AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 2002
REGISTRATION NO. 333-91014
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
NEWFIELD EXPLORATION COMPANY
TREASURE ISLAND ROYALTY TRUST
(Exact name of each registrant as specified in its charter)
<Table>
NEWFIELD EXPLORATION COMPANY DELAWARE 1311 72-1133047
TREASURE ISLAND ROYALTY TRUST TEXAS 6792 02-6148888
(Exact name of each (State of Organization) (Primary Standard Industrial (I.R.S. Employer
registrant as specified in Classification Code Number) Identification Number)
its charter)
</Table>
---------------------
<Table>
TERRY W. RATHERT
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
NEWFIELD EXPLORATION COMPANY
363 N. SAM HOUSTON PKWY. E., SUITE 2020 363 N. SAM HOUSTON PKWY. E., SUITE 2020
HOUSTON, TEXAS 77060 HOUSTON, TEXAS 77060
(281) 847-6000 (281) 847-6000
(Address, including zip code, and telephone number (Name, address, including zip code, and telephone
of principal executive offices) number of agent for service)
</Table>
---------------------
COPIES TO:
<Table>
James H. Wilson Michael E. Dillard, P.C.
Vinson & Elkins L.L.P. Akin, Gump, Strauss, Hauer & Feld, L.L.P.
2300 First City Tower, 1001 Fannin 1900 Pennzoil Place, South Tower
Houston, Texas 77002-6760 711 Louisiana Street
(713) 758-2222 Houston, Texas 77002
(713) 220-5800
</Table>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As promptly as practicable after this Registration Statement becomes
effective and the effective date of the proposed merger of Newfield Operating
Company, a wholly owned subsidiary of Newfield Exploration Company, with and
into EEX Corporation described herein.
---------------------
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, checking 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 REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[EEX LOGO]
PROPOSED MERGER -- YOUR VOTE IS VERY IMPORTANT
Dear Shareholder:
Newfield Exploration Company and EEX Corporation have agreed on a
transaction in which Newfield will acquire EEX through the merger of a
subsidiary of Newfield into EEX (the "merger"). Following the merger, EEX will
be a subsidiary of Newfield.
We will hold a special meeting of EEX shareholders on , 2002. The
official notice of the meeting follows this letter. At the special meeting, we
will ask you to approve the Amended and Restated Agreement and Plan of Merger,
dated as of May 29, 2002, among Newfield Exploration Company, Newfield Operating
Company, a wholly owned subsidiary of Newfield, and EEX Corporation, pursuant to
which:
- Newfield will acquire EEX through the merger of Newfield Operating
Company into EEX;
- the holders of EEX common stock will receive an aggregate of
approximately 2,400,000 shares of Newfield common stock and, at their
election, trust units in a newly created royalty trust in exchange for
their shares of EEX common stock; and
- the holders of EEX preferred stock will receive an aggregate of 4,700,000
shares of Newfield common stock in exchange for their shares of EEX
preferred stock.
We describe the merger in detail in the attached proxy
statement/prospectus. Approval of the merger agreement is a condition to the
consummation of the merger. The EEX Board of Directors has approved the merger
and the merger agreement and recommends that you vote "FOR" the approval of the
merger agreement.
The Newfield common stock trades on the New York Stock Exchange under the
symbol "NFX."
The date, time and place of the special meeting of EEX shareholders is as
follows:
, 2002
:00 a.m., local time
2500 CityWest Boulevard
Houston, Texas
THIS DOCUMENT IS A PROSPECTUS OF NEWFIELD AND TREASURE ISLAND ROYALTY TRUST
RELATING TO THE ISSUANCE OF NEWFIELD COMMON STOCK AND OF TRUST UNITS IN
CONNECTION WITH THE MERGER AND A PROXY STATEMENT OF EEX TO USE IN SOLICITING
PROXIES FOR THE SPECIAL MEETING OF EEX SHAREHOLDERS. IT CONTAINS ANSWERS TO
FREQUENTLY ASKED QUESTIONS AND A SUMMARY DESCRIPTION OF THE MERGER, FOLLOWED BY
A MORE DETAILED DISCUSSION OF THE MERGER AND RELATED MATTERS. PLEASE REVIEW
CAREFULLY THE ATTACHED MATERIALS, INCLUDING THE MATTERS DISCUSSED UNDER "RISK
FACTORS" BEGINNING ON PAGE 25.
Whether or not you plan to attend the special meeting of EEX shareholders,
please take the time to vote by completing and mailing the enclosed proxy card
to us. If you sign, date and mail your proxy card without indicating how you
want to vote, your proxy will be counted as a vote in favor of the merger
agreement. If you fail to return your card, the effect will be a vote against
the merger agreement. If you are a holder of record, you may also cast your vote
in person at the special meeting. If your shares are held at a brokerage firm or
bank, you are entitled to provide them with instructions on how to vote your
shares, but you must do so by the deadline the brokerage firm or bank will
establish. TO CAST YOUR VOTE AT THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE YOUR PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE.
Sincerely,
Thomas M Hamilton
Chairman and President,
Chief Executive Officer
EEX Corporation
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE NEWFIELD COMMON STOCK OR TRUST UNITS
TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated , 2002 and is being
first mailed to shareholders on or about , 2002.
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates by reference important
business and financial information about Newfield and EEX that is not included
in and is not delivered with this proxy statement/prospectus. This information
is available to you without charge upon written or oral request. Copies of the
documents incorporated by reference in this proxy statement/prospectus can be
obtained through the SEC's website at http://www.sec.gov or by requesting them
in writing or by telephone from either company at the following addresses and
telephone numbers:
<Table>
Newfield Exploration Company EEX Corporation
363 N. Sam Houston Pkwy. E., Suite 2020 2500 CityWest Boulevard, Suite 1400
Houston, Texas 77060 Houston, Texas 77042
Attention: Steve Campbell Attention: Liz Bishop, Investor Relations
(281) 847-6000 (713) 243-3111
</Table>
If you would like to request documents, please do so at least five business
days before , 2002, the date by which you must make your investment
decision, in order to obtain them timely.
For additional information, please see "Where You Can Find More
Information."
EEX CORPORATION
2500 CITYWEST BOULEVARD
SUITE 1400
HOUSTON, TEXAS 77042
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2002
To the Shareholders of EEX Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of EEX Corporation, a Texas corporation ("EEX"), will be held at the
offices of EEX at 2500 CityWest Boulevard, Houston, Texas on ,
, 2002 at a.m., local time, for the following purposes:
1. to consider and vote upon a proposal to approve the Amended and Restated
Agreement and Plan of Merger, dated as of May 29, 2002 (the "Merger Agreement"),
among Newfield Exploration Company, a Delaware corporation ("Newfield"),
Newfield Operating Company, a Texas corporation and a wholly owned subsidiary of
Newfield ("Merger Sub"), and EEX, pursuant to which Merger Sub would be merged
with and into EEX and EEX would become a wholly owned subsidiary of Newfield
(the "Merger"); and
2. to transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof, including adjournments or
postponements of the Special Meeting for the purpose of soliciting additional
proxies to approve the Merger Agreement.
The Board of Directors of EEX has fixed the close of business on
, 2002 as the record date for the determination of shareholders
entitled to notice of, and to vote at, the Special Meeting and any adjournment
or postponement thereof. Only holders of record of shares of EEX common stock
and EEX preferred stock at the close of business on the record date are entitled
to notice of, and to vote at, the Special Meeting. A complete list of such
holders will be available for examination at the offices of EEX in Houston,
Texas during normal business hours by any EEX shareholder, for any purpose
germane to the Special Meeting, for a period of 10 days prior to the meeting.
All of the holders of EEX preferred stock and certain executive officers of EEX
who own shares of EEX common stock have executed a voting agreement and
irrevocable proxy pursuant to which they have agreed to vote for the approval of
the Merger Agreement. Holders of EEX common stock are not entitled to any
appraisal or dissenters' rights under the Texas Business Corporation Act in
respect of the Merger.
The EEX Board of Directors has determined that the Merger, the Merger
Agreement and the transactions contemplated thereby are advisable and in the
best interests of EEX and its shareholders. Accordingly, the members of the EEX
Board of Directors present at the May 29, 2002 meeting of the EEX Board of
Directors unanimously approved the Merger Agreement and the Merger and recommend
that EEX shareholders vote for approval of the proposal described above.
By Order of the Board of Directors,
Thomas M Hamilton
Chairman and President, Chief
Executive
Officer
Houston, Texas
, 2002
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON, WE REQUEST THAT YOU SIGN AND RETURN THE ENCLOSED PROXY OR VOTING
INSTRUCTION CARD AND THUS ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE
SPECIAL MEETING IF YOU ARE UNABLE TO ATTEND. IF YOU DO ATTEND THE SPECIAL
MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON.
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<Table>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 6
SUMMARY..................................................... 7
The Companies............................................. 7
The Merger................................................ 8
EEX's Reasons for the Merger.............................. 8
Newfield's Reasons for the Merger......................... 8
The EEX Special Meeting................................... 9
Recommendation of the EEX Board of Directors.............. 9
Record Date and Outstanding Shares........................ 9
Vote Required............................................. 9
Voting Agreement and Irrevocable Proxy.................... 9
Share Ownership of Management............................. 10
Opinions of Financial Advisors to EEX..................... 10
What Holders of EEX Common Stock Will Receive in the
Merger.................................................. 10
What Holders of EEX Preferred Stock Will Receive in the
Merger.................................................. 11
Description of Trust Units................................ 11
Election to Receive Trust Units........................... 11
Allocation of Trust Units................................. 12
Ownership of Newfield Following the Merger................ 12
Board of Directors and Management Following the Merger.... 12
Other Interests of Officers and Directors in the Merger... 12
EEX Liquidity and Capital Resources....................... 13
Difference in Estimates of Proved Reserves................ 13
Conditions to the Merger.................................. 14
Governmental and Regulatory Approvals..................... 14
No Solicitation........................................... 14
Termination of the Merger Agreement....................... 14
Termination Fee........................................... 15
Certain Material U.S. Federal Income Tax Consequences..... 15
Accounting Treatment...................................... 15
No Dissenters' or Appraisal Rights........................ 15
Comparative Rights of Newfield Stockholders and EEX
Shareholders............................................ 15
Market Price Data......................................... 16
Summary Historical Consolidated Financial and Reserve
Data.................................................... 17
Summary Unaudited Pro Forma Combined Condensed Financial
and Reserve Information................................. 22
Comparative Per Share Data................................ 24
RISK FACTORS................................................ 25
Risks Relating to the Merger.............................. 25
Risks Relating to the Trust and the Trust Units........... 26
THE EEX SPECIAL MEETING..................................... 29
Date, Time and Place of the Special Meeting; Purposes of
the Special Meeting..................................... 29
Record Date and Outstanding Shares........................ 29
Voting and Revocation of Proxies.......................... 29
Vote Required............................................. 29
Solicitation of Proxies................................... 30
Other Matters............................................. 30
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION............................................... 31
</Table>
i
<Table>
THE MERGER.................................................. 40
General Description of the Merger......................... 40
Background of the Merger.................................. 40
Newfield's Reasons for the Merger......................... 48
EEX's Reasons for the Merger; Recommendation of the EEX
Board of Directors...................................... 49
Opinions of Financial Advisors to EEX..................... 51
Interests of Certain Persons in the Merger................ 64
EEX Liquidity and Capital Resources....................... 69
Difference in Estimates of EEX Proved Reserves............ 70
Accounting Treatment...................................... 72
Governmental and Regulatory Approvals..................... 73
Rights of Dissenting Shareholders......................... 73
THE MERGER AGREEMENT........................................ 74
The Merger................................................ 74
Treatment of EEX Common Stock and Fractional Shares....... 74
Treatment of EEX Preferred Stock and Fractional Shares.... 74
Treatment of EEX Options, Restricted Stock and Warrants... 75
Treasure Island Royalty Trust............................. 75
Election to Receive and Allocation of Trust Units......... 76
Joint Closing Conditions of Newfield and EEX.............. 76
Closing Conditions of Newfield............................ 77
Closing Conditions of EEX................................. 77
Covenants and Other Agreements............................ 78
Termination............................................... 83
Effect of Termination..................................... 84
Representations and Warranties............................ 84
Expenses.................................................. 85
Amendment................................................. 85
Waiver.................................................... 85
VOTING AGREEMENT AND IRREVOCABLE PROXY...................... 86
TREASURE ISLAND ROYALTY TRUST............................... 88
Overview.................................................. 88
Royalty Interests and Subject Interests................... 88
Trust Agreement........................................... 90
Description of the Trust Units............................ 94
HISTORICAL AUDITED BALANCE SHEET OF TREASURE ISLAND ROYALTY
TRUST..................................................... 97
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES............... 99
The Merger................................................ 99
Ownership of Trust Units.................................. 100
COMPARATIVE RIGHTS OF NEWFIELD STOCKHOLDERS AND EEX
SHAREHOLDERS.............................................. 103
EXPERTS..................................................... 113
LEGAL MATTERS............................................... 113
STOCKHOLDER PROPOSALS....................................... 113
WHERE YOU CAN FIND MORE INFORMATION......................... 113
CERTAIN OIL AND GAS TERMS................................... 116
Annex A -- Amended and Restated Agreement and Plan of Merger
Annex B -- Voting Agreement and Irrevocable Proxy
Annex C -- Opinion of Morgan Stanley & Co. Incorporated
Annex D -- Opinion of J.P. Morgan Securities Inc.
</Table>
ii
QUESTIONS AND ANSWERS ABOUT
THE MERGER
Set forth below are commonly asked questions and answers about the merger,
including, if applicable, parenthetical page references to the more complete
discussion in this proxy statement/prospectus of the questions answered in this
section. For a more complete description of the legal and other terms of the
merger, please read carefully this entire proxy statement/prospectus and the
other available information referred to in "Where You Can Find More
Information."
Q: WHAT WILL HOLDERS OF EEX COMMON STOCK RECEIVE FOR THEIR SHARES? (PAGE 74)
A: Holders of EEX common stock will receive .05703 of a share of Newfield
common stock in exchange for each of their shares of EEX common stock. The
exchange ratio will not change, even if the market price of Newfield common
stock or EEX common stock increases or decreases between now and the date
that the merger is completed. Holders of EEX common stock have the option to
elect to receive units in a newly formed royalty trust in lieu of all or a
portion of the shares of Newfield common stock they would otherwise receive.
For each trust unit that a holder of EEX common stock elects to receive, the
number of shares of Newfield common stock that the shareholder would
otherwise receive will be reduced by .00054.
Assuming that no holders of EEX common stock elect to receive trust units,
the exchange ratio represents a premium of approximately 9.7% over the
closing price of EEX common stock of $1.90 on May 29, 2002, the last trading
day before the public announcement of the proposed merger, based on the
closing price of Newfield common stock of $36.55 on that date. There were a
total of 42,487,395 shares of EEX common stock outstanding as of May 17,
2002, the date of Newfield's final proposal to EEX. Based on the closing
price of EEX common stock of $1.96 on May 17, 2002, the aggregate market
value of such shares on that date was approximately $83.3 million. Based on
the closing price of Newfield common stock of $37.08 on May 17, 2002, and
assuming the holders of EEX common stock elect to receive only Newfield
common stock and no trust units in the merger, the aggregate market value of
the shares of Newfield common stock to be exchanged for the shares of EEX
common stock in the merger on that date was approximately $89.8 million, or
$2.11 per share of EEX common stock.
Q: WHAT WILL HOLDERS OF EEX PREFERRED STOCK RECEIVE FOR THEIR SHARES? (PAGE 74)
A: Each holder of EEX Series B 8% Cumulative Perpetual Preferred Stock (EEX
preferred stock) will receive a pro rata portion, based on the holder's
ownership of EEX preferred stock, of an aggregate of 4,700,000 shares of
Newfield common stock in exchange for all shares of EEX preferred stock held
by such holder and all accrued and unpaid dividends with respect to those
shares. Holders of EEX preferred stock will not have the option to elect to
receive trust units. Based on the closing price of Newfield common stock of
$37.08 on May 17, 2002, the holders of EEX preferred stock will receive
Newfield common stock having an aggregate value of approximately $174.3
million. The aggregate price payable to redeem all of the outstanding EEX
preferred stock was approximately $199.9 million as of August 20, 2002. The
EEX preferred stock accrues dividends at a rate of 8% per year. Dividends
are paid quarterly in additional shares of EEX preferred stock. As a result,
the aggregate liquidation preference of the EEX preferred stock constantly
increases and the number of shares outstanding increases each quarter. As of
June 30, 2002, there were 1,976,199 shares of EEX preferred stock
outstanding. The holders of all of the outstanding shares of EEX preferred
stock have agreed to vote their shares in favor of the merger agreement.
Q: WHAT WILL HAPPEN AT THE SPECIAL MEETING OF EEX SHAREHOLDERS? (PAGE 29)
A: At the EEX special meeting to be held on , 2002, EEX shareholders
will vote on the approval of the merger agreement. The merger will not take
place unless, among other things, the merger agreement receives the required
affirmative vote of the EEX shareholders.
Q: WHAT VOTE IS REQUIRED? (PAGE 29)
A: Approval of the merger agreement requires the affirmative vote of the
holders of two-thirds of the votes entitled to be cast at the special
meeting by the holders of record of the outstanding shares of EEX common
stock. In addition, approval of the merger agreement requires the
affirmative vote of the holders of (a) two-thirds of the votes entitled to
be cast at the special meeting by the holders of record of the outstanding
shares of EEX common stock and EEX preferred stock (voting together as a
single class) and (b) a majority of the votes entitled to be cast at the
special meeting by the holders of record of the outstanding shares of EEX
preferred stock. The holders of all of the outstanding shares of EEX
preferred stock have agreed to vote their shares in favor of the merger
agreement. Consequently, if the holders of the requisite number of shares of
EEX common stock vote in favor of the merger agreement, the approval of the
merger agreement is assured.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading this document and the accompanying annexes, mail
your signed proxy card in the enclosed return envelope as soon as possible
so that your shares can be voted at the special meeting of EEX shareholders.
In addition, if you are a holder of EEX common stock, you should decide
whether to elect to receive trust units in lieu of all or a portion of the
shares of Newfield common stock that you will otherwise receive.
Q: WHAT DO THE TRUST UNITS REPRESENT? (PAGE 88)
A: The trust units represent beneficial ownership interests in a newly formed
royalty trust. The trust will own non-expense bearing overriding royalty
interests in any future production that may be achieved from intervals at
depths typically below 18,000 to 21,000 feet from EEX's Treasure Island
project. The overriding royalty interests will be granted to the trust
pursuant to a master conveyance of overriding royalty interest from EEX. The
Treasure Island project is an exploration concept covering 116 Gulf of
Mexico lease blocks located on the federal Outer Continental Shelf in which
EEX currently holds interests in 27 leases and may acquire additional leases
in the future. An "exploration concept" is a series of untested prospects
with geological characteristics thought to be conducive to the accumulation
and entrapment of significant quantities of oil and gas and that are
analogous to producing fields elsewhere. THERE IS NO PRODUCTION, AND THERE
ARE NO PROVED RESERVES, CURRENTLY ASSOCIATED WITH THE ROYALTY INTERESTS. For
more information about the trust, the overriding royalty interests, the
offshore lease blocks, the trust agreement and the trust units please see
the detailed descriptions contained under the caption "Treasure Island
Royalty Trust." For more information about the risks associated with an
election to invest in trust units please see "Risk Factors -- Risks Relating
to the Trust and the Trust Units."
Q: HOW DOES THE TRUST UNIT ELECTION WORK? (PAGE 76)
A: If you are holder of EEX common stock, you may elect to receive anywhere
from no trust units to a maximum number of trust units equal to 105.611
multiplied by the number of shares of EEX common stock that you own, rounded
down to the nearest whole trust unit. However, if all of the electing
shareholders elect in the aggregate to receive more than 42,574,298 trust
units (which is the total number of trust units available in the merger),
then you will be allocated trust units in the following manner. First, you
will be allocated a number of trust units equal to the lesser of the number
of shares of EEX common stock that you own and the number of trust units
that you elected to receive. Second, if you elected to receive a number of
trust units greater than the number of shares of EEX common stock that you
own, you will be allocated a pro rata portion of the trust units remaining
after the initial allocation, if any. For each trust unit that you elect to
receive, the number of shares of Newfield common stock that you would
otherwise receive will be reduced by .00054. The following table illustrates
the allocation of trust units based on a variety of trust unit elections.
The
2
table assumes ownership of 1,000 shares of EEX common stock, resulting in a
maximum trust unit allocation of 105,611 trust units.
<Table>
<Caption>
TRUST UNITS ALLOCATED
-------------------------------------------------
IF TOTAL ELECTIONS
ARE LESS THAN OR IF TOTAL ELECTIONS ARE
TRUST UNITS ELECTED EQUAL TO 42,574,298 GREATER THAN 42,574,298
- ------------------- ------------------- -------------------------
105,611 105,611 1,000 + pro rata portion*
50,000 50,000 1,000 + pro rata portion*
1,000 1,000 1,000
500 500 500
0 0 0
</Table>
- ---------------
* If the holders of EEX common stock elect to receive in the aggregate more than
42,574,298 trust units, then each holder of EEX common stock who elects to
receive a number of trust units greater than the number of shares of EEX
common stock owned by such holder will receive a number of trust units equal
to the number of shares of EEX common stock owned by such holder plus a pro
rata portion of the trust units remaining after the initial allocation, if
any.
Q: HOW DO I ELECT TO RECEIVE TRUST UNITS? (PAGE 76)
A: If you are a holder of EEX common stock, fill out and mail the enclosed
election form and your EEX stock certificates or an appropriate guarantee of
delivery (as described in the election form) to Newfield's exchange agent.
We have enclosed a separate envelope for this purpose. To be effective, your
election form and any other documents required by the form must be received
by Newfield's exchange agent no later than , 2002. If you do not
want to elect to receive trust units, do not complete an election form. If
your shares are held in "street name" through your broker, your broker will
mail an election form to you under separate cover, together with a letter of
instructions for making an election to receive trust units. Holders of EEX
common stock who fail to fill out and return the enclosed election form will
be deemed to have elected to receive no trust units and will therefore
receive only shares of Newfield common stock (and cash in lieu of fractional
shares) in exchange for their shares of EEX common stock.
Q: WHAT HAPPENS IF I DON'T MAKE OR DON'T WANT TO MAKE AN ELECTION?
A: To receive trust units in lieu of all or a portion of the Newfield common
stock that you would otherwise receive for your EEX common stock, you must
make an election. If you do not want to receive trust units, do not complete
an election form. If Newfield's exchange agent has not received a completed
election form and any other documents required by the form from you by
, 2002, you will receive only shares of Newfield common stock (and
cash in lieu of fractional shares) in exchange for your shares of EEX common
stock.
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 be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares, following the
directions provided by your broker.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy card is voted at
the EEX special meeting. You can do this in one of three ways. First, you
can send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. Third, you can attend
the EEX special meeting and vote in person. Your attendance alone will not,
however, revoke your proxy. If you have instructed a broker to vote your
shares, you must follow directions provided by your broker to change those
instructions.
3
Q: CAN I CHANGE MY TRUST UNITS ELECTION AFTER I HAVE MAILED MY ELECTION FORM?
A: Yes. You can change your election by sending a written notice to Newfield's
exchange agent prior to the election deadline stating that you would like to
revoke or change your election, as described more fully in the election
form.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: If you do not elect to receive trust units, please do not send in your stock
certificates until after the merger is completed. At that time, you will
receive written instructions for exchanging your EEX stock certificates for
Newfield stock certificates and cash for any fractional shares. If you elect
to receive trust units, you must send in with your election form your EEX
stock certificates or an appropriate guarantee of delivery as described in
the election form.
Q: WHAT WILL HAPPEN TO OUTSTANDING SHARES OF EEX RESTRICTED STOCK AND OPTIONS
AND WARRANTS TO PURCHASE EEX COMMON STOCK? (PAGE 75)
A: All restrictions on unvested shares of EEX restricted stock will terminate
immediately prior to the effective time of the merger. In connection with
the execution of the merger agreement, all outstanding stock options granted
under any EEX stock option plan became fully vested and exercisable. All
unexercised options will terminate at the effective time of the merger and
the holders of the options will receive, with respect to each share of EEX
common stock underlying such unexercised options, a cash payment equal to
the amount, if any, by which the closing price of Newfield common stock on
the last trading day before the effective date of the merger multiplied by
the exchange ratio of .05703 exceeds the exercise price for such share.
Because the per share exercise price for each outstanding option is, in most
cases, significantly in excess of both the current trading price of EEX's
common stock and the current market value of the per share merger
consideration (based on the current trading price of Newfield's common
stock), we do not expect any holders of outstanding options to exercise
their options or to be entitled to any payment upon termination of their
options at the effective time of the merger. Pursuant to a voting agreement
and irrevocable proxy executed by the holders of all of the outstanding
shares of EEX preferred stock, at the effective time of the merger, Newfield
will purchase from such holders all outstanding warrants to purchase shares
of EEX common stock.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS? (PAGE 99)
A: Your exchange of shares of EEX capital stock for shares of Newfield common
stock in the merger will be tax-free for federal income tax purposes. You
will, however, have to pay taxes with respect to any trust units you elect
to receive and any cash you receive for fractional shares. Your tax basis in
the shares of Newfield common stock that you will receive in the merger will
equal your current tax basis in your EEX common stock (reduced by any amount
attributable to trust units you elect to receive and to a fractional share
interest for which cash is received).
Q: ARE ANY REGULATORY APPROVALS NEEDED TO COMPLETE THE MERGER? (PAGE 73)
A: No.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Subject to EEX shareholder approval, we expect to complete the merger
promptly following the EEX special meeting of shareholders.
Q: WILL I BE ABLE TO TRADE THE NEWFIELD COMMON STOCK THAT I RECEIVE IN THE
MERGER?
A: Yes. Except for Newfield common stock to be received by certain affiliates
of EEX, the Newfield common stock received in the merger will be freely
tradable.
4
Q: WILL EEX SHAREHOLDERS BE ABLE TO TRADE THE TRUST UNITS THAT THEY RECEIVE IN
THE MERGER?
A: The trust units will not be listed or quoted on any national securities
exchange or market, and there will be no public trading market for the trust
units. There can be no assurance that a market will develop for the trust
units or that you will be able to sell your trust units.
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: No. Holders of EEX stock are not entitled to dissenters' or appraisal rights
in connection with the merger.
Q: ARE THERE RISKS ASSOCIATED WITH THE MERGER THAT I SHOULD CONSIDER IN
DECIDING HOW TO VOTE? (PAGE 25)
A: Yes. You should carefully read the description of the risks associated with
the merger and with investing in Newfield common stock and trust units
beginning on page 25.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES? (PAGE 113)
A: Both Newfield and EEX file periodic reports and other information with the
SEC. You may read and copy this information at the SEC's public reference
facility. Please call the SEC at 1-800-SEC-0330 for information about this
facility. This information is also available at the Internet site maintained
by the SEC at http://www.sec.gov and at the offices of the New York Stock
Exchange. In addition, you may obtain some of this information directly from
the companies. For a more detailed description of the information available,
please see "Where You Can Find More Information."
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger, you should contact:
EEX Corporation
2500 CityWest Boulevard
Suite 1400
Houston, Texas 77042
Attention: Liz Bishop, Investor Relations
(713) 243-3111
or
Innisfree M&A Incorporated (the proxy solicitor)
501 Madison Ave., 20th Floor
New York, New York 10022
Shareholders call toll-free: (888) 750-5835
Banks and brokers call collect: (212) 750-5833
5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the financial condition, results of operations, business strategies, operating
efficiencies or synergies, competitive positions, growth opportunities for
existing plans and objectives of management, markets for stock of Newfield and
EEX and other matters. Statements in this document that are not historical facts
are hereby identified as "forward-looking statements" for the purpose of the
safe harbor provided by Section 21E of the Exchange Act and Section 27A of the
Securities Act. Such forward-looking statements, including, without limitation,
those relating to the future business prospects, revenues and income, in each
case relating to Newfield and EEX, wherever they occur in this document, are
necessarily estimates reflecting the best judgment of the senior management of
Newfield or EEX, as the case may be, and involve a number of risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. Such forward-looking statements
should, therefore, be considered in light of various important factors,
including those set forth in "Risk Factors" and elsewhere in this document.
Words such as "estimate," "project," "plan," "intend," "expect," "believe,"
"anticipate" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places
throughout this proxy statement/prospectus and the other documents incorporated
by reference, including, but not limited to, the Annual Report on Form 10-K for
the year ended December 31, 2001 of Newfield, including any amendments, and the
Annual Report on Form 10-K for the year ended December 31, 2001 of EEX,
including any amendments. Forward-looking statements speak only as of the date
of this proxy statement/prospectus. You should not rely too heavily on any
forward-looking statement. There is no assurance that any of the forward-looking
statements will be correct. Neither Newfield nor EEX undertakes any obligation
to publicly update or release any revisions to these forward-looking statements
to reflect events or circumstances after the date of this document or to reflect
the occurrence of unanticipated events.
6
SUMMARY
The following is a summary of the material terms of this proxy
statement/prospectus. To understand the merger fully and for a more complete
description of the legal and other terms of the merger, please read carefully
this entire proxy statement/prospectus and the other available information
referred to in "Where You Can Find More Information." We encourage you to read
the amended and restated merger agreement, which is attached as Annex A to this
proxy statement/prospectus. It is the legal document that governs the merger. We
have included page references parenthetically to direct you to a more complete
description of the topics presented in this summary. In addition, a glossary of
certain oil and gas industry terms is included in "Certain Oil and Gas Terms."
THE COMPANIES
NEWFIELD EXPLORATION COMPANY
363 N. Sam Houston Pkwy. E., Suite 2020
Houston, Texas 77060
(281) 847-6000
Newfield is an independent oil and gas company engaged in the exploration,
development and acquisition of crude oil and natural gas properties. Newfield
was founded in 1989 and acquired its first oil and gas reserves in 1990. Since
that time, Newfield has grown rapidly. Newfield has a solid asset base of
producing properties and exploration and development drilling opportunities in
the Gulf of Mexico, and, over the last several years, Newfield has expanded its
areas of operation to include the U.S. onshore Gulf Coast, the Anadarko Basin of
Oklahoma, Offshore Australia and China's Bohai Bay.
EEX CORPORATION
2500 CityWest Boulevard, Suite 1400
Houston, Texas 77042
(713) 243-3100
EEX and its predecessors have been engaged in the exploration for and the
development, production and sale of natural gas and crude oil since 1918.
Currently, EEX's primary activities are concentrated in Texas, Louisiana and the
Gulf of Mexico.
TREASURE ISLAND ROYALTY TRUST (PAGE 88)
c/o Newfield Exploration Company
363 N. Sam Houston Pkwy. E., Suite 2020
Houston, Texas 77060
(281) 847-6000
Treasure Island Royalty Trust is a trust created under the laws of the
state of Texas pursuant to a trust agreement entered into on June 17, 2002
between Newfield, as grantor, and certain individuals, as trustees. The trust
was created by Newfield to hold non-expense bearing overriding royalty interests
in any future production that may be achieved from stratigraphic intervals at
depths typically below 18,000 to 21,000 feet from EEX's Treasure Island project.
The overriding royalty interests will be granted to the trust pursuant to a
master conveyance of overriding royalty interest from EEX. The Treasure Island
project is an exploration concept covering 116 Gulf of Mexico lease blocks
located on the federal Outer Continental Shelf in which EEX currently holds
interests in 27 leases and may acquire additional leases in the future. An
"exploration concept" is a series of untested prospects with geological
characteristics thought to be conducive to the accumulation and entrapment of
significant quantities of oil and gas and that are analogous to producing fields
elsewhere. There is no production, and there are no proved reserves, currently
associated with the royalty interests.
7
THE MERGER
Pursuant to the merger agreement, Newfield Operating Company, a wholly
owned subsidiary of Newfield, will be merged with and into EEX. EEX will be the
surviving entity in the merger and will, as a result of the merger, become a
wholly owned subsidiary of Newfield.
EEX'S REASONS FOR THE MERGER (PAGE 49)
In reaching its decision to agree to the merger, the EEX Board of Directors
considered the company's financial situation and future prospects. In
particular, the EEX Board of Directors considered the following material
factors:
- INCREASED LIQUIDITY AND LONG-TERM FINANCIAL STABILITY. EEX's default
under its old credit agreement and liquidity issues (in particular, the
limited available credit under its new credit facility and EEX's
potential inability to meet payment obligations on its senior notes in
early 2003) would require EEX, at a minimum, to raise additional equity
and successfully place a high-yield debt offering in order to meet its
financing needs. A merger with Newfield would remove the risk that
necessary financing could not be obtained.
- INCREASED FINANCIAL STRENGTH TO EXPLOIT ASSETS. EEX could not fully
realize the value of its exploration opportunities, particularly its
deepwater Gulf of Mexico assets and the Treasure Island acreage position,
absent a merger with an entity of sufficient size and a strong balance
sheet.
- RECEIPT OF AN ATTRACTIVE CURRENCY. The merger would provide EEX common
shareholders, if they so choose, with an attractive currency in Newfield
common stock.
- SIGNIFICANT NON-COST BEARING EXPOSURE TO THE TREASURE ISLAND
PROJECT. The merger would give EEX's common shareholders the option to
elect to receive units in a new royalty trust formed to hold overriding
royalty interests in EEX's Treasure Island acreage position in lieu of
Newfield common stock.
- GREATER EXPOSURE TO ATTRACTIVE NORTH AMERICA NATURAL GAS
FUNDAMENTALS. Upon completion of the merger, approximately 83% of
Newfield's production would consist of natural gas from North America,
allowing its stockholders greater upside potential if natural gas prices
increase in the future.
- ADDITIONAL CAPITAL. Newfield's liquidity and access to the capital
markets would enable it to invest capital to fund exploration and
development activities on EEX's properties.
- FAVORABLE TERMS COMPARED TO OTHER PROPOSALS. The terms of the Newfield
merger provided EEX's common shareholders more value than the other
offers presented to the EEX Board of Directors. Other offers were subject
to financing and other contingencies and were generally from companies
which were smaller than Newfield and thus less capable of addressing
EEX's liquidity issues. The EEX Board of Directors chose a merger
transaction with Newfield as opposed to a recapitalization of EEX because
of the execution risks associated with completing a multi-step
recapitalization subject to market conditions.
NEWFIELD'S REASONS FOR THE MERGER (PAGE 48)
Newfield is acquiring EEX because the assets and operations of EEX are
complementary to those of Newfield. EEX's onshore properties are located in
Newfield's core South Texas focus area, and the merger will make Newfield one of
the largest independent producers in this area. In addition, during the past
year, Newfield has been seeking to establish its offshore operations in the
deepwater of the Gulf of Mexico. EEX's acreage position in the Gulf of Mexico
will help Newfield accomplish this objective.
8
THE EEX SPECIAL MEETING (PAGE 29)
A special meeting of the shareholders of EEX will be held on ,
2002, at the offices of EEX at 2500 CityWest Boulevard, Houston, Texas at :00
a.m. local time. At the meeting, EEX shareholders will be asked to approve the
merger agreement.
RECOMMENDATION OF THE EEX BOARD OF DIRECTORS (PAGE 49)
The Board of Directors of EEX has adopted the merger agreement and approved
the merger by the unanimous vote of its members who were present at its May 29,
2002 meeting during which the merger agreement and the merger were considered
and voted upon. The EEX Board of Directors believes that the merger, the merger
agreement and the transactions contemplated thereby are in the best interest of
EEX and its shareholders and recommends that you vote "FOR" approval of the
merger agreement.
RECORD DATE AND OUTSTANDING SHARES (PAGE 29)
You are entitled to vote at the EEX special meeting if you owned shares of
EEX common stock or shares of EEX Series B 8% Cumulative Perpetual Preferred
Stock ("EEX preferred stock") at the close of business on , 2002, the
record date for the meeting. There are shares of EEX common stock
entitled to be voted at the special meeting, each of which will have one vote
for each of the matters to be considered at the special meeting. As of June 30,
2002, there were 1,976,199 shares of EEX preferred stock entitled to be voted at
the special meeting, which will have an aggregate of 8,000,000 votes for each of
the matters to be considered at the special meeting.
VOTE REQUIRED (PAGE 29)
The transaction of business at the special meeting requires the presence in
person or by proxy of the holders of a majority of the issued and outstanding
shares of EEX capital stock entitled to vote at the special meeting. Approval of
the merger agreement requires the affirmative vote by the holders of two-thirds
of the votes entitled to be cast at the special meeting by the holders of record
of the outstanding shares of EEX common stock. In addition, approval of the
merger agreement requires the affirmative vote of the holders of (a) two-thirds
of the votes entitled to be cast at the special meeting by the holders of record
of the outstanding shares of EEX common stock and EEX preferred stock (voting
together as a single class) and (b) a majority of the votes entitled to be cast
at the special meeting by the holders of record of the outstanding shares of EEX
preferred stock. The holders of all of the outstanding shares of EEX preferred
stock have executed a voting agreement and irrevocable proxy pursuant to which
they have agreed, among other things, to vote their shares in favor of the
merger agreement. Consequently, if the holders of the requisite number of shares
of EEX common stock vote in favor of the merger agreement, the approval of the
merger agreement is assured.
Abstentions and broker non-votes will count in determining whether a quorum
is present at the special meeting but will be the equivalent of a vote "AGAINST"
the proposal to approve the merger agreement.
VOTING AGREEMENT AND IRREVOCABLE PROXY (PAGE 86)
All of the holders of EEX preferred stock and certain executive officers of
EEX who own shares of EEX common stock have entered into a voting agreement and
irrevocable proxy pursuant to which they have agreed, among other things, to
vote their shares in favor of the merger agreement and against any other
proposal by a third party seeking to acquire EEX and against any action which
could reasonably be expected to interfere with, delay, impede, postpone or
materially affect the transactions contemplated by the merger agreement.
9
SHARE OWNERSHIP OF MANAGEMENT
As of the record date for the EEX special meeting, the directors and
executive officers of EEX owned approximately 2.0% of the issued and outstanding
shares of EEX common stock and none of the shares of EEX preferred stock
entitled to vote at the EEX special meeting (except as noted below with respect
to Howard H. Newman). Each of them has advised EEX that he plans to vote all
such shares in favor of the merger agreement. Thomas M Hamilton, Chairman and
President, Chief Executive Officer and a director of EEX, David R. Henderson,
Executive Vice President and Chief Operating Officer of EEX, and Richard S.
Langdon, Executive Vice President, Finance and Administration and Chief
Financial Officer of EEX, have entered into a voting agreement and irrevocable
proxy pursuant to which they have agreed to vote their shares of EEX common
stock in favor of the merger agreement.
In addition, Howard H. Newman, a director of both EEX and Newfield, is a
general partner of Warburg, Pincus & Co., the sole general partner of four
private equity funds that together hold all of the EEX preferred stock. Warburg,
Pincus & Co. and its affiliates are collectively referred to in this proxy
statement/prospectus as "Warburg." As a general partner of Warburg, Pincus &
Co., Mr. Newman may be deemed to beneficially own the EEX preferred stock owned
by Warburg. Mr. Newman disclaims beneficial ownership of such shares of EEX
preferred stock.
OPINIONS OF FINANCIAL ADVISORS TO EEX (PAGE 51)
In deciding to approve the merger, one of the factors that the EEX Board of
Directors considered was the opinions of its financial advisors, Morgan Stanley
& Co. Incorporated and J.P. Morgan Securities Inc., that, as of May 29, 2002 and
based upon and subject to certain matters stated therein, the aggregate
consideration to be received by the holders, as a group, of EEX common stock in
the merger was fair, from a financial point of view, to those holders. The
opinion of each of Morgan Stanley and JPMorgan noted that, for purposes of their
respective opinions, each of Morgan Stanley and JPMorgan assumed, with the
consent of the EEX Board of Directors, that the aggregate consideration to be
received by the holders of EEX common stock will consist solely of Newfield
common stock, and that no such holder will elect to receive any trust units in
the merger. The full text of the opinions of Morgan Stanley & Co. Incorporated
and J.P. Morgan Securities Inc. describes the basis on which they rendered their
opinions. The opinions are attached as Annexes C and D to this proxy
statement/prospectus. YOU ARE URGED TO READ THE ENTIRE OPINIONS CAREFULLY.
WHAT HOLDERS OF EEX COMMON STOCK WILL RECEIVE IN THE MERGER (PAGE 74)
In the merger, holders of EEX common stock will receive .05703 of a share
of Newfield common stock in exchange for each share of EEX common stock they
own. The exchange ratio will not change, even if the market price of Newfield
common stock or EEX common stock increases or decreases between now and the date
that the merger is completed. No fractional shares will be issued. As a result,
the total number of shares of Newfield common stock to be received by EEX
shareholders will be rounded down to the nearest whole number and such holders
will receive a cash payment for the value of the remaining fraction of a share
that they would otherwise receive. Holders of EEX common stock will have the
option to elect to receive units in the Treasure Island Royalty Trust, a newly
formed royalty trust, in lieu of all or a portion of the shares of Newfield
common stock they would otherwise receive. For each trust unit that a holder of
EEX common stock elects to receive, the number of shares of Newfield common
stock that the shareholder would otherwise receive will be reduced by .00054.
Assuming that no holders of EEX common stock elect to receive trust units,
the exchange ratio represents a premium of approximately 9.7% over the closing
price of EEX common stock of $1.90 on May 29, 2002, the last trading day before
the public announcement of the proposed merger, based on the closing price of
Newfield common stock of $36.55 on that date. There were a total of 42,487,395
shares of EEX common stock outstanding as of May 17, 2002, the date of
Newfield's final proposal to EEX. Based on the closing price of EEX common stock
of $1.96 on May 17, 2002, the aggregate market value of such shares on that date
was approximately $83.3 million. Based on the closing price of Newfield common
stock
10
of $37.08 on May 17, 2002, and assuming the holders of EEX common stock elect to
receive only Newfield common stock and no trust units in the merger, the
aggregate market value of the shares of Newfield common stock to be exchanged
for the shares of EEX common stock in the merger on that date was approximately
$89.8 million, or $2.11 per share of EEX common stock.
WHAT HOLDERS OF EEX PREFERRED STOCK WILL RECEIVE IN THE MERGER (PAGE 74)
In the merger, each holder of EEX preferred stock will receive a pro rata
portion of an aggregate of 4,700,000 shares of Newfield common stock, to be
allocated according to the shareholder's ownership of EEX preferred stock in
exchange for all shares of EEX preferred stock held by such holder and all
accrued and unpaid dividends with respect to those shares. Holders of EEX
preferred stock will not have the option to elect to receive trust units in
respect of their preferred stock. Based on the closing price of Newfield common
stock of $37.08 on May 17, 2002, the holders of EEX preferred stock will receive
Newfield common stock having an aggregate value of approximately $174.3 million.
The aggregate price payable to redeem all of the outstanding EEX preferred stock
was approximately $199.9 million as of August 20, 2002. The EEX preferred stock
accrues dividends at a rate of 8% per year. Dividends are paid quarterly in
additional shares of EEX preferred stock. As a result, the aggregate liquidation
preference of the EEX preferred stock constantly increases and the number of
shares outstanding increases each quarter. As of June 30, 2002, there were
1,976,199 shares of EEX preferred stock outstanding. The holders of all of the
outstanding shares of EEX preferred stock have agreed to vote their shares in
favor of the merger agreement.
DESCRIPTION OF TRUST UNITS (PAGE 94)
Each trust unit represents an undivided share of beneficial interest in the
trust. Each holder of a trust unit has the same rights as the holders of any
other trust unit. The trust will have 42,574,298 trust units outstanding. Each
quarter, the trustee will determine the amount of funds available for
distribution to the record holders of trust units as of the last business day of
the quarter. In general, funds available for distribution will equal the excess
cash received by the trust from the royalty interests and other sources during
the quarter over the trust's liabilities for that quarter. The trust units will
be transferable but will not be listed or quoted on any national securities
exchange or market. The voting rights of trust unitholders are more limited than
those of stockholders of most public companies. For example, there is no
requirement for annual meetings of trust unitholders or for annual or other
periodic re-election of the trustee. The trustee or the holders of at least 15%
of the outstanding trust units may call meetings of trust unitholders. Each
trust unit is entitled to one vote.
ELECTION TO RECEIVE TRUST UNITS (PAGE 76)
Holders of EEX common stock may elect to receive trust units by filling out
and mailing the enclosed election form and their EEX stock certificates or an
appropriate guarantee of delivery (as described in the election form) to
Newfield's exchange agent. To be effective, election forms and any other
documents required by the form must be received by Newfield's exchange agent no
later than , 2002. Holders who do not want to receive trust units in
the merger should not complete an election form. Holders of EEX common stock
whose shares are held in "street name" through a broker will receive an election
form under separate cover, together with a letter of instructions for making an
election to receive trust units, from the broker. Holders of EEX common stock
who fail to fill out and return the enclosed election form will be deemed to
have elected to receive no trust units and will therefore receive only shares of
Newfield common stock (and cash in lieu of fractional shares) in exchange for
their shares of EEX common stock. The holders of EEX common stock may elect to
receive anywhere from no trust units to a maximum number of trust units equal to
105.611 multiplied by the number of shares of EEX common stock that they own,
rounded down to the nearest whole trust unit.
11
ALLOCATION OF TRUST UNITS (PAGE 76)
If the holders of EEX common stock elect to receive in the aggregate no
more than 42,574,298 trust units (which is the maximum number of trust units
available in the merger), then each electing shareholder will be allocated the
full number of trust units elected to be received by such electing shareholder.
If the holders of EEX common stock elect to receive in the aggregate more than
42,574,298 trust units, then each electing holder will be allocated trust units
in the following manner. First, each holder of EEX common stock who elects to
receive trust units will be allocated a number of trust units equal to the
lesser of the number of shares of EEX common stock such holder owns and the
number of trust units such holder elected to receive. Second, each holder of EEX
common stock who elected to receive a number of trust units greater than the
number of shares of common stock that such holder owns will be allocated a pro
rata portion of the trust units remaining after this initial allocation, if any.
The following table illustrates the allocation of trust units based on a variety
of trust unit elections. The table assumes ownership of 1,000 shares of EEX
common stock, resulting in a maximum trust unit allocation of 105,611 trust
units.
<Table>
<Caption>
TRUST UNITS ALLOCATED
-------------------------------------------------
IF TOTAL ELECTIONS
ARE LESS THAN OR IF TOTAL ELECTIONS ARE
TRUST UNITS ELECTED EQUAL TO 42,574,298 GREATER THAN 42,574,298
- ------------------- ------------------- -------------------------
105,611 105,611 1,000 + pro rata portion*
50,000 50,000 1,000 + pro rata portion*
1,000 1,000 1,000
500 500 500
0 0 0
</Table>
- ---------------
* If the holders of EEX common stock elect to receive in the aggregate more than
42,574,298 trust units, then each holder of EEX common stock who elects to
receive a number of trust units greater than the number of shares of EEX
common stock owned by such holder will receive a number of trust units equal
to the number of shares of EEX common stock owned by such holder plus a pro
rata portion of the trust units remaining after the initial allocation, if
any.
OWNERSHIP OF NEWFIELD FOLLOWING THE MERGER
Approximately 7.1 million shares of Newfield common stock will be issued to
EEX shareholders in the merger. Such shares will constitute approximately 12.7%
of the outstanding shares of Newfield common stock (on a fully diluted basis)
after the merger.
BOARD OF DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER
None of the directors of EEX will continue as a director of EEX or be
appointed as a director of Newfield following the merger. Howard H. Newman, who
is a director of both EEX and Newfield, will continue as a director of Newfield
following the merger. Newfield does not expect to retain any of the executive
officers of EEX as executive officers of EEX or Newfield following the merger.
However, Newfield may retain certain officers of EEX or other EEX personnel as
employees of EEX or Newfield following the merger.
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (PAGE 64)
Some of EEX's officers and directors have interests in the merger that
differ from, or are in addition to, your interests as a shareholder of EEX.
Certain officers and directors of EEX hold stock options and restricted shares
that will become fully vested and exercisable as a result of the merger, and
some officers have employment contracts, change in control agreements or similar
arrangements with EEX that, among other things, provide for certain payments and
other benefits in the event their employment is terminated in connection with a
change in control of EEX. Certain executive officers of EEX will receive
severance payments in connection with their termination from EEX following the
consummation of the merger in
12
accordance with change in control agreements and other plans and arrangements
for the benefit of such executive officers. EEX anticipates that the aggregate
amount to be received by such officers under the change in control agreements,
the employment agreements or other severance arrangements as a result of the
merger will be approximately $13.3 million (which includes aggregate payments of
approximately $3.4 million to cover excise tax liabilities incurred), in
addition to the amount, if any, that would be paid to such officers for
unexercised options to purchase EEX common stock. It is unlikely that any of
such officers will be entitled to any payments related to the termination of
unexercised options. See "The Merger Agreement -- Treatment of EEX Options,
Restricted Stock and Warrants."
In addition, Howard H. Newman, a director of both EEX and Newfield, is a
general partner of Warburg, Pincus & Co., the sole general partner of four
private equity funds that together hold all of the EEX preferred stock. Warburg,
Pincus & Co. is also the sole general partner of another private equity fund
that owns less than 5% of Newfield's common stock. Following the completion of
the merger, the four private equity funds that together hold all of the EEX
preferred stock and the Warburg affiliated private equity fund that currently
owns Newfield common stock will together own approximately 13%, and Mr. Newman
individually will own less than 1%, of the outstanding common stock of Newfield.
Because Mr. Newman is a general partner of Warburg, Pincus & Co., he may be
deemed to beneficially own the shares of Newfield common stock to be held by the
Warburg private equity funds after the merger. Mr. Newman disclaims such
beneficial ownership.
EEX's Board of Directors was aware of these interests and considered them
in approving the merger agreement and the merger. Mr. Newman recused himself
from, and was not present at, the May 29, 2002 meeting of the EEX Board of
Directors, at which the merger agreement and the merger were considered and
approved, and certain other meetings of the EEX Board of Directors at which the
merger was discussed. In addition, Mr. Newman recused himself from all meetings
of the Newfield Board of Directors at which the merger was discussed. See "The
Merger -- Background of the Merger."
EEX LIQUIDITY AND CAPITAL RESOURCES (PAGE 69)
EEX estimates, based upon its current forecast, that it will have drawn all
of its available credit under its credit agreement by the end of 2002. There can
be no assurances that EEX will be able to meet the financial covenants of its
credit agreement as of the end of the third and fourth calendar quarters of this
year, and, if it does not, it will be in default. EEX has no current source of
funds to make the approximately $15 million payment on its secured notes due
January 2, 2003. In addition, in connection with its new credit agreement, EEX
may be obligated to pay a restructuring fee of $2,500,000 and an arrangement fee
of $750,000 on September 30, 2002. EEX is not currently pursuing additional
sources of financing because of the proposed merger with Newfield. If the merger
does not take place, there can be no assurances that EEX will be able to obtain
additional financing before it uses all of its available credit under its credit
agreement.
DIFFERENCE IN ESTIMATES OF PROVED RESERVES (PAGE 70)
Newfield's estimate of EEX's proved oil and gas reserves at December 31,
2001 is approximately 23% less than EEX's estimate. EEX disagrees with
Newfield's estimate and believes that no adjustment is required with respect to
its reported estimate of proved reserves at December 31, 2001. The difference
between the two companies' estimates of EEX's proved reserves was raised
subsequent to the approval of the merger by the EEX Board of Directors and does
not impact the adequacy of the consideration to be paid to the holders of EEX
common stock in connection with the merger. See "The Merger -- Background of the
Merger" and "The Merger -- Opinions of Financial Advisors to EEX."
In general an estimate of proved reserves depends on the availability of
data needed to develop the estimate and on the experience and judgment of the
reservoir engineer making the estimate. Estimating accumulations of oil and gas
is complex. Estimates prepared by different persons may vary significantly
because of the judgments made in interpreting the data. See "Risk
Factors -- Risks Relating to the Merger."
13
CONDITIONS TO THE MERGER (PAGE 76)
Newfield and EEX will not complete the merger unless a number of conditions
are satisfied or, if permitted, waived by them. These include:
- the approval and adoption of the merger agreement by the shareholders of
EEX;
- the absence of any law, regulation or order making the merger illegal or
prohibiting the merger;
- the receipt of necessary approvals from U.S. and foreign governmental
authorities;
- the receipt of opinions of counsel to EEX and Newfield regarding the tax
effects of the merger; and
- other customary closing conditions.
GOVERNMENTAL AND REGULATORY APPROVALS (PAGE 73)
Newfield filed a pre-merger notification filing with the Federal Trade
Commission under the Hart-Scott-Rodino Antitrust Improvements Act and received
early termination of the waiting period required by that act on July 24, 2002.
There are no other governmental or regulatory approvals that are required to
complete the merger.
NO SOLICITATION (PAGE 80)
EEX has agreed not to, and not to authorize its directors, officers,
employees and representatives to, initiate or engage in any discussions with
another party regarding a business combination with such other party while the
merger is pending.
Notwithstanding the foregoing, EEX may comply with its obligations under
certain Exchange Act rules. In addition, prior to obtaining shareholder approval
of the merger, EEX may provide information to and negotiate with other parties
regarding a business combination, but only if, among other things, the EEX Board
of Directors has determined that such action is necessary in order to comply
with its fiduciary duties.
TERMINATION OF THE MERGER AGREEMENT (PAGE 83)
Newfield and EEX mutually can agree to terminate the merger agreement at
any time, whether before or after the receipt of shareholder approval, without
completing the merger. Either company can terminate the merger agreement if:
- the merger is not completed before November 30, 2002, unless the
incompletion of the merger is due to that company's failure to perform
its obligations under the merger agreement;
- a governmental authority prohibits the merger;
- the shareholders of EEX do not approve the merger agreement and the
merger; or
- the other party materially breaches or fails to comply with any of its
representations, warranties, covenants or agreements set forth in the
merger agreement.
Newfield may terminate the merger agreement if the Board of Directors of
EEX withdraws or modifies its recommendation of the merger to the shareholders
of EEX or approves an acquisition proposal by a third party relating to EEX. EEX
may terminate the merger agreement if the Board of Directors of EEX receives a
superior acquisition proposal from a third party relating to EEX and the EEX
Board of Directors has determined, after consultation with outside legal
counsel, that termination of the merger agreement is necessary for it to comply
with its fiduciary duties under applicable law.
14
TERMINATION FEE (PAGE 84)
EEX will be required to pay a termination fee of $13.5 million to Newfield
if:
- EEX terminates the merger agreement because the merger is not completed
by November 30, 2002 or because it failed to obtain shareholder approval
and, in either case, within 12 months of the termination date, it enters
into any agreement for or completes a change of control transaction;
- Newfield terminates the merger agreement because the EEX Board of
Directors changes its recommendation of the merger or recommends or fails
to reject an acquisition proposal from a third party; or
- EEX terminates the merger agreement upon receipt of a superior proposal.
Newfield will not be required to pay a termination fee if it terminates the
merger agreement in accordance with its terms.
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (PAGE 99)
The merger has been structured so that none of Newfield, EEX, Newfield
stockholders or EEX shareholders will recognize any gain or loss for federal
income tax purposes in connection with the merger (except for gain recognized
with respect to any trust units elected to be received by EEX common
shareholders and cash received in lieu of fractional shares of Newfield common
stock by EEX shareholders). Completion of the merger is conditioned upon the
receipt of legal opinions to that effect.
TAX MATTERS CAN BE COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU ARE URGED TO CONSULT
YOUR OWN TAX ADVISORS TO FULLY UNDERSTAND THE TAX CONSEQUENCES OF THE MERGER TO
YOU, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS IN YOUR PARTICULAR CIRCUMSTANCES.
ACCOUNTING TREATMENT (PAGE 72)
The merger will be treated as a purchase under generally accepted
accounting principles.
NO DISSENTERS' OR APPRAISAL RIGHTS
EEX shareholders are not entitled to any dissenters' or appraisal rights in
connection with the merger under the Texas Business Corporation Act.
COMPARATIVE RIGHTS OF NEWFIELD STOCKHOLDERS AND EEX SHAREHOLDERS (PAGE 103)
In the merger, EEX shareholders will receive shares of Newfield common
stock and become Newfield stockholders. Upon completion of the merger, your
rights as stockholders of Newfield will be governed by Delaware law and
Newfield's certificate of incorporation and bylaws. There are various
differences between the rights of EEX shareholders and the rights of Newfield
stockholders under EEX's and Newfield's respective charter provisions and bylaws
and under Texas and Delaware law.
15
MARKET PRICE DATA
Newfield common stock is listed for trading on the New York Stock Exchange
under the symbol "NFX." EEX common stock is listed for trading on the New York
Stock Exchange under the symbol "EEX." The following table sets forth, for the
periods indicated, the range of high and low per share sales prices for Newfield
common stock and EEX common stock, as reported by the New York Stock Exchange.
<Table>
<Caption>
NEWFIELD(1) EEX(1)
--------------- -------------
HIGH LOW HIGH LOW
------ ------ ----- -----
2000
First Quarter...................................... $38.31 $24.50 $4.31 $2.25
Second Quarter..................................... 45.38 32.88 6.25 2.13
Third Quarter...................................... 50.25 31.81 6.88 4.50
Fourth Quarter..................................... 49.50 36.25 5.81 3.00
2001
First Quarter...................................... 47.75 32.50 5.06 3.37
Second Quarter..................................... 37.80 31.00 5.00 2.70
Third Quarter...................................... 36.11 26.25 3.35 1.10
Fourth Quarter..................................... 37.30 27.00 2.00 1.12
2002
First Quarter...................................... 38.20 30.34 2.54 1.58
Second Quarter .................................... 39.15 34.10 2.40 1.57
Third Quarter (through August 20).................. 37.49 27.16 2.09 1.45
</Table>
- ---------------
(1) Share prices are those for the calendar quarters of both Newfield and EEX.
Both Newfield's and EEX's fiscal years end on December 31.
On May 29, 2002, the last trading day before the public announcement of the
proposed merger, the closing per share sales prices of Newfield common stock and
EEX common stock, as reported by the New York Stock Exchange, were $36.55 and
$1.90, respectively. On , 2002, the last trading day before the date
of this proxy statement/prospectus, the closing per share sales prices of
Newfield common stock and EEX common stock, as reported by the New York Stock
Exchange, were $ and $ , respectively. You are urged to obtain
current market quotations.
Following the merger, the Newfield common stock will continue to be traded
on the New York Stock Exchange, and the EEX common stock will cease to be traded
on the New York Stock Exchange. There will be no further market for the EEX
common stock.
Newfield has not paid any cash dividends in the past on its common stock
and does not intend to pay cash dividends in the future. Any future cash
dividends to holders of Newfield common stock would depend on future earnings,
capital requirements, Newfield's financial condition and other factors
determined by Newfield's Board of Directors. In addition, Newfield's credit
facility contains restrictions on its ability to pay cash dividends.
EEX did not declare any dividends on its common stock in 2001 or 2000. The
merger agreement prohibits EEX from declaring or paying any dividends on shares
of EEX common stock or EEX preferred stock, except for cumulative dividends on
EEX preferred stock and intercompany dividends from direct or indirect wholly
owned subsidiaries. If the merger is not consummated, the declaration and
payment of any future dividends on EEX common stock will be at the discretion of
the Board of Directors of EEX and will depend upon, among other things, future
earnings of EEX, its general financial condition, the success
16
of its business activities, its capital requirements and general business
conditions. In addition, EEX's new credit facility prohibits the payment of
dividends on its common stock.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND RESERVE DATA
NEWFIELD
The following selected historical financial and reserve data as of and for
the five years ended December 31, 2001 has been derived from Newfield's audited
consolidated financial statements. The selected historical financial data as of
June 30, 2002 and for the six months ended June 30, 2002 and 2001 are derived
from Newfield's unaudited consolidated financial statements. The unaudited
consolidated financial statements include all adjustments which Newfield
considers necessary for a fair presentation of the financial position and
results of operations for those periods. You should not expect the results for
any prior or interim periods to be indicative of the results that may be
achieved in any future periods. You should read the following information
together with Newfield's historical financial statements and related notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Newfield's Annual Report on Form 10-K for the year ended
December 31, 2001, which is incorporated by reference into this proxy
statement/prospectus.
17
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Oil and gas revenues.......... $309,650 $410,073 $749,405 $526,642 $287,889 $199,474 $201,755
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Lease operating............. 48,759 43,574 102,922 65,372 45,561 35,345 24,308
Production and other
taxes..................... 7,271 12,581 17,523 10,288 2,215 -- --
Transportation.............. 2,647 2,825 5,569 5,984 5,922 3,789 2,356
Depreciation, depletion and
amortization.............. 149,234 132,723 282,567 191,182 152,644 123,147 94,000
Ceiling test writedown...... 106,011 503 -- 104,955 4,254
General and
administrative(1)......... 25,308 23,224 43,955 32,084 16,404 12,070 12,270
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............. 233,219 214,927 558,547 305,413 222,746 279,306 137,188
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations.................. 76,431 195,146 190,858 221,229 65,143 (79,832) 64,567
Other income (expense), net... (9,506) (8,327) (14,975) (7,196) (9,572) (8,544) (2,146)
Dividends on convertible
preferred securities of
Newfield Financial Trust
I........................... (4,672) (4,672) (9,344) (9,344) (3,556) -- --
Unrealized commodity
derivative income
(expense)................... (11,525) 4,161 24,821 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes....................... 50,728 186,308 191,360 204,689 52,015 (88,376) 62,421
Income tax provision
(benefit)................... 18,132 66,426 67,612 69,980 18,811 (30,677) 21,818
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of change
in accounting principle..... $ 32,596 $119,882 $123,748 $134,709 $ 33,204 $(57,699) $ 40,603
Cumulative effect of change in
accounting
principle(2)(3)............. -- (4,794) (4,794) (2,360) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............. $ 32,596 $115,088 $118,954 $132,349 $ 33,204 $(57,699) $ 40,603
======== ======== ======== ======== ======== ======== ========
Earnings per share:
Basic --
Income (loss) before
cumulative effect of
change in accounting
principle............... $ 0.74 $ 2.70 $ 2.80 $ 3.18 $ 0.81 $ (1.55) $ 1.14
Cumulative effect of
change in accounting
principle(2)(3)......... -- (0.11) (0.11) (0.05) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........... $ 0.74 $ 2.59 $ 2.69 $ 3.13 $ 0.81 $ (1.55) $ 1.14
======== ======== ======== ======== ======== ======== ========
Diluted --
Income (loss) before
cumulative effect of
change in accounting
principle................. $ 0.73 $ 2.50 $ 2.66 $ 2.98 $ 0.79 $ (1.55) $ 1.07
Cumulative effect of change
in accounting
principle(2)(3)........... -- (0.09) (0.10) (0.05) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........... $ 0.73 $ 2.41 $ 2.56 $ 2.93 $ 0.79 $ (1.55) $ 1.07
======== ======== ======== ======== ======== ======== ========
Weighted average number of
shares outstanding for basic
earnings per share.......... 44,295 44,387 44,258 42,333 41,194 37,312 35,612
Weighted average number of
shares outstanding for
diluted earnings per
share....................... 48,838 49,098 48,894 47,228 42,294 37,312 38,017
</Table>
18
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CASH FLOW DATA:
Net cash provided by
operating activities
before changes in
operating assets and
liabilities............... $196,400 $285,680 $526,761 $383,524 $205,553 $141,948 $161,852
Net cash provided by
operating activities...... 196,428 352,542 502,372 316,444 184,903 146,575 160,338
Net cash (used in) investing
activities................ (166,540) (521,963) (765,822) (355,547) (210,817) (318,991) (242,962)
Net cash provided by (used
in) financing
activities................ (48,507) 202,196 273,127 15,933 67,758 164,291 77,551
</Table>
<Table>
<Caption>
AS OF DECEMBER 31,
AS OF JUNE 30, ------------------------------------------------------
2002 2001 2000 1999 1998 1997
-------------- ---------- ---------- ------- ------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital surplus (deficit).... $ 13,495 $ 65,573 $ 38,497 $35,202 $(8,806) $ 372
Oil and gas properties, net.......... 1,419,746 1,408,579 832,907 644,434 578,002 483,823
Total assets......................... 1,606,919 1,663,371 1,023,250 781,561 629,311 553,621
Long-term debt....................... 375,653 428,631 133,711 124,679 208,650 129,623
Convertible preferred securities..... 143,750 143,750 143,750 143,750 -- --
Stockholders' equity................. 713,295 709,978 519,455 375,018 323,948 292,048
RESERVE DATA:
Proved reserves:
Oil and condensate (MMBbls)........ N/A 36.3 27.9 25.8 15.2 16.3
Gas (Bcf).......................... N/A 718.3 519.7 440.2 422.3 337.5
Total (Bcfe)....................... N/A 936.4 687.3 594.8 513.3 435.3
Future net cash flows before 10%
annual discount for estimating
timing of cash flows (in
millions).......................... N/A $ 1,324.4 $ 3,494.3 $ 913.3 $ 559.3 $ 629.9
Standardized measure of discounted
future net cash flows (in
millions).......................... N/A $ 971.5 $ 2,670.3 $ 732.5 $ 451.2 $ 502.9
</Table>
- ---------------
(1) General and administrative expense includes non-cash stock compensation
charges of $2,751, $3,047, $1,999, $2,222 and $1,177 for 2001, 2000, 1999,
1998 and 1997, respectively, and $1,335 and $1,298 for the six month periods
ended June 30, 2002 and 2001, respectively.
(2) Newfield adopted SEC Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," effective January 1, 2000. The
adoption of SAB No. 101 requires Newfield to report crude oil inventory
associated with its Australian offshore operations at the lower of cost or
market, which was a change from its historical policy of recording such
inventory at market value on the balance sheet date, net of estimated costs
to sell. The cumulative effect of the change from the acquisition date of
Newfield's Australian operations in July 1999 through December 31, 1999 is a
reduction in net income of $2.36 million, or $0.05 per diluted share, and is
shown as the cumulative effect of change in accounting principle on the
consolidated statement of income for the year ended December 31, 2000. The
pro forma effect had SAB No. 101 been applied retroactively to 1999 would
have reduced net income by $2.36 million, or $0.06 per diluted share. SAB
No. 101 would not have effected periods prior to the acquisition of
Newfield's Australian operations in July 1999.
(3) Newfield adopted Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities" on January 1,
2001. SFAS No. 133 requires Newfield to record all derivative instruments as
either assets or liabilities on the balance sheet and measure those
instruments at fair value. For all periods prior to January 1, 2001,
Newfield accounted for commodity price hedging instruments in accordance
with SFAS No. 80. The cumulative effective of the adoption is a reduction in
net income of $4.8 million, or $0.10 per diluted share, and is shown as the
cumulative effect of change in accounting principle on the consolidated
statement of income for the year ended December 31, 2001 and the six months
ended June 30, 2001.
19
EEX
The following selected historical financial and reserve data as of and for
the five years ended December 31, 2001 has been derived from EEX's audited
consolidated financial statements and gives effect to the adoption of SFAS No.
144 ("Accounting for the Impairment or Disposal of Long-Lived Assets") as of
January 1, 2002. Because EEX has sold or agreed to sell all of its international
operations, pursuant to SFAS No. 144, all of such operations have been
reclassified as discontinued for all periods presented. The selected historical
financial data as of June 30, 2002 and for the six months ended June 30, 2002
and 2001 are derived from EEX's unaudited consolidated financial statements. The
unaudited consolidated financial statements include all adjustments which EEX
considers necessary for a fair presentation of the financial position and
results of operations for those periods. You should not expect the results for
any prior or interim periods to be indicative of the results that may be
achieved in any future periods. You should read the following information
together with EEX's historical financial statements and related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in EEX's Annual Report on Form 10-K for the year ended
December 31, 2001, which is incorporated by reference into this proxy
statement/prospectus.
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenues..................... $ 79,153 $ 83,648 $ 157,524 $208,454 $ 122,773 $189,782 $ 314,213
======== ======== ========= ======== ========= ======== =========
Costs and expenses:
Production and operating... 13,808 13,855 28,057 32,517 31,284 46,566 59,341
Exploration................ 14,664 27,771 48,116 32,126 82,579 38,854 70,021
Taxes, other than income... 5,646 9,666 14,731 10,906 4,744 11,017 17,356
Depreciation, depletion and
amortization............. 24,086 22,988 49,294 66,661 58,830 92,630 144,485
Impairment of long-lived
assets................... -- -- 111,030 200 26,424 10,439 260,112
General, administrative and
other.................... 9,289 6,500 18,738 19,528 28,354 24,057 55,604
(Gain) loss on sales of
property, plant and
equipment................ (173) 335 (12,263) 7,230 (15,483) (9,085) (52,917)
-------- -------- --------- -------- --------- -------- ---------
Total costs and
expenses.............. 67,320 81,115 257,703 169,168 216,732 214,478 554,002
-------- -------- --------- -------- --------- -------- ---------
Operating income (loss) from
continuing operations...... 11,833 2,533 (100,179) 39,286 (93,959) (24,696) (239,789)
Other expense, net........... (11,851) (14,925) (28,504) (32,304) (11,538) (18,544) (29,793)
-------- -------- --------- -------- --------- -------- ---------
Income (loss) from continuing
operations before income
taxes...................... (18) (12,392) (128,683) 6,982 (105,497) (43,240) (269,582)
Income taxes (benefit)....... -- -- 20,118 1,586 6,891 (4,997) (58,945)
-------- -------- --------- -------- --------- -------- ---------
Income (loss) from continuing
operations................. (18) (12,392) (148,801) 5,396 (112,388) (38,243) (210,637)
Minority interest third
party...................... -- -- -- 1,950 50 6,532 4,925
Income (loss) from
discontinued operations,
net of income taxes........ 2,460 10,525 (773) (500) 24,641 3,849 (541)
Extraordinary item -- debt
extinguishment gain, net of
tax........................ -- -- (3,593) -- -- -- --
-------- -------- --------- -------- --------- -------- ---------
Net income (loss)............ 2,442 (1,867) (145,981) 2,946 (87,797) (40,926) (216,103)
Preferred stock dividends.... 7,674 7,089 14,465 13,364 12,117 -- --
-------- -------- --------- -------- --------- -------- ---------
Net loss applicable to common
shareholders............... $ (5,232) $ (8,956) $(160,446) $(10,418) $ (99,914) $(40,926) $(216,103)
======== ======== ========= ======== ========= ======== =========
Net loss per common share,
basic and diluted(1)
Before extraordinary item.... $ (0.12) $ (0.21) $ (3.94) $ (0.25) $ (2.37) $ (0.97) $ (5.12)
Extraordinary item -- debt
extinguishment gain, net
of tax................... -- -- 0.09 -- -- -- --
-------- -------- --------- -------- --------- -------- ---------
Net loss per common share.... $ (0.12) $ (0.21) $ (3.85) $ (0.25) $ (2.37) $ (0.97) $ (5.12)
======== ======== ========= ======== ========= ======== =========
</Table>
20
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Weighted average number of
shares outstanding for basic
and diluted loss per share... 41,881 41,656 41,724 41,949 42,200 42,208 42,214
</Table>
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CASH FLOW DATA:
Net cash provided by
operating activities
before changes in
operating assets and
liabilities.............. $ 25,031 $ 4,565 $ 38,509 $ 77,600 $ 27,925 $ 69,503 $ 137,676
Net cash provided by
operating activities..... 15,397 2,552 28,178 58,251 54,475 25,573 186,779
Net cash provided by (used
in) investing
activities............... (31,519) (92,213) (88,131) (100,744) (329,666) 173,427 (44,816)
Net cash provided by (used
in) financing
activities............... (130,494) 55,689 148,234 34,895 247,176 (138,417) (130,377)
</Table>
<Table>
<Caption>
AS OF DECEMBER 31,
AS OF JUNE 30, -----------------------------------------------------
2002 2001 2000 1999 1998 1997
-------------- --------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital surplus
(deficit)....................... $(231,926) $(189,755) $ 3,465 $(30,870) $ 10,766 $(58,805)
Oil and gas properties and other,
net............................. 525,445 519,548 604,060 630,085 395,611 690,837
Total assets...................... 573,986 750,118 764,068 780,784 565,070 807,789
CAPITAL STRUCTURE:
Short-term borrowings............. $ -- $ -- $ -- $ -- $ -- $ 5,000
Capital lease obligations......... -- -- 205,634 222,444 233,318 241,735
Secured notes payable............. 100,764 114,343 -- -- -- --
Bank revolving credit agreement... 221,000 325,000(2) 75,000 -- -- 25,000
Gas sales obligation.............. 46,957 59,937 83,490 105,000 -- --
Minority interest in preferred
securities of subsidiary........ -- -- -- -- -- 100,000
Minority interest third party..... 5,000 5,000 5,000 3,050 -- --
Shareholders' equity.............. 146,511 180,788 289,601 294,863 234,300 274,663
--------- --------- -------- -------- -------- --------
Total........................... $ 520,232 $ 685,068 $658,725 $625,357 $467,618 $646,398
========= ========= ======== ======== ======== ========
PROVED RESERVE DATA:(3)
Natural gas (Bcf)................. N/A 395.0 382.6 362.8 203.6 460.2
Oil, condensate and natural gas
liquids (MMBbls)................ N/A 14.6 25.1 17.5 26.2 23.8
Total (Bcfe).................... N/A 482.3 533.3 468.1 360.5 603.2
Standardized measure of
discounted future net cash flows
(in millions)................... N/A $ 389.2 $1,283.3 $ 436.3 $ 275.9 $ 619.1
</Table>
- ---------------
(1) The per share amounts for periods prior to 1998 have been restated to
reflect the reduction in weighted average shares outstanding due to the
one-for-three reverse stock split effective on December 8, 1998.
(2) Represents borrowings under EEX's old credit facility which would have
matured in June 2002. EEX entered into a new credit facility on May 29,
2002.
(3) Newfield's estimates of EEX's proved reserves at December 31, 2001 are set
forth in "Unaudited Pro Forma Combined Supplementary Oil and Gas
Disclosures" appearing later in this proxy statement/prospectus. Newfield's
estimates differ significantly from those of EEX as set forth above. Such
pro forma disclosures also reflect the disposition of EEX's international
operations in the second quarter of 2002. EEX disagrees with Newfield's
estimates of EEX's proved reserves and believes that no adjustment is
required with respect to its reported estimates of such reserves at December
31, 2001. See "The Merger -- Difference in Estimates of EEX Proved
Reserves."
21
SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL AND RESERVE INFORMATION
The following summary unaudited pro forma combined condensed financial
information combines the historical consolidated balance sheets and income
statements of Newfield and EEX and gives effect to Newfield's recent issuance of
$250,000,000 aggregate principal amount of its 8 3/8% senior subordinated notes
due 2012 and to the merger using the purchase method of accounting. The
following information is provided to assist you in your analysis of the
financial aspects of the merger.
The unaudited pro forma combined condensed financial information is based
on the following assumptions and adjustments:
- the income statement data assume that the issuance of the Newfield notes
and the merger were effected on January 1, 2001;
- the balance sheet data assume that the issuance of the Newfield notes and
the merger were effected on June 30, 2002;
- the balance sheet and income statement data reflect Newfield's use of the
net proceeds from the issuance of the notes to repay the EEX debt that
will become due at the closing of the merger and to pay a portion of the
transaction costs of the merger; and
- the historical financial statements of EEX have been adjusted to conform
to the accounting policies of Newfield.
The historical income statement information for the year ended December 31,
2001 is derived from the audited financial statements of EEX and Newfield. The
historical income statement information for the six-month period ended June 30,
2002 and the historical balance sheet information as of June 30, 2002 are
derived from the unaudited financial statements of EEX and Newfield. EEX has
provided all the historical information set forth herein regarding EEX and its
subsidiaries, and Newfield has provided all the historical information set forth
herein regarding Newfield and its subsidiaries and the assumptions and
adjustments for the pro forma information. Neither EEX nor Newfield assumes any
responsibility for the accuracy or completeness of the information provided by
the other party.
The summary unaudited pro forma combined condensed financial information is
presented for illustrative purposes only. The financial results may have been
different if the companies had always been combined or if the other transactions
had occurred as of the dates indicated above, nor do they purport to indicate
the future results that Newfield will experience. Further, the summary unaudited
pro forma combined condensed financial information does not reflect the effect
of restructuring charges that will be incurred to fully integrate and operate
the combined organization more efficiently or anticipated synergies resulting
from the merger. The restructuring activities to integrate the companies may
result in head count reduction, asset rationalization and other activities.
Because the plans for these activities have not yet been finalized, Newfield is
not able to reasonably quantify the cost for such activities.
The following information should be read together with "Unaudited Pro Forma
Combined Condensed Financial Information" and the historical financial
statements and related notes of EEX and Newfield incorporated by reference into
this proxy statement/prospectus. See "Where You Can Find More Information."
22
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
2002 2001
----------- ------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
INCOME STATEMENT DATA:
Revenues.................................................... $ 388,803 $906,929
Operating expenses:
Operating................................................. 65,214 136,548
Production and other taxes................................ 12,917 32,254
Depreciation, depletion and amortization.................. 188,484 360,639
Ceiling test write-down................................... -- 106,011
Impairment of long-lived assets........................... -- 82,286
General and administrative................................ 34,597 62,467
Gain on sales of property, plant and equipment............ (281) --
Other income (expenses):
Interest and other income (expense)....................... (9,996) 30,046
Gross interest expense.................................... (32,788) (69,701)
Capitalized interest...................................... 7,626 15,652
---------- --------
Net interest expense.................................... (25,162) (54,049)
Dividends on convertible preferred securities of Newfield
Financial Trust I....................................... (4,672) (9,344)
---------- --------
Income before income taxes, discontinued operations,
extraordinary items and cumulative effect of change in
accounting principles..................................... 48,042 93,377
---------- --------
Income tax provision........................................ 17,198 33,318
---------- --------
Income before discontinued operations, extraordinary items,
cumulative effect of change in accounting principles and
preferred stock dividends................................. $ 30,844 $ 60,059
========== ========
Basic earnings per common share............................. $ 0.60 $ 1.17
========== ========
Diluted earnings per common share........................... $ 0.59 $ 1.15
========== ========
</Table>
<Table>
<Caption>
AS OF JUNE 30,
2002
---------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Oil and gas properties, net................................. 3,166,828
Total assets................................................ 2,261,182
Long-term debt.............................................. 766,700
Stockholders' equity........................................ 971,366
</Table>
23
The following table sets forth pro forma summary information with respect
to Newfield's and EEX's combined proved oil and gas reserves as of December 31,
2001. The following information reflects Newfield's estimates of EEX proved
reserves as of December 31, 2001. Because EEX has sold or agreed to sell all of
its international operations, Newfield's estimates do not include any reserves
associated with such operations. Newfield's estimates differ significantly from
those of EEX as set forth in "Summary Historical Financial and Reserve
Data -- EEX." EEX disagrees with Newfield's estimates of EEX's proved reserves
and believes that no adjustment is required with respect to its reported
estimates of such reserves at December 31, 2001. See "The Merger -- Difference
in Estimates of EEX Proved Reserves."
<Table>
<Caption>
AS OF
DECEMBER 31,
RESERVE DATA: 2001
- ------------- ------------
Proved:
Oil and condensate (MBbls)................................ 38,371
Gas (MMcf)................................................ 1,026,153
Total (MMcfe)............................................. 1,256,379
Proved developed:
Oil and condensate (MBbls)................................ 36,405
Gas (MMcf)................................................ 922,869
Total (MMcfe)............................................. 1,141,299
</Table>
COMPARATIVE PER SHARE DATA
Set forth below are the income from continuing operations, cash dividends
and book value per common share data for Newfield and EEX on an historical basis
and for the combined company on a pro forma basis. The pro forma data was
derived by combining historical consolidated financial information of Newfield
and EEX treating the merger as a purchase for accounting purposes, all on the
basis described under " -- Summary Unaudited Pro Forma Combined Condensed
Financial Information."
The information set forth below should be read in conjunction with the
respective audited consolidated financial statements and related notes of
Newfield and EEX incorporated by reference into this proxy statement/prospectus.
The unaudited pro forma data set forth below may not be indicative of the actual
financial condition or results of operations that would have resulted had the
merger occurred as of the date assumed for purposes of determining such data or
of the results for any future period.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
Newfield Historical Per Common Share Data:
Income from continuing operations (basic)................. $ 0.74 $ 2.80
Income from continuing operations (diluted)............... $ 0.73 $ 2.66
Cash dividends............................................ --
Book value................................................ $16.06 $16.10
EEX Historical Per Common Share Data:
Loss from continuing operations applicable to common
shareholders (basic).................................... $(0.18) $(3.92)
Loss from continuing operations applicable to common
shareholders (diluted).................................. $(0.18) $(3.92)
Cash dividends............................................ -- --
Book value................................................ $(1.23) $(0.22)
Pro Forma Combined Per Common Share Data:
Income from continuing operations (basic)................. $ 0.60 $ 1.17
Income from continuing operations (diluted)............... $ 0.59 $ 1.15
Cash dividends............................................ -- --
Book value................................................ $18.86 --
</Table>
24
RISK FACTORS
In addition to the other information included and incorporated by reference
in this proxy statement/ prospectus, you are urged to consider carefully the
matters described below in determining whether to vote for approval of the
merger agreement.
RISKS RELATING TO THE MERGER
NEWFIELD MAY FACE DIFFICULTIES IN INTEGRATING EEX'S BUSINESS INTO ITS
BUSINESS. Newfield and EEX entered into the merger agreement with the
expectation that their combined operations will make Newfield one of the largest
independent natural gas producers in the South Texas area and help Newfield to
establish a significant position in the deepwater areas of the Gulf of Mexico.
In integrating EEX's business into Newfield's, however, Newfield may encounter
difficulties that could adversely affect its financial position, such as
difficulties in combining operations and retaining and integrating personnel,
potential disruption of operations and the incurrence of substantial transaction
costs and other expenses to accomplish the merger.
THE CONSIDERATION TO BE PAID FOR EEX COMMON STOCK IN THE MERGER IS A FIXED
NUMBER OF SHARES OF NEWFIELD COMMON STOCK (OR, IF YOU SO ELECT, TRUST UNITS) AND
WILL NOT BE ADJUSTED FOR CHANGES IN THE STOCK PRICE OF EITHER NEWFIELD OR
EEX. Under the merger agreement, each share of EEX common stock will be
converted into .05703 of one share of Newfield common stock (or, if you so
elect, into trust units or into trust units and Newfield common stock). This
exchange ratio is fixed and will not be adjusted if there is any increase or
decrease in the price of Newfield common stock or EEX common stock. The prices
of Newfield common stock and EEX common stock at the closing of the merger may
vary from their respective prices on the date of this proxy statement/prospectus
and on the date of the EEX special meeting. These prices may vary because of
changes in Newfield's business, operations or prospects or those of EEX, market
assessments of the likelihood that the merger will be completed, the timing of
the completion of the merger, the prospects of post-merger operations, industry
conditions, general market and economic conditions and other factors. Although
Newfield expects the merger to be completed in late September 2002, it may be
completed on a later date. Neither Newfield nor EEX has a right to terminate the
merger agreement solely because of adverse changes in the oil and gas industry
prior to the effective date of the merger.
SOME OF EEX'S DIRECTORS AND EXECUTIVE OFFICERS HAVE INTERESTS IN THE MERGER
THAT ARE DIFFERENT FROM YOUR INTERESTS. For a discussion of these arrangements,
see "The Merger -- Interests of Certain Persons in the Merger." You should
consider these interests in connection with your vote on the merger agreement,
including whether these interests may have influenced those directors and
executive officers to recommend or support the merger agreement.
NEWFIELD'S ESTIMATES OF EEX'S PROVED RESERVES ARE SIGNIFICANTLY LOWER THAN
THOSE OF EEX. The proved reserve information with respect to Newfield included
and incorporated by reference in this proxy statement/prospectus is based on
estimates prepared by Newfield. The proved reserve information with respect to
EEX included and incorporated by reference in this proxy statement/prospectus
(other than pro forma adjustments to such information) is based on estimates
prepared by EEX and audited by Netherland, Sewell & Associates, Inc.,
independent petroleum engineers. This proxy statement/prospectus also contains
Newfield's estimates of EEX's proved reserves as of December 31, 2001.
Newfield's estimates are approximately 23% lower than those of EEX. See "The
Merger -- Difference in Estimates of EEX Proved Reserves." Because of the
potential implications to EEX's financial statements resulting from the
difference between Newfield's and EEX's estimate of EEX's proved reserves at
December 31, 2001, EEX's independent auditors, Ernst & Young LLP, did not
consent to the incorporation by reference of their report on the consolidated
financial statements of EEX as of December 31, 2001 and for the year then ended
in the initial filing with the SEC on June 21, 2002 of the registration
statement of which this proxy statement/prospectus is a part. Following the
receipt of the Huddleston report described in "The Merger -- Difference in
Estimates of EEX Proved Reserves," Ernst & Young LLP agreed to provide their
written consent to the incorporation by reference of their report on the
consolidated financial statements of
25
EEX as of and for the year ended December 31, 2001 and to the reference to their
name in amendments to the registration statement filed with the SEC on July 3,
2002 and August 22, 2002.
AS AN INDEPENDENT OIL AND GAS COMPANY, NEWFIELD'S BUSINESS AND FINANCIAL
RESULTS ARE SUBJECT TO A NUMBER OF RISKS. For a description of these risks,
please see the discussions under the captions "Regulation" and "Other Factors
Affecting Our Business and Financial Results" appearing on pages 27 through 34
of Newfield's Annual Report on Form 10-K for the year ended December 31, 2001.
Because EEX also is an independent oil and gas company, it is subject to similar
risks.
RISKS RELATING TO THE TRUST AND THE TRUST UNITS
THERE WILL BE NO PUBLIC MARKET FOR THE TRUST UNITS, WHICH WILL LIMIT THEIR
MARKET PRICE AND YOUR ABILITY TO SELL THEM FOR THEIR INHERENT VALUE. The trust
units are a new issue of securities for which there is currently no trading
market. The trust units will not be listed or quoted on any national securities
exchange or market. It is uncertain whether a market will develop for the trust
units. If a market does not develop, you may be unable to sell your trust units.
THE TRUST MAY NOT RECEIVE ANY ROYALTIES RELATED TO THE PRODUCTION OF OIL
AND NATURAL GAS FROM THE UNDERLYING PROPERTIES. The only assets and sources of
income to the trust are the royalty interests, which generally entitle the trust
to receive a share of the oil and gas production from the underlying properties
if production is achieved. There is no production and there are no proved
reserves currently associated with the royalty interests. See "Treasure Island
Royalty Trust -- Royalty Interests and Subject Interests -- Subject Interests."
The underlying properties are at present exploration prospects. As a result,
ultimate commercialization of any one or more of these prospects may never be
realized because the prospects are never tested, because oil or gas is not
discovered or, if discovered, because the costs of development make
commercialization uneconomic. The prospects target geological formations that
are deeper than conventional Gulf of Mexico prospects and therefore have greater
risks and costs associated with their exploration and development.
PRODUCTION RISKS CAN ADVERSELY AFFECT TRUST DISTRIBUTIONS. The occurrence
of drilling, production or transportation accidents at any of the underlying
properties may reduce trust distributions. While the trust, as the owner of
overriding royalty interests, should not be responsible for the costs associated
with these accidents, any such accidents may result in the loss of a productive
well and associated reserves or interruption of production. Generally, Newfield
would be obligated to the trust to undertake (or if Newfield is not the
operator, to use its commercially reasonable efforts to cause the operator to
undertake) remedial operations only to the extent that such actions would be
undertaken by a prudent operator under similar circumstances in accordance with
good oilfield practices but without giving effect to the existence of the
royalty interests.
ANY FUTURE DISTRIBUTIONS FROM THE TRUST WILL BE SUBJECT TO FLUCTUATING
PRICES FOR OIL AND GAS. Oil and gas prices fluctuate widely in response to
relatively minor changes in supply, market uncertainty and a variety of
additional factors that are beyond the control of the trust.
To the extent there is production of oil and gas associated with the
royalty interests, the royalties that the trust may receive from its share of
production will be affected by changes in the prices of oil and gas. As a
result, future distributions from the trust to the holders of the trust units
could be reduced or discontinued. In addition, lower oil and gas prices may
reduce the likelihood that the underlying properties will be developed or that
any oil and gas discovered will be economic to produce. The volatility of energy
prices reduces the accuracy of estimates of future cash distributions to trust
unitholders and the value of the trust units.
Any future distributions from the trust will be reduced by the trust's
current administrative expenses and obligation to repay amounts previously
borrowed from Newfield to fund these expenses. The trustee is entitled to
reimburse itself from the quarterly revenues of the trust to pay all expenses
relating to the administration of the royalty interests and the trust incurred
during such quarter, and to repay amounts previously borrowed from Newfield to
fund these expenses prior to the date that royalty interests produce
26
any revenues for the trust, in the latter case up to an aggregate maximum of 8%
of the trust's revenues during such quarter. In addition, if the trust borrows
funds to cover any other expenses or liabilities, no distributions will be made
to trust unitholders until that indebtedness is paid in full.
THE TRUST WILL BE DEPENDENT ON NEWFIELD FOR FUNDING UNTIL IT HAS
REVENUE. Because none of the underlying properties are at present producing any
oil or gas, the trust has, and upon completion of the merger will have, no
source of income. Therefore, it must rely on Newfield for funding of its
administrative expenses. Any material adverse change in Newfield's financial
condition or results of operations could materially and adversely affect the
trust and the trust unitholders. Newfield has agreed to make loans as may be
requested by the trustee in amounts estimated by the trustee to be required to
cover administrative expenses expected to be incurred within the 90-day period
following the date each such loan is made. Loans from Newfield will bear
interest at an annual rate of 8% and will be senior unsecured obligations of the
trust. Such loans will be repaid in quarterly installments only from the excess,
if any, of an amount equal to 8% of the cash received by the trustee in a given
quarter from proceeds of the royalty interests over all compensation,
reimbursements and other charges otherwise owing and paid to the trustee for the
performance of its obligations under the trust agreement for that quarter.
NO DISTRIBUTIONS WILL BE MADE TO TRUST UNITHOLDERS IF THE TRUST BORROWS
FUNDS TO COVER EXTRAORDINARY EXPENSES OR LIABILITIES UNTIL THAT INDEBTEDNESS IS
PAID IN FULL. No distributions will be made to trust unitholders if the trust
borrows funds to pay any extraordinary expenses or liabilities of the trust
until that indebtedness is paid in full. In addition to the trustee's authority
to borrow funds from Newfield to cover administrative expenses, if at any time
the cash on hand and to be received by the trust and available to pay trust
liabilities is not or will not be in the judgment of the trustee sufficient to
pay other expenses or liabilities of the trust as they become due, the trustee
is authorized to borrow the funds required to pay such liabilities from a third
party, from Newfield or from the trustee. In such event, no further
distributions will be made to trust unitholders until the indebtedness created
by any such borrowing has been paid in full. To secure payment of such
indebtedness, the trustee is authorized to mortgage, pledge, grant security
interests in or otherwise encumber the royalty interests.
THE TRUST UNITHOLDERS WILL HAVE LIMITED VOTING RIGHTS AND NO INFLUENCE OR
CONTROL OVER THE OPERATION OR FUTURE DEVELOPMENT OF THE UNDERLYING
PROPERTIES. The voting rights of trust unitholders are more limited than those
of stockholders of most public companies. For example, there is no requirement
for annual meetings of trust unitholders or for an annual or other periodic
re-election of the trustee. Neither the trustee nor the trust unitholders will
be able to influence or control the operation or future development of the
underlying properties. Among other things, Newfield will have the right to elect
not to participate in drilling or other operations conducted by other working
interest owners under an operating agreement or similar arrangement, which could
result in forfeiture of the affected property or subject Newfield (and,
therefore, the trust) to non-consent recoupment penalties, if a reasonable,
prudent operator acting in conformity with sound oilfield practices without
giving effect to the existence of the royalty interests would make that
election.
NEWFIELD'S INTERESTS AND THE INTERESTS OF THE TRUST UNITHOLDERS MAY NOT
ALWAYS BE ALIGNED. Because Newfield has interests in oil and gas properties not
included in the trust, following completion of the merger Newfield's interests
and the interests of the trust unitholders may not always be aligned. For
example, in setting budgets for development and production expenditures for
Newfield's properties, including the underlying properties, Newfield may make
decisions that could adversely affect future production from the underlying
properties. Moreover, Newfield could decide to sell or abandon some or all of
the underlying properties, and that decision may not be in the best interests of
the trust unitholders. Except for specified matters that require approval of the
trust unitholders (as described in "Treasure Island Royalty Trust -- Trust
Agreement"), the documents governing the trust do not provide a mechanism for
resolving these conflicting interests.
NEWFIELD MAY TRANSFER OR ABANDON UNDERLYING PROPERTIES. Newfield may at
any time transfer all or part of the underlying properties. Trust unitholders
will not be entitled to vote on any transfer, and the trust will not receive any
proceeds of the transfer. Following any such transfer, the underlying properties
27
will continue to be subject to the overriding royalty interests of the trust,
but the net proceeds from the transferred property would be calculated
separately and paid by the transferee. The transferee would be responsible for
all of Newfield's obligations relating to the overriding royalty interests on
the portion of the underlying properties transferred, and Newfield would have no
continuing obligation to the trust for those properties. In addition, at the
request of Newfield the trustee must sell royalty interests that burden subject
interests then in commercial production and which Newfield proposes to sell to
an unaffiliated third party. However, the trustee will not be required to sell
during any calendar year any royalty interest the value of which exceeds 10% of
the value of all royalty interests held by the trust and then attributed with
proved reserves or which would cause the cumulative value of all royalty
interests sold pursuant to such requests to exceed 25% of the value of all
royalty interests held by the trust and then attributed with proved reserves.
ROYALTY INTERESTS MUST BE SOLD IN CERTAIN CIRCUMSTANCES, WHICH COULD CAUSE
THE TRUST TO BE TERMINATED. The trustee must sell all or substantially all of
the royalty interests comprising the trust estate if the holders of 80% or more
of the trust units approve the sale or vote to terminate the trust. The trustee
also must sell royalty interests not comprising all or substantially all of the
trust estate if the holders of 60% or more of the trust units approve the sale.
The trustee also must sell all of the royalty interests if the aggregate cash
proceeds received by the trustee with respect to the royalty interests for each
of the two successive years after the first full year during which any of the
underlying properties produce oil or gas in commercial quantities is less than
$1,000,000 per year. Sale of all the royalty interests will terminate the trust.
The net proceeds of any sale will be distributed to the trust unitholders.
TRUST UNITHOLDERS WILL HAVE LIMITED ABILITY TO ENFORCE RIGHTS. The trust
agreement and Texas trust law permit the trustee and the trust to sue Newfield
or any other future owner of the underlying properties to honor the royalty
interests. If the trustee does not take appropriate action to enforce the
royalty interests, the trust unitholders' recourse would likely be limited to
bringing a lawsuit against the trustee to compel the trustee to take specified
actions. Trust unitholders probably would not be able to sue Newfield or any
future owner of the underlying properties directly to enforce the trust's
rights.
LIMITED LIABILITY OF TRUST UNITHOLDERS IS UNCERTAIN. It is unclear under
Texas law whether a trust unitholder could be held personally liable for the
trust's liabilities if those liabilities exceeded the value of the trust's
assets. While Newfield believes it is highly unlikely that the trust could incur
such excess liabilities, the trust unitholders could be held liable for their
respective pro rata portions of any of such excess liabilities. The trust's
royalty interests are generally not subject to operational and environmental
liabilities and obligations. The trust conducts no active business that would
give rise to other business liabilities. The trustee has limited ability to
incur obligations on behalf of the trust. The trustee has no authority to incur
any contractual liabilities on behalf of the trust that are not limited solely
to claims against the assets of the trust.
28
THE EEX SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING; PURPOSES OF THE SPECIAL MEETING
The special meeting of shareholders of EEX will be held on ,
, 2002, at the offices of EEX at 2500 CityWest Boulevard, Houston,
Texas commencing at :00 a.m. local time. At the meeting, the
holders of EEX common stock and EEX preferred stock will be asked to approve the
merger agreement and to consider such other matters as may properly be brought
before the meeting.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of EEX common stock and EEX preferred stock at the
close of business on , 2002 are entitled to notice of, and to vote at,
the EEX special meeting. On the record date, there were approximately
holders of record of the shares of EEX common stock
then issued and outstanding. Each share of EEX common stock entitles the holder
thereof to one vote on each matter submitted for shareholder approval. The
holders of EEX preferred stock are entitled to an aggregate of 8,000,000 votes
on each matter submitted for shareholder approval.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the EEX
special meeting in accordance with the instructions contained therein.
If a holder of EEX common stock executes and returns a proxy and does not
specify otherwise, the shares represented by such proxy will be voted "for"
approval of the merger agreement in accordance with the recommendation of the
Board of Directors of EEX.
All of the holders of EEX preferred stock and certain of the executive
officers of EEX who own shares of EEX common stock have executed a voting
agreement and irrevocable proxy pursuant to which they have agreed to vote their
shares in favor of approval of the merger agreement. See "Voting Agreement and
Irrevocable Proxy."
THE EEX BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF EEX COMMON STOCK
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
A shareholder of EEX who has executed and returned a proxy may revoke it at
any time before it is voted at the EEX special meeting by:
- executing and returning a proxy bearing a later date;
- filing written notice of such revocation with the Secretary of EEX,
stating that the proxy is revoked; or
- attending the EEX special meeting and voting in person.
VOTE REQUIRED
The transaction of business at the special meeting requires the presence in
person or by proxy of the holders of a majority of the issued and outstanding
shares of EEX capital stock entitled to vote at the EEX special meeting.
Approval of the merger agreement requires the affirmative vote of two-thirds of
the votes entitled to be cast at the EEX special meeting by the holders of
record of the outstanding shares of EEX common stock. In addition, approval of
the merger agreement requires the affirmative vote of the holders of (a)
two-thirds of the votes entitled to be cast at the special meeting by the
holders of record of the outstanding shares of EEX common stock and EEX
preferred stock (voting together as a single class) and (b) a majority of votes
entitled to be cast at the EEX special meeting by the holders of record of the
outstanding shares of EEX preferred stock. The holders of all of the outstanding
shares of EEX preferred stock have executed a voting agreement and irrevocable
proxy pursuant to which they have agreed, among
29
other things, to vote their shares in favor of the merger agreement.
Consequently, if the holders of the requisite number of shares of EEX common
stock vote in favor of the merger agreement, the approval of the merger
agreement is assured.
In determining whether the merger agreement has received the requisite
number of affirmative votes, abstentions and broker non-votes will have the same
effect as a vote AGAINST the merger agreement.
Votes cast by proxy or in person at the EEX special meeting will be counted
by the persons appointed by EEX to act as election inspectors for the meeting.
The election inspectors will treat broker non-votes as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.
However, for purposes of determining the outcome of any matter as to which the
broker has indicated in writing on the proxy that it does not have discretionary
authority to vote, such shares will be treated as not present and not entitled
to vote with respect to that matter (even though those shares may be entitled to
vote on other matters).
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers, employees and
agents of EEX may solicit proxies from holders of EEX common stock by personal
interview, telephone, telegram or otherwise. Newfield and EEX will each pay
one-half of the costs of the solicitation of proxies from holders of EEX common
stock and the costs of printing this proxy statement/prospectus. Arrangements
will also be made with brokerage firms and other custodians, nominees and
fiduciaries who hold of record voting securities of EEX for the forwarding of
solicitation materials to the beneficial owners thereof. EEX will reimburse such
brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket
expenses incurred by them in connection therewith. EEX has engaged the services
of Innisfree M&A Incorporated to distribute proxy solicitation materials to
brokers, banks and other nominees and to assist in the solicitation of proxies
from holders of EEX common stock for a fee of $15,000 plus $5 for each telephone
call that Innisfree is requested to make or receive. Innisfree will also be
reimbursed for its reasonable out-of-pocket expenses.
OTHER MATTERS
At the date of this proxy statement/prospectus, the Board of Directors of
EEX does not know of any business to be presented at the EEX special meeting
other than as set forth in the notice accompanying this proxy
statement/prospectus. If any other matters should properly come before the EEX
special meeting, it is intended that the shares represented by proxies will be
voted with respect to such matters in accordance with the judgment of the
persons voting such proxies, provided that no proxy which is voted against the
approval of the merger agreement will be voted in favor of any adjournment or
postponement of the EEX special meeting.
30
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following summary unaudited pro forma combined condensed financial
information combines the historical consolidated balance sheets and income
statements of Newfield and EEX and gives effect to Newfield's recent issuance of
$250,000,000 aggregate principal amount of its 8 3/8% senior subordinated notes
due 2012 and to the merger using the purchase method of accounting. The
following information is provided to assist you in your analysis of the
financial aspects of the merger.
The unaudited pro forma combined condensed financial information is based
on the following assumptions and adjustments:
- the income statement data assume that the issuance of the Newfield notes
and the merger were effected on January 1, 2001;
- the balance sheet data assume that the issuance of the Newfield notes and
the merger were effected on June 30, 2002;
- the balance sheet and income statement data reflect Newfield's use of the
net proceeds from the issuance of the notes to repay the EEX debt that
will become due at the closing of the merger and to pay a portion of the
transaction costs of the merger; and
- the historical financial statements of EEX have been adjusted to conform
to the accounting policies of Newfield.
The historical income statement information for the year ended December 31,
2001 is derived from the audited financial statements of EEX and Newfield. The
historical income statement information for the six-month period ended June 30,
2002 and the historical balance sheet information as of June 30, 2002 are
derived from the unaudited financial statements of EEX and Newfield. EEX has
provided all the historical information set forth herein regarding EEX and its
subsidiaries, and Newfield has provided all the historical information set forth
herein regarding Newfield and its subsidiaries and the assumptions and
adjustments for the pro forma information. Neither EEX nor Newfield assumes any
responsibility for the accuracy or completeness of the information provided by
the other party.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only. The financial results may have been
different if the companies had always been combined or if the other transactions
had occurred as of the dates indicated above, nor do they purport to indicate
the future results that Newfield will experience. Further, the unaudited pro
forma combined condensed financial information does not reflect the effect of
restructuring charges that will be incurred to fully integrate and operate the
combined organization more efficiently or anticipated synergies resulting from
the merger. The restructuring activities to integrate the companies may result
in head count reduction, asset rationalization and other activities. Because the
plans for these activities have not yet been finalized, Newfield is not able to
reasonably quantify the cost for such activities.
The following information should be read together with the historical
financial statements and related notes of EEX and Newfield incorporated by
reference into this proxy statement/prospectus. See "Where You Can Find More
Information."
31
NEWFIELD EXPLORATION COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2002
---------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
NEWFIELD EEX ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
Revenues................................................ $309,650 $ 79,153 $388,803
-------- -------- --------
Operating expenses:
Operating............................................. 51,406 13,808 65,214
Exploration........................................... -- 14,664 $(14,664)(A) --
Production and other taxes............................ 7,271 5,646 12,917
Depreciation, depletion and amortization.............. 149,234 24,086 (24,086)(B) 188,484
39,250(C)
General and administrative............................ 25,308 9,289 34,597
Gain on sales of property, plant and equipment, net... -- (173) (108)(F) (281)
-------- -------- -------- --------
Total operating expenses............................ 233,219 67,320 392 300,931
-------- -------- -------- --------
Income (loss) from operations........................... 76,431 11,833 (392) 87,872
-------- -------- -------- --------
Other income (expenses):
Interest and other income (expense)................... (10,956) 960 (9,996)
Interest expense...................................... (10,075) (12,811) 499(G) (25,162)
3,353(H)
4,720(I)
(10,848)(I)
Dividends on convertible preferred securities of
Newfield Financial Trust I.......................... (4,672) -- (4,672)
-------- -------- -------- --------
Total other income (expenses)....................... (25,703) (11,851) (2,276) (39,830)
-------- -------- -------- --------
Income (loss) before income taxes, discontinued
operations, extraordinary items and cumulative effect
of change in accounting principles.................... 50,728 (18) (2,668) 48,042
Income tax provision.................................... (18,132) -- (934)(J) 17,198
-------- -------- -------- --------
Income (loss) before discontinued operations,
extraordinary items, cumulative effect of change in
accounting principles and preferred stock dividends... $ 32,596 $ (18) $ (1,734) $ 30,844
======== ======== ======== ========
Per share data:
Basic earnings (loss) per share(Z).................... $ 0.74 $ -- $ 0.60
======== ======== ========
Diluted earnings (loss) per share(Z).................. $ 0.73 $ -- $ 0.59
======== ======== ========
Weighted average number of shares outstanding for
basic earnings per share............................ 44,295 41,881 (41,881)(K) 51,395
======== ======== ========
7,100(K)
Weighted average number of shares outstanding for
diluted earnings per share.......................... 48,838 41,881 (41,881)(K) 52,015
======== ======== ========
7,100(K)
(3,923)(L)
</Table>
32
NEWFIELD EXPLORATION COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2001
----------------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
NEWFIELD EEX ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
Revenues................................................ $749,405 $ 157,524 $906,929
-------- --------- --------
Operating expenses:
Operating............................................. 108,491 28,057 136,548
Exploration........................................... -- 48,116 $(48,116)(A) --
Production and other taxes............................ 17,523 14,731 32,254
Depreciation, depletion and amortization.............. 282,567 49,294 (49,294)(B) 360,639
78,072(C)
Ceiling test write-down............................... 106,011 106,011
Impairment of long-lived assets....................... -- 111,030 (28,744)(D) 82,286
General and administrative............................ 43,955 18,738 (226)(E) 62,467
Gain on sales of property, plant and equipment........ -- (12,263) 12,263(F) --
-------- --------- -------- --------
Total operating expenses............................ 558,547 257,703 (36,045) 780,205
-------- --------- -------- --------
Income (loss) from operations........................... 190,858 (100,179) 36,045 126,724
-------- --------- -------- --------
Other income (expenses):
Interest and other income (expense)................... 28,814 1,232 30,046
Interest expense...................................... (18,968) (29,736) 627(G) (54,049)
6,761 (H)
8,955 (I)
(21,688)(I)
Dividends on convertible preferred securities of
Newfield Financial Trust I.......................... (9,344) -- (9,344)
-------- --------- -------- --------
Total other income (expenses)....................... 502 (28,504) (5,345) (33,347)
-------- --------- -------- --------
Income (loss) before income taxes, discontinued
operations, extraordinary items and cumulative effect
of change in accounting principles.................... 191,360 (128,683) 30,700 93,377
-------- --------- -------- --------
Income tax provision.................................... 67,612 20,118 (54,412)(J) 33,318
-------- --------- -------- --------
Income (loss) before discontinued operations,
extraordinary items, cumulative effect of change in
accounting principles and preferred stock dividends... $123,748 $(148,801) $ 85,112 $ 60,059
======== ========= ======== ========
Per share data:
Basic earnings (loss) per share(Z).................... $ 2.80 $ (3.57) $ 1.17
======== ========= ========
Diluted earnings (loss) per share(Z).................. $ 2.66 $ (3.57) $ 1.15
======== ========= ========
Weighted average number of shares outstanding for
basic earnings (loss) per share..................... 44,258 41,724 (41,724)(K) 51,358
======== ========= ========
7,100(K)
Weighted average number of shares outstanding for
diluted earnings (loss) per share................... 48,894 41,724 (41,724)(K) 52,071
======== ========= ========
7,100(K)
(3,923)(L)
</Table>
33
NEWFIELD EXPLORATION COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
AS OF JUNE 30, 2002
-------------------------------------------------------------------------
NOTES OFFERING EEX MERGER
HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA
NEWFIELD EEX ADJUSTMENTS ADJUSTMENTS COMBINED
----------- ---------- -------------- ----------- -----------
ASSETS
Current assets....................... $ 170,166 $ 44,013 $ 1,456(N) $ 215,635
Oil and gas properties............... 2,602,837 903,101 (903,101)(O) 3,166,828
563,991(P)
Other................................ -- 8,582 (8,582)(Q) --
Less -- accumulated depreciation,
depletion and amortization......... (1,183,091) (386,238) 379,873(O) (1,183,091)
6,365(Q)
----------- --------- --------- --------- -----------
1,419,746 525,445 38,546 1,983,737
----------- --------- --------- --------- -----------
Property, plant and equipment held
for sale........................... -- -- 35,000(P) 35,000
Other assets......................... 17,007 4,528 $ 6,125(M) 2,000(Q) 26,810
(2,850)(R)
----------- --------- --------- --------- -----------
Total assets..................... $ 1,606,919 $ 573,986 $ 6,125 $ 74,152 $ 2,261,182
=========== ========= ========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.................. $ 156,671 $ 275,939 $(241,795)(M) $ 33,811(S) $ 224,771
145(T)
Other liabilities.................... 12,078 13,457 6,057(U) 31,592
Long-term debt....................... 375,653 133,079 247,920(M) 10,048(V) 766,700
Deferred taxes....................... 205,472 -- (82,619)(W) 122,853
----------- --------- --------- --------- -----------
Total long-term liabilities...... 593,203 146,536 247,920 (66,514) 921,145
----------- --------- --------- --------- -----------
Minority interest third party........ -- 5,000 (4,850)(X) 150
Company-obligated, mandatorily
redeemable, convertible preferred
securities of Newfield Financial
Trust I............................ 143,750 -- 143,750
Stockholders' equity................. 713,295 146,511 111,560(Y) 971,366
----------- --------- --------- --------- -----------
Total liabilities and
stockholders' equity........... $ 1,606,919 $ 573,986 $ 6,125 $ 74,152 $ 2,261,182
=========== ========= ========= ========= ===========
</Table>
34
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(A) To record the reversal of historical EEX exploration expense in accordance
with the full cost method of accounting for oil and gas activities.
(B) To record the reversal of historical EEX depreciation, depletion and
amortization expense recorded in accordance with the successful efforts
method of accounting for oil and gas activities.
(C) To record pro forma depreciation, depletion and amortization expense in
accordance with the full cost method of accounting for oil and gas
activities based on the preliminary purchase price allocation to
depreciable and depletable assets.
(D) To record the reversal of historical EEX impairment related to oil and gas
properties recorded in accordance with Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." The remaining $82 million
impairment represents the historical EEX impairment charge for non oil and
gas assets. Full cost ceiling tests were performed on a pro forma combined
basis resulting in no incremental impairment of oil and gas properties for
the period presented.
(E) To adjust EEX historical results of operations to reflect the
discontinuance of its international operations.
(F) To record the reversal of the historical EEX gain (loss) on the sales of
oil and gas properties recorded in accordance with the successful efforts
method of accounting for oil and gas activities. The remaining $0.3 million
gain on sales of property, plant and equipment for the six months ended
June 30, 2002 represents the historical EEX gain on sale of non oil and gas
assets.
(G) To adjust EEX historical interest expense to reflect the reversal of
amortization of historical debt issuance costs.
(H) To record the capitalization of interest based on the preliminary
allocation of the purchase price to unproved oil and gas properties.
(I) To eliminate the historical interest expense of approximately $4.7 million
and $8.9 million for the six months ended June 30, 2002 and the year ended
December 31, 2001, respectively, related to EEX's credit facility and to
reflect the interest expense which results from the issuance of $250
million principal amount of senior subordinated notes with a stated
interest rate of 8 3/8%. Interest expense also includes amortization of
debt issuance costs and the note discount over the term of the notes.
<Table>
<Caption>
SIX
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
(IN THOUSANDS)
Interest expense -- $250 million senior subordinated
notes..................................................... $10,469 $20,937
Amortization of note discount -- senior subordinated
notes..................................................... 73 138
Amortization of debt issuance costs -- senior subordinated
note obligations.......................................... 306 613
------- -------
$10,848 $21,688
======= =======
</Table>
(J) To record income tax expense on the pro forma adjustments based on the
applicable statutory tax rate of 35%.
(K) To reverse historical EEX common stock and reflect the issuance of 7.1
million shares of Newfield common stock.
(L) To adjust the weighted average number of shares outstanding for the
calculation of diluted earnings per share to exclude the dilutive effect of
the shares underlying the 6 1/2% quarterly income convertible trust
preferred securities because to include such shares would have been
antidilutive.
35
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(M) To reflect the issuance of $250 million principal amount of senior
subordinated notes (net of a discount of 0.832%) and the application of the
net proceeds therefrom for the repayment of EEX's credit facility and the
payment of a portion of the transaction costs of the EEX acquisition and
the adjustment associated with debt issuance costs related to the senior
subordinated notes.
(N) To increase historical EEX current commodity derivative assets by $1.5
million to estimated current fair market value.
(O) To reverse historical EEX oil and gas property balances and the related
accumulated depreciation, depletion and amortization recorded in accordance
with the successful efforts method of accounting for oil and gas
activities.
(P) To record the preliminary pro forma allocation of the purchase price of the
acquisition of EEX including estimated acquisition costs to oil and gas
properties using the purchase method of accounting. The following is a
calculation and allocation of purchase price to the acquired assets and
liabilities based on their relative fair values:
<Table>
CALCULATION OF PURCHASE PRICE (IN THOUSANDS EXCEPT PER
SHARE):
Shares of common stock to be issued......................... 7,100
Newfield stock price...................................... $ 36.348
--------
Fair value of stock issued................................ $258,071
Add: Estimated merger costs (See Note (S))................ 33,811
Plus fair market value of liabilities assumed
Other liabilities......................................... 60,106
Debt...................................................... 378,769
--------
Total purchase price for assets acquired.................... $730,757
========
ALLOCATION OF PURCHASE PRICE (IN THOUSANDS):
Oil and Gas properties.................................... $563,991
Property, plant and equipment held for sale............... 35,000
Deferred Tax Asset........................................ 82,619
Other Assets.............................................. 49,147
--------
Total..................................................... $730,757
========
</Table>
The Newfield stock price included in the table above is calculated based on
the average of the closing prices of Newfield common stock for the five day
trading period around the execution of the merger agreement. The purchase
price allocation is subject to change based on:
- the fair value of EEX's working capital and other liabilities on the
effective date;
- the actual merger costs incurred; and
- an additional review of available oil and gas reserve data to determine
the fair value of the acquired reserves on the effective date.
These items will not be known until the effective date of the merger.
(Q) To reclassify EEX historical furniture, fixtures and equipment and
associated accumulated depreciation, depletion and amortization balances to
conform to Newfield's presentation.
(R) To record the reversal of the capitalized debt issuance costs related to
EEX's historical long-term debt.
36
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(S) To accrue for estimated merger costs, consisting primarily of bankers' and
other professional fees and severance costs, some of which will be paid
with the net proceeds of the recent Newfield notes offering (see Note (M)).
Severance costs are based on the change in control provisions in employment
contracts and employee plans. No adjustments have been made to the pro
forma income statement for such costs.
(T) To adjust historical EEX current commodity derivative liabilities to
estimated current fair market value.
(U) To accrue for pension and postretirement benefits for the difference
between projected benefit obligations and plan assets of $6.3 million and
to reduce historical EEX non current commodity derivative liabilities by
$0.2 million to estimated current fair market value.
(V) To record an increase in the estimated fair market value of the gas sales
obligation of $10.0 million. Current maturities of long term debt included
in pro forma combined current liabilities are $14.6 million.
(W) To record the pro forma deferred income tax effects of the merger using the
purchase method of accounting.
(X) To adjust the historical EEX minority interest third party balance to fair
market value to reflect the unwind of the gas sales obligation in
accordance with the covenants of the merger agreement.
(Y) To record the pro forma adjustments to stockholder's equity using the
purchase method of accounting. The adjustment amount is calculated as
follows (in thousands):
<Table>
Fair value of stock issued, as calculated in Note (P)
above..................................................... $258,071
Less: EEX historical shareholders' equity................. 146,511
--------
Adjustment to stockholders' equity.......................... $111,560
========
</Table>
(Z) Calculated by dividing income (loss) before discontinued operations,
cumulative effect of change in accounting principles and preferred stock
dividends by the weighted average number of shares outstanding.
37
NEWFIELD EXPLORATION COMPANY
UNAUDITED PRO FORMA COMBINED SUPPLEMENTARY OIL AND GAS DISCLOSURES
The following pro forma estimated reserve quantities show the effect of the
acquisition of EEX as of December 31, 2001:
<Table>
<Caption>
EEX
DISPOSITIONS
HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA
NEWFIELD EEX ADJUSTMENTS(A) ADJUSTMENTS(B) COMBINED
---------- ---------- --------------- -------------- ---------
December 31, 2001:
Proved:
Oil and condensate (MBbls)...... 36,342 14,560 (10,856) (1,675) 38,371
Gas (MMcf)...................... 718,312 394,987 -- (87,146) 1,026,153
Total (MMcfe)................ 936,364 482,347 (65,136) (97,196) 1,256,379
Proved developed:
Oil and condensate (MBbls)...... 34,534 9,724 (6,644) (1,209) 36,405
Gas (MMcf)...................... 662,879 310,884 -- (50,894) 922,869
Total (MMcfe)................ 870,083 369,228 (39,864) (58,148) 1,141,299
</Table>
- ---------------
(A) To adjust EEX historical reserves for the discontinuance of its
international operations.
(B) Represents adjustments to EEX's reserves based on Newfield's estimate of
EEX's reserves as of December 31, 2001. Newfield's estimates vary
significantly from those of EEX. See Note 3 to "Summary Historical
Financial and Reserve Data -- EEX" and "The Merger -- Difference in
Estimates of EEX Proved Reserves" appearing elsewhere in this proxy
statement/prospectus.
38
NEWFIELD EXPLORATION COMPANY
UNAUDITED PRO FORMA COMBINED SUPPLEMENTARY OIL AND GAS DISCLOSURES
The following pro forma estimated standardized measure of discounted future
net cash flows shows the effect of the acquisition of EEX as of December 31,
2001:
<Table>
<Caption>
EEX
DISPOSITIONS
HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA
NEWFIELD EEX ADJUSTMENTS(A) ADJUSTMENTS(B) COMBINED
---------- ---------- -------------- -------------- ----------
(IN THOUSANDS)
Future cash inflows.... $2,552,744 $1,227,200 $(194,400) $(220,367) $3,365,177
Less related future:
Production
costs........... (686,995) (553,000)(C) 162,600(C) 153,863 (923,532)
Development and
abandonment
costs........... (258,885) -- -- (63,253) (322,138)
---------- ---------- --------- --------- ----------
Future net cash flows
before income
taxes................ 1,606,864 674,200 (31,800) (129,757) 2,119,507
Future income tax
expense.............. (282,460) (4,300) 4,300 (76,974) (359,434)
---------- ---------- --------- --------- ----------
Future net cash flows
before discount...... 1,324,404 669,900 (27,500) (206,731) 1,760,073
10% annual discount for
estimating timing of
cash flows........... (352,886) (280,700) 5,500 115,904 (512,182)
---------- ---------- --------- --------- ----------
Standardized measure of
discounted future net
cash flows........... $ 971,518 $ 389,200 $ (22,000) $ (90,827) $1,247,891
========== ========== ========= ========= ==========
</Table>
- ---------------
(A) To adjust EEX historical reserves for the discontinuance of its
international operations.
(B) Represents adjustments attributable to EEX's reserves based on Newfield's
estimate of EEX's reserves as of December 31, 2001. Newfield's estimates
vary significantly from those of EEX. See Note 3 to "Summary Historical
Financial and Reserve Data -- EEX" and "The Merger -- Difference in
Estimates of EEX Proved Reserves" appearing elsewhere in this proxy
statement/prospectus.
(C) Includes related future development costs.
39
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The merger agreement provides for the merger of Newfield Operating Company,
a wholly owned subsidiary of Newfield, with and into EEX, with EEX surviving the
merger as a wholly owned subsidiary of Newfield. At the effective time, each
outstanding share of EEX common stock will be converted into .05703 of a share
of Newfield common stock (subject to the right of holders of EEX common stock to
elect to receive units in a newly formed royalty trust in lieu of shares of
Newfield common stock, with each such unit elected reducing the number of shares
of Newfield common stock that would otherwise be received by .00054) and the
outstanding shares of EEX preferred stock will be converted into an aggregate of
4,700,000 shares of Newfield common stock. A total of approximately 7.1 million
shares of Newfield common stock will be issued pursuant to the merger agreement,
representing approximately 12.7% of the total number of shares of Newfield
common stock (on a fully diluted basis) to be outstanding after such issuance.
BACKGROUND OF THE MERGER
As EEX's Board of Directors prepared to meet for their annual strategy
review in July 2000, EEX was faced with four primary issues.
- The Cooper Field infrastructure assets, including the Enserch Garden
Banks floating production system, were generating no income for the
company but had a capital lease obligation against the infrastructure
assets of over $200 million. In addition, the infrastructure assets
securing the capital lease obligation could not be sold separately
without paying off the entire capital lease obligation.
- The obligation to provide gas to the Encogen power plant was going to
require EEX to incur substantial capital expenditures in 2000 and 2001
which ultimately totaled $62.5 million. This capital outlay was required
to meet a delivery obligation entered into some years earlier by its
predecessor company and would provide no future income to EEX.
- The Arctic I drilling rig contract had two more years before it expired
and EEX did not have firm drilling plans for the two year remaining term.
- EEX was faced with liquidity issues. The company's balance sheet was not
strong enough to realize fully the value of its assets. Because of its
high level of debt, the company was faced with spending a significant
portion of its cash flow on servicing its debt rather than on developing
its properties. In addition, its revolving bank agreement was scheduled
to expire in two years, necessitating a refinancing of the company.
At the EEX board meeting on July 25, 2000, management reviewed various
strategic options with the EEX board based on the liquidity concerns and
financial situation confronting EEX going forward. The strategic options
reviewed included the sale of assets, raising public or private equity and the
merger of EEX with an entity of sufficient size to realize the value of EEX's
Gulf of Mexico and onshore opportunities. The board instructed EEX management to
retain an investment bank to advise EEX concerning its strategic options,
including a sale of the entire company. After interviewing several investment
banks to serve as potential strategic advisors, on September 15, 2000, EEX
retained Morgan Stanley & Co. Incorporated to provide financial advice to EEX in
connection with its strategic options.
During September 2000 Morgan Stanley and EEX created a data room for
potential merger or sale candidates to review information concerning EEX.
Potential candidates were required to sign a confidentiality agreement prior to
gaining access to the data room. From September 2000 until the execution date of
the merger agreement with Newfield, EEX management and Morgan Stanley contacted
51 companies, 25 of which signed confidentiality agreements, and 21 of which
visited the EEX data room.
In early September 2000, Newfield contacted EEX and Warburg, Pincus & Co.
regarding the possibility that EEX might be a candidate for an acquisition by
Newfield. Affiliates of Warburg are the
40
owners of all of EEX's outstanding preferred stock. In December 1999, Warburg
made an investment of $150 million in EEX and was issued preferred stock. This
preferred stock pays dividends at 8% per year, payable quarterly in cash,
additional preferred stock or common stock. Since its initial investment, the
dividends have been paid in additional preferred stock, accreting to a
liquidation preference of approximately $198 million as of June 30, 2002. EEX
put Morgan Stanley in contact with representatives of Newfield. The parties
executed a confidentiality agreement on October 4, 2000. The confidentiality
agreement is for a two year term and includes, among other things, a standstill
provision and customary provisions regarding the treatment of confidential
information. The standstill provision prohibited, without the consent of EEX's
board of directors, Newfield's acquisition of EEX stock, participation in the
solicitation of proxies with respect to EEX and participation in any effort to
influence or control EEX through a business combination or otherwise. On October
24 and 25, 2000, Newfield representatives reviewed information in the data room
and were given presentations by EEX personnel concerning various operational and
financial matters, both onshore and offshore. After reviewing the information,
Newfield told Morgan Stanley that they were interested in EEX's onshore assets
but were not interested in acquiring all of EEX. EEX informed Newfield that it
was not interested in a sale of just its onshore assets.
During the first, second and early third quarter of 2001, approximately
twenty potential acquirors commenced or continued their due diligence analysis
of EEX. EEX was engaged with such parties in discussions regarding potential
acquisitions of all or a portion of the company.
In early April 2001, Newfield again contacted EEX concerning a possible
transaction in which Newfield would join with a third party to make a proposal
to acquire all of EEX. Newfield indicated that it would acquire all of EEX's
onshore assets and all of the offshore assets other than those leases in the
area of EEX's Llano discovery, offshore Louisiana, various infrastructure which
had been utilized in the Cooper Field (including the Enserch Garden Banks
floating production system and pipelines), and the contract for the Arctic I
semi-submersible drilling rig. The excluded assets were to be acquired by the
third party. Discussions commenced with the third party but were terminated when
the third party indicated it did not wish to make a bid.
On May 21, 2001, Morgan Stanley provided the EEX Board of Directors with an
update on the strategic alternatives for EEX and various financing alternatives,
including a summary of the companies contacted and recent dialogues with
interested parties. On May 23, 2001, Howard H. Newman, a director of EEX,
reported to the EEX board that he had been contacted by Newfield and another
potential acquiror regarding a transaction with EEX. Mr. Newman is also a
director of Newfield. The purchase agreement pursuant to which Warburg purchased
its preferred stock and warrants in EEX provides Warburg the right to designate
one person for election to EEX's Board of Directors. Mr. Newman, a general
partner of Warburg, Pincus & Co. and a Vice Chairman, Managing Director and
member of Warburg Pincus LLC, serves as such designee. An affiliate of Warburg
owns less than 5% of the common stock of Newfield. Mr. Newman asked the other
members of the EEX board for permission to discuss a possible transaction
between Newfield and EEX. Mr. Newman wanted to make sure that the other board
members were aware of any discussions he would have concerning this subject
because of his membership on the boards of both companies, and the ownership by
an affiliate of Warburg of less than 5% of the common stock of Newfield. The EEX
board agreed that Mr. Newman could be involved in discussions with Newfield. The
other inquiry was referred to Morgan Stanley.
During early June, 2001, Mr. Newman and Frederick M. Lowther, another
member of the EEX board, held a conference call with Newfield representatives
concerning Newfield's interest in EEX. During the call, Newfield indicated that
its valuation of EEX as a whole was below the then current market valuation. As
a result, EEX ceased discussions with Newfield regarding an acquisition of the
entire company.
At the July 25, 2001 EEX board meeting, the EEX board approved the purchase
of the lessor's interest in the Enserch Garden Banks floating production system
(the "EGB"), pipelines and related facilities for $69 million in order to
provide additional alternatives to market the floating production facility. The
lease allowed the lessor to draw on the expiring letter of credit that had been
issued in
41
support of the lease, and the lessor did so in June 2001. When the letter of
credit was drawn, the parties to the lease were committed to the purchase of the
lessor's interest by the lessee. The transaction closed on August 2, 2001 and
was recorded in the second quarter of 2001. The purchase of the lessor's
interest removed a restriction that had limited EEX's marketing of the EGB for
use only in the waters of the United States. EEX took these actions because it
believed that if it were able to sell the EGB, it could improve the EEX balance
sheet through the reduction of debt, making the company more attractive as a
possible sale or merger candidate. The EEX board also decided to pursue a plan
for the recapitalization of EEX while allowing Morgan Stanley to continue to
pursue potential strategic transaction candidates. EEX commenced preparations
for a private offering of $350 million principal amount of senior high-yield
notes, the proceeds of which would be used to pay off borrowings under EEX's
existing credit facility (which was to expire in June 2002) and the gas sales
obligation with an affiliate of Enron North America. The financing would also
include entry into a new $150 million bank credit facility. EEX also began
contacting potential purchasers of its interest in the Llano Field discovery.
The Llano Field interests were subsequently sold to Amerada Hess Corporation on
September 6, 2001 for $50 million cash plus an overriding royalty interest of
one-half of 1% for the first 100 million barrels of oil equivalent total
production from the Llano Field and 1% on all production thereafter.
Representatives of EEX were on the second day of a "road show" in connection
with the senior note offering at the time of the September 11, 2001 terrorist
attacks on New York City and Washington, D.C. In the aftermath of those attacks,
debt financing ceased to be available for the type of high-yield transaction
which EEX was pursuing, and the proposed offering was terminated.
On November 5, 2001, Mr. Newman sent a message to Mr. Hamilton indicating
that he had been informed by Newfield representatives that Newfield desired to
explore a possible combination of the companies. On November 13, 2001, David
Trice, President and Chief Executive Officer of Newfield, and Mr. Hamilton held
a meeting to discuss Newfield's renewed interest in EEX. On November 14, 2001,
Newfield contacted Mr. Hamilton about a possible merger of the two companies.
Mr. Hamilton replied that EEX was willing to reopen discussions with Newfield.
On November 19, 2001, Newfield reviewed data relating to the Devil's Island
prospect, the next prospect EEX intended to drill in the Llano area of the Gulf
of Mexico. Mr. Hamilton sent an electronic message to Mr. Trice on November 29,
2001, inviting Newfield to return to the EEX data room to update its
information. Newfield again came to the EEX data room on December 7 and 10,
2001. On December 21, 2001, Newfield met internally to review the progress of
its analysis of EEX. During the final two weeks of December and in early January
2002, Newfield continued to refine its valuation of the EEX assets.
During late 2001 and early 2002, Warburg and EEX were from time to time
contacted by a number of potential acquirors for EEX, all of whom were referred
to Morgan Stanley. In addition, Morgan Stanley received calls directly from
other parties who had visited the data room during the first three quarters of
2001 and had indicated an interest in a business combination with EEX. These
contacts led to the six proposals that were received during 2002.
On January 10, 2002, Mr. Trice sent Mr. Hamilton an electronic message
indicating that any transaction with EEX would require a purchase of Warburg's
shares of EEX preferred stock at a discount, in order to allow Newfield to pay
at least a market price for the outstanding EEX common shares. Mr. Trice
indicated that he had forwarded several ideas to Warburg for its review
regarding acquiring Warburg's interest in EEX.
On January 18, 2002, Morgan Stanley representatives met with Newfield in
Houston, Texas to review valuation issues concerning EEX, including valuation
issues concerning the EGB and associated pipelines, offshore prospects and
acreage, selected onshore fields and the valuation of certain liabilities, among
other things.
An EEX Board of Directors meeting was held on January 26, 2002 at which,
among other things, the EEX board was updated on the status of the indications
of interest from four companies for a sale or merger of the company. Mr. Newman
recused himself from and was not present for the portion of the meeting in which
the board reviewed the discussions among EEX, potential acquirors and Warburg.
42
Warburg agreed to conduct its own diligence on the then leading candidate,
referred to in this proxy statement/prospectus as "Company A," as a basis for
determining what portion of the consideration for their preferred stock they
would consider taking as equity. Warburg also informed EEX that notwithstanding
its rights to insist on cash consideration under the terms of its EEX preferred
stock, it would be willing to accept liquid securities in exchange for its
preferred shares.
Newfield representatives met with EEX's onshore staff in EEX's San Antonio
office in early February 2002 to examine information on EEX's onshore fields.
On February 7, 2002, Warburg and Newfield discussed possible methods by
which to structure an acquisition of Warburg's EEX preferred shares as part of a
merger transaction between EEX and Newfield.
During mid-February 2002, Morgan Stanley representatives held discussions
with Newfield and two other unrelated parties concerning possible proposals to
be made for EEX. On behalf of EEX, Morgan Stanley urged each party to finalize
their respective evaluations of EEX and to submit written proposals to Morgan
Stanley for review by EEX management and Morgan Stanley prior to an EEX board
meeting to be held on March 14, 2002.
During February, Warburg and Morgan Stanley conducted their due diligence
review of Company A. At a meeting of the EEX Board of Directors held on February
20, 2002, Morgan Stanley reviewed with the board the status of negotiations with
five potential acquirors, including Newfield. Morgan Stanley's presentation
included an update on recent discussions with various interested parties, a
comparison of the type of proposal each would potentially pursue and a summary
of the benefits and considerations attendant to each. In particular, the
presentation focused on the potential offer from Company A. Warburg reported to
the EEX board that, in its opinion, a combination of Company A and EEX would
result in a company that would require additional financing. Morgan Stanley
reported that three other companies (one of which was Newfield) were interested
in continuing their review of EEX as a whole. One other company had indicated to
Morgan Stanley that they were not interested in making a proposal for all of
EEX. Subsequent to the February board meeting, EEX management concluded that a
combination with Company A was not in the shareholders' best interest and
discussions with Company A were terminated.
On February 22, 2002, EEX reported preliminary results of a $168 million
loss, or ($4.02) per share, for the fourth quarter ended December 31, 2001. For
the year ended December 31, 2001, EEX reported preliminary results of a net loss
of $160 million, or ($3.85) per share. These results arose primarily from
extraordinary items totaling a loss of $160 million, including impairments
required by FAS 121 and other extraordinary items. At year-end 2001, EEX's debt
to capital ratio under its revolving credit agreement was greater than the
agreement's limit of 60% because of the decrease in equity resulting from these
losses and increases in borrowings. During February 2002, EEX's 17 bank lending
group agreed to amend EEX's loan agreement to increase the ratio to 72% and
waive the covenant breach. The amendment and waiver was to expire on April 30,
2002.
The asset write downs which triggered the covenant breach consisted
principally of non-cash impairments resulting from two transactions entered into
by EEX's predecessor, infrastructure covered by a capital lease including a
floating production system and pipelines and a natural gas delivery obligation.
The natural gas delivery obligation arose from a transaction entered into by
Enserch Exploration, Inc. in the late 1980s and involved a commitment to a west
Texas cogeneration facility. In effect, EEX had to purchase natural gas on the
open market to meet this delivery obligation. That obligation was fulfilled in
May, 2001 and the contract expired the following month.
The floating production system and pipelines were a part of Enserch
Exploration's Cooper Field development in the deepwater Gulf of Mexico.
Production began from Cooper in late 1996. Unfortunately, the field quickly
depleted and was abandoned in 1999, idling the floating production system and
pipelines. The obligations continued, however, in the form of principal and
interest payments on the capital lease, equity repurchase, and maintenance and
refurbishment of the equipment.
43
At its March 14, 2002 meeting, the EEX board instructed management to
complete the terms of a new credit facility with the 17 bank syndicate
participating in EEX's existing revolving credit facility. The existing credit
facility was due to expire in June 2002. The board had been advised that terms
of the new credit facility, which had been in discussion since November of 2001,
would require an amendment eliminating the requirement for the settlement of the
gas sales obligations EEX had entered into with an affiliate of Enron North
America. This amendment was necessary because a rise in natural gas prices
during late February and early March 2002 had resulted in an increase in the
mark-to-market cost to settle the obligation. This additional cost would
eliminate any liquidity for EEX under the negotiated terms of the new credit
facility. The board was informed that the failure to consummate the new credit
facility by the date EEX was required to file its Form 10-K with the SEC would
require EEX's independent auditors, Ernst & Young LLP, to issue its audit report
with a report modification for a "going concern" uncertainty arising from the
fact that the new credit facility would not have closed at the time the
accountants issued their audit report. This "going concern" audit report would
constitute an event of default under the existing revolving credit facility.
During its March 14, 2002 meeting, the EEX board heard presentations from
EEX management and Morgan Stanley concerning the four proposals (including the
discussions with Company A, which had been discontinued) which had been received
and ongoing discussions with two other potential purchasers. The Newfield
proposal was for a merger with EEX that provided for the issuance of Newfield
common stock to the holders of the EEX equity (common and preferred) of either
$225 million or $210 million and contingent net profits and royalty interests in
certain of EEX's offshore assets. The offer was also contingent upon the holders
of EEX's lease debt and bank debt accepting a discounted pay-off of their
indebtedness. The other two proposals involved the exchange of EEX common stock
for the common stock of the offering company or for cash. Morgan Stanley also
updated the board on all parties' discussions with Warburg in which Warburg had
indicated that, subject to its review of the offering companies, it might be
willing to accept the common stock of an offering company and accept less in
common stock or cash than the full amount of the liquidation preference of the
EEX preferred stock, all of which is owned by Warburg. In addition, the EEX
board heard from Evercore Partners L.P. ("Evercore Partners") regarding
prospects for a renewed effort to recapitalize EEX through the sale of
additional preferred shares to third parties and a new senior high yield debt
offering. The EEX board instructed management to continue working with Morgan
Stanley to obtain final proposals from Newfield and the other interested third
parties by April 19, 2002 for review at a special board meeting to be held
during the week of April 22. The EEX board also instructed management to
continue its efforts with Evercore Partners to develop a recapitalization plan
and to test the market for new offerings of preferred stock and high-yield
senior debt. EEX contacted several shareholders who held significant positions
in EEX common stock and were thought to be good candidates to inject new equity
into EEX to determine whether they would be interested in participating in the
proposed recapitalization of EEX. Under the terms of applicable confidentiality
agreements, EEX disclosed to several of such shareholders its ongoing
discussions concerning various strategic alternatives, including the Newfield
proposal.
During the first several months of 2002, EEX was in discussions with BP
Exploration & Production Inc. concerning a possible transaction involving the
leases EEX had acquired in pursuit of its Treasure Island project in the Gulf of
Mexico. EEX management was of the opinion that the Treasure Island project held
significant potential value for EEX. However, for EEX to realize this value,
either directly or through a sale or merger, a company with considerable
available capital was needed to bear the costs of drilling multiple wells to
below 20,000 feet. It was for this reason that EEX had begun discussions with
BP. Those discussions were nearing conclusion in late March. On March 22, 2002,
Mr. Hamilton informed Mr. Trice about the discussions with BP and the terms of
the proposed transaction in an effort to help Newfield understand and properly
take into consideration the effect of a possible BP transaction in any bid
Newfield might make. The proposed terms of the BP transaction included an area
of mutual interest covering 109 blocks in the Gulf of Mexico around EEX's
existing leases (the "AMI").
During the first half of April 2002, Morgan Stanley held discussions with
Newfield and four other companies concerning preparation of final proposals for
a transaction with EEX. The companies included
44
the two companies that had been discussed at the March board meeting (other than
Newfield and Company A) and two companies that had approached EEX or Morgan
Stanley about a business transaction during late March or early April. Each
company made a proposal which was reviewed at the meeting of EEX's board of
directors on April 24, 2002.
On April 17, 2002, Mr. Trice informed Mr. Hamilton that Newfield's board
would meet on April 22 to approve the final Newfield proposal to EEX. He
informed Mr. Hamilton that, as had happened whenever the Newfield board had
discussed EEX in the past, Mr. Newman would be recused from and would not be
present at the meeting and that Mr. Newman had not been provided with any
Newfield materials concerning EEX. On April 18, 2002, Newfield representatives
reviewed the preliminary results from the Devil's Island well EEX was drilling
together with Amerada Hess in the greater Llano area.
On April 24, 2002, the EEX board met in New York City to review the five
proposals received by Morgan Stanley for an acquisition of EEX and to review the
progress on a recapitalization plan. Morgan Stanley made a presentation
regarding each of the proposals, which included a comparison of the material
financial terms of each proposal. The Newfield proposal provided that the EEX
common shareholders would receive .0552 of a share of Newfield common for each
EEX common share held, comprising an aggregate amount of 2,345,304 shares of
Newfield common stock to be issued as merger consideration. As owner of the EEX
preferred shares, Warburg would receive an aggregate of 4,654,696 shares of
Newfield common stock and a 20% net profits interest in EEX's Treasure Island
acreage position. The proposal assumed certain debt limits and other obligations
for EEX which were incorrect at the time. The proposal was also conditioned on
the requirements that the AMI would not include horizons shallower than 20,000
feet and that the BP transaction would be on terms otherwise acceptable to
Newfield. Newfield had been informed verbally prior to the board meeting that
its assumptions regarding elements of EEX's debt were incorrect, and was
supplied with the correct numbers. Mr. Trice informed Morgan Stanley that
revised debt information would result in the number of shares being offered to
the EEX common shareholders being reduced by 400,000. During the board meeting,
representatives of Warburg indicated that it would be acceptable to Warburg for
the 20% net profits interest in the Treasure Island acreage position to be paid
to the EEX common shareholders rather than to Warburg. Of the other four
proposals, the first called for an exchange of the EEX common and preferred
stock for common shares of the offering company. The second proposal called for
the exchange of EEX common shares for the common stock of the offering company
or cash, with the EEX preferred stock to be exchanged for cash and common stock.
The third proposal called for EEX common stock to be exchanged for the common
stock of the offering company, and the EEX preferred stock to be exchanged for
cash or cash and common stock of the offering company. The final other proposal
was for both the EEX common stock and preferred stock to be exchanged for the
common stock of the new merged entity. During the board meeting, the EEX Board
of Directors acknowledged that Warburg, Morgan Stanley and EEX had not had an
opportunity to complete their due diligence review of all of the other four
companies that made proposals, as EEX had only recently received these
proposals.
During the April 24, 2002 meeting, EEX management and Evercore Partners
reviewed the progress made on a recapitalization plan for EEX. The EEX board was
informed that several parties had expressed an interest in acquiring portions of
a proposed preferred share offering by EEX. The EEX Board of Directors also
considered, but ultimately did not pursue, a private high-yield senior debt
offering. The board was also advised that EEX had reached agreement with its two
agent banks on a term sheet for the new secured credit facility.
The EEX board (with Mr. Newman abstaining) directed EEX management to
concentrate its efforts on concluding a merger transaction with Newfield. The
EEX board's decision to concentrate its merger efforts on Newfield was based on,
among other things, the fact that Newfield's proposal provided the highest value
per share of EEX common stock from among all of the proposals and the absence of
any significant financing contingency associated with Newfield's proposal. Based
on Newfield's share price at that time of approximately $38 per share, the EEX
common and preferred shareholders would receive approximately $267 million in
the transaction, versus $264 million from the nearest other offer. The common
shareholders were to receive a 13.8% premium to the then EEX share price
compared to
45
premiums of 5.9% and 1.7%, respectively, under two of the other offers. This
analysis was not conducted for the remaining two offers because they were deemed
to be too inadequate to merit further consideration. The net profits interest
would also increase the value to the common shareholders. The fact that Newfield
had significantly completed its asset due diligence and the liquidity provided
by Newfield common stock were also important considerations. As an additional
priority, the EEX board directed EEX management to continue its efforts to reach
agreement with potential investors for the sale of a new preferred stock
offering and to begin efforts toward a new high-yield senior debt offering.
Finally, the EEX board voted to enter into the new secured credit facility with
the 17 bank lending group when agreements had been finalized.
Beginning on April 29, 2002 and continuing through May 29, 2002, there were
almost daily meetings and conversations between EEX, EEX's legal counsel, Akin,
Gump, Strauss, Hauer & Feld, L.L.P., and Morgan Stanley with Newfield, Warburg,
and Newfield's legal counsel, Vinson & Elkins L.L.P. In addition, legal counsel
for Warburg, Willkie Farr & Gallagher, participated in negotiations concerning
those transaction issues relating to Warburg.
Mr. Trice and Mr. Hamilton met on May 1, 2002 to discuss various issues
concerning the possible merger. Mr. Hamilton and Mr. Trice discussed Newfield's
concerns related to the area of mutual interest in the Treasure Island
negotiations with BP and the possible views of various EEX shareholders with
large positions in EEX common stock. During the meeting Mr. Trice indicated that
Newfield was considering changing the 20% net profits interest to an overriding
royalty interest, promising to follow up with a detailed term sheet. The term
sheet was delivered to EEX on May 2, 2002. Between May 2 and May 6, 2002, there
were numerous conversations, primarily between David Henderson, Executive Vice
President and Chief Operating Officer for EEX, and Elliot Pew, Vice
President-Exploration for Newfield, concerning the overriding royalty interest.
On May 6, 2002, the parties agreed upon a term sheet applicable to the Treasure
Island overriding royalty, incorporating the terms subsequently included in the
final merger documents.
Between May 13 and May 20, 2002, there were several discussions and
communications between Mr. Henderson and Messrs. Trice and Pew concerning the
terms of the AMI. After a review of the proposed terms with Newfield on May 13,
2002, Mr. Hamilton proposed on May 15 several options to BP related to the AMI.
On May 17, 2002, Mr. Henderson forwarded to Mr. Pew the terms upon which EEX was
willing to finalize its AMI arrangement with BP. On May 20, BP responded with
some changes to the EEX proposal. These changes were acceptable to Newfield and
EEX. The Treasure Island agreement with BP was executed by BP and EEX on May 21,
2002.
On May 17, 2002, Mr. Trice forwarded a final proposal to Mr. Hamilton,
Warburg, and Morgan Stanley. Mr. Trice indicated that the proposal must be
accepted by May 21 or Newfield would withdraw its proposal and terminate
discussions. The proposal provided that as a result of the merger, all of the
outstanding common stock of EEX would be converted into an aggregate of
2,400,000 shares of Newfield common stock and that an overriding royalty
interest in EEX's Treasure Island project would be distributed to a trust or
other appropriate entity for the benefit of EEX's common shareholders
immediately prior to closing of the proposed transaction. Assuming a total of
42,487,395 shares of EEX common stock outstanding, this would result in an
exchange ratio of .05649 of a share of Newfield common stock for each
outstanding share of EEX common stock. The implied exchange ratio of EEX and
Newfield common stock, based on the May 21, 2002 closing prices of $1.80 and
$36.85, respectively, was .04885. In addition, all of the outstanding shares of
EEX preferred stock would be converted into an aggregate of 4,700,000 shares of
Newfield common stock.
Because Newfield's offer was less than the market capitalization of EEX
(using the contractual liquidation preference of the EEX preferred stock as its
market value), Newfield believed the key to having an acceptable proposal was a
balance between the premium to be received by the EEX common shareholders and
the discount to the contractual liquidation preference given up by the EEX
preferred shareholders. The allocation of value between the common and preferred
shareholders delivered a slight premium to the common shareholders and a
discount acceptable to the preferred shareholders. Newfield
46
assigned a value of approximately $850,000 to the assets to be transferred to
the trust, or $.02 per trust unit.
Following additional discussions with Morgan Stanley and EEX, Newfield
subsequently recognized that the trust units might appeal more to certain of
EEX's common shareholders than others and proposed that the common shareholders
be allowed to elect to receive trust units in lieu of all or a portion of the
Newfield common stock they would otherwise receive in the merger. Newfield
agreed that the total consideration to be received by the EEX common
shareholders would not decrease in the event that none of the EEX common
shareholders elected to receive trust units. The exchange ratio was therefore
increased from 0.05649 which assumed that each EEX common shareholder would
receive one trust unit for each share of EEX common stock owned, to .05703,
which assumes that no EEX common shareholders elect to receive trust units. For
each trust unit that an EEX common shareholder elects to receive, the number of
shares of Newfield common stock that such shareholder would otherwise receive in
the merger would be reduced by .00054 of a share, which represents the assumed
value per trust unit of $.02 divided by the assumed value per share of Newfield
common stock of $37.00.
Between May 17 and May 21, 2002, Morgan Stanley contacted the two other
companies that had made proposals and that were the closest competitors to the
proposal from Newfield. On behalf of EEX, Morgan Stanley urged both companies to
expeditiously improve upon and remedy deficiencies in their prior proposals. One
company made a subsequent proposal on May 21. The other company did not make
another proposal.
The EEX board met by telephone on May 21, 2002. EEX management and legal
counsel made presentations to the board concerning the status of the
negotiations with Newfield and the status of the various related agreements as
of that date. Information regarding the terms of the other offers discussed
above that had been received by Morgan Stanley was presented to the EEX board.
The other offers provided the holders of common stock with less than the
Newfield offer, were subject to financing contingencies, and were generally from
companies which were smaller than Newfield and thus less capable of addressing
EEX's liquidity issues. At least one of the proposals came from a company that
had significant diligence to complete and thus presented a timing issue. Morgan
Stanley presented its financial and valuation analysis of Newfield's May 17
proposal and indicated that they would be prepared to provide a fairness opinion
regarding the aggregate consideration offered in connection with Newfield's
proposal to be received by holders of EEX common stock, subject to the final
terms of the agreements being completed and review by its internal fairness
committee. EEX management informed the board that JPMorgan had been retained to
provide an opinion on the transaction when the final terms were complete. Akin,
Gump reviewed with the EEX board the two-thirds vote required under Texas law to
approve the proposed merger. EEX management also updated the EEX board on the
status of efforts to reach agreement with potential investors for the sale of a
new preferred stock offering and efforts toward a new high yield senior debt
offering. After the presentations, Mr. Newman recused himself and left the phone
call. The remaining members of the EEX board then discussed the proposals.
Thereafter, Mr. Newman rejoined the call and the EEX board voted (with Mr.
Newman abstaining) to instruct management to finalize the merger agreement and
related documents with Newfield and present them to the board for final approval
as soon as possible. The EEX board determined to proceed with a merger with
Newfield for the reasons set forth above. The EEX board considered the relative
merits of a recapitalization and a merger, including, among other factors, the
potential long term value for EEX shareholders presented by each. The board
chose a merger transaction as opposed to a recapitalization of EEX because of
the execution risks associated with completing a multi-step recapitalization
subject to market risks at a time when EEX was in default under its then
existing credit facility and had not yet completed negotiations with lenders
concerning a new credit facility.
Between May 21 and May 29, 2002, EEX and Newfield and their respective
legal counsel worked to finalize the merger agreement, overriding royalty
conveyance documents, trust agreement, amendment to the EEX rights agreement and
waiver agreement relating to the Warburg Purchase Agreement, each of which was
also reviewed and commented upon by Warburg and its legal counsel. Warburg and
its legal counsel worked with Newfield and its legal counsel to finalize the
voting agreement and the registration
47
rights agreement, each of which was also reviewed and commented upon by EEX and
its legal counsel. The negotiations between EEX and Newfield included
discussions concerning the mechanism by which EEX common shareholders would be
allowed to elect to take Newfield common stock, units in the Treasure Island
overriding royalty trust, or a combination of both. This mechanism is further
described under the headings "The Merger Agreement -- Trust Units" and "The
Companies -- Treasure Island Royalty Trust."
On May 28, 2002, the Board of Directors of Newfield approved the merger
agreement and related documents and the transaction contemplated thereby. Mr.
Newman recused himself from and was not present at this meeting. In connection
with their consideration of the transaction, representatives of Vinson & Elkins
L.L.P. reviewed the terms of the transaction documents and UBS Warburg LLC
presented its oral opinion to the board that, as of the date thereof, the
consideration to be paid by Newfield in the merger was fair, from a financial
point of view, to Newfield. UBS Warburg is not affiliated with Warburg, Pincus &
Co. or any of its affiliated private equity funds.
The EEX board met on May 29, 2002 by telephone to review the final terms of
the merger agreement, the voting agreement, overriding royalty conveyance
documents, trust agreement, amendment to the EEX rights agreement, and waiver
agreement relating to the Warburg Purchase Agreement. Mr. Newman did not
participate in the meeting. In addition, prior to the meeting Warburg had
advised the EEX board by electronic message that, subject to the approval of the
acquisition by the EEX board, Warburg was prepared, subject to review of final
documents and approval by the EEX board, to execute a voting agreement with
representatives of Newfield. Management of EEX and representatives of Akin,
Gump, Strauss, Hauer & Feld, L.L.P. discussed the structure of the transaction,
the change of control provisions as they relate to EEX management and employees,
the status of the negotiations with the bank lending group in connection with
the new secured credit facility, and the terms of the various agreements. Morgan
Stanley presented its financial and valuation analyses and its oral opinion to
the board that, subject to certain matters reviewed with the EEX board and
stated in Morgan Stanley's written opinion, the aggregate consideration to be
received by the holders, as a group, of EEX common stock in the proposed merger
was, as of the date of the meeting, fair, from a financial point of view, to
such shareholders. Management also advised the board that JPMorgan had provided
its oral opinion to the effect that, subject to certain matters stated in its
written opinion, the aggregate consideration to be received by the holders, as a
group, of EEX common stock in the proposed merger was, as of the date of the
meeting, fair, from a financial point of view, to such shareholders. Following
additional discussion and deliberation the board members present unanimously
approved the merger agreement, the voting agreement, the overriding royalty
conveyance documents, the trust agreement, amendment to the EEX rights
agreement, the waiver agreement relating to the Warburg Purchase Agreement and
the transactions contemplated by such agreements, and agreed to recommend that
EEX's shareholders approve the merger agreement.
Subsequent to the meeting of the EEX Board of Directors, legal counsel for
EEX, Newfield and Warburg finalized the merger agreement, the Warburg voting
agreement and related documents. The new secured credit facility with the bank
lending group was executed by all parties by 2:00 p.m., May 29, 2002. During the
afternoon of May 29, 2002, subsequent to the execution of the new secured credit
facility, EEX and Newfield entered into the merger agreement. Simultaneously,
EEX, Newfield, Warburg and the parties to the voting agreement, the waiver
agreement relating to the Warburg Purchase Agreement and the registration rights
agreement executed their respective documents. Newfield and EEX announced the
transaction on May 29, 2002.
NEWFIELD'S REASONS FOR THE MERGER
Newfield is acquiring EEX because the assets and operations of EEX are
complementary to those of Newfield. EEX's onshore properties are located in
Newfield's core South Texas focus area, and the merger will make Newfield one of
the largest independent producers in this area. In addition, during the past
year, Newfield has been seeking to establish its offshore operations in the
deepwater of the Gulf of Mexico. EEX's acreage position in the Gulf of Mexico
will help Newfield accomplish this objective.
48
EEX'S REASONS FOR THE MERGER; RECOMMENDATION OF THE EEX BOARD OF DIRECTORS
By the unanimous vote of directors present at a meeting held on May 29,
2002, the EEX Board of Directors determined the merger to be advisable and in
the best interests of EEX and its shareholders and approved the merger and the
merger agreement and determined to recommend that the EEX shareholders approve
the merger agreement.
In reaching its decision to declare the merger advisable and approve the
merger and the merger agreement and the transactions contemplated thereby, the
EEX Board of Directors consulted with EEX's legal and financial advisors, as
well as with EEX's management. The EEX Board of Directors considered the
company's financial situation and future prospects. In particular, the EEX Board
of Directors considered the following material factors:
- INCREASED LIQUIDITY AND LONG-TERM FINANCIAL STABILITY. The EEX Board of
Directors considered the company's liquidity issues, in particular the
limited available credit under its new revolving credit facility and
EEX's potential inability to meet payment obligations on its senior notes
in early 2003. EEX's new secured credit facility provides only limited
liquidity relative to its prior credit arrangements and matures on March
31, 2003. This decreased liquidity and the new credit facility's short
term would require EEX to raise additional equity and successfully place
a high yield debt offering in order to meet EEX's financing needs. If the
merger with Newfield is completed, no such financing will be required and
the risk that these financial steps could not be accomplished will be
eliminated.
- INCREASED FINANCIAL STRENGTH TO EXPLOIT ASSETS. The EEX Board of
Directors considered the likelihood that the company could not fully
realize the value of its Gulf of Mexico and onshore opportunities absent
a merger of EEX with an entity of sufficient size. Only a company with a
strong balance sheet can fully realize the value of the EEX assets,
particularly its deepwater Gulf of Mexico assets and the Treasure Island
acreage position. If the merger with Newfield is completed, Newfield will
have a strong enough balance sheet to participate in the development of
any exploratory success on these assets. EEX as a stand-alone company
would be required to continue to reduce its interest through sales or to
take smaller carried interests in any developments on these assets.
- RECEIPT OF AN ATTRACTIVE CURRENCY. If the merger with Newfield is
completed, EEX shareholders will receive, if they so choose, an
attractive currency in Newfield common stock. Newfield common stock has
historically maintained an attractive valuation compared to its peers.
- SIGNIFICANT NON-COST BEARING EXPOSURE TO THE TREASURE ISLAND PROJECT. As
more fully explained under the heading "The Merger Agreement -- Trust
Units," upon completion of the merger with Newfield, EEX's common
shareholders would have the option to elect to receive units in a new
trust in lieu of Newfield common stock. The trust will own overriding
royalty interests in future production from defined intervals generally
at depths of more than 20,000 feet from certain Gulf of Mexico lease
blocks located on the federal Outer Continental Shelf in which EEX owns
or may acquire an interest. In what EEX has called its Treasure Island
project, EEX has identified nine prospects at depths of more than 20,000
feet, which, if productive, could bring substantial value through the
overriding royalty interests to the trust. The trust is a vehicle to give
the EEX shareholders an election to participate in a direct way through
the trust's ownership of the overriding royalty interests in the possible
exploration success in the Treasure Island project. The royalty trust was
formed for ease of administration of ownership of the overriding royalty
interests and the disbursement of any proceeds, net of administrative
costs, from the overriding royalty interests to the trust unit holders.
- GREATER EXPOSURE TO ATTRACTIVE NORTH AMERICA NATURAL GAS
FUNDAMENTALS. Upon completion of the merger, approximately 83% of
Newfield's production would consist of natural gas from North America.
Newfield's strong balance sheet should enable it to manage price risk
more effectively, allowing the stockholders greater upside potential if
natural gas prices increase in the future.
49
- ADDITIONAL CAPITAL. The combined company resulting from the merger will
bring together two strong onshore U.S. production companies and would be
able to provide capital to fund additional exploration and development
activities on EEX's onshore properties.
- FAVORABLE TERMS COMPARED TO OTHER PROPOSALS. The terms of the Newfield
merger provide the holders of EEX common stock more value than the other
offers presented to the EEX Board of Directors. Other offers were subject
to financing contingencies and were generally from companies which are
smaller than Newfield and thus less capable of addressing EEX's liquidity
issues. In addition, one of the other proposals came from a company that
had significant due diligence to complete and thus presented a timing
issue. The EEX Board of Directors chose a merger transaction with
Newfield over a recapitalization of EEX because of the execution risks
associated with completing a multi-stock recapitalization subject to
market risks.
The EEX Board of Directors also considered the following material factors
in its analysis:
- information concerning the financial condition, results of operations,
prospects and businesses of both EEX and Newfield, including the reserves
of the companies, their production volumes, their cash flows from
operations, the recent stock market performance of EEX common stock and
Newfield common stock, and the ratio of EEX's common stock price to
Newfield's common stock price over various periods;
- current industry, economic and market conditions and the EEX Board of
Directors' understanding of the present and anticipated environment in
the independent exploration and production sector of the energy industry,
and the continued consolidation within this sector;
- other strategic options available to EEX (including the sale of
additional preferred stock, an offering of high yield debt and other
potential transactions) and their relative advantages and disadvantages
vis-a-vis the merger;
- the opinion of outside legal counsel that the merger could be
accomplished on a tax-free basis;
- presentations from, and discussions with, senior executives of EEX,
representatives of its outside legal counsel and representatives of
Morgan Stanley and JPMorgan regarding the business, financial and legal
due diligence, as applicable, with respect to Newfield and the terms and
conditions of the merger agreement; and
- the financial analyses of Morgan Stanley and the EEX Board of Directors'
receipt of opinions from each of Morgan Stanley and JPMorgan to the
effect that, as of May 29, 2002 and based upon and subject to certain
matters stated therein, the aggregate consideration to be received by
holders, as a group, of EEX common stock in the merger was fair, from a
financial point of view, to those holders.
Each of Morgan Stanley and JPMorgan notified the EEX Board of Directors
that, for purposes of their respective opinions, each had assumed that the
aggregate consideration to be received by the holders of EEX common stock would
consist solely of Newfield common stock, and that no such holder would elect to
receive any trust units in the merger. The EEX Board of Directors concluded
that, because common shareholders would be able to elect to take some trust
units or all Newfield common stock, and because Morgan Stanley and JPMorgan had
both opined that the aggregate consideration was fair to the holders of the EEX
common stock, the transaction was advisable and in the best interests of EEX and
its shareholders.
The EEX Board of Directors also considered certain risks and potential
disadvantages associated with the merger, including:
- the risk that the merger might not be completed as a result of a failure
to satisfy the conditions to the merger;
- the risk that the operations of the two companies may not be successfully
integrated; and
50
- other matters described under "Risk Factors."
The foregoing discussion of the information and factors considered by the
EEX Board of Directors is not exhaustive but does include all material factors
considered by the EEX Board of Directors. The EEX Board of Directors did not
quantify or attach any particular weight to the various factors that it
considered in reaching its determination that the merger agreement and the
merger are fair to and in the best interests of EEX and its shareholders. In
addition, individual directors may have given different significance to
different factors. As a result of its consideration of the foregoing and other
relevant considerations, the EEX Board of Directors determined that the merger
agreement and the merger are advisable and in the best interests of EEX and its
shareholders and adopted the merger agreement and approved the merger.
Subsequent to the May 29, 2002 meeting of the EEX Board of Directors (at which
meeting the merger agreement was adopted and the merger was approved), Newfield
made EEX aware that Newfield's estimate of EEX's proved oil and gas reserves was
approximately 23% lower than EEX's estimate, as audited by Netherland, Sewell
and Associates, Inc. See "The Merger -- Difference in Estimates of EEX Proved
Reserves." The EEX Board of Directors has concluded that no adjustment is
required with respect to EEX's reported estimate of reserves at December 31,
2001 and that this difference in reserve estimates does not impact the adequacy
of the consideration to be paid to the EEX common shareholders. Accordingly, the
EEX Board of Directors has not changed its determination that the merger
agreement and the merger are advisable and in the best interests of EEX and its
shareholders.
In considering the recommendation of the EEX Board of Directors with
respect to the merger, shareholders should be aware that the interests of
certain directors and executive officers with respect to the merger are or may
be different from the interests of the shareholders generally. The EEX Board of
Directors was aware of these interests and took these interests into
consideration in approving the merger agreement and the transactions
contemplated thereby. See "-- Interests of Certain Persons in the Merger."
BY UNANIMOUS VOTE OF THE DIRECTORS PRESENT AT THE MAY 29, 2002 MEETING OF
THE EEX BOARD OF DIRECTORS, AT WHICH THE MERGER AGREEMENT AND THE MERGER WERE
CONSIDERED AND VOTED UPON, THE EEX BOARD OF DIRECTORS HAS APPROVED AND ADOPTED
THE MERGER AGREEMENT AND APPROVED THE MERGER, AND RECOMMENDS THAT THE HOLDERS OF
EEX COMMON STOCK AND EEX PREFERRED STOCK VOTE "FOR" THE PROPOSAL TO APPROVE THE
MERGER AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS TO EEX
EEX retained Morgan Stanley to provide it with financial advisory services
in connection with the evaluation of strategic alternatives and retained
JPMorgan to provide it with financial advisory services in connection with the
merger. Morgan Stanley and JPMorgan were selected to act as EEX's financial
advisors based on their qualifications, expertise and reputation and their
knowledge of the business and affairs of EEX. The EEX Board of Directors sought
the services of two financial advisors because of the magnitude and importance
of the contemplated transaction. Each of Morgan Stanley and JPMorgan provided
written opinions, as more fully described below, to the EEX Board of Directors
in connection with its consideration of the merger.
MORGAN STANLEY
At the meeting of the EEX Board of Directors on May 29, 2002, Morgan
Stanley rendered its oral opinion, subsequently confirmed in writing, that as of
May 29, 2002, and subject to and based on the various considerations set forth
in its opinion, the aggregate consideration to be received by the holders, as a
group, of shares of EEX common stock pursuant to the merger agreement was fair
from a financial point of view to such holders. For the purposes of its opinion,
Morgan Stanley assumed, with the consent of the EEX Board of Directors, that the
aggregate consideration to be received by the holders of the EEX common stock
will consist solely of Newfield common stock, and that no such holder will elect
to receive any trust units in the merger.
51
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION, DATED AS OF MAY 29,
2002, 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 PROXY STATEMENT/PROSPECTUS AND IS SUMMARIZED BELOW. MORGAN STANLEY'S
OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF EEX, ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE AGGREGATE CONSIDERATION RECEIVED
BY THE HOLDERS, AS A GROUP, OF SHARES OF EEX COMMON STOCK PURSUANT TO THE MERGER
AGREEMENT, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR CONSTITUTE A
RECOMMENDATION TO ANY EEX SHAREHOLDER AS TO HOW TO VOTE AT THE SPECIAL MEETING
OR AS TO WHETHER HOLDERS OF EEX COMMON STOCK SHOULD ELECT TO RECEIVE ANY TRUST
UNITS IN LIEU OF NEWFIELD COMMON STOCK. THIS SUMMARY IS QUALIFIED BY REFERENCE
TO THE FULL TEXT OF THE OPINION. EEX SHAREHOLDERS ARE URGED TO READ THE OPINION
IN ITS ENTIRETY.
In connection with rendering its opinion, Morgan Stanley, among other
things:
(a) reviewed certain publicly available financial statements and other
information of EEX and Newfield, respectively;
(b) reviewed certain internal financial statements and other financial
and operating data, including internal oil and gas reserve estimates
concerning EEX, prepared by the management of EEX;
(c) reviewed certain financial forecasts prepared by the management of
EEX;
(d) reviewed certain financial forecasts and estimates for Newfield of
certain securities analysts contained in publicly available research
reports and discussed with management of EEX and Newfield such forecasts
and estimates;
(e) reviewed and discussed the past and current operations and
financial condition and the prospects of EEX, including information
relating to certain strategic, financial and operational benefits
anticipated from the merger, with management of EEX, including, EEX's
management's view of the strategic rationale for, and the timing of, the
merger, and management's view of the risks and uncertainties associated
with not pursuing the merger;
(f) reviewed and discussed the past and current operations and
financial condition and the prospects of Newfield, including information
relating to certain strategic, financial and operational benefits
anticipated from the merger, with management of Newfield;
(g) reviewed the pro forma impact of the transaction on Newfield's
cash flow per share, oil and gas reserves and production and financial
ratios;
(h) reviewed the reported prices and trading activity for EEX common
stock and Newfield common stock;
(i) compared the financial performance of EEX and Newfield and the
prices and trading activity of EEX common stock and Newfield common stock
with that of certain comparable publicly-traded companies and their
securities;
(j) reviewed certain reserve reports prepared by EEX and EEX's
independent reserve engineers;
(k) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(l) participated in discussions and negotiations among representatives
of EEX and Newfield and their financial and legal advisors;
(m) reviewed a draft of the merger agreement and certain related
documents; and
(n) performed such other analyses and considered such other factors as
Morgan Stanley deemed appropriate.
52
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
supplied or otherwise made available to 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 EEX and Newfield. Morgan Stanley did not receive financial
forecasts or internal financial or operating information for Newfield from
either Newfield or EEX. Instead, for the purposes of its analysis, Morgan
Stanley relied, with EEX's consent, on publicly available information of
Newfield, including certain financial forecasts and estimates for Newfield of
certain securities analysts contained in publicly available research reports. In
rendering its opinion, Morgan Stanley was not provided with any estimate from
Newfield of EEX's proved reserves. Morgan Stanley relied upon, without
independent verification, the assessment by the management of EEX of (1) the
strategic, financial and other benefits expected to result from the merger and
(2) the strategic rationale for, and the timing of, the merger, and management's
view of the risks and uncertainties associated with not pursuing the merger.
Morgan Stanley assumed that in connection with the receipt of all necessary
regulatory approvals for the proposed merger, no restrictions will be imposed
that would have a material adverse effect on the contemplated benefits expected
to be derived in the proposed merger. In addition, Morgan Stanley assumed that
the merger would 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, as
amended. Morgan Stanley did not make any independent valuation or appraisals of
the assets or liabilities of EEX, nor has it been furnished with any such
appraisals, other than the reserve reports referred to in (j) above. With
respect to reserve estimates and reports referred to in (b) and (j) above,
Morgan Stanley is not an expert in the engineering evaluation of oil and gas
properties and, with EEX's consent, relied, without independent verification,
upon the internal reserve estimates prepared by EEX. 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 May 29, 2002.
Morgan Stanley noted that, in accordance with the terms of the merger
agreement, a holder of EEX common stock may elect to receive trust units in lieu
of shares of Newfield common stock, and, as a result, holders of EEX common
stock may receive a combination of Newfield common stock and trust units in the
merger that is different from the combination that the other holders of EEX
common stock receive. Morgan Stanley's opinion addresses only the fairness, from
a financial point of view, of the aggregate consideration to be received by the
holders of shares of EEX common stock pursuant to the merger agreement to such
holders as a group, and does not address the fairness of the consideration to be
received by any individual holder of EEX common stock. In addition, Morgan
Stanley expresses no opinion as to the consideration to be received by the
holders of EEX preferred stock or the relative allocation of the consideration
to be received in the merger by the holders of EEX common stock and by the
holders of EEX preferred stock. Morgan Stanley's opinion does not address the
underlying business decision or the legal basis to effect the transactions
contemplated by the merger agreement or the relative merits of the transactions
contemplated by the merger agreement as compared to any alternate business
transaction, or other alternative, whether or not such alternative could be
achieved. In addition, Morgan Stanley's opinion does not in any manner address
the prices at which the Newfield common stock will trade at any time, and Morgan
Stanley expresses no opinion or recommendation as to how the shareholders of EEX
should vote at the shareholders' meeting held in connection with the merger or
as to whether holders of EEX common stock should elect to receive any trust
units in lieu of Newfield common stock.
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 letter dated May 29, 2002. 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.
53
ANALYSIS OF EEX
Summary Valuation Analysis. The following table summarizes the implied
valuation ranges derived by Morgan Stanley from each of the financial analysis
described below.
<Table>
<Caption>
IMPLIED VALUATION
VALUATION METHODOLOGY BENCHMARK MULTIPLE RANGE RANGE
- --------------------- --------------- -------------- -----------------
(IN MILLIONS)
Net Asset Valuation
Using Discounted Cash Flow Analysis..... Discount Rate 10% $0 - $100
Using Precedent Asset Transactions...... Reserve Value/ $1.00 - $1.50 $0 - $114
Mcfe
Comparable Company Analysis............... Firm Value/Mcfe $1.20 - $1.50 $0 - $84
Firm Value/ 6.0 - 7.0 $25 - $120
2002 EBITDAX
Firm Value/ 5.0 - 6.0 $0 - $2
2003 EBITDAX
Precedent Corporate Transactions
Analysis................................ Firm Value/ LTM 4.5 - 6.5 $0 - $72
EBITDAX
Firm Value/Mcfe $1.15 - $1.40 $0 - $42
</Table>
Morgan Stanley noted the implied value of the consideration to be received
by the holders of EEX common stock in the merger of approximately $90 million
based upon the closing price per share of Newfield common stock on May 24, 2002
of $37.19.
Net Asset Valuation. Morgan Stanley estimated EEX's net asset value using
two methodologies, one based on a discounted cash flow analysis and the other
based on precedent asset transactions analysis. Morgan Stanley estimated, at
various hydrocarbon pricing scenarios and a 10% discount rate, the present value
of the future pre-tax cash flows that EEX could be expected to generate from its
proved reserves as of December 31, 2001. In the analysis, Morgan Stanley assumed
three alternative cases for future oil and natural gas prices. The first
scenario was generated using the average futures prices listed on NYMEX on May
22, 2002. The second scenario was calculated using First Call median estimates
for future oil and gas prices as of May 22, 2002. The third scenario was used to
analyze the potential downside case with future commodity prices held constant
as estimated by Morgan Stanley. For each of the three scenarios, Morgan Stanley
calculated the unlevered free cash flows (defined as revenues minus cash
operating expenses, production taxes and capital expenditures) that EEX would be
expected to generate from its proved reserves during the fiscal years 2002
through 2016 and the value of the remaining proved reserves projected at 2016
based upon engineering projections prepared by the management of EEX. The
unlevered free cash flows and remaining value of proved reserves were then
discounted to obtain a present value using a discount rate of 10%. To those
estimated values for EEX's proved reserves, Morgan Stanley added assessments of
the value of certain other assets and liabilities of EEX, including, but not
limited to, other land, acreage, other assets, working capital, the book value
of debt, the present value of EEX's gas sales obligation and the value of its
preferred stock (based on 4.7 million shares of Newfield common stock to be
received by the holders of EEX preferred stock pursuant to the merger) based on
information and assumptions provided by EEX's management.
<Table>
<Caption>
VALUATION METHODOLOGY DISCOUNT RATE IMPLIED VALUATION RANGE (IN MILLIONS)
- --------------------- ------------- -------------------------------------
Discounted Cash Flow Analysis..................... 10% $0-$100
</Table>
Morgan Stanley also estimated EEX's net asset value based on a precedent
asset transactions analysis. For this analysis, Morgan Stanley reviewed selected
financial and operating information for precedent asset transactions which
involved proved reserves that for the purposes of this analysis may be
considered similar to those of EEX's proved reserves based upon geographic
location and reserve profile. Morgan Stanley defined Firm Value as the sum of
equity market capitalization, total debt, gas sales obligation and preferred
stock, minus cash and cash equivalents. Mcfe was defined as one thousand cubic
feet equivalent
54
of natural gas assuming a conversion ratio of six thousand cubic feet of natural
gas to one barrel of oil. Using publicly available information, Morgan Stanley
performed an analysis of the following precedent asset transactions:
<Table>
<Caption>
RESERVE VALUE/
BUYER/SELLER DATE MCFE
- ------------ ---------- --------------
Houston Exploration/Burlington Resources.................. 04/22/2002 $1.15
United Energy/El Paso Corporation......................... 04/09/2002 $1.02
Undisclosed/El Paso Corporation........................... 03/31/2002 $1.01
Progress Energy/Westchester Gas........................... 01/11/2002 $0.83
Noble Affiliates/Aspect Energy............................ 12/13/2001 $1.91
Houston Exploration/Conoco................................ 12/03/2001 $0.74
Santos/Undisclosed/Esenjay Exploration.................... 11/20/2001 $1.19
Mirant/Castex Energy...................................... 10/11/2001 $1.06
Novus Petroleum/Apache.................................... 08/09/2001 $0.77
Undisclosed/Meridian Resource............................. 05/21/2001 $0.72
Peoples Energy/EnCap Investments.......................... 04/27/2001 $1.85
Ocean Energy/EnSight Resources............................ 03/26/2001 $1.16
Amerada Hess/LLOG Exploration............................. 02/20/2001 $2.08
Pure Resources/International Paper........................ 01/31/2001 $0.95
Mean: $1.17
Median: $1.04
</Table>
The results of this analysis are as follows:
<Table>
<Caption>
PRECEDENT ASSET SELECTED VALUATION
TRANSACTIONS RANGE RANGE
------------------ ------------------
Reserve Value/Proved Mcfe........................... $0.72 - $2.08 $1.00 - $1.50
</Table>
Based on its judgment and assessment of the comparability of the various
transactions, Morgan Stanley applied the selected valuation range in the table
above to estimate the value of EEX's proved reserves as of December 31, 2001. To
those estimated values for EEX's proved reserves, Morgan Stanley added
assessments of the value of certain other assets and liabilities of EEX,
including, but not limited to, other land, acreage, other assets, working
capital, the book value of debt, the present value of EEX's gas sales obligation
and the value of its preferred stock (based on 4.7 million shares of Newfield
common stock to be received by the holders of EEX preferred stock pursuant to
the merger) based on information and assumptions provided by EEX's management.
The analysis resulted in an implied value of EEX's common equity of $0 to $114
million, compared to the implied value of the consideration to be received by
the holders of EEX common stock in the merger of approximately $90 million based
upon the closing price per share of Newfield common stock on May 24, 2002 of
$37.19.
No asset transaction utilized in the comparable asset transactions analysis
is identical to EEX or its assets. Mathematical analysis, such as determining
the average or median, is not in itself a meaningful method of using comparable
asset transaction data.
55
Comparable Company Analysis. Morgan Stanley reviewed selected financial
information, ratios and public market multiples for the following publicly
traded companies:
<Table>
<Caption>
FIRM VALUE/
EBITDAX
FIRM VALUE/ -----------
COMPANY MCFE 2002 2003
- ------- ----------- ---- ----
Cabot Oil & Gas Corp........................................ $1.00 6.6x 5.8x
Magnum Hunter Resources Inc................................. $1.21 5.7x 5.3x
St. Mary Land & Exploration Co.............................. $1.88 6.6x 5.6x
Swift Energy Co............................................. $1.04 8.3x 7.3x
Range Resources Corp........................................ $1.28 4.5x 5.1x
Comstock Resources.......................................... $1.11 6.1x 5.4x
3TEC Energy Corp............................................ $1.28 7.0x 4.9x
The Meridian Resource Corp.................................. $1.16 4.3x 3.5x
Brigham Exploration Co...................................... $1.67 7.6x 6.0x
Mean: $1.29 6.3x 5.4x
Median: $1.21 6.6x 5.4x
</Table>
The selected companies were chosen because they are publicly traded
companies that for purposes of this analysis may be considered similar to EEX in
terms of size, geographic location of reserves and reserve profile.
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 May
24, 2002. Morgan Stanley defined EBITDAX as earnings before interest, taxes,
depletion, depreciation, amortization and exploration expense.
The results of these analyses are as follows:
<Table>
<Caption>
COMPARABLE COMPANY SELECTED VALUATION
RANGE RANGE
------------------ ------------------
Firm Value/2002 Estimated EBITDAX.................. 4.3 - 8.3 6.0 - 7.0
Firm Value/2003 Estimated EBITDAX.................. 3.5 - 7.3 5.0 - 6.0
Firm Value/Proved Mcfe............................. $1.00 - $1.88 $1.20 - $1.50
</Table>
Based on its judgment and assessment of the comparability of the various
companies, Morgan Stanley applied the selected valuation range in the table
above to estimates prepared by the management of EEX to calculate the Firm Value
in each case. From the Firm Value, Morgan Stanley subtracted the value of the
total debt, gas sales obligation and preferred stock, and added the cash and
cash equivalents to calculate the implied equity value. The analysis resulted in
an implied value of EEX's common equity of $0 to $120 million, compared to the
implied value of the consideration to be received by the holders of EEX common
stock in the merger of approximately $90 million based upon the closing price
per share of Newfield common stock on May 24, 2002 of $37.19.
No company utilized in the comparable company analysis is identical to EEX.
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 EEX, such as the impact of competition on the business of EEX and the
industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of EEX 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.
56
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
including reserve profile:
<Table>
<Caption>
FIRM VALUE/
---------------
LTM
-------
BUYER/SELLER DATE EBITDAX MCFE
- ------------ ---------- ------- -----
Helmerich & Payne, Inc./Key Production Company,
Inc. ................................................ 02/25/2002 3.2x $1.43
Magnum Hunter Resources Inc./Prize Energy Corp. ....... 12/18/2001 4.6x $0.77
Dominion Resources, Inc./Louis Dreyfus Corp. .......... 09/10/2001 4.4x $1.12
Devon Energy Corp./Mitchell Energy Corp. .............. 08/14/2001 4.7x $1.26
Westport Resources Corp./Belco Oil & Gas Corp. ........ 06/11/2001 8.6x $1.14
Kerr-McGee Corp./HS Resources, Inc. ................... 05/14/2001 6.7x $1.28
Mean: 5.4x $1.17
Median: 4.7x $1.20
</Table>
The results of these analyses are as follows:
<Table>
<Caption>
PRECEDENT CORPORATE SELECTED VALUATION
TRANSACTIONS RANGE RANGE
------------------- ------------------
Firm Value/LTM EBITDAX.............................. 3.2 - 8.6 4.5 - 6.5
Firm Value/Proved Mcfe.............................. $0.77 - $1.43 $1.15 - $1.40
</Table>
Based on its judgment and assessment of the comparability of the various
transactions, Morgan Stanley applied the selected valuation range in the table
above to estimates prepared by the management of EEX. The analysis resulted in
an implied value of EEX's common equity of $0 to $72 million, compared to the
implied value of the consideration to be received by the holders of EEX common
stock in the merger of approximately $90 million based upon the closing price
per share of Newfield common stock on May 24, 2002 of $37.19.
No transaction utilized as a comparison in the 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 Newfield
or EEX, such as the impact of competition on Newfield, EEX and the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of Newfield, EEX 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.
90 Day Historical Range Analysis. Morgan Stanley reviewed the daily
closing price of EEX common stock for the 90 day period from February 24, 2002
to May 24, 2002. Based on EEX's common shares outstanding, the aggregate market
value of EEX common equity during this period varied from $71 million to $102
million.
Pro Forma Financial Results. To assess the impact of the merger on
Newfield's financial results, Morgan Stanley reviewed the pro forma impact of
the merger on Newfield's projected cash flow per share for the fiscal years
ended 2002 and 2003 based upon two cases for EEX's capital spending. One case
assumed EEX's capital spending would be limited to its available cash and
borrowing capacity and the other case assumed Newfield could increase EEX's
capital spending budget. The analysis was performed utilizing publicly available
securities research analyst estimates for Newfield and estimates for EEX
prepared by EEX management based on comparable commodity price forecasts. Based
on these estimates, the merger would be expected to be accretive to Newfield's
cash flow per share in 2002 and slightly dilutive to Newfield's cash flow per
share in 2003 based upon EEX's available capital spending budget and accretive
to Newfield's cash flow per share in 2002 and 2003 assuming Newfield could
increase EEX's
57
capital spending, without giving effect to any potential synergies that may
result from the merger in either case.
In connection with the review of the merger by the EEX Board of Directors,
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 EEX.
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 Newfield or EEX. 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 point of view, of the aggregate consideration to be received by the
holders, as a group, of shares of EEX common stock pursuant to the merger
agreement and were conducted in connection with the delivery by Morgan Stanley
of its opinion dated May 29, 2002 to the EEX Board of Directors. The analyses do
not purport to be appraisals or to reflect the prices at which EEX common stock
actually may be valued or the prices at which the EEX common stock may actually
trade in the marketplace.
In addition, as described above, Morgan Stanley's opinion and presentation
to the EEX Board of Directors was one of many factors taken into consideration
by the EEX Board of Directors in making its decision to approve the merger.
Consequently, the Morgan Stanley analyses as described above should not be
viewed as determinative of the opinion of the EEX Board of Directors with
respect to the value of EEX or its common stock or of whether the EEX Board of
Directors would have been willing to agree to a different consideration to be
received by the holders of shares of EEX common stock. The consideration
pursuant to the merger agreement and other terms of the merger agreement were
determined through arm's length negotiations between Newfield and EEX and were
approved by the EEX Board of Directors. Morgan Stanley provided advice to EEX
during the course of such negotiations; however, the decision to enter into the
merger agreement and to accept the consideration pursuant to the merger
agreement was solely that of the EEX Board of Directors. Morgan Stanley did not
recommend any specific consideration to EEX or that any given consideration
constituted the only appropriate consideration 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 EEX 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
indebtedness of EEX and Newfield 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 indebtedness.
Pursuant to the engagement letter dated September 15, 2000 between EEX and
Morgan Stanley, EEX agreed to pay Morgan Stanley, upon consummation of the
merger, a payment of one-half of one
58
percent of the "aggregate value" of the transaction, in addition to any expenses
incurred by Morgan Stanley in performing its services. The "aggregate value" of
the transaction is defined as the value of the consideration to be paid for
EEX's common stock plus the value of any debt, capital lease, gas sales,
minority interest and preferred stock obligations of EEX assumed, retired or
defeased in connection with the merger. In addition, EEX 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. During 2001 and 2002,
Morgan Stanley did not receive any investment banking fees from EEX, Newfield or
their affiliated entities. Morgan Stanley has engaged in other commercial
activities with EEX which are unrelated to investment banking, such as commodity
hedging.
JPMORGAN
On May 29, 2002, JPMorgan delivered its written opinion to the EEX Board of
Directors, to the effect that, as of such date and based upon and subject to
certain matters stated therein, the aggregate consideration to be received by
the holders, as a group, of EEX common stock in the merger was fair, from a
financial point of view, to those holders. JPMorgan's opinion noted that, for
purposes of its opinion, JPMorgan assumed, with the consent of the EEX Board of
Directors, that the aggregate consideration to be received by the holders of EEX
common stock will consist solely of Newfield common stock, and that no such
holder will elect to receive any trust units in the merger.
THE FULL TEXT OF JPMORGAN'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
FACTORS CONSIDERED AND LIMITATIONS UPON THE REVIEW UNDERTAKEN BY JPMORGAN IN
RENDERING ITS OPINION, IS INCLUDED AS ANNEX D. JPMORGAN'S WRITTEN OPINION WAS
ADDRESSED TO THE EEX BOARD OF DIRECTORS, WAS DIRECTED ONLY TO THE CONSIDERATION
TO BE RECEIVED BY THE HOLDERS, AS A GROUP, OF EEX COMMON STOCK IN THE MERGER,
AND DID NOT CONSTITUTE A RECOMMENDATION TO ANY EEX SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE ON THE MERGER OR ANY OTHER MATTER RELATED THERETO OR AS
TO WHETHER SUCH HOLDER SHOULD ELECT TO RECEIVE NEWFIELD COMMON STOCK OR TRUST
UNITS. THE FOLLOWING SUMMARY OF THE MATERIAL PROVISIONS OF JPMORGAN'S OPINION IS
QUALIFIED BY REFERENCE TO SUCH OPINION. EEX SHAREHOLDERS ARE URGED TO READ THIS
OPINION IN ITS ENTIRETY.
In arriving at its opinion, JPMorgan, among other things:
- reviewed a draft of the merger agreement dated May 29, 2002;
- reviewed certain publicly available business and financial information
concerning EEX and Newfield and the industries in which they operate;
- compared the proposed financial terms of the merger with the publicly
available financial terms of certain transactions involving companies
JPMorgan deemed relevant and the consideration received for such
companies;
- compared the financial and operating performance of the business of
Newfield and EEX with publicly available information concerning certain
other companies JPMorgan deemed relevant and reviewed the current and
historical market prices of EEX common stock and Newfield common stock
and certain publicly traded securities of those other companies;
- reviewed certain internal financial analyses and forecasts prepared by
the management of EEX relating to its business and equity research
reports with respect to Newfield and its business;
- reviewed copies of reports relating to oil and gas reserves of EEX
provided by EEX and copies of summary information relating to oil and gas
reserves of Newfield;
- discussed with management of EEX alternatives available to EEX in the
absence of the merger; and
- performed other financial studies and analyses and considered other
information deemed appropriate for the purposes of its opinion by
JPMorgan.
59
JPMorgan held discussions with certain members of the management of
Newfield and EEX with respect to certain aspects of the merger, and the past and
current business operations of Newfield and EEX, the financial condition and
future prospects and operations of Newfield and EEX, the effects of the merger
on the financial condition and future prospects of EEX and Newfield, and certain
other matters JPMorgan believed necessary or appropriate to its inquiry.
JPMorgan's opinion noted that it did not receive any financial analyses or
forecasts from Newfield as to Newfield's projected financial performance.
In giving its opinion, JPMorgan relied upon and assumed, without
independent verification, the accuracy and completeness of all information that
was publicly available or was furnished to it by Newfield or EEX or otherwise
reviewed by it, and JPMorgan did not assume any responsibility or liability
therefor. JPMorgan did not conduct any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to it (other
than the reserve reports), and JPMorgan did not assume any responsibility or
liability for undertaking any valuation or appraisal of EEX or Newfield, or as
to the solvency of or issues relating to solvency concerning EEX. In relying on
financial analyses and forecasts provided to it, JPMorgan assumed that they were
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of EEX to which such analyses or forecasts
relate. JPMorgan also assumed that the merger would qualify as a tax-free
reorganization for United States federal income tax purposes, and that the
merger and the other transactions contemplated by the agreement would be
consummated as described in the agreement. JPMorgan relied as to all legal
matters relevant to rendering its opinion upon the advice of counsel. JPMorgan
also assumed that the definitive agreement would not differ in any material
respects from the draft thereof furnished to JPMorgan. JPMorgan further assumed
that all material governmental, regulatory or other consents and approvals
necessary for the consummation of the merger will be obtained without any
adverse effect on Newfield or on EEX or on the contemplated benefits of the
merger.
JPMorgan's opinion was necessarily based on economic, market and other
conditions as in effect on, and the information made available to JPMorgan as
of, the date of its opinion. Subsequent developments may affect the written
opinion, and JPMorgan does not have any obligation to update, revise, or
reaffirm that opinion. JPMorgan's opinion was limited to the fairness, from a
financial point of view, of the aggregate consideration to be received by the
holders, as a group, of EEX common stock in the proposed merger. JPMorgan
expressed no opinion as to the underlying decision by EEX to engage in the
merger. JPMorgan expressed no opinion as to the price at which Newfield common
stock will trade at any future time. In addition, JPMorgan expressed no opinion
as to the consideration to be received by the holders of EEX preferred stock or
the relative allocation of the consideration to be received in the merger by the
holders of EEX common stock and by the holders of EEX preferred stock.
JPMorgan was not engaged to and did not provide advice concerning the
structure, the specific amount of the consideration paid to holders of EEX
common stock, or manner, timing or form of payment of, the consideration, or any
other aspects of the merger, or to provide services other than the delivery of
its opinion. JPMorgan was not authorized to and did not solicit any expressions
of interest from any other parties with respect to the sale of all or any part
of EEX or any other alternative transaction. JPMorgan did not participate in
negotiations with respect to the terms of the merger or any related
transactions. Consequently, JPMorgan assumed that such terms were the most
beneficial terms from EEX's perspective that could under the circumstances be
negotiated among the parties to those transactions, and JPMorgan expressed no
opinion whether any alternative transaction might produce consideration for the
holders of EEX common stock in an amount in excess of that contemplated in the
merger.
In accordance with customary investment banking practice, JPMorgan employed
generally accepted valuation methods in reaching its opinion. The following is a
summary of the material financial analyses utilized by JPMorgan in connection
with delivering its opinion. Some of the analyses include information presented
in tabular format. To understand fully the financial analyses used by JPMorgan,
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.
60
ANALYSIS OF EEX
Summary Valuation Analysis. The following table summarizes the implied
valuation ranges derived by JPMorgan from each of its financial analysis
described below.
<Table>
<Caption>
MULTIPLE
REFERENCE IMPLIED BY IMPLIED
VALUATION METHODOLOGY BENCHMARK RANGE THE MERGER VALUATION RANGE
- --------------------- --------- ----------- ---------- ---------------
(IN MILLIONS)
Selected public companies
analysis............... Equity value/ 1.5x-1.9x 1.9x $71-$90
2003E cash flow
Firm value/Estimated $1.35-$1.50 $1.47 $22-$84
proved reserves
Selected precedent
transactions
analysis............... Transaction value/ $1.20-$1.45 $1.47 $0-$65
Estimated proved
reserves
Net asset value
analysis............... $18-$105
</Table>
Selected Public Companies Analysis. Using publicly available information,
including analyst consensus estimates provided by First Call and balance sheet
items from company filings for March 31, 2002, JPMorgan compared certain
financial and operating information and ratios for EEX with the corresponding
financial and operating information for the following five exploration and
production oil and gas companies that JPMorgan deemed generally comparable based
upon their lines of business and their financial and operating characteristics,
including operating geography, scale, reserve life and reserve profile.
Multiples were calculated using closing share prices and First Call estimates as
of May 24, 2002.
<Table>
<Caption>
FIRM VALUE/
EQUITY VALUE/2003E ESTIMATED PROVED
SELECTED COMPANIES DISCRETIONARY CASH FLOW RESERVES (MCFE)
- ------------------ ----------------------- ----------------
Abraxas Petroleum Corporation..................... 1.0x $1.36
KCS Energy, Inc. ................................. 1.6x $1.70
The Meridian Resource Corporation................. 1.6x $1.43
Range Resources Corporation....................... 2.7x $1.30
3TEC Energy Corporation........................... 3.6x $1.48
Mean: 2.1x $1.46
Median: 1.6x $1.43
</Table>
This analysis indicated that:
- the ratio of the equity market value to projected cash flow in 2003
ranged from 1.0x to 3.6x, with a mean of 2.1x and a median of 1.6x; and
- the ratio of the firm value, which is defined as equity market value plus
total long-term debt minus cash plus liquidation preference of preferred
stock plus minority interest, to the most recently disclosed quantity of
estimated proved reserves, on a dollars per millions of cubic feet
equivalent, which is referred to as Mcfe, ranged from $1.30 to $1.70,
with a mean of $1.46 and a median of $1.43.
Using EEX management projections and applying a reference range of 1.5x to
1.9x as the multiple of projected cash flow per share in 2003, this analysis
indicated a range of implied values of EEX common stock of approximately $71
million to $90 million. Using EEX's estimated proved reserves as of December 31,
2001 and applying a reference range of $1.35 to $1.50 per Mcfe that was selected
based upon JPMorgan's judgment as to the comparability of EEX to the selected
companies, this analysis indicated a range of implied values of EEX common stock
of approximately $22 million to $84 million.
61
These ranges of implied values of EEX common stock compare to the implied value
of the consideration to be received by the holders of EEX common stock in the
merger of approximately $89 million based upon the closing price per share of
Newfield common stock on May 24, 2002 of $37.19.
Selected Transaction Analysis. Using publicly available information,
including analyst consensus estimates provided by First Call, as well as
estimates prepared by John S. Herold, Inc., JPMorgan examined four selected
transactions in the exploration and production industry to value EEX that
JPMorgan deemed generally comparable based upon the companies' lines of business
and their financial and operating characteristics, including operating
geography, reserve life and reserve profile. The transactions considered, the
month and year in which each transaction was announced and the relevant
valuation multiples were:
<Table>
<Caption>
TRANSACTION VALUE/PROVED
SELECTED TRANSACTIONS ACQUIROR/TARGET ANNOUNCEMENT DATE ESTIMATED RESERVES (MCFE)
- ------------------------------------- ----------------- -------------------------
Pogo Producing Company/NORIC Corp. ........ November 20, 2000 $1.47
Pure Resources, Inc./Hallwood Energy
Corporation.............................. March 30, 2001 $0.91
Cabot Oil & Gas Corporation/Cody Company... June 21, 2001 $1.38
Noble Affiliates Inc. (now renamed Noble
Energy Inc.)/Aspect Energy............... December 13, 2001 $1.44
Mean: $1.30
Median: $1.41
</Table>
The analysis indicated that the consideration paid divided by the most
recently disclosed quantity of estimated proved reserves, on a dollars per Mcfe
equivalent, ranged from $0.91 to $1.47, with a mean of $1.30 and a median of
$1.41.
Using EEX's estimated proved reserves as of December 31, 2001 and applying
a reference range of $1.20 to $1.45 per Mcfe that was selected based upon
JPMorgan's judgment as to the comparability of EEX to the selected companies,
this analysis indicated a range of implied values of EEX common stock of $0 to
approximately $63 million, compared to the implied value of the consideration to
be received by the holders of EEX common stock in the merger of approximately
$89 million based upon the closing price per share of Newfield common stock on
May 24, 2002 of $37.19.
Net Asset Value Analysis. JPMorgan conducted a net asset value analysis to
estimate the net asset value of EEX common stock. Using financial forecasts
provided by EEX management, JPMorgan estimated EEX's net asset value by
discounting the projected after-tax cash flows from EEX at rates of 10% to 12%,
and by applying a risk weighting for proved reserves of 100% and for probable
and possible reserves of 0%. This analysis indicated a range of implied values
of EEX common stock of approximately $18 million to $105 million, compared to
the implied value of the consideration to be received by the holders of EEX
common stock in the merger of approximately $89 million based upon the closing
price per share of Newfield common stock on May 24, 2002 of $37.19.
Historical Stock Performance. JPMorgan reviewed historical trading prices
for EEX common stock. This stock price performance review indicated that for the
period ended May 24, 2002, the one month, the three month, the six month, and
the twelve month average closing prices for EEX common stock were $1.87, $1.97,
$1.98 and $2.27 per share, respectively.
ANALYSIS OF NEWFIELD
Because the consideration to be received by the holders of EEX common
stock, as a group, will consist primarily of Newfield common stock, JPMorgan
performed a valuation of Newfield common stock to confirm that it was fairly
valued compared with the common stock of selected publicly traded exploration
and production companies that JPMorgan deemed generally comparable.
62
Selected Public Companies Analysis. Using publicly available information,
including analyst consensus estimates provided by First Call, JPMorgan compared
certain financial and operating information and ratios for Newfield with the
corresponding financial and operating information for the following five
exploration and production oil and gas companies believed to be generally
comparable to those of Newfield based upon their lines of business and their
financial and operating characteristics, including asset composition and
geographic location of operations:
<Table>
<Caption>
FIRM FIRM VALUE/
EQUITY VALUE/2003E VALUE/2003E ESTIMATED PROVED
SELECTED COMPANIES DISCRETIONARY CASH FLOW EBITDAX RESERVES (MCFE)
- ------------------ ----------------------- ---------------- ----------------
Forest Oil Corporation.................... 5.4x 6.3x $1.41
The Houston Exploration Company........... 3.5x 4.1x $1.97
Pogo Producing Company.................... 4.1x 5.0x $1.79
Remington Oil and Gas Corporation......... 4.9x 5.0x $2.90
Stone Energy Corporation.................. 4.2x 5.4x $2.01
Mean: 4.4x 5.2x $2.02
Median: 4.2x 5.0x $1.97
</Table>
Using the closing prices per share as of May 24, 2002, this analysis
indicated that:
- the ratio of the equity market value to projected cash flow in 2003
ranged from 3.5x to 5.4x, with a mean of 4.4x and a median of 4.2x;
- the ratio of the firm value to projected earnings before interest, taxes,
depreciation, amortization and exploration expense, which is referred to
as EBITDAX, in 2003 ranged from 4.1x to 6.3x, with a mean of 5.2x and a
median of 5.0x; and
- the ratio of the firm value to the most recently disclosed quantity of
estimated proved reserves, on a dollars per Mcfe equivalent, ranged from
$1.41 to $2.90, with a mean of $2.02 and a median of $1.97.
Using analyst consensus estimates provided by First Call and applying a
reference range of 4.00x to 4.75x as the multiple of projected cash flow per
share in 2003, this analysis indicated a range of implied values of Newfield of
approximately $35.10 to $41.70 per share. Using analyst consensus estimates by
First Call and applying a reference range of 4.50x to 5.25x as the multiple of
projected 2003 EBITDAX, this analysis indicated a range of implied values of
Newfield of approximately $36.50 to $43.90 per share. Using Newfield's estimated
proved reserves as of December 31, 2001 and applying a reference range of $2.00
to $2.50 per Mcfe, this analysis indicated a range of implied values of Newfield
of approximately $30.10 to $39.60 per share. The reference ranges described
above were selected based upon JPMorgan's judgment as to Newfield's
comparability to the selected companies. These ranges of implied values of
Newfield common stock compare to the closing price per share of Newfield common
stock on May 25, 2002 of $37.19.
Historical Stock Performance. JPMorgan reviewed historical trading prices
for Newfield common stock. This stock price performance review indicated that
for the one year period ended May 24, 2002, the current, the high and the low
closing prices for Newfield common stock were $37.19, $39.15 and $26.25 per
share, respectively.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by JPMorgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. JPMorgan believes that the summary set forth
above and its analyses must be considered as a whole and that selecting portions
thereof, without considering all of its analyses, could create an incomplete
view of the processes underlying its analyses and opinion. JPMorgan based its
analyses on assumptions that it deemed reasonable, including assumptions
concerning general business and economic conditions and industry-specific
factors. The other principal assumptions upon which JPMorgan based its analyses
are set forth above under the description of each
63
such analysis. JPMorgan's analyses are not necessarily indicative of actual
values or actual future results that might be achieved, which values may be
higher or lower than those indicated. Moreover, JPMorgan's analyses are not and
do not purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
None of the companies used in the selected public companies analysis
described above is identical to EEX or Newfield, and none of the transactions
used in the selected transaction analysis described above is identical to the
merger. Accordingly, an analysis of publicly traded comparable companies and
transactions is not exclusively mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company to which they
are being compared.
As a part of its investment banking business, JPMorgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. JPMorgan was selected to deliver an opinion to EEX's Board
of Directors with respect to the merger on the basis of such experience and
JPMorgan's familiarity with EEX.
For services rendered in connection with the delivery of its opinion, EEX
has agreed to pay JPMorgan a fee in the amount of $1.5 million payable upon
consummation of the merger. JPMorgan and its affiliates have received aggregate
fees from EEX within the past two years of approximately $1.7 million. In
addition, EEX has agreed to reimburse JPMorgan for its expenses incurred in
connection with its services, including the fees and disbursements of counsel,
and will indemnify JPMorgan against certain liabilities, including liabilities
arising under the federal securities laws.
Certain of JPMorgan's affiliates are agent bank on credit facilities for
each of EEX and Newfield and JPMorgan and its affiliates have in the past
provided other commercial and investment banking services for EEX and Newfield,
respectively, for which it would receive customary compensation. See "-- EEX
Liquidity and Capital Resources." JPMorgan's opinion noted that, as of the date
of its opinion, EEX was in default under its old credit facility.
In addition, in the ordinary course of their businesses, JPMorgan and its
affiliates may actively trade the debt and equity securities and loans of EEX or
Newfield for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities or loans.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of EEX's Board of Directors with respect
to the merger, EEX's shareholders should be aware that certain of EEX's
directors and executive officers have interests respecting the merger separate
from and in addition to their interests as holders of EEX common stock,
including those referred to below. EEX's Board of Directors was aware of these
interests and considered them in approving the merger.
EMPLOYMENT AGREEMENTS, CHANGE IN CONTROL AGREEMENTS AND SEVERANCE ARRANGEMENTS;
OPTION PLANS
The merger will constitute a change in control for purposes of EEX's stock
option plans and other benefit plans. As a result of this change in control and
pursuant to action taken by EEX's Board of Directors and its Compensation
Committee, stock options, restricted shares and other benefits under EEX's plans
automatically became fully vested following the execution of the merger
agreement.
Messrs. Thomas M Hamilton, David R. Henderson, Richard S. Langdon, Richard
L. Edmonson and Tracey E. Coats have each entered into employment contracts with
EEX that contain, among other things, provisions relating to the granting of
stock options, the award of restricted stock, and the provision of certain
benefits in the event of a termination of employment in connection with a change
in control of EEX. Each of Messrs. Hamilton, Henderson, Langdon, Edmonson and
Coats have also executed change
64
in control agreements with EEX that provide certain benefits in the event their
employment is terminated subsequent to a change in control of EEX (as defined in
the change in control agreements). The change in control agreements generally
provide that if the officer is terminated or, under certain circumstances,
elects to terminate his employment within three years following a change in
control of EEX, the officer shall be entitled to a lump-sum severance payment of
three times the sum of the officer's base salary and target bonus, a prorated
bonus in the year of termination, the value over the exercise price of certain
unexercised stock options, a three-year continuation of employee benefits, the
equivalent of two years of service credit under the retirement program, and
reimbursement of certain legal fees, expenses, and any excise taxes.
In addition to the employment contracts and change in control agreements
described above, EEX maintains severance arrangements for certain key EEX
employees, including Messrs. Hamilton, Henderson, Langdon, Edmonson and Coats
and Mr. Robert W. Oliver. Certain enhanced severance benefits would be provided
to employees covered by the EEX Corporation Employee Stability Plan and the EEX
Corporation Employee Bonus Stability Plan upon certain terminations of
employment in connection with a change in control of EEX. Guaranteed bonuses
also would be provided to employees covered by EEX's Employee Bonus Program upon
certain terminations of employment in connection with a change in control of
EEX.
In the event the same type of benefits or payments are payable under the
employment contracts, the change in control agreements and the other severance
arrangements, the officers will receive the highest benefit or payment, but not
duplicate benefits or payments.
Newfield does not expect to retain any of the executive officers of EEX as
executive officers of EEX or Newfield after the merger. However, Newfield may
retain certain officers of EEX or other EEX personnel as employees of EEX or
Newfield following the merger. EEX anticipates that the aggregate amount to be
received by the above six officers under the change in control agreements, the
employment agreements or other severance arrangements as a result of the merger
will be approximately $13.3 million (which includes aggregate payments of
approximately $3.4 million to cover excise tax liabilities incurred) in addition
to any potential payments related to the termination of unexercised options to
purchase EEX common stock. Because the per share exercise price for each
outstanding option is, in most cases, significantly in excess of both the
current trading price of EEX's common stock and the current market value of the
per share merger consideration (based on the current trading price of Newfield's
common stock), it is unlikely that any of these six officers will be entitled to
any payments related to the termination of unexercised options. If the
employment of the following EEX officers terminated at September 30, 2002, those
officers would be entitled to receive the benefits described below pursuant to
their respective employment or other change in control agreements or other
severance arrangements:
- THOMAS M HAMILTON. Mr. Hamilton would receive a payment equal to the sum
of (i) three times his annual base salary ($500,000), (ii) three times
his target bonus (85% of his annual base salary) and (iii) a "gross-up"
payment for any excise tax liability. Mr. Hamilton also would be entitled
to a continuation of his health benefits for a period of three years. In
addition to the 327,271 shares of EEX common stock Mr. Hamilton currently
owns, Mr. Hamilton holds options to purchase 430,000 shares of EEX common
stock at exercise prices ranging from $3.53 to $15.47, all of which are
fully vested, and 71,099 shares of restricted stock of EEX, the
restrictions with respect to which will be lifted immediately prior to
the effective time of the merger. Assuming he elects to receive only
Newfield stock and no trust units in the merger, Mr. Hamilton will
receive 22,719 shares of Newfield common stock in exchange for his EEX
common stock. EEX expects the aggregate amount of consideration received
by Mr. Hamilton as a result of the merger to be approximately $4.5
million, in addition to any potential payments related to the termination
of unexercised options to purchase EEX common stock, as discussed above.
- DAVID R. HENDERSON. Mr. Henderson would receive a payment equal to the
sum of (i) three times his annual base salary ($272,000), (ii) three
times his target bonus (80% of his annual base salary) and (iii) a
"gross-up" payment for any excise tax liability. Mr. Henderson also would
be entitled to
65
a continuation of his health benefits for a period of three years. In
addition to the 69,192 shares of EEX common stock Mr. Henderson currently
owns, Mr. Henderson holds options to purchase 200,000 shares of EEX
common stock at exercise prices ranging from $3.53 to $15.47, all of
which are fully vested, and 12,567 shares of restricted stock of EEX, the
restrictions with respect to which will be lifted immediately prior to
the effective time of the merger. Assuming he elects to receive only
Newfield stock and no trust units in the merger, Mr. Henderson will
receive 4,662 shares of Newfield common stock in exchange for his EEX
common. EEX expects the aggregate amount of consideration received by Mr.
Henderson as a result of the merger to be approximately $2.4 million, in
addition to any potential payments related to the termination of
unexercised options to purchase EEX common stock, as discussed above.
- RICHARD S. LANGDON. Mr. Langdon would receive a payment equal to the sum
of (i) three times his annual base salary ($272,000), (ii) three times
his target bonus (80% of his annual base salary) and (iii) a "gross-up"
payment for any excise tax liability. Mr. Langdon also would be entitled
to a continuation of his health benefits for a period of three years. In
addition to the 65,132 shares of EEX common stock Mr. Langdon currently
owns, Mr. Langdon holds options to purchase 210,000 shares of EEX common
stock at exercise prices ranging from $3.53 to $15.47, all of which are
fully vested, and 13,534 shares of restricted stock of EEX, the
restrictions with respect to which will be lifted immediately prior to
the effective time of the merger. Assuming he elects to receive only
Newfield stock and no trust units in the merger, Mr. Langdon will receive
4,486 shares of Newfield common stock for his EEX common stock. EEX
expects the aggregate amount of consideration received by Mr. Langdon as
a result of the merger to be approximately $2.4 million, in addition to
any potential payments related to the termination of unexercised options
to purchase EEX common stock, as discussed above.
- RICHARD L. EDMONSON. Mr. Edmonson would receive a payment equal to the
sum of (i) three times his annual base salary ($208,000), (ii) three
times his target bonus (75% of his annual base salary) and (iii) a
"gross-up" payment for any excise tax liability. Mr. Edmonson also would
be entitled to a continuation of his health benefits for a period of
three years. In addition to the 11,900 shares of EEX common stock Mr.
Edmonson currently owns, Mr. Edmonson holds options to purchase 50,000
shares of EEX common stock at an exercise price of $5.78, all of which
are fully vested, and 7,332 shares of restricted stock of EEX, on which
the restrictions with respect to which will be lifted immediately prior
to the effective time of the merger. Assuming he elects to receive only
Newfield stock and no trust units in the merger, Mr. Edmonson will
receive 1,096 shares of Newfield common stock in exchange for his EEX
common stock. EEX expects the aggregate amount of consideration received
by Mr. Edmonson as a result of the merger to be approximately $1.9
million, in addition to any potential payments related to the termination
of unexercised options to purchase EEX common stock, as discussed above.
- TRACEY E. COATS. Mr. Coats would receive a payment equal to the sum of
(i) three times his annual base salary ($172,500), (ii) three times his
target bonus (50% of his annual base salary) and (iii) a "gross-up"
payment for any excise tax liability. Mr. Coats also would be entitled to
a continuation of his health benefits for a period of three years. In
addition to the 9,581 shares of EEX common stock Mr. Coats currently
owns, Mr. Coats holds options to purchase 41,700 shares of EEX common
stock at exercise prices ranging from of $3.53 to $11.16, all of which
are fully vested, and 7,000 shares of restricted stock of EEX, the
restrictions with respect to which will be lifted immediately prior to
the effective time of the merger. Assuming he elects to receive only
Newfield stock and no trust units in the merger, Mr. Coats will receive
945 shares of Newfield common stock. EEX expects the aggregate amount of
consideration received by Mr. Coats as a result of the merger to be
approximately $1.3 million, in addition to any potential payments related
to the termination of unexercised options to purchase EEX common stock,
as discussed above.
- ROBERT W. OLIVER. Mr. Oliver would receive a payment equal to the sum of
(i) two times his annual base salary ($210,000), (ii) two times his
target bonus (60% of his annual base salary) and (iii) a guaranteed bonus
of one and one half times his target bonus (60% of his annual base
66
salary). Mr. Oliver also would be entitled to a continuation of his
health benefits for a period of eighteen months and a payment for
outplacement services valued at up to $6,000. In addition to the 12,467
shares of EEX common stock Mr. Oliver currently owns, Mr. Oliver holds
options to purchase 55,000 shares of EEX common stock at exercise prices
ranging from $2.72 to $3.53, all of which are fully vested, and 25,000
shares of restricted stock of EEX, the restrictions with respect to which
will be lifted immediately prior to the effective time of the merger.
Assuming he elects to receive only Newfield stock and no trust units in
the merger, Mr. Oliver will receive 2,136 shares of Newfield common stock
in exchange for his EEX common stock. EEX expects the aggregate amount of
consideration received by Mr. Oliver as a result of the merger to be
approximately $0.9 million, in addition to any potential payments related
to the termination of unexercised options to purchase EEX common stock,
as discussed above.
INDEMNIFICATION
The merger agreement provides that Newfield will, to the extent that EEX
would be permitted by applicable law or its bylaws, indemnify each person who
was, at the date of the merger agreement, or has been at any time prior to the
date of the merger agreement, or who becomes prior to the effective time of the
merger, an officer or director of EEX or any of its subsidiaries against all
losses, expenses (including reasonable attorney's fees and expenses), claims,
damages or liabilities or, subject to Newfield's written consent, settlements
that arise out of actions or omissions occurring at or prior to the effective
time of the merger (whether asserted or claimed prior to, at or after the
effective time of the merger) and that are, in whole or in part, based on the
fact that such person is or was a director or officer of such party.
The merger agreement also provides that, for a period of not less than six
years after the effective time of the merger, Newfield will, subject to certain
limitations, maintain EEX's existing directors' and officers' liability
insurance policies, but only to the extent related to actions or omissions prior
to the effective time of the merger.
To the fullest extent permitted by law, all rights to indemnification as of
the date of the merger agreement in favor of directors, officers, employees and
agents of EEX and its subsidiaries with respect to their activities prior to the
effective time, as provided in their respective certificates of incorporation
and bylaws in effect on the date of the merger agreement, or otherwise in effect
on the date of the merger agreement, will survive the merger and will continue
in full force and effect.
WARBURG PINCUS/HOWARD H. NEWMAN
Warburg, Pincus & Co. is the sole general partner of Warburg, Pincus Equity
Partners, L.P., Warburg, Pincus Netherlands Equity Partners I, C.V., Warburg,
Pincus Netherlands Equity Partners II, C.V. and Warburg, Pincus Netherlands
Equity Partners III, C.V. (together, the WP Funds), private equity funds that
together own all of the outstanding shares of EEX preferred stock. Warburg
Pincus LLC (WP LLC) manages each of the WP Funds. Howard H. Newman is a director
of Newfield and EEX. In addition, Mr. Newman is a general partner of Warburg,
Pincus & Co. and a Vice Chairman, Managing Director and member of WP LLC.
Another private equity fund of which Warburg, Pincus & Co. is the sole general
partner owns 1,864,735 shares of Newfield common stock. WP LLC also manages this
private equity fund. Mr. Newman owns 65,226 shares of Newfield common stock.
Mr. Newman recused himself from the May 29, 2002 meeting of the EEX Board
of Directors, at which the merger agreement and the merger were considered and
approved, and certain other meetings of the EEX Board of Directors at which the
merger was discussed. In addition, Mr. Newman recused himself from all meetings
of the Newfield Board of Directors at which the merger was discussed. See "The
Merger -- Background of the Merger."
Receipt of Newfield Common Stock in the Merger. The WP Funds will receive
an aggregate of 4,700,000 shares of Newfield common stock in exchange for their
shares of EEX preferred stock. In addition, Mr. Newman owns 56,992 shares of EEX
common stock and options to purchase an additional 65,351 shares of EEX common
stock. Assuming he elects to receive only Newfield common stock and no
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trust units in the merger, Mr. Newman individually will receive 3,250 shares of
Newfield common stock with an aggregate value of approximately $106,000, based
on the closing price of Newfield common stock of $32.60 on August 20, 2002, in
exchange for the 56,992 shares of EEX common stock that he currently owns.
Following the completion of the merger, the WP Funds and the Warburg affiliated
private equity fund that currently owns Newfield common stock will together hold
approximately 13%, and Mr. Newman individually will hold less than 1%, of the
outstanding common stock of Newfield. Because Mr. Newman is a general partner of
Warburg, Pincus & Co., he may be deemed to beneficially own the shares of
Newfield common stock to be held by the Warburg private equity funds after the
merger. Mr. Newman disclaims such beneficial ownership. Mr. Newman's unexercised
options to purchase EEX common stock will be cancelled upon consummation of the
merger.
Voting Agreement. The WP Funds have entered into a voting agreement and
irrevocable proxy with Newfield, Thomas M Hamilton, David R. Henderson and
Richard S. Langdon (the chief executive officer, chief operating officer and
chief financial officer, respectively, of EEX) and David A. Trice and Terry W.
Rathert (Newfield's chief executive officer and chief financial officer,
respectively). Pursuant to the voting agreement, the WP Funds have agreed to,
and have granted to David A. Trice and Terry W. Rathert an irrevocable proxy to,
among other things, vote all of their shares of EEX preferred stock in favor of
the merger agreement and the merger and against any proposal or other matter
that could reasonably be expected to impede, interfere with, delay, postpone or
materially affect the transactions contemplated by the merger agreement. The WP
Funds have also agreed to certain restrictions on their activities related to
the merger. See "Voting Agreement and Irrevocable Proxy."
The voting agreement also provides that, effective at the consummation of
the merger:
- the WP Funds will sell to Newfield all of the warrants to purchase EEX
common stock held by the WP Funds for an aggregate purchase price of
$10.00; and
- the registration rights of the WP Funds under the Registration Rights
Agreement dated as of January 8, 1999 by and among EEX and the WP Funds
will terminate.
The voting agreement also provides that Newfield will reimburse the WP Funds for
50% of any filing fees paid by the WP Funds in connection with filings made
under the HSR Act if the merger is consummated. The WP Funds may terminate the
voting agreement if:
- the merger agreement is amended without the consent of the WP Funds to
increase the consideration payable to the holders of EEX common stock or
to decrease the consideration payable to the WP Funds as the holders of
EEX preferred stock; or
- Newfield purchases or agrees to purchase any shares of EEX common stock
at a per share purchase price greater than the product of (x) 0.05703 and
(y) the market price of the Newfield common stock (as determined in the
voting agreement).
Registration Rights Agreement. Concurrently with the execution of the
merger agreement, Newfield entered into a Registration Rights Agreement with the
WP Funds that will take effect upon the consummation of the merger. Pursuant to
this agreement, Newfield is obligated to file with the SEC within 30 days of the
consummation of the merger, and to have declared effective by the SEC within 120
days of the consummation of the merger, a shelf registration statement under the
Securities Act to register the reoffering and resale of the shares of Newfield
common stock received by the WP Funds in the merger. Newfield will be required
to maintain the effectiveness of the shelf registration statement until all of
the shares of Newfield common stock received by the WP Funds in the merger have
been sold or until such time as such shares are eligible for sale under Rule
144(k) under the Securities Act. Pursuant to the registration rights agreement,
until the first anniversary of the consummation of the merger, the maximum
number of shares of Newfield common stock that any of the WP Funds may sell on
the New York Stock Exchange in any one month, with certain exceptions, is the
greater of (x) 25% of the average monthly trading volume of Newfield common
stock as reported by the New York Stock Exchange for the previous two months and
(y) 20% of the number of shares of Newfield common stock issued to such WP Fund
in the merger. Newfield may suspend the WP Funds' use of any prospectus which is
part of a shelf
68
registration statement if Newfield possesses material nonpublic information. No
such suspension may last longer than 45 consecutive days, and all such
suspensions may cover no more than an aggregate of 90 days within any period of
twelve consecutive months.
In addition, if Newfield proposes to file a registration statement or a
prospectus supplement to an already effective shelf registration statement with
respect to an underwritten offering of Newfield common stock, the WP Funds will
have the right to include their shares of Newfield common stock in the
registration, subject to certain limitations.
The registration rights agreement contains customary indemnification and
contribution provisions by Newfield for the benefit of the WP Funds. In
addition, each of the WP Funds has agreed to indemnify Newfield solely with
respect to information provided by such WP Fund, with such indemnification being
limited to the amount by which the proceeds received by such WP Fund exceeds the
amount of any loss that such WP Fund has otherwise been required to pay by
reason of such information.
North Sea Joint Venture. Newfield recently formed a subsidiary in the
United Kingdom and opened an office in London. Newfield is currently evaluating
opportunities in the North Sea. In connection with this evaluation, Newfield and
Warburg, Pincus & Co. are currently discussing the terms of a potential North
Sea joint venture between the two parties. These discussions are not related to
the merger.
BOB WEST FIELD EMPLOYEE ROYALTY POOL
In addition to the interests of certain of EEX's directors and officers
described above, two employees of EEX currently hold overriding royalty
interests in certain properties owned by EEX. In connection with EEX's
acquisition of Tesoro Petroleum Corporation and its affiliates in 1999, EEX
assumed outstanding obligations relating to the Bob West Field Employee Royalty
Pool, under which certain employees were granted overriding royalty interests in
production related to the Bob West field in South Texas. John W. Bissell, Vice
President, Onshore Division, and Leonel L. Saavedra, Senior Explorationist, are
participants in the royalty pool and each hold interests in the royalty pool of
5.99% and 5.73%, respectively. Each of Messrs. Bissell and Saavedra have
received payment with respect to their interests in the following amounts over
the last three years:
<Table>
<Caption>
2000 2001 2002 TOTAL
------- ------- ------- --------
John W. Bissell............................... $20,949 $37,025 $41,501 $ 99,475
Leonel L. Saavedra............................ $20,040 $35,418 $39,699 $ 95,157
------- ------- ------- --------
Total....................................... $40,989 $72,443 $81,200 $194,632
======= ======= ======= ========
</Table>
These individuals may have a management role in the operations of such
properties after the merger that could influence the economics of such
properties and which could constitute a conflict of interest.
EEX LIQUIDITY AND CAPITAL RESOURCES
Effective May 28, 2002, EEX and EEX Operating, L.P., a wholly owned
subsidiary of EEX, entered into a new $250 million revolving credit facility
with a group of banks and JPMorgan Chase Bank, as Administrative Agent. In its
capacity as administrative agent, JPMorgan Chase Bank was involved in the
restructuring and syndication of this new revolving credit facility. A copy of
the new credit agreement and related documents were filed as exhibits to EEX's
Current Report on Form 8-K filed on June 6, 2002. EEX Operating borrowed $225
million under the new credit agreement upon execution and, together with $100
million in cash, repaid and terminated its existing revolving credit agreement.
On August 20, 2002, the outstanding amount under the new credit agreement was
approximately $223 million and the available credit was approximately $17
million. As of June 30, 2002, EEX met the required financial covenant ratios
and, based upon preliminary information, EEX expects to meet the reserve
maintenance requirements of the new credit agreement.
During the remainder of the current year, EEX's sources of liquidity will
be operating cash flows from EEX Operating and borrowings under the new credit
agreement. Operating cash flows from EEX E&P
69
Company, L.P., a subsidiary of EEX, will not be available to EEX because of
restrictions in a natural gas forward sale agreement between EEX and a third
party.
EEX estimates, based upon its current forecast, that it will have drawn all
or substantially all of its available credit under the new credit agreement by
December 31, 2002. EEX has no current source of funds to make the approximately
$15 million payment on its secured notes due January 2, 2003. There can be no
assurances that EEX will be able to meet the financial covenants of the new
credit agreement as of the end of the third and fourth calendar quarters of this
year, and, if it does not, it will be in default. There can be no assurances
that EEX will be able to cure such default, or any other covenant default that
may occur. The occurrence of one or more of these events, if not timely cured,
may have a material adverse effect (as defined in the merger agreement) on EEX,
which would give Newfield the right to terminate the merger agreement pursuant
to its terms.
EEX is not currently pursuing additional sources of financing because of
the proposed merger and restrictions in the merger agreement with Newfield. If
the merger does not take place, there can be no assurances that EEX will be able
to obtain additional financing before it uses all of its available credit under
the new credit agreement. EEX also will require additional financing to make the
January 2, 2003 payment on its secured notes if the merger does not take place.
In addition, in connection with the new credit agreement, EEX will be obligated
to pay a loan restructuring fee of $2,500,000 and an arrangement fee of $750,000
on September 30, 2002, provided that
- if EEX has received all governmental approvals for the proposed merger
and has distributed all proxy and related voting materials to its
shareholders by such date, then the required payment of these fees will
be delayed until November 30, 2002; and
- if the merger has been consummated by November 30, 2002, then EEX will
have no obligation to pay the fees.
There can be no assurances that EEX will have the funds available to pay the
loan restructuring fee or the arrangement fee if and when they become due.
DIFFERENCE IN ESTIMATES OF EEX PROVED RESERVES
Newfield's estimate of EEX's proved oil and gas reserves at December 31,
2001 is approximately 23% less than EEX's estimate. EEX disagrees with
Newfield's estimate and believes that no adjustment is required with respect to
its reported estimate of proved reserves at December 31, 2001. The difference
between the two companies' estimates of EEX's proved reserves was raised
subsequent to the approval of the merger by the EEX Board of Directors and does
not impact the adequacy of the consideration to be paid to the holders of EEX
common stock in connection with the merger. See "-- Background of the Merger"
and "-- Opinions of Financial Advisors to EEX."
BACKGROUND
Prior to the signing of the merger agreement, Newfield provided EEX with a
draft of its proposed press release announcing the proposed acquisition by
Newfield of EEX. The draft provided to EEX and the press release as issued
indicated that Newfield's estimate of EEX's proved reserves at December 31, 2001
were about 20% less than EEX's estimate of 417 Bcfe (as adjusted for EEX's
disposition of its international operations after December 31, 2001). EEX
advised Newfield that EEX did not agree with Newfield's assessment of EEX's
proved reserves and requested that each company's technical personnel meet to
determine the basis of the differences. Such meeting took place subsequent to
the execution of the merger agreement.
While Newfield and EEX were preparing a preliminary version of this proxy
statement/prospectus, Newfield provided EEX with a draft of the unaudited pro
forma combined supplementary oil and gas disclosures appearing elsewhere in this
proxy statement/prospectus that indicated Newfield's estimate of EEX's proved
reserves at December 31, 2001 of 320 Bcfe. Because of the significance of this
estimation difference and the potential implications to EEX's consolidated
financial statements as of and for the year
70
ended December 31, 2001 and the supplemental information about proved oil and
gas reserves supplemental to those financial statements, EEX performed the
following procedures:
- EEX technical representatives met with technical representatives of
Newfield and EEX's independent oil and gas reserve auditor, Netherland,
Sewell & Associates, Inc. (NSAI), to discuss, on a field-by-field basis,
the reasons for the difference between the estimates of Newfield and EEX;
- after its discussions with Newfield and NSAI, EEX reevaluated its
estimate of its proved oil and gas reserves at December 31, 2001 and
concluded that no revisions were warranted;
- after its discussions with Newfield and EEX, NSAI reexamined the basis
for its audit of EEX's estimate of its proved oil and gas reserves at
December 31, 2001 and concluded in a letter addressed to EEX that there
was no additional information or enlightenment provided by Newfield that
would cause either EEX or NSAI to materially revise EEX's estimate of its
proved reserves at December 31, 2001; and
- subsequent to the initial filing with the SEC of the registration
statement of which this proxy statement/prospectus is a part, EEX engaged
Huddleston & Co., Inc., independent petroleum engineers not previously
involved in the preparation or audit of EEX's estimate of its proved
reserves, to review the procedures and documentation prepared by both EEX
and NSAI. Huddleston issued a written report on its findings on July 2,
2002 that concluded that, in their opinion, the estimated reserves and
revenues for both the reserve report prepared by EEX and the audit
performed by NSAI have been prepared in accordance with their
understanding of applicable SEC rules and accounting standards and
consistent with applicable professional standards.
Based upon these procedures, EEX has reaffirmed that its previously
reported supplemental information about proved oil and gas reserves is in
accordance with SEC and professional standards, and has determined that no
adjustment is required to its consolidated financial statements as of and for
the year ended December 31, 2001.
Because of the potential implications to EEX's financial statements
resulting from the difference between Newfield's and EEX's estimate of EEX's
proved reserves at December 31, 2001, EEX's independent auditors, Ernst & Young
LLP, did not consent to the incorporation by reference of their report on the
consolidated financial statements of EEX as of December 31, 2001 and for the
year then ended in the initial filing with the SEC on June 21, 2002 of the
registration statement of which this proxy statement/prospectus is a part.
Following the receipt of the Huddleston report described above Ernst & Young LLP
agreed to provide their written consent to the incorporation by reference of
their report on the consolidated financial statements of EEX as of and for the
year ended December 31, 2001 and to the reference to their name in amendments to
the registration statement filed with the SEC on July 3, 2002 and August 22,
2002.
DESCRIPTION OF THE DIFFERENCE IN ESTIMATES
In general an estimate of proved reserves depends on the availability of
data needed to develop the estimate and on the experience and judgment of the
reservoir engineer making the estimate. Estimating accumulations of oil and gas
is complex. Estimates prepared by different persons may vary significantly
because of the judgments made in interpreting the data. See "Risk
Factors -- Risks Relating to the Merger." In fact, it is common for the proved
reserve estimates of the buyer and seller of oil and gas properties to vary
significantly.
After the initial filing of the registration statement, representatives of
EEX again met with representatives of Newfield to assist Newfield in
categorizing, on a field-by-field basis, their differences in estimates of
proved reserves. Newfield placed substantially all of the differences into one
of four categories:
- the performance history of the reservoir (46% of the difference);
- the map or drainage area or the volumetrics associated with the area (30%
of the difference);
71
- new well or discovery (14% of the difference); and
- the availability of data (11% of the difference).
The predominant method of determining proved reserves associated with
producing wells is to study the performance history and draw conclusions from
that history. The performance history of a well, which includes production and
pressure data, can be used to project what the well will produce in the future.
Utilizing trends, the engineer can predict how much the well will ultimately
recover, and thereby predict the remaining proved reserves. The most common
techniques are graphing the well's production versus time or the well's pressure
versus production, and extrapolating a trend line. Because data generally does
not fit a perfectly straight line, the best fit of the data is interpretive. The
engineer must decide whether external conditions have influenced some of the
data points more than others, what conditions may change a trend in the future
and whether there are reasons some of the historical data should be relied upon
to a greater or lesser degree than other historical data. Additionally, the
accuracy of data measurement in the field can influence how trends in the data
are interpreted. Frequently, an engineer also will use analogies drawn from
similar fields and wells that produce from similar sands in the same geologic
region.
For a reservoir that does not have an established production history, the
primary method of estimating proved reserves is the volumetric method. This
method involves the calculation of the volume of oil and gas within the
hydrocarbon reservoir by geologic interpretation and analysis. The configuration
and size of the hydrocarbon reservoir are determined by using well logs and
seismic data. Well logs also are used to determine the physical parameters of
the reservoir, such as the porosity of the rocks in which the reservoir resides,
the relative volumes of oil, gas and water and the portion of the reservoir that
has adequate fluid flow properties so that it may be produced. Interpretive
differences in these parameters based upon the experience and judgment of the
geologist or engineer can result in different volumes being mapped or included
in the drainage area. A seemingly small difference in just one component of the
parameters used to determine volumes of proved reserves can have a significant
effect on the outcome. Also included in this category of differences are
estimates of the areas that can be produced by one or more wells and the
recovery efficiency of a well. Generally, the drainage area is determined based
upon technical data obtained from producing the wells or by analogy to another
similar reservoir.
Differences in reserve determinations relating to recently drilled wells or
new discoveries often arise because of the limited amount of data available to
support either volumetric or performance history reserve determinations. The
determination of proved reserves is subject to even greater variation between
interpreters when the newly discovered producing zone is not a recognized or
significant producing zone in a geologic trend and there are few, if any,
analogies for producing characteristics or experience with hydrocarbon
recoveries on a per well or per completion basis.
In the course of determining proved reserves, data from both the wells
being analyzed and from other wells in a geologic trend, together with
two-dimensional and three-dimensional seismic data, can be used by geologists
and engineers in their evaluation. Data that one party has that is not specific
to the well being analyzed but is relevant to the analysis may be different from
the data being used by the other party. One party may have performance history
data from other wells in which it owns an interest that are relevant to the
analysis but are not available to the other party. Additionally, new data is
constantly becoming available, but parties may receive it at different times or
give it different weight in a particular application. If different data is used
in the analysis, it is likely to result in a different determination of proved
reserves.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase, as such term is used under
accounting principles generally accepted in the United States. Accordingly, from
and after the effective time of the merger, EEX's consolidated results of
operations will be included in Newfield's consolidated results of operations.
For purposes of preparing its consolidated financial statements, Newfield will
establish a new accounting basis for EEX's assets and liabilities based upon
their estimated fair values and Newfield's purchase price, including the costs
of the acquisition. Accordingly, the purchase accounting adjustments made in
72
connection with the development of the unaudited pro forma combined condensed
financial information appearing elsewhere in this proxy statement/prospectus are
preliminary. These adjustments have been made solely for purposes of developing
such unaudited pro forma combined condensed financial information to comply with
disclosure requirements of the SEC. Although the final purchase price allocation
may differ materially, the unaudited pro forma combined condensed financial
information reflects Newfield's best estimate based upon currently available
information. For more information regarding the pro forma allocation of the
purchase price, see "Unaudited Pro Forma Combined Condensed Financial
Information."
GOVERNMENTAL AND REGULATORY APPROVALS
Newfield filed a pre-merger notification filing with the Federal Trade
Commission under the Hart-Scott-Rodino Antitrust Improvements Act and received
early termination of the waiting period required by that act on July 24, 2002.
There are no other governmental or regulatory approvals that are required to
complete the merger.
At any time before or after the effective time of the merger, the
Department of Justice, the Federal Trade Commission, state attorneys general or
private persons or entities could seek under the antitrust or competition laws,
among other things, to enjoin the merger or to cause Newfield to divest itself,
in whole or in part, of EEX or of other businesses conducted by Newfield or EEX.
Newfield cannot assure you that a challenge to the merger will not be made or
that, if such a challenge is made, Newfield and EEX will prevail.
RIGHTS OF DISSENTING SHAREHOLDERS
Under the Texas Business Corporation Act, EEX shareholders will not be
entitled to any appraisal or dissenters' rights in connection with the merger.
73
THE MERGER AGREEMENT
The following description does not purport to be complete and is qualified
in its entirety by reference to the merger agreement, a copy of which is
attached as Annex A to this proxy statement/prospectus and is incorporated
herein by reference. You are urged to read the merger agreement in its entirety.
THE MERGER
A wholly owned subsidiary of Newfield will merge into EEX following the
required approval by the EEX shareholders of the merger agreement and the
satisfaction or, where permitted, waiver of the other conditions to the merger.
EEX will survive the merger as Newfield's wholly owned subsidiary. If all
conditions to the merger are satisfied or waived, the merger will become
effective (1) at the time of the filing by EEX of the articles of merger with
the Texas Secretary of State or (2) at such later time as Newfield and EEX may
agree and as set forth in the articles of merger. The filing of the articles of
merger will occur as soon as practicable after the satisfaction or waiver of all
conditions to the merger.
In addition, at the effective time of the merger, the articles of
incorporation of EEX shall be amended so that they are identical to the articles
of incorporation of the Newfield merger subsidiary in effect immediately prior
to the effective time of the merger. The bylaws of the Newfield merger
subsidiary as in effect immediately prior to the effective time will be the
bylaws of EEX at and after the effective time of the merger. The officers and
directors of the merger subsidiary immediately prior to the effective time of
the merger will be the officers and directors of EEX once the merger is
consummated.
TREATMENT OF EEX COMMON STOCK AND FRACTIONAL SHARES
Each share of EEX common stock issued and outstanding immediately prior to
the effective time of the merger will be converted into .05703 of a share of
Newfield common stock (including the associated preferred stock purchase rights
set forth in Newfield's rights agreement). However, if the holder of such share
makes an election to receive units of Newfield's newly-created royalty trust,
then such share will be converted into (A) whole trust units equal to the
quotient of (x) the number of whole trust units elected to be received by, and
that are allocated to, such holder pursuant to the procedures set forth in the
merger agreement divided by (y) the number of shares of EEX common stock covered
by the election form for such holder and (B) the fraction of one share of
Newfield common stock, if any, remaining after reducing the exchange ratio set
forth above by the quotient of (x) .00054 multiplied by the number of trust
units allocated to such holder and (y) the number of shares of EEX common stock
covered by the election form for such holder. Newfield will not issue any
fractional shares of Newfield common stock. Holders of EEX common stock will
receive cash, without interest, in lieu of fractional shares.
All shares of EEX common stock will no longer be outstanding upon
conversion and will automatically be canceled and retired, and the holder of a
certificate that, immediately prior to the effective time of the merger,
represented outstanding shares of EEX common stock will no longer have any
rights with respect thereto, except the right to receive the consideration to be
issued or paid pursuant to the merger agreement upon the surrender of such
certificate.
All shares of common stock of EEX (including the associated preferred stock
purchase rights set forth in EEX's shareholder rights plan) that are held in
EEX's treasury will be canceled and retired and no cash, capital stock or other
consideration will be delivered in exchange for any shares held in EEX's
treasury.
TREATMENT OF EEX PREFERRED STOCK AND FRACTIONAL SHARES
The shares of EEX preferred stock that are issued and outstanding
immediately prior to the effective time of the merger, plus all accrued and
unpaid dividends, will be converted into an aggregate of 4,700,000 shares of
Newfield common stock (including the associated preferred stock purchase rights
set forth in Newfield's rights agreement), and each holder of EEX preferred
stock will receive a pro rata portion of
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such shares of Newfield common stock based on such holder's ownership of EEX
preferred stock immediately prior to the effective time of the merger. Holders
of EEX preferred stock will not have the option to elect to receive trust units.
All shares of EEX preferred stock will no longer be outstanding upon conversion
and will automatically be canceled and retired, and the holder of a certificate
that, immediately prior to the effective time of the merger, represented shares
of EEX preferred stock will no longer have any rights with respect thereto,
except the right to receive the consideration to be issued or paid pursuant to
the merger agreement in consideration upon the surrender of such certificate.
TREATMENT OF EEX OPTIONS, RESTRICTED STOCK AND WARRANTS
The EEX Board of Directors and its Compensation Committee have caused all
stock options granted under any EEX stock option plan outstanding on May 29,
2002, the date of the merger agreement, to become fully vested and exercisable
as of the date of the merger agreement. Any stock options that are granted after
May 29, 2002 will be fully vested and exercisable on the date of such grant. All
unexercised vested options shall terminate at the effective time of the merger.
As soon as practicable following the effective time of the merger, the holders
of such options will receive, with respect to each share of EEX common stock
underlying such unexercised options, a cash payment equal to the amount, if any,
by which the closing price of Newfield common stock on the last trading day
before the effective date of the merger multiplied by the exchange ratio of
..05703 exceeds the exercise price for such share. Because the per share exercise
price for each outstanding option is, in most cases, significantly in excess of
the current trading price of EEX's common stock and in excess of the current
market value of the per share merger consideration (based on the current trading
price of Newfield's common stock), Newfield does not expect any holders of
outstanding options to exercise their options or to be entitled to any payment
upon termination of their options at the effective time of the merger.
All restrictions on unvested shares of restricted stock will terminate
immediately prior to the effective time of the merger.
Pursuant to the voting agreement, at the effective time of the merger,
Newfield will purchase from the WP Funds all outstanding warrants to purchase
shares of EEX common stock. See "Interests of Certain Persons in the Merger --
Warburg Pincus/Howard H. Newman -- Voting Agreement."
TREASURE ISLAND ROYALTY TRUST
On June 17, 2002, Newfield caused the Treasure Island Royalty Trust to be
created as a trust under the laws of the State of Texas pursuant to a trust
agreement between Newfield, as grantor, and certain individuals, as trustees. At
closing of the merger, Newfield and Wachovia Bank, National Association, as
successor trustee, will enter into an amended and restated trust agreement.
Thereafter, the trust and the respective rights of and obligations of Newfield,
the trustee and the trust unitholders with respect to the trust will be governed
by that document. The royalty trust will own overriding royalty interests in any
future production that may be achieved from stratigraphic intervals at depths
typically below 18,000 to 21,000 feet from EEX's Treasure Island project, an
exploration concept covering 116 Gulf of Mexico lease blocks located on the
federal Outer Continental Shelf in which EEX currently holds interests in 27
leases and may acquire additional leases in the future. There is no production,
and there are no proved reserves, currently associated with the royalty
interests. After the effective time of the merger, Newfield will distribute
units in the trust to holders of shares of EEX common stock who elect to receive
such units as a part of the merger consideration, subject to the election and
allocation procedures described below. After the effective time of the merger,
but on or before the date Newfield causes the royalty trust to issue the trust
units to the electing shareholders, Newfield will cause EEX or its subsidiaries
to convey the overriding royalty interests, pursuant to a master conveyance of
overriding royalty interest and related recordable conveyances, to the royalty
trust in consideration for the issuance by the royalty trust to Newfield of
42,574,298 trust units, representing ownership of the entire beneficial interest
in the assets of the royalty trust. This conveyance will be effective as of the
effective time of the merger.
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ELECTION TO RECEIVE AND ALLOCATION OF TRUST UNITS
An election form will entitle the holder of shares of EEX common stock to
elect to receive whole trust units in lieu of all or any portion of Newfield
common stock that the holder would otherwise receive in the merger. However, no
holder of EEX common stock may elect to receive more trust units than the
product of (A) 105.611 and (B) the number of shares of EEX common stock owned by
that holder, rounded down to the nearest whole trust unit. Newfield will not
issue any partial trust units. EEX will use all reasonable efforts to make an
election form available to all persons who become holders of record of shares of
EEX common stock between the date of mailing of this proxy statement/prospectus
and the deadline for submitting election forms.
A total of 42,574,298 trust units will be available. If the holders of EEX
common stock elect to receive in the aggregate no more than 42,574,298 trust
units, then each electing shareholder will be allocated the full number of trust
units elected to be received by such electing shareholder. If the holders of EEX
common stock elect to receive in the aggregate more than 42,574,298 trust units,
then each electing holder will be allocated a number of whole trust units equal
to the sum of (A) the lesser of (1) the number of trust units the electing
holder elected to receive and (2) the number of shares of EEX common stock
covered by the election form for such holder plus (B) the product of (1) the
result of 42,574,298 less the aggregate number of trust units allocated to all
electing holders pursuant to clause (A) above multiplied by (2) a fraction, the
numerator of which is the amount, if any, by which the number of trust units
such electing holder elected to receive exceeds the number of trust units
allocated to that holder pursuant to clause (A) above and the denominator of
which is the amount by which the aggregate number of trust units elected to be
received by all electing holders exceeds the aggregate number of trust units
allocated to all electing holders pursuant to clause (A) above, rounded down to
the nearest whole trust unit.
JOINT CLOSING CONDITIONS OF NEWFIELD AND EEX
The obligation of each of Newfield and EEX to complete the merger is
subject to the satisfaction or waiver of certain conditions prior to the
effective time of the merger, including the following:
- the approval by EEX shareholders of the merger agreement;
- the declaration by the SEC of the effectiveness of the Registration
Statement on Form S-4, of which this proxy statement/prospectus forms a
part, and the absence of any stop order or proceeding for such purpose
pending before or threatened by the SEC;
- the receipt of all permits, authorizations, consents, or approvals
required to be obtained prior to the effective time of the merger from
any governmental authority in connection with the consummation of the
transactions contemplated in the merger agreement by Newfield, the merger
subsidiary or EEX, except where the failure to obtain such permits,
authorizations, consents, or approvals would not reasonably be expected
to result in a material adverse effect on Newfield after the merger;
- the approval for listing on the New York Stock Exchange, subject to
official notice, of the shares of Newfield common stock to be issued in
the merger; and
- the termination or expiration of any applicable waiting period under the
HSR Act.
Newfield and EEX currently expect that each of these conditions, other than
the approval of the merger agreement by EEX shareholders, will be satisfied
prior to the special meeting of the EEX shareholders. This proxy
statement/prospectus will not be mailed to EEX shareholders until the
Registration Statement on Form S-4 of which it is a part has been declared
effective by the SEC. Other than the declaration of effectiveness by the SEC and
the termination or expiration of the waiting period under the HSR Act, which is
discussed below, there are no required governmental permits, authorizations,
consents or approvals required to consummate the merger. Newfield has not yet
applied for the listing of its shares of common stock to be issued in the merger
on the New York Stock Exchange but expects that
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such listing will be approved prior to the EEX special meeting. Finally, on July
24, 2002, Newfield received early termination of the waiting period under the
HSR Act.
CLOSING CONDITIONS OF NEWFIELD
Newfield's and the merger subsidiary's obligations to complete the merger
are subject to the satisfaction or waiver by Newfield and by the merger
subsidiary of the following additional conditions prior to the effective time of
the merger:
- the performance by EEX in all material respects of its obligations under
the merger agreement required to be performed by it at or prior to the
effective time;
- the representations and warranties of EEX in the merger agreement being
true and correct, in each case as of the effective time of the merger as
though made on and as of the effective time of the merger, except where
such failures, individually or in the aggregate, to be true and correct
would not reasonably be expected to have a material adverse effect on
EEX, with those representations and warranties that address matters only
as of a particular date remaining true and correct as of that particular
date;
- the absence of any change in the financial condition, business or
operations of EEX and its subsidiaries, taken as a whole, that
constitutes or would reasonably be expected to constitute a material
adverse effect on EEX;
- Newfield's receipt of an opinion from Vinson & Elkins L.L.P. both prior
to the effectiveness of the registration statement of which this proxy
statement/prospectus is a part and immediately prior to the effective
time of the merger to the effect that:
- the merger will constitute a reorganization under Section 368(a) of
the Internal Revenue Code;
- Newfield, EEX and the merger subsidiary will each be a party to that
reorganization; and
- no gain or loss will be recognized for U.S. income tax purposes by
Newfield or EEX, except with respect to the distribution of the trust
units, because of the merger; and
- Newfield's receipt of copies of the consents, waivers and approvals
required to be obtained by EEX pursuant to the merger agreement.
Newfield and EEX currently expect that each of these conditions will be
satisfied prior to the special meeting of the EEX shareholders. A form of the
opinion of Vinson & Elkins L.L.P. referenced above has been filed as an exhibit
to the registration statement of which this proxy statement/prospectus is a part
and is expected to be delivered to Newfield as required. In addition, EEX has
informed Newfield that it expects to deliver copies of all required consents,
waivers and approvals prior to the EEX special meeting.
CLOSING CONDITIONS OF EEX
The obligation of EEX to complete the merger is subject to the satisfaction
or waiver by EEX of the following additional conditions prior to the effective
time of the merger:
- the performance by each of Newfield and the merger subsidiary in all
material respects of its respective obligations under the merger
agreement required to be performed by it at or prior to the effective
time of the merger;
- the representations and warranties of Newfield and of the merger
subsidiary in the merger agreement being true and correct, in each case
as of the effective time of the merger as though made on and as of the
effective time of the merger except where such failures, individually or
in the aggregate, to be true and correct would not reasonably be expected
to have a material adverse effect on Newfield, with those representations
and warranties that address matters only as of a particular date
remaining true and correct as of that particular date;
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- the absence of any change in the financial condition, business or
operations of Newfield and its subsidiaries, taken as a whole, that
constitutes or would reasonably be expected to constitute a material
adverse effect on Newfield;
- the receipt by EEX of an opinion from Akin, Gump, Strauss, Hauer & Feld,
L.L.P. both prior to the effectiveness of the registration statement of
which this proxy statement/prospectus is a part and immediately prior to
the effective time of the merger to the effect that:
- the merger will constitute a reorganization under Section 368(a) of
the Internal Revenue Code;
- Newfield, EEX and the merger subsidiary will each be a party to that
reorganization; and
- no gain or loss will be recognized for U.S. income tax purposes by
the shareholders of EEX upon the receipt of shares of Newfield common
stock pursuant to the merger except with respect to any cash received
in lieu of fractional share interests and except with respect to the
receipt of the trust units; and
- the receipt, prior to the closing date of the merger, of a written
consent of the sole shareholder of the merger subsidiary approving and
adopting the merger agreement.
Newfield and EEX currently expect that each of these conditions will be
satisfied prior to the special meeting of the EEX shareholders. A form of the
opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. referenced above has been
filed as an exhibit to the registration statement of which this proxy statement/
prospectus is a part and is expected to be delivered to EEX as required. In
addition, EEX has received a copy of the written consent of the sole shareholder
of the merger subsidiary approving and adopting the merger agreement.
COVENANTS AND OTHER AGREEMENTS
CONDUCT OF EEX'S BUSINESS PENDING THE MERGER
EEX has agreed that until the completion of the merger, unless Newfield
otherwise agrees in writing or except as contemplated by the merger agreement,
EEX and its subsidiaries will conduct its business in the ordinary course
consistent with past practice and will use all reasonable efforts to preserve
intact their business organizations and relationships with third parties and to
keep available the services of their present officers and key employees.
In addition, EEX has agreed that prior to the effective time of the merger
it will not, and will not permit any of its subsidiaries to, do any of the
following without Newfield's consent or except as expressly contemplated by the
merger agreement:
- adopt changes to its articles of incorporation or bylaws (or similar
organizational documents);
- declare or pay any dividend or other distribution with respect to any
shares of its capital stock (except for cumulative dividends on the EEX
preferred stock and intercompany dividends from direct or indirect wholly
owned subsidiaries of EEX);
- split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock;
- purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in
connection with any termination of service to such party and other than
intercompany acquisitions of such capital stock;
- 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;
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- sell, lease, license or otherwise surrender, relinquish or dispose of any
assets or properties (including through any farm-out arrangements), other
than among EEX and its direct and indirect wholly owned subsidiaries and
other than sales of hydrocarbons in the ordinary course of business;
- settle any material audit, make or change any material tax method,
practice or election or file any material amended tax return;
- issue, deliver or sell, or authorize, any shares of its capital stock of
any class, any bonds, debentures, notes or other indebtedness having the
right to vote or any securities convertible into, or any rights, warrants
or options to acquire, any such shares, voting debt or convertible
securities, other than:
- the issuance of EEX common stock upon the exercise of stock options
or other stock based awards granted under the EEX stock option plans
that were outstanding on the date of the merger agreement or in
satisfaction of stock grants or stock based awards made prior to the
date of the merger agreement pursuant to the EEX stock option plans;
- the issuance of additional shares of EEX preferred stock as regular
dividends to the holder of the EEX series B preferred stock;
- issuances by a wholly owned subsidiary of its capital stock to its
parent; and
- the issuance of 86,903 restricted shares of EEX common stock pursuant
to EEX's 1998 Stock Incentive Plan to non-employee directors of EEX
in connection with EEX's 2002 annual meeting of shareholders.
- change any method of accounting or accounting practice, except where a
change would be required by generally accepted accounting principles;
- satisfy any material obligation other than the satisfaction, in the
ordinary course of business and consistent with past practice, of
liabilities reflected or reserved against in the EEX balance sheet or
subsequently incurred in the ordinary course of business and consistent
with past practice;
- enter into any obligation for the delivery of hydrocarbons attributable
to any of its oil and gas interests in the future on account of
prepayment, advance payment, take-or-pay or similar obligations without
being entitled to receive full value therefor;
- enter into any future, hedge, swap, collar, put, call, floor, cap, option
or other contract that is intended to benefit from or reduce or eliminate
the risk of fluctuations in the price of commodities, including
hydrocarbons, currencies or securities, other than in the ordinary course
of business in accordance with EEX's current policies or enter into any
fixed price commodity sales agreements with a duration of more than three
months;
- sell or grant to any person any call upon, option to purchase, or similar
right with respect to the production of hydrocarbons attributable to its
oil and gas interests at a price less than the prevailing market price;
- become a party to, or bound by, any contract, agreement or similar
arrangement that restricts, by virtue of a confidentiality,
non-competition, territorial exclusivity or other provision, the scope of
its business or operations geographically or otherwise;
- grant any increases in the compensation of any directors, officers or
employees, except increases to employees who are not officers or
directors in the ordinary course of business and in accordance with past
practice, pay or agree to pay any pension, retirement allowance or other
employee benefit not required or contemplated by any of the existing EEX
employee benefit plans as in effect on the date of the merger agreement
to any director, officer or employee, whether past or present, or
terminate the employment of any executive of EEX without cause;
- adopt, amend (other than amendments that reduce the amounts payable by
EEX or any of its subsidiaries or amendments required by law) or assume
an obligation to contribute to any employee benefit plan or arrangement
of any type or collective bargaining agreement or enter into any
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employment, severance or similar contract with any person (including
contracts with its management that would reasonably be expected to
require that payments be made upon consummation of the transactions
contemplated by the merger agreement) or amend any such existing
contracts to increase any amounts payable thereunder or benefits provided
thereunder, engage in any transaction (either acting alone or in
conjunction with any EEX employee benefit plan or trust created under
such plan) in connection with which EEX or any of its subsidiaries would
be subjected (directly or indirectly) to either a civil penalty assessed
pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or a tax
imposed pursuant to Chapter 43 of Subtitle D of the Internal Revenue
Code, terminate or take any other action with respect to any EEX employee
benefit plan, that would result in the liability of EEX or any of its
subsidiaries to any person, take any action that would adversely affect
the qualification of any EEX employee benefit plan or its compliance with
the applicable requirements of ERISA, fail to make full payment when due
of all amounts which, under the provisions of any EEX employee benefit
plan, any agreement relating to such plan or applicable law, EEX or any
of its subsidiaries is required to pay as contributions to such plan or
fail to file, on a timely basis, all reports and forms required by
federal regulations with respect to any EEX employee benefit plan;
- authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation or dissolution;
- incur any indebtedness for borrowed money (except for working capital
under EEX's existing credit facilities and refinancings of existing debt
that permit prepayment of such debt without penalty (other than LIBOR
breakage costs)) or guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire any debt securities of
EEX or any of its subsidiaries or guarantee any debt securities of
others, except in the ordinary course of business, enter into any lease
(whether such lease is an operating or capital lease) or create any liens
on the property of EEX or any of its subsidiaries in connection with any
indebtedness thereof, or commit to aggregate capital expenditures in
excess of $1,000,000 outside the capital budget, as amended and approved
by EEX prior to the date of the merger agreement; and
- agree or commit to do any of the foregoing.
CONDUCT OF NEWFIELD'S BUSINESS PENDING THE MERGER
Newfield has agreed that prior to the effective time of the merger it will
not do any of the following without the written consent of EEX:
- adopt changes to its certificate of incorporation or bylaws that would
alter the terms of its common stock;
- declare or pay any dividend or other distribution with respect to any
shares of its capital stock;
- split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock; or
- issue any shares of Newfield common stock for cash at a price less than
market value, except in an underwritten offering or in a "bought deal"
with one or more investment banks; and
- agree or commit to do any of the foregoing.
NO SOLICITATION
EEX has agreed that it will not, and that it will not authorize or permit
any of its subsidiaries or any of its or its subsidiaries' directors, officers,
employees, agents, representatives, investment bankers, attorneys and
accountants or any other person to:
- initiate, solicit, or knowingly encourage or otherwise facilitate
(including by providing any nonpublic information relating to EEX and its
subsidiaries and the waiver of any standstill obligation) the
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making of, or the consummation of any transaction contemplated by, an
acquisition proposal (as defined below);
- engage in any discussions or negotiations with, or provide any nonpublic
information relating to EEX and its subsidiaries to, any person relating
to or that would reasonably be expected to lead to an acquisition
proposal;
- approve or recommend or propose publicly to approve or recommend any
acquisition proposal; or
- enter into any agreement, arrangement or understanding contemplating or
relating to any acquisition proposal or requiring EEX to abandon,
terminate or fail to consummate the merger or any other transactions
contemplated by the merger agreement.
Notwithstanding anything in the merger agreement to the contrary, EEX or
its Board of Directors may:
- to the extent applicable, comply with Rules 14e-2(a) and 14d-9
promulgated under the Exchange Act; and
- prior to obtaining the approval of the EEX shareholders required to
approve the merger agreement, furnish information to, and negotiate or
otherwise engage in discussions with, any person who has indicated the
willingness to make or has made an acquisition proposal, provided that
(i) no information may be furnished unless EEX then has or obtains a
confidentiality agreement from such person with terms no less favorable
to EEX than those contained in the EEX confidentiality agreement with
Newfield and that permits EEX to comply with its obligations under the
merger agreement and EEX has provided a copy of such confidentiality
agreement to Newfield and (ii) EEX may not commence negotiations or
discussions with or provide information to any such person until 48 hours
after EEX has advised Newfield of its intention to take any such actions
and unless the EEX Board of Directors has determined in good faith by the
affirmative vote of a majority of its members, after consultation with
its outside legal counsel, that such action is necessary for the EEX
Board of Directors to comply with its fiduciary duties under applicable
law.
EEX must notify Newfield in writing within 24 hours of any inquiries,
proposals or offers, or any discussions or negotiations sought to be initiated
or continued by any person with EEX, any of its subsidiaries, any of its or its
subsidiaries' directors, officers and employees or any of the EEX
representatives relating to, constituting or which would reasonably be expected
to lead to an acquisition proposal or any request by any person for information
relating to EEX or any of its subsidiaries contemplating, relating to or which
would reasonably be expected to lead to any acquisition proposal. Such notice
shall include the name of such person and the material terms and conditions of
any proposal, inquiry, offer or request, and EEX must provide within 24 hours
such other details of the acquisition proposal, inquiry, offer or request as
Newfield may reasonably request. EEX must keep Newfield fully informed on a
prompt basis of the status and terms, including any material changes or
adjustments made to or proposed to be made to the terms, of any such inquiry,
proposal, offer or request. If EEX is permitted to provide information to any
person it must provide to Newfield a list of, and copies of, the information
provided to such person concurrently with delivery to such person and
immediately provide Newfield with access to all information to which such person
was provided access.
EEX must immediately cease and cause to be terminated all existing
activities, discussions or negotiations by it, any of its subsidiaries, any of
its or its subsidiaries' directors, officers and employees or any of the EEX
representatives with any person with respect to any acquisition proposal.
An "acquisition proposal" means a bona fide proposal or public announcement
of an intention to do any of the following (other than the transactions
contemplated by the merger agreement or the merger): (a) any merger,
amalgamation, arrangement, tender offer, share exchange, take-over bid,
recapitalization, consolidation or other business combination directly or
indirectly involving EEX or one or more of its subsidiaries with aggregate net
revenues or assets of 35% or more of EEX's consolidated net revenues (based on
the most recent income statement filed with the SEC) or consolidated assets
(based on fair
81
market value), as applicable, (b) any acquisition by any person or "group" (as
defined under Section 13(d) of the Exchange Act) of any business that
constitutes 35% or more of EEX's consolidated net revenues (based on the most
recent income statement filed with the SEC), or assets representing 35% or more
of EEX's assets on a consolidated basis (based on fair market value) (or any
lease, long-term supply agreement, exchange, mortgage, pledge or other
arrangement having a similar economic effect) in each case in a single
transaction or a series of related transactions or (c) any acquisition of
beneficial ownership (as defined under Section 13(d) of the Exchange Act) of 35%
or more of the voting capital stock of EEX or any of its subsidiaries by any
person or "group" (as defined under Section 13(d) of the Exchange Act).
LISTING OF NEWFIELD COMMON STOCK
Newfield has agreed to use all reasonable efforts to cause the common stock
to be issued in the merger to be approved for listing on the New York Stock
Exchange prior to the effective time of the merger, subject to official notice
of issuance.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Newfield has agreed, to the extent that EEX would be permitted by
applicable law or its bylaws, to indemnify, defend and hold harmless each person
who is now, or has been at any time or who becomes prior to the effective time
of the merger, an officer or director of EEX or any of its subsidiaries against
all losses, expenses (including reasonable attorney's fees and expenses),
claims, damages or liabilities or, upon Newfield's written consent, settlements
arising out of actions or omissions occurring at or prior to the effective time
of the merger, whether asserted or claimed prior to, at or after the effective
time of the merger, based on or arising out of the fact, in whole or in part,
that such person is or was a director or officer of such party and, to the
fullest extent that EEX would be permitted under applicable law, to advance
expenses to the indemnified person.
In addition, Newfield has agreed to maintain EEX's existing officers' and
directors' liability insurance policy for a period of not less than six years
after the effective time of the merger, but only to the extent related to
actions or omissions prior to the effective time of the merger; provided, that
Newfield may substitute policies of substantially similar coverage and amounts
containing terms no less advantageous to such former directors or officers if
the carrier of the substitute policies maintains a Best rating equal to or
greater than EEX's existing carrier and the substitution will not result in gaps
or lapses of coverage with respect to matters occurring prior to the effective
time of the merger; provided, further, that in no event will Newfield be
required to expend annually more than 200% of the last annual premium paid by
EEX before the date of the merger agreement.
TAX TREATMENT
Each of Newfield, the merger subsidiary and EEX have agreed to use all
reasonable efforts to cause the merger to qualify, and will not take, nor permit
any subsidiary to take, any actions which could prevent the merger from
qualifying, as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code.
UNWIND OF GAS SALES OBLIGATION
Prior to August 31, 2002, EEX has agreed to use all reasonable efforts to
cause Enron North America Corp. or its applicable affiliate to take all
necessary actions to obtain bankruptcy court approval of a plan submitted by
Enron North America Corp. or its applicable affiliate to terminate the gas sales
obligation between a subsidiary of EEX and an affiliate of Enron North America
Corp. and to effect certain other actions and guarantees in connection with the
termination of the gas sales obligation, including the termination of related
liens on the assets and properties of EEX's subsidiary and the termination of
related guarantees by such subsidiary, all on terms and conditions reasonably
satisfactory to Newfield.
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TERMINATION
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger, whether before or after the
approval by the EEX shareholders of the merger agreement has been obtained:
- by the mutual written consent of Newfield and EEX;
- by Newfield or by EEX upon a breach by the other of any representation,
warranty, covenant, obligation or agreement contained in the merger
agreement or if any representation or warranty of the other is untrue, so
that the conditions to the closing of the merger in the merger agreement
would not be satisfied and where the breach or untruth is not curable or
if curable, is not cured within 30 days after notice thereof has been
received by the other party;
- by Newfield or by EEX if any governmental authority or court of competent
jurisdiction adopts any law or amendment to any law or issues any order,
decree or ruling or taken any other action which would permanently
restrain, enjoin or otherwise prohibit the merger and such governmental
order has become final and nonappealable, provided that the party seeking
to terminate the merger agreement on this basis has used all reasonable
efforts to remove or lift such governmental order;
- by Newfield or by EEX if the merger is not completed on or before
November 30, 2002; provided, however, that the failure to complete the
merger is not the result of a failure by the party seeking to terminate
the merger agreement or its affiliates to perform any covenant,
obligation or agreement contained in the merger agreement;
- by Newfield or by EEX if the required approval of EEX shareholders has
not been obtained at the EEX Special Meeting (including any adjournment
or postponement thereof);
- by Newfield if the EEX Board of Directors fails to recommend, or
withdraws, modifies or changes in any manner adverse to Newfield its
recommendation of, the merger agreement and the merger to the EEX
shareholders or resolves to do so, approves or recommends any acquisition
proposal (other than an acquisition proposal by Newfield) or resolves to
do so, or has not sent to its shareholders pursuant to Rule 14e-2 under
the Exchange Act a statement disclosing that it recommends rejection of
any tender or exchange offer relating to its securities that has been
commenced by a person unaffiliated with Newfield within ten business days
after such tender or exchange offer is first published, sent or given; or
- by EEX at any time prior to receipt of its shareholders' approval, upon
48 hours prior written notice to Newfield, if a superior proposal (as
defined below) has been made and not been withdrawn, the superior
proposal did not result from a breach of the no solicitation provisions
under the merger agreement, the EEX Board of Directors has determined in
good faith by the affirmative vote of a majority of its members that
action is necessary to comply with its fiduciary duties under applicable
law as the result of the superior proposal and Newfield does not make,
within 48 hours of receipt of EEX's written notification of its intention
to terminate the merger agreement, a written offer that the EEX Board of
Directors determines in good faith, is at least as favorable, from a
financial point of view, to the EEX shareholders as the superior
proposal.
A "superior proposal " means any bona fide written proposal by a third
person directly or indirectly, to acquire businesses representing more than 50%
of EEX's consolidated net revenues (based on the most recent income statement
filed with the SEC), or assets representing more than 50% of EEX's total assets
on a consolidated basis (based on fair market value), or more than 50% of EEX's
voting capital stock, whether by way of merger, amalgamation, arrangement,
tender offer, share exchange, take-over bid, recapitalization, consolidation,
sale of assets or otherwise, that in the good faith determination by affirmative
vote of a majority of the members of the EEX Board of Directors, after taking
into account all legal, financial, regulatory and other aspects of such proposal
and the person making such proposal, (a) is reasonably capable of being
completed without undue delay and (b) is more favorable to EEX's shareholders
from a financial point of view than the merger.
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EFFECT OF TERMINATION
If the merger agreement is terminated in accordance with its termination
provisions, none of Newfield, the merger subsidiary, or EEX, or any of their
respective officers or directors, will have any liability to any of the other
parties to the merger agreement, except as described below. EEX will be required
to pay a termination fee of $13.5 million to Newfield if:
- EEX terminates the merger agreement at its option because the merger is
not completed by November 30, 2002 and, within 12 months after the
termination date, it or any of its subsidiaries enters into any agreement
for or completes a change of control transaction;
- EEX terminates the merger agreement at its option because it failed to
obtain shareholder approval and, within 12 months after the termination
date, it or any of its subsidiaries enters into any agreement for or
completes a change of control transaction;
- Newfield terminates the merger agreement due to the EEX Board of
Directors' change of recommendation of the merger or its recommendation
of or failure to reject the acquisition proposal of a third party; or
- EEX terminates the merger agreement upon receipt of a superior proposal.
All rights and obligations of any party to the merger agreement shall
terminate, except for the confidentiality provisions of the merger agreement,
which will survive the termination for a period of two years from the date of
such termination and except for the publicity, fees, expenses and other payments
and attorneys' fees provisions, which will survive the termination indefinitely.
The termination of the merger agreement will not relieve any party from
liability for any willful misrepresentation or inaccuracy in any of its
representations or warranties or any material breach or non-performance of any
of its covenants or agreements under the merger agreement.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties of
Newfield, the merger subsidiary and EEX relating to, among other things:
- organization, capital structure and similar corporate matters;
- authorization, enforceability and absence of conflicts;
- the receipt of consents and approvals required for the merger;
- documents filed with the SEC;
- financial statements and absence of undisclosed liabilities;
- the absence of changes or events which would have a material adverse
effect;
- permits, licenses and other authorizations relating to their businesses;
- litigation;
- environmental, tax, employee benefit, labor and intellectual property
matters;
- compliance with applicable laws;
- insurance;
- leases and ownership rights to property;
- reserve reports;
- restrictive agreements;
- required shareholder vote;
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- brokers;
- opinions of financial advisors; and
- takeover statutes.
The representations and warranties in the merger agreement expire at the
effective time of the merger.
EXPENSES
Expenses related to printing, filing and mailing the Registration Statement
on Form S-4 and this proxy statement/prospectus and all SEC and other regulatory
filing fees and solicitation costs incurred by Newfield or by EEX in connection
with the registration statement and the proxy statement/prospectus shall be
shared equally by Newfield and by EEX, and all other expenses shall be paid by
the party who incurs the expense.
AMENDMENT
The merger agreement may be amended or supplemented in writing by Newfield
and EEX, except as otherwise provided by law. However, after the EEX
shareholders approve the merger, any later amendment which by law requires EEX
shareholder approval may only be made with such approval.
WAIVER
The merger agreement provides that, at any time prior to the effective
time, Newfield or EEX may extend the time for the performance of any of the
obligations or acts of the other party, waive any inaccuracies in the
representations and warranties of the other party contained in the merger
agreement or in any document delivered pursuant to the merger agreement and
waive compliance with any of the conditions of the agreements or conditions
contained in the merger agreement.
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VOTING AGREEMENT AND IRREVOCABLE PROXY
The following description does not purport to be complete and is qualified
in its entirety by reference to the voting agreement, a copy of which is
attached as Annex B to this proxy statement/prospectus and is incorporated
herein by reference. You are urged to read the voting agreement in its entirety.
Newfield has entered into a voting agreement and irrevocable proxy with the
WP Funds, Thomas M Hamilton, David R. Henderson and Richard S. Langdon (the
chief executive officer, chief operating officer and chief financial officer,
respectively, of EEX) and David A. Trice and Terry W. Rathert (Newfield's chief
executive officer and chief financial officer, respectively). Pursuant to the
voting agreement, the WP Funds and Messrs. Hamilton, Henderson and Langdon:
- have agreed to vote all of their shares of EEX common stock and EEX
preferred stock, as applicable, in favor of the approval and adoption of
the merger agreement, the approval of the merger, and any actions
required in furtherance thereof, and against any acquisition proposal
(other than by Newfield), any proposal for action or agreement that is
reasonably likely to result in a breach of any covenant, representation
or warranty of EEX under the merger agreement or which is reasonably
likely to result in any of the conditions to the obligations of Newfield
and the merger subsidiary under the merger agreement not being fulfilled,
any change in the directors of EEX, or any other action which could
reasonably be expected to impede, interfere with, delay, postpone or
materially affect the transactions contemplated by the merger agreement
or the likelihood of such transactions being consummated;
- have granted to David A. Trice and Terry W. Rathert an irrevocable proxy
to so vote all of their shares of EEX common stock and EEX preferred
stock, as applicable; and
- have agreed:
- not to initiate, solicit, knowingly encourage or otherwise facilitate
(including providing any nonpublic information relating to EEX and
its subsidiaries) the making of an acquisition proposal relating to
EEX from a third party or to engage in any discussions or
negotiations with or provide any nonpublic information to any person
that relate to or would reasonably be expected to lead to the making
of an acquisition proposal;
- to terminate all existing activities, discussions or negotiations
with respect to any acquisition proposal or the solicitation or
making of any acquisition proposal;
- to promptly notify Newfield if any third person makes, or indicates
an interest in making, an acquisition proposal; and
- not to enter into any agreement or understanding with any person that
provides for, or in any way facilitates, an acquisition proposal;
Notwithstanding the foregoing, the voting agreement provides that Mr.
Howard H. Newman and Mr. Thomas M Hamilton, as directors of EEX, shall be
entitled to take certain actions expressly permitted by the merger agreement,
including:
- compliance with Rule 14e-2(a) and 14d-9 of the Exchange Act;
- prior to obtaining the approval of the EEX shareholders required to
approve the merger agreement and the merger, furnishing information to,
and negotiating or otherwise engaging in discussions with, any third
party who has indicated a willingness to make or has made an acquisition
proposal, provided that, among other things:
- EEX has obtained from such third party a confidentiality agreement
relating to such information, negotiations and/or discussions with
terms no less favorable to EEX than those contained in the EEX
confidentiality agreement with Newfield; and
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- the Board of Directors of EEX has determined in good faith by the
affirmative vote of a majority of its members, after consultation
with its outside legal counsel, that such action is necessary for the
Board of Directors of EEX to comply with its fiduciary duties under
applicable law.
The voting agreement will terminate upon the first to occur of (i) the
consummation of the merger, (ii) the termination of the merger agreement in
accordance with its terms and (iii) any amendment of the merger agreement
without the written consent of the WP Funds and of Messrs. Hamilton, Henderson
and Langdon that provides for a reduction in or change in form of the
consideration to be paid by Newfield in the merger.
The voting agreement also contains certain other agreements between the WP
Funds and Newfield and provides additional termination rights to the WP Funds.
See "Interests of Certain Persons in the Merger -- Warburg Pincus/Howard H.
Newman -- Voting Agreement."
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TREASURE ISLAND ROYALTY TRUST
OVERVIEW
Treasure Island Royalty Trust is a trust created under the laws of the
state of Texas pursuant to a trust agreement entered into on June 17, 2002
between Newfield, as grantor, and certain individuals, as trustees. The trust
was created by Newfield to hold certain non-expense bearing overriding royalty
interests in any future production that may be achieved from stratigraphic
intervals at depths typically below 18,000 to 21,000 feet from EEX's Treasure
Island project, an exploration concept covering 116 Gulf of Mexico lease blocks
located on the federal Outer Continental Shelf in which EEX currently holds
interests in 27 leases and may acquire additional leases in the future. The
overriding royalty interests will be granted to the trust pursuant to a master
conveyance of overriding royalty interest from EEX. There is no production, and
there are no proved reserves, currently associated with the royalty interests.
ROYALTY INTERESTS AND SUBJECT INTERESTS
ROYALTY INTERESTS
The royalty interests to be conveyed to the trust will consist of
overriding royalty interests in certain oil and gas leases covering blocks
located within the Treasure Island project. The Treasure Island project is a
concept designed by EEX to explore for oil and gas in 116 blocks (which are
specific areas designated by the MMS) the Gulf of Mexico, offshore Louisiana and
Texas on the federal Outer Continental Shelf in stratigraphic intervals which
are below the salt weld at depths typically below 18,000 to 21,000 feet. EEX has
to date identified prospects in the Treasure Island project at various locations
in the South Timbalier, Ship Shoal, South Marsh Island and Eugene Island leasing
areas. The Treasure Island project targets Tertiary age intervals and structures
similar to the recent discovery at Thunder Horse in the Gulf of Mexico, as well
as Cretaceous intervals and structures analogous to the Poza Rica Field in the
Golden Lane trend of Mexico. These prospects target geological formations that
are deeper than conventional Gulf of Mexico prospects and therefore have greater
risks and costs associated with their exploration and development. Neither
Newfield nor EEX has sufficient information to offer any projection or estimate
as to the reserves, if any, that may be associated with the Treasure Island
project. No such projection or estimate can be made until such time as a
sufficient number of exploratory wells are drilled to the target depths and
tested and analyzed so as to provide a basis for determining possible
recoverable reserves.
Overriding royalty interests in general are interests carved out of an oil
and gas lessee's working or cost-bearing interest under the lease entitling the
overriding royalty interest owner to a share of oil or gas production free of
the costs of exploration and production. The overriding royalty interest in the
Treasure Island project will be a 5% overriding royalty interest in and to the
hydrocarbons saved and produced from the subject interests (See "-- Subject
Interests" below), with such 5% interest being proportionately reduced to a 25%
working interest or such lesser working interest as may be owned by EEX. The 5%
overriding royalty interest will be reduced in the event that EEX owns or
subsequently acquires an interest in a lease in the Treasure Island project with
total existing leasehold burdens in excess of 20% but less than 30%. If EEX or
Newfield acquires an interest in a lease with a total net revenue interest of at
least 74.667% (of 8/8(ths)) but less than 80.000% (of 8/8(ths)), the overriding
royalty interest will be determined by dividing the total net revenue interest
(8/8(ths)) owned by EEX or Newfield by 80% and multiplying that number by 5%,
and then proportionately reducing the resulting percentage to the percentage
working interest acquired by EEX or Newfield in the lease, but not to exceed
25%. For instance, if Newfield or EEX acquires a 50% working interest in a lease
with a 78% total net revenue interest (on an 8/8(ths) basis), EEX or Newfield
would grant to the trust a 1.21875% (of 8/8(ths)) overriding royalty interest,
which represents the product of (1) 4.875%, (which is the result of 78% divided
by 80% and multiplied by 5%), and (2) 25%, (which is the maximum EEX/Newfield
working interest that may be used to calculate the trust's overriding royalty
interest percentage, even though EEX/Newfield acquired a larger working interest
in this hypothetical example). If EEX or Newfield acquires an interest in a
lease with a total net revenue interest of greater than 70% (of 8/8(ths)), but
less than 74.667% (of 8/8(ths)), the overriding royalty interest will be
determined by subtracting 70% from the total net revenue interest (of 8/8(ths)),
and then also
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proportionally reducing the resulting percentage to the working interest
acquired by EEX or Newfield in the lease, but not to exceed 25%. Thus, in the
example above, if the total net revenue interest (of 8/8(ths)) in the acquired
leasehold interest was 72%, EEX or Newfield would grant to the trust a 0.5% (of
8/8(ths)) overriding royalty interest, which represents the product of (1) 2%,
which is the difference between 72% and 70%, and (2) 25%. In the event that EEX
owns or subsequently acquires an interest in a lease in the Treasure Island
project with total existing leasehold burdens of 30% or more, no overriding
royalty interest will be granted to the trust with respect to such lease.
The following table outlines the calculation of the overriding royalty
interest to be conveyed to the trust:
<Table>
<Caption>
ORRI % PROPORTIONATELY
EEX/NEWFIELD REDUCED TO 25% OR LOWER
WORKING INTEREST EEX/NEWFIELD NET REVENUE INTEREST ORRI WORKING INTEREST
- ---------------- ----------------------------------------- ------- -----------------------
100% 83.33% 5% 1.25%(1)
100% 80.00% 5% 1.25%(1)
100% 75% 4.6875%(2) 1.171875%(1)
100% 74% 4%(3) 1.00%(1)
100% 70% or lower 0% 0%
25% 20.832% or 83.33% of 8/8 5% 1.25%
25% 20.00% or 80.00% of 8/8 5% 1.25%
25% 18.75% or 75.00% of 8/8 4.6875%(2) 1.171875%
25% 18.50% or 74% of 8/8 4%(3) 1.00%
25% 17.50% or 70% of 8/8 or lower 0% 0%
20% 16.67% or 83.33% of 8/8 5% 1.00%
20% 16.00% or 80.00% of 8/8 5% 1.00%
20% 15.00% or 75.00% of 8/8 4.6875%(2) .9375%
20% 14.80% or 74% of 8/8 4%(3) .8%
20% 14.00% or 70% of 8/8 or lower 0% 0%
</Table>
- ---------------
(1) The overriding royalty interest is limited to 25% of the working interest.
(2) 75 divided by 80 = 0.9375, and 0.9375 multiplied by 5% = 4.6875%(at any time
that the net revenue interest (of 8/8(ths)) is between 79.999% and 74.667%,
the overriding royalty interest is calculated in this manner).
(3) 74% minus 70% = 4% (at any time that the net revenue interest (of 8/8(ths))
is between 74.667% and 70.001%, the overriding royalty interest is
calculated in this manner).
Pursuant to the merger agreement, Newfield agreed to cause EEX and its
affiliates to enter into a master conveyance of overriding royalty interest,
which will require EEX to convey to the trust, after the effective time of the
merger but prior to the distribution of the trust units to the trust
unitholders, through one or more recordable conveyances with respect to each
underlying subject interest, the overriding royalty interest described above
burdening each of the current leases covering blocks located within the Treasure
Island project. The overriding royalty interest shall apply only to those
hydrocarbons produced and sold from certain specified depths, as discussed above
and as specifically set forth in the applicable recordable conveyance.
If within five years of the effective time of the merger, EEX, Newfield or
their respective successors or assigns acquires an interest in a lease covering
all or a portion of any block in the Treasure Island project and with respect to
which the overriding royalty interest has not been previously conveyed to the
trust, then EEX, Newfield or their successors or assigns, as applicable, will
convey to the trust the overriding royalty interest burdening such interest as
provided above.
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The overriding royalty interests will be free and clear of any and all
drilling, development and operating costs and expenses of every kind and
character; provided, however, that the overriding royalty interest hydrocarbons
will be valued at the wellhead and Newfield, its successors or assigns will have
no duty to transport or market the produced hydrocarbons away from the wellhead
without cost, and provided further that the overriding royalty interest
hydrocarbons will be subject to and bear production and other like taxes.
From the date of receipt of first proceeds from the overriding royalty
interest, the trust will bear the actual expenses directly relating to the
administration of the overriding royalty interests and the trust, not to exceed
8% of the overriding royalty interest proceeds received by the trust. If 8% of
the proceeds are insufficient to cover these expenses, Newfield will loan the
difference to the trust on a senior unsecured basis, with interest at the rate
of 8% per year. In subsequent periods when 8% of the proceeds exceeds these
expenses, the trust will repay Newfield from the excess proceeds amounts
previously borrowed from Newfield for the purpose of covering such expenses,
together with interest at the rate of 8% per year.
SUBJECT INTERESTS
On May 21, 2002, EEX and BP Exploration & Production Inc. entered into an
Asset Purchase, Farmout and Joint Exploration Agreement pursuant to which BP
acquired 75% of EEX's current interest in 23 federal Outer Continental Shelf
leases covering blocks within the Treasure Island project, two of which have
since expired. Previously, the MMS awarded EEX and BP six leases as a result of
their joint bids at the OCS Sale 182 held on March 20, 2002, and these leases
were made subject to the EEX-BP agreement. As required by the EEX-BP agreement,
BP will conduct further leasing and geophysical activities in the area included
in the Treasure Island project. BP is obligated to spend or contractually commit
to spend $4.7 million in studying the Treasure Island project. If BP has not
spent or contractually committed to spend $2.7 million in studying the project
by January 1, 2003, all working interests assigned to BP will revert to EEX. If
BP has not spent or contractually committed to spend the additional $2 million
in studying the project by December 31, 2003, all working interests assigned to
BP will be reassigned to EEX.
At the end of the initial evaluation period, BP may elect, but will have no
obligation, to drill up to three wells. If BP does not elect to exercise its
option to drill the first well by June 1, 2003, or, if exercised, has not
commenced drilling of the first well by December 31, 2003, all working interests
assigned to BP will be reassigned to EEX. If BP does not elect to drill a second
well within 180 days of the completion of the first well or a third well within
120 days of the completion of the second well, certain of the working interests
assigned to BP will be reassigned to EEX. If the working interests are
reassigned to EEX, EEX will then be free to enter into an agreement with a third
party to explore the Treasure Island project. BP will bear the costs related to
EEX's 25% working interest in the applicable leases during the initial
evaluation period as well as the drilling of the first three exploration wells;
provided, however, that BP will be required to pay EEX's costs associated with
drilling such wells only to the extent that the costs of drilling are less than
115% of the costs initially estimated to be required to drill and complete such
wells, as set forth in the authorization for expenditure approved for such
wells, and BP will be required to pay only 50% of EEX's costs associated with
the third exploratory well if either of the first two exploratory wells are
drilled to and test the Cretacious intervals or structures.
TRUST AGREEMENT
At the closing of the merger, Newfield and Wachovia Bank, National
Association, as successor trustee, will enter into an amended and restated trust
agreement. Thereafter, the trust and the respective rights and obligations of
Newfield, the trustee and the trust unitholders with respect to the trust will
be governed by that document. The following description of the trust agreement
does not purport to be complete and is qualified in its entirety by reference to
the trust agreement, a substantially final form of which is included as an
exhibit to the Registration Statement on Form S-4, of which this proxy
statement/prospectus is a part. You are urged to read the trust agreement in its
entirety.
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CREATION AND ORGANIZATION OF THE TRUST
The trust was created under the laws of the State of Texas pursuant to the
trust agreement entered into on June 17, 2002 between Newfield, as grantor, and
certain individuals, as trustees. Upon the execution of the amended and restated
trust agreement, the trust will issue 42,574,298 trust units to Newfield in
consideration of Newfield causing EEX and its affiliates to transfer the royalty
interests to the trust.
Newfield created the trust to acquire and hold the royalty interests for
the benefit of the trust unitholders. The royalty interests are passive in
nature, and neither the trustee nor the trust unitholders will have any control
over or responsibility for any costs relating to the drilling, development or
operation of the subject interests. None of Newfield, EEX or any other operators
of the properties included in the subject interests have any contractual
commitments to the trust to conduct drilling on the properties or to maintain
their ownership interest in any of these properties; provided, however, in the
case of Newfield and EEX, their actions must be consistent with actions that a
reasonable prudent operator of oil and gas properties would take under similar
circumstances in accordance with good oilfield practices and without giving
effect to the existence of the royalty interests. For a description of the
subject interests and other information relating to them, see "-- Royalty
Interests and Subject Interests."
The beneficial interest in the trust is divided into 42,574,298 trust
units, each of which represents an equal undivided portion of the trust.
Pursuant to the merger agreement, holders of EEX common stock have the option to
elect to receive trust units from Newfield in lieu of all or a portion of the
shares of Newfield common stock they would otherwise receive in the merger as
consideration for their shares of EEX common stock, subject to the election and
allocation procedures described elsewhere in this proxy statement/prospectus.
For additional information concerning the trust units, see "-- Description of
the Trust Units."
ASSETS OF THE TRUST
The assets of the trust will consist of the royalty interests and cash and
temporary investments being held for the payment of expenses and liabilities and
for distribution to the trust unitholders.
DUTIES AND LIMITED POWERS OF THE TRUSTEE
The duties of the trustee are specified in the trust agreement and by the
laws of the State of Texas. The trustee's principal duties consist of:
- collecting income attributable to the royalty interests;
- paying expenses, charges and obligations of the trust from the trust's
income and assets;
- distributing distributable income to the trust unitholders;
- prosecuting, defending or settling any claim of or against the trustee,
the trust or the royalty interests, including the authority to dispose of
or relinquish title to any of the royalty interests that are the subject
of a dispute upon the receipt of sufficient evidence regarding the facts
of such dispute; and
- taking any action it deems necessary and advisable to best achieve the
purposes of the trust.
The trustee has no authority to incur any contractual liabilities on behalf
of the trust that are not limited solely to claims against the assets of the
trust.
If a liability is contingent or uncertain in amount or not yet currently
due and payable, the trustee may create a cash reserve to pay for the liability.
If the trustee determines that the cash on hand and the cash to be received is
insufficient to cover any extraordinary expenses or liabilities of the trust,
the trustee may borrow funds required to pay those expenses or liabilities. The
trustee may borrow the funds from any person, including Newfield or itself. The
trustee may also encumber the assets of the trust to secure payment of the
indebtedness. If the trustee borrows funds to cover extraordinary expenses or
liabilities, the
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trust unitholders will not receive distributions until the borrowed funds are
repaid. The trust agreement provides for special borrowing and repayment
procedures with respect to Newfield's funding of ordinary administrative
expenses, which are described below under "-- Funding of Administrative
Expenses."
The only asset the trust may acquire is the royalty interests and the only
investment activity the trustee may engage in is the investment of cash on hand.
At the request of Newfield, the trustee must sell royalty interests that
burden subject interests then in commercial production and which Newfield
proposes to sell to an unaffiliated third party. The net proceeds of any such
sale would be allocated to Newfield and the trust based upon the relative
ownership percentage of each in the aggregate net revenue interest of Newfield
and the trust included in the sale. However, the trustee will not be required to
sell during any calendar year any royalty interests (i) the value of which
exceeds 10% of the value of all royalty interests held by the trust and then
attributed with proved reserves or (ii) which would cause the cumulative value
of all royalty interests sold pursuant to such requests to exceed 25% of the
value of all royalty interests held by the trust and then attributed with proved
reserves. In each case, the value of royalty interests shall be the discounted
present value of the future net revenues attributable to the proved reserves
attributable to such royalty interests using a discount rate of 10% or such
other rate required by the SEC, as set forth in the most recent reserve report
of the trust.
The trustee may also sell any of the royalty interests if it determines
such sale is in the best interests of the trust unitholders and holders of at
least 60% of all trust units outstanding approve the sale. However, any sale of
all or substantially all of the royalty interests, whether in a single
transaction or series of transactions, requires the approval of holders of at
least 80% of all outstanding trust units. The trustee will distribute the net
proceeds from any sale of royalty interests to the trust unitholders.
The trustee has the right to require any trust unitholder to dispose of his
trust units if an administrative or judicial proceeding seeks to cancel or
forfeit any of the property in which the trust holds an interest because of the
nationality or any other status of a trust unitholder. If a trust unitholder
fails to dispose of his trust units, the trust will be obligated to purchase
them at a price determined in accordance with a formula set forth in the trust
agreement.
The trustee is authorized to agree to modifications of the terms of the
conveyances of the royalty interests to the trust or to settle disputes
involving such conveyances, so long as such modifications or settlements do not
alter the nature of the royalty interests as rights to receive a share of the
oil and gas, or proceeds thereof, from the underlying properties free of any
obligation for drilling, development or operating expenses or rights that do not
possess any operating rights or are obligations.
FIDUCIARY RESPONSIBILITY AND LIABILITY OF THE TRUSTEE
The trustee is a fiduciary for the trust unitholders and is required to act
in the best interests of the trust unitholders at all times. The trustee must
exercise the same judgment and care in supervising and managing the trust's
assets as persons of ordinary prudence, discretion and intelligence would
exercise. Under Texas law, the trustee's duties to the trust unitholders are
similar to the duty of care owed by a corporate director to the corporation and
its shareholders. The primary difference between the trustee's duties and a
corporate director's duties is the absence of the legal presumption protecting
the trustee's decisions from challenge.
Due to the passive nature of the trust, the trustee generally will not make
business decisions affecting the assets of the trust. Therefore, substantially
all of the trustee's functions under the Trust Agreement are expected to be
ministerial in nature. See "-- Duties and Limited Powers of the Trustee" above.
Under Texas law, the trustee may not profit from any transaction with the
trust. The trust agreement, however, provides that the trustee may:
- charge for its services as trustee;
- retain funds to pay for future expenses and deposit them in its own
account;
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- lend funds at commercial rates to the trust to pay the trust's expenses;
and
- seek reimbursement from the trust for its out-of-pocket expenses.
In discharging its fiduciary duty to trust unitholders, the trustee may act
in its discretion and will be liable to the trust unitholders only for fraud,
gross negligence or acts or omissions constituting bad faith as adjudicated by
the final, non-appealable judgment of a court of competent jurisdiction. The
trustee will not be liable for any act or omission of its agents or employees
unless the trustee acted in bad faith or with gross negligence in their
selection and retention. The trustee will be indemnified for any liability or
cost that it incurs in the administration of the trust, except in cases of
fraud, gross negligence or bad faith. The trustee will have a lien on the assets
of the trust as security for this indemnification and its compensation earned as
trustee. The trustee is entitled to indemnification from trust assets or, to the
extent that trust assets are insufficient, from Newfield. Trust unitholders will
not be liable to the trustee for any indemnification. See "-- Description of the
Trust Units -- Liability of Trust Unitholders."
Under Texas law, if the trustee acts in bad faith, the trustee will be
liable to the trust unitholders for damages. Texas law also permits the trust
unitholders to file actions seeking other remedies, including:
- removal of the trustee;
- specific performance;
- appointment of a receiver;
- an accounting by the trustee to trust unitholders; and
- punitive damages.
LIABILITIES OF THE TRUST
Because the trust assets are passive in nature and the trustee has little
power to incur obligations, Newfield anticipates that the trust will only incur
liabilities for routine administrative expenses, such as the trustee's fees and
accounting, engineering, legal and other professional fees.
DURATION OF THE TRUST
The trust will terminate upon the first to occur of:
- the sale of all of the royalty interests;
- such time as the aggregate cash proceeds received by the trustee with
respect to the royalty interests for each of two successive years after
the first full year during which any of the subject interests produce oil
and/or gas in commercial quantities is less than $1,000,000 per year;
- the trustