AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2003
REGISTRATION NO. 333-103679
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 1311 73-1567067
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
---------------------
20 NORTH BROADWAY J. LARRY NICHOLS
OKLAHOMA CITY, OKLAHOMA 73102-8260 CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
(405) 235-3611 DEVON ENERGY CORPORATION
(Address, Including Zip Code, and Telephone Number, 20 NORTH BROADWAY
Including Area Code, of Registrant's Principal OKLAHOMA CITY, OKLAHOMA 73102-8260
Executive Offices) (405) 235-3611
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
---------------------
COPIES TO
SCOTT J. DAVIS DUKE R. LIGON T. MARK KELLY
JAMES T. LIDBURY SENIOR VICE PRESIDENT DAVID P. OELMAN
MAYER, BROWN, ROWE & MAW AND GENERAL COUNSEL VINSON & ELKINS L.L.P.
190 SOUTH LASALLE STREET AND 2300 FIRST CITY TOWER
CHICAGO, ILLINOIS 60603-3441 JANICE A. DOBBS 1001 FANNIN
(312) 782-0600 CORPORATE SECRETARY HOUSTON, TEXAS 77002-6760
DEVON ENERGY CORPORATION (713) 758-2222
20 NORTH BROADWAY
OKLAHOMA CITY, OKLAHOMA 73102-8260
(405) 235-3611
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
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. [ ]
---------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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(DEVON ENERGY LOGO) (OCEAN ENERGY LOGO)
PROPOSED MERGER -- YOUR VOTE IS VERY IMPORTANT
Dear Stockholders:
On February 23, 2003, Devon Energy Corporation and Ocean Energy, Inc.
agreed to combine their businesses by merging a wholly owned subsidiary of Devon
into Ocean. In the merger, each Ocean common stockholder will receive 0.414 of a
share of Devon common stock for each share of Ocean common stock that the
stockholder owns, and Ocean will become a subsidiary of Devon. We do not expect
that Ocean common stockholders will recognize any gain or loss for U.S. federal
income tax purposes to the extent that they receive Devon common stock in
exchange for their shares of Ocean common stock.
The issuance of shares of Devon common stock pursuant to the merger
agreement requires the approval of Devon stockholders. In addition, the merger
agreement must be adopted by Ocean stockholders. Devon and Ocean have each
scheduled special meetings of their stockholders to vote on these matters on
April 25, 2003. Regardless of the number of shares that you own or whether you
plan to attend a meeting, it is important that your shares be represented and
voted. Voting instructions are inside.
DEVON'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND DETERMINED THAT IT IS ADVISABLE AND IN THE BEST INTERESTS OF DEVON
AND ITS STOCKHOLDERS. ACCORDINGLY, DEVON'S BOARD OF DIRECTORS RECOMMENDS THAT
DEVON STOCKHOLDERS VOTE TO APPROVE THE ISSUANCE OF DEVON COMMON STOCK PURSUANT
TO THE MERGER AGREEMENT.
SIMILARLY, OCEAN'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED
THE MERGER AGREEMENT AND DETERMINED THAT IT IS ADVISABLE AND IN THE BEST
INTERESTS OF OCEAN AND ITS STOCKHOLDERS. ACCORDINGLY, OCEAN'S BOARD OF DIRECTORS
RECOMMENDS THAT OCEAN STOCKHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT.
Devon is also proposing to adopt a new long-term incentive plan to
accommodate the larger employee base of the combined company after the merger.
Adoption of that plan requires the approval of Devon stockholders. Devon's board
of directors recommends that Devon stockholders vote to adopt the new long-term
incentive plan.
This document provides you with detailed information about the proposed
merger and the new long-term incentive plan that Devon is proposing. We
encourage you to read the entire document carefully.
Devon's common stock is traded on the American Stock Exchange under the
symbol "DVN." Each share of Devon common stock is accompanied by one right,
issued pursuant to Devon's stockholder rights plan, that trades with the Devon
common stock. In addition, a class of exchangeable shares issued by Devon's
subsidiary, Northstar Energy Corporation, is traded on The Toronto Stock
Exchange under the symbol "NSX." The Northstar exchangeable shares are
exchangeable at any time, on a one-for-one basis, for Devon common stock.
Holders of Devon common stock and Northstar exchangeable shares will vote as a
single class at the Devon meeting.
Ocean's common stock is traded on the New York Stock Exchange under the
symbol "OEI." Each share of Ocean common stock is accompanied by one right,
issued pursuant to Ocean's stockholder rights plan, that trades with the Ocean
common stock. Ocean's convertible preferred stock is not publicly traded. Ocean
common stockholders and Ocean convertible preferred stockholders will vote as a
single class at the Ocean meeting, with the Ocean convertible preferred
stockholders voting on an as-converted basis.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS DOCUMENT FOR A DISCUSSION
OF RISKS RELEVANT TO THE MERGER.
(-s- J LARRY NICHOLS) (-s- JAMES T. HACKET)
J. Larry Nichols James T. Hackett
Chairman, President and Chief Chairman, President and Chief
Executive Officer Executive Officer
DEVON ENERGY CORPORATION OCEAN ENERGY, INC.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS
DOCUMENT OR DETERMINED IF THIS DOCUMENT IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This document is dated March 20, 2003, and was first mailed to stockholders
on or about March 24, 2003.
(OCEAN ENERGY LOGO) (DEVON ENERGY LOGO)
PROPOSED MERGER -- YOUR VOTE IS VERY IMPORTANT
Dear Stockholders:
On February 23, 2003, Devon Energy Corporation and Ocean Energy, Inc.
agreed to combine their businesses by merging a wholly owned subsidiary of Devon
into Ocean. In the merger, each Ocean common stockholder will receive 0.414 of a
share of Devon common stock for each share of Ocean common stock that the
stockholder owns, and Ocean will become a subsidiary of Devon. We do not expect
that Ocean common stockholders will recognize any gain or loss for U.S. federal
income tax purposes to the extent that they receive Devon common stock in
exchange for their shares of Ocean common stock.
The merger agreement must be adopted by Ocean stockholders. In addition,
the issuance of shares of Devon common stock pursuant to the merger agreement
requires the approval of Devon stockholders. Ocean and Devon have each scheduled
special meetings of their stockholders to vote on these matters on April 25,
2003. Regardless of the number of shares that you own or whether you plan to
attend a meeting, it is important that your shares be represented and voted.
Voting instructions are inside.
OCEAN'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND DETERMINED THAT IT IS ADVISABLE AND IN THE BEST INTERESTS OF OCEAN
AND ITS STOCKHOLDERS. ACCORDINGLY, OCEAN'S BOARD OF DIRECTORS RECOMMENDS THAT
OCEAN STOCKHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT.
SIMILARLY, DEVON'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED
THE MERGER AGREEMENT AND DETERMINED THAT IT IS ADVISABLE AND IN THE BEST
INTERESTS OF DEVON AND ITS STOCKHOLDERS. ACCORDINGLY, DEVON'S BOARD OF DIRECTORS
RECOMMENDS THAT DEVON STOCKHOLDERS VOTE TO APPROVE THE ISSUANCE OF DEVON COMMON
STOCK PURSUANT TO THE MERGER AGREEMENT.
Devon is also proposing to adopt a new long-term incentive plan to
accommodate the larger employee base of the combined company after the merger.
Adoption of that plan requires the approval of Devon stockholders. Devon's board
of directors recommends that Devon stockholders vote to adopt the new long-term
incentive plan.
This document provides you with detailed information about the proposed
merger and the new long-term incentive plan that Devon is proposing. We
encourage you to read the entire document carefully.
Ocean's common stock is traded on the New York Stock Exchange under the
symbol "OEI." Each share of Ocean common stock is accompanied by one right,
issued pursuant to Ocean's stockholder rights plan, that trades with the Ocean
common stock. Ocean's convertible preferred stock is not publicly traded. Ocean
common stockholders and Ocean convertible preferred stockholders will vote as a
single class at the Ocean meeting, with the Ocean convertible preferred
stockholders voting on an as-converted basis.
Devon's common stock is traded on the American Stock Exchange under the
symbol "DVN." Each share of Devon common stock is accompanied by one right,
issued pursuant to Devon's stockholder rights plan, that trades with the Devon
common stock. In addition, a class of exchangeable shares issued by Devon's
subsidiary, Northstar Energy Corporation, is traded on The Toronto Stock
Exchange under the symbol "NSX." The Northstar exchangeable shares are
exchangeable at any time, on a one-for-one basis, for Devon common stock.
Holders of Devon common stock and Northstar exchangeable shares will vote as a
single class at the Devon meeting.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS DOCUMENT FOR A DISCUSSION
OF RISKS RELEVANT TO THE MERGER.
(-s- JAMES T. HACKET) (-s- J LARRY NICHOLS)
James T. Hackett J. Larry Nichols
Chairman, President and Chief Chairman, President and Chief
Executive Officer Executive Officer
OCEAN ENERGY, INC. DEVON ENERGY CORPORATION
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS
DOCUMENT OR DETERMINED IF THIS DOCUMENT IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This document is dated March 20, 2003, and was first mailed to stockholders
on or about March 24, 2003.
This document incorporates by reference important business and financial
information about both Devon and Ocean that is not included in or delivered with
this document. See the "Additional Information -- Where You Can Find More
Information" section of this document.
You can obtain any of the documents incorporated by reference into this
document through Devon or Ocean, as the case may be, or from the Securities and
Exchange Commission's website at http://www.sec.gov. Documents incorporated by
reference are available from Devon and Ocean without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference into this document. You may obtain documents incorporated by reference
into this document by requesting them in writing or by telephone from the
appropriate company as follows:
Devon Energy Corporation Ocean Energy, Inc.
20 North Broadway 1001 Fannin Street, Suite 1600
Attention: Investor Relations Attention: Investor Relations
Oklahoma City, Oklahoma 73102-8260 Houston, Texas 77002-6794
Telephone: (405) 552-4570 Telephone: (713) 265-6161
IF YOU WOULD LIKE TO REQUEST DOCUMENTS INCORPORATED BY REFERENCE, PLEASE DO
SO BY APRIL 18, 2003, TO RECEIVE THEM BEFORE THE MEETING. PLEASE BE SURE TO
INCLUDE YOUR COMPLETE NAME AND ADDRESS IN YOUR REQUEST. IF YOU REQUEST ANY
DOCUMENTS, WE WILL MAIL THEM TO YOU BY FIRST CLASS MAIL, OR ANOTHER EQUALLY
PROMPT MEANS, WITHIN ONE BUSINESS DAY AFTER WE RECEIVE YOUR REQUEST.
---------------------
All information in this document concerning Devon has been furnished by
Devon. All information in this document concerning Ocean has been furnished by
Ocean. Devon has represented to Ocean, and Ocean has represented to Devon, that
the information furnished by and concerning it is true and complete.
For an explanation of oil and gas terms used in this document, see the
"Commonly Used Oil and Gas Terms" section of this document.
DEVON ENERGY CORPORATION
20 NORTH BROADWAY
OKLAHOMA CITY, OKLAHOMA 73102-8260
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 25, 2003
---------------------
To Devon Energy Corporation Stockholders:
We will hold a special meeting of stockholders of Devon Energy Corporation
for the following purposes:
- To consider and vote on the approval of the issuance of Devon common
stock pursuant to the Agreement and Plan of Merger, dated as of February
23, 2003, by and among Devon Energy Corporation, Devon NewCo Corporation
and Ocean Energy, Inc., as it may be amended from time to time;
- To consider and vote on the adoption of the Devon Energy Corporation 2003
Long-Term Incentive Plan, subject to the consummation of the merger
contemplated by the Agreement and Plan of Merger, dated as of February
23, 2003, by and among Devon Energy Corporation, Devon NewCo Corporation
and Ocean Energy, Inc., as it may be amended from time to time; and
- To transact other business as may properly be presented at the meeting or
any adjournments of the meeting.
The date, time and place of the meeting are as follows:
April 25, 2003
10:00 a.m., local time
Bank One Center
100 North Broadway
Third Floor, Kirkpatrick Room
Oklahoma City, Oklahoma
Only stockholders of record at the close of business on March 17, 2003, are
entitled to notice of and to vote at the meeting and any adjournments of the
meeting. Devon will keep at its offices in Oklahoma City, Oklahoma, a list of
stockholders entitled to vote at the meeting available for inspection for any
purpose relevant to the meeting during normal business hours for the 10 days
before the meeting.
YOUR PROXY IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE VOTE IN ANY ONE OF THE FOLLOWING WAYS:
- USE THE TOLL-FREE TELEPHONE NUMBER SHOWN ON THE PROXY CARD;
- USE THE INTERNET WEBSITE SHOWN ON THE PROXY CARD; OR
- MARK, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
POSTAGE-PAID ENVELOPE. IT REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors,
-s- JANICE A DOBBS
JANICE A. DOBBS
Corporate Secretary
Oklahoma City, Oklahoma
March 20, 2003
OCEAN ENERGY, INC.
1001 FANNIN STREET, SUITE 1600
HOUSTON, TEXAS 77002-6794
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 25, 2003
---------------------
To Ocean Energy, Inc. Stockholders:
We will hold a special meeting of stockholders of Ocean Energy, Inc. for
the following purposes:
- To consider and vote on the adoption of the Agreement and Plan of Merger,
dated as of February 23, 2003, by and among Devon Energy Corporation,
Devon NewCo Corporation and Ocean Energy, Inc., as it may be amended from
time to time; and
- To transact other business as may properly be presented at the meeting or
any adjournments of the meeting.
The date, time and place of the meeting are as follows:
April 25, 2003
10:00 a.m., local time
The Four Seasons Hotel
1300 Lamar
Houston, Texas
Only stockholders of record at the close of business on March 17, 2003, are
entitled to notice of and to vote at the meeting and any adjournments of the
meeting. Ocean will keep at its offices in Houston, Texas, a list of
stockholders entitled to vote at the meeting available for inspection for any
purpose relevant to the meeting during normal business hours for the 10 days
before the meeting.
YOUR PROXY IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE VOTE IN ANY ONE OF THE FOLLOWING WAYS:
- USE THE TOLL-FREE TELEPHONE NUMBER SHOWN ON THE PROXY CARD;
- USE THE INTERNET WEBSITE SHOWN ON THE PROXY CARD; OR
- MARK, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
POSTAGE-PAID ENVELOPE. IT REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors,
-s- ROBERT K. REEVES
ROBERT K. REEVES
Executive Vice President,
General Counsel and Secretary
Houston, Texas
March 20, 2003
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why am I receiving these materials?
A: Devon and Ocean have agreed to combine their
businesses by merging a wholly owned subsidiary of Devon into Ocean. The
merger cannot be completed without approvals of the stockholders of both
Devon and Ocean. Devon is also proposing to adopt a new long-term incentive
plan in connection with the merger that requires approval by Devon
stockholders.
Q: What will happen to Ocean as a result of the
merger?
A: A Devon subsidiary will merge with and into
Ocean, and Ocean will be the surviving company of the merger and a subsidiary
of Devon.
Q: What will Ocean common stockholders receive
in the merger?
A: Each Ocean common stockholder will receive
0.414 of a share of Devon common stock for each share of Ocean common stock
that the stockholder owns at the effective time of the merger. Instead of
issuing fractional shares to Ocean common stockholders, the exchange agent
will combine all of the fractional shares and sell them on the American Stock
Exchange. Ocean common stockholders will receive cash, without interest,
instead of fractional shares from the proceeds obtained from the sale of
those shares.
Q: What will Ocean convertible preferred
stockholders receive in the merger?
A: Each share of Ocean convertible preferred stock
outstanding at the effective time of the merger, other than shares held by
Ocean convertible preferred stockholders who validly exercise their appraisal
rights under Delaware law, will remain outstanding. After the effective time
of the merger, those shares of Ocean convertible preferred stock will be
convertible into Devon common stock instead of Ocean common stock, giving
effect to the 0.414 exchange ratio, and will have voting rights in Devon on
an as-converted basis.
Q: Should Ocean stockholders send in their stock
certificates now?
A: No. After the merger is completed, Ocean
common stockholders will receive written instructions for exchanging their
stock certificates. Please do not send in your Ocean stock certificates with
your proxy.
Q: What stockholder approvals are needed to
complete the merger?
A: The following stockholder approvals are needed
to complete the merger:
- the affirmative vote of the holders of at least a majority in interest of
the voting power of outstanding Ocean voting stock to adopt the merger
agreement, with Ocean convertible preferred stockholders voting on an
as-converted basis and as a single class with Ocean common stockholders;
and
- the affirmative vote of the holders of at least a majority of the votes
cast in person or by proxy at the Devon meeting to approve the issuance of
Devon common stock pursuant to the merger agreement.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as soon
as possible. A number of conditions must be satisfied before we can complete
the merger, including approval by the stockholders of both Devon and Ocean.
Although we cannot be sure when all of the conditions to the merger will be
satisfied, we expect to complete the merger in the second quarter of 2003.
Q: What do I need to do now?
A: You should carefully read this document. Then,
if you choose to vote by proxy, you should do so as soon as possible by any
of the following means: (1) completing, signing and mailing your proxy card,
(2) using the toll-free telephone number listed on your proxy card and
following the recorded instructions or (3) going to the Internet website
listed on your proxy card and following the instructions provided.
Q: If I am planning on attending a meeting in
person, should I still grant my proxy?
A: Yes. Whether or not you plan to attend a
meeting, you should grant your proxy as described above. Your shares will not
be voted if you neither attend a meeting and vote in
i
person nor grant your proxy. For Ocean stockholders, this would have the same
effect as a vote against adoption of the merger agreement. Assuming a quorum
is present, the failure of a Devon stockholder to vote in person or by proxy
will not affect the outcome of the vote to approve the issuance of Devon
common stock pursuant to the merger agreement.
Q: Can I change my vote after I have granted my
proxy?
A: Yes. You can change your vote at any time
before your proxy is voted at the meeting by following the procedures set
forth in "The Special Meetings -- Voting Procedures -- Revocation" section of
this document.
Q: If my shares are held in "street name" by my
broker, will my broker vote my shares for me?
A: Your broker will not vote your shares for or
against adoption of the merger agreement or the issuance of Devon common
stock pursuant to the merger agreement unless you tell the broker how to
vote. If you are a Devon stockholder, your broker may vote your shares for or
against adoption of the new long-term incentive plan in the broker's
discretion if you do not tell the broker how to vote. To tell your broker how
to vote, you should follow the directions that your broker provides to you.
Q: Are any stockholders entitled to appraisal rights
in connection with the merger?
A: Ocean convertible preferred stockholders who
comply with the procedures described in "The Merger -- Appraisal Rights"
section of this document will be entitled to appraisal rights in connection
with the merger. Devon common stockholders and Ocean common stockholders are
not entitled to appraisal rights in connection with the merger.
Q: Whom do I call if I have further questions about
voting, the meetings or the merger?
A: Ocean stockholders may call Ocean's Investor
Relations department at (713) 265-6161.
Devon stockholders may call Devon's Investor Relations department at (405)
552-4570.
ii
TABLE OF CONTENTS
PAGE
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SUMMARY..................................................... 1
The Companies............................................. 1
The Special Stockholder Meetings.......................... 1
What Ocean Stockholders Will Receive in the Merger........ 2
U.S. Federal Income Tax Consequences...................... 2
Directors and Management of Devon Following the Merger.... 3
Market Prices of Devon and Ocean Common Stock on Important
Dates.................................................. 3
Our Recommendations to Stockholders....................... 3
Ocean's Reasons for the Merger............................ 4
Devon's Reasons for the Merger............................ 4
Interests of Ocean's Executive Officers and Directors in
the Merger............................................. 4
Opinions of Financial Advisors............................ 5
The Merger Agreement...................................... 5
Other Information Related to the Merger................... 6
Devon Energy Corporation 2003 Long-Term Incentive Plan.... 7
Selected Historical Financial Data of Ocean............... 8
Selected Historical Financial Data of Devon............... 9
Selected Unaudited Pro Forma Combined Condensed Financial
and Other Data......................................... 10
RISK FACTORS................................................ 13
We may not be able to integrate the operations of Devon
and Ocean successfully................................. 13
The market value at the effective time of the merger of
the consideration to Ocean stockholders is determined
by the price of Devon common stock; the market value
will decrease if the market value of Devon common stock
decreases.............................................. 13
The merger may be dilutive to various financial
measurements........................................... 13
The combined company may require capital outlays in excess
of its cash flow....................................... 13
Oil and gas operations involve substantial costs and are
subject to various economic risks...................... 14
Devon and Ocean are, and the combined company will be,
subject to uncertainties of foreign operations......... 14
Reported oil, natural gas and NGL reserve data and future
net revenue estimates are uncertain.................... 15
Product prices are volatile, and low prices can adversely
impact results......................................... 15
Concessions granted to Devon and Ocean by foreign
countries will require significant capital outlays
without guaranteed results............................. 16
Ocean's significant investment in several high volume
assets may not generate the benefits expected by
Devon.................................................. 16
Terrorist attacks or similar hostilities may adversely
impact our results of operations....................... 16
The combined company's debt level may limit its financial
flexibility............................................ 16
THE COMPANIES............................................... 17
Ocean Energy, Inc. ....................................... 17
Devon Energy Corporation.................................. 17
PROPERTIES OF THE COMBINED COMPANY.......................... 18
Primary Operating Areas................................... 18
Devon's Properties........................................ 19
Ocean's Properties........................................ 23
Developed and Undeveloped Acreage......................... 26
iii
TABLE OF CONTENTS -- (CONTINUED)
PAGE
----
COMPARATIVE PER SHARE DATA.................................. 27
MARKET PRICES AND DIVIDEND INFORMATION...................... 28
THE SPECIAL MEETINGS........................................ 29
Time, Place and Date...................................... 29
Purposes.................................................. 29
Quorum.................................................... 29
Record Date............................................... 29
Shares Entitled to Vote................................... 30
Recommendations of the Boards of Directors................ 30
Votes Required............................................ 30
Shares Outstanding........................................ 31
Voting Procedures......................................... 31
Solicitation of Proxies................................... 33
Shares Held in Street Name................................ 33
Auditors.................................................. 34
THE MERGER.................................................. 35
Background of the Merger.................................. 35
Recommendation of Ocean's Board of Directors and Reasons
for the Merger......................................... 36
Recommendation of Devon's Board of Directors and Reasons
for the Merger......................................... 38
Opinions of Financial Advisors............................ 41
Interests of Ocean's Executive Officers and Directors in
the Merger............................................. 53
Pending Litigation........................................ 56
Appraisal Rights.......................................... 56
Regulatory Requirements................................... 59
THE MERGER AGREEMENT........................................ 60
Structure of the Merger................................... 60
When the Merger Becomes Effective......................... 60
Conversion of Ocean Stock and Stock Options............... 60
Exchange of Shares; Fractional Shares..................... 63
Conditions to the Merger.................................. 65
Representations and Warranties............................ 66
Covenants and Other Agreements............................ 67
Termination............................................... 72
Termination Fees and Expenses............................. 73
Amendment; Extension and Waiver........................... 75
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY.... 76
Directors................................................. 76
Executive Officers........................................ 78
DEVON ENERGY CORPORATION 2003 LONG-TERM INCENTIVE PLAN...... 81
Purpose and Key Features of the Plan...................... 81
Administration............................................ 82
Eligibility for Participation............................. 82
iv
TABLE OF CONTENTS -- (CONTINUED)
PAGE
----
Types of Awards........................................... 82
Termination of Employment................................. 84
Amending the New Long-Term Incentive Plan................. 84
Change of Control Event................................... 84
New Plan Benefits......................................... 84
Automatic Adjustment Features............................. 84
U.S. Federal Tax Treatment................................ 85
Equity Compensation Plan Information...................... 86
Devon Executive Compensation.............................. 87
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS.................. 92
General................................................... 92
Tax Treatment of Corporate Parties to the Reorganization
and of Ocean Common Stockholders....................... 93
Tax Treatment of Ocean Convertible Preferred
Stockholders........................................... 93
Backup Withholding; Information Reporting................. 94
COMPARISON OF THE RIGHTS OF OCEAN AND DEVON STOCKHOLDERS.... 95
Authorized Capital Stock.................................. 95
Size of Board of Directors................................ 95
Cumulative Voting......................................... 96
Classes of Directors...................................... 96
Removal of Directors...................................... 96
Vacancies on the Board of Directors....................... 96
Action by Written Consent................................. 96
Amendments to Charter..................................... 97
Amendments to Bylaws...................................... 97
Special Meetings of Stockholders.......................... 98
Vote on Extraordinary Corporate Transactions.............. 98
Inspection of Documents................................... 98
State Anti-Takeover Statutes.............................. 98
Stockholder Rights Plan................................... 99
Special Voting Stock...................................... 99
Notice of Stockholder Proposals and Director
Nominations............................................ 99
ADDITIONAL INFORMATION...................................... 100
Deadline for Future Stockholder Proposals................. 100
Legal Matters............................................. 100
Experts................................................... 100
Where You Can Find More Information....................... 101
Transfer Agents and Registrars............................ 102
Forward-Looking Statements................................ 103
COMMONLY USED OIL AND GAS TERMS............................. 105
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... F-1
v
TABLE OF CONTENTS -- (CONTINUED)
PAGE
----
ANNEXES
Annex A: Agreement and Plan of Merger....................... A-1
Annex B: Opinion of Deutsche Bank Securities Inc. to Ocean's
Board of Directors........................................ B-1
Annex C: Opinion of Morgan Stanley & Co. Incorporated to
Devon's Board of Directors................................ C-1
Annex D: Section 262 of the Delaware General Corporation Law
(Appraisal Rights)........................................ D-1
Annex E: Devon Energy Corporation 2003 Long-Term Incentive
Plan...................................................... E-1
vi
SUMMARY
This summary highlights some of the information in this document. It may
not contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the terms of the merger, you
should carefully read this document and the other documents to which we have
referred you. See the "Additional Information -- Where You Can Find More
Information" section of this document for more details.
THE COMPANIES
Ocean Energy, Inc.
1001 Fannin Street, Suite 1600
Houston, Texas 77002-6794
Telephone: (713) 265-6000
Ocean is an independent energy company engaged primarily in oil and natural
gas exploration, development and production, and the acquisition of producing
properties. Ocean conducts North American operations in the shelf and deepwater
areas of the Gulf of Mexico, the Rocky Mountains, the Permian Basin, Anadarko,
East Texas, North Louisiana and the Gulf Coast regions. Internationally, Ocean
conducts oil and gas activities in West Africa, Equatorial Guinea, Angola,
Nigeria and Cote d'Ivoire. Ocean also conducts operations in Egypt, the Russian
Republic of Tatarstan, Brazil and Indonesia.
Devon Energy Corporation
20 North Broadway
Oklahoma City, Oklahoma 73102-8260
Telephone: (405) 235-3611
Devon is an independent energy company engaged primarily in oil and natural
gas exploration, development and production, acquisition of producing
properties, transportation of oil, gas and natural gas liquids, or NGLs, and the
processing of natural gas. Devon operates oil and gas properties in the United
States, Canada and internationally. Devon's North American properties are
concentrated within five geographic areas. Operations in the United States are
focused in the Permian Basin, the Mid-Continent, the Rocky Mountains and onshore
and offshore Gulf Coast. Canadian operations are focused in the Western Canadian
Sedimentary Basin in Alberta and British Columbia. Operations outside North
America currently include Azerbaijan, Brazil, China and West Africa.
In addition to its exploration and production activities, Devon has a
marketing and midstream business. The marketing business is responsible for the
marketing of Devon's natural gas, crude oil and NGLs. The midstream business
transports oil and gas, removes impurities and extracts NGLs from the natural
gas stream for separate sale. The midstream business is also responsible for
construction and operation of Devon's pipelines, storage and treatment
facilities and gas processing plants.
In this document, we sometimes refer to Devon, Ocean and their respective
subsidiaries as the "combined company."
THE SPECIAL STOCKHOLDER MEETINGS
OCEAN SPECIAL STOCKHOLDER MEETING
Where and when: The Ocean special stockholder meeting will take place at
The Four Seasons Hotel, 1300 Lamar, Houston, Texas, on April 25, 2003 at 10:00
a.m., local time.
What you are being asked to vote on: At the Ocean meeting, Ocean
stockholders will vote on the adoption of the merger agreement. Ocean
stockholders also may be asked to consider other matters as may properly come
before the meeting. At the present time, Ocean knows of no other matters that
will be presented for consideration at the meeting.
Who may vote: You may vote at the Ocean meeting if you owned Ocean common
stock or Ocean convertible preferred stock at the close of business on the
record date, March 17, 2003. On that date, there were 177,780,229 shares of
Ocean common stock and 50,000 shares of Ocean convertible preferred stock,
constituting 3,517,000 shares of Ocean common stock on an as-converted basis,
outstanding and entitled to vote. Ocean common stockholders and Ocean
convertible preferred stockholders will vote as a single class, with Ocean
convertible preferred stockholders voting on an as-converted basis. You may cast
one vote for each share of Ocean common stock that you owned on the record date.
You may cast 70.34 votes for each share of Ocean convertible preferred stock
that you owned on the record date.
1
What vote is needed: The affirmative vote of the holders of at least a
majority in interest of the voting power of outstanding Ocean voting stock, with
Ocean convertible preferred stockholders voting on an as-converted basis and as
a single class with Ocean common stockholders, is required to adopt the merger
agreement.
DEVON SPECIAL STOCKHOLDER MEETING
Where and when: The Devon special stockholder meeting will take place at
Bank One Center, 100 North Broadway, Third Floor, Kirkpatrick Room, Oklahoma
City, Oklahoma, on April 25, 2003, at 10:00 a.m., local time.
What you are being asked to vote on: At the Devon meeting, Devon
stockholders will vote on the issuance of Devon common stock pursuant to the
merger agreement and on the adoption of a new long-term incentive plan. Adoption
of the new long-term incentive plan is conditioned on completion of the merger,
but approval of the issuance of Devon common stock pursuant to the merger
agreement is not conditioned on adoption of the new long-term incentive plan.
Devon is seeking adoption of the new long-term incentive plan to accommodate the
larger employee base of the combined company. Devon stockholders also may be
asked to consider other matters as may properly come before the meeting. At the
present time, Devon knows of no other matters that will be presented for
consideration at the meeting.
Who may vote: You may vote at the Devon meeting if you owned Devon common
stock or exchangeable shares issued by Devon's subsidiary, Northstar Energy
Corporation, at the close of business on the record date, March 17, 2003. On
that date, there were 156,916,379 shares of Devon voting stock outstanding and
entitled to vote, consisting of 155,407,742 shares of Devon common stock and
1,508,637 Northstar exchangeable shares. Holders of Devon common stock and
Northstar exchangeable shares will vote as a single class. You may cast one vote
for each share of Devon common stock and one vote for each Northstar
exchangeable share that you owned on the record date.
Voting Northstar Exchangeable Shares: Each exchangeable share issued by
Northstar is entitled to one vote at the Devon meeting through a voting
agreement. Under the voting agreement, the trustee exercises voting rights on
behalf of holders of the exchangeable shares. The trustee holds one share of
special voting stock of Devon. The special voting share is entitled to one vote
for each outstanding exchangeable share held by persons other than Devon. The
trustee will vote only as instructed by the holders of exchangeable shares.
What vote is needed: The affirmative vote of the holders of at least a
majority of the votes cast in person or by proxy by holders of Devon voting
stock is required to approve the issuance of Devon common stock pursuant to the
merger agreement. The affirmative vote of the holders of at least a majority of
the Devon voting power present in person or by proxy and entitled to vote is
required to adopt the new long-term incentive plan.
WHAT OCEAN STOCKHOLDERS WILL RECEIVE IN THE MERGER
Each Ocean common stockholder will receive 0.414 of a share of Devon common
stock for each share of Ocean common stock that the stockholder owns at the
effective time of the merger. Instead of issuing fractional shares to Ocean
common stockholders, the exchange agent will combine all of the fractional
shares and sell them on the American Stock Exchange. Ocean common stockholders
will receive cash, without interest, instead of fractional shares from the
proceeds obtained from the sale of those shares.
Each share of Ocean convertible preferred stock outstanding at the
effective time of the merger, other than shares held by Ocean convertible
preferred stockholders who validly exercise their appraisal rights under
Delaware law, will remain outstanding. After the effective time of the merger,
those shares of Ocean convertible preferred stock will be convertible into Devon
common stock instead of Ocean common stock, giving effect to the 0.414 exchange
ratio, and will have voting rights in Devon on an as-converted basis.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The merger has been structured so that none of Ocean, Devon or their
respective common stockholders will recognize any gain or loss for U.S. federal
income tax purposes, except to the extent that Ocean common stockholders receive
cash instead of fractional shares of Devon common stock. As a condition to the
merger, Devon and Ocean must each receive a satisfactory
2
opinion from their own legal counsel regarding the U.S. federal income tax
treatment of the merger.
The U.S. federal income tax consequences of the merger to Ocean convertible
preferred stockholders are not clear. As discussed more fully in the "Material
Federal Income Tax Considerations -- Tax Treatment of Ocean Convertible
Preferred Stockholders" section of this document, it is possible that the
Internal Revenue Service could assert either that (1) the automatic
substitution, at the effective time of the merger, of Devon common stock for
Ocean common stock would cause a taxable exchange resulting in recognition of
gain or loss for Ocean convertible preferred stockholders or (2) a subsequent
conversion of the Ocean convertible preferred stock would be a taxable
transaction on which gain or loss would be recognized.
Tax matters are very complicated. The tax consequences of the merger to you
will depend on your own situation. We urge that you consult your tax advisor for
a full understanding of the U.S. federal, state, local and foreign tax
consequences of the merger to you.
DIRECTORS AND MANAGEMENT OF DEVON FOLLOWING THE MERGER
Devon's board of directors is expected to consist of 13 directors after the
effective time of the merger. In that case, nine members of Devon's current
board of directors will retain their positions, and four members of Ocean's
board of directors will be appointed as new members of Devon's board of
directors at the effective time of the merger.
J. Larry Nichols, currently the Chairman, President and Chief Executive
Officer of Devon, will remain the Chairman and Chief Executive Officer of Devon.
James T. Hackett, currently the Chairman, President and Chief Executive Officer
of Ocean, will become the President and Chief Operating Officer of Devon at the
effective time of the merger. Information on other members of the combined
company's management team is contained in the "Directors and Executive Officers
of the Combined Company" section of this document.
MARKET PRICES OF DEVON AND OCEAN COMMON STOCK ON IMPORTANT DATES
Shares of Devon common stock are traded on the American Stock Exchange
under the symbol "DVN." Shares of Ocean common stock are traded on the New York
Stock Exchange under the symbol "OEI." The following table shows the closing per
share sales prices of Devon and Ocean common stock on:
- February 21, 2003 -- the last full trading day before Devon and Ocean
announced the proposed merger; and
- March 19, 2003 -- the last full trading day before the date of this
document.
DEVON OCEAN
COMMON COMMON
DATE STOCK STOCK
---- ------ ------
February 21, 2003.... $48.23 $19.27
March 19, 2003....... 47.85 19.81
OUR RECOMMENDATIONS TO STOCKHOLDERS
TO OCEAN STOCKHOLDERS:
Ocean's board of directors has unanimously approved and adopted the merger
agreement and determined that it is in the best interests of Ocean and its
stockholders. Accordingly, the board recommends that Ocean stockholders vote to
adopt the merger agreement.
As of March 17, 2003, shares representing about 4% of the voting interests
of outstanding Ocean stock were held by Ocean's directors, executive officers
and their respective affiliates.
TO DEVON STOCKHOLDERS:
Devon's board of directors has unanimously approved and adopted the merger
agreement and determined that it is advisable and in the best interests of Devon
and its stockholders. Devon's board of directors also has unanimously approved
the new long-term incentive plan. Accordingly, the board recommends that Devon
stockholders vote to approve the issuance of Devon common stock pursuant to the
merger agreement and to adopt the new long-term incentive plan.
As of March 17, 2003, about 2% of Devon's outstanding voting shares were
held by Devon's directors, executive officers and their respective affiliates.
3
OCEAN'S REASONS FOR THE MERGER
Ocean's board of directors considered various factors in approving and
adopting the merger agreement, including the complementary assets of Ocean and
Devon, the pro forma financial profile of the combined company, expected
benefits from the increased size of the combined company, opportunities to
invest Devon's excess operating cash flow to fund Ocean's significant
exploration and development projects, the accretion to Ocean stockholders in
cash flow per share that Ocean expects to result from the merger, the 0.414
exchange ratio, the tax consequences of the merger to Ocean stockholders and the
other matters referred to in the "The Merger -- Recommendation of Ocean's Board
of Directors and Reasons for the Merger" section of this document.
DEVON'S REASONS FOR THE MERGER
Devon's board of directors considered various factors in approving and
adopting the merger agreement, including opportunities to invest Devon's excess
operating cash flow to fund Ocean's significant exploration and development
projects, the substantial overlap between areas in which Devon and Ocean
operate, the decrease in the combined company's total debt to capitalization
ratio as compared to Devon's stand-alone total debt to capitalization ratio, the
0.414 exchange ratio, expected near-term benefits from Ocean's existing
operations, expected benefits from the increased size of the combined company
and the other matters referred to in the "The Merger -- Recommendation of
Devon's Board of Directors and Reasons for the Merger" section of this document.
INTERESTS OF OCEAN'S EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
Some of Ocean's directors and executive officers may have interests in the
merger that are different from, or are in addition to, your interests:
- At the effective time of the merger, Milton Carroll, Peter J. Fluor, Robert L.
Howard, and Charles F. Mitchell, M.D., each of whom is currently a member of
Ocean's board of directors, are expected to be appointed to Devon's board of
directors. Each will serve until his successor is elected and qualified or
until his earlier resignation or removal.
- At the effective time of the merger, James T. Hackett, who is currently
Ocean's Chairman, President and Chief Executive Officer, will be appointed
President and Chief Operating Officer of Devon. Mr. Hackett's existing
employment and severance agreements were amended in connection with the merger
agreement to suspend until May 1, 2004 the triggering of certain
change-of-control provisions that otherwise would have permitted Mr. Hackett
to terminate his employment at or after the effective time of the merger and
receive certain severance payments.
- John D. Schiller, Jr.'s existing employment agreement was amended in
connection with the merger agreement to suspend until May 1, 2004 the
triggering of certain change-of-control provisions that otherwise would have
permitted Mr. Schiller to terminate his employment at or after the effective
time of the merger and receive certain severance payments.
- After the merger, some Ocean officers may become officers of Devon.
- Outstanding Ocean stock options and restricted stock awards held by Ocean's
directors and executive officers (and all other Ocean employees) will vest at
the effective time of the merger. Outstanding Ocean stock options not
exercised at that time will be converted into options to purchase shares of
Devon common stock, subject to adjustment for the 0.414 exchange ratio.
- The merger will trigger change-of-control provisions in the employment
agreements of some of Ocean's officers, which may entitle them to severance
benefits if their employment ceases after the merger.
- Those Ocean directors who are not appointed to the Devon board will be
entitled to lump-sum cash payments and other benefits having an aggregate
value of about $1.4 million under Ocean's existing directors compensation
plan.
- The merger will cause full or partial vesting of outstanding awards under
Ocean's executive supplemental retirement plan, in which some of Ocean's
executive officers participate, if a participant is terminated under some
circumstances.
4
- The merger agreement generally requires Devon to honor Ocean's existing
employee benefit plans and commitments in accordance with their terms after
the merger. In addition, Devon will assume Ocean's long-term incentive plans
and employee stock purchase plan under which options to purchase shares of
Ocean common stock are outstanding.
- After the merger, Ocean will indemnify and hold harmless to the fullest extent
permitted under law each current and former director and officer of Ocean, its
subsidiaries and divisions against all losses pertaining to actions taken by
them, or failures to act, while serving in those capacities before the merger.
- For six years after the merger, Ocean will maintain its current policies of
directors' and officers' liability insurance and fiduciary liability
insurance, or policies no less favorable to the insured, covering acts or
omissions before the merger. Ocean will not be required to pay annual premiums
to maintain that coverage in excess of 250% of the 2003 annual premium paid by
Ocean, but will be required to purchase as much coverage as reasonably
practicable for that amount.
Ocean's directors and executive officers beneficially owned about 4% of the
voting interests of outstanding Ocean stock as of March 17, 2003. Devon's
directors and executive officers did not beneficially own any shares of Ocean
stock as of March 17, 2003.
The boards of directors of both companies were aware of these interests and
considered them in approving the merger agreement.
OPINIONS OF FINANCIAL ADVISORS
The opinions of Ocean's and Devon's financial advisors are attached to this
document as Annexes B and C. We encourage you to read those opinions carefully,
as well as the descriptions of the analyses and assumptions on which the
opinions were based in "The Merger -- Opinions of Financial Advisors" section of
this document. Each opinion is directed to the applicable company's board of
directors and does not constitute a recommendation to any stockholder as to any
matter relating to the merger.
OPINION OF OCEAN'S FINANCIAL ADVISOR
Deutsche Bank Securities Inc., Ocean's financial advisor, delivered its
opinion to Ocean's board of directors on February 23, 2003 to the effect that,
as of the date of its opinion and subject to the matters and assumptions set
forth in the opinion, the 0.414 exchange ratio was fair from a financial point
of view to Ocean common stockholders.
OPINION OF DEVON'S FINANCIAL ADVISOR
Morgan Stanley & Co. Incorporated, Devon's financial advisor, delivered its
opinion to Devon's board of directors on February 23, 2003 to the effect that,
as of the date of its opinion and subject to the matters and assumptions set
forth in the opinion, the 0.414 exchange ratio pursuant to the merger agreement
was fair from a financial point of view to Devon.
THE MERGER AGREEMENT
The merger agreement is attached to this document as Annex A. We encourage
you to read the merger agreement because it is the legal document that governs
the merger.
WHAT WE NEED TO DO TO COMPLETE THE MERGER
Devon and Ocean will complete the merger only if the conditions set forth
in the merger agreement are satisfied or, in some cases, waived. These
conditions include:
- adoption by Ocean's stockholders of the merger agreement;
- approval by Devon's stockholders of the issuance of Devon common stock
pursuant to the merger agreement;
- the expiration of applicable antitrust waiting periods or the receipt of
necessary antitrust approvals;
- the absence of legal prohibitions to the merger;
- the continued effectiveness of the registration statement of which this
document is a part;
- the approval for listing on the American Stock Exchange of the shares of
Devon common stock to be issued in the merger;
5
- the continued accuracy of each company's representations and warranties;
- the performance by each company of its obligations under the merger
agreement; and
- the receipt of legal opinions from counsel for each company as to the
treatment of the merger for U.S. federal income tax purposes.
Either Devon or Ocean may choose to complete the merger even though a
condition to its obligations has not been satisfied if the necessary stockholder
approvals have been obtained and the law allows the company to do so.
TERMINATION OF THE MERGER AGREEMENT
Devon and Ocean can agree to terminate the merger agreement at any time
without completing the merger, even after stockholder approvals have been
obtained. In addition, either company can terminate the merger agreement on its
own without completing the merger if:
- the merger is not completed by September 30, 2003, other than due to a
breach of the merger agreement by the terminating company;
- the necessary approval of the stockholders of either company is not
obtained at their respective meetings;
- any legal prohibition to completing the merger has become final and non-
appealable;
- the other company materially breaches the merger agreement and cannot or
does not correct the breach within a 30-day cure period;
- the board of directors of the other company withdraws or adversely
changes its original recommendation of the merger, or recommends that its
stockholders vote for a competing transaction; or
- its own board of directors withdraws or adversely changes its original
recommendation of the merger, or recommends that stockholders vote for a
competing transaction, and the other company does not require that it
submit the matter to be voted on at its meeting to a vote of its
stockholders.
TERMINATION FEES AND EXPENSES
If the merger agreement is terminated under circumstances involving a
proposed business transaction between either Devon or Ocean and a third party
that conflicts with the merger and other conditions are satisfied, either Devon
or Ocean will be required to pay a termination fee of up to $139 million and
reimburse the other party for up to $10 million of expenses incurred by the
other party in connection with the merger agreement.
OPTION TO REQUIRE OTHER PARTY'S
STOCKHOLDER VOTE
Each company will have an option, exercisable within two business days
after it receives written notice from the other party that the other party's
board of directors has withdrawn or adversely changed its original
recommendation or recommended a competing transaction to its stockholders, to
require the other party to (1) submit to a vote the matter to be voted on by
that party's stockholders and (2) disclose to that party's stockholders the
circumstances under which the matter is being submitted to a vote.
NO SOLICITATION
Devon and Ocean have generally agreed not to initiate or continue any
discussions with any other party regarding a business combination while the
merger is pending or to engage in any of those discussions unless required by
fiduciary obligations under applicable law.
OTHER INFORMATION RELATED TO THE MERGER
PENDING LITIGATION
A lawsuit was filed on February 27, 2003 against Ocean and all of the
members of Ocean's board of directors. The complaint seeks class action status
and alleges breach of fiduciary duty in connection with the approval of the
merger agreement by Ocean's board of directors. Ocean
6
believes that the lawsuit is without merit and intends to defend against it
vigorously. We can provide no assurance that additional claims may not be made
or filed arising out of, or relating to, the merger agreement or the
transactions that it contemplates.
ANTITRUST CLEARANCE REQUIRED TO COMPLETE THE MERGER
The merger is subject to antitrust laws. We made the required filings with
the Department of Justice and the Federal Trade Commission relating to the
merger on March 7, 2003, but we are not permitted to complete the merger until
the applicable waiting periods have expired or otherwise terminated. We expect
that the applicable waiting periods will expire on or about April 7, 2003.
Although we do not expect the federal government or any state government to
attempt to stop the merger, we cannot assure you that they will not try to do
so.
LISTING OF COMMON STOCK TO BE ISSUED IN THE MERGER
Devon expects to obtain approval to list on the American Stock Exchange the
shares of Devon common stock to be issued pursuant to the merger agreement.
APPRAISAL RIGHTS
Devon stockholders and Ocean common stockholders are not entitled to
appraisal rights in connection with the merger. Ocean convertible preferred
stockholders are entitled to appraisal rights in accordance with Delaware law.
See "The Merger -- Appraisal Rights" section of this document for more
information regarding the appraisal rights of Ocean convertible preferred
stockholders.
ACCOUNTING TREATMENT
Devon will account for the merger using the purchase method of accounting.
Under that method of accounting, the aggregate consideration that Devon pays to
Ocean stockholders will be allocated to Ocean's assets and liabilities based on
their fair values, with any excess being treated as goodwill. Devon currently
expects to record approximately $1.3 billion of goodwill, but that estimate is
subject to change.
DEVON ENERGY CORPORATION 2003 LONG-TERM INCENTIVE PLAN
On February 22, 2003, Devon's board of directors approved the Devon Energy
Corporation 2003 Long-Term Incentive Plan, which we sometimes refer to in this
document as the "new long-term incentive plan" or the "plan," subject to
adoption of the plan by Devon stockholders and to completion of the merger. The
new long-term incentive plan is intended, among other things, to help the
combined company attract and retain directors and employees after the effective
time of the merger and to encourage them to promote the growth and profitability
of the combined company.
7
SELECTED HISTORICAL FINANCIAL DATA OF OCEAN
Ocean is providing the following information to aid in your analysis of the
financial aspects of the merger. Ocean derived this information from audited
financial statements for the years 1998 through 2002.
The information is only a summary. You should read it along with Ocean's
historical financial statements and related notes and the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Ocean's annual reports and other information on file
with the Securities and Exchange Commission and incorporated by reference into
this document. See the "Additional Information -- Where You Can Find More
Information" section of this document.
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1999 2000 2001 2002
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
OCEAN SELECTED HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 536 $ 758 $1,074 $1,255 $1,162
Earnings (loss) from continuing
operations.............................. (407) (22) 213 274 135
Earnings (loss) from continuing operations
per share:
Basic................................... (4.04) (0.16) 1.26 1.59 0.76
Diluted................................. (4.04) (0.16) 1.22 1.53 0.74
Cash dividends per common share........... -- -- 0.04 0.16 0.16
AS OF DECEMBER 31,
------------------------------------------
1998 1999 2000 2001 2002
------ ------ ------ ------ ------
(IN MILLIONS)
OCEAN SELECTED HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Total assets.............................. $2,007 $2,783 $2,890 $3,469 $3,893
Long-term debt............................ 1,372 1,333 1,033 1,283 1,443
Stockholders' equity...................... 377 948 1,153 1,472 1,575
8
SELECTED HISTORICAL FINANCIAL DATA OF DEVON
Devon is providing the following information to aid in your analysis of the
financial aspects of the merger. Devon derived this information from audited
financial statements for the years 1998 through 2002.
The information is only a summary. You should read it along with Devon's
historical financial statements and related notes and the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Devon's annual reports and other information on file
with the Securities and Exchange Commission and incorporated by reference into
this document. See the "Additional Information -- Where You Can Find More
Information" section of this document.
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1999 2000 2001 2002
------ ------ ------ ------- -------
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
DEVON SELECTED HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 604 $1,140 $2,587 $ 2,864 $ 4,316
Earnings (loss) from continuing operations
before cumulative effect of change in
accounting principle.......................... (201) (193) 661 23 59
Earnings (loss) from continuing operations
before cumulative effect of change in
accounting principle per share:
Basic......................................... (2.83) (2.13) 5.13 0.09 0.32
Diluted....................................... (2.83) (2.13) 4.97 0.09 0.32
Cash dividends per common share................. 0.10 0.14 0.17 0.20 0.20
AS OF DECEMBER 31,
--------------------------------------------
1998 1999 2000 2001 2002
------ ------ ------ ------- -------
(IN MILLIONS)
DEVON SELECTED HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Investment in common stock of ChevronTexaco
Corporation................................... $ -- $ 614 $ 599 $ 636 $ 472
Total assets.................................... 1,931 6,096 6,860 13,184 16,225
Debentures exchangeable into shares of
ChevronTexaco Corporation..................... -- 760 760 649 662
Other long-term debt............................ 736 1,656 1,289 5,940 6,900
Convertible preferred securities of subsidiary
trust......................................... 149 -- -- -- --
Stockholders' equity............................ 750 2,521 3,277 3,259 4,653
9
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL AND OTHER DATA
The following describes the pro forma effect of the merger on (1) the
consolidated statement of operations data of Devon and Ocean for the year ended
December 31, 2002 and (2) the consolidated balance sheet data of Devon and Ocean
as of December 31, 2002. The unaudited pro forma combined condensed balance
sheet data is presented as if the merger had occurred on December 31, 2002. The
unaudited pro forma combined condensed statement of operations data is presented
as if the merger had occurred on January 1, 2002.
This information is only a summary. You should read the unaudited pro forma
combined financial information and the accompanying notes that are included in
this document. You should also read the historical information of Devon and
Ocean that is incorporated by reference into this document.
We are providing the unaudited pro forma combined condensed financial and
other data for informational purposes only. It does not purport to represent
what the financial position and results of operations of the combined company
would actually have been had the merger in fact occurred on the dates indicated.
It also does not purport to represent the future results that the combined
company will achieve after the merger.
We prepared the pro forma information based on the following:
- Both Devon and Ocean use the full cost method of accounting for their oil
and gas producing activities.
- Devon acquired all the outstanding common shares of Mitchell Energy &
Development Corp. on January 24, 2002. Devon's operating results for 2002
included in the unaudited pro forma combined statement of operations
assume that the Mitchell acquisition occurred on January 1, 2002.
- We have not reflected as an adjustment to the historical data annual cost
savings of at least $50 million that Devon and Ocean expect to result
from the merger.
- Devon recognized net earnings from discontinued operations in 2002 of $45
million. This gain is not included in the summary unaudited pro forma
combined statement of operations.
No pro forma adjustments have been made with respect to the following
unusual items. These items are reflected in the historical results of Devon and
Ocean, as applicable, and should be considered in reading the pro forma results:
- In the second quarter of 2002, Devon recognized a $651 million ($371
million after tax) reduction to the carrying value of its Canadian oil
and gas properties pursuant to the full cost accounting ceiling rules.
- In the third quarter of 2002, Ocean announced that it would discontinue
current exploratory activities in Pakistan and on Block 10 offshore
Angola. As a result, Ocean recognized an impairment in the amount of $76
million ($50 million after tax).
- In the fourth quarter of 2002, Devon recognized a $205 million ($128
million after tax) expense related to the impairment of the value of 7.1
million shares of ChevronTexaco Corporation common stock owned by Devon.
The impairment was related to Devon's determination that the decline in
the value of the ChevronTexaco common stock was other than temporary, as
such term is defined by accounting rules.
10
COMBINED COMPANY PRO FORMA
YEAR ENDED DECEMBER 31, 2002
----------------------------
(IN MILLIONS,
EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil sales................................................. $ 1,549
Gas sales................................................. 2,655
NGL sales................................................. 304
Marketing & midstream revenues............................ 1,069
-------
Total revenues......................................... 5,577
-------
Operating costs and expenses:
Lease operating expenses.................................. 835
Transportation costs...................................... 190
Production taxes.......................................... 148
Marketing & midstream costs and expenses.................. 873
Depreciation, depletion and amortization.................. 1,811
General and administrative................................ 321
Reduction of carrying value of oil and gas properties..... 727
-------
Total operating costs and expenses..................... 4,905
-------
Earnings from operations.................................... 672
Other income (expenses):
Interest expense.......................................... (582)
Dividends on subsidiary's preferred stock................. (3)
Effects of changes in foreign currency exchange rates..... 1
Change in fair value of financial instruments............. 28
Impairment of ChevronTexaco Corporation common stock...... (205)
Other income (expenses)................................... 32
-------
Net other expenses..................................... (729)
-------
Earnings (loss) from continuing operations before income
taxes..................................................... (57)
Income tax expense (benefit):
Current................................................... 47
Deferred.................................................. (180)
-------
Total income tax expense (benefit)..................... (133)
-------
Earnings from continuing operations......................... 76
Less preferred stock dividends.............................. 10
-------
Net earnings applicable to common stockholders.............. $ 66
=======
Net earnings from continuing operations per share:
Basic..................................................... $ 0.29
Diluted................................................... 0.29
Cash dividends per share.................................... 0.20
Weighted average common shares outstanding:
Basic..................................................... 229
Diluted................................................... 232
11
COMBINED COMPANY PRO FORMA
YEAR ENDED DECEMBER 31, 2002
----------------------------
PRODUCTION, PRICE AND OTHER DATA:
Production:
Oil (MMBbls).............................................. 70
Gas (Bcf)................................................. 927
NGLs (MMBbls)............................................. 22
MMBoe..................................................... 247
Average prices:
Oil (per Bbl)............................................. $ 22.00
Gas (per Mcf)............................................. 2.87
NGLs (per Bbl)............................................ 13.99
Per Boe................................................... 18.28
Cost per Boe:
Operating costs........................................... 4.76
Depreciation, depletion and amortization of oil and gas
properties............................................. 6.85
COMBINED COMPANY PRO FORMA
AS OF DECEMBER 31, 2002
--------------------------
(IN MILLIONS,
EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Total assets................................................ $23,056
Debentures exchangeable into shares of ChevronTexaco
Corporation common stock.................................. 662
Other long-term debt........................................ 8,520
Stockholders' equity........................................ 8,285
Book value per share........................................ 36.06
12
RISK FACTORS
You should consider carefully the following risk factors before deciding
how to vote.
WE MAY NOT BE ABLE TO INTEGRATE THE OPERATIONS OF DEVON AND OCEAN SUCCESSFULLY
The merger will present challenges to management, including the integration
of the operations, technologies and personnel of Devon and Ocean. The merger
will also include other risks commonly associated with similar transactions,
including unanticipated liabilities, unanticipated costs and diversion of
management's attention. Any difficulties that we encounter in the transition and
integration process could have an adverse effect on the revenue, level of
expenses and operating results of the combined company. The combined company may
also experience operational interruptions or the loss of key employees,
customers or suppliers. As a result, we may not realize any of the anticipated
benefits of the merger.
THE MARKET VALUE AT THE EFFECTIVE TIME OF THE MERGER OF THE CONSIDERATION TO
OCEAN STOCKHOLDERS IS DETERMINED BY THE PRICE OF DEVON COMMON STOCK; THE MARKET
VALUE WILL DECREASE IF THE MARKET VALUE OF DEVON COMMON STOCK DECREASES
The market value at the effective time of the merger of the consideration
that Ocean stockholders will receive in the merger depends on the trading price
of Devon common stock. The 0.414 exchange ratio that determines the number of
shares of Devon common stock that Ocean stockholders will receive in the merger
is fixed. This means that there is no "price protection" mechanism contained in
the merger agreement that would adjust the number of shares that Ocean
stockholders will receive based on any increases or decreases in the trading
price of Devon common stock. If Devon's stock price decreases, the market value
of the consideration will also decrease. For historical and current market
prices of Devon common stock and Ocean common stock, see the "Market Prices and
Dividend Information" section of this document.
THE MERGER MAY BE DILUTIVE TO VARIOUS FINANCIAL MEASUREMENTS
Devon expects that, in the near term, the merger will be slightly dilutive
to its earnings per share, cash flow per share, production per share and
reserves per share on a pro forma basis. Future events and conditions could
cause such dilution to be more significant than expected, including, among other
things, adverse changes in:
- energy market conditions;
- commodity prices for oil, natural gas and NGLs;
- anticipated production levels;
- anticipated reserve levels;
- future operating results;
- competitive conditions;
- the effectiveness of technologies;
- the availability of capital resources;
- laws and regulations affecting the energy business;
- capital expenditure obligations; and
- general economic conditions.
THE COMBINED COMPANY MAY REQUIRE CAPITAL OUTLAYS IN EXCESS OF ITS CASH FLOW
The benefits that Devon and Ocean expect from the merger may be reduced if
the combined company's cash flow is insufficient to meets its capital needs.
Devon and Ocean have a significant number
13
of proved undeveloped reserves, or PUDs, international drilling commitments and
deepwater projects and prospects. The capital outlays necessary to achieve the
anticipated benefits of those assets will be significant. In addition, the
combined company will have significant debt maturities over the next several
years. If the combined company's operating cash flow is insufficient to meet
those outlays, we may need to reduce or reprioritize our capital budget, or sell
non-core assets, "monetize" commercial discoveries that would be capital
intensive or access the capital markets to obtain the necessary funds. A
significant decline in commodity prices would make it even more difficult to
fund those projects at the times required.
OIL AND GAS OPERATIONS INVOLVE SUBSTANTIAL COSTS AND ARE SUBJECT TO VARIOUS
ECONOMIC RISKS
The oil and gas operations of Devon and Ocean are, and the oil and gas
operations of the combined company will be, subject to the economic risks
typically associated with exploration, development and production activities,
including the necessity of significant expenditures to locate and acquire
properties and to drill exploratory wells. In conducting exploration,
development and production activities, the occurrence of some events can cause
damage to property, interrupt production or otherwise compromise the combined
company's operations. These risks include:
- the presence of unanticipated pressure or irregularities in formations;
- weather disturbances;
- lack of access to pipelines or other methods of transportation;
- accidents, blowouts or similar events; or
- environmental hazards or liabilities.
A significant occurrence of one of these events could result in a total
loss of the combined company's investment in a particular property. If
exploration efforts are unsuccessful in establishing proved reserves and
exploration activities cease, the amounts accumulated as unproved costs would be
charged against earnings as impairments in countries where the existence of
proved reserves has not yet been determined. In addition, the cost and timing
associated with drilling, completing and operating wells is often uncertain.
DEVON AND OCEAN ARE, AND THE COMBINED COMPANY WILL BE, SUBJECT TO UNCERTAINTIES
OF FOREIGN OPERATIONS
Devon has international operations in Azerbaijan, Brazil, China and West
Africa. Ocean has numerous international assets in Equatorial Guinea, Angola,
Nigeria, Cote d'Ivoire, Egypt, the Russian Republic of Tatarstan, Brazil and
Indonesia that will expose the combined company to additional uncertainties.
Political, economic and other uncertainties may adversely affect these
operations. These uncertainties include:
- general strikes and civil unrest;
- the risk of war, acts of terrorism, expropriation, forced renegotiation
or modification of existing contracts;
- import and export regulations;
- taxation policies, including royalty and tax increases and retroactive
tax claims, and investment restrictions;
- transportation regulations and tariffs;
- exchange controls, currency fluctuations, devaluation or other activities
that limit or disrupt markets and restrict payments or the movement of
funds;
- laws and policies of the United States affecting foreign trade, including
trade sanctions;
- the possibility of being subject to exclusive jurisdiction of foreign
courts in connection with legal disputes relating to licenses to operate
and concession rights in countries where Devon and Ocean currently
operate;
14
- the possible inability to subject foreign persons to the jurisdiction of
courts in the United States; and
- difficulties in enforcing the combined company's rights against a
governmental agency because of the doctrine of sovereign immunity and
foreign sovereignty over international operations.
Foreign countries have occasionally asserted rights to land, including oil
and gas properties, through border disputes. If a country claims superior rights
to oil and gas leases or concessions granted to Devon or Ocean by another
country, Devon's or Ocean's interests could decrease in value or be lost. Even
the combined company's smaller international assets may affect our overall
business and results of operations by distracting management's attention from
our more significant assets. Various regions of the world have a history of
political and economic instability. This 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 termination of contract rights and expropriation of
foreign-owned assets. This could adversely affect the combined company's
interests.
REPORTED OIL, NATURAL GAS AND NGL RESERVE DATA AND FUTURE NET REVENUE ESTIMATES
ARE UNCERTAIN
Estimates of reserves are projections based on engineering data, projected
future rates of production and the timing of future expenditures. Devon's
estimates of its proved oil, natural gas and NGL reserves and projected future
net revenue are based on reserve reports that Devon prepares and on the reports
of independent consulting petroleum engineers that it hires for that purpose.
Ocean's estimates of proved oil and natural gas reserves and projected net
revenue are based on reports prepared by internal reserve engineers. At least
80% of Ocean's estimates of proved reserves are reviewed annually by an
independent petroleum engineering firm. The process of estimating oil, natural
gas and NGL reserves requires substantial judgment, resulting in imprecise
determinations, particularly for new discoveries. Different reserve engineers
may make different estimates of reserve quantities and related revenue based on
the same data. Future performance that deviates significantly from the reserve
reports could have a material adverse effect on the combined company's financial
position and results of operations.
PRODUCT PRICES ARE VOLATILE, AND LOW PRICES CAN ADVERSELY IMPACT RESULTS
The results of operations of Devon and Ocean are highly dependent on the
prices of and demand for oil, natural gas and NGLs. Historically, the markets
for oil, natural gas and NGLs have been volatile and are likely to continue to
be volatile in the future. Accordingly, the prices received by Devon and Ocean
for their oil, natural gas and NGL production depend on numerous factors beyond
their control. These factors include, among other things:
- the level of ultimate consumer product demand;
- governmental regulations and taxes;
- the price and availability of alternative fuels;
- the level of imports and exports of oil, natural gas and NGLs;
- the overall economic environment;
- OPEC production restraints; and
- weather.
Any significant decline in prices for oil, natural gas and NGLs, as has occurred
from time to time in the past, could have a material adverse effect on the
combined company's financial condition, results of operations and quantities of
reserves recoverable on an economic basis. Should the oil and gas industry
experience significant price declines or other adverse market conditions, the
combined company may not be able to generate sufficient cash flows from
operations to meet its obligations and to make planned capital expenditures.
15
CONCESSIONS GRANTED TO DEVON AND OCEAN BY FOREIGN COUNTRIES WILL REQUIRE
SIGNIFICANT CAPITAL OUTLAYS WITHOUT GUARANTEED RESULTS
Devon and Ocean have made commitments in connection with being granted
concessions by foreign countries that will require the combined company to make
significant capital outlays. The benefits that Devon and Ocean anticipate from
those commitments may not be realized. It would likely be difficult for the
combined company to exit some or all of those countries without making those
capital outlays.
OCEAN'S SIGNIFICANT INVESTMENT IN SEVERAL HIGH VOLUME ASSETS MAY NOT GENERATE
THE BENEFITS EXPECTED BY DEVON
Devon believes that a significant portion of Ocean's value and future
potential is tied to several of its high volume assets, including the Zafiro
Field in Equatorial Guinea and six significant deepwater discoveries in the Gulf
of Mexico. These projects currently account for about 40% of Ocean's current
reserves. To the extent that these assets do not generate the return expected of
them, the benefits of the merger to Devon will be reduced and the combined
company may have to write down the related reserves.
TERRORIST ATTACKS OR SIMILAR HOSTILITIES MAY ADVERSELY IMPACT OUR RESULTS OF
OPERATIONS
The impact that future terrorist attacks or regional hostilities
(particularly in the Middle East) may have on the energy industry in general,
and on Devon, Ocean and the combined company in particular, is not known at this
time. Uncertainty surrounding military strikes or a sustained military campaign
may affect operations in unpredictable ways, including disruptions of fuel
supplies and markets, particularly oil, and the possibility that infrastructure
facilities, including pipelines, production facilities, processing plants and
refineries, could be direct targets of, or indirect casualties of, an act of
terror or war. Moreover, each of Devon and Ocean have incurred additional costs
since the terrorist attacks of September 11, 2001 to safeguard certain of its
assets, and the combined company may be required to incur significant additional
costs in the future.
THE COMBINED COMPANY'S DEBT LEVEL MAY LIMIT ITS FINANCIAL FLEXIBILITY
As of December 31, 2002, Devon had approximately $7.6 billion of total
debt. As of the same date, Ocean had approximately $1.4 billion of total debt.
Assuming that the merger had been completed on December 31, 2002, the combined
company would have had approximately $9.2 billion of total debt on a pro forma
basis. The combined company may incur additional debt in the future, including
debt in connection with future acquisitions. The level of the combined company's
debt could have several important effects on the combined company's future
operations, including, among other things:
- a significant portion of the combined company's cash flow from operations
will be dedicated to the payment of principal and interest on outstanding
debt and will not be available for other purposes;
- credit rating agencies may in the future view the combined company's debt
level negatively;
- covenants contained in Devon's and Ocean's existing debt arrangements
will require the combined company to continue to meet financial tests
that may affect the combined company's flexibility in planning for and
reacting to changes in its business, including possible acquisition
opportunities;
- the combined company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate and other
purposes may be limited;
- the combined company may be at a competitive disadvantage to similar
companies that have less debt; and
- the combined company may be more vulnerable to adverse economic and
industry conditions as a result of its significant debt level.
16
THE COMPANIES
OCEAN ENERGY, INC.
Ocean is an independent energy company engaged primarily in oil and natural
gas exploration, development and production, and the acquisition of producing
properties. Ocean conducts North American operations in the shelf and deepwater
areas of the Gulf of Mexico, the Rocky Mountains, the Permian Basin, Anadarko,
East Texas, North Louisiana and the Gulf Coast regions. Internationally, Ocean
conducts oil and gas activities in Equatorial Guinea, Angola, Nigeria and Cote
d' Ivoire. Ocean also conducts operations in Egypt, the Russian Republic of
Tatarstan, Brazil and Indonesia.
Ocean has developed a significant position among U.S. independent oil and
gas exploration and production companies in the deep waters off the coasts of
the Gulf of Mexico, Brazil and West Africa. Ocean has assumed an operator
position as controlling partner on selected properties in each of these
deepwater areas. During 2002, Ocean increased its deepwater net acreage position
in the Gulf of Mexico and expanded its international operations by adding new
blocks in Angola, Nigeria and Egypt.
At December 31, 2002, Ocean's estimated proved reserves were 593 MMBoe, of
which 50% were natural gas reserves and 50% were oil and NGL reserves. The
present value of pre-tax net revenues discounted at 10% per annum assuming
essentially constant prices of these reserves was $6.4 billion. After taxes, the
present value was $4.7 billion.
DEVON ENERGY CORPORATION
Devon is an independent energy company engaged primarily in oil and natural
gas exploration, development and production, acquisition of producing
properties, transportation of oil, gas and NGLs and the processing of natural
gas. Through its predecessors, Devon began operations in 1971. Devon operates
oil and gas properties in the United States, Canada and internationally. Devon's
North American properties are concentrated within five geographic areas.
Operations in the United States are focused in the Permian Basin, the
Mid-Continent, the Rocky Mountains and onshore and offshore Gulf Coast. Canadian
operations are focused in the Western Canadian Sedimentary Basin in Alberta and
British Columbia. Operations outside North America currently include Azerbaijan,
Brazil, China and West Africa.
In addition to its exploration and production activities, Devon has a
marketing and midstream business. The marketing business is responsible for the
marketing of Devon's natural gas, crude oil and NGLs. The midstream business
transports oil and gas, removes impurities and extracts NGLs from the natural
gas stream for separate sale. The midstream business is also responsible for
construction and operation of Devon's pipelines, storage and treatment
facilities and gas processing plants.
At December 31, 2002, Devon's estimated proved reserves were 1,609 MMBoe,
of which 60% were natural gas reserves and 40% were oil and NGLs reserves. The
present value of pre-tax future net revenues discounted at 10% per annum
assuming essentially constant prices of those reserves was $15.3 billion. After
taxes, the present value was $10.4 billion.
17
PROPERTIES OF THE COMBINED COMPANY
The following table shows the total proved reserves, net of royalties, as
of December 31, 2002 of Devon and Ocean, individually, and on a combined basis:
COMBINED
DEVON OCEAN COMBINED MBOE%
--------- --------- --------- ---------
BY OPERATING AREA
-----------------
NORTH AMERICA -- MBOE:
United States -- Onshore................. 825,342 196,328 1,021,670 46%
United States -- Offshore................ 60,249 197,603 257,852 12%
--------- --------- --------- ---
Total United States.................... 885,591 393,931 1,279,522 58%
Canada................................... 575,606 -- 575,606 26%
--------- --------- --------- ---
Total North America.................... 1,461,197 393,931 1,855,128 84%
--------- --------- --------- ---
INTERNATIONAL -- MBOE:
Azerbaijan............................... 125,143 -- 125,143 6%
Equatorial Guinea........................ -- 116,832 116,832 5%
Other International...................... 22,742 82,657 105,399 5%
--------- --------- --------- ---
Total International.................... 147,885 199,489 347,374 16%
--------- --------- --------- ---
Total Company.......................... 1,609,082 593,420 2,202,502 100%
========= ========= ========= ===
BY PRODUCT
-----------
OIL -- MBBLS:
United States............................ 147,352 106,712 254,064 12%
Canada................................... 148,959 -- 148,959 7%
International............................ 147,885 171,027 318,912 14%
--------- --------- --------- ---
Total Company -- Oil................... 444,196 277,739 721,935 33%
========= ========= ========= ===
NATURAL GAS -- MMCF:
United States............................ 3,551,812 1,608,680 5,160,492 39%
Canada................................... 2,284,048 -- 2,284,048 17%
International............................ -- 170,775 170,775 1%
--------- --------- --------- ---
Total Company -- Natural Gas........... 5,835,860 1,779,455 7,615,315 57%
========= ========= ========= ===
NGLS -- MBBLS:
United States............................ 146,271 19,105 165,376 8%
Canada................................... 45,972 -- 45,972 2%
International............................ -- -- -- --
--------- --------- --------- ---
Total Company -- NGLs.................. 192,243 19,105 211,348 10%
========= ========= ========= ===
Total Company -- MBoe.................. 1,609,082 593,420 2,202,502 100%
========= ========= ========= ===
PRIMARY OPERATING AREAS
Eighty-four percent of the combined company's proved reserves will be
within North America. The remainder is in several other regions. Devon has
organized its exploration and production operations geographically into five
separate areas in North America and one internationally. Devon also has a
separate marketing and midstream business.
18
Ocean's operations are also organized geographically into three separate
areas. Each area includes an underlying base of producing oil and gas wells and
an inventory of undeveloped lands on which to explore for new oil and gas
reserves.
DEVON'S PROPERTIES
Devon's North American properties are concentrated within five geographic
areas. Operations in the United States are focused in the Permian Basin, the
Mid-Continent, the Rocky Mountains and onshore and offshore Gulf Coast regions.
Canadian operations are focused in the Western Canadian Sedimentary Basin in
Alberta and British Columbia. Operations outside North America currently include
Azerbaijan, Brazil, China and West Africa. Maintaining a tight geographic focus
in selected core areas has allowed Devon to improve operating and capital
efficiency.
UNITED STATES PROPERTIES
Permian Basin
The Permian Basin includes portions of Southeast New Mexico and West Texas.
These assets include conventional oil and gas properties from a wide variety of
geologic formations and productive depths. The Permian Basin represented 9% of
Devon's proved reserves at December 31, 2002.
Devon's leasehold position in Southeast New Mexico encompasses more than
102,000 acres of developed lands and 237,000 acres of undeveloped land and
minerals. Historically, Devon has been a very active operator in this area
developing gas from the high productivity Morrow formation and oil in the lower
risk Delaware formation.
In the West Texas area of the Permian Basin, Devon maintains a base of oil
production with long-life reserves. Many of these reserves are from both
operated and non-operated positions in large enhanced oil recovery units such as
the Wasson ODC Unit, the Willard Unit, the Reeves Unit, the North Welch Unit and
the Anton Irish (Clearfork) Unit. These oil-producing units often exhibit long
lives with low decline rates. Devon also owns a significant acreage position in
West Texas with over 194,000 acres of developed lands and over 224,000 acres of
undeveloped land and minerals at December 31, 2002.
Mid-Continent
The Mid-Continent region includes portions of Texas, Oklahoma, Kansas,
Mississippi and Louisiana. These areas encompass a wide variety of geologic
formations and productive depths and produce both oil and natural gas. Devon's
Mid-Continent production has historically come from conventional oil and gas
properties, but Devon has recently established two non-conventional gas
operations in the Mid-Continent region: the Barnett Shale and the Cherokee
coalbed methane project. The Mid-Continent region represented 30% of Devon's
proved reserves at December 31, 2002.
The most significant asset acquired by Devon in its 2002 acquisition of
Mitchell was a substantial interest in the Barnett Shale of North Texas. The
Barnett Shale is known as a tight gas formation. This means that, in its natural
state, the formation is resistant to the production of natural gas. Mitchell
spent decades understanding how to efficiently develop and produce this gas. The
resulting technology yielded a low-risk and highly profitable natural gas
operation. Devon holds 525,000 net acres and over 1,100 producing wells in the
Barnett Shale. Devon's average working interest is approximately 95%. The
Barnett Shale is an unconventional natural gas resource that offers immediate
low-risk production growth and the potential for additional drilling locations.
Devon has experienced success extracting gas from the Barnett Shale by
using light sand fracturing. Light sand fracturing yields better results and is
less expensive than earlier techniques and can be used to complete new wells and
to refracture existing wells. Refractured wells often exceed their original flow
rates. Devon is also investigating horizontal drilling and closer well spacing
to further enhance the value of the Barnett Shale.
19
Devon's marketing and midstream operation transports, treats and processes
its Barnett Shale production along with Barnett Shale production from unrelated
third parties. The transport system consists of approximately 3,100 miles of
pipeline, a 650 MMcf per day gas processing plant, and a 15,000 Bbls per day NGL
fractionator.
In 2003, Devon plans to drill up to 450 new Barnett Shale wells and
refracture 64 wells. Devon is also conducting exploratory pilot projects outside
the core development area in an effort to expand the productive area. The
Barnett Shale is expected to continue to be an important growth area for Devon
for the foreseeable future. Current production from the Barnett Shale is
approximately 345 MMcf and 21,700 Bbls of oil and NGLs per day net.
The other non-conventional asset Devon is developing in the Mid-Continent
region is the Cherokee coalbed methane project. Coalbed methane is natural gas
produced from underground coal deposits. Devon acquired over 400,000 net acres
within the Cherokee area of Southeast Kansas and Northeast Oklahoma in 2001.
Devon's East Texas properties are a significant conventional asset. A large
portion of this asset base was initially acquired in 1999. The Carthage and
Bethany fields are two of the primary properties. These properties produce from
the Cotton Valley sands, the Travis Peak sands and from shallower sands and
carbonates. Devon operates over 500 producing wells in this area and utilizes a
one to two rig drilling program to continue the low-risk, infill development of
this area.
The 2002 acquisition of Mitchell added a complementary asset base to the
East Texas area. These properties are located on the western side of the East
Texas Basin and produce from the Bossier, Cotton Valley and Travis Peaks sands.
Devon operates approximately 400 producing wells in this area and plans to
continue the development drilling program with one to two rigs. Devon's current
net production in East Texas is approximately 123 MMcf and 3,800 Bbls of oil and
NGLs per day.
Rocky Mountain Region
Devon's operations in the Rocky Mountain region include properties in
Wyoming, Utah, and Northern New Mexico. These assets include conventional oil
and gas properties and coalbed methane projects. As of December 31, 2002, the
Rocky Mountain region comprised 11% of Devon's proved reserves.
Devon began producing coalbed methane in the San Juan Basin of New Mexico
in the mid-1980s and began drilling coalbed methane wells in the Powder River
Basin of Wyoming in 1998. As of December 31, 2002, Devon has drilled over 1,500
coalbed methane wells in the Powder River Basin. Devon's net coalbed methane gas
production from the basin was approximately 80 MMcf per day as of December 31,
2002, and Devon plans to drill more than 100 wells in the Powder River Basin in
2003. Current production in the basin is primarily from the Wyodak coal
formation.
The deeper Big George formation is currently being tested by Devon and
others with working interests in the area. Increased development in the Big
George is subject to an Environmental Impact Statement, which has been completed
and is expected to be approved within the next few months. Pending this approval
and the success of current pilot projects, the Big George could significantly
expand the coalbed methane play into the western portion of the Powder River
Basin. Devon's leasehold in this area would allow for the development of four
projects in the Big George.
Devon is also continuing to develop conventional gas operations at the
Washakie field in Wyoming. Devon drilled 31 wells in 2002 and plans to drill
another 30 wells in 2003. Devon has interests in over 200,000 acres. Devon's
current net production from Washakie is approximately 77 MMcf and 1,100 Bbls of
oil and NGLs per day.
Gulf of Mexico and Gulf Coast
Devon is active in the offshore Gulf of Mexico and onshore South Texas and
South Louisiana. Devon operates 100 structures in the Gulf of Mexico
predominantly in the outer shelf area offshore Louisiana.
20
The Gulf of Mexico and Gulf Coast region represented 5% of Devon's proved
reserves at December 31, 2002.
