involves certain operating hazards such as well blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, formations with abnormal pressures, pollution, releases of toxic gas and other environmental hazards and risks, any of which could result in substantial losses to the Company. In addition, the Company may be liable for environmental damages caused by previous owners of property purchased by the Company. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for exploration, development or acquisitions, or result in loss of the Company's properties. Additionally, some of the Company's oil and natural gas operations are located in an area that is subject to tropical weather disturbances, some of which can be severe enough to cause substantial damage to facilities and possibly interrupt production. In accordance with customary industry practices, the Company maintains insurance against some, but not all, of such risks and losses. The occurrence of such an event not fully covered by insurance could have a material adverse effect on the financial position and results of operations of the Company. COMPETITIVE INDUSTRY The Company operates in a highly competitive environment. In seeking to acquire desirable producing properties or new leases for future exploration and in marketing its oil and natural gas production, the Company faces intense competition from both major and independent oil and natural gas companies, as well as from numerous individuals, drilling programs and marketers. Many of these competitors have financial and other resources substantially in excess of those available to the Company. See "Business and Properties -- Competition" in the 1995 10-K. FOREIGN OPERATIONS The Company's international operations are currently being conducted in the countries of Cote d'Ivoire and Equatorial Guinea in Western Africa and in Pakistan, and are anticipated to be conducted in Bangladesh. Such operations are subject to political, economic and other uncertainties, including, among others, risk of war, revolution, border disputes, expropriation, renegotiation or modification of existing contracts, import, export and transportation regulations and tariffs, taxation policies, including royalty and tax increases and retroactive tax claims, exchange controls, currency fluctuations and other uncertainties arising out of foreign government sovereignty over the Company's international operations. The Company's international operations may also be adversely affected by laws and policies of the United States affecting foreign trade, taxation and investment. Furthermore, in the event of a dispute arising from international operations, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in the United States. On occasion, certain African countries, including Nigeria, have asserted rights to land, including oil and natural gas properties, through border disputes. If a country other than the one that granted the Company the PSC to properties successfully asserted superior rights to such properties, the Company's interests could be adversely affected. Certain regions of Africa and other regions of the world have a history of political and economic instability. Such instability could result in new governments or the adoption of new policies that might assume a substantially more hostile attitude toward foreign investment. In an extreme case, such a change could result in voiding pre-existing contracts and/or expropriation of foreign-owned assets. Although the Company operates in countries that have relatively stable political and economic environments, there can be no assurance that political, economic and other uncertainties will not develop in the region or countries in which the Company operates. REGULATION The petroleum industry is subject to various types of regulation throughout the world, including regulation in the United States by state and federal agencies, relating to the development, production, 12 14 marketing and transmission of oil and natural gas, as well as environmental and safety matters. There is no assurance that laws and regulations enacted in the future will not adversely affect the Company's exploration for and production and marketing of oil and natural gas. 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 Minerals Management Service (the "MMS"), an agency of the U.S. Department of the Interior, 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. See "Business and Properties -- Environmental Matters -- United States Environmental Regulations" and "-- Canadian Environmental Regulations" in the 1995 10-K. ABSENCE OF DIVIDENDS ON COMMON STOCK The Company currently intends to retain its cash for the operation and expansion of its business, including exploration, development and acquisition activities. The terms of the Credit Facility contain restrictions on the payment of dividends to holders of Common Stock. Accordingly, the Company's ability to pay dividends will depend upon such restrictions and the Company's results of operations, financial condition, capital requirements and other factors deemed relevant by the Board of Directors. See "Price Range of Common Stock and Dividend Policy." CERTAIN ANTI-TAKEOVER PROVISIONS The Company's Certificate of Incorporation and Bylaws and the Delaware General Corporation Law contain provisions that may have the effect of discouraging unsolicited takeover proposals for the Company. These provisions, among other things, provide for the classification of the Board of Directors, restrict the ability of stockholders to take action by written consent, authorize the Board of Directors to designate the terms of and issue new series of preferred stock, limit the personal liability of directors, require the Company to indemnify directors and officers to the fullest extent permitted by applicable law and impose restrictions on business combinations with certain interested parties. In addition, the Company has granted one stockholder's right for each share of Common Stock entitling the holder thereof to purchase, upon the accumulation by a party of 15% or more of the outstanding voting stock of the Company or the announcement of an unsolicited offer to acquire 30% or more of the Company's voting stock, the capital stock of the Company or an acquiring entity at a substantial discount from the then current market price. 13 15 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Prospectus includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts included in this Prospectus, including without limitation, statements under "Prospectus Summary," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding planned capital expenditures, increases in oil and gas production, the number of anticipated wells to be drilled in 1996 and thereafter, the Company's financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the Company. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates made by different engineers often vary from one another. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revisions of such estimate and such revisions, if significant, would change the schedule of any further production and development drilling. Accordingly, reserve estimates are generally different from the quantities of oil and natural gas that are ultimately recovered. Additional important factors that could cause actual results to differ materially from the Company's expectations are disclosed under "Risk Factors" and elsewhere in this Prospectus, including without limitation in conjunction with the forward-looking statements included in this Prospectus. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the shares of Common Stock offered hereby (at an assumed offering price of $47.75 per share and after deducting estimated underwriter discounts and offering expenses) are estimated to be approximately $149 million ($189 million if the over-allotment option is exercised). The Company intends to apply these net proceeds to fund planned capital expenditures and for general corporate purposes. Prior to incurring those costs, the Company will use the net proceeds to repay borrowings under the Cote d'Ivoire Facility and also under the Credit Facility. The Credit Facility will remain available for capital expenditures and other general corporate purposes following the Offerings. The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholders. 14 16 PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY Since July 22, 1993 the Company's Common Stock has been traded on the NYSE under the symbol "UMC." As of August 31, 1996, there were 30,798,779 shares of Common Stock outstanding held by approximately 212 stockholders of record. The Company has never paid dividends on its Common Stock and does not expect to pay dividends in the near future. The following table shows the high and low sales prices of the Common Stock on the NYSE for the periods indicated:
HIGH LOW ------ ------ QUARTER ENDED, 1994 March 31................................. $15.50 $12.63 June 30.................................. $15.88 $12.00 September 30............................. $15.25 $12.75 December 31.............................. $14.63 $11.00 QUARTER ENDED, 1995 March 31................................. $14.25 $10.25 June 30.................................. $16.13 $13.38 September 30............................. $18.75 $15.13 December 31.............................. $18.13 $16.13 QUARTER ENDED, 1996 March 31................................. $25.88 $15.00 June 30.................................. $36.25 $23.13 September 30............................. $48.38 $32.13
CAPITALIZATION The following table sets forth, as of August 31, 1996, the historical unaudited consolidated capitalization of the Company and as adjusted to give effect to the Offerings and the application of the estimated net proceeds therefrom. This table should be read in conjunction with "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's Consolidated Financial Statements and notes thereto included elsewhere in this Prospectus.
AUGUST 31, 1996 ---------------------------- HISTORICAL AS ADJUSTED ---------- ----------- (UNAUDITED) (DOLLARS IN THOUSANDS) Long-term debt: Credit Facility.................................................. $ 65,731 $ -- 10 3/8% Senior Subordinated Notes................................ 150,000 150,000 Cote d'Ivoire Facility........................................... 33,750 -- --------- --------- Total long-term debt (including current maturities)...... 249,481 150,000 --------- --------- Stockholders' equity: Common Stock, $0.01 par value, 46,000,000 shares authorized; 30,798,799 shares issued and outstanding; 34,048,799 shares issued and outstanding as adjusted............................ 308 340 Additional paid-in capital....................................... 350,376 499,324 Foreign currency translation adjustment.......................... (4,214) (4,214) Retained earnings (deficit)...................................... (111,949) (111,949) --------- --------- Total stockholders' equity............................... 234,521 383,501 --------- --------- Total capitalization................................... $ 484,002 $ 533,501 ========= =========
15 17 RECENT DEVELOPMENT On October 24, 1996, UMC announced its third quarter 1996 consolidated net income of $2.8 million, or $0.09 per share of Common Stock, compared to a net loss of $1.9 million, or $0.09 per share of Common Stock, for the third quarter of 1995. For the first nine months of 1996, net income totaled $11.8 million, or $0.33 per share of Common Stock, versus $2.2 million, or $0.05 per share of Common Stock, earned in the same period in 1995. Total revenues for the third quarter of 1996 were $55.1 million, compared to $29.1 million for the third quarter of 1995, and for the first nine months of 1996 they were $170.0 million, compared to $97.8 million for the first nine months of 1995. Included in third quarter 1996 amounts is a $7.6 million pre-tax gain from the sale of international contract interests. Interim results are not necessarily indicative of the results which may be expected for any other interim period or for the full year. SUMMARY UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------- --------------------- 1995 1996 1995 1996 -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues...................................... $ 29,069 $ 55,063 $ 97,843 $170,025 Costs and expenses: Production costs........................... 11,318 11,919 30,799 37,685 General and administrative................. 1,646 3,040 7,083 9,559 Exploration, including dry holes and impairments.............................. 4,496 8,105 12,119 22,816 Depreciation, depletion and amortization... 13,087 21,072 38,915 62,893 -------- -------- -------- -------- Income (loss) from operations................. (1,478) 10,927 8,927 37,072 Interest and debt expense..................... (3,098) (5,440) (11,827) (16,820) Net income (loss)............................. (1,852) 2,838 2,218 11,789 Net income (loss) per share of common stock... $ (0.09) $ 0.09 $ 0.05 $ 0.33 Weighted average number of shares of common stock outstanding.......................... 27,999 32,025 29,207 30,695 BALANCE SHEET DATA (AT END OF PERIOD): Property and equipment, net................... $447,000 $481,227 Total assets.................................. 563,172 610,850 Long-term total debt, including current maturities................................. 217,818 255,117 Stockholders' equity.......................... 212,959 240,396
16 18 SELECTED CONSOLIDATED FINANCIAL DATA The following selected historical consolidated financial data of the Company for each year in the five-year period ended December 31, 1995 is derived from, and qualified by reference to, the Company's Consolidated Financial Statements and the notes thereto. The consolidated financial data as of December 31, 1991, 1992, 1993, 1994 and 1995 and for the years then ended were derived from the historical Consolidated Financial Statements of the Company, which were audited by Arthur Andersen LLP, independent certified public accountants. The consolidated financial information as of June 30, 1995 and 1996, and for the six months ended June 30, 1995 and 1996, were derived from the unaudited historical consolidated financial statements included elsewhere in this Prospectus. In the opinion of the Company, the unaudited consolidated financial statements reflect all adjustments which are of a normal recurring nature, necessary for a fair presentation of the financial position and results of operation for the unaudited period. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results to be expected for the full year. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's Consolidated Financial Statements and notes thereto included elsewhere in this Prospectus.
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ----------------------------------------------------- ------------------- 1991 1992 1993(1) 1994(1) 1995 1995 1996 -------- -------- -------- --------- -------- -------- -------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues: Gas sales................................... $ 38,866 $ 43,019 $ 60,457 $ 67,763 $ 68,228 $ 34,122 $ 60,986 Oil sales................................... 22,773 17,257 19,877 26,675 45,122 21,128 35,284 Gain on sale of assets and other............ 5,129 5,793 1,984 3,379 33,691 13,524 18,692 -------- -------- -------- --------- -------- -------- -------- Total revenues.......................... 66,768 66,069 82,318 97,817 147,041 68,774 114,962 -------- -------- -------- --------- -------- -------- -------- Costs and expenses: Production costs............................ 21,640 21,233 30,539 36,938 42,891 19,481 25,766 General and administrative.................. 8,459 7,213 8,097 12,504 10,425 5,437 6,519 Exploration, including dry holes............ 6,713 5,769 6,811 16,187 15,682 7,623 14,711 Depreciation, depletion and amortization.... 25,969 25,155 35,938 50,727 53,942 25,828 41,821 Impairment of proved oil and gas properties(2)............................. -- -- 10,051 94,793 8,317 -- -- Interest expense............................ 10,370 6,434 6,532 9,040 17,945 8,729 11,380 Other credits, net.......................... (283) (71) (2,102) 141 (375) (305) (78) -------- -------- -------- --------- -------- -------- -------- 72,868 65,733 95,866 220,330 148,827 66,793 100,119 -------- -------- -------- --------- -------- -------- -------- Income (loss) before taxes, discontinued operations and cumulative effect of changes in accounting principles.................... (6,100) 336 (13,548) (122,513) (1,786) 1,981 14,843 Income tax benefit (provision)................ 2,333 1,657 6,305 41,524 3,885 2,089 (5,892) -------- -------- -------- --------- -------- -------- -------- Income (loss) before discontinued operations and cumulative effect of changes in accounting principles....................... (3,767) 1,993 (7,243) (80,989) 2,099 4,070 8,951 Cumulative effect of changes in accounting principles, net of tax...................... -- (368) (3,543) -- -- -- -- -------- -------- -------- --------- -------- -------- -------- Net income (loss)............................. (3,767) 1,625 (10,786) (80,989) 2,099 4,070 8,951 Preferred stock dividends..................... -- (782) (1,498) -- (1,484) -- (1,531) -------- -------- -------- --------- -------- -------- -------- Net income (loss) available to common stockholders................................ $ (3,767) $ 843 $(12,284) $ (80,989) $ 615 $ 4,070 $ 7,420 ======== ======== ======== ========= ======== ======== ======== Net income (loss) per share of common stock... $ (1.33) $ 0.06 $ (1.06) $ (3.47) $ 0.02 $ 0.14 $ 0.24(3) Weighted average number of shares of common stock outstanding........................... 2,833 13,143 11,588 23,330 29,259 29,035 30,474 OTHER FINANCIAL DATA: EBITDA(4)..................................... $ 36,669 $ 37,623 $ 43,682 $ 48,375 $ 93,725 $ 43,856 $ 82,677 Capital expenditures:(5) Exploration and development................. $ 28,738 $ 12,430 $ 30,971 $ 52,137 $130,848 $ 50,639 $ 61,592 Acquisitions and other...................... 4,983 7,930 144,815 130,399 29,979 4,229 615 -------- -------- -------- --------- -------- -------- -------- $ 33,721 $ 20,360 $175,786 $ 182,536 $160,827 $ 54,868 $ 62,207 ======== ======== ======== ========= ======== ======== ======== BALANCE SHEET DATA (AT END OF PERIOD): Property and equipment, net................... $181,297 $167,885 $291,723 $ 424,930 $468,673 $417,804 $459,381 Total assets.................................. 208,084 197,207 343,223 511,214 578,450 493,940 557,784 Long-term debt, including current maturities.................................. 97,660 67,990 92,149 239,634 247,899 189,495 231,608 Stockholders' equity.......................... 70,586 90,985 189,672 171,438 212,312 203,509 229,816
- --------------- See notes (1)-(5) on following page. 17 19 - --------------- (1) The Company made significant acquisitions in 1993 and 1994. See Notes to the Consolidated Financial Statements included herein. (2) See Note 3 of Notes to Consolidated Financial Statements regarding the Company's policy for assessing the recoverability of proved oil and natural gas properties. In 1993, the Company recorded a total pre-tax charge of $15.4 million against earnings, $10.1 million of which applied to 1993 and $3.5 million which applied to periods prior to 1993, net of a deferred tax benefit of $1.8 million and in 1994 a pre-tax charge against earnings of $94.8 million. In 1995, the Company adopted SFAS 121, resulting in a pre-tax impairment charge of $8.3 million. (3) On July 25, 1996, all of the outstanding shares of Series F Convertible Preferred Stock were converted into 1.845 million shares of Common Stock in accordance with the automatic conversion terms of such shares. Had the conversion of the Series F Preferred Stock occurred at January 1, 1996, the reported earnings per share would have been $0.28 for the six months ended June 30, 1996. (4) Reflects income from operations plus depreciation, depletion and amortization, impairment of proved oil and gas properties, non-recurring costs and exploration expense. EBITDA is presented because it is a widely accepted financial indication of the Company's ability to service and incur debt. EBITDA should not be considered as an alternative to earnings (loss) as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. (5) See Consolidated Statement of Cash Flows included in the Consolidated Financial Statements included herein. 18 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion is intended to assist in understanding the Company's financial position and results of operations for each year in the three year period ended December 31, 1995 and for the six months ended June 30, 1995 and 1996. The Consolidated Financial Statements and the notes thereto included elsewhere in this Prospectus should be referred to in conjunction with this discussion. OVERVIEW The Company was incorporated in 1987 to pursue opportunities to acquire oil and natural gas properties. Since its inception, the Company has grown through a series of strategic corporate and property acquisitions, combined with an exploration program that focuses on UMC's existing properties in North America and in certain international regions. Management's strategy is to increase reserves and production in a cost effective manner through a drilling program that balances lower risk development and exploratory drilling in the Company's North America acreage with higher potential international prospects, supplemented by opportunistic property and corporate acquisitions. The Company's international activities were initiated in 1991 and are now focused on the offshore regions of Equatorial Guinea and Cote d'Ivoire, where it holds substantial acreage positions in highly prospective regions. The Company's acreage in Equatorial Guinea is located in the Nigerian Delta and is directly adjacent to the prolific oil fields offshore Nigeria, which in 1995 had annual oil production of approximately 620 MMbbls. Management believes that this region has the potential to significantly increase the Company's reserves based upon results of drilling to date and analysis of technical data regarding additional prospects. Production is expected to reach as much as 50 Mbopd (11 Mbopd net to UMC) by year end 1996 from Block B in Equatorial Guinea. In Cote d'Ivoire, the Company has discovered oil and natural gas by evaluating and pursuing geological leads and drilling results generated by the majors. Initial development of a portion of the Company's acreage has resulted in production in excess of 16 Mbopd and 50 MMcfd (3 Mbopd and 8 MMcfd net to UMC), with a majority of the acreage on the five PSCs still to be explored. Although the Company's reserves have historically been concentrated in natural gas, recent discoveries, primarily from the Company's international operations, are shifting the percentage of reserves represented by oil and condensate toward a more equal balance with natural gas reserves. Concurrently, the Company expects to continue the historical trend of adding to its North American reserve base. The Company believes these additions to reserves, both domestically and internationally, will lead to significant increases in production through 1997. The Company has historically entered into oil and natural gas price swaps, or other similar hedging transactions, on a portion of its production volumes to reduce its exposure to price fluctuations. The sale prices for oil and natural gas shown in results of operations described below reflect hedging transactions undertaken by the Company. See Notes 2 and 15 of Notes to Consolidated Financial Statements. The Company follows the successful efforts method of accounting for oil and natural gas producing activities. Under this method, the Company capitalizes all costs incurred to acquire mineral interests in oil and natural gas properties, to drill and equip exploratory wells in which proved reserves are discovered and to drill and equip development wells. Geological and geophysical costs, including sizable upfront seismic costs, delay rentals and technical support costs are expensed as incurred except in those circumstances where the Company has a contractual right to recover such costs from additional proved reserves, in which case they are capitalized. The costs of drilling and equipping exploratory wells in which proved reserves are not discovered are expensed upon determination that a well does not justify commercial development. The capitalized costs of producing oil and natural gas properties are depreciated and depleted by the units-of-production method based on estimated proved reserves. Unproved oil and natural gas properties are periodically assessed for impairment of value, and are expensed in the period in which the impairment is recognized. The successful efforts method of accounting could affect the Company's income from operations depending upon the Company's level of exploration drilling and the results of such drilling in any year. 19 21 RESULTS OF OPERATIONS The following table sets forth information with respect to the Company's production and average unit prices and costs for the periods indicated:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------- ------------------- 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- Production: Oil (Mbbls) U.S......................... 917 1,160 1,826 866 1,122 Canada...................... 381 618 649 334 295 Cote d'Ivoire............... -- -- 285 69 444 ------- ------- ------- ------- ------- Total.................. 1,298 1,778 2,760 1,269 1,861 Natural Gas (MMcf) U.S......................... 26,785 35,182 38,878 19,696 24,850 Canada...................... 2,823 4,487 5,383 2,871 2,516 Cote d'Ivoire............... -- -- 192 -- 1,243 ------- ------- ------- ------- ------- Total.................. 29,608 39,669 44,453 22,567 28,609 Average net sales price, including hedging: Oil ($ per bbl) U.S......................... $ 15.50 $ 14.93 $ 16.41 $ 16.40 $ 19.32 Canada...................... 14.85 15.14 16.59 17.59 17.85 Cote d'Ivoire............... -- -- 15.45 15.04 18.79 ------- ------- ------- ------- ------- Average................ $ 15.31 $ 15.00 $ 16.35 $ 16.65 $ 18.96 Natural Gas ($ per Mcf) U.S......................... $ 2.08 $ 1.73 $ 1.58 $ 1.57 $ 2.23 Canada...................... 1.66 1.58 1.17 1.15 1.37 Cote d'Ivoire............... -- -- 1.72 -- 1.73 ------- ------- ------- ------- ------- Average................ $ 2.04 $ 1.71 $ 1.53 $ 1.51 $ 2.13
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995 Oil and natural gas revenues for the six months ended June 30, 1996 were $96.3 million, or 74.2% greater than the six months ended June 30, 1995 amount of $55.3 million. The increase in oil and natural gas revenues was primarily attributable to significant improvements in oil and natural gas prices for the period and increased production volumes of both oil and natural gas. The average sales price for natural gas increased $0.62 per Mcf or 41.1% in the first six months of 1996 from the first six months of 1995. Natural gas production for the six months ended June 30, 1996 was 28,609 MMcf, an increase of 26.8% over 1995 volumes due primarily to new production from the Gulf of Mexico and gas production in Cote d'Ivoire which commenced late in 1995. The average sales price for oil increased $2.31 per bbl or 13.9% in the first six months of 1996 compared to the first six months of 1995. Oil production increased 46.7% or 592 Mbbls in the first six months of 1996 due primarily to increased oil production in Cote d'Ivoire and condensate production in the Gulf of Mexico. Production costs, including ad valorem and production taxes, for the first six months of 1996 of $25.8 million increased 32.3% from $19.5 million for the first six months of 1995, with the increase primarily attributable to production in Cote d'Ivoire. However, production costs per Mcfe remained flat at $0.65 in the first six months of 1996 and 1995. General and administrative expenses for the six months ended June 30, 1996 were $6.5 million compared to $5.4 million for the six months ended June 30, 1995, primarily due to an overall increase in the Company's 20 22 operations. However, in the first six months of 1996, general and administrative expenses per Mcfe of production were $0.16 compared to $0.18 for the comparable period of 1995 or a decrease of 11.1%. Exploration, dry hole and lease impairment expense for the first six months of 1996 was $14.7 million compared to $7.6 million for the first six months of 1995. This increase of $7.1 million was primarily due to increased geological and geophysical costs, reflecting a higher level of international and North American exploration activity in 1996 and increased seismic and dry hole costs. Depreciation, depletion and amortization ("DD&A") expense for the first six months of 1996 of $41.8 million increased 62.0% from $25.8 million for the six months ended June 30, 1995 due to increased production levels. Furthermore, a greater proportion of the Company's oil and natural gas volumes were produced from the Gulf of Mexico region which historically has had higher amortization rates. Interest and debt expense for the first six months of 1996 was $11.4 million compared to $8.7 million for the first six months of 1995. This $2.7 million increase was primarily due to higher average interest rates in 1996 relating to the issuance of the 10 3/8% Senior Subordinated Notes due 2005 (the "Senior Subordinated Notes") in the fourth quarter of 1995. An income tax provision of $5.9 million (of which $0.3 million is a current provision and $5.6 million is a deferred provision) was recognized as of June 30, 1996, compared to a benefit of $2.1 million for the comparable period of 1995. During the second quarter of 1995, an on-going audit of the Company's Canadian operations was completed with favorable results, triggering the release of $0.7 million in deferred income taxes and generation of a $0.6 million current tax receivable. Consistent with SFAS 109, the income tax provision or benefit is derived from changes in deferred income taxes on the balance sheet. The Company reported net income of $9.0 million, or $0.24 per share, for the first six months of 1996 compared to net income of $4.1 million, or $0.14 per share, for the comparable period in 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994 Oil and natural gas revenues for 1995 were $113.4 million, or 20.1% greater than 1994 oil and natural gas revenues of $94.4 million. The average sales price before hedging for U.S. natural gas decreased to $1.46 per Mcf or 15.1% in 1995 from 1994. The impact of hedging on natural gas prices received and natural gas revenues for 1995 and 1994 was an increase (decrease) of $0.07 and $(0.01) per Mcf and $3.5 million and $(0.4) million, respectively. Natural gas production for 1995 was 44,453 MMcf, an increase of 12.1% over 1994 volumes due primarily to the acquisition of General Atlantic Resources, Inc. ("GARI") in late 1994 and commencement of production in Cote d'Ivoire. The average sales price before hedging for oil increased 7.7% in 1995 compared to 1994. The impact of hedging on oil prices received and oil revenues for 1995 and 1994 was an increase of $0.22 and $0.03 per barrel and $0.6 million and $0.1 million, respectively. Oil production increased 55.2% or 982 Mbbls in 1995, due primarily to commencement of oil production in Cote d'Ivoire and the GARI acquisition in late 1994. The disposition of oil and natural gas assets either for rate of return, capital funding requirements or political risk mitigation generated gains on sales of assets of $31.2 million in 1995, as compared to $0.7 million in 1994. The largest contributors to the gain in 1995 were the sales of partial interests in Block CI-01 and CI-02 in Cote d'Ivoire and Blocks B, C and D in Equatorial Guinea. From these partial interest sales, the Company received $40.1 million in consideration in 1995 and 1996. A pre-tax gain of $18.3 million was recognized on 1995 proceeds of $22.1 million. During 1995, the Company recognized $12.9 million as gain on sales of producing properties in North America. Production costs for 1995 of $42.9 million increased 16.3% from $36.9 million for 1994, primarily due to a full year of ownership of GARI and commencement of production in Cote d'Ivoire. However, on a cost per Mcfe basis, production costs for 1995 decreased $0.03 per Mcfe when compared to 1994. General and administrative expense for 1995 was $10.4 million compared to $12.5 million in 1994. This decrease was due to (i) certain non-recurring costs in 1994 associated with the GARI merger; (ii) an increase in recovery of management fees from institutional partners; (iii) an increase in recovery of overhead from 21 23 industry partners domestically and internationally and (iv) certain consolidation efficiencies from the GARI merger. For the reasons previously mentioned, general and administrative expense as a percentage of total revenue decreased from 12.8% in 1994 to 7.1% in 1995. Exploration, dry hole and lease impairment expense for 1995 totaled $15.7 million as compared to $16.2 million in 1994. This decrease of $0.5 million was primarily due to recovery of costs incurred from the sale of certain of the Company's interests in Cote d'Ivoire and Equatorial Guinea as previously discussed, offset by higher exploration activity levels internationally and offshore Gulf of Mexico. DD&A expense for 1995 of $53.9 million increased 6.3% from $50.7 million for 1994. However, the rate per Mcfe of oil and natural gas DD&A decreased 12.1% from $0.99 per Mcfe in 1994 to $0.87 per Mcfe in 1995. This absolute increase was primarily attributable to increased production levels and commencement of production in Cote d'Ivoire, which was offset by decreases in net book values due primarily to the impairment of proved properties recorded at December 31, 1994. During 1995, the Financial Accounting Standards Board (FASB) issued SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The Company adopted the provisions of SFAS 121 during the fourth quarter of 1995, recording a pre-tax impairment of $8.3 million and an after-tax effect of $5.1 million. Interest and debt expense for 1995 was $17.9 million compared to $9.0 million in 1994. This $8.9 million increase was primarily due to the increased debt levels incurred to acquire GARI and to support the 1995 capital expenditure program, which was dominated by development expenditures in the Gulf of Mexico and Western Africa. The Company's average interest rate for 1995 and 1994 was 7.47% and 5.95%, respectively. The increase in the average interest rate was due primarily to the issuance of the Senior Subordinated Notes during the fourth quarter of 1995. While raising the Company's average interest rate, issuance of the Senior Subordinated Notes replenished liquidity available under the Company's Credit Facility. An income tax benefit of $3.9 million was recognized in 1995, compared to a benefit of $41.5 million in 1994. Consistent with SFAS 109, the income tax benefit was derived primarily from changes in deferred income tax assets and liabilities recorded on the balance sheet. The primary items affecting the 1995 deferred tax benefit were the property sales and the impairment of proved properties relating to the adoption of SFAS 121 during the fourth quarter of 1995. The 1994 $94.8 million impairment of proved oil and gas property was the largest item affecting the 1994 deferred tax benefit. All of these transactions had the effect of reducing the difference between tax basis of Company assets and the basis of those assets for financial reporting purposes. This reduction in deferred tax liabilities more than offset the use of $31 million of net operating loss ("NOL") carryforwards to eliminate 1995 taxable income. The Company paid cash income taxes in 1995 and 1994 of $0.5 million and $0.4 million, respectively, to several states, Canada and the U.S. for the Alternative Minimum Tax. The Company reported net income of $2.1 million, or $0.02 per share, for 1995 compared to a net loss of ($81.0) million, or ($3.47) per share, for 1994. YEAR ENDED DECEMBER 31, 1994 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1993 Oil and natural gas revenues for 1994 were $94.4 million, or 17.6% greater than the 1993 amount of $80.3 million. The average sales price for U.S. natural gas decreased $0.37 per Mcf or 17.7% in 1994 from 1993. The impact of hedging on natural gas prices received and natural gas revenues for 1994 and 1993 was a reduction of $0.01 and $0.05 per Mcf and $0.4 million and $1.4 million, respectively. Natural gas production for 1994 was 39,669 MMcf, an increase of 34.0% over 1993 volumes due primarily to the successful drilling in late 1993 and 1994, and the acquisition of GARI in September 1994. The average sales price for oil decreased 2.2% in 1994 compared to 1993. The impact of hedging on oil prices received and oil revenues for 1994 was an increase of $0.03 per bbl and $0.1 million, respectively. Oil production increased 37.0% or 480 Mbbls in 1994 due primarily to the Canadian production acquired from Norfolk Holdings, Inc. ("NHI") in 1993 and the GARI acquisition in 1994. 22 24 Production costs for 1994 of $36.9 million increased 21.0% from $30.5 million for 1993, primarily due to a full year of NHI and KPX, Inc. ("KPX") and GARI since the dates of acquisition. However, on a cost per Mcfe basis, production costs for 1994 decreased $0.09 per Mcfe when compared to 1993. General and administrative expense for 1994 was $12.5 million compared to $8.1 million in 1993. This increase was due to (1) the NHI acquisition; (2) additional costs associated with being a publicly traded company for a full year; (3) operations of GARI since September 19, 1994 and (4) certain non-recurring costs associated with the GARI acquisition. For the reasons previously mentioned, general and administrative expense as a percent of total revenue increased from 9.8% in 1993 to 12.8% in 1994. The 1994 general and administrative expenses do not include the consolidation efficiencies from the GARI acquisition that were realized in 1995. Exploration, dry hole and lease impairment expense for 1994 totaled $16.2 million as compared to $6.8 million in 1993. This increase of $9.4 million was primarily due to increased geological and geophysical costs, reflecting the higher level of international and North American exploration activity in 1994, and the expensing of two dry holes in Equatorial Guinea and four Gulf of Mexico wells in the fourth quarter of 1994. DD&A expense for 1994 of $50.7 million increased 41.2% from $35.9 million for 1993. However, the rate per Mcfe increased only 4.2% from $0.95 per Mcfe in 1993 to $0.99 per Mcfe in 1994. This increase was primarily due to (i) the value at which the GARI properties were recorded in accordance with the purchase method of accounting; (ii) $3.1 million attributable to the write-off of three depleted properties; and (iii) increased production. Interest and debt expense for 1994 was $9.0 million compared to $6.5 million in 1993. This $2.5 million increase was primarily due to the increased debt levels incurred to acquire GARI and a slight increase in UMC's average interest rate from 5.51% in 1993 to 5.95% in 1994. The effect of interest rate hedging for the year 1994 was to reduce interest expense $0.2 million. The effect on 1993 was immaterial. An income tax benefit, on a net basis, of $41.5 million (all of which is a deferred benefit) was recognized in 1994, compared to a net benefit of $6.3 million in 1993. Consistent with SFAS 109, the income tax benefit was derived from changes in deferred income taxes on the balance sheet. The $10.1 million impairment of proved oil and natural gas properties, applicable to 1993, and the $94.8 million impairment, applicable to 1994, were the largest items affecting the deferred tax benefit, increasing the 1993 and 1994 benefit by $4.4 million and $36.1 million, respectively. See Note 3 of Notes to Consolidated Financial Statements. The Company paid cash income taxes in 1994 and 1993 of $0.4 million and $0.9 million, respectively, reflecting the lower taxable income position due to prices and also the availability of over $147.0 million in NOL carryforwards. Due principally to the recording of the impairment of proved oil and natural gas properties, the Company reported a net loss of $81.0 million, or $3.47 per share, for 1994 compared to a net loss of $10.8 million, or $1.06 per share, for 1993. LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded its operations, acquisitions, exploration and development expenditures from cash flows from operating activities, bank borrowings, sales of common and preferred stock, issuance of Senior Subordinated Notes, sales of non-strategic oil and natural gas properties, sales of partial interests in exploration concessions and project finance borrowings. Total available liquidity, which was primarily available under its revolving loan credit capacity, at December 31, 1993, 1994 and 1995 was $53.8 million, $42.0 million and $110.4 million, respectively, and was $126.7 million at June 30, 1996. The Company's cash flows provided by operating activities for the years ended December 31, 1993, 1994 and 1995, and for the six months ended June 30, 1996 were $42.2 million, $43.6 million, $46.0 million and $35.0 million, respectively. The Company has historically used borrowings under a credit agreement with a syndicate of lenders (the "Credit Facility") to partially finance its operating and capital expenditure activity. As of June 30, 1996, the borrowing base under the Credit Facility was $190 million, and the Company had outstanding borrowings 23 25 thereunder of approximately $45 million. The Company anticipates that the borrowing base will increase to $200 million on November 1, 1996. In July 1995, a subsidiary of the Company entered into a loan agreement (the "Cote d'Ivoire Facility") with the International Finance Corporation, an affiliate of the World Bank (the "IFC"), in connection with the development of Block CI-11 offshore Cote d'Ivoire. The Cote d'Ivoire Facility provides for borrowings up to $35.0 million by the Company's subsidiary which holds its interest in Block CI-11 and is secured by liens on those interests and related assets as well as a guarantee from the Company and UMC Petroleum Corporation ("Petroleum"). The guarantees of the Cote d'Ivoire Facility by UMC and Petroleum are to be released upon the achievement of certain reserve levels and production rates from the properties. As of June 30, 1996, the Company had borrowed $35 million under the Cote d'Ivoire Facility. Amortization of principal under the Cote d'Ivoire Facility began in July 1996 with final maturity in January 2005. It is anticipated that a portion of the net proceeds from the Offerings will be used to repay all outstanding borrowings under the Cote d'Ivoire Facility. The Company is currently in negotiations with several institutions concerning a possible financing based solely upon the Company's international assets. Management believes that completing a facility of up to $100 million by early 1997 is possible, subject to final terms and market conditions. If a new international facility is implemented, total credit availability under both an international facility and the Credit Facility will likely be in the $250-$300 million range. Absent a new international facility, the Company is confident that the Credit Facility could be expanded beyond the $200 million borrowing base level that is anticipated at November 1, 1996. In September 1995, Havre Pipeline LLC, an entity 50% owned by the Company and accounted for under the equity method, entered into a credit agreement with Union Bank of California (the "Havre Credit Facility") in order to finance the purchase of a natural gas pipeline in the Bearpaw area of Montana. The Havre Credit Facility provides for a $14.3 million term loan and a $2.0 million revolving loan, with the revolving loan balance converting into an additional term loan on September 30, 1997. Amortization of principal under the Havre Credit Facility began in July 1996 with final maturity in September 2005. As of August 31, 1996, outstanding borrowings thereunder were approximately $14.8 million, $7.4 million net to UMC. The Company is in the process of negotiating the purchase of additional interests in Havre Pipeline LLC. If the purchase is completed, a portion of the Havre Credit Facility will be recorded in the consolidated financial statements of the Company. Equity financings have represented a significant source of funds for the Company. Since the Company's inception, over $197 million of private equity capital and approximately $143 million of public equity capital has been raised to support its growth. The Company completed its initial public offering in July 1993, resulting in net proceeds to the Company of $68.7 million. In November 1994, the Company issued approximately $64 million in common equity as partial consideration for the GARI acquisition. In June and July 1995, the Company sold an aggregate $35.0 million of Series F Preferred Stock in a private placement to institutional investors. The Series F Preferred Stock had an 8.75% cumulative dividend, payable quarterly commencing on September 30, 1995. The Series F Preferred Stock was automatically converted into Common Stock in July 1996, due to the substantial increase in the Common Stock price since July 1995. Also during the first half of 1996, 318,358 stock options to acquire Common Stock at various prices were exercised and 233,556 warrants to acquire Common Stock at $15.36 per share were exercised resulting in $6.2 million of new funds to UMC. On October 30, 1995, the Company closed a public offering of $150 million of the Senior Subordinated Notes at an initial price of 99.5% of face value. Net proceeds of $144.9 million were used to reduce debt under the Credit Facility. The Company has also engaged in selected dispositions of non-strategic assets, including the sale of its Appalachian properties for net proceeds of $41.2 million in February 1995. The sale of these properties, the proceeds of which were initially used to repay debt, allows the Company to effectively redeploy capital to domestic and international opportunities which management believes represent higher potential rates of return. The Company expects to sell as much as $35 million in non-strategic assets during 1996. 24 26 As a result of the GARI acquisition, the Company conducts a portion of its oil and natural gas activities with a small group of institutional and corporate investors that participate in property acquisitions, development and exploration and provide the Company with certain carried interests and management fees. Each year this group of institutional investors commits to a maximum amount of funds for both exploration prospects and acquisition projects. The Company typically offers investors the opportunity to participate in the most significant Gulf of Mexico exploration and North American property acquisition opportunities. Though each institution has discretion over each investment, historically they have participated in all of the prospects offered to them by the Company. These relationships both mitigate the Company's project risks and augment its available capital. The Company believes that it will have sufficient capital available from the credit facilities described above, together with cash flows from operating activities, the Offerings and other debt financing and asset sales, to fund the remainder of its 1996 capital expenditure program and expected 1997 capital expenditures, including the international development opportunities in Cote d'Ivoire and Equatorial Guinea, and to meet the Company's other obligations. The Company also believes that the funds available from such sources will enable the Company to continue to selectively pursue strategic corporate and property acquisitions. NET OPERATING LOSS CARRYFORWARDS AND CANADIAN TAX POOLS As of December 31, 1995, the Company has $110.0 million of United States NOL carryforwards and $21.9 million of Canadian federal tax pools which it expects to use in sheltering future taxable income in the U.S. and Canada, respectively. Approximately $24 million of the U.S. NOL carryforward is expected to be used to offset 1996 taxable income which will result primarily from gains on sale of assets, concession interests and higher revenue from an increase in oil and natural gas production and prices. The Company's U.S. NOL carryforward is subject to certain limitations. Under Section 382 of the Internal Revenue Code, the taxable income of UMC available for offset by pre-ownership change NOL carryforwards and certain built-in losses is subject to an annual limitation (the "382 Limitation") if an "ownership change" occurs. The Company has determined that an ownership change occurred for purposes of Section 382 in 1994. As a result of this ownership change, the total amount of NOL carryforwards will not be affected, but the 382 Limitation will equal the value of the stock of the Company immediately before the ownership change multiplied by the long-term tax exempt interest rate, subject to adjustment for certain built-in gains of the Company. To the extent the 382 Limitation exceeds the federal taxable income of the postmerger company for a given year, the 382 Limitation for the subsequent year will be increased by such excess. NOL carryforwards of the Company will be disallowed entirely if certain continuity of business enterprise requirements are not met. It is expected these requirements will be met. The effect of the 382 Limitation may be to defer the use of the Company's existing NOL carryforwards. Although the Company expects that its earnings will not exceed the 382 Limitation, there can be no assurance that the Company will be able to use the NOL carryforward in full. The use of the Company's existing Canadian federal tax pools was not affected by the acquisition of GARI. The GARI Canadian federal tax pools of $7.4 million may be used only to offset future taxable income generated by the Canadian properties acquired from GARI. FOREIGN CURRENCY TRANSACTIONS The Company conducts a portion of its business in Canadian dollars. Therefore, a portion of the Company's business is subject to fluctuations in currency exchange rates. In preparing the Company's financial statements, the results of operations of the Canadian subsidiary were translated at the average exchange rate for the year and the subsidiary's assets and liabilities were translated at the rate of exchange in effect on the balance sheet date. The majority of revenues and expenditures for the Company's West African operations are settled, and all books and records are maintained, in U.S. dollars. 25 27 CHANGES IN PRICES AND INFLATION The Company's revenues and the value of its oil and natural gas properties have been, and will continue to be, affected by changes in oil and natural gas prices. The Company's ability to maintain current borrowing capacity and to obtain additional capital on attractive terms is also substantially dependent on oil and natural gas prices. Oil and natural gas prices are subject to significant seasonal and other fluctuations that are beyond the Company's ability to control or predict. Although certain of the Company's costs and expenses are affected by the level of inflation, inflation did not have a significant effect on the Company's results of operations during 1995 and 1994. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS The FASB issued SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, in March 1995. The Company adopted the provisions of SFAS 121 during the fourth quarter of 1995, and recorded a pre-tax impairment of $8.3 million or $5.1 million after-tax effect. See Note 3 of Notes to Consolidated Financial Statements. 26 28 THE COMPANY GENERAL UMC is a leading independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas in North America and certain international regions. Since its inception in 1987, the Company has grown through a series of strategic corporate and property acquisitions, and a successful exploration program that has focused on UMC's core operating areas in North America and in certain high potential, international regions. In North America, the Company's production is concentrated in the Gulf Coast, Permian Basin, Mid-continent and Rocky Mountain regions and in Western Canada. Internationally, the Company currently operates in the West African oil and natural gas producing regions of Cote d'Ivoire and Equatorial Guinea. In addition, the Company has been awarded a PSC on one block and has a contractual arrangement covering PSCs on two adjacent blocks in Pakistan and expects to receive a PSC in Bangladesh. Since January 1, 1996, the Company has initiated significant new oil and natural gas production. Oil production increased 46% to 10.2 Mbopd during the first half of 1996 as compared to 7.0 Mbopd for the similar period of 1995. The majority of this increase was the result of the Company's successful exploration and development activities in Cote d'Ivoire. Natural gas production increased 26% to 157 MMcfd during the first half of 1996 as compared to 125 MMcfd for the similar period of 1995. The majority of this increase was the result of new production from the Gulf of Mexico. The Company's EBITDA increased 89% to $82.7 million in the first half of 1996 from $43.9 million in the comparable period of 1995 as a result of increased production and higher average sales prices for oil and natural gas. UMC expects that it will experience increased natural gas production levels and substantially increased oil production through 1997. The Company anticipates that its average daily rate of oil production should increase to 15-18 Mbopd for the fourth quarter of 1996 based upon commencement of Phase I oil production from the Zafiro complex in Equatorial Guinea in August 1996. While year end reserve evaluations will not be available until early 1997, based on the results of the Company's drilling program for 1996, it is expected that acquisitions, extensions, and other additions to reserves for the year will exceed production and reserve dispositions for the Company. The Company's successful exploration program will continue to focus on select areas of high potential and low cost reserve additions, both domestically and internationally. The Company will concentrate its North American exploration program on its interests in 86 offshore blocks in the Gulf of Mexico and in over 132,000 gross acres (22,000 net acres) in the Cotton Valley Reef trend in East Texas. Additionally, the Company has initiated exploration activities utilizing 3-D seismic data in the Permian Basin of West Texas and New Mexico, and in the Williston Basin of North Dakota and Montana. Internationally, the Company will continue to concentrate on the 13 PSCs it either currently holds or is negotiating in Cote d'Ivoire, Equatorial Guinea, Pakistan and Bangladesh, which collectively cover over 12 million gross acres. The Company will act as operator on 12 of these 13 PSCs. UMC currently estimates that it will make capital expenditures in 1996 of approximately $95 million in North America ($50 million, $35 million and $10 million for development, exploration and acquisition activities, respectively), $43 million of which was spent in the first half of 1996. Additionally, UMC estimates that it will make capital expenditures in 1996 of approximately $110 million internationally ($73 million and $37 million for development and exploration activities, respectively), $19 million of which was spent in the first half of 1996. In 1997, UMC expects its capital expenditures to be approximately $80-$100 million for North American activities and approximately $150-$200 million for international activities. The actual level of capital expenditures will depend on the success of the Company's drilling activities. The Company is a corporation organized under the laws of Delaware. The Company's principal executive offices are located at 1201 Louisiana, Suite 1400, Houston, Texas 77002, and its telephone number is (713) 654-9110. RECENT DEVELOPMENTS International. Several factors attributable to the Company's international operations have positively impacted the Company's overall production, reserves, acreage and drilling prospects. These include, among 27 29 others: (i) additional oil discoveries and initial oil production in Equatorial Guinea; (ii) significant opportunities for future drilling in West Africa; and (iii) new PSCs in Cote d'Ivoire and Pakistan and an anticipated new contract in Bangladesh. Discoveries and Production in Equatorial Guinea. The Company anticipates adding significant reserves and production from its 25% interest in Block B in Equatorial Guinea during 1996. UMC together with Mobil, which holds a 75% interest and is the operator of this block, drilled four exploration and five development wells in the Zafiro complex, all of which were successful. Two exploratory wells drilled in 1996 in the Zafiro complex, the Amatista No. 1 and Topacio No. 1, have successfully extended the field three miles to the south. These two wells, plus an additional development well, the Zafiro No. 6, encountered significant known field pay zones and established additional new pay zones where future drilling could add substantial reserves. By late September 1996, production exceeded 40 Mbopd (9 Mbopd net to UMC) from five wells in the Zafiro complex to a FPSO. It is anticipated that the addition of two producing wells, constituting completion of Phase I, should increase production to the FPSO to a rate of as much as 50 Mbopd (11 Mbopd net to UMC) by year end 1996. UMC has initiated Phase II of the development plan on the Zafiro complex which will include the drilling of eight additional wells and the implementation of secondary recovery activities. The planned expenditures in 1997 for Block B are approximately $400 million, of which the Company's share is $100 million. West African Drilling Activity. As a result of the Company's historical drilling success and high quality prospects in West Africa, UMC expects to continue an active drilling program in this area. In Equatorial Guinea, the Company anticipates that in the fourth quarter of 1996 up to three drilling rigs will be used to drill development and exploration wells on the 25% owned Block B and one rig will be used to commence exploratory drilling on the UMC-operated Block D, which is 75% owned by UMC. In Cote d'Ivoire, the Company anticipates using two drilling rigs in the fourth quarter of 1996 to drill development and exploration wells on its 25-45% owned blocks. The West African drilling program contemplates approximately 10-15 exploratory wells and 20-25 development wells during the next 18 months. New Production Sharing Contracts. UMC has entered into several new PSCs which provide significant future exploration and development opportunities. In Cote d'Ivoire, UMC and Shell executed a PSC in September 1996 for the Entente Block (Block CI-105) covering approximately 512,000 offshore deepwater acres. Shell has agreed to reimburse UMC for certain expenses, carry UMC for a significant portion of the initial 3-D seismic costs and, if Shell elects to proceed to the operational phase, carry UMC for a substantial portion of the initial exploration expenses, which are expected to be incurred when drilling begins in late 1997 or early 1998. In Pakistan, the Company has been awarded one block and is awaiting government approval of assignments of interest on two other blocks, covering approximately 4.4 million gross acres, approximately half of which is offshore. UMC's interest in these three blocks, which will be 80% upon approval of the assignments, may be reduced by bringing in other partners prior to beginning drilling, which is expected in 1998. In Bangladesh, UMC is finalizing a PSC on Block 22, a block it anticipates being awarded covering approximately 3.3 million acres. UMC's interest in this block, which will initially be 40%, may be reduced by bringing in other partners prior to drilling. The Company continues to evaluate other worldwide concession arrangements which might provide future exploration opportunities for UMC. North America. Several factors attributable to the Company's North American operations have positively impacted the Company's overall production, reserves, acreage and drilling prospects. These include, among others: (i) a natural gas discovery and concurrent accumulation of a major acreage position in the East Texas Cotton Valley Reef trend; (ii) the substantial new natural gas production from the Gulf of Mexico and identification of several new exploratory prospects; and (iii) the exploration in the Permian Basin in West Texas and New Mexico and the Williston Basin in Montana and North Dakota. Cotton Valley Reef. UMC, together with several companies including Sonat Exploration Company, formed a joint venture in April 1996 to participate in 3-D seismic surveys and exploration and development drilling in the Cotton Valley Reef trend, a prolific natural gas producing region in East Texas. Based upon successful drilling results, the Company has continued to add to its significant acreage 28 30 position in this area. As of August 1996, UMC had accumulated approximately 132,000 gross acres (22,000 net acres), one of the largest accumulations by any operator in this trend, in which it generally holds a 30% interest. The Company has successfully drilled in 1996 one of two wells on its acreage in this area. During the fourth quarter of 1996, initial gross production from this well, the Watson No. 2, is anticipated to reach 30 MMcfd (6 MMcfd net to UMC). Twelve separate 3-D seismic surveys are planned for this area during the balance of 1996 and 1997. UMC and its joint venture partners plan to drill approximately 10 exploratory wells on UMC's acreage during the balance of 1996 and 1997. Successful exploration results by UMC or other industry participants would likely lead to expanded activity levels in 1997 and 1998. Gulf of Mexico. The Company's natural gas production increased to 157 MMcfd during the first half of 1996 as compared to 125 MMcfd for the similar period during 1995, primarily as a result of its production from the Gulf of Mexico which increased 96% to 55 MMcfd from 28 MMcfd in the same period. The Company has interests in 86 offshore blocks representing approximately 331,000 gross acres (154,000 net acres) in this area on which it may conduct future exploratory drilling. During 1995 and the first half of 1996, the Company has been successful on 21 of 28 exploratory and development wells drilled in the Gulf of Mexico, including 6 of 12 exploratory wells. UMC anticipates drilling 15 exploratory wells in 1996 in the Gulf of Mexico, eight of which have been drilled to date, with 10 to 12 exploratory wells planned in 1997. Permian and Williston Basins. The Company is conducting a new focused exploration program in the Permian and Williston Basins. Based on leads identified from the Company's extensive 2-D seismic database, the Company is initiating 3-D seismic surveys in 12 areas in these regions to identify exploration drilling opportunities in which it generally expects to hold 40-60% interests in these prospects. UMC is currently leasing acreage in areas where it believes new horizontal drilling technology can be applied to existing producing areas to increase production and reserve recoveries as compared to conventional production techniques. BUSINESS STRATEGY UMC's business strategy is to increase reserves and production in a cost effective manner through a drilling program that balances lower risk development and exploratory drilling on UMC's North American acreage with high potential international prospects, supplemented by opportunistic property and corporate acquisitions. Supporting this strategy are: (i) a substantial portfolio of high return exploration opportunities; (ii) a large exploitation inventory; and (iii) a successful history of acquisitions. The Company also anticipates that the continued success of its international activities will continue to move the overall mix of its proved reserves and production toward a more equal balance between oil and natural gas. North America. The Company is aggressively exploiting its North American properties through the integration of advanced 3-D seismic technology, horizontal drilling and geoscience studies. UMC conducts a North American exploration program focused on internally-generated prospects, primarily in the Gulf Coast region, including East Texas, and in the Permian and Williston Basins, where the Company believes high success rates and excellent reserve potential exist. The Company manages its domestic exploration risk by applying state-of-the-art technology to identify prospects, emphasizing prospects over which it will have operational control. The risks of these prospects are shared with industry partners and a group of institutional investors on terms considered favorable to the Company. The Company has generated a significant number of development drilling opportunities as a result of its exploration efforts and through producing property acquisitions. UMC has identified a large exploitation inventory including over 120 proved undeveloped drilling sites and 560 probable and possible drilling sites. Through June 1996, the Company has participated in drilling 38 development wells, 35 of which were successfully completed. Total capital expenditures for North American activities in 1996 are expected to be approximately $95 million, $43 million of which was spent in the first half of 1996. Capital expenditures in 1997 are expected to be approximately $80-$100 million. International. The Company's business strategy in the international arena is to pursue selected opportunities characterized by low initial costs, high reserve potential and the availability of existing technical 29 31 data that may be further developed using current technology. The Company believes that it has unique management and technical expertise in identifying international opportunities and establishing favorable operating relationships with host governments. The Company attempts to manage major exploration commitments by negotiating directly with host governments for terms which minimize bonuses and initial work commitments. Additionally, the Company forms joint ventures under which partners provide a significant amount of the initial exploration costs. This strategy permits the Company to limit its capital exposure until commercial development is assured. The Company has identified a large number of exploration prospects on its Equatorial Guinea and Cote d'Ivoire acreage and has two development programs in progress. On Block CI-11 in Cote d'Ivoire, UMC will drill four development wells in 1996 and implement secondary recovery activities and drill additional development wells in 1997. Total capital expenditures for international activities in 1996 are expected to be approximately $110 million, $19 million of which was spent in the first half of 1996. Current plans for the balance of 1996 and 1997 include the drilling of 10-15 exploratory wells and 20-25 development wells. It is anticipated that 1997 capital expenditure levels for international activities will be approximately $150-$200 million, depending in part on the success of drilling activities. Acquisitions and asset management. The Company is continually evaluating opportunities to acquire oil and natural gas properties, primarily focusing on properties that complement its existing reserve base. This focus allows the Company to apply its engineering knowledge and expertise to maximize future development potential and reduce reserve risk associated with a given acquisition. The acquisitions must meet well-defined return, payout and cash flow criteria. Though only $10 million in acquisitions are planned for 1996, the Company will continue to pursue other acquisition opportunities. The Company has acquired over $800 million of properties over the last eight years on behalf of itself and institutional investors. In addition, as part of its business strategy, the Company periodically evaluates and, from time to time, sells certain of its producing properties. Such sales enable the Company to maintain financial flexibility, reduce overhead and operating expenses and redeploy capital to activities which are expected to have higher financial returns. Consistent with this strategy, the Company expects to sell as much as $35 million of non-strategic North American producing properties during 1996. Low cost operating structure. Management strives to maintain a low cost operating structure through the implementation of the aforementioned strategies and by employing an experienced and stable workforce. Controllable cash costs which are continuously monitored by management include production costs and general and administrative expenses. In 1995 UMC's production cost, before ad valorem and production taxes, averaged $0.58 per Mcfe of production and general and administrative expense averaged $0.17 per Mcfe of production. During the first half of 1996, UMC incurred production costs, before ad valorem and production taxes, and general administrative costs of $0.53 per Mcfe and $0.16 per Mcfe, respectively, down from $0.54 per Mcfe and $0.18 per Mcfe, respectively, for the comparable period of 1995. Further per unit cost improvement is anticipated for the balance of 1996 and 1997 as production volumes increase and cost containment efforts continue. BUSINESS AND PROPERTIES North America. The Company conducts a focused exploration and development program designed to add significant reserves at competitive and economic costs. The Company's North American efforts are predominantly in the Gulf Coast region, including East Texas, and more recently in the Permian and Williston Basins. The Company's North American exploration program generally involves either: (i) exploratory drilling beneath producing fields where potentially significant reserves are undeveloped on proven structures; or (ii) drilling on the Company's undeveloped acres, much of which is adjacent to proven producing acreage. Typically, the Company seeks to operate these projects and to retain at least a 25-60% working interest. In 1996, the Company expects to spend approximately 16% of its 1996 capital expenditures for North American exploration, including the drilling of over 35 exploratory wells. Historically, the Company has successfully used 3-D seismic technology as an effective exploration tool in locating hydrocarbon indicators or "bright spots". This data is used to further delineate specific prospect leads and to assist in the development of exploratory discoveries. 30 32 UMC focuses its development activities in those areas which offer the most attractive potential returns to the Company, including development opportunities resulting from exploration activities. In addition, the Company has identified over 120 proved undeveloped and over 560 probable and possible drilling opportunities within its existing inventory. During 1995, UMC participated in the drilling of 136 development wells, 114 of which were completed as productive wells. UMC has prioritized development projects which will maximize the production potential per dollar of investment in view of the large number of opportunities available to the Company. The following is a description of each of the Company's major producing regions in North America. Gulf Coast. The Gulf Coast region comprises approximately 515,000 gross acres (201,000 net acres to UMC) along the Texas and Louisiana coasts, and in East Texas. This region represented approximately 102 Bcfe, or 16%, of the Company's total proved reserves at December 31, 1995. Approximately 29% of the Company's 1996 capital expenditure budget is allocated to the Gulf Coast region. In general, UMC generates leads in the Gulf of Mexico and East Texas utilizing available 2-D seismic data. The Company then purchases 3-D seismic data which is processed to delineate "bright spot" prospects with reserve potential in the 20-100 Bcf range. In this manner, the Company expects to generate and drill approximately 15 to 20 prospects in the Gulf Coast region per year. Through mid-year 1996, the Company had successfully completed two of the four exploratory wells drilled in the Gulf Coast region, which the Company expects to provide additions to its production and reserve base. Approximately 20 potential exploratory wells have been identified for 1997. In May 1996, UMC acquired nine leases at the federal lease sale offshore Louisiana, increasing UMC's inventory of undrilled lease blocks in the Gulf of Mexico to 23 encompassing approximately 107,000 gross acres (87,000 net acres to UMC). UMC typically seeks to be the operator of its properties and currently retains an average working interest of approximately 55% in its Gulf of Mexico projects. A second Gulf Coast region exploration focus area for the Company is the Cotton Valley Reef trend in East Texas, where the Company generally holds a 30% interest in over 132,000 gross acres (22,000 net acres). Over 150 miles of 3-D seismic are being acquired and several wells are scheduled for drilling in 1996 and 1997. To date, UMC has been successful on one of the two exploratory wells it has drilled. Mid-continent. The Mid-continent region comprises approximately 468,000 gross acres (174,000 net acres to UMC) and represented approximately 144 Bcfe, or 23%, of UMC's total proved reserves at the end of 1995. Projects in this region include continued low-risk development drilling in the Anadarko Basin and West Texas, several waterflood oil projects and new 3-D seismic-generated exploration primarily focused in the Permian Basin. Approximately 7% of 1996 capital expenditures will be spent in this region. The Company expects to hold a 40-60% interest in these projects. Rocky Mountains. The Rocky Mountain region comprises approximately 899,000 gross acres (334,000 net acres to UMC) and represented approximately 147 Bcfe, or 23%, of the Company's total proved reserves at the end of 1995. UMC's most important properties in the Rockies lie in the Bearpaw area in the north central portion of Montana where shallow, low-cost development drilling has made UMC the largest producer of natural gas in the state. The Company has secured firm transportation commitments which permit it to access premium markets in the upper Midwest. UMC holds interests in more than 300 wells in the Bearpaw field and net production to UMC is approximately 30 MMcfd. Other projects of importance in the region include a waterflood oil project that is underway in the Powder River Basin and new 3-D seismic-generated exploration program. Approximately 7% of 1996 capital expenditures will be spent in this region. Canada. The Western Canadian region comprises approximately 858,000 gross acres (246,000 net acres to UMC) and represented approximately 91 Bcfe, or 14%, of UMC's total proved reserves at the end of 1995. The Company anticipates that approximately 4% of UMC's 1996 capital expenditures will be allocated to Canadian properties with such activity focused on development drilling and limited exploratory drilling. Due to the low natural gas price environment currently existing in Western Canada, UMC will continue to limit capital expenditures in 1997. International. The Company's business strategy in the international arena is to pursue selected international opportunities characterized by low initial costs, high reserve potential and the availability of existing technical data that may be further developed using current technology. UMC continually reassesses 31 33 its position during the course of larger international exploration and development projects, and may periodically consider selling interests in one or more projects. The sale of a part of its interests in a project may be used to balance perceived technical or political risks and funding commitments. For example, UMC received net proceeds of $40.1 million in a partial sale of interests in Equatorial Guinea and Cote d'Ivoire during the fourth quarter of 1995. Total capital expenditures for the Company's international operations in 1996 are expected to be $110 million and production should average 7 MMcfd and 5.2 Mbopd, though oil production is expected to increase to an average of 11.8 Mbopd in the fourth quarter. In 1997, capital expenditures are expected to be approximately $150-$200 million. The actual expenditures spent on each block will be contingent on exploration success. The Company has signed or is negotiating 13 PSCs (12 of which it operates) with Cote d'Ivoire, Equatorial Guinea, Pakistan and Bangladesh. Cote d'Ivoire. During 1991, UMC initiated negotiations with the Republic of Cote d'Ivoire for a PSC covering Block CI-11, most of which is located offshore in the Atlantic Ocean. Since acquiring the initial PSC, the Company has signed four additional PSCs. Under these five PSCs, UMC holds contract interests ranging from 25% to 75% and has acreage totaling approximately 3.0 million gross acres. On Block CI-11, the Company is the operator and has made eight consecutive oil and natural gas discoveries in the Lion oil and Panthere natural gas fields since late 1993. As a result of the successful discoveries and subsequent production history, UMC has recognized proved reserves of 6.4 MMbbls of oil and 40.5 Bcf of natural gas on Block CI-11 at December 31, 1995. The drilling of five delineation wells, construction of processing facilities and installation of a natural gas pipeline was completed in late 1995 with the commencement of natural gas sales. In addition to its continuing development activities on Block CI-11, UMC has identified several exploration opportunities on this block. A 3-D seismic survey currently under evaluation will further delineate the Company's opportunities in that area. Four development wells will be drilled in the last half of 1996. The Lion oil field commenced initial oil production at the rate of 10 Mbopd (1.5 Mbopd net to UMC) in late April 1995 and is currently producing at a rate of approximately 15 Mbopd (2.3 Mbopd net to UMC). Oil production should increase to approximately 19 Mbopd (2.9 Mbopd net to UMC) as a result of the recent successful completion of the Lion A-3 well. Natural gas production commenced in October 1995 under a take-or-pay contract with the government of Cote d'Ivoire under which the government will take an initial minimum of 20 MMcfd (3.0 MMcfd net to UMC). Natural gas sales have increased to 50 MMcfd (7.5 MMcfd net to UMC) currently, and further increases in market demand are expected to increase sales over the next year to approximately 80-100 MMcfd. The initial natural gas price was approximately $1.70 per Mcf. Although UMC's contract interest in this Block is 25%, UMC's current percentage of production (inclusive of cost recovery) resulting from the PSC is approximately 15%. On Block CI-12, which is immediately west of Block CI-11, UMC has identified several seismic anomalies which it believes are on trend with the sands in the Lion oil field. The Company is currently evaluating a 3-D seismic program to further define several potential prospects, with initial exploration drilling on this block expected in the second half of 1996. UMC owns a 25% contract interest in Block CI-12. Blocks CI-01 and CI-02, located approximately 80 miles east of Block CI-11, possess proven accumulations of oil and natural gas in reservoirs previously drilled by major oil companies in the 1980s. As of December 31, 1995, the Company had recognized net proved reserves of 1.0 MMbbls of oil and 42.0 Bcf of natural gas on Blocks CI-01 and CI-02. Mapping of existing 3-D seismic data on Block CI-01 and a new 3-D seismic survey on CI-02 will further help evaluate the reserve potential of these blocks. On Block CI-01, the Company has drilled one dry hole in 1996 and plans to drill one exploratory well in the Kudu natural gas field in 1996. UMC currently owns a 45% contract interest in Block CI-01 and a 75% contract interest in Block CI-02. However, the Company's ultimate contract interest in Block CI-02 could be reduced up to 30% subject to final election by Petroci, the national petroleum company of Cote d'Ivoire. UMC has been in discussions with the government of Ghana for the sale of natural gas production from Block CI-01. Ghana is currently buying electricity from Cote d'Ivoire for internal consumption. The governments of Ghana and Cote d'Ivoire have tentatively approved the sale of natural gas from Block CI-01 to 32 34 Ghana for power generation. The plan, if concluded, would call for UMC to develop Block CI-01 and export the natural gas to a power plant being built on the coast of Ghana. UMC and Shell executed a PSC in September 1996 for the Entente Block covering approximately 512,000 offshore deepwater acres. The award was made as a result of a deep-water study conducted by the Company covering the entire offshore region of the country. A recent revision to the Ivorian petroleum laws will provide more favorable cost recovery and government contractor profit splits as an incentive for the high cost of deep water exploration and development. The revised law includes (i) flexible and advantageous cost recovery terms, (ii) a negotiated investment credit on recoverable costs, (iii) an initial 55% profit split to UMC, and (iv) favorable tax treatment. Equatorial Guinea. UMC has negotiated four PSCs with the Republic of Equatorial Guinea for four blocks located offshore in the Atlantic Ocean. Under the PSCs, UMC holds approximately 1.8 million gross acres. Block A was initially evaluated during 1993 and 1994 with a 3-D seismic program. A test well, the Dorado-1, was drilled in the Block and was a dry hole. UMC had a carried interest on the well. UMC is currently evaluating whether further exploration on the Block is warranted. The Company owns a 100% contract interest in Block A. Block B was evaluated by a 1993 2-D seismic program, in which UMC had a carried interest. Mobil then carried UMC in the drilling of a test well on the Delta prospect which was a dry hole in late 1994. Mobil, as operator, and UMC have successfully drilled nine wells during 1995 and 1996 on the Zafiro field complex. The wells were tested at rates up to 11 Mbopd (2 Mbopd net to UMC). Initial production commenced in August 1996, and by mid-September production had reached 35 Mbopd (8 Mbopd net to UMC). Production is expected to reach as much as 50 Mbopd (11 Mbopd net to UMC) by year end. The Company recognized proved reserves of 3.8 MMbbls on Block B at December 31, 1995 and expects a substantial increase in reserve levels by year end 1996. The Company currently owns a 25% contract interest in Block B. It is expected that three additional exploration wells on other portions of the block will be drilled during the balance of 1996. Concessions on Blocks C and D, both of which are adjacent to Block B, contain similar seismically identified structures as discovered on Block B. The discovery of high quality reservoirs with high oil flow rates on Block B increases the likelihood of successful exploration on Blocks C and D. UMC will continue to evaluate the exploration potential of these Blocks following the success on Block B. The Company currently owns a 75% contract interest in each of Blocks C and D and has conducted a 3-D seismic program on Block D. Further, the Company will drill an exploratory well on Block D late in 1996 to pursue exploration prospects that are similar to the Zafiro complex. Pakistan. UMC has signed one PSC and is awaiting approval of assignment for two other PSCs from the government of Pakistan in 1996 covering nearly 4.4 million gross acres. Pakistan has been experiencing severe shortages of electricity over the last several years. A number of power projects are currently being constructed or have recently been approved. If the Company's drilling program is successful, it is likely to be primarily natural gas which should have several available markets as a result of such power projects. UMC's current 20% partner, Xenel Industries Limited, a Saudi Arabian based company, is a part owner in the 1,000 megawatt Hub River Power Project south of Karachi. This power project could likely utilize all or a portion of the prospective natural gas production from these blocks. Bangladesh. UMC anticipates executing a PSC with the government of Bangladesh on Block 22, the Chittagong Hills Tract, in October 1996. Block 22 covers 3.3 million gross acres in an area next to recent significant natural gas discoveries. If successful, Block 22 is likely to contain significant natural gas reserves with markets available in Bangladesh, Myanmar or other countries in the Indian Sub-continent. UMC will proceed to upgrade the technical aspects of this prospect and bring in an industry partner in the future. Drilling activity could occur sometime in 1998. 33 35 MANAGEMENT The following table sets forth certain information regarding the directors and officers of the Company and its subsidiaries:
DIRECTOR'S NAME AGE POSITION TERM ENDING - ------------------------------ --- ------------------------------------------- ----------- John B. Brock................. 64 Chairman, Chief Executive Officer and 1999 Director James L. Dunlap............... 59 President, Chief Operating Officer and 1998 Director Jim Smitherman III............ 51 Executive Vice President -- Exploration and -- Production Jonathan M. Clarkson.......... 46 Executive Vice President -- Chief Financial -- Officer Lee B. Backsen................ 56 Senior Vice President, Gulf Coast Division -- Manager Gary R. McGregor.............. 53 Senior Vice President, Denver Division -- Manager John J. Patton................ 56 Senior Vice President and General Counsel -- Christopher E. Cragg.......... 35 Vice President -- Controller and Chief -- Accounting Officer Daniel P. Foley............... 42 Vice President of Planning -- Kevin D. McMillan............. 38 Vice President & Treasurer -- Marya M. Ingram............... 61 Corporate Secretary -- J. Dennis Bonney.............. 65 Director 1999 Charles R. Carson............. 68 Director 1997 Robert H. Dedman.............. 70 Director 1998 Steven A. Denning............. 48 Director 1999 Robert L. Howard.............. 60 Director 1998 Robert V. Lindsay............. 70 Director 1997 Elvis L. Mason................ 63 Director 1998 James L. Murdy................ 58 Director 1997 David K. Newbigging........... 62 Director 1999 Matthew R. Simmons............ 53 Director 1997 Donald D. Wolf................ 53 Director 1998 Walter B. Wriston............. 77 Director 1997
The officers named above were elected to serve in such capacities until the next annual meeting of the Board of Directors, or until their respective successors have been duly elected and have been qualified, or until their death, resignation, disqualification or removal from office. JOHN B. BROCK has been the Chairman of the Board and Chief Executive Officer of UMC since May 1995 and a director of UMC since November 1989. Mr. Brock served as the President of the Company from May 1996 to October 1996, served as the President and Chief Executive Officer of the Company from February 1992 to May 1995 and served as the President and Chief Operating Officer of UMC from November 1989 to February 1992. Prior to assuming his responsibilities with UMC, Mr. Brock was President and Chief Executive Officer of Ensource Inc. Mr. Brock served as the Chairman, President and Chief Executive Officer of Brock Energy Corporation and its predecessor from 1980 until January 1986. From 1959 until 1980, he served in various capacities with Quintana Petroleum Corporation, including Executive Vice President -- Oil and Gas, and President of a number of Quintana subsidiaries. Mr. Brock is a director of Southwest Bank of Texas and an Advisory Director of Kanaly Trust Company. He is also a director and member of the Executive Committee of the Texas Midcontinent Oil and Gas Association, a director of the 34 36 National Mid Continent Oil and Gas Association, a director of the American Petroleum Institute and a director of St. Luke's Episcopal Hospital. JAMES L. DUNLAP has served as the Company's President, Chief Operating Officer, and Director since October 1996. Prior to assuming his current responsibilities with UMC, Mr. Dunlap was a Senior Vice President with Texaco Inc. During his long career with Texaco he had responsibilities as President of Texaco U.S.A., President and Chief Executive Officer of Texaco-Canada, Vice Chairman of Texaco Limited, and General Manager Latin America/West Africa. Mr. Dunlap is a Director of Massachusetts Mutual Life Insurance Company. He is also a Director of the Jones Graduate School of Business, Rice University and the Nantucket Conservation Foundation. JIM SMITHERMAN III has served as UMC's Executive Vice President, Exploration and Production since October 1989, with responsibilities for international operations since May 1995. Prior to assuming his current responsibilities with UMC, Mr. Smitherman was Senior Vice President -- Exploration and Production of Ensource Inc. Before joining Ensource in May 1988, Mr. Smitherman was Vice President of Eastern Region Exploration and Development at CSX Oil and Gas. JONATHAN M. CLARKSON has served as the Company's Executive Vice President since November 1994 and has served as the Chief Financial Officer of UMC since October 1989. Mr. Clarkson served as Senior Vice President of the Company from October 1989 until November 1994. From May 1987 to September 1989, Mr. Clarkson served as UMC's Vice President and Treasurer. Prior to joining UMC, Mr. Clarkson served as Senior Vice President of InterFirst Bank, Dallas, managing commercial lending functions in the Energy and U.S. Corporate Divisions. LEE B. BACKSEN serves as Senior Vice President and Division Manager of the Gulf Coast Division and is responsible for the exploration, production, land and marketing activities offshore and onshore in the Gulf of Mexico. Prior to joining UMC in 1994 through the merger with GARI, Mr. Backsen was President of General Atlantic Gulf Coast, a subsidiary founded in 1990. From 1983 thru 1989, Mr. Backsen was Senior Vice President -- Exploration of Pelto Oil Company. From 1963 to 1980, Mr. Backsen served in various exploration and management positions with Shell Oil Company. GARY McGREGOR serves as Senior Vice President and Division Manager of the Denver Division and is responsible for the exploration, production, land and marketing activities in the Permian Basin, Mid-continent and Rocky Mountain areas. Prior to joining the Company in 1982, Mr. McGregor held engineering and management positions with Coseka Resources (U.S.A.) Limited after a 13-year career with Amoco Production Company. Mr. McGregor held various positions with Amoco including District Engineer and Facilities Superintendent with responsibilities over his tenure in operations, reservoir engineering and facilities management. JOHN J. PATTON has served as the Senior Vice President and General Counsel of UMC since April 1995. Prior to assuming his responsibilities with UMC and since 1990, Mr. Patton was general counsel of OPICOIL Houston, Inc., an affiliate of Chinese Petroleum Corporation, the national oil company of the Republic of China (Taiwan). From 1978 to 1990, Mr. Patton was Vice President and general counsel of OPICOIL's predecessor, Roy M. Huffington, Inc. CHRISTOPHER E. CRAGG has served as the Vice President -- Controller of UMC since June 1996. Mr. Cragg served as Assistant Controller of the Company from July 1995 until June 1996, and as Director -- Internal Audit from April 1994 until July 1995. Prior to joining the Company, Mr. Cragg was with Cooper Industries from April 1993 to April 1994 and Price Waterhouse from August 1983 to April 1993, where he served in the firm's Worldwide Petroleum Industry Practice. Mr. Cragg is a Certified Public Accountant in the State of Texas. DANIEL P. FOLEY serves as Vice President of Planning and is responsible for long-term planning, risk management and institutional programs for the Company. Mr. Foley joined UMC in 1987 after four years with Shell Oil Company and four years with Chevron Corporation. 35 37 KEVIN D. McMILLAN serves as Vice President & Treasurer and is responsible for all treasury and external financing functions. Prior to joining UMC and its predecessors in 1986, Mr. McMillan's professional experience included four years with Brock Energy Corporation and one year with both Arthur Andersen & Co. and Ernst & Whinney. MARYA M. INGRAM has served as Corporate Secretary since May 1995. Prior to assuming that responsibility Ms. Ingram had served as Assistant Corporate Secretary of the Company and Corporate Secretary of the various subsidiary companies since September 1989 when Ensource Inc. was acquired by UMC. The previous three years Ms. Ingram had acted as Corporate Secretary for Ensource Inc. and, prior to that time, Vice President and Corporate Secretary of Brock Energy Corporation. J. DENNIS BONNEY has served as a director of UMC since May 1996. Mr. Bonney retired from Chevron Corporation in 1995, where he served as Vice Chairman of the Board from 1987 to 1995 and as director from 1986 to 1995. From 1987 until his retirement in 1995, Mr. Bonney was responsible for worldwide oil and gas exploration and production. Mr. Bonney served Chevron Corporation in various capacities from 1960 to 1987 including Vice President with responsibilities including worldwide logistics and trading, international production, corporate planning, European refining and marketing, Indonesian oil exploration and production and diversified investments. CHARLES R. CARSON has served as a director of UMC since June 1987. From 1951 until his retirement in January 1987, Mr. Carson served General Electric Company in various capacities, most recently as Senior Vice President. General Electric Company is an affiliate of General Electric Pension Trust, a stockholder of the Company. Mr. Carson is no longer an affiliate of General Electric Company or General Electric Pension Trust. Mr. Carson is also a director of Worthington Industries, Inc. ROBERT H. DEDMAN has served as a director of UMC since May 1987. Since 1957, Mr. Dedman has been Chairman of the Board and Chief Executive Officer of Club Corporation International. His directorships also include Stewart Information Services Corporation and Franklin Federal Bankcorp, a wholly-owned subsidiary of Club Corporation International. STEVEN A. DENNING has served as a director of the Company since November 1994. Previously, and since 1985, Mr. Denning served as a director of GARI. Mr. Denning is presently the Executive Managing Member of General Atlantic Partners, L.L.C. Mr. Denning has been a member of General Atlantic Partners, L.L.C. since February 1989. Prior to that time, Mr. Denning was Managing Director of General Atlantic Corporation, a stockholder of the Company. Mr. Denning is a member of the board of directors of GT Interactive Software Corporation, a public consumer software company, and several other private information technology companies. ROBERT L. HOWARD has served as a director of UMC since September 1996. Mr. Howard retired from Shell Oil Company in 1995, where he served in various capacities since 1959, most recently as Vice President Domestic Operations, Exploration and Production, a position he assumed in 1992. From 1985 until his retirement in 1995, Mr. Howard also served as President of Shell Offshore Inc., a subsidiary of Shell Oil Company with operations in the Gulf of Mexico. Mr. Howard is also a director of Camco International, Inc. and Southwestern Energy Company. ROBERT V. LINDSAY has been a director of UMC since 1987 and is the former President and a former director of J.P. Morgan & Co. and its wholly owned subsidiary, Morgan Guaranty Trust Company of New York. Mr. Lindsay served as Chairman of Morgan Guaranty Trust Company of New York's International Council from 1987 to 1989. Mr. Lindsay is also a director of Chubb Corporation, Hudson Chartered Corporation and The Fluor Corporation. ELVIS L. MASON has served as a director of UMC since November 1988. He has also served as the Managing Partner of Mason Best Company, L.P., a merchant banking firm, since August 1984. Since December 1991, Mr. Mason has served as Chairman of the Board of Directors and Chief Executive Officer of San Jacinto Holdings, Inc. Since February 1992, Mr. Mason has served as Chairman of the Board of Safeguard Business Systems, Inc., a wholly-owned subsidiary of San Jacinto Holdings, Inc. Mr. Mason is also 36 38 a director of Tracor, Inc., a defense electronics firm, and American Eagle Group Inc., a property casualty insurance company. JAMES L. MURDY has served as a director of UMC since May 1987. Since September 1996, Mr. Murdy has served as Senior Vice President and Chief Financial Officer of Allegheny Teledyne Incorporated, a diversified manufacturing company with a concentration in specialty metals. From 1988 to 1996, Mr. Murdy served as Senior Vice President of Finance, Chief Financial Officer and director of Allegheny Ludlum Corporation, a specialty metals corporation. From 1985 to 1988, Mr. Murdy served as Executive Vice President of Finance and Administration for Schneider Enterprises, Inc. Prior to 1985, Mr. Murdy was Executive Vice President of Gulf Oil Corporation, Inc. DAVID K. NEWBIGGING has served as a director of the Company since August 1987. Mr. Newbigging presently serves as Chairman of Faupel Trading Group PLC, a textile trader based in the United Kingdom, as Chairman of Equitas Holdings Limited, the parent company of the Equitas Group which is based in the United Kingdom and was established to reinsure the 1992 and prior year liabilities of Lloyd's of London insurance syndicates. Mr. Newbigging also serves as Chairman of Equitas Reinsurance Limited, a wholly-owned subsidiary of Equitas Holdings Limited, and Equitas Limited, a wholly-owned subsidiary of Equitas Reinsurance Limited, both of which companies are authorized reinsurance companies. Mr. Newbigging is Deputy Chairman of Friends' Provident Life Office, which is based in the United Kingdom. Mr. Newbigging is also a director of Merrill Lynch & Co., Inc. Mr. Newbigging retired from Jardine, Matheson & Co. Limited in 1983 after 30 years with that company, having served as its Chairman and Chief Executive Officer since 1975. Subsequent appointments have included Chairman of Rentokil Group PLC and of Ivory & Sime PLC, both based in the United Kingdom. MATTHEW R. SIMMONS has served as a director of the Company since November 1994. Mr. Simmons is the Chairman and President of Simmons & Company International, a specialized investment bank that concentrates on providing corporate finance expertise to companies in the worldwide oil service and equipment industry and also researches and trades oil service and equipment securities for institutional investors. Prior to founding Simmons & Company shortly after the 1973 Oil Embargo, Mr. Simmons had a small consulting/investment banking firm in Boston which provided advice to a variety of clients. Previously, he served on the faculty of Harvard Business School as a Research Associate. Mr. Simmons is a Chairman of National Ocean Industries Association. DONALD D. WOLF has been a director of the Company since November 1994. Mr. Wolf resigned as an officer of the Company in April 1996 to pursue other interests and is currently Chairman and Chief Executive Officer of Westport Oil and Gas, Inc. Mr. Wolf served as President of the Company from November 1994 to April 1996, Chief Operating Officer from September 1995 to April 30, 1996. Mr. Wolf served as Chairman, President, and Chief Executive Officer of General Atlantic Resources, Inc. from May 1993 until November 1994 and as President and a director of GARI since 1981. Mr. Wolf has a diversified 30-year business and management career in the oil and gas industry with various companies. WALTER B. WRISTON has been a director of UMC since April 1987. In September 1984, Mr. Wriston retired from his position as Chairman and Chief Executive Officer of Citicorp/Citibank. He is currently a director of ICOS Corporation, York International Corporation, Cygnus, Inc., AEA Investors Inc., Tandem Computers, Inc., WMNB Acquisition Corp. and Vion Pharmaceuticals, Inc. 37 39 SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock by the Selling Stockholders as of September 30, 1996, and as adjusted to reflect the sale of shares offered hereby.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO THE OFFERINGS NUMBER OF SHARES AFTER THE OFFERINGS ------------------------ TO BE SOLD IN ------------------------ NAME SHARES PERCENTAGE THE OFFERINGS SHARES PERCENTAGE - --------------------------------- --------- ---------- ---------------- --------- ---------- General Atlantic Corporation(1)................. 2,197,759 7.1% 1,250,000 947,759 2.8% John Hancock Mutual Life Insurance Company.............. 1,943,060 6.3% 1,000,000 943,061 2.8% The Travelers Insurance Company........................ 237,251 * 112,500 124,751 * The Travelers Indemnity Company........................ 231,979 * 110,000 121,979 * The Travelers Life and Annuity Company........................ 26,360 * 12,500 13,860 * The Phoenix Insurance Company.... 31,633 * 15,000 16,633 *
- --------------- * Less than 1% (1) Steven A. Denning, a director of the Company, is the Executive Managing Member of General Atlantic Partners, L.L.C., an affiliate of General Atlantic Corporation. UNDERWRITING Subject to the terms and conditions set forth in the U.S. purchase agreement (the "U.S. Purchase Agreement") among the Company, the Selling Stockholders and the underwriters named below (the "U.S. Underwriters"), the Company and the Selling Stockholders have agreed to sell to the U.S. Underwriters, and the U.S. Underwriters for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), J.P. Morgan Securities Inc. ("J.P. Morgan"), Howard, Weil, Labouisse, Friedrichs Incorporated ("Howard Weil") and Petrie Parkman & Co., Inc. ("Petrie Parkman") are acting as representatives (the "U.S. Representatives"), have severally agreed to purchase from the Company and the Selling Stockholders, the number of shares of Common Stock indicated below opposite their respective names.
