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CONOCO INC.
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DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS AND INVESTOR NOTICE
This presentation contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Words such as "expects," "intends," "plans,"
"projects," "believes," "estimates" and similar expressions are used to identify
such forward-looking statements. Forward-looking statements relating to Conoco's
operations are based on management's expectations, estimates and projections
about Conoco and the petroleum industry in general on the date this presentation
was given. These statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions that are difficult to predict.
Further, certain forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate. Therefore, actual outcomes and
results may differ materially from what is expressed or forecast in such
forward-looking statements.
Factors that could cause actual results or events to differ materially include,
but are not limited to, crude oil and natural gas prices; refining and marketing
margins; potential failure to achieve, and potential delays in achieving,
expected reserves or production levels from existing and future oil and gas
development projects due to operating hazards, drilling risks, and the inherent
uncertainties in interpreting engineering data relating to underground
accumulations of oil and gas; unsuccessful exploratory drilling activities;
potential disruption or interruption of Conoco's production facilities due to
accidents or political events; unexpected difficulties in company manufacturing
or refining facilities; unexpected difficulties in manufacturing, transporting
or refining synthetic crude oil; international monetary conditions and exchange
controls; commodity hedging activities by the Company; potential liability for
remedial actions under existing or future environmental regulations; potential
liability resulting from pending or future litigation; and numerous other
matters set forth in Conoco's periodic filings with the Securities and Exchange
Commission. In addition, such statements could be affected by general domestic
and international economic and political conditions, as well as changes in tax
and other laws applicable to Conoco's business.
Conoco intends to call a special meeting of its stockholders to vote on the
combination of its two classes of common stock into a single class. Conoco urges
its stockholders to read the proxy statement relating to the special meeting
because it will contain important information about the proposal and the
interests of the participants in the solicitation of proxies. A free copy of the
preliminary proxy statement and other documents filed electronically by Conoco
with the SEC can be obtained at the SEC's Web site at www.sec.gov. Conoco
stockholders may also obtain a free copy of the preliminary proxy statement and
these other documents by directing requests to Conoco Shareholder Relations
Department.
EXCERPTS OF CONOCO INC.
SECOND QUARTER CONFERENCE CALL
JULY 23, 2001
The following are excerpts from the conference call held by Conoco on
July 23, 2001 regarding the proposed combination of Conoco's Class A common
stock and Class B common stock into a single class of new common stock on a
one-for-one basis:
EXCERPTS OF COMMENTS OF ROBERT W. GOLDMAN, SENIOR VICE PRESIDENT, FINANCE, AND
CHIEF FINANCIAL OFFICER
Last week, Conoco's board approved a plan to combine the dual class capital
structure that was put in place in connection with the IPO from DuPont. At
present, there are more than two times as many B shares outstanding as A shares.
The only difference in the Class A and B shares, of course, is that each A share
has 1 vote while each B share has 5 votes. After shareholder approval of the
Plan, the holders of the new common stock will have one vote per share on
matters submitted for a stockholder vote.
Simply put, we will ask our shareholders to adopt a merger agreement that has
the effect of combining Conoco's two classes of common stock into a single class
of new common stock at a one-to-one ratio.
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Successful implementation of the restructuring plan will have many benefits for
our shareholders. We expect that the primary benefit will be increased liquidity
overall in the company's stock. Since the IPO, investors have demonstrated their
preference for more liquidity in the market place, in our industry, and in our
company's stock.
In addition, simplification of our capital structure should eliminate much
investor confusion as well as any negative impact on market price that might
have resulted from the two classes of publicly held stock.
Finally, the combination will align voting rights with the economic risk of
ownership.
These and other benefits should translate into greater investor interest in our
stock and hopefully better relative multiples.
We believe that the one-to-one exchange ratio is fully consistent with our
original, and often repeated, intent that the two shares should trade at
economic parity. In addition, the exchange ratio is in line with numerous recent
stock combinations, including Raytheon and Waddell & Reed, to mention just two
examples.