Devon is applying four-component, or 4-C, seismic technology to identify
prospects on large tracts of its shelf acreage. Traditional seismic techniques
have not been successful in imaging reservoirs lying below shallow gas
reservoirs and salt deposits, but 4-C seismic technology is allowing Devon's
geoscientists to more accurately picture these unexplored formations. Devon has
conducted two large 4-C seismic surveys offshore Louisiana and, in 2002, Devon
drilled four successful wells in the West Cameron area based on 4-C data. Devon
is also reprocessing large seismic data volumes using pre-stack depth migration
to prospect for oil and gas in the outer shelf. In addition, Devon is utilizing
new long cable 3-D seismic data to better image deep shelf prospects. Devon has
developed a significant inventory of drilling opportunities for deeper gas near
our infrastructure in offshore Louisiana and offshore Texas.
In the deepwater Gulf of Mexico, Devon participated in its first subsalt
discovery in 1999 in the Enchilada Field located in Garden Banks 128. Since then
Devon has operated several successful subsea completions ranging from Garden
Banks to Viosca Knoll. Devon has experience with the successful installation and
operation of subsea production equipment, which is an important component of any
deepwater program. Devon's Pecten discovery in Viosca Knoll Block 694, a subsea
tieback completed in 2001, is currently producing approximately 17 MMcf of gas
per day.
Because deepwater exploration requires significant capital expenditures,
Devon's strategy is to share projects with experienced partners to mitigate
risk. In 2002, Devon entered into a four-well joint venture with ChevronTexaco
that will earn Devon a 25% working interest in 71 deepwater blocks and 14
identified exploratory prospects. Devon also made a potentially significant
discovery in 2002 in 8,200 feet of water at Cascade located in Walker Ridge
Block 206 and plans to participate with other partners in four or five deepwater
wells in 2003, including a confirmation well at Cascade.
Devon's operations in the Gulf Coast region include operations onshore in
South Texas, where exploration for oil and gas is accelerating. Devon's
activities in this area have focused on exploration in the Edwards, Wilcox and
Frio/Vicksburg formations. Devon also acquired additional production and
undeveloped acreage in the South Texas area from its acquisition of Mitchell.
CANADA
Devon's acquisition of Anderson in late 2001 significantly increased the
relative importance of Devon's Canadian operations. The Anderson acquisition
strengthened Devon's holdings in the Deep Basin located in Western Alberta and
Eastern British Columbia, and the Foothills Region of Northeastern British
Columbia. As of December 31, 2002, 36% of Devon's proved reserves were in
Canada.
Devon had sought for years to obtain a significant acreage position in the
Deep Basin, but other operators, including Anderson, already controlled most of
the acreage. As a result of the Anderson acquisition, Devon now holds over
800,000 net acres in the Deep Basin. The profitability of Devon's operations in
the Deep Basin is enhanced by its ownership in nine gas processing plants in the
area. Devon plans to drill about 100 wells in the Deep Basin in 2003. These
reservoirs tend to be rich in liquids, producing up to 100 barrels of NGLs with
each MMcf of gas.
Late in 2002, Devon commenced production from the first of several wells it
has drilled in the Grizzly Valley area of the Foothills Region of Northeastern
British Columbia. Due to gas pipeline and processing limitations, initial
production has been limited to 10 MMcf of gas per day. However, a pipeline
extension slated for completion in the second quarter of 2003 should allow
production to increase to about 35 MMcf per day.
Devon acquired from Anderson approximately 1.5 million net acres in the
MacKenzie Delta region and the shallow waters of the Beaufort Sea in Northern
Canada. In 2002, a Devon well in the MacKenzie Delta encountered over 110 feet
of natural gas pay in the Kamik sand. Two to three more exploratory wells are
planned by Devon in the MacKenzie Delta in 2003.
21
Devon has been active for over a decade in Northeastern British Columbia,
an area in which Devon owns approximately 1.35 million net undeveloped acres of
land. In 2002, Devon participated in the drilling of 67 gross wells and plans to
participate in the drilling of approximately 93 wells in 2003.
The Peace River Arch area is a more mature area with both light oil and
natural gas potential. Most of Devon's position in the Peace River Arch was
acquired through the Anderson acquisition. Devon holds roughly 730,000 net
undeveloped acres in the Peace River Arch, and the average production in 2002
was approximately 140 MMcf of natural gas and 7,500 Bbls of NGLs per day net. In
2003, Devon plans to participate in the drilling of 71 gross wells in the Peace
River Arch. Devon has an interest in a production and processing infrastructure
in the Peace River Arch, which enhances Devon's operations in the area.
In the Northern Plains region of Northeastern Alberta, Devon has been
active for many years. While the area is a highly developed area with
winter-only access, Devon is very active, drilling in excess of 100 gross wells
per year. In 2002, average daily net production from the area was about 150 MMcf
of natural gas and approximately 3,400 Bbls of NGLs net. Natural gas is
encountered in multiple horizons at depths generally less than 1,300 feet. Devon
holds approximately 2 million net undeveloped acres in this area.
Devon has about 400,000 net undeveloped acres in the central and southern
region of Alberta, and the average production from this area in 2002 was
approximately 80 MMcf of natural gas and 20,000 Bbls of NGLs per day net.
Planned activity in 2003 includes drilling approximately 70 gross wells that
vary from deep Devonian tests to shallow Cretaceous tests.
Devon is also active in exploration for and production of "cold-flow" heavy
oil in the Lloydminster area of Alberta and Saskatchewan where oil is found in
multiple horizons generally at depths of 1,000 to 2,000 feet. In 2003, Devon
plans to drill 134 gross wells with primarily a development focus. Average daily
production from the area in 2002 was approximately 37 MMcf of natural gas and
13,750 Bbls of crude oil net.
Devon is also active in the evaluation of thermal heavy oil in Alberta
through its 13% ownership interest in the Surmont project, operated by
ConocoPhillips, and is actively evaluating the development of a 100% working
interest heavy oil lease at Jackfish and an 83% working interest heavy oil
project at Dover. Each of these heavy oil projects target bitumen (heavy
tar-like oil) through the use of Steam Assisted Gravity Drainage whereby a pair
of horizontal wells are utilized. Steam is injected in one well and is used to
heat the bitumen to allow it to gravity drain to the other horizontal production
well.
INTERNATIONAL
Devon's international activities are currently focused in development
projects in Azerbaijan and China and deepwater exploration in the combined South
Atlantic Margin of Brazil and West Africa. In 2002, Devon divested all remaining
interests in Argentina, Indonesia and Egypt. As of December 31, 2002, 9% of
Devon's proved reserves were in countries outside North America.
In Azerbaijan, Devon has a 5.6% carried working interest in the large
Azeri-Chirag-Gunashli, or ACG, oil development project. Devon estimates that the
ACG field contains over 4.6 billion barrels of gross proved oil reserves. The
development project commenced in 2002. The Baku-T'Bilisi-Ceyhan (BTC) pipeline
to export oil for this project has been approved by the governments of
Azerbaijan, Georgia and Turkey.
In China, Devon is an acreage holder in the Pearl River Mouth Basin in the
South China Sea and has been successful in discovering two new fields. Devon is
currently developing the Devon operated Panyu development project and expects
oil production from two offshore platforms and into a floating production-
storage and offloading vessel to commence in late 2003. Gross capital
expenditures for the project are $340 million, with Devon owning a 24.5% working
interest. Peak production is expected to reach 58,000 Bbls of oil per day
(15,000 Bbls of oil per day net to Devon) in 2004.
22
Devon's international exploration efforts are strategically focused in the
combined South Atlantic deepwater region of West Africa and Brazil. Devon's
presence in West Africa began in 1992 with exploration efforts resulting in the
discoveries of the Tchatamba fields in the shallow waters offshore Gabon. In
this region, Devon has five blocks and holds over 3.2 million net acres. Devon
plans to drill deepwater exploratory wells in its West Africa portfolio in Ghana
and Gabon in 2003. In Brazil, Devon will be acquiring a 3-D survey in a
Devon-operated deepwater block in early 2003 in order to identify future
drilling opportunities.
OCEAN'S PROPERTIES
Ocean's properties are located primarily in three operating areas: (1) the
continental shelf and deepwater areas of the Gulf of Mexico, (2) onshore areas
of North America, and (3) internationally in Equatorial Guinea, Angola, Nigeria,
Cote d'Ivoire, Egypt, the Russian Republic of Tatarstan, Brazil and Indonesia.
GULF OF MEXICO
Ocean's Gulf of Mexico properties are located in offshore waters along the
coasts of Texas and Louisiana. In 2002, Ocean's Gulf of Mexico operations had
average daily production of 51 MBoe, or approximately 33% of its production for
the year.
The major focus in the Gulf of Mexico area is associated with deepwater
prospects where Ocean currently has interests in 860,000 net acres covering 361
blocks. Exploratory efforts are focused on specific regions followed by
subsequent development of neighboring discoveries with production from a large,
centrally located facility. Ocean's interests in the Gulf of Mexico include:
- Nansen/Boomvang/Navajo Complex -- During 2002, production began from
Ocean's first major deepwater fields in the East Breaks area of the Gulf
of Mexico where Ocean made two significant discoveries in 1999. The
Nansen and Boomvang production spars have a combined daily production
capacity of up to 80,000 Bbls of oil and 400 MMcf of gas. Production
began from the Nansen field (in which Ocean owns a 50% working interest)
in January 2002 and from the Boomvang fields (in which Ocean owns a 20%
working interest) in June 2002. Additional discoveries made in the West
Navajo field (in which Ocean owns a 50% working interest) and the
Northwest Navajo field (in which Ocean owns a 50% working interest)
during 2002 are being linked to the nearby Nansen spar via subsea
tiebacks. Ocean's combined net production from the Nansen/Boomvang/Navajo
complex was approximately 37 MBoe per day at December 31, 2002.
Completion of dry tree and subsea wells is expected to continue through
the first half of 2003.
- Zia Development -- The Zia project (in which Ocean owns a 65% working
interest) in Mississippi Canyon is the first deepwater development
project operated by Ocean, with production scheduled to begin in late
summer 2003. The field will utilize a subsea completion that will flow
approximately 16 miles to a platform in South Pass 89.
- Magnolia Development -- Ocean is participating in the development of the
Magnolia Field (in which Ocean owns a 25% working interest), located in
Garden Banks in nearly 4,700 feet of water. Development drilling is
currently underway, and platform construction has begun, with production
anticipated to begin by year-end 2004.
- Redhawk Development -- First production from the Redhawk natural gas
discovery (in which Ocean owns a 50% working interest) in Garden Banks is
anticipated in 2004. Fabrication of a cell spar for Redhawk has already
commenced.
23
- Atwater Valley Area -- Ocean participated in two discoveries in the
Atwater Valley area, Merganser (in which Ocean owns a 50% working
interest) and Vortex (in which Ocean has a 33% working interest). Ocean
is continuing to evaluate its additional exploration opportunities in the
area.
- Trident Prospect -- Ocean and Ocean's partners are currently evaluating
the commerciality of the Trident discovery in Alaminos Canyon (in which
Ocean owns a 13% working interest).
In 2003, Ocean anticipates drilling another six prospects in the deepwater
Gulf of Mexico, including four prospects that will be Ocean-operated, Yorktown
(in which Ocean owns a 50% working interest) in Mississippi Canyon, Shiner (in
which Ocean owns a 25% working interest) in Garden Banks, Tuscany East (in which
Ocean owns a 37.5% working interest and Devon owns a 25% working interest) in
Desoto Canyon and Aztec (in which Ocean owns a 50% interest) in Keathley Canyon.
Ocean also intends to be active in the shelf area, specifically in the core
areas of the Delta and central Gulf of Mexico, where Ocean's activities in 2002
included a workover and recompletion program designed to maximize production
from the area and successful development drilling programs at the Main Pass 69
field (in which Ocean owns a 100% working interest) and the Eugene Island 126
field (in which Ocean owns a 100% working interest). The recompletion and
workover program will continue during 2003.
NORTH AMERICA ONSHORE
Ocean's portfolio of onshore properties in North America is focused
primarily in the Rocky Mountains, the Permian Basin, Anadarko, East Texas, North
Louisiana and the Gulf Coast onshore regions of South Texas and South Louisiana.
During 2002, Ocean's share of production from the North America Onshore area
averaged about 47 MBoe per day. Ocean's onshore interests in North America
include:
- Rocky Mountains -- The Rocky Mountain area contains the Bear Paw field
where Ocean has a large inventory of drilling locations. In 2002, Ocean
completed a 75-well development drilling program in the Bear Paw Field,
in which Ocean owns a 96% working interest. In 2003, Ocean intends to
continue development of the field by expanding its drilling program to
100 wells. Ocean also plans to implement 3-D seismic for the first time
within the Bear Paw producing area to help identify optimum drilling
locations within new fault blocks. Ocean obtained a 75% working interest
in approximately 60,000 acres in Northwest Colorado during 2002 and plans
to conduct exploratory activities on the acreage during 2003.
- Permian Basin -- Ocean's 2002 activities in the Permian Basin included a
successful horizontal drilling and development program in Ward County.
The program included the drilling of two 17,000 foot horizontal gas
wells, the Harding Fee #2H and the Harding Fee #3H (in which Ocean owns a
65% working interest), which targeted the Montoya formation. In 2003,
Ocean intends to continue horizontal drilling and development activities
and plans to drill an exploratory horizontal well in Midland County.
Ocean will also continue exploratory efforts in West Texas and New
Mexico.
- Anadarko -- Ocean continues to exploit its acreage position in the
Anadarko area. During 2002, the primary focus was in the Strong City and
Watonga-Chickasha areas in the Anadarko Basin and the Wilburton area in
the Arkoma Basin. For 2003, Ocean plans additional development of the
Anadarko area, particularly in the Texas Panhandle.
- East Texas and North Louisiana -- Ocean's focus in this region is the
Bossier, Carthage and Stockman Fields in East Texas and the Vernon Ansley
and Ruston Field areas in North Louisiana where development drilling and
recompletion activities are ongoing.
- Gulf Coast -- Ocean's primary focus for 2002 in the onshore Gulf Coast
region was in the Wilcox trend in South Texas. Exploitation activities
are expected to continue in 2003, with increased development drilling, a
continued active recompletion/workover program and the use of 3-D seismic
to identify more exploration leads.
24
INTERNATIONAL
Ocean produces oil and gas in five countries outside of the United
States -- Equatorial Guinea, Egypt, Russia, Cote d'Ivoire and Indonesia. In
addition, Ocean has interests in other countries, including Angola, Brazil and
Nigeria. Ocean discontinued exploratory activities in Pakistan in 2002.
Ocean's international operations include:
- Equatorial Guinea -- Ocean has three production sharing contracts
covering about 1.9 million gross acres in Equatorial Guinea, which
included 20% of Ocean's reserves and accounted for approximately 22% of
Ocean's production in 2002. In 2002, Ocean's share of production averaged
about 33 MBoe per day. Nearly half of Ocean's international budget for
2003 is slated to be spent in Equatorial Guinea on continued development
of the Zafiro field. Ocean's interests in Equatorial Guinea include:
- Block B (in which Ocean owns a 23.75% working interest) covers about
547,000 gross acres and contains the Zafiro field, where production
currently occurs from two facilities, the Zafiro Producer and the Jade
Platform. In 2002, Ocean continued development of this area by
successfully drilling eight development wells, one of which is the
longest extended reach well from the Jade Platform to date, with
approximately 13,000 feet of horizontal displacement. Ocean has also
been conducting development activities in the Southern Expansion Area of
the Zafiro field. To date, seven development wells have been drilled and
suspended pending arrival of the Serpentina, a floating production,
storage and offloading vessel that will add the capacity needed to begin
producing from this area. This project remains on schedule to begin in
the second half of 2003.
- Ocean has been conducting exploratory activities on Block C (in which
Ocean owns a 37.6% working interest). An exploratory well failed to
discover commercial quantities of reserves, and Ocean is evaluating the
remaining potential for oil in Block C. This block covers about 649,000
gross acres.
- In early 2002, Ocean entered into a production sharing contract with the
government of Equatorial Guinea covering Corisco Bay Block N (in which
Ocean owns a 25.5% working interest), an approximately 678,000 gross
acre concession in the Rio Muni Basin offshore the mainland of
Equatorial Guinea. Interpretation of final processed 3-D seismic data
for Block N is underway, and Ocean expects to drill an exploratory well
in the second half of 2003.
- Egypt -- Egypt comprised about 4% of Ocean's reserves and accounted for
about 6% of Ocean's production in 2002, and Ocean's share of production
averaged about 9 MBoe per day. Ocean's Egyptian operations consist of
working interests in seven concessions covering approximately 3.8 million
gross acres. Four of these concessions are producing (East Zeit, Qarun,
East Beni Suef and West Abu Gharadig). Ocean also holds an interest in
three exploratory blocks, Southwest Gebel el Zeit in the Gulf of Suez,
Ras Abu Darag in the Northern Gulf of Suez and North Zeit Bay in the Gulf
of Suez.
- Cote d'Ivoire -- Ocean is the operator on three blocks in Cote d'Ivoire,
which cover about 313,000 gross acres. Ocean also owns and operates the
Lion Gas Plant. Ocean's share of production in Cote d'Ivoire averaged 7
MBoe per day in 2002.
- Russia -- Ocean has a net 45% interest in a joint venture in the Russian
Republic of Tatarstan. In 2002, the joint venture successfully drilled 29
development wells and two exploratory wells in the Onbysk and Demkino
fields and plans additional development activity in 2003. Ocean's share
of production averaged about 5 MBoe per day in 2002.
- Angola -- Ocean currently holds approximately 2.7 million gross offshore
acres in the country. Ocean acquired an operated interest of about 1.2
million gross acres in Block 10 (in which Ocean owns a 35% working
interest) in early 2002 and is in the process of conducting 3-D seismic
acquisition. Ocean plans to drill the first exploratory well on Block 10
in 2003. In addition, Ocean
25
holds an interest in about 1.2 million gross acres in Block 24 (in which
Ocean owns a 40% working interest). Ocean will become operator of the
block following the drilling of the Varina North well. Ocean anticipates
drilling a second exploratory well on Block 24 in late 2003.
- Brazil -- Ocean holds interests in two deepwater blocks offshore Brazil.
Ocean has a 65% working interest in Block BM-C-15, which it operates, and
a 20% working interest in Block BM-S-22. The two blocks cover a total of
about 1.2 million gross acres. Ocean is in the process of interpreting
3-D seismic data on Block BM-C-15 in the Campos Basin and plans to drill
on this block in late 2003 or early 2004.
- Nigeria -- In early 2003, Ocean finalized a production sharing contract
to become operator of OPL Block 256 (in which Ocean owns a 95% working
interest). The 631,000 gross acre block is located in water depths of
6,000 to 9,500 feet. The working program calls for seismic studies and
the drilling of three obligatory exploration wells, the first of which is
expected to begin in 2004. Ocean plans to farm out a portion of its
interest in this block.
- Indonesia -- Ocean owns a 1.7% interest in a joint venture in East
Kalimantan, Indonesia. The majority of the joint venture's revenue
results from the sale of liquefied natural gas.
DEVELOPED AND UNDEVELOPED ACREAGE
The following tables set forth Devon's and Ocean's combined developed and
undeveloped oil and gas lease and mineral acreage on a pro forma basis as of
December 31, 2002:
DEVELOPED -- GROSS DEVELOPED -- NET
-------------------------- -------------------------
DEVON OCEAN COMBINED DEVON OCEAN COMBINED
------ ------ -------- ------ ----- --------
(IN THOUSANDS OF ACRES)
United States -- Onshore................ 2,654 977 3,631 1,610 587 2,197
United States -- Offshore............... 495 442 937 286 205 491
Canada.................................. 3,655 -- 3,655 2,296 -- 2,296
International........................... 54 505 559 6 310 316
------ ------ ------ ------ ----- ------
Total................................. 6,858 1,924 8,782 4,198 1,102 5,300
====== ====== ====== ====== ===== ======
UNDEVELOPED -- GROSS UNDEVELOPED -- NET
----------------------------- ----------------------------
DEVON OCEAN COMBINED DEVON OCEAN COMBINED
------ ------ -------- ------ ----- --------
(IN THOUSANDS OF ACRES)
United States -- Onshore................ 4,212 1,644 5,856 2,333 542 2,875
United States -- Offshore............... 781 2,207 2,988 467 962 1,429
Canada.................................. 16,370 -- 16,370 11,468 -- 11,468
International........................... 11,759 9,371(1) 21,130 7,437 3,951(1) 11,388
------ ------ ------ ------ ----- ------
Total................................. 33,122 13,222 46,344 21,705 5,455 27,160
====== ====== ====== ====== ===== ======
---------------
(1) Excludes an interest in 1,194,000 gross (239,000 net) acres in Angola Block
19 that was relinquished in early 2003 and 1,485,000 gross (1,262,000 net)
acres in the Makran Central block in Pakistan that was assigned by Ocean in
early 2003.
26
COMPARATIVE PER SHARE DATA
The following table presents: (1) historical per share data for Devon; (2)
pro forma per share data for Devon after giving effect to the Mitchell
acquisition; (3) pro forma per share data of the combined company after giving
effect to the merger; and (4) historical and equivalent pro forma per share data
for Ocean.
The combined company pro forma per share data was derived by combining
information from the historical consolidated financial statements of Devon and
Ocean using the purchase method of accounting for the merger. You should read
this table together with the historical consolidated financial statements of
Devon and Ocean that are filed with the Securities and Exchange Commission and
incorporated by reference into this document. See the "Additional
Information -- Where You Can Find More Information" section of this document.
You should not rely on the pro forma per share data as being necessarily
indicative of actual results had the merger and the Mitchell acquisition
occurred prior to the dates indicated below.
DEVON PRO OCEAN
FORMA AFTER COMBINED -------------------------
DEVON MITCHELL COMPANY PRO EQUIVALENT
HISTORICAL ACQUISITION(1) FORMA(2) HISTORICAL PRO FORMA(3)
---------- -------------- ------------ ---------- ------------
Earnings from continuing
operations per share for the
year ended December 31, 2002:
Basic........................ $ 0.32 $ 0.31 $ 0.29 $0.76 $ 0.12
Diluted...................... 0.32 0.31 0.29 0.74 0.12
Cash dividends per share for the
year ended December 31, 2002.... 0.20 0.20 0.20 0.16 0.08
Book value per share as of
December 31, 2002............... 29.68 29.68 36.06 8.93 14.93
---------------
(1) Devon's pro forma data includes the effect of the Mitchell acquisition as if
it had occurred on January 1, 2002 instead of the actual closing date of
January 24, 2002.
(2) The combined company's pro forma data includes the effect of the merger on
the basis described in the notes to the unaudited pro forma combined
financial information included elsewhere in this document.
(3) Ocean's equivalent pro forma amounts have been calculated by multiplying the
combined company's pro forma earnings from continuing operations, cash
dividends and book value per share amounts by the 0.414 exchange ratio.
27
MARKET PRICES AND DIVIDEND INFORMATION
Shares of Devon common stock are traded on the American Stock Exchange
under the symbol "DVN" and shares of Ocean common stock are traded on the New
York Stock Exchange under the symbol "OEI." The following table sets forth, for
the periods indicated, the range of high and low sales prices per share for
Devon common stock, on the American Stock Exchange, and Ocean common stock, on
the New York Stock Exchange composite tape, as well as information concerning
quarterly cash dividends paid on those shares. The sales prices are as reported
in published financial sources.
SHARES OF DEVON COMMON STOCK SHARES OF OCEAN COMMON STOCK
------------------------------ ------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- ---------- ------- ------- ----------
2001
First Quarter........................ $66.75 $52.30 $0.05 $21.60 $15.31 $0.04
Second Quarter....................... 62.65 48.50 0.05 20.50 15.40 0.04
Third Quarter........................ 55.25 30.55 0.05 20.73 14.52 0.04
Fourth Quarter....................... 41.25 31.45 0.05 19.81 15.60 0.04
2002
First Quarter........................ 49.10 34.40 0.05 19.90 16.20 0.04
Second Quarter....................... 52.28 45.05 0.05 22.62 18.93 0.04
Third Quarter........................ 49.70 33.87 0.05 22.15 16.68 0.04
Fourth Quarter....................... 53.10 42.14 0.05 21.00 17.51 0.04
2003
First Quarter (through March 19,
2003)............................. 50.37 42.45 0.05 20.99 17.90 0.04
Devon is currently paying a regular quarterly cash dividend of $0.05 per
share. The payment of dividends by Devon in the future will depend on business
conditions, Devon's financial condition, earnings, capital requirements and
other factors.
Since January 2001, Ocean has paid quarterly cash dividends of $0.04 per
share on its outstanding common stock. If the merger is not completed as
expected, the amount of future dividends declared and paid by Ocean will be
determined on a quarterly basis and will depend on Ocean's financial condition,
earnings, capital requirements and other factors.
The merger agreement requires Devon and Ocean to coordinate dividend record
and payment dates so that Ocean stockholders do not fail to receive a dividend
in any calendar quarter or receive dividends on both Ocean common stock and
Devon common stock received in the merger in any calendar quarter. Since Ocean's
board of directors already has declared a second quarter 2003 common stock cash
dividend of $0.04 per share of Ocean common stock with a record date of April
10, 2003 and a payment date of April 24, 2003, Devon anticipates that if the
merger is completed during the second calendar quarter of 2003, Devon's common
stock cash dividend for such quarter, if any, would have a record date prior to
the effective time of the merger and a payment date after the merger is
completed.
28
THE SPECIAL MEETINGS
OCEAN DEVON
TIME, PLACE AND April 25, 2003 April 25, 2003
DATE 10:00 a.m., local time 10:00 a.m., local time
The Four Seasons Hotel Bank One Center
1300 Lamar 100 North Broadway
Houston, Texas Third Floor, Kirkpatrick Room
Oklahoma City, Oklahoma
The meeting may be adjourned or The meeting may be adjourned or
postponed to another date or place postponed to another date or place
for proper purposes, including for for proper purposes, including for
the purpose of soliciting the purpose of soliciting
additional proxies. additional proxies.
PURPOSES - To consider and vote on the - To consider and vote on the
adoption of the Agreement and approval of the issuance of Devon
Plan of Merger, dated as of common stock pursuant to the
February 23, 2003, by and among Agreement and Plan of Merger,
Devon Energy Corporation, Devon dated as of February 23, 2003, by
NewCo Corporation and Ocean and among Devon Energy
Energy, Inc., as it may be Corporation, Devon NewCo
amended from time to time; and Corporation and Ocean Energy,
Inc., as it may be amended from
- To transact other business as may time to time;
properly be presented at the
meeting or any adjournments of - To consider and vote on the
the meeting. adoption of the Devon Energy
Corporation 2003 Long-Term
At the present time, Ocean knows of Incentive Plan, subject to the
no other matters that will be consummation of the merger
presented for consideration at the contemplated by the Agreement and
meeting. Plan of Merger, dated as of
February 23, 2003, by and among
Devon Energy Corporation, Devon
NewCo Corporation and Ocean
Energy, Inc., as it may be
amended from time to time; and
- To transact other business as may
properly be presented at the
meeting or any adjournments of
the meeting.
At the present time, Devon knows of
no other matters that will be
presented for consideration at the
meeting.
QUORUM Presence, in person or by proxy, of Presence, in person or by proxy, of
stockholders holding a majority of stockholders holding a majority of
the shares of Ocean capital stock the shares of Devon capital stock
entitled to vote at the meeting. entitled to vote at the meeting.
RECORD DATE Close of business on March 17, Close of business on March 17,
2003. 2003.
29
OCEAN DEVON
SHARES ENTITLED TO - You may vote at the Ocean meeting - You may vote at the Devon meeting
VOTE if you owned Ocean common stock if you owned Devon common stock
or Ocean convertible preferred or exchangeable shares issued by
stock as of the record date. Devon's subsidiary, Northstar
Ocean common stockholders and Energy Corporation, as of the
Ocean convertible preferred record date. Holders of Devon
stockholders will vote as a common stock and Northstar
single class, with the Ocean exchangeable shares will vote as
convertible preferred a single class.
stockholders voting on an
as-converted basis. - You may cast one vote for each
share of Devon common stock and
- You may cast one vote for each one vote for each Northstar
share of Ocean common stock that exchangeable share that you owned
you owned on the record date. on the record date.
- You may cast 70.34 votes for each
share of Ocean convertible
preferred stock that you owned on
the record date.
RECOMMENDATIONS OF Ocean's board of directors has Devon's board of directors has
THE BOARDS OF unanimously approved and adopted unanimously approved and adopted
DIRECTORS the merger agreement and determined the merger agreement and determined
that it is advisable and in the that it is advisable and in the
best interests of Ocean and its best interests of Devon and its
stockholders. Accordingly, the stockholders. Accordingly, the
board recommends that Ocean board recommends that Devon
stockholders vote to adopt the stockholders vote to approve the
merger agreement. issuance of Devon common stock
pursuant to the merger agreement.
Devon's board of directors also has
unanimously approved the new long-
term incentive plan and recommends
that Devon stockholders vote to
adopt the new long-term incentive
plan.
VOTES REQUIRED - The affirmative vote of the - The affirmative vote of the
holders of at least a majority in holders of at least a majority of
interest of the voting power of the votes cast in person or by
outstanding Ocean voting stock, proxy by holders of Devon voting
with Ocean convertible preferred stock is required to approve the
stockholders voting on an as- issuance of Devon common stock
converted basis and as a single pursuant to the merger agreement.
class with Ocean common
stockholders, is required to - The affirmative vote of the
adopt the merger agreement. holders of at least a majority of
the Devon voting power present in
- Abstentions will have the same person or by proxy and entitled
effect as votes against adoption to vote is required to adopt the
of the merger agreement. new long-term incentive plan.
- The failure of a stockholder to - Abstentions will not affect the
vote in person or by proxy will outcome of the vote with respect
also have the effect of a vote to the issuance of Devon common
against adoption of the merger stock in the merger.
agreement.
30
OCEAN DEVON
VOTES REQUIRED - Abstentions will have the same
(CONTINUED) effect as votes against adoption of
the new long-term incentive plan.
- Assuming a quorum is present, the
failure of a stockholder to vote
in person or by proxy will not
affect the outcome of either
Devon vote.
SHARES OUTSTANDING As of the record date, there were As of the record date, there were
177,780,229 shares of Ocean common 156,916,379 shares of Devon voting
stock and 50,000 shares of Ocean stock outstanding and entitled to
convertible preferred stock, vote, consisting of 155,407,742
constituting 3,517,000 shares of shares of Devon common stock and
Ocean common stock on an 1,508,637 Northstar exchangeable
as-converted basis, outstanding and shares.
entitled to vote.
VOTING PROCEDURES A proxy card will be sent to each Devon and Ocean stockholder of record.
If you have timely and properly submitted your proxy, clearly indicated
your vote and have not revoked your proxy, your shares will be voted as
indicated. If you have timely and properly submitted your proxy but have
not clearly indicated your vote, your shares will be voted FOR the
proposal to adopt the merger agreement, in the case of Ocean
stockholders, and FOR the proposal to approve the issuance of shares of
Devon common stock pursuant to the merger agreement and FOR the proposal
to adopt the new long-term incentive plan, in the case of Devon
stockholders.
If any other matters are properly presented at the meeting for
consideration, the persons named in your proxy will have the discretion
to vote on these matters in accordance with their best judgment. Proxies
voted against the proposals related to the merger will not be voted in
favor of any adjournment of the meeting for the purpose of soliciting
additional proxies.
Voting by Ocean Common Stockholders Voting by Devon Common Stockholders
and Convertible Preferred
Stockholders Devon common stockholders may vote
using any of the following methods:
Ocean common stockholders and Ocean
convertible preferred stockholders - phone the toll-free number listed
may vote using any of the following on your proxy card and follow the
methods: recorded instructions;
- phone the toll-free number listed - go to the Internet website listed
on your proxy card and follow the on your proxy card and follow the
recorded instructions; instructions provided;
- go to the Internet website listed - complete, sign and mail your
on your proxy card and follow the proxy card in the postage-paid
instructions provided; envelope; or
- complete, sign and mail your - attend the meeting and vote in
proxy card in the postage-paid person.
envelope; or
- attend the meeting and vote in
person.
31
OCEAN DEVON
VOTING PROCEDURES Voting by Holders of Northstar
(CONTINUED) Exchangeable Shares
Each Northstar exchangeable share
is entitled to vote at the Devon
meeting through a voting and
exchange trust agreement. Under
that agreement, CIBC Mellon Trust
Company, the trustee, is entitled
to exercise voting rights on behalf
of holders of Northstar
exchangeable shares. The trustee
holds one share of special voting
stock of Devon. The share of
special voting stock is entitled to
a number of votes equal to the
number of Northstar exchangeable
shares outstanding that are held by
persons other than Devon. Each
holder of Northstar exchangeable
shares, other than Devon, is
entitled to give the trustee voting
instructions for a number of votes
equal to the number of that
holder's Northstar exchangeable
shares. A voting direction card is
a means by which a holder of
Northstar exchangeable shares may
authorize the voting of his or her
voting rights at the meeting. The
trustee will exercise each vote
only as directed by the relevant
holders on the voting direction
card. In the absence of
instructions from a holder as to
voting, the trustee will not
exercise those votes. A holder of
Northstar exchangeable shares may
also instruct the trustee to give
him or her a proxy entitling him or
her to vote personally the relevant
number of votes or to grant to
Devon's management a proxy to vote
those votes.
Revocation Revocation
You may revoke your proxy at any You may revoke your proxy at any
time prior to its exercise by: time prior to its exercise by:
- giving written notice of - giving written notice of
revocation to the Secretary of revocation to the Corporate
Ocean; Secretary of Devon;
- appearing and voting in person at - appearing and voting in person at
the Ocean meeting; or the Devon meeting; or
- properly completing and executing - properly completing and executing
a later dated proxy and a later dated proxy and
delivering it to the Secretary of delivering it to the Corporate
Ocean at or before the Ocean Secretary of Devon at or before
meeting. the Devon meeting.
Your presence without voting at the Your presence without voting at the
meeting will not automatically meeting will not automatically
revoke your proxy, and any revoke your proxy, and any
revocation during the meeting will revocation during the meeting will
not affect votes previously taken. not affect votes previously taken.
32
OCEAN DEVON
VOTING PROCEDURES Validity Validity
(CONTINUED) The inspectors of election will The inspectors of election will
determine all questions as to the determine all questions as to the
validity, form, eligibility validity, form, eligibility
(including time of receipt) and (including time of receipt) and
acceptance of proxies. Their acceptance of proxies. Their
determination will be final and determination will be final and
binding. Ocean's board of directors binding. Devon's board of directors
has the right to waive any has the right to waive any
irregularities or conditions as to irregularities or conditions as to
the manner of voting. Ocean may the manner of voting. Devon may
accept your proxy by any form of accept your proxy by any form of
communication permitted by Delaware communication permitted by Delaware
law so long as Ocean is reasonably law so long as Devon is reasonably
assured that the communication is assured that the communication is
authorized by you. authorized by you.
SOLICITATION OF The accompanying proxy is being The accompanying proxy is being
PROXIES solicited on behalf of Ocean's solicited on behalf of Devon's
board of directors. The expenses of board of directors. The expenses of
preparing, printing and mailing the preparing, printing and mailing the
proxy and materials used in the proxy and materials used in the
solicitation will be borne by solicitation will be borne by
Ocean. Devon.
Georgeson Shareholder Innisfree M&A Incorporated has been
Communications, Inc. has been retained by Devon to aid in the
retained by Ocean to aid in the solicitation of proxies for a fee
solicitation of proxies for a fee of $15,000 and the reimbursement of
of $20,000 and the reimbursement of out-of-pocket expenses. Proxies may
out-of-pocket expenses. Proxies may also be solicited from Devon
also be solicited from Ocean stockholders by personal interview,
stockholders by personal interview, telephone and telegram by Devon's
telephone and telegram by Ocean's directors, officers and employees,
directors, officers and employees, who will not receive additional
who will not receive additional compensation for performing that
compensation for performing that service. Arrangements also will be
service. Arrangements also will be made with brokerage houses and
made with brokerage houses and other custodians, nominees and
other custodians, nominees and fiduciaries for the forwarding of
fiduciaries for the forwarding of proxy materials to the beneficial
proxy materials to the beneficial owners of Devon shares held by
owners of Ocean shares held by those persons, and Devon will
those persons, and Ocean will reimburse them for any reasonable
reimburse them for any reasonable expenses that they incur.
expenses that they incur.
SHARES HELD IN General
STREET NAME If you hold your shares in the name of a bank, broker or other nominee,
you should follow the instructions provided by your bank, broker or
nominee when voting your shares or when granting or revoking a proxy.
Absent specific instructions from you, your broker is NOT empowered to
vote your shares with respect to the adoption of the merger agreement or
the issuance of Devon common stock in the merger. The shares not voted
because brokers lack power to vote them without instructions are also
known as "broker non-votes."
Absent specific instructions from you in accordance with the procedures
outlined by your broker, a broker may vote your shares of Devon common
stock for or against, in the broker's discretion, adoption of the new
long-term incentive plan.
33
OCEAN DEVON
SHARES HELD IN Effect of Broker Non-Votes Effect of Broker Non-Votes and
STREET NAME Broker Abstentions
(CONTINUED) Broker non-votes will be counted as
present and represented at the Broker non-votes will be counted as
Ocean meeting and will have the present and represented at the
same effect as a vote against Devon meeting. Broker non-votes
adoption of the merger agreement. will not affect the outcome of the
vote regarding the issuance of
Devon common stock pursuant to the
merger agreement.
Broker abstentions regarding the
adoption of the new long-term
incentive plan will have the same
effect as a vote against adoption
of the new long-term incentive
plan.
AUDITORS KPMG LLP serves as Ocean's KPMG LLP serves as Devon's
independent auditors. independent auditors.
Representatives of KPMG LLP plan to Representatives of KPMG LLP plan to
attend the Ocean meeting and will attend the Devon meeting and will
be available to answer appropriate be available to answer appropriate
questions. Its representatives will questions. Its representatives will
also have an opportunity to make a also have an opportunity to make a
statement at the meeting if they so statement at the meeting if they so
desire, although it is not expected desire, although it is not expected
that any statement will be made. that any statement will be made.
34
THE MERGER
BACKGROUND OF THE MERGER
Beginning in late October 2002, initial conversations between members of
Ocean's senior management and members of Devon's senior management were held
regarding the possibility of a business combination between Ocean and Devon. On
October 25, 2002, Ocean and Devon signed a confidentiality agreement. Shortly
thereafter, Devon and Ocean began exchanging confidential evaluation materials
and conducting due diligence investigations of each other.
On October 30, 2002, the executive committee of Ocean's board of directors
met to discuss the possibility of a business combination between Ocean and Devon
and the status of ongoing discussions between Ocean and Devon. Representatives
of Ocean and Devon continued to hold discussions and conduct due diligence
relating to a potential business combination throughout November and early
December 2002.
On November 13, 2002, J. Larry Nichols, Devon's Chairman, President and
Chief Executive Officer, met with James T. Hackett, Ocean's Chairman, President
and Chief Executive Officer, in Houston, Texas to discuss a potential business
combination between Ocean and Devon.
On November 15, 2002, Ocean's board of directors held a special meeting to
discuss the potential business combination with Devon and to review financial
data and other information regarding Devon.
On November 20 and 21, 2002, a meeting of members of the senior management
teams of Ocean and Devon, including Messrs. Nichols and Hackett, was held in
Galveston, Texas to review technical matters relating to the potential business
combination between Ocean and Devon.
From late November 2002 through mid-December, Ocean's and Devon's legal
counsel conducted due diligence investigations, exchanged draft merger
agreements and related documents and held discussions and negotiations regarding
the terms of the merger agreement.
On December 3, 2002, Devon's board of directors held a regularly scheduled
meeting in Oklahoma City at which the board of directors discussed the potential
merger with Ocean and reviewed information regarding Ocean.
On December 10, 2002, Devon's board of directors held a special meeting to
discuss the potential merger with Ocean and to receive an update regarding the
status of the discussions between Ocean and Devon.
On December 13, 2002, Ocean's board of directors held a regularly scheduled
meeting. At that meeting, Ocean's board of directors discussed the status of the
potential merger with Devon and received presentations from Ocean's management,
financial advisors and legal representatives. Mr. Nichols of Devon attended a
portion of that meeting to discuss the potential merger and to answer questions
from Ocean's directors.
On December 16, 2002, Devon's board of directors held a special meeting to
discuss the potential merger with Ocean. Later on December 16, 2002, Ocean and
Devon decided to delay further discussions regarding a potential merger, pending
completion of additional due diligence, including exchange of year-end financial
and operating data.
On January 29, 2003, Messrs. Nichols and Hackett met in Houston, Texas to
discuss the resumption of discussions about a potential merger between Ocean and
Devon. On February 3, 2003, Messrs. Nichols and Hackett agreed that Ocean and
Devon would resume discussions regarding a potential merger.
On February 10 and 11, 2003, members of Devon's and Ocean's management
teams met in Houston, Texas, along with representatives from their respective
outside oil and gas engineering firms, to exchange technical data and discuss
various technical due diligence issues.
35
From mid-February through February 23, 2003, representatives of Ocean and
Devon finalized due diligence investigations and continued to hold discussions
and negotiate the terms of the merger agreement and related matters.
On February 21, 2003, Ocean's board of directors held a special meeting to
discuss the proposed merger. Representatives of Ocean's management, financial
advisors and legal counsel made presentations at that meeting and discussed the
proposed merger with Ocean's board of directors.
On February 22, 2003, Devon's board of directors held a special meeting to
discuss the proposed merger. Representatives of Devon's management, financial
advisors and legal counsel made presentations at that meeting and discussed the
proposed merger with Devon's board of directors.
On February 23, 2003, Ocean's board of directors held a special meeting at
which it received the opinion of Deutsche Bank Securities Inc. to the effect
that, as of the date of such opinion, the 0.414 exchange ratio was fair to Ocean
common stockholders from a financial point of view. Thereafter, Ocean's board of
directors unanimously approved and adopted the merger agreement and resolved to
recommend that Ocean's stockholders vote to adopt the merger agreement. At that
time, Ocean's board of directors also approved an amendment to Ocean's
stockholder rights plan that had the effect of causing the stockholder rights
plan to be inapplicable to Devon and the merger.
Also on February 23, 2003, Devon's board of directors held a special
meeting at which it received the opinion of Morgan Stanley & Co. Incorporated to
the effect that, as of the date of such opinion, the 0.414 exchange ratio
pursuant to the merger agreement was fair to Devon from a financial point of
view. Thereafter, Devon's board of directors unanimously approved and adopted
the merger agreement, approved the issuance of shares of Devon common stock
pursuant to the merger agreement and resolved to recommend that Devon's
stockholders approve the issuance of shares of Devon common stock pursuant to
the merger agreement.
Following the Ocean board meeting and the Devon board meeting on February
23, 2003, Ocean and Devon executed the merger agreement.
On February 24, 2003, Ocean and Devon publicly announced the execution of
the merger agreement.
On February 27, 2003, a lawsuit was filed in the District Court of Harris
County, Texas, naming as defendants Ocean and all of the members of Ocean's
board of directors alleging that the exchange ratio in the merger is inadequate
and unfair to Ocean common stockholders and alleging the breach of the
defendants' fiduciary duties to Ocean stockholders. The complaint seeks class
action status. It also seeks injunctive relief against completing the merger or,
if the merger is completed, rescission of the merger, monetary damages in an
unspecified amount and recovery of the plaintiff's costs and attorneys' fees.
On March 19, 2003, the parties amended the merger agreement to correct a
clerical oversight in Exhibit A (certificate of incorporation of the surviving
corporation in the merger) to the merger agreement. The change does not
materially affect the substantive terms of the merger.
RECOMMENDATION OF OCEAN'S BOARD OF DIRECTORS AND REASONS FOR THE MERGER
Ocean's board of directors has unanimously approved and adopted the merger
agreement and determined that it is advisable and in the best interests of Ocean
and its stockholders. Accordingly, the board recommends that Ocean stockholders
vote to adopt the merger agreement.
Ocean's board of directors consulted with Ocean's management, as well as
its financial and legal advisors, and considered various factors, including the
following, in unanimously approving the merger agreement and the merger (the
order does not reflect the relative significance):
- Complementary Assets and Diversification. Ocean believes that the
combination of Ocean's and Devon's core operating assets will result in a
more balanced, diversified oil and gas company. Ocean's oil and gas
operations are concentrated in the deepwater Gulf of Mexico and
internationally, and Ocean's onshore and shelf assets will be
complementary to Devon's core natural
36
gas operations in North America. Ocean believes that Devon's strong North
American presence will provide Ocean stockholders with a more stable,
diversified exploration and exploitation portfolio, reducing the risk
associated with Ocean's higher impact exploration projects in the
deepwater Gulf of Mexico and international locations. Based on production
information for the fourth quarter of 2002 and on a pro forma basis, 90%
of the combined company's worldwide production will be from North America
with a production mix consisting of approximately 63% natural gas and 37%
oil and NGLs.
- Strong Pro Forma Financial Profile; Synergies. Because of Devon's size
and significant, stable North American natural gas position, Ocean
believes that the combined company's pro forma financial profile will
consist of an improved balance sheet and credit ratings compared to Ocean
on a stand-alone basis, which Ocean believes will result in improved
access to capital at a lower overall cost. Ocean believes that the
financial profile of the combined company will be enhanced following the
merger as a result of cost savings of at least $50 million annually.
- Acceleration of Exploration Program and Long-Term Growth. Ocean believes
that the combined company's substantial scale and cash flows will permit
a greater allocation of resources to Ocean's deepwater Gulf of Mexico and
international exploration inventory. The ability of Ocean stockholders to
access Devon's capital resources to accelerate Ocean's prospect inventory
is expected to provide Ocean stockholders with greater long-term value
than Ocean could achieve independent of Devon.
- Reduction of Execution Risk. Ocean believes that the overall size of the
combined company will reduce the execution risk associated with
development of large-scale deepwater development projects. The
combination of Devon's size and stable operating assets with Ocean's
high-potential growth prospects is expected to result in better
comparative valuations over time for Ocean's stockholders than Ocean
could achieve on a stand-alone basis.
- Scope and Scale of the Combined Company. Devon and Ocean together
produced approximately 2.4 Bcf of natural gas per day and 245,000 Bbls of
oil and NGLs per day during the fourth quarter of 2002. The combined
company is expected to have daily production of about 650 MBoe, estimated
proved reserves of 2.2 billion Boe (84% of which are in North America)
and approximately 29 million net undeveloped acres. Ocean believes that
the scope and scale of the combined company will result in greater
marketing, purchasing and operating strength, facilitate internal growth
and promote long-term stockholder value.
- Per Share Accretion. Ocean expects that the merger will provide
immediate accretion to Ocean stockholders in cash flows per share.
- Merger Consideration. The market value of the merger consideration as of
February 21, 2003 -- the last trading day prior to announcement of the
execution of the merger agreement -- represented an approximate 4%
premium over the closing price of Ocean's common stock on that date. The
merger agreement requires Devon to issue approximately 73.4 million
shares of its common stock to Ocean common stockholders (measured as of
the date of the merger agreement), which would result in Ocean common
stockholders owning approximately 32% of the combined company's
outstanding voting shares based on the number of shares of Ocean common
stock and Devon common stock outstanding on the date on which the merger
agreement was signed. Ocean stockholders will have the opportunity to
participate in any post-merger appreciation in the market value of Devon
common stock. This 32% equity percentage matches or exceeds Ocean's
contributions to the combined company on several important 2002 measures:
earnings, cash flow, production, proved reserves and enterprise values.
- Increased Liquidity. The combined company's common stock will be traded
on the American Stock Exchange in substantially greater dollar volumes
than that of Ocean on the New York Stock Exchange, providing greater
liquidity for Ocean stockholders and for new institutional investors.
37
- Tax Consequences of the Merger. The merger is structured to be tax-free
for U.S. federal income tax purposes to Ocean common stockholders to the
extent that they receive Devon common stock in exchange for their shares
of Ocean common stock.
- Opinion of Financial Advisors. Ocean's board of directors also
considered the presentation and opinion of Deutsche Bank described
elsewhere in this document to the effect that, based on the assumptions
and other matters stated in its opinion, the 0.414 exchange ratio was
fair from a financial point of view to Ocean common stockholders as of
the date of the merger agreement.
Ocean recognized that there are risks associated with the merger and an
investment in the combined company, including the following risks:
Integration Risks. The combined company will face risks typical to major
business combinations, including challenges associated with integrating
personnel, operations, financial reporting and information technologies.
Unintended and unforeseen consequences could develop in the process of that
integration, and the combined company may lose key employees, customers or
suppliers as a result.
Limited Premium and Fixed Exchange Ratio. Ocean considered the limited
premium -- approximately 4% over the closing price of Ocean's common stock as of
February 21, 2003 -- in making its recommendation in favor of approval and
adoption of the merger agreement. Moreover, because the merger agreement
contains a fixed exchange ratio, the market value of the consideration to be
received by Ocean stockholders at the effective time of the merger will depend
on the trading price of Devon common stock at the effective time of the merger.
Increased Indebtedness. Following the merger, the combined company is
expected to have in excess of $9 billion in total debt and a higher total debt
to capitalization ratio than Ocean had on a stand-alone basis. This increased
indebtedness could limit the combined company's flexibility as a result of debt
service requirements and restrictive covenants and may limit the combined
company's business strategy or its ability to access additional capital.
Concentration of Exposure. Devon's estimated proved reserves were 60%
natural gas at December 31, 2002, with the majority of its reserves located in
North America. Devon's operating results are more dependent on gas prices and
the North American market than Ocean's operating results, and adverse
developments with respect to either could negatively impact the combined
company's operating results.
Execution. The merger might not be completed as a result of a failure to
satisfy the conditions contained in the merger agreement or other reasons.
Neither Ocean nor Devon is obligated to complete the merger unless the
conditions in the merger agreement are satisfied or, in some cases, waived.
The preceding discussion of the information and factors considered and
given weight by Ocean's board of directors is not intended to be exhaustive.
However, Ocean believes that the discussion includes all of the material factors
that its board considered. In reaching its decision to approve and to recommend
approval to Ocean stockholders of the merger agreement, Ocean's board of
directors did not assign any relative or specific weights to the factors it
considered. Individual directors may have given different weights to different
factors.
RECOMMENDATION OF DEVON'S BOARD OF DIRECTORS AND REASONS FOR THE MERGER
Devon's board of directors has unanimously approved and adopted the merger
agreement and determined that it is advisable and in the best interests of Devon
and its stockholders. Accordingly, the board recommends that Devon stockholders
vote to approve the issuance of Devon common stock pursuant to the merger
agreement.
The merger is part of Devon's overall business strategy for growth through
exploration and development of existing properties and through strategic mergers
and acquisitions. In reaching its decision to approve and adopt the merger
agreement, Devon's board of directors consulted with Devon's management, as well
as its financial and legal advisors. Devon's board of directors believes that
Devon and
38
its stockholders will benefit from the merger for the following reasons (the
order does not reflect the relative significance):
- Combination of Ocean's Prospects with Devon's Capital Resources. Ocean
has significant development projects and exploration prospects. By
combining Devon's excess operating cash flow (estimated to be between
$500 million and $700 million in fiscal 2003) with Ocean's project
inventory, Devon expects to enhance Ocean's ability to develop and
exploit its prospects while creating a more diverse company.
- Complementary, Focused Asset Base. Approximately 90% of Ocean's
operations are within Devon's current core areas of the shelf and
deepwater areas of the Gulf of Mexico, West Africa, the Rocky Mountains,
the Permian Basin, East Texas and the Gulf Coast. This is expected to
facilitate the integration of Devon's and Ocean's businesses and the
realization of anticipated synergies and economies of scale.
- Deleveraging Impact. The merger improves a number of Devon's financial
measures commonly used to assess a company's credit rating, including
Devon's ratios of (1) total debt to capitalization, (2) debt to cash
flow, (3) earnings before interest, taxes, depreciation and amortization
to interest, and (4) debt per proved Boe reserves.
- At-the-Market Exchange Ratio. The 0.414 exchange ratio was intended to
reflect the relative market prices of Devon's and Ocean's common stock
for about 30 days prior to the date of the merger agreement. This
reflects the fact that the merger is a strategic merger in which Ocean
common stockholders (measured as of the date of the merger agreement)
will receive Devon common stock in the merger representing about 32% of
the combined company's outstanding voting shares based on the number of
shares of Ocean common stock and Devon common stock outstanding on the
date on which the merger agreement was signed. Devon's board of directors
believes the "at-the-market" exchange ratio is fair to Devon and its
stockholders.
- Increased Presence in the Gulf of Mexico and West Africa. The merger
significantly enhances Devon's position in the Gulf of Mexico and West
Africa. Ocean's Gulf of Mexico division is more than twice as large as
Devon's existing Gulf of Mexico operations, as measured by proved
reserves as of December 31, 2002. Ocean has a significant West African
presence to complement Devon's existing West African position. Ocean also
has substantial production from the Zafiro field in offshore Equatorial
Guinea.
- Identifiable Near-Term Production Growth. In 2002, Ocean began
production from its major deepwater discoveries in the Nansen and
Boomvang fields in the Gulf of Mexico. Ocean has other material deepwater
Gulf of Mexico discoveries/development projects that are scheduled to
commence production in 2003 and 2004. Most of these are in water depths
that are less than 5,000 feet, which means that they can be operated
using existing technology and tied into existing infrastructure.
Production from Ocean's non-operating interest in the Zafiro field in
Equatorial Guinea is currently increasing. Devon's board of directors
believes that these deepwater projects provide Ocean with near-term
production growth. Devon estimates that the combined company's production
growth profile will be between 4% and 6% per annum over the next two to
three years.
- Enhanced Portfolio of Impact Projects/Large Inventory of Identified
Prospects. Ocean holds a deepwater exploratory position in the Gulf of
Mexico and the South Atlantic Margin. In the Gulf of Mexico, Ocean holds
approximately 1.1 million net acres covering about 360 blocks, with over
50 identified prospects and leads. In the South Atlantic Margin, Ocean
has exposure in blocks in offshore Equatorial Guinea, Brazil and Nigeria
that Devon believes hold exploration potential. Devon believes that the
combination of Devon and Ocean provides a compelling blend of stable,
growing production, lower risk development drilling/exploitation
opportunities and significant potential growth exploration exposure.
- Deepwater Expertise. Devon expects to benefit from sharing deepwater
technology and expertise with Ocean.
39
- Synergies. Devon expects that the merger will create annual cost savings
of at least $50 million.
- Larger Size. The combined company will be significantly larger than
Devon is now and, as a result of the larger size:
- Devon is expected to have greater liquidity in the market for its
shares;
- Devon should be able to consider future transactions that would not
otherwise be possible; and
- Devon should have greater marketing, purchasing and operating strengths.
- Opinion of Financial Advisor. Devon's board of directors also considered
the presentation and opinion of Morgan Stanley & Co. Incorporated
described elsewhere in this document to the effect that, based on the
assumptions and other matters stated in its opinion, the 0.414 exchange
ratio pursuant to the merger agreement was fair from a financial point of
view to Devon as of the date of the opinion.
Devon recognized that there are risks associated with the merger and the
merger agreement, including the following risks:
- Integration Risks. The operations, technologies and personnel of the two
companies may not be successfully integrated. The merger will include
risks commonly associated with similar transactions, including
unanticipated liabilities, unanticipated costs and diversion of
management's attention. The combined company may also experience
operational interruptions or the loss of key employees, customers or
suppliers.
- Dilution. The merger is expected to be slightly dilutive in the near
term to Devon's earnings per share, cash flow per share, production per
share and reserves per share on a pro forma basis, depending on various
assumptions, including future commodity price levels.
- Capital Needs of Combined Company. The capital outlays necessary to
satisfy Ocean's existing commitments and to achieve the estimated growth
in Ocean's business will be significant. In addition, the combined
company will have significant debt maturities over the next several
years. There can be no assurance that the combined company will be able
to fund all of its capital needs from operating cash flows. The combined
company may need to access the capital markets or sell assets to meet its
capital needs in the future, and there can be no assurance that it will
be able to do so on favorable terms or at all.
- Larger Component of Proved Undeveloped Reserves. The merger would
increase Devon's PUDs from about 27% to 31% of its total reserves. PUDs
involve greater uncertainty and require significant capital to develop.
- International Projects. The merger will increase Devon's exposure to
investments outside of North America that may involve a higher degree of
exposure to risks associated with political and economic instabilities.
In addition, Ocean has made commitments in connection with being granted
concessions by foreign countries that will be costly to fund and may
limit the combined company's flexibility as to whether to continue
operations in those countries.
- Concentration of Exposure. Ocean is dependent on several high volume
assets, including the Zafiro field in Equatorial Guinea and the Nansen
and Boomvang fields in the Gulf of Mexico, which are currently producing,
and the Redhawk and Magnolia deepwater projects in the Gulf of Mexico,
which are expected to come "on stream" in the near future. Should these
assets not perform as well as expected, the combined company may not be
able to achieve the desired growth, and the combined company could be
required to write-down reserves.
- Closing Conditions May Not Be Satisfied. The merger might not be
completed as a result of a failure to satisfy the conditions contained in
the merger agreement or other reasons. Neither Devon nor Ocean is
obligated to complete the merger unless the conditions in the merger
agreement are satisfied or, in some cases, waived.
40
The preceding discussion of the information and factors considered and
given weight by Devon's board of directors is not intended to be exhaustive.
However, Devon believes that the discussion includes all of the material factors
that its board considered. In reaching its decision to approve the merger
agreement and to recommend approval to Devon stockholders of the issuance of
Devon common stock in the merger, Devon's board of directors did not assign any
relative or specific weights to the factors it considered. Individual directors
may have given different weights to different factors.
OPINIONS OF FINANCIAL ADVISORS
OPINION OF DEUTSCHE BANK SECURITIES INC. -- FINANCIAL ADVISOR TO OCEAN
At the February 23, 2003 meeting of Ocean's board of directors, Deutsche
Bank rendered its oral opinion to Ocean's board of directors, subsequently
confirmed in writing, that as of February 23, 2003, and subject to and based on
the considerations in its opinion, the 0.414 exchange ratio was fair from a
financial point of view to Ocean common stockholders.
The full text of Deutsche Bank's opinion, dated February 23, 2003, which
sets forth, among other things, the assumptions made and matters considered by
Deutsche Bank, is attached as Annex B to this document and is incorporated into
this document by reference. We urge you to read this opinion carefully and in
its entirety. Deutsche Bank's opinion is directed to Ocean's board of directors,
addresses only the fairness from a financial point of view of the 0.414 exchange
ratio to Ocean common stockholders, and does not address any other aspect of the
merger or constitute a recommendation to any Ocean stockholder as to how to vote
at the Ocean meeting. This summary is qualified in its entirety by reference to
the full text of the Deutsche Bank opinion.
In connection with rendering its opinion, Deutsche Bank, among other
things:
- reviewed certain publicly available financial statements and other
business and financial information of Ocean and Devon, respectively;
- reviewed certain internal financial statements and other financial and
operating data concerning Ocean and Devon prepared by the respective
managements of Ocean and Devon;
- reviewed certain financial forecasts prepared by the respective
managements of Ocean and Devon;
- discussed with senior executives of Ocean and Devon certain strategic,
financial and operational benefits they expect to derive from the merger;
- discussed the past and current operations and financial condition and the
prospects of Ocean and Devon with senior executives of Ocean and Devon;
- reviewed the pro forma impact of the merger on, among other things,
Ocean's and Devon's earnings per share, cash flow, consolidated
capitalization and financial ratios;
- reviewed information prepared by the members of the respective senior
managements of Ocean and Devon relating to the relative contributions of
Ocean and Devon to the combined company;
- reviewed the reported prices and trading activity for Ocean common stock
and Devon common stock;
- compared the prices and trading activity of Ocean common stock and Devon
common stock with similar information for the securities of certain other
publicly traded companies;
- reviewed the financial terms, to the extent publicly available, of
certain business combination transactions that it deemed comparable in
whole or in part;
- participated in certain discussions and negotiations among
representatives of Ocean and Devon and their financial and legal
advisors;
41
- reviewed the merger agreement and certain related documents; and
- performed such other analyses and considered such other factors as it
deemed appropriate.
Deutsche Bank relied upon, without independent verification, the accuracy
and completeness of the information supplied or otherwise made available to it
and assumed such accuracy and completeness for purposes of rendering its
opinion. With respect to the financial forecasts that Deutsche Bank received
from the respective managements of Ocean and Devon, as well as information
relating to certain cost savings, operating efficiencies, revenue effects and
financial synergies expected by Ocean and Devon to be achieved as a result of
the merger, Deutsche Bank assumed that the information provided was reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of Ocean or Devon, as the case may be. Deutsche Bank
did not make any independent valuation or appraisal of the assets or liabilities
of Ocean or Devon, nor was Deutsche Bank furnished with any such appraisals.
Deutsche Bank assumed that the representations and warranties contained in
the merger agreement are true and correct, that the parties to the merger
agreement will perform all of their covenants and agreements under the merger
agreement, and that all conditions to the parties' obligations to complete the
merger will be satisfied without any waiver. Deutsche Bank also assumed that all
material approvals and consents required in connection with the merger will be
obtained and that, in connection with obtaining any such approvals and consents,
or any amendments, modifications or waivers to any agreements, instruments or
orders to which Ocean or Devon is a party or is subject or by which it is bound,
no limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on Ocean
or Devon or materially reduce the contemplated benefits of the merger. In
addition, Ocean informed Deutsche Bank, and for purposes of rendering its
opinion Deutsche Bank assumed, that the merger will be tax-free to each of Ocean
and Devon and their respective common stockholders. In arriving at its opinion,
Deutsche Bank analyzed the merger as a strategic business combination not
involving a sale of control of Ocean. Deutsche Bank was not authorized by Ocean
or its board of directors to solicit, and did not solicit, third-party
indications of interest with respect to the acquisition of all or any part of
Ocean or any other extraordinary transaction involving Ocean.
The opinion of Deutsche Bank is necessarily based on financial, economic,
market and other conditions as in effect on, the information made available to
Deutsche Bank as of, and the financial condition of Ocean and Devon on, February
23, 2003.
DEUTSCHE BANK'S FINANCIAL ANALYSIS
The following is a summary of the material financial analyses performed by
Deutsche Bank in connection with rendering its opinion. These summaries of
financial analyses include information presented in tabular format. In order to
understand fully the financial analyses used by Deutsche Bank, the tables must
be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Historical Exchange Ratio Analysis. Deutsche Bank compared the daily
closing share price of Ocean common stock to the daily closing price of Devon
common stock during the period beginning February 21, 2001 and ending February
19, 2003, and reviewed and analyzed the historical exchange ratios implied by
these comparisons.
42
Deutsche Bank also reviewed and analyzed the average of these historical
daily exchange ratios over various periods beginning February 21, 2001 and
ending February 19, 2003. The following table presents the implied exchange
ratios during the periods covered and as of February 19, 2003.
DEVON SHARES PER OCEAN SHARE
PERIOD AVERAGE EXCHANGE RATIO(1)
------ -------------------------
At February 19, 2003........................................ 0.398x
Last five-day average....................................... 0.404
Last month average.......................................... 0.413
Last 3 months average....................................... 0.418
Last 6 months average....................................... 0.415
Last 12 months average...................................... 0.424
Last 2 years average........................................ 0.413
---------------
(1) Averages of exchange ratios based on daily closing prices.
As the 0.414 exchange ratio was implied from the last month average of
Ocean and Devon common stock as of February 21, 2003, and Deutsche Bank, for
purposes of its opinion, reviewed Ocean's and Devon's stock prices until
February 19, 2003, Deutsche Bank also analyzed the implied exchange ratio on
February 21, 2003 by examining independently both Ocean's and Devon's stock
price movements for February 20 and 21, 2003. Based on the actual closing prices
per share of Ocean common stock and Devon common stock on February 20 and
February 21, 2003, the 0.414 exchange ratio is substantially the same as the
last month average implied by the February 19 closing prices.
Last Twelve Months Trading Analysis. Deutsche Bank reviewed the daily
closing share prices of Ocean common stock and Devon common stock over the
twelve months ended February 19, 2003. The table below shows the twelve-month
high and low closing prices during that period, compared with a closing price on
February 19, 2003 of $18.60 per share for Ocean common stock and $46.70 per
share for Devon common stock:
FEBRUARY 19, 2002
THROUGH
FEBRUARY 19, 2003
-----------------
HIGH LOW
------- -------
Ocean....................................................... $22.62 $16.68
Devon....................................................... 52.76 35.54
The range of exchange ratios implied by this range of values for Ocean
common stock and Devon common stock is between 0.316x and 0.636x. The foregoing
analysis was unaffected by the price movements in Ocean common stock and Devon
common stock on February 20 and February 21, 2003.
Research Analysts' Future Price Targets Analysis. Deutsche Bank reviewed
the 12-month price targets for Ocean common stock and Devon common stock as
projected in recent reports by analysts from six financial institutions, in the
case of Ocean, and seven financial institutions, in the case of Devon. Such
reports represent substantially all the research analysts' reports on Ocean and
Devon that were reasonably available and current at the time the analyses were
performed. One of the selected research analysts was an employee of Deutsche
Bank. These targets reflected each analyst's estimate of the future public
market trading price of Ocean common stock and Devon common stock at the end of
the particular period considered for each estimate. Deutsche Bank then arrived
at the present value for these targets using an estimated equity discount rate
of 10.0%.
43
This analysis showed the following range of values for Ocean common stock
and Devon common stock:
12 MONTH ANALYSTS' PRICE TARGET
--------------------------------
NOMINAL PRESENT VALUE
-------------- ---------------
Ocean.................................................... $22.00-26.00 $20.00-23.64
Devon.................................................... 49.00-64.00 44.55-58.18
The range of exchange ratios implied by this range of values for Ocean
common stock and Devon common stock is 0.344x to 0.531x.
Comparable Companies Analysis. Deutsche Bank compared total enterprise
value (calculated as equity value adjusted for capital structure) to estimated
earnings before interest, taxes, depreciation and amortization, which is
referred to as EBITDAX, for Ocean and Devon for the fiscal years 2003 and 2004
and based on First Call estimates. (First Call Corporation compiles summaries of
financial forecasts published by various investment banking firms. We refer to
the information published by First Call Corporation as "First Call estimates.")
Deutsche Bank then compared the EBITDAX multiples obtained for Ocean and Devon
with multiples obtained for groups of selected oil and gas companies.
The selected oil and gas companies forming the group to which Ocean was
compared were Anadarko Petroleum, Apache Corporation, Burlington Resources,
Encana Corporation, EOG Resources, Kerr-McGee Corporation, Murphy Oil, Noble
Energy, Pioneer Natural Resources and Unocal Corporation. We refer to those
companies as the "Ocean Selected Companies." The selected oil and gas companies
forming the group to which Devon was compared were: Anadarko Petroleum, Apache
Corporation, Burlington Resources, Encana Corporation, EOG Resources, Inc.,
Noble Energy, Unocal Corporation and XTO Energy. We refer to those companies as
the "Devon Selected Companies." Deutsche Bank selected these companies because
they are publicly traded companies with oil and gas operations that for purposes
of this analysis may be considered similar to those of Ocean and Devon.
The analysis showed the following multiples:
TOTAL
ENTERPRISE
VALUE/
ESTIMATED
EBITDAX
-----------
2003 2004
---- ----
Ocean....................................................... 4.6x 5.1x
Devon....................................................... 5.2 5.6
Ocean Selected Companies Median............................. 5.4 5.3
Devon Selected Companies Median............................. 5.5 5.6
Deutsche Bank then applied comparable company multiples (ranging between
4.6x and 5.8x for 2003 Total Enterprise Value/EBITDAX and between 4.8x and 5.9x
for 2004 Total Enterprise Value/ EBITDAX) to the corresponding Ocean statistics
based on publicly available estimates. Deutsche Bank then applied comparable
company multiples (ranging between 5.2x and 5.7x for 2003 Total Enterprise
Value/EBITDAX and between 5.6x and 6.2x for 2004 Total Enterprise Value/EBITDAX)
to the corresponding Devon statistics based on publicly available estimates. The
following table presents the range of exchange ratios implied by the resulting
mean valuation range based on implied Ocean and Devon share prices derived from
the 2003 and 2004 Total Enterprise Value as computed by Deutsche Bank.
EXCHANGE RATIO RANGE
--------------------
Total Enterprise Value/EBITDAX.............................. 0.315x-0.510x
Deutsche Bank calculated Price to Cash Flow per Share and Price to Earnings
per Share multiples for Ocean and Devon for the fiscal years ended 2003 and 2004
based on First Call estimates. Deutsche Bank then compared these multiples with
multiples obtained for the Ocean Selected Companies and the Devon Selected
Companies.
44
The analysis showed the following multiples:
PRICE/
ESTIMATED
CFPS
-----------
2003 2004
---- ----
Ocean....................................................... 3.8x 4.1x
Devon....................................................... 3.4 3.8
Ocean Selected Companies Median............................. 4.7 4.8
Devon Selected Companies Median............................. 4.8 4.9
PRICE/
ESTIMATED
EPS
-----------
2003 2004
---- ----
Ocean....................................................... 11.3x 15.6x
Devon....................................................... 10.1 12.2
Ocean Selected Companies Median............................. 14.4 16.1
Devon Selected Companies Median............................. 14.4 17.2
Deutsche Bank then applied comparable company multiples (ranging between
3.8x and 4.6x for 2003 Price/Cash Flow per share; between 4.0x and 4.8x for 2004
Price/Cash Flow per share; between 11.0x and 12.0x for 2003 Price/Earnings per
share; and between 14.0x and 15.6x for 2004 Price/Earnings per share) to the
corresponding Ocean statistics based on publicly available estimates. Deutsche
Bank then applied comparable company multiples (ranging between 3.4x and 5.0x
for 2003 Price/Cash Flow per share; between 3.8x and 5.2x for 2004 Price/Cash
Flow per share; between 10.1x and 11.7x for 2003 Price/ Earnings per share; and
between 12.2x and 13.4x for 2004 Price/Earnings per share) to the corresponding
Devon statistics based on publicly available estimates. The following table
presents the range of exchange ratios implied by the resulting mean valuation
range based on implied Ocean and Devon share prices derived from the 2003 and
2004 Price/Earnings per Share and Price/Cash Flow per Share analysis as computed
by Deutsche Bank.
EXCHANGE RATIO RANGE
--------------------
Price/Cash Flow per Share................................... 0.276x-0.472x
Price/Earnings per Share.................................... 0.331 -0.412
Deutsche Bank also calculated Total Enterprise Value to barrel-of-energy
equivalent proved reserves values for Ocean and Devon based on the most recently
public disclosed amount of proved reserves available. Deutsche Bank then
compared the Total Enterprise Value to proved reserves values obtained for Ocean
and Devon with results obtained for the Ocean Selected Companies and the Devon
Selected Companies.
The analysis showed the following results:
TOTAL ENTERPRISE
VALUE/PROVED
RESERVES (BOE)
----------------
Ocean....................................................... $7.97
Devon....................................................... 9.08
Ocean Selected Companies Median............................. 6.93
Devon Selected Companies Median............................. 7.39
Deutsche Bank then applied comparable company values (ranging between $8.00
and $9.00 for Total Enterprise Value/proved reserves) to the corresponding Ocean
statistics based on publicly disclosed estimates. Deutsche Bank then applied
comparable company values (ranging between $7.50 and $9.00 for Total Enterprise
Value/proved reserves) to the corresponding Devon statistics based on publicly
available
45
estimates. The following table presents the range of exchange ratios implied by
the resulting valuation range based on implied Ocean and Devon share prices
derived from the Total Enterprise Value as computed by Deutsche Bank.
EXCHANGE RATIO RANGE
--------------------
Total Enterprise Value/Proved Reserves (Boe)................ 0.408x-0.720x
Pro Forma Contribution Analysis. Deutsche Bank compared the pro forma
contributions of each of Ocean and Devon, based on First Call estimates, to the
combined company. Deutsche Bank reviewed pro forma estimates of earnings, cash
flow and EBITDAX for the years 2003 and 2004.
Deutsche Bank also reviewed the contributions of the pre-transaction
enterprise value, the pre-transaction equity value, and proved reserves based on
2002 reported figures. As more fully described in the table below, Ocean and
Devon will contribute to the combined company in a manner consistent with the
participation that Ocean stockholders and Devon stockholders will have in the
ownership of Devon, as such participation is implied by the agreed 0.414
exchange ratio:
RELATIVE
PRE- PRE- OWNERSHIP
2002 EBITDAX CASH FLOW NET INCOME TRANSACTION TRANSACTION BASED ON
PROVED ------------- ------------- ------------- ENTERPRISE EQUITY EXCHANGE
RESERVES 2003E 2004E 2003E 2004E 2003E 2004E VALUE VALUE RATIO
-------- ----- ----- ----- ----- ----- ----- ----------- ----------- ---------
Ocean................ 27% 27 26 29 29 29 26 24 31 32
Devon................ 73 73 74 71 71 71 74 76 69 68
Pro Forma Earnings, Cash Flow and Credit Impact Analysis. Deutsche Bank
analyzed the pro forma effects of the merger and computed the resulting
accretion/dilution to the combined company's projected per-share earnings and
cash flow during 2003 and 2004, based on the agreed-upon exchange ratio.
Deutsche Bank also computed the resulting credit statistics for the combined
company based on the agreed-upon exchange ratio, including total debt to book
capitalization, estimated 2003 cash flow to total debt, estimated 2003 earnings
before interest and taxes (EBIT) to interest expense and total debt to
barrel-of-energy equivalent proved reserves. These computations used earnings
and cash flow projections for Ocean and Devon based on First Call estimates,
preliminary synergy estimates provided by Ocean's and Devon's management prior
to finalization of their synergy review, and certain purchase accounting
adjustments.
The analysis indicated that, based on First Call estimates, the merger
would be accretive to estimated earnings per share in 2003 and 2004 of Ocean and
dilutive to estimated earnings per share in 2003 and 2004 of Devon, in each case
as compared to the same estimates for Ocean and Devon on a stand-alone basis.
Based on First Call estimates, the merger would also be accretive to cash flow
per share for Ocean and Devon in 2003 and 2004, in each case as compared to the
same estimates for Ocean and Devon on a stand-alone basis. In addition, the
analysis indicated that, based on First Call estimates, the merger should have a
positive impact on the credit statistics of the combined company as compared to
Devon on a stand-alone basis. Deutsche Bank also noted that Devon's senior
unsecured credit ratings, as published by Moody's Investors Service and Standard
and Poor's, on a stand-alone basis of Baa2/BBB were superior to Ocean's senior
unsecured credit ratings of Baa3/BBB-.
Precedent Transactions Analysis. Deutsche Bank examined fourteen selected
precedent business combination transactions which, for the purposes of its
analysis, it deemed to be comparable to the merger in whole or in part. Deutsche
Bank calculated the premium to unaffected share price and the enterprise value
per barrel-of-energy equivalent proved reserves that the targets in these
selected precedent transactions received and then calculated the median value
premium and value of proved reserves of the fourteen transactions. The
calculated median value premium to unaffected share price for the fourteen
transactions was 7.2% and the calculated median value of total enterprise value
to proved reserves was $7.34 per barrel-of-energy equivalent proved reserves.
The values implied to Ocean based on the 0.414 exchange ratio were a 3.9%
premium to unaffected share price and $8.21 per barrel-of-energy equivalent
proved reserves.
46
The precedent transactions examined were:
- Burlington Resources/Louisiana Land & Exploration;
- Ocean Energy/United Meridian Resources;
- Kerr-McGee/Oryx Energy;
- Ocean Energy/Seagull Energy;
- Santa Fe Energy/Snyder Oil;
- Devon Energy/PennzEnergy;
- Burlington Resources/Poco Petroleums;
- Anadarko Petroleum/Union Pacific Resources;
- Devon Energy/Santa Fe Snyder;
- Forest Oil/Forcenergy;
- Stone Energy/Basin Exploration;
- Westport Resources/Belco Oil and Gas;
- Phillips Petroleum/Conoco Inc.; and
- PanCanadian Energy/Alberta Energy.
In connection with the review of the merger by Ocean's board of directors,
Deutsche Bank performed a variety of financial and comparative analyses for
purposes of rendering its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. In arriving at its opinion, Deutsche Bank considered the
results of all of its analyses as a whole and did not attribute any particular
weight to any analysis or factor considered by it. Furthermore, Deutsche Bank
believes that the summary provided and the analyses described above must be
considered as a whole and that selecting any portion of its analyses, without
considering all of them, would create an incomplete view of the process
underlying its analyses and opinion. In addition, Deutsche Bank may have given
various analyses and factors more or less weight than other analyses and factors
and may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Deutsche Bank's view of the
actual value of Ocean or Devon.
In performing its analyses, Deutsche Bank made numerous assumptions with
respect to industry performance, general business and economic condition and
other matters, many of which are beyond the control of Ocean or Devon. Any
estimates contained in Deutsche Bank's analyses are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates. The analyses performed were
prepared solely as part of Deutsche Bank's analysis of the fairness from a
financial point of view to Ocean common stockholders of the 0.414 exchange ratio
and were prepared in connection with the delivery by Deutsche Bank of its
opinion, dated February 23, 2003, to Ocean's board of directors. The analyses do
not purport to be appraisals or to reflect the prices at which Ocean common
stock or Devon common stock might actually trade. The 0.414 exchange ratio and
other terms of the merger agreement were determined through arm's length
negotiations between Ocean and Devon and were unanimously approved by Ocean's
and Devon's boards of directors. Deutsche Bank did not recommend any specific
exchange ratio or form of consideration to Ocean or that any specific exchange
ratio or form of consideration constituted the only appropriate consideration
for the merger.
Pursuant to the engagement letter between Ocean and Deutsche Bank, Ocean
agreed to pay Deutsche Bank a $5 million fee for services rendered by Deutsche
Bank in connection with the merger, including Deutsche Bank's delivery of an
opinion as to the fairness from a financial point of view of the 0.414
47
exchange ratio to Ocean common stockholders as of the date on which the merger
agreement was signed. Ocean has also agreed to reimburse Deutsche Bank for its
expenses incurred in performing its services. In addition, Ocean has agreed to
indemnify Deutsche Bank and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Deutsche
Bank or any of its affiliates against certain liabilities and expenses,
including certain liabilities under the federal securities laws, related to or
arising out of Deutsche Bank's engagement and any related transactions.
Deutsche Bank's opinion was one of the many factors taken into
consideration by Ocean's board of directors in making its unanimous
determination to approve the merger agreement. Deutsche Bank's analyses
summarized above should not be viewed as determinative of the opinion of Ocean's
board of directors with respect to the value of Ocean or Devon or of whether
Ocean's board of directors would have been willing to agree to a different
exchange ratio or form of consideration.
OPINION OF MORGAN STANLEY & CO. INCORPORATED -- FINANCIAL ADVISOR TO DEVON
At the February 23, 2003 meeting of Devon's board of directors, Morgan
Stanley rendered its oral opinion to Devon's board of directors, subsequently
confirmed in writing, that as of February 23, 2003, and subject to and based on
the considerations in its opinion, the 0.414 exchange ratio pursuant to the
merger agreement was fair from a financial point of view to Devon.
The full text of Morgan Stanley's opinion, dated February 23, 2003, which
sets forth, among other things, the assumptions made, procedures followed,
matters considered and limitations on the scope of the review undertaken by
Morgan Stanley in rendering its opinion, is attached as Annex C to this document
and is incorporated into this document by reference. We urge you to read this
opinion carefully and in its entirety. Morgan Stanley's opinion is directed to
Devon's board of directors, addresses only the fairness from a financial point
of view of the 0.414 exchange ratio pursuant to the merger agreement to Devon,
and does not address any other aspect of the merger or constitute a
recommendation to any Devon stockholder as to how to vote at the Devon meeting.
This summary is qualified in its entirety by reference to the full text of the
Morgan Stanley opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Ocean and Devon, respectively;
- reviewed certain internal financial statements and other financial and
operating data, including internal oil and gas reserve estimates,
concerning Ocean and Devon prepared by the managements of Ocean and
Devon, respectively;
- reviewed certain financial forecasts prepared by the managements of Ocean
and Devon, respectively;
- discussed the past and current operations and financial condition and the
prospects of Ocean, including information relating to certain strategic,
financial and operational benefits anticipated from the merger, with
senior executives of Ocean;
- discussed the past and current operations and financial condition and the
prospects of Devon, including information relating to certain strategic,
financial and operational benefits anticipated from the merger, with
senior executives of Devon;
- reviewed the pro forma impact of the merger on Devon's earnings per
share, cash flow, oil and gas reserves and production, consolidated
capitalization and financial ratios;
- reviewed the reported prices and trading activity for Ocean common stock
and Devon common stock;
- compared the financial performance of Ocean and Devon and the prices and
trading activity of Ocean common stock and Devon common stock with that
of certain other publicly-traded companies comparable with Ocean and
Devon, respectively, and their securities;
48
- reviewed certain reserve reports prepared by Devon and Devon's
independent reserve engineers;
- reviewed certain reserve reports prepared by Ocean and Ocean's
independent reserve engineers;
- reviewed the financial terms, to the extent publicly available, of
certain comparable business combination transactions deemed relevant;
- participated in discussions and negotiations among representatives of
Ocean and Devon and their financial and legal advisors;
- reviewed a draft of the merger agreement and certain related documents;
and
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the financial
forecasts, including information relating to certain strategic, financial and
operational benefits anticipated from the merger, Morgan Stanley assumed that
they were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Ocean and Devon,
respectively.
Morgan Stanley did not make any independent valuation or appraisals of the
assets or liabilities of Ocean or Devon, nor was it furnished with any such
appraisals. With respect to reserve estimates and reports referred to in bullets
2, 6, 9 and 10 above, Morgan Stanley is not an expert in the engineering
evaluation of oil and gas properties and, with Devon's consent, relied, without
independent verification, upon the internal reserve estimates prepared by Ocean
and Devon, respectively. In addition, Morgan Stanley assumed that the merger
would be completed in accordance with the terms set forth in the merger
agreement, including, among other things, that the merger will be treated as a
tax-free reorganization pursuant to the Internal Revenue Code of 1986, as
amended. Morgan Stanley's opinion is necessarily based on financial, economic,
market and other conditions in effect on, and the information made available to
it, as of February 23, 2003.
The following is a summary of the material financial analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion dated February 23, 2003. These summaries of financial analyses
include information presented in tabular format. In order to fully understand
the financial analyses used by Morgan Stanley, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. Morgan Stanley noted that Ocean's common
stock closed at a price of $18.60 per share on February 19, 2003. Based on the
0.414 exchange ratio and Devon's common stock closing price of $46.70 per share
on February 19, 2003, the implied acquisition price per Ocean common share of
$19.33 represented a premium of approximately 4%.
Net Asset Valuation. Morgan Stanley estimated Devon's and Ocean's net
asset value using two methodologies, one based on a discounted cash flow
analysis and the other based on a sum-of-parts analysis. For the discounted cash
flow analysis, Morgan Stanley used a combination of publicly available equity
research estimates and estimates of Devon's management, and both a 6.5% and 10%
discount rate, to calculate the present value of the future pre-tax cash flows
that Devon could be expected to generate from its proved reserves as well as
those of Ocean as of December 31, 2002. In addition, Devon's management provided
projections of the unlevered free cash flows that the combined company could be
expected to generate from its proved reserves during the fiscal years 2003
through 2017 and the value of the remaining proved reserves projected at 2017
based upon engineering projections prepared by the management of Devon. The
unlevered free cash flows and remaining value of proved reserves were then
discounted to obtain a present value using a discount rate of both 6.5% and 10%.
Morgan Stanley adjusted the estimated values for Devon's and Ocean's proved
reserves to include the value of certain other assets and liabilities of Devon
and Ocean, respectively. This discounted cash flow analysis resulted in an
implied exchange ratio of 0.408-0.462.
49
Morgan Stanley also estimated Devon's and Ocean's net asset value based on
a sum-of-parts analysis. For this analysis, Morgan Stanley calculated a range of
values for proved reserves segmented by region using $/BOE estimates for each
region. Morgan Stanley defined "Firm Value" as the sum of equity market
capitalization, total debt, minority interest and preferred stock, minus cash
and cash equivalents. Morgan Stanley defined "BOE" as one barrel equivalent of
oil assuming a conversion ratio of 6 Mcf of natural gas to one barrel of oil.
The selected $/BOE for each region are as follows:
SELECTED VALUATION RANGE
------------------------
US Onshore.................................................. $6.00-$7.50
US Gulf of Mexico/Gulf Coast................................ $7.00-$9.00
Canada...................................................... $5.50-$7.00
West Africa................................................. $3.50-$4.50
Azerbaijan.................................................. $4.50-$5.50
Other International......................................... $3.50-$4.50
Morgan Stanley applied the selected valuation range in the table above to
estimate the value of Devon's and Ocean's proved reserves as of December 31,
2002. Morgan Stanley adjusted the estimated values for Devon's and Ocean's
proved reserves to include the value of certain other assets and liabilities of
Devon and Ocean, respectively. The analysis resulted in an implied exchange
ratio of 0.419-0.487.
Comparable Company Analysis. Morgan Stanley reviewed selected financial
information, ratios and public market multiples for the following publicly
traded companies:
- Burlington Resources, Inc.;
- Anadarko Petroleum Corporation;
- Apache Corporation;
- Encana Corporation;
- Kerr-McGee Corporation;
- Unocal Corporation;
- Murphy Oil Corporation;
- EOG Resources, Inc.; and
- Occidental Petroleum Corporation.
The multiples and ratios for each of the selected companies were based on
the most recent publicly available information and on closing prices as of
February 19, 2003. Morgan Stanley defined "EBITDAX" as earnings before interest,
taxes, depletion, depreciation, amortization, and exploration expense. Morgan
Stanley defined "cash flow" as net income plus deferred taxes, depletion,
depreciation, amortization and exploration expense.
The results of these analyses are as follows:
SELECTED VALUATION RANGE
------------------------
Price/2003 Estimated Cash Flow per Share.................... 3.5x-5.0x
Firm Value/2003 Estimated EBITDAX........................... 4.5x-5.5x
Firm Value/Proved BOE....................................... $7.00-$9.50
Morgan Stanley applied the selected valuation range in the table above to
data based on First Call estimates and proved reserve estimates provided by
Devon's management. The analysis resulted in an implied exchange ratio of
0.326-0.529.
50
No company included in the comparable company analysis is identical to
Devon or Ocean. In evaluating the comparable companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Devon or Ocean, such as the impact of competition on the
business of Devon, Ocean and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of Devon or the industry or in the financial markets in general. Mathematical
analysis, such as determining the average or median, is not in itself a
meaningful method of using comparable company data.
Precedent Corporate Transactions Analysis. Using publicly available
information, Morgan Stanley performed an analysis of the following precedent
corporate transactions that were comparable to the merger in certain respects:
- PanCanadian Energy/Alberta Energy;
- Devon Energy/Mitchell Energy & Development;
- Devon Energy/Santa Fe Snyder;
- Anadarko Petroleum/Union Pacific Resources;
- Devon Energy/PennzEnergy;
- Santa Fe Energy/Snyder Oil; and
- Ocean Energy/Seagull Energy.
The results of these analyses are as follows:
SELECTED VALUATION RANGE
------------------------
Price/1-Year Forward Cash Flow per Share.................... 3.5x-4.5x
Firm Value/1-Year Forward EBITDAX........................... 4.5x-5.5x
Firm Value/Proved BOE....................................... $7.00-$9.00
Premiums Paid............................................... 15%-35%
Morgan Stanley applied the selected valuation range in the table above to
data based on First Call estimates and proved reserve estimates provided by
Devon's management. The analysis resulted in an implied exchange ratio of
0.326-0.538.
No transaction included in the comparison of precedent corporate
transactions analysis is identical to the merger. In evaluating the transactions
listed above, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Devon or
Ocean, such as the impact of competition on Devon, Ocean and the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of Ocean, Devon or the industry or in the
financial markets in general. Mathematical analysis, such as determining the
average or median, is not in itself a meaningful method of using precedent
corporate transaction data.
51
Historical Exchange Ratio Analysis. Morgan Stanley reviewed the daily
historical ratios of the closing prices per share of Ocean common stock divided
by the closing prices per share of Devon common stock for the period from
February 19, 2001 to February 19, 2003. Morgan Stanley calculated the average of
the historical ratios and computed the premium or discount represented by the
averages of the historical ratios for various periods over the 0.414 exchange
ratio. The following table presents the range of historical ratios over the
periods covered compared to the exchange ratio in the transaction:
PREMIUM (DISCOUNT) TO 0.414
PERIOD AVERAGE (X) EXCHANGE RATIO (%)
------ ----------- ---------------------------
Current (February 19, 2003)....................... 0.398 (3.8)
1 Month........................................... 0.412 (0.3)
3 Months.......................................... 0.418 1.0
6 Months.......................................... 0.414 0.0
1 Year............................................ 0.424 2.4
2 Years........................................... 0.413 (0.2)
Relative Contribution Analysis. Morgan Stanley reviewed the relative
contributions of Ocean and Devon to the pro forma combined company based on
proved hydrocarbon reserves, hydrocarbon production, cash flow and EBITDAX using
three cases. The first case used 2002 historical data for both Devon and Ocean
prepared by Devon's management and Ocean's management. Based on this case, the
implied exchange ratio was 0.336 to 0.475. The second case used 2003 and 2004
data for the same metrics for Devon and Ocean based on publicly available data,
including the projections of securities analysts and First Call estimates. Based
on this case, the implied exchange ratio was 0.361 to 0.484. The third case used
Devon's management's projections for Devon and Ocean which were based on First
Call estimates for hydrocarbon pricing in 2003 and 2004. Based on this case, the
implied exchange ratio was 0.333 to 0.517.
Morgan Stanley also reviewed the relative contributions of Ocean and Devon
based on the relative trading performance of each company's common stock for the
last twelve months through February 19, 2003. This analysis resulted in an
implied exchange ratio of 0.350 to 0.524.
Pro Forma Financial Results. Morgan Stanley reviewed the pro forma impact
of the merger on Devon's projected earnings per share and cash flow per share
for the fiscal years ended 2003, 2004 and 2005 based upon two cases. One case
was based on Devon's management's projections using First Call estimates for
hydrocarbon pricing in 2003 and 2004, and Devon's management's own pricing for
2005. The other case was based on publicly available data, including First Call
estimates, for both earnings per share and cash flow per share for both
companies. Based on the first case, the merger would be expected to be accretive
to Devon's earnings per share in 2003, but slightly dilutive to cash flow per
share in the same year and subsequently for both earnings per share and cash
flow per share in 2004 and 2005. In the second case, the merger would be
expected to be slightly dilutive to Devon's earnings per share and cash flow per
share in 2003 and 2004. There were no First Call projections for earnings per
share or cash flow per share for 2005.
In connection with the review of the merger, Morgan Stanley performed a
variety of financial and comparative analyses for purposes of rendering its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any particular analysis
or factor considered by it. Furthermore, Morgan Stanley believes that selecting
any portion of its analyses or factors considered by it, without considering all
analyses and factors as a whole, would create an incomplete view of the process
underlying its opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors and may
have deemed various assumptions more or less probable than other assumptions, so
that the ranges of valuations resulting from any particular analysis described
above should therefore not be taken to be Morgan Stanley's view of the actual
value of Devon or Ocean.
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In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Ocean or Devon. Any
estimates contained in Morgan Stanley's analysis are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates. The analyses performed were
prepared solely as part of Morgan Stanley's analysis of the fairness from a
financial view of the 0.414 exchange ratio pursuant to the merger agreement to
Devon and were conducted in connection with the delivery by Morgan Stanley of
its opinion dated February 23, 2003 to Devon's board of directors. The analyses
do not purport to be appraisals or to reflect the prices at which Devon common
stock or Ocean common stock actually may be valued or the prices at which the
Devon common stock or Ocean common stock may actually trade in the marketplace.
Morgan Stanley's opinion was one of the many factors taken into
consideration by Devon's board of directors in making its unanimous
determination to approve the merger agreement. Morgan Stanley's analyses
summarized above should not be viewed as determinative of the opinion of Devon's
board of directors with respect to the value of Devon or Ocean or of whether
Devon's board of directors would have been willing to agree to a different
exchange ratio or form of consideration. The 0.414 exchange ratio and other
terms of the merger agreement were determined through arm's length negotiations
between Ocean and Devon and were approved by Devon's board of directors. Morgan
Stanley provided advice to Devon during the course of the negotiations, but the
decision to enter into the merger agreement was solely that of Devon's board of
directors. Morgan Stanley did not recommend any specific exchange ratio to Devon
or that any given exchange ratio constituted the only appropriate exchange ratio
for the merger.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the past, Morgan Stanley and its affiliates have provided financial
advisory and financing services for Devon and have received fees for the
rendering of these services. In the ordinary course of Morgan Stanley's
business, Morgan Stanley or its affiliates may from time to time trade in the
securities of or debt of Devon and Ocean for its own account, the accounts of
investment funds and other clients under the management of Morgan Stanley and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in these securities or debt.
Pursuant to the engagement letter between Devon and Morgan Stanley, Devon
agreed to pay Morgan Stanley a $5 million fee for services rendered by Morgan
Stanley in connection with the merger, including Morgan Stanley's delivery of an
opinion as to the fairness from a financial point of view of the 0.414 exchange
ratio pursuant to the merger agreement to Devon as of the date on which the
merger agreement was signed. Devon has also agreed to reimburse Morgan Stanley
for its expenses incurred in performing its services. In addition, Devon has
agreed to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities and
expenses, including certain liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement and any related
transactions.
INTERESTS OF OCEAN'S EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of Ocean's board of directors with
respect to the merger, Ocean stockholders should be aware that some of Ocean's
executive officers and directors may have interests in the merger that are
different from the interests of Ocean stockholders generally. The boards of
directors of both companies were aware of these interests and considered them in
approving and adopting the merger agreement and the merger that it contemplates.
APPOINTMENT OF OCEAN'S DESIGNEES TO DEVON'S BOARD OF DIRECTORS
Under the merger agreement, Milton Carroll, Peter J. Fluor, Robert L.
Howard, and Charles F. Mitchell, M.D., each of whom is currently a member of
Ocean's board of directors, are expected to be
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appointed to Devon's board of directors at the effective time of the merger.
Each of the Ocean-designated directors will hold office until his respective
successor is elected and qualified or until his earlier resignation or removal.
See the "Directors and Executive Officers of the Combined Company -- Directors"
section of this document for more information regarding the Ocean designees.
APPOINTMENT OF JAMES T. HACKETT AS PRESIDENT AND CHIEF OPERATING OFFICER OF
DEVON
James T. Hackett, who is currently the Chairman, President and Chief
Executive Officer of Ocean, will be appointed President and Chief Operating
Officer of Devon at the effective time of the merger. Mr. Hackett's existing
employment agreement and severance agreement with Ocean were amended in
connection with the merger. The amendments have the effect of suspending until
May 2004 certain change-of-control provisions in the agreements that would
otherwise be triggered by the merger and would entitle Mr. Hackett to terminate
his employment and receive a lump-sum cash payment and other benefits. Upon
proper notice, Mr. Hackett may elect to terminate his employment on May 1, 2004
and receive severance payments.
OTHER INTERESTS
Ocean's executive officers and directors also have the following interests
in the merger that may be different from Ocean stockholders' interests
generally:
- Outstanding Ocean stock options and restricted stock awards held by
Ocean's directors and executive officers (and all other Ocean employees)
will vest at the effective time of the merger. At the effective time of
the merger, options held by Ocean directors and executive officers
relating to 1,288,205 shares of Ocean common stock and restricted stock
awards held by Ocean directors and executive officers relating to 825,865
shares of Ocean common stock will vest. Outstanding Ocean stock options
not exercised at that time will be converted into options to purchase
shares of Devon common stock, subject to adjustment for the 0.414
exchange ratio.
- After the merger, some Ocean officers may become officers of Devon.
- John D. Schiller, Jr.'s existing employment agreement with Ocean was
amended in connection with the merger. The amendment has the effect of
suspending until May 2004 certain change-of-control provisions in the
agreement that would otherwise be triggered by the merger and would
entitle Mr. Schiller to terminate his employment and receive a lump-sum
cash payment and other benefits. Upon proper notice, Mr. Schiller may
elect to terminate his employment on May 1, 2004 and receive severance
payments.
- The merger will trigger change-of-control provisions in Ocean's directors
compensation plan. Upon completion of the merger, the existing Ocean
directors who are not selected to serve on Devon's board of directors
following the merger will be entitled to a lump-sum cash payment, which
will generally be an amount equal to the product of the director's years
of service (not less than one year nor more than five years) and the
highest annual cash retainer that the director was paid. The aggregate of
those lump-sum payments is expected to be about $1.4 million.
- The merger will trigger change-of-control provisions in the employment
agreements of some of Ocean's parent company and/or subsidiary officers,
including:
- Doss R. Bourgeois, Vice President -- Deepwater Facilities (Gulf of
Mexico)
- Clint P. Credeur, Vice President -- Reservoir Engineering (Gulf of
Mexico)
- Peggy T. d'Hemecourt, Vice President -- Human Resources
- William S. Flores, Jr., Senior Vice President -- Worldwide Drilling
- Stephen T. Laperouse, Vice President -- Land (Gulf of Mexico)
- James H. Painter, Senior Vice President -- Gulf of Mexico and
International Exploration
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- John J. Patton, Vice President, Associate General Counsel and Assistant
Secretary
- Robert K. Reeves, Executive Vice President, General Counsel and
Secretary
- William L. Transier, Executive Vice President and Chief Financial
Officer
- Frank D. Willoughby, Vice President -- Financial Planning
The merger will also constitute a "corporate change" for purposes of the
employment agreements of those Ocean officers, entitling them to full
vesting of their outstanding options and similar awards. In addition, if
those Ocean officers do not continue their employment with the combined
company after the merger, or if they leave the combined company for
specified reasons, they may be entitled to lump-sum cash payments and
certain other benefits, such as continuing health insurance coverage. The
cash payments will generally be equal to three times the sum of the Ocean
officer's salary and bonus.
- The merger will trigger change-of-control provisions in the severance
agreements of the following Ocean parent company and/or subsidiary
officers:
- John H. Campbell, Jr., Senior Vice President -- North American Onshore
Operations
- Mario M. Coll, III, Vice President -- Operational Planning and Chief
Information Officer
- Scott A. Griffiths, Senior Vice President -- Exploration and
International New Ventures
- Kermit E. Reynolds, Senior Vice President -- Gulf of Mexico and
International Operations
- Robert L. Thompson, Vice President and Controller
Those change-of-control provisions generally provide that a covered officer
will be entitled to a lump-sum cash payment and certain other benefits if
the officer's employment is "involuntarily terminated," as that term is
defined in the severance agreements, within two years of the date on which
the merger is completed. While the exact terms of the severance agreements
differ, the lump-sum cash payment generally provides for the payment of the
product of either 2 or 2.99 and the sum of the officer's annual salary and
bonus.
- The merger will cause full or partial vesting of outstanding awards under
Ocean's executive supplemental retirement plan, which covers James T.
Hackett, Robert K. Reeves, John D. Schiller, Jr., and William L.
Transier, if a covered officer is terminated for certain reasons relating
to the merger.
- After the merger, Ocean will indemnify and hold harmless to the fullest
extent permitted under law each current and former director and officer
of Ocean, its subsidiaries and divisions against all losses pertaining to
actions taken by them, or failures to act, while serving in those
capacities before the merger.
- For six years after the merger, Ocean will maintain its current policies
of directors' and officers' liability insurance and fiduciary liability
insurance, or policies no less favorable to the insured, covering acts or
omissions before the merger. Ocean will not be required to pay annual
premiums to maintain that coverage in excess of 250% of the 2003 annual
premium paid by Ocean, but will be required to purchase as much coverage
as reasonably practicable for that amount.
- The merger agreement generally requires Devon to honor Ocean's existing
employee benefit plans and commitments in accordance with their terms
until at least December 31, 2003. The merger agreement also provides
assurances that Ocean officers and employees who become and remain full-
time employees of the combined company after the merger will receive
employee benefits no less favorable than those provided to similarly
situated Devon employees until at least December 31, 2004. More
information regarding Devon's obligations with respect to Ocean's
existing employee benefit plans and commitments can be found in "The
Merger Agreement -- Covenants and Other Agreements -- Employee Benefits"
section of this document.
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Ocean's directors and executive officers beneficially owned, as of March
17, 2003, about 4% of the outstanding shares of Ocean common stock. They will be
entitled to receive the same consideration as all other Ocean stockholders.
Devon's directors and executive officers did not beneficially own any
shares of Ocean stock as of March 17, 2003.
PENDING LITIGATION
A lawsuit captioned Breakwater Partners, LP v. James T. Hackett, et. al.
(Case No. 2003-10161) was filed on February 27, 2003 in the District Court of
Harris County, Texas, naming as defendants Ocean and all of the members of
Ocean's board of directors. The complaint generally alleges that:
- the 0.414 exchange ratio is inadequate and unfair to Ocean common
stockholders; and
- the defendants breached their fiduciary duties to Ocean stockholders,
including the duty of care and the duty of loyalty, or aided and abetted
in the breach of those fiduciary duties, by, among other things, (1)
failing to conduct a "full and fair auction process or active market
check;" (2) agreeing to the terms of the merger agreement, including a
non-solicitation provision and the termination fee that is payable by
Ocean to Devon under certain circumstances; (3) failing to make an
informed decision; (4) failing to ensure that conflicts of interest are
resolved in the best interests of Ocean's public stockholders; (5)
personally benefiting from the merger; and (6) not appointing "any truly
independent person or entity" to negotiate on behalf of Ocean
stockholders.
The complaint seeks class action status. It also seeks (1) injunctive
relief against completing the merger or, if the merger is completed, rescission
of the merger; (2) monetary damages in an unspecified amount; and (3) recovery
of the plaintiff's costs and attorneys' fees. The description of this lawsuit is
qualified in its entirety by reference to the complaint, which has been filed as
an exhibit to the registration statement of which this document is a part and is
incorporated into this document by reference.
Ocean believes that the lawsuit is without merit and intends to defend
against it vigorously. We can provide no assurance that additional claims may
not be made or filed, the substance of which may be similar to the allegations
described above or that otherwise might arise from, or in connection with, the
merger agreement and the transactions it contemplates.
APPRAISAL RIGHTS
The following summary of the provisions of Section 262 of the Delaware
General Corporation Law is not a complete statement of the law pertaining to
appraisal rights and is qualified in its entirety by reference to the full text
of Section 262 of the Delaware General Corporation Law, a copy of which is
attached to this document as Annex D and is incorporated into this summary by
reference.
DEVON STOCKHOLDERS
Devon stockholders are not entitled to appraisal rights in connection with
the merger.
OCEAN STOCKHOLDERS
Ocean common stockholders are not entitled to appraisal rights in
connection with the merger.
Ocean convertible preferred stockholders are entitled to appraisal rights
in connection with the merger, if it is completed, and to receive in cash the
fair value of the Ocean convertible preferred stock as determined by the
Delaware Court of Chancery. Under Section 262 of the Delaware General
Corporation Law, not less than 20 days before Ocean's meeting, Ocean must notify
each of the holders of record of its Ocean convertible preferred stock as of the
record date that appraisal rights are available to them and
56
include in the notice a copy of Section 262. Ocean intends that this document
constitutes that required notice. An Ocean convertible preferred stockholder
that elects to exercise appraisal rights must:
- deliver to Ocean, before the vote to adopt the merger agreement, written
notice of the convertible preferred stockholder's identity and intention
to demand payment of the fair value of the convertible preferred
stockholder's convertible preferred shares (this written notice must be
in addition to and separate from any proxy or vote against the adoption
of the merger agreement; neither voting against adoption nor a failure to
vote for adoption will constitute such a notice); and
- not vote in favor of adoption of the merger agreement (a failure to vote
will satisfy the requirement, but a vote in favor of adoption of the
merger agreement, by proxy or in person, will constitute a waiver of the
convertible preferred stockholder's appraisal rights and will nullify any
previously filed written notice of intent to demand payment).
An Ocean convertible preferred stockholder who fails to comply with either of
these conditions will have no appraisal rights with respect to the convertible
preferred stockholder's shares of Ocean convertible preferred stock. The shares
of Ocean convertible preferred stock with respect to which holders have
perfected their appraisal rights in accordance with Section 262 and have not
effectively withdrawn or lost their appraisal rights are referred to in this
document as the "dissenting convertible preferred shares."
Any Ocean convertible preferred stockholder wishing to exercise appraisal
rights must be the record holder of the applicable convertible preferred shares
on the date the convertible preferred stockholder makes the written demand for
appraisal and must continue to hold the convertible preferred shares until
completion of the merger. In order to exercise appraisal rights with respect to
shares of Ocean convertible preferred stock, a convertible preferred stockholder
who elects to exercise appraisal rights should mail or deliver the convertible
preferred stockholder's written notice thereof to Ocean Energy, Inc., 1001
Fannin Street, Suite 1600, Houston, Texas 77002, Attention: Secretary. The
notice must be executed by, or on behalf of, the holder of record, whose name
should be stated as it appears on the stockholder's convertible preferred stock
certificate(s). The notice must identify the convertible preferred stockholder
and indicate the convertible preferred stockholder's intention to demand payment
of the fair value of the stockholder's convertible preferred shares. If the
convertible preferred shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, the demand should be made in that
capacity. If the convertible preferred shares are owned of record by more than
one person, as in a joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including one
or more joint owners, may execute a demand for appraisal on behalf of a record
holder; in the demand, however, the agent must identify the record owner or
owners and expressly disclose that the agent is executing the demand as an agent
for the record owner or owners. A record holder who holds convertible preferred
shares as nominee for several beneficial owners, such as a broker, may exercise
appraisal rights for the convertible preferred shares held for one or more
beneficial owners and not exercise rights for the convertible preferred shares
held for other beneficial owners. In this case, the written demand should state
the number of convertible preferred shares for which appraisal rights are being
demanded. When no number of convertible preferred shares is stated, the demand
will be presumed to cover all convertible preferred shares held of record by the
broker or nominee.
Within ten days after the effective date of the merger, Ocean must mail
notice to all Ocean convertible preferred stockholders who have demanded
appraisal in compliance with the requirements of Section 262, notifying them of
the effective date. Within 120 days after the effective date, Ocean or any
holders of dissenting convertible preferred shares may file a petition in the
Delaware Court of Chancery for the appraisal of the dissenting convertible
preferred shares. However, any convertible preferred stockholder may, within 60
days after the effective date and prior to the filing of a petition, withdraw a
demand for appraisal and accept the merger consideration to which the
convertible preferred stockholder would have otherwise been entitled.
When an Ocean convertible preferred stockholder files a petition for
appraisal, Ocean will file with the Register in Chancery, within 30 days of
service of the petition on Ocean, a verified list of the names and addresses of
the convertible preferred stockholders who have demanded appraisal. Upon the
order of the
57
court, the Register in Chancery will then provide notice of the hearing on the
petition by mail and publication to the convertible preferred stockholders who
have demanded appraisal. At the hearing on such petition, the court will
determine the convertible preferred stockholders who have perfected their
appraisal rights. The court may require the holders of dissenting convertible
preferred shares to submit their stock certificates to the Register in Chancery
in order to note the pending appraisal proceedings on the stock certificates;
the failure of a convertible preferred stockholder to comply with that direction
may result in the court dismissing the proceedings as to that convertible
preferred stockholder.
Within 120 days after the effective date, any holder of dissenting
convertible preferred shares may, upon written request, receive from Ocean a
statement setting forth the aggregate number of convertible preferred shares not
voted in favor of adopting the merger agreement and with respect to which
demands for appraisals have been received and the aggregate number of holders of
such convertible preferred shares. Ocean must mail this statement to holders of
dissenting convertible preferred shares within ten days after receiving a
written request for this statement or within ten days after the vote to adopt
the merger agreement, whichever is later.
If the merger is completed, each Ocean convertible preferred stockholder
who has perfected appraisal rights in accordance with Section 262 will be
entitled to be paid by Ocean the fair value in cash of the stockholder's
convertible preferred shares. Upon application of an Ocean convertible preferred
stockholder, the court may permit discovery and other pretrial proceedings. All
convertible preferred stockholders may participate in the appraisal proceedings
until the Court determines they are not entitled to appraisal. The Delaware
Court of Chancery will appraise the convertible preferred shares, determining
their fair value, exclusive of any element of value arising from the completion
or expectation of the merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be fair value. In determining the fair
value, the court may take into account all relevant factors and, upon such
determination, will then direct the payment of the fair value of the convertible
preferred shares, together with any interest, to Ocean convertible preferred
stockholders who have perfected their appraisal rights. Ocean will make payment
to those convertible preferred stockholders upon their surrender of the
certificates to Ocean.
Stockholders considering seeking appraisal for their shares of Ocean
convertible preferred stock should note that the fair value of their convertible
preferred shares determined under Section 262 could be more, the same or less
than the consideration they would receive pursuant to the merger agreement if
they did not seek appraisal of their convertible preferred shares. The court may
determine the costs of the appraisal proceeding and allocate them among the
parties as the court deems equitable under the circumstances. Upon application
of a convertible preferred stockholder, the court may order all or a portion of
the expenses incurred by any convertible preferred stockholder in connection
with the appraisal proceeding, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts, to be charged pro rata
against the value of all convertible preferred shares entitled to appraisal. In
the absence of a determination or assessment by the court, each convertible
preferred stockholder bears its expenses.
Any Ocean convertible preferred stockholder who demands an appraisal in
compliance with Section 262 will not, after completion of the merger, be
entitled to vote the stockholder's convertible preferred shares for any purpose
or be entitled to payment of dividends or other distribution on those
convertible preferred shares other than dividends or other distributions payable
as of a date on or before the date the merger is completed.
If any Ocean convertible preferred stockholder who demands appraisal of the
stockholder's convertible preferred shares under Section 262 fails to perfect,
effectively withdraws or loses the right to appraisal, the stockholder's
convertible preferred shares will remain as shares of Ocean convertible
preferred stock and will remain outstanding as shares of the surviving
corporation of the merger in accordance with the terms of the merger agreement.
Dissenting convertible preferred shares lose their status as dissenting shares
if:
- the merger is abandoned;
- the stockholder seeking appraisal rights fails to make a timely written
demand for appraisal;
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- after making a timely written demand for appraisal, the stockholder fails
to continuously own the convertible preferred shares until the effective
time of the merger;
- neither Ocean nor a stockholder who has otherwise complied with Section
262 files a petition for appraisal in the Delaware Court of Chancery
within 120 days after the date on which the merger is completed; or
- the stockholder delivers to Ocean, within 60 days of the date on which
the merger is completed, or thereafter with Ocean's approval, a written
withdrawal of the stockholder's demand for appraisal of the dissenting
convertible preferred shares, although no appraisal proceeding in the
Court of Chancery may be dismissed as to any stockholder without the
approval of the court.
Failure to follow the steps required by Section 262 for perfecting
appraisal rights may result in the loss of appraisal rights. In view of the
complexity of the provisions of Section 262, Ocean convertible preferred
stockholders are encouraged to consult with their own advisors regarding their
appraisal rights.
REGULATORY REQUIREMENTS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
rules promulgated thereunder by the Federal Trade Commission, the merger cannot
be completed until notifications have been given and certain information has
been furnished to the Federal Trade Commission and the Antitrust Division of the
Department of Justice and specified waiting period requirements have been
satisfied. Devon and Ocean filed notification and report forms under the
Hart-Scott-Rodino Act with the Federal Trade Commission and the Antitrust
Division on March 7, 2003. The waiting period under the Hart-Scott-Rodino Act
will expire at 11:59 p.m., Eastern Time, on April 7, 2003, unless a request for
additional information or documentary material is made by the Department of
Justice or Federal Trade Commission before that time or the waiting period is
terminated earlier.
At any time before or after completion of the merger, the Antitrust
Division or the Federal Trade Commission or any state could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the completion of the merger, to rescind
the merger or to seek divestiture of particular assets of Devon or Ocean.
Private parties also may seek to take legal action under the antitrust laws
under certain circumstances. In addition, non-United States governmental and
regulatory authorities may seek to take action under applicable antitrust laws.
A challenge to the merger on antitrust grounds may be made and, if such a
challenge is made, it is possible that Devon and Ocean will not prevail.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement.
It is qualified in its entirety by reference to the merger agreement, a copy of
which is attached to this document as Annex A and is incorporated into this
document by reference. You should read the merger agreement because it, and not
this document, is the legal document that governs the terms of the merger.
STRUCTURE OF THE MERGER
At the effective time of the merger, Devon NewCo Corporation, a newly
formed, nominally capitalized Delaware corporation that is wholly owned by
Devon, will merge with and into Ocean. Ocean will be the surviving corporation
in the merger, and will become a subsidiary of Devon. Devon may substitute
another of its wholly owned subsidiaries to be a party to the merger in place of
Devon NewCo as long as the substitution does not delay either the Devon meeting
or the Ocean meeting.
Ocean's certificate of incorporation will be amended at the effective time
of the merger and, as so amended, will be the surviving corporation's
certificate of incorporation until duly amended. The amendments are designed to
make the surviving corporation's certificate of incorporation similar to the
organizational documents of Devon's other subsidiaries. Devon NewCo's bylaws
will be the surviving corporation's bylaws until duly amended. The directors of
Devon NewCo at the effective time of the merger will be the surviving
corporation's directors.
Assuming Devon's board of directors is to consist of 13 directors at the
effective time of the merger, Devon must appoint four current Ocean directors
designated by Ocean to Devon's board of directors at the effective time,
provided that each Ocean designee is acceptable to Devon in its sole discretion.
See the "Directors and Executive Officers of the Combined Company -- Directors"
section of this document for information on the Ocean directors who will be
appointed to Devon's board of directors. The number of Ocean designees may be
adjusted upward or downward if the size of Devon's board of directors increases
or decreases before the merger is completed. The Ocean designees will be
allocated as evenly as possible among the different classes of Devon directors.
In addition, James T. Hackett will become Devon's President and Chief Operating
Officer at the effective time of the merger. J. Larry Nichols will remain
Devon's Chairman and Chief Executive Officer at the effective time of the
merger. See "The Merger -- Interests of Ocean's Executive Officers and Directors
in the Merger" section of this document.
WHEN THE MERGER BECOMES EFFECTIVE
Ocean and Devon NewCo will execute and file a certificate of merger with
the Delaware Secretary of State on the first business day after the day on which
the last condition to completing the merger is satisfied or waived or at such
other time as Devon and Ocean may agree. The merger will become effective at the
time and on the date on which the certificate of merger is filed or such other
time and date on which the parties agree and specify in the certificate of
merger. That time is referred to as the "effective time of the merger."
CONVERSION OF OCEAN STOCK AND STOCK OPTIONS
At the effective time of the merger, the following will occur:
- Each outstanding share of Ocean common stock, other than shares owned by
Devon, Devon NewCo, Ocean or their respective subsidiaries, will be
converted into 0.414 of a share of Devon common stock.
- Each outstanding share of Ocean convertible preferred stock, other than
convertible preferred shares held by Ocean convertible preferred
stockholders who validly exercise their appraisal rights under
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Delaware law, shall (1) remain outstanding as one share of convertible preferred
stock of the surviving corporation and (2) after the effective time of the
merger, be convertible into Devon common stock instead of Ocean common stock,
giving effect to the 0.414 exchange ratio, and will have voting rights in Devon
on an as-converted basis. To effect those voting rights in Devon, Devon
anticipates issuing at the effective time of the merger one or more shares of a
new class of Devon preferred stock to a voting trustee for the benefit of Ocean
convertible preferred stockholders. Shares of the new class of Devon preferred
stock issued to the voting trustee would have voting rights in Devon equal to
the voting rights of Ocean convertible preferred stock on an as-converted basis
and would otherwise have minimal economic value. The voting trustee would be
obligated to vote the share(s) of the new class of Devon preferred stock in the
manner directed by Ocean convertible preferred stockholders. After the effective
time of the merger, Ocean convertible preferred stockholders will no longer have
voting rights in Ocean, except as required by law and except that they will have
the right to block Ocean from (1) creating stock with a higher preference than
the Ocean convertible preferred stock with respect to dividend distributions or
distributions on liquidation or (2) amending its certificate of incorporation so
as to adversely affect the preferences, rights or powers of the Ocean
convertible preferred stock.
- Each outstanding share of Ocean convertible preferred stock held by Ocean
convertible preferred stockholders who validly exercise their appraisal
rights under Delaware law will be treated as described in "The
Merger -- Appraisal Rights" section of this document.
- Shares of Ocean common stock owned by Devon, Devon NewCo, Ocean or any of
their respective subsidiaries will be canceled and retired without any
payment.
- Each share of Devon NewCo common stock will be converted into one share
of common stock of the surviving corporation.
If, before the effective time of the merger, the issued and outstanding
shares of Devon or Ocean common stock are changed into a different number of
shares as a result of a stock split, reverse stock split, stock dividend, stock
distribution, reorganization, recapitalization, reclassification or similar
event, an appropriate adjustment will be made to the 0.414 exchange ratio.
Each outstanding option to purchase Ocean common stock granted under
Ocean's stock plans that is unexercised as of the effective time of the merger
will be assumed by Devon at the effective time of the merger and will become an
option to purchase a number of shares of Devon common stock equal to the number
of Ocean shares covered by the option multiplied by 0.414 (or, if the exchange
ratio is adjusted, the new exchange ratio), with any fractional amount rounded
to the next lowest share, for each share of Ocean common stock covered by the
option before the merger. At the effective time of the merger, all unvested
Ocean options will vest, and Devon will assume Ocean's existing long-term
incentive plans and its employee stock purchase plan. As of March 17, 2003, the
weighted average exercise price for the unexercised Ocean stock options granted
under Ocean's plans was about $16.39 per share. After conversion, the exercise
price per share of Devon common stock subject to each option will equal the pre-
conversion exercise price per share of Ocean common stock subject to each option
divided by 0.414 (or, if the exchange ratio is adjusted, the new exchange
ratio), with any fractional amount rounded to the next highest cent. However,
with respect to Ocean options outstanding as of the effective time of the merger
under Ocean's employee stock purchase plan, the option exercise price will be
85% of the lower of (1) the January 1, 2003 market value of Ocean common stock
divided by 0.414 and (2) the June 30, 2003 market value of Devon common stock.
The exact number of shares of Devon common stock that will be issued to
Ocean stockholders pursuant to the merger agreement cannot be calculated at this
time. However, the following chart shows a
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calculation of the number of shares of Devon common stock that would be issued
by Devon pursuant to the merger agreement based on the assumptions set forth in
the chart:
SHARES OF
DEVON
DESCRIPTION CALCULATION COMMON STOCK
----------- ----------- ------------
177,780,229 shares of Ocean common
stock outstanding as of the close of
business on March 17, 2003.......... 177,780,229 shares x 0.414 exchange 73,601,015
ratio
19,256,987 shares of Ocean common
stock that would be issued upon
exercise of Ocean options
outstanding as of the close of
business on March 17, 2003 assuming
that all of those options are
exercised before the effective time
of the merger....................... 19,256,987 shares x 0.414 exchange 7,972,393(1)
ratio
3,517,000 shares of Ocean common
stock that would be issued to
existing Ocean convertible preferred
stockholders assuming that all
outstanding convertible preferred
shares had been converted to shares
of Ocean common stock on March 17,
2003................................ 3,517,000 shares x 0.414 exchange 1,456,038(2)
ratio
106,000 shares of Ocean common stock
that may be issued by Ocean prior to
the effective time of the merger
pursuant to the merger agreement.... 106,000 shares x 0.414 exchange 43,884(3)
ratio
-----------
Total................................................................. 83,073,330
===========
---------------
(1) Some or all of these Ocean options may never be exercised.
(2) The exact number of shares of Ocean common stock (if converted before the
effective time of the merger) or Devon common stock (if converted after the
effective time of the merger) into which each share of Ocean convertible
preferred stock may be converted is subject to frequent adjustment. It is
determined by dividing (a) $1,000 plus the amount of accrued and unpaid
dividends per Ocean convertible preferred share by (b) the conversion price
of Ocean convertible preferred stock as of the conversion date. The
conversion price is, and after the merger will continue to be, subject to
various anti-dilutive and other adjustments, including the payment of cash
dividends on Ocean common stock (before the effective time of the merger) or
Devon common stock (after the effective time of the merger). As of March 17,
2003, each share of Ocean convertible preferred stock was convertible into
70.34 shares of Ocean common stock. This means that 3,517,000 shares of
Ocean common stock would have been issued to Ocean convertible preferred
stockholders had each of the 50,000 outstanding Ocean convertible preferred
shares been converted on March 17, 2003. The number of shares of Devon
common stock that will be issued at or after the effective time of the
merger with respect to the 50,000 outstanding Ocean convertible preferred
shares will not be known until all of those convertible preferred shares
have been converted into shares of Ocean common stock (if converted before
the effective time of the merger) or Devon common stock (if converted after
the effective time of the merger). In addition, some or all of those
convertible preferred shares may never be converted into Ocean common stock
or Devon common stock.
(3) The merger agreement provides that Ocean may issue up to 106,000 shares of
Ocean common stock (including shares issuable upon the exercise of Ocean
options) between the date on which the merger agreement was signed and the
effective time of the merger. The exact number of shares of Ocean common
stock (including shares issuable upon the exercise of Ocean options) issued
by Ocean during that period will not be known until the effective time of
the merger.
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For a description of Devon's and Ocean's common stock and a description of
the comparative rights of holders of Devon common stock and Ocean common stock,
see the "Comparison of the Rights of Ocean and Devon Stockholders" section of
this document.
EXCHANGE OF SHARES; FRACTIONAL SHARES
Exchange Agent. At or prior to the effective time of the merger, Devon
will authorize the exchange agent to credit a sufficient number of shares of
Devon common stock to direct registration (book-entry) accounts maintained by
Devon's transfer agent, or to issue certificates representing those shares, to
effect the conversion of Ocean common stock into the Devon common stock to be
issued in the merger. Devon will also make funds available to the exchange agent
from time to time after the effective time of the merger as needed to pay any
dividends or other distributions declared by Devon on its common stock with a
record date after the effective time of the merger and a payment date on or
before the date the relevant shares of Ocean common stock are surrendered.
At the effective time of the merger, the stock transfer books of Ocean will
be closed and no further issuances or transfers of shares of Ocean common stock
will be made. If, after the effective time, valid Ocean stock certificates are
presented to the surviving corporation for any reason, they will be cancelled
and exchanged as described above to the extent allowed by applicable law.
Exchange of Shares. If you own Ocean common stock, the exchange agent will
mail to you a transmittal letter and instructions explaining how to surrender
your shares of Ocean common stock to the exchange agent after the effective time
of the merger.
OCEAN STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY CARD.
A TRANSMITTAL LETTER AND ACCOMPANYING INSTRUCTIONS WILL BE PROVIDED TO OCEAN
COMMON STOCKHOLDERS FOLLOWING THE MERGER.
Ocean common stockholders who deliver a properly completed and signed
transmittal letter and any other documents required by the instructions to the
transmittal letter to the exchange agent, together with their Ocean stock
certificates, to the extent their Ocean common stock is evidenced by stock
certificates, will receive:
- the number of whole shares of Devon common stock to which each holder is
entitled in accordance with the merger agreement; and
- after giving effect to any required tax withholdings, a check in the
aggregate amount of:
- the cash proceeds received from the sale by the exchange agent of any
fractional shares of Devon common stock; and
- any cash dividends and any other dividends or other distributions
declared by Devon on its common stock with a record date after the
effective time of the merger and a payment date on or before the date
the Ocean stockholder surrendered its stock certificate.
Devon uses a direct registration (book-entry) program with respect to
record ownership of Devon common stock. Direct registration is a service that
allows shares to be owned, reported and transferred electronically without
having a physical stock certificate issued. Ownership of the shares is recorded
in the name of the owner electronically on Devon's books and records. Direct
registration is intended to alleviate problems relating to stolen, misplaced or
lost stock certificates and to reduce the paperwork relating to the transfer of
ownership of Devon common stock. Under direct registration, the voting, dividend
and other rights and benefits of holders of Devon common stock remain the same
as with holders of certificated shares.
Ocean common stockholders who deliver a properly completed and signed
transmittal letter and any other documents required by the instructions to the
transmittal letter to the exchange agent, together with their Ocean stock
certificates, to the extent their Ocean common stock is evidenced by stock
certificates, will be issued the appropriate number of shares of Devon common
stock through direct registration. As soon as reasonably practicable following
the crediting of shares to their respective book-entry account,
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Ocean common stockholders will receive account statements from Devon's transfer
agent evidencing their holdings, as well as general information on the
book-entry form of ownership through Devon's direct registration system. You are
not required to maintain a book-entry account, and you may at any time obtain a
physical stock certificate for all or a portion of your shares of Devon common
stock received in the merger at no cost to you. Instructions describing how you
can obtain stock certificates will be included with the account statement mailed
to you and can also be obtained upon request from Devon's transfer agent.
If your Ocean common stock is evidenced by a stock certificate, you should
surrender that certificate for exchange after the effective time of the merger.
Until you deliver a properly completed and signed transmittal letter and any
other documents required by the instructions to the transmittal letter to the
exchange account, together with your Ocean stock certificates, to the extent
your Ocean common stock is evidenced by stock certificates, dividends or other
distributions declared with a record date after the effective time of the merger
will accrue, but will not be paid, on shares of Devon common stock that you are
entitled to receive as a result of the conversion of your shares of Ocean common
stock. No interest will be paid or accrue on:
- the amount of cash to be received in lieu of fractional shares of Devon
common stock; or
- any cash dividends and any other dividends or other distributions
declared by Devon on its common stock with a record date after the
effective time of the merger and a payment date on or before the date the
Ocean stock certificate is surrendered.
The exchange agent will deliver to Devon any shares of Devon common stock
to be issued in the merger or funds received from the sale of fractional shares
in connection with the merger or to pay dividends or other distributions on
shares of Devon common stock to be issued in the merger that are not claimed by
former Ocean stockholders within one year after the effective time of the
merger. Thereafter, Devon will act as the exchange agent and former Ocean
stockholders may look only to Devon for payment of their shares of Devon common
stock, cash in lieu of fractional shares and unpaid dividends and distributions.
None of Devon, the surviving corporation, the exchange agent or any other person
will be liable to any former Ocean stockholder for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws. To the extent permitted by applicable law, any amount that would
escheat or become the property of any governmental entity shall, immediately
prior thereto, become the property of Devon free and clear of all claims or
interests of any person previously entitled thereto.
If any shares of Devon common stock are to be issued in a name other than
that in which the Ocean common stock exchanged for such shares is registered,
the person requesting the exchange must (1) pay any transfer or other taxes
required by reason of the issuance of shares of Devon common stock in a name
other than that of the registered holder of the surrendered shares of Ocean
common stock or (2) establish to the satisfaction of Devon or the exchange agent
that such tax has been paid or is not applicable.
Fractional Shares. No fractional shares of Devon common stock will be
issued to Ocean stockholders. After the effective time of the merger, the
exchange agent will determine the number of shares of Devon common stock equal
to the difference, which we refer to as excess shares, between (1) the total
number of shares of Devon common stock that would be issuable to Ocean
stockholders if fractional shares were being issued in the merger and (2) the
total number of shares of Devon common stock issuable to Ocean stockholders
taking into account that fractional shares will not be issued in the merger.
The exchange agent will sell on the American Stock Exchange, in round lots
to the extent practicable, the excess shares as soon as practicable after the
effective time of the merger. The surviving corporation will pay all
commissions, transfer taxes and other out-of-pocket transaction costs of selling
the excess shares. The exchange agent will hold in trust for the benefit of
Ocean stockholders the proceeds of the sale of excess shares. Instead of
fractional shares, each Ocean stockholder otherwise entitled to a fractional
64
share of Devon common stock will receive, in cash and without interest, an
amount determined by the following formula:
Fractional share of Devon common stock to which the Ocean
Aggregate proceeds from stockholder otherwise would be entitled
the sale of the excess x ------------------------------------------------------------
shares Aggregate amount of fractional shares of Devon common stock
to which all Ocean stockholders otherwise would be entitled
Lost, Stolen or Destroyed Certificates. If an Ocean stock certificate has
been lost, stolen or destroyed, the exchange agent will issue the shares of
Devon common stock properly issuable in accordance with the merger agreement
upon receipt of (1) an affidavit of that fact by the person claiming that the
certificate is lost, stolen or destroyed and (2) appropriate and customary
indemnification or the posting of a bond in the form customarily required by
Devon to indemnify against any claim that may be made against it with respect to
the lost, stolen or destroyed certificate.
Affiliates. Shares of Ocean common stock surrendered for exchange by
certain affiliates of Ocean will not be exchanged until Devon has received a
written agreement of the kind described below under the heading "Covenants and
Other Agreements -- Affiliate Agreements."
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligation to Effect the Merger. The
obligations of Devon and Ocean to complete the merger are subject to the
following conditions:
- adoption by Ocean's stockholders of the merger agreement;
- approval by Devon's stockholders of the issuance of Devon common stock
pursuant to the merger agreement;
- the expiration or early termination of the waiting period under (1) the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and (2) any
mandatory waiting period or required consent under any applicable foreign
competition or antitrust law or regulation, except where the failure to
observe the waiting period or obtain the consent would reasonably be
expected to delay or prevent the merger or have a material adverse effect
on the expected benefits of the merger to Devon;
- the absence of any statute, rule, regulation, decree, order or injunction
that prohibits the merger or makes the merger unlawful;
- the declaration of effectiveness of the registration statement of which
this document is a part by the Securities and Exchange Commission and the
absence of any stop order or proceedings or threatened proceedings for
the purpose of suspending the effectiveness of that registration
statement;
- the approval for listing on the American Stock Exchange of the shares of
Devon common stock to be issued in connection with the merger, subject to
official notice of issuance;
- material compliance by the other party with its agreements and covenants
contained in the merger agreement;
- the representations and warranties of the other party set forth in the
merger agreement and the documents delivered in connection with the
merger agreement to the extent (1) qualified as to materiality (generally
whether an inaccuracy in the representation and warranty would have a
material adverse effect on the party making the representation and
warranty) shall be true and correct and (2) not qualified as to
materiality shall be true and correct in all material respects; and
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- receipt of a written opinion of Vinson & Elkins L.L.P. or another
nationally recognized tax counsel, in the case of Ocean, and Mayer,
Brown, Rowe & Maw or another nationally recognized tax counsel, in the
case of Devon, to the effect that:
- the merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Internal
Revenue Code; and
- in the case of the opinion to Ocean, no gain or loss will be recognized
by Ocean or its stockholders to the extent that they receive Devon
common stock in exchange for shares of Ocean common stock, and, in the
case of the opinion to Devon, no gain or loss will be recognized by any
corporation that is a party to the merger.
Devon's obligation to complete the merger is further subject to the
following conditions:
- each of Ocean's directors shall have tendered his or her resignation to
be effective as of the effective time of the merger; and
- James T. Hackett's employment and severance agreements, as amended, shall
not have been modified in any way or repudiated by Mr. Hackett.
Ocean's obligation to complete the merger is further subject to the
following conditions:
- each of Ocean's designees to Devon's board of directors shall have been
elected or appointed to serve as Devon directors beginning at the
effective time of the merger; and
- James T. Hackett's employment and severance agreements, as amended, shall
not have been repudiated by Devon.
Waiver of Conditions. Either Devon or Ocean may choose to complete the
merger even though any condition to that company's obligation has not been
satisfied if the necessary stockholder approvals have been obtained and the law
allows the company to do so.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties by each of
Devon and Ocean as to itself and its subsidiaries, many of which provide that
the representation and warranty does not extend to matters where the failure of
the representation and warranty to be accurate would not have a material adverse
effect on the party making the representation and warranty. These
representations and warranties concern, among other things:
- incorporation, qualifications, standing and authority;
- corporate authorization to enter into the merger agreement and to
complete the merger;
- capital structure;
- significant subsidiaries;
- compliance with agreements, court orders and laws;
- the absence of defaults, breaches and other conflicts caused by entering
into the merger agreement and completing the merger;
- the accuracy of financial statements and reports filed with the
Securities and Exchange Commission;
- the absence of litigation and undisclosed liabilities;
- the absence of conditions or events that have had a material adverse
effect on the party making the representation and warranty or certain
other changes or events;
- tax matters;
66
- employee benefits and labor matters;
- the absence of violations or liabilities under environmental laws;
- the ownership and rights to use intellectual property;
- title to properties and encumbrances;
- insurance matters;
- broker's and finder's fees;
- receipt of a financial advisor's opinion in connection with the merger;
- material contracts and debt instruments;
- required board and stockholder approvals;
- in Ocean's case only, the inapplicability of Section 203 of the Delaware
General Corporation Law or any other fair price, moratorium, control
share acquisition, interested stockholder or other similar anti-takeover
provision or regulation;
- the absence of non-competition agreements and material acquisition or
disposition agreements;
- in Ocean's case only, an amendment that Ocean made to its stockholder
rights plan in connection with entering into the merger agreement; and
- in Devon's case only, the inapplicability of Devon's stockholder rights
plan to the merger.
For purposes of the merger agreement, material adverse effect with respect
to any party means a material adverse effect on that party's (1) business,
assets and liabilities (taken together), (2) financial condition, or (3) ability
to complete the merger or fulfill the conditions to the merger. However, to the
extent any adverse effect results from (a) general economic, regulatory or
political conditions or changes, (b) financial or securities markets
fluctuations or conditions, (c) conditions or changes affecting the oil and gas
industry generally, (d) the merger or its announcement, or compliance with the
covenants in the merger agreement, or (e) stockholder class action litigation
arising from breach of fiduciary duty claims relating to the merger agreement,
the effect will not be considered a material adverse effect for purposes of the
merger agreement.
COVENANTS AND OTHER AGREEMENTS
Operating Covenants. Prior to the merger and unless the other party
consents in writing, with certain exceptions each of Devon and Ocean has agreed:
- to conduct its operations in the ordinary course in substantially the
same manner as previously conducted;
- to use its reasonable best efforts to preserve intact its business
organization and goodwill;
- to use its reasonable best efforts to keep available the services of its
officers and employees and maintain satisfactory relationships with those
persons with whom it has business relationships;
- not to amend its certificate of incorporation or bylaws;
- to notify the other party promptly of (1) any material adverse change in
its financial condition or business, (2) any termination, cancellation,
repudiation or material breach of any material contract, (3) any material
litigation, material governmental complaints, investigations or hearings
or (4) the breach in any material respect of any representation or
warranty contained in the merger agreement;
- to make available to the other party promptly any filings made by it with
the Securities and Exchange Commission;
67
- not to issue any shares of its capital stock, effect any change in its
capitalization or grant any right to acquire shares of its capital stock,
other than (1) to new employees consistent with past practice in an
amount not to exceed, in the aggregate, 100,000 shares of its common
stock, (2) pursuant to existing contractual commitments or (3) in the
case of Devon only, awards or grants of options or restricted shares made
in the ordinary course consistent with past practice;
- not to increase any compensation or benefits, other than in the ordinary
course of business consistent with past practice;
- not to enter into or amend any employment or severance agreement with any
of its present or future officers, directors or employees, except with
new employees consistent with past practice;
- not to adopt any new employee benefit plan or amend any existing employee
benefit plan in any material respect;
- not to declare, set aside or pay any dividend, other than ordinary
periodic dividends consistent with its historic dividend rates, or
redeem, purchase or otherwise acquire any shares of its capital stock or
options or any other rights to acquire shares of its capital stock;
- not to dispose of assets for an amount in excess of $700 million, in
Devon's case, or in excess of $150 million, in Ocean's case, except in
the ordinary course of business and for fair value;
- not to acquire businesses or entities for aggregate consideration in
excess of $100 million, in Devon's case, or in excess of $40 million, in
Ocean's case;
- not to change any of its accounting principles or practices, except as
may be required by a change in law or in accounting principles generally
accepted in the United States;
- to use its reasonable best efforts to maintain with financially
responsible insurance companies customary insurance coverage;
- not to make or rescind any tax election, settle or compromise any matter
relating to taxes, or change its method of reporting any item for U.S.
federal income tax purposes from those used in the preparation of its
federal income tax return for the most recent fiscal year for which a
return has been filed, except as may be required by applicable law;
- in Ocean's case only, not to incur or guarantee any indebtedness for
borrowed money, except under credit lines existing as of the date of the
merger agreement;
- in Devon's case only, not to incur or guarantee any indebtedness for
borrowed money or issue any debt in excess of $100 million, except under
credit lines existing as of the date of the merger agreement;
- not to enter into any material lease or create any material mortgage,
lien, security interest or other encumbrance on its or the other party's
property in connection with any indebtedness, except in the ordinary
course of business;
- not to make or commit to make aggregate capital expenditures in excess of
$1 billion or any individual operating expenditure in excess of $50
million;
- not to take any action that is likely to materially delay or adversely
affect any party's ability to obtain any consent or approval of any
regulatory body or the expiration of any waiting period required to
complete the merger;
- not to terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it is a party and to
enforce to the fullest extent permitted under applicable law the
provisions of those agreements, unless, in the good faith opinion of its
board of directors after consultation with its outside legal counsel,
taking, or failing to take, the action would be inconsistent with the
fiduciary duties of its board of directors and only then if taking, or
failing to take, the action would not otherwise violate the merger
agreement;
68
- not to enter into or amend any agreement with any holder of its capital
stock with respect to holding, voting or disposing of shares;
- not to cause the acceleration of rights, benefits or payments under any
of its benefit plans by a resolution of its board of directors;
- not to enter into any additional commodity hedge transactions for (1) in
Ocean's case, any period in 2003, and, in Devon's case, any period in
2003 for which the volume hedged is more than 65% of Devon's estimated
production of proved reserves of these commodities during that period;
(2) any period in 2004 for which the volume hedged is more than 35% of
Ocean's or Devon's, as the case may be, estimated production of proved
reserves of these commodities during that period; or (3) any period after
December 31, 2004;
- not to amend its stockholder rights plan, redeem any rights subject to
its stockholder rights plan or exempt any third party from the other
provisions of its stockholder rights plan;
- not to split, combine, subdivide or reclassify its outstanding stock;
- not to purchase any common stock of the other party;
- not to do business in any country in which it was not doing business as
of the date of the merger agreement;
- not to enter into any joint venture, partnership or other joint business
venture in which the total fair market value of its investments and
commitments exceed $50 million; and
- not to agree in writing or otherwise to take any of the foregoing
actions.
Other Acquisition Proposals. In the merger agreement, each of Devon and
Ocean has agreed that it and its subsidiaries:
- will not, and will not permit any of their officers, directors,
employees, agents or representatives to, solicit, initiate or encourage
any inquiry, proposal or offer for a third-party tender offer, merger,
consolidation, business combination or similar transaction involving any
assets or class of capital stock of Devon or Ocean, as the case may be,
or any acquisition of 10% or more of the capital stock of Devon or Ocean,
as the case may be, or involving a business or assets that constitute 10%
or more of the net revenues, net operating income or assets, taken as a
whole, of Devon or Ocean, as the case may be, in a single transaction or
a series of related transactions, or participate in any discussions or
negotiations concerning such an acquisition proposal; and
- will immediately cease any existing negotiations with any third parties
with respect to any of the above transactions.
As long as Devon or Ocean, as the case may be, (1) provides notice to the
other party within 24 hours that it has received an unsolicited request for
information or an acquisition proposal identifying the person requesting the
information or making the acquisition proposal and stating the material terms
and conditions of the acquisition proposal, and (2) continues to provide updates
to the other party as to material developments within 24 hours, Devon's and
Ocean's agreement regarding other acquisition proposals is subject to the
following exceptions:
- Devon or Ocean, or Devon's or Ocean's board of directors, may respond
publicly to a third-party tender offer as required by the federal
securities laws;
- Devon or Ocean, or Devon's or Ocean's board of directors, may make
disclosures to its stockholders if, in the good faith judgment of its
board of directors, the failure to make those disclosures would be
inconsistent with its fiduciary duties under applicable law or stock
exchange rules; and
- Devon or Ocean, or Devon's or Ocean's board of directors, may provide
information on a confidential basis to any person, or have negotiations
or discussions with any person, who makes an
69
unsolicited bona fide acquisition proposal with respect to all of its
outstanding shares of capital stock or all or substantially all of its assets,
provided that:
- Devon's or Ocean's board of directors, as the case may be, in good faith
(1) after consultation with its financial advisors and taking into
account the likelihood of consummation, determines that the acquisition
proposal is reasonably likely to result in a transaction that is more
favorable from a financial point of view to holders of Devon or Ocean
common stock, as the case may be, than the merger, and (2) after
consultation with its outside legal counsel, determines that the failure
to respond to the information request or to engage in discussions would
be inconsistent with its fiduciary obligations under applicable law; and
- neither Devon nor Ocean may not enter into any agreement, other than a
confidentiality or standstill agreement permitted by the terms of the
merger agreement, with respect to an acquisition proposal prior to the
termination of the merger agreement.
Withdrawal or Change of Recommendation to Stockholders. Prior to obtaining
their respective stockholders' approval, Devon's or Ocean's board of directors
may (1) withdraw or adversely change its recommendation to stockholders to vote
for the issuance of Devon common stock pursuant to the merger agreement or
adoption of the merger agreement, as the case may be, or (2) recommend that
stockholders vote instead for a competing transaction, but only if the board
determines in good faith, after consultation with its outside legal counsel,
that the failure to do so would be inconsistent with its fiduciary obligations
under applicable law. At least two business days prior to taking one of the two
actions described in the previous sentence, the party seeking to take the action
must provide to the other party written notice of its intention to take the
action so as to allow the other party to propose modifications to the merger
agreement designed to eliminate the need for the board of directors to take such
action.
Devon or Ocean, as the case may be, will have an option, exercisable within
two business days after it receives written notice from the other party that its
board of directors has withdrawn or adversely changed its original
recommendation or recommended a competing transaction, to require the other
party to (1) submit to a vote the matter to be voted on by that party's
stockholders pursuant to the merger agreement and (2) disclose to that party's
stockholders the circumstances under which the matter is being submitted to a
vote. If Devon or Ocean, as the case may be, does not exercise this option, then
the other party may terminate the merger agreement upon payment of a termination
fee as described in the "-- Termination Fees and Expenses" section of this
document.
Other Agreements Relating to the Period Before the Effective Time. The
merger agreement contains additional agreements between Devon and Ocean relating
to, among other things:
- the preparation, filing and distribution of this document and Devon's
filing of the registration statement of which this document is a part;
- convening and holding the Devon and Ocean stockholder meetings;
- access to information respecting the other party;
- cooperation regarding filings with governmental and other agencies and
organizations;
- using their reasonable best efforts to satisfy the conditions to closing;
- each party refraining from, without the other party's prior written
consent, committing to any divestitures, licenses, hold separate
agreements or similar matters in connection with the merger, and each
party committing and consenting to, and using its reasonable best efforts
to, effect any divestiture, license, hold separate arrangement or similar
matter that (1) is required by any regulatory body as a condition to
resolving its objections to the merger or obtaining its approval of the
merger and (2) would not reasonably be expected to have a material
adverse effect on Devon or Ocean;
70
- public announcements;
- the listing on the American Stock Exchange of the Devon common stock to
be issued in the merger;
- actions or omissions that would result in the merger not qualifying as a
reorganization under section 368(a) of the Internal Revenue Code; and
- the coordination of dividend record and payment dates so that Ocean
stockholders do not fail to receive a dividend in any calendar quarter or
receive dividends on both Ocean common stock and Devon common stock
received in the merger in any calendar quarter. Since Ocean's board of
directors already has declared a second quarter 2003 common stock cash
dividend of $0.04 per share of Ocean common stock with a record date of
April 10, 2003 and a payment date of April 24, 2003, Devon anticipates
that if the merger is completed during the second calendar quarter of
2003, Devon's common stock cash dividend for such quarter, if any, would
have a record date prior to the effective time of the merger and a
payment date after the merger is completed.
Employee Benefits. The merger agreement provides that Devon will honor
Ocean's employee benefit plans and commitments entered into prior to the date of
the merger agreement, provided that Devon may modify any such plan or commitment
in accordance with its terms subject to some exceptions for Ocean employees in
the United States.
The merger agreement specifies that certain Ocean employees may be entitled
to severance benefits and certain other employee benefits as a result of the
merger under an existing Ocean severance plan. Devon has agreed that the
surviving corporation will not modify the Ocean severance plan with respect to
severance benefits and other employee benefits provided to Ocean employees as a
result of certain involuntary terminations of employment occurring on or prior
to the one year anniversary of the effective time of the merger.
Devon has agreed that, until at least December 31, 2003, the surviving
corporation will maintain Ocean's medical, health, life and disability insurance
plans, and Ocean's deferred compensation and retirement plans, as in effect at
the effective time of the merger and, prior to January 1, 2004, will not amend
any of those plans to reduce any benefit provided. In addition, if Devon
materially modifies during 2004 the benefits of Ocean employees who become or
remain regular full-time employees of Devon, Devon has agreed to provide those
employees for the remainder of 2004 with benefits no less favorable than those
provided to similarly situated Devon employees. Ocean employees who become
participants in Devon's employee benefit plans will be given credit under the
plans for their prior service with Ocean for purposes of eligibility, vesting
and benefit determination, with some exceptions.
Devon has agreed that the surviving corporation will not amend Ocean's
executive supplemental retirement plan in any manner that would adversely affect
the continued vesting of any Ocean employee in the United States that is a
member of the plan, and that each plan member will receive credit under the plan
for his or her service with the surviving corporation or Devon. In addition, if
the surviving corporation terminates the plan, Devon has agreed that each plan
member employed by the surviving corporation or Devon at the time the plan is
terminated will be fully vested in the plan upon its termination.
Any non-qualified stock options that are (1) held by an Ocean officer or
employee whose service is terminated after the effective time of the merger and
who is eligible to receive severance benefits as a result of the termination and
(2) exercisable on the date of the individual's termination, will continue to be
exercisable during the one-year period following the individual's termination.
Affiliate Agreements. Ocean has agreed to use its reasonable best efforts
to cause its affiliates, as defined by Rule 145 under the Securities Act of
1933, to enter into written agreements prior to the
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effective time of the merger that restrict their ability to sell, pledge,
transfer or otherwise dispose of any shares of Devon common stock issued to them
in connection with the merger:
- in compliance with Rule 145 under the Securities Act of 1933;
- pursuant to an effective registration statement under the Securities Act
of 1933; or
- in reliance upon a written opinion of counsel delivered to Devon in a
form and substance reasonably acceptable to Devon to the effect that such
sale, pledge, transfer or other disposition is exempt from registration
under the Securities Act of 1933.
Indemnification and Insurance. After the merger, Devon will cause the
surviving corporation to indemnify and hold harmless to the fullest extent
permitted under applicable law each person who is, or has been at any time prior
to the effective time of the merger, an officer or director of Ocean or any
Ocean subsidiary or division and each person who served at the request of Ocean
as a director, officer, trustee or fiduciary of any other entity. Those persons
will be indemnified to the fullest extent permitted by law against all losses,
including fees and expenses of counsel, arising out of or pertaining to actions
taken by them, or failures to act, while serving in those capacities, whether
claimed before or after the effective time of the merger. The rights to
indemnification for such persons in Ocean's certificate of incorporation, bylaws
and any indemnification agreement with respect to matters occurring through the
effective time of the merger will survive the merger and continue in full force
and effect for a period of six years after the merger.
The surviving corporation will maintain directors' and officers' liability
insurance for six years after the effective time of the merger to cover persons
who are or were covered by Ocean's existing directors' and officers' liability
insurance policies at any time before the effective time of the merger. The
terms of the insurance will be substantially no less advantageous to such
persons than the existing insurance with respect to acts or omissions prior to
the effective time of the merger. However, the surviving corporation will not be
required to pay annual premiums in excess of 250% of the 2003 annual premium
paid by Ocean, but will be required to purchase as much coverage as reasonably
practicable for such amount. Devon has the right to cause Ocean's directors and
officers liability insurance to be extended by obtaining a six-year "tail"
policy on terms no less advantageous than Ocean's existing directors and
officers liability insurance.
TERMINATION
Before the effective time of the merger, the merger agreement may be
terminated:
- by mutual written consent of Devon and Ocean;
- by Devon or Ocean, if:
- the merger is not completed by September 30, 2003, so long as the party
seeking to terminate did not prevent the merger from occurring by
failing to perform or observe its obligations under the merger agreement
in any material respect;
- Devon's stockholders fail to approve at Devon's special meeting the
issuance of shares of Devon common stock in the merger;
- Ocean's stockholders fail to adopt the merger agreement at Ocean's
special meeting; or
- there is a legal prohibition to completing the merger that has become
final and non-appealable, so long as the party seeking termination has
complied with its obligations under the merger agreement to attempt to
remove the prohibition and otherwise used its reasonable best efforts to
remove the prohibition;
- by Devon, if Ocean breaches any of its representations, warranties or
agreements in the merger agreement or if any of Ocean's representations
or warranties becomes untrue resulting in a condition of the merger not
being satisfied, and the breach is not curable or is not cured within
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30 days after written notice of the breach is given, provided that Devon
is not also in material breach of the merger agreement;
- by Ocean, if Devon breaches any of its representations, warranties or
agreements in the merger agreement or if any of Devon's representations
or warranties becomes untrue resulting in a condition of the merger not
being satisfied, and the breach is not curable or is not cured within 30
days after written notice of the breach is given, provided that Ocean is
not also in material breach of the merger agreement;
- by Devon, upon payment of the termination fee described below, if:
- prior to the adoption by Ocean's stockholders of the merger agreement,
Ocean's board of directors withdraws or changes in a manner adverse to
Devon its recommendation to stockholders, or recommends that
stockholders vote instead for a competing transaction, or resolves to do
so, but Devon loses this right if (1) Devon exercises its option to
require Ocean to submit the matter to a vote by Ocean's stockholders or
(2) the withdrawal, adverse change, or recommendation of a competing
transaction is no longer in effect because Devon and Ocean are
proceeding with the transaction under modified terms; or
- prior to the approval by Devon's stockholders of the issuance of shares
of Devon common stock in the merger, (1) Devon's board of directors
withdraws or changes in a manner adverse to Ocean its recommendation to
stockholders, or recommends that stockholders vote instead for a
competing transaction, or resolves to do so, (2) Ocean has the option to
require Devon to submit the matter to a vote by Devon's stockholders and
(3) Ocean does not exercise that option;
- by Ocean, upon payment of the termination fee described below, if:
- prior to the approval by Devon's stockholders of the issuance of shares
of Devon common stock in the merger, Devon's board of directors
withdraws or changes in a manner adverse to Ocean its recommendation to
stockholders, or recommends that stockholders vote instead for a
competing transaction, or resolves to do so, but Ocean loses this right
if (1) Ocean exercises its option to require Devon to submit the matter
to a vote by Devon's stockholders or (2) the withdrawal, adverse change,
or recommendation of a competing transaction is no longer in effect
because Devon and Ocean are proceeding with the transaction under
modified terms; or
- prior to the adoption by Ocean's stockholders of the merger agreement,
(1) Ocean's board of directors withdraws or changes in a manner adverse
to Devon its original recommendation to stockholders, or recommends that
stockholders vote instead for a competing transaction, or resolves to do
so, (2) Devon has the option to require Ocean to submit the matter to a
vote by Ocean's stockholders and (3) Devon does not exercise that
option.
TERMINATION FEES AND EXPENSES
Termination Fees and Expenses Potentially Payable by Ocean. Ocean has
agreed to pay Devon a $139 million termination fee and to reimburse Devon for
expenses incurred in connection with the merger agreement up to a maximum of $10
million if:
- Devon or Ocean terminates the merger agreement after Ocean's stockholders
failed to adopt the merger agreement at a meeting duly convened for that
purpose and, prior to such meeting, either (1) there was a public
announcement of a competing transaction involving Ocean or (2) Ocean's
board of directors withdrew or changed, in a manner adverse to Devon, its
recommendation to its stockholders, or recommended that its stockholders
vote instead for a competing transaction, and Devon elected to exercise
its option to require a vote of Ocean's stockholders on the merger
agreement; or
- Devon or Ocean terminates the merger agreement before Ocean's
stockholders adopt the merger agreement and after Ocean's board of
directors withdraws or changes, in a manner adverse to Devon, its
recommendation to its stockholders, or recommends that its stockholders
vote instead for
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a competing transaction, and Devon does not elect to exercise its option
to require a vote of Ocean's stockholders on the merger agreement.
However, instead of the $139 million termination fee described above, Ocean
has agreed to pay Devon a $69.5 million termination fee (and to reimburse Devon
for expenses incurred in connection with the merger agreement up to a maximum of
$10 million) if Devon or Ocean terminates the merger after (1) a competing
transaction involving Ocean is publicly announced, but Ocean's board of
directors does not withdraw or change, in a manner adverse to Devon, its
recommendation to stockholders, or recommend that stockholders vote instead for
a competing transaction, and (2) Ocean's stockholders fail to adopt the merger
agreement after this public announcement. If, within 12 months after the merger
agreement is terminated under those circumstances, Ocean agrees to merge with a
third party whereby Ocean is not the surviving corporation (or, if Ocean is the
surviving corporation, Ocean stockholders immediately prior to the merger hold
less than 50% of the voting stock of Ocean immediately after the merger), or a
third party acquires or agrees to acquire at least 50% of Ocean's voting stock
or assets, then Ocean must pay Devon an additional $69.5 million termination
fee.
Ocean has agreed to reimburse Devon for expenses incurred in connection
with the merger agreement up to a maximum of $10 million if Devon or Ocean
terminates the merger after Ocean's stockholders fail to adopt the merger
agreement even though Ocean's board of directors has not withdrawn or changed,
in a manner adverse to Devon, its original recommendation to its stockholders,
or recommended that its stockholders vote instead for a competing transaction.
Termination Fees and Expenses Potentially Payable by Devon. Devon has
agreed to pay Ocean a $139 million termination fee and to reimburse Ocean for
expenses incurred in connection with the merger agreement up to a maximum of $10
million if:
- Devon or Ocean terminates the merger agreement after Devon's stockholders
failed to approve the issuance of Devon common stock pursuant to the
merger agreement at a meeting duly convened for that purpose and, prior
to such meeting, either (1) there was a public announcement of a
competing transaction involving Devon or (2) Devon's board of directors
withdrew or changed, in a manner adverse to Ocean, its recommendation to
its stockholders, or recommended that its stockholders vote instead for a
competing transaction, and Ocean elected to exercise its option to
require a vote of Devon's stockholders on the issuance of Devon common
stock pursuant to the merger agreement; or
- Devon or Ocean terminates the merger agreement before Devon's
stockholders approve the issuance of Devon common stock pursuant to the
merger agreement and after Devon's board of directors withdraws or
changes, in a manner adverse to Ocean, its recommendation to its
stockholders, or recommends that the stockholders vote instead for a
competing transaction, and Ocean does not elect to exercise its option to
require a vote of Devon's stockholders on the issuance of Devon common
stock pursuant to the merger agreement.
However, instead of the $139 million termination fee described above, Devon
has agreed to pay Ocean a $69.5 million termination fee (and to reimburse Ocean
for expenses incurred in connection with the merger agreement up to a maximum of
$10 million) if Devon or Ocean terminates the merger after (1) a competing
transaction involving Devon is publicly announced, but Devon's board of
directors does not withdraw or change, in a manner adverse to Ocean, its
recommendation to stockholders, or recommend that stockholders vote instead for
a competing transaction, and (2) Devon's stockholders fail to approve the
issuance of Devon common stock pursuant to the merger agreement after this
public announcement. If, within 12 months after the merger agreement is
terminated under those circumstances, Devon agrees to merge with a third party
whereby Devon is not the surviving corporation (or, if Devon is the surviving
corporation, Devon stockholders immediately prior to the merger hold less than
50% of the voting stock of Devon immediately after the merger), or a third party
acquires or agrees to acquire at least 50% of Devon's voting stock or assets,
then Devon must pay Ocean an additional $69.5 million termination fee.
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Devon has agreed to reimburse Ocean for expenses incurred in connection
with the merger agreement up to a maximum of $10 million if Devon or Ocean
terminates the merger after Devon's stockholders fail to approve the issuance of
Devon common stock pursuant to the merger agreement even though Devon's board of
directors has not withdrawn or changed, in a manner adverse to Ocean, its
original recommendation to its stockholders, or recommended that its
stockholders vote instead for a competing transaction.
Collection of Termination Fee. If either party fails to promptly pay any
termination fee due and, in order to obtain payment, the other party commences a
suit that results in a judgment against the party owing the termination fee, the
party owing the termination fee must pay to the other party its costs and
expenses in connection with the suit, together with interest on the termination
fee from the date payment was required until the date such payment is made at
the annual prime lending rate of JPMorgan Chase Bank in effect on the date the
payment was required to be made, plus 1%.
Other Expenses. All costs and expenses incurred in connection with the
merger agreement and related transactions will be paid by the party incurring
them, except that termination fees and expenses will be paid as described above.
AMENDMENT; EXTENSION AND WAIVER
Amendment. Subject to the next sentence, the merger agreement may be
amended at any time by the action or authorization of Devon's board of directors
and Ocean's board of directors. If the merger agreement has been approved by the
Devon stockholders and the Ocean's stockholders, then no amendment can be made
that by law requires the further approval of stockholders without obtaining such
further stockholder approval.
Extension and Waiver. At any time prior to the effective time of the
merger, each of Devon and Ocean may, to the extent permitted by law, (1) grant
the other party additional time to perform its obligations under the merger
agreement, (2) waive any inaccuracies in the representations and warranties of
the other party and (3) waive compliance with any agreements or conditions for
the benefit of that party.
75
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY
DIRECTORS
Devon's charter divides Devon's board of directors into three classes. At
each annual meeting, Devon stockholders elect the members of one of the three
classes to three-year terms. Immediately following the merger, Devon and Ocean
expect that the board of directors of the combined company will consist of the
following 13 members:
CURRENT BOARD EXPIRATION
NAME AGE MEMBERSHIP OF TERM
---- --- ------------- ----------
Milton Carroll........................................... 52 Ocean 2005
Thomas F. Ferguson(1).................................... 66 Devon 2004
Peter J. Fluor........................................... 55 Ocean 2004
David M. Gavrin(2)....................................... 68 Devon 2004
Michael E. Gellert(3).................................... 71 Devon 2004
John A. Hill............................................. 61 Devon 2005
Robert L. Howard......................................... 66 Ocean 2003
William J. Johnson....................................... 68 Devon 2005
Michael M. Kanovsky(4)................................... 54 Devon 2003
Charles F. Mitchell, M.D................................. 54 Ocean 2005
J. Todd Mitchell......................................... 44 Devon 2003
Robert A. Mosbacher, Jr. ................................ 51 Devon 2005
J. Larry Nichols(5)...................................... 60 Devon 2003
---------------
(1) Chairman of the Audit Committee.
(2) Chairman of the Compensation Committee.
(3) Chairman of the Nominating Committee.
(4) Mr. Kanovsky is currently a member of the class of directors whose terms
expire in 2005. In order to even out the number of directors in each class,
Mr. Kanovsky has agreed to resign as a member of that class at the effective
time of the merger. At the effective time of the merger, Mr. Kanovsky will
be appointed to serve as a member of the class of directors whose terms
expire in 2003, and he is expected to be nominated and to run for election
at Devon's 2003 annual stockholder meeting to serve as a member of the class
of directors whose terms expire in 2006.
(5) Chairman of the Board.
Milton Carroll has been an Ocean director since 1997. Mr. Carroll was
appointed Chairman of the Board of Directors of CenterPoint Energy, Inc. in
2002. He has served as Chairman of the Board and Chief Executive Officer of
Instrument Products, Inc. since 1977. He also serves as Chairman of Health Care
Service Corporation and as a Director of TEPPCO Partners, L.P.
Thomas F. Ferguson is the Chairman of the Audit Committee and has been a
Devon director since 1982. Mr. Ferguson is the Managing Director of United Gulf
Management Ltd., a wholly owned subsidiary of Kuwait Investment Projects Company
KSC. He represents Kuwait Investment Projects Company on the boards of various
companies in which it invests, including Baltic Transit Bank in Latvia and Tunis
International Bank in Tunisia. Mr. Ferguson is a Canadian qualified Certified
General Accountant and was formerly employed by the Economist Intelligence Unit
of London as a financial consultant.
Peter J. Fluor has been an Ocean director since 1980. Mr. Fluor has served
as Chairman and Chief Executive Officer of Texas Crude Energy, Inc., a private
oil and gas company, since January 2001. From
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1997 through 2000, he was President and Chief Executive Officer of Texas Crude.
He also serves as Lead Independent Director of Fluor Corporation.
David M. Gavrin is the Chairman of the Compensation Committee and has been
a Devon director since 1979. Mr. Gavrin has been a private investor since 1989
and is currently a Director of MetBank Holding Corporation and United American
Energy Corp., an independent power producer. From 1978 to 1988, he was a General
Partner of Windcrest Partners, a private investment partnership in New York
City, and, for 14 years prior to that, he was an officer of Drexel Burnham
Lambert Incorporated.
Michael E. Gellert is the Chairman of the Nominating Committee and has been
a Devon director since 1971. Since 1967, Mr. Gellert has been a General Partner
of Windcrest Partners, a private investment partnership in New York City. From
January 1958 until his retirement in October 1989, Mr. Gellert served in
executive capacities with Drexel Burnham Lambert Incorporated and its
predecessors in New York City. In addition to serving as a member of Devon's
board of directors, Mr. Gellert serves on the boards of directors of High Speed
Access Corporation, Humana Inc., Seacor Smit Inc., Six Flags Inc., Travelers
Series Fund, Inc., Dalet Technologies and Smith Barney World Funds.
John A. Hill has been a Devon director since 2000. Mr. Hill has been with
First Reserve Corporation, an oil and gas investment management company, since
1983 and is currently its Vice Chairman and Managing Director. Prior to joining
First Reserve Corporation, Mr. Hill was President, Chief Executive Officer and
Director of Marsh & McLennan Asset Management Company and served as the Deputy
Administrator of the Federal Energy Administration during the Ford
administration. Mr. Hill is Chairman of the Board of Trustees of the Putnam
Funds in Boston, a Trustee of Sarah Lawrence College, and a Director of
TransMontaigne Inc., various companies controlled by First Reserve Corporation
and Continuum Health Partners.
Robert L. Howard has been an Ocean director since 1999 and served as a
Director of one of Ocean's predecessor entities between 1996 and 1999. Mr.
Howard retired in 1995 from his position as Vice President of Domestic
Operations, Exploration and Production, of Shell Oil Company. He is also a
Director of Southwestern Energy Company and McDermott International
Incorporated.
William J. Johnson has been a Devon director since 1999. Mr. Johnson has
been a private consultant for the oil and gas industry for more than five years.
He is President and a Director of JonLoc Inc., an oil and gas company of which
he and his family are the only stockholders. Mr. Johnson has served as a
Director of Tesoro Petroleum Corp. since 1996. From 1991 to 1994, Mr. Johnson
was President, Chief Operating Officer and a Director of Apache Corporation.
Michael M. Kanovsky has been a Devon director since 1998. Mr. Kanovsky was
a co-founder of Northstar Energy Corporation, Devon's Canadian subsidiary, and
served on Northstar's board of directors since 1982. He is President of Sky
Energy Corporation, a privately held energy corporation. Mr. Kanovsky continues
to be active in the Canadian energy industry and is currently a Director of ARC
Resources Ltd. and Bonavista Petroleum Ltd.
Charles F. Mitchell, M.D., has been an Ocean director since 1999 and served
as a Director of one of Ocean's predecessor entities between 1995 and 1999. Dr.
Mitchell, a physician and surgeon, has been a Senior Partner of ENT Medical
Center in Baton Rouge, Louisiana since 1985. Dr. Mitchell is involved in
numerous private investments.
J. Todd Mitchell has been a Devon director since 2002. Mr. Mitchell served
on the board of directors of Mitchell Energy & Development Corp. from 1993 to
2002. He has served as president of GPM, Inc., a family-owned investment
company, since 1998. Mr. Mitchell has also served as President of Dolomite
Resources, Inc., a privately owned mineral exploration and investments company,
since 1987 and as Chairman of Rock Solid Images, a privately owned seismic data
analysis software company, since 1998.
Robert A. Mosbacher, Jr., has been a Devon director since 1999. Mr.
Mosbacher has served as President and Chief Executive Officer of Mosbacher
Energy Company since 1986 and has been Vice Chairman of Mosbacher Power Group
since 1995. He was previously a Director of PennzEnergy Company
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and served on its Executive Committee. Mr. Mosbacher is currently a Director of
JPMorgan Chase and Company, Houston Regional Board, and is on the Executive
Committee of the U.S. Oil & Gas Association.
J. Larry Nichols is a co-founder of Devon. Mr. Nichols was named Chairman
of the Board in 2000. He has been a Devon director since 1971 and its Chief
Executive Officer since 1980. Mr. Nichols has been President of Devon since 1976
and will continue to serve in that capacity until the effective time of the
merger. Mr. Nichols serves on the Board of Governors of the American Stock
Exchange. He serves as a Director of Smedvig ASA, Baker Hughes Incorporated and
several trade associations that are relevant to the conduct of Devon's business.
Mr. Nichols holds an undergraduate degree in geology from Princeton University
and a law degree from the University of Michigan.
Devon expects that Robert B. Weaver, who is currently a Devon director,
will resign from Devon's board of directors at the effective time of the merger.
Mr. Weaver has been a Devon director since 1999.
EXECUTIVE OFFICERS
The following individuals will serve in their respective capacities as
executive officers of the combined company until their successors are duly
elected and qualified or until their earlier resignation or removal:
CURRENT COMPANY
NAME AGE POSITION IN THE COMBINED COMPANY AFFILIATION
---- --- -------------------------------- ---------------
J. Larry Nichols.......................... 60 Chairman and Chief Executive Officer Devon
James T. Hackett.......................... 49 President and Chief Operating Officer Ocean
Brian J. Jennings......................... 42 Senior Vice President -- Corporate Devon
Finance and Development
J. Michael Lacey.......................... 57 Senior Vice President -- Exploration Devon
and Production
Duke R. Ligon............................. 61 Senior Vice President & General Devon
Counsel
Marian J. Moon............................ 52 Senior Vice Devon
President -- Administration
John Richels.............................. 52 Senior Vice President -- Canadian Devon
Division
Darryl G. Smette.......................... 55 Senior Vice President -- Marketing Devon
William T. Vaughn......................... 56 Senior Vice President -- Finance Devon
John D. Schiller, Jr. .................... 43 Vice President -- Exploration and Ocean
Production
See the "Directors and Executive Officers of the Combined
Company -- Directors" section of this document for information about J. Larry
Nichols.
James T. Hackett has been President and Chief Executive Officer of Ocean
since March 1999 and Ocean's Chairman of the Board since January 2000. Mr.
Hackett served as Chief Executive Officer and President of Seagull Energy
Corporation from September 1998 until March 1999 and as its Chairman of the
Board from January 1999 to March 1999. He also served as Executive Vice
President of Pan Energy from January 1996 until its merger with Duke Power,
after which he served as Group President of Duke Energy until September 1998.
Mr. Hackett currently serves as a Director of New Jersey Resources, Kaiser
Aluminum Corporation, Temple-Inland, Inc. and Fluor Corporation. He is also
Chairman of the Domestic Petroleum Council and a member of the Policy Committee
of the American Petroleum Institute and the Society of Petroleum Engineers. Mr.
Hackett holds an undergraduate degree from the University of Illinois and a
master's degree in business administration from Harvard University.
Brian J. Jennings was elected to the position of Senior Vice
President -- Corporate Development in July 2001. Mr. Jennings joined Devon in
March 2000 as Vice President -- Corporate Finance. Prior to joining Devon, Mr.
Jennings was a Managing Director in the Energy Investment Banking Group of
PaineWebber, Inc. He began his banking career at Kidder, Peabody in 1989 before
moving to Lehman
78
Brothers in 1992 and later to PaineWebber in 1997. Mr. Jennings specialized in
providing strategic advisory and corporate finance services to public and
private companies in the E&P and oilfield service sectors. He began his energy
career with ARCO International Oil & Gas, a subsidiary of Atlantic Richfield
Company. Mr. Jennings received his Bachelor of Science in Petroleum Engineering
from the University of Texas at Austin and his Master of Business Administration
from the University of Chicago's Graduate School of Business.
J. Michael Lacey was elected to the position of Senior Vice
President -- Exploration and Production in 1999. Mr. Lacey joined Devon in 1989
as Vice President of Operations and Exploration. Prior to his employment with
Devon, Mr. Lacey served as General Manager for Tenneco Oil Company's Mid-
Continent and Rocky Mountain Divisions. He is a registered professional
engineer, and a member of the Society of Petroleum Engineers and the American
Association of Petroleum Geologists. Mr. Lacey holds undergraduate and graduate
degrees in petroleum engineering from the Colorado School of Mines.
Duke R. Ligon was elected to the position of Senior Vice President &
General Counsel in 1999. Mr. Ligon had previously joined Devon as Vice President
& General Counsel in 1997. Prior to joining Devon, Mr. Ligon practiced energy
law for 12 years, most recently as a partner at the law firm of Mayer, Brown &
Platt (now known as Mayer, Brown, Rowe & Maw) in New York City. He has also
served as Senior Vice President and Managing Director for Investment Banking at
Bankers Trust Company in New York City for 10 years. Additionally, Mr. Ligon
served for three years in various positions with the U.S. Departments of the
Interior and Treasury, as well as the Department of Energy. Mr. Ligon holds an
undergraduate degree in chemistry from Westminister College and a law degree
from the University of Texas School of Law.
Marian J. Moon was elected to the position of Senior Vice President --
Administration in 1999. Ms. Moon has been with Devon for 19 years, serving in
various capacities, including Manager of Corporate Finance. Prior to joining
Devon, Ms. Moon was employed for 11 years by Amarex, Inc., an Oklahoma City
based oil and natural gas production and exploration firm, where she served most
recently as Treasurer. Ms. Moon is a member of the American Society of Corporate
Secretaries. She is a graduate of Valparaiso University.
John Richels was elected to the position of Senior Vice President --
Canadian Division in 2001. Prior to his election to Senior Vice President, Mr.
Richels held the position of Chief Executive Officer of Northstar Energy
Corporation, Devon's Canadian subsidiary. Mr. Richels served as Northstar's
Executive Vice President and Chief Financial Officer from 1996 to 1998 and was
on its board of directors from 1993 to 1996. Prior to joining Northstar, Mr.
Richels was Managing Partner, Chief Operating Partner and a member of the
Executive Committee of the Canadian-based national law firm, Bennett Jones. Mr.
Richels has previously served as a Director of a number of publicly traded
companies and is Vice-Chairman of the Board of Governors of the Canadian
Association of Petroleum Producers. He holds a bachelor's degree in economics
from York University and a law degree from the University of Windsor.
Darryl G. Smette was elected to the position of Senior Vice
President -- Marketing in 1999. Mr. Smette previously held the position of Vice
President -- Marketing and Administrative Planning since 1989. He joined Devon
in 1986 as Manager of Gas Marketing. His marketing background includes 15 years
with Energy Reserves Group, Inc./BHP Petroleum (Americas), Inc., most recently
as Director of Marketing. Mr. Smette is an oil and gas industry instructor,
approved by the University of Texas Department of Continuing Education. He is a
member of the Oklahoma Independent Producers Association, Natural Gas
Association of Oklahoma and the American Gas Association. Mr. Smette holds an
undergraduate degree from Minot State College and a master's degree from Wichita
State University.
William T. Vaughn was elected to the position of Senior Vice
President -- Finance in 1999. Mr. Vaughn previously served as Devon's Vice
President of Finance in charge of commercial banking functions, accounting, tax
and information services since 1987. Prior to that, he was Controller of Devon
from 1983 to 1987. Mr. Vaughn's previous experience includes employment with
Marion Corporation for two years, most recently as Controller, and employment
with Arthur Young & Co. for seven years, most recently as Audit Manager. He is a
Certified Public Accountant and a Member of the American Institute
79
of Certified Public Accountants. He is a graduate of the University of Arkansas
with a Bachelor of Science degree.
John D. Schiller, Jr. was elected to the position of Executive Vice
President, Exploration and Production of Ocean in March 2002. He had previously
served as Executive Vice President, Operations since 2000 and Senior Vice
President, North America Onshore and International Operations from 1999 to 2000.
Mr. Schiller served as Senior Vice President, Operations of Seagull Energy
Corporation from 1998 until the merger of Seagull and Ocean. Before he joined
Seagull, Mr. Schiller was employed for 13 years by Burlington Resources, most
recently as Production Manager -- Gulf Coast Division from 1997 to 1998 and
Engineering Manager -- Offshore Division from 1994 to 1997. Mr. Schiller is a
Director of the Houston Producers' Forum and a member of the Society of
Petroleum Engineers, the American Petroleum Institute and the American
Association of Drilling Engineers. Mr. Schiller holds a degree in petroleum
engineering from Texas A&M and now serves as Chairman of the Texas A&M Petroleum
Engineering Advisory Board.
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DEVON ENERGY CORPORATION 2003 LONG-TERM INCENTIVE PLAN
The following is a summary of the material terms of the Devon Energy
Corporation 2003 Long-Term Incentive Plan, a copy of which is attached to this
document as Annex E and is incorporated into this document by reference.
Subject to approval by Devon stockholders, Devon's board of directors has
approved the Devon Energy Corporation 2003 Long-Term Incentive Plan, which we
sometimes refer to in this document as the "new long-term incentive plan" or the
"plan." The plan is also conditioned on approval by Devon stockholders of the
issuance of shares of Devon common stock pursuant to the merger agreement and
completion of the merger.
The new long-term incentive plan authorizes the compensation committee of
Devon's board of directors to grant nonqualified and incentive stock options,
stock appreciation rights, restricted stock awards, performance units and
performance bonuses to selected employees. The plan also authorizes the grant of
nonqualified stock options and restricted stock awards to directors. A total of
12,500,000 shares of Devon common stock have been reserved for issuance pursuant
to the plan.
In 1997, Devon stockholders approved the Devon Energy Corporation 1997
Stock Option Plan, which reserved a total of two million shares of Devon common
stock to be issued to selected employees. The plan was subsequently amended,
with Devon stockholder approval, to increase the reserved number of shares to 10
million. As of March 19, 2003, a total of 1,277,618 shares remained available
for grant under the 1997 Plan; however, Devon will not grant any new awards
under the 1997 Plan following approval by Devon stockholders of the new
long-term incentive plan and completion of the merger. Upon completion of the
merger, the combined company will not grant any new awards under Ocean's
existing long-term incentive plans.
Devon's board of directors recommends Devon stockholders vote FOR the
adoption of the Devon Energy Corporation 2003 Long-Term Incentive Plan.
PURPOSE AND KEY FEATURES OF THE PLAN
The new long-term incentive plan is designed to accommodate the increased
employee base of the combined company expected to result from the merger. The
purpose of the plan is to create incentives designed to motivate employees of
the combined company to significantly contribute to the combined company's
growth and profitability. The shares available to be issued under the plan will
enable the combined company to attract and retain experienced employees who, by
their positions, abilities and diligence, are able to make important
contributions to the combined company's success.
The plan is designed to provide flexibility to meet the needs of the
combined company for three to four years in a changing and competitive
environment while minimizing dilution to stockholders. Devon does not intend to
use all incentive vehicles (options, stock appreciation rights, restricted stock
awards, performance units and performance bonuses) at all times for each
participant, but will selectively grant awards to achieve long-term goals.
Awards will be granted in such a way as to align the interests of participants
with those of the combined company's stockholders. Maximum individual awards as
designated by the plan will only be awarded if individual and company results
are such that exceptional stockholder value is achieved.
Key features of the new long-term incentive plan include:
- a prohibition against the repricing of stock options;
- a prohibition against granting options with an exercise price less than
the fair market value of Devon common stock on the date of grant;
- of the 12,500,000 shares reserved for issuance under the plan, only
2,500,000 may be granted as restricted stock, performance bonuses and
performance units;
- a maximum eight-year life for any award made under the plan;
81
- the following award limits:
- the maximum number of shares that may be awarded in the form of options
and stock appreciation rights to an employee in any calendar year is
400,000;
- the maximum number of shares that may be awarded in the form of
restricted stock awards and performance units to an employee in any
calendar year is 200,000; and
- the maximum performance bonus award payment to an employee is $2,500,000
in any calendar year; and
- the compensation committee (composed entirely of outside directors)
administers the plan and the grant of options and restricted stock to
Devon's executive officers.
ADMINISTRATION
The new long-term incentive plan consists of three separate stock plans:
- Non-executive officer plan: this aspect of the plan is limited to
participants who are not subject to Section 16 of the Securities Exchange
Act of 1934 because they are not executive officers of Devon. The
non-executive officer plan is administered by the compensation committee.
However, the compensation committee may, to the extent permitted by law,
delegate authority to the regular award committee to administer the
non-executive officer plan. Devon's chief executive officer and other
individuals appointed by the compensation committee will comprise the
regular award committee. Although the regular award committee may be
authorized to administer the non-executive officer plan, it can only make
awards within guidelines set by the compensation committee.
- Executive officer plan: this aspect of the plan is limited to
participants who are executive officers of Devon and who, therefore, are
subject to the reporting requirements of Section 16 of the Securities
Exchange Act of 1934. The executive officer plan is administered
exclusively by the compensation committee.
Except for administration and the category of participants eligible to
receive awards, the terms of the non-executive officer plan and the
executive officer plan are identical.
- Non-employee director plan: this aspect of the plan is limited to
non-employee directors of Devon and permits only grants of nonqualified
stock options and restricted stock. Devon's board of directors is
responsible for selection of non-employee directors for awards and for
determination of the nature of the award. The compensation committee is
responsible for the administration of awards granted to non-employee
directors.
ELIGIBILITY FOR PARTICIPATION
Employees of Devon and its subsidiaries and affiliated entities are
eligible to participate in the new long-term incentive plan. Subject to the
provisions of the plan, the compensation committee has exclusive power in
selecting participants. In addition, non-employee directors are eligible to
receive grants of nonqualified stock options and restricted stock awards under
the plan.
TYPES OF AWARDS
The new long-term incentive plan provides that any or all of the following
types of awards may be granted:
- nonqualified stock options and stock options intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code;
- stock appreciation rights;
- restricted stock;
82
- performance units; and
- performance bonuses.
Stock Options. The compensation committee may grant awards under the plan
in the form of options to purchase shares of Devon common stock. The
compensation committee will have the authority to determine the terms and
conditions of each option, the number of shares subject to the option, and the
manner and time of the option's exercise. As of March 19, 2003, the aggregate
market value of Devon common stock underlying the options available for issuance
under the plan was $61,134,021.
The exercise price of an option may not be less than the fair market value
of Devon common stock on the date of grant. The fair market value of shares of
common stock subject to options is determined by closing price as reported on
the American Stock Exchange. As of March 19, 2003, the closing price of Devon
common stock as reported on the American Stock Exchange was $47.85. A
participant may pay the exercise price of an option in cash, in shares of Devon
common stock or a combination of both; provided that the exercise price
(including required withholding taxes) may be paid using shares of Devon common
stock only to the extent such exercise would not result in a compensation
expense to Devon for financial accounting purposes. The compensation committee
may permit the exercise of stock options through a broker-dealer acting on a
participant's behalf if in accordance with procedures adopted by Devon to ensure
that the arrangement will not constitute a personal loan to the participant.
Unless sooner terminated, the stock options granted under the plan expire eight
years from the date of the grant.
Stock Appreciation Rights. A stock appreciation right permits an employee
to receive an amount (in cash, Devon common stock or a combination thereof)
equal to (1) the number of stock appreciation rights exercised by the employee
multiplied by (2)(a) the excess of the fair market value of Devon common stock
on the exercise date over (b) the stock appreciation rights' exercise price.
Stock appreciation rights may or may not be granted in connection with the grant
of an option. The exercise price of stock appreciation rights granted under the
plan will be determined by the compensation committee; provided, however, that
such exercise price cannot be less than the fair market value of a share of
Devon common stock on a date the stock appreciation right is granted. A stock
appreciation right may be exercised in whole or in such installments and at such
times as determined by the compensation committee.
Restricted Stock Awards. Shares of restricted stock awarded under the plan
will be subject to the terms, conditions, restrictions and/or limitations, if
any, that the compensation committee deems appropriate, including restrictions
on employment, transferability and continued employment. The compensation
committee may also restrict vesting to the attainment of specific performance
targets it establishes that are based upon one or more of the following
criteria:
- Operational Criteria: reserve additions/replacements, finding and
development costs, production volume and production costs.
- Financial Criteria: earnings (net income, EBITDA, earnings per share),
cash flow, operating income, general and administrative expenses, debt to
equity ratio, debt to cash flow, debt to EBITDA, EBITDA to interest,
return on assets, return on equity, return on invested capital, profit
returns/margins and midstream margins.
- Stock Performance Criteria: stock price appreciation, total stockholder
return and relative stock price performance.
If vesting is based upon continued employment, the restricted stock award must
vest over a minimum restriction period of at least three years from the date of
grant. If vesting is based on performance, the restricted stock award must have
a minimum restriction period of at least one year.
Performance Units. The plan permits grants of performance units, which are
rights to receive cash or common stock payments based upon the achievement of
performance goals established by the compensation committee. Such awards are
subject to the fulfillment of conditions that may be established by the
compensation committee, including the achievement of performance targets based
upon the factors described above relating to restricted stock awards.
83
Performance Bonus. The plan permits grants of performance bonuses, which
may be paid in cash, Devon common stock or a combination thereof, as determined
by the compensation committee. The maximum value of performance awards granted
under the plan shall be established by the compensation committee at the time of
the grant. An employee's receipt of such amount will be contingent upon
achievement of performance targets during the performance period established by
the compensation committee. The performance targets will be determined by the
compensation committee based upon the factors described above relating to
restricted stock awards. Following the end of the performance period, the
compensation committee will determine the achievement of the performance targets
for such performance period. Payment may be made within 60 days of such
determination. Any payment made in shares of Devon common stock will be based
upon the fair market value of Devon common stock on the payment date. The
maximum amount of performance bonus awarded to a participant in any calendar
year is $2,500,000.
Award Limitations. Subject to certain adjustment provisions, the
compensation committee cannot grant options and stock appreciation rights with
respect to more than 400,000 shares of Devon common stock to any participant in
any calendar year. In addition, and subject to certain adjustment provisions, no
more than 200,000 shares of Devon common stock can be awarded to a participant
under the plan as restricted stock awards or performance units in any calendar
year.
TERMINATION OF EMPLOYMENT
The compensation committee will determine the treatment of a participant's
award in the event of death, disability, retirement or termination of employment
for an approved reason. If a participant's employment is terminated for any
other reason, all unvested awards will terminate (unless the participant's award
agreement provides otherwise) and the compensation committee will provide in the
award agreement the terms of exercise/payment of vested awards.
AMENDING THE NEW LONG-TERM INCENTIVE PLAN
Devon's board of directors may amend the new long-term incentive plan at
any time. Devon's board of directors may not, however, without Devon stockholder
approval, (1) adopt any amendment that would increase the maximum number of
shares that may be issued under the plan (except for certain anti-dilutive
adjustments described in the "Automatic Adjustment Features" section of this
document), (2) materially modify the plan's eligibility requirements or (3)
materially increase the benefits provided to participants under the plan.
Amendments to award agreements that would have the effect of repricing
participants' options are prohibited.
CHANGE OF CONTROL EVENT
The compensation committee is authorized to provide in the award agreements
for the acceleration of any unvested portion of any outstanding awards under the
plan upon a change of control event.
NEW PLAN BENEFITS
To date, no awards have been made under the new long-term incentive plan.
AUTOMATIC ADJUSTMENT FEATURES
The new long-term incentive plan provides for the automatic adjustment of
the number and kind of shares available under it, and the number and kind of
shares subject to outstanding awards in the event Devon common stock is changed
into or exchanged for a different number or kind of shares of stock or other
securities of Devon or another corporation, or if the number of shares of Devon
common stock is increased through a stock dividend. The plan also provides that
the compensation committee may adjust the number of shares available under the
plan and the number of shares subject to any outstanding awards if, in the
compensation committee's opinion, any other change in the number or kind of
shares of outstanding Devon common stock equitably requires such an adjustment.
84
U.S. FEDERAL TAX TREATMENT
Incentive Stock Option Grant/Exercise. A participant who is granted an
incentive stock option does not realize any taxable income at the time of the
grant or at the time of exercise (except for alternative minimum tax).
Similarly, Devon is not entitled to any deduction at the time of grant or at the
time of exercise. If the participant makes no disposition of the shares acquired
pursuant to an incentive stock option before the later of two years from the
date of grant of such option or one year from the date of exercise of such
shares to the participant, any gain or loss realized on a subsequent disposition
of the shares will be treated as a long-term capital gain or loss. Under such
circumstances, Devon will not be entitled to any deduction for U.S. federal
income tax purposes.
Non-Qualified Stock Option Grant/Exercise. A participant who is granted a
non-qualified stock option does not have taxable income at the time of grant.
Taxable income occurs at the time of exercise in an amount equal to the
difference between the exercise price of the shares and the market value of the
shares on the date of exercise. Devon is entitled to a corresponding deduction
for the same amount.
Restricted Stock Award. A participant who has been granted an award in the
form of restricted stock will not realize taxable income at the time of the
grant, and Devon will not be entitled to a deduction at the time of the grant,
assuming that the restrictions constitute a substantial risk of forfeiture for
U.S. federal income tax purposes. When such restrictions lapse, the participant
will receive taxable income (and have tax basis in the shares) in an amount
equal to the excess of the fair market value of the shares at such time over the
amount, if any, paid for such shares. Devon will be entitled to a corresponding
deduction. The participant may elect to include the value of his restricted
stock award as income at the time it is granted under Section 83(b) of the Code,
and Devon will take a corresponding income tax deduction at such time.
Section 162(m) of the Internal Revenue Code. Section 162(m) of the Code
precludes a public corporation from taking a deduction for annual compensation
in excess of $1 million paid to its chief executive officer or any of its four
other highest-paid officers. However, compensation that qualifies under Section
162(m) of the Code as "performance-based" is specifically exempt from the
deduction limit. Based on Section 162(m) of the Code and the regulations
thereunder, Devon's ability to deduct compensation income generated in
connection with the exercise of stock options or stock appreciation rights
granted under the plan should not be limited by Section 162(m) of the Code.
Further, Devon believes that compensation income generated in connection with
performance awards granted under the plan should not be limited by Section
162(m) of the Code. The plan has been designed to provide flexibility with
respect to whether restricted stock awards or performance bonuses will qualify
as performance-based compensation under Section 162(m) of the Code and,
therefore, be exempt from the deduction limit. If the vesting restrictions
relating to such awards are based solely upon the satisfaction of one of the
performance goals set forth in the plan, then Devon believes that the
compensation expense relating to such an award will be deductible by Devon if
the awards become vested. However, compensation expense deductions relating to
such awards will be subject to the Section 162(m) deduction limitation if such
awards become vested based upon any other criteria set forth in such award (such
as the occurrence of a change in control or vesting based upon continued
employment with Devon).
85
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of December 31, 2002 about
Devon common stock that may be issued under Devon's equity compensation plans.
COLUMN C
--------------------
NUMBER OF SECURITIES
COLUMN A COLUMN B REMAINING AVAILABLE
-------------------- ------------------- FOR FUTURE ISSUANCE
NUMBER OF SECURITIES WEIGHTED-AVERAGE UNDER EQUITY
TO BE ISSUED UPON EXERCISE PRICE OF COMPENSATION PLANS
EXERCISE OF OUTSTANDING (EXCLUDING
OUTSTANDING OPTIONS, OPTIONS, WARRANTS SECURITIES REFLECTED
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS IN COLUMN(A)
------------- -------------------- ------------------- --------------------
Equity compensation plans approved by
security holders...................... 7,799,000 $41.01 1,285,000(1)
Equity compensation plans not approved
by security holders................... -- -- --
--------- ------ ---------
Total(2)................................ 7,799,000 $41.01 1,285,000
========= ====== =========
---------------
(1) Of these shares, a maximum of 48,000 may be issued in the form of restricted
stock.
(2) As of December 31, 2002, options to purchase an aggregate of 3,432,000
shares of Devon common stock at a weighted average exercise price of $41.00
were outstanding under the following equity compensation plans, which
options were assumed in connection with merger and acquisition transactions:
Santa Fe Energy Resources Incentive Compensation Plan 2000, Pennzoil Company
1997 Incentive Plan, Pennzoil Company 1997 Stock Option Plan, Mitchell
Energy & Development Corp. 1995 Stock Option Plan, Santa Fe Energy
Resources, Inc. 1995 Incentive Stock Compensation Plan, Pennzoil Company
1990 Stock Option Plan, Santa Fe Energy Resources 1990 Incentive Stock
Compensation Plan, Snyder Oil Corporation 1990 Stock Plan for non-Employee
Directors, Pennzoil Company 1995 Stock Option Plan, Pennzoil Company 1992
Stock Option Plan, Mitchell Energy & Development Corp. 1999 Stock Option
Plan, Santa Fe Snyder Corporation 1999 Stock Compensation Retention Plan,
PennzEnergy Company 1998 Incentive Plan, and Pennzoil Company 1998 Stock
Option Plan. No further grants or awards will be made under the assumed
equity compensation plans, and the options under these equity compensation
plans are not reflected in the table above. Devon will assume each of
Ocean's long-term incentive plans at the effective time of the merger. As of
March 17, 2003, options to purchase an aggregate of 19,256,987 shares of
Ocean common stock (the equivalent of 7,972,393 shares of Devon common stock
based on the 0.414 exchange ratio) having a weighted average exercise price
of about $16.39 per share were outstanding under those plans. Upon
completion of the merger, the combined company will not grant any new equity
awards under Ocean's existing long-term incentive plans.
86
DEVON EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information regarding annual and long-term
compensation during 2000, 2001 and 2002 for the CEO and the four most highly
compensated executive officers, other than the CEO, who were serving as
executive officers of Devon on December 31, 2002.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(1)
--------------------- -----------------
AWARDS OF OPTIONS ALL OTHER
NAME PRINCIPAL POSITION YEAR SALARY BONUS (# OF SHARES) COMPENSATION
---- -------------------- ---- -------- ---------- ----------------- ------------
J. Larry Nichols..... Chairman, President 2002 $715,000 $1,500,000 105,000 $11,000(2)
and CEO 2001 650,000 1,000,000 105,000 10,200(2)
2000 600,000 1,000,000 70,000 10,200(2)
Brian J. Jennings.... Senior Vice 2002 325,000 400,000 53,000 16,000(3)
President
2001 275,000 275,000 53,000 10,729(3)
2000 225,000 112,500 50,000(4) 9,029(2)
J. Michael Lacey..... Senior Vice 2002 400,000 487,500 53,000 11,000(2)
President
2001 350,000 325,000 53,000 10,200(2)
2000 325,000 300,000 35,000 10,200(2)
Darryl G. Smette..... Senior Vice 2002 400,000 487,500 53,000 43,385(3)
President
2001 350,000 325,000 53,000 14,238(3)
2000 300,000 300,000 35,000 10,200(2)
William T. Vaughn.... Senior Vice 2002 325,000 400,000 53,000 35,838(3)
President
2001 290,000 275,000 53,000 13,546(3)
2000 275,000 250,000 35,000 10,200(2)
---------------
(1) No awards of restricted stock or payments under long-term incentive plans
were made by Devon to any of the named executives in any periods covered by
the table.
(2) Consists of company matching contributions to the Devon Energy Incentive
Savings Plan.
(3) Consists of company matching contributions to the Devon Energy Incentive
Savings Plan and the Devon Energy Deferred Compensation Savings Plan.
(4) Mr. Jennings received a one-time stock option award of 25,000 shares when he
joined Devon in March 2000 in addition to his annual grant in November 2000.
Option Grants in 2002
The following table sets forth information concerning options to purchase
Devon common stock granted in 2002 to the five individuals named in the Summary
Compensation Table. The material terms of such options appear in the following
table and the footnotes thereto.
INDIVIDUAL GRANTS
----------------------------------------------------------------------------
PERCENT OF
OPTIONS TOTAL OPTIONS EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED GRANTED IN 2002 PER SHARE(1) DATE PRESENT VALUE(2)
---- ------- --------------- -------------- ---------- ----------------
J. Larry Nichols........... 105,000(3) 3.7% $46.09 12/2/2012 $1,716,750
Brian J. Jennings.......... 53,000(3) 1.9% 46.09 12/2/2012 866,550
J. Michael Lacey........... 53,000(3) 1.9% 46.09 12/2/2012 866,550
Darryl G. Smette........... 53,000(3) 1.9% 46.09 12/2/2012 866,550
William T. Vaughn.......... 53,000(3) 1.9% 46.09 12/2/2012 866,550
---------------
(1) Exercise Price is the closing price of Devon common stock as reported by the
American Stock Exchange on the date of grant.
87
(2) The Grant Date Present Value is an estimation of the possible future value
of the option based upon the Black-Scholes Option Pricing Model. The
following assumptions were used in the model: volatility (a measure of the
historic variability of a stock price) -- 41.1%; risk-free interest rate
(the interest paid by zero-coupon U.S. government issues with a remaining
term equal to the expected life of the options) -- 3.1% per annum; annual
dividend yield -- 0.4%; and expected life of the options -- five years from
grant date. The option value estimated using this model does not necessarily
represent the value to be realized by the named officers.
(3) These options were granted as of December 2, 2002. 20% of such grant was
immediately vested and exercisable. An additional 20% of such grant becomes
vested and exercisable on each of the next four anniversary dates of the
original grant.
Aggregate Option Exercises in 2002 and Year-End Option Values
The following table sets forth information for the five individuals named
in the Summary Compensation Table concerning the exercise of options to purchase
Devon common stock in 2002 and unexercised options to purchase Devon common
stock held at December 31, 2002.
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 12/31/02 AT 12/31/02(1)
ACQUIRED UPON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- ----------- ----------- ------------- ----------- -------------
J. Larry Nichols......... 40,000 $531,400 431,000 147,000 $5,692,675 $696,150
J. Michael Lacey......... -- -- 107,036 74,200 737,047 351,390
Darryl G. Smette......... -- -- 197,900 74,200 2,408,006 351,390
William T. Vaughn........ 10,000 403,950 196,400 74,200 2,305,288 351,390
Brian J. Jennings........ -- -- 71,800 84,200 297,385 351,390
---------------
(1) The value is based on the aggregate amount of the excess of $45.90 (the
closing price as reported by the American Stock Exchange for December 31,
2002) over the relevant exercise price for outstanding options that were
exercisable and in-the-money at year-end.
(2) The value is based on the excess of the market price over the relevant
exercise price for the options exercised.
Employment Agreements
A small number of Devon's senior executives, including the five individuals
named in the Summary Compensation Table, are entitled to certain additional
compensation under the following events:
(1) employment with Devon is involuntarily terminated other than for
"Cause;" or
(2) employee voluntarily terminates for "Good Reason", as those terms are
defined in each of the officer's employment agreements.
In either case, the payment due to the officer would be equal to three times the
officer's annual compensation. In addition, the employment agreement provides
for the officer to receive the same basic health and welfare benefits that he or
she would otherwise be entitled to receive if he or she were an employee of
Devon for three years after termination. If the officer is terminated within two
years of a "change in control," he or she is also entitled to an additional
three years of service credit and age in determining eligibility for retiree
medical and supplemental retirement benefits. "Change of control" is defined in
the employment agreements the same as in the retirement plans described below.
Retirement Plans
Devon has three employee retirement plans, as follows:
Basic Plan........ The Basic Plan is a qualified defined benefit
retirement plan which provides benefits based
upon employment service with
88
Devon. Each eligible employee who retires is
entitled to receive annual retirement income,
computed as a percentage of "final average
compensation" (which consists of the average of
the highest three consecutive years' salaries,
wages, and bonuses out of the last ten years),
and credited years of service up to 25 years.
Contributions by employees are neither required
nor permitted under the Basic Plan. Benefits
are computed based on straight-life annuity
amounts and are reduced by Social Security
benefits. Benefits under the Basic Plan are
reduced for certain highly compensated
employees in order to comply with certain
requirements of the Employment Retirement
Income Security Act of 1974 and the Internal
Revenue Code.
The following table sets forth the credited
years of service as of December 31, 2002 under
Devon's Basic Plan for each of the five
individuals named in the Summary Compensation
Table.
CREDITED YEARS
NAME OF INDIVIDUAL OF SERVICE
------------------ --------------
J. Larry Nichols..................... 25
J. Michael Lacey..................... 14
Brian J. Jennings.................... 3
Darryl G. Smette..................... 16
William T. Vaughn.................... 19
Benefit
Restoration
Plan.............. The Benefit Restoration Plan is a non-qualified
retirement benefit plan, the purpose of which
is to restore retirement benefits for certain
selected key management and highly compensated
employees because their annual compensation is
greater than the maximum annual compensation
that can be considered in computing their
benefits under the Basic Plan. An employee must
be selected by Devon's Compensation and Stock
Option Committee in order to be eligible for
participation in the Benefit Restoration Plan.
All other provisions of the Benefit Restoration
Plan mirror those of the Basic Plan. All of the
five individuals named in the Summary
Compensation Table have been selected to
participate in the Benefit Restoration Plan.
The Benefit Restoration Plan has been
informally funded through a rabbi trust
arrangement.
Supplemental
Retirement Plan... The Supplemental Retirement Plan is another
non-qualified retirement plan for a small group
of Devon executives, the purpose of which is to
provide additional retirement benefits for
long-service executives. The plan vests after
10 years of service and provides retirement
income equal to 65% of the executive's final
average compensation, multiplied by a fraction,
the numerator of which is his credited years of
service (not to exceed 20) and the denominator
of which is 20 (or less, if so determined by
the Compensation and Stock Option Committee),
less any offset amounts. Offset amounts are (1)
benefits payable under the Basic Plan, (2)
benefits payable under the Benefit Restoration
Plan, (3) benefits due to the participant under
Social Security, and (4) any benefits paid to
the participant under Devon's long-term
disability plan.
89
In general, benefits will be paid under the
Supplemental Retirement Plan when the
participant retires from Devon. However, in the
event that the executive's employment with
Devon is terminated under conditions that
qualify him or her to a severance benefit under
the Employment Agreement (see above), then the
executive will be 100% vested in his or her
benefit and entitled to receive the actuarial
equivalent of such benefit earned as of the
date of termination of employment. If the
executive is terminated within two years
following a "change of control," his or her
benefit will be paid in a single lump sum
payment. Otherwise, the benefit will be paid
monthly for the life of the executive. "Change
of control" is defined as the date on which one
of the following occurs: (1) an entity or group
acquires 30% or more of Devon's outstanding
voting securities, (2) the incumbent board
ceases to constitute at least a majority of
Devon's board, or (3) a merger, reorganization
or consolidation is consummated, after
stockholder approval, unless (a) substantially
all of the stockholders prior to the
transaction continue to own more than 50% of
the voting power after the transaction, (b) no
person owns 30% or more of the combined voting
securities, and (c) the incumbent board
constitutes at least a majority of the board
after the transaction. The Supplemental
Retirement Plan is also informally funded
through a rabbi trust arrangement.
The following table shows the estimated aggregate annual retirement
benefits payable under the Basic Plan, the Benefit Restoration Plan and the
Supplemental Retirement Plan to the participants therein, including the five
individuals named in the Summary Compensation Table. The amount presented
assumes a normal retirement in 2002 at age 65.
YEARS OF SERVICE
FINAL AVERAGE -------------------------------------------
COMPENSATION 5 10 15 20 OR MORE
------------- -------- -------- -------- ----------
$ 500,000............................... $ 76,642 $153,284 $229,926 $ 306,568
600,000............................... 92,892 185,784 278,676 371,568
700,000............................... 109,142 218,284 327,426 436,568
800,000............................... 125,392 250,784 376,176 501,568
900,000............................... 141,642 283,284 424,926 566,568
1,000,000............................... 157,892 315,784 473,676 631,568
1,500,000............................... 239,142 478,284 717,426 956,568
2,000,000............................... 320,392 640,784 961,176 1,281,568
Director Compensation
Non-management directors of Devon receive:
- an annual retainer of $40,000, payable quarterly;
- $2,000 for each board meeting attended; directors participating in a
telephonic meeting receive a fee of $1,000;
- an additional $3,000 per year for serving as chairmen of a standing
committee of Devon's board of directors;
- $2,000 for each committee meeting attended that requires separate travel;
and
- $1,000 for each committee meeting that does not require separate travel.
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Non-management directors are eligible to receive stock options in addition
to their cash remuneration. Such directors are eligible to receive stock option
grants of up to 3,000 shares immediately after each annual meeting of
stockholders at an exercise price equal to the fair market value of Devon common
stock on that date. Any unexercised options will expire ten years after the date
of grant. The Compensation and Stock Option Committee, which awards options to
non-management directors, may elect to grant awards that are less than the 3,000
shares maximum. However, the Compensation and Stock Option Committee has no
other discretion regarding the award of stock options to non-management
directors. The directors were eligible to receive stock options beginning in
1997. The following table sets forth information concerning options granted to
non-management directors in 2002:
INDIVIDUAL GRANTS IN 2002
PERCENT OF
OPTIONS TOTAL OPTIONS EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED(1) GRANTED IN 2002 PER SHARE(2) DATE PRESENT VALUE(3)
---- ---------- --------------- -------------- ---------- ----------------
Thomas F. Ferguson.......... 3,000 0.1% $49.91 5/16/2012 $60,759
David M. Gavrin............. 3,000 0.1% 49.91 5/16/2012 60,759
Michael E. Gellert.......... 3,000 0.1% 49.91 5/16/2012 60,759
John A. Hill................ 3,000 0.1% 49.91 5/16/2012 60,759
William J. Johnson.......... 3,000 0.1% 49.91 5/16/2012 60,759
Michael M. Kanovsky......... 3,000 0.1% 49.91 5/16/2012 60,759
Robert A. Mosbacher, Jr. ... 3,000 0.1% 49.91 5/16/2012 60,759
J. Todd Mitchell............ 3,000 0.1% 49.91 5/16/2012 60,759
Robert B. Weaver............ 3,000 0.1% 49.91 5/16/2012 60,759
---------------
(1) The options were granted on May 16, 2002, and immediately became vested and
exercisable.
(2) Exercise price is the fair market value on the date of grant, which is the
closing price of Devon common stock on the American Stock Exchange.
(3) The grant date present value is an estimation of the possible future value
of the option grant based upon the Black-Scholes Option Pricing Model. The
following assumptions were used in the model: volatility (a measure of the
historic variability of a stock price) -- 40.0%; risk-free interest rate
(the interest paid by zero-coupon U.S. government issues with a remaining
term equal to the expected life of the options) -- 4.2% per annum; annual
dividend yield -- 0.4%; and expected life of the options -- five years from
grant date. The option value estimated using this model does not necessarily
represent the value to be realized by the named directors.
Compensation Committee Interlocks
Devon's compensation committee is composed of four independent,
non-employee directors, Messrs. Gavrin, Gellert, Hill and Johnson. These
directors have no interlocking relationships as defined by the Securities and
Exchange Commission.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material U.S. federal income tax
considerations of the merger that are applicable to Ocean stockholders. This
summary is based on the Internal Revenue Code, referred to as the "Code", its
legislative history, applicable U.S. Treasury regulations, judicial authority
and administrative rulings and practice, all as of the date of this document,
all of which are subject to change, possibly with retroactive effect. This
summary does not purport to be a complete discussion of all U.S. federal income
tax consequences of the merger. The discussion below does not address any state,
local or foreign tax consequences of the merger. In addition, this discussion
may not apply, in whole or in part, to particular stockholders, such as
individuals who hold options in respect of Ocean stock or who have acquired
Ocean common stock under a compensatory or other employment-related arrangement,
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, persons who are neither citizens nor residents of the United
States, traders in securities that elect to mark-to-market, and persons who hold
Ocean stock as part of a hedge, straddle or conversion transaction. The
following discussion assumes that Ocean stock is held as a capital asset at the
effective time of the merger. Ocean stockholders should be aware that the Code
contains limitations on the extent to which a stockholder may deduct capital
losses from ordinary income, and that the federal income tax rate for individual
stockholders on long-term capital gains may be significantly lower than the rate
imposed on ordinary income or short-term capital gains.
The discussion under this "Material Federal Income Tax Considerations"
section of this document regarding (1) the tax consequences of the merger to the
corporate parties to the reorganization is the opinion of Mayer, Brown, Rowe &
Maw (counsel to Devon) and (2) the tax consequences of the merger to Ocean and
Ocean stockholders is the opinion of Vinson & Elkins L.L.P. (counsel to Ocean),
in each case subject to the limitations and qualifications referenced in the
discussion.
Ocean stockholders are urged to consult their tax advisors as to the
particular tax consequences of the merger to them, including the applicability
and effect of any U.S. federal, state, local or foreign laws, and the effect of
possible changes in applicable tax laws.
GENERAL
It is a condition to closing of the merger that (1) Devon receive an
opinion of its counsel, Mayer, Brown, Rowe & Maw, to the effect that (a) the
merger will be treated for federal income tax purposes as a reorganization
within the meaning of section 368(a) of the Code, and (b) no gain or loss will
be recognized by any corporation which is a party to the reorganization, and (2)
Ocean receive an opinion of its counsel, Vinson & Elkins L.L.P., to the effect
that (a) the merger will be treated for federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Code, and (b) no gain
or loss will be recognized by Ocean or Ocean stockholders to the extent that
they receive Devon common stock in exchange for shares of Ocean common stock in
the merger. The opinions of counsel will assume that (1) the statements and
facts concerning the merger set forth in the merger agreement and described in
this document, other than in this "Material Federal Income Tax Considerations"
section of this document, are true, correct and complete, and (2) the merger
will be consummated in the manner contemplated by, and in accordance with the
terms set forth in, the merger agreement and described in this document. In
addition, the tax opinions will be based on factual representations made by
Devon and Ocean. If the tax opinions to be delivered as of the closing are
materially different from the opinions respecting the federal income tax
considerations expressed in this "Material Federal Income Tax Considerations"
section of this document, Devon and Ocean would not effect the merger without
recirculating this document after revising this discussion appropriately and
resoliciting the approvals of their stockholders.
Neither Devon nor Ocean has requested nor will request an advance ruling
from the Internal Revenue Service as to the tax consequences of the merger, and
there can be no assurance that the Internal Revenue Service will agree with the
conclusions in the above-described opinions or in the discussion below. The
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discussion below assumes that the merger qualifies as a reorganization within
the meaning of section 368(a) of the Code.
TAX TREATMENT OF CORPORATE PARTIES TO THE REORGANIZATION AND OF OCEAN COMMON
STOCKHOLDERS
Based on, and subject to the limitations in, the foregoing:
No corporate party to the merger, including Ocean, will recognize gain or
loss as a result of the merger.
Except with respect to any cash received instead of fractional shares of
Devon common stock, an Ocean common stockholder will not recognize any gain or
loss as a result of the receipt of shares of Devon common stock in the merger.
An Ocean common stockholder's aggregate tax basis for the shares of Devon common
stock received in the merger, including any fractional share interest for which
cash is received, will equal the stockholder's aggregate tax basis in shares of
Ocean common stock held immediately before the effective time of the merger. An
Ocean common stockholder's holding period for the shares of Devon common stock
received in the merger, including any fractional share interest for which cash
is received, will include the period during which the shares of Ocean common
stock were held.
An Ocean common stockholder who receives cash instead of a fractional share
of Devon common stock in the merger will generally recognize capital gain or
loss in an amount equal to the difference between the amount of cash received
and the stockholder's adjusted tax basis allocable to such fractional share.
TAX TREATMENT OF OCEAN CONVERTIBLE PREFERRED STOCKHOLDERS
Based on, and subject to the limitations in, the foregoing:
The federal income tax consequences of the merger to Ocean convertible
preferred stockholders are not clear. Under analogous legal authorities, the
automatic substitution, at the effective time of the merger, of Devon common
stock for Ocean common stock under the terms of the conversion provision of the
Ocean convertible preferred stock would not constitute an issuance of new
preferred stock pursuant to the merger agreement. Under this approach, no gain
or loss would be recognized by an Ocean convertible preferred stockholder as a
result of the merger. A subsequent conversion of the Ocean convertible preferred
stock may, however, be a taxable transaction on which gain or loss would be
recognized based upon the difference in the value of the Devon common stock
received in the conversion and the stockholder's basis in the converted Ocean
convertible preferred stock.
No assurance can be given that the Internal Revenue Service will not
challenge this nonrecognition approach to the merger or that such a challenge
will not be successful. Specifically, the Internal Revenue Service could assert
that the automatic substitution, at the effective time of the merger, of Devon
common stock for Ocean common stock under the terms of the conversion provision
of the Ocean convertible preferred stock constitutes a taxable exchange. In such
an exchange, an Ocean convertible preferred stockholder would recognize gain or
loss equal to the difference between the value of the Ocean convertible
preferred stock immediately after the effective time of the merger and the Ocean
convertible preferred stockholder's basis in the Ocean convertible preferred
stock immediately prior to the effective time of the merger.
An Ocean convertible preferred stockholder that exercises the conversion
option prior to the effective time of the merger will not recognize gain or loss
upon the receipt of Ocean common stock pursuant to the conversion, except that
the portion of such Ocean common stock which is attributable to accrued unpaid
dividends, if any, on the convertible preferred stock will be treated as a
taxable dividend. Except with respect to any cash received instead of fractional
shares of Devon common stock, such convertible preferred stockholder will not
recognize gain or loss as a result of the receipt of shares of Devon common
stock in exchange for its Ocean common stock in the merger.
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The merger will be a taxable event for an Ocean convertible preferred
stockholder that perfects its appraisal rights under Delaware law and receives
cash in exchange for the stockholder's convertible preferred shares.
BACKUP WITHHOLDING; INFORMATION REPORTING
The cash payments due to a stockholder on the exchange of stock in the
merger, other than certain exempt persons or entities, will be subject to
"backup withholding" for U.S. federal income tax purposes unless certain
requirements are met. Devon or a third-party paying agent, as the case may be,
must withhold 30% of the cash payments to a stockholder, unless the stockholder
(1) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (2) provides the stockholder's taxpayer
identification number and completes a form in which the stockholder certifies
that the stockholder has not been notified by the Internal Revenue Service that
the stockholder is subject to backup withholding as a result of a failure to
report interest and dividends. The taxpayer identification number of an
individual is his or her Social Security number. A broker will not, however, be
required to backup withhold with respect to the exchange of fractional shares of
stock resulting in less than $20 of gross proceeds. An amount paid as backup
withholding will be credited against the stockholder's U.S. federal income tax
liability. Stockholders must also comply with the information reporting
requirements of the Treasury regulations under the tax-free reorganization
provisions of the Code. Appropriate documentation for the foregoing purposes
will be provided to Ocean common stockholders by the exchange agent.
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COMPARISON OF THE RIGHTS OF OCEAN AND DEVON STOCKHOLDERS
The rights of Ocean stockholders are currently governed by Delaware law,
Ocean's certificate of incorporation, as amended, Ocean's bylaws and Ocean's
stockholder rights plan. Upon completion of the merger, Ocean common
stockholders will become Devon common stockholders and their rights as Devon
common stockholders will be governed by Delaware law, Devon's restated
certificate of incorporation, as amended, Devon's amended and restated bylaws
and Devon's stockholder rights plan.
Ocean convertible preferred stockholders, other than those who validly
exercise their appraisal rights under Delaware law, will remain Ocean
convertible preferred stockholders upon completion of the merger. After the
effective time of the merger, each share of Ocean convertible preferred stock
will be convertible into Devon common stock instead of Ocean common stock,
giving effect to the 0.414 exchange ratio, and will have voting rights in Devon
on an as-converted basis. To effect those voting rights in Devon, Devon
anticipates issuing at the effective time of the merger one or more shares of a
new class of Devon preferred stock to a voting trustee for the benefit of Ocean
convertible preferred stockholders. Shares of the new class of Devon preferred
stock issued to the voting trustee would have voting rights in Devon equal to
the voting rights of Ocean convertible preferred stock on an as-converted basis
and would otherwise have minimal economic value. The voting trustee would be
obligated to vote the share(s) of the new class of Devon preferred stock in the
manner directed by Ocean convertible preferred stockholders. After the effective
time of the merger, Ocean convertible preferred stockholders will no longer have
voting rights in Ocean, except as required by law and except that they will have
the right to block Ocean from (1) creating stock with a higher preference than
the Ocean convertible preferred stock with respect to dividend distributions or
distributions on liquidation or (2) amending its certificate of incorporation so
as to adversely affect the preferences, rights or powers of the Ocean
convertible preferred stock.
The following describes the material differences between the rights of
Ocean stockholders and the rights of Devon stockholders. It is not a complete
summary of the provisions affecting, and the differences between, the rights of
Ocean stockholders and Devon stockholders. The summary is qualified in its
entirety by reference to the Delaware General Corporation Law; Ocean's
certificate of incorporation, as amended; Ocean's bylaws; Ocean's stockholder
rights plan; Devon's restated certificate of incorporation, as amended; Devon's
amended and restated bylaws; and Devon's stockholder rights plan. In this
summary, we refer to Devon's restated certificate of incorporation, as amended,
as Devon's charter, and to Ocean's certificate of incorporation, as amended, as
Ocean's charter.
AUTHORIZED CAPITAL STOCK
Devon Ocean
The authorized capital stock of Devon The authorized capital stock of Ocean
consists of 400,000,000 shares of common consists of 520,000,000 shares of common
stock, par value $0.10 per share, 4,500,000 stock, par value $0.10 per share, and
shares of preferred stock, par value $1.00 10,000,000 shares of preferred stock, par
per share, and one share of special voting value $1.00 per share.
stock, par value $0.10 per share.
SIZE OF BOARD OF DIRECTORS
Devon Ocean
Devon's board of directors currently has 10 Ocean's board of directors currently has 13
members. Devon's charter and bylaws provide members. Ocean's charter provides that the
that the number of directors will not be minimum number of directors is three, and
less than three nor more than 20, and that that the actual number of directors may be
the actual number of directors may be fixed fixed exclusively by the board of directors.
by a majority of the entire board of
directors.
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CUMULATIVE VOTING
Devon Ocean
Under Delaware law, stockholders of a Delaware Ocean's bylaws expressly prohibit cumulative voting by
corporation do not have the right to accumulate their Ocean stockholders.
votes in the election of directors, unless that right
is granted in the certificate of incorporation of the
corporation. Devon's charter expressly prohibits
cumulative voting by Devon stockholders.
CLASSES OF DIRECTORS
Devon Ocean
Devon's charter provides that its board of directors is Ocean's charter similarly provides that its board of
divided into three classes of directors, of as equal directors is divided into three classes of directors,
size as practicable, with each class being elected to a of as equal size as practicable, with each class being
staggered three-year term. elected to a staggered three-year term.
REMOVAL OF DIRECTORS
Devon Ocean
Under Delaware law, unless the certificate of Ocean's charter provides that a director may be removed
incorporation provides otherwise, a director of a only for cause and then only by an affirmative vote of
Delaware corporation with a classified board may be the holders of two-thirds of the shares entitled to
removed only for cause and only by the holders of a vote, voting as a single class.
majority of the shares entitled to vote. Devon's
charter is silent on this point and, accordingly,
Devon's directors may be removed only in the manner
provided by Delaware law.
VACANCIES ON THE BOARD OF DIRECTORS
Devon Ocean
Under Delaware law, unless the certificate of Ocean's charter provides that newly created
incorporation or bylaws provide otherwise, the board of directorships resulting from any increase in the
directors of a corporation may fill any vacancy on the authorized number of directors, or resulting from
board, including vacancies resulting from an increase death, resignation, disqualification, removal or other
in the number of directors. Devon's charter provides cause, may only be filled by no less than a majority
that newly created directorships resulting from any vote of the remaining directors.
increase in the authorized number of directors, or
resulting from death, resignation, disqualification,
removal or other cause, may be filled only by the
affirmative vote of a majority of the remaining
directors.
ACTION BY WRITTEN CONSENT
Devon Ocean
Under Delaware law, unless the certificate of As permitted by Delaware law, Ocean's charter provides
incorporation provides otherwise, any stockholder that any action required or permitted to be taken by
action may be taken without a meeting if consent in stockholders must be taken at an annual or special
writing, setting forth the action so taken, is signed meeting of stockholders and may not be taken by written
by the holders of outstanding shares having not less consent.
then the minimum number of votes which would be
necessary to authorize or take the action at a meeting
at which all shares entitled to vote were present and
voted. As permitted by Delaware law, Devon's charter
provides that any action required or permitted to be
taken by stockholders must be effected at a duly called
annual or special meeting of stockholders. Devon's
charter specifically prohibits stockholders from taking
action by written consent.
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AMENDMENTS TO CHARTER
Devon Ocean
Under Delaware law, a proposed amendment to Ocean's charter provides that the charter
the certificate of incorporation requires a may not be amended, altered, changed or
resolution adopted by the board of directors repealed with respect to the number, power,
and, unless otherwise provided in the removal and election of directors,
certificate of incorporation, the stockholder consent and required vote to
affirmative vote of the holders of a amend Ocean's bylaws except upon the
majority of the outstanding stock entitled affirmative vote of the holders of at least
to vote thereon and (if applicable) the two-thirds of the votes of the outstanding
affirmative vote of the holders of a shares of the class or classes or series of
majority of the outstanding stock of each stock then entitled to be voted thereon,
class entitled to vote thereon as a class. voting together as a single class.
Devon's charter provides that any Otherwise, Ocean's charter may be amended in
alteration, amendment, repeal or rescission the manner provided by Delaware law.
of Devon's charter must be approved by a
majority of the authorized number of
directors and by a majority of the combined
voting power of the outstanding shares of
voting stock, voting together as a single
class, provided that any amendment related
to the election of directors, meetings of
the stockholders, stockholder consent,
director liability, indemnification or the
required vote to amend Devon's charter or
bylaws requires the approval of at least
two-thirds of the combined voting power of
the outstanding shares of voting stock,
voting together as a single class.
AMENDMENTS TO BYLAWS
Devon Ocean
As permitted by Delaware law, Devon's As permitted by Delaware law, Ocean's
charter provides that any alteration, charter and bylaws provide that Ocean's
amendment, repeal or rescission of Devon's bylaws may be altered, amended or repealed
bylaws may be adopted either by the and new bylaws may be adopted by the board
affirmative vote of at least a majority of of directors or by the holders of at least
its board of directors or by the two-thirds of the outstanding shares of
stockholders by the affirmative vote of at capital stock of Ocean entitled to vote
least two-thirds of the combined voting thereon, voting together as a single class.
power of the outstanding shares of voting
stock, voting together as a single class. In
addition, Devon's charter authorizes Devon's
board of directors, without additional
authorization of the stockholders, to adopt,
amend or repeal Devon's bylaws, including
bylaws relating to (1) regulation of the
procedure for submission by the stockholders
of the nomination of directors, (2)
regulation of the attendance at annual or
special meetings of stockholders by persons
other than holders of record or their
proxies and (3) regulation of the business
that may properly be brought by a
stockholder before an annual or special
meeting of stockholders.
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SPECIAL MEETINGS OF STOCKHOLDERS
Devon Ocean
As permitted by Delaware law, Devon's As permitted by Delaware law, Ocean's bylaws
charter and bylaws provide that special provide that special meetings of the
meetings of the stockholders may be called stockholders may be called by the Chairman
by a resolution adopted by a majority of of the Board, by the President or by a
Devon's board of directors or by its majority of the board of directors. Ocean
Chairman of the Board or President (but not stockholders do not have the ability to call
by its Chief Executive Officer), in either a special meeting of the stockholders.
case with the concurrence of a majority of
its directors. Devon stockholders do not
have the ability to call a special meeting
of the stockholders.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Devon Ocean
Under Delaware law, a sale or other Ocean Stockholders are subject to the same
disposition of all or substantially all of a Delaware law provision.
corporation's assets, a merger or
consolidation of a corporation with another
corporation or a dissolution of a
corporation requires the affirmative vote of
the corporation's board of directors (except
in limited circumstances) plus, with limited
exceptions, the affirmative vote of a
majority of the outstanding stock entitled
to vote on the transaction.
INSPECTION OF DOCUMENTS
Devon Ocean
Delaware law allows any stockholder the Ocean stockholders are subject to the same
right to inspect for any proper purpose the Delaware law provisions.
corporation's stock ledger, a list of its
stockholders and its other books and
records, and to make copies or extracts from
those documents. A proper purpose means a
purpose reasonably related to the person's
interest as a stockholder.
STATE ANTI-TAKEOVER STATUTES
Devon Ocean
Delaware law generally prohibits public Ocean stockholders are subject to the same
corporations from engaging in significant Delaware law provisions.
business transactions, including mergers,
with a holder of 15% or more of the
corporation's stock for a period of three
years after the holder exceeds that
ownership level, unless:
- the board approves either the transaction
in question or the acquisition of shares
by the interested stockholder prior to the
time the stockholder becomes an interested
stockholder based on its direct or
indirect ownership of 15% of the
corporation's stock;
- when the interested stockholder exceeds
the 15% threshold, it acquires at least
85% of the outstanding shares not held by
certain affiliates, such as pursuant to a
tender offer; or
- the transaction is approved by the board
of directors and the holders of at least
two-thirds of the corporation's shares
entitled to vote thereon, excluding the
shares held by the interested stockholder,
at a meeting of stockholders. Delaware law
permits this vote to occur at or after the
interested stockholder's share acquisition
date.
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STOCKHOLDER RIGHTS PLAN
Devon Ocean
Under Devon's stockholder rights plan, Devon Under Ocean's stockholder rights plan, each
common stockholders have one right with share of Ocean common stock has "attached"
respect to each share of Devon common stock to it one preferred stock purchase right.
held. The certificates representing Upon the occurrence of the earlier of the
outstanding shares of Devon common stock following events, each right will entitle
also evidence one right for each share. the holder to purchase, at half its market
Currently, the rights trade with the shares value, additional shares of Ocean common
of Devon common stock. Upon the occurrence stock:
of events generally associated with an
unsolicited takeover attempt of Devon or - ten days after a public announcement that
transactions involving a change of control, a person or group has acquired or obtained
the rights will be distributed, will become the right to acquire beneficial ownership
exercisable and will be tradeable separately of 10% or more of the outstanding shares
from Devon common stock. If a person or of Ocean common stock; or
group becomes the beneficial owner of, or
commences a tender or exchange offer for, - ten business days, or such later date as
15% or more of the voting shares of Devon, may be determined by Ocean's board of
then each right would entitle the holders directors, following the commencement of,
other than the acquiring person or group to or the announcement of an intention to
purchase Devon common stock having a market make, a tender offer or exchange offer
value equal to twice the applicable purchase that would result in a person or group
price. The rights do not become exercisable beneficially owning 10% or more of the
as a result of a stock acquisition by a outstanding shares of Ocean common stock.
tender or exchange offer for all outstanding
shares of Devon common stock that is The rights have some anti-takeover effects.
determined by the independent directors of Because a person or group acquiring Ocean
Devon to be fair, not inadequate and common stock in a manner that causes the
otherwise in the best interest of Devon and rights to become exercisable is not entitled
its stockholders. The rights have some anti- to exercise the rights that relate to its
takeover effects. They will cause shares, such person or group's ownership of
substantial dilution to a person or group Ocean common stock would be severely diluted
that attempts to acquire Devon in a manner if the other stockholders exercise their
that causes the rights to become rights. The rights may be redeemed by
exercisable. The rights may be redeemed by Ocean's board of directors for $0.05 per
Devon's board of directors for $0.01 per right. The terms of the rights plan may be
right. The terms of the rights plan may be supplemented or amended by Ocean without the
amended by Devon's board of directors approval of any holders of Ocean common
without the consent of the holders of the stock or the rights. Ocean amended the
Devon common stock or the rights. The merger rights plan on February 23, 2003 to exempt
agreement and the merger that it the merger agreement and the merger that it
contemplates will not cause the rights to contemplates from the application of the
become exercisable. rights plan.
SPECIAL VOTING STOCK
Devon Ocean
Devon's charter provides for one share of Ocean does not have special voting stock.
special voting stock that is entitled to the
number of votes equal to the number of
exchangeable shares of Devon's subsidiary,
Northstar Energy Corporation, outstanding
from time to time that are held by persons
other than Devon or its subsidiaries.
NOTICE OF STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Devon Ocean
A Devon stockholder must give notice, in An Ocean stockholder must give notice, in
proper form, of director nominations or proper form, of director nominations and
proposals for each annual meeting to the proposed business to be conducted at an
secretary between 90 and 120 days before the annual meeting of stockholders to the
one-year anniversary of the last annual secretary between 90 and 120 days prior to
meeting. If the date of the annual meeting the meeting. If the date of the annual
is moved more than 30 days before or after meeting is more than 30 days before or more
the anniversary date, a stockholder notice than 70 days after the anniversary date, a
must be given to the secretary between 70 stockholder notice must be given to the
and 90 days prior to the date of the secretary between 90 and 120 days prior to
meeting, or within 10 days after the public the date of the meeting, or within 10 days
announcement of the date of the meeting, if after the public announcement of the date of
later. For a special meeting called to elect the meeting.
directors, a stockholder must give notice,
in proper form, of director nominations to
the secretary within 10 days after the
public announcement of the date of the
meeting.
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ADDITIONAL INFORMATION
DEADLINE FOR FUTURE STOCKHOLDER PROPOSALS
Whether or not the merger is completed as expected, Devon will hold an
annual stockholder meeting in 2003. If the merger is not completed, Ocean will
hold an annual stockholder meeting in 2003.
The deadline for a Devon stockholder to submit a proposal for inclusion in
Devon's proxy statement for the Devon 2003 annual stockholder meeting has
passed, except that, if Devon's 2003 annual stockholder meeting is held after
June 15, 2003, then the deadline is a reasonable time before Devon begins to
print and mail its proxy materials. Under Devon's bylaws, the deadline for a
Devon stockholder to submit a proposal for consideration at the Devon 2003
annual stockholder meeting also has passed, except that, if Devon's 2003 annual
stockholder meeting is held after June 15, 2003, then Devon stockholders may
submit proposals for consideration at that meeting not earlier than the 90th day
prior to that meeting and not later than the close of business on the 70th day
prior to that meeting or the 10th day following the day on which public
announcement of the date of that meeting is first made.
The deadline for an Ocean stockholder to submit a proposal for inclusion in
Ocean's proxy statement for the Ocean 2003 annual stockholder meeting has also
passed.
LEGAL MATTERS
The validity of the securities to be issued in the merger will be passed
upon for Devon by Mayer, Brown, Rowe & Maw. We expect that the opinions referred
to in the discussion set forth in the "Material Federal Income Tax
Considerations" section of this document will be provided to Devon by Mayer,
Brown, Rowe & Maw and to Ocean by Vinson & Elkins L.L.P. Vinson & Elkins L.L.P.
represents Devon from time to time in matters unrelated to the merger.
EXPERTS
The consolidated financial statements of Ocean Energy, Inc. and its
subsidiaries as of December 31, 2002 and 2001, and for each of the years in the
three-year period ended December 31, 2002, have been incorporated by reference
into this document in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference into this document, and
upon the authority of said firm as experts in accounting and auditing. The audit
report covering the December 31, 2002 consolidated financial statements refers
to a change in the method of accounting for derivative financial instruments,
effective January 1, 2001.
Certain information with respect to Ocean's oil and gas reserves, estimates
of which were prepared by Ocean's internal engineers and were reviewed by Miller
and Lents, Ltd., independent petroleum engineers, has been included and
incorporated into this document by reference on authority of that firm as
experts with respect to such matters.
The consolidated financial statements of Devon and its subsidiaries as of
December 31, 2002, 2001 and 2000 and for each of the years then ended have been
incorporated by reference into this document in reliance upon the report of KPMG
LLP, independent certified public accountants, incorporated by reference into
this document, and upon the authority of said firm as experts in accounting and
auditing. The audit report covering the December 31, 2002 consolidated financial
statements refers to changes in the methods of accounting for derivative
instruments and hedging activities, business combinations and goodwill.
Certain information with respect to Devon's oil and gas reserves derived
from the reports of Gilbert Laustsen Jung Associates Ltd., LaRoche Petroleum
Consultants, Ltd., Ryder Scott Company, L.P., AJM Petroleum Consultants and
Paddock Lindstrom & Associates, Ltd., independent consulting petroleum
engineers, has been included and incorporated by reference into this document on
the authority of those firms as experts with respect to matters covered by such
reports and in giving such reports.
100
WHERE YOU CAN FIND MORE INFORMATION
Devon has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933 that registers the distribution of
the shares of Devon common stock to be issued to Ocean stockholders in
connection with the merger. That registration statement, including the attached
exhibits and schedules, contains additional relevant information about Devon and
Devon common stock. The rules and regulations of the Securities and Exchange
Commission allow us to omit some of the information included in the registration
statement from this document.
In addition, Devon and Ocean file reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. You may read and copy that information at the Securities
and Exchange Commission's public reference room at the following location:
Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
1-800-732-0330
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Securities and Exchange Commission also maintains an Internet world
wide website that contains reports, proxy statements and other information about
issuers, including Devon and Ocean, that file electronically with the Securities
and Exchange Commission. The address of that site is http://www.sec.gov.
The Securities and Exchange Commission allows Devon and Ocean to
"incorporate by reference" information into this document. This means that Devon
and Ocean can disclose important information by referring you to another
document filed separately with the Securities and Exchange Commission. The
information incorporated by reference is considered to be part of this document,
except for any information that is superseded by information that is included
directly in this document.
This document incorporates by reference the documents listed below that
Devon and Ocean have previously filed with the Securities and Exchange
Commission. The documents contain important information about Devon and Ocean
and their respective financial conditions.
DEVON'S FILINGS (FILE NO. 0-30176) PERIOD
---------------------------------- ------
Annual Report on Form 10-K............................. Year ended December 31, 2002
Current Reports on Form 8-K............................ Filed on:
- February 24, 2003
- February 7, 2003
The description of Devon capital stock set forth in the registration
statement on Form S-3 (Registration No. 333-50034) filed by Devon with the
Securities and Exchange Commission on December 15, 2000, including any amendment
or report filed with the Securities and Exchange Commission for the purpose of
updating that description.
OCEAN'S FILINGS (FILE NO. 001-08094) PERIOD
------------------------------------ ------
Annual Report on Form 10-K............................. Year ended December 31, 2002
Current Report on Form 8-K............................. Filed on:
- February 25, 2003
The description of Ocean capital stock contained in the registration
statement on Form 8-A/A (Registration No. 33-06444) filed by Ocean with the
Securities and Exchange Commission on May 23, 2001, including any amendment or
report filed with the Securities and Exchange Commission for the purpose of
updating that description.
101
Devon and Ocean also incorporate by reference additional documents that
either company may file with the Securities and Exchange Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between
the date of this document and the date of the Ocean and Devon stockholders'
meetings. Those documents include periodic reports such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
You can obtain any of the documents incorporated by reference into this
document through Devon or Ocean, as the case may be, or from the Securities and
Exchange Commission's website at http://www.sec.gov. Documents incorporated by
reference are available from Devon and Ocean without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference into this document. You may obtain documents incorporated by reference
into this document by requesting them in writing or by telephone from the
appropriate company as follows:
Devon Energy Corporation Ocean Energy, Inc.
20 North Broadway 1001 Fannin Street, Suite 1600
Attention: Investor Relations Attention: Investor Relations
Oklahoma City, Oklahoma 73102-8260 Houston, Texas 77002-6794
Telephone: (405) 552-4570 Telephone: (713) 265-6161
If you would like to request documents incorporated by reference, please do
so by April 18, 2003, to receive them before the meeting. Please be sure to
include your complete name and address in your request. If you request any
documents, we will mail them to you by first class mail, or another equally
prompt means, within one business day after we receive your request.
Neither Devon nor Ocean has authorized anyone to give any information or
make any representation about the merger, Devon or Ocean, that is different
from, or in addition to, the information contained in this document or in any of
the materials that we have incorporated into this document by reference.
Therefore, if anyone does give you information of this sort, you should not rely
on it. If you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities offered by this
document or the solicitation of proxies is unlawful, or if you are a person to
whom it is unlawful to direct these types of activities, then the offer
presented in this document does not extend to you. The information contained in
this document speaks only as of the date of this document unless the information
specifically indicates that another date applies.
Ocean's website is located at http://www.oceanenergy.com.
Devon's website is located at http://www.devonenergy.com.
TRANSFER AGENTS AND REGISTRARS
Wachovia Bank is the transfer agent and registrar for Devon common stock.
CIBC Mellon Trust Company is the Canadian co-registrar for Devon common stock
and the transfer agent and registrar for Northstar exchangeable shares. In
addition, CIBC Mellon Trust Company is the trustee under the voting and exchange
trust agreement with respect to the Northstar exchangeable shares. The transfer
agent for Ocean common stock is EquiServe Trust Company. You may write to or
telephone the appropriate company as follows:
DEVON COMMON STOCK AND NORTHSTAR EXCHANGEABLE SHARES OCEAN COMMON STOCK
---------------------------------------------------- ------------------
Wachovia Bank, N.A. CIBC Mellon Trust Company EquiServe Trust Company, N.A.
1525 West W.T. Harris Blvd., P.O. Box 1036 Client Administration
Building 3C, 3rd Floor Adelaide Street Postal Station P.O. Box 8029
Charlotte, NC 28262 Toronto, Ontario M5C 2K4 Boston, MA 02266-8029
800-829-8432 (800) 387-0825 (800) 733-5001
http://www.wachovia.com http://www.cibcmellon.ca http://www.equiserve.com
102
FORWARD-LOOKING STATEMENTS
Devon and Ocean have made forward-looking statements in this document and
in the documents incorporated by reference into this document, which are subject
to risks and uncertainties. These statements are based on the beliefs and
assumptions of our managements and on the information currently available to
them.
Statements and calculations concerning oil, natural gas and NGL reserves
and their present value also are forward-looking statements in that they reflect
the determination, based on estimates and assumptions, that oil, natural gas and
NGL reserves may be profitably exploited in the future. When used or referred to
in this document or the documents incorporated by reference into this document,
these forward-looking statements may be preceded by, followed by or otherwise
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "projects" or similar expressions, or statements that certain
events or conditions "will" or "may" occur. Forward-looking statements in this
document also include:
- statements regarding Devon's expectation that the merger will be dilutive
to its reserves per share, production per share and earnings per share
and Ocean's expectation that the merger will be accretive to cash flows
per share for Ocean stockholders;
- statements relating to the cost savings that Devon and Ocean anticipate
will result from the merger;
- statements regarding other perceived benefits expected to result from the
merger;
- statements regarding the number and location of undrilled well locations
and planned wells;
- statements relating to future reserve replacement;
- statements with respect to various actions to be taken or requirements to
be met in connection with completing the merger or integrating Devon and
Ocean; and
- statements relating to revenue, income and operations of the combined
company after the merger is completed.
These forward-looking statements are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. The following factors, among
others, including those discussed in the "Risk Factors" section of this
document, could cause actual results to differ materially from those described
in the forward-looking statements:
- expected cost savings from the merger may not be fully realized;
- revenue of the combined company following the merger may be lower than
expected;
- assumptions about energy markets, commodity prices, production levels,
reserve levels, operating results, competitive conditions, technology,
currency exchange rates, the weather, inflation, the availability of
goods and services, drilling risks, future processing volumes, pipeline
throughput, the availability of capital resources and capital expenditure
obligations may prove to be incorrect;
- changes may occur in the supply and demand for oil, natural gas, NGLs and
the other products or services provided or consumed by our companies;
- changes may occur in the price of oil, natural gas, NGLs and the other
products or services provided or consumed by our companies;
- costs or difficulties related to obtaining regulatory approvals for
completing the merger and, following the merger, to the integration of
the businesses of Devon and Ocean, may be greater than expected;
- general economic conditions, either internationally or nationally or in
the jurisdictions in which Devon or Ocean is doing business, may be less
favorable than expected;
- legislative or regulatory changes, including changes in environmental
regulation, may adversely affect the businesses in which Devon and Ocean
are engaged;
103
- there may be environmental risks and liability under federal, state and
foreign environmental laws and regulations; and
- changes may occur in the securities or capital markets.
Except for its ongoing obligations to disclose material information as
required by the federal securities laws, neither Devon nor Ocean has any
intention or obligation to update these forward-looking statements after it
distributes this document.
104
COMMONLY USED OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and in this document:
"Bbl" means one stock tank barrel, or 42 U.S. gallons liquid volume of oil
or NGLs.
"Bcf" means one billion cubic feet.
"Boe" means barrel of oil equivalent, determined by using the ratio of one
Bbl of oil or NGLs to six Mcf of natural gas.
"gross acres" or "gross wells" means the total acres or number of wells in
which a working interest is owned.
"MBbls" means one thousand Bbls.
"MBoe" means one thousand Boe.
"Mcf" means one thousand cubic feet.
"Mcfe" means one thousand cubic feet equivalent of natural gas, determined
using the ratio of six Mcf of natural gas to one Bbl of oil or NGLs.
"MMBbls" means one million Bbls.
"MMBoe" means one million Boe.
"MMcf" means one million cubic feet.
"net acres" or "net wells" means the sum of the fractional working
interests owned in gross acres or gross wells.
"NGL" or "NGLs" means natural gas liquids.
"oil" includes crude oil and condensate.
"proved reserves" are the estimated quantities of crude oil, natural gas
and NGLs that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions (i.e., prices and costs as of the date the
estimate is made). Prices include consideration of changes in existing prices
provided only by contractual arrangements, but not on escalations based on
future conditions.
(1) Reservoirs are considered proved if economic producibility is supported
by either actual production or a conclusive formation test. The area of a
reservoir considered proved includes:
(A) that portion delineated by drilling and defined by gas-oil and/or
oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can
be reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
(2) Reserves that can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.
(3) Estimates of proved reserves do not include the following:
(A) oil that may become available from known reservoirs but is
classified separately as "indicated additional reserves";
105
(B) crude oil, natural gas and NGLs, the recovery of which is subject
to reasonable doubt because of uncertainty as to geology, reservoir
characteristics or economic factors;
(C) crude oil, natural gas and NGLs, that may occur in undrilled
prospects; and
(D) crude oil, natural gas and NGLs, that may be recovered from oil
shales, coal, gilsonite and other such sources.
"Tcfe" means one trillion cubic feet equivalent of natural gas, determined
by using the ratio of six Mcf of natural gas to one Bbl of oil or NGLs.
106
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information shows the
pro forma effect of the merger. The unaudited pro forma combined financial
information includes a statement of operations for the year ended December 31,
2002, which assumes the merger occurred on January 1, 2002. The unaudited pro
forma combined financial information also includes a balance sheet as of
December 31, 2002, which assumes the merger occurred on that date.
The unaudited pro forma combined financial information has been prepared to
assist in your analysis of the financial effects of the merger. It is based on
the historical financial statements of Devon and Ocean and should be read in
conjunction with those historical financial statements and related notes, which
are incorporated by reference into this document.
The pro forma information is based on the estimates and assumptions set
forth in the notes to such information. It is preliminary and is being furnished
solely for information purposes. The pro forma information does not purport to
represent what the financial position and the results of operations of the
combined company would have actually been had the merger in fact occurred on the
dates indicated, nor is it necessarily indicative of the results of operations
or financial position that may occur in the future.
The information was prepared based on the following:
- Both Devon and Ocean use the full cost method of accounting for their oil
and gas producing activities.
- Devon acquired all the outstanding common shares of Mitchell Energy &
Development Corp. on January 24, 2002. Devon's operating results for 2002
included in the unaudited pro forma statement of operations assume that
the Mitchell acquisition occurred on January 1, 2002.
- We have not reflected as an adjustment to the historical data annual cost
savings of at least $50 million that Devon and Ocean expect to result
from the merger.
- Devon recognized net earnings from discontinued operations in 2002 of $45
million. This gain is not included in the summary unaudited pro forma
combined statement of operations.
No pro forma adjustments have been made with respect to the following
unusual items. These items are reflected in the historical results of Devon and
Ocean, as applicable, and should be considered in reading the pro forma results:
- In the second quarter of 2002, Devon recognized a $651 million ($371
million after tax) reduction to the carrying value of its Canadian oil
and gas properties pursuant to the full cost accounting ceiling rules.
- In the third quarter of 2002, Ocean announced that it would discontinue
current exploratory activities in Pakistan and on Block 10 offshore
Angola. As a result, Ocean recognized an impairment in the amount of $76
million ($50 million after tax).
- In the fourth quarter of 2002, Devon recognized a $205 million ($128
million after tax) expense related to the impairment of the value of 7.1
million shares of ChevronTexaco Corporation common stock owned by Devon.
The impairment was related to Devon's determination that the decline in
the value of the ChevronTexaco common stock was other than temporary, as
such term is defined by accounting rules.
F-1
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 2002
PRO FORMA COMBINED
DEVON OCEAN ADJUSTMENTS COMPANY
HISTORICAL HISTORICAL (NOTE 3) PRO FORMA
---------- ---------- ----------- ---------
(IN MILLIONS)
ASSETS
Current assets................................... $ 1,064 $ 415 $ -- $ 1,479
Property and equipment, net...................... 10,852 3,404 1,686 (a) 15,942
Investment in common stock of ChevronTexaco
Corporation.................................... 472 -- -- 472
Goodwill......................................... 3,555 -- 1,276 (a) 4,831
Other assets..................................... 282 74 (24)(a) 332
------- ------ ------- -------
Total assets................................ $16,225 $$3,893 $ 2,938 $23,056
======= ====== ======= =======
LIABILITIES
Current liabilities.............................. $ 1,042 $ 466 $ 100 (a) $ 1,608
Debentures exchangeable into shares of
ChevronTexaco Corporation common stock......... 662 -- -- 662
Other long-term debt............................. 6,900 1,443 177 (a) 8,520
Deferred revenue................................. -- 86 42 (a) 128
Other long-term liabilities...................... 341 109 (18)(a) 432
Deferred income taxes............................ 2,627 214 507 (a) 3,348
Preferred stock of subsidiary.................... -- -- 73 (a) 73
STOCKHOLDERS' EQUITY
Preferred stock.................................. 1 -- -- 1
Common stock..................................... 16 18 7 (a) 23
(18)(b)
Additional paid-in capital....................... 5,178 1,634 3,625 (a) 8,803
(1,634)(b)
Retained earnings (accumulated deficit).......... (84) 3 (3)(b) (84)
Accumulated other comprehensive loss............. (267) (30) 30 (b) (267)
Treasury stock................................... (188) (35) 35 (b) (188)
Other............................................ (3) (15) 15 (b) (3)
------- ------ ------- -------
Total stockholders' equity.................. 4,653 1,575 2,057 8,285
------- ------ ------- -------
Total liabilities and stockholders'
equity.................................... $16,225 $3,893 $ 2,938 $23,056
======= ====== ======= =======
See notes to unaudited pro forma combined financial statements.
F-2
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
DEVON PRO
FORMA
AFTER OCEAN
MITCHELL HISTORICAL PRO FORMA COMBINED
ACQUISITION RECLASSIFIED ADJUSTMENTS COMPANY
(NOTE 6) (NOTE 7) (NOTE 3) PRO FORMA
----------- ------------ ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
REVENUES
Oil sales............................................... $ 911 $ 638 $ -- $1,549
Gas sales............................................... 2,155 500 -- 2,655
NGL sales............................................... 280 24 -- 304
Marketing and midstream revenues........................ 1,069 -- -- 1,069
------ ------ ----- ------
Total revenues...................................... $4,415 $1,162 $ -- $5,577
------ ------ ----- ------
OPERATING COSTS AND EXPENSES
Lease operating expenses................................ 625 210 -- 835
Transportation costs.................................... 157 33 -- 190
Production taxes........................................ 112 36 -- 148
Marketing and midstream operating costs and expenses.... 873 -- -- 873
Depreciation, depletion and amortization expense........ 1,230 370 211 (c) 1,811
General and administrative expenses..................... 224 97 -- 321
Reduction of carrying value of oil and gas properties... 651 76 -- 727
------ ------ ----- ------
Total operating costs and expenses.................. 3,872 822 211 4,905
------ ------ ----- ------
Earnings from operations................................ 543 340 (211) 672
OTHER INCOME (EXPENSES)
Interest expense........................................ (534) (73) 25 (d) (582)
Dividends on subsidiary's preferred stock............... -- -- (3)(e) (3)
Effects of changes in foreign currency exchange rates... 1 -- -- 1
Change in fair value of financial instruments........... 28 -- -- 28
Impairment of ChevronTexaco Corporation common stock.... (205) -- -- (205)
Other income (expense).................................. 34 (2) -- 32
------ ------ ----- ------
Net other expenses.................................. (676) (75) 22 (729)
------ ------ ----- ------
Earnings (loss) from continuing operations before income
taxes................................................. (133) 265 (189) (57)
INCOME TAX EXPENSE (BENEFIT)
Current................................................. 23 24 -- 47
Deferred................................................ (215) 106 (71)(f) (180)
------ ------ ----- ------
Total income tax expense (benefit).................. (192) 130 (71) (133)
------ ------ ----- ------
Earnings from continuing operations..................... 59 135 (118) 76
Less preferred stock dividends.......................... 10 3 (3)(e) 10
------ ------ ----- ------
Earnings from continuing operations applicable to common
stockholders.......................................... $ 49 $ 132 $(115) $ 66
====== ====== ===== ======
Earnings from continuing operations per share:
Basic................................................. $ 0.31 $ 0.76 $ 0.29
Diluted............................................... 0.31 0.74 0.29
Weighted average common shares outstanding:
Basic................................................. 157 174 229
Diluted............................................... 158 182 232
See notes to unaudited pro forma combined financial statements.
F-3
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
DECEMBER 31, 2002
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma balance sheet and statement of
operations present the pro forma effects of the merger. The unaudited pro forma
balance sheet is presented as though the merger occurred on December 31, 2002.
The unaudited pro forma statement of operations is presented as though the
merger occurred on January 1, 2002.
2. METHOD OF ACCOUNTING FOR THE MERGER
Devon will account for the merger using the purchase method of accounting
for business combinations. Under that method of accounting, one of the combining
companies -- in this case, Devon -- is deemed to be the acquiror for accounting
purposes based on a number of factors determined in accordance with generally
accepted accounting principles.
The purchase method of accounting requires that Ocean's assets and
liabilities assumed by Devon be revalued and recorded at their estimated "fair
values." In the merger, Devon will issue 0.414 of a share of Devon common stock
for each outstanding share of Ocean common stock. On a pro forma basis, assuming
that the merger had occurred on December 31, 2002, this would have resulted in
Devon issuing about 73 million shares of its common stock to Ocean stockholders,
excluding (1) shares of Devon common stock that would have been issued had all
of the Ocean stock options outstanding on that date been exercised on that date,
(2) shares of Devon common stock that would have been issued had all of the
shares of Ocean convertible preferred stock outstanding on that date been
converted into shares of Ocean common stock on that date, and (3) 43,884 shares
of Devon common stock that would have been issued had Ocean issued prior to that
date all of the 106,000 shares of Ocean common stock that it is permitted to
issue between February 23, 2003 and the date on which the merger is completed
pursuant to the terms of the merger agreement.
The purchase price of Ocean's net assets will be based on the total value
of the Devon common stock issued to the Ocean stockholders. The value of the
Devon common stock issued is based on the average closing price of Devon's
common stock for a period of two days before and after announcement of the
merger. This average closing price equaled $48.05 per share.
F-4
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
3. PRO FORMA ADJUSTMENTS RELATED TO THE MERGER
The unaudited pro forma balance sheet includes the following adjustments:
(a) This entry adjusts the historical book values of Ocean's assets and
liabilities to their estimated fair values as of December 31, 2002. The
calculation of the total purchase price and the preliminary allocation of this
price to assets and liabilities are shown below.
(IN MILLIONS,
EXCEPT FOR
SHARE PRICE)
Calculation and preliminary allocation of purchase price:
Shares of Devon common stock to be issued to Ocean
stockholders........................................... 73
Average Devon stock price................................. $48.05
------
Fair value of common stock to be issued................... 3,507
Plus estimated merger costs to be incurred................ 100
Plus fair value of Ocean convertible preferred stock to be
assumed by a Devon subsidiary.......................... 73
Plus fair value of Ocean employee stock options to be
assumed by Devon....................................... 125
------
Total purchase price.............................. 3,805
Plus fair value of liabilities to be assumed by Devon:
Current liabilities....................................... 466
Long-term debt............................................ 1,620
Deferred revenue.......................................... 128
Other noncurrent liabilities.............................. 91
Deferred income tax liabilities........................... 721
------
Total purchase price plus liabilities assumed..... $6,831
======
Fair value of Ocean's assets:
Current assets............................................ $ 415
Proved oil and gas properties............................. 4,100
Unproved oil and gas properties........................... 908
Other property and equipment.............................. 82
Other noncurrent assets................................... 50
Goodwill.................................................. 1,276
------
Total fair value of Ocean's assets................ $6,831
======
F-5
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The total purchase price includes the value of the Devon common stock to be
issued to Ocean stockholders in the merger. The total purchase price also
includes:
- $100 million of estimated merger costs. These costs include investment
banking expenses, severance, legal and accounting fees, printing expenses
and other merger-related costs. These costs have been added to current
liabilities in the unaudited pro forma balance sheet.
- $125 million of Devon employee stock options to be issued in exchange for
existing Ocean employee stock options. The value of these options is
added to additional paid-in capital in the unaudited pro forma balance
sheet.
- $73 million for the fair value of Ocean's convertible preferred stock. On
a pro forma basis as of December 31, 2002, this preferred stock, which
has an annual dividend of 6.5% on a $50 million face value, would be
convertible into approximately 1.4 million shares of Devon common stock.
Because this preferred stock will be part of the equity of a subsidiary
of the combined company, the fair value is included outside of the
combined company's pro forma stockholders' equity.
The purchase price allocation is preliminary and is subject to change due
to several factors, including: (1) changes in the fair values of Ocean's assets
and liabilities as of the effective time of the merger; (2) the actual merger
costs incurred; (3) the number of Ocean shares and stock options outstanding as
of the effective time of the merger; and (4) changes in Devon's valuation
estimates that may be made between now and the effective time of the merger.
These changes will not be known until after the effective time of the merger.
However, Devon does not believe that the final purchase price allocation will
differ materially from the estimated allocation presented herein.
(b) This adjustment includes an $18 million reduction of common stock, a
$1.6 billion reduction of additional paid-in capital, a $3 million reduction of
retained earnings, a $30 million reduction of accumulated other comprehensive
loss, a $35 million reduction of treasury stock and a $15 million reduction of
other stockholders' equity. These adjustments eliminate the historical book
value of Ocean's stockholders' equity.
The unaudited pro forma statement of operations includes the following
adjustments:
(c) This adjustment revises Ocean's historical depreciation, depletion and
amortization expense to reflect the adjustment of Ocean's assets from historical
book value to fair value. For the combined companies' oil and gas producing
properties, pro forma depreciation, depletion and amortization expense was
calculated using the equivalent units-of-production method. Ocean's proved oil,
gas and NGLs reserves, divided by its annualized production for 2002, yields an
estimated reserve life of approximately nine years.
(d) This adjustment reduces interest expense, net of capitalized interest,
for the effect of valuing Ocean's assets and long-term debt at estimated fair
value.
(e) This adjustment reclassifies the approximately $3 million of Ocean's
preferred stock dividends. After the merger, this preferred stock will be part
of the equity of a subsidiary of the combined company. Therefore, dividends paid
on the preferred stock will be included as an expense of the combined company,
similar to interest expense, as opposed to a direct reduction of stockholders'
equity.
(f) This adjustment records the income tax impact of the depreciation,
depletion, amortization and interest expense pro forma adjustments at an
effective tax rate of approximately 38%.
F-6
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
4. COMMON SHARES OUTSTANDING
Net earnings per average common share outstanding for the year ended
December 31, 2002 have been calculated based on the pro forma weighted average
number of shares outstanding as follows:
(IN MILLIONS)
Basic:
Devon's weighted average common shares outstanding........ 155
Pro forma increase assuming Mitchell acquisition occurred
January 1, 2002........................................ 2
Ocean's basic shares outstanding multiplied by 0.414
exchange ratio......................................... 72
---
Pro forma weighted average Devon shares outstanding....... 229
===
Diluted:
Devon's weighted average common shares outstanding........ 156
Pro forma increase assuming Mitchell acquisition occurred
January 1, 2002........................................ 2
Ocean's diluted shares outstanding multiplied by 0.414
exchange ratio......................................... 74
---
Pro forma weighted average Devon shares outstanding....... 232
===
The diluted shares outstanding do not include the following:
Shares issuable upon conversion of Devon convertible debt
securities............................................. 4
Shares issuable upon conversion of Ocean convertible
preferred stock to be assumed by a Devon subsidiary.... 2
Employee stock options with an exercise price greater than
average market price of the common stock............... 7
--
Total.................................................. 13
==
The above potentially issuable shares are excluded from the diluted shares
outstanding because their inclusion would be anti-dilutive.
Pro forma shares of Devon common stock outstanding at December 31, 2002,
assuming the merger occurred at that date, are as follows:
(IN MILLIONS)
Devon's common shares outstanding........................... 157
Ocean's common shares outstanding multiplied by 0.414
exchange ratio............................................ 73
---
Pro forma Devon common shares outstanding................... 230
===
F-7
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
5. GOODWILL
The preliminary allocation of the purchase price includes approximately
$1.3 billion of goodwill. Approximately $721 million of this total is related to
deferred income tax liabilities to be recorded due to the non-taxable nature of
the merger.
In July 2001, the Financial Accounting Standards Board issued Statement No.
141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible
Assets. As a result of these two pronouncements, goodwill recorded in connection
with business combinations completed after June 30, 2001 is not amortized but,
instead, is tested for impairment at least annually. Accordingly, the
accompanying unaudited pro forma statement of operations includes no
amortization of the goodwill to be recorded in the merger.
As indicated in Note 3, the allocation of the purchase price presented
therein is preliminary. At the effective time of the merger, or shortly
thereafter, Devon will finalize the purchase price allocation. Prior to that
time, Devon may determine that there are intangible assets acquired in the
merger separate and apart from goodwill. To the extent that such intangible
assets, if any, have definite useful lives, the value assigned to those
intangible assets would be amortized over such lives. Although the amount
allocated to such intangible assets, if any, will not be known until the
effective time of the merger, Devon does not believe that any such value, or the
related amortization, would have a material effect on the unaudited pro forma
financial information presented herein.
6. DEVON PRO FORMA RESULTS OF OPERATIONS
Devon's pro forma results of operations included in the accompanying
unaudited pro forma statement of operations include the effect of Devon's
acquisition of Mitchell, which was completed on January 24, 2002. Devon's actual
results for the year 2002 and its pro forma results assuming the Mitchell
acquisition occurred on January 1, 2002 are not materially different.
Information concerning the pro forma effects on Devon's 2002 results from the
Mitchell acquisition are included in the notes to Devon's consolidated financial
statements that are incorporated by reference into this document.
7. OCEAN HISTORICAL AND RECLASSIFIED BALANCES
Devon and Ocean present certain revenues and expenses differently in their
respective consolidated financial statements. To make the unaudited pro forma
financial information consistent, we have reclassified certain of Ocean's 2002
reported balances of revenues and expenses to conform presentation.
F-8
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The historical and reclassified amounts for the year ended December 31, 2002 are
presented in the following table.
OCEAN HISTORICAL
OCEAN HISTORICAL RECLASSIFICATIONS RECLASSIFIED
---------------- ----------------- ----------------
(IN MILLIONS)
Revenues
Revenues............................... $1,162 $(1,162) $ --
Oil sales.............................. -- 638 638
Gas sales.............................. -- 500 500
NGL sales.............................. -- 24 24
------ ------- ------
Total revenues...................... 1,162 -- 1,162
------ ------- ------
Production and operating costs and
expenses
Lease operating expenses............... 312 (102) 210
Transportation costs................... -- 33 33
Production taxes....................... -- 36 36
DD&A................................... 370 -- 370
G&A.................................... 64 33 97
Writedowns............................. 76 -- 76
------ ------- ------
Total costs and expenses............ 822 -- 822
------ ------- ------
Earnings from operations................. 340 -- 340
Other income (expenses)
Interest expense....................... (61) (12) (73)
Debt repurchase expense................ (12) 12 --
Other income........................... (2) -- (2)
------ ------- ------
Net other expenses.................. (75) -- (75)
------ ------- ------
Income tax expense
Current................................ 24 -- 24
Deferred............................... 106 -- 106
------ ------- ------
Total income tax expense............ 130 -- 130
------ ------- ------
Net earnings............................. $ 135 $ -- $ 135
====== ======= ======
8. ADOPTION OF NEW ACCOUNTING STANDARD
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires liability recognition for retirement
obligations associated with tangible long-lived assets, such as producing well
sites, offshore production platforms, and natural gas processing plants. The
obligations included within the scope of SFAS No. 143 are those for which a
company faces a legal obligation for settlement. The initial measurement of the
asset retirement obligation is to be the discounted present fair value, defined
as the price that an entity would have to pay a willing third party of
comparable credit standing to assume the liability in a current transaction
other than in a forced or liquidation sale.
The asset retirement cost equal to the discounted fair value of the
retirement obligation is to be capitalized as part of the cost of the related
long-lived asset and allocated to expense using a systematic and rational
method.
F-9
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
Devon will adopt SFAS No. 143 effective January 1, 2003 using a cumulative
effect approach to recognize transition amounts for asset retirement
obligations, asset retirement costs and accumulated depreciation.
Devon and Ocean previously estimated costs of dismantlement, removal, site
reclamation, and other similar activities in the total costs that are subject to
depreciation, depletion, and amortization. However, they did not record a
separate asset or liability for such amounts.
On a pro forma basis, assuming the merger was completed on January 1, 2003,
the pro forma balance sheet of the combined company would include an increase to
stockholders' equity of between $23 million and $43 million, an increase to net
property and equipment of between $556 million and $636 million, the
establishment of an asset retirement obligation liability of between $519
million and $569 million, and an increase to deferred tax liabilities of between
$14 million and $24 million.
9. SUPPLEMENTAL PRO FORMA INFORMATION ON OIL AND GAS OPERATIONS
The following pro forma supplemental information regarding oil and gas
operations is presented pursuant to the disclosure requirements of Statement of
Financial Accounting Standards No. 69, Disclosures About Oil and Gas Producing
Activities.
PRO FORMA COSTS INCURRED
The following tables reflect the costs incurred in oil and gas producing
property acquisition, exploration and development activities of Devon, Ocean and
the combined company on a pro forma basis for the year ended December 31, 2002.
TOTAL DOMESTIC
---------------------------- ----------------------------
DEVON DEVON
PRO FORMA OCEAN COMBINED PRO FORMA OCEAN COMBINED
--------- ----- -------- --------- ----- --------
Property acquisition costs:
Proved..................... $1,538 $ 6 $1,544 $1,536 $ 6 $1,542
Unproved................... 703 68 771 666 52 718
Exploration costs............ 383 256 639 161 191 352
Development costs............ 1,140 424 1,564 808 265 1,073
CANADA INTERNATIONAL
---------------------------- ----------------------------
DEVON DEVON
PRO FORMA OCEAN COMBINED PRO FORMA OCEAN COMBINED
--------- ----- -------- --------- ----- --------
Property acquisition costs:
Proved..................... $ 2 $ -- $ 2 $ -- $ -- $ --
Unproved................... 28 -- 28 9 16 25
Exploration costs............ 207 -- 207 15 65 80
Development costs............ 299 -- 299 33 159 192
Substantially all of the approximately $2.2 billion of domestic property
acquisition costs shown in the above table for "Devon Pro Forma" relate to
Devon's January 24, 2002 acquisition of Mitchell.
F-10
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
PRO FORMA QUANTITIES OF OIL AND GAS RESERVES
The following tables set forth the changes in the net quantities of oil,
natural gas and NGLs reserves of Devon, Ocean and the combined company on a pro
forma basis for the year ended December 31, 2002.
TOTAL OIL (MMBBLS) DOMESTIC OIL (MMBBLS)
---------------------------- ----------------------------
DEVON DEVON
PRO FORMA OCEAN COMBINED PRO FORMA OCEAN COMBINED
--------- ----- -------- --------- ----- --------
Proved reserves as of December 31,
2001............................... 527 289 816 191 100 291
Acquisition of Mitchell.............. 11 -- 11 11 -- 11
--- --- --- --- --- ---
Proved reserves as of December 31,
2001............................... 538 289 827 202 100 302
Revisions of estimates............. (10) (5) (15) 8 9 17
Extensions and discoveries......... 36 26 62 10 12 22
Purchase of reserves............... 2 1 3 1 1 2
Production......................... (42) (28) (70) (24) (10) (34)
Sale of reserves................... (80) (5) (85) (50) (5) (55)
--- --- --- --- --- ---
Proved reserves as of December 31,
2002............................... 444 278 722 147 107 254
=== === === === === ===
Proved developed reserves as of:
December 31, 2001.................. 307 129 436 176 60 236
December 31, 2002.................. 260 140 400 135 68 203
CANADA OIL (MMBBLS) INTERNATIONAL OIL (MMBBLS)
---------------------------- ----------------------------
DEVON DEVON
PRO FORMA OCEAN COMBINED PRO FORMA OCEAN COMBINED
--------- ----- -------- --------- ----- --------
Proved reserves as of December 31,
2001.................................. 166 -- 166 170 189 359
Revisions of estimates................ 2 -- 2 (20) (14) (34)
Extensions and discoveries............ 26 -- 26 -- 14 14
Purchase of reserves.................. 1 -- 1 -- -- --
Production............................ (16) -- (16) (2) (18) (20)
Sale of reserves...................... (30) -- (30) -- -- --
--- ---- --- --- --- ---
Proved reserves as of December 31,
2002.................................. 149 -- 149 148 171 319
=== ==== === === === ===
Proved developed reserves as of:
December 31, 2001..................... 124 -- 124 7 69 76
December 31, 2002..................... 119 -- 119 6 72 78
F-11
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
TOTAL GAS (BCF) DOMESTIC GAS (BCF)
---------------------------- ----------------------------
DEVON PRO DEVON PRO
FORMA OCEAN COMBINED FORMA OCEAN COMBINED
--------- ----- -------- --------- ----- --------
Proved reserves as of December 31,
2001.................................. 5,024 1,776 6,800 2,399 1,578 3,977
Acquisition of Mitchell................. 1,729 -- 1,729 1,729 -- 1,729
----- ----- ----- ----- ----- -----
Proved reserves as of December 31,
2001.................................. 6,753 1,776 8,529 4,128 1,578 5,706
Revisions of estimates................ (81) (13) (94) 26 4 30
Extensions and discoveries............ 570 217 787 344 217 561
Purchase of reserves.................. 4 7 11 3 7 10
Production............................ (771) (156) (927) (492) (145) (637)
Sale of reserves...................... (639) (52) (691) (457) (52) (509)
----- ----- ----- ----- ----- -----
Proved reserves as of December 31,
2002.................................. 5,836 1,779 7,615 3,552 1,609 5,161
===== ===== ===== ===== ===== =====
Proved developed reserves as of:
December 31, 2001..................... 4,882 1,207 6,089 2,959 1,106 4,065
December 31, 2002..................... 4,618 1,140 5,758 2,802 1,046 3,848
CANADA GAS (BCF) INTERNATIONAL GAS (BCF)
---------------------------- ----------------------------
DEVON DEVON
PRO FORMA OCEAN COMBINED PRO FORMA OCEAN COMBINED
--------- ----- -------- --------- ----- --------
Proved reserves as of December 31,
2001.................................. 2,625 -- 2,625 -- 198 198
Revisions of estimates................ (107) -- (107) -- (17) (17)
Extensions and discoveries............ 226 -- 226 -- -- --
Purchase of reserves.................. 1 -- 1 -- -- --
Production............................ (279) -- (279) -- (11) (11)
Sale of reserves...................... (182) -- (182) -- -- --
----- ---- ----- ---- --- ---
Proved reserves as of December 31,
2002.................................. 2,284 -- 2,284 -- 170 170
===== ==== ===== ==== === ===
Proved developed reserves as of:
December 31, 2001..................... 1,923 -- 1,923 -- 101 101
December 31, 2002..................... 1,816 -- 1,816 -- 94 94
F-12
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
TOTAL NGL (MMBBLS) DOMESTIC NGL (MMBBLS)
---------------------------- ----------------------------
DEVON DEVON
PRO FORMA OCEAN COMBINED PRO FORMA OCEAN COMBINED
--------- ----- -------- --------- ----- --------
Proved reserves as of December 31, 2001... 108 16 124 52 16 68
Acquisition of Mitchell................... 106 -- 106 106 -- 106
--- -- --- --- -- ---
Proved reserves as of December 31, 2001... 214 16 230 158 16 174
Revisions of estimates............... -- 2 2 2 2 4
Extensions and discoveries........... 11 3 14 6 3 9
Purchase of reserves................. -- -- -- -- -- --
Production........................... (20) (2) (22) (15) (2) (17)
Sale of reserves..................... (13) -- (13) (5) -- (5)
--- -- --- --- -- ---
Proved reserves as of December 31, 2002... 192 19 211 146 19 165
=== == === === == ===
Proved developed reserves as of:
December 31, 2001.................... 138 14 152 98 14 112
December 31, 2002.................... 150 12 162 117 12 129
CANADA NGL (MMBBLS)
----------------------------
DEVON
PRO FORMA OCEAN COMBINED
--------- ----- --------
Proved reserves as of December 31, 2001.................. 56 -- 56
Revisions of estimates................................. (2) -- (2)
Extensions and discoveries............................. 5 -- 5
Purchase of reserves................................... -- -- --
Production............................................. (5) -- (5)
Sale of reserves....................................... (8) -- (8)
-- ---- --
Proved reserves as of December 31, 2002.................. 46 -- 46
== ==== ==
Proved developed reserves as of:.........................
December 31, 2001...................................... 40 -- 40
December 31, 2002...................................... 33 -- 33
The combined company's pro forma international reserves total 347 MMBoe as
of December 31, 2002. Of this amount, approximately 314 MMBoe are attributable
to production sharing contracts with various foreign governments.
F-13
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
PRO FORMA STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following tables set forth the standardized measure of discounted
future net cash flows relating to proved oil, natural gas and NGL reserves for
Devon, Ocean and the combined company on a pro forma basis as of December 31,
2002.
TOTAL DOMESTIC
---------------------------- ----------------------------
DEVON OCEAN COMBINED DEVON OCEAN COMBINED
------- ------- -------- ------- ------- --------
(IN MILLIONS) (IN MILLIONS)
Future cash inflows....... $38,399 $16,210 $ 54,609 $20,571 $11,029 $31,600
Future costs:
Development............. (2,053) (1,626) (3,679) (1,122) (1,111) (2,233)
Production.............. (9,076) (4,109) (13,185) (5,871) (2,744) (8,615)
Future income tax
expense................. (8,737) (2,761) (11,498) (3,911) (1,810) (5,721)
------- ------- -------- ------- ------- -------
Future net cash flows..... 18,533 7,714 26,247 9,667 5,364 15,031
10% discount.............. (8,168) (3,006) (11,174) (4,157) (2,104) (6,261)
------- ------- -------- ------- ------- -------
Standardized measure...... $10,365 $ 4,708 $ 15,073 $ 5,510 $ 3,260 $ 8,770
======= ======= ======== ======= ======= =======
CANADA INTERNATIONAL
---------------------------- ----------------------------
DEVON OCEAN COMBINED DEVON OCEAN COMBINED
------- ------- -------- ------- ------- --------
(IN MILLIONS) (IN MILLIONS)
Future cash inflows....... $13,799 $ -- $ 13,799 $ 4,029 $ 5,181 $ 9,210
Future costs: --
Development............. (633) -- (633) (298) (515) (813)
Production.............. (2,600) -- (2,600) (605) (1,365) (1,970)
Future income tax
expense................. (3,999) -- (3,999) (827) (951) (1,778)
------- ------- -------- ------- ------- -------
Future net cash flows..... 6,567 -- 6,567 2,299 2,350 4,649
10% discount.............. (2,677) -- (2,677) (1,334) (902) (2,236)
------- ------- -------- ------- ------- -------
Standardized measure...... $ 3,890 $ -- $ 3,890 $ 965 $ 1,448 $ 2,413
======= ======= ======== ======= ======= =======
Future cash inflows are computed by applying year-end prices to the
year-end quantities of proved reserves, except in those instances where fixed
and determinable price changes are provided by contractual arrangements in
existence at year-end. These year-end prices are adjusted for transportation and
other charges and for geographic differentials. The December 31, 2002 NYMEX oil
price and Henry Hub gas price, upon which the combined company's actual net
prices were based before relevant adjustments, were $31.20 per barrel and $4.74
per Mcf, respectively.
F-14
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
PRO FORMA CHANGES RELATING TO THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS
The following table includes the components of the changes in the
standardized measure of discounted future net cash flows of Devon, Ocean and the
combined company on a pro forma basis for the year ended December 31, 2002.
DEVON PRO
FORMA OCEAN COMBINED
--------- ------- --------
(IN MILLIONS)
Balance as of December 31, 2001........................ $ 5,015 $ 2,769 $ 7,784
Acquisition of Mitchell................................ 871 -- 871
------- ------- -------
Balance as of December 31, 2001........................ 5,886 2,769 8,655
Sales of oil, gas and NGLs, net of production costs.... (2,402) (850) (3,252)
Net changes in prices and production costs............. 9,122 3,045 12,167
Extensions, discoveries, and improved recovery, net of
future development costs............................. 1,471 545 2,016
Purchase of reserves, net of future development
costs................................................ 17 6 23
Development costs incurred during the period which
reduced future development costs..................... 175 424 599
Revisions of quantity estimates........................ (61) (39) (100)
Sales of reserves in place............................. (1,879) (74) (1,953)
Accretion of discount.................................. 692 277 969
Net change in income taxes............................. (2,673) (1,612) (4,285)
Other, primarily changes in timing..................... 17 217 234
------- ------- -------
Balance as of December 31, 2002........................ $10,365 $ 4,708 $15,073
======= ======= =======
F-15
ANNEX
A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DEVON ENERGY CORPORATION,
DEVON NEWCO CORPORATION
AND
OCEAN ENERGY, INC.
DATED AS OF FEBRUARY 23, 2003
AGREEMENT AND PLAN OF MERGER
A-1
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 THE MERGER.................................................. A-5
SECTION 1.1 THE MERGER.................................................. A-5
SECTION 1.2 THE CLOSING................................................. A-5
SECTION 1.3 EFFECTIVE TIME.............................................. A-5
SECTION 1.4 CERTIFICATE OF INCORPORATION................................ A-5
SECTION 1.5 BYLAWS...................................................... A-6
SECTION 1.6 BOARD OF DIRECTORS OF SURVIVING CORPORATION................. A-6
SECTION 1.7 BOARD OF DIRECTORS OF PARENT................................ A-6
SECTION 1.8 EXECUTIVE OFFICERS OF PARENT................................ A-6
ARTICLE 2 CONVERSION OF COMPANY SHARES................................ A-7
SECTION 2.1 EFFECT ON CAPITAL STOCK..................................... A-7
SECTION 2.2 EXCHANGE OF CERTIFICATES FOR SHARES......................... A-7
SECTION 2.3 APPRAISAL RIGHTS............................................ A-10
SECTION 2.4 ADJUSTMENTS................................................. A-10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-10
SECTION 3.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY............... A-10
SECTION 3.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS............ A-11
SECTION 3.3 CAPITALIZATION.............................................. A-11
SECTION 3.4 SIGNIFICANT SUBSIDIARIES.................................... A-11
SECTION 3.5 NO VIOLATION................................................ A-12
SECTION 3.6 NO CONFLICT................................................. A-12
SECTION 3.7 SEC DOCUMENTS............................................... A-13
SECTION 3.8 LITIGATION AND LIABILITIES.................................. A-13
SECTION 3.9 ABSENCE OF CERTAIN CHANGES.................................. A-13
SECTION TAXES.......................................................
3.10 A-14
SECTION EMPLOYEE BENEFIT PLANS......................................
3.11 A-15
SECTION LABOR MATTERS...............................................
3.12 A-16
SECTION ENVIRONMENTAL MATTERS.......................................
3.13 A-16
SECTION INTELLECTUAL PROPERTY.......................................
3.14 A-18
SECTION TITLE TO PROPERTIES.........................................
3.15 A-18
SECTION INSURANCE...................................................
3.16 A-18
SECTION NO BROKERS..................................................
3.17 A-18
SECTION OPINION OF FINANCIAL ADVISOR................................
3.18 A-19
SECTION CONTRACTS; DEBT INSTRUMENTS.................................
3.19 A-19
SECTION VOTE REQUIRED...............................................
3.20 A-20
SECTION CERTAIN APPROVALS...........................................
3.21 A-20
SECTION CERTAIN CONTRACTS...........................................
3.22 A-20
SECTION RIGHTS AGREEMENT............................................
3.23 A-20
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... A-20
SECTION 4.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY............... A-20
A-2
PAGE
----
SECTION 4.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS............ A-21
SECTION 4.3 CAPITALIZATION.............................................. A-21
SECTION 4.4 SIGNIFICANT SUBSIDIARIES.................................... A-22
SECTION 4.5 NO VIOLATION................................................ A-22
SECTION 4.6 NO CONFLICT................................................. A-22
SECTION 4.7 SEC DOCUMENTS............................................... A-23
SECTION 4.8 LITIGATION AND LIABILITIES.................................. A-23
SECTION 4.9 ABSENCE OF CERTAIN CHANGES.................................. A-24
SECTION TAXES.......................................................
4.10 A-24
SECTION EMPLOYEE BENEFIT PLANS......................................
4.11 A-25
SECTION LABOR MATTERS...............................................
4.12 A-26
SECTION ENVIRONMENTAL MATTERS.......................................
4.13 A-26
SECTION INTELLECTUAL PROPERTY.......................................
4.14 A-27
SECTION TITLE TO PROPERTIES.........................................
4.15 A-28
SECTION INSURANCE...................................................
4.16 A-28
SECTION NO BROKERS..................................................
4.17 A-28
SECTION OPINION OF FINANCIAL ADVISOR................................
4.18 A-28
SECTION CONTRACTS; DEBT INSTRUMENTS.................................
4.19 A-28
SECTION VOTE REQUIRED...............................................
4.20 A-29
SECTION CERTAIN CONTRACTS...........................................
4.21 A-29
SECTION RIGHTS AGREEMENT............................................
4.22 A-29
ARTICLE 5 COVENANTS................................................... A-30
SECTION 5.1 CONDUCT OF BUSINESS......................................... A-30
SECTION 5.2 NO SOLICITATION BY THE COMPANY.............................. A-34
SECTION 5.3 NO SOLICITATION BY PARENT................................... A-35
SECTION 5.4 MEETINGS OF STOCKHOLDERS.................................... A-36
SECTION 5.5 FILINGS; REASONABLE BEST EFFORTS............................ A-38
SECTION 5.6 INSPECTION.................................................. A-39
SECTION 5.7 PUBLICITY................................................... A-39
SECTION 5.8 REGISTRATION STATEMENT...................................... A-39
SECTION 5.9 LISTING APPLICATION......................................... A-40
SECTION INTENTIONALLY OMITTED.......................................
5.10 A-40
SECTION AGREEMENTS OF AFFILIATES....................................
5.11 A-40
SECTION EXPENSES....................................................
5.12 A-40
SECTION INDEMNIFICATION AND INSURANCE...............................
5.13 A-40
SECTION EMPLOYEE BENEFITS...........................................
5.14 A-41
SECTION REORGANIZATION..............................................
5.15 A-44
SECTION DIVIDENDS...................................................
5.16 A-44
ARTICLE 6 CONDITIONS.................................................. A-44
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER...................................................... A-44
SECTION 6.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER...................................................... A-45
A-3
PAGE
----
SECTION 6.3 CONDITIONS TO OBLIGATION OF PARENT TO EFFECT THE MERGER..... A-45
ARTICLE 7 TERMINATION................................................. A-46
SECTION 7.1 TERMINATION BY MUTUAL CONSENT............................... A-46
SECTION 7.2 TERMINATION BY PARENT OR THE COMPANY........................ A-46
SECTION 7.3 TERMINATION BY THE COMPANY.................................. A-47
SECTION 7.4 TERMINATION BY PARENT....................................... A-47
SECTION 7.5 EFFECT OF TERMINATION....................................... A-48
SECTION 7.6 EFFECT OF VOTE.............................................. A-50
ARTICLE 8 GENERAL PROVISIONS.......................................... A-50
SECTION 8.1 SURVIVAL.................................................... A-50
SECTION 8.2 NOTICES..................................................... A-50
SECTION 8.3 ASSIGNMENT; BINDING EFFECT; BENEFIT......................... A-51
SECTION 8.4 ENTIRE AGREEMENT............................................ A-51
SECTION 8.5 AMENDMENTS.................................................. A-52
SECTION 8.6 GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL........... A-52
SECTION 8.7 COUNTERPARTS................................................ A-52
SECTION 8.8 HEADINGS.................................................... A-52
SECTION 8.9 INTERPRETATION.............................................. A-52
SECTION WAIVERS.....................................................
8.10 A-53
SECTION SEVERABILITY................................................
8.11 A-53
SECTION ENFORCEMENT OF AGREEMENT; LIMITATION ON DAMAGES.............
8.12 A-53
SECTION OBLIGATION OF MERGER SUB....................................
8.13 A-53
SECTION EXTENSION; WAIVER...........................................
8.14 A-53
A-4
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of February
23, 2003, is among Devon Energy Corporation, a Delaware corporation ("Parent"),
Devon NewCo Corporation, a Delaware corporation and a direct and wholly owned
subsidiary of Parent ("Merger Sub"), and Ocean Energy, Inc., a Delaware
corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of each of Parent, Merger Sub
and the Company have determined that the merger of Merger Sub with and into the
Company (the "Merger"), in the manner contemplated herein, is advisable and in
the best interests of their respective corporations and stockholders, and, by
resolutions duly adopted, have approved this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of section 368(a) of the Internal
Revenue Code of 1986, as amended, and the rules and regulations promulgated
thereunder (the "Code"); and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall
be merged with and into the Company in accordance with this Agreement, and the
separate corporate existence of Merger Sub shall thereupon cease. The Company
(sometimes hereinafter referred to as the "Surviving Corporation") shall be the
surviving corporation in the Merger and shall be a wholly owned subsidiary of
Parent. The Merger shall have the effects specified in the Delaware General
Corporation Law ("DGCL"). At the election of Parent, any direct wholly owned
subsidiary of Parent may be substituted for Merger Sub as a constituent
corporation in the Merger at any time prior to the meetings of each of the
Company's and the Parent's stockholders contemplated by Section 5.4 so long as
such substitution does not delay either such meeting.
SECTION 1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place (a) at the
offices of Mayer, Brown, Rowe & Maw, 700 Louisiana Street, Houston, Texas 77002,
at 9:00 a.m., local time, on the first business day immediately following the
day on which the last to be fulfilled or waived of the conditions set forth in
Article 6 (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to fulfillment or waiver of those conditions) shall
be fulfilled or waived in accordance herewith or (b) at such other time, date or
place as Parent and the Company may agree in writing. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
SECTION 1.3 Effective Time. If all the conditions to the Merger set forth
in Article 6 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 7, on the
Closing Date, a certificate of merger (the "Certificate of Merger") meeting the
requirements of Section 251 of the DGCL shall be properly executed and filed
with the Secretary of State of the State of Delaware. The Merger shall become
effective upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware in accordance with the DGCL, or at such later
time that the parties hereto shall have agreed upon and designated in such
filing as the effective time of the Merger (the "Effective Time").
SECTION 1.4 Certificate of Incorporation. At the Effective Time, the
certificate of incorporation of the Company shall be amended to read as set
forth in Exhibit A attached hereto, and as so amended shall
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be the certificate of incorporation of the Surviving Corporation, until duly
amended in accordance with applicable law.
SECTION 1.5 Bylaws. The bylaws of Merger Sub in effect immediately prior
to the Effective Time shall be the bylaws of the Surviving Corporation, until
duly amended in accordance with applicable law.
SECTION 1.6 Board of Directors of Surviving Corporation. The Board of
Directors of the Surviving Corporation shall consist of the Board of Directors
of Merger Sub, as it existed immediately prior to the Effective Time, until
changed in accordance with applicable law. Each of the members of the Board of
Directors of the Company shall tender his or her resignation as a director of
the Company, to be effective at the Effective Time.
SECTION 1.7 Board of Directors of Parent. At the Effective Time, the
Board of Directors of Parent shall consist of such number of persons as may be
determined by Parent. If the Board of Directors of Parent is to consist of 13
directors at the Effective Time, Parent shall, except as provided otherwise in
this Section 1.7, cause the four persons from the Company's Board of Directors
designated in writing by the Company no later than March 10, 2003 to be
appointed to the Board of Directors of Parent at the Effective Time; provided,
however, that if the Board of Directors of Parent will consist of more or less
than 13 directors immediately after the Effective Time, then Parent shall cause
a number of persons designated in writing by the Company (and from the Company's
Board of Directors as existing on the date hereof) equal to four-thirteenths of
the total number of directors (rounded upward to the nearest whole number) to be
included on the Board of Directors of Parent at the Effective Time. The persons
designated by the Company for inclusion on the Board of Directors of Parent
pursuant to this Section 1.7 are referred to herein as the "Company Designees".
Parent shall notify the Company if the number of directors constituting the
Board of Directors at the Effective Time will be more or less than 13 directors.
If the number of directors to be designated by the Company pursuant to this
Section 1.7 is less than four, then Parent shall cause the Company Designees to
be appointed in the order designated by the Company. If the number of directors
to be designated by the Company pursuant to this Section 1.7 is greater than
four directors, the Company shall provide Parent with written notice of the
additional individuals designated to serve as Company Designees. The Company
shall provide Parent the information concerning each Company Designee that would
be required to be included in a proxy statement under Regulation 14A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If Parent
determines in its sole discretion that any Company Designee is unacceptable to
Parent, Parent and the Company will agree upon a substitute Company Designee
from the Company's Board of Directors as soon as practicable and in any event
prior to the mailing of the Proxy Statement/Prospectus (as defined in Section
5.8). The Company Designees shall be allocated as evenly as possible among the
different classes of Parent directors, but otherwise at Parent's discretion;
provided, however, that, in the event there are four or more Company Designees
and except as provided in the following sentence, the term of one Company
Designee may expire at Parent's annual meeting held in 2004 and the terms of the
remaining Company Designees shall expire at Parent's annual meeting held in 2005
and 2006. If the Effective Time occurs prior to Parent's annual meeting held in
2003, the Company Designee(s) who would have been appointed to a term expiring
at Parent's annual meeting held in 2006 under the immediately preceding sentence
shall instead be appointed to a term expiring at Parent's annual meeting held in
2003 and shall be nominated for election at that meeting to a term expiring at
Parent's annual meeting held in 2006.
SECTION 1.8 Executive Officers of Parent. At the Effective Time, the
Executive Officers of Parent shall include Larry J. Nichols, who shall serve as
Chairman of the Board and Chief Executive Officer, and James T. Hackett, who
shall serve as President and Chief Operating Officer (in each case assuming he
is willing and able to serve).
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ARTICLE 2
CONVERSION OF COMPANY SHARES
SECTION 2.1 Effect on Capital Stock. At the Effective Time, the Merger
shall have the following effects on the capital stock of the Company and Merger
Sub, without any action on the part of the holder of any capital stock of the
Company or Merger Sub:
(a) Conversion of the Company Common Shares. Subject to the
provisions of this Section 2.1, each share of Common Stock, $0.10 par value
per share, of the Company (each a "Company Common Share" and collectively
the "Company Common Shares") issued and outstanding immediately prior to
the Effective Time (but not including any Company Common Shares that are
owned (i) by Parent, Merger Sub or any other direct or indirect Subsidiary
of Parent or (ii) by the Company or any direct or indirect Subsidiary of
the Company (the "Excluded Company Shares")) shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into
0.414 of a share (the "Exchange Ratio") of Parent Common Stock (the "Merger
Consideration"). "Parent Common Stock" shall mean the common stock, par
value $0.10 per share, of Parent.
(b) Company Preferred Shares. Each share of Series B Convertible
Preferred Stock, $1.00 par value per share, of the Company (each, a
"Company Preferred Share," and collectively the "Company Preferred Shares;"
and, together, the Company Common Shares and the Company Preferred Shares
are collectively referred to herein as the "Company Shares"), other than
Appraisal Shares (as defined in Section 2.3), issued and outstanding
immediately prior to the Effective Time shall remain outstanding as one
share of Series B Convertible Preferred Stock, par value $1.00 per share,
of the Surviving Corporation. From and after the Effective Time, all shares
of the Series B Convertible Preferred Stock of the Surviving Corporation
then outstanding shall be convertible into Parent Common Stock instead of
Company Common Shares in accordance with the terms of the certificate of
designations governing such series, giving effect to the Exchange Ratio.
(c) Cancellation of Excluded Company Shares. Each Excluded Company
Share issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, no longer be outstanding, shall be canceled and retired without
payment of any consideration therefor and shall cease to exist.
(d) Merger Sub. At the Effective Time, each share of common stock,
par value $0.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into one share of common
stock of the Surviving Corporation, and the Surviving Corporation shall
thereby become a wholly owned subsidiary of Parent.
(e) Stock Options; Employee Benefit Plans. At the Effective Time, all
Stock Options (as defined in Section 5.14) outstanding at the Effective
Time under each Company Plan (as defined in Section 3.11) shall be assumed
by Parent in accordance with Section 5.14.
SECTION 2.2 Exchange of Certificates for Shares.
(a) Exchange Procedures. At or prior to the Effective Time, Parent shall
deposit with such party as may be reasonably satisfactory to Parent and the
Company (the "Exchange Agent"), in trust for the benefit of the holders of
Company Common Shares, certificates representing shares of Parent Common Stock
required to effect the conversion of the Company Common Shares into the Merger
Consideration pursuant to Section 2.1(a) (including shares of Parent Common
Stock that are needed with respect to fractional shares as contemplated by
Section 2.2(d)). Parent shall make sufficient funds available to the Exchange
Agent from time to time as needed to pay cash in respect of dividends or other
distributions in accordance with Section 2.2(b). Promptly after the Effective
Time, but in no event later than three business days following the Closing Date,
the Surviving Corporation shall cause the Exchange Agent to mail to each holder
of record as of the Effective Time of a certificate representing Company Common
Shares (each a "Certificate") (other than holders of a Certificate in respect of
Excluded Company
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Shares) (i) a letter of transmittal specifying that delivery of the Certificates
shall be effected, and that risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent, such letter
of transmittal to be in such form and to have such other provisions as Parent
and the Company may reasonably agree, and (ii) instructions for exchanging the
Certificates and receiving the Merger Consideration to which such holder shall
be entitled pursuant to Section 2.1(a). Subject to Section 2.2(g), upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (i) a certificate representing that
number of whole shares of Parent Common Stock that such holder is entitled to
receive pursuant to Section 2.1(a) and (ii) a check in the aggregate amount
(after giving effect to any required tax withholdings) of (A) any cash in lieu
of fractional shares determined in accordance with Section 2.2(d) plus (B) any
cash dividends and any other dividends or other distributions that such holder
has the right to receive pursuant to the provisions of this Section 2.2. The
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or accrued on any amount payable (for fractional shares, dividends or otherwise)
upon surrender of any Certificate. In the event of a transfer of ownership of
Company Common Shares that occurred prior to the Effective Time, but is not
registered in the transfer records of the Company, the Merger Consideration may
be issued and/or paid to such a transferee if the Certificate formerly
representing such Company Common Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. If any
certificate for shares of Parent Common Stock is to be issued in a name other
than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Person requesting
such exchange shall pay any transfer or other taxes required by reason of the
issuance of certificates for shares of Parent Common Stock in a name other than
that of the registered holder of the Certificate surrendered, or shall establish
to the reasonable satisfaction of Parent or the Exchange Agent that such tax has
been paid or is not applicable.
(b) Distributions with Respect to Unexchanged Shares. Whenever a dividend
or other distribution is declared by Parent in respect of Parent Common Stock,
the record date for which is at or after the Effective Time, that declaration
shall include dividends or other distributions in respect of all shares of
Parent Common Stock issuable pursuant to this Agreement. No dividends or other
distributions so declared in respect of such Parent Common Stock shall be paid
to any holder of any unsurrendered Certificate until such Certificate is
surrendered for exchange in accordance with this Section 2.2. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be issued or paid, less the amount of any withholding taxes that may be
required thereon, to the holder of the certificates representing whole shares of
Parent Common Stock issued in exchange for such Certificate, without interest,
(i) at the time of such surrender, the dividends or other distributions with a
record date that is at or after the Effective Time and a payment date on or
prior to the date of surrender of such whole shares of Parent Common Stock and
not previously paid and (ii) at the appropriate payment date, the dividends or
other distributions payable with respect to such whole shares of Parent Common
Stock with a record date at or after the Effective Time but with a payment date
subsequent to surrender. No interest shall be payable with respect to any
amounts to be paid under this Section 2.2. For purposes of dividends or other
distributions in respect of shares of Parent Common Stock, all shares of Parent
Common Stock to be issued pursuant to the Merger shall be deemed issued and
outstanding as of the Effective Time.
(c) Transfers. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Company Common Shares that were
outstanding immediately prior to the Effective Time.
(d) Fractional Shares.
(i) No certificates or scrip representing fractional shares of Parent
Common Stock or book-entry credit of the same shall be issued upon the
surrender for exchange of Certificates or upon conversion of shares, and
such fractional share interest shall not entitle the owner thereof to vote
or to any rights of a shareholder of Parent.
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(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (A) the aggregate number of
shares of Parent Common Stock that would be distributed to holders of the
Certificates pursuant to Section 2.1(a) if no effect were given to Section
2.2(d)(i) over (B) the aggregate number of whole shares of Parent Common
Stock to be distributed to holders of the Certificates pursuant Section
2.1(a) taking into account the effect of Section 2.2(d)(i) (such excess,
the "Excess Shares"). As soon as practicable after the Effective Time, the
Exchange Agent, as agent for the holders of the Certificates, shall sell
the Excess Shares at then-prevailing prices on the American Stock Exchange
("AMEX"), all in the manner provided in Section 2.2(d)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the AMEX and shall be executed in round lots to the extent
practicable. The Surviving Corporation shall pay all commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, incurred in connection with such sale
of the Excess Shares. Until the proceeds of such sale or sales have been
distributed to the holders of the Certificates (or paid to Parent pursuant
to Section 2.2(e)), the Exchange Agent shall hold such proceeds in trust
for the holders of the Certificates (the "Common Stock Trust"). The
Exchange Agent shall determine the portion of the Common Stock Trust to
which each holder of a Certificate shall be entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Stock Trust by a fraction, the numerator of which is the amount of the
fractional share interest in the Parent Common Stock to which such holder
of a Certificate is entitled and the denominator of which is the aggregate
amount of fractional share interests in the Parent Common Stock to which
all holders of the Certificates are entitled. Parent shall comply with the
provisions of Rule 236(c) under the Securities Act of 1933, as amended (the
"Securities Act").
(iv) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates in lieu of any
fractional share interests, the Exchange Agent shall make available such
amounts, without interest, to such holders of Certificates that have
surrendered their Certificates in accordance with this Section 2.2.
(e) Termination of Exchange Period; Unclaimed Merger Consideration. Any
shares of Parent Common Stock, any portion of the Common Stock Trust and any
portion of the cash, dividends or other distributions with respect to the Parent
Common Stock deposited by Parent with the Exchange Agent (including the proceeds
of any investments thereof) that remain unclaimed by the former stockholders of
the Company one year after the Effective Time shall be transferred to Parent.
Any former stockholders of the Company who have not theretofore complied with
this Section 2.2 shall thereafter be entitled to look only to Parent for payment
of their Merger Consideration and any cash, dividends and other distributions in
respect thereof issuable and/or payable pursuant to Section 2.1, Section 2.2(b)
and Section 2.2(d) upon due surrender of their Certificates, in each case,
without any interest thereon. Notwithstanding the foregoing, none of Parent, the
Surviving Corporation, the Exchange Agent or any other Person shall be liable to
any former holder of Company Common Shares for any amount properly delivered to
a public official pursuant to applicable abandoned property, escheat or similar
laws. If any Certificate shall not have been surrendered immediately prior to
the date on which any Merger Consideration would escheat to or become the
property of any governmental entity, any such Merger Consideration shall, to the
extent permitted by applicable law, become the property of Parent, free and
clear of all claims or interest of any person previously entitled thereto.
(f) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed, and if Parent believes that the Person providing the indemnity is
sufficiently creditworthy, the making of a reasonable undertaking to indemnify
Parent or the Company, or, if Parent does not so believe, the posting by such
Person of a bond in the form customarily required by Parent to indemnify against
any claim that may be made against it with respect to such Certificate, Parent
will issue the shares of Parent Common Stock and the Exchange Agent will
distribute such Merger Consideration, dividends and other distributions in
respect thereof issuable or payable in exchange for such lost, stolen or
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destroyed Certificate pursuant to Section 2.1, Section 2.2(b) and Section
2.2(d), in each case, without interest. Any delivery or surrender for exchange
of a Certificate pursuant to this Section 2.2 may be effected (in lieu of such
delivery or exchange for surrender of a Certificate) by delivery of an affidavit
together with an indemnity undertaking or indemnity bond in accordance with this
Section 2.2(f).
(g) Affiliates. Notwithstanding anything in this Agreement to the
contrary, Certificates surrendered for exchange by any Rule 145 Affiliate (as
determined pursuant to Section 5.11) of the Company shall not be exchanged until
Parent has received a written agreement from such Person as provided in Section
5.11.
SECTION 2.3 Appraisal Rights. The parties hereto agree that, in
accordance with Section 262 of the DGCL, no appraisal rights will be available
to holders of Company Common Shares in connection with the Merger.
Notwithstanding anything in this Agreement to the contrary, Company Preferred
Shares issued and outstanding immediately prior to the Effective Time that are
held by any holder who is entitled to demand and properly demands appraisal of
such shares (the "Appraisal Shares") pursuant to, and who complies in all
respects with, the provisions of Section 262 of the DGCL ("Section 262") shall
be entitled to payment of the fair value of such shares in accordance with the
provisions of Section 262. At the Effective Time, all Appraisal Shares shall
automatically be canceled and shall cease to exist or be outstanding, and each
holder of Appraisal Shares shall cease to have any rights with respect thereto,
except the right to receive the fair value of such shares in accordance with the
provisions of Section 262. Notwithstanding the foregoing, if any such holder
shall fail to perfect or otherwise shall waive, withdraw or lose the right to
appraisal under Section 262 or a court of competent jurisdiction shall determine
that such holder is not entitled to the relief provided by Section 262, then the
right of such holder to be paid the fair value of such holder's Appraisal Shares
under Section 262 shall cease to exist and such Appraisal Shares shall remain
outstanding as provided in Section 2.1(b). The Company shall serve prompt notice
to Parent of any demands for appraisal of any Company Preferred Shares, and
Parent shall have the right to participate in and, subject to applicable law,
direct all negotiations and proceedings with respect to such demands. The
Company shall not, without the prior written consent of Parent, make any payment
with respect to, settle or offer to settle, any such demands, or agree to do any
of the foregoing.
SECTION 2.4 Adjustments. In the event that prior to the Effective Time,
there shall have been declared or effected a stock split, reverse stock split,
stock dividend or stock distribution (including any dividend, or distribution,
of securities convertible into Company Common Shares or Parent Common Stock),
reorganization, recapitalization, reclassification or similar event made with
respect to the Company Common Shares or the Parent Common Stock, the Exchange
Ratio shall be adjusted to reflect fully the appropriate effect of such event.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter delivered to Parent
concurrently with the execution hereof (the "Company Disclosure Letter") or as
disclosed with reasonable specificity in the Company Reports (as defined in
Section 3.7), the Company represents and warrants to Parent that:
SECTION 3.1 Existence; Good Standing; Corporate Authority. The Company is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
in which the character of the properties owned or leased by it therein or in
which the transaction of its business makes such qualification necessary, except
where the failure to be so qualified would not have or reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect (as
defined in Section 8.9). The Company has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now conducted. The copies of the Company's certificate of incorporation and
bylaws previously made available to Parent are true and correct and contain all
amendments as of the date hereof.
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SECTION 3.2 Authorization, Validity and Effect of Agreements. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and all other agreements and documents contemplated hereby to which it
is a party. The consummation by the Company of the transactions contemplated
hereby has been duly authorized by all requisite corporate action, other than,
with respect to the Merger, the adoption of this Agreement by the Company's
stockholders. This Agreement constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
SECTION 3.3 Capitalization. The authorized capital stock of the Company
consists of 520,000,000 Company Common Shares, and 10,000,000 Company Preferred
Shares. As of February 20, 2003, there were (a) 177,405,787 Company Common
Shares issued and outstanding, (b) 50,000 Company Preferred Shares issued and
outstanding and (c) 19,661,271 Company Common Shares subject to outstanding
employee and director stock options issued pursuant to the stock option plans of
the Company described in the Company Disclosure Letter (the "Company Option
Plans"), of which the weighted average exercise price was approximately $16.26
per share and (d) 1,500,000 unissued shares of preferred stock designated as
Series A Junior Participating Preferred Stock ("Company Series A Preferred
Stock"). All issued and outstanding Company Shares (i) are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights, (ii)
were not issued in violation of the terms of any agreement or other
understanding binding upon the Company and (iii) were issued in compliance with
all applicable charter documents of the Company and all applicable federal and
state securities laws, rules and regulations. As of the date hereof, one right
to purchase Series A Junior Participating Preferred Stock of the Company (each,
a "Company Right") issued pursuant to the Amended and Restated Rights Agreement,
dated December 12, 1997 (as amended, the "Company Rights Agreement"), between
the Company and Fleet National Bank (f/k/a BankBoston, N.A.) is associated with
and attached to each outstanding Company Common Share. Except (i) as set forth
in this Section 3.3, (ii) for any Company Common Shares issuable upon conversion
of Company Preferred Shares, (iii) for any Company Common Shares issued pursuant
to the exercise of the options referred to in subsection (c) above, (iv) for
options issued under the Company Option Plans after the date of this Agreement
in compliance with Section 5.1(a) and Company Common Shares issued pursuant to
the exercise of such options and (v) for shares of Company Series A Preferred
Stock and Company Common Shares issuable pursuant to the Company Rights, there
are no outstanding shares of capital stock and there are no options, warrants,
calls, subscriptions, shareholder rights plan or similar instruments,
convertible securities, or other rights, agreements or commitments which
obligate the Company or any of its Subsidiaries to issue, transfer or sell any
shares of capital stock or other voting securities of the Company or any of its
Subsidiaries. The Company has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Company on any matter.
SECTION 3.4 Significant Subsidiaries. For purposes of this Agreement,
"Significant Subsidiary" shall mean a significant subsidiary as defined in Rule
1-02 of Regulation S-X of the Exchange Act. Each of the Company's Significant
Subsidiaries is a corporation, limited liability company or partnership duly
organized, validly existing and in good standing (where applicable) under the
laws of its jurisdiction of incorporation or organization, has the corporate,
limited liability company or partnership power and authority to own, operate and
lease its properties and to carry on its business as it is now being conducted,
and is duly qualified to do business and is in good standing (where applicable)
in each jurisdiction in which the ownership, operation or lease of its property
or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good standing
would not have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. All of the outstanding shares of
capital stock of, or other ownership interests in, each of the Company's
Significant Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned, directly or indirectly, by the Company free and
clear of all liens, pledges, security interests, claims, preferential purchase
rights or other rights, interests or encumbrances ("Liens"). Schedule 3.4 of the
Company Disclosure Letter sets forth for each Significant Subsidiary of the
Company, its name and jurisdiction of incorporation or organization.
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SECTION 3.5 No Violation. Neither the Company nor any of its Subsidiaries
is, or has received notice that it would be with the passage of time, in
violation of any term, condition or provision of (a) its charter documents or
bylaws, (b) any loan or credit agreement, note, bond, mortgage, indenture,
contract, agreement, lease, license or other instrument or (c) any order of any
court, governmental authority or arbitration board or tribunal, or any law,
ordinance, governmental rule or regulation to which the Company or any of its
Subsidiaries or any of their respective properties or assets is subject, or is
delinquent with respect to any report required to be filed with any governmental
entity, except, in the case of matters described in clause (b) or (c), as would
not have or reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. Except as would not have or reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect, (i) the Company and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders, franchises and approvals of all governmental
authorities necessary for the lawful conduct of their respective businesses (the
"Company Permits") and (ii) the Company and its Subsidiaries are in compliance
with the terms of the Company Permits. No investigation by any governmental
authority with respect to the Company or any of its Subsidiaries is pending or,
to the knowledge of the Company, threatened, other than those that would not
have or reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
SECTION 3.6 No Conflict.
(a) Neither the execution and delivery by the Company of this Agreement nor
the consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof will: (i) conflict with or result in a breach
of any provisions of the charter documents or bylaws of the Company; (ii)
violate, or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or give rise to a right of purchase under, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties of the Company or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, or
otherwise result in a detriment to the Company or any of its Subsidiaries under
any of the terms, conditions or provisions of, any note, bond, mortgage,
indenture, deed of trust, Company Permit, lease, contract, agreement, joint
venture or other instrument or obligation to which the Company or any of its
Subsidiaries is a party, or by which the Company or any of its Subsidiaries or
any of their properties is bound or affected; or (iii) contravene or conflict
with or constitute a violation of any provision of any law, rule, regulation,
judgment, order or decree binding upon or applicable to the Company or any of
its Subsidiaries, except, in the case of matters described in clause (ii) or
(iii), as would not have or reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
(b) Neither the execution and delivery by the Company of this Agreement nor
the consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof will require any consent, approval or
authorization of, or filing or registration with, any governmental or regulatory
authority, other than (i) the filings provided for in Article 1 and (ii) filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the Exchange Act, the Securities Act or applicable
state securities and "Blue Sky" laws and applicable foreign competition or
antitrust laws ((i) and (ii) collectively, the "Regulatory Filings"), except for
any consent, approval or authorization the failure of which to obtain and for
any filing or registration the failure of which to make would not have or
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(c) Other than as contemplated by Section 3.6(b), no consents, assignments,
waivers, authorizations or other certificates are necessary in connection with
the transactions contemplated hereby to provide for the continuation in full
force and effect of all of the Company's material contracts or leases or for the
Company to consummate the transactions contemplated hereby, except where the
failure to receive such consents or other certificates would not have or
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
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(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) result in any
payment from the Company or its Subsidiaries (including severance, unemployment
compensation, parachute payment, bonus or otherwise) becoming due to any
director, employee or independent contractor of the Company or any of its
Subsidiaries under any Company Plan (as defined in Section 3.11) or otherwise;
(ii) increase any benefits otherwise payable under any Company Plan or
otherwise; or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
SECTION 3.7 SEC Documents. The Company has made available to Parent each
registration statement, report, proxy statement or information statement (other
than preliminary materials) filed by the Company with the Securities and
Exchange Commission ("SEC") since January 1, 2001, each in the form (including
exhibits and any amendments thereto) filed with the SEC prior to the date hereof
(collectively, the "Company Reports"), and the Company has filed all forms,
reports and documents required to be filed by it with the SEC pursuant to
relevant securities statutes, regulations, policies and rules since such time.
As of their respective dates, the Company Reports (i) were prepared in
accordance with the applicable requirements of the Securities Act, the Exchange
Act, and the rules and regulations thereunder and complied with the then
applicable accounting requirements and (ii) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading except for such
statements, if any, as have been modified by subsequent filings with the SEC
prior to the date hereof. Each of the consolidated balance sheets included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents in all material respects the consolidated
financial position of the Company and its Subsidiaries as of its date and each
of the consolidated statements of operations, cash flows and stockholders'
equity included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presents in all material
respects the results of operations, cash flows or changes in stockholders'
equity, as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to such
exceptions as may be permitted by Form 10-Q of the SEC), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein.
SECTION 3.8 Litigation and Liabilities. There are no actions, suits or
proceedings pending against the Company or any of its Subsidiaries or, to the
Company's knowledge, threatened against the Company or any of its Subsidiaries,
at law or in equity, or before or by any federal, state or foreign commission,
court, board, bureau, agency or instrumentality, other than those that would not
have or reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. There are no outstanding judgments, decrees,
injunctions, awards or orders against the Company or any of its Subsidiaries,
other than those that would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. There are
no obligations or liabilities of any nature, whether accrued, absolute,
contingent or otherwise, of the Company or any of its Subsidiaries, other than
those liabilities and obligations (a) that are disclosed in the Company Reports,
(b) that have been incurred in the ordinary course of business since September
30, 2002, (c) related to expenses associated with the transactions contemplated
by this Agreement or (d) that would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
SECTION 3.9 Absence of Certain Changes. Since December 31, 2001, the
Company has conducted its business only in the ordinary and usual course of
business, and during such period there has not been (i) any event, condition,
action or occurrence that has had or would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect; (ii) any
material change by the Company or any of its Subsidiaries (viewed on a
consolidated basis) in any of its accounting methods, principles or practices or
any of its tax methods, practices or elections, except for changes required by
generally accepted accounting principles; (iii) any material damage,
destruction, or loss to the business or properties of the Company and its
Subsidiaries, taken as a whole, not covered by insurance; (iv) any declaration,
setting aside or payment of any dividend (other than ordinary quarterly
dividends of $0.04 per
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share on the Company Common Shares and ordinary semi-annual dividends of $32.50
per share on the Company Preferred Shares) or other distribution in respect of
the capital stock of the Company, or any direct or indirect redemption, purchase
or any other acquisition by the Company of any such stock; (v) any change in the
capital stock or in the number of shares or classes of the Company's authorized
or outstanding capital stock (other than as a result of issuances under the
Company Option Plans or exercises of options to purchase the Company Common
Shares outstanding or issued as permitted hereunder pursuant to Section
5.1(a)(vi)); (vi) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or other employee benefit plan, except in the ordinary
course of business or (vii) any event, condition, action or occurrence that is
prohibited on or after the date of this Agreement under Section 5.1(a)(viii),
(ix), (x), (xii), (xiii), (xv), (xvi), or (xx) of this Agreement.
SECTION 3.10 Taxes.
(a) Each of the Company, its Subsidiaries and each affiliated,
consolidated, combined, unitary or similar group of which any such corporation
is or, since January 1, 1991, was a member has (i) duly filed (or there has been
filed on its behalf) on a timely basis (taking into account any extensions of
time to file before the date hereof) with appropriate governmental authorities
all tax returns, statements, reports, declarations, estimates and forms
("Returns") required to be filed by or with respect to it, except to the extent
that any failure to file would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and (ii)
duly paid or deposited in full on a timely basis or made adequate provisions in
accordance with generally accepted accounting principles (or there has been paid
or deposited or adequate provision has been made on its behalf) for the payment
of all taxes required to be paid by it other than those being contested in good
faith by the Company or a Subsidiary of the Company and except to the extent
that any failure to pay or deposit or make adequate provision for the payment of
such taxes would not have or reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
(b) Except for matters that would not have or reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, (i)
the federal income tax returns of the Company and each of its Subsidiaries have
been examined by the Internal Revenue Service (the "IRS") (or the applicable
statutes of limitation for the assessment of federal income taxes for such
periods have expired) for all periods; (ii) all deficiencies asserted as a
result of any examinations of the Company and its Subsidiaries by any taxing
authority have been paid fully, settled or adequately provided for in the
financial statements contained in the Company Reports; (iii) as of the date
hereof, neither the Company nor any of its Subsidiaries has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any taxes of the Company or any of
its Subsidiaries that will be outstanding as of the Effective Time; (iv) neither
the Company nor any of its Subsidiaries is a party to, is bound by or has any
obligation under any tax sharing, allocation or indemnity agreement or any
similar agreement or arrangement; (v) there are no tax liens on any assets of
the Company or its Subsidiaries except for (A) taxes not yet currently due and
(B) matters being contested by the Company in good faith for which adequate
reserves are reflected in the financial statements; and (vi) neither the Company
nor any of its Subsidiaries is a party to an agreement that provides for the
payment of any amount that would constitute a "parachute payment" within the
meaning of section 280G of the Code.
For purposes of this Agreement, "tax" or "taxes" means all federal, state,
county, local, foreign or other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, accumulated earnings, personal holding, excess
profits, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, disability, capital stock, or
windfall profits taxes, customs duties or other taxes, fees, assessments or
governmental charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign).
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SECTION 3.11 Employee Benefit Plans.
(a) For purposes of this Section 3.11, the Subsidiaries of the Company
shall include any enterprise which, with the Company, forms or formed a
controlled group of corporations, a group of trades or business under common
control or an affiliated service group, within the meaning of section 414(b),
(c) or (m) of the Code.
(b) All employee benefit plans, programs, arrangements and agreements
covering active, former or retired employees of the Company and any of its
Subsidiaries which provide material benefits to such employees, or as to which
the Company or any Subsidiary has any material liability or material contingent
liability, are listed on Schedule 3.11(b) of the Company Disclosure Letter (the
"Company Plans").
(c) The Company has made available to Parent a true, correct and complete
copy of each of the Company Plans, and all contracts relating thereto, or to the
funding thereof, including, without limitation, all trust agreements, insurance
contracts, administration contracts, investment management agreements,
subscription and participation agreements, and record-keeping agreements, each
as in effect on the date hereof. In the case of any Company Plan that is not in
written form, Parent has been supplied with an accurate description of such
Company Plan as in effect on the date hereof. A true, correct and complete copy
of the most recent annual report, actuarial report, accountant's opinion of the
plan's financial statements, summary plan description and IRS determination
letter with respect to each Company Plan, to the extent applicable, and a
current schedule of assets (and the fair market value thereof assuming
liquidation of any asset which is not readily tradable) held with respect to any
funded Company Plan have been made available to Parent. There have been no
material changes in the financial condition in the respective plans from that
stated in the annual reports and actuarial reports supplied that would have or
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(d) All Company Plans comply in form and have been administered in
operation in all material respects with all applicable requirements of law,
excluding any deficiencies that would not have or reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, no
event has occurred which will or could cause any such Company Plan to fail to
comply with such requirements, excluding any deficiencies that would not have or
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect, and no notice has been issued by any governmental
authority questioning or challenging such compliance.
(e) All required employer contributions under any such plans have been made
and the applicable funds have been funded in accordance with the terms thereof,
excluding any deficiencies that would not have or reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
(f) To the extent applicable, the Company Plans comply, in all material
respects, with the requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Code and any other applicable tax act and
other laws, and any Company Plan intended to be qualified under section 401(a)
of the Code has been determined by the IRS to be so qualified and nothing has
occurred to cause the loss of such qualified status.
(g) No Company Plan is covered by Title IV of ERISA or section 412 of the
Code.
(h) There are no pending or anticipated claims against or otherwise
involving any of the Company Plans and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of the Company
Plan activities) has been brought against or with respect to any Company Plan.
(i) Neither the Company nor any of its Subsidiaries has incurred or
reasonably expects to incur any liability under subtitle C or D of Title IV of
ERISA with respect to any "single-employer plan," within the meaning of section
4001(a)(15) of ERISA, currently or formerly maintained by the Company, any
Company Subsidiary or any entity which is considered one employer with the
Company under section 4001 of ERISA.
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(j) Neither the Company nor any of its Subsidiaries has incurred or
reasonably expects to incur any withdrawal liability under subtitle E of Title
IV of ERISA with respect to any "multi-employer plan," within the meaning of
section 4001(a)(3) of ERISA.
(k) None of the assets of any Company Plan is invested in employer
securities or employer real property.
(l) There have been no "prohibited transactions" (as described in section
406 of ERISA or section 4975 of the Code) with respect to any Company Plan that
would have or reasonably be expected to have, individually or in the aggregate,
a Company Material Adverse Effect.
(m) There have been no acts or omissions by the Company or any of its
Subsidiaries which have given rise to or may give rise to fines, penalties,
taxes or related charges under section 502 of ERISA or Chapters 43, 47, 68 or
100 of the Code for which the Company or any of its Subsidiaries may be liable
that would reasonably be expected to result in a Company Material Adverse
Effect.
(n) Each Company Plan which constitutes a "group health plan" (as defined
in section 607(1) of ERISA or section 4980B(g)(2) of the Code), including any
plans of current and former affiliates which must be taken into account under
sections 4980B and 414(t) of the Code or section 601 of ERISA, has been operated
in material compliance with applicable law, including coverage requirements of
sections 4980B of the Code, Chapter 100 of the Code and section 601 of ERISA to
the extent such requirements are applicable.
(o) Neither the Company nor any of its Subsidiaries has any liability or
contingent liability for providing, under any Company Plan or otherwise, any
post-retirement medical or life insurance benefits, other than statutory
liability for providing group health plan continuation coverage under Part 6 of
Title I of ERISA and section 4980B of the Code.
(p) Obligations under the Company Plans are properly reflected in the
financial statements of the Company.
(q) There has been no act or omission that would impair the ability of the
Parent or any of its Subsidiaries (or any successor thereto) to unilaterally
amend or terminate any Company Plan.
SECTION 3.12 Labor Matters.
(a) Neither the Company nor any of its Subsidiaries is a party to, or bound
by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization.
(b) Neither the Company nor any of its Subsidiaries is subject to a
dispute, strike or work stoppage with respect to any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization to which it is a party or by which it is bound that would
have or reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
(c) To the Company's knowledge, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened involving employees of the Company or any of its Subsidiaries.
SECTION 3.13 Environmental Matters.