U.S. UNDERWRITERS NUMBER OF SHARES ----------------- ---------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated.................................................... J.P. Morgan Securities Inc................................................... Howard, Weil, Labouisse, Friedrichs Incorporated............................. Petrie Parkman & Co., Inc. .................................................. ------------- Total........................................................... 4,600,000 =============
The Company and the Selling Stockholders have also entered into an international underwriting agreement (the "International Purchase Agreement") with certain underwriters outside the United States and Canada (the "International Managers" and, together with the U.S. Underwriters, the "Underwriters"), for 38 40 whom Merrill Lynch International, J.P. Morgan Securities Ltd., Howard Weil and Petrie Parkman are acting as representatives (the "Lead Managers" and, together with the U.S. Representatives, the "Representatives"). Subject to the terms and conditions set forth in the International Purchase Agreement, and concurrently with the sale of 4,600,000 shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement, the Company and the Selling Stockholders have agreed to sell to the International Managers, and the International Managers severally have agreed to purchase from the Company and the Selling Stockholders, an aggregate of 1,150,000 shares of Common Stock. The public offering price per share and the total underwriting discount per share are identical under the U.S. Purchase Agreement and the International Purchase Agreement. In the U.S. Purchase Agreement and the International Purchase Agreement, the several U.S. Underwriters and the several International Managers, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such Underwriting Agreement if any of such shares are purchased. Under certain circumstances, the commitments of the non-defaulting U.S. Underwriters or the International Managers (as the case may be) may be increased as set forth in the U.S. Purchase Agreement and the International Purchase Agreement, respectively. The closing with respect to the sale of shares of Common Stock to be purchased by the International Managers and the U.S. Underwriters are conditioned upon one another. The U.S. Underwriters and the International Managers have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. Under the terms of the Intersyndicate Agreement, the Underwriters are permitted to sell shares of Common Stock to each other for purposes of resale at the public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-United States and non-Canadian persons, and the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are United States or Canadian persons or to persons they believe intend to resell to United States or Canadian persons, except, in each case, for transactions pursuant to the Intersyndicate Agreement. The U.S. Representatives have advised the Company that the U.S. Underwriters propose to offer the shares of Common Stock offered hereby to the public initially at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The U.S. Underwriters may allow, and such dealers may re-allow, a discount not in excess of $ per share on sales to certain other dealers. After the public offering, the public offering price, concession and discount may be changed. The Company has granted the U.S. Underwriters an option, exercisable by the U.S. Representatives, to purchase up to 690,000 additional shares of Common Stock at the public offering price set forth on the cover page of this Prospectus, less the underwriting discount. Such option, which expires 30 days after the date of this Prospectus, may be exercised solely to cover over-allotments. To the extent that the U.S. Representatives exercise such option, each of the U.S. Underwriters will be obligated, subject to certain conditions, to purchase approximately the same percentage of the option shares that the number of shares to be purchased initially by that U.S. Underwriter bears to the total number of shares to be purchased initially by the U.S. Underwriters. The Company has also granted an option to the International Managers, which expires 30 days after the date of this Prospectus, to purchase up to 172,500 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the U.S. Underwriters. The Company and certain of its directors and executive officers and the Selling Stockholders have agreed that they will not, for a period of 90 days from the date of this Prospectus, without the prior written consent of Merrill Lynch, directly or indirectly, offer, sell or otherwise dispose of or grant any option with respect to, pledge or hypothecate any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock, except for the exercise of options granted pursuant to existing employee plans (and except for the over-allotment option granted to the Underwriters in the Offerings). 39 41 The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including certain liabilities under the Securities Act or to contribute to payments the Underwriters may be required to make in respect thereof. Certain of the Representatives, including Merrill Lynch, have performed investment banking services for the Company and its affiliates for which they received customary compensation. David K. Newbigging, a director of the Company, is a director of Merrill Lynch & Co., Inc. From time to time, in the ordinary course of their respective businesses, J.P. Morgan and its affiliates, including Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), have engaged and may in the future engage in commercial and investment banking transactions with the Company and its affiliates. Morgan Guaranty is co-agent and a lender under the Credit Facility, the outstanding borrowings of which will be paid down with a portion of the net proceeds of the Offerings. The Offerings are being made pursuant to the provisions of Sections 2710(c)(8)(A) and 2720 (c)(3)(B) of the Conduct Rules of the National Association of Securities Dealers, Inc. LEGAL MATTERS The validity of the issuance of the Common Stock offered hereby will be passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Dallas, Texas. Certain legal matters will be passed upon for the Underwriters by Vinson & Elkins L.L.P., Houston, Texas. Vinson & Elkins L.L.P. also acts as counsel to the Company in connection with matters unrelated to the Offerings. In addition, Vinson & Elkins L.L.P. acts as counsel for the Lenders under the Credit Facility. EXPERTS The audited financial statements of UMC included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. Reference is made to said report which includes an explanatory paragraph with respect to the change in the method of accounting for assessing recoverability of proved oil and gas properties in 1993 and the adoption of SFAS 121 in 1995, as discussed in Note 3 to the financial statements. The estimated reserve evaluations and related calculations of Netherland, Sewell & Associates, Inc., McDaniel & Associates Consultants, Ltd., and Ryder Scott Company set forth in, and incorporated by reference into, this Prospectus have been included herein in reliance upon the authority of said firms as experts in petroleum engineering. 40 42 GLOSSARY OF OIL AND GAS TERMS The following are abbreviations and words commonly used in the oil and gas industry and in this Prospectus. "3-D seismic" means seismic that is run, acquired, and processed to yield a three-dimensional picture of the subsurface. "bbl" means barrel, a standard measure of volume for oil, condensate and natural gas liquids which equals 42 U.S. gallons. "Bcf" means a billion cubic feet. "Bcfe" means a billion cubic feet equivalent. "bopd" means a barrel of oil or condensate per day. "Carried interest" means a fractional interest in a lease which is free of all costs of drilling and completing a well up to a designated point. The carried party's expenses are paid by the other parties who own the working interest in the well. After the designated point is reached, the carried interest usually becomes a working interest and shares in the costs. "Development well" means a well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. "Discounted future net cash flows" refers to a method of determining the present value of proved reserves. Under the Commission method, the future net revenues before income taxes from proved reserves are estimated assuming that oil and natural gas prices and production costs remain constant. The resulting stream of revenues is then discounted at the rate of 10% per year to obtain the present value. "EBITDA" means income from operations plus depreciation, depletion and amortization, impairment of proved oil and gas properties, non-recurring costs and exploration expense. "Exploratory well" means a well drilled to find commercially productive hydrocarbons in an unproved area or to extend significantly a known oil or natural gas reservoir. "Finding costs", expressed in dollars per Mcfe, are calculated by dividing the amount of total capital expenditures by the amount of total reserves added during the same period as a result of drilling activities, property acquisitions, reserve revisions and improved recovery. "Gross" oil and natural gas wells or "gross" acres are the total number of wells or acres, respectively, in which the Company has an interest, without regard to the size of that interest. "Mbbls" means a thousand barrels. "Mbopd" means a thousand barrels of oil or condensate per day. "Mcf" means a thousand cubic feet, a standard measure of volume for gas. "Mcfe" means a thousand cubic feet equivalent, which is determined using the ratio of one barrel of crude oil, condensate or natural gas liquids to six Mcf of natural gas so that of a barrel of crude oil, condensate or natural gas liquids is referred to as one thousand cubic feet of natural gas equivalent or one Mcfe. "MMbbls" means a million barrels. "MMcf" means a million cubic feet. "MMcfe" means a million cubic feet equivalent. "MMcfd" means a million cubic feet per day. "Net" oil and natural gas wells or "net" acres are determined by multiplying gross wells or acres by the Company's working interest in those wells or acres. G-1 43 "Proved developed reserves" are expected to be recovered from existing wells (including reserves behind pipe). Improved recovery reserves are considered developed only after the necessary equipment has been installed, or when the costs to do so are relatively minor. Developed reserves may be subcategorized as producing or nonproducing. "Proved reserves" can be estimated with reasonable certainty to be recoverable under current economic conditions. Current economic conditions include prices and costs prevailing at the time of the estimate. Proved reserves may be developed or undeveloped. In general, reserves are considered proved if commercial productibility of the reservoir is supported by actual production or formation tests. Proved reserves must have facilities to process and transport those reserves to market that are operational at the time of the estimate, or there is a commitment or reasonable expectation to install such facilities in the future. "Reserves" means estimated volumes of oil, condensate, natural gas, natural gas liquids, and associated substances anticipated to be commercially recoverable from known accumulations from a given date forward, under existing economic conditions, by established operating practices, and under current government regulations. Reserve estimates are based on interpretations of available geographic geologic and/or engineering data. All reserve estimates involve some degree of uncertainty, depending chiefly on the amount and reliability of geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves in one or two classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be subclassified as probable or possible to denote progressively increasing uncertainty. "Royalty" means an interest in an oil and gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner's royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually carved from the leasehold interest pursuant to an assignment to a third party reserved by an owner of the leasehold in connection with a transfer of the leasehold to a subsequent owner. "Working interest" means an interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil and gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations. The share of production to which a working interest owner is entitled will always be smaller than the share of costs that the working interest owner is required to bear, with the balance of the production accruing to the owners of royalties. For example, the owner of a 100% working interest in a lease burdened only by a landowner's royalty of 12.5% would be required to pay 100% of the costs of a well but would be entitled to retain 87.5% of the production. "Workover" means operations on a producing well to restore or increase production. In this Prospectus, natural gas volumes are stated at the legal pressure base of the state or area in which the reserves are located and at 60 degrees Fahrenheit. G-2 44 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS UNITED MERIDIAN CORPORATION
PAGE ---- Report of Independent Public Accountants.............................................. F-2 Consolidated Statement of Income for Years Ended December 31, 1993, 1994 and 1995 and for the Six Months Ended June 30, 1995 and 1996 (Unaudited)......................... F-3 Consolidated Balance Sheet as of December 31, 1994 and 1995 and June 30, 1996 (Unaudited)......................................................................... F-4 Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 and for the Six Months Ended June 30, 1996 (Unaudited)...... F-6 Consolidated Statement of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for the Six Months Ended June 30, 1995 and 1996 (Unaudited)................ F-7 Notes to Consolidated Financial Statements............................................ F-8
F-1 45 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders, United Meridian Corporation: We have audited the accompanying consolidated balance sheets of United Meridian Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United Meridian Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 3 to the Consolidated Financial Statements, effective January 1, 1993, the Company changed its method of accounting for assessing recoverability of proved oil and gas properties and in 1995 the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. ARTHUR ANDERSEN LLP Houston, Texas February 21, 1996 F-2 46 UNITED MERIDIAN CORPORATION CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ----------------------------------- -------------------- 1993 1994 1995 1995 1996 -------- --------- -------- ------- -------- (UNAUDITED) Revenues: Gas sales......................... $ 60,457 $ 67,763 $ 68,228 $34,122 $ 60,986 Oil sales......................... 19,877 26,675 45,122 21,128 35,284 Contract settlements and other.... 913 2,703 2,507 955 680 Gain on sale of assets............ 1,071 676 31,184 12,569 18,012 -------- --------- -------- ------- -------- 82,318 97,817 147,041 68,774 114,962 -------- --------- -------- ------- -------- Costs and expenses: Production costs.................. 30,539 36,938 42,891 19,481 25,766 General and administrative........ 8,097 12,504 10,425 5,437 6,519 Exploration, including dry holes and impairments................ 6,811 16,187 15,682 7,623 14,711 Depreciation, depletion and amortization................... 35,938 50,727 53,942 25,828 41,821 Impairment of proved oil and gas properties..................... 10,051 94,793 8,317 -- -- -------- --------- -------- ------- -------- 91,436 211,149 131,257 58,369 88,817 -------- --------- -------- ------- -------- Income (loss) from operations....... (9,118) (113,332) 15,784 10,405 26,145 Other income, expenses and deductions: Interest and other income (expense)...................... 2,102 (141) 375 305 78 Interest and debt expense......... (6,532) (9,040) (17,945) (8,729) (11,380) -------- --------- -------- ------- -------- Net income (loss) before income taxes and cumulative effect of change in accounting principle.... (13,548) (122,513) (1,786) 1,981 14,843 Income tax benefit (provision)...... 6,305 41,524 3,885 2,089 (5,892) Cumulative effect of change in accounting principle, net of tax............................... (3,543) -- -- -- -- -------- --------- -------- ------- -------- Net income (loss)................... (10,786) (80,989) 2,099 4,070 8,951 Preferred stock dividends........... (1,498) -- (1,484) -- (1,531) -------- --------- -------- ------- -------- Net income (loss) available to common stockholders............... $(12,284) $ (80,989) $ 615 $ 4,070 $ 7,420 ======== ========= ======== ======= ======== Net income (loss) per common share, after giving effect to a one-for-two reverse stock split effective May 20, 1993: Before cumulative effect of change in accounting principle........ $ (0.75) $ (3.47) $ 0.02 $ 0.14 $ 0.24 Cumulative effect of change in accounting principle........... (0.31) -- -- -- -- -------- --------- -------- ------- -------- Total............................... $ (1.06) $ (3.47) $ 0.02 $ 0.14 $ 0.24 ======== ========= ======== ======= ======== Weighted average number of common shares and common share equivalents outstanding, after giving effect to a one-for-two reverse stock split effective May 20, 1993.......................... 11,588 23,330 29,259 29,035 30,474 ======== ========= ======== ======= ========
The accompanying notes are an integral part of these financial statements. F-3 47 UNITED MERIDIAN CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
DECEMBER 31, ----------------------- JUNE 30, 1994 1995 1996 --------- --------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................... $ 11,825 $ 13,586 $ 4,138 Accounts receivable, net of allowance for doubtful accounts of $1,266 at December 31, 1994 and 1995 and $1,190 at June 30, 1996: Oil and gas sales................................ 15,325 18,188 21,083 Joint interest and other......................... 15,767 22,522 22,157 Deferred income taxes............................... 15,498 3,875 8,826 Inventory........................................... 6,447 15,313 8,695 Prepaid expenses and other.......................... 3,870 2,529 3,188 --------- --------- --------- Total current assets........................ 68,732 76,013 68,087 --------- --------- --------- Property and equipment, at cost: Oil and gas (successful efforts method) Proved properties................................ 684,725 759,695 768,353 Unproved properties.............................. 11,701 12,369 11,565 Other property and equipment........................ 3,847 6,231 6,860 --------- --------- --------- 700,273 778,295 786,778 Accumulated depreciation, depletion and amortization........................................ (275,343) (309,622) (327,397) --------- --------- --------- 424,930 468,673 459,381 --------- --------- --------- Other assets: Gas imbalances receivable........................... 6,678 5,852 5,818 Deferred income taxes............................... 2,897 17,140 14,295 Debt issue cost..................................... 4,877 9,905 9,375 Other............................................... 3,100 867 828 --------- --------- --------- 17,552 33,764 30,316 --------- --------- --------- TOTAL ASSETS................................ $ 511,214 $ 578,450 $ 557,784 ========= ========= =========
The accompanying notes are an integral part of these financial statements F-4 48 UNITED MERIDIAN CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
DECEMBER 31, ----------------------- JUNE 30, 1994 1995 1996 --------- --------- ----------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.................................... $ 52,566 $ 58,137 $ 37,534 Advances from joint owners.......................... 1,263 8,238 8,977 Interest payable.................................... 1,315 4,494 5,310 Accrued liabilities................................. 8,397 6,202 8,761 Notes payable....................................... -- 10,639 -- Current maturities of long-term debt................ -- 3,100 4,350 --------- --------- --------- Total current liabilities................... 63,541 90,810 64,932 --------- --------- --------- Long-Term Debt: Revolving loan...................................... 237,784 61,049 44,758 Unsecured notes..................................... 1,850 -- -- Cote d'Ivoire project loan.......................... -- 33,750 32,500 10 3/8% senior subordinated notes................... -- 150,000 150,000 --------- --------- --------- 239,634 244,799 227,258 --------- --------- --------- Deferred Credits and Other Liabilities: Deferred income taxes............................... 19,810 18,499 23,167 Gas imbalances payable.............................. 6,474 6,377 6,460 Other............................................... 10,317 5,653 6,151 --------- --------- --------- 36,601 30,529 35,778 --------- --------- --------- Commitments and Contingencies Stockholders' Equity: Preferred stock, $.01 par value, 32,000,000 shares authorized, no shares issued and outstanding at December 31, 1994 and 1995 and June 30, 1996..... -- -- -- Series F preferred stock, $.01 par value, 1,166,667 shares authorized, shares issued and outstanding at December 31, 1995 and June 30, 1996........... -- 12 12 Common stock, $.01 par value, 46,000,000 shares authorized, 27,721,881 and 28,150,224 issued and outstanding at December 31, 1994 and 1995, respectively, and 28,702,138 shares issued and outstanding at June 30, 1996..................... 277 281 287 Additional paid-in capital.......................... 296,168 336,469 346,526 Foreign currency translation adjustment............. (3,999) (4,057) (4,036) Retained earnings (deficit)......................... (121,008) (120,393) (112,973) --------- --------- --------- 171,438 212,312 229,816 --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $ 511,214 $ 578,450 $ 557,784 ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-5 49 UNITED MERIDIAN CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
SERIES A-E SERIES F PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL -------------------- ------------------ ------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ----------- ------ --------- ------ ---------- ------ ---------- Balance, December 31, 1992......................... 20,688,463 $ 207 5,664,653 $ 57 $118,456 Preferred stock issuance -- April 30.................................... 1,400,000 14 34,441 -- June 11..................................... 313,962 3 7,846 Adjustment resulting from recording the acquisition of NHI in accordance with the purchase method.... 1,893 Adjustment to reflect 1 for 2 reverse stock split............................................ (2,832,326) (28) 28 Foreign currency translation adjustment.......... Preferred Stock dividends........................ Initial Public Stock offering, July 22........... 4,400,000 44 68,637 Conversion of Preferred Stock to Common Stock, July 22........................................ (22,402,425) (224) 15,326,235 153 71 Net loss......................................... ----------- ----- --------- ---- ---------- ---- -------- Balance, December 31, 1993......................... -- -- -- -- 22,558,562 226 231,372 Adjustment resulting from recording the acquisition of GARI in accordance with the purchase method................................ (82) Foreign currency translation adjustment.......... Exercise of common stock options................. 144,375 1 1,404 Issuance of stock as partial purchase in GARI merger......................................... 5,018,944 50 63,474 Net loss......................................... ----------- ----- --------- ---- ---------- ---- -------- Balance, December 31, 1994......................... -- -- -- -- 27,721,881 277 296,168 Foreign currency translation adjustment.......... Preferred Stock issuance -- June 30..................................... 833,333 $ 8 24,992 -- July 24..................................... 333,334 4 9,902 Exercise of common stock options................. 428,343 4 5,407 Preferred Stock dividends........................ Net income....................................... ----------- ----- --------- ---- ---------- ---- -------- Balance, December 31, 1995......................... -- -- 1,166,667 12 28,150,224 281 336,469 Foreign currency translation adjustment.......... Exercise of common stock options................. 318,358 3 6,472 Exercise of warrants............................. 233,556 3 3,585 Preferred Stock dividends........................ Net income....................................... ----------- ----- --------- ---- ---------- ---- -------- Balance, June 30, 1996 (Unaudited)............... -- $ -- 1,166,667 $ 12 28,702,138 $287 $346,526 =========== ===== ========= ==== ========== ==== ======== FOREIGN RETAINED CURRENCY EARNINGS ADJUSTMENT (DEFICIT) TOTAL ---------- --------- -------- Balance, December 31, 1992......................... $ (27,735) $ 90,985 Preferred stock issuance -- April 30.................................... 34,455 -- June 11..................................... 7,849 Adjustment resulting from recording the acquisition of NHI in accordance with the purchase method.... 1,893 Adjustment to reflect 1 for 2 reverse stock split............................................ -- Foreign currency translation adjustment.......... $ (1,907) (1,907) Preferred Stock dividends........................ (1,498) (1,498) Initial Public Stock offering, July 22........... 68,681 Conversion of Preferred Stock to Common Stock, July 22........................................ -- Net loss......................................... (10,786) (10,786) -------- --------- -------- Balance, December 31, 1993......................... (1,907) (40,019) 189,672 Adjustment resulting from recording the acquisition of GARI in accordance with the purchase method................................ (82) Foreign currency translation adjustment.......... (2,092) (2,092) Exercise of common stock options................. 1,405 Issuance of stock as partial purchase in GARI merger......................................... 63,524 Net loss......................................... (80,989) (80,989) -------- --------- -------- Balance, December 31, 1994......................... (3,999) (121,008) 171,438 Foreign currency translation adjustment.......... (58) (58) Preferred Stock issuance -- June 30..................................... 25,000 -- July 24..................................... 9,906 Exercise of common stock options................. 5,411 Preferred Stock dividends........................ (1,484) (1,484) Net income....................................... 2,099 2,099 -------- --------- -------- Balance, December 31, 1995......................... (4,057) (120,393) 212,312 Foreign currency translation adjustment.......... 21 21 Exercise of common stock options................. 6,475 Exercise of warrants............................. 3,588 Preferred Stock dividends........................ (1,531) (1,531) Net income....................................... 8,951 8,951 -------- --------- -------- Balance, June 30, 1996 (Unaudited)............... $ (4,036) $(112,973) $229,816 ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-6 50 UNITED MERIDIAN CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
FOR THE SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ----------------------------------- ---------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (UNAUDITED) Cash flows from operating activities: Net income (loss).......................... $ (10,786) $ (80,989) $ 2,099 $ 4,070 $ 8,951 Adjustments to reconcile net income (loss) to cash from operating activities: Exploration, including dry holes and impairments............................ 6,811 16,187 15,682 7,623 14,711 Depreciation, depletion and amortization........................... 35,938 50,727 53,942 25,828 41,821 Impairment of proved oil and gas properties............................. 15,419 94,793 8,317 -- -- Amortization of debt issue cost.......... 893 532 1,173 319 792 Deferred income tax (benefit) provision.............................. (9,261) (41,549) (4,217) (2,476) 5,595 Gain on sale of assets................... (1,071) (676) (31,184) (12,569) (18,012) --------- --------- --------- --------- --------- 37,943 39,025 45,812 22,795 53,858 Changes in assets and liabilities: Decrease (increase) in receivables....... (9,813) 6,118 (9,618) (3,744) (2,530) Increase (decrease) in payables and accrued liabilities.................... 16,239 (7) 8,150 (517) (19,185) Increase (decrease) in net gas imbalances............................. (320) (408) 729 183 117 Other.................................... (1,875) (1,164) 933 1,869 2,700 --------- --------- --------- --------- --------- Net cash provided by operating activities........................ 42,174 43,564 46,006 20,586 34,960 --------- --------- --------- --------- --------- Cash flows from investing activities: Exploration................................ (8,617) (21,169) (32,914) (14,120) (24,148) Development................................ (22,354) (30,968) (97,934) (36,519) (37,444) Acquisition of properties.................. (2,317) (798) (28,538) (3,680) -- Additions to other property and equipment................................ (544) (419) (1,441) (549) (615) Corporate acquisitions (net of cash acquired)................................ (141,954) (129,182) -- -- -- Net proceeds from the sale of assets....... 3,232 2,376 78,119 48,410 29,715 --------- --------- --------- --------- --------- Net cash used in investing activities........................ (172,554) (180,160) (82,708) (6,458) (32,492) --------- --------- --------- --------- --------- Cash flows from financing activities: Repayment of long-term debt................ (198,240) (90,299) (337,033) (237,784) (105,238) Additions to total debt.................... 222,399 237,784 345,298 187,645 88,947 Debt issue cost............................ (4,305) (964) (6,089) -- (251) Net proceeds from issuance of preferred stock.................................... 42,304 -- 34,906 24,970 -- Net proceeds from initial public offering................................. 68,681 -- -- -- -- Preferred stock dividends.................. (1,498) -- (1,484) -- (1,531) Proceeds from common stock options and warrants exercised....................... -- 1,405 2,865 1,029 6,157 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities.............. 129,341 147,926 38,463 (24,140) (11,916) --------- --------- --------- --------- --------- Effect of exchange rate changes on cash...... (37) -- -- -- -- Net increase (decrease) in cash and cash equivalents................................ (1,076) 11,330 1,761 (10,012) (9,448) Cash and cash equivalents at beginning of period..................................... 1,571 495 11,825 11,825 13,586 --------- --------- --------- --------- --------- Cash and cash equivalents at end of period... $ 495 $ 11,825 $ 13,586 $ 1,813 $ 4,138 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-7 51 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION The accompanying consolidated financial statements of United Meridian Corporation (UMC or the Company), a Delaware corporation, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The 1994 statements include the assets and liabilities of General Atlantic Resources, Inc. (GARI) from September 19, 1994 and the results of operating such assets since that date. This consolidation reflects the Company's 51% ownership of GARI as of September 19, 1994 and 100% ownership as of November 15, 1994. Additionally, the financial statements include the assets and liabilities of Norfolk Holdings Inc. (NHI), KPX, Inc. (KPX) and Sterling Energy Limited (SEL) from April 30, 1993, June 11, 1993 and October 29, 1993, respectively, and the results of operating such assets since those dates. See Note 4 below for additional information concerning these acquisitions. The Company is an independent energy company engaged in the acquisition, exploration, development and production of natural gas and crude oil across North America and in the West African oil and natural gas producing regions of Cote d'Ivoire and Equatorial Guinea. The financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments of a normal, recurring nature necessary to present fairly the financial position of the Company as of June 30, 1995 and 1996 and the results of operations and cash flows for the six-month periods ended June 30, 1995 and 1996. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its majority-owned affiliates. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassification of amounts previously reported have been made to conform to current year presentation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. INVENTORY UMC conducts a portion of its oil and gas activities with a small group of institutional and corporate investors. In connection therewith, the Company periodically acquires oil and gas properties with the intention of selling a portion of its interests to such investors. To the extent those properties are to be resold to investors, costs are carried as a current asset and classified as inventory. No gain or loss is recognized on inventoried properties. At December 31, 1995 and 1994, costs of properties to be resold included in inventory totaled $12,410,000 and $4,500,000, respectively. The remaining inventory consists of tubular goods and other equipment. OIL AND GAS PROPERTIES The Company and its subsidiaries follow the successful efforts method of accounting for oil and gas producing activities. Under this method, all costs to acquire mineral interests in oil and gas properties, to F-8 52 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) acquire production sharing contracts with foreign governments, to drill and equip exploratory wells which find proved reserves and to drill and equip development wells are capitalized. Geological and geophysical costs, delay rentals and technical support costs are expensed as incurred except in those circumstances where the Company has a contractual right to recover such costs from additional proved reserves, in which case they are capitalized. Other internal costs related to oil and gas acquisitions, exploration and development activities are generally expensed as general and administrative, exploration or production expenses. The costs of drilling exploratory wells which do not find proved reserves are expensed upon determination that a well does not justify commercial development. The capitalized costs of producing oil and gas properties are depreciated and depleted by the units-of-production method based upon estimated proved reserves. Unproved oil and gas properties are periodically assessed for impairments of value and a loss is recognized as appropriate. OTHER PROPERTY AND EQUIPMENT Other property consists primarily of furniture, office equipment, leasehold improvements and computers. The majority of these assets are depreciated on a straight-line basis with useful lives of three to ten years. GAS IMBALANCES The Company follows the entitlements method of accounting for production imbalances. Under this method, the Company recognizes revenues based on its interest in production from a well. Imbalance payables are recorded at historical amounts and imbalance receivables are valued at the lower of (i) the price in effect at the time of production, (ii) the current market value or (iii) the contract price net of selling expenses. Gas imbalances arise when a purchaser takes delivery of more or less gas volume from a well than UMC's actual interest in the production from that well. Such imbalances are reduced either by subsequent recoupment of over and under deliveries or by cash settlement, as required by applicable contracts. Under-deliveries are included in Other Assets and over-deliveries are included in Deferred Credits and Other Liabilities. HEDGING UMC periodically enters into contracts in order to hedge against the volatility in oil and gas prices. The Company enters into such transactions for the purpose of insuring against a possible decline in the short-term (3 to 12 months) price of oil or natural gas. The contracts generally take the form of swaps or price collars, and are placed with major financial institutions. The results of such transactions are included as oil or gas sales in the Consolidated Statement of Income as the related production volumes are sold. The Company may also enter into interest rate swap contracts from time to time with major financial institutions. These transactions are made to protect against higher future interest costs on the Company's long-term debt. The results of interest rate swaps are included in interest expense on the Consolidated Statement of Income. FEDERAL INCOME TAXES The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes," under which deferred tax assets or liabilities are estimated at the financial statement date based upon (i) temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements and (ii) operating loss and tax credit carryforwards for tax purposes. STATEMENT OF CASH FLOWS Cash flows from operating activities for 1995, 1994 and 1993, include cash payments for interest of $14,642,000, $8,042,000 and $6,082,000 and income taxes of $553,000, $408,000 and $850,000, respectively. F-9 53 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOREIGN CURRENCY TRANSLATION The financial position and results of operations attributable to the Company's foreign operations are translated into U.S. currency in accordance with SFAS 52, the U.S. dollar primarily being used as the functional currency. Accordingly, the assets and liabilities of the financial statements are translated using the currency exchange rate in effect at the balance sheet date while the revenues, expenses, gains and losses are translated using the weighted average exchange rate for the period. The effect of such translations are reflected as adjustments to stockholders' equity as shown in the Statement of Changes in Stockholders' Equity in the Company's Consolidated Financial Statements. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3 -- CHANGE IN METHOD OF ACCOUNTING FOR ASSESSING RECOVERABILITY OF PROVED OIL AND GAS PROPERTIES During 1995, the Financial Accounting Standards Board issued SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company adopted the provisions of SFAS 121 during the fourth quarter of 1995, recording a pre-tax impairment of $8,317,000 (after-tax effect: $5,125,000). Confronted with lower oil prices in the fourth quarter of 1993, the Company adopted a policy to assess recoverability on a periodic basis of its proved properties by individual property groups having similar geological or operating characteristics utilizing estimates of undiscounted future net revenues attributable to proved reserves based on current prices and to provide impairment reserves as conditions warrant. In its application of this policy, the Company recorded a total pre-tax charge of $15,400,000 against earnings, $10,051,000 of which applied to 1993, and $3,500,000 of which applied to periods prior to 1993 net of a deferred tax benefit of $1,800,000. A precipitous decline in natural gas prices at year-end 1994 and continuing into 1995 required a similar adjustment to costs applicable to proved properties of $94,793,000 before tax (after-tax effect: $58,772,000). NOTE 4 -- ACQUISITIONS AND DISPOSITIONS As part of its on-going operations, the Company continually sells producing and undeveloped reserves and related assets. Significant dispositions and acquisitions for the years ending December 31, 1995, 1994 and 1993 are shown below. 1995 TRANSACTIONS In 1995, the Company agreed to assign to Yukong Limited a portion of its interests in Blocks CI-01 and CI-02 in Cote d'Ivoire and Blocks B, C and D in Equatorial Guinea. Mobil subsequently exercised its preferential right to purchase the interest in Block B in lieu of the proposed assignment to Yukong Limited. Under the agreements, the Company will receive $40,135,000 in consideration in 1995 and 1996. A pre-tax gain of $18,278,000 was recognized in 1995 for proceeds received through December 31, 1995. In February 1995, UMC sold all of its interest in oil and gas properties in West Virginia, effective January 1, 1995. Net proceeds from the sale were $41,200,000 and a gain of $7,000,000 was recognized. Total proved reserves at December 31, 1994 attributable to the sold properties were 61,715 MMCFE. F-10 54 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In March 1995, UMC sold all of its interest in the Main Pass 108 offshore Louisiana field effective February 1, 1995. Net proceeds from the sale were $6,900,000 with a recognized gain of $4,700,000. Total proved reserves at December 31, 1994 associated with the Company's interest in Main Pass 108 were 2,106 MMCFE. In October 1995, the Company and its institutional partners acquired certain oil and natural gas properties at a cost of $58,626,000 (approximately $21,300,000 net to the Company). The acquired interests relating to one of the institutional partners (in an additional amount of approximately $10,250,000) were included in inventory until January 1996, at which time the partner reimbursed UMC for its proportionate share of the acquisition, including carrying costs. A separate short-term facility was negotiated for the financing of this interest in the properties and was paid at closing in January 1996. 1994 TRANSACTIONS On November 15, 1994 the Company and its wholly-owned subsidiary, UMC Merger Corporation, a Delaware corporation, completed the acquisition of all outstanding common stock of GARI, 51% of which was purchased for cash and the remainder of which was acquired in exchange for the issuance of 5,018,944 shares of UMC common stock. The acquisition was accounted for under the purchase method and, as a result, the assets and liabilities of GARI were added to the Company's balance sheet as of September 19, 1994 at amounts that reflect the purchase price of 51% of GARI's equity. On November 15, 1994, the remainder of GARI's equity was acquired by exchange of stock and was recorded as additional basis in the assets acquired. GARI was an independent oil and gas company with operations and prospects concentrated in major producing basins in the Rocky Mountain, Gulf Coast (on-shore and off-shore), Mid-Continent and West Texas regions and in Western Canada. The following schedule provides an analysis of the consideration paid in the acquisition of GARI (in thousands): Cash costs -- Purchase of GARI common stock in individual transactions and tender offer.............................................................. $ 78,359 Liquidation of GARI debt.............................................. 49,769 Transaction costs..................................................... 1,970 Cash acquired in the transaction...................................... (916) -------- Total net cash consideration.................................. 129,182 Issuance of 5,018,944 shares of UMC stock in exchange for remaining GARI stock, net of related costs........................................... 63,524 Liabilities assumed -- Current............................................................... 27,333 Non-current........................................................... 5,525 Assets acquired (except oil and gas properties) Current, except for cash.............................................. (18,209) Non-current........................................................... (2,410) -------- Total consideration before tax effect................................... 204,945 Accrual of deferred taxes related to difference between book and tax basis of assets acquired.............................................. 35,008 -------- Total costs allocated to oil and gas assets............................. $239,953 ========
F-11 55 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In late 1994, the Company acquired certain oil and gas properties in three separate transactions at a cost of $18,000,000. During the first quarter of 1995, a portion of this acquisition package was sold to the Company's institutional partners, reducing UMC's portion to $6,000,000. 1993 TRANSACTIONS In 1993, the Company acquired the stock of three privately owned oil and gas companies, NHI, KPX and SEL. The acquisitions were accounted for under the purchase method, which provides that the cost of the acquisition (i.e. cash, stock and liabilities assumed) be allocated to the assets and liabilities acquired based upon their fair value. As a result, the assets and liabilities of NHI, KPX and SEL were added to UMC's balance sheet at amounts that reflect the purchase prices rather than the historical costs reported by the acquired companies. NHI: On April 30, 1993, the Company purchased for cash the equity of NHI for $119,626,000, including acquisition costs. KPX: On June 11, 1993, the Company acquired KPX for $16,594,000. The purchase price was comprised of 313,962 shares of Series E Convertible Preferred Stock (which was converted to Common Stock upon the effective date of the Company's initial public offering), cash of $625,000, warrants to purchase 250,004 shares of the Company's Common Stock and repayment of $7,300,000 of senior bank debt of KPX. SEL: On October 29, 1993, the Company purchased the outstanding stock of SEL for $6,900,000. The purchase included oil and natural gas properties in the company-operated Bearpaw area of Montana and in Canada valued at $5,400,000 and $1,500,000 in cash and other assets. Assuming the acquisition of GARI, NHI, KPX and SEL had been consummated as of January 1, 1993, the unaudited pro forma income statement approximates the following (in thousands, except per share amounts):
PRO FORMA FOR THE YEARS ENDED DECEMBER 31, --------------------- 1993 1994 -------- -------- (UNAUDITED) Revenues....................................................... $138,089 $128,028 Loss from operations including impairments of proved properties of $10,100 and $57,700, respectively......................... $(16,146) $(81,582) Net loss before income taxes and cumulative effect of change in accounting principle......................................... $(25,115) $(94,980) Net loss....................................................... $(20,364) $(64,973) Net loss per common share...................................... $ (0.74) $ (2.34) Weighted average number of common shares outstanding........... 27,577 27,722