While each stock combination we analyzed was different, we found clear evidence
that little value is attributed to a high vote per share. At the date of
announcement, the premium for B shares was only about two percent, close to the
historical average. After announcement, this differential closed to less than .6
percent, which, in our opinion, confirms that there is limited value to the
share vote differential. It is also consistent with trading of other dual class
stocks in which the high vote often traded at a discount. In Conoco's case, from
time to time Class A common stock has traded above Class B common stock. We
concluded that lack of liquidity and investor confusion were the reasons for the
price difference; that is, fewer Class A shares in fewer hands was the real
factor that influenced any differential. We are convinced that the combination
will address all of the issues that have resulted from our dual class structure
around investor confusion, liquidity of the stock, and alignment of economic
interest.
We intend to call a special meeting of Conoco's stockholders as soon as
practical, perhaps as early as late September. The proposal requires a simple
majority of Class A and B stockholders voting as a single class as well as a
majority of Class B stockholders voting as a separate class. We have already
received an IRS ruling confirming that the original tax-free split-off from
DuPont will not be affected by this combination.
Of course, this is just a very cursory review of the capital-restructuring plan,
but I am certain you can see the benefits. A complete description of the
proposal will be included in the proxy statement for the special meeting, a
draft of which has already been filed with the SEC.
EXCERPTS FROM QUESTION AND ANSWER SESSION
Q: Hi, how are you? Some question on the AB shares. Now, I think it was
mentioned earlier that there could be a special meeting as early as late
September. Assuming that will be the date, is there going to be any other
hurdles to clear before this whole thing gets approved, besides the special
meeting?
A: No, that'll be it. We do have to obviously get clearance with the SEC and get
approval from them. But we're not anticipating any issues in that regard.
Q: Ok, Bob, also, still on the subject of A and B. Does the combination of AB
shares have any operational significance, for example, if it makes the company
more likely to use the Conoco shares as a future acquisition currency after the
simplification of AB shares.
A: Paul, I read your report but I'm going to have to answer no comment. No, I
just think it will make it a lot more efficient to trade on the marketplace and
we would use shares only when it was appropriate to do that from a from a
shareholder value standpoint.
Q: Congratulations on a superb quarter, guys, and Gene. On the merger of the A
and B shares, I agree that the proposal should be a net positive for the stock
owned forward, but just trying to play a little devil's advocate game
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here. Isn't a class B shareholder giving up more percentage wise in voting
rights than they would be gaining in increased liquidity.
A: Well, you tell me what the price is going to be, Gene, and I'll tell you
that. I'm not going to negotiate over the phone today.
Q: That wasn't the intent of the question, perhaps you misunderstood. I think it
should be a net positive, but in terms of the voting right differential versus
the increase, what you hope for is increased liquidity. I guess you have to read
your response by saying you think the increased liquidity should offset any
change or any give off in the voting rights. I know it's impossible to predict,
but...
A: Right, I think the increased liquidity and the reduced confusion that we've
had in the investor community and the way the stock has traded are very
significant. And I'd also point out that we have looked at many other
transactions and have come to that conclusion.
Gene, if you take a look at some of the other transactions that have been done
out there, and, in fact, take a look at some of the other companies that do have
two classes of stock with differential voting rights, you'll find very quickly
that the market does not pay for voting rights. In fact, it's more often the
case that where there are two classes of shares, the higher voting share often
trades at a lower price because of lack of liquidity, and our conclusion is that
voting rights have very little economic value in the market place. So you're not
giving up much of an economic value if you give up your voting rights.
Q: Yeah, and in fact, I like to get the big picture right first, and, in fact,
that's the conclusion I came to but I like to try to play devil's advocate with
these things because we look at the difference in the voting rights you get, and
you certainly have some concerns on both sides. But the A shareholders, in
effect, the net gain for them is very little to lose. The only real concern are
on the B shares side, and I do agree it should be a net positive. Again,
congratulations on a great quarter.