(a) As used in this Agreement:
(i) "Environmental Laws" means any and all applicable laws, statutes,
regulations, rules, orders, ordinances, legally enforceable directives, and
rules of common law of any governmental entity pertaining to protection of
human health (to the extent arising from exposure to Hazardous Materials)
or the environment (including, without limitation, any natural resource
damages or any generation, use, storage, treatment, disposal, release,
threatened release, discharge, or emission of Hazardous Materials into the
indoor or outdoor environment) in effect at the time of Closing;
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(ii) "Hazardous Materials" means any (1) chemical, product, substance,
waste, pollutant, or contaminant that is defined or listed as hazardous or
toxic or that is otherwise regulated under any Environmental Law; (2)
asbestos containing materials, whether in a friable or non-friable
condition, polychlorinated biphenyls, naturally occurring radioactive
materials or radon; and (3) any petroleum hydrocarbons, petroleum products,
petroleum substances, crude oil, natural gas, and any components,
fractions, or derivatives thereof;
(iii) "Environmental Permits" means any and all permits,
registrations, licenses, consents, exemptions, variances, authorizations,
and similar approvals required under Environmental Laws;
(iv) "Release" means any depositing, spilling, leaking, pumping,
pouring, placing, emitting, discarding, abandoning, emptying, discharging,
migrating, injecting, escaping, leaching, dumping, or disposing;
(v) "Company Real Properties" means those real properties owned,
leased, or otherwise operated by the Company or its Subsidiaries in
connection with the performance of their respective businesses; and
(vi) "Offsite Non-Company Real Properties" means any real properties
other than the Company Real Properties
(b) Except as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect:
(i) The Company and its Subsidiaries and their respective operations,
assets, businesses and Company Real Properties are and have been in
compliance with all Environmental Laws and Environmental Permits;
(ii) All Environmental Permits required under Environmental Laws for
operating the Company's and its Subsidiaries' assets, businesses, and
Company Real Properties as they are currently being operated have been
obtained and are currently in full force and effect and, to the Company's
knowledge, there are no conditions or circumstances that would limit or
preclude it or its Subsidiaries from renewing such Environmental Permits;
(iii) The Company and its Subsidiaries are not subject to any pending
or, to the Company's knowledge, threatened claims, actions, suits,
investigations, inquiries or proceedings under Environmental Laws and
neither the Company nor its Subsidiaries have received written notice of
alleged violations under applicable Environmental Laws with respect to
their respective operations, assets, businesses, or Company Real
Properties;
(iv) There have been no Releases of Hazardous Materials on, under or
from the Company Real Properties and there are no investigations,
remediations, removals, or monitorings of Hazardous Materials required
under Environmental Laws at such properties;
(v) Neither the Company nor its Subsidiaries have received any written
notice asserting an alleged liability or obligation under any Environmental
Laws with respect to the investigation, remediation, removal, or monitoring
of any Hazardous Materials at, under, or Released or threatened to be
Released from any Offsite Non-Company Real Properties and, to the knowledge
of the Company, there are no conditions or circumstances that would
reasonably be expected to result in the receipt of such written notice;
(vi) There has been no exposure of any person or property to Hazardous
Materials in connection with the Company's or its Subsidiaries' operations,
assets, businesses, or Company Real Properties that would reasonably be
expected to form the basis for a claim for damages or compensation; and
(vii) The Company and its Subsidiaries have made available to Parent
complete and correct copies of all material environmental site assessment
reports, studies, and correspondence on environmental matters (in each
instance relevant to the Company or its Subsidiaries) that are in the
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Company's or its Subsidiaries' possession and relating to their respective
operations, assets, businesses, or Company Real Properties.
Neither the Company nor its Subsidiaries make any representation or
warranty regarding compliance or failure to comply with, or any actual or
contingent liability under, any Environmental Law, except as expressly set forth
in this Section 3.13.
SECTION 3.14 Intellectual Property. The Company and its Subsidiaries own
or possess all necessary licenses or other valid rights to use all patents,
patent rights, trademarks, trademark rights and proprietary information used or
held for use in connection with their respective businesses as currently being
conducted, free and clear of material Liens, except where the failure to own or
possess such licenses and other rights would not have or reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect,
and there are no assertions or claims challenging the validity of any of the
foregoing which would have or reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect. Except in the ordinary course
of business, neither the Company nor any of its Subsidiaries has granted to any
other person any license to use any of the foregoing. The conduct of the
Company's and its Subsidiaries' respective businesses as currently conducted
does not conflict with any patents, patent rights, licenses, trademarks,
trademark rights, trade names, trade name rights or copyrights of others in a
way which would have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. There is no infringement of any
proprietary right owned by or licensed by or to the Company or any of its
Subsidiaries in a way which would have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
SECTION 3.15 Title to Properties. Except for goods and other property
sold, used or otherwise disposed of since September 30, 2002 in the ordinary
course of business for fair value, as of the date hereof, the Company has
defensible title for oil and gas purposes to all its properties, interests in
properties and assets, real and personal, reflected in the Company's September
30, 2002 financial statements included in the Company Reports, free and clear of
any Lien, except: (a) Liens reflected in the balance sheet of the Company as of
September 30, 2002 included in the Company Reports; (b) Liens for current taxes
not yet due and payable; and (c) such imperfections of title, easements and
Liens that would not have or reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect. All leases and other
agreements pursuant to which the Company or any of its Subsidiaries leases or
otherwise acquires or obtains operating rights affecting any real or personal
property are in good standing, valid, and effective, except where the failure to
be in good standing, valid or effective would not have or reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect;
and there is not, under any such leases, any existing or prospective default or
event of default or event which with notice or lapse of time, or both, would
constitute a default by the Company or any of its Subsidiaries that would have
or reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. All significant operating equipment of the Company and
its Subsidiaries is in good operating condition, ordinary wear and tear
excepted. The Company has not received any material advance, take-or-pay or
other similar payments that entitle purchasers of production to receive
deliveries of hydrocarbons without paying therefor, and, on a net, company-wide
basis, the Company is neither underproduced nor overproduced, in either case, to
any material extent, under gas balancing or similar arrangements.
SECTION 3.16 Insurance. The Company and its Subsidiaries maintain
insurance coverage adequate and customary in the industry for the operation of
their respective businesses (taking into account the cost and availability of
such insurance).
SECTION 3.17 No Brokers. The Company has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Parent, Merger Sub or the Company to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that the Company has retained Deutsche Banc
Securities Inc. to act as its financial advisor in connection with the Merger
and render the opinion referred to in Section 3.18, the terms of which
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(including the fees owed by the Company in connection therewith) have been
disclosed in writing to Parent prior to the date hereof.
SECTION 3.18 Opinion of Financial Advisor. The Board of Directors of the
Company has received the opinion of Deutsche Bank Securities Inc. to the effect
that the Exchange Ratio is fair, from a financial point of view, to the holders
of the Company Common Shares (other than Parent and its Subsidiaries); it being
understood and acknowledged by Parent that such opinion has been rendered for
the benefit of the Board of Directors of the Company, and is not intended to,
and may not, be relied upon by Parent, its affiliates or their respective
Subsidiaries.
SECTION 3.19 Contracts; Debt Instruments.
(a) Except for documents filed or listed as exhibits to the Company Reports
filed since December 31, 2001, there are no contracts that are material to the
business, properties, assets, financial condition or results of operations of
the Company and its Subsidiaries taken as a whole ("Company Material
Contracts"). Neither the Company nor any of its Subsidiaries is in violation of
or in default under (nor does there exist any condition which with the passage
of time or the giving of notice or both would cause such a violation of or
default under) any Company Material Contract to which it is a party or by which
it or any of its properties or assets is bound, except for violations or
defaults that would not have or reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect. Each Company Material
Contract is in full force and effect, and is a legal, valid and binding
obligation of the Company or one of its Subsidiaries and, to the knowledge of
the Company, each of the other parties thereto, enforceable in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity and except where the failure of any Company
Material Contract to be a legal, valid and binding obligation and enforceable in
accordance with its terms would not have or reasonably be expected to have,
individually or in the aggregate, a Company Adverse Effect. No condition exists
or event has occurred which (whether with or without notice or lapse of time or
both) would constitute a default by the Company or one of its Subsidiaries or,
to the knowledge of the Company, any other party thereto under any Company
Material Contract or result in a right of termination of any Company Material
Contract, except for any condition or event that would not have or reasonably be
expected to have, individually or in the aggregate, a Company Adverse Effect.
(b) Set forth in Schedule 3.19(b) of the Company Disclosure Letter is, as
of the date hereof, (i) a list of all loan or credit agreements, notes, bonds,
mortgages, indentures and other agreements and instruments pursuant to which any
indebtedness of the Company or its Subsidiaries in an aggregate principal amount
in excess of $50,000,000 is outstanding or may be incurred, and (ii) the
respective principal amounts outstanding thereunder as of February 21, 2003.
(c) Neither the Company nor any of its Subsidiaries has entered into any
contract and there is no commitment, judgment, injunction, order or decree to
which the Company or any of its Subsidiaries is a party or subject to that has
or would reasonably be expected to have the effect of prohibiting or impairing
the conduct of business by the Company or any of its Subsidiaries or any
contract that may be terminable as a result of Parent's status as a competitor
of any party to such contract, except, in each case, for any prohibition,
impairment or termination right that would not have or reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
(d) The Company and James T. Hackett have executed (i) a third amendment to
the employment agreement by and between the Company and James T. Hackett,
initially effective as of September 16, 1998 (the "Employment Agreement"), in
the form of Exhibit B attached hereto (the "Employment Agreement Amendment") and
(ii) a second amendment to the severance agreement by and between the Company
and James T. Hackett, initially effective as of August 25, 1998 (the "Severance
Agreement"), in the form of Exhibit C attached hereto (the "Severance Agreement
Amendment"), and each of the Employment Agreement, as amended by the Employment
Agreement Amendment, and the Severance Agreement, as amended by the Severance
Agreement Amendment, shall be effective at the Effective Time (it being
understood that, prior to the Effective Time and only with the consent of each
of Parent, the
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Company and James T. Hackett, the Company and James T. Hackett may enter into an
employment agreement (the "New Employment Agreement") incorporating the terms of
each of the Employment Agreement (as amended by the Employment Agreement
Amendment) and the Severance Agreement (as amended by the Severance Agreement
Amendment), which New Employment Agreement, if entered into as contemplated by
this parenthetical, shall be effective as of the Effective Time).
SECTION 3.20 Vote Required. The affirmative vote of holders of a majority
in interest of the voting power of the outstanding Company Shares (with the
Company Preferred Shares voting on an as-converted basis), voting as a single
class, is the only vote necessary to adopt this Agreement and the transactions
contemplated hereby (as applied to this Agreement and the transactions
contemplated hereby, the "Company Requisite Vote").
Section 3.21 Certain Approvals. The Company's Board of Directors has
taken any and all necessary and appropriate action to render inapplicable to the
Merger and the transactions contemplated by this Agreement the restrictions
contained in Section 203 of the DGCL and any other "fair price," "moratorium,"
control share acquisition, interested shareholder or other similar antitakeover
provision or regulation and any restrictive provision of any antitakeover
provision in the certificate of incorporation or bylaws of the Company.
Section 3.22 Certain Contracts. Neither the Company nor any of its
Subsidiaries is a party to or bound by (i) any non-competition agreement or any
other agreement or obligation which purports to limit the manner in which, or
the localities in which, the current business of the Company and its
Subsidiaries, taken as a whole, or Parent and its Subsidiaries, taken as a
whole, is conducted or (ii) any executory agreement or obligation which pertains
to the acquisition or disposition of any asset, or which provides any third
party any lien, claim or preferential right with regard thereto, except, in the
case of this clause (ii), for such agreements or obligations that would not have
or reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
Section 3.23 Rights Agreement. The Company has adopted an amendment to
the Company Rights Agreement with the effect that (i) neither Parent nor Merger
Sub shall be deemed to be an Acquiring Person (as defined in the Company Rights
Agreement), the Distribution Date (as defined in the Company Rights Agreement)
shall not be deemed to occur, and the Rights (as defined in the Company Rights
Agreement) will not separate from the Company Common Shares, as a result of
entering into this Agreement or consummating the Merger and/or the other
transactions contemplated by this Agreement and (ii) the Rights will expire
immediately prior to the Effective Time. The Company has made available to
Parent a true and complete copy of the Company Rights Agreement, as amended to
date.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Except as set forth in the disclosure letter delivered to the Company
concurrently with the execution hereof (the "Parent Disclosure Letter") or as
disclosed with reasonable specificity in the Parent Reports (as defined in
Section 4.7), Parent and Merger Sub, jointly and severally, represent and
warrant to the Company that:
SECTION 4.1 Existence; Good Standing; Corporate Authority. Each of Parent
and Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Each of Parent and Merger Sub
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have or reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect (as defined in Section 8.9).
Each of Parent and Merger Sub has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as now
conducted. The copies of each of Parent's and Merger Sub's certificate of
incorporation
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and bylaws previously made available to the Company are true and correct and
contain all amendments as of the date hereof.
SECTION 4.2 Authorization, Validity and Effect of Agreements. Each of
Parent and Merger Sub has the requisite corporate power and authority to execute
and deliver this Agreement and all other agreements and documents contemplated
hereby to which it is a party. The consummation by each of Parent and Merger Sub
of the transactions contemplated hereby, including the issuance and delivery by
Parent of shares of Parent Common Stock pursuant to the Merger, has been duly
authorized by all requisite corporate action, other than, with respect to the
Merger, the approval of the issuance of Parent Common Stock pursuant to the
Merger by Parent's stockholders. This Agreement constitutes the valid and
legally binding obligation of each of Parent and Merger Sub, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
SECTION 4.3 Capitalization. The authorized capital stock of Parent
consists of 400,000,000 shares of Parent Common Stock, one share of Parent
Special Voting Stock, par value $0.10 per share, and 4,500,000 shares of
Parent's preferred stock, par value $1.00 per share ("Parent Preferred Stock").
As of February 20, 2003, there were (a) 156,798,464 shares of Parent Common
Stock issued and outstanding, (b) one share of Parent Special Voting Stock
issued and outstanding, (c) 1,270,668 shares of Parent Common Stock reserved for
issuance pursuant to options issued under the stock options plans of Parent (the
"Parent Option Plans") described in Schedule 4.3 of the Parent Disclosure
Letter, (d) 49,209 shares of Parent Common Stock reserved for issuance under the
Parent Restricted Stock Award Plan, (e) 1,680,637 shares reserved for issuance
upon exchange of outstanding exchangeable shares ("Northstar Exchangeable
Shares") issued by Northstar Energy Corporation, an Alberta corporation
("Northstar"), (f) 1,500,000 shares of Parent Preferred Stock designated as
6.49% Cumulative Preferred Stock, Series A, issued and outstanding, (g)
2,000,000 unissued shares of Parent Preferred Stock designated as Series A
Junior Participating Preferred Stock ("Parent Series A Preferred Stock") and (h)
4,377,068 shares of Parent Common Stock reserved for issuance upon conversion of
the $760,000,000 of Zero Coupon Convertible Senior Debentures due 2020 (the
"Zero Coupon Debentures"). All issued and outstanding shares of Parent Common
Stock, Parent Special Voting Stock, and Parent Preferred Stock (i) are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights, (ii) were not issued in violation of the terms of any agreement or other
understanding binding upon Parent and (iii) were issued in compliance with all
applicable charter documents of Parent and all applicable federal and state
securities laws, rules and regulations. One right to purchase Series A Junior
Participating Preferred Stock of Parent (each, a "Parent Right") issued pursuant
to a Rights Agreement, dated as of August 17, 1999 (as amended, the "Parent
Rights Agreement"), between Parent and Wachovia Bank, N.A., is associated with
and attached to each outstanding share of Parent Common Stock. The shares of
Parent Common Stock to be issued in connection with the Merger, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable and free of preemptive rights. Except (i) as set forth in this
Section 4.3, (ii) for any Parent Common Stock issuable upon conversion or
exchange of the Northstar Exchangeable Shares, Parent Preferred Stock or Zero
Coupon Debentures, (iii) for any shares of Parent Common Stock issued pursuant
to the exercise of options or other awards referred to in subsections (c)-(d)
above, (iv) for options issued under the Parent Option Plans after the date of
this Agreement and Parent Common Stock issued pursuant to the exercise of such
options and (v) for Parent Series A Preferred Stock or Parent Common Stock
issuable pursuant to Parent Rights, there are no outstanding shares of capital
stock and there are no options, warrants, calls, subscriptions, shareholder
rights plan or similar instruments, convertible securities, or other rights,
agreements or commitments which obligate Parent or any of its Subsidiaries to
issue, transfer or sell any shares of capital stock or other voting securities
of Parent or any of its Subsidiaries. Except as set forth in this Section 4.3,
Parent has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
Parent on any matter.
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SECTION 4.4 Significant Subsidiaries.
(a) Each of Parent's Significant Subsidiaries is a corporation, limited
liability company or partnership duly organized, validly existing and in good
standing (where applicable) under the laws of its jurisdiction of incorporation
or organization, has the corporate, limited liability company or partnership
power and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business and
is in good standing (where applicable) in each jurisdiction in which the
ownership, operation or lease of its property or the conduct of its business
requires such qualification, except for jurisdictions in which such failure to
be so qualified or to be in good standing would not have or reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect. All of the outstanding shares of capital stock of, or other ownership
interests in, each of Parent's Significant Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and is owned, directly or
indirectly, by Parent free and clear of all Liens. Schedule 4.4 of the Parent
Disclosure Letter sets forth for each Significant Subsidiary of Parent its name
and jurisdiction of incorporation or organization.
(b) Devon Energy Production Company, L.P. ("Devon Production"), a
Significant Subsidiary, is a limited partnership (except for tax purposes) duly
organized and validly existing under Oklahoma law, the general partner of which
is Devon Energy Management Company, L.L.C., an Oklahoma limited liability
company which is wholly owned by Devon Energy Corporation (Oklahoma), an
Oklahoma corporation, and has elected to be treated as a sole proprietorship for
federal income tax purposes. Devon Production has one limited partner. All of
the outstanding partnership interests of Devon Production are owned directly or
indirectly by Parent.
(c) All of the outstanding shares of capital stock of Merger Sub are owned
directly by Parent. Merger Sub was formed solely for the purpose of engaging in
the transactions contemplated hereby and has not engaged in any activities other
than in connection with the transactions contemplated by this Agreement.
SECTION 4.5 No Violation. Neither Parent nor any of its Subsidiaries is,
or has received notice that it would be with the passage of time, in violation
of any term, condition or provision of (a) its charter documents or bylaws, (b)
any loan or credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license or other instrument or (c) any order of any court,
governmental authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Parent or any of its Subsidiaries or
any of their respective properties or assets is subject, or is delinquent with
respect to any report required to be filed with any governmental entity, except,
in the case of matters described in clause (b) or (c), as would not have or
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Except as would not have or reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect, (i)
Parent and its Subsidiaries hold all permits, licenses, variances, exemptions,
orders, franchises and approvals of all governmental authorities necessary for
the lawful conduct of their respective businesses (the "Parent Permits") and
(ii) Parent and its Subsidiaries are in compliance with the terms of the Parent
Permits. No investigation by any governmental authority with respect to Parent
or any of its Subsidiaries is pending or, to the knowledge of Parent,
threatened, other than those that would not have or reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect.
SECTION 4.6 No Conflict.
(a) Neither the execution and delivery by Parent and Merger Sub of this
Agreement nor the consummation by Parent and Merger Sub of the transactions
contemplated hereby in accordance with the terms hereof will: (i) conflict with
or result in a breach of any provisions of the charter documents or bylaws of
Parent or Merger Sub; (ii) violate, or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or give rise to a
right of purchase under, or accelerate the performance required by, or result in
the creation of any Lien upon any of the properties of Parent or its
Subsidiaries under, or result in being declared void, voidable, or without
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further binding effect, or otherwise result in a detriment to Parent or any of
its Subsidiaries under any of the terms, conditions or provisions of, any note,
bond, mortgage, indenture, deed of trust, Parent Permit, lease, contract,
agreement, joint venture or other instrument or obligation to which Parent or
any of its Subsidiaries is a party, or by which Parent or any of its
Subsidiaries or any of their properties is bound or affected; or (iii)
contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, order or decree binding upon or applicable to
Parent or any of its Subsidiaries, except, in the case of matters described in
clause (ii) or (iii), as would not have or reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
(b) Neither the execution and delivery by Parent or Merger Sub of this
Agreement nor the consummation by Parent or Merger Sub of the transactions
contemplated hereby in accordance with the terms hereof will require any
consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, other than Regulatory Filings, and listing
of the Parent Common Stock to be issued in the Merger on the AMEX, except for
any consent, approval or authorization the failure of which to obtain and for
any filing or registration the failure of which to make would not have or
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
(c) Other than as contemplated by Section 4.6(b), no consents, assignments,
waivers, authorizations or other certificates are necessary in connection with
the transactions contemplated hereby to provide for the continuation in full
force and effect of all of Parent's material contracts or leases or for Parent
to consummate the transactions contemplated hereby, except where the failure to
receive such consents or other certificates would not have or reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) result in any
payment from Parent or its Subsidiaries (including severance, unemployment
compensation, parachute payment, bonus or otherwise) becoming due to any
director, employee or independent contractor of Parent or any of its
Subsidiaries under any Parent Plan (as defined in Section 4.11) or otherwise;
(ii) increase any benefits otherwise payable under any Parent Plan or otherwise;
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits.
SECTION 4.7 SEC Documents. Parent has made available to the Company each
registration statement, report, proxy statement or information statement (other
than preliminary materials) filed by Parent with the SEC since January 1, 2001,
each in the form (including exhibits and any amendments thereto) filed with the
SEC prior to the date hereof (collectively, the "Parent Reports"), and Parent
has filed all forms, reports and documents required to be filed by it with the
SEC pursuant to relevant securities statutes, regulations, policies and rules
since such time. As of their respective dates, the Parent Reports (i) were
prepared in accordance with the applicable requirements of the Securities Act,
the Exchange Act, and the rules and regulations thereunder and complied with the
then applicable accounting requirements and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading except for such
statements, if any, as have been modified by subsequent filings with the SEC
prior to the date hereof. Each of the consolidated balance sheets included in or
incorporated by reference into the Parent Reports (including the related notes
and schedules) fairly presents in all material respects the consolidated
financial position of Parent and its Subsidiaries as of its date and each of the
consolidated statements of operations, cash flows and stockholders' equity
included in or incorporated by reference into the Parent Reports (including any
related notes and schedules) fairly presents in all material respects the
results of operations, cash flows or changes in stockholders' equity, as the
case may be, of Parent and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to such exceptions as may be
permitted by Form 10-Q of the SEC), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein.
SECTION 4.8 Litigation and Liabilities. There are no actions, suits or
proceedings pending against Parent or any of its Subsidiaries or, to Parent's
knowledge, threatened against Parent or any of its
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Subsidiaries, at law or in equity, or before or by any federal, state or foreign
commission, court, board, bureau, agency or instrumentality, other than those
that would not have or reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect. There are no outstanding judgments,
decrees, injunctions, awards or orders against Parent or any of its
Subsidiaries, other than those that would not have or reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect. There
are no obligations or liabilities of any nature, whether accrued, absolute,
contingent or otherwise, of Parent or any of its Subsidiaries, other than those
liabilities and obligations (a) that are disclosed in the Parent Reports, (b)
that have been incurred in the ordinary course of business since September 30,
2002, (c) related to expenses associated with the transactions contemplated by
this Agreement or (d) that would not have or reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
SECTION 4.9 Absence of Certain Changes. Since December 31, 2001, Parent
has conducted its business only in the ordinary and usual course of business and
during such period there has not been any (i) event, condition, action or
occurrence that has had or would reasonably be expected to have, individually or
in the aggregate, a Parent Material Adverse Effect; (ii) any material change by
Parent or any of its Subsidiaries (viewed on a consolidated basis) in any of its
accounting methods, principles or practices or any of its tax methods, practices
or elections, except for changes required by generally accepted accounting
principles; (iii) any material damage, destruction, or loss to the business or
properties of Parent and its Subsidiaries, taken as a whole, not covered by
insurance; (iv) any declaration, setting aside or payment of any dividend (other
than ordinary dividends on the Parent Common Stock and Northstar Exchangeable
Shares at a rate not greater than $0.05 per share in any quarter and dividends
upon its 6.49% Cumulative Preferred Stock, Series A, in accordance with the
terms thereof) or other distribution in respect of the capital stock of Parent,
or any direct or indirect redemption, purchase or any other acquisition by
Parent of any such stock; (v) any change in the capital stock or in the number
of shares or classes of Parent's authorized or outstanding capital stock (other
than as a result of issuances under the Parent Option Plans, exercises of
options to purchase the Parent Common Stock outstanding or issued, or such other
issuances of capital stock, in each case, as permitted hereunder pursuant to
Section 5.1(b)(vi)); or (vi) any increase in or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option, stock purchase or other employee benefit plan, except in
the ordinary course of business or (vii) any event, condition, action or
occurrence that is prohibited on or after the date of this Agreement under
Section 5.1(b)(viii), (ix), (x), (xii), (xiii), (xv), (xvi), or (xx) of this
Agreement.
SECTION 4.10 Taxes.
(a) Each of Parent and its Subsidiaries and each affiliated, consolidated,
combined, unitary or similar group of which any such corporation is or, since
January 1, 1991, was a member has (i) duly filed (or there has been filed on its
behalf) on a timely basis (taking into account any extensions of time to file
before the date hereof) with appropriate governmental authorities all Returns
required to be filed by or with respect to it, except to the extent that any
failure to file would not have or reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect, and (ii) duly paid or
deposited in full on a timely basis or made adequate provisions in accordance
with generally accepted accounting principles (or there has been paid or
deposited or adequate provision has been made on its behalf) for the payment of
all taxes required to be paid by it other than those being contested in good
faith by Parent or a Subsidiary of Parent and except to the extent that any
failure to pay or deposit or make adequate provision for the payment of such
taxes would not have or reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
(b) Except for matters that would not have or reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect, (i)
the federal income tax returns of the Parent and each of its Subsidiaries have
been examined by the IRS (or the applicable statutes of limitation for the
assessment of federal income taxes for such periods have expired) for all
periods; (ii) all deficiencies asserted as a result of any examinations of
Parent and its Subsidiaries by any taxing authority have been paid fully,
settled or adequately provided for in the financial statements contained in the
Parent Reports; (iii) as of
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the date hereof, neither Parent nor any of its Subsidiaries has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any taxes of Parent or any of its
Significant Subsidiaries that will be outstanding as of the Effective Time; (iv)
neither Parent nor any of its Subsidiaries is a party to, is bound by or has any
obligation under any tax sharing, allocation or indemnity agreement or any
similar agreement or arrangement; and (v) there are no tax liens on any assets
of the Parent or its Subsidiaries except for (A) taxes not yet currently due and
(B) matters being contested by Parent in good faith for which adequate reserves
are reflected in the financial statements.
SECTION 4.11 Employee Benefit Plans.
(a) For purposes of this Section 4.11, the Subsidiaries of Parent shall
include any enterprise which, with Parent, forms or formed a controlled group of
corporations, a group of trades or business under common control or an
affiliated service group, within the meaning of section 414(b), (c) or (m) of
the Code.
(b) All employee benefit plans, programs, arrangements and agreements
covering active, former or retired employees of Parent and any of its
Subsidiaries which provide material benefits to such employees, or as to which
Parent or any Subsidiary has any material liability or material contingent
liability, are listed on Schedule 4.11(b) of the Parent Disclosure Letter (the
"Parent Plans").
(c) Parent has made available to the Company a true, correct and complete
copy of each of the Parent Plans, and all contracts relating thereto, or to the
funding thereof, including, without limitation, all trust agreements, insurance
contracts, administration contracts, investment management agreements,
subscription and participation agreements, and record-keeping agreements, each
as in effect on the date hereof. In the case of any Parent Plan that is not in
written form, the Company has been supplied with an accurate description of such
Parent Plan as in effect on the date hereof. A true, correct and complete copy
of the most recent annual report, actuarial report, accountant's opinion of the
plan's financial statements, summary plan description and IRS determination
letter with respect to each Parent Plan, to the extent applicable, and a current
schedule of assets (and the fair market value thereof assuming liquidation of
any asset which is not readily tradable) held with respect to any funded Parent
Plan have been made available to the Company. There have been no material
changes in the financial condition in the respective plans from that stated in
the annual reports and actuarial reports supplied that would have or reasonably
be expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
(d) All Parent Plans comply in form and have been administered in operation
in all material respects with all applicable requirements of law, excluding any
deficiencies that would not have or reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect, no event has occurred
which will or could cause any such Parent Plan to fail to comply with such
requirements, excluding any deficiencies that would not have or reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect, and no notice has been issued by any governmental authority questioning
or challenging such compliance.
(e) All required employer contributions under any such plans have been made
and the applicable funds have been funded in accordance with the terms thereof,
excluding any deficiencies that would not have or reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect.
(f) To the extent applicable, Parent Plans comply, in all material
respects, with the requirements of ERISA, the Code and any other applicable tax
act and other laws, and any Parent Plan intended to be qualified under section
401(a) of the Code has been determined by the IRS to be so qualified and nothing
has occurred to cause the loss of such qualified status.
(g) No Parent Plan is covered by Title IV of ERISA or section 412 of the
Code.
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(h) There are no pending or anticipated claims against or otherwise
involving any of the Parent Plans and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of the Parent
Plan activities) has been brought against or with respect to any Parent Plan.
(i) Neither Parent nor any of its Subsidiaries has incurred or reasonably
expects to incur any liability under subtitle C or D of Title IV of ERISA with
respect to any "single-employer plan," within the meaning of section 4001(a)(15)
of ERISA, currently or formerly maintained by Parent, any Parent Subsidiary or
any entity which is considered one employer with Parent under section 4001 of
ERISA.
(j) Neither Parent nor any of its Subsidiaries has incurred or reasonably
expects to incur any withdrawal liability under subtitle E of Title IV of ERISA
with respect to any "multi-employer plan," within the meaning of section
4001(a)(3) of ERISA.
(k) None of the assets of any Parent Plan is invested in employer
securities or employer real property.
(l) There have been no "prohibited transactions" (as described in section
406 of ERISA or section 4975 of the Code) with respect to any Parent Plan that
would have or reasonably be expected to have, individually or in the aggregate,
a Parent Material Adverse Effect.
(m) There have been no acts or omissions by Parent or any of its
Subsidiaries which have given rise to or may give rise to fines, penalties,
taxes or related charges under section 502 of ERISA or Chapters 43, 47, 68 or
100 of the Code for which Parent or any of its Subsidiaries may be liable that
would reasonably be expected to result in a Parent Material Adverse Effect.
(n) Each Parent Plan which constitutes a "group health plan" (as defined in
section 607(1) of ERISA or section 4980B(g)(2) of the Code), including any plans
of current and former affiliates which must be taken into account under sections
4980B and 414(t) of the Code or section 601 of ERISA, has been operated in
material compliance with applicable law, including coverage requirements of
sections 4980B of the Code, Chapter 100 of the Code and section 601 of ERISA to
the extent such requirements are applicable.
(o) Neither Parent nor any of its Subsidiaries has any liability or
contingent liability for providing, under any Parent Plan or otherwise, any
post-retirement medical or life insurance benefits, other than statutory
liability for providing group health plan continuation coverage under Part 6 of
Title I of ERISA and section 4980B of the Code.
(p) Obligations under the Parent Plans are properly reflected in the
financial statements of Parent.
SECTION 4.12 Labor Matters.
(a) Neither Parent nor any of its Subsidiaries is a party to, or bound by,
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization.
(b) Neither Parent nor any of its Subsidiaries is subject to a dispute,
strike or work stoppage with respect to any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization to which it is a party or by which it is bound that would have or
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
(c) To Parent's knowledge, there are no organizational efforts with respect
to the formation of a collective bargaining unit presently being made or
threatened involving employees of Parent or any of its Subsidiaries.
SECTION 4.13 Environmental Matters.
(a) As used in this Agreement:
(i) "Parent Real Properties" means those real properties owned,
leased, or otherwise operated by Parent, the Merger Sub or their
Subsidiaries in connection with the performance of any of their respective
businesses; and
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(ii) "Offsite Non-Parent Real Properties" means any real properties
other than the Parent Real Properties
(b) Except as would not have or reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect:
(i) Parent, Merger Sub, and their Subsidiaries and any of their
respective operations, assets, businesses and Parent Real Properties are
and have been in compliance with all Environmental Laws and Environmental
Permits;
(ii) All Environmental Permits required under Environmental Laws for
operating Parent's, Merger Sub's, and their Subsidiaries' assets,
businesses, and Parent Real Properties as they are currently being operated
have been obtained and are currently in full force and effect and, to
Parent's knowledge, there are no conditions or circumstances that would
limit or preclude it, Merger Sub or their Subsidiaries from renewing such
Environmental Permits;
(iii) Parent, Merger Sub, and their Subsidiaries are not subject to
any pending or, to Parent's knowledge, threatened claims, actions, suits,
investigations, inquiries or proceedings under Environmental Laws and none
of Parent, Merger Sub, or their Subsidiaries have received written notice
of alleged violations under applicable Environmental Laws with respect to
their respective operations, assets, businesses, and Parent Real
Properties;
(iv) There have been no Releases of Hazardous Materials on, under or
from the Parent Real Properties and there are no investigations,
remediations, removals, or monitorings of Hazardous Materials required
under Environmental Laws at such properties;
(v) None of Parent, Merger Sub, or their Subsidiaries have received
any written notice asserting an alleged liability or obligation under any
Environmental Laws with respect to the investigation, remediation, removal,
or monitoring of any Hazardous Materials at, under, or Released or
threatened to be Released from any Offsite Non-Parent Real Properties and,
to the knowledge of Parent, there are no conditions or circumstances that
would reasonably be expected to result in the receipt of such written
notice;
(vi) There has been no exposure of any person or property to Hazardous
Materials in connection with Parent's, Merger Sub's, or their Subsidiaries'
operations, assets, businesses, and Parent Real Properties that would
reasonably be expected to form the basis for a claim for damages or
compensation; and
(vii) Parent, Merger Sub, and their Subsidiaries have made available
to the Company complete and correct copies of all material environmental
site assessment reports, studies, and correspondence on environmental
matters (in each instance relevant to the Parent, Merger Sub or their
Subsidiaries) that are in Parent's, Merger Sub's, or their Subsidiaries'
possession and relating to their respective operations, assets, businesses
and Parent Real Properties.
None of Parent, Merger Sub, or their Subsidiaries make any representation
or warranty regarding compliance or failure to comply with, or any actual or
contingent liability under, any Environmental Law, except as expressly set forth
in this Section 4.13.
SECTION 4.14 Intellectual Property. Parent and its Subsidiaries own or
possess all necessary licenses or other valid rights to use all patents, patent
rights, trademarks, trademark rights and proprietary information used or held
for use in connection with their respective businesses as currently being
conducted, free and clear of material Liens, except where the failure to own or
possess such licenses and other rights would not have or reasonably be expected
to have, individually or in the aggregate, a Parent Material Adverse Effect, and
there are no assertions or claims challenging the validity of any of the
foregoing which would have or reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect. Except in the ordinary course
of business, neither Parent nor any of its Subsidiaries has granted to any other
person any license to use any of the foregoing. The conduct of Parent's and its
Subsidiaries' respective businesses as currently conducted does not conflict
with any
A-27
patents, patent rights, licenses, trademarks, trademark rights, trade names,
trade name rights or copyrights of others in a way which would have or
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. There is no infringement of any proprietary right owned
by or licensed by or to Parent or any of its Subsidiaries in a way which would
have or reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect.
SECTION 4.15 Title to Properties. Except for goods and other property
sold, used or otherwise disposed of since September 30, 2002 in the ordinary
course of business for fair value, as of the date hereof, Parent has defensible
title for oil and gas purposes to all its properties, interests in properties
and assets, real and personal, reflected in Parent's September 30, 2002
financial statements included in the Parent Reports, free and clear of any Lien,
except: (a) Liens reflected in the balance sheet of Parent as of September 30,
2002 included in the Parent Reports; (b) Liens for current taxes not yet due and
payable; and (c) such imperfections of title, easements and Liens that would not
have or reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect. All leases and other agreements pursuant to
which Parent or any of its Subsidiaries leases or otherwise acquires or obtains
operating rights affecting any real or personal property are in good standing,
valid, and effective, except where the failure to be in good standing, valid or
effective would not have or reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect; and there is not, under any
such leases, any existing or prospective default or event of default or event
which with notice or lapse of time, or both, would constitute a default by
Parent or any of its Subsidiaries that would have or reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect. All
significant operating equipment of Parent and its Subsidiaries is in good
operating condition, ordinary wear and tear excepted. Parent has not received
any material advance, take-or-pay or other similar payments that entitle
purchasers of production to receive deliveries of hydrocarbons without paying
therefor, and, on a net, company-wide basis, Parent is neither underproduced nor
overproduced, in either case, to any material extent, under gas balancing or
similar arrangements.
SECTION 4.16 Insurance. Parent and its Subsidiaries maintain insurance
coverage adequate and customary in the industry for the operation of their
respective businesses (taking into account the cost and availability of such
insurance).
SECTION 4.17 No Brokers. Parent has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of the Company, Parent or Merger Sub to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that Parent has retained Morgan Stanley to act as
its financial advisor in connection with the Merger and render the opinion
referred to in Section 4.18, the terms of which (including the fees owed by
Parent in connection therewith) have been disclosed in writing to the Company
prior to the date hereof.
SECTION 4.18 Opinion of Financial Advisor. The Board of Directors of
Parent has received the opinion of Morgan Stanley to the effect that the
Exchange Ratio is fair, from a financial point of view, to Parent; it being
understood and acknowledged by Parent that such opinion has been rendered for
the benefit of the Board of Directors of Parent, and is not intended to, and may
not, be relied upon by the Company, its affiliates or their respective
Subsidiaries.
SECTION 4.19 Contracts; Debt Instruments
(a) Except for documents filed or listed as exhibits to the Parent Reports
filed since December 31, 2001, as of the date hereof, there are no contracts
that are material to the business, properties, assets, financial condition or
results of operations of Parent and its Subsidiaries taken as a whole ("Parent
Material Contracts"). Neither Parent nor any of its Subsidiaries is in violation
of or in default under (nor does there exist any condition which with the
passage of time or the giving of notice or both would cause such a violation of
or default under) any Parent Material Contract to which it is a party or by
which it or any of its properties or assets is bound, except for violations or
defaults that would not have or reasonably be expected to have, individually or
in the aggregate, a Parent Material Adverse Effect. Each Parent Material
Contract is in full force and effect, and is a legal, valid and binding
obligation of Parent or one of
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its Subsidiaries and, to the knowledge of Parent, each of the other parties
thereto, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity and except where
the failure of any Parent Material Contract to be a legal, valid and binding
obligation and enforceable in accordance with its terms would not have or
reasonably be expected to have, individually or in the aggregate, a Parent
Adverse Effect. No condition exists or event has occurred which (whether with or
without notice or lapse of time or both) would constitute a default by Parent or
one of its Subsidiaries or, to the knowledge of Parent, any other party thereto
under any Parent Material Contract or result in a right of termination of any
Parent Material Contract, except for any condition or event that would not have
or reasonably be expected to have, individually or in the aggregate, a Parent
Adverse Effect.
(b) Set forth in Schedule 4.19(b) of the Parent Disclosure Letter is, as of
the date hereof, (i) a list of all loan or credit agreements, notes, bonds,
mortgages, indentures and other agreements and instruments pursuant to which any
indebtedness of Parent or its Subsidiaries in an aggregate principal amount in
excess of $50,000,000 is outstanding or may be incurred, and (ii) the respective
principal amounts outstanding thereunder as of February 21, 2003.
(c) Neither Parent nor any of its Subsidiaries has entered into any
contract and there is no commitment, judgment, injunction, order or decree to
which Parent or any of its Subsidiaries is a party or subject to that has or
would reasonably be expected to have the effect of prohibiting or impairing the
conduct of business by Parent or any of its Subsidiaries or any contract that
may be terminable as a result of the Company's status as a competitor of any
party to such contract, except, in each case, for any prohibition, impairment or
termination right that would not have or reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
SECTION 4.20 Vote Required. The affirmative vote of the holders of a
majority of the votes cast in person or by proxy by holders of Parent Common
Stock and the outstanding Northstar Exchangeable Shares, voting as a single
class with the Parent Special Voting Stock (representing the Northstar
Exchangeable Shares as provided in Parent's certificate of incorporation),
represented in person or by proxy at a meeting at which a quorum is present,
approving the issuance of shares of Parent Common Stock required to be issued
pursuant to Article 2, is the only vote of the holders of any class or series of
Parent capital stock necessary to approve this Agreement and the transactions
contemplated hereby (as applied to the issuance of shares of Parent Common Stock
pursuant to this Agreement and the transactions contemplated hereby, the "Parent
Requisite Vote").
Section 4.21 Certain Contracts. Neither the Parent nor any of its
Subsidiaries is a party to or bound by (i) any non-competition agreement or any
other agreement or obligation which purports to limit the manner in which, or
the localities in which, the current business of Parent and its Subsidiaries,
taken as a whole, or the Company and its Subsidiaries, taken as a whole, is
conducted or (ii) any executory agreement or obligation which pertains to the
acquisition or disposition of any asset, or which provides any third party any
lien, claim or preferential right with regard thereto, except, in the case of
this clause (ii), for such agreements or obligations that would not have or
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
Section 4.22 Rights Agreement. No person shall be deemed to be an
Acquiring Person (as defined in the Parent Rights Agreement), the Distribution
Date (as defined in the Parent Rights Agreement) shall not be deemed to occur
and the Rights (as defined in the Parent Rights Agreement) will not separate
from the Parent Common Stock, as a result of entering into this Agreement or
consummating the Merger and/or the other transactions contemplated by this
Agreement. Parent has made available to the Company a true and complete copy of
the Parent Rights Agreement, as amended to date.
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ARTICLE 5
COVENANTS
SECTION 5.1 Conduct of Business.
(a) Prior to the Effective Time, except as set forth in the Company
Disclosure Letter or as expressly contemplated by this Agreement, including
Section 5.14, or as consented to in writing by Parent, the Company:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and shall cause each of
its Subsidiaries to use its reasonable best efforts, to preserve intact
their business organizations and goodwill, keep available the services of
their respective officers and employees and maintain satisfactory
relationships with those persons having business relationships with them;
(iii) shall not amend its certificate of incorporation or bylaws;
(iv) shall promptly notify Parent of any material adverse change in
its financial condition or business or any termination, cancellation,
repudiation or material breach of any Company Material Contract (or
communications expressly indicating the same may be contemplated), or the
institution of any material litigation or material governmental complaints,
investigations or hearings (or communications in writing indicating the
same may be contemplated), or the breach in any material respect of any
representation or warranty contained herein;
(v) shall promptly make available (in paper form or via the Internet)
to Parent true and correct copies of any report, statement or schedule
filed with the SEC subsequent to the date of this Agreement;
(vi) shall not (A) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed in the Company Disclosure Letter or referred to
in clause (B) below, issue any shares of its capital stock, effect any
stock split or otherwise change its capitalization as it existed on the
date hereof; (B) grant, confer or award any option, warrant, conversion
right or other right not existing on the date hereof to acquire any shares
of its capital stock except (1) the grant of options or restricted shares
to new employees consistent with past practice in an aggregate amount not
to exceed 100,000 Company Common Shares or (2) pursuant to contractual
commitments existing on the date of this Agreement and disclosed in the
Company Disclosure Letter; (C) increase any compensation or benefits of any
officer, director, employee or agent of the Company or any of its
Subsidiaries, except in the ordinary course of business consistent with the
past practice of the Company or any of its Subsidiaries (as applicable), or
enter into or amend any employment agreement or severance agreement with
any of its present or future officers, directors or employees except with
new employees consistent with past practice, or (D) adopt any new employee
benefit plan (including any stock option, stock benefit or stock purchase
plan) or amend (except as required by law) any existing employee benefit
plan in any material respect;
(vii) shall not, and, in the case of clause (B) below, shall not
permit any of its Subsidiaries to (A) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any
shares of its capital stock (other than the Company's ordinary quarterly
dividends payable with respect to the Company Common Shares of $0.04 per
share and ordinary semi-annual dividends payable with respect to the
Company Preferred Shares of $32.50 per share) or (B) redeem, purchase or
otherwise acquire any shares of its capital stock or capital stock of any
of its Subsidiaries or any option, warrant, conversion right or other right
to acquire such shares, or make any commitment for any such action;
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(viii) shall not, and shall not permit any of its Subsidiaries to,
sell, lease or otherwise dispose of any of its assets (including capital
stock of Subsidiaries) for an amount in excess of $150,000,000,
individually or in the aggregate, except in the ordinary course of business
and for fair value;
(ix) shall not, and shall not permit any of its Subsidiaries to,
except pursuant to contractual commitments in effect on the date hereof and
disclosed in the Company Disclosure Letter and except for amounts that in
the aggregate do not exceed $40,000,000 authorize, propose, agree to, enter
into or consummate any merger, consolidation or business combination
transaction (other than the Merger) or acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof;
(x) shall not, except as may be required as a result of a change in
law or in generally accepted accounting principles, change any of the
accounting principles or practices used by it;
(xi) shall, and shall cause each of its Subsidiaries to, use
reasonable best efforts to maintain with financially responsible insurance
companies insurance in such amounts and against such risks and losses as
are customary for such party;
(xii) shall not, and shall not permit any of its Subsidiaries to,
except where it would not have and would not be reasonably expected to
have, individually or in the aggregate, a Company Material Adverse Effect,
(A) make or rescind any express or deemed election relating to taxes,
including elections for any and all joint ventures, partnerships, limited
liability companies, working interests or other investments where it has
the capacity to make such binding election, (B) settle or compromise any
claim, action, suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to taxes, or (C) change in any respect any of
its methods of reporting any item for federal income tax purposes from
those employed in the preparation of its federal income tax return for the
most recent taxable year for which a return has been filed, except as may
be required by applicable law;
(xiii) shall not, nor shall it permit any of its Subsidiaries to, (A)
incur any indebtedness for borrowed money (except under credit lines in
existence as of the date of this Agreement) or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of such party or any of its Subsidiaries or
guarantee any debt securities of others, (B) except in the ordinary course
of business, enter into any material lease (whether such lease is an
operating or capital lease) or create any material mortgages, liens,
security interests or other encumbrances on the property of the Company or
Parent or any of their Subsidiaries in connection with any indebtedness
thereof, (C) make or commit to make aggregate capital expenditures in
excess of $1,000,000,000 or (D) make or commit to make individual operating
expenditures in excess of $50,000,000;
(xiv) subject to Section 5.5, shall not take any action that is likely
to delay materially or adversely affect the ability of any of the parties
hereto to obtain any consent, authorization, order or approval of any
governmental commission, board or other regulatory body or the expiration
of any applicable waiting period required to consummate the Merger;
(xv) unless in the good faith opinion of its Board of Directors after
consultation with its outside legal counsel complying with the following
provisions would be inconsistent with the fiduciary duties of such Board of
Directors and only then if taking such actions would not violate any of the
other terms of this Agreement, shall not, and shall not permit any of its
Subsidiaries to, terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its
Subsidiaries is a party; and during such period shall enforce, to the
fullest extent permitted under applicable law, the provisions of such
agreement, including by obtaining injunctions to prevent any breaches of
such agreements and to enforce specifically the terms and provisions
thereof in any court of the United States of America or any state having
jurisdiction;
(xvi) shall not enter into or amend any agreement with any holder of
Company capital stock with respect to holding, voting or disposing of
Company Shares;
A-31
(xvii) shall not by resolution of its Board of Directors cause the
acceleration of rights, benefits or payments under any Company Plans;
(xviii) shall not, and shall not permit any of its Subsidiaries to,
enter into any additional commodity hedge transactions for (A) any period
in 2003, (B) any period in 2004 in which the volume hedged is more than 35%
of its and its Subsidiaries' (taken as a whole) estimated production of
proved reserves of these commodities during that period, or (C) any period
after December 31, 2004;
(xix) shall not take any action to amend the Company Rights Agreement,
redeem the Company Rights subject thereto, or exempt any third party from
the other provisions of the Company Rights Agreement, as applicable;
(xx) shall not split, combine, subdivide or reclassify its outstanding
shares of capital stock;
(xxi) shall not purchase any Parent Common Stock;
(xxii) shall not, and shall not permit any of its Subsidiaries to, (A)
do business in any country in which the Company or any of its Subsidiaries
is not doing business as of the date hereof or (B) enter into any joint
venture, partnership or other joint business venture with any person in
which the fair market value of the Company's or its Subsidiaries' aggregate
investments and commitments exceed $50,000,000; and
(xxiii) shall not, nor shall it permit any of its Subsidiaries to,
agree in writing or otherwise to take any of the foregoing actions.
(b) Prior to the Effective Time, except as set forth in the Parent
Disclosure Letter or as expressly contemplated by this Agreement, including
Section 5.14, or as consented to in writing by the Company, Parent:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and shall cause each of
its Subsidiaries to use its reasonable best efforts, to preserve intact
their business organizations and goodwill, keep available the services of
their respective officers and employees and maintain satisfactory
relationships with those persons having business relationships with them;
(iii) shall not amend its certificate of incorporation or bylaws
except as necessary to consummate the transactions contemplated by this
Agreement;
(iv) shall promptly notify the Company of any material adverse change
in its financial condition or business or any termination, cancellation,
repudiation or material breach of any Parent Material Contract (or
communications expressly indicating the same may be contemplated), or the
institution of any material litigation or material governmental complaints,
investigations or hearings (or communications in writing indicating the
same may be contemplated), or the breach in any material respect of any
representation or warranty contained herein;
(v) shall promptly make available (in paper form or via the Internet)
to the Company true and correct copies of any report, statement or schedule
filed with the SEC subsequent to the date of this Agreement;
(vi) shall not (A) except (1) pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed in the Parent Disclosure Letter or referred to in
clause (B) below or (2) for awards of options or restricted shares made in
the ordinary course and consistent with past practice, issue any shares of
its capital stock, effect any stock split or otherwise change its
capitalization as it existed on the date hereof; (B) grant, confer or award
any option, warrant, conversion right or other right not existing on the
date hereof to acquire any shares of its capital stock except (1) the grant
of options or restricted shares to new employees consistent with
A-32
past practice in an aggregate amount not to exceed 100,000 shares of Parent
Common Stock, (2) pursuant to contractual commitments existing on the date
of this Agreement and disclosed in the Parent Disclosure Letter or (3) the
grant of options or restricted shares made in the ordinary course of
business and consistent with past practice; (C) increase any compensation
or benefits of any officer, director, employee or agent of the Parent or
any of its Subsidiaries, except in the ordinary course of business
consistent with the past practice of the Parent or any of its Subsidiaries
(as applicable), or enter into or amend any employment agreement or
severance agreement with any of its present or future officers, directors
or employees except with new employees consistent with past practice, or
(D) adopt any new employee benefit plan (including any stock option, stock
benefit or stock purchase plan) or amend (except as required by law) any
existing employee benefit plan in any material respect;
(vii) shall not, and, in the case of clause (B) below, shall not
permit any of its Subsidiaries to (A) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any
shares of its capital stock (other than ordinary dividends on the Parent
Common Stock and Northstar Exchangeable Shares at a rate not greater than
$0.05 per share in any quarter and dividends upon its 6.49% Cumulative
Preferred Stock, Series A, in accordance with the terms thereof) or (B)
redeem, purchase or otherwise acquire any shares of its capital stock or
capital stock of any of its Subsidiaries or any option, warrant, conversion
right or other right to acquire such shares, or make any commitment for any
such action;
(viii) shall not, and shall not permit any of its Subsidiaries to,
sell, lease or otherwise dispose of any of its assets (including capital
stock of Subsidiaries) for an amount in excess of $700,000,000,
individually or in the aggregate, except in the ordinary course of business
and for fair value;
(ix) shall not, and shall not permit any of its Subsidiaries to,
except pursuant to contractual commitments in effect on the date hereof and
disclosed in the Parent Disclosure Letter and except for amounts that in
the aggregate do not exceed $100,000,000 authorize, propose, agree to,
enter into or consummate any merger, consolidation or business combination
transaction (other than the Merger) or acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof;
(x) shall not, except as may be required as a result of a change in
law or in generally accepted accounting principles, change any of the
accounting principles or practices used by it;
(xi) shall, and shall cause each of its Subsidiaries to, use
reasonable best efforts to maintain with financially responsible insurance
companies insurance in such amounts and against such risks and losses as
are customary for such party;
(xii) shall not, and shall not permit any of its Subsidiaries to,
except where it would not have and would not be reasonably expected to
have, individually or in the aggregate, a Parent Material Adverse Effect,
(A) make or rescind any express or deemed election relating to taxes,
including elections for any and all joint ventures, partnerships, limited
liability companies, working interests or other investments where it has
the capacity to make such binding election, (B) settle or compromise any
claim, action, suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to taxes, or (C) change in any respect any of
its methods of reporting any item for federal income tax purposes from
those employed in the preparation of its federal income tax return for the
most recent taxable year for which a return has been filed, except as may
be required by applicable law;
(xiii) shall not, nor shall it permit any of its Subsidiaries to, (A)
incur any indebtedness for borrowed money (except under credit lines in
existence as of the date of this Agreement) or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of such party or any of its Subsidiaries or
guarantee any debt securities of others except for amounts that in the
aggregate do not exceed $100,000,000, (B) except in the ordinary course of
business, enter into any material lease (whether such lease is an operating
or capital lease)
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or create any material mortgages, liens, security interests or other
encumbrances on the property of the Company or Parent or any of their
Subsidiaries in connection with any indebtedness thereof, (C) make or
commit to make aggregate capital expenditures in excess of $1,000,000,000
or (D) make or commit to make individual operating expenditures in excess
of $50,000,000;
(xiv) subject to Section 5.5, shall not take any action that is likely
to delay materially or adversely affect the ability of any of the parties
hereto to obtain any consent, authorization, order or approval of any
governmental commission, board or other regulatory body or the expiration
of any applicable waiting period required to consummate the Merger;
(xv) unless in the good faith opinion of its Board of Directors after
consultation with its outside legal counsel complying with the following
provisions would be inconsistent with the fiduciary duties of such Board of
Directors and only then if taking such actions would not violate any of the
other terms of this Agreement, shall not, and shall not permit any of its
Subsidiaries to, terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its
Subsidiaries is a party; and during such period shall enforce, to the
fullest extent permitted under applicable law, the provisions of such
agreement, including by obtaining injunctions to prevent any breaches of
such agreements and to enforce specifically the terms and provisions
thereof in any court of the United States of America or any state having
jurisdiction;
(xvi) shall not enter into or amend any agreement with any holder of
Parent capital stock with respect to holding, voting or disposing of shares
of Parent Common Stock or Parent Preferred Stock;
(xvii) shall not by resolution of its Board of Directors cause the
acceleration of rights, benefits or payments under any Parent Plans;
(xviii) shall not, and shall not permit any of its Subsidiaries to,
enter into any additional commodity hedge transactions for (A) any period
in 2003 in which the volume hedged is more than 65% of its and its
Subsidiaries' (taken as a whole) estimated production of proved reserves of
these commodities during that period, (B) any period in 2004 in which the
volume hedged is more than 35% of its and its Subsidiaries' (taken as a
whole) estimated production of proved reserves of these commodities during
that period, or (C) any period after December 31, 2004;
(xix) shall not take any action to amend the Parent Rights Agreement,
redeem the Parent Rights subject thereto, or exempt any third party from
the other provisions of the Parent Rights Agreement, as applicable;
(xx) shall not split, combine, subdivide or reclassify its outstanding
shares of capital stock;
(xxi) shall not purchase any Company Common Stock;
(xxii) shall not, and shall not permit any of its Subsidiaries to, (A)
do business in any country in which Parent or any of its Subsidiaries is
not doing business as of the date hereof or (B) enter into any joint
venture, partnership or other joint business venture with any person in
which the fair market value of Parent's or its Subsidiaries' aggregate
investments and commitments exceed $50,000,000; and
(xxiii) shall not, nor shall it permit any of its Subsidiaries to,
agree in writing or otherwise to take any of the foregoing actions.
SECTION 5.2 No Solicitation by the Company.
(a) The Company agrees that it and its Subsidiaries (i) will not (and the
Company will not permit its or its Subsidiaries' officers, directors, employees,
agents or representatives, including any investment banker, attorney or
accountant retained by the Company or any of its Subsidiaries, to) solicit,
initiate or encourage (including by way of furnishing non-public information)
any inquiry, proposal or offer (including any proposal or offer to its
stockholders) with respect to a third party tender offer, merger, consolidation,
business combination or similar transaction involving any assets or class of
capital stock of the Company, or any acquisition of 10% or more of the capital
stock of the Company (other than upon exercise of the Stock Options (as
hereinafter defined) that are outstanding as of the date hereof) or a
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business or assets that constitute 10% or more of the net revenues, net
operating income or assets of the Company and its Subsidiaries, taken as a
whole, in a single transaction or a series of related transactions, or any
combination of the foregoing (any such proposal, offer or transaction being
hereinafter referred to as a "Company Acquisition Proposal") or participate or
engage in any discussions or negotiations concerning a Company Acquisition
Proposal; and (ii) will immediately cease and cause to be terminated any
existing discussions or negotiations with any third parties conducted heretofore
with respect to any Company Acquisition Proposal; provided that, subject to
Section 5.4(b), nothing contained in this Agreement shall prevent the Company or
its Board of Directors from (A) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a Company Acquisition Proposal, (B) making any
disclosure to the holders of Company Shares if in the good faith judgment of the
Company's Board of Directors failure to make such disclosure would be
inconsistent with its fiduciary duties under applicable law or the rules of the
New York Stock Exchange or (C) providing information (pursuant to a
confidentiality agreement in reasonably customary form and which does not
contain terms that prevent the Company from complying with its obligations under
this Section 5.2) to or engaging in any negotiations or discussions with any
person or group who has made an unsolicited bona fide Company Acquisition
Proposal with respect to all the outstanding shares of capital stock of the
Company or all or substantially all of the assets of the Company if, with
respect to the actions set forth in clause (C), (x) in the good faith judgment
of the Company's Board of Directors, taking into account the likelihood of
consummation and after consultation with its financial advisors, such Company
Acquisition Proposal is reasonably likely to result in a transaction more
favorable to the holders of the Company Common Shares from a financial point of
view than the Merger (a "Company Superior Proposal") and (y) the Board of
Directors of the Company, after consultation with its outside legal counsel,
determines in good faith that the failure to do so would be inconsistent with
its fiduciary obligations under applicable law.
(b) The Company agrees that it will notify Parent promptly (and in any
event within 24 hours) if any proposal or offer relating to or constituting a
Company Acquisition Proposal is received by, any information is requested from,
or any discussions or negotiations are sought to be initiated or continued with,
the Company or any of its officers, directors, employees, agents or
representatives. In connection with such notice, the Company shall indicate the
identity of the person or group making such request or inquiry or engaging in
such negotiations or discussions and the material terms and conditions of any
Company Acquisition Proposal. Thereafter, the Company shall keep Parent fully
informed on a prompt basis (and in any event within 24 hours) of any material
changes, additions or adjustments to the terms of any such proposal or offer.
Prior to taking any action referred to in clause (C) of the proviso of Section
5.2(a), if the Company intends to participate in any such discussions or
negotiations or provide any such information to any such third party, the
Company shall give notice to Parent.
(c) Nothing in this Section 5.2 shall permit the Company to enter into any
agreement with respect to a Company Acquisition Proposal during the term of this
Agreement, it being agreed that, during the term of this Agreement, the Company
shall not enter into any agreement with any person that provides for, or in any
way facilitates, a Company Acquisition Proposal, other than a confidentiality
agreement and/or standstill agreement permitted under Section 5.2(a) in
reasonably customary form and which does not contain terms that prevent the
Company from complying with its obligations under this Section 5.2.
SECTION 5.3 No Solicitation by Parent.
(a) Parent agrees that it and its Subsidiaries (i) will not (and Parent
will not permit its or its Subsidiaries' officers, directors, employees, agents
or representatives, including any investment banker, attorney or accountant
retained by Parent or any of its Subsidiaries, to) solicit, initiate or
encourage (including by way of furnishing non-public information) any inquiry,
proposal or offer (including any proposal or offer to its stockholders) with
respect to a third party tender offer, merger, consolidation, business
combination or similar transaction involving any assets or class of capital
stock of Parent, or any acquisition of 10% or more of the capital stock of
Parent (other than upon exercise of options to acquire Parent Common Stock under
the Parent Option Plans that are outstanding as of the date hereof) or a
business or assets that constitute 10% or more of the net revenues, net
operating income or assets of Parent and its Subsidiaries, taken as a whole, in
a single transaction or a series of related transactions, or
A-35
any combination of the foregoing (any such proposal, offer or transaction being
hereinafter referred to as a "Parent Acquisition Proposal") or participate or
engage in any discussions or negotiations concerning a Parent Acquisition
Proposal; and (ii) will immediately cease and cause to be terminated any
existing discussions or negotiations with any third parties conducted heretofore
with respect to any Parent Acquisition Proposal; provided that, subject to
Section 5.4(b), nothing contained in this Agreement shall prevent Parent or its
Board of Directors from (A) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a Parent Acquisition Proposal, (B) making any
disclosure to the holders of Parent Common Stock if in the good faith judgment
of Parent's Board of Directors failure to make such disclosure would be
inconsistent with its fiduciary duties under applicable law or the rules of the
AMEX or (C) providing information (pursuant to a confidentiality agreement in
reasonably customary form and which does not contain terms that prevent Parent
from complying with its obligations under this Section 5.3) to or engaging in
any negotiations or discussions with any person or group who has made an
unsolicited bona fide Parent Acquisition Proposal with respect to all the
outstanding shares of capital stock of Parent or all or substantially all of the
assets of Parent if, with respect to the actions set forth in clause (C), (x) in
the good faith judgment of Parent's Board of Directors, taking into account the
likelihood of consummation and after consultation with its financial advisors,
such Parent Acquisition Proposal is reasonably likely to result in a transaction
more favorable to the holders of the Parent Common Stock from a financial point
of view than the Merger (a "Parent Superior Proposal") and (y) the Board of
Directors of Parent, after consultation with its outside legal counsel,
determines in good faith that the failure to do so would be inconsistent with
its fiduciary obligations under applicable law.
(b) Parent agrees that it will notify the Company promptly (and in any
event within 24 hours) if any proposal or offer relating to or constituting a
Parent Acquisition Proposal is received by, any information is requested from,
or any discussions or negotiations are sought to be initiated or continued with,
Parent or any of its officers, directors, employees, agents or representatives.
In connection with such notice, Parent shall indicate the identity of the person
or group making such request or inquiry or engaging in such negotiations or
discussions and the material terms and conditions of any Parent Acquisition
Proposal. Thereafter, Parent shall keep the Company fully informed on a prompt
basis (and in any event within 24 hours) of any material changes, additions or
adjustments to the terms of any such proposal or offer. Prior to taking action
any referred to in clause (C) of the proviso of Section 5.3(a), if Parent
intends to participate in any such discussions or negotiations or provide any
such information to any such third party, Parent shall give notice to the
Company.
(c) Nothing in this Section 5.3 shall permit Parent to enter into any
agreement with respect to a Parent Acquisition Proposal during the term of this
Agreement, it being agreed that, during the term of this Agreement, Parent shall
not enter into any agreement with any person that provides for, or in any way
facilitates, a Parent Acquisition Proposal, other than a confidentiality
agreement and/or standstill agreement permitted under Section 5.3(a) in
reasonably customary form and which does not contain terms that prevent Parent
from complying with its obligation under this Section 5.3.
SECTION 5.4 Meetings of Stockholders.
(a) The Company will take all action necessary in accordance with
applicable law and its certificate of incorporation and bylaws to convene as
promptly as practicable a meeting of its stockholders for purposes of obtaining
the Company Requisite Vote in favor of approval and adoption of this Agreement
and the transactions contemplated hereby. Parent will take all action necessary
in accordance with applicable law and its certificate of incorporation and
bylaws to convene as promptly as practicable a meeting of its stockholders for
purposes of obtaining the Parent Requisite Vote in favor of the issuance of the
Parent Common Stock necessary to consummate the transactions contemplated
hereby. Parent and the Company shall each use their reasonable best efforts to
hold their respective stockholders meetings on the same day.
(b) Except as otherwise permitted by this Section 5.4, the Company and
Parent, through their respective Boards of Directors, shall (i) recommend
approval of the matters described in Section 5.4(a) to be submitted to their
respective stockholders, (ii) not withdraw, withhold, modify, or change such
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recommendation in a manner adverse to the other party, (iii) not recommend or
declare advisable any Company Superior Proposal or Parent Superior Proposal, as
the case may be, and (iv) unless such recommendation has been withdrawn,
withheld, modified or changed as permitted by this Section 5.4(b), use their
reasonable best efforts to solicit the Company Requisite Vote (in the case of
the Company) and the Parent Requisite Vote (in the case of Parent). The Board of
Directors of the Company or Parent, as applicable (the "Withdrawing Party;" the
other party being the "Non-Withdrawing Party"), may at any time prior to
obtaining the Company Requisite Vote or Parent Requisite Vote, as applicable,
(1) withdraw, withhold, modify, or change, in a manner adverse to the
Non-Withdrawing Party, any approval or recommendation regarding this Agreement
or the transactions contemplated hereby or (2) recommend and declare advisable
any Company Superior Proposal or Parent Superior Proposal, as the case may be
(the actions set forth in clauses (1) and (2) being referred to herein as
"Adverse Actions"), if its Board of Directors determines in good faith after
consultation with its outside legal counsel that the failure to take the Adverse
Action in question would be inconsistent with its fiduciary obligations under
applicable law. After the Board of Directors has made a determination to take an
Adverse Action pursuant to the previous sentence but at least two business days
prior to taking such Adverse Action, the Board of Directors of the Withdrawing
Party shall give the Non-Withdrawing Party written notice of the Withdrawing
Party's intention to take such Adverse Action (including a reasonable
description of the circumstances related thereto) so as to allow the
Non-Withdrawing Party to propose a modification to the terms of the Merger or
this Agreement that would eliminate the need to take the Adverse Action.
Notwithstanding any Adverse Action taken by the Withdrawing Party, the
Non-Withdrawing Party shall have the option (the "Option"), exercisable in its
sole discretion within two business days of written notice of such Adverse
Action by the Withdrawing Party (which written notice shall be provided by the
Withdrawing Party to the Non-Withdrawing Party promptly, but in any event,
within 24 hours, of the Withdrawing Party taking such Adverse Action and shall
include a reasonable description of the circumstances related thereto), to cause
the Withdrawing Party to submit the matters to be voted on by such stockholders
(as contemplated hereby) to the stockholders of the Withdrawing Party at the
relevant stockholders meeting and, in connection with such submission,
communicate the circumstances under which the matters to be voted on by such
stockholders (as contemplated hereby) are being submitted to its stockholders.
If the Non-Withdrawing Party exercises the Option within the time permitted, the
Non-Withdrawing Party shall no longer be entitled to terminate this Agreement
under Section 7.3(b) or Section 7.4(b) below, as applicable. If the
Non-Withdrawing Party exercises the Option within the time permitted, the
Withdrawing Party shall use its reasonable best efforts, if so requested by the
Non-Withdrawing Party, to promptly furnish or cause to be furnished (in such
formats, including electronic formats, as the Non-Withdrawing Party or its
agents, advisors or attorneys may reasonably request) to the Non-Withdrawing
Party and its agents, advisors and attorneys, at the Non-Withdrawing Party's
expense, the most current, accurate and complete shareholders lists of the
Withdrawing Party, including non-objecting beneficial owner lists, as may b e
requested by the Non-Withdrawing Party or its agents, advisors or attorneys from
time to time so that the Non-Withdrawing Party can solicit proxies from the
Withdrawing Party's stockholders. If the Non-Withdrawing Party fails to exercise
the Option within the time permitted, the Withdrawing Party may terminate this
Agreement at any time after the expiration of the relevant two business day
period but prior to obtaining the Company Requisite Vote (if the Withdrawing
Party is the Company) or the Parent Requisite Vote (if the Withdrawing Party is
Parent) pursuant to Section 7.3(c) or Section 7.4(c) below, as applicable;
provided, however, that in the event that the Non-Withdrawing Party proposes to
the Withdrawing Party any modifications to the terms of the Merger or this
Agreement during such two business day period (the "Modified Terms"), the
Withdrawing Party shall not be permitted to terminate this Agreement pursuant to
Section 7.3(c) or Section 7.4(c) below, as applicable, unless and until the
Board of Directors of the Withdrawing Party (i) in good faith considers the
Modified Terms and (ii) makes a good faith determination, after consultation
with its outside legal counsel, that proceeding with a transaction with the
Non-Withdrawing Party reflecting the Modified Terms would be inconsistent with
its fiduciary obligations under applicable law. If the Non-Withdrawing Party
proposes Modified Terms to the Withdrawing Party pursuant to the previous
sentence which causes the Withdrawing Party's Board of Directors to reinstate
its recommendation regarding this Agreement and the transactions contemplated
hereby and to proceed with a transaction with the Non-
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Withdrawing Party, then in the event that subsequent to the acceptance by the
Withdrawing Party of the Modified Terms the Board of Directors of the
Withdrawing Party again either (i) withdraws, withholds, modifies, or changes,
in a manner adverse to the Non-Withdrawing Party, any approval or recommendation
regarding this Agreement or the transactions contemplated hereby or (ii)
recommends and declares advisable any Company Superior Proposal or Parent
Superior Proposal, as the case may be, then the Non-Withdrawing Party shall
again have the right to exercise the Option pursuant to the terms of this
Section 5.4(b).
SECTION 5.5 Filings; Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided, the Company and
Parent shall:
(i) promptly (but in not more than 10 business days from the date
hereof) make their respective filings under the HSR Act with respect to the
Merger and thereafter shall promptly make any other required submissions
under the HSR Act;
(ii) use their reasonable best efforts to satisfy the conditions to
closing in Article 6 (including, in the case of the Company, obtaining the
opinion described in Section 6.2(b) and, in the case of Parent, obtaining
the opinion described in Section 6.3(b)) as promptly as practicable and to
cooperate with one another in (1) determining which filings are required to
be made prior to the Effective Time with, and which consents, approvals,
permits or authorizations are required to be obtained prior to the
Effective Time from, governmental or regulatory authorities of the United
States, the several states, and foreign jurisdictions in connection with
the execution and delivery of this Agreement and the consummation of the
Merger and the transactions contemplated hereby; and (2) timely making all
such filings and timely seeking all such consents, approvals, permits or
authorizations;
(iii) promptly notify each other of any communication concerning this
Agreement or the Merger to that party from any governmental authority and
permit the other party to review in advance any proposed communication
concerning this Agreement or the Merger to any governmental entity;
(iv) not agree to participate in any meeting or discussion with any
governmental authority in respect of any filings, investigation or other
inquiry concerning this Agreement or the Merger unless it consults with the
other party in advance and, to the extent permitted by such governmental
authority, gives the other party the opportunity to attend and participate
thereat;
(v) furnish the other party with copies of all correspondence, filings
and communications (and memoranda setting forth the substance thereof)
between them and their affiliates and their respective representatives on
the one hand, and any government or regulatory authority or members or
their respective staffs on the other hand, with respect to this Agreement
and the Merger; and
(vi) furnish the other party with such necessary information and
reasonable assistance as such other parties and their respective affiliates
may reasonably request in connection with their preparation of necessary
filings, registrations or submissions of information to any governmental or
regulatory authorities, including any filings necessary or appropriate
under the provisions of the HSR Act.
(b) Without limiting Section 5.5(a), Parent and the Company shall:
(i) each use its reasonable best efforts to avoid the entry of, or to
have vacated or terminated, any decree, order or judgment that would
restrain, prevent or delay the Closing, including defending through
litigation on the merits any claim asserted in any court by any party; and
(ii) each use reasonable best efforts to avoid or eliminate each and
every impediment under any antitrust, competition or trade regulation law
that may be asserted by any governmental entity with respect to the Merger
so as to enable the Closing to occur as soon as reasonably possible (and in
any event no later than 60 days following the termination of all applicable
waiting periods under the HSR Act, unless the parties are in litigation
with the government, in which case at the conclusion of such litigation).
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(c) Neither Parent nor the Company shall, without the other party's prior
written consent, commit to any divestitures, licenses, hold separate
arrangements or similar matters, including covenants affecting business
operating practices (or allow its Subsidiaries to commit to any divestitures,
licenses, hold separate arrangements or similar matters) in connection with the
transactions contemplated under this Agreement, but the parties shall commit or
consent to, and shall use reasonable efforts to effect (and shall cause their
Subsidiaries to commit or consent to and use reasonable efforts to effect), any
such divestitures, licenses, hold separate arrangements or similar matters as
any governmental entity shall request if such divestitures, licenses, hold
separate arrangements or similar matters are required by any such governmental
entity as a condition to resolving such governmental entity's objections to the
Merger or obtaining its approval of the Merger and are contingent upon
consummation of the Merger; provided that, notwithstanding anything to the
contrary in this Section 5.5(c) or the remainder of this Agreement, neither
Parent, the Company nor any of their respective Subsidiaries shall be required
to agree (with respect to (x) Parent or its Subsidiaries or (y) the Company or
its Subsidiaries) to any divestitures, licenses, hold separate arrangements or
similar matters, including covenants affecting business operating practices, if
such divestitures, licenses, arrangements or similar matters, individually or in
the aggregate, would have or reasonably be expected to have a Parent Material
Adverse Effect or a Company Material Adverse Effect.
SECTION 5.6 Inspection. From the date hereof to the Effective Time, the
Company and Parent shall allow all designated officers, attorneys, accountants
and other representatives of the other party access at all reasonable times upon
reasonable notice to the records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs of the Company and its Subsidiaries or Parent and its Subsidiaries,
including inspection of such properties; provided that no investigation pursuant
to this Section 5.6 shall affect any representation or warranty given by any
party hereunder, and provided further that notwithstanding the provision of
information or investigation by any party, no party shall be deemed to make any
representation or warranty except as expressly set forth in this Agreement.
Notwithstanding the foregoing, no party shall be required to provide any
information which it reasonably believes it may not provide to any other party
by reason of applicable law, rules or regulations, which that party reasonably
believes constitutes information protected by attorney/client privilege, or
which it is required to keep confidential by reason of contract or agreement
with third parties. The parties hereto will make reasonable and appropriate
substitute disclosure arrangements under circumstances in which the restrictions
of the preceding sentence apply. The Company and Parent agree that they will
not, and will cause their representatives not to, use any information obtained
pursuant to this Section 5.6 for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement. All nonpublic information
obtained pursuant to this Section 5.6 shall be governed by the Confidentiality
Agreement dated October 25, 2002 between Parent and the Company (the
"Confidentiality Agreement").
SECTION 5.7 Publicity. The Company and Parent will consult with each
other and will mutually agree upon any press releases or public announcements
pertaining to this Agreement or the transactions contemplated hereby and shall
not issue any such press releases or make any such public announcements prior to
such consultation and agreement, except as may be required by applicable law or
by obligations pursuant to any listing agreement with any national securities
exchange, in which case the party proposing to issue such press release or make
such public announcement shall use its reasonable best efforts to consult in
good faith with the other party before issuing any such press releases or making
any such public announcements.
SECTION 5.8 Registration Statement.
(a) Each of Parent and the Company shall cooperate and as promptly as
practicable prepare, and Parent shall file with the SEC as soon as practicable,
a Registration Statement on Form S-4 under the Securities Act (the "Registration
Statement"), with respect to the Parent Common Stock issuable in the Merger. A
portion of the Registration Statement shall also serve as the joint proxy
statement with respect to the meetings of the stockholders of Parent and of the
Company in connection with the Merger (the "Proxy Statement/Prospectus"). The
respective parties will cause the Proxy Statement/Prospectus and the
Registration Statement to comply as to form in all material respects with the
applicable provisions of the
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Securities Act, the Exchange Act and the rules and regulations thereunder.
Parent shall use its reasonable best efforts, and the Company will cooperate
with Parent, to have the Registration Statement declared effective by the SEC as
promptly as practicable. Parent shall use its reasonable best efforts to obtain,
prior to the effective date of the Registration Statement, all necessary state
securities law or "Blue Sky" permits or approvals required to carry out the
transactions contemplated by this Agreement and will pay all expenses incident
thereto. Parent will advise the Company, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement/ Prospectus or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
(b) Each of Parent and the Company will use its reasonable best efforts to
cause the Proxy Statement/Prospectus to be mailed to its stockholders as
promptly as practicable after the date hereof.
(c) Each of Parent and the Company agrees that the information provided by
it for inclusion in the Proxy Statement/Prospectus and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
respective meetings of stockholders of Parent and of the Company, or, in the
case of information provided by it for inclusion in the Registration Statement
or any amendment or supplement thereto, at the time it is filed or becomes
effective, will not include 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, in light of the circumstances under which they were made,
not misleading.
SECTION 5.9 Listing Application. Parent shall use its reasonable best
efforts to cause the Parent Common Stock to be issued in the Merger to be
approved for listing on the AMEX prior to the Effective Time, subject to
official notice of issuance. Parent shall promptly prepare and submit to the
AMEX a supplemental listing application covering the shares of Parent Common
Stock issuable in the Merger and shares issuable pursuant to Assumed Options (as
defined below).
SECTION 5.10 Intentionally Omitted.
SECTION 5.11 Agreements of Affiliates. Prior to the Effective Time, the
Company shall cause to be prepared and delivered to Parent a list identifying
all persons who, at the time of the meeting of the Company's stockholders
pursuant to Section 5.4, the Company believes may be deemed to be "affiliates"
of the Company, as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act (the "Rule 145 Affiliates"). Parent shall be entitled to
place restrictive legends on any shares of Parent Common Stock received by such
Rule 145 Affiliates. The Company shall use its reasonable best efforts to cause
each person who is identified as a Rule 145 Affiliate in such list to deliver to
Parent, at or prior to the Effective Time, a written agreement, in the form
attached hereto as Exhibit D.
SECTION 5.12 Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, except as expressly provided in Section 7.5.
SECTION 5.13 Indemnification and Insurance.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to indemnify, defend and hold harmless to the fullest extent
permitted under applicable law each person who is immediately prior to the
Effective Time, or has been at any time prior to the Effective Time, an officer
or director of the Company (or any Subsidiary or division thereof) and each
person who immediately prior to the effective time is serving or prior to the
Effective Time has served at the request of the Company as a director, officer,
trustee or fiduciary of another corporation, partnership, joint venture, trust,
pension or other employee benefit plan or enterprise (individually, an
"Indemnified Party" and, collectively, the "Indemnified Parties") against all
losses, claims, damages, liabilities, costs or expenses (including attorneys'
fees), judgments, fines, penalties and amounts paid in settlement in connection
with any claim, action, suit, proceeding or investigation arising out of or
pertaining to acts or omissions, or alleged acts or omissions, by them in their
capacities as such, whether commenced, asserted or claimed before or after the
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Effective Time. In the event of any such claim, action, suit, proceeding or
investigation (an "Action"), (i) Parent shall cause the Surviving Corporation to
pay, as incurred, the fees and expenses of counsel selected by the Indemnified
Party, which counsel shall be reasonably acceptable to Parent, in advance of the
final disposition of any such Action to the fullest extent permitted by
applicable law, and, if required, upon receipt of any undertaking required by
applicable law, and (ii) Parent will, and will cause the Surviving Corporation
to, cooperate in the defense of any such matter; provided, however, neither
Parent nor the Surviving Corporation shall be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld or
delayed), and provided further that neither Parent nor the Surviving Corporation
shall be obligated pursuant to this Section 5.13(a) to pay the fees and
disbursements of more than one counsel for all Indemnified Parties in any single
Action, unless, in the good faith judgment of any of the Indemnified Parties,
there is or may be a conflict of interests between two or more of such
Indemnified Parties, in which case there may be separate counsel for each
similarly situated group.
(b) The parties agree that the rights to indemnification hereunder,
including provisions relating to advances of expenses incurred in defense of any
action or suit, in the certificate of incorporation, bylaws and any
indemnification agreement of the Company and its Subsidiaries with respect to
matters occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of six years from the Effective
Time; provided, however, that all rights to indemnification and advancement of
expenses in respect of any Action pending or asserted or claim made within such
period shall continue until the disposition of such Action or resolution of such
claim.
(c) For a period of six years after the Effective Time, the Surviving
Corporation shall maintain officers' and directors' liability insurance covering
the Indemnified Parties who are or at any time prior to the Effective Time were
covered by the Company's existing officers' and directors' liability insurance
("D&O Insurance") policies on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance with respect to acts or
omissions, or alleged acts or omissions, prior to the Effective Time (whether
claims, actions or other proceedings relating thereto are commenced, asserted or
claimed before or after the Effective Time); provided that, after the Effective
Time, the Surviving Corporation shall not be required to pay annual premiums in
excess of 250% of the 2003 annual premium paid by the Company prior to the date
hereof (the amount of which premiums are set forth in the Company Disclosure
Letter) (the "Maximum Premium"), but in such case shall purchase as much
coverage as reasonably practicable for such amount. Parent shall have the right
to cause coverage to be extended under the Company's D&O Insurance by obtaining
a six-year "tail" policy on terms and conditions no less advantageous than the
Company's existing D&O Insurance, and such "tail" policy shall satisfy the
provisions of this Section 5.13(c).
(d) The rights of each Indemnified Party hereunder shall be in addition to
any other rights such Indemnified Party may have under the certificate of
incorporation or bylaws of the Company or any of its Subsidiaries, under the
DGCL, or otherwise. The provisions of this Section 5.13 shall survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.
(e) In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, Parent shall cause proper provision to be
made so that the successors and assigns of Parent, as the case may be, shall
assume the obligations set forth in this Section 5.13.
SECTION 5.14 Employee Benefits.
(a) Parent hereby agrees to honor, and agrees to cause its Subsidiaries to
honor, all employee benefit plans, contracts, agreements and commitments of the
Company or any of its Subsidiaries maintained or entered into by the Company or
any of its Subsidiaries prior to the date hereof that apply to any current or
former employee or current or former director of the Company or any of its
Subsidiaries, including the executive change-in-control severance agreements
between the Company and certain of its key employees (copies of which executive
change-in-control severance agreements have been furnished to Parent);
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provided, however, that, except as otherwise expressly provided in this Section
5.14, Parent reserves the right to modify any such plan, contract, agreement or
commitment in accordance with its terms.
(b) Notwithstanding the provisions of Section 5.14(a):
(i) Parent and the Company agree that the consummation of the
transaction contemplated by this Agreement shall constitute a "Change of
Control" as that term is defined in the Ocean Energy, Inc. 2001 Change of
Control Severance Plan (the "Company Severance Plan"), and that, to the
extent required by Section 4.5 of the Company Severance Plan, such plan
shall not be modified with respect to severance benefits payable and
Welfare Benefit Coverages provided as a result of Involuntary Terminations
occurring before the one-year anniversary of the Effective Time. The
Company agrees that, prior to the Effective Time, it shall amend the
Company Severance Plan to provide that a transfer between Parent and one of
its Subsidiaries or between two of its Subsidiaries at or after the
Effective Time shall not constitute a termination of employment resulting
in eligibility for severance; provided that if the transfer results in a
Change in Duties, any such transfer may be treated as a basis for
Involuntary Termination to the extent provided by the terms of the Company
Severance Plan, including the definitions of "Involuntary Termination" and
"Change in Duties" (as in effect on December 1, 2002).
(ii) Parent agrees that for the period beginning at the Effective Time
and ending December 31, 2003 (or such later date determined by Parent), the
Company and its Subsidiaries (and any successor entities to the Company or
any of its Subsidiaries) shall maintain the medical, health, life, and
disability insurance plans, and the deferred compensation and retirement
plans, as in effect immediately prior to the Effective Time, and prior to
January 1, 2004 shall not amend any such plan to reduce any benefit
provided under any such plan. With respect to the Company's Retirement
Savings Plan, Parent shall cause the Company to make an employer
discretionary contribution for 2003 for the eligible participants at the
same fraction of their eligible compensation as the Company's discretionary
contributions made for 2001 and 2002.
(iii) If, during calendar year 2004, the benefits applicable to
officers and employees of the Company or its Subsidiaries (and any
successor entities to the Company or any of its Subsidiaries) are
materially modified then, for the remainder of calendar year 2004, Parent
hereby agrees to, and agrees to cause its Subsidiaries to, provide to
officers and employees of the Company and its Subsidiaries (and any
successor entities to the Company or any of its Subsidiaries) who become or
remain regular (full-time) employees of Parent or any of its Subsidiaries
(including, without limitation, the Company and any successor entity to the
Company for so long as it is a Subsidiary of Parent) employee benefits, no
less favorable than those provided by Parent and its Subsidiaries to their
similarly situated officers and employees.
(iv) Each employee of the Company or its Subsidiaries (and any
successor entities to the Company or any of its Subsidiaries) who becomes a
participant in any employee benefit plan, program, policy, or arrangement
of Parent or any of its Subsidiaries on or after the Effective Time shall
be given credit under such plan, program, policy, or arrangement for all
service with the Company, any of its Subsidiaries, any of their
predecessors to the extent such predecessor employment was recognized by
the Company or any of its Subsidiaries, and, if applicable, with Parent or
any of its Subsidiaries, prior to becoming such a participant for purposes
of eligibility, vesting and benefit determination; provided that this
Section 5.14(b)(iv) shall not apply to the determination of accrual service
under any defined benefit pension plan as defined in section 3(35) of ERISA
(regardless of whether such plan is qualified under Code section 401(a)),
and shall not apply to the determination of the right to receive, or the
amount of, any retiree or other post-retirement medical service (except for
COBRA medical continuation coverage as described in section 4980B of the
Code).
(v) At such time, if any, as Parent causes an employee of the Company
or its Subsidiaries (and any successor entities to the Company or any of
its Subsidiaries) to be covered under a group health plan maintained by
Parent or one of its Subsidiaries (other than the group health plan
maintained by
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the Company at the Effective Time), Parent shall cause (A) such employee
and his or her eligible dependents (including, without limitation, all such
dependents of the employee covered immediately prior to such time under the
Company's group health plan) to be credited under such Parent or Subsidiary
group health plan, for the year during which such coverage under such group
health plan begins, with any deductibles and copayments already incurred
during such year under the group health plan of the Company (or successor
entity to the Company), and (B) such Parent or Subsidiary group health plan
to waive any preexisting condition restrictions to the extent necessary to
provide immediate coverage (to the extent such preexisting condition
restrictions have been waived, or would have been waived, under the
Company's group health plan).
(vi) Nothing in this Section 5.14(b) shall be construed to restrict
the ability of Parent and its Subsidiaries (including, without limitation,
the Company and any successor entity to the Company for so long as it is a
Subsidiary of Parent) to modify or terminate any plan (at or after the
Effective Time) with respect to persons employed at operations outside the
United States.
(vii) Nothing in this Section 5.14(b) shall be construed as a contract
of employment, and this Section 5.14(b) shall not give any employee the
right to be retained in the employ of Parent or any of its Subsidiaries.
Nothing in this Section 5.14(b) shall be construed to require the provision
of coverage or benefits to an employee following termination of employment
except to the extent such coverage or benefits is otherwise required
pursuant to the terms of the applicable plan or arrangement.
(viii) Notwithstanding anything in this Section 5.14 to the contrary,
(1) the Average Monthly Compensation used to determine the benefit of each
member under the Company's Executive Supplemental Retirement Plan ("ESRP")
shall not be less than such members' Average Monthly Compensation as of
January 1, 2003, (2) each member shall receive credit, for purposes of
vesting in his Accrued Benefit, for his service with Parent and its
Subsidiaries (including the Company and its Subsidiaries) following the
Effective Time, (3) no amendment may be made to the ESRP that would
adversely affect the member's right to continued vesting under the ESRP
based on his continued service with the Company and its Subsidiaries, and
(4) if the ESRP is terminated, each member who is then an employee of the
Parent and its Subsidiaries (including the Company and its Subsidiaries)
automatically shall be 100% vested on such termination.
(ix) The parties intend and agree that the employees of the Company
and its Subsidiaries on the Closing Date are third party beneficiaries with
respect to the provisions of this Section 5.14 that are applicable to such
employee and shall be entitled to enforce such provisions against the
parties.
(c) Parent and the Company shall take such actions, including (with respect
to the Company) the amendment of the options ("Stock Options") to purchase
Company Common Shares, and the plans pursuant to which such options have been
issued, to permit Parent to assume, and Parent shall assume, effective at the
Effective Time, each Option Plan and each Stock Option that remains unexercised
in whole or in part as of the Effective Time and substitute shares of Parent
Common Stock for the Company Common Shares purchasable under each such assumed
option ("Assumed Option"), which assumption and substitution shall be effected
as follows:
(i) the number of shares of Parent Common Stock purchasable under the
Assumed Option shall be equal to 0.414 (to be adjusted appropriately if the
Exchange Ratio is adjusted pursuant to Section 2.4) times the number of
Company Common Shares underlying the Assumed Option (or that would be
purchasable if the option was then vested and exercisable and with any
fractional amount rounded to the next lowest share);
(ii) the per share exercise price of such Assumed Option shall be an
amount (with fractional amounts rounded to the next highest cent) equal to
the per share exercise price of the Stock Option being assumed divided by
0.414 (to be adjusted appropriately if the Exchange Ratio is adjusted
pursuant to Section 2.4);
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(iii) Parent will provide each holder of each Stock Option being
assumed with a statement showing the converted number of shares, the
exercise price, and the expiration date for each Assumed Option;
(iv) for any individual whose service is terminated after the
Effective Time and, in connection with such termination, such individual is
eligible to receive severance benefits, such individual's non-qualified
stock options that are exercisable on the date of such individual's
termination shall continue to be exercisable during the one-year period
following such termination; and
(v) any other provisions of each Assumed Option shall remain in
effect; provided, however, that in the case of any option to which Section
421 of the Code applies by reason of the qualifications under Section 422
or 423 of the Code, the exercise price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such
option shall comply with Section 424(a) of the Code.
(d) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Assumed Options, and, as soon as practicable after the Effective
Time, Parent shall file a registration statement on Form S-8 (or other
appropriate form) with respect to the shares of Parent Common Stock subject to
the Assumed Options, and shall use its reasonable best efforts to maintain the
effectiveness of such registration statement for so long as any of the Assumed
Options remain outstanding.
(e) Parent agrees that its Board of Directors (or the Compensation
Committee thereof) shall, at or prior to the Effective Time, adopt resolutions
specifically approving, for purposes of Rule 16b-3 under the Exchange Act, the
receipt, pursuant to this Section 5.14, of Assumed Options.
SECTION 5.15 Reorganization. From and after the date hereof and until the
Effective Time, none of Parent, the Company or any of their respective
Subsidiaries shall knowingly (i) take any action, or fail to take any reasonable
action, as a result of which the Merger would fail to qualify as a
reorganization within the meaning of section 368(a) of the Code or (ii) enter
into any contract, agreement, commitment or arrangement to take or fail to take
any such action. Following the Effective Time, Parent shall not knowingly take
any action or knowingly cause any action to be taken which would cause the
Merger to fail to qualify as a reorganization within the meaning of section
368(a) of the Code (and any comparable provisions of applicable state or local
law).
SECTION 5.16 Dividends. The Company shall coordinate with Parent
respecting the declaration, setting of record dates and payment dates of
dividends on the Company Common Shares so that holders of Company Common Shares
do not receive dividends on both Company Common Shares and Parent Common Stock
received in the Merger in respect of any calendar quarter or fail to receive a
dividend on Company Common Shares or Parent Common Stock received in the Merger
in respect of any calendar quarter.
ARTICLE 6
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver by mutual agreement of the parties at or
prior to the Closing Date of the following conditions:
(a) (i) The Company Requisite Vote shall have been obtained and (ii)
the Parent Requisite Vote shall have been obtained.
(b) (i) The waiting period (and any extension thereof) applicable to
the consummation of the Merger shall have expired or been terminated under
the HSR Act and (ii) any mandatory waiting period or required consent under
any applicable foreign competition or antitrust law or regulation shall
have expired or been obtained except where the failure to observe such
waiting period or obtain a
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consent referred to in this clause (ii) would not reasonably be expected to
delay or prevent the consummation of the Merger or have a material adverse
effect on the expected benefits of the transactions contemplated by this
Agreement to Parent.
(c) None of the parties hereto shall be subject to any decree, order
or injunction of a court of competent jurisdiction, U.S. or foreign, which
prohibits the consummation of the Merger, and no statute, rule or
regulation shall have been enacted by any governmental authority which
prohibits or makes unlawful the consummation of the Merger.
(d) The Registration Statement shall have become effective and no stop
order with respect thereto shall be in effect and no proceedings for that
purpose shall have been commenced or threatened by the SEC.
(e) The shares of Parent Common Stock to be issued pursuant to the
Merger and shares reserved for issuance pursuant to Assumed Options shall
have been authorized for listing on the AMEX, subject to official notice of
issuance.
SECTION 6.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment or waiver by the Company at or prior to the Closing Date of the
following conditions:
(a) Parent and Merger Sub shall have performed in all material
respects their respective covenants and agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of Parent and Merger Sub contained in this
Agreement and in any document delivered in connection herewith (i) to the
extent qualified by Parent Material Adverse Effect or any other materiality
qualification shall be true and correct and (ii) to the extent not
qualified by Parent Material Adverse Effect or any other materiality
qualification shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date (except
for representations and warranties made as of a specified date, which need
be true and correct only as of the specified date), and the Company shall
have received a certificate of Parent, executed on its behalf by its
President or a Senior Vice President of Parent, dated the Closing Date,
certifying to such effect.
(b) The Company shall have received the opinion of Vinson & Elkins
L.L.P. or other nationally recognized tax counsel, acting as counsel to the
Company, in form and substance reasonably satisfactory to the Company, on
the basis of certain facts, representations and assumptions set forth in
such opinion, dated the Closing Date, a copy of which shall be furnished to
Parent, to the effect that (i) the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and (ii) no gain or loss will be recognized by the
Company or the stockholders of the Company to the extent they receive
Parent Common Stock in exchange for Company Common Shares pursuant to the
Merger. In rendering such opinion, such counsel shall be entitled to
receive and rely upon representations of officers of the Company, Merger
Sub and Parent as to such matters as such counsel may reasonably request.
(c) The Company Designees shall have been duly elected or appointed as
directors of Parent from and after the Effective Time in accordance with
Section 1.7 above.
(d) Either (i) each of the Employment Agreement, as amended by the
Employment Agreement Amendment, and the Severance Agreement, as amended by
the Severance Agreement Amendment, or (ii) the New Employment Agreement, as
applicable, shall not have been repudiated by Parent.
SECTION 6.3 Conditions to Obligation of Parent to Effect the Merger. The
obligations of Parent and Merger Sub to effect the Merger shall be subject to
the fulfillment or waiver by Parent at or prior to the Closing Date of the
following conditions:
(a) The Company shall have performed in all material respects its
covenants and agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of the Company contained in this Agreement and in any document
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delivered in connection herewith (i) to the extent qualified by Company
Material Adverse Effect or any other materiality qualification shall be
true and correct and (ii) to the extent not qualified by Company Material
Adverse Effect or any other materiality qualification shall be true and
correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct only
as of the specified date), and Parent shall have received a certificate of
the Company, executed on its behalf by its President or an Executive Vice
President of the Company, dated the Closing Date, certifying to such
effect.
(b) Parent shall have received the opinion of Mayer, Brown, Rowe & Maw
or other nationally recognized tax counsel, acting as counsel to Parent, in
form and substance reasonably satisfactory to Parent, on the basis of
certain facts, representations and assumptions set forth in such opinion,
dated the Closing Date, a copy of which will be furnished to the Company,
to the effect that (i) the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of section 368(a) of the
Code and (ii) no gain or loss will be recognized by any corporation which
is a party to the reorganization. In rendering such opinion, such counsel
shall be entitled to receive and rely upon representations of officers of
the Company, Merger Sub and Parent as to such matters as such counsel may
reasonably request.
(c) Each of the members of the Board of Directors of the Company shall
have tendered his or her resignation, to be effective as of the Effective
Time, in accordance with Section 1.6 above.
(d) Either (i) each of the Employment Agreement, as amended by the
Employment Agreement Amendment, and the Severance Agreement, as amended by
the Severance Agreement Amendment, or (ii) the New Employment Agreement, as
applicable, shall not have been (1) modified in any way or (2) repudiated
by James T. Hackett.
ARTICLE 7
TERMINATION
SECTION 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Effective Time by the mutual written
agreement of the Company and Parent approved by action of their respective
Boards of Directors.
SECTION 7.2 Termination by Parent or the Company. At any time prior to
the Effective Time, this Agreement may be terminated by the Company or Parent,
in either case by action of its Board of Directors, if:
(a) the Merger shall not have been consummated by September 30, 2003;
provided, however, that the right to terminate this Agreement pursuant to
this clause (a) shall not be available to any party whose failure or whose
affiliates' failure to perform or observe in any material respect any of
its obligations under this Agreement in any manner shall have been the
principal cause of, or resulted in, the failure of the Merger to occur on
or before such date; or
(b) the Company Requisite Vote shall not have been obtained at a
meeting (including adjournments and postponements) of the Company's
stockholders duly convened for the purpose of obtaining the Company
Requisite Vote; or
(c) the Parent Requisite Vote shall not have been obtained at a
meeting (including adjournments and postponements) of Parent's stockholders
duly convened for the purpose of obtaining the Parent Requisite Vote; or
(d) a United States federal or state court or foreign court of
competent jurisdiction or United States federal or state or foreign
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (including the
enactment of any statute, rule, regulation, decree or executive order)
permanently restraining, enjoining or otherwise
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prohibiting the Merger and such order, decree, ruling or other action
(including the enactment of any statute, rule, regulation, decree or
executive order) shall have become final and non-appealable; provided,
however, that the party seeking to terminate this Agreement pursuant to
this clause (d) shall have complied with Section 5.5 and with respect to
other matters not covered by Section 5.5 shall have used its reasonable
best efforts to remove such injunction, order or decree.
SECTION 7.3 Termination by the Company. At any time prior to the
Effective Time, this Agreement may be terminated by the Company, by action of
its Board of Directors, if:
(a) (i) there has been a breach by Parent or Merger Sub of any
representation, warranty, covenant or agreement set forth in this Agreement
or if any representation or warranty of Parent or Merger Sub shall have
become untrue, in either case such that the conditions set forth in Section
6.2(a) would not be satisfied and (ii) such breach is not curable, or, if
curable, is not cured within 30 days after written notice of such breach is
given to Parent by the Company; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.3(a) shall not be
available to the Company if it, at such time, is in material breach of any
representation, warranty, covenant or agreement set forth in this Agreement
such that the conditions set forth in Section 6.3(a) shall not be
satisfied;
(b) prior to obtaining the Parent Requisite Vote, the Board of
Directors of Parent shall have withdrawn, modified, withheld or changed, in
a manner adverse to the Company, such Board's approval or recommendation of
this Agreement or the Merger, or recommended a Parent Superior Proposal, or
resolved to do any of the foregoing; provided that the Company may not
exercise this right of termination if it exercises the Option or the
circumstances giving rise to the right to terminate under this Section
7.3(b) are no longer in effect because the parties are proceeding on
Modified Terms; or
(c) prior to obtaining the Company Requisite Vote, (i) the Company is
the Withdrawing Party pursuant to Section 5.4(b), (ii) Parent had the right
to exercise the Option and (iii) Parent did not exercise the Option within
the time in which it had the right to do so (it being understood that the
Company shall not have the right to terminate this Agreement pursuant to
this Section 7.3(c) unless and until the Company shall have paid Parent any
amounts due under Section 7.5(a)).
SECTION 7.4 Termination by Parent. At any time prior to the Effective
Time, this Agreement may be terminated by Parent, by action of its Board of
Directors, if:
(a) (i) there has been a breach by the Company of any representation,
warranty covenant or agreement set forth in this Agreement or if any
representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) would not
be satisfied and (ii) such breach is not curable, or, if curable, is not
cured within 30 days after written notice of such breach is given by Parent
to the Company; provided, however, that the right to terminate this
Agreement pursuant to this Section 7.4(a) shall not be available to Parent
if it, at such time, is in material breach of any representation, warranty,
covenant or agreement set forth in this Agreement such that the conditions
set forth in Section 6.2(a) shall not be satisfied;
(b) prior to obtaining the Company Requisite Vote, the Board of
Directors of the Company shall have withdrawn, modified, withheld or
changed, in a manner adverse to Parent, the Board's approval or
recommendation of this Agreement or the Merger, or recommended a Company
Superior Proposal, or resolved to do any of the foregoing; provided that
Parent may not exercise this right of termination if it exercises the
Option or the circumstances giving rise to the right to terminate under
this Section 7.4(b) are no longer in effect because the parties are
proceeding on Modified Terms; or
(c) prior to obtaining the Parent Requisite Vote, (i) Parent is the
Withdrawing Party pursuant to Section 5.4(b), (ii) the Company had the
right to exercise the Option and (iii) the Company did not exercise the
Option within the time in which it had a right to do so (it being
understood that Parent shall not have the right to terminate this Agreement
pursuant to this Section 7.4(c) unless and until Parent shall have paid the
Company any amounts due under Section 7.5(b)).
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SECTION 7.5 Effect of Termination.
(a) If this Agreement is terminated
(i) by the Company or Parent, after the public announcement of a
Company Acquisition Proposal or after Parent has exercised the Option,
pursuant to Section 7.2(b);
(ii) by Parent pursuant to Section 7.4(b); or
(iii) by the Company pursuant to Section 7.3(c);
then the Company shall pay Parent the Company Termination Amount (as defined
below) and, in addition, reimburse Parent for all expenses incurred by Parent in
connection with this Agreement up to the Reimbursement Maximum Amount (as
defined below) prior to or upon termination of this Agreement. All payments
under this Section 7.5(a) shall be made in cash by wire transfer to an account
designated by Parent at the time of such termination (or, in the case of a
termination pursuant to Section 7.3(c), prior to such termination). The term
"Company Termination Amount" shall mean $139,000,000; provided, however, that
if, upon the termination of this Agreement by the Company or Parent pursuant to
Section 7.2(b) after the public announcement of a Company Acquisition Proposal,
the Board of Directors of the Company shall not have (x) withdrawn, withheld,
modified or changed, in a manner adverse to Parent, the Board's approval or
recommendation of this Agreement or the Merger, (y) recommended a Company
Superior Proposal or (z) resolved to do any of the foregoing, then the "Company
Termination Amount" shall mean $69,500,000 plus, if (x) the Company executes and
delivers an agreement with respect to any Company Acquisition (as defined below)
or (y) a Company Acquisition is consummated, in any such case within 12 months
from the date of termination, an additional $69,500,000 (which additional amount
shall be paid promptly by wire transfer to an account designated by Parent). If
the Board of Directors of the Company recommends the acceptance by the
stockholders of the Company of a third-party tender or exchange offer for
Company Common Shares, such recommendation shall have the same consequences for
purposes of this paragraph as though an agreement with respect to a Company
Acquisition had been executed and delivered. For purposes hereof, "Company
Acquisition" means (i) a consolidation, exchange of shares or merger of the
Company with any person, other than Parent or one of its Subsidiaries or any of
the Company's Subsidiaries, and, in the case of a merger, in which the Company
shall not be the continuing or surviving corporation, (ii) a merger of the
Company with a person, other than Parent or one of its Subsidiaries or any of
the Company's Subsidiaries, in which the Company shall be the continuing or
surviving corporation but the then outstanding Company Common Shares shall be
changed into or exchanged for stock or other securities of the Company or any
other person or cash or any other property or the Company Common Shares
outstanding immediately before such merger shall after such merger represent
less than 50% of the voting stock of the Company outstanding immediately after
the merger, (iii) the acquisition of beneficial ownership of 50% or more of the
voting stock of the Company by any person (as such term is used under Section
13(d) of the Exchange Act), or (iv) a sale, lease or other transfer of 50% or
more of the assets, net revenues or net operating income of the Company and its
Subsidiaries, taken as a whole, to any person, other than Parent or one of its
Subsidiaries or any of the Company's Subsidiaries. The term "Reimbursement
Maximum Amount" shall mean $10,000,000. In addition, the Company shall reimburse
Parent for all expenses incurred by Parent in connection with this Agreement up
to the Reimbursement Maximum Amount if this Agreement has been terminated
pursuant to Section 7.2(b) even if Parent is not entitled to any Company
Termination Amount under this Section 7.5(a). The Company acknowledges that the
agreements contained in this Section 7.5(a) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent would not enter into this Agreement; accordingly, if the Company fails
promptly to pay any amount due pursuant to this Section 7.5(a), and, in order to
obtain such payment, Parent commences a suit which results in a judgment against
the Company for the payment set forth in this Section 7.5(a), the Company shall
pay to Parent its costs and expenses (including attorneys' fees) in connection
with such suit, together with interest on the Company Termination Amount and
other amounts to be reimbursed to Parent under this Section 7.5(a) from the date
payment was required to be made until the date of such payment at the prime rate
of JPMorgan Chase Bank in effect on the date such payment was required to be
made plus one
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percent (1%). If this Agreement is terminated pursuant to a provision that calls
for a payment to be made under this Section 7.5(a), it shall not be a defense to
the Company's obligation to pay hereunder that this Agreement could have been
terminated under a different provision or could have been terminated at an
earlier or later time.
(b) If this Agreement is terminated
(i) by the Company or Parent, after the public announcement of a
Parent Acquisition Proposal or after the Company has exercised the Option,
pursuant to Section 7.2(c);
(ii) by the Company pursuant to Section 7.3(b); or
(iii) by Parent pursuant to Section 7.4(c);
then Parent shall pay the Company the Parent Termination Amount (as defined
below) and, in addition, reimburse the Company for all expenses incurred by the
Company in connection with this Agreement up to the Reimbursement Maximum Amount
prior to or upon the termination of this Agreement. All payments under this
Section 7.5(b) shall be made in cash by wire transfer to an account designated
by the Company at the time of such termination (or, in the case of a termination
pursuant to Section 7.4(c), prior to such termination). The term "Parent
Termination Amount" shall mean $139,000,000; provided, however, that if, upon
termination of this Agreement by the Company or Parent pursuant to Section
7.2(c) after the public announcement of a Parent Acquisition Proposal, the Board
of Directors of Parent shall not have (x) withdrawn, withheld, modified or
changed, in a manner adverse to the Company, the Board's approval or
recommendation of this Agreement or the Merger, (y) recommended a Parent
Superior Proposal or (z) resolved to do any of the foregoing, then the "Parent
Termination Amount" shall mean $69,500,000 plus, if (x) Parent executes and
delivers an agreement with respect to any Parent Acquisition (as defined below)
or (y) a Parent Acquisition is consummated, in any such case, within 12 months
from the date of termination, an additional $69,500,000 (which additional amount
shall be paid promptly by wire transfer to an account designated by the
Company). If the Board of Directors of Parent recommends the acceptance by the
stockholders of Parent of a third-party tender or exchange offer for shares of
Parent Common Stock, such recommendation shall have the same consequences for
purposes of this paragraph as though an agreement with respect to a Parent
Acquisition had been executed and delivered. For purposes hereof, "Parent
Acquisition" means (i) a consolidation, exchange of shares or merger of Parent
with any person, other than the Company or one of its Subsidiaries or any of
Parent's Subsidiaries, and, in the case of a merger, in which Parent shall not
be the continuing or surviving corporation, (ii) a merger of Parent with a
person, other than the Company or one of its Subsidiaries or any of Parent's
Subsidiaries, in which Parent shall be the continuing or surviving corporation
but the then outstanding shares of Parent Common Stock shall be changed into or
exchanged for stock or other securities of Parent or any other person or cash or
any other property or the shares of Parent Common Stock outstanding immediately
before such merger shall after such merger represent less than 50% of the voting
stock of Parent outstanding immediately after the merger, (iii) the acquisition
of beneficial ownership of 50% or more of the voting stock of Parent by any
person (as such term is used under Section 13(d) of the Exchange Act), or (iv) a
sale, lease or other transfer of 50% or more of the assets, net revenues or net
operating income of Parent and its Subsidiaries, taken as a whole, to any
person, other than the Company or one of its Subsidiaries or any of Parent's
Subsidiaries. In addition, Parent shall reimburse the Company for all expenses
incurred by the Company in connection with this Agreement up to the
Reimbursement Maximum Amount if this Agreement has been terminated pursuant to
Section 7.2(c) even if the Company is not entitled to any Parent Termination
Amount under this Section 7.5(b). Parent acknowledges that the agreements
contained in this Section 7.5(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, the Company
would not enter into this Agreement; accordingly, if Parent fails promptly to
pay any amount due pursuant to this Section 7.5(b), and, in order to obtain such
payment, the Company commences a suit which results in a judgment against Parent
for the payment set forth in this Section 7.5(b), Parent shall pay to the
Company its costs and expenses (including attorneys' fees) in connection with
such suit, together with interest on the Parent Termination Amount and other
amounts to be reimbursed to the
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Company under this Section 7.5(b) from the date payment was required to be made
until the date of such payment at the prime rate of JPMorgan Chase Bank in
effect on the date such payment was required to be made plus one percent (1%).
If this Agreement is terminated pursuant to a provision that calls for a payment
to be made under this Section 7.5(b), it shall not be a defense to Parent's
obligation to pay hereunder that this Agreement could have been terminated under
a different provision or could have been terminated at an earlier or later time.
SECTION 7.6 Effect of Vote. Any right to terminate this Agreement
provided under Sections 7.1, 7.2(a), 7.2(d), 7.3(a) or 7.4(a) hereunder shall be
effective notwithstanding whether the Company Requisite Vote or the Parent
Requisite Vote has been obtained. Any right to terminate this Agreement provided
under Sections 7.2(b) or 7.4(b) hereunder shall be effective notwithstanding
whether the Parent Requisite Vote has been obtained. Any right to terminate this
Agreement provided under Sections 7.2(c) or 7.3(b) hereunder shall be effective
notwithstanding whether the Company Requisite Vote has been obtained.
ARTICLE 8
GENERAL PROVISIONS
SECTION 8.1 Survival. (a) In the event of termination of this Agreement
and the abandonment of the Merger pursuant to Article 7, all rights and
obligations of the parties hereto shall terminate, except the obligations of the
parties pursuant to Section 7.5 and Section 5.12 and except for the provisions
of Sections 8.3, 8.4, 8.6, 8.8, 8.9, 8.11, 8.12 and 8.13 and the Confidentiality
Agreement; provided that nothing herein shall relieve any party from any
liability for any willful and material breach by such party of any of its
covenants or agreements set forth in this Agreement and, subject to Section
8.12, all rights and remedies of such nonbreaching party under this Agreement in
the case of such a breach, at law or in equity, shall be preserved. The parties
hereto agree that, if this Agreement has been terminated, any remedy or amount
payable pursuant to Section 7.5 or Section 5.12 shall be the sole and exclusive
remedy of the party receiving payment thereunder unless the other party is in
material and willful breach of any of its covenants and agreements set forth in
this Agreement.
(a) None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the Merger; provided, however, that Article 2,
this Article 8 and the agreements contained in Sections 5.11-5.14 shall
survive the consummation of the Merger, unless otherwise provided herein.
SECTION 8.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission or by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
(a) if to Parent or Merger Sub:
Devon Energy Corporation
20 North Broadway
Suite 1500
Oklahoma City, Oklahoma 73102
Facsimile: (405) 552-4550
Attn: Duke R. Ligon
Senior Vice President and General Counsel
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with a copy to:
Mayer, Brown, Rowe & Maw
190 South LaSalle Street
Chicago, Illinois 60603
Facsimile: (312) 701-7711
Attn: Scott J. Davis
James T. Lidbury
(b) if to the Company:
Ocean Energy, Inc.
1001 Fannin
Suite 1600
Houston, Texas 77002
Facsimile: (713) 265-8840
Attn: Robert K. Reeves
Executive Vice President and General Counsel
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002
Facsimile: (713) 758-2346
Attn: T. Mark Kelly
David P. Oelman
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
SECTION 8.3 Assignment; Binding Effect; Benefit. Except as provided in
Section 1.1 hereof, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Except for the provisions of Article 2 and as provided
in Section 5.13 and Section 5.14, notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 8.4 Entire Agreement. This Agreement, the Confidentiality
Agreement (other than Sections 9 and 10 thereof, which are hereby suspended and
shall be of no further force or effect during the term of this Agreement, but
shall come back into effect if this Agreement is terminated without the
consummation of the Merger), the exhibits to this Agreement, the Company
Disclosure Letter, the Parent Disclosure Letter and any documents delivered by
the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN THIS AGREEMENT, NEITHER PARENT, MERGER SUB NOR THE COMPANY MAKES
ANY OTHER REPRESENTATIONS OR WARRANTIES AND EACH HEREBY DISCLAIMS ANY OTHER
REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH
RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS
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CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO ANY OTHER
PARTY OR ANY OTHER PARTY'S REPRESENTATIVES OF ANY DOCUMENT OR OTHER INFORMATION
WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
SECTION 8.5 Amendments. This Agreement may be amended by the parties
hereto, by action taken or authorized by their Boards of Directors, at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of the Company or Parent, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 8.6 Governing Law; Jurisdiction; Waiver of Jury Trial. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE. EACH OF THE COMPANY, MERGER SUB AND PARENT HEREBY IRREVOCABLY
AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
COMPETENT COURTS OF THE STATE OF DELAWARE AND OF THE UNITED STATES OF AMERICA,
IN EITHER CASE LOCATED IN WILMINGTON, DELAWARE (THE "DELAWARE COURTS") FOR ANY
LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO
EXCEPT IN SUCH COURTS), WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION IN THE DELAWARE COURTS AND AGREES NOT TO PLEAD OR CLAIM IN ANY
DELAWARE COURT THAT SUCH LITIGATION BROUGHT THEREIN HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
SECTION 8.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together shall be deemed to be one and the same instrument.
SECTION 8.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
SECTION 8.9 Interpretation. In this Agreement:
(a) Unless the context otherwise requires, words describing the
singular number shall include the plural and vice versa, and words denoting
any gender shall include all genders and words denoting natural persons
shall include corporations and partnerships and vice versa.
(b) The words "include", "includes" and "including" are not limiting.
(c) The phrase "to the knowledge of" and similar phrases relating to
knowledge of the Company or Parent, as the case may be, shall mean the
actual knowledge of its executive officers.
(d) "Material Adverse Effect" with respect to the Company or Parent
shall mean a material adverse effect respecting (a) the business, assets
and liabilities (taken together) or financial condition of a party and its
Subsidiaries on a consolidated basis or (b) the ability of the party to
consummate the transactions contemplated by this Agreement or fulfill the
conditions to closing set forth in Article 6, except to the extent (in the
case of either clause (a) or clause (b) above) that such adverse effect
results from (i) general economic, regulatory or political conditions or
changes therein in the United States or the other countries in which such
party operates; (ii) financial or securities
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market fluctuations or conditions; (iii) changes in, or events or
conditions affecting, the oil and gas industry generally; (iv) the
announcement or pendency of the Merger or compliance with the terms and
conditions of Section 5.1 hereof; or (v) stockholder class action
litigation arising from allegations of a breach of fiduciary duty relating
to this Agreement. "Company Material Adverse Effect" and "Parent Material
Adverse Effect" mean a Material Adverse Effect with respect to the Company
and Parent, respectively.
(e) "Person" or "person" means an individual, a corporation, a limited
liability company, a partnership, an association, a trust or other entity
or organization.
(f) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
of which such party directly or indirectly owns or controls at least a
majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or
others performing similar functions with respect to such corporation or
other organization, or any organization of which such party is a general
partner.
SECTION 8.10 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder. The failure of any party to this Agreement to assert any of
its rights under this Agreement shall not constitute a waiver of such rights.
SECTION 8.11 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 8.12 Enforcement of Agreement; Limitation on Damages. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with its specific
terms or was otherwise breached. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
Delaware Court, this being in addition to any other remedy to which they are
entitled at law or in equity. IN NO EVENT SHALL ANY PARTY BE LIABLE IN RESPECT
OF THIS AGREEMENT FOR PUNITIVE OR EXEMPLARY DAMAGES.
SECTION 8.13 Obligation of Merger Sub. Whenever this Agreement requires
Merger Sub (or its successors) to take any action prior to the Effective Time,
such requirement shall be deemed to include an undertaking on the part of Parent
to cause Merger Sub to take such action and a guarantee of the performance
thereof.
SECTION 8.14 Extension; Waiver. At any time prior to the Effective Time,
each party may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
DEVON ENERGY CORPORATION
By: /s/ J. LARRY NICHOLS
------------------------------------
Name: J. Larry Nichols
Title: Chairman of the Board,
President and
Chief Executive Officer
DEVON NEWCO CORPORATION
By: /s/ J. LARRY NICHOLS
------------------------------------
Name: J. Larry Nichols
Title: President
OCEAN ENERGY, INC.
By: /s/ JAMES T. HACKETT
------------------------------------
Name: James T. Hackett
Title: Chairman of the Board,
President and
Chief Executive Officer
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EXHIBIT A
CERTIFICATE OF INCORPORATION
OCEAN ENERGY, INC.
ARTICLE I
NAME
The name of the corporation is Ocean Energy, Inc. (the "Corporation").
ARTICLE II
REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
19801. The name of the registered agent of the Corporation at such address is
The Corporation Trust Company.
ARTICLE III
PURPOSE
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful business, act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is 51,000 shares, consisting of 50,000 shares of
Preferred Stock of the par value of $1.00 per share and 1,000 shares of Common
Stock of the par value of $.01 per share.
The following is a statement fixing certain of the designations and powers,
voting powers, preferences, and relative, participating, optional or other
rights of the Preferred Stock and the Common Stock of the Corporation, and the
qualifications, limitations or restrictions thereof, and the authority with
respect thereto expressly granted to the Board of Directors of the Corporation
to fix any such provisions not fixed by this Certificate of Incorporation:
A. Preferred Stock
The Board of Directors is hereby expressly vested with the authority to
adopt a resolution or resolutions providing for the issuance of authorized but
unissued shares of Preferred Stock, which shares may be issued from time to time
in one or more series and in such amounts as may be determined by the Board of
Directors in such resolution or resolutions. The powers, voting powers,
designations, preferences, and relative, participating, optional or other
rights, if any, of each series of Preferred Stock and the qualifications,
limitations or restrictions, if any, of such powers, preferences and/or rights
(collectively the "Series Terms"), shall be such as are stated and expressed in
a resolution or resolutions providing for the creation or revision of such
Series Terms (a "Preferred Stock Series Resolution") adopted by the Board of
Directors (or a committee of the Board of Directors to which such responsibility
is specifically and
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lawfully delegated). The powers of the Board with respect to the Series
Terms of a particular series shall include, but not be limited to, determination
of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series, or any increase or decrease (but not below the
number of shares thereof then outstanding) in such number;
(ii) The dividend rate or method of determining dividends on the
shares of that series, any conditions upon which such dividends shall be
payable, and the date or dates or the method for determining the date or
dates upon which such dividends shall be payable, whether such dividends,
if any, shall be cumulative, and, if so, the date or dates from which
dividends payable on such shares shall accumulate, and the relative rights
of priority, if any, of payment of dividends on shares of that series;
(iii) The voting rights and powers, if any, of the holders of any
series of Preferred Stock generally or with respect to any particular
matter, which may be less than, equal to or greater than one vote per
share, and which may, without limiting the generality of any other series
of Preferred Stock or all series of Preferred Stock as a class, to elect
one or more directors of the Corporation generally or under such specific
circumstances and on such conditions, as shall be provided in the
resolution or resolutions of the Board of Directors (or such committee of
the Board of Directors, as the case may be) adopted pursuant hereto,
including, without limitation, in the event there shall have been a default
in the payment of dividends on or redemption of any one or more series of
Preferred Stock;
(iv) Whether that series shall have conversion or exchange privileges
with respect to shares of any other class or classes of stock or of any
other series of any class of stock, and, if so, the terms and conditions of
such conversion or exchange, including provision for adjustment of the
conversion or exchange rate upon occurrence of such events as the Board of
Directors shall determine;
(v) Whether the shares of that series shall be redeemable, and, if so,
the price or prices and the terms and conditions of such redemption,
including their relative rights of priority, if any, of redemption, the
date or dates upon or after which they shall be redeemable, provisions
regarding redemption notices, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates;
(vi) Whether that series shall have a sinking fund for the redemption
or repurchase of shares of that series, and, if so, the terms, conditions
and amount of such sinking fund;
(vii) The rights, if any, of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation or in the event of any merger or consolidation of or sale of
assets by the Corporation, and the relative rights of priority, if any, of
payment of shares of that series;
(viii) The conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issuance of additional
Preferred Stock or other capital stock ranking on a parity therewith, or
prior thereto, with respect to dividends or distribution of assets upon
liquidation;
(ix) The conditions or restrictions with respect to the issuance of,
payment of dividends upon, or the making of other distributions to, or the
acquisition or redemption of, shares ranking junior to the Preferred Stock
or to any series thereof with respect to dividends or distribution of
assets upon liquidation; and
(x) Any other designations, powers, preferences, and relative,
participating, optional or other rights, including, without limitation, any
qualifications, limitations, or restrictions thereof.
Subject to the provisions of this Article IV, shares of one or more series
of Preferred Stock may be authorized or issued from time to time as shall be
determined by and for such consideration as shall be fixed by the Board of
Directors (or a designated committee thereof), in an aggregate amount not
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exceeding the total number of shares of Preferred Stock authorized by this
Certificate of Incorporation. The number of authorized shares of Preferred Stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holder is
required pursuant to any Preferred Stock Series Resolution. Except as required
by law, holders of Preferred Stock shall not be entitled to receive notice of
any meeting of stockholders at which they are not entitled to vote. Except in
respect of series particulars fixed by the Board of Directors as permitted
hereby, all shares of Preferred Stock shall be of equal rank and shall be
identical. All shares of any one series of Preferred Stock so designated by the
Board of Directors shall be alike in every particular, except that shares of any
one series issued at different times may differ as to the dates from which
dividends thereon shall be cumulative.
B. Common Stock
(i) Subject to the provisions of any Preferred Stock Series
Resolution, the Board of Directors may, in its discretion, out of funds
legally available for the payment of dividends and at such times and in
such manner as determined by the Board of Directors, declare and pay
dividends on the Common Stock of the Corporation.
(ii) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the
Corporation and payment or setting aside for payment of any preferential
amount due to the holders of any other class or series of stock, the
holders of the Common Stock shall be entitled to receive ratably any or
all assets remaining to be paid or distributed.
(iii) Subject to any special voting rights set forth in any
Preferred Stock Series Resolution, the holders of the Common Stock of
the Corporation shall be entitled at all meetings of stockholders to one
vote for each share of such stock held by them. Except as may be
provided in a Preferred Stock Series Resolution, the Common Stock shall
have the exclusive right to vote for the election of directors and for
all other purposes.
C. No Preemptive Rights
No holder of shares of stock of the Corporation shall have any preemptive
or other rights, except as such rights are expressly provided by contract, to
purchase or subscribe for or receive any shares of any class, or series thereof,
of stock of the Corporation, whether now or hereafter authorized, or any
warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any shares of any class, or
series thereof, of stock; but such additional shares of stock and such warrants,
options, bonds, debentures or other securities convertible into, exchangeable
for or carrying any right to purchase any shares of any class, or series
thereof, of stock may be issued or disposed of by the Board of Directors to such
persons, and on such terms and for such lawful consideration, as in its
discretion it shall deem advisable or as to which the Corporation shall have by
binding contract agreed.
D. Registered Owner
The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
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ARTICLE V
BOARD OF DIRECTORS
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
The number and terms of the Board of Directors of the Corporation and the
procedures to elect directors, to remove directors, and to fill vacancies in the
Board of Directors shall be as follows:
(i) Subject to the rights of holders of any series of Preferred Stock
to elect additional directors under specified circumstances, the number of
directors that shall constitute the whole Board of Directors shall from
time to time be fixed exclusively by the Board of Directors by a resolution
adopted by a majority of the whole Board of Directors serving at the time
of that vote. No decrease in the number of directors shall have the effect
of shortening the term of any incumbent director. Directors of the
Corporation need not be elected by written ballot unless the Bylaws of the
Corporation otherwise provide.
(ii) Vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office, or other
cause and newly-created directorships resulting from any increase in the
authorized number of directors may only be filled by no less than a
majority vote of the remaining directors then in office, though less than a
quorum, or by the sole remaining director (but not by the stockholders
except as required by law), and each director shall hold office until the
first meeting of stockholders held after his election for the purpose of
electing directors and until his successor is elected and qualified or
until his earlier death, resignation, or removal from office.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock issued by the Corporation shall have the right, voting
separately by series, to elect one or more directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of such
series of Preferred Stock.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify, in accordance with and to the full extent
now or hereafter permitted by law, 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
(including, without limitation, an action by or in the right of the
Corporation), by reason of his acting as a director or officer of the
Corporation (and the Corporation, in the discretion of the Board of Directors,
may so indemnify a person by reason of the fact that he is or was an employee or
agent of the Corporation or is or was serving at the request of the corporation
in any other capacity for or on behalf of the Corporation) against any liability
or expense actually and reasonably incurred by such person in respect thereof;
provided, however, the Corporation shall be required to indemnify an officer or
director in connection with an action, suit or proceeding initiated by such
person only if such action, suit or proceeding was authorized by the Board of
Directors of the Corporation. Such indemnification is not exclusive of any other
right to indemnification provided by law or otherwise. The right to
indemnification conferred by this Article VI shall be deemed to be a contract
between the Corporation and each person referred to herein.
ARTICLE VII
LIMITED LIABILITY OF DIRECTORS
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty by such director
as a director, except for liability (a) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (b) for acts or omissions not in
good faith
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or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of the State of Delaware, or (d) for
any transaction from which the director derived an improper personal benefit.
Any amendment or repeal of this Article VII shall be prospective only, and
neither the amendment, modification nor repeal of this Article VII shall
eliminate or reduce the effect of this Article VII in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article VII
would accrue or arise, prior to such amendment, modification or repeal. If the
General Corporation Law of the State of Delaware hereafter is amended to
authorize corporate action further eliminating or limiting the liability of
directors, then the liability of a director of the Corporation, in addition to
the limitation on personal liability provided herein, shall be eliminated or
limited to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended from time to time.
ARTICLE VIII
POWER TO AMEND BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the Bylaws of the Corporation may be altered, amended or repealed and new Bylaws
may be adopted by (i) the Board of Directors in accordance with the Bylaws or
(ii) the stockholders of the Corporation by an affirmative vote of the holders
of at least a majority of the votes of the outstanding shares of the class or
classes or series of stock then entitled to be voted thereon, voting together as
a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
Subject to the provisions of this Certificate of Incorporation and
applicable law, the Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and any other provisions authorized by the laws of
the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and, all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the right
reserved in this Article IX.
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CERTIFICATE OF DESIGNATIONS
FOR THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF
OCEAN ENERGY, INC.
OCEAN ENERGY, INC., a corporation duly organized and existing under the
laws of the State of Delaware (the "Company"), DOES HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors of the
Company (the "Board") by the Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), of the Company and pursuant to the provisions
of Section 151 of the General Corporation Law of the State of Delaware, the
Board duly adopted the following resolution on May 9, 2001:
RESOLVED, that pursuant to the authority vested in the Board by the
provisions of the Certificate of Incorporation, the Board hereby creates the
Series B Convertible Preferred Stock (the "Series B Preferred Stock") from the
authorized but unissued preferred stock, par value $1.00 per share, of the
Company, and the Board hereby fixes the designations, powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations or restrictions thereof, of the shares of such
Series B Preferred Stock as follows:
SECTION I. Designation and Number. A series of fifty thousand (50,000)
shares shall be designated "Series B Convertible Preferred Stock." The number of
shares in such series may be increased or decreased (but not below the number of
shares then outstanding) from time to time by the Board.
SECTION II. Definitions.
A. For purposes of this resolution, the following terms shall have the
meanings indicated:
The term "Available Cash" still have the meaning given to it in
Section VII.C.
The term "Capital Stock" shall mean any and all shares or other
equivalents (however designated) of corporate stock of the Company or the
entity in question, as the case may be.
The term "Common Stock" shall mean the Company's Common Stock, par
value $.10 per share.
The term "Conversion Price" shall mean the Series B Conversion Price.
The term "Current Market Price" shall mean, as of any date, the price
per share of Common Stock determined by the Company's Board as provided in
this definition. The Current Market Price shall be the average of the daily
closing prices per share of Common Stock for ten consecutive trading days
ending no more than two business days before the day in question (as
adjusted for any stock dividend, split, combination or reclassification
that took effect during or subsequent to such ten trading day period). The
closing price for each day shall be the last reported sales price regular
way or, in the event no such reported sales take place on such day, the
average of the last reported bid and asked prices regular way, in either
case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, the average of the highest bid
and the lowest asked prices quoted on the National Association of
Securities Dealers Automated Quotation System; provided, however, that if
the Common Stock is not traded in such manner that such quotations are
available for the period required hereunder, the Current Market Price per
share of Common Stock shall be deemed to be the fair value as reasonably
determined by the Board of the Company. Notwithstanding the foregoing, to
the extent the Company sells Common Stock in a public offering, the Current
Market Price with respect to such transaction shall be the price per share
at which the Company sells such Common Stock before deducting therefrom any
discounts, commissions, taxes or other expenses allowed, paid or incurred
by the Company for any underwriting or otherwise in connection with the
issuance and sale thereof.
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The term "Issuance Date" shall mean the date the Series B Preferred
Stock is issued in connection with the Merger.
The term "Junior Securities" shall have the meaning given to it in
Section VIII.
The term "Liquidation" shall mean any voluntary or involuntary
liquidation, dissolution or winding-up of the Company. Neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets
of the Company nor the consolidation or merger of the Company with or into
one or more entities shall be deemed to be a liquidation, dissolution or
winding-up of the Company.
The term "Mandatorily Redeemable Preferred Stock" shall have the
meaning given to it in Section VII.C.
The term "Measurement Date" shall mean November 10, 1998.
The term "Merger" shall mean the merger of Ocean Energy, Inc., a Texas
corporation ("OEI-Texas"), with and into the Company.
The term "Parity Securities" shall have the meaning given to it in
Section VIII.
The term "Optional Redemption Date" shall have the meaning given to it
in Section VII.B.
The term "Optional Redemption Notice" shall have the meaning given to
it in Section VII.B.
The term "Reclassification" means any capital reorganization of the
Company, any reclassification of the Common Stock, the consolidation of the
Company with or the merger of the Company with or into any other Person, or
the sale, lease or other transfer of all or substantially all of the assets
of the Company to any other Person. The subdivision or combination of
shares of Common Stock issuable upon conversion of shares of Series B
Preferred Stock at any time outstanding into a greater or lesser number of
shares of Common Stock (whether with or without par value) shall not be
deemed to be a "Reclassification" of the Common Stock for the purposes of
Section VI.E.4.
The term "Redemption Date" shall have the meaning given to it in
Section VII.C.
The term "Rights" means the rights to acquire Capital Stock or
preferred stock of the Company, or subdivisions thereof, which are issued
pursuant to that certain Amended and Restated Rights Agreement of OEI-Texas
dated December 22, 1997, as amended, assumed by the Company in connection
with the Merger or pursuant to any other rights plan approved by the Board
and any amendments thereto, similar to shareholder rights plans of the type
adopted by public companies, approval of any rights plan by the Board to be
conclusive evidence that such plan satisfies the foregoing and such rights
issuable thereunder are Rights contemplated hereby.
The term "Senior Securities" shall have the meaning given to it in
Section VIII.
The term "Series B Conversion Date" shall have the meaning set forth
in Section VI.D hereof.
The term "Series B Conversion Price" shall have the meaning set forth
in Section VI.C hereof.
The term "Series B Forced Conversion Price" means prior to the third
anniversary of the Measurement Date, 175% of the Series B Conversion Price,
as then in effect, and on and after the third anniversary of the
Measurement Date, 150% of the Series B Conversion Price, as then in effect.
The term "Series B Preferred Stock" means the Series B Convertible
Preferred Stock, par value $1.00 per share, of the Company.
The term "Trigger Price" shall mean, as applicable, (i) in the case of
Common Stock, options, warrants or other rights to purchase or acquire
Common Stock, securities by their terms convertible into or exchangeable
for Common Stock (other than any series of convertible preferred stock) and
Capital Stock, other than any series of convertible preferred stock, of the
Company, $12.00 per share, as proportionately adjusted for all Common Stock
stock splits, dividends paid in Common Stock,
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reverse splits of Common Stock and other recapitalizations affecting the
Common Stock subsequent to the Issuance Date or (ii) in the case of any
series of convertible preferred stock of the Company, the Series B
Conversion Price as then in effect.
B. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them in accordance with generally accepted
accounting principles as of the date the Series B Preferred Stock is
initially issued.
SECTION III. Dividends. The holders of the then outstanding Series B
Preferred Stock shall be entitled to receive, when and as declared by the Board,
and out of any funds legally available therefor, cumulative dividends at the
annual rate of $65.00 per share, payable semi-annually in cash on April 1 and
October 1 of each year commencing October 1, 2001, accruing from and including
April 2, 2001. Dividends on the Series B Preferred Stock shall accumulate and
accrue on each such share from the date of its original issue and shall accrue
from day to day thereafter, whether or not earned or declared. No dividend or
distribution on any Junior Securities in cash, shares of stock (other than
Common Stock) or other property shall be declared, set apart for payment or paid
unless all previous and current dividends on the Series B Preferred Stock at the
rate specified above shall have been paid or declared and a sum sufficient for
the payment thereof set apart.
SECTION IV. Preference on Liquidation. Upon any Liquidation, holders of
shares of Series B Preferred Stock shall be entitled to receive payment of
$1,000.00 per share of Series B Preferred Stock held by them plus an amount
equal to all accrued and unpaid dividends thereon, whether or not earned or
declared, to and including the last date on which dividends have accrued thereon
prior to the Liquidation, before any distribution shall be made or any assets
distributed to the holders of any of the Junior Securities. Except as provided
in the preceding sentence, holders of Series B Preferred Stock shall not be
entitled to any distribution in the event of any Liquidation of the affairs of
the Company. If the assets of the Company are not sufficient to pay in full the
liquidation payments payable to the holders of outstanding shares of the Series
B Preferred Stock and all Parity Securities, then the holders of all such shares
shall share equally and ratably in such distribution of assets in proportion to
the full liquidation preference to which each is entitled, including without
limitation, accumulated but unpaid dividends.
SECTION V. Voting.
A. In addition to the special voting rights provided in paragraph "B" of
this Section V and the voting rights provided by applicable law, the holders of
shares of Series B Preferred Stock shall be entitled to vote upon all matters
upon which holders of the Common Stock have the right to vote, and shall be
entitled to the number of votes equal to the largest number of full shares of
Common Stock into which such shares of Series B Preferred Stock could be
converted pursuant to the provisions of Section VI hereof at the record date for
the determination of the stockholders entitled to vote on such matters or, if no
such record date is established, the date such vote is taken, such votes to be
counted together with all other shares of Capital Stock having general voting
powers and not separately as a class. In all cases where the holders of shares
of Series B Preferred Stock have the right to vote separately as a class, all
such holders shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which such shares of Series B
Preferred Stock could be converted pursuant to the provisions of Section VI
hereof at the record date for the determination of the stockholders entitled to
vote on such matters or, if no such record date is established, at the date such
vote is taken.
B. So long as any Series B Preferred Stock is outstanding, without the
consent of the holders of at least 66 2/3% of the shares of Series B Preferred
Stock then outstanding, voting together as a class, given in writing or by vote
at a meeting of stockholders called for such purpose, the Company will not (i)
create any new class or series of stock having a preference over the Series B
Preferred Stock with respect to dividend distributions or distributions on
Liquidation or (ii) amend, alter or repeal any provision of the Certificate of
Incorporation of the Company so as to adversely affect the preferences, rights,
or powers of the Series B Preferred Stock.
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SECTION VI. Conversion Rights. The Series B Preferred Stock shall be
convertible into Common Stock as follows:
A. Optional Conversion. Subject to and upon compliance with the provisions
of this Section VI, the holder of any shares of Series B Preferred Stock shall
have the right at such holder's option, at any time or from time to time, to
convert any of such shares of Series B Preferred Stock into the number of fully
paid and nonassessable shares of Common Stock set forth in paragraph "C" of this
Section VI.
B. Automatic Conversion. Each outstanding share of Series B Preferred
Stock shall automatically be converted, without any further act of the Company
or its stockholders, into the number of fully paid and nonassessable shares of
Common Stock set forth in paragraph "C" of this Section VI, provided, however,
that such automatic conversion shall occur if, and only if, for any 20
consecutive trading days, the closing price of the Common Stock equals or
exceeds the Series B Forced Conversion Price.
C. Conversion Price. Each share of Series B Preferred Stock converted
pursuant to paragraphs "A" and "B" of this Section VI shall be converted into
such number of shares of Common Stock as is determined by dividing (i) the sum
of (A) $1,000.00 plus (B) all accrued and unpaid dividends on such share of
Series B Preferred Stock, whether or not earned or declared, which such holder
is entitled to receive, but has not yet received, by (ii) the Series B
Conversion Price in effect on the Series B Conversion Date. The Series B
Conversion Price shall initially be $14.92. The Series B Conversion Price shall
be subject to adjustment as set forth in paragraph "E" of this Section VI and as
so adjusted is referred to herein as the "Series B Conversion Price."
D. Mechanics of Conversion. Upon the occurrence of the event specified in
paragraph "B" of this Section VI, the outstanding shares of Series B Preferred
Stock shall be converted automatically without any further action by the holders
of such shares and regardless of whether the certificates representing such
shares are surrendered to the Company or its transfer agent; provided, however,
that the Company shall not be obligated to issue to any such holder certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing such shares of Series B Preferred Stock are delivered to
either the Company or any transfer agent of the Company or the affidavit and
indemnity referenced in paragraph "F" of Section IX hereof with respect to such
certificates are delivered to the Company. The holder of any shares of Series B
Preferred Stock may exercise the conversion right specified in paragraph "A" of
this Section VI as to any part thereof by surrendering to the Company or any
transfer agent of the Company the certificate or certificates for the shares to
be converted, accompanied by written notice stating that the holder elects to
convert all or a specified portion of the shares represented thereby. Conversion
shall be considered to have been effected (i) on the date of the occurrence of
the event specified in paragraph "B" of this Section VI, or (ii) on the date
when a holder of Series B Preferred Stock delivers notice of an election to
convert shares of Series B Preferred Stock to the Company accompanied by
certificates representing such shares, as the case may be, and such date is
referred to herein as the "Series B Conversion Date." Subject to the provisions
of paragraph "E" of this Section VI, as promptly as practicable thereafter (and
after surrender of the certificate or certificates representing shares of the
Series B Preferred Stock to the Company or any transfer agent of the Company or
delivery to the Company of the affidavit and indemnity referenced in paragraph
"F" of Section IX hereof with respect to such certificates), the Company shall
issue and deliver to or upon the written order of such holder a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled and a check in immediately available funds or cash with respect to
any fractional interest in a share of Common Stock as provided in paragraph "C"
of Section IX hereof. Subject to the provisions of paragraph "E" of this Section
VI, the person in whose name the certificate or certificates for Common Stock
are to be issued shall be considered to have become a holder of record of such
Common Stock on the Series B Conversion Date. Upon conversion of only a portion
of the number of shares covered by a certificate representing shares of Series B
Preferred Stock surrendered for conversion, the Company shall issue and deliver
to or upon the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Company, a new certificate or certificates
covering the number of shares of Series B Preferred Stock representing the
unconverted portion of the certificate so surrendered.
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E. Series B Conversion Price Adjustments. The Series B Conversion Price
shall be subject to adjustment from time to time as follows:
1. Other Issuances of Common Stock. If the Company shall issue any
Additional Shares of Common Stock after the Issuance Date for a
consideration per share less than the Trigger Price immediately prior to
such issuance, then and in each such case the Series B Conversion Price
shall immediately be reduced to a price determined by multiplying the
Series B Conversion Price by a fraction (i) the numerator of which shall be
(A) the number of shares of Common Stock outstanding at the close of
business on the day next preceding the date of such issue, plus (B) the
number of shares of Common Stock which the aggregate consideration received
(or by the express provisions hereof deemed to have been received) by the
Company for the total number of Additional Shares of Common Stock so issued
would purchase at such Trigger Price and (ii) the denominator of which
shall be the number of shares of Common Stock outstanding at the close of
business on the date of such issue after giving effect to such issue of
Additional Shares of Common Stock. For the purpose of the calculation
described in this clause "1", the number of shares of Common Stock
outstanding shall include (A) the number of shares of Common Stock into
which the then outstanding shares of Series B Preferred Stock could be
fully converted on the day next preceding the issue of Additional Shares of
Common Stock and (B) the number of shares of Common Stock which could be
obtained through the conversion of all convertible securities which are
convertible on the day next preceding the issue of Additional Shares of
Common Stock. "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Issuance Date, whether or not
subsequently reacquired or retired by the Company, other than (i) shares of
Common Stock issued upon conversion of the Series B Preferred Stock, (ii)
shares of Common Stock issued to, and options or rights to purchase Common
Stock granted to, current or former management, directors, or employees of,
or consultants to the Company or any subsidiary of the Company pursuant to
stock purchase or stock option plans or other arrangements that are
approved by the Board or the Compensation Committee of the Board, (iii)
shares of Common Stock issued in connection with the Merger and (iv) the
shares of Series B Preferred Stock issued in connection with the Merger.
For the purpose of any adjustment of the Series B Conversion Price pursuant
to this clause "1", the following provisions shall be applicable:
a. Cash. In the case of the issuance of Common Stock for cash, the
amount of the consideration received by the Company shall be considered
to be the amount of the cash proceeds received by the Company for such
Common Stock before deducting therefrom any discounts, commissions,
taxes or other expenses allowed, paid or incurred by the Company for any
underwriting or otherwise in connection with the issuance and sale
thereof.
b. Consideration Other Than Cash. In the case of the issuance of
Common Stock (otherwise than upon the conversion of shares of capital
stock or other securities of the Company) for a consideration in whole
or in part other than cash, including securities acquired in exchange
therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value
thereof as reasonably determined by the Board, irrespective of any
accounting treatment; provided, however, that such fair value as
reasonable determined by the Board shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued as of
the date the Board authorizes the issuance of such shares.
c. Options and Convertible Securities. If, after the Issuance
Date, the Company shall grant any options, warrants or other rights to
purchase or acquire Common Stock (whether or not at the time
exercisable), or issue any securities by their terms convertible into or
exchangeable for Common Stock (whether or not at the time so convertible
or exchangeable) and the consideration per share for which Common Stock
may at any time thereafter be issuable
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pursuant to such options, warrants or other rights or pursuant to the
terms of such convertible or exchangeable securities shall be less than
the Trigger Price, then:
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other rights
to purchase or acquire Common Stock shall be considered to have been
issued at the time such options, warrants or rights were granted and
for a consideration equal to the consideration (determined in the
manner provided in subclauses "a" and "b" of this clause "1"), if
any, received by the Company upon the grant of such options, warrants
or rights plus the minimum purchase price provided for in such
options, warrants or rights for the Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of
options, warrants or other rights to purchase or acquire such
convertible or exchangeable securities and the subsequent conversion
or exchange thereof, shall be considered to have been issued at the
time such securities were issued or such options, warrants or rights
were granted and for a consideration equal to the consideration, if
any, received by the Company for any such securities and related
options, warrants or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Company upon
the conversion or exchange of such securities and the exercise of any
related options, warrants or rights (the consideration in each case
to be determined in the manner provided in subclauses "a" and "b" of
this clause "1");
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or rights or
conversion of or exchange for such convertible or exchangeable
securities or any change in the consideration to be received by the
Company upon such exercise, conversion or exchange, including, but
not limited to, a change resulting from the anti-dilution provisions
thereof, the Series B Conversion Price as then in effect shall
forthwith be readjusted to such Series B Conversion Price as would
have been obtained had an adjustment been made upon the grant of such
options, warrants or rights not exercised prior to such change, or
the issuance of such securities not converted or exchanged prior to
such change, on the basis of such change;
(4) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert or
exchange such convertible or exchangeable securities, if the Series B
Conversion Price shall have been adjusted upon the grant or issuance
thereof, then the Series B Conversion Price shall forthwith be
readjusted to such Series B Conversion Price as would have been
obtained had an adjustment been made upon the grant or issuance of
such options, warrants, rights or securities on the basis of the
issuance of only the number of shares of Common Stock actually issued
upon the exercise of such options, warrants or rights, or upon the
conversion or exchange of such securities; and
(5) if the Series B Conversion Price shall have been adjusted
upon the grant or issuance of any such options, warrants, rights or
convertible or exchangeable securities, no further adjustment of the
Series B Conversion Price shall be made for the actual issuance of
Common Stock upon the exercise, conversion or exchange thereof;
provided, however, that no increase in the Series B Conversion Price
shall be made pursuant to subclauses "1", "2" or "3" of this subclause
"c".
d. Notwithstanding the foregoing provisions of this paragraph "E"
of this Section VI, the dividend or other distributions of Rights to
holders of Common Stock shall not be deemed to be the issuance of
Additional Shares of Common Stock resulting in an adjustment to the
Series B Conversion Price until such time as such Rights become
exercisable or exchangeable for Common Stock.
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2. Stock Dividends. If the number of shares of Common Stock
outstanding at any time after the date of issuance of Series B Preferred
Stock is increased by a stock dividend or other distribution payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then immediately after the record date fixed for the determination
of holders of Common Stock entitled to receive such stock dividend or the
effective date of such subdivision or split-up, as the case may be, the
Series B Conversion
Price shall be appropriately reduced so that the holder of any shares of
Series B Preferred Stock thereafter converted shall be entitled to receive
the number of shares of Common Stock which the holder would have received
immediately following such action had such shares of Series B Preferred
Stock been converted immediately prior thereto.
3. Combination of Stock. If the number of shares of Common Stock
outstanding at any time after the date of issuance of Series B Preferred
Stock is decreased by a combination of the outstanding shares of Common
Stock, then, immediately after the effective date of such combination, the
Series B Conversion Price for such series shall be appropriately increased
so that the holder of any shares of Series B Preferred Stock thereafter
converted shall be entitled to receive the number of shares of Common Stock
which such holder would have received immediately following such action had
such shares of Series B Preferred Stock been converted immediately prior
thereto.
4. Reclassification. In case of any Reclassification, each share of
Series B Preferred Stock shall, after such Reclassification, be convertible
into the kind and number of shares of stock or other securities, cash or
property to which the holder of such share of Series B Preferred Stock
would have been entitled to receive if the holder owned the Common Stock
issuable upon conversion of the Series B Preferred Stock immediately prior
to the occurrence of the Reclassification; and in any such case, if
necessary, the provisions set forth herein with respect to the rights and
interests thereafter of the holders of the shares of Series B Preferred
Stock shall be appropriately adjusted so as to be applicable, as nearly as
possible, to any shares of stock or other securities, cash or property
thereafter deliverable on the conversion of the shares of Series B
Preferred Stock.
5. Adjustment Upon Payment of Dividend on Common Stock. To the extent
the Company pays a dividend on Common Stock, other than Rights or a
dividend payable in Common Stock as provided for in Section VI.E.2, the
Series B Conversion Price shall immediately be reduced (i) by the per share
amount of cash dividend paid on the Common Stock or (ii) in the case of a
non-cash dividend (other than dividends of options, warrants or other
rights to purchase or acquire Common Stock for which there has been an
adjustment under Section VI.E.1.c), by the fair value of the per share
amount of such dividend as reasonably determined by the Board.
6. Rounding of Calculations. All calculations under this paragraph
"E" shall be made to the nearest cent or to the nearest one hundredth
(1/100th) of a share, as the case may be.
7. Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this paragraph "E"
shall require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of
such event (i) issuing to the holder of any shares of Series B Preferred
Stock converted after such record date and before the occurrence of such
event the additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and above the
shares of Common Stock issuable upon such conversion before giving effect
to such adjustment, and (ii) paying to such holder any amount of cash in
lieu of a fractional share of Common Stock pursuant to paragraph "C" of
Section IX hereof; provided, however, that the Company upon request shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares and such
cash, upon the occurrence of the event requiring such adjustment.
F. Statement Regarding Adjustments. Whenever the Series B Conversion Price
shall be adjusted as provided in paragraph "E" of this Section VI, the Company
shall forthwith file, at the office of any transfer agent for such Series B
Preferred Stock and at the principal office of the Company, a statement showing
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in detail the facts requiring such adjustment and the Series B Conversion Price
that shall be in effect after such adjustment, and the Company shall also cause
a copy of such statement to be sent by certified mail, postage prepaid, to each
holder of shares of Series B Preferred Stock at the address appearing on the
Company's records. Each such statement shall be signed by the Company's
independent public accountants. Where appropriate, such copy may be given in
advance and may be included as part of a notice required to be mailed under the
provisions of paragraph "G" of this Section VI.
G. Notice to Holders. In the event the Company shall propose to take any
action of the type described in clauses "1" (but only if the action of the type
described in clause "1" would result in an adjustment in the Series B Conversion
Price), "2", "3, "4" or "5" of paragraph "E" of this Section VI, the Company
shall give notice to each holder of shares of Series B Preferred Stock affected
by such action in the manner set forth in this paragraph "G" of this Section VI,
which notice shall specify the record date, if any, with respect to any such
action and the approximate date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Series B Conversion Price
and the number, kind or class of shares or other securities or property which
shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series B Preferred Stock. In the case
of any action which would require the fixing of a record date, such notice shall
be given at least ten days prior to the date so fixed, and in the case of any
other action, such notice shall be given at least 15 days prior to the taking of
such proposed action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
H. Treasury Stock. For the purpose of this Section VI, the sale or other
disposition of Common Stock theretofore held in the Company's treasury shall be
deemed to be an issuance thereof.
I. Costs. The Company shall pay all documentary, stamp, transfer or other
transactional taxes attributable to the issuance or delivery of shares of Common
Stock of the Company upon conversion of any shares of Series B Preferred Stock;
provided, however, that the Company shall not be required to pay any taxes which
may be payable in respect of any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that of the holder of
the shares of Series B Preferred Stock in respect of which such shares are being
issued.
SECTION VII. Redemption.
A. Optional Redemption. So long as any shares of Series B Preferred Stock
shall be outstanding and to the extent that the Company shall have funds legally
available for such payment, the Company may, but shall not be obligated pursuant
to this Section VII.A to, redeem for cash any such outstanding shares. The
redemption price of each share of Series B Preferred Stock so redeemed shall be
an amount equal to the sum of (i) the product of (A) the number of shares of
Common Stock into which one share of Series B Preferred Stock is then
convertible and (B) the Series B Forced Conversion Price and (ii) all accrued
and unpaid dividends. All accrued and unpaid dividends payable hereunder shall
be payable whether or not earned or declared, to and including the applicable
Optional Redemption Date.
B. Procedure With Respect to Optional Redemption. The Company shall, not
less than 30 days nor more than 60 days prior to the applicable redemption date
(an "Optional Redemption Date"), mail written notice (the "Optional Redemption
Notice"), by certified mail, postage prepaid, to each holder of shares of record
of Series B Preferred Stock to be redeemed at such holder's post office address
last shown on the records of the Company. The Optional Redemption Notice shall
state: (i) the total number of shares of Series B Preferred Stock which the
Company intends to redeem; (ii) the number of shares of Series B Preferred Stock
which the Company intends to redeem from that particular holder; (iii) the
applicable Optional Redemption Date and the applicable redemption price; and
(iv) the time, place and manner in which the holder is to surrender to the
Company the certificate or certificates, as the case may be, representing the
shares of Series B Preferred Stock to be redeemed. On or before the applicable
Optional Redemption Date, each holder of Series B Preferred Stock shall
surrender the certificate or certificates representing such shares to the
Company, in the manner and at the place designated in the Optional Redemption
Notice, and thereupon the applicable redemption price for such shares shall be
payable in
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immediately available funds to the order of the person whose name appears on
such certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled and retired. In the event less than all of the
shares of Series B Preferred Stock represented by such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares.
C. Mandatory Redemption. If on the twentieth anniversary of the
Measurement Date and on each anniversary of the Measurement Date thereafter
until the Series B Preferred Stock is fully retired (a "Redemption Date"), all
shares of the Series B Preferred Stock have not been previously converted or
redeemed and if the closing price of Common Stock into which the shares of any
outstanding series of Series B Preferred Stock are convertible is less than the
applicable Conversion Price for such series of Series B Preferred Stock for a
period of 30 consecutive trading days during the immediately preceding 12-month
period (such series of Series B Preferred Stock being referred to as the
"Mandatorily Redeemable Preferred Stock"), then the Company shall, at the option
of each holder of shares of Mandatorily Redeemable Preferred Stock not converted
or redeemed, redeem in cash the lesser of (i) one-fifth of the shares of the
Mandatorily Redeemable Preferred Stock held of record by such holder or (ii) the
number of shares equal to the quotient resulting from dividing such holder's pro
rata share of the Available Cash (as hereinafter defined) by the redemption
price per share. The term "Available Cash" means the lesser of (A) the amount of
cash legally available for the redemption of stock by the Company or (B) the
amount of cash available, if any, for the redemption of stock by the Company
without materially disrupting the business of the Company as carried on in the
normal course, as determined in good faith by the Board of the Company.
Notwithstanding anything herein to the contrary, if the redemption of any shares
of Mandatorily Redeemable Preferred Stock for which redemption has been demanded
under this Section VII.C would result in a default, an event of default or an
event that with the passage of time or the giving of notice, or both, would
become a default or an event of default under any contract, agreement,
commitment or other contractual obligation to which the Company is a party,
bound or subject to, the Company shall not be obligated to redeem any of the
shares of Mandatorily Redeemable Preferred Stock for which redemption has been
demanded under this Section VII.C. A holder's pro rata share of Available Cash
with respect to shares of Mandatorily Redeemable Preferred Stock for which
redemption has been demanded shall be determined ratably based upon the
respective amounts which would be payable on such shares if all amounts payable
upon redemption of all shares for which redemption has been demanded were paid
in full. The redemption price per share of the Series B Preferred Stock shall be
$1,000.00 plus all accrued and unpaid dividends as of the applicable Redemption
Date, whether or not earned or declared. Any holder of Series B Preferred Stock
may exercise its option to redeem shares pursuant to this Section VII.C at any
time after an applicable Redemption Date but prior to, and such option shall
expire at 5:00 p.m., Houston, Texas, time on, the 30th day after the applicable
Redemption Date.
D. Procedure With Respect to Mandatory Redemption. A holder of Mandatorily
Redeemable Preferred Stock may exercise its option pursuant to paragraph "C" of
this Section VII by delivering, prior to the expiration of such option, written
notice of redemption to the Company at its principal executive office, together
with all certificates representing shares of Mandatorily Redeemable Preferred
Stock to be redeemed, or the affidavit and indemnity referenced in paragraph "F"
of Section IX hereof with respect to such certificates, and such transmittal
forms, endorsements or stock powers as may reasonably be requested by the
Company. Upon receipt thereof, the Company will promptly pay, by check or wire
in immediately available funds, the redemption price to the registered holder at
the address specified in the written notice of redemption, or in the event no
address is specified, at the address of the holder as it then appears on the
records of the Company. Subject to the terms of paragraph "C" of this Section
VII, in no event shall the redemption price be delivered later than 60 days
after receipt by the Company of written notice of redemption pursuant to
paragraph "C" of this Section VII.
SECTION VIII. Rank. The Series B Preferred Stock shall, with respect to
dividend distributions and distributions upon the Liquidation of the Company,
rank (i) senior to all classes of Common Stock of the Company, to the Company's
Series A Junior Participating Preferred Stock and to each other class of Capital
Stock of the Company or series of preferred stock of the Company hereafter
established the terms
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of which do not expressly provide that it ranks senior to, or on a parity with,
the Series B Preferred Stock as to dividend distributions or distributions upon
the Liquidation of the Company (collectively referred to, together with all
classes of Common Stock of the Company, as "Junior Securities"); (ii) on a
parity with any class of Capital Stock of the Company or series of preferred
stock of the Company hereafter established the terms of which expressly provide
that such class or series will rank on a parity with the Series B Preferred
Stock as to dividend distributions or distributions upon the Liquidation of the
Company (collectively referred to as "Parity Securities"); and (iii) junior to
each other class of Capital Stock of the Company or series of preferred stock of
the Company hereafter established the terms of which expressly provide that such
class or series will rank senior to the Series B Preferred Stock as to dividend
distributions or distributions upon the Liquidation of the Corporation
(collectively referred to as "Senior Securities").
SECTION IX. GENERAL.
A. All shares of Common Stock which may be issued upon conversion of the
shares of Series B Preferred Stock will upon issuance by the Company be duly and
validly issued, fully paid and nonassessable, not subject to any preemptive
rights, and free from all taxes, liens and charges with respect to the issuance
thereof and the Company shall take no action which will cause a contrary result.
B. The section headings contained in this resolution are for reference
purposes only and shall not affect in any way the meaning of this resolution.
C. No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of the Series B Preferred Stock. If more than one share of
Series B Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series B Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
share of Series B Preferred Stock, the Company shall pay a cash adjustment in
respect of such fractional interest in an amount equal to that fractional
interest of the then Current Market Price.
D. The Company shall reserve at all times so long as any shares of Series B
Preferred Stock remain outstanding, free from preemptive rights, out of its
treasury stock or its authorized but unissued shares of Common Stock, or both,
solely for the purpose of effecting the conversion of the shares of Series B
Preferred Stock, sufficient shares of Common Stock to provide for the conversion
of all outstanding shares of Series B Preferred Stock.
E. Shares of Series B Preferred Stock which have been issued and have been
converted, redeemed, repurchased or reacquired in any manner by the Company
shall become authorized and unissued shares of the Company's undesignated
preferred stock, par value $1.00 per share, but shall not be reissued as shares
of Series B Preferred Stock.
F. Upon receipt by the Company of (i) an affidavit in form and content
reasonably acceptable to the Company stating that the stock certificate or
certificates representing Series B Preferred Stock have been lost, stolen or
destroyed, and (ii) an indemnity in form and content reasonably acceptable to
the Company that indemnifies the Company against any claim that may be made
against the Company with respect to the certificate or certificates alleged to
have been lost, stolen or destroyed, the Company shall issue a new certificate
or certificates in place of any certificate or certificates alleged to have been
lost, stolen or destroyed.
G. All dollar amounts shall be United States dollars.
A-69
IN WITNESS WHEREOF, the Company has caused this certificate to be signed
and attested by its duly authorized officers this 9th day of May, 2001.
OCEAN ENERGY, INC.,
A Delaware corporation
By: /s/ JAMES T. HACKETT
------------------------------------
Name: James T. Hackett
Title: President
ATTEST:
/s/ ROBERT K. REEVES
--------------------------------------
Robert K. Reeves, Secretary
A-70
EXHIBIT B
THIRD AMENDMENT TO
EMPLOYMENT AGREEMENT
WHEREAS, Ocean Energy, Inc. ("OEI") and James T. Hackett ("Executive") have
heretofore entered into an Employment Agreement (the "Agreement"), initially
effective as of September 16, 1998; and
WHEREAS, the Agreement has been subsequently amended on two occasions and
OEI, Devon Energy Corporation ("Devon") and Executive desire to further amend
the Agreement in certain respects, contingent on, and effective upon, the
consummation of the transactions (the "Merger") contemplated by the Agreement
and Plan of Merger by and among Devon, Devon Newco Corporation, and OEI dated as
of February 23, 2003, as the same may be amended from time to time (the "Merger
Agreement");
NOW, THEREFORE, the Agreement is amended as follows, effective as of the
"Effective Time" (which, for purposes of this Amendment, shall have the meaning
ascribed to it in the Merger Agreement):
1. References to the "Company" in the Agreement shall mean Devon
Energy Corporation.
2. Paragraph 1.2 of the Agreement shall be amended to read as follows:
"1.2 Positions. Effective as of the Effective Time, the Company
shall cause Executive to be appointed the President and Chief Operating
Officer of the Company. The Company shall maintain Executive in such
positions, or such other positions as the parties mutually may agree,
for the full term of Executive's employment hereunder. The term
"Effective Time" shall have the meaning ascribed to it in the Agreement
and Plan of Merger by and among Devon Energy Corporation, Devon Newco
Corporation, and Ocean Energy, Inc. dated as of February 23, 2003, as
the same may be amended from time to time (the "Merger Agreement")."
3. Article I is amended by adding thereto a new Paragraph 1.6, Office
Location, to read as follows:
"1.6 Office Location. The Company's principal executive offices
shall be maintained in the greater Oklahoma City, Oklahoma area. It is
anticipated that Executive will regard Oklahoma City as the primary
location of his office. Prior to the relocation of his residence to
Oklahoma City, the Company shall provide Executive with appropriate
airplane transportation between Oklahoma City and Houston, Texas, or
promptly reimburse Executive for the cost thereof. In addition, prior to
Executive's relocation to the greater Oklahoma City area (as provided
below), the Company shall provide Executive with, or promptly reimburse
Executive for the cost of, a temporary rented, furnished apartment or
condominium in the greater Oklahoma City area and the use of an
automobile while there (the "Temporary Benefits"). All utility expenses,
gasoline, parking and other expenses incurred by Executive and
reasonably related to the Temporary Benefits shall be paid by the
Company. The Temporary Benefits provided Executive shall be of a nature
and have a status appropriate for Executive's position with the Company.
To the extent that the Company's provision or payment of any of these
items is taxable compensation to Executive, the Company shall pay
Executive, at such applicable times, an additional amount in cash such
that the benefits are provided to Executive without any "tax cost,"
whether federal, state or otherwise, to him.
By May 1, 2004, Executive shall notify the Company whether he is
relocating to the greater Oklahoma City area or exercising his right to
terminate pursuant to paragraph 2.3(i). If Executive notifies the
Company that he is relocating, he shall use his reasonable best efforts
to so relocate by May 31, 2004, and if Executive has not relocated to
the greater Oklahoma City area by June 30, 2004, the Company may
terminate Executive's employment and such termination shall be deemed to
have been for cause pursuant to paragraph 2.2(iii)."
A-71
4. Paragraph 2.1 is amended by adding a new sentence thereto to read
as follows:
"Notwithstanding the foregoing, the term of this Agreement shall
not expire prior to the fifth anniversary of the Effective Time, unless
sooner terminated pursuant to the other provisions hereof."
5. Item (D) of Paragraph 2.3(i) is amended to read as follows:
"(D) the Company's principal executive offices cease to be in the
greater Oklahoma City area or Executive is required to work at an office
other than the principal executive offices of the Company, excluding
business travel reasonably consistent with Executive's past practice;"
6. Paragraph 2.3 is further amended by adding thereto a new sentence
to read as follows:
"The Company and Executive agree that Executive may not terminate
his employment pursuant to paragraph 2.3(i) due to a change in his
duties, responsibilities, positions or principal place of employment
based on the same as they existed immediately prior to the Effective
Time; provided, however, the foregoing shall not prevent Executive from
terminating pursuant to paragraph 2.3(i) based on any change from those
duties, responsibilities, positions or principle place of employment as
in effect immediately following the Effective Time; and provided,
further, that upon not less than four weeks notice, Executive may in all
events terminate his employment on May 1, 2004 and such termination
shall be deemed to be for a reason encompassed by paragraph 2.3(i) for
which there is no correction by the Company and upon such termination
the Company shall provide Executive with the Termination Benefits."
7. Paragraph 3.9(v) is amended by adding thereto the following:
"Notwithstanding the foregoing or anything in the ESRP or
Executive's Membership Agreement thereunder to the contrary, Executive
may elect, at any time prior to the commencement of his benefit under
the ESRP in an annuity form, to receive an amount equal to 95% of the
Actuarial Equivalent (as such term is defined in the ESRP) of his then
vested Accrued Benefit under the ESRP in a single lump sum. Upon such
election, the non-vested portion, if any, of Executive's Accrued Benefit
shall be forfeited. The Company shall cause the ESRP and Executive's
Membership Agreement thereunder to be amended as necessary to reflect
this Paragraph 3.9(v)."
8. Notwithstanding anything herein to the contrary, the Company
continues to have the right to terminate Executive's employment at any time
pursuant to paragraph 2.2 and any such termination by the Company, other
than pursuant to paragraph 2.2(iii) or (iv), shall entitle Executive to the
Termination Benefits.
9. As amended hereby, the Agreement is specifically ratified and
reaffirmed. If the Merger Agreement is terminated without the consummation
of the transactions contemplated thereby, this Amendment shall be null and
void and of no effect.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment on this
February , 2003, to be effective as of the Effective Time.
OCEAN ENERGY, INC.
By:
------------------------------------
Name:
Title:
DEVON ENERGY CORPORATION
By:
------------------------------------
Name:
Title:
JAMES T. HACKETT
--------------------------------------
James T. Hackett
A-73
EXHIBIT C
SECOND AMENDMENT TO
SEVERANCE AGREEMENT
WHEREAS, Ocean Energy, Inc. ("OEI") and James T. Hackett ("Executive") have
heretofore entered into a Severance Agreement (the "Agreement"), initially
effective as of August 25, 1998; and
WHEREAS, the Agreement has been subsequently amended, and OEI, Devon Energy
Corporation ("Devon") and Executive desire to further amend the Agreement in
certain respects, contingent on, and effective upon, the consummation of the
transactions (the "Merger") contemplated by the Agreement and Plan of Merger by
and among Devon, Devon Newco Corporation, and OEI dated as of February 23, 2003,
as the same may be amended from time to time (the "Merger Agreement");
NOW, THEREFORE, the Agreement is amended as follows, effective as of the
"Effective Time" (which, for purposes of this Amendment, shall have the meaning
ascribed to it in the Merger Agreement):
1. References to the "Company" in the Agreement shall mean Devon
Energy Corporation.
2. Clauses (i), (ii) and (iv) of Section 1(a) of the Agreement shall
be amended to read as follows:
"(i) Executive is assigned any duties as the President and Chief
Operating Officer of the Company that are significantly less than or
below the duties generally associated with such positions in a
comparable company;"
(ii) the sum of Executive's annual base salary and bonus for 2003
or 2004 is less than the average of the total base salary and bonus paid
to Executive in 2001 and 2002;
. . . .
(iv) Executive's principal place of employment is changed to a
location other than the principal executive offices of the Company or
such Company offices are changed to a location other than the greater
Oklahoma City area."
3. The Company agrees that the Merger constitutes a Change of Control
for purposes of this Agreement, as hereby amended, and the two-year
termination "protected" period provided in Section 3 with respect to such
Change of Control shall begin on the Effective Time.
4. As amended hereby, the Agreement is specifically ratified and
reaffirmed. If the Merger Agreement is terminated without the consummation
of the transactions contemplated thereby, this Amendment shall be null and
void and of no effect.
[SIGNATURE PAGE FOLLOWS]
A-74
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on this
February , 2003, to be effective as of the Effective Time.
OCEAN ENERGY, INC.
By:
------------------------------------
Name:
Title:
DEVON ENERGY CORPORATION
By:
------------------------------------
Name:
Title:
JAMES T. HACKETT
--------------------------------------
James T. Hackett
A-75
EXHIBIT D
FORM OF COMPANY AFFILIATE'S LETTER
This SHAREHOLDER AGREEMENT, dated as of , 2003 (this "Agreement")
is among Devon Energy Corporation, a Delaware corporation ("Parent"), and the
undersigned shareholder ("Shareholder") of Ocean Energy, Inc., a Delaware
corporation (the "Company"). Capitalized terms not otherwise defined in this
Agreement have the meanings ascribed to them in the Merger Agreement.
RECITALS
A. Parent, Devon NewCo Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and the Company have entered into an
Agreement and Plan of Merger, dated as of February 23, 2003 (the "Merger
Agreement"), pursuant to which Merger Sub will merge (the "Merger") with and
into the Company, with the Company surviving the Merger.
B. Pursuant to the Merger Agreement, at the Effective Time, outstanding
Company Common Shares will be converted into shares of Parent Common Stock;
C. The execution and delivery of this Agreement by Shareholder is a
material inducement to Parent to enter into the Merger Agreement; and
D. Shareholder has been advised that Shareholder may be deemed to be an
"affiliate" of the Company, as such term is used (i) for purposes of paragraphs
(c) and (d) of Rule 145 of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act").
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Acknowledgments by Shareholder. Shareholder acknowledges and
understands that the representations, warranties and covenants made by
Shareholder set forth in this Agreement will be relied upon by Parent, the
Company, and their respective affiliates and counsel, and that substantial
losses and damages may be incurred by such persons if Shareholder's
representations, warranties or covenants are breached. Shareholder has
carefully read this Agreement and the Merger Agreement and has consulted
with such legal counsel and financial advisers as Shareholder has deemed
appropriate in connection with the execution of this Agreement.
2. Compliance with Rule 145 and the Act.
(a) Shareholder has been advised that (i) the issuance of shares of
Parent Common Stock in connection with the Merger is expected to be
effected pursuant to a Registration Statement filed by Parent on Form
S-4, and the resale of such shares will be subject to the restrictions
set forth in Rule 145 under the Act unless such shares are otherwise
transferred pursuant to an effective registration statement under the
Act or an appropriate exemption from registration, and (ii) Shareholder
may be deemed to be an affiliate of the Company. Shareholder accordingly
agrees not to sell, pledge, transfer or otherwise dispose of any shares
of Parent Common Stock issued to Shareholder in the Merger, unless (i)
such sale, pledge, transfer or other disposition is made in conformity
with the requirements of Rule 145 under the Act, (ii) such sale, pledge,
transfer or other disposition is made pursuant to an effective
registration statement under the Act, or (iii) Shareholder delivers to
Parent a written opinion of counsel, in form and substance reasonably
acceptable to Parent to the effect that such sale, pledge, transfer or
other disposition is otherwise exempt from registration under the Act.
(b) Parent will give stop transfer instructions to its transfer
agent with respect to any Parent Common Stock received by Shareholder
pursuant to the Merger and there will be placed on the
A-76
certificates representing such Parent Common Stock, or any substitutions
therefor, legends stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO
A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES, AND MAY ONLY BE TRANSFERRED IN CONFORMITY WITH RULE 145,
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR IN ACCORDANCE WITH A
WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER, IN FORM
AND SUBSTANCE TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend), and Parent shall so instruct its transfer
agent, if a registration statement respecting the sale of the shares has been
declared effective under the Act or if Shareholder delivers to Parent (i)
satisfactory written evidence that the shares have been sold in compliance with
Rule 145 (in which case, the substitute certificate will be issued in the name
of the transferee), or (ii) an opinion of counsel, in form and substance
reasonably acceptable to Parent to the effect that sale of the shares by the
holder thereof is no longer subject to Rule 145.
3. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same document. Delivery of an executed
counterpart of this Agreement by facsimile shall be effective to the
fullest extent permitted by applicable law.
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties and their respective
successors and assigns. As used in this Agreement, the term "successors
and assigns" means, where the context to permits, heirs, executors,
administrators, trustees and successor trustees, and personal and other
representatives.
(c) This Agreement shall be deemed to be made in and in all
respects shall be interpreted, construed and governed by and in
accordance with the laws of the State of Delaware. The parties
irrevocably and unconditionally consent to submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United
States of America, in either case located in Wilmington, Delaware (the
"Delaware Courts") for any litigation arising out of or relating to this
Agreement and the transactions contemplated by this Agreement (and agree
not to commence any litigation relating thereto except in such Delaware
Courts), waive any objection to the laying of venue of any such
litigation in the Delaware Courts and agree not to plead or claim in any
Delaware Court that such litigation brought therein has been brought in
an inconvenient forum.
(d) If any term, provision, covenant, or restriction contained in
this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable,
the remainder of the terms, provisions, covenants, and restrictions
contained in this Agreement shall remain in full force and effect, and
shall in no way be affected, impaired, or invalidated.
(e) Counsel to the parties to the Merger Agreement shall be
entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any right
waived or any obligations excused, except by a written agreement signed
by both parties.
(g) Notwithstanding any other provision contained in this
Agreement, this Agreement and all obligations under this Agreement shall
terminate upon the termination of the Merger Agreement in accordance
with its terms.
A-77
(h) From and after the Effective Time of the Merger and as long as
is necessary in order to permit Shareholder to sell Parent Common Stock
held by Shareholder pursuant to Rule 145 and, to the extent applicable,
Rule 144 under the Act, Parent will file on a timely basis all reports
required to be filed by it pursuant to the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, as the same
shall be in effect at the time, and shall otherwise make available
adequate public information regarding Parent in such manner as may be
required to satisfy the requirements of paragraph (c) of Rule 144 under
the Act.
[SIGNATURE PAGE FOLLOWS]
A-78
IN WITNESS WHEREOF, this Agreement is executed as of the date first stated
above.
DEVON ENERGY CORPORATION, a Delaware
corporation
By:
------------------------------------
Name:
Title:
SHAREHOLDER
--------------------------------------
Name:
Number of Shares Owned:
-----------------------
Number of Shares Issuable upon
Exercise of Stock Options:
------------------------
A-79
ANNEX B
(DEUTSCHE BANK LOGO)
February 23, 2003
Board of Directors
Ocean Energy, Inc.
1001 Fannin Street, Suite 1600
Houston, Texas 77002-6794
Lady and Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to Ocean Energy, Inc. ("Ocean" or the "Company") in connection with the
proposed combination of Ocean and Devon Energy Corporation ("Devon") pursuant to
the Agreement and Plan of Merger, dated as of February 23, 2003, among Ocean,
Devon and Devon Merger Sub, a direct wholly owned subsidiary of Devon ("Devon
Merger Sub") (the "Merger Agreement"), which provides, among other things, for
the merger of Devon Merger Sub with and into Ocean (the "Transaction"), as a
result of which Ocean will become a wholly owned subsidiary of Devon. As set
forth more fully in the Merger Agreement, as a result of the Transaction, each
share of the Common Stock, par value $0.10 per share, of the Company ("Company
Common Stock") not owned directly or indirectly by Devon or Ocean and not held
on behalf of third parties will be converted into the right to receive 0.414
shares (the "Exchange Ratio") of Common Stock, par value $0.10 per share, of
Devon ("Devon Common Stock"). The terms and conditions of the Transaction are
more fully set forth in the Merger Agreement.
You have requested Deutsche Bank's opinion, as investment bankers, as to
the fairness, from a financial point of view, to the holders of the Company
Common Stock (other than Devon and its subsidiaries) of the Exchange Ratio.
In connection with Deutsche Bank's role as financial advisor to Ocean, and
in arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning the Company and Devon and
certain internal analyses and other information furnished to it by the Company
and Devon. Deutsche Bank has also held discussions with members of the senior
managements of Ocean and Devon regarding the businesses and prospects of their
respective companies and the joint prospects of a combined company. In addition,
Deutsche Bank has (i) reviewed the reported prices and trading activity for
Ocean Common Stock and Devon Common Stock, (ii) compared certain financial and
stock market information for the Company and Devon with similar information for
certain other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations which it deemed
comparable in whole or in part, (iv) reviewed the terms of the Merger Agreement
and certain related documents, and (v) performed such other studies and analyses
and considered such other factors as it deemed appropriate.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning Ocean or Devon, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, Deutsche Bank has assumed and relied upon the accuracy and completeness
of all such information and Deutsche Bank has
B-1
(DEUTSCHE BANK LOGO)
Ocean Energy, Inc.
February 23, 2003
Page 2
not conducted a physical inspection of any of the properties or assets, and has
not prepared or obtained any independent evaluation or appraisal of any of the
assets or liabilities, of Ocean or Devon. With respect to the financial
forecasts and projections, including the analyses and forecasts of certain cost
savings, operating efficiencies, revenue effects and financial synergies
expected by Ocean and Devon to be achieved as a result of the Transaction
(collectively, the "Synergies"), made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of Ocean or Devon, as the case may be, as to the matters covered
thereby. In rendering its opinion, Deutsche Bank expresses no view as to the
reasonableness of such forecasts and projections, including the Synergies, or
the assumptions on which they are based. Deutsche Bank's opinion is necessarily
based upon economic, market and other conditions as in effect on, and the
information made available to it as of, the date hereof.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
Ocean, Devon and Devon Merger Sub contained in the Merger Agreement are true and
correct, Ocean, Devon and Devon Merger Sub will each perform all of the
covenants and agreements to be performed by it under the Merger Agreement and
all conditions to the obligations of each of Ocean, Devon and Devon Merger Sub
to consummate the Transaction will be satisfied without any waiver thereof.
Deutsche Bank has also assumed that all material governmental, regulatory or
other approvals and consents required in connection with the consummation of the
Transaction will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which
either Ocean or Devon is a party or is subject or by which it is bound, no
limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on Ocean
or Devon or materially reduce the contemplated benefits of the Transaction to
Ocean or the holders of the Company Common Stock. In addition, you have informed
Deutsche Bank, and accordingly for purposes of rendering its opinion Deutsche
Bank has assumed, that the Transaction will be tax-free to each of Ocean and
Devon and their respective stockholders. In arriving at this opinion, Deutsche
Bank analyzed the Transaction as a strategic business combination not involving
a sale of control of Ocean. Deutsche Bank was not authorized by Ocean or its
Board of Directors to solicit, and did not solicit, third-party indications of
interest with respect to the acquisition of all or any part of Ocean or any
other extraordinary transaction involving Ocean.
Deutsche Bank does not express any opinion as to the price or range of
prices at which the Company Common Stock or the Devon Common Stock may trade
subsequent to the announcement of the Transaction or as to the price or range of
prices at which the Devon Common Stock may trade subsequent to the consummation
of the Transaction.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Ocean and is not a recommendation to the stockholders of Ocean to
approve the Transaction. This opinion is limited to the fairness, from a
financial point of view, to the holders of the Company Common Stock (other than
Devon and its subsidiaries) of the Exchange Ratio, and Deutsche Bank expresses
no opinion as to the merits of the underlying decision by Ocean to engage in the
Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
Ocean in connection with the Transaction, all of which is contingent upon
consummation of the Transaction. We are an affiliate of Deutsche Bank AG
(together with its affiliates, the "DB Group"). One or more members of the DB
Group have, from time to time, provided investment banking, commercial banking
(including extension of credit) and other financial services to Ocean and Devon
or their affiliates for which it has received compensation. In the ordinary
course of business, members of the DB Group may actively trade in the
B-2
(DEUTSCHE BANK LOGO)
Ocean Energy, Inc.
February 23, 2003
Page 3
securities and other instruments and obligations of Ocean and Devon for their
own accounts and for the accounts of their customers. Accordingly, the DB Group
may at any time hold a long or short position in such securities, instruments
and obligations.
Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
of the date hereof as investment bankers that the Exchange Ratio is fair, from a
financial point of view, to the holders of the Company Common Stock (other than
Devon and its subsidiaries).
Very truly yours,
DEUTSCHE BANK SECURITIES INC.
-s- DEUTSCHE BANK SECURITIES INC.
B-3
ANNEX C
1585 Broadway
New York, NY 10036
(MORGAN STANLEY LETTERHEAD)
February 23, 2003
Board of Directors
Devon Energy Corporation
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73103-8260
Members of the Board:
We understand that Ocean Energy, Inc. ("Ocean" or the "Company"), Devon
Energy Corporation ("Devon") and Devon NewCo Corporation, a wholly owned
subsidiary of Devon ("Merger Sub"), propose to enter into an Agreement and Plan
of Merger substantially in the form of the draft dated February 23, 2003 (the
"Merger Agreement"), which provides for, among other things, the merger (the
"Merger") of Merger Sub with and into Ocean. Pursuant to the Merger, Ocean will
become a wholly owned subsidiary of Devon, and each issued and outstanding share
of common stock, par value $0.10 per share, of Ocean (the "Ocean Common Stock"),
other than shares of Ocean Common Stock held in treasury or owned by Devon or
any subsidiary of Devon or Ocean, will be converted into 0.414 shares (the
"Exchange Ratio") of common stock, par value $0.10 per share, of Devon (the
"Devon Common Stock"). We also note that each share of Series B Preferred Stock,
par value $1.00 per share, of Ocean (the "Ocean Preferred Stock") shall remain
outstanding upon consummation of the Merger, subject to any shares to which
dissenters' rights have been perfected. The terms and conditions of the Merger
are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Devon.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and Devon, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data, including internal oil and gas reserve
estimates, concerning the Company and Devon prepared by the managements of
the Company and Devon, respectively;
(iii) reviewed certain financial forecasts prepared by the managements
of the Company and Devon, respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of the Company;
(v) discussed the past and current operations and financial condition
and the prospects of Devon, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of Devon;
C-1
(vi) reviewed the pro forma impact of the Merger on Devon's earnings
per share, cash flow, oil and gas reserves and production, consolidated
capitalization and financial ratios;
(vii) reviewed the reported prices and trading activity for the Ocean
Common Stock and the Devon Common Stock;
(viii) compared the financial performance of the Company and Devon and
the prices and trading activity of the Ocean Common Stock and Devon Common
Stock with that of certain other publicly-traded companies, comparable with
the Company and Devon, respectively, and their securities;
(ix) reviewed certain reserve reports prepared by Devon and Devon's
independent reserve engineers;
(x) reviewed certain reserve reports prepared by the Company and the
Company's independent reserve engineers;
(xi) reviewed the financial terms, to the extent publicly available,
of certain comparable business combination transactions deemed relevant;
(xii) participated in discussions and negotiations among
representatives of the Company and Devon and their financial and legal
advisors;
(xiii) reviewed the Merger Agreement and certain related documents;
and
(xiv) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial forecasts, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of the Company and Devon, respectively. We have not
made any independent valuation or appraisal of the assets or liabilities of the
Company or Devon; nor have we been furnished with any such appraisals. With
respect to the reserve estimates and reports referred to in (ii), (vi), (ix) and
(x) above, we are not experts in the engineering evaluation of oil and gas
properties and, with your consent, we have relied, without independent
verification, solely upon the internal reserve estimates of the Company and
Devon, respectively. In addition, we have assumed that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement,
including, among other things, that the Merger will be treated as a tax-free
reorganization pursuant to the Internal Revenue Code of 1986. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have been retained to provide a financial opinion to the Board of
Directors of Devon in connection with this transaction and will receive a fee
for our services. In the past, Morgan Stanley & Co. Incorporated and its
affiliates have provided financial advisory and financing services for Devon and
have received fees for the rendering of these services.
We are expressing no opinion herein as to the prices at which the Ocean
Common Stock or Devon Common Stock will trade at any time. In addition, Morgan
Stanley expresses no opinion or recommendation as to how the holders of Devon
Common Stock should vote at the shareholders' meeting held in connection with
the Merger.
It is understood that this letter is for the information of the Board of
Directors of Devon only and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety,
if required, in any filing of a proxy or a registration statement with the
Securities and Exchange Commission in connection with the Merger and the related
prospectus and proxy statement to be sent to shareholders.
C-2
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to Devon.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ MICHAEL DICKMAN
------------------------------------
Michael Dickman
Managing Director
C-3
ANNEX D
DELAWARE GENERAL CORPORATION LAW -- SECTION 262
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec. sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
D-1
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, then either a constituent corporation before the
effective date of the merger or consolidation or the surviving or resulting
corporation within 10 days thereafter shall notify each of the holders of
any class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of such class
or series of stock of such constituent corporation, and shall include in
such notice a copy of this section. Such notice may, and, if given on or
after the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given,
D-2
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If
no record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may
D-3
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
ANNEX E
DEVON ENERGY CORPORATION
2003 LONG-TERM INCENTIVE PLAN
E-1
TABLE OF CONTENTS
PAGE
----
ARTICLE I
PURPOSE
SECTION 1.1 Purpose..................................................... E-5
SECTION 1.2 Establishment............................................... E-5
SECTION 1.3 Shares Subject to the Plan.................................. E-5
ARTICLE II
DEFINITIONS
SECTION 2.1 "Account"................................................... E-5
SECTION 2.2 "Affiliated Entity"......................................... E-5
SECTION 2.3 "Award"..................................................... E-6
SECTION 2.4 "Award Agreement"........................................... E-6
SECTION 2.5 "Board"..................................................... E-6
SECTION 2.6 "Change of Control Event"................................... E-6
SECTION 2.7 "Code"...................................................... E-7
SECTION 2.8 "Committee"................................................. E-7
SECTION 2.9 "Common Stock".............................................. E-7
SECTION 2.10 "Compensation Committee".................................... E-7
SECTION 2.11 "Date of Grant"............................................. E-7
SECTION 2.12 "Eligible Employee"......................................... E-7
SECTION 2.13 "Eligible Director"......................................... E-7
SECTION 2.14 "Exchange Act".............................................. E-7
SECTION 2.15 "Executive Officer Participants"............................ E-7
SECTION 2.16 "Fair Market Value"......................................... E-7
SECTION 2.17 "Incentive Stock Option".................................... E-8
SECTION 2.18 "Non-Executive Officer Participants"........................ E-8
SECTION 2.19 "Nonqualified Stock Option"................................. E-8
SECTION 2.20 "Option".................................................... E-8
SECTION 2.21 "Participant"............................................... E-8
SECTION 2.22 "Performance Bonus"......................................... E-8
SECTION 2.23 "Performance Units"......................................... E-8
SECTION 2.24 "Plan"...................................................... E-8
SECTION 2.25 "Regular Award Committee"................................... E-8
SECTION 2.26 "Restricted Stock Award".................................... E-8
SECTION 2.27 "SARs"...................................................... E-8
SECTION 2.28 "Secretary"................................................. E-8
SECTION 2.29 "Subsidiary"................................................ E-8
ARTICLE III
ADMINISTRATION
SECTION 3.1 Administration of the Plan by the Committee................. E-8
SECTION 3.2 Administration of Grants to Eligible Directors.............. E-9
SECTION 3.3 Compensation Committee to Make Rules and Interpret Plan..... E-9
SECTION 3.4 Section 162(m) Provisions................................... E-9
E-2
PAGE
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ARTICLE IV
GRANT OF AWARDS
SECTION 4.1 Grant of Awards............................................. E-10
ARTICLE V
STOCK OPTIONS
SECTION 5.1 Grant of Options............................................ E-11
SECTION 5.2 Conditions of Options....................................... E-11
ARTICLE VI
STOCK APPRECIATION RIGHTS
SECTION 6.1 Grant of SARs............................................... E-12
SECTION 6.2 Exercise.................................................... E-12
SECTION 6.3 Restrictions................................................ E-12
ARTICLE VII
RESTRICTED STOCK AWARDS
SECTION 7.1 Grant of Restricted Stock Awards............................ E-12
SECTION 7.2 Conditions of Restricted Stock Awards....................... E-12
ARTICLE VIII
PERFORMANCE UNITS
SECTION 8.1 Grant of Awards............................................. E-13
SECTION 8.2 Conditions of Awards........................................ E-13
ARTICLE IX
PERFORMANCE BONUS
SECTION 9.1 Grant of Performance Bonus.................................. E-13
SECTION 9.2 Payment of Performance Bonus................................ E-14
ARTICLE X
STOCK ADJUSTMENTS
SECTION 10.1 Stock Adjustments........................................... E-14
ARTICLE XI
GENERAL
SECTION 11.1 Amendment or Termination of Plan............................ E-14
SECTION 11.2 Termination of Employment; Termination of Service........... E-15
SECTION 11.3 Limited Transferability -- Options.......................... E-15
SECTION 11.4 Withholding Taxes........................................... E-15
SECTION 11.5 Dividends and Dividend Equivalents -- Awards................ E-16
SECTION 11.6 Change of Control........................................... E-16
SECTION 11.7 Amendments to Awards........................................ E-16
SECTION 11.8 Regulatory Approval and Listings............................ E-16
SECTION 11.9 Right to Continued Employment............................... E-16
SECTION 11.10 Beneficiary Designation..................................... E-16
SECTION 11.11 Reliance on Reports......................................... E-16
SECTION 11.12 Construction................................................ E-17
E-3
PAGE
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SECTION 11.13 Governing Law............................................... E-17
SECTION 11.14 Severability................................................ E-17
SECTION 11.15 Other Laws.................................................. E-17
SECTION 11.16 No Trust or Fund Created.................................... E-17
E-4
DEVON ENERGY CORPORATION
2003 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
SECTION 1.1 Purpose. This 2003 Long-Term Incentive Plan (the "Plan") is
established by Devon Energy Corporation (the "Company") to create incentives
which are designed to motivate Participants to put forth maximum effort toward
the success and growth of the Company and to enable the Company to attract and
retain experienced individuals who by their position, ability and diligence are
able to make important contributions to the Company's success. Toward these
objectives, the Plan provides for the grant of Options, SARs, Restricted Stock
Awards, Performance Units and Performance Bonuses to Eligible Employees and the
grant of Nonqualified Stock Options and Restricted Stock Awards to Eligible
Directors, subject to the conditions set forth in the Plan. The Plan is designed
to provide flexibility to meet the needs of the Company over three to four years
in a changing and competitive environment while minimizing dilution to the
Company's stockholders. The Company does not intend to use all incentive
vehicles (Options, SARs, Restricted Stock Awards, Performance Units and
Performance Bonuses) at all times for each participant but will selectively
grant awards to achieve long-term goals. Awards will be granted in such a way to
align the interests of the participants with those of the Company's
stockholders. Maximum individual awards as designated by this Plan will only be
awarded if individual and Company results are such that exceptional stockholder
value is achieved.
SECTION 1.2 Establishment. The Plan is effective as of April 25, 2003 and
for a period of eight years thereafter. The Plan shall continue in effect until
all matters relating to the payment of Awards and administration of the Plan
have been settled.
The Plan shall be approved by the holders of at least a majority of the
voting power of outstanding shares of Common Stock and the Company's Special
Voting Stock, par value $.10 per share, voting as a single class, present, or
represented, and entitled to vote at a meeting called for such purpose, which
approval must occur within the period ending twelve months after the date the
Plan is adopted by the Board. Pending such approval by the Company's
stockholders, Awards under the Plan may be granted, but no such Awards may be
exercised prior to receipt of such stockholder approval. In the event such
stockholder approval is not obtained within such twelve-month period, all such
Awards shall be void.
SECTION 1.3 Shares Subject to the Plan. Subject to the limitations set
forth in the Plan, Awards may be made under this Plan for a total of 12,500,000
shares of Common Stock. A maximum of 2,500,000 shares of the 12,500,000 shares
of Common Stock subject to the Plan may be granted as Restricted Stock Awards,
Performance Bonus Awards and Performance Units (the "Stock Award Limit").
ARTICLE II
DEFINITIONS
SECTION 2.1 "Account" means the record keeping account established by the
Company to which will be credited an Award of Performance Units to a
Participant.
SECTION 2.2 "Affiliated Entity" means any partnership or limited liability
company in which a majority of the partnership or other similar interest thereof
is owned or controlled, directly or indirectly, by the Company or one or more of
its Subsidiaries or Affiliated Entities or a combination thereof. For purposes
hereof, the Company, a Subsidiary or an Affiliated Entity shall be deemed to
have a majority ownership interest in a partnership or limited liability company
if the Company, such Subsidiary or Affiliated Entity shall be allocated a
majority of partnership or limited liability company gains or losses or shall be
or control a managing director or a general partner of such partnership or
limited liability company.
E-5
SECTION 2.3 "Award" means, individually or collectively, any Option, SAR,
Restricted Stock Award, Performance Unit or Performance Bonus granted under the
Plan to an Eligible Employee by the Committee or any Nonqualified Stock Option
or Restricted Stock Award granted under the Plan to an Eligible Director by the
Board pursuant to such terms, conditions, restrictions, and/or limitations, if
any, as the Committee may establish by the Award Agreement or otherwise.
SECTION 2.4 "Award Agreement" means any written instrument that
establishes the terms, conditions, restrictions, and/or limitations applicable
to an Award in addition to those established by this Plan and by the Committee's
exercise of its administrative powers.
SECTION 2.5 "Board" means the Board of Directors of the Company.
SECTION 2.6 "Change of Control Event" shall be deemed to have occurred
each time any one of the events described in paragraphs (i), (ii), (iii), or
(iv) below occurs; provided that if a Change of Control Event occurs by reason
of an acquisition by any Person that comes within the provisions of paragraph
(i) below, no additional Change of Control Event shall be deemed to occur under
such paragraph (i) by reason of subsequent changes in holdings by such Person
(except if the holdings by such Person are reduced below 30% and thereafter
increase to 30% or above). For the purpose of this Section 2.7, the term
"Company" shall include Devon Energy Corporation and any successor thereto.
(i) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") if,
immediately after such acquisition, such Person has beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of
either (I) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (II) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
of Control Event: (A) any acquisition by an underwriter temporarily holding
securities pursuant to an offering of such securities; (B) any acquisition by
the Company; (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company; or (D) any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B), and (C) of paragraph (iii) below.
(ii) Individuals who, as of the effective date of this Plan, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the effective date whose election, appointment or
nomination for election by the Company's stockholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for purposes of this definition, any such individual whose
initial assumption of office occurs as a result of an actual or publicly
threatened election contest (as such terms are used in Rule 14a-11 promulgated
under the Exchange Act) with respect to the election or removal of directors or
other actual or publicly threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board.
(iii) A reorganization, share exchange, merger or consolidation (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the ultimate
parent entity resulting from such Business Combination (including, without
limitation, an entity which, as a result of such transaction, has ownership of
the Company or all or substantially all of the assets of the Company either
directly or through one or more subsidiaries) in substantially the same relative
proportions as their ownership, immediately prior to such Business Combination,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any employee benefit
plan (or related
E-6
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding common stock of the ultimate parent entity
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such entity except to the extent that such
ownership existed prior to the Business Combination, and (C) at least a majority
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Incumbent Board
providing for such Business Combination, or were elected, appointed or nominated
by the Incumbent Board.
(iv) Approval by the stockholders of the Company of (A) a complete
liquidation or dissolution of the Company, or (B) the sale or other disposition
of all or substantially all of the assets of the Company, other than to an
entity with respect to which following such sale or other disposition, (1) more
than 50% of, respectively, the then outstanding shares of common stock of such
entity and the combined voting power of the then outstanding voting securities
of such entity entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially the same
relative proportions as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (2) less than 30% of, respectively, the
then outstanding shares of common stock of such entity and the combined voting
power of the then outstanding voting securities of such entity entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by any Person (excluding any employee benefit plan (or related
trust) of the Company or such entity), except to the extent that such Person
owned 30% or more of the Outstanding Company Common Stock or Outstanding Company
Voting Securities prior to the sale or disposition, and (3) at least a majority
of the members of the board of directors of such entity were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Incumbent Board providing for such sale or other disposition of
assets of the Company, or were elected, appointed or nominated by the Incumbent
Board.
SECTION 2.7 "Code" means the Internal Revenue Code of 1986, as amended.
References in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
SECTION 2.8 "Committee" shall have the meaning set forth in Section 3.1.
SECTION 2.9 "Common Stock" means the common stock, par value $.10 per
share, of the Company, and after substitution, such other stock as shall be
substituted therefore as provided in Article VIII.
SECTION 2.10 "Compensation Committee" means the Compensation Committee of
the Board.
SECTION 2.11 "Date of Grant" means the date on which the grant of an Award
is authorized by the Committee or the Board or such later date as may be
specified by the Committee or the Board in such authorization.
SECTION 2.12 "Eligible Employee" means any employee of the Company, a
Subsidiary, or an Affiliated Entity as approved by the Committee.
SECTION 2.13 "Eligible Director" means any member of the Board who is not
an employee of the Company or any Subsidiary.
SECTION 2.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
SECTION 2.15 "Executive Officer Participants" means Participants who are
subject to the provisions of Section 16 of the Exchange Act.
SECTION 2.16 "Fair Market Value" means (A) during such time as the Common
Stock is listed upon the American Stock Exchange or any other established stock
exchange, the closing price of the Common Stock as reported by such stock
exchange on the day for which such value is to be determined,
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or, if no sale of the Common Stock shall have been made on any such stock
exchange that day, on the next preceding day on which there was a sale of such
Common Stock, or (B) during any such time as the Common Stock is not listed upon
an established stock exchange, the mean between dealer "bid" and "ask" prices of
the Common Stock in the over-the-counter market on the day for which such value
is to be determined, as reported by the National Association of Securities
Dealers, Inc., or (C) during any such time as the Common Stock cannot be valued
pursuant to (A) or (B) above, the fair market value shall be as determined by
the Board considering all relevant information including, by example and not by
limitation, the services of an independent appraiser.
SECTION 2.17 "Incentive Stock Option" means an Option within the meaning
of Section 422 of the Code.
SECTION 2.18 "Non-Executive Officer Participants" means Participants who
are not subject to the provisions of Section 16 of the Exchange Act.
SECTION 2.19 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
SECTION 2.20 "Option" means an Award granted under Article V of the Plan
and includes both Nonqualified Stock Options and Incentive Stock Options to
purchase shares of Common Stock.
SECTION 2.21 "Participant" means an Eligible Employee of the Company, a
Subsidiary, or an Affiliated Entity to whom an Award has been granted by the
Committee or an Eligible Director to whom an Award has been granted by the Board
under the Plan.
SECTION 2.22 "Performance Bonus" means the cash bonus which may be granted
to Eligible Employees under Article IX of the Plan.
SECTION 2.23 "Performance Units" means those monetary units that may be
granted to Eligible Employees pursuant to Article VIII hereof.
SECTION 2.24 "Plan" means Devon Energy Corporation 2003 Long-Term
Incentive Plan.
SECTION 2.25 "Regular Award Committee" means a committee comprised of the
individual who is the Company's chief executive officer and such additional
members, if any, as shall be appointed by the Compensation Committee.
SECTION 2.26 "Restricted Stock Award" means an Award granted to an
Eligible Employee or Eligible Director under Article VII of the Plan.
SECTION 2.27 "SARs" means a stock appreciation right Award granted to an
Eligible Employee under Article VI of the Plan.
SECTION 2.28 "Secretary" means the corporate secretary of the Company duly
elected by the Board.
SECTION 2.29 "Subsidiary" shall have the same meaning set forth in Section
424 of the Code.
ARTICLE III
ADMINISTRATION
SECTION 3.1 Administration of the Plan by the Committee. For purposes of
administration, the Plan shall be deemed to consist of three separate stock
incentive plans, a "Non-Executive Officer Participant Plan" which is limited to
Non-Executive Officer Participants, an "Executive Officer Participant Plan"
which is limited to Executive Officer Participants and a "Non-Employee Director
Participant Plan" which is limited to Eligible Directors. Except for
administration and the category of Eligible Employees eligible to receive
Awards, the terms of the Non-Executive Officer Participant Plan and the
Executive Officer Participant Plan are identical. The Non-Employee Director Plan
has other variations in terms and only permits the grant of Nonqualified Stock
Options and Restricted Stock.
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The Non-Executive Officer Participant Plan shall be administered by the
Compensation Committee. The Compensation Committee may, at its discretion,
delegate authority to the Regular Award Committee to administer the
Non-Executive Officer Participant Plan to the extent permitted by applicable
law, rule or regulation. The Regular Award Committee may only act within
guidelines established by the Compensation Committee. The Executive Officer
Participant Plan shall be administered by the Compensation Committee. With
respect to the Non-Executive Officer Participant Plan and to decisions relating
to Non-Executive Officer Participants, including the grant of Awards, the term
"Committee" shall mean the Compensation Committee, and refer to the Regular
Award Committee as authorized by the Compensation Committee; and with respect to
the Executive Officer Participant Plan and to decisions relating to the
Executive Officer Participants, including the granting of Awards, the term
"Committee" shall mean only the Compensation Committee.
Unless otherwise provided in the by-laws of the Company or the resolutions
adopted from time to time by the Board establishing the Committee, the Board may
from time to time remove members from, or add members to, the Committee.
Vacancies on the Committee, however caused, shall be filled by the Board. The
Committee shall hold meetings at such times and places as it may determine. A
majority of the members of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is present
or acts reduced to or approved in writing by a majority of the members of the
Committee shall be the valid acts of the Committee.
Subject to the provisions of the Plan, the Committee shall have exclusive
power to:
(a) Select the Eligible Employees to participate in the Plan.
(b) Determine the time or times when Awards will be made.
(c) Determine the form of an Award, whether an Option, a SAR,
Restricted Stock Award, Performance Unit, or Performance Bonus, the number
of shares of Common Stock or Performance Units subject to the Award, the
amount and all the terms, conditions (including performance requirements),
restrictions and/or limitations, if any, of an Award, including the time
and conditions of exercise or vesting, and the terms of any Award
Agreement.
(d) Determine whether Awards will be granted singly or in combination.
(e) Accelerate the vesting, exercise or payment of an Award or the
performance period of an Award.
(f) Determine whether and to what extent an Award may be deferred
either automatically or at the election of the Participant or the
Committee.
(g) Take any and all other action it deems necessary or advisable for
the proper operation or administration of the Plan.
SECTION 3.2 Administration of Grants to Eligible Directors. The Board
shall have the exclusive power to select the Eligible Directors to participate
in the Plan and to determine the number of Nonqualified Stock Options or shares
of Restricted Stock awarded to Eligible Directors selected for participation.
The Compensation Committee shall administer all other aspects of the Awards made
to Eligible Directors.
SECTION 3.3 Compensation Committee to Make Rules and Interpret Plan. The
Committee in its sole discretion shall have the authority, subject to the
provisions of the Plan, to establish, adopt, or revise such rules and
regulations and to make all such determinations relating to the Plan, as it may
deem necessary or advisable for the administration of the Plan. The Committee's
interpretation of the Plan or any Awards and all decisions and determinations by
the Committee with respect to the Plan shall be final, binding, and conclusive
on all parties.
SECTION 3.4 Section 162(m) Provisions. The Company intends for the Plan
and the Awards made thereunder to qualify for the exception from Section 162(m)
of the Code for "qualified performance based compensation." Accordingly, the
Committee shall make determinations as to performance targets and all
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other applicable provisions of the Plan as necessary in order for the Plan and
Awards made thereunder to satisfy the requirements of Section 162(m) of the
Code.
ARTICLE IV
GRANT OF AWARDS
SECTION 4.1 Grant of Awards. Awards granted under this Plan shall be
subject to the following conditions:
(a) Subject to Article X, the aggregate number of shares of Common
Stock made subject to the grant of Options and SARs to any Eligible
Employee in any calendar year may not exceed 400,000.
(b) Subject to Article X, the aggregate number of shares of Common
Stock made subject to the grant of Restricted Stock Awards and Performance
Unit Awards to any Eligible Employee in any calendar year may not exceed
200,000.
(c) The maximum amount made subject to the grant of Performance
Bonuses to any Eligible Employee in any calendar year may not exceed
$2,500,000.
(d) Any shares of Common Stock related to Awards which terminate by
expiration, forfeiture, cancellation or otherwise or are exchanged in the
Committee's discretion for Awards not involving Common Stock, shall be
available again for grant under the Plan and shall not be counted against
the Stock Award Limit.
(e) Common Stock delivered by the Company in payment of any Award
under the Plan may be authorized and unissued Common Stock or Common Stock
held in the treasury of the Company.
(f) The Compensation Committee shall, in its sole discretion,
determine the manner in which fractional shares arising under this Plan
shall be treated.
(g) The Compensation Committee shall from time to time establish
guidelines for the Regular Award Committee regarding the grant of Awards to
Eligible Employees.
(h) Separate certificates or a book-entry registration representing
Common Stock shall be delivered to a Participant upon the exercise of any
Option.
(i) Restricted Stock Awards granted which vest based upon the
Participant's continued employment shall be limited in such a way that,
except in the case of death, disability or termination without cause, (i)
no portion of the Restricted Stock Award will vest prior to the first
anniversary of the Date of Grant; (ii) up to one-third of the shares
subject to the Restricted Stock Award is eligible to vest on or after the
first anniversary of the Date of Grant; (iii) up to an additional one-third
of the shares subject to the Restricted Stock Award is eligible to vest on
or after the second anniversary of the Date of Grant; and (iv) up to an
additional one-third of the shares subject to the Restricted Stock Award is
eligible to vest on or after the third anniversary of the Date of Grant.
(j) Restricted Stock Awards granted which vest based upon performance
standards shall require that, except in the case of death, disability or
termination without cause, the holder must remain in the employment of the
Company, a Subsidiary, or an Affiliated Entity for at least one year from
Date of Grant.
(k) The Committee shall be prohibited from canceling, reissuing or
modifying Awards if such action will have the effect of repricing the
Participant's Award.
(l) Eligible Directors may only be granted Nonqualified Stock Options
or Restricted Stock Awards under this Plan.
(m) Subject to Article X, the aggregate number of shares of Common
Stock made subject to the grant of Options to any Eligible Director in any
calendar year may not exceed 15,000.
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(n) In no event shall more than 7,500 shares of Restricted Stock be
awarded to any individual Eligible Director in any calendar year.
(o) The maximum term of any Award shall be eight years.
ARTICLE V
STOCK OPTIONS
SECTION 5.1 Grant of Options. The Committee may, from time to time,
subject to the provisions of the Plan and such other terms and conditions as it
may determine, grant Options to Eligible Employees. These Options may be
Incentive Stock Options or Nonqualified Stock Options, or a combination of both.
Each grant of an Option shall be evidenced by an Award Agreement executed by the
Company and the Eligible Employee, and shall contain such terms and conditions
and be in such form as the Committee may from time to time approve, subject to
the requirements of Section 5.2. The Board may, subject to the provisions of the
Plan and such other terms and conditions as it may determine, grant Nonqualified
Stock Options to the Eligible Directors.
SECTION 5.2 Conditions of Options. Each Option so granted shall be
subject to the following conditions:
(a) Exercise Price. As limited by Section 5.2(e) below, each Option
shall state the exercise price which shall be set by the Committee at the
Date of Grant; provided, however, no Option shall be granted at an exercise
price which is less than the Fair Market Value of the Common Stock on the
Date of Grant.
(b) Form of Payment. The exercise price of an Option may be paid (i)
in cash or by check, bank draft or money order payable to the order of the
Company; (ii) by delivering shares of Common Stock having a Fair Market
Value on the date of payment equal to the amount of the exercise price, but
only to the extent such exercise of an Option would not result in a
compensation expense to the Company for financial accounting purposes with
respect to the shares used to pay the exercise price unless otherwise
determined by the Committee; or (iii) a combination of the foregoing. In
addition to the foregoing, the Committee may permit an Option granted under
the Plan to be exercised by a broker-dealer acting on behalf of a
Participant through procedures approved by the Committee.
(c) Exercise of Options. Options granted under the Plan shall be
exercisable, in whole or in such installments and at such times, and shall
expire at such time, as shall be provided by the Committee in the Award
Agreement. Exercise of an Option shall be by notice to the Secretary of
such exercise stating the election to exercise in the form and manner
determined by the Committee. Every share of Common Stock acquired through
the exercise of an Option shall be deemed to be fully paid at the time of
exercise and payment of the exercise price.
(d) Other Terms and Conditions. Among other conditions that may be
imposed by the Committee, if deemed appropriate, are those relating to (i)
the period or periods and the conditions of exercisability of any Option;
(ii) the minimum periods during which Participants must be employed by the
Company, its Subsidiaries, or an Affiliated Entity, or must hold Options
before they may be exercised; (iii) the minimum periods during which shares
acquired upon exercise must be held before sale or transfer shall be
permitted; (iv) conditions under which such Options or shares may be
subject to forfeiture; (v) the frequency of exercise or the minimum or
maximum number of shares that may be acquired at any one time; (vi) the
achievement by the Company of specified performance criteria; and (vii)
non-compete and protection of business matters.
(e) Special Restrictions Relating to Incentive Stock Options. Options
issued in the form of Incentive Stock Options shall only be granted to
Eligible Employees of the Company or a Subsidiary, and not to Eligible
Employees of an Affiliated Entity unless such entity shall be considered as
a "disregarded entity" under the Code and shall not be distinguished for
federal tax purposes from the Company or the applicable Subsidiary.
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(f) Application of Funds. The proceeds received by the Company from the sale of
Common Stock pursuant to Options will be used for general corporate purposes.
(g) Stockholder Rights. No Participant shall have a right as a
stockholder with respect to any share of Common Stock subject to an Option
prior to purchase of such shares of Common Stock by exercise of the Option.
ARTICLE VI
STOCK APPRECIATION RIGHTS
SECTION 6.1 Grant of SARs. The Committee may from time to time, in its
sole discretion, subject to the provisions of the Plan and subject to other
terms and conditions as the Committee may determine, grant a SAR to any
Participant. SARs may be granted in tandem with an Option, in which event, the
Participant has the right to elect to exercise either the SAR or the Option.
Upon the Participant's election to exercise one of these Awards, the other
tandem Award is automatically terminated. SARs may also be granted as an
independent Award separate from an Option. Each grant of a SAR shall be
evidenced by an Award Agreement executed by the Company and the Participant and
shall contain such terms and conditions and be in such form as the Committee may
from time to time approve, subject to the requirements of the Plan.
SECTION 6.2 Exercise. The amount payable with respect to each SAR shall
be equal in value to the applicable percentage of the excess, if any, of the
Fair Market Value of a share of Common Stock on the exercise date over the
exercise price of the SAR. The exercise price of the SAR shall be determined by
the Committee and shall not be less than the Fair Market Value of a share of
Common Stock on the date the SAR is granted. The applicable percentage and
exercise price shall be established by the Committee at the time the SAR is
granted.
SECTION 6.3 Restrictions. In the event a SAR is granted in tandem with an
Incentive Stock Option, the Committee shall subject the SAR to restrictions
necessary to ensure satisfaction of the requirements under Section 422 of the
Code. In the case of a SAR granted in tandem with an Incentive Stock Option to
an Eligible Employee who owns more than 10% of the combined voting power of the
Company or its Subsidiaries on the date of such grant, the amount payable with
respect to each SAR shall be equal in value to the applicable percentage of the
excess, if any, of the Fair Market Value of a share of Common Stock on the
exercise date over the exercise price of the SAR, which exercise price shall not
be less than 110% of the Fair Market Value of a share of Common Stock on the
date the SAR is granted.
ARTICLE VII
RESTRICTED STOCK AWARDS
SECTION 7.1 Grant of Restricted Stock Awards. The Committee may, from
time to time, subject to the provisions of the Plan and such other terms and
conditions as it may determine, grant a Restricted Stock Award to any Eligible
Employee. Restricted Stock Awards shall be awarded in such number and at such
times during the term of the Plan as the Committee shall determine. The Board
may, from time to time, subject to the provisions of the Plan and such other
terms and conditions as it may determine, grant a Restricted Stock Award to an
Eligible Director. Each Restricted Stock Award may be evidenced in such manner
as the Committee deems appropriate, including, without limitation, a book-entry
registration or issuance of a stock certificate or certificates, and by an Award
Agreement setting forth the terms of such Restricted Stock Award.
SECTION 7.2 Conditions of Restricted Stock Awards. The grant of a
Restricted Stock Award shall be subject to the following:
(a) Restriction Period. Each Restricted Stock Award shall require the
holder to remain in the employment of the Company, a Subsidiary, or an
Affiliated Entity for a prescribed period (a
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"Restriction Period"). Subject to Sections 4.1(i) and (j), the Committee
shall determine the Restriction Period or Periods that shall apply to the
shares of Common Stock covered by each Restricted Stock Award or portion
thereof. In addition to any time vesting conditions determined by the
Committee, Restricted Stock Awards may be subject to the achievement by the
Company of specified performance criteria based upon the Company's
achievement of operational, financial or stock performance criteria more
specifically listed in Exhibit A attached, as established by the Committee.
At the end of the Restriction Period, assuming the fulfillment of any other
specified vesting conditions, the restrictions imposed by the Committee
shall lapse with respect to the shares of Common Stock covered by the
Restricted Stock Award or portion thereof.
(b) Restrictions. The holder of a Restricted Stock Award may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of the
shares of Common Stock represented by the Restricted Stock Award during the
applicable Restriction Period. The Committee shall impose such other
restrictions and conditions on any shares of Common Stock covered by a
Restricted Stock Award as it may deem advisable including, without
limitation, restrictions under applicable Federal or state securities laws,
and may legend the certificates representing Restricted Stock to give
appropriate notice of such restrictions.
(c) Rights as Stockholders. During any Restriction Period, the
Committee may, in its discretion, grant to the holder of a Restricted Stock
Award all or any of the rights of a stockholder with respect to the shares,
including, but not by way of limitation, the right to vote such shares and
to receive dividends. If any dividends or other distributions are paid in
shares of Common Stock, all such shares shall be subject to the same
restrictions on transferability as the shares of Restricted Stock with
respect to which they were paid.
ARTICLE VIII
PERFORMANCE UNITS
SECTION 8.1 Grant of Awards. The Committee may, from time to time,
subject to the provisions of the Plan and such other terms and conditions as it
may determine, grant Performance Units to Eligible Employees. Each Award of
Performance Units shall be evidenced by an Award Agreement executed by the
Company and the Eligible Employee, and shall contain such terms and conditions
and be in such form as the Committee may from time to time approve, subject to
the requirements of Section 8.2.
SECTION 8.2 Conditions of Awards. Each Award of Performance Units shall
be subject to the following conditions:
(a) Establishment of Award Terms. Each Award shall state the target,
maximum and minimum value of each Performance Unit payable upon the
achievement of performance goals.
(b) Achievement of Performance Goals. The Committee shall establish
performance targets for each Award for a period of no less than a year
based upon some or all of the operational, financial or performance
criteria listed in Exhibit A attached. The Committee shall also establish
such other terms and conditions as it deems appropriate to such Award. The
Award may be paid out in cash or Common Stock as determined in the sole
discretion of the Committee.
ARTICLE IX
PERFORMANCE BONUS
SECTION 9.1 Grant of Performance Bonus. The Committee may from time to
time, subject to the provisions of the Plan and such other terms and conditions
as the Committee may determine, grant a Performance Bonus to certain Eligible
Employees selected for participation. The Committee will determine the amount
that may be earned as a Performance Bonus in any period of one year or more upon
the achievement of a performance target established by the Committee. The
Committee shall select the
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applicable performance target for each period in which a performance bonus is
awarded. The performance target shall be based upon all or some of the
operational, financial or performance criteria more specifically listed in
Exhibit A attached.
SECTION 9.2 Payment of Performance Bonus. In order for any Participant to
be entitled to payment of a Performance Bonus the applicable performance target
established by the Committee must first be obtained or exceeded. Payment of a
Performance Bonus shall be made within 60 days of the Committee's certification
that the performance target has been achieved unless the Participant has elected
to defer payment pursuant to a non-qualified deferred compensation plan adopted
by the Company. Payment of a Performance Bonus may be made in either cash or
Common Stock as determined in the sole discretion of the Committee.
ARTICLE X
STOCK ADJUSTMENTS
SECTION 10.1 Stock Adjustments. In the event that the shares of Common
Stock, as constituted on the effective date of the Plan, shall be changed into
or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, stock split,
combination of shares or otherwise), or if the number of such shares of Common
Stock shall be increased through the payment of a stock dividend, or if rights
or warrants to purchase securities of the Company shall be issued to holders of
all outstanding Common Stock, then there shall be substituted for or added to
each share available under and subject to the Plan, and each share theretofore
appropriated under the Plan, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so changed
or for which each such share shall be exchanged or to which each such share
shall be entitled, as the case may be, on a fair and equivalent basis in
accordance with the applicable provisions of Section 424 of the Code; provided,
however, with respect to Options, in no such event will such adjustment result
in a modification of any Option as defined in Section 424(h) of the Code. In the
event there shall be any other change in the number or kind of the outstanding
shares of Common Stock, or any stock or other securities into which the Common
Stock shall have been changed or for which it shall have been exchanged, then if
the Committee shall, in its sole discretion, determine that such change
equitably requires an adjustment in the shares available under and subject to
the Plan, or in any Award, theretofore granted, such adjustments shall be made
in accordance with such determination, except that no adjustment of the number
of shares of Common Stock available under the Plan or to which any Award relates
that would otherwise be required shall be made unless and until such adjustment
either by itself or with other adjustments not previously made would require an
increase or decrease of at least 1% in the number of shares of Common Stock
available under the Plan or to which any Award relates immediately prior to the
making of such adjustment (the "Minimum Adjustment"). Any adjustment
representing a change of less than such minimum amount shall be carried forward
and made as soon as such adjustment together with other adjustments required by
this Article X and not previously made would result in a Minimum Adjustment.
Notwithstanding the foregoing, any adjustment required by this Article X which
otherwise would not result in a Minimum Adjustment shall be made with respect to
shares of Common Stock relating to any Award immediately prior to exercise,
payment or settlement of such Award.
No fractional shares of Common Stock or units of other securities shall be
issued pursuant to any such adjustment, and any fractions resulting from any
such adjustment shall be eliminated in each case by rounding downward to the
nearest whole share.
ARTICLE XI
GENERAL
SECTION 11.1 Amendment or Termination of Plan. The Board may alter,
suspend or terminate the Plan at any time. In addition, the Board may, from time
to time, amend the Plan in any manner, but may
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not without stockholder approval adopt any amendment which would (i) increase
the aggregate number of shares of Common Stock available under the Plan (except
by operation of Article X), (ii) materially modify the requirements as to
eligibility for participation in the Plan, or (iii) materially increase the
benefits to Participants provided by the Plan.
SECTION 11.2 Termination of Employment; Termination of Service. If an
Eligible Employee's employment with the Company, a Subsidiary, or an Affiliated
Entity terminates for a reason other than death, disability, retirement, or any
approved reason, all unexercised, unearned, and/or unpaid Awards, including, but
not by way of limitation, Awards earned, but not yet paid, all unpaid dividends
and dividend equivalents, and all interest, if any, accrued on the foregoing
shall be cancelled or forfeited, as the case may be, unless the Eligible
Employee's Award Agreement provides otherwise. The Compensation Committee shall
(i) determine what events constitute disability, retirement, or termination for
an approved reason for purposes of the Plan, and (ii) determine the treatment of
a Participant under the Plan in the event of his death, disability, retirement,
or termination for an approved reason. The Committee shall also determine the
method, if any, for accelerating the vesting or exercisability of any Awards, or
providing for the exercise of any unexercised Awards in the event of an Eligible
Employee's death, disability, retirement, or termination for an approved reason.
In the event an Eligible Director terminates service as a director of the
Company, the unvested portion of any Award shall be forfeited unless otherwise
accelerated pursuant to the terms of the Eligible Director's Award Agreement or
by the Board. The Eligible Director shall have a period of three years following
the date he ceases to be a director to exercise any Nonqualified Stock Options
which are otherwise exercisable on his date of termination of service.
SECTION 11.3 Limited Transferability -- Options. The Committee may, in
its discretion, authorize all or a portion of the Nonqualified Stock Options
granted under this Plan to be on terms which permit transfer by the Participant
to (i) the ex-spouse of the Participant pursuant to the terms of a domestic
relations order, (ii) the spouse, children or grandchildren of the Participant
("Immediate Family Members"), (iii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, or (iv) a partnership or limited liability
company in which such Immediate Family Members are the only partners or members.
In addition there may be no consideration for any such transfer, the Award
Agreement pursuant to which such Nonqualified Stock Options are granted must be
approved by the Committee, and must expressly provide for transferability in a
manner consistent with this paragraph. Subsequent transfers of transferred
Nonqualified Stock Options shall be prohibited except as set forth below in this
Section 11.3. Following transfer, any such Nonqualified Stock Options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of Section 11.2 hereof
the term "Participant" shall be deemed to refer to the transferee. The events of
termination of employment of Section 11.2 hereof shall continue to be applied
with respect to the original Participant, following which the Nonqualified Stock
Options shall be exercisable by the transferee only to the extent, and for the
periods specified in Section 11.2 hereof. No transfer pursuant to this Section
11.3 shall be effective to bind the Company unless the Company shall have been
furnished with written notice of such transfer together with such other
documents regarding the transfer as the Committee shall request. With the
exception of a transfer in compliance with the foregoing provisions of this
Section 11.3, Awards shall be transferable only by will or the laws of descent
and distribution; however, no such transfer shall be effective to bind the
Company unless the Committee has been furnished with written notice of such
transfer and an authenticated copy of the will and/or such other evidence as the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee of the terms and conditions of such Award.
SECTION 11.4 Withholding Taxes. Unless otherwise paid by the Participant,
the Company shall be entitled to deduct from any payment under the Plan,
regardless of the form of such payment, the amount of all applicable income and
employment taxes required by law to be withheld with respect to such payment or
may require the Participant to pay to it such tax prior to and as a condition of
the making of such payment. In accordance with any applicable administrative
guidelines it establishes, the Committee may allow a Participant to pay the
amount of taxes required by law to be withheld from an Award by
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(i) directing the Company to withhold from any payment of the Award a number of
shares of Common Stock having a Fair Market Value on the date of payment equal
to the amount of the required withholding taxes or (ii) delivering to the
Company previously owned shares of Common Stock having a Fair Market Value on
the date of payment equal to the amount of the required withholding taxes.
However, any payment made by the Participant pursuant to either of the foregoing
clauses (i) or (ii) shall not be permitted if it would result in an accounting
charge with respect to such shares used to pay such taxes unless otherwise
approved by the Committee.
SECTION 11.5 Dividends and Dividend Equivalents -- Awards. The Committee
may choose, at the time of the grant of any Award or any time thereafter up to
the time of payment of such Award, to include as part of such Award an
entitlement to receive dividends or dividend equivalents subject to such terms,
conditions, restrictions, and/or limitations, if any, as the Committee may
establish. Dividends and dividend equivalents granted hereunder shall be paid in
such form and manner (i.e., lump sum or installments), and at such time as the
Committee shall determine. All dividends or dividend equivalents which are not
paid currently may, at the Committee's discretion, accrue interest.
SECTION 11.6 Change of Control. Notwithstanding any other provision in
this Plan to the contrary, Awards granted under the Plan to any Eligible
Employee or Eligible Director may, in the discretion of the Committee, provide
in the Award Agreement that such Awards shall be immediately vested, fully
earned and exercisable upon the occurrence of a Change of Control Event.
SECTION 11.7 Amendments to Awards. Subject to the limitations of Article
IV, such as the prohibition on repricing of Options, the Committee may at any
time unilaterally amend the terms of any Award Agreement, whether or not
presently exercisable or vested, to the extent it deems appropriate. However,
amendments which are adverse to the Participant shall require the Participant's
consent.
SECTION 11.8 Regulatory Approval and Listings. The Company shall use its
best efforts to file with the Securities and Exchange Commission as soon as
practicable following approval by the stockholders of the Company of the Plan as
provided in Section 1.2 of the Plan, and keep continuously effectively, a
Registration Statement on Form S-8 with respect to shares of Common Stock
subject to Awards hereunder. Notwithstanding anything contained in this Plan to
the contrary, the Company shall have no obligation to issue shares of Common
Stock under this Plan prior to:
(a) the obtaining of any approval from, or satisfaction of any waiting
period or other condition imposed by, any governmental agency which the
Committee shall, in its sole discretion, determine to be necessary or
advisable;
(b) the admission of such shares to listing on the stock exchange on
which the Common Stock may be listed; and
(c) the completion of any registration or other qualification of such
shares under any state or Federal law or ruling of any governmental body
which the Committee shall, in its sole discretion, determine to be
necessary or advisable.
SECTION 11.9 Right to Continued Employment. Participation in the Plan
shall not give any Eligible Employee any right to remain in the employ of the
Company, any Subsidiary, or any Affiliated Entity. The Company or, in the case
of employment with a Subsidiary or an Affiliated Entity, the Subsidiary or
Affiliated Entity reserves the right to terminate any Eligible Employee at any
time. Further, the adoption of this Plan shall not be deemed to give any
Eligible Employee or any other individual any right to be selected as a
Participant or to be granted an Award.
SECTION 11.10 Beneficiary Designation. In the event of the death of a
Participant, the portion of the Participant's Award with respect to which
vesting dates have occurred shall be paid to the then surviving beneficiary
designated by the Participant, and if there is no beneficiary then surviving,
then such benefits will automatically be paid to the estate of the Participant.
SECTION 11.11 Reliance on Reports. Each member of the Committee and each
member of the Board shall be fully justified in relying or acting in good faith
upon any report made by the independent
E-16
public accountants of the Company and its Subsidiaries and upon any other
information furnished in connection with the Plan by any person or persons other
than himself or herself. In no event shall any person who is or shall have been
a member of the Committee or of the Board be liable for any determination made
or other action taken or any omission to act in reliance upon any such report or
information or for any action taken, including the furnishing of information, or
failure to act, if in good faith.
SECTION 11.12 Construction. Masculine pronouns and other words of
masculine gender shall refer to both men and women. The titles and headings of
the sections in the Plan are for the convenience of reference only, and in the
event of any conflict, the text of the Plan, rather than such titles or
headings, shall control.
SECTION 11.13 Governing Law. The Plan shall be governed by and construed
in accordance with the laws of the State of Delaware except as superseded by
applicable Federal law.
SECTION 11.14 Severability. If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Participant or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to the applicable laws, or if it
cannot be construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, Participant or Award and
the remainder of the Plan and any such Award shall remain in full force and
effect.
SECTION 11.15 Other Laws. The Committee may refuse to issue or transfer
any shares of Common Stock or other consideration under an Award if, acting in
its sole discretion, it determines that the issuance or transfer of such shares
or such other consideration might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the Exchange Act,
and any payment tendered to the Company by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant, holder or beneficiary.
SECTION 11.16 No Trust or Fund Created. Neither the Plan nor an Award
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a Participant or any other
person. To the extent that a Participant acquires the right to receive payments
from the Company pursuant to an Award, such right shall be no greater than the
right of any general unsecured creditor of the Company.
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EXHIBIT A
DEVON ENERGY CORPORATION
2003 LONG-TERM INCENTIVE PLAN
PERFORMANCE CRITERIA
Operational Criteria may include:
- Reserve additions/replacements
- Finding & development costs
- Production volume
- Production Costs
Financial Criteria may include:
- Earnings (Net income, Earnings before interest, taxes, depreciation and
amortization ("EBITDA"), Earnings per share)
- Cash flow
- Operating income
- General and Administrative Expenses
- Debt to equity ratio
- Debt to cash flow
- Debt to EBITDA
- EBITDA to Interest
- Return on Assets
- Return on Equity
- Return on Invested Capital
- Profit returns/margins
- Midstream margins
Stock Performance Criteria:
- Stock price appreciation
- Total stockholder return
- Relative stock price performance
E-18
(DEVON ENERGY LOGO)
(OCEAN ENERGY LOGO)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except to the extent indicated below, there is no charter provision, bylaw,
contract, arrangement or statute under which any director or officer of Devon is
insured or indemnified in any manner against any liability that he or she may
incur in his or her capacity as such.
DEVON ENERGY CORPORATION
Article VIII of Devon's restated certificate of incorporation, as amended,
contains a provision, permitted by Section 102(b)(7) of the Delaware General
Corporation Law, limiting the personal monetary liability of directors for
breach of fiduciary duty as a director. This provision and Delaware law provide
that the provision does not eliminate or limit liability:
- for any breach of the director's duty of loyalty to Devon or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for unlawful payments of dividends or unlawful stock repurchases or
redemptions, as provided in Section 174 of the Delaware General
Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Section 145 of the Delaware General Corporation Law permits indemnification
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with actions, suits
or proceedings in which a director, officer, employee or agent is a party by
reason of the fact that he or she is or was such a director, officer, employee
or agent, if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. However, in connection with actions by
or in the right of the corporation, such indemnification is not permitted if
such person has been adjudged liable to the corporation unless the court
determines that, under all of the circumstances, such person is nonetheless
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper. Article X of Devon's restated certificate of incorporation, as amended,
provides for such indemnification.
Section 145 of the Delaware General Corporation Law also permits a
corporation to purchase and maintain insurance on behalf of its directors and
officers against any liability that may be asserted against, or incurred by,
such persons in their capacities as directors or officers of the corporation
whether or not the corporation would have the power to indemnify such persons
against such liabilities under the provisions of such sections. Devon has
purchased such insurance.
Section 145 of the Delaware General Corporation Law further provides that
the statutory provision is not exclusive of any other right to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or independent directors, or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office.
Article VIII of Devon's bylaws contains provisions regarding
indemnification that parallel those described above.
The amended and restated merger agreement, dated as of May 19, 1999,
between Devon and PennzEnergy Company provides that for seven years after the
effective time of the merger contemplated by that agreement, Devon will
indemnify and hold harmless each person who was a director or officer of Devon
or PennzEnergy prior to the effective time of that merger from their acts or
omissions in those capacities occurring prior to the effective time of that
merger to the fullest extent permitted by applicable law.
II-1
The merger agreement, dated as of May 25, 2000, as amended, between Devon
and Santa Fe Snyder Corporation provides that for six years after the effective
time of the merger contemplated by that agreement, Devon will indemnify and hold
harmless each person who was a director or officer of Santa Fe Snyder prior to
the effective time of that merger from their acts or omissions in those
capacities occurring prior to the effective time of that merger to the fullest
extent permitted by applicable law.
The amended and restated agreement and plan of merger, dated as of August
13, 2001, by and among Devon, Devon NewCo Corporation, Devon Holdco Corporation,
Devon Merger Corporation, Mitchell Merger Corporation and Mitchell Energy &
Development Corp. provides that for six years after the effective time of the
merger contemplated by that agreement, Devon will cause the surviving
corporation of the merger to indemnify and hold harmless to the fullest extent
permitted under applicable law each person who was a director or officer of
Mitchell prior to the effective time of that merger.
The Pre-Acquisition Agreement, dated as of August 31, 2001, by and between
Devon and Anderson Exploration Ltd. provides that after the effective time of
the acquisition of Anderson, Devon will cause Anderson to indemnify and hold
harmless to the fullest extent permitted under applicable law each person who
was a director or officer of Anderson prior to the effective time of the
Anderson acquisition.
The agreement and plan of merger, dated as of February 23, 2003, by and
among Devon, Devon NewCo Corporation and Ocean Energy, Inc. provides that after
the effective time of the merger contemplated by that agreement, Devon will
cause the surviving corporation of the merger to indemnify and hold harmless to
the fullest extent permitted under applicable law each person who was a director
or officer of Ocean prior to the effective time of that merger.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See Index to Exhibits, which is incorporated by reference in this
item.
(b) Financial Statement Schedule
Not applicable.
(c) Opinions
The opinion of Deutsche Bank Securities Inc., financial advisor to
Ocean, is attached to this document as Annex B.
The opinion of Morgan Stanley & Co. Incorporated, financial advisor to
Devon, is attached to this document as Annex C.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
II-2
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in provided, however, that paragraphs (1)(i) and (1)(ii)
do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports
filed by Devon pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each filing of Devon's annual report pursuant to
Section 13(a) or 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 the registration statement 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.
(5) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment 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.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
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 provisions described under Item 20, or otherwise,
each 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 a registrant of expenses incurred or paid by a director, officer or
controlling person of such 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.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Oklahoma City, state of
Oklahoma, on March 20, 2003.
DEVON ENERGY CORPORATION
By: /s/ J. LARRY NICHOLS
------------------------------------
J. Larry Nichols
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ J. LARRY NICHOLS Chairman, President and Chief March 20, 2003
------------------------------------------------ Executive Officer
J. Larry Nichols
/s/ WILLIAM T. VAUGHN Senior Vice President -- Finance March 20, 2003
------------------------------------------------
William T. Vaughn
/s/ DANNY J. HEATLY Vice President -- Accounting March 20, 2003
------------------------------------------------
Danny J. Heatly
* Director March 20, 2003
------------------------------------------------
Thomas F. Ferguson
* Director March 20, 2003
------------------------------------------------
David M. Gavrin
* Director March 20, 2003
------------------------------------------------
Michael E. Gellert
* Director March 20, 2003
------------------------------------------------
John A. Hill
* Director March 20, 2003
------------------------------------------------
William J. Johnson
* Director March 20, 2003
------------------------------------------------
Michael M. Kanovsky
* Director March 20, 2003
------------------------------------------------
J. Todd Mitchell
II-5
SIGNATURE TITLE DATE
--------- ----- ----
* Director March 20, 2003
------------------------------------------------
Robert A. Mosbacher, Jr.
* Director March 20, 2003
------------------------------------------------
Robert B. Weaver
---------------
*An asterisk denotes execution by J. Larry Nichols, William T. Vaughn or Marian
J. Moon, as attorney-in-fact.
II-6
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger, dated as of February 23, 2003,
by and among Devon Energy Corporation, Devon NewCo
Corporation and Ocean Energy, Inc. (attached as Annex A to
the joint proxy statement/prospectus forming a part of this
registration statement)
*5.1 Opinion of Mayer, Brown, Rowe & Maw regarding the legality
of the shares of Devon Energy Corporation common stock to be
registered under this Registration Statement
*8.1 Opinion of Mayer, Brown, Rowe & Maw regarding the United
States federal income tax consequences of the merger to
Devon Energy Corporation
*8.2 Opinion of Vinson & Elkins L.L.P. regarding the United
States federal income tax consequences of the merger to
Ocean Energy, Inc. stockholders
*10.1 Third Amendment to Employment Agreement by and among Devon
Energy Corporation, Ocean Energy, Inc. and James T. Hackett
*10.2 Second Amendment to Severance Agreement by and among Devon
Energy Corporation, Ocean Energy, Inc. and James T. Hackett
*23.1 Consent of Mayer, Brown, Rowe & Maw (contained in its
opinions in Exhibits 5.1 and 8.1)
*23.2 Consent of Vinson & Elkins L.L.P. (contained in its opinion
in Exhibit 8.2)
*23.3 Consent of KPMG LLP (as to its report on the consolidated
financial statements of Devon Energy Corporation)
*23.4 Consent of KPMG LLP (as to its report on the consolidated
financial statements of Ocean Energy, Inc.)
*23.5 Consent of Miller and Lents, Ltd.
*23.6 Consent of AJM Petroleum Consultants
*23.7 Consent of LaRoche Petroleum Consultants, Ltd.
*23.8 Consent of Paddock Lindstrom & Associates, Ltd.
*23.9 Consent of Ryder Scott Company, L.P.
*23.10 Consent of Gilbert Laustsen Jung Associates Ltd.
*23.11 Consent of Morgan Stanley & Co. Incorporated
*23.12 Consent of Deutsche Bank Securities Inc.
*24.1 Powers of Attorney of Devon Energy Corporation's directors
99.1 Form of Proxy Card for Devon Energy Corporation's common
stockholders
99.2 Form of Proxy Card for holders of Northstar Energy
Corporation's exchangeable shares
99.3 Form of Proxy Card for Ocean Energy, Inc. common
stockholders and Ocean Energy, Inc. Series B convertible
preferred stockholders
*99.4 Lawsuit captioned Breakwater Partners, LP v. James T.
Hackett, et. al. (Case No. 2003-10161), filed February 27,
2003 in the District Court of Harris County, Texas
99.5 Consent of Nominee (Milton Carroll)
99.6 Consent of Nominee (Peter J. Fluor)
99.7 Consent of Nominee (Robert L. Howard)
99.8 Consent of Nominee (Charles F. Mitchell, M.D.)
---------------
* Included with the original filing of Devon Energy Corporation's registration
statement (Registration No. 333-103679) on March 7, 2003.