The above unaudited pro forma net loss amounts have been determined as follows: The 1994 statement of income is a result of combining the statement of income of UMC for the year with the statement of income of GARI from January 1, 1994 until the date of acquisition adjusted for (i) certain costs that GARI had capitalized under the full cost method of accounting that are expensed under the successful efforts method of accounting; (ii) depreciation, depletion and amortization of GARI properties calculated using the units-of-production method applied to the adjusted basis of the properties acquired using the purchase method of accounting; (iii) increased interest expense resulting from the additional borrowings under the Credit Facility to acquire the common stock of GARI and (iv) recalculation of the impairment after giving effect to recording depreciation, depletion and amortization since January 1, 1993. F-12 56 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The 1993 statement of income is a result of combining: (i) the income statement of UMC for the year with; (ii) the statements of income of NHI, KPX and SEL from January 1, 1993 until date of acquisition adjusted for a) realized or anticipated general and administrative cost savings in connection with the acquisition of NHI, KPX and SEL; b) depreciation, depletion and amortization of NHI, KPX and SEL properties calculated using the units-of-production method applied to the adjusted basis of the properties acquired using the purchase method of accounting; c) reduced interest expense resulting from the net proceeds of the initial public offering being used to reduce debt; d) sale and conversion of Series E Preferred Stock into common stock on January 1, 1993, eliminating any dividend payments and e) a nonrecurring expense accrual for production taxes of $1,012,000 and a nonrecurring reduction of revenue of $667,000 associated with a 1992 gas contract settlement made by NHI (the gas contract settlement adjustment increases revenue, income from operations, income before taxes and net income by $667,000, $1,679,000, $1,679,000 and $1,679,000, respectively); and (iii) the statement of income of GARI for 1993 with the adjustments mentioned above for GARI in 1994. NOTE 5 -- DEBT Long-term debt consisted of the following at December 31, 1995 and 1994 and June 30, 1996 (in thousands):
DECEMBER 31, --------------------- JUNE 30, 1994 1995 1996 -------- -------- -------- (UNAUDITED) Revolving loan..................................... $237,784 $ 61,049 $ 44,758 10 3/8% senior subordinated notes.................. -- 150,000 150,000 Cote d'Ivoire facility............................. -- 35,000 35,000 Unsecured notes.................................... 1,850 1,850 1,850 -------- -------- -------- 239,634 247,899 231,608 Less: current maturities........................... -- (3,100) (4,350) -------- -------- -------- Long-term debt..................................... $239,634 $244,799 $227,258 ======== ======== ========
Current maturities at December 31, 1995 include the Unsecured Notes and the initial annual amortization of the Cote d'Ivoire Facility. Amortization of the Revolving Loan does not begin until 2000 and the 10 3/8% Senior Subordinated Notes are due 2005. Maturities of long-term debt by calendar year are as follows (in thousands): 1996.............................................................. $ 3,100 1997.............................................................. 3,375 1998.............................................................. 4,750 1999.............................................................. 5,250 2000.............................................................. 18,799 Thereafter........................................................ 212,625 -------- $247,899 ========
REVOLVING LOAN At the beginning of 1995 the Credit Facility provided a borrowing base amount of $250,000,000 of which nearly $238,000,000 was outstanding. The Credit Facility was supplemented by a $30,000,000 Liquidity Facility. After the sale of the Appalachia properties, the borrowing base was reduced to $225,000,000. In conjunction with the placement of the 10 3/8% Senior Subordinated Notes, the borrowing base was reduced to $190,000,000 and the Liquidity Facility was terminated. F-13 57 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Credit Facility, which is with a group of commercial banks, consists of two parts: (i) a credit facility among UMC, certain of its subsidiaries and certain lenders (the U.S. Lenders) pursuant to which the U.S. Lenders agree to make a portion of the Revolving Loan (subject to Borrowing Base limitations) to UMC (the U.S. Credit Facility) and (ii) a credit facility between UMC and certain lenders (the Canadian Lenders) pursuant to which the Canadian Lenders agree to make the remaining part of the Revolving Loan (subject to aggregate Borrowing Base limitations under the Credit Facility and a specific Canadian Borrowing Base sub-limit) to UMC (the Canadian Credit Facility). The amount of the Borrowing Base, which governs the aggregate Revolving Loan jointly under both the U.S. Credit Facility and the Canadian Credit Facility, and the sub-limit on the portion of the Revolving Loan that will be made by the Canadian Lenders, are both determined from time to time jointly by the U.S. Lenders and the Canadian Lenders. The next Borrowing Base redetermination date is scheduled for November 1, 1996. The Revolving Loan has a term of seven years with amortization of the Borrowing Base to begin in 1997, unless extended by the Company and the Lenders. The following table provides the Borrowing Base and outstanding borrowings under the Credit Facility as of December 31, 1995 (in thousands):
BORROWING OUTSTANDING BASE BORROWINGS --------- ----------- Revolving Loan: U.S. Credit Facility........................................ $172,269 $45,000 Canadian Credit Facility.................................... 17,731 16,049 -------- ------- Total............................................... $190,000 $61,049 ======== =======
During 1995, 1994 and 1993, the Credit Facility provided the Company with various interest rate options based upon prime and LIBOR rates. The Company's actual average interest rate for 1995, 1994 and 1993 was 7.47%, 5.95%, and 5.51%, respectively. Additionally, a facility fee of 0.375% per annum on the unused portion is payable quarterly by UMC. 10 3/8% SENIOR SUBORDINATED NOTES On October 30, 1995, the Company closed a public offering of $150,000,000 of 10 3/8% Senior Subordinated Notes (Notes) due 2005 at an initial price of 99.5% of face value. Proceeds of $144,933,000 (after deducting underwriting discounts, commission and expenses of the offering) were used to reduce debt under the Revolving Loan. Interest is payable semiannually on April 15 and October 15 of each year, commencing April 15, 1996. The Notes are general unsecured senior obligations of the Company and are guaranteed by UMC Petroleum Corporation (Petroleum) but are subordinate to the Revolving Loan (see Note 19). The Notes are redeemable at the option of the Company, whole or in part, at anytime after October 15, 2000 at certain premiums to face value. COTE D'IVOIRE PROJECT LOAN In July 1995, a subsidiary of the Company entered into the Cote d'Ivoire Facility with the International Finance Corporation in connection with the development of Block CI-11 offshore Cote d'Ivoire. The Cote d'Ivoire Facility provides for borrowings of up to $35,000,000 by the Company's subsidiary which holds the interest in Block CI-11 and is secured by liens on that interest and related assets as well as a guarantee from the Company and its primary operating subsidiary. The guarantees of the Cote d'Ivoire Facility by UMC and Petroleum are to be released upon the achievement of certain reserve levels and production rates from the properties. As of December 31, 1995, $35,000,000 was outstanding under the Cote d'Ivoire Facility and was fully guaranteed by UMC and Petroleum. Amortization of principal under the Cote d'Ivoire Facility begins in July 1996 with final maturity in January 2005. F-14 58 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LIQUIDITY FACILITY Effective December 31, 1994, UMC obtained a $30,000,000 one-year credit facility with certain members of the existing Bank Group. No borrowings were made under this facility, which terminated with the issuance of the Notes in the fourth quarter of 1995. UNSECURED NOTES Unsecured notes payable in the amount of $1,850,000 were outstanding at December 31, 1995 and 1994. These notes, which are due in 1996, bear interest at 7.375%. OTHER During 1995 and 1994, $1,049,000 and $321,000 of total interest incurred was capitalized. No interest expense was capitalized in 1993. Effective January 18, 1994, UMC entered into five-year fixed LIBOR interest rate swap contracts that provide for fixed interest rates to be realized on notional amounts of $30,000,000 in 1994 and $45,000,000 from 1995 through 1998. The agreement includes varying annual fixed interest rates ranging from 3.66% in 1994 to 6.40% in 1998, plus interest rate margins. Additionally, the Company entered into a two-year LIBOR interest rate cap contract on an additional notional amount of $45,000,000 for 1995 and 1996 at interest rate caps of 7.60% and 8.30%, respectively, plus interest rate margins. NOTE 6 -- CAPITAL STOCK COMMON STOCK On May 18, 1993, the Company's shareholders adopted an amendment to the Company's Certificate of Incorporation providing for a 1 for 2 reverse stock split of its Series A Voting Common Stock, par value $0.01 per share, and a 1 for 2 reverse stock split of its Series B Nonvoting Common Stock, par value $0.01 per share. The authorized shares of Series A and Series B stock at December 31, 1995 and December 31, 1994, were 45,000,000 and 1,000,000, respectively. Of the 1,000,000 shares of Series B stock authorized, none were outstanding at December 31, 1995 and 1994. On June 11, 1993, the Company issued warrants to purchase 250,004 shares of the Company's Common Stock in connection with the KPX acquisition. The exercise price of the warrants is $15.36 per share for a three year term ending June 11, 1996. As of December 31, 1995, no warrants had been exercised. On July 21, 1993, 7,900,000 shares of Common Stock were sold in an initial public offering at $17.00 per share ($15.94 per share net of discounts and commissions). This offering consisted of 4,400,000 new shares sold by UMC with the remainder being sold by certain stockholders of the Company. The net proceeds to the Company of $68,681,000 were used to prepay a portion of its long-term debt. The closing of the public offering automatically triggered the conversion of all outstanding Preferred Stock into 15,326,325 shares of Common Stock. In connection with the GARI merger discussed in Note 4, the Company issued 5,018,944 new shares of UMC Common Stock pursuant to an Agreement and Plan of Merger dated as of August 9, 1994 in exchange for the 4,562,662 remaining Common Shares of GARI (1.1 shares of UMC Common Stock were issued for each remaining share of GARI Common Stock). The value of this stock, based on UMC's closing price on November 15, 1994, was $63,524,000. On February 14, 1996, the Company granted one shareholder's right (Rights) for each share of Series A Voting Common Stock to holders of record at the close of business on February 29, 1996. The Rights will automatically become part of and traded with existing and future shares of UMC's Series A Common Stock. F-15 59 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Rights will become exercisable only in the event, with certain exceptions, an acquiring party accumulates 15% or more of UMC's voting stock, or if a party announces an offer to acquire 30% or more of UMC's voting stock. No separate right certificates will be issued until after these thresholds are met. The Rights will expire on February 28, 2006. Each Right will entitle the holder, other than the acquiring party, to purchase either United Meridian stock or shares in an "acquiring entity" at a 50% discount to the then current market value. The Company generally will be entitled to redeem the Rights at $0.01 per Right at any time until the tenth day following the acquisition of a 15 percent position in its voting stock. SERIES F CONVERTIBLE PREFERRED STOCK In June and July 1995, the Company sold an aggregate $35,000,000 of Series F Convertible Preferred Stock in a private placement to institutional investors. The Series F Convertible Preferred Stock has an 8.75% cumulative dividend, payable quarterly commencing on September 30, 1995. A total of 1,166,667 authorized shares were sold at $30 per share and remain outstanding at December 31, 1995. Each share is convertible into shares of Common Stock at any time at the option of the holder, based on an initial conversion price of $19.08 per share. The Series F Convertible Preferred Stock will automatically convert into shares of Common Stock at the conversion price if, for any 20 trading days within any period of 30 consecutive trading days, the closing price of the Common Stock equals or exceeds the Forced Conversion Price, which amount, prior to the third anniversary of the closing, shall be 175% of the Conversion Price and thereafter shall be 150% of the Conversion Price. Subsequent Event (unaudited). On July 25, 1996, all of the outstanding shares of Series F Convertible Preferred Stock were converted into 1.845 million shares of common stock in accordance with the automatic conversion terms of such shares. Had the conversion of the Series F preferred stock occurred at January 1, 1996, the reported earnings per share would have been $0.28 for the six months ended June 30, 1996. F-16 60 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- INCOME TAXES Under the provisions of SFAS 109, Accounting for Income Taxes, the components of the net deferred income tax assets and liabilities recognized in the Company's Consolidated Balance Sheet at December 31, 1995 and 1994, were as follows (in thousands):
1994 1995 ---------------------------------------- ---------------------------------------- FEDERAL FOREIGN STATE TOTAL FEDERAL FOREIGN STATE TOTAL ------- -------- -------- -------- -------- -------- -------- ------- Deferred tax assets -- Net operating loss carryforward....... $51,365 $ -- $ 3,791 $ 55,156 $ 40,610 $ 5,338 $ 3,713 $49,661 Percentage depletion carryforward..... 1,983 -- 172 2,155 2,158 -- 174 2,332 Investment tax credit carryforward.... 3,447 -- -- 3,447 2,619 -- -- 2,619 Alternative minimum tax credit carryforward........................ 2,634 -- -- 2,634 3,276 -- -- 3,276 Deferred foreign tax credit carryforward........................ -- -- -- -- 1,138 -- -- 1,138 Other................................. 1,813 -- 81 1,894 891 -- 51 942 Valuation allowance................... (5,645) -- (105) (5,750) (4,257) -- (79) (4,336) ------- -------- -------- -------- -------- -------- -------- ------- 55,597 -- 3,939 59,536 46,435 5,338 3,859 55,632 ------- -------- -------- -------- -------- -------- -------- ------- Deferred tax liabilities -- Excess of basis in oil and gas properties for financial reporting purposes over the tax basis............................. 36,402 17,225 5,839 59,466 24,382 22,715 4,723 51,820 Other................................... 1,298 -- 187 1,485 1,186 -- 110 1,296 ------- -------- -------- -------- -------- -------- -------- ------- 37,700 17,225 6,026 60,951 25,568 22,715 4,833 53,116 ------- -------- -------- -------- -------- -------- -------- ------- Net deferred tax asset (liability)...... 17,897 (17,225) (2,087) (1,415) 20,867 (17,377) (974) 2,516 Current portion of deferred tax assets classified as current asset........... 15,000 -- 498 15,498 3,727 -- 148 3,875 ------- -------- -------- -------- -------- -------- -------- ------- Total non-current deferred tax asset (liability)........................... $ 2,897 $(17,225) $ (2,585) $(16,913) $ 17,140 $(17,377) $ (1,122) $(1,359) ======= ======== ======== ======== ======== ======== ======== =======
As of December 31, 1995 and 1994, the Company and its subsidiaries had U.S. federal net operating loss (NOL) carryforwards of approximately $116,000,000 and $147,000,000, respectively. The Company's Canadian subsidiary also had $21,900,000 and $24,600,000 in Canadian Tax Pool carryforwards as of December 31, 1995 and 1994, respectively. The Company is subject to taxation under the laws of Cote d'Ivoire and Equatorial Guinea. Income taxes in these jurisdictions will be taken as a credit or deduction against the Company's United States tax liability. Management believes the Company will realize the benefit of all NOLs. The Company has recognized a deferred tax asset relating to these carryforwards. The U.S. federal NOLs expire as follows (in thousands): 1996.............................................................. $ 10,000 1997.............................................................. 16,000 1998.............................................................. 5,000 1999.............................................................. 1,000 2000.............................................................. 22,000 2001.............................................................. 16,000 2002.............................................................. 6,000 2003.............................................................. 1,000 Beyond 2003....................................................... 39,000 -------- $116,000 ========
For federal income tax purposes, certain limitations are imposed on an entity's ability to utilize its NOLs in future periods if a "change of control", as defined for federal income tax purposes, has taken place. In general terms, the limitation on utilization of NOLs and other tax attributes during any one year is determined F-17 61 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) by the value of an acquired entity at the date of the "change of control" multiplied by the then-existing long-term, tax-exempt interest rate. The manner of determining an acquired entity's "value" has not yet been addressed by the Internal Revenue Service. The Company has determined that, for federal income tax purposes, a "change of control" occurred in 1994 as a result of the stock purchases made by the Company's shareholders in 1994 and in previous years, and future utilization of NOLs will be limited in the manner described above. The use of NOLs acquired as a result of corporate acquisitions prior to 1994 were already subject to limitations computed at the time of each acquisition. The Company does not believe such limitations will have a material effect on future federal income taxes payable. As of December 31, 1995 and 1994, the Company and its subsidiaries had investment tax credit carryforwards of approximately $2,600,000 and $3,400,000, respectively. To the extent not utilized, these carryforwards will expire in the years 1996 through 2001. For purposes of computing the net deferred tax liability as of December 31, 1995 and 1994, none of these carryforwards were utilized. The components of the Income Tax Benefit recognized in the Consolidated Statement of Income are as follows (in thousands):
1993 1994 1995 ------- -------- ------- CURRENT TAXES -- Federal............................................ $ 264 $ (323) $ 340 Foreign............................................ 492 409 (370) State.............................................. 375 (61) 362 ------- -------- ------- 1,131 25 332 ------- -------- ------- DEFERRED TAXES -- Federal............................................ (6,026) (38,251) (2,762) Foreign............................................ (2,302) 1,157 (339) State.............................................. (933) (4,455) (1,116) ------- -------- ------- (9,261) (41,549) (4,217) ------- -------- ------- TOTAL INCOME TAX BENEFIT (including $1,825 netted with the cumulative effect of a change in accounting principle in 1993).... $(8,130) $(41,524) $(3,885) ======= ======== =======
F-18 62 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation of the income tax benefit computed by applying the federal statutory income tax rate to net loss before income taxes to the income tax benefit shown in the Consolidated Statement of Income (in thousands):
1993 1994 1995 ------- -------- ------- Income tax benefit computed at the federal statutory rate of 35%........................................ $(6,621) $(42,880) $ (625) State and local taxes (net of federal effect)........ (363) (2,935) (490) Tax effect of: (Benefit) provision for net book deductions not available for tax due to differences in book/tax basis........................................... 54 9,486 (927) Excess of taxes on foreign income over federal statutory rate.................................. 475 381 165 Benefit of NOL resulting from adjustments from estimate to actual in estimating taxable income.......................................... (901) (6,227) (181) Benefit of deferred foreign tax credit carryforward.................................... -- -- (1,138) Increase in tax rate............................... (200) -- -- Alternative minimum tax credit carryforward provision (benefit)............................. (546) 141 (321) Other.............................................. (28) 510 (368) ------- -------- ------- Income tax benefit................................... $(8,130) $(41,524) $(3,885) ======= ======== =======
NOTE 8 -- EMPLOYEE BENEFIT PLANS STOCK OPTION PLANS At December 31, 1995, UMC had three non-qualified stock option plans:
AUTHORIZED SHARES ---------- 1987 Employee Plan...................................... 1,555,625 1994 Employee Plan...................................... 2,350,000 1994 Outside Directors Plan............................. 150,000 --------- 4,055,625 =========
The two 1994 plans were approved by the shareholders of the Company on May 17, 1994. The 1994 Employee Plan was amended on November 15, 1994 by the shareholders to increase authorized shares from 850,000 to 2,350,000 in connection with the merger with GARI. The plans provide that directors, officers and key employees may be awarded options to purchase Common Stock of the Company at a price equal to the market value of UMC Common Stock on the award date. Options vest over a five-year period. Outstanding options at December 31, 1995, provide for option prices ranging from $2.75 to $17.88. Options that had been granted by GARI to its directors, officers and employees that were outstanding on November 15, 1994 were converted to UMC stock options at the ratio of 1.1 UMC shares for each GARI share. Options that had vested under the GARI option plan were converted as vested options under the UMC plan. The total new option shares of UMC resulting from the GARI conversion were 1,427,940. F-19 63 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of actual options granted and exercised follows:
1993 1994 1995 ---------- ---------- ---------- Option shares outstanding -- Beginning of year............................ 1,451,000 1,647,500 3,185,065 Granted...................................... 199,000 1,711,940 446,000 Exercised.................................... -- (144,375) (428,354) Cancelled.................................... (2,500) (30,000) (54,099) ---------- ---------- ---------- End of year.................................. 1,647,500 3,185,065 3,148,612 ========== ========== ========== Shares available for grant at end of year...... 52,500 870,560 478,659 Shares exercisable at end of year.............. 1,212,875 2,205,047 2,070,664 Average price of options exercised during the year......................................... $ -- $ 9.96 $ 6.69 Average exercise price of options outstanding at end of year............................... $ 10.36 $ 9.20 $ 10.05
SAVINGS PLAN The Company maintains a defined contribution savings plan for the benefit of its U.S. employees. Under the Plan, employees may contribute up to 16% of their base salary to a trust for investments (including UMC stock) selected by each participating employee. The Company makes a 75% matching contribution up to a maximum of 8% of each participant's qualified salary, resulting in a maximum Company contribution of 6% of salary as a result of an amendment to the Plan, effective January 1, 1994. The Plan was also amended to provide for the inclusion of total compensation paid during the year as qualified salary for purposes of making contributions and computing matching contributions. During 1995, 1994 and 1993, the Company made contributions to the Plan on behalf of all participants totaling $696,000, $434,000, and $248,000, respectively. The Company's wholly-owned Canadian subsidiary, UMC Resources Canada, Ltd., maintains a separate group savings plan for its employees. During 1995, 1994 and 1993, this subsidiary contributed $63,000, $62,000 and $26,000, respectively, to the Plan for the benefit of its employees. NOTE 9 -- COMMITMENTS AND CONTINGENCIES The Company has entered into operating leases for office space and equipment for which $1,547,000, $1,399,000 and $1,038,000 in rental expense has been included in the accompanying financial statements for the years ended December 31, 1995, 1994 and 1993, respectively. Future minimum rental payments required for the years ending December 31, 1996 through 2000 are $954,000, $484,000, $500,000, $390,000 and $146,000, respectively. The Company currently has no operating lease that extends beyond 2000, although management is currently in negotiations for office space for its headquarters. UMC Resources Canada, Ltd. has an agreement with Nova Corporation, a natural gas pipeline company, to transport specified quantities of natural gas. Future minimum transportation expense payments required for years ending December 31, 1996 and 1997 are $383,000 and $234,000, respectively. The Company has entered into agreements for transportation of natural gas across Canada for sales to the Great Lakes region for 35,000 MMBTU per day through 2000. Future minimum transportation expense payments required are $5,174,000 per annum for years ending December 31, 1996 and 1997. F-20 64 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- OIL AND GAS PROPERTY COSTS Capitalized costs at December 31, 1995 and 1994 relating to the Company's oil and gas activities are shown below (in thousands):
EQUATORIAL GUINEA UNITED COTE AND OTHER STATES CANADA D'IVOIRE FOREIGN TOTAL -------- ------- ------- ---------- -------- AS OF DECEMBER 31, 1995 Proved properties........................... $581,566 $96,198 $55,743 $ 26,188 $759,695 Unproved oil and gas interests.............. 10,815 50 1,072 432 12,369 -------- ------- ------- -------- -------- Total capitalized costs.................. 592,381 96,248 56,815 26,620 772,064 Less: Accumulated depreciation, depletion and amortization......................... 280,834 22,858 1,384 -- 305,076 -------- ------- ------- -------- -------- Net capitalized costs.................... $311,547 $73,390 $55,431 $ 26,620 $466,988 ======== ======= ======= ======== ======== AS OF DECEMBER 31, 1994 Proved properties........................... $582,209 $89,849 $12,667 $ -- $684,725 Unproved oil and gas interests.............. 9,792 1,469 -- 440 11,701 -------- ------- ------- -------- -------- Total capitalized costs.................. 592,001 91,318 12,667 440 696,426 Less: Accumulated depreciation, depletion and amortization......................... 257,386 15,261 -- -- 272,647 -------- ------- ------- -------- -------- Net capitalized costs.................... $334,615 $76,057 $12,667 $ 440 $423,779 ======== ======= ======= ======== ========
F-21 65 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Costs incurred during 1995, 1994 and 1993 in the Company's oil and gas activities were as follows (in thousands):
EQUATORIAL GUINEA UNITED COTE AND OTHER STATES CANADA D'IVOIRE FOREIGN TOTAL -------- ------- ------- ---------- -------- YEAR ENDED DECEMBER 31, 1995 Property acquisition costs: Proved................................... $ 24,819 $ 376 $ -- $ -- $ 25,195 Unproved................................. 3,032 311 -- -- 3,343 Exploration costs........................... 21,561 1,599 2,912 11,948 38,020 Development costs........................... 31,252 2,519 42,900 19,798 96,469 -------- ------- ------- -------- -------- Total costs incurred................ $ 80,664 $ 4,805 $45,812 $ 31,746 $163,027 ======== ======= ======= ======== ======== YEAR ENDED DECEMBER 31, 1994 Property acquisition costs: Proved................................... $ 131 $ 667 $ -- $ -- $ 798 Unproved................................. 1,966 118 -- -- 2,084 Corporate acquisition costs: Purchase price........................... 184,425 20,520 -- -- 204,945 Deferred taxes........................... 31,784 3,224 -- -- 35,008 Exploration costs........................... 10,424 2,369 899 3,522 17,214 Development costs........................... 18,898 5,014 7,598 -- 31,510 -------- ------- ------- -------- -------- Total costs incurred................ $247,628 $31,912 $ 8,497 $ 3,522 $291,559 ======== ======= ======= ======== ======== YEAR ENDED DECEMBER 31, 1993 Property acquisition costs: Proved................................... $ 1,464 $ -- $ -- $ -- $ 1,464 Unproved................................. 853 -- -- -- 853 Corporate acquisition costs: Purchase price........................... 86,218 55,736 -- -- 141,954 Deferred taxes........................... (9,006) 16,368 -- -- 7,362 Exploration costs........................... 5,192 2,035 675 1,965 9,867 Development costs........................... 19,069 2,478 1,517 -- 23,064 -------- ------- ------- -------- -------- Total costs incurred................ $103,790 $76,617 $ 2,192 $ 1,965 $184,564 ======== ======= ======= ======== ========
NOTE 11 -- RELATED PARTY TRANSACTIONS UMC currently conducts a portion of its oil and gas activities in conjunction with a group of institutional and corporate investors that participate in UMC's acquisition, development and exploration programs, and provide the Company with certain carried interests and management fees. Management fee income of $1,286,000 and $538,000, related to the year ended December 31, 1995 and the period September 19, 1994 through year-end, respectively, is included in the Consolidated Statement of Income. UMC is participating with Aspect Resources Limited-Liability Company (Aspect), a company controlled by a former director of UMC, as co-venturers in the generation of certain oil and gas exploration prospects. The activities regarding this venture in 1994 and 1995 were negligible. UMC and Aspect are also each 40% owners of Energy Arrow Exploration L.L.C. (Arrow), whose purpose is also the generation of oil and gas exploration prospects. UMC and Aspect each reimburse Arrow for a portion of its monthly general and administrative expenses and prospect acquisition costs. In 1994, UMC paid Arrow $75,000 for general and administrative costs and $226,000 for prospect acquisition costs. Total payments to Arrow in 1995 were $2,477,000, most of which related to lease acquisitions, seismic and drilling costs. F-22 66 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In late 1995, UMC executed separate farm-out agreements with Aspect and MB Exploration LLC (MB) (a 20% owner of Arrow) whereby UMC acquired additional 10% and 5% working interests from Aspect and MB, respectively, in an outside-operated two well drilling program. If the wells are completed, Aspect and MB revert to a 5% and 2.5% working interest, respectively. UMC also conducts joint interest operations with Brigham Oil & Gas LP, a partnership owned in part by General Atlantic Partners LLC for which Steven Denning, a director of UMC, acts as Executive Managing Member. Total payments to Brigham for the operation of jointly owned properties operated by Brigham during 1995, 1994 and 1993 were $75,000, $1,240,000 and $2,168,000, respectively. UMC billings to Brigham for the operation of jointly owned properties operated by UMC during 1995, 1994 and 1993 were $596,000, $930,000 and $814,000, respectively. UMC's receivables and payables from/to Brigham at December 31, 1995 were each less than $100,000. At December 31, 1994, the Company held a promissory note in the principal amount of $875,000 payable by General Atlantic Investments Limited (GAIL), an affiliate of the Company, and several promissory notes in the aggregate initial principal amount of $3,562,000 payable by General Atlantic Equatorial Guinea (GAEG). The demand notes were issued in 1991 and 1992 at the prime interest rate plus one percent. In 1994, the Company recorded $29,000 of interest income on these notes. At December 31, 1994, the receivable balance from GAIL and GAEG, including accrued interest of $227,000 and $16,000, was approximately $1,102,000 and $935,000, respectively. All notes were paid in full during 1995. Dee Osborne, a director of GARI prior to the merger, received a fee of $250,000 in 1994 upon consummation of UMC's merger with GARI for his role in initiating the transaction. NOTE 12 -- LITIGATION 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 condition or results of operations of the Company. NOTE 13 -- MAJOR CUSTOMERS The Company markets its oil and gas production to numerous purchasers under a combination of short and long-term contracts. During 1995, 1994 and 1993, Northern Natural Gas Company, a subsidiary of Enron Corporation, accounted for 9.0%, 10.7% and 10.1%, respectively, of oil and gas revenues of the Company. During 1993, Southern Natural Gas Company, a subsidiary of Sonat Exploration Company, accounted for 10.1% of oil and gas revenues. The Company had no other purchasers that accounted for greater than 10.0% of its oil and gas revenues. The Company believes that the loss of any single customer would not have a material adverse effect on the results of operations of the Company. NOTE 14 -- GAS CONTRACT SETTLEMENTS From time to time, the Company has had disagreements with certain purchasers of the Company's natural gas production concerning the contractual obligations of such purchasers to take specified quantities of gas at contract prices. In order to resolve such disagreements, the Company has entered into gas contract settlements, wherein, for a nonrefundable cash payment, the Company has released the purchaser from its contractual obligations and, in some cases, the contract itself. During 1995, 1994 and 1993, contract settlements of $1,872,000, $1,981,000 and $104,000, respectively, were included in revenues. F-23 67 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 15 -- CREDIT RISK AND PRICE PROTECTION AGREEMENTS TRADE RECEIVABLES AND PAYABLES Substantially all of the Company's accounts receivable at December 31, 1995, result from oil and gas sales and joint interest billings to other companies in the oil and gas industry and institutional partners. This concentration of customers and joint interest owners may impact the Company's overall credit risk, either positively or negatively, in that these entities may be similarly affected by industry-wide changes in economic or other conditions. Such receivables are generally not collateralized. Credit losses incurred by the Company on receivables generally have not been significant in prior years. OIL AND GAS MARKET HEDGE The Company's revenues are primarily the result of sales of its oil and natural gas production. Market prices of oil and natural gas may fluctuate and adversely affect operating results. To mitigate this risk, the Company has, from time to time, entered into oil and natural gas price hedging contracts to reduce its exposure to price reductions on its production. These transactions have been entered into with major financial institutions, thereby minimizing credit risk. The Company hedged a portion of its natural gas production in 1995, 1994 and 1993 and a portion of its oil production in 1995 and 1994, the results of which were included in natural gas or oil revenues. At December 31, 1995, the Company had the following natural gas hedge contracts outstanding:
NOTIONAL SWAP VOLUME IN PRICE MMBTU TERM - -------- --------- ---------------- $2.3320 680,000 Jan 1996 2.2100 600,000 Jan-Dec 1996(1) 2.1940 680,000 Feb 1996 2.3900 680,000 Feb 1996 2.1500 680,000 Mar 1996 2.0250 680,000 Mar 1996 1.9725 680,000 Apr 1996
- --------------- (1) Settlements are made on a monthly basis on 1/12 of the contract volume. In a typical "Swap" agreement, UMC receives the difference between a fixed price per unit of production and the index price, if the index price is lower. If the index price is higher, UMC pays the difference. UMC's current hedging agreements are settled on a monthly basis. All of UMC's contracts specify the third-party index to be the New York Mercantile Exchange (NYMEX) futures contract prices for the applicable commodity. Cash of $542,000, which was paid in December 1995 relating to a loss on a January 1996 natural gas hedge, was deferred at December 31, 1995, to be recognized as a reduction to gas sales in 1996. There was no deferred hedge gain or loss for crude oil at year end 1995. INTEREST RATE MARKET HEDGE UMC has interest rate hedge contracts currently outstanding. The hedge transactions have been entered into with major financial institutions, minimizing credit risk associated with these agreements. See Note 5 for further discussion of these contracts. F-24 68 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 16 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and equivalents, short-term trade receivables and payables, long-term debt, interest rate hedging agreements and natural gas and crude oil hedging agreements. As of December 31, 1995 and 1994, the fair market values of the Company's financial instruments are shown below: Trade Receivables and Payables: The carrying amount approximates fair market value due to the highly liquid nature of these short-term instruments. Long-Term Debt: The carrying amount approximates fair market value due to (i) the nature of UMC's Senior Revolver Credit Facility, whereby the interest rates offered by the member banks are floating rates which reflect market rate and (ii) the 10 3/8% Senior Subordinated Notes issuance on October 30, 1995. Interest Rate Swap Agreements: The fair market value of the interest rate swap contracts at December 31, 1995 and 1994 was $(838,000) and $4,367,000, respectively. The fair market value at December 31, 1995 and 1994 was determined by the institutional holders of the hedges. Natural Gas and Oil Swap Agreements: The fair market value of the natural gas and oil swap contracts at December 31, 1995 and 1994 approximate $(305,000) and $1,550,000, respectively, as determined by the institutional holders of the hedges. F-25 69 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 17 -- GEOGRAPHIC DATA UMC is an independent oil and gas company engaged in the acquisition, development and exploration of oil and natural gas properties. Information about the Company's operations by geographic area for the years ended December 31, 1995, 1994, and 1993 is as follows (in thousands):
EQUATORIAL GUINEA AND OTHER U.S. CANADA COTE D'IVOIRE INTERNATIONAL TOTAL --------- ------- ------------- ------------- --------- YEAR ENDED DECEMBER 31, 1995 Revenues....................... $ 107,112 $16,922 $ 7,106 $15,901 $ 147,041 Depreciation, depletion and amortization................ $ 44,265 $ 8,208 $ 1,420 $ 49 $ 53,942 Impairment of proved oil and gas properties.............. $ 8,317 $ -- $ -- $ -- $ 8,317 Operating profit (loss)........ $ 2,269 $ (125) $ 502 $13,138 $ 15,784 Capital expenditures........... $ 80,664 $ 4,805 $45,812 $31,746 $ 163,027 Identifiable assets............ $ 392,490 $80,151 $77,875 $27,934 $ 578,450 YEAR ENDED DECEMBER 31, 1994 Revenues....................... $ 81,339 $16,478 $ -- $ -- $ 97,817 Depreciation, depletion and amortization................ $ 44,759 $ 5,968 $ -- $ -- $ 50,727 Impairment of proved oil and gas properties.............. $ 94,793 $ -- $ -- $ -- $ 94,793 Operating profit (loss)........ $(110,895) $(2,437) $ -- $ -- $(113,332) Capital expenditures(1)........ $ 216,262 $28,689 $ 8,497 $ 3,522 $ 256,970 Identifiable assets............ $ 401,421 $85,407 $23,020 $ 1,366 $ 511,214 YEAR ENDED DECEMBER 31, 1993 Revenues....................... $ 71,976 $10,342 $ -- $ -- $ 82,318 Depreciation, depletion and amortization................ $ 30,745 $ 5,193 $ -- $ -- $ 35,938 Impairment of proved oil and gas properties.............. $ 4,879 $ 5,172 $ -- $ -- $ 10,051 Operating profit (loss)........ $ (2,942) $(6,176) $ -- $ -- $ (9,118) Capital expenditures(2)........ $ 113,340 $60,249 $ 2,192 $ 1,965 $ 177,746 Identifiable assets............ $ 271,407 $67,659 $ 2,192 $ 1,965 $ 343,223
- --------------- (1) Total includes Corporate Acquisitions of $204,945. (2) Total includes Corporate Acquisitions of $141,954. NOTE 18 -- DISCLOSURE OF OIL AND GAS OPERATIONS (UNAUDITED) PROVED RESERVES Substantially all reserve estimates presented herein were prepared by either Ryder Scott Company, Netherland, Sewell & Associates, Inc., or McDaniel & Associates Consultants Ltd., independent petroleum engineers. The Company cautions that there are many uncertainties inherent in estimating proved reserve quantities, and in projecting future production rates and the timing of future development expenditures. In addition, reserve estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are subject to change as additional information becomes available. F-26 70 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Proved oil and gas reserves are the estimated quantities of crude oil, condensate, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are those reserves expected to be recovered through existing wells with existing equipment and operating methods. Information presented for the Company's international locations relates to contract interests held in multiple production sharing contracts between the Company, its joint venture partners and the governments of Cote d'Ivoire and Equatorial Guinea. The Company has no ownership interest in the oil and gas reserves but does have the right to share revenues and/or production and is entitled to recover most field and other operating costs. The reserve estimates are subject to revision as prices fluctuate due to the cost recovery feature under the production sharing contract. Net quantities of proved reserves and proved developed reserves of crude oil (including condensate and natural gas liquids) and natural gas, as well as the changes in proved reserves during the periods indicated, are set forth in the tables below:
UNITED COTE EQUATORIAL STATES CANADA D'IVOIRE GUINEA TOTAL ------- ------ -------- ---------- ------- (IN THOUSANDS) NATURAL GAS (MCF) PROVED: December 31, 1992.................... 180,264 -- -- -- 180,264 Revisions of previous estimates... (4,479) (3,321) -- -- (7,800) Extensions, discoveries and other additions....................... 21,570 6,527 -- -- 28,097 Purchases......................... 109,180 63,669 -- -- 172,849 Sales of reserves-in-place........ (2,959) -- -- -- (2,959) Production........................ (26,785) (2,823) -- -- (29,608) ------- ------ ------- ------ ------- December 31, 1993.................... 276,791 64,052 -- -- 340,843 Revisions of previous estimates... (463) (6,310) -- -- (6,773) Extensions, discoveries and other additions....................... 16,956 76 32,612 -- 49,644 Purchases......................... 84,409 14,508 -- -- 98,917 Sales of reserves-in-place........ (3,546) (4) -- -- (3,550) Production........................ (35,182) (4,487) -- -- (39,669) ------- ------ ------- ------ ------- December 31, 1994.................... 338,965 67,835 32,612 -- 439,412 Revisions of previous estimates... 4,655 (1,060) 5,746 -- 9,341 Extensions, discoveries and other additions....................... 35,558 2,060 58,290 -- 95,908 Purchases......................... 21,839 -- -- -- 21,839 Sales of reserves-in-place........ (68,113) (1,014) (13,995) -- (83,122) Production........................ (38,878) (5,383) (192) -- (44,453) ------- ------ ------- ------ ------- December 31, 1995.................... 294,026 62,438 82,461 -- 438,925 ======= ====== ======= ====== ======= PROVED DEVELOPED: December 31, 1993.................... 211,077 59,187 -- -- 270,264 ======= ====== ======= ====== ======= December 31, 1994.................... 256,348 66,997 -- -- 323,345 ======= ====== ======= ====== ======= December 31, 1995.................... 245,860 62,438 21,722 -- 330,020 ======= ====== ======= ====== =======
F-27 71 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNITED COTE EQUATORIAL STATES CANADA D'IVOIRE GUINEA TOTAL ------- ------ ------- ------ ------- (IN THOUSANDS) CRUDE OIL (BBLS) PROVED: December 31, 1992.................... 7,568 -- -- -- 7,568 Revisions of previous estimates... (3,081) (229) -- -- (3,310) Extensions, discoveries and other additions....................... 200 875 -- -- 1,075 Purchases......................... 1,480 5,270 -- -- 6,750 Sales of reserves-in-place........ (213) -- -- -- (213) Production........................ (917) (381) -- -- (1,298) ------- ------ ------- ------ ------- December 31, 1993.................... 5,037 5,535 -- -- 10,572 Revisions of previous estimates... 609 (712) -- -- (103) Extensions, discoveries and other additions....................... 262 391 4,626 -- 5,279 Purchases......................... 8,455 980 -- -- 9,435 Sales of reserves-in-place........ (725) (13) -- -- (738) Production........................ (1,160) (618) -- -- (1,778) ------- ------ ------- ------ ------- December 31, 1994.................... 12,478 5,563 4,626 -- 22,667 Revisions of previous estimates... 1,099 (201) 1,905 -- 2,803 Extensions, discoveries and other additions....................... 801 151 1,440 5,258 7,650 Purchases......................... 4,757 -- -- -- 4,757 Sales of reserves-in-place........ (762) (82) (332) (1,502) (2,678) Production........................ (1,826) (649) (285) -- (2,760) ------- ------ ------- ------ ------- December 31, 1995.................... 16,547 4,782 7,354 3,756 32,439 ======= ====== ======= ====== ======= PROVED DEVELOPED: December 31, 1993.................... 4,227 5,458 -- -- 9,685 ======= ====== ======= ====== ======= December 31, 1994.................... 11,109 5,531 -- -- 16,640 ======= ====== ======= ====== ======= December 31, 1995.................... 14,967 4,735 3,302 -- 23,004 ======= ====== ======= ====== =======
F-28 72 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS The following table sets forth the standardized measure of the discounted future net cash flows attributable to the Company's proved oil and gas reserves. Future cash inflows were computed by applying year-end prices of oil and gas to the estimated future production of proved oil and gas reserves. Gas prices were escalated only where existing contracts contained fixed and determinable escalation clauses. Contractually provided gas prices in excess of estimated market clearing prices were used in computing the future cash inflows only if the Company expects to continue to receive higher prices under legally enforceable contract terms. Future prices actually received may differ from the estimates in the standardized measure. Future production and development costs represent the estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future income tax expenses were computed by applying statutory income tax rates to the difference between pre-tax net cash flows relating to the Company's proved oil and gas reserves and the tax basis of proved oil and gas properties. In addition, the effects of statutory depletion in excess of tax basis, available net operating loss carryforwards and investment tax credit carryforwards were used in computing future income tax expense. The resulting annual net cash inflows were then discounted using a 10% annual rate (in thousands).
UNITED COTE EQUATORIAL STATES CANADA D'IVOIRE GUINEA TOTAL(2)(3) --------- -------- -------- ---------- ----------- AT DECEMBER 31, 1995 Future cash inflows.......................... $ 821,122 $157,548 $317,580 $ 65,789 $1,362,039 --------- -------- -------- ------- ---------- Future production costs...................... 268,790 65,859 59,307 26,625 420,581 Future development costs..................... 35,782 5,337 103,538 16,250 160,907 Future income taxes.......................... 50,573 19,448 37,232 7,562 114,815 --------- -------- -------- ------- ---------- Total future costs.................... 355,145 90,644 200,077 50,437 696,303 --------- -------- -------- ------- ---------- Future net cash inflows...................... 465,977 66,904 117,503 15,352 665,736 Discount at 10% per annum.................... (133,051) (24,011) (43,215) (1,458) (201,735) --------- -------- -------- ------- ---------- Standardized measure of discounted future net cash flows................................. $ 332,926 $ 42,893 $ 74,288 $ 13,894 $ 464,001 ========= ======== ======== ======= ========== AT DECEMBER 31, 1994(1) Future cash inflows.......................... $ 727,738 $167,486 $128,401 $ -- $1,023,625 --------- -------- -------- -------- ---------- Future production costs...................... 259,826 73,670 19,070 -- 352,566 Future development costs..................... 68,739 5,641 56,131 -- 130,511 Future income taxes.......................... 16,656 18,692 16,203 -- 51,551 --------- -------- -------- -------- ---------- Total future costs.................... 345,221 98,003 91,404 -- 534,628 --------- -------- -------- -------- ---------- Future net cash inflows...................... 382,517 69,483 36,997 -- 488,997 Discount at 10% per annum.................... (142,214) (24,872) (18,601) -- (185,687) --------- -------- -------- -------- ---------- Standardized measure of discounted future net cash flows................................. $ 240,303 $ 44,611 $ 18,396 $ -- $ 303,310 ========= ======== ======== ======== ========== AT DECEMBER 31, 1993 Future cash inflows.......................... $ 716,658 $190,526 $ -- $ -- $ 907,184 --------- -------- -------- -------- ---------- Future production costs...................... 209,831 71,996 -- -- 281,827 Future development costs..................... 42,547 7,027 -- -- 49,574 Future income taxes.......................... 59,745 30,776 -- -- 90,521 --------- -------- -------- -------- ---------- Total future costs.................... 312,123 109,799 -- -- 421,922 --------- -------- -------- -------- ---------- Future net cash inflows...................... 404,535 80,727 -- -- 485,262 Discount at 10% per annum.................... (146,542) (38,170) -- -- (184,712) --------- -------- -------- -------- ---------- Standardized measure of discounted future net cash flows................................. $ 257,993 $ 42,557 $ -- $ -- $ 300,550 ========= ======== ======== ======== ==========
- --------------- (1) Included in the United States and Total columns at December 31, 1994 are future net cash inflows of $132,297,000, future production costs of $43,522,000 and future development costs of $15,241,000, from Appalachia properties which were sold in February 1995. (2) Total future net cash flows before income taxes are $780,551,000, $540,548,000 and $575,783,000 as of December 31, 1995, 1994 and 1993, respectively. (3) Total future net cash flows before income taxes discounted at 10% per annum are $505,153,000, $318,416,000 and $323,568,000, as of December 31, 1995, 1994 and 1993, respectively. F-29 73 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS The following are the principal sources of change in the standardized measure of discounted future net cash flows (in thousands):
1993 1994 1995 -------- -------- -------- Beginning balance.......................................... $171,100 $300,550 $303,310 -------- -------- -------- Revisions to reserves proved in prior years -- Net changes in prices and production costs............... 11,674 (115,800) 58,564 Net changes due to revisions in quantity estimates....... (25,420) (2,818) 24,357 Net changes in estimated future development costs........ 11,747 (705) 59,821 Accretion of discount.................................... 22,721 32,357 32,247 Changes in production rates (timing) and other........... (2,772) (8,145) (10,462) -------- -------- -------- Total revision................................... 17,950 (95,111) 164,527 New field discoveries and extensions, net of future production and development costs......................... 26,237 39,874 93,643 Purchases of reserves in-place............................. 140,834 112,508 38,631 Sale of reserves in-place.................................. (2,489) (5,458) (46,410) Sales of oil and gas produced, net of production costs..... (53,436) (56,966) (69,918) Net change in income taxes................................. 354 7,913 (19,782) -------- -------- -------- Net change in standardized measure of discounted future net cash flows........................................ 129,450 2,760 160,691 -------- -------- -------- Ending balance............................................. $300,550 $303,310 $464,001 ======== ======== ========
NOTE 19 -- SUPPLEMENTAL GUARANTOR INFORMATION In connection with the sale by United Meridian Corporation of the Notes, Petroleum, wholly-owned and the Company's only direct subsidiary, has unconditionally guaranteed the full and prompt performance of the Company's obligations under the Notes and related indenture, including the payment of principal, premium (if any) and interest. Other than intercompany arrangements and transactions, the consolidated financial statements of Petroleum are equivalent in all material respects to those of the Company and therefore the separate consolidated financial statements of Petroleum 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., Petroleum on an unconsolidated basis) of the Notes, 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. F-30 74 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS)
UNCONSOLIDATED ------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATED UMC SUBSIDIARY SUBSIDIARIES UMC ------- --------- ------------- ------------ 1995 Revenues........................................ $ -- $ 107,108 $ 39,933 $ 147,041 ------- --------- --------- ---------- Costs and expenses: Production costs.............................. -- 34,028 8,863 42,891 General and administrative.................... 415 6,966 3,044 10,425 Exploration, including dry holes and impairments................................ -- 10,852 4,830 15,682 Depreciation, depletion and amortization...... -- 44,264 9,678 53,942 Impairment of proved oil and gas properties... -- 8,317 -- 8,317 ------- --------- --------- ---------- Income (loss) from operations................... (415) 2,681 13,518 15,784 Interest income (expense), net................ 12,629 (25,789) (4,785) (17,945) Other credits, net............................ -- (28) 403 375 ------- --------- --------- ---------- Net income (loss) before income taxes........... 12,214 (23,136) 9,136 (1,786) Income tax benefit (provision).................. (4,275) 7,681 479 3,885 ------- --------- --------- ---------- Net income (loss)............................... $ 7,939 $ (15,455) $ 9,615 $ 2,099 ======= ========= ========= ========== 1994 Revenues........................................ $ -- $ 79,757 $ 18,060 $ 97,817 ------- --------- --------- ---------- Costs and expenses: Production costs.............................. -- 31,285 5,653 36,938 General and administrative.................... 801 6,750 4,953 12,504 Exploration, including dry holes and impairments................................ -- 9,254 6,933 16,187 Depreciation, depletion and amortization...... -- 43,442 7,285 50,727 Impairment of proved oil and gas properties... -- 94,706 87 94,793 ------- --------- --------- ---------- Income (loss) from operations................... (801) (105,680) (6,851) (113,332) Interest income (expense), net................ 12,374 (18,530) (2,884) (9,040) Other credits, net............................ -- 136 (277) (141) ------- --------- --------- ---------- Net income (loss) before income taxes........... 11,573 (124,074) (10,012) (122,513) Income tax benefit (provision).................. (6,921) 48,112 333 41,524 ------- --------- --------- ---------- Net income (loss)............................... $ 4,652 $ (75,962) $ (9,679) $ (80,989) ======= ========= ========= ========== 1993 Revenues........................................ $ -- $ 67,019 $ 15,299 $ 82,318 ------- --------- --------- ---------- Costs and expenses: Production costs.............................. -- 25,934 4,605 30,539 General and administrative.................... 650 5,557 1,890 8,097 Exploration, including dry holes and impairments................................ -- 4,117 2,694 6,811 Depreciation, depletion and amortization...... -- 24,780 11,158 35,938 Impairment of proved oil and gas properties... -- 10,028 23 10,051 ------- --------- --------- ---------- Income (loss) from operations................... (650) (3,397) (5,071) (9,118) Interest income (expense), net................ 10,238 (15,486) (1,284) (6,532) Other credits, net............................ -- 2,007 95 2,102 ------- --------- --------- ---------- Net income (loss) before income taxes and cumulative effect of change in accounting principle..................................... 9,588 (16,876) (6,260) (13,548) Income tax benefit (provision).................. (404) 4,899 1,810 6,305 Cumulative effect of change in accounting principle, net of tax......................... -- (3,543) -- (3,543) ------- --------- --------- ---------- Net income (loss)............................... $ 9,184 $ (15,520) $ (4,450) $ (10,786) ======= ========= ========= ==========
F-31 75 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) (IN THOUSANDS)
UNCONSOLIDATED ------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATED UMC SUBSIDIARY SUBSIDIARIES UMC ------- --------- ------------- ------------ 1996 Revenues....................................... $ -- $ 78,477 $36,485 $114,962 ------- --------- ------- -------- Costs and expenses: Production costs............................. -- 19,929 5,837 25,766 General and administrative................... 107 5,187 1,225 6,519 Exploration, including dry holes and impairments............................... -- 8,811 5,900 14,711 Depreciation, depletion and amortization..... -- 35,537 6,284 41,821 ------- --------- ------- -------- Income (loss) from operations.................. (107) 9,013 17,239 26,145 Interest income (expense), net............... 8,849 (15,814) (4,415) (11,380) Other credits, net........................... -- (22) 100 78 ------- --------- ------- -------- Net income (loss) before income taxes.......... 8,742 (6,823) 12,924 14,843 Income tax benefit (provision)................. (2,371) 1,272 (4,793) (5,892) ------- --------- ------- -------- Net income (loss).............................. $ 6,371 $ (5,551) $ 8,131 $ 8,951 ======= ========= ======= ======== 1995 Revenues....................................... $ -- $ 58,362 $10,412 $ 68,774 ------- --------- ------- -------- Costs and expenses: Production costs............................. -- 15,786 3,695 19,481 General and administrative................... 374 3,794 1,269 5,437 Exploration, including dry holes and impairments............................... -- 5,470 2,153 7,623 Depreciation, depletion and amortization..... -- 21,306 4,522 25,828 ------- --------- ------- -------- Income (loss) from operations.................. (374) 12,006 (1,227) 10,405 Interest income (expense), net............... 7,614 (15,423) (920) (8,729) Other credits, net........................... -- 57 248 305 ------- --------- ------- -------- Net income (loss) before income taxes.......... 7,240 (3,360) (1,899) 1,981 Income tax benefit (provision)................. (2,534) 1,282 3,341 2,089 ------- --------- ------- -------- Net income (loss).............................. $ 4,706 $ (2,078) $ 1,442 $ 4,070 ======= ========= ======= ========
F-32 76 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1995 AND 1994 (IN THOUSANDS)
UNCONSOLIDATED -------------------------------------- GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED UMC SUBSIDIARY SUBSIDIARIES ENTRIES UMC -------- --------- ------------- ----------- ------------ 1995 ASSETS Current assets.................... $ 31 $ 44,599 $ 31,383 $ -- $ 76,013 Intercompany investments.......... 453,574 (239,072) (76,165) (138,337) -- Property and equipment, net....... -- 305,930 162,743 -- 468,673 Other assets...................... 6,103 28,970 (1,309) -- 33,764 -------- --------- -------- --------- --------- Total assets............ $459,708 $ 140,427 $116,652 $(138,337) $ 578,450 ======== ========= ======== ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities............... $ 3,443 57,920 $ 29,447 $ -- $ 90,810 Long-term debt.................... 150,000 39,225 55,574 -- 244,799 Deferred credits and other liabilities..................... -- 12,655 17,874 -- 30,529 Stockholders' equity.............. 306,265 30,627 13,757 (138,337) 212,312 -------- --------- -------- --------- --------- Total liabilities & stockholders' equity................ $459,708 $ 140,427 $116,652 $(138,337) $ 578,450 ======== ========= ======== ========= ========= 1994 ASSETS Current assets.................... $ 12 $ 55,581 $ 13,139 $ -- $ 68,732 Intercompany investments.......... 260,434 (125,043) (10,899) (124,492) -- Property and equipment, net....... -- 343,647 81,283 -- 424,930 Other assets...................... 260 17,260 32 -- 17,552 -------- --------- -------- --------- --------- Total assets............ $260,706 $ 291,445 $ 83,555 $(124,492) $ 511,214 ======== ========= ======== ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities............... $ 55 $ 49,348 $ 14,138 $ -- $ 63,541 Long-term debt.................... -- 218,250 21,384 -- 239,634 Deferred credits and other liabilities..................... (1,091) 18,878 18,814 -- 36,601 Stockholders' equity............ 261,742 4,969 29,219 (124,492) 171,438 -------- --------- -------- --------- --------- Total liabilities & stockholders' equity................ $260,706 $ 291,445 $ 83,555 $(124,492) $ 511,214 ======== ========= ======== ========= =========
F-33 77 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET AT JUNE 30, 1996 (UNAUDITED) (IN THOUSANDS)
UNCONSOLIDATED -------------------------------------- GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED UMC SUBSIDIARY SUBSIDIARIES ENTRIES UMC -------- --------- ------------- ----------- ------------ ASSETS Current assets.................... $ 7 $ 44,752 $ 23,328 $ -- $ 68,087 Intercompany investments.......... 469,546 (246,999) (84,211) (138,336) -- Property and equipment, net....... -- 285,134 174,247 -- 459,381 Other assets...................... 5,706 29,525 (4,915) -- 30,316 -------- --------- --------- ---------- -------- Total assets............ $475,259 $ 112,412 $ 108,449 $ (138,336) $557,784 ======== ========= ========= ========== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities............... $ 4,091 $ 42,160 $ 18,681 $ -- $ 64,932 Long-term debt.................... 150,000 31,725 45,533 -- 227,258 Deferred credits and other liabilities..................... -- 13,451 22,327 -- 35,778 Stockholders' equity.............. 321,168 25,076 21,908 (138,336) 229,816 -------- --------- --------- ---------- -------- Total liabilities & stockholders' equity................ $475,259 $ 112,412 $ 108,449 $ (138,336) $557,784 ======== ========= ========= ========== ========
F-34 78 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS)
UNCONSOLIDATED ---------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATED UMC SUBSIDIARY SUBSIDIARIES UMC -------- --------- ------------- ------------ 1995 Cash flows from operating activities: Net income (loss)....................... $ 7,939 $ (15,455) $ 9,615 $ 2,099 Adjustments to reconcile net income (loss) to cash from operating activities........................... 494 45,239 (2,020) 43,713 Changes in assets and liabilities....... 5,755 13,146 (18,707) 194 -------- --------- -------- --------- Net cash provided by (used in) operating activities.......... 14,188 42,930 (11,112) 46,006 Cash flows used in investing activities... -- (18,488) (64,220) (82,708) Cash flows provided by (used in) financing activities.............................. (14,169) (21,539) 74,171 38,463 -------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents............................. 19 2,903 (1,161) 1,761 Cash and cash equivalents at beginning of period.................................. 12 3,728 8,085 11,825 -------- --------- -------- --------- Cash and cash equivalents at end of period.................................. $ 31 $ 6,631 $ 6,924 $ 13,586 ======== ========= ======== ========= 1994 Cash flows from operating activities: Net income (loss)....................... $ 4,652 $ (75,962) $ (9,679) $ (80,989) Adjustments to reconcile net income (loss) to cash from operating activities........................... 880 104,769 14,365 120,014 Changes in assets and liabilities....... (805) (12,161) 17,505 4,539 -------- --------- -------- --------- Net cash provided by (used in) operating activities.......... 4,727 16,646 22,191 43,564 Cash flows provided by (used in) investing activities.............................. 340 (148,771) (31,729) (180,160) Cash flows provided by (used in) financing activities.............................. (5,072) 135,762 17,236 147,926 -------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents............................. (5) 3,637 7,698 11,330 Cash and cash equivalents at beginning of period.................................. 17 91 387 495 -------- --------- -------- --------- Cash and cash equivalents at end of period.................................. $ 12 $ 3,728 $ 8,085 $ 11,825 ======== ========= ======== ========= 1993 Cash flows from operating activities: Net income (loss)....................... $ 9,184 $ (15,520) $ (4,450) $ (10,786) Adjustments to reconcile net income (loss) to cash from operating activities........................... 382 15,258 33,089 48,729 Changes in assets and liabilities....... 45 (10,062) 14,248 4,231 -------- --------- -------- --------- Net cash provided by (used in) operating activities.......... 9,611 (10,324) 42,887 42,174 Cash flows used in investing activities... -- (116,996) (55,558) (172,554) Cash flows provided by (used in) financing activities.............................. (9,617) 127,365 11,593 129,341 Effect of exchange rate changes on cash... -- -- (37) (37) -------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents............................. (6) 45 (1,115) (1,076) Cash and cash equivalents at beginning of period.................................. 23 46 1,502 1,571 -------- --------- -------- --------- Cash and cash equivalents at end of period.................................. $ 17 $ 91 $ 387 $ 495 ======== ========= ======== =========
F-35 79 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) (IN THOUSANDS)
UNCONSOLIDATED ---------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATED UMC SUBSIDIARY SUBSIDIARIES UMC -------- --------- ------------- ------------ 1996 Cash flows from operating activities: Net income (loss)....................... $ 6,371 $ (5,551) $ 8,131 $ 8,951 Adjustments to reconcile net income (loss) to cash from operating activities........................... 2,633 42,526 (252) 44,907 Changes in assets and liabilities....... 648 (14,598) (4,948) (18,898) -------- --------- -------- --------- Net cash provided by operating activities.................... 9,652 22,377 2,931 34,960 Cash flows used in investing activities... -- (31,425) (1,067) (32,492) Cash flows provided by (used in) financing activities.............................. (9,676) (2,945) 705 (11,916) -------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents............................. (24) (11,993) 2,569 (9,448) Cash and cash equivalents at beginning of period.................................. 31 6,631 6,924 13,586 -------- --------- -------- --------- Cash and cash equivalents at end of period.................................. $ 7 $ (5,362) $ 9,493 $ 4,138 ======== ========= ======== ========= 1995 Cash flows from operating activities: Net income (loss)....................... $ 4,706 $ (2,078) $ 1,442 $ 4,070 Adjustments to reconcile net income (loss) to cash from operating activities........................... 2,649 12,449 3,627 18,725 Changes in assets and liabilities....... (57) 5,269 (7,421) (2,209) -------- --------- -------- --------- Net cash provided by (used in) operating activities.......... 7,298 15,640 (2,352) 20,586 Cash flows provided by (used in) investing activities.............................. -- 22,001 (28,459) (6,458) Cash flows provided by (used in) financing activities.............................. (7,295) (40,520) 23,675 (24,140) -------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents............................. 3 (2,879) (7,136) (10,012) Cash and cash equivalents at beginning of period.................................. 12 3,728 8,085 11,825 -------- --------- -------- --------- Cash and cash equivalents at end of period.................................. $ 15 $ 849 $ 949 $ 1,813 ======== ========= ======== =========
F-36 80 ================================================================================ NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE ----- Available Information................. 2 Incorporation of Certain Information by Reference........................ 2 Prospectus Summary.................... 3 Risk Factors.......................... 10 Disclosure Regarding Forward-Looking Statements.......................... 14 Use of Proceeds....................... 14 Price Range of Common Stock and Dividend Policy..................... 15 Capitalization........................ 15 Recent Development.................... 16 Selected Consolidated Financial Data................................ 17 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 19 The Company........................... 27 Management............................ 34 Selling Stockholders.................. 38 Underwriting.......................... 38 Legal Matters......................... 40 Experts............................... 40 Glossary of Oil and Gas Terms......... G-1 Index to Financial Statements......... F-1
================================================================================ ================================================================================ [UMC LOGO] 5,750,000 SHARES UNITED MERIDIAN CORPORATION COMMON STOCK ----------------- PROSPECTUS ----------------- MERRILL LYNCH & CO. J.P. MORGAN & CO. HOWARD, WEIL, LABOUISSE, FRIEDRICHS INCORPORATED PETRIE PARKMAN & CO. , 1996 ================================================================================ 81 *************************************************************************** * * * Information contained herein is subject to completion or amendment. A * * registration statement relating to these securities has been filed * * with the Securities and Exchange Commission. These securities may not * * be sold nor may offers to buy be accepted prior to the time the * * registration statement becomes effective. This prospectus shall not * * constitute an offer to sell or the solicitation of an offer to buy * * nor shall there be any sale of these securities in any State in which * * such offer, solicitation or sale would be unlawful prior to * * registration or qualification under the securities laws of any such * * State. * * * *************************************************************************** SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED OCTOBER 30, 1996 PROSPECTUS 5,750,000 SHARES [UMC LOGO] UNITED MERIDIAN CORPORATION COMMON STOCK --------------------- Of the 5,750,000 shares of Series A Voting Common Stock, par value $0.01 per share ("Common Stock"), offered hereby, 3,250,000 shares are being sold by United Meridian Corporation ("UMC" or the "Company") and 2,500,000 shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholders. See "Selling Stockholders." Of the shares of Common Stock being offered hereby, 1,150,000 shares (the "International Shares") are being offered outside the United States and Canada (the "International Offering") by the International Managers and 4,600,000 shares (the "U.S. Shares") are being offered in the United States and Canada (the "U.S. Offering" and, together with the International Offering, the "Offerings") by the U.S. Underwriters. The price to public and underwriting discount per share are identical for both Offerings and the closings for both Offerings are conditioned upon each other. See "Underwriting." The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "UMC." On October 29, 1996, the last reported sale price of the Common Stock on the NYSE was $47 1/8 per share. SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=================================================================================================== PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS - --------------------------------------------------------------------------------------------------- Per Share........................ $ $ $ $ - --------------------------------------------------------------------------------------------------- Total(3)......................... $ $ $ $ ===================================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $465,000. (3) The Company has granted the International Managers and U.S. Underwriters options for 30 days to purchase up to 172,500 and 690,000 additional shares of Common Stock, respectively, at the Price to Public, less Underwriting Discount, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." --------------------- The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, and subject to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York on or about , 1996. --------------------- MERRILL LYNCH INTERNATIONAL J.P. MORGAN SECURITIES LTD. HOWARD, WEIL, LABOUISSE, FRIEDRICHS INCORPORATED PETRIE PARKMAN & CO. --------------------- The date of this Prospectus is , 1996. 82 IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR UNITED KINGDOM PURCHASERS: THE SHARES OF COMMON STOCK MAY NOT BE OFFERED OR SOLD IN THE UNITED KINGDOM OTHER THAN TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING OR DISPOSING OF INVESTMENTS, WHETHER AS PRINCIPAL OR AGENT (EXCEPT IN CIRCUMSTANCES THAT DO NOT CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING OF THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1995 OR THE FINANCIAL SERVICES ACT 1986), AND THIS PROSPECTUS MAY ONLY BE ISSUED OR PASSED ON TO ANY PERSON IN THE UNITED KINGDOM IF THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996 OR IS A PERSON TO WHOM THE PROSPECTUS MAY OTHERWISE LAWFULLY BE PASSED ON. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), and, in accordance therewith, files reports, proxy and information statements and other information with the Securities and Exchange Commission (the "Commission"). Copies of such materials can be obtained by mail from the Public Reference Section of the Commission, at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such reports, proxy and information statements and other information can be inspected and copied at the public reference facility referenced above and at the Commission's regional offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. The Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as the Company, that file electronically with the Commission. Such reports, proxy statements and other information concerning the Company can also be inspected and copied at the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement, which may be inspected at the Commission's offices without charge, or copies of which may be obtained from the Commission upon payment of prescribed fees. Each statement made in this Prospectus as to the contents of any contract or other document is not necessarily complete and is qualified in its entirety by reference to the copy of such contract or other document filed as an exhibit to the Registration Statement. 2 83 UNDERWRITING Subject to the terms and conditions set forth in the international purchase agreement (the "International Purchase Agreement") among the Company, the Selling Stockholders and the underwriters named below (the "International Managers"), the Company and the Selling Stockholders have agreed to sell to the International Managers, and the International Managers, for whom Merrill Lynch International, J.P. Morgan Securities Ltd. ("J.P. Morgan"), Howard, Weil, Labouisse, Friedrichs Incorporated ("Howard Weil") and Petrie Parkman & Co., Inc. ("Petrie Parkman") are acting as lead managers (the "Lead Managers"), have severally agreed to purchase from the Company and the Selling Stockholders, the number of shares of Common Stock indicated below opposite their respective names.
INTERNATIONAL MANAGERS NUMBER OF SHARES ---------------------- ---------------- Merrill Lynch International................................... J.P. Morgan Securities Ltd.................................... Howard, Weil, Labouisse, Friedrichs Incorporated.............. Petrie Parkman & Co., Inc..................................... ------------- Total............................................ 1,150,000 =============
The Company and the Selling Stockholders have also entered into a U.S. purchase agreement (the "U.S. Purchase Agreement") with certain other underwriters in the United States and Canada (the "U.S. Underwriters" and, together with the International Managers, the "Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), J.P. Morgan Securities Inc., Howard Weil and Petrie Parkman are acting as representatives (the "U.S. Representatives" and together with the Lead Managers, the "Representatives"). Subject to the terms and conditions set forth in the U.S. Purchase Agreement, and concurrently with the sale of 1,150,000 shares of Common Stock to the International Managers pursuant to the International Purchase Agreement, the Company and the Selling Stockholders have agreed to sell to the U.S. Underwriters, and the U.S. Underwriters severally have agreed to purchase from the Company and the Selling Stockholders, an aggregate of 4,600,000 shares of Common Stock. The public offering price per share of Common Stock and the total underwriting discount per share are identical under the International Purchase Agreement and the U.S. Purchase Agreement. In the International Purchase Agreement and the U.S. Purchase Agreement, the several International Managers and the several U.S. Underwriters, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such Purchase Agreement if any of such shares being sold pursuant to each such Purchase Agreement are purchased. Under certain circumstances, the commitments of non-defaulting International Managers or U.S. Underwriters (as the case may be) may be increased as set forth in the International Purchase Agreement and the U.S. Purchase Agreement, respectively. The closing with respect to the sale of shares of Common Stock to be purchased by the International Managers and the U.S. Underwriters are conditioned upon one another. The International Managers and the U.S. Underwriters have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. Under the terms of the Intersyndicate Agreement, the Underwriters are permitted to sell shares of Common Stock to each other for the purposes of resale at the public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are United States or Canadian persons or to persons they believe intend to resell to persons who are United States or Canadian persons, and the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-United States and non-Canadian persons or to persons they believe intend to resell to persons who are non-United States persons or non-Canadian persons, except, in each case, for transactions pursuant to the Intersyndicate Agreement. 37 84 The Lead Managers have advised the Company that the International Managers propose to offer the shares of Common Stock offered hereby to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The International Managers may allow, and such dealers may re-allow, a discount not in excess of $ per share on sales to certain other dealers. After the public offering, the public offering price, concession and discount may be changed. The Company has granted the International Managers an option, exercisable by the Lead Managers, to purchase up to 172,500 additional shares of Common Stock at the public offering price set forth on the cover page of this Prospectus, less the underwriting discount. Such option, which expires 30 days after the date of this Prospectus, may be exercised solely to cover over-allotments. To the extent that the International Managers exercise such option, each of the International Managers will be obligated, subject to certain conditions, to purchase approximately the same percentage of the option shares that the number of shares to be purchased initially by that International Manager bears to the total number of shares to be purchased initially by the International Managers. The Company has also granted an option to the U.S. Underwriters, which expires 30 days after the date of this Prospectus, to purchase up to 690,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the International Managers. The Company and certain of its directors and executive officers and the Selling Stockholders have agreed that they will not, for a period of 90 days after the date of this Prospectus, without the prior written consent of Merrill Lynch, directly or indirectly, offer, sell or otherwise dispose of or grant any option with respect to, pledge or hypothecate any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock, except for the exercise of options granted pursuant to existing employee plans (and except for the over-allotment option granted to the Underwriters in the Offerings). Each International Manager represents and agrees that (a) it has not offered or sold and prior to the expiration of six months from the closing date of the Offerings, will not offer or sell any shares of Common Stock to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (b) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Common Stock in, from or otherwise involving the United Kingdom, and (c) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issue or sale of the Common Stock if that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom such document may otherwise lawfully be issued or passed on. No action has been or will be taken in any jurisdiction (except in the United States) that would permit a public offering of the shares of Common Stock or the possession, circulation or distribution of this Prospectus or any other material relating to the Company or the shares of Common Stock in any jurisdiction where action for that purpose is required. Accordingly, the shares of Common Stock may not be offered or sold, directly or indirectly, and neither this Prospectus nor any other offering material or advertisements in connection with the shares of Common Stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of such country or jurisdiction. Purchasers of the shares of Common Stock offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase, in addition to the offering price set forth on the cover page of this Prospectus. The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including certain liabilities under the Securities Act or to contribute to payments the Underwriters may be required to make in respect thereof. 38 85 Certain of the Representatives, including Merrill Lynch, have performed investment banking services for the Company and its affiliates for which they received customary compensation. David K. Newbigging, a director of the Company, is a director of Merrill Lynch & Co., Inc. From time to time, in the ordinary course of their respective businesses, J.P. Morgan and its affiliates, including Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), have engaged and may in the future engage in commercial and investment banking transactions with the Company and its affiliates. Morgan Guaranty is co-agent and a lender under the Credit Facility, the outstanding borrowings of which will be paid down with a portion of the net proceeds of the Offerings. The Offerings are being made pursuant to the provisions of Sections 2710(c)(8)(A) and 2720(c)(3)(B) of the Conduct Rules of the National Association of Securities Dealers, Inc. 39 86 ================================================================================ NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE ----- Available Information.................................................. 2 Incorporation of Certain Information by Reference......................................................... 2 Prospectus Summary..................................................... 3 Risk Factors........................................................... 10 Disclosure Regarding Forward-Looking Statements........................................................... 14 Use of Proceeds........................................................ 14 Price Range of Common Stock and Dividend Policy...................................................... 15 Capitalization......................................................... 15 Recent Development..................................................... 16 Selected Consolidated Financial Data................................................................. 17 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................ 19 The Company............................................................ 27 Management............................................................. 34 Selling Stockholders................................................... 38 Underwriting........................................................... 38 Legal Matters.......................................................... 40 Experts................................................................ 40 Glossary of Oil and Gas Terms.......................................... G-1 Index to Financial Statements.......................................... F-1
================================================================================ ================================================================================ LOGO 5,750,000 SHARES UNITED MERIDIAN CORPORATION COMMON STOCK ----------------- PROSPECTUS ----------------- MERRILL LYNCH INTERNATIONAL J.P. MORGAN SECURITIES LTD. HOWARD, WEIL LABOUISSE, FRIEDRICHS INCORPORATED PETRIE PARKMAN & CO. , 1996 ================================================================================ 87 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses in connection with the issuance and distribution of the securities being registered, other than underwriting discounts and commissions, are set forth in the following table. SEC registration fees............................................. $106,461 NASD filing fees.................................................. $ 30,500 NYSE listing fee.................................................. $ 21,000 Printing expenses................................................. $125,000 Legal fees and expenses........................................... $125,000 Accounting fees and expenses...................................... $ 30,000 Blue sky fees and expenses........................................ $ 20,000 Miscellaneous..................................................... $ 7,039 -------- Total................................................... $465,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company, a Delaware corporation, is empowered by Section 145 of the Delaware General Corporation Law (the "DGCL"), subject to the procedures and limitations stated therein, to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or other enterprise, against reasonable expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually incurred by him in connection with such action, suit or proceeding, if such director, officer, employee or agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The Company is required by Section 145 to indemnify any person against reasonable expenses (including attorneys' fees) actually incurred by him in connection with an action, suit or proceeding in which he is a party because he is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or other enterprise, if he has been successful, on the merits or otherwise, in the defense of the action, suit or proceeding. Section 145 also allows a corporation to purchase and maintain insurance on behalf of any such person against any liability asserted against him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of Section 145. In addition, Section 145 provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise. Article 11 of the Company's Certificate of Incorporation, as amended (the "Certificate"), provides that the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (whether or not by or in the right of the Company), by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), liability, loss, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the fullest extent permitted by any applicable law, and such indemnity shall inure to the benefit of the heirs, executors and administrators of any such person so indemnified pursuant to Article 11 of the Certificate. In addition, the Company has, pursuant to Section 102(b)(7) of the DGCL, provided in Article 10 of its Certificate that, to II-1 88 the fullest extent permitted by applicable law, a director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of his fiduciary duties as a director. The right to indemnification under Article 11 of Certificate is a contract right which includes, with respect to directors and officers, the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its disposition; provided, however, that, if the DGCL requires, the payment of such expenses incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the Company of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under Article 11 of the Certificate or otherwise. The Company may, by action of its Board of Directors, pay such expenses incurred by employees and agents of the Company upon such terms as the Board of Directors deems appropriate. Section 8.14 of the Company's Bylaws provides that the Company shall have the power and obligation to indemnify any person who was or is a director, officer, employee or agent of the Company, or was or is serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the extent set forth in the Certificate. Section 8.15 of the Company's Bylaws provides for the authority to purchase insurance with respect to indemnification of directors and officers. Reference is also made to the indemnification provisions contained in the Underwriting Agreement (the form of which is being filed as Exhibit 1.1 hereto) with respect to undertakings to indemnify the Company, its director, officers and controlling persons within the meaning of the Securities Act of 1933 against certain liabilities, including liabilities under the Securities Act of 1933 or otherwise. Furthermore, individual Indemnification Agreements have been entered into between the Company and each director of the Company that contractually obligate the Company to provide to the directors (i) indemnification; (ii) insurance or self-insurance in lieu thereof; and (iii) additional indemnification. ITEM 16. EXHIBITS
EXHIBIT NO. EXHIBITS ------- -------- **1.1 -- Form of U.S. Purchase Agreement. **1.2 -- Form of International Purchase Agreement. 3.1 -- Certificate of Incorporation of the Company, as amended, incorporated by reference to Exhibit 3.1 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 3.2 -- By-laws of the Company, as amended, incorporated by reference to Exhibit 3.2 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 4.1 -- Specimen of certificate representing Series A Voting Common Stock, $.01 par value, of the Company, incorporated by reference to Exhibit 4.13 to UMC's Form 10-Q for the period ended June 30, 1994 filed with the Securities and Exchange Commission on August 10, 1994. 4.2 -- Rights Agreement by and between United Meridian Corporation and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent, dated as of February 13, 1996, incorporated by reference to Exhibit 1 to UMC's Form 8-K filed with the Securities and Exchange Commission on February 14, 1996. **5 -- Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. **10.1 -- Employment Agreement, dated October 9, 1996, between the Company, UMC Petroleum Corporation and James L. Dunlap. **10.2 -- Form of Indemnification Agreement with a schedule of director signatories.
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EXHIBIT NO. EXHIBITS ------- -------- **23.1 -- Consent of Arthur Andersen LLP. **23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in its opinion filed as Exhibit 5 hereto). *23.3 -- Consent of Netherland, Sewell & Associates, Inc. *23.4 -- Consent of McDaniel & Associates Consultants, Ltd. *23.5 -- Consent of Ryder Scott Company. *24 -- Power of Attorney (included on signature page of this Registration Statement).
- --------------- * Previously filed. ** Filed herewith. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 90 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on October 30, 1996. UNITED MERIDIAN CORPORATION By: /s/ JOHN B. BROCK ------------------------------------ John B. Brock Chairman, Chief Executive Officer and Director Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement on Form S-3 has been signed by the following persons in the capacities indicated on October 30, 1996.
NAME TITLE ---- ----- /s/ JOHN B. BROCK Chairman, Chief Executive Officer and - --------------------------------------------- Director (Principal Executive Officer) John B. Brock President, Chief Operating Officer and - --------------------------------------------- Director James L. Dunlap JONATHAN M. CLARKSON* Executive Vice President -- Chief - --------------------------------------------- Financial Officer (Principal Financial Jonathan M. Clarkson Officer) CHRISTOPHER E. CRAGG* Vice President -- Controller and Chief - --------------------------------------------- Accounting Officer Christopher E. Cragg (Principal Accounting Officer) J. DENNIS BONNEY* Director - --------------------------------------------- J. Dennis Bonney CHARLES R. CARSON* Director - --------------------------------------------- Charles R. Carson ROBERT H. DEDMAN* Director - --------------------------------------------- Robert H. Dedman STEVEN A. DENNING* Director - --------------------------------------------- Steven A. Denning ROBERT L. HOWARD* Director - --------------------------------------------- Robert L. Howard Director - --------------------------------------------- Robert V. Lindsay ELVIS L. MASON* Director - --------------------------------------------- Elvis L. Mason
II-4 91
NAME TITLE ---- ----- - --------------------------------------------- Director James L. Murdy Director - --------------------------------------------- David K. Newbigging MATTHEW R. SIMMONS* Director - --------------------------------------------- Matthew R. Simmons DONALD D. WOLF* Director - --------------------------------------------- Donald D. Wolf WALTER B. WRISTON* Director - --------------------------------------------- Walter B. Wriston *By: /s/ JOHN B. BROCK - --------------------------------------------- John B. Brock Attorney-in-Fact
II-5 92 INDEX TO EXHIBITS
EXHIBIT NO. EXHIBITS ------- -------- **1.1 -- Form of U.S. Purchase Agreement. **1.2 -- Form of International Purchase Agreement. 3.1 -- Certificate of Incorporation of the Company, as amended, incorporated by reference to Exhibit 3.1 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 3.2 -- By-laws of the Company, as amended, incorporated by reference to Exhibit 3.2 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 4.1 -- Specimen of certificate representing Series A Voting Common Stock, $.01 par value, of the Company, incorporated by reference to Exhibit 4.13 to UMC's Form 10-Q for the period ended June 30, 1994 filed with the Securities and Exchange Commission on August 10, 1994. 4.2 -- Rights Agreement by and between United Meridian Corporation and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent, dated as of February 13, 1996, incorporated by reference to Exhibit 1 to UMC's Form 8-K filed with the Securities and Exchange Commission on February 14, 1996. **5 -- Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. **10.1 -- Form of Indemnification Agreement with a schedule of director signatories. **10.2 -- Employment Agreement, dated October 9, 1996, between the Company, UMC Petroleum Corporation and James L. Dunlap. **23.1 -- Consent of Arthur Andersen LLP. **23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in its opinion filed as Exhibit 5 hereto). *23.3 -- Consent of Netherland, Sewell & Associates, Inc. *23.4 -- Consent of McDaniel & Associates Consultants, Ltd. *23.5 -- Consent of Ryder Scott Company. *24 -- Power of Attorney (included on signature page of this Registration Statement).
- --------------- * Previously filed. ** Filed herewith. EX-1.1 2 FORM OF U.S. PURCHASE AGREEMENT 1 EXHIBIT 1.1 DRAFT October 23, 1996 UNITED MERIDIAN CORPORATION (a Delaware corporation) 4,600,000 Shares of Series A Common Stock (Par Value $.01 Per Share) U.S. PURCHASE AGREEMENT __________, 1996 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated J. P. Morgan Securities Inc. Howard, Weil, Labouisse, Friedrichs Incorporated Petrie, Parkman & Co., Inc. as U.S. Representatives of the several U.S. Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: United Meridian Corporation, a Delaware corporation (the "Company"), and the persons listed in Schedule B hereto (the "Selling Shareholders") confirm their respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other U.S. Underwriters named in Schedule A hereto (collectively, the "U.S. Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, J. P. Morgan Securities, Inc., Howard, Weil, Labouisse, Friedrichs Incorporated and Petrie, Parkman & Co., Inc. are acting as representatives (in such capacity, the "U.S. Representatives"), with respect to (i) the sale by the Company and the Selling Shareholders, acting severally and not jointly, and the purchase by the U.S. Underwriters, acting severally and not jointly, of the respective numbers of shares of Series A Common Stock, par value $.01 per share, of the Company ("Common Stock") set forth in Schedule A and Schedule B hereto, and (ii) the grant by the Company to the U.S. Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 690,000 additional shares of Common Stock to cover over-allotments, if any. The aforesaid 4,600,000 shares of Common Stock (the "Initial U.S. Securities") to be purchased by the U.S. Underwriters and all or any part of the 690,000 shares of Common Stock subject to the option described in Section 2(b) hereof (the "U.S. Option Securities") are hereinafter called, collectively, the "U.S. Securities." 2 It is understood that the Company and the Selling Shareholders are concurrently entering into an agreement dated the date hereof (the "International Purchase Agreement") providing for the sale by the Company and the Selling Shareholders, acting severally and not jointly, of an aggregate of 1,150,000 shares of Common Stock (the "Initial International Securities") through arrangements with certain underwriters outside the United States and Canada (the "International Managers") for which Merrill Lynch International, J. P. Morgan Securities Ltd., Howard, Weil, Labouisse Friedrichs Incorporated and Petrie, Parkman & Co., Inc. are acting as lead managers (the "Lead Managers") and the grant by the Company to the International Managers, acting severally and not jointly, of an option to purchase all or any part of the International Managers' pro rata portion of up to 172,500 additional shares of Common Stock solely to cover overallotments, if any (the "International Option Securities" and, together with the U.S. Option Securities, the "Option Securities"). The Initial International Securities and the International Option Securities are hereinafter called the "International Securities." It is understood that the Company and the Selling Shareholders acting severally and not jointly, are not obligated to sell and the U.S. Underwriters are not obligated to purchase, any Initial U.S. Securities unless all of the Initial International Securities are contemporaneously purchased by the International Managers. The U.S. Underwriters and the International Managers are hereinafter collectively called the "Underwriters," the Initial U.S. Securities and the Initial International Securities are hereinafter collectively called the "Initial Securities," and the U.S. Securities, and the International Securities are hereinafter collectively called the "Securities." The Underwriters will concurrently enter into an Intersyndicate Agreement of even date herewith (the "Intersyndicate Agreement") providing for the coordination of certain transactions among the Underwriters under the direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in such capacity, the "Global Coordinator"). The Company and the Selling Shareholders understand that the U.S. Underwriters propose to make a public offering of the U.S. Securities as soon as the U.S. Representatives deem advisable after this Agreement has been executed and delivered. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-12823) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two forms of prospectus are to be used in connection with the offering and sale of the Securities: one relating to the U.S. Securities (the "Form of U.S. Prospectus") and one relating to the International Securities (the "Form of International Prospectus"). The Form of International Prospectus is identical to the Form of U.S. Prospectus, except for the front cover and back cover pages and the information under the caption "Underwriting". The information included in any such prospectus or in any such Term Sheet, as the case may be, that was omitted from such registration 2 3 statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each Form of U.S. Prospectus and Form of International Prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information or the Rule 434 Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto, schedules thereto, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became effective and including the Rule 430A Information and the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final Form of U.S. Prospectus and the final Form of International Prospectus, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the forms first furnished to the Underwriters for use in connection with the offering of the Securities are herein called the "U.S. Prospectus" and the "International Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is relied on, the terms "U.S. Prospectus" and "International Prospectus" shall refer to the preliminary U.S. Prospectus dated October 7, 1996 and preliminary International Prospectus dated October 7, 1996, respectively, each together with the applicable Term Sheet and all references in this Agreement to the date of such Prospectuses shall mean the date of the applicable Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus (including the Form of U.S. Prospectus and Form of International Prospectus) or the Prospectuses (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus (including the Form of U.S. Prospectus and Form of International Prospectus) or the Prospectuses, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectuses shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectuses, as the case may be. SECTION 1. Representations and Warranties. (a) Representations and Warranties by the Company. The Company represents and warrants to each U.S. Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b), hereof and agrees with each U.S. Underwriter, as follows: 3 4 (i) Compliance with Registration Requirements. The Company meets the requirements for use of Form S-3 under the 1933 Act. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Time (and, if any U.S. Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither of the Prospectuses nor any amendments or supplements thereto, at the time the Prospectuses or any amendments or supplements thereto were issued and at the Closing Time (and, if any U.S. Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or the U.S. Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any U.S. Underwriter through the U.S. Representative(s) expressly for use in the Registration Statement or the U.S. Prospectus. Each preliminary prospectus and the prospectuses filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectuses delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (ii) Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectuses, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 Act Regulations"), and, when read together with, and as modified or superseded by, the other information in the Prospectuses, at the time the Registration Statement became effective, at the time the Prospectuses were issued and at the Closing Time (and, if any U.S. Option Securities are purchased, at the Date of Delivery), did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 4 5 (iii) Independent Accountants. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants with respect to the Company and its subsidiaries as required by the 1933 Act and the 1933 Act Regulations. (iv) Financial Statements. The financial statements included in the Registration Statement and the Prospectuses, together with the related schedules and notes, present fairly the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; except as otherwise stated in the Registration Statement said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules, if any, included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectuses present fairly in all material respects the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. (v) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectuses, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) except as described in the Registration Statement, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (vi) Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (vii) Good Standing of Subsidiaries. Each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or 5 6 leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a material adverse effect on the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise ("Material Adverse Effect"); all of the issued and outstanding capital stock of each such Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and (except for approximately one-half of the shares of Havre Pipeline LLC) is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity except as described in the Prospectuses and except for the pledge of such shares to secure borrowings. The subsidiaries of the Company listed on Schedule D hereto include each subsidiary of the Company that is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X. (viii) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectuses in the column entitled "Historical" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectuses or pursuant to the exercise of convertible securities, options or rights referred to in the Prospectuses and except for the authorized and undesignated preferred stock of the Company). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. (ix) Authorization of Agreement. This Agreement and the International Purchase Agreement have been duly authorized, executed and delivered by the Company. (x) Authorization and Description of Securities. The Securities to be purchased by the U.S. Underwriters and the International Managers from the Company have been duly authorized for issuance and sale to the U.S. Underwriters pursuant to this Agreement and the International Managers pursuant to the International Purchase Agreement, respectively, and, when issued and delivered by the Company pursuant to this Agreement and the International Purchase Agreement, respectively, against payment of the consideration set forth herein and the International Purchase Agreement, respectively, will be validly issued, fully paid and non-assessable; the Common Stock conforms in all material respects to all statements relating thereto contained in the Prospectuses and such description conforms in all material respects to the rights set forth in the instruments defining the same; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. (xi) Absence of Defaults and Conflicts. Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (collectively, "Agreements and Instruments") except for such defaults 6 7 that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the International Purchase Agreement and the consummation of the transactions contemplated in this Agreement, the International Purchase Agreement and in the Registration Statement (including the issuance and sale of the Securities by the Company and the use of the proceeds from the sale of the Securities by the Company as described in the Prospectuses under the caption "Use of Proceeds") and compliance by the Company with its obligations under this Agreement and the International Purchase Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary or any of their assets, properties or operations. (xii) Absence of Labor Dispute. No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any subsidiary's principal suppliers, manufacturers or contractors, which, in either case, might reasonably be expected to result in a Material Adverse Effect. (xiii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement and the International Purchase Agreement or the performance by the Company of its obligations hereunder or thereunder; when considered in the aggregate all pending legal or governmental proceedings to which the Company or any subsidiary is a party, or of which any of their respective property or assets is the subject, which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. (xiv) Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement, the Prospectuses or the documents incorporated by reference therein or to be filed as exhibits thereto which have not been so described and filed or incorporated by reference as required. (xv) Title to Property. The Company and its subsidiaries have good and indefeasible title to real estate and good title to all other properties and assets described in 7 8 the Prospectuses as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Prospectuses or are not material to the business of the Company and its subsidiaries considered as one enterprise. The Company and its subsidiaries have valid, subsisting and enforceable leases for the properties described in the Prospectuses as leased by them, with such exceptions as are not material to the business of the Company and its subsidiaries considered as one enterprise and as do not materially interfere with the use made and proposed to be made of such properties by the Company and its subsidiaries. (xvi) Absence of Further Requirements. No filing with, or authorization, approval or consent of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale by the Company of the Securities under this Agreement and the International Purchase Agreement or the consummation of the transactions contemplated by this Agreement and the International Purchase Agreement, except such as have been already obtained or made, or will have been obtained or made as of the Closing Time, or as may be required under the 1933 Act or the 1933 Act Regulations and foreign or state securities or blue sky laws. (xvii) Possession of Licenses and Permits. The Company and its subsidiaries possess such valid franchises, certificates of convenience and necessity, easements, rights-of-way, operating rights, licenses, permits, consents, authorizations and orders of government political subdivisions or regulatory authorities as, in their respective opinions, are necessary to carry on the respective business of each as presently being conducted as described in the Prospectuses; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, permit or authorization which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. (xviii) Compliance with Laws. Except as set forth in the Prospectuses, the Company and its subsidiaries are in compliance in all material respects with all applicable laws, statutes, ordinances, rules or regulations, except for noncompliances which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries nor, to the Company's knowledge, any employee or agent of the Company or any subsidiary has made any payment of funds of the Company or any subsidiary or received or retained any funds in violation of any law, rule or regulation of a character required to be disclosed in the Prospectuses. (xix) Compliance with Cuba Act. The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder (collectively, the "Cuba Act") or is exempt therefrom. (xx) Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectuses under the caption "Use of Proceeds" will not be, 8 9 an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xxi) Registration Rights. There are no persons with registration or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company pursuant to the 1933 Act other than rights which have been waived, satisfied or not exercised in accordance with the offering contemplated hereby. (b) Representations and Warranties by the Selling Shareholders. Each Selling Shareholder severally and not jointly represents and warrants to each U.S. Underwriter as of the date hereof, and as of the Closing Time, and agrees with each U.S. Underwriter, as follows: (i) Accurate Disclosure. The Shareholder Information (as defined in Section 6(a)) furnished by such Selling Shareholder does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; such Selling Shareholder is not prompted to sell the Securities to be sold by such Selling Shareholder hereunder by any information of a material nature concerning the Company or any subsidiary of the Company which is not set forth in the Prospectuses. (ii) Authorization of Agreements. Each Selling Shareholder has the requisite power and authority to enter into this Agreement and a Power of Attorney and Custody Agreement (the "Power of Attorney and Custody Agreement") and to sell, transfer and deliver the Securities to be sold by such Selling Shareholder hereunder (assuming the effectiveness of the Registration Statement and such authorizations, approvals or consents as may be necessary under foreign or state securities or blue sky laws). The execution and delivery of this Agreement and the Power of Attorney and Custody Agreement and the sale and delivery of the Securities to be sold by such Selling Shareholder and the consummation of the transactions contemplated herein and compliance by such Selling Shareholder with its obligations hereunder have been duly authorized by such Selling Shareholder and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default under, or result in the creation or imposition of any tax, lien, charge or encumbrance upon the Securities to be sold by such Selling Shareholder pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, license, lease or other agreement or instrument to which such Selling Shareholder is a party or by which such Selling Shareholder may be bound, nor will such action result in any violation of the provisions of the charter or by-laws or other organizational instrument of such Selling Shareholder, if applicable, or any applicable treaty, law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over such Selling Shareholder or any of its properties. (iii) Good and Valid Title. Such Selling Shareholder has and will at the Closing Time have good and valid title to the Securities to be sold by such Selling Shareholder hereunder, free and clear of any security interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind, other than pursuant to this Agreement, the International Purchase Agreement, the Power of Attorney and the Custody Agreement; and upon delivery 9 10 of such Securities and payment of the purchase price therefor as herein contemplated, assuming each such U.S. Underwriter is purchasing the Securities in good faith and has no notice of any adverse claim relating to the Securities, each of the U.S. Underwriters will receive good and valid title to the Securities purchased by it from such Selling Shareholder, free and clear of any security interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind. (iv) Due Execution of Power of Attorney and Custody Agreement. Such Selling Shareholder has duly executed and delivered, in the form heretofore furnished to the U.S. Representatives, the Power of Attorney and Custody Agreement with John B. Brock and Jonathan M. Clarkson, or either of them, as attorneys-in-fact (the "Attorneys-in-Fact") and the Company, as custodian (the "Custodian"); the Custodian is authorized to deliver the Securities to be sold by such Selling Shareholder hereunder and to accept payment therefor; and each Attorney-in-Fact is authorized to execute and deliver this Agreement and the certificate referred to in Section 5(f) on behalf of such Selling Shareholder, to sell, assign and transfer to the U.S. Underwriters the Securities to be sold by such Selling Shareholder hereunder, to determine the purchase price to be paid by the U.S. Underwriters to such Selling Shareholder, as provided in Section 2(a) hereof, to authorize the delivery of the Securities to be sold by such Selling Shareholder hereunder, to accept payment therefor, and otherwise to act on behalf of such Selling Shareholder in connection with this Agreement. (v) Absence of Manipulation. Such Selling Shareholder has not taken, and will not take any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (vi) Absence of Further Requirements. No filing with, or consent, approval, authorization, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign, is necessary or required for the performance by such Selling Shareholder of its obligations hereunder or in the Power of Attorney and Custody Agreement, or in connection with the sale and delivery of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except such as may have previously been made or obtained or as may be required under the 1933 Act or the 1933 Act Regulations and foreign or state securities or blue sky laws. (vii) Restriction on Sale of Securities. Except for Permitted Dispositions (as defined blow), during a period of 90 days from the date of the Prospectus, such Selling Shareholder will not, without the prior written consent of Merrill Lynch, (i) offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to the 10 11 Securities to be sold hereunder. "Permitted Dispositions" mean (i) a bona fide gift, provided that the donee thereof agrees in writing to be bound by the restrictions imposed by this clause (vii), (ii) a distribution to shareholders of such Selling Shareholder, provided that such distributees agree in writing to be bound by the restrictions imposed by this clause (vii) or (iii) a transfer to an affiliate of such Selling Shareholder, provided that the affiliate agrees in writing to be bound by the restrictions imposed by this clause (vii). (viii) Certificates Suitable for Transfer. Certificates for all of the Securities to be sold by such Selling Shareholder pursuant to this Agreement, in suitable form for transfer by delivery or accompanied by duly executed instruments of transfer or assignment in blank with signatures guaranteed, have been placed in custody with the Custodian with irrevocable conditional instructions to deliver such Securities to the U.S. Underwriters pursuant to this Agreement. (ix) No Association with NASD. Such Selling Shareholder has advised the U.S. Representatives if either such Selling Shareholder or any of its affiliates directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, or has any other association with (within the meaning of Article I, Section 1(q) of the By-laws of the National Association of Securities Dealers, Inc.), any member firm of the National Association of Securities Dealers, Inc. (c) Officer's Certificate. Any certificate signed by any officer of the Company or any of its subsidiaries delivered to the U.S. Representatives or to counsel for the U.S. Underwriters shall be deemed a representation and warranty by the Company to each U.S. Underwriter as to the matters covered thereby; and any certificate signed by or on behalf of the Selling Shareholders as such and delivered to the U.S. Representatives or to counsel for the U.S. Underwriters pursuant to the terms of this Agreement shall be deemed a representation and warranty by such Selling Shareholder to the U.S. Underwriters as to the matters covered thereby. SECTION 2. Sale and Delivery to U.S. Underwriters; Closing. (a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and each Selling Shareholder, severally and not jointly, agree to sell to each U.S. Underwriter, severally and not jointly, and each U.S. Underwriter, severally and not jointly, agrees to purchase from the Company and each Selling Shareholder, at the price per share set forth in Schedule C, that proportion of the number of Initial U.S. Securities set forth in Schedule B opposite the name of the Company or such Selling Shareholder, as the case may be, which the number of U.S. Initial Securities set forth in Schedule A opposite the name of such U.S. Underwriter, plus any additional number of Initial U.S. Securities which such U.S. Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, bears to the total number of U.S. Initial Securities, subject, in each case, to such adjustments among the U.S. Underwriters as the U.S. Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional securities. (b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the U.S. Underwriters, severally and not jointly, to purchase up to an additional 690,000 11 12 shares of Common Stock at the price per share set forth in Schedule C, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial U.S. Securities but not payable on the U.S. Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial U.S. Securities upon notice by the Global Coordinator to the Company setting forth the number of U.S. Option Securities as to which the several U.S. Underwriters are then exercising the option and the time and date of payment and delivery for such U.S. Option Securities. Any such time and date of delivery for the U.S. Option Securities (a "Date of Delivery") shall be determined by the Global Coordinator, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the U.S. Option Securities, each of the U.S. Underwriters, acting severally and not jointly, will purchase that proportion of the total number of U.S. Option Securities then being purchased which the number of Initial U.S. Securities set forth in Schedule A opposite the name of such U.S. Underwriter bears to the total number of Initial U.S. Securities, subject in each case to such adjustments as the Global Coordinator in its discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Vinson & Elkins L.L.P., 1001 Fannin, Suite 2300, Houston, Texas 77002, or at such other place as shall be agreed upon by the Global Coordinator and the Company, at 8:00 A.M. (Central time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Global Coordinator and the Company and the Selling Shareholders (such time and date of payment and delivery being herein called "Closing Time"). At the request of the Company, payment shall be made by wire transfer pursuant to written instructions provided to the Global Coordinator at least two business days prior to the Closing Time. In addition, in the event that any or all of the U.S. Option Securities are purchased by the U.S. Underwriters, payment of the purchase price for, and delivery of certificates for, such U.S. Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Global Coordinator and the Company, on each Date of Delivery as specified in the notice from the Global Coordinator to the Company. Payment shall be made to the Company and the Selling Shareholders by wire transfer of immediately available funds to bank accounts designated by the Company and the Custodian pursuant to each Selling Shareholder's Power of Attorney and Custody Agreement, as the case may be, against delivery to the U.S. Representatives for the respective accounts of the U.S. Underwriters of certificates for the U.S. Securities to be purchased by them. It is understood that each U.S. Underwriter has authorized the U.S. Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial U.S. Securities and the U.S. Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the U.S. Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial U.S. Securities or the U.S. Option Securities, if any, to be purchased by any U.S. Underwriter whose funds have not been received by the Closing Time or the relevant 12 13 Date of Delivery, as the case may be, but such payment shall not relieve such U.S. Underwriter from its obligations hereunder. (d) Denominations; Registration. Certificates for the Initial U.S. Securities and the U.S. Option Securities, if any, shall be in such denominations and registered in such names as the U.S. Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial U.S. Securities and the U.S. Option Securities, if any, will be made available for examination and packaging by the U.S. Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. Covenants of the Company. The Company covenants with each U.S. Underwriter as follows: (a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Global Coordinator immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectuses or any amended Prospectuses shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectuses or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) Filing of Amendments. The Company will give the Global Coordinator notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectuses, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Global Coordinator with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Global Coordinator or counsel for the U.S. Underwriters shall reasonably object. (c) Delivery of Registration Statements. The Company has furnished or will deliver to the U.S. Representatives and counsel for the U.S. Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the U.S. Representatives, without charge, as many conformed copies of the 13 14 Registration Statement as originally filed and of each amendment thereto (without exhibits) as the Representatives may reasonably request. The copies of the Registration Statement and each amendment thereto furnished to the U.S. Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) Delivery of Prospectuses. The Company has delivered to each U.S. Underwriter, without charge, as many copies of each preliminary prospectus as such U.S. Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each U.S. Underwriter, without charge, during the period when the U.S. Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the U.S. Prospectus (as amended or supplemented) as such U.S. Underwriter may reasonably request. The U.S. Prospectus and any amendments or supplements thereto furnished to the U.S. Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement, the International Purchase Agreement and in the Prospectuses. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the U.S. Underwriters or for the Company, to amend the Registration Statement or amend or supplement any Prospectus in order that the Prospectuses will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement any Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectuses comply with such requirements, and the Company will furnish to the U.S. Underwriters such number of copies of such amendment or supplement as the U.S. Underwriters may reasonably request. (f) Blue Sky Qualifications. The Company will endeavor, in cooperation with the U.S. Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Global Coordinator may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the effective date of the Registration Statement and any Rule 462(b) Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement and any Rule 462(b) Registration Statement. 14 15 (g) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (h) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectuses under "Use of Proceeds". (i) Listing. The Company will use its best efforts to effect the listing of the Securities on the New York Stock Exchange. (j) Restriction on Sale of Securities. During a period of 90 days from the date of the Prospectuses, the Company will not, without the prior written consent of the Global Coordinator, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder or under the International Purchase Agreement, (B) any shares of Common Stock issued by the Company upon the exercise of an option, right or warrant or the conversion of a security outstanding on the date hereof or attached to the shares of Common Stock on the date hereof and referred to in the Prospectuses, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company or agreements referred to in the Prospectuses or (D) any shares of Common Stock issued pursuant to any non-employee director stock option plan. (k) Reporting Requirements. The Company, during the period when the Prospectuses are required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations. SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all expenses incident to the performance of the obligations of the Company and the Selling Shareholders under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters and the transfer of the Securities between the U.S. Underwriters and the International Managers, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors and the fees and disbursements of counsel, accountants and other advisors for the Selling Shareholders, (v) the qualification of the Securities under securities laws in accordance with the 15 16 provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Term Sheets and of the Prospectuses and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities and (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Securities and (x) the fees and expenses incurred in connection with the listing of the Securities on the New York Stock Exchange. (b) Termination of Agreement. If this Agreement is terminated by the U.S. Representatives in accordance with the provisions of Section 5, Section 9(a)(i) or Section 11 hereof, the Company shall reimburse the U.S. Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the U.S. Underwriters. (c) Allocation of Expenses. The provisions of this Section shall not affect any agreement that the Company and the Selling Shareholders have or may make for the sharing of such costs and expenses or the obligations that the Company has for the payment of such costs and expenses, including without limitation the Company's obligations under (i) its Certificate of Incorporation, (ii) the Registration Rights Agreement, dated as of July 13, 1993 by and between General Atlantic Resources, Inc., General Atlantic Corporation, John Hancock Mutual Life Insurance Company, and Fidelity Oil Holdings, Inc., as amended (the "GARI Registration Rights Agreement") and (iii) the Stock Purchase Agreement dated June 30, 1995 between the Company, John Hancock Mutual Life Insurance Company, The Travelers Insurance Company, The Travelers Indemnity Company, The Travelers Life and Annuity Company and The Phoenix Insurance Company and the Stock Purchase Agreement dated July 24, 1995 between the Company and John Hancock Mutual Life Insurance Company (collectively, the "Series F Purchase Agreements"). SECTION 5. Conditions of U.S. Underwriters' Obligations. The obligations of the several U.S. Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company and the Selling Shareholders contained in Section 1 hereof or in certificates of any officer of the Company or any subsidiary of the Company or on behalf of any Selling Shareholder delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the U.S. Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). 16 17 (b) Opinion of Counsel for Company. At Closing Time, the U.S. Representatives shall have received the opinion, dated as of Closing Time, of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the Company, in form and substance reasonably satisfactory to counsel for the U.S. Underwriters, together with signed or reproduced copies of such letter for each of the other U.S. Underwriters to the effect set forth in Exhibit A hereto. (c) Opinion of Counsel for the Selling Shareholders. At Closing Time, the U.S. Representatives shall have received the opinion, dated as of Closing Time, of Paul, Weiss, Rifkind, Wharton & Garrison, counsel for General Atlantic Corporation and Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for John Hancock Mutual Life Insurance Company and The Travelers Insurance Company, The Travelers Indemnity Company, The Travelers Life and Annuity Company and The Phoenix Insurance Company, together with signed or reproduced copies of such letter for each of the other U.S. Underwriters in form substantially to the effect set forth in Exhibit B hereto. (d) Opinion of Counsel for U.S. Underwriters. At Closing Time, the U.S. Representatives shall have received the opinion, dated as of Closing Time, of Vinson & Elkins L.L.P., counsel for the U.S. Underwriters, together with signed or reproduced copies of such letter for each of the other U.S. Underwriters with respect to the matters set forth in clauses (i), (ii), (v), (vi) (solely as to preemptive or other similar rights arising by operation of law or under the charter or by-laws of the Company), (viii) through (x), inclusive, (xii), (xiv) (solely as to the information in the Prospectus under "Description of Capital Stock--Common Stock") and the penultimate paragraph of Exhibit A hereto. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the States of Texas and New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the U.S. Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials. (e) Officers' Certificate. At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectuses, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the U.S. Representatives shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and to the best of such officer's knowledge no proceedings for that purpose have been instituted or are pending or are contemplated by the Commission. (f) Certificate of Selling Shareholders. At Closing Time, the U.S. Representatives shall have received a certificate of an Attorney-in-Fact on behalf of each Selling Shareholder, dated as of Closing Time, to the effect that (i) the representations and warranties of each Selling Shareholder contained in Section 1(b) hereof are true and correct in all respects with the same force and effect 17 18 as though expressly made at and as of Closing Time and (ii) each Selling Shareholder has complied in all material respects with all agreements and all conditions on its part to be performed under this Agreement at or prior to Closing Time. (g) Accountant's Comfort Letter. At the time of the execution of this Agreement, the U.S. Representatives shall have received from Arthur Andersen LLP a letter dated such date, in form and substance satisfactory to the U.S. Representatives, together with signed or reproduced copies of such letter for each of the other U.S. Underwriters containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectuses. (h) Bring-down Comfort Letter. At Closing Time, the U.S. Representatives shall have received from Arthur Andersen LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (g) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time. (i) Approval of Listing. At Closing Time, the Securities shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance. (j) No Objection. The NASD shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (k) Lock-up Agreements. At the date of this Agreement, the U.S. Representatives shall have received an agreement substantially in the form of Exhibit C hereto signed by the persons listed on Schedule E hereto. (l) Purchase of Initial International Securities. Contemporaneously with the purchase by the U.S. Underwriters of the Initial U.S. Securities under this Agreement, the International Managers shall have purchased the Initial International Securities under the International Purchase Agreement. (m) Conditions to Purchase of U.S. Option Securities. In the event that the U.S. Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the U.S. Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company or any subsidiary of the Company hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the U.S. Representatives shall have received: (i) Officers' Certificate. A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(e) hereof remains true and correct as of such Date of Delivery. (ii) Opinion of Counsel for Company. The opinion of Akin, Gump, Strauss, Hauer & Feld, LLP, counsel for the Company, in form and substance satisfactory to counsel for the U.S. Underwriters, dated such Date of Delivery, relating to the U.S. Option Securities 18 19 to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof. (iii) Opinion of Counsel for U.S. Underwriters. The opinion of Vinson & Elkins LLP, counsel for the U.S. Underwriters, dated such Date of Delivery, relating to the U.S. Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof. (iv) Bring-down Comfort Letter. A letter from Arthur Anderson LLP, in form and substance satisfactory to the U.S. Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the U.S. Representatives pursuant to Section 5(g) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery. (n) Additional Documents. At Closing Time and at each Date of Delivery, counsel for the U.S. Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the U.S. Representatives and counsel for the U.S. Underwriters. (o) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of U.S. Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several U.S. Underwriters to purchase the relevant Option Securities, may be terminated by the U.S. Representatives by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. Indemnification. (a) Indemnification of U.S. Underwriters. The Company agrees to indemnify and hold harmless each U.S. Underwriter and each person, if any, who controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act to the extent and in the manner set forth in clauses (i), (ii) and (iii) below. In addition, each Selling Shareholder, severally and not jointly, agrees to indemnify and hold harmless each U.S. Underwriter and each person, if any, who controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the 19 20 statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectuses (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company and the Selling Shareholders; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however; that each Selling Shareholder shall be obligated to indemnify and hold harmless each U.S. Underwriter, and each person who controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, only to the extent such loss, liability, claim, damage or expense arises out of an untrue statement or omission or alleged untrue statement or omission of a material fact made in reliance upon and in conformity with written information furnished to the Company by such Selling Shareholder ("Shareholder Information") expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the U.S. Prospectus (or any amendment or supplement thereto); and, provided further, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any U.S. Underwriter through the U.S. Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the U.S. Prospectus (or any amendment or supplement thereto). The foregoing indemnity with respect to any untrue statement contained in or omission from a preliminary prospectus shall not inure to the benefit of any U.S. Underwriter (or any person controlling such U.S. Underwriter) from whom the person asserting any such loss, liability, claim, damage or expense purchased any of the U.S. Securities which are the subject thereof if the Company or the Selling Shareholder shall sustain the burden of proving that any such loss, liability, claim, damage or expense resulted from the fact that such person was not sent or given a copy of the U.S. Prospectus (or the U.S. Prospectus as amended or supplemented) (in each case exclusive of the documents from which information is incorporated by reference) at or prior to the written confirmation of the sale of such U.S. Securities to such person and (i) the Company has previously furnished copies thereof to the U.S. Underwriters sufficiently in advance of the Closing Time to allow for distribution to the purchasers of the U.S. Securities, and (ii) the loss, liability, claim, damage or expense resulted from 20 21 an untrue statement contained in or omission from such preliminary prospectus that was corrected in the U.S. Prospectus (or the U.S. Prospectus as amended or supplemented). Each Selling Shareholder's aggregate liability pursuant to this Section 6 and Section 7 shall not exceed an amount equal to the net proceeds (before deducting expenses) received by such Selling Shareholder from the sale of the Securities pursuant to this Agreement. (b) Indemnification of Company, Directors and Officers and Selling Shareholders. Each U.S. Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Selling Shareholder and each person, if any, who controls any Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the U.S. Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such U.S. Underwriter through the U.S. Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or such preliminary prospectus or the U.S. Prospectus (or any amendment or supplement thereto). (c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. Notwithstanding the second preceding sentence, if it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, 21 22 commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) Other Rights of Selling Shareholders. The provisions of this Section 6 shall not affect the rights of the Selling Shareholders to be indemnified by the Company, including, without limitation, those rights under the Company's Certificate of Incorporation, the GARI Registration Rights Agreement, and the Series F Purchase Agreements. SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the U.S. Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, each of the Selling Shareholders on the one hand and of the U.S. Underwriters, as the case may be, on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations; provided, however, a Selling Shareholder shall have an obligation to contribute only with respect to losses, liabilities, claims, damages or expenses arising out of an untrue statement or omission or alleged untrue statement or omission of a material fact made in reliance upon and in conformity with Shareholder Information furnished by such Selling Shareholder. The relative benefits received by the Company and the Selling Shareholders on the one hand and the U.S. Underwriters on the other hand in connection with the offering of the U.S. Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the U.S. Securities pursuant to this Agreement (before deducting expenses) received by the Company and the Selling Shareholders and the total underwriting discount received by the U.S. Underwriters, in each case as set forth on the cover of the U.S. Prospectus, or, 22 23 if Rule 434 is used, the corresponding location on the Term Sheet, bear to the aggregate initial public offering price of the U.S. Securities as set forth on such cover. The relative fault of the Company and the Selling Shareholders on the one hand and the U.S. Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Shareholders or by the U.S. Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Shareholders and the U.S. Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the U.S. Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, each Selling Shareholder's aggregate liability pursuant to this Section 7 and Section 6 shall not exceed an amount equal to the net proceeds (before deducting expenses) received by such Selling Shareholder from the sale of the Securities pursuant to this Agreement. The Selling Shareholders' respective obligations to contribute pursuant to this Section 7 are several and not joint. Notwithstanding the provisions of this Section 7, no U.S. Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the U.S. Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such U.S. Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls a U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such U.S. Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company or any Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company or such Selling Shareholder, as the case may be. The U.S. Underwriters' respective obligations to contribute pursuant to this Section 23 24 7 are several in proportion to the number of Initial U.S. Securities set forth opposite their respective names in Schedule A hereto and not joint. The provisions of this Section shall not affect any agreement or other obligations among the Company and any of the Selling Shareholders with respect to contribution, including, without limitation, those agreements and obligations under the Company's Certificate of Incorporation, the GARI Registration Rights Agreement and the Series F Purchase Agreements. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries or the Selling Shareholders submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any U.S. Underwriter or controlling person, or by or on behalf of the Company or the Selling Shareholders, and shall survive delivery of the Securities to the U.S. Underwriters. SECTION 9. Termination of Agreement. (a) Termination; General. The U.S. Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the U.S. Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the U.S. Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal or New York authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 10. Default by One or More of the U.S. Underwriters. If one or more of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting U.S. Underwriters, or any other underwriters, to purchase all, but not less 24 25 than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the U.S. Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of U.S. Securities to be purchased on such date, each of the non-defaulting U.S. Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting U.S. Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of U.S. Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the U.S. Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting U.S. Underwriter. No action taken pursuant to this Section shall relieve any defaulting U.S. Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the U.S. Underwriters to purchase and the Company to sell the relevant U.S. Option Securities, as the case may be, either the U.S. Representatives or the Company and the Selling Shareholders shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "U.S. Underwriter" includes any person substituted for a U.S. Underwriter under this Section 10. SECTION 11. Default by one or more of the Selling Shareholders or the Company. (a) If one or more Selling Shareholders shall fail at Closing Time to sell and deliver the number of Securities which such Selling Shareholders are obligated to sell hereunder, and the remaining Selling Shareholders do not exercise the right hereby granted to increase, pro rata or otherwise, the number of Securities to be sold by them hereunder to the total number to be sold by all Selling Shareholders as set forth in Schedule B hereto, then the U.S. Underwriters may, at the option of the U.S. Representatives, by notice from the U.S. Representatives to the Company and the non-defaulting Selling Shareholders, either (a) terminate this Agreement without any liability on the fault of any non-defaulting party except that the provisions of Section 1, 4, 6, 7 and 8 shall remain in full force and effect or (b) elect to purchase the Securities which the non-defaulting Selling Shareholders and the Company have agreed to sell hereunder. No action taken pursuant to this Section 11 shall relieve any Selling Shareholder so defaulting from liability, if any, in respect of such default. In the event of a default by any Selling Shareholder as referred to in this Section 11, each of the U.S. Representatives and the Company and the non-defaulting Selling Shareholders shall have the right to postpone Closing Time for a period not exceeding seven days in order to effect any 25 26 required change in the Registration Statement or Prospectus or in any other documents or arrangements. (b) If the Company shall fail at Closing Time or at the Date of Delivery to sell the number of Securities that it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any non-defaulting party; provided, however, that the provisions of Sections 1, 4, 6, 7, and 8 shall remain in full force and effect. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default. SECTION 12. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the U.S. Underwriters shall be directed to the U.S. Representatives at North Tower, World Financial Center, New York, New York 10281-1201, attention of Syndicate Department, notices to the Company shall be directed to it at 1201 Louisiana, Suite 1400, Houston, Texas 77002, attention of Chief Executive Officer and to the Selling Shareholders to their Attorneys-in-Fact: John B. Brock and Jonathan M. Clarkson, at the Company's address set forth above. SECTION 13. Parties. This Agreement shall each inure to the benefit of and be binding upon the U.S. Underwriters, the Company and the Selling Shareholders and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the U.S. Underwriters, the Company and the Selling Shareholders and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the U.S. Underwriters, the Company and the Selling Shareholders and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any U.S. Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME, UNLESS OTHERWISE INDICATED. SECTION 15. Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 26 27 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the U.S. Underwriters and the Company in accordance with its terms. Very truly yours, UNITED MERIDIAN CORPORATION By: -------------------------------- Title: [ATTORNEY-IN-FACT] By: -------------------------------- As Attorney-in-Fact on behalf of the Selling Shareholders named in Schedule B hereto. CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED J. P. MORGAN SECURITIES, INC. HOWARD, WEIL, LABOUISSE, FRIEDRICHS INCORPORATED PETRIE, PARKMAN & CO., INC. By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By ------------------------------ Authorized Signatory For themselves and as U.S. Representatives of the other U.S. Underwriters named in Schedule A hereto. 27 28 SCHEDULE A
Number of Initial U. S. Name of U.S. Underwriter Securities ------------------------ ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . . . . . . J. P. Morgan Securities, Inc. . . . . . . . . . . . . . . . Howard, Weil, Labouisse, Friedrichs Incorporated . . . . . . . . . . . . . . . . . Petrie, Parkman & Co., Inc. . . . . . . . . . . . . . . . . --------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600,000 =========
29 SCHEDULE B
NUMBER OF INITIAL MAXIMUM NUMBER OF U.S. SECURITIES U.S. OPTION SECURITIES TO BE SOLD TO BE SOLD ----------------- ---------------------- United Meridian Corporation 2,600,000 690,000 General Atlantic Corporation 1,000,000 -- John Hancock Mutual Life Insurance Company 800,000 -- The Travelers Insurance Company 90,000 -- The Travelers Indemnity Company 88,000 -- The Travelers Life and Annuity Company 10,000 -- The Phoenix Insurance Company 12,000 -- --------- --------------- Total . . . . . . . . . . . . . . . . . 4,600,000 -- ========= ===============
30 SCHEDULE C UNITED MERIDIAN CORPORATION 4,600,000 Shares of Series A Common Stock (Par Value $.01 Per Share) 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $[ ]. 2. The purchase price per share for the U.S. Securities to be paid by the several U.S. Underwriters shall be $[ ], being an amount equal to the initial public offering price set forth above less $[ ] per share; provided that the purchase price per share for any U.S. Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial U.S. Securities but not payable on the U.S. Option Securities. 31 SCHEDULE D SIGNIFICANT SUBSIDIARIES OF UNITED MERIDIAN CORPORATION
JURISDICTION NAME IN WHICH ORGANIZED ---- ------------------ UMC Petroleum Corporation Delaware UMC Resources Canada Ltd. British Columbia, Canada UMC Equitorial Guinea Corporation Delaware UMC Pipeline Corporation Delaware UMIC Cote d'Ivoire Corporation Delaware United Meridian International Corporation Delaware Norfolk Holdings Inc. Delaware UMIC (CI-01) Corporation Delaware UMIC (CI-02) Corporation Delaware UMIC (CI-12) Corporation Delaware UMIC (CI-105) Corporation Delaware UMIC Bangladesh Corporation Delaware UMC Pakistan Corporation Delaware UMC Ghana Corporation Delaware Big Sky Gas Marketing Corporation Delaware
32 SCHEDULE E List of persons and entities subject to lock-up Lee B. Backsen J. Dennis Bonney John B. Brock Charles R. Carson Jonathan M. Clarkson Christopher E. Cragg Robert H. Dedman Steven A. Denning James L. Dunlap Daniel P. Foley Gary McGregor Robert L. Howard Marya M. Ingram Robert V. Lindsay Elvis L. Mason Kevin D. McMillan James L. Murdy David K. Newbigging John J. Patton Matthew R. Simmons Jim Smitherman Walter B. Wriston Donald D. Wolf 33 EXHIBIT A FORM OF OPINION OF COMPANY'S COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(b) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses and to enter into and perform its obligations under the U.S. Purchase Agreement and the International Purchase Agreement. (iii) To our knowledge, the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectuses in the column entitled "Historical" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to the U.S. Purchase Agreement and the International Purchase Agreement or pursuant to reservations, agreements or employee benefit plans referred to in the Prospectuses or pursuant to the exercise of convertible securities, options or rights referred to in the Prospectuses and except for the authorized and undesignated preferred stock of the Company); and the shares of issued and outstanding capital stock have been duly authorized and validly issued and are fully paid and non-assessable. (v) The Securities to be purchased by the U.S. Underwriters and the International Managers from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the International Purchase Agreement, respectively, and, when issued and delivered by the Company pursuant to the U.S. Purchase Agreement and the International Purchase Agreement, respectively, against payment of the consideration set forth in the U.S. Purchase Agreement and the International Purchase Agreement, will be validly issued and fully paid and non-assessable. (vi) The issuance of the Securities to be purchased from the Company pursuant to the U.S. Purchase Agreement and the International Purchase Agreement is not subject to the preemptive or other similar rights arising by operation of law or, to the best of our knowledge, otherwise. (vii) Each subsidiary of the Company set forth on Exhibit D to the U.S. Purchase Agreement has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses and, to our knowledge, is duly qualified as a foreign corporation to transact business and is in good standing in each U.S. and Canadian jurisdiction in which such qualification is required, except where the failure A-1 34 so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, to the best of our knowledge, is owned by the Company (excluding Havre Pipeline LLC), directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity other than shares of capital stock pledged to secure borrowings. (viii) The U.S. Purchase Agreement and the International Purchase Agreement have been duly authorized, executed and delivered by the Company. (ix) The Registration Statement, including any Rule 462(b) Registration Statement, has been declared effective under the 1933 Act; any required filing of the Prospectuses pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to our knowledge, no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission. (x) The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectuses, excluding the documents incorporated by reference therein, and each amendment or supplement to the Registration Statement and the Prospectuses, excluding the documents incorporated by reference therein, as of their respective effective or issue dates (other than the financial statements and supporting schedules (including the notes thereto and the auditors' report thereon) and the reserve information or other financial or accounting data included therein or omitted therefrom, as to which we need express no opinion) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xi) The documents incorporated by reference in the Prospectuses (other than the financial statements and supporting schedules (including the notes thereto and the auditors' report thereon) and the reserve information or other financial or accounting data included therein or omitted therefrom, as to which we need express no opinion), when they were filed with the Commission complied as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder. (xii) The form of certificate used to evidence the Common Stock complies in all material respects with all applicable statutory requirements, with any applicable requirements of the charter and by-laws of the Company and the requirements of the New York Stock Exchange. (xiii) To our knowledge, there are no legal or governmental proceedings pending or threatened that are required to be disclosed in the Registration Statement, other than as disclosed therein. (xiv) The information set forth in Items 1 and 2 Business and Properties -- Environmental Matters -- United States Environmental Regulations of the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and in the Registration Statement under Item 15, to the extent that it constitutes matters of law, summaries of legal matters, the Company's charter and A-2 35 bylaws or legal proceedings, or legal conclusions, has been reviewed by us and is correct in all material respects. (xv) To our knowledge, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein, filed or incorporated by reference as exhibits thereto, the descriptions thereof or references thereto are correct in all material respects, and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument so described, referred to, filed or incorporated by reference as exhibits thereto, which default would have a Material Adverse Effect. (xvi) No authorization, approval, consent or order of any court or governmental authority or agency is required in connection with the sale of the Securities by the Company to the Underwriters, except such as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws; and to our knowledge, the execution and delivery of the U.S. Purchase Agreement and the International Purchase Agreement and the consummation of the transactions contemplated therein and compliance by the Company with its obligations thereunder (including the use of the proceeds from the sale of the Securities as described in the Prospectuses under the caption "Use of Proceeds") will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default under, result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the charter or bylaws of the Company, or any applicable law, administrative regulation or court decree. We inform you that we have participated in conferences with officers and other representatives of the Company and representatives of the independent public accountants for the Company and the Underwriters and representatives of legal counsel for the Underwriters, at which conferences the contents of the Registration Statement and the Prospectuses relating to the Company were discussed and, although we are not passing upon and do not assume any responsibility for and shall not be deemed to have independently verified the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectuses, on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company), no facts have come to our attention that would lead us to believe that the Registration Statement or any amendment thereto, including the Rule 430A Information and Rule 434 Information (if applicable), (except for financial statements and schedules (including the notes and auditors' reports thereon) and other financial data or reserve information included or incorporated by reference therein or omitted therefrom, as to which we need make no statement), at the time such Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectuses or any amendment or supplement thereto (except for financial statements and schedules (including the notes and auditors' reports thereon) and other financial data and reserve information included or incorporated by reference therein or omitted therefrom, as to which we need make no statement), at the time the A-3 36 Prospectuses were issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely (A) as to matters involving the application of the laws of jurisdictions other than the State of Texas or New York, the Delaware General Corporation Law or United States federal laws on local counsel in such jurisdictions (which opinion shall be furnished to the U.S. Underwriters at the Closing Time and shall expressly state that the U.S. Underwriters may rely on such opinion as if it were addressed to them), provided that Akin, Gump, Strauss, Hauer & Feld, L.L.P. shall state in their opinion that they believe that they and the U.S. Underwriters are justified in relying upon such opinion, and (B), as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). A-4 37 EXHIBIT B FORM OF OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS TO BE DELIVERED PURSUANT TO SECTION 5(c) (i) No filing with, or consent, approval, authorization, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign (other than the issuance of the order of the Commission declaring the Registration Statement effective and such authorizations, approvals or consents as may be necessary under state securities laws, as to which we need express no opinion) is necessary or required to be obtained by the Selling Shareholders for the performance by each Selling Shareholder of its obligations under the U.S. Purchase Agreement or the International Purchase Agreement or in the Power of Attorney and Custody Agreement, or in connection with the offer, sale or delivery of the Securities. (ii) Each Power of Attorney and Custody Agreement has been duly executed and delivered by the respective Selling Shareholders named therein and constitutes the legal, valid and binding agreement of such Selling Shareholder, subject to bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other similar laws affecting creditors' rights generally and general principals of equity (whether considered in a proceeding at law or in equity). (iii) The U.S. Purchase Agreement and the International Purchase Agreement have been duly authorized, executed and delivered by or on behalf of each Selling Shareholder. (iv) To our actual knowledge, each Selling Shareholder has good and valid title to the Securities to be sold by such Selling Shareholder pursuant to the U.S. Purchase Agreement and the International Purchase Agreement, free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind other than created pursuant to the U.S. Purchase Agreement, the International Purchase Agreement, Power of Attorney or Custody Agreement and has full right, power and authority to sell, transfer and deliver such Securities pursuant to the U.S. Purchase Agreement and the International Purchase Agreement. By delivery of a certificate or certificates therefor such Selling Shareholder will transfer to the Underwriters who have purchased such Securities pursuant to the U.S. Purchase Agreement and the International Purchase Agreement in good faith and without notice of any such pledge, lien, security interest, charge, claim, equity or encumbrance of any kind or any other adverse claim within the meaning of New York Uniform Commercial Code good and valid title to such Securities, free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind. B-1 38 EXHIBIT C MERRILL LYNCH & CO. MERRILL LYNCH INTERNATIONAL Merrill Lynch, Pierce, Fenner & Smith J. P. Morgan Securities Ltd. Incorporated, Howard, Weil, Labouisse, J. P. Morgan Securities, Inc. Friedrichs Incorporated Howard, Weil, Labouisse, Petrie, Parkman & Co., Inc. Friedrichs Incorporated as Lead Managers of the several Petrie, Parkman & Co., Inc. International Managers to be named in the as U.S. Representatives of the several within-mentioned International Purchase U.S. Underwriters to be named in the Agreement within-mentioned U.S. Purchase Agreement c/o Merrill Lynch International c/o Merrill Lynch & Co. Ropemaker Place Merrill Lynch, Pierce, Fenner & Smith 25 Ropemaker Street Incorporated London EC24 9L4 North Tower England World Financial Center New York, New York 10281-1209
Re: Proposed Public Offering by United Meridian Corporation Dear Sirs: The undersigned, an officer and/or director of United Meridian Corporation, a Delaware corporation (the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), J. P. Morgan Securities Inc., Howard, Weil, Labouisse, Friedrichs Incorporated and Petrie, Parkman & Co., Inc. propose to enter into a U.S. Purchase Agreement (the "U.S. Purchase Agreement") with the Company providing for the public offering of shares of the Company's common stock, par value $.01 per share (the "Common Stock"). The undersigned further understands that Merrill Lynch International ("Merrill Lynch International"), J.P. Morgan Securities Ltd, Howard, Weil, Labouisse, Friedrichs Incorporated and Petrie, Parkman & Co., Inc. propose to enter into an International Purchase Agreement (the "International Purchase Agreement") with the Company providing for the public offering of shares of Common Stock. In recognition of the benefit that such offerings will confer upon the undersigned as an officer and/or director of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the U.S. Purchase Agreement or the International Purchase Agreement that, during a period of 90 days from the date of the U.S. Purchase Agreement and the International Purchase Agreement, the undersigned will not, without the prior written consent of Merrill Lynch and Merrill Lynch International, directly or indirectly, except for a Permitted Disposition (as defined below) (i) offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file any registration statement C-1 39 under the Securities Act of 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise. A "Permitted Disposition" for purposes hereof means a bona fide gift, provided that the donee thereof agrees in writing to be bound by the restrictions imposed by this letter. Very truly yours, Signature: Print Name: C-2 40 Annex A FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(g) We are independent public accountants with respect to the Company within the meaning of the 1933 Act and the applicable published 1933 Act Regulations. (i) in our opinion, the audited financial statements and the related financial statement schedules included or incorporated by reference in the Registration Statement and the Prospectuses comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (ii) on the basis of procedures (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of the unaudited interim consolidated financial statements of the Company for the three month periods ended March 31, 1995 and March 31, 1996, and the three and six month periods ended June 30, 1995 and June 30,1996, included or incorporated by reference in the Registration Statement and the Prospectuses (collectively, the "10-Q Financials"), a reading of the minutes of all meetings of the stockholders and directors of the Company and its subsidiaries and the _________________ and ________________ Committees of the Company's Board of Directors and any subsidiary committees since December 31, 1995, inquiries of certain officials of the Company and its subsidiaries responsible for financial and accounting matters, a review of interim financial information in accordance with standards established by the American Institute of Certified Public Accountants in Statement on Auditing Standards No. 71, Interim Financial Information ("SAS 71"), with respect to the periods referenced above and such other inquiries and procedures as may be specified in such letter, nothing came to our attention that caused us to believe that: (A) the 10-Q Financials incorporated by reference in the Registration Statement and the Prospectuses do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the 1934 Act Regulations applicable to unaudited financial statements included in Form 10-Q or any material modifications should be made to the 10-Q Financials incorporated by reference in the Registration Statement and the Prospectuses for them to be in conformity with generally accepted accounting principles; (B) at [_________, 19___ and at] a specified date not more than five days prior to the date of this Agreement, there was any change in the ___________ of the Company and its subsidiaries or any decrease in the __________ of the Company and its subsidiaries or any increase in the __________ of the Company and its subsidiaries, in each case as compared with amounts shown in the latest balance sheet included in the Registration Statement, except in each case for changes, decreases or increases that the Registration Statement discloses have occurred or may occur; or (C) [for the period from _________, 19___ to _________, 19___ and] for the period from _________, 19___ to a specified date not more than five days prior to the date of this Agreement, there was any decrease in _________, __________ or ___________, in each case as compared with the comparable period in the preceding year, except in each case for any decreases that the Registration Statement discloses have occurred or may occur; A-1 41 (iii) based upon the procedures set forth in clause (ii) above and a reading of the [Selected Financial Data] included in the Registration Statement [and a reading of the financial statements from which such data were derived], nothing came to our attention that caused us to believe that the [Selected Financial Data] included in the Registration Statement do not comply as to form in all material respects with the disclosure requirements of Item 301 of Regulation S-K of the 1933 Act [, that the amounts included in the [Selected Financial Data] are not in agreement with the corresponding amounts in the audited consolidated financial statements for the respective periods or that the financial statements not included in the Registration Statement from which certain of such data were derived are not in conformity with generally accepted accounting principles]; (iv) we have compared the information in the Registration Statement under selected captions with the disclosure requirements of Regulation S-K of the 1933 Act and on the basis of limited procedures specified herein. Nothing came to our attention that caused us to believe that this information does not comply as to form in all material respects with the disclosure requirements of Items 302, 402 and 503(d), respectively, of Regulation S-K; [(v) based upon the procedures set forth in clause (ii) above, a reading of the unaudited financial statements of the Company for [the most recent period] that have not been included in the Registration Statement and a review of such financial statements in accordance with SAS 71, nothing came to our attention that caused us to believe that the unaudited amounts for _____________ for the [most recent period] do not agree with the amounts set forth in the unaudited consolidated financial statements for those periods or that such unaudited amounts were not determined on a basis substantially consistent with that of the corresponding amounts in the audited [consolidated] financial statements;] [(vi)] in addition to the procedures referred to in clause (ii) above, we have performed other procedures, not constituting an audit, with respect to certain amounts, percentages, numerical data and financial information appearing in the Registration Statement, which are specified herein, and have compared certain of such items with, and have found such items to be in agreement with, the accounting and financial records of the Company. A-2 EX-1.2 3 FORM OF INTERNATIONAL PURCHASE AGREEMENT 1 EXHIBIT 1.2 DRAFT October 23, 1996 UNITED MERIDIAN CORPORATION (a Delaware corporation) 1,150,000 Shares of Series A Common Stock (Par Value $.01 Per Share) INTERNATIONAL PURCHASE AGREEMENT __________, 1996 MERRILL LYNCH INTERNATIONAL J. P. Morgan Securities Ltd. Howard, Weil, Labouisse, Friedrichs Incorporated Petrie, Parkman & Co., Inc. as Lead Managers of the several International Managers c/o Merrill Lynch International Ropemaker Place 25 Ropemaker Street London EC24 9L4 England Ladies and Gentlemen: United Meridian Corporation, a Delaware corporation (the "Company"), and the persons listed in Schedule B hereto (the "Selling Shareholders") confirm their respective agreements with Merrill Lynch International ("Merrill Lynch") and each of the other international underwriters named in Schedule A hereto (collectively, the "International Managers," which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, J. P. Morgan Securities Ltd., Howard, Weil, Labouisse, Friedrichs Incorporated and Petrie, Parkman & Co., Inc. are acting as representatives (in such capacity, the "Lead Managers"), with respect to (i) the sale by the Company and the Selling Shareholders, acting severally and not jointly, and the purchase by the International Managers, acting severally and not jointly, of the respective numbers of shares of Series A Common Stock, par value $.01 per share, of the Company ("Common Stock") set forth in Schedule A and Schedule B hereto, and (ii) the grant by the Company to the International Managers, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 172,500 additional shares of Common Stock to cover over-allotments, if any. The aforesaid 1,150,000 shares of Common Stock (the "Initial International Securities") to be purchased by the International Managers and all or any part of the 172,500 shares of Common Stock subject to the option described in Section 2(b) hereof (the "International Option Securities") are hereinafter called, collectively, the "International Securities." 2 It is understood that the Company and the Selling Shareholders are concurrently entering into an agreement dated the date hereof (the "U.S. Purchase Agreement") providing for the sale by the Company and the Selling Shareholders, acting severally and not jointly, of an aggregate of 4,600,000 shares of Common Stock (the "Initial U.S. Securities") through arrangements with certain underwriters in the United States and Canada (the "U.S. Underwriters") for which Merrill Lynch, Pierce, Fenner & Smith Incorporated, J. P. Morgan Securities Inc., Howard, Weil, Labouisse Friedrichs Incorporated and Petrie, Parkman & Co., Inc. are acting as representatives (the "U.S. Representatives") and the grant by the Company to the U.S. Underwriters, acting severally and not jointly, of an option to purchase all or any part of the U.S. Underwriters' pro rata portion of up to 690,000 additional shares of Common Stock solely to cover overallotments, if any (the "U.S. Option Securities" and, together with the International Option Securities, the "Option Securities"). The Initial U.S. Securities and the U.S. Option Securities are hereinafter called the "U.S. Securities." It is understood that the Company and the Selling Shareholders acting severally and not jointly, are not obligated to sell and the International Managers are not obligated to purchase, any Initial International Securities unless all of the Initial U.S. Securities are contemporaneously purchased by the U.S. Underwriters. The International Managers and the U.S. Underwriters are hereinafter collectively called the "Underwriters," the Initial International Securities and the Initial U.S. Securities are hereinafter collectively called the "Initial Securities," and the International Securities and the U.S. Securities are hereinafter collectively called the "Securities." The Underwriters will concurrently enter into an Intersyndicate Agreement of even date herewith (the "Intersyndicate Agreement") providing for the coordination of certain transactions among the Underwriters under the direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in such capacity, the "Global Coordinator"). The Company and the Selling Shareholders understand that the International Managers propose to make a public offering of the International Securities as soon as the Lead Managers deem advisable after this Agreement has been executed and delivered. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-12823) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two forms of prospectus are to be used in connection with the offering and sale of the Securities: one relating to the International Securities (the "Form of International Prospectus") and one relating to the U.S. Securities (the "Form of U.S. Prospectus"). The Form of International Prospectus is identical to the Form of U.S. Prospectus, except for the front cover and back cover pages and the information under the caption "Underwriting." The information included in any such prospectus or in any such Term Sheet, as the case may be, that was omitted from such registration -2- 3 statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each Form of International Prospectus and Form of U.S. Prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information or the Rule 434 Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto, schedules thereto, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became effective and including the Rule 430A Information and the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final Form of International Prospectus and the final Form of U.S. Prospectus, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the forms first furnished to the Underwriters for use in connection with the offering of the Securities are herein called the "International Prospectus" and the "U.S. Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is relied on, the terms "International Prospectus" and "U.S. Prospectus" shall refer to the preliminary International Prospectus dated October 7, 1996 and preliminary U.S. Prospectus dated October 7, 1996, respectively, each together with the applicable Term Sheet and all references in this Agreement to the date of such Prospectuses shall mean the date of the applicable Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the International Prospectus, the U.S. Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus (including the Form of International Prospectus and Form of U.S. Prospectus) or the Prospectuses (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus (including the Form of International Prospectus and Form of U.S. Prospectus) or the Prospectuses, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectuses shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectuses, as the case may be. SECTION 1. Representations and Warranties. (a) Representations and Warranties by the Company. The Company represents and warrants to each International Manager as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b), hereof and agrees with each International Manager, as follows: -3- 4 (i) Compliance with Registration Requirements. The Company meets the requirements for use of Form S-3 under the 1933 Act. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post- effective amendments thereto became effective and at the Closing Time (and, if any International Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither of the Prospectuses nor any amendments or supplements thereto, at the time the Prospectuses or any amendments or supplements thereto were issued and at the Closing Time (and, if any International Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or the International Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any International Manager through the Lead Managers expressly for use in the Registration Statement or the International Prospectus. Each preliminary prospectus and the prospectuses filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectuses delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (ii) Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectuses, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 Act Regulations"), and, when read together with, and as modified or superseded by, the other information in the Prospectuses, at the time the Registration Statement became effective, at the time the Prospectuses were issued and at the Closing Time (and, if any International Option Securities are purchased, at the Date of Delivery), did not and will not contain an untrue statement of a material fact or omit to state -4- 5 a material fact required to be stated therein or necessary to make the statements therein not misleading. (iii) Independent Accountants. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants with respect to the Company and its subsidiaries as required by the 1933 Act and the 1933 Act Regulations. (iv) Financial Statements. The financial statements included in the Registration Statement and the Prospectuses, together with the related schedules and notes, present fairly the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; except as otherwise stated in the Registration Statement said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules, if any, included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectuses present fairly in all material respects the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. (v) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectuses, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) except as described in the Registration Statement, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (vi) Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (vii) Good Standing of Subsidiaries. Each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and -5- 6 operate its properties and to conduct its business as described in the Prospectuses and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a material adverse effect on the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise ("Material Adverse Effect"); all of the issued and outstanding capital stock of each such subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and (except for approximately one-half of the shares of Havre Pipeline LLC) is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity except as described in the Prospectuses and except for the pledge of such shares to secure borrowings as described in the Prospectuses. The subsidiaries of the Company listed on Schedule D hereto include each subsidiary of the Company that is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X. (viii) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectuses in the column entitled "Historical" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectuses or pursuant to the exercise of convertible securities, options or rights referred to in the Prospectuses and except for the authorized and undesignated preferred stock of the Company). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. (ix) Authorization of Agreement. This Agreement and the U.S. Purchase Agreement have been duly authorized, executed and delivered by the Company. (x) Authorization and Description of Securities. The Securities to be purchased by the International Managers and the U.S. Underwriters from the Company have been duly authorized for issuance and sale to the International Managers pursuant to this Agreement and the U.S. Underwriters pursuant to the U.S. Purchase Agreement, respectively, and, when issued and delivered by the Company pursuant to this Agreement and the U.S. Purchase Agreement, respectively, against payment of the consideration set forth herein and the U.S. Purchase Agreement, respectively, will be validly issued, fully paid and non-assessable; the Common Stock conforms in all material respects to all statements relating thereto contained in the Prospectuses and such description conforms in all material respects to the rights set forth in the instruments defining the same; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. (xi) Absence of Defaults and Conflicts. Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any -6- 7 of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the U.S. Purchase Agreement and the consummation of the transactions contemplated in this Agreement, the U.S. Purchase Agreement and in the Registration Statement (including the issuance and sale of the Securities by the Company and the use of the proceeds from the sale of the Securities by the Company as described in the Prospectuses under the caption "Use of Proceeds") and compliance by the Company with its obligations under this Agreement and the U.S. Purchase Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary or any of their assets, properties or operations. (xii) Absence of Labor Dispute. No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any subsidiary's principal suppliers, manufacturers or contractors, which, in either case, might reasonably be expected to result in a Material Adverse Effect. (xiii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement and the U.S. Purchase Agreement or the performance by the Company of its obligations hereunder or thereunder; when considered in the aggregate all pending legal or governmental proceedings to which the Company or any subsidiary is a party, or of which any of their respective property or assets is the subject, which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. (xiv) Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement, the Prospectuses or the documents incorporated by reference therein or to be filed as exhibits thereto which have not been so described and filed or incorporated by reference as required. -7- 8 (xv) Title to Property. The Company and its subsidiaries have good and indefeasible title to real estate and good title to all other properties and assets described in the Prospectuses as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Prospectuses or are not material to the business of the Company and its subsidiaries considered as one enterprise. The Company and its subsidiaries have valid, subsisting and enforceable leases for the properties described in the Prospectuses as leased by them, with such exceptions as are not material to the business of the Company and its subsidiaries considered as one enterprise and as do not materially interfere with the use made and proposed to be made of such properties by the Company and its subsidiaries. (xvi) Absence of Further Requirements. No filing with, or authorization, approval or consent of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale by the Company of the Securities under this Agreement and the U.S. Purchase Agreement or the consummation of the transactions contemplated by this Agreement and the U.S. Purchase Agreement, except such as have been already obtained or made, or will have been obtained or made as of the Closing Time, or as may be required under the 1933 Act or the 1933 Act Regulations and foreign or state securities or blue sky laws. (xvii) Possession of Licenses and Permits. The Company and its subsidiaries possess such valid franchises, certificates of convenience and necessity, easements, rights-of-way, operating rights, licenses, permits, consents, authorizations and orders of government political subdivisions or regulatory authorities as, in their respective opinions, are necessary to carry on the respective business of each as presently being conducted as described in the Prospectuses; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, permit or authorization which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. (xviii)Compliance with Laws. Except as set forth in the Prospectuses, the Company and its subsidiaries are in compliance in all material respects with all applicable laws, statutes, ordinances, rules or regulations, except for noncompliances which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries nor, to the Company's knowledge, any employee or agent of the Company or any subsidiary has made any payment of funds of the Company or any subsidiary or received or retained any funds in violation of any law, rule or regulation of a character required to be disclosed in the Prospectuses. (xix) Compliance with Cuba Act. The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder (collectively, the "Cuba Act") or is exempt therefrom. (xx) Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds -8- 9 therefrom as described in the Prospectuses under the caption "Use of Proceeds" will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xxi) Registration Rights. There are no persons with registration or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company pursuant to the 1933 Act other than rights which have been waived, satisfied or not exercised in accordance with the offering contemplated hereby. (b) Representations and Warranties by the Selling Shareholders. Each Selling Shareholder severally, and not jointly, represents and warrants to each International Manager as of the date hereof, and as of the Closing Time, and agrees with each International Manager, as follows: (i) Accurate Disclosure. The Shareholder Information (as defined in Section 6(a)) furnished by such Selling Shareholder does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; such Selling Shareholder is not prompted to sell the Securities to be sold by such Selling Shareholder hereunder by any information of a material nature concerning the Company or any subsidiary of the Company which is not set forth in the Prospectuses. (ii) Authorization of Agreement. Each Selling Shareholder has the requisite power and authority to enter into this Agreement and a Power of Attorney and Custody Agreement (the "Power of Attorney and Custody Agreement") and to sell, transfer and deliver the Securities to be sold by such Selling Shareholder hereunder (assuming the effectiveness of the Registration Statement and such authorizations, approvals or consents as may be necessary under foreign or state securities or blue sky laws). The execution and delivery of this Agreement and the Power of Attorney and Custody Agreement and the sale and delivery of the Securities to be sold by such Selling Shareholder and the consummation of the transactions contemplated herein and compliance by such Selling Shareholder with its obligations hereunder have been duly authorized by such Selling Shareholder and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default under, or result in the creation or imposition of any tax, lien, charge or encumbrance upon the Securities to be sold by such Selling Shareholder pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, license, lease or other agreement or instrument to which such Selling Shareholder is a party or by which such Selling Shareholder may be bound, nor will such action result in any violation of the provisions of the charter or by-laws or other organizational instrument of such Selling Shareholder, if applicable, or any applicable treaty, law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over such Selling Shareholder or any of its properties. (iii) Good and Valid Title. Such Selling Shareholder has and will at the Closing Time have good and valid title to the Securities to be sold by such Selling Shareholder hereunder, free and clear of any security interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind, other than pursuant to this Agreement, the U.S. Purchase -9- 10 Agreement, the Power of Attorney and the Custody Agreement; and upon delivery of such Securities and payment of the purchase price therefor as herein contemplated, assuming each such International Manager is purchasing the Securities in good faith and has no notice of any adverse claim relating to the Securities, each of the International Managers will receive good and valid title to the Securities purchased by it from such Selling Shareholder, free and clear of any security interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind. (iv) Due Execution of Power of Attorney and Custody Agreement. Such Selling Shareholder has duly executed and delivered, in the form heretofore furnished to the Lead Managers, the Power of Attorney and Custody Agreement with John B. Brock and Jonathan M. Clarkson, or either of them, as attorneys-in-fact (the "Attorneys- in-Fact") and the Company, as custodian (the "Custodian"); the Custodian is authorized to deliver the Securities to be sold by such Selling Shareholder hereunder and to accept payment therefor; and each Attorney-in-Fact is authorized to execute and deliver this Agreement and the certificate referred to in Section 5(f) on behalf of such Selling Shareholder, to sell, assign and transfer to the International Managers the Securities to be sold by such Selling Shareholder hereunder, to determine the purchase price to be paid by the International Managers to such Selling Shareholder, as provided in Section 2(a) hereof, to authorize the delivery of the Securities to be sold by such Selling Shareholder hereunder, to accept payment therefor, and otherwise to act on behalf of such Selling Shareholder in connection with this Agreement. (v) Absence of Manipulation. Such Selling Shareholder has not taken, and will not take, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (vi) Absence of Further Requirements. No filing with, or consent, approval, authorization, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign, is necessary or required for the performance by such Selling Shareholder of its obligations hereunder or in the Power of Attorney and Custody Agreement, or in connection with the sale and delivery of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except such as may have previously been made or obtained or as may be required under the 1933 Act or the 1933 Act Regulations and foreign or state securities or blue sky laws. (vii) Restriction on Sale of Securities. Except for Permitted Dispositions (as defined below), during a period of 90 days from the date of the Prospectus, such Selling Shareholder will not, without the prior written consent of Merrill Lynch, (i) offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such -10- 11 other securities, in cash or otherwise. The foregoing sentence shall not apply to the Securities to be sold hereunder. "Permitted Dispositions" mean (i) a bona fide gift, provided that the donee thereof agrees in writing to be bound by the restrictions imposed by this clause (vii), (ii) a distribution to shareholders of such Selling Shareholder, provided that such distributees agree in writing to be bound by the restrictions imposed by this clause (vii) or (iii) a transfer to an affiliate of such Selling Shareholder, provided that the affiliate agrees in writing to be bound by the restrictions imposed by this clause (vii). (viii) Certificates Suitable for Transfer. Certificates for all of the Securities to be sold by such Selling Shareholder pursuant to this Agreement, in suitable form for transfer by delivery or accompanied by duly executed instruments of transfer or assignment in blank with signatures guaranteed, have been placed in custody with the Custodian with irrevocable conditional instructions to deliver such Securities to the International Managers pursuant to this Agreement. (ix) No Association with NASD. Such Selling Shareholder has advised the Lead Managers if either such Selling Shareholder or any of its affiliates directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, or has any other association with (within the meaning of Article I, Section 1(q) of the By-laws of the National Association of Securities Dealers, Inc.), any member firm of the National Association of Securities Dealers, Inc. (c) Officer's Certificate. Any certificate signed by any officer of the Company or any of its subsidiaries delivered to the Lead Managers or to counsel for the International Managers shall be deemed a representation and warranty by the Company to each International Manager as to the matters covered thereby; and any certificate signed by or on behalf of the Selling Shareholders as such and delivered to the Lead Managers or to counsel for the International Managers pursuant to the terms of this Agreement shall be deemed a representation and warranty by such Selling Shareholder to the International Managers as to the matters covered thereby. SECTION 2. Sale and Delivery to International Managers; Closing. (a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and each Selling Shareholder, severally and not jointly, agree to sell to each International Manager, severally and not jointly, and each International Manager, severally and not jointly, agrees to purchase from the Company and each Selling Shareholder, at the price per share set forth in Schedule C, that proportion of the number of Initial International Securities set forth in Schedule B opposite the name of the Company or such Selling Shareholder, as the case may be, which the number of Initial International Securities set forth in Schedule A opposite the name of such International Manager, plus any additional number of Initial International Securities which such International Manager may become obligated to purchase pursuant to the provisions of Section 10 hereof, bears to the total number of Initial International Securities, subject, in each case, to such adjustments among the International Managers as the Lead Managers in their sole discretion shall make to eliminate any sales or purchases of fractional securities. -11- 12 (b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the International Managers, severally and not jointly, to purchase up to an additional 172,500 shares of Common Stock at the price per share set forth in Schedule C, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial International Securities but not payable on the International Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial International Securities upon notice by the Lead Managers to the Company setting forth the number of International Option Securities as to which the several International Managers are then exercising the option and the time and date of payment and delivery for such International Option Securities. Any such time and date of delivery for the International Option Securities (a "Date of Delivery") shall be determined by the Global Coordinator, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the International Option Securities, each of the International Managers, acting severally and not jointly, will purchase that proportion of the total number of International Option Securities then being purchased which the number of Initial International Securities set forth in Schedule A opposite the name of such International Manager bears to the total number of Initial International Securities, subject in each case to such adjustments as the Global Coordinator in its discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Vinson & Elkins L.L.P., 1001 Fannin, Suite 2300, Houston, Texas 77002, or at such other place as shall be agreed upon by the Global Coordinator and the Company, at 8:00 A.M. (Central time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Global Coordinator and the Company and the Selling Shareholders (such time and date of payment and delivery being herein called "Closing Time"). At the request of the Company, payment shall be made by wire transfer pursuant to written instructions provided to the Global Coordinator at least two business days prior to the Closing Time. In addition, in the event that any or all of the International Option Securities are purchased by the International Managers, payment of the purchase price for, and delivery of certificates for, such International Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Global Coordinator and the Company, on each Date of Delivery as specified in the notice from the Global Coordinator to the Company. Payment shall be made to the Company the Selling Shareholders by wire transfer of immediately available funds to bank accounts designated by the Company and the Custodian pursuant to each Selling Shareholder's Power of Attorney and Custody Agreement, as the case may be, against delivery to the Lead Managers for the respective accounts of the International Managers of certificates for the International Securities to be purchased by them. It is understood that each International Manager has authorized the Lead Managers, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial International Securities and the International Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually -12- 13 and not as representative of the International Managers, may (but shall not be obligated to) make payment of the purchase price for the Initial International Securities or the International Option Securities, if any, to be purchased by any International Manager whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such International Manager from its obligations hereunder. (d) Denominations; Registration. Certificates for the Initial International Securities and the International Option Securities, if any, shall be in such denominations and registered in such names as the Lead Managers may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial International Securities and the International Option Securities, if any, will be made available for examination and packaging by the Lead Managers in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. Covenants of the Company. The Company covenants with each International Manager as follows: (a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Global Coordinator immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectuses or any amended Prospectuses shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectuses or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) Filing of Amendments. The Company will give the Global Coordinator notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectuses, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Global Coordinator with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Global Coordinator or counsel for the International Managers shall reasonably object. (c) Delivery of Registration Statements. The Company has furnished or will deliver to the Lead Managers and counsel for the International Managers, without charge, signed copies of the -13- 14 Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Lead Managers, without charge, as many conformed copies of the Registration Statement as originally filed and of each amendment thereto (without exhibits) as the Lead Managers may reasonably request. The copies of the Registration Statement and each amendment thereto furnished to the International Managers will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) Delivery of Prospectuses. The Company has delivered to each International Manager, without charge, as many copies of each preliminary prospectus as such International Manager reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each International Manager, without charge, during the period when the International Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the International Prospectus (as amended or supplemented) as such International Manager may reasonably request. The International Prospectus and any amendments or supplements thereto furnished to the International Managers will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement, the International Purchase Agreement and in the Prospectuses. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the International Managers or for the Company, to amend the Registration Statement or amend or supplement any Prospectus in order that the Prospectuses will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement any Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectuses comply with such requirements, and the Company will furnish to the International Managers such number of copies of such amendment or supplement as the International Managers may reasonably request. (f) Blue Sky Qualifications. The Company will endeavor, in cooperation with the International Managers, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Global Coordinator may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the effective date of the Registration Statement and any Rule 462(b) Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in -14- 15 which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement and any Rule 462(b) Registration Statement. (g) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (h) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectuses under "Use of Proceeds". (i) Listing. The Company will use its best efforts to effect the listing of the Securities on the New York Stock Exchange. (j) Restriction on Sale of Securities. During a period of 90 days from the date of the Prospectuses, the Company will not, without the prior written consent of the Global Coordinator, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder or under the U.S. Purchase Agreement, (B) any shares of Common Stock issued by the Company upon the exercise of an option, right or warrant or the conversion of a security outstanding on the date hereof or attached to the shares of Common Stock on the date hereof and referred to in the Prospectuses, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company or agreements referred to in the Prospectuses or (D) any shares of Common Stock issued pursuant to any non-employee director stock option plan. (k) Reporting Requirements. The Company, during the period when the Prospectuses are required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations. SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all expenses incident to the performance of the obligations of the Company and the Selling Shareholders under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and -15- 16 any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters and the transfer of the Securities between the International Managers and the U.S. Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors and the fees and disbursements of counsel, accountants or other advisors for the Selling Shareholders, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Term Sheets and of the Prospectuses and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities and (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Securities and (x) the fees and expenses incurred in connection with the listing of the Securities on the New York Stock Exchange. (b) Termination of Agreement. If this Agreement is terminated by the Lead Managers in accordance with the provisions of Section 5, Section 9(a)(i) or Section 11 hereof, the Company shall reimburse the International Managers for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the International Managers. (c) Allocation of Expenses. The provisions of this Section shall not affect any agreement that the Company and the Selling Shareholders have or may make for the sharing of such costs and expenses or the obligations that the Company has for the payment of such costs and expenses, including without limitation the Company's obligations under (i) its Certificate of Incorporation, (ii) the Registration Rights Agreement, dated as of July 13, 1993 by and between General Atlantic Resources, Inc., General Atlantic Corporation, John Hancock Mutual Life Insurance Company, and Fidelity Oil Holdings, Inc., as amended (the "GARI Registration Rights Agreement") and (iii) the Stock Purchase Agreement dated June 30, 1995 between the Company, John Hancock Mutual Life Insurance Company, The Travelers Insurance Company, The Travelers Indemnity Company, The Travelers Life and Annuity Company and The Phoenix Insurance Company and the Stock Purchase Agreement dated July 24, 1995 between the Company and John Hancock Mutual Life Insurance Company (collectively, the "Series F Purchase Agreements"). SECTION 5. Conditions of International Managers' Obligations. The obligations of the several International Managers hereunder are subject to the accuracy of the representations and warranties of the Company and the Selling Shareholders contained in Section 1 hereof or in certificates of any officer of the Company or any subsidiary of the Company or on behalf of any Selling Shareholder delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction -16- 17 of counsel to the International Managers. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). (b) Opinion of Counsel for Company. At Closing Time, the Lead Managers shall have received the opinion, dated as of Closing Time, of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the Company, in form and substance reasonably satisfactory to counsel for the International Managers, together with signed or reproduced copies of such letter for each of the other International Managers to the effect set forth in Exhibit A hereto. (c) Opinion of Counsel for the Selling Shareholders. At Closing Time, the Lead Managers shall have received the opinion, dated as of Closing Time, of Paul, Weiss, Rifkind, Wharton & Garrison, counsel for General Atlantic Corporation and Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for John Hancock Mutual Life Insurance Company and The Travelers Insurance Company, The Travelers Indemnity Company, The Travelers Life and Annuity Company and The Phoenix Insurance Company, together with signed or reproduced copies of such letter for each of the other International Managers in form substantially to the effect set forth in Exhibit B hereto. (d) Opinion of Counsel for International Managers. At Closing Time, the Lead Managers shall have received the opinion, dated as of Closing Time, of Vinson & Elkins L.L.P., counsel for the International Managers, together with signed or reproduced copies of such letter for each of the other International Managers with respect to the matters set forth in clauses (i), (ii), (v), (vi) (solely as to preemptive or other similar rights arising by operation of law or under the charter or by-laws of the Company), (viii) through (x), inclusive, (xii), (xiv) (solely as to the information in the Prospectus under "Description of Capital Stock--Common Stock") and the penultimate paragraph of Exhibit A hereto. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the States of Texas and New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Lead Managers. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials. (e) Officers' Certificate. At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectuses, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Lead Managers shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and, to the best of such officer's knowledge, no proceedings for that purpose have been instituted or are pending or are contemplated by the Commission. -17- 18 (f) Certificate of Selling Shareholders. At Closing Time, the Lead Managers shall have received a certificate of an Attorney-in-Fact on behalf of each Selling Shareholder, dated as of Closing Time, to the effect that (i) the representations and warranties of each Selling Shareholder contained in Section 1(b) hereof are true and correct in all respects with the same force and effect as though expressly made at and as of Closing Time and (ii) each Selling Shareholder has complied in all material respects with all agreements and all conditions on its part to be performed under this Agreement at or prior to Closing Time. (g) Accountant's Comfort Letter. At the time of the execution of this Agreement, the Lead Managers shall have received from Arthur Andersen LLP a letter dated such date, in form and substance satisfactory to the Lead Managers, together with signed or reproduced copies of such letter for each of the other International Managers containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectuses. (h) Bring-down Comfort Letter. At Closing Time, the Lead Managers shall have received from Arthur Andersen LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (g) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time. (i) Approval of Listing. At Closing Time, the Securities shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance. (j) No Objection. The NASD shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (k) Lock-up Agreements. At the date of this Agreement, the Lead Managers shall have received an agreement substantially in the form of Exhibit C hereto signed by the persons listed on Schedule E hereto. (l) Purchase of Initial U.S. Securities. Contemporaneously with the purchase by the International Managers of the Initial International Securities under this Agreement, the U.S. Underwriters shall have purchased the Initial U.S. Securities under the U.S. Purchase Agreement. (m) Conditions to Purchase of International Option Securities. In the event that the International Managers exercise their option provided in Section 2(b) hereof to purchase all or any portion of the International Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company or any subsidiary of the Company hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Lead Managers shall have received: (i) Officers' Certificate. A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(e) hereof remains true and correct as of such Date of Delivery. -18- 19 (ii) Opinion of Counsel for Company. The opinion of Akin, Gump, Strauss, Hauer & Feld, LLP, counsel for the Company, in form and substance satisfactory to counsel for the International Managers, dated such Date of Delivery, relating to the International Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof. (iii) Opinion of Counsel for International Managers. The opinion of Vinson & Elkins LLP, counsel for the International Managers, dated such Date of Delivery, relating to the International Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof. (iv) Bring-down Comfort Letter. A letter from Arthur Anderson LLP, in form and substance satisfactory to the Lead Managers and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Lead Managers pursuant to Section 5(g) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery. (n) Additional Documents. At Closing Time and at each Date of Delivery, counsel for the International Managers shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Lead Managers and counsel for the International Managers. (o) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of International Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several International Managers to purchase the relevant Option Securities, may be terminated by the Lead Managers by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. Indemnification. (a) Indemnification of International Managers. The Company agrees to indemnify and hold harmless each International Manager and each person, if any, who controls any International Manager within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act to the extent and in the manner set forth in clauses (i), (ii) and (iii) below. In addition, each Selling Shareholder, severally and not jointly, agrees to indemnify and hold harmless each International Manager and each person, if any, who controls any International Manager within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule -19- 20 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectuses (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company and the Selling Shareholders; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however; that each Selling Shareholder shall be obligated to indemnify and hold harmless each International Manager, and any person who controls such International Manager within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, only to the extent such loss, liability, claim, damage or expense arises out of an untrue statement or omission or alleged untrue statement or omission of a material fact made in reliance upon and in conformity with written information furnished to the Company by such Selling Shareholder ("Shareholder Information") expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the International Prospectus (or any amendment or supplement thereto); and, provided further, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any International Manager through Merrill Lynch International expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the International Prospectus (or any amendment or supplement thereto). The foregoing indemnity with respect to any untrue statement contained in or omission from a preliminary prospectus shall not inure to the benefit of any International Manager (or any person controlling such International Manager) from whom the person asserting any such loss, liability, claim, damage or expense purchased any of the International Securities which are the subject thereof if the Company or the Selling Shareholder shall sustain the burden of proving any such loss, liability, claim, damage or expense resulted from the fact that such person was not sent or given a copy of the International Prospectus (or the International Prospectus as amended or supplemented ) (in each case exclusive of the documents from which information is incorporated by reference) at or prior to the written confirmation of the sale of such International -20- 21 Securities to such person and (i) the Company has previously furnished copies thereof to the International Managers sufficiently in advance of the Closing Time to allow for distribution to the purchasers of the International Securities, and (ii) the loss, liability, claim, damage or expense resulted from an untrue statement contained in or omission from such preliminary prospectus that was corrected in the International Prospectus (or the International Prospectus as amended or supplemented). Each Selling Shareholder's aggregate liability pursuant to this Section 6 and Section 7 shall not exceed an amount equal to the net proceeds (before deducting expenses) received by such Selling Shareholder from the sale of the Securities pursuant to this Agreement. (b) Indemnification of Company, Directors and Officers and Selling Shareholders. Each International Manager severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Selling Shareholder and each person, if any, who controls any Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the International Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such International Manager through Merrill Lynch International expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or such preliminary prospectus or the International Prospectus (or any amendment or supplement thereto). (c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. Notwithstanding the second preceding sentence, if it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action, unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with -21- 22 any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) Other Rights of Selling Shareholders. The provisions of this Section 6 shall not affect the rights of the Selling Shareholders to be indemnified by the Company, including, without limitation, those rights under the Company's Certificate of Incorporation, the GARI Registration Rights Agreement and the Series F Purchase Agreements. SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the International Managers on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, each of the Selling Shareholders on the one hand and of the International Managers, as the case may be, on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations; provided, however, a Selling Shareholder shall have an obligation to contribute only with respect to losses, liabilities, claims damages or expenses arising out of an untrue statement or omission or alleged untrue statement or omission of a material fact made in reliance upon and in conformity with Shareholder Information furnished by such Selling Shareholder. The relative benefits received by the Company and the Selling Shareholders on the one hand and the International Managers on the other hand in connection with the offering of the International Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the International Securities pursuant to this Agreement -22- 23 (before deducting expenses) received by the Company and the Selling Shareholders and the total underwriting discount received by the International Managers, in each case as set forth on the cover of the International Prospectus, or, if Rule 434 is used, the corresponding location on the Term Sheet, bear to the aggregate initial public offering price of the International Securities as set forth on such cover. The relative fault of the Company and the Selling Shareholders on the one hand and the International Managers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Shareholders or by the International Managers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Shareholders and the International Managers agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the International Managers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, each Selling Shareholder's aggregate liability pursuant to this Section 7 and Section 6 shall not exceed an amount equal to the net proceeds (before deducting expenses) received by such Selling Shareholder from the sale of the Securities pursuant to this Agreement. The Selling Shareholders respective obligations to contribute pursuant to this Section 7 are several and not joint. Notwithstanding the provisions of this Section 7, no International Manager shall be required to contribute any amount in excess of the amount by which the total price at which the International Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such International Manager has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls an International Manager within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such International Manager, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company or any Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section -23- 24 20 of the 1934 Act shall have the same rights to contribution as the Company or such Selling Shareholder, as the case may be. The International Managers' respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial International Securities set forth opposite their respective names in Schedule A hereto and not joint. The provisions of this Section shall not affect any agreement or other obligation among the Company and any of the Selling Shareholders with respect to contribution, including, without limitation, those agreements and obligations under the Company's Certificate of Incorporation, the GARI Registration Rights Agreement and the Series F Purchase Agreements. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries or the Selling Shareholders submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any International Manager or controlling person, or by or on behalf of the Company or the Selling Shareholders, and shall survive delivery of the Securities to the International Managers. SECTION 9. Termination of Agreement. (a) Termination; General. The Lead Managers may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the International Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Lead Managers, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal or New York authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 10. Default by One or More of the International Managers. If one or more of the International Managers shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the -24- 25 Lead Managers shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting International Managers, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Lead Managers shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of International Securities to be purchased on such date, each of the non-defaulting International Managers shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting International Managers, or (b) if the number of Defaulted Securities exceeds 10% of the number of International Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the International Managers to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting International Manager. No action taken pursuant to this Section shall relieve any defaulting International Manager from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the International Managers to purchase and the Company to sell the relevant International Option Securities, as the case may be, either the Lead Managers or the Company and the Selling Shareholders shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "International Manager" includes any person substituted for an International Manager under this Section 10. SECTION 11. Default by one or more of the Selling Shareholders or the Company. (a) If one or more Selling Shareholders shall fail at Closing Time to sell and deliver the number of Securities which such Selling Shareholders are obligated to sell hereunder, and the remaining Selling Shareholders do not exercise the right hereby granted to increase, pro rata or otherwise, the number of Securities to be sold by them hereunder to the total number to be sold by all Selling Shareholders as set forth in Schedule B hereto, then the International Managers may, at the option of the Lead Managers, by notice from the Lead Managers to the Company and the non-defaulting Selling Shareholders, either (a) terminate this Agreement without any liability on the fault of any non-defaulting party except that the provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and effect or (b) elect to purchase the Securities which the non-defaulting Selling Shareholders and the Company have agreed to sell hereunder. No action taken pursuant to this Section 11 shall relieve any Selling Shareholder so defaulting from liability, if any, in respect of such default. In the event of a default by any Selling Shareholder as referred to in this Section 11, each of the Lead Managers and the Company and the non-defaulting Selling Shareholders shall have the -25- 26 right to postpone Closing Time for a period not exceeding seven days in order to effect any required change in the Registration Statement or Prospectus or in any other documents or arrangements. (b) If the Company shall fail at Closing Time or at the Date of Delivery to sell the number of Securities that it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any non-defaulting party; provided, however, that the provisions of Sections 1, 4, 6, 7, and 8 shall remain in full force and effect. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default. SECTION 12. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the International Managers shall be directed to the Lead Managers at Ropemaker Place, 25 Ropemaker Street, London EC24 9L4, England, attention of Syndicate Department; and notices to the Company shall be directed to it at 1201 Louisiana, Suite 1400, Houston, Texas 77002, attention of Chief Executive Officer and to the Selling Shareholders to their Attorneys-in-Fact: John B. Brock and Jonathan M. Clarkson, at the Company's address set forth above. SECTION 13. Parties. This Agreement shall each inure to the benefit of and be binding upon the International Managers, the Company and the Selling Shareholders and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the International Managers, the Company and the Selling Shareholders and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the International Managers, the Company and the Selling Shareholders and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any International Manager shall be deemed to be a successor by reason merely of such purchase. SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME, UNLESS OTHERWISE INDICATED. SECTION 15. Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. -26- 27 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the International Managers and the Company in accordance with its terms. Very truly yours, UNITED MERIDIAN CORPORATION By: ----------------------------------------- Title: [ATTORNEY-IN-FACT] By: ----------------------------------------- As Attorney-in-Fact on behalf of the Selling Shareholders named in Schedule B hereto. CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH INTERNATIONAL J. P. MORGAN SECURITIES LTD. HOWARD, WEIL, LABOUISSE, FRIEDRICH INCORPORATED PETRIE, PARKMAN & CO., INC. By: MERRILL LYNCH INTERNATIONAL By ------------------------------------- Authorized Signatory For themselves and as Lead Managers of the other International Managers named in Schedule A hereto. -27- 28 SCHEDULE A Number of Initial International Name of International Manager Securities ----------------------------- --------------------- Merrill Lynch International . . . . . . . . . . . . . . J. P. Morgan Securities Ltd. . . . . . . . . . . . . . Howard, Weil, Labouisse, Friedrich Incorporated . . . . Petrie, Parkman & Co., Inc. . . . . . . . . . . . . . . --------- Total . . . . . . . . . . . . . . . . . . . . . . . . . 1,150,000 ========= 29 SCHEDULE B
Maximum Number Number of Initial of International International Option ecurities to Securities to be Sold be Sold --------------------- ------------------- United Meridian Corporation . . . . . . . . . . . . . . . . 650,000 172,500 General Atlantic Corporation . . . . . . . . . . . . . . . 250,000 -- John Hancock Mutual Life Insurance Company . . . . . . . . 200,000 -- The Travelers Insurance Company . . . . . . . . . . . . . . 22,500 -- The Travelers Indemnity Company . . . . . . . . . . . . . . 22,000 -- The Travelers Life and Annuity Company . . . . . . . . . . 2,500 -- The Phoenix Insurance Company . . . . . . . . . . . . . . . 3,000 -- --------------------- ------------------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150,000 172,500
30 SCHEDULE C UNITED MERIDIAN CORPORATION 1,150,000 Shares of Series A Common Stock (Par Value $.01 Per Share) 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $[ ]. 2. The purchase price per share for the International Securities to be paid by the several International Managers shall be $[ ], being an amount equal to the initial public offering price set forth above less $[ ] per share; provided that the purchase price per share for any International Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial International Securities but not payable on the International Option Securities. 31 SCHEDULE D SIGNIFICANT SUBSIDIARIES OF UNITED MERIDIAN CORPORATION NAME JURISDICTION ---- IN WHICH ORGANIZED ------------------ UMC Petroleum Corporation Delaware UMC Resources Canada Ltd. British Columbia, Canada UMC Equitorial Guinea Corporation Delaware UMC Pipeline Corporation Delaware UMIC Cote d'Ivoire Corporation Delaware United Meridian International Corporation Delaware Norfolk Holdings Inc. Delaware UMIC (CI-01) Corporation Delaware UMIC (CI-02) Corporation Delaware UMIC (CI-12) Corporation Delaware UMIC (CI-105) Corporation Delaware UMIC Bangladesh Corporation Delaware UMC Pakistan Corporation Delaware UMC Ghana Corporation Delaware Big Sky Gas Marketing Corporation Delaware 32 SCHEDULE E List of persons and entities subject to lock-up Lee B. Backsen J. Dennis Bonney John B. Brock Charles R. Carson Jonathan M. Clarkson Christopher E. Cragg Robert H. Dedman Steven A. Denning James L. Dunlap Daniel P. Foley Gary McGregor Robert L. Howard Marya M. Ingram Robert V. Lindsay Elvis L. Mason Kevin D. McMillan James L. Murdy David K. Newbigging John J. Patton Matthew R. Simmons Jim Smitherman Walter B. Wriston Donald D. Wolf 33 EXHIBIT A FORM OF OPINION OF COMPANY'S COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(b) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses and to enter into and perform its obligations under the U.S. Purchase Agreement and the International Purchase Agreement. (iii) To our knowledge, the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectuses in the column entitled "Historical" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to the U.S. Purchase Agreement and the International Purchase Agreement or pursuant to reservations, agreements or employee benefit plans referred to in the Prospectuses or pursuant to the exercise of convertible securities, options or rights referred to in the Prospectuses and except for the authorized and undesignated preferred stock of the Company); and the shares of issued and outstanding capital stock have been duly authorized and validly issued and are fully paid and non-assessable. (v) The Securities to be purchased by the U.S. Underwriters and the International Managers from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the International Purchase Agreement, respectively, and, when issued and delivered by the Company pursuant to the U.S. Purchase Agreement and the International Purchase Agreement, respectively, against payment of the consideration set forth in the U.S. Purchase Agreement and the International Purchase Agreement, will be validly issued and fully paid and non-assessable. (vi) The issuance of the Securities to be purchased from the Company pursuant to the U.S. Purchase Agreement and the International Purchase Agreement is not subject to the preemptive or other similar rights arising by operation of law or, to the best of our knowledge, otherwise. (vii) Each subsidiary of the Company set forth on Exhibit D to the U.S. Purchase Agreement has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses and, to our knowledge, is duly qualified as a foreign corporation to transact business and is in good standing in each U.S. and Canadian jurisdiction in which such qualification is required, except where the failure A-1 34 so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, to the best of our knowledge, is owned by the Company (excluding Havre Pipeline LLC), directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity other than shares of capital stock pledged to secure borrowings. (viii) The U.S. Purchase Agreement and the International Purchase Agreement have been duly authorized, executed and delivered by the Company. (ix) The Registration Statement, including any Rule 462(b) Registration Statement, has been declared effective under the 1933 Act; any required filing of the Prospectuses pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to our knowledge, no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission. (x) The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectuses, excluding the documents incorporated by reference therein, and each amendment or supplement to the Registration Statement and the Prospectuses, excluding the documents incorporated by reference therein, as of their respective effective or issue dates (other than the financial statements and supporting schedules (including the notes thereto and the auditors' report thereon) and the reserve information or other financial or accounting data included therein or omitted therefrom, as to which we need express no opinion) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xi) The documents incorporated by reference in the Prospectuses (other than the financial statements and supporting schedules (including the notes thereto and the auditors' report thereon) and the reserve information or other financial or accounting data included therein or omitted therefrom, as to which we need express no opinion), when they were filed with the Commission complied as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder. (xii) The form of certificate used to evidence the Common Stock complies in all material respects with all applicable statutory requirements, with any applicable requirements of the charter and by-laws of the Company and the requirements of the New York Stock Exchange. (xiii) To our knowledge, there are no legal or governmental proceedings pending or threatened that are required to be disclosed in the Registration Statement, other than as disclosed therein. (xiv) The information set forth in Items 1 and 2 Business and Properties -- Environmental Matters -- United States Environmental Regulations of the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and in the Registration Statement under Item 15, to the extent that it constitutes matters of law, summaries of legal matters, the Company's charter and A-2 35 bylaws or legal proceedings, or legal conclusions, has been reviewed by us and is correct in all material respects. (xv) To our knowledge, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein, filed or incorporated by reference as exhibits thereto, the descriptions thereof or references thereto are correct in all material respects, and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument so described, referred to, filed or incorporated by reference as exhibits thereto, which default would have a Material Adverse Effect. (xvi) No authorization, approval, consent or order of any court or governmental authority or agency is required in connection with the sale of the Securities by the Company to the Underwriters, except such as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws; and to our knowledge, the execution and delivery of the U.S. Purchase Agreement and the International Purchase Agreement and the consummation of the transactions contemplated therein and compliance by the Company with its obligations thereunder (including the use of the proceeds from the sale of the Securities as described in the Prospectuses under the caption "Use of Proceeds") will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default under, result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the charter or bylaws of the Company, or any applicable law, administrative regulation or court decree. We inform you that we have participated in conferences with officers and other representatives of the Company and representatives of the independent public accountants for the Company and the Underwriters and representatives of legal counsel for the Underwriters, at which conferences the contents of the Registration Statement and the Prospectuses relating to the Company were discussed and, although we are not passing upon and do not assume any responsibility for and shall not be deemed to have independently verified the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectuses, on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company), no facts have come to our attention that would lead us to believe that the Registration Statement or any amendment thereto, including the Rule 430A Information and Rule 434 Information (if applicable), (except for financial statements and schedules (including the notes and auditors' reports thereon) and other financial data or reserve information included or incorporated by reference therein or omitted therefrom, as to which we need make no statement), at the time such Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectuses or any amendment or supplement thereto (except for financial statements and schedules (including the notes and auditors' reports thereon) and other financial data and reserve information included or incorporated by reference therein or omitted therefrom, as to which we need make no statement), at the time the A-3 36 Prospectuses were issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely (A) as to matters involving the application of the laws of jurisdictions other than the State of Texas or New York, the Delaware General Corporation Law or United States federal laws on local counsel in such jurisdictions (which opinion shall be furnished to the U.S. Underwriters at the Closing Time and shall expressly state that the U.S. Underwriters may rely on such opinion as if it were addressed to them), provided that Akin, Gump, Strauss, Hauer & Feld, L.L.P. shall state in their opinion that they believe that they and the U.S. Underwriters are justified in relying upon such opinion, and (B), as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). A-4 37 EXHIBIT B FORM OF OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS TO BE DELIVERED PURSUANT TO SECTION 5(c) (i) No filing with, or consent, approval, authorization, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign (other than the issuance of the order of the Commission declaring the Registration Statement effective and such authorizations, approvals or consents as may be necessary under state securities laws, as to which we need express no opinion) is necessary or required to be obtained by the Selling Shareholders for the performance by each Selling Shareholder of its obligations under the U.S. Purchase Agreement or the International Purchase Agreement or in the Power of Attorney and Custody Agreement, or in connection with the offer, sale or delivery of the Securities. (ii) Each Power of Attorney and Custody Agreement has been duly executed and delivered by the respective Selling Shareholders named therein and constitutes the legal, valid and binding agreement of such Selling Shareholder, subject to bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other similar laws affecting creditors' rights generally and general principals of equity (whether considered in a proceeding at law or in equity). (iii) The U.S. Purchase Agreement and the International Purchase Agreement have been duly authorized, executed and delivered by or on behalf of each Selling Shareholder. (iv) To our actual knowledge, each Selling Shareholder has good and valid title to the Securities to be sold by such Selling Shareholder pursuant to the U.S. Purchase Agreement and the International Purchase Agreement, free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind other than created pursuant to the U.S. Purchase Agreement, the International Purchase Agreement, Power of Attorney or Custody Agreement and has full right, power and authority to sell, transfer and deliver such Securities pursuant to the U.S. Purchase Agreement and the International Purchase Agreement. By delivery of a certificate or certificates therefor such Selling Shareholder will transfer to the Underwriters who have purchased such Securities pursuant to the U.S. Purchase Agreement and the International Purchase Agreement in good faith and without notice of any such pledge, lien, security interest, charge, claim, equity or encumbrance of any kind or any other adverse claim within the meaning of New York Uniform Commercial Code good and valid title to such Securities, free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind. B-1 38 EXHIBIT C MERRILL LYNCH & CO. MERRILL LYNCH INTERNATIONAL Merrill Lynch, Pierce, Fenner & Smith J. P. Morgan Securities Ltd. Incorporated, Howard, Weil, Labouisse, J. P. Morgan Securities, Inc. Friedrichs Incorporated Howard, Weil, Labouisse, Petrie, Parkman & Co., Inc. Friedrichs Incorporated as Lead Managers of the several Petrie, Parkman & Co., Inc. International Managers to be named in the as U.S. Representatives of the several within-mentioned International Purchase U.S. Underwriters to be named in the Agreement within-mentioned U.S. Purchase Agreement c/o Merrill Lynch International c/o Merrill Lynch & Co. Ropemaker Place Merrill Lynch, Pierce, Fenner & Smith 25 Ropemaker Street Incorporated London EC24 9L4 North Tower England World Financial Center New York, New York 10281-1209
Re: Proposed Public Offering by United Meridian Corporation Dear Sirs: The undersigned, an officer and/or director of United Meridian Corporation, a Delaware corporation (the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), J. P. Morgan Securities Inc., Howard, Weil, Labouisse, Friedrichs Incorporated and Petrie, Parkman & Co., Inc. propose to enter into a U.S. Purchase Agreement (the "U.S. Purchase Agreement") with the Company providing for the public offering of shares of the Company's common stock, par value $.01 per share (the "Common Stock"). The undersigned further understands that Merrill Lynch International ("Merrill Lynch International"), J.P. Morgan Securities Ltd, Howard, Weil, Labouisse, Friedrichs Incorporated and Petrie, Parkman & Co., Inc. propose to enter into an International Purchase Agreement (the "International Purchase Agreement") with the Company providing for the public offering of shares of Common Stock. In recognition of the benefit that such offerings will confer upon the undersigned as an officer and/or director of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the U.S. Purchase Agreement or the International Purchase Agreement that, during a period of 90 days from the date of the U.S. Purchase Agreement and the International Purchase Agreement, the undersigned will not, without the prior written consent of Merrill Lynch and Merrill Lynch International, directly or indirectly, except for a Permitted Disposition (as defined below) (i) offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, C-1 39 grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise. A "Permitted Disposition" for purposes hereof means a bona fide gift, provided that the donee thereof agrees in writing to be bound by the restrictions imposed by this letter. Very truly yours, Signature: Print Name: C-2 40 ANNEX A FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(g) We are independent public accountants with respect to the Company within the meaning of the 1933 Act and the applicable published 1933 Act Regulations. (i) in our opinion, the audited financial statements and the related financial statement schedules included or incorporated by reference in the Registration Statement and the Prospectuses comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (ii) on the basis of procedures (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of the unaudited interim consolidated financial statements of the Company for the three month periods ended March 31, 1995 and March 31, 1996, and the three and six month periods ended June 30, 1995 and June 30,1996, included or incorporated by reference in the Registration Statement and the Prospectuses (collectively, the "10-Q Financials"), a reading of the minutes of all meetings of the stockholders and directors of the Company and its subsidiaries and the _________________ and ________________ Committees of the Company's Board of Directors and any subsidiary committees since December 31, 1995, inquiries of certain officials of the Company and its subsidiaries responsible for financial and accounting matters, a review of interim financial information in accordance with standards established by the American Institute of Certified Public Accountants in Statement on Auditing Standards No. 71, Interim Financial Information ("SAS 71"), with respect to the periods referenced above and such other inquiries and procedures as may be specified in such letter, nothing came to our attention that caused us to believe that: (A) the 10-Q Financials incorporated by reference in the Registration Statement and the Prospectuses do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the 1934 Act Regulations applicable to unaudited financial statements included in Form 10-Q or any material modifications should be made to the 10-Q Financials incorporated by reference in the Registration Statement and the Prospectuses for them to be in conformity with generally accepted accounting principles; (B) at [_________, 19___ and at] a specified date not more than five days prior to the date of this Agreement, there was any change in the ___________ of the Company and its subsidiaries or any decrease in the __________ of the Company and its subsidiaries or any increase in the __________ of the Company and its subsidiaries, in each case as compared with amounts shown in the latest balance sheet included in the Registration Statement, except in each case for changes, decreases or increases that the Registration Statement discloses have occurred or may occur; or (C) [for the period from _________, 19___ to _________, 19___ and] for the period from _________, 19___ to a specified date not more than five days prior to the date of this Agreement, A-1 41 there was any decrease in _________, __________ or ___________, in each case as compared with the comparable period in the preceding year, except in each case for any decreases that the Registration Statement discloses have occurred or may occur; (iii) based upon the procedures set forth in clause (ii) above and a reading of the [Selected Financial Data] included in the Registration Statement [and a reading of the financial statements from which such data were derived], nothing came to our attention that caused us to believe that the [Selected Financial Data] included in the Registration Statement do not comply as to form in all material respects with the disclosure requirements of Item 301 of Regulation S-K of the 1933 Act [, that the amounts included in the [Selected Financial Data] are not in agreement with the corresponding amounts in the audited consolidated financial statements for the respective periods or that the financial statements not included in the Registration Statement from which certain of such data were derived are not in conformity with generally accepted accounting principles]; (iv) we have compared the information in the Registration Statement under selected captions with the disclosure requirements of Regulation S-K of the 1933 Act and on the basis of limited procedures specified herein. Nothing came to our attention that caused us to believe that this information does not comply as to form in all material respects with the disclosure requirements of Items 302, 402 and 503(d), respectively, of Regulation S-K; [(v) based upon the procedures set forth in clause (ii) above, a reading of the unaudited financial statements of the Company for [the most recent period] that have not been included in the Registration Statement and a review of such financial statements in accordance with SAS 71, nothing came to our attention that caused us to believe that the unaudited amounts for _____________ for the [most recent period] do not agree with the amounts set forth in the unaudited consolidated financial statements for those periods or that such unaudited amounts were not determined on a basis substantially consistent with that of the corresponding amounts in the audited [consolidated] financial statements;] [(vi)] in addition to the procedures referred to in clause (ii) above, we have performed other procedures, not constituting an audit, with respect to certain amounts, percentages, numerical data and financial information appearing in the Registration Statement, which are specified herein, and have compared certain of such items with, and have found such items to be in agreement with, the accounting and financial records of the Company. A-2 EX-5 4 OPINION & CONSENT OF AKIN, GUMP, STRAUSS 1 [AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. LETTERHEAD] EXHIBIT 5 October 23, 1996 United Meridian Corporation 1201 Louisiana, Suite 1400 Houston, Texas 77002 Ladies and Gentlemen: We have acted as counsel to United Meridian Corporation, a Delaware corporation (the "Company"), in connection with the proposed public offering of up to 6,612,500 shares of the Company's Series A Voting Common Stock, $.01 par value (the "Common Stock"), as described in a registration statement on Form S-3 (the "Registration Statement") filed with the Securities and Exchange Commission. We have, as counsel, examined such corporate records, certificates and other documents and reviewed such questions of law as we have deemed necessary, relevant or appropriate to enable us to render the opinions listed below. In rendering such opinions, we have assumed the genuineness of all signatures and the authenticity of all documents examined by us. As to various questions of fact material to such opinions, we have relied upon representations of the Company. Based upon such examination and representations, we advise you that, in our opinion: A. The shares of Common Stock which are to be sold and delivered by the Company and certain selling stockholders of the Company (the "Selling Stockholders") as contemplated by the U.S. Purchase Agreement and the International Purchase Agreement (the "Underwriting Agreements"), the forms of which are filed as Exhibits 1.1 and 1.2 respectively to the Registration Statement, have been duly and validly authorized by the Company. B. The shares of Common Stock which are to be sold and delivered by the Company as contemplated by the Underwriting Agreements, when issued and delivered in accordance with the terms of the Underwriting Agreements, will be validly issued, fully paid and non-assessable. 2 AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. United Meridian Corporation October 23, 1996 Page 2 C. The shares of Common Stock which are to be sold and delivered by the Selling Stockholders as contemplated by the Underwriting Agreements are validly issued, fully paid and non-assessable. We consent to the filing of this opinion as Exhibit 5 to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the Prospectus contained therein. Sincerely, /s/ Akin, Gump, Strauss, Hauer & Feld, L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. EX-10.1 5 EMPLOYMENT AGREEMENT DATED OCTOBER 9, 1996 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into effective as of October 9, 1996 (the "Effective Date") between United Meridian Corporation, a Delaware Corporation (the "Parent"), UMC Petroleum Corporation, a Delaware corporation (the "Corporation") and James L. Dunlap (the "Officer"). The Parent and the Corporation are collectively referred to herein as "UMC." 1. Agreement to Serve. 1.1 Title. At the Effective Date, the Corporation shall employ Officer and Officer shall serve in the employ of the Corporation as its President and Chief Operating Officer or under such other comparable titles or executive offices as shall be designated by the Board of Directors and/or the Chief Executive Officer of the Parent and the Corporation during the term of Officer's employment hereunder. Officer shall also serve as President and Chief Operating Officer of the Parent and a member of the Board of Directors of the Parent. 1.2 Duties. Officer shall assume and discharge the responsibilities of the President and Chief Operating Officer, as well as such other responsibilities as may be assigned to him by the Board of Directors and/or Chief Executive Officer of the Parent and the Corporation. Officer shall perform his responsibilities to the best of his abilities and shall devote his entire normal business time and attention to the good faith best efforts performance of his responsibilities. Officer will engage in no other business or activity for compensation during the term of this Agreement except with the prior written consent of the Corporation and except as a member of the board of directors of Massachusetts Mutual Life Insurance Company. Officer shall always be subject to the directions of the Board of Directors and/or Chief Executive Officer of the Corporation and the Parent in the performance of his responsibilities, and nothing herein shall affect the power of the Board of Directors of the Parent and/or the Corporation to limit, alter, restrict, or remove the authority of Officer. 2. Terms of Employment. 2.1 Basic Term. The term of Officer's employment under this Agreement shall be for three (3) years from the Effective Date, unless terminated earlier pursuant to this Section 2. 2.2 Termination for Cause. The Corporation and the Parent shall have the right to terminate Officer for cause and said termination shall be effected by written notification to Officer. Grounds for termination for cause shall include, without limitation and determined in the sole discretion of the Board of Directors of the Parent or the Corporation, (i) Officer's material breach of any terms of this Agreement and failure to cure such breach (if it is capable of being cured) within ten days' notice of such breach; (ii) Officer's willful dishonesty towards, fraud upon, crime against, deliberate injury or bad faith action with respect to, or deliberate or attempted injury to the Parent or the Corporation; (iii) Officer's conviction for any felony crime 2 (whether in connection with the Corporation's affairs or otherwise); or (iv) conduct by Officer constituting gross negligence or willful misconduct in the performance of his duties. 2.3 Termination Without Cause. The Corporation and the Parent shall have the right, upon written notification to Officer to terminate Officer's employment without cause. Any termination not covered by Sections 2.2, 2.4, 2.5, 2.6 or 2.7 shall be deemed a termination without cause. Upon any termination without cause, Officer shall be paid all accrued salary, bonus compensation to the extent earned, vested deferred compensation (other than pension plan or profit sharing plan benefits, which will be paid in accordance with the applicable plan), any benefits then due under any plans of the Corporation or the Parent in which Officer is a participant, accrued vacation pay and any appropriate business expenses incurred by Officer in connection with his duties hereunder, all to the date of termination (such payment, the "Accrued Compensation"), and Officer shall be paid severance compensation as provided in Section 4. 2.4 Disability. If, during the term of this Agreement, Officer, in the reasonable judgment of the Board of Directors of the Corporation or the Parent, has failed to perform his duties under this Agreement on account of illness or physical or mental disability, which condition renders Officer incapable of performing the duties required by this Agreement, and such condition continues for a period of more than three (3) months, the Corporation or the Parent shall have the right to terminate Officer's employment hereunder by written notification to Officer and payment to Officer of all Accrued Compensation to the date of termination, and disability benefits as provided in any plans maintained by the Corporation or the Parent for the benefit of their respective officers, but no other compensation or reimbursement of any kind. 2.5 Death. In the event of Officer's death during the term of this Agreement, Officer's employment shall be deemed to have terminated as of the last day of the month during which his death occurs and the Corporation shall pay to his estate all Accrued Compensation to the date of termination, and death benefits as provided in any plans maintained by the Corporation or the Parent for the benefit of their respective officers, but no other compensation or reimbursement of any kind. 2.6 Voluntary Termination. Officer shall have the right to voluntarily terminate his employment hereunder for any reason, at any time, upon ten (10) days' written notification to the Parent and the Corporation. In the event Officer voluntarily terminates his employment hereunder, the Corporation shall immediately pay all Accrued Compensation to the date of termination. 2.7 Good Reason. At any time from the date hereof, Officer may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Officer's express written consent, of any one or more of the following events, which if correctable, remains uncorrected for thirty (30) days following written notice of such occurrence by Officer to the Parent and the Corporation: (i) a change in the eligibility requirements under any bonus, incentive or compensation plan, program or arrangement under which Officer is covered which adversely affects Officer, except as may be required by law or to maintain the qualified status of any plan, program or arrangement; (ii) the reduction of Officer's Base Salary (as defined in Section 3.1 hereof); (iii) the assignment to Officer by the Parent or the Corporation of duties materially inconsistent with the duties associated with the -2- 3 positions of Officer; or (iv) any action by the Parent or the Corporation which results in a material diminution in the position, duties or status of Officer with the Parent or the Corporation except (A) for strategic reallocations of the personnel reporting to Officer or (B) as a result of his disability. In the event Officer terminates his employment for Good Reason, the Corporation shall immediately pay all Accrued Compensation to the date of termination, and Officer shall be entitled to the severance payments provided for in Section 4. 3. Compensation. 3.1 Base Salary. The Corporation agrees to pay Officer for his services hereunder a salary at the rate of $350,000 per annum ("Base Salary") payable in equal semimonthly installments. The Base Salary for each fiscal year (or portion thereafter) shall be as determined by the Compensation Committee of the Board of Directors of the Parent, but shall in no event be less than $350,000 per annum. 3.2 Benefits. Officer shall be entitled to participate in any of the Corporation's or the Parent's benefit, bonus and deferred compensation plans as are from time to time available to the officers of the Corporation, including, without limitation, profit sharing, medical, dental, health and annual physical examination plans, life and disability insurance plans and supplemental retirement programs (provided, however, that Officer's benefits may be modified or Officer may be denied participation in any such plan because of a condition or restriction imposed by law or regulation or third-party insurer or other provider relating to participation of officers). Officer shall participate at the 50%/100% level under the Corporation's incentive compensation plan. Officer's bonus under the Corporation's incentive compensation plan for the year ending December 31, 1996 shall be pro rated for the period from the Effective Date to December 31, 1996 or Officer's date of termination, whichever is earlier. 3.3 Stock Option. Simultaneously with the execution of this Agreement, Officer shall be granted an option for shares of the Parent's stock pursuant to the Parent's 1994 Employee Nonqualified Stock Option Plan. This option is evidenced by the Option Agreement, entered into by the Parent and Officer, attached hereto as Exhibit A. 4. Severance Compensation. In the event Officer's employment is terminated under Sections 2.3 or 2.7 at any time prior to three (3) years from the Effective Date, the parties acknowledge that Officer will sustain actual damages, the amount of which are indefinite, uncertain and difficult of exact ascertainment because of the uncertainties of successfully seeking a comparable position. In order to avoid dispute as to the amount of such damages and the mutual expense and inconvenience such dispute would entail, the Parent, the Corporation and Officer have agreed to hereby stipulate and agree that the Corporation shall pay to Officer a severance compensation in an amount equal to two (2) times the sum of (i) Officer's Base Salary as of the date of termination and (ii) Officer's bonus under the Corporation's incentive compensation plan for the fiscal year preceding the fiscal year in which the date of termination occurs; provided, however, to the extent that Officer's employment is terminated prior to the time that his bonus for 1997 is determined and paid, Officer's bonus for purposes of the calculation of the severance compensation shall be the bonus of the Officer for the year ending December 31, 1996 (as provided in Section 3.2) annualized as if Officer had been employed by -3- 4 the Corporation for the entire year. It is hereby agreed that in the event of such termination by the Corporation or the Parent, Officer shall receive such amounts as herein provided, not as a penalty, but as Officer's agreed severance compensation and sole damages for the termination of this Agreement, in lieu of Officer's proof of his actual damages on that account. All severance compensation shall be without prejudice to Officer's right to receive all Accrued Compensation (as defined in Section 2.3) earned and unpaid up to the time of termination. 5. Confidentiality. Officer shall not, during his employment by the Corporation or at any time thereafter, directly or indirectly use, divulge, furnish or make accessible to anyone other than the Corporation, its directors or officers (otherwise than in the regular course of the business of the Corporation), any knowledge or information regarding any confidential or secret ideas, activities, projects, plans, techniques, methods, reports, customer names or lists, financial or sales information or other material relating to the business or activities of the Corporation. 6. Miscellaneous. 6.1 Effectiveness. This Agreement shall be effective at the Effective Date. 6.2 Severability. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and all other provisions of the Agreement shall be deemed valid and enforceable to the extent possible. 6.3 Withholdings. All compensation and benefits to Officer hereunder shall be reduced by all federal, state, local and other withholdings and similar taxes and payments required by applicable law. 6.4 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or any alleged breach hereof, shall be settled by arbitration. The parties hereto agree that any such controversy shall be submitted to three (3) arbitrators. The Parent and the Corporation shall jointly select one (1) arbitrator and Officer shall select a second arbitrator. The two (2) arbitrators shall then choose a third arbitrator. The arbitration shall be governed by the Rules of Commercial Arbitration of the American Arbitration Association. The arbitrators shall be governed by and shall apply the substantive laws of the State of Texas in making their determination and their ruling shall be binding and conclusive upon the parties hereto. Any arbitration shall occur in Houston, Texas. 6.5 Entire Agreement; Modifications. This Agreement represents the entire agreement between the parties and may be amended, modified, superseded, or cancelled, and any of the terms hereof may be waived, only by a written instrument executed by each party hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provisions hereof shall not affect the right at a latter time to enforce the same. No waiver by any party of the breach of any provision contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such breach or of any other term of this Agreement. -4- 5 6.6 Applicable Law. This Agreement shall be construed under and governed by the laws of the State of Texas. 6.7 Termination. This Agreement shall terminate on October 9, 1999; provided, however, such termination shall not affect any rights accruing prior to such termination. IN WITNESS WHEREOF, the parties have executed this Agreement as of October 9, 1996. UNITED MERIDIAN CORPORATION By:/s/John B. Brock ------------------------------ UMC PETROLEUM CORPORATION By:/s/ John B. Brock ------------------------------ OFFICER: /s/ James L. Dunlap --------------------------------- James L. Dunlap -5- 6 EXHIBIT A 1994 NONQUALIFIED STOCK OPTION AGREEMENT FOR EMPLOYEES United Meridian Corporation (the "Company"), in consideration of the value of the continuing services of James L. Dunlap (hereinafter called "Optionee"), which continuing services the grant of this option is designed to secure, and in consideration of the undertakings made herein by Optionee, and pursuant to its 1994 Employee Nonqualified Stock Option Plan (the "Plan"), hereby grants to Optionee an option, evidenced by this option agreement, exercisable for the period and upon the terms hereinafter set out, to purchase 250,000 shares of Series A Voting Common Stock ("Common Stock") of the Company at $____ per share. 1. Term of Option. (a) This option is granted as of October 9, 1996 (sometimes hereinafter called the "Date of Grant") and will terminate and expire, to the extent not previously exercised, eleven (11) years after the Date of Grant, or at such earlier time as may be specified in Sections 4 and 6 hereof. (b) Except as otherwise provided in this Option Agreement, Optionee shall have the right to acquire shares under this Option Agreement as follows: (i) As of the Date of Grant and thereafter, Optionee may exercise rights to acquire 50% of the Option Shares; (ii) As of the first anniversary of the Date of Grant and thereafter, Optionee may exercise rights to acquire an additional 25% of the Option Shares; (iii) As of the second anniversary of the Date of Grant and thereafter, Optionee may exercise rights to acquire an additional 25% of the Option Shares. 2. Non-Transferability. This option is not assignable or transferable otherwise than by will or by the laws of descent and distribution. During the lifetime of the Optionee, this option shall be exercisable only by him. 3. Manner of Exercise. Optionee (or other person entitled to exercise this option) shall purchase shares of stock of the Company subject hereto by the payment to the Company of the purchase price in full and the amount of employment tax or withholding tax due, if any, upon the exercise of the option (i) by certified or official bank check, (ii) by the delivery of a number of shares of Common Stock (plus cash if necessary) having a fair market value equal to the amount of such purchase price and employment or withholding tax, or (iii) by delivery of the equivalent thereof acceptable to the Company. This option may be exercised from time to time by written notice to the Company stating the full number of shares to be purchased and the time of delivery thereof, which shall be at least fifteen days after the giving of notice unless an earlier date shall have been agreed upon between the Optionee (or other person entitled to exercise this option) and the Company, accompanied by full payment for the shares as described A-1 7 in the first sentence of this Section 3. The Company will, as soon as is reasonably possible, notify the Optionee of the amount of employment tax and other withholding tax, if any, that must be paid under federal, state and local law due to the exercise of the option. The Company shall have no obligation to deliver certificates for the shares purchased until the Optionee pays to the Company the amount of employment tax or withholding tax specified in the Company's notice as described in this Section 3 by payment terms set forth in the first sentence of this Section 3. At the time of delivery, the Company shall, without transfer or issue tax to the Optionee (or other person entitled to exercise this option) deliver at the principal office of the Company, or at such other place as shall be mutually agreed upon, a certificate or certificates for such shares, provided, however, that the time of delivery may be postponed by the Company for such period as may be required for it to comply with reasonable diligence with any requirements of law. 4. Termination of Relationship. (a) In the event that Optionee shall die before his relationship with the Company (or an Affiliate) terminates, or if Optionee's relationship with the Company (or an Affiliate) is terminated because Optionee has become disabled within the meaning of Section 105(d)(4) of the Code, this option shall continue to vest in accordance with the Plan and this option agreement for a period of twelve months from the date of death of Optionee or termination of his relationship due to disability, and Optionee, his estate or beneficiary shall have the right to exercise this option at any time within such twelve month period (if otherwise within the term of the option). Notwithstanding the foregoing, the provisions of this Section 4(a) shall be subject to Sections l(a) and 6 hereof, which may earlier terminate the option. (b) In the event that the Optionee retires from service from the Company (or its Affiliates) in accordance with the Company's (or its Affiliates') retirement policies in effect from time to time, this option shall continue to vest during the lifetime of the Optionee in accordance with the terms of the Plan and this Option Agreement and may be exercised at any time during the remaining term of the option. If Optionee dies subsequent to his retirement during the term of this option, this option shall continue to vest in accordance with the Plan and this option agreement and may be exercised within twelve months of Optionee's death (if otherwise within the option period), but not thereafter. Notwithstanding the foregoing, the provisions of this Section 4(b) shall be subject to Sections 1(a) and 6, which may earlier terminate the option. (c) In the event that Optionee's employment with the Company is terminated without cause or the Optionee terminates his employment with the Company for Good Reason (as such terms are defined in the Employment Agreement dated October 9, 1996 between the Optionee, the Company, and UMC Petroleum Corporation), this option shall automatically vest and this Option Agreement may be exercised at any time within ninety days after the date of such termination (if otherwise within the option period). Notwithstanding the foregoing, the provisions of this Section 4(c) shall be subject to Sections 1(a) and 6, which may earlier terminate the option. A-2 8 (d) In the event that Optionee voluntarily terminates his relationship with the Company and its Affiliates prior to the second anniversary of the Date of Grant, this Option Agreement shall immediately terminate and all rights to acquire Option Shares hereunder shall terminate on the date of the termination of Optionee's employment. In the event that Optionee voluntarily terminates his relationship with the Company and its Affiliates on or subsequent to the second anniversary of the Date of Grant and prior to the third anniversary of the Date of Grant, this Option Agreement shall represent the right to acquire the number of Option Shares, if any, equal to 62,500 Option Shares less any Option Shares issued hereunder through the date of termination of employment, and such Option Agreement may be exercised at any time within ninety days after the date of such termination (if otherwise within the option period). Notwithstanding the foregoing, the provisions of this Section 4(d) shall be subject to Section 6, which may earlier terminate the option. (e) In the event that Optionee terminates or is terminated from his relationship with the Company and its Affiliates, and the provisions of Sections 4(a), 4(b), 4(c) and 4(d) hereof and Section 4(i) of the Plan do not apply, this option shall continue to vest in accordance with the Plan and this option agreement and may be exercised at any time within ninety days after the date of such termination (if otherwise within the option period). 5. Adjustments on Recapitalization. The number of shares of Common Stock subject hereto and the exercise price per share shall be proportionately adjusted for any increase or decrease in the number of issued shares of the Common Stock resulting from the subdivision or consolidation of shares after the Date of Grant, the payment of a stock dividend in shares of Common Stock after the Date of Grant, or other decrease or increase in the shares of Common Stock outstanding effected after the Date of Grant without receipt of consideration by the Company, provided, however, that any option to purchase fractional shares resulting from such adjustments shall be eliminated. 6. Adjustments on Reorganization. If the Company shall at any time participate in a reorganization to which Section 425(a) of the Code applies and (A) the Company is not the surviving entity or (B) the Company is the surviving entity and the stockholders of Common Stock are required to exchange their shares for property and/or securities, the Company shall give Optionee written notice of such fact on or before fifteen (15) days before such reorganization, and this option shall be exercisable in full after receipt of such notice and prior to such reorganization; however, options not exercised prior to such reorganization shall expire on the occurrence of such reorganization. A sale of all or substantially all the assets of the Company for a consideration (apart from the assumption or obligations) consisting primarily of securities shall be deemed a reorganization for the foregoing purposes. Notwithstanding the foregoing, the provisions of this Section 6 shall be subject to Section l(a). 7. Subject to Plan. This option is subject to all the terms and conditions of the Plan, and specifically to the power of the Committee (as defined in the Plan) to make interpretations of the Plan and of options granted thereunder, and of the Board of Directors of the Company to alter, amend, suspend or discontinue the Plan subject to the limitations expressed in the Plan. By acceptance hereof, Optionee acknowledges receipt of a copy of the Plan and recognizes and A-3 9 agrees that all determinations, interpretations or other actions respecting the Plan may be made by a majority of the Board of Directors of the Company or of the Committee, and that such determinations, interpretations or other actions are final, conclusive and binding upon all parties, including Optionee. Capitalized terms used but not otherwise defined in this option agreement shall have the meanings ascribed to them by the Plan. IN WITNESS WHEREOF, this Option Agreement is executed as of the 9th day of October, 1996. UNITED MERIDIAN CORPORATION By: ------------------------------- Title: ------------------------------ The undersigned Optionee hereby accepts the benefits of the foregoing Nonqualified Stock Option Agreement. ------------------------------------ James L. Dunlap, Optionee A-4 EX-10.2 6 FORM OF INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.2 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT the ("Agreement") is made this ________________________ by and between UNITED MERIDIAN CORPORATION, a Delaware corporation (the "Company"), and _____________________ ("Director"). RECITALS WHEREAS, Director is a member of the Board of Directors of the Company and in such capacity is performing a valuable service to the Company; WHEREAS, the Company's By-Laws (the "By-Laws") provide for the indemnification of the directors, officers, employees and agents of the Company to the extent set forth in the Certificate of Incorporation of the Company (the "Certificate"); WHEREAS, the Certificate provides that the Company shall indemnify the directors, officers, employees and agents of the Company to the fullest extent permitted by any applicable law including, without limitation, Section 145 of the Delaware General Corporation Law, as amended to date (the "Corporation Law"); WHEREAS, the Corporate Law specifically provides that indemnification and advancement of expenses provided in such statute shall not be exclusive of any other rights under any agreement, and thereby contemplate that agreements may be entered into between the Company and members of the Board of Directors of the Company with respect to the indemnification of such directors; WHEREAS, in accordance with the authorization provided in the Corporation Law, the Company has purchased and presently maintains a policy or policies of directors' and officers' liability insurance (the "Insurance") covering certain liabilities which may be incurred by the Company's directors and officers in the performance of their services to the Company; WHEREAS, recent developments with respect to the terms and conditions of the Insurance and exclusions from coverage thereby, the general availability of comparable directors' and officers' liability insurance and the applicability, amendment and enforcement of statutory and by-law indemnification provisions have raised questions concerning the adequacy and reliability of the protection afforded to directors thereby; and WHEREAS, in order to resolve such questions and to induce Director to continue to serve as a member of the Board of Directors of the Company for the remainder of his term and for any subsequent term to which he is elected by the stockholders of the Company, the Company has deemed it to be in its best interest to enter into this Agreement with Director; 2 NOW, THEREFORE, in consideration of Director's agreement to continue to serve as a member of the Board of Directors of the Company after the date hereof, the parties agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: (a) Change in Control. A "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the outstanding securities of the Company, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve (A) a merger or consolidation of the Company with any other entity (other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation), (B) a plan of complete liquidation of the Company or (C) an agreement or agreements for the sale or disposition, in a single transaction or series of related transactions, by the Company of all or substantially all of the property and assets of the Company. Notwithstanding the foregoing, events otherwise constituting a Change in Control in accordance with the foregoing shall not constitute a Change in Control if such events are solicited by the Company and are approved, recommended or supported by the Board of Directors of the Company in actions taken prior to, and with respect to, such events. (b) Reviewing Party. A "Reviewing Party" means (i) the Board of Directors or a committee of directors of the Company, who are not officers, appointed by the Board of Directors, provided that a majority of such directors are not parties to the claim or (ii) special, independent counsel selected and appointed by the Board of Directors or by a committee of directors of the Company who are not officers. 2 3 2. Indemnification of Director. The Company hereby agrees that it shall hold harmless and indemnify Director to the fullest extent authorized and permitted by the provisions of the Certificate and By-Laws and the provisions of the Corporation Law, or by any amendment thereof, but in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than the Certificate, By-Laws or Corporation Law permitted the Company to provide prior to such amendment, or other statutory provisions authorizing or permitting such indemnification which is adopted after the date hereof. 3. Insurance. 3.1. Insurance Policies. So long as Director may be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that Director is or was a director, to the extent that the Company maintains one or more insurance policy or policies providing directors' and officers' liability insurance, Director shall be covered by such policy or policies in accordance with its or their terms, to the maximum extent of the coverage applicable to any director or officer then serving the Company. 3.2. Maintenance of Insurance. The Company shall not be required to maintain the Insurance or any policy or policies of comparable insurance, as the case may be, if such insurance is not reasonably available or if, in the reasonable business judgment of the Board of Directors of the Company which shall be conclusively established by such determination by the Board of Directors, or any appropriate committee thereof, either (i) the premium cost for such insurance is substantially disproportionate to the amount of coverage thereunder or (ii) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance. 3.3. Self-Insurance. To the extent Director is not indemnified under other Sections of this Agreement and is not fully, by reason of deductible or otherwise, covered by directors' and officers' liability insurance, the Company shall maintain self-insurance for, and thereby indemnify and hold harmless, Director from and against any and all expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by Director in connection with any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, in which Director was or is made a party or was or is involved by reason of the fact that Director is or was a director of the Company. Notwithstanding the foregoing, payments of self-insurance under this Section to Director by the Company shall not exceed the amount of $5,000,000 for any event and further shall be limited in accordance with Section 5 thereof. An "event" as used in the preceding sentence in reference to a limitation on self-insurance shall include the same acts or omissions by Director and interrelated, repeated or continuous acts or omissions. 4. Additional Indemnification. Subject only to the exclusions set forth in Section 5 hereof, the Company hereby agrees that it shall hold harmless and indemnify Director: 3 4 (a) against any and all expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by Director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or on behalf of stockholders of the Company or by or in the right of the Company, to which Director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Director is, was or at any time becomes a director, officer, employee or agent of the Company, or is or was serving or at any time serves at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and (b) otherwise to the fullest extent as may be provided to Director by the Company under the non-exclusivity provisions of the Corporation Law. 5. Limitations on Additional Indemnification. No indemnification pursuant to this Agreement shall be paid by the Company: (a) in respect to any transaction if it shall be determined by the Reviewing Party, or by final judgment or other final adjudication, that Director derived an improper personal benefit; (b) in respect to the return by Director of any remuneration paid to Director if it shall be determined by the Reviewing Party, or by final judgment or other final adjudication, that such remuneration was not approved by the stockholders of the Company and was thereby in violation of law; (c) on account of Director's conduct which is determined by the Reviewing Party, or by final judgment or other final adjudication, to have involved acts or omissions not in good faith, intentional misconduct or a knowing violation of law; (d) if the Reviewing Party or a court having jurisdiction in the matter shall determine that such indemnification is in violation of the Certificate, the By-Laws or the law. 6. Advancement of Expenses. In the event of any threatened or pending action, suit or proceeding in which Director is a party or is involved and which may give rise to a right of indemnification under this Agreement, following written request to the Company by Director, the Company shall pay promptly to Director amounts to cover expenses incurred by Director in such proceeding in advance of its final disposition upon the receipt by the Company of (i) a written undertaking executed by or on behalf of Director to repay the advance if it shall ultimately be determined that Director is not entitled to be indemnified by the Company as provided in this Agreement and (ii) satisfactory evidence as to the amount of such expenses. 4 5 7. Repayment of Expenses. Director agrees that Director shall reimburse the Company for all reasonable expenses paid by the Company in defending any civil, criminal, administrative or investigative action, suit or proceeding against Director in the event and only to the extent that it shall be determined by final judgment or other final adjudication that Director is not entitled to be indemnified by the Company for such expenses under the provisions of the Corporation Law or any applicable law. 8. Determination of Indemnification; Burden of Proof. With respect to all matters concerning the rights of Director to indemnification and payment of expenses under this Agreement or under the provisions of the Certificate and By-Laws now or hereafter in effect, the Company shall appoint a Reviewing Party and any determination by the Reviewing Party shall be conclusive and binding on the Company and Director. If under applicable law, the entitlement of Director to be indemnified under this Agreement depends on whether a standard of conduct has been met, the burden of proof of establishing that Director did not act in accordance with such standard of conduct shall rest with the Company. Director shall be presumed to have acted in accordance with such standard and entitled to indemnification or advancement of expenses hereunder, as the case may be, unless, based upon a preponderance of the evidence, it shall be determined by the Reviewing Party that Director did not meet such standard. For purposes of this Agreement, unless otherwise expressly stated herein, the termination of any action, suit or proceeding by judgment, order, settlement, whether with or without court approval, or conviction, or upon plea of nolo contendere or its equivalent shall not create a presumption that Director did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 9. Effect of Change in Control. If there has not been a Change in Control after the date of this Agreement, the determination of the (i) rights of Director to indemnification and payment of expenses under this Agreement or under the provisions of the Certificate and the By-Laws, (ii) standard of conduct and (iii) evaluation of the reasonableness of amounts claimed by Director shall be made by the Reviewing Party or such other body or persons as may be permitted by the Corporation Law. If there has been a Change in Control after the date of this Agreement, such determination and evaluation shall be made by a special, independent counsel who is selected by Director and approved by the Company, which approval shall not be unreasonably withheld, and who has not otherwise performed services for Director or the Company. 10. Continuation of Indemnification. All agreements and obligations of the Company contained herein shall continue during the period that Director is director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise at the request of the Company, 5 6 and shall continue thereafter so long as Director shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that Director was a director of the Company or serving in any other capacity referred to herein. 11. Notification and Defense of Claim. Promptly after receipt by Director of notice of the commencement of any action, suit or proceeding, Director shall, if a claim in respect hereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof; provided, however, that delay in so notifying the Company shall not constitute a waiver or release by Director of rights hereunder and that omission by Director to so notify the Company shall not relieve the Company from any liability which it may have to Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Director notifies the Company of the commencement thereof: (a) The Company shall be entitled to participate therein at its own expense; and (b) Except as otherwise provided below, to the extent that it may wish, the Company, jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense thereof and to employ counsel reasonably satisfactory to Director. After notice from the Company to Director of its election to so assume the defense thereof, the Company shall not be liable to Director under this Agreement for any legal or other expenses subsequently incurred by Director in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Director shall have the right to employ counsel of his own choosing in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Company of assumption by the Company of the defense thereof shall be at the expense of the Director unless (i) the employment of counsel by Director has been specifically authorized by the Company, such authorization to be conclusively established by action by disinterested members of the Board of Directors though less than a quorum; (ii) representation by the same counsel of both Director and the Company would, in the reasonable judgment of Director and the Company, be inappropriate due to an actual or potential conflict of interest between the Company and Director in the conduct of the defense of such action, such conflict of interest to be conclusively established by an opinion of counsel to the Company to such effect; (iii) the counsel employed by the Company and reasonably satisfactory to Director has advised Director in writing that such counsel's representation of Director would likely involve such counsel in representing differing interests which could adversely affect the judgment or loyalty of such counsel to Director, whether it be a conflicting, inconsistent, diverse or other interest; or (iv) the Company shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be paid by the Company. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company or as to which a 6 7 conflict of interest has been established as provided in (ii) hereof. Notwithstanding the foregoing, if an insurance company has supplied directors' and officers' liability insurance covering an action, suit or proceeding, then such insurance company shall employ counsel to conduct the defense of such action, suit or proceeding unless Director and the Company reasonably concur in writing that such counsel is unacceptable. (c) The Company shall not be liable to indemnify Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner which would impose any liability or penalty on Director without Director's written consent. Neither the Company nor Director shall unreasonably withhold consent to any proposed settlement. 12. Enforcement. (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on the Company hereby in order to induce Director to serve as a director of the Company and acknowledges that Director is relying upon this Agreement in continuing in such capacity. (b) If a claim for indemnification or advancement of expenses is not paid in full by the Company within thirty (30) days after a written claim by Director has been received by the Company, Director may at any time assert the claim and bring suit against the Company to recover the unpaid amount of the claim. In the event Director is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the Company shall reimburse Director for all of Director's reasonable attorneys' fees and expenses in bringing and pursuing such action. 13. Proceedings by Director. The Company shall not be liable to make any payment under this Agreement in connection with any action, suit or proceeding, or any party thereof, initiated by Director unless such action, suit or proceeding, or part thereof, was authorized by the Company, such authorization to be conclusively established by action by disinterested members of the Board of Directors though less than a quorum. 14. Effectiveness. This Agreement is effective for, and shall apply to, (i) any claim which is asserted or threatened before, on or after the date of this Agreement but for which no action, suit or proceeding has been brought prior to the date hereof and (ii) any action, suit or proceeding which is threatened before, on or after the date of this Agreement but which is not pending prior to the date hereof. This Agreement shall not apply to any action, suit or proceeding which has brought before the date of this Agreement. So long as the foregoing is satisfied, this Agreement 7 8 shall be effective for, and be applicable to, acts or omissions occurring prior to, on or after the date hereof. 15. Non-exclusivity. The rights of Director under this Agreement shall not be deemed exclusive, or in limitation of, any rights to which Director may be entitled under any applicable common or statutory law, or pursuant to the Certificate, the By-Laws, vote of stockholders or otherwise. 16. Other Payments. The Company shall not be liable to make any payment under this Agreement in connection with any action, suit, or proceeding against Director to the extent Director has otherwise received payment of the amounts otherwise payable by the Company hereunder. 17. Subrogation. In the event that Company makes any payment under this Agreement, the Company shall be subrogated, to the extent of such payment, to all rights of recovery of Director with respect thereto, and Director shall execute all agreements, instruments, certificates or other documents and do or cause to be done all things necessary or appropriate to secure such recovery rights to the Company including, without limitation, executing such documents as shall enable the Company to bring an action or suit to enforce such recovery rights. 18. Severability. Each of the provisions of the Agreement is a separate and distinct agreement and independent of the others. If any provision hereof shall be held invalid or unenforceable for any reason, such invalidity or unenforceability shall not effect the validity or enforceability of the other provisions hereof which shall continue with full force and effect. 19. Entire Agreement. This Agreement shall constitute the entire agreement between the parties hereto regarding the subject matter hereof. 20. Survival; Continuation. The rights of Director under this Agreement shall inure to the benefit of Director, his heirs, executors, administrators, personal representatives and assigns, and this Agreement shall be binding upon the Company, its successors and assigns. The rights of Director under this Agreement shall continue so long as Director may be subject to any action, suit or proceeding because of the fact that Director is or was a director, officer, employee or agent of the company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. If the Company, in a 8 9 single transaction or series of related transactions, sells, leases, exchanges, or otherwise disposes of all or substantially all of its property and assets, the Company shall, as a condition precedent to any such transaction, cause effective provision to be made so that the persons or entities acquiring such property and assets shall become bound by and replace the Company under this Agreement. 21. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in writing signed by both parties hereto. 22. Headings. Section headings are used herein for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. 23. Governing Law. This Agreement shall be governed and interpreted and enforced in accordance with the laws of the State of Delaware. 24. Notices. All notices required to be given under this Agreement shall be in writing and shall be deemed to be given when delivered by hand or deposited in the United States mail or a recognized overnight delivery service, receipt to be acknowledged, postage or fees prepaid and addressed as follows: If to the Company: United Meridian Corporation 1201 Louisiana, Suite 1400 Houston, TX 77002 Attn: Corporate Secretary with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue Suite 4100 Dallas, Texas 75201-4618 Attn: ---------------------------- If to Director: ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- 9 10 25. Counterparts. This Agreement may be executed in several counterparts and it shall not be necessary for each party to execute each of such counterparts, but when both of the parties have executed and delivered one of such counterparts, the counterparts, when taken together, shall be deemed to constitute one and the same instrument, enforceable against each party in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written. UNITED MERIDIAN CORPORATION By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- - ---------------------------------- Director 10 11 SCHEDULE OF DIRECTOR SIGNATORIES J. Dennis Bonney James L. Dunlap Robert L. Howard EX-23.1 7 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Houston, Texas October 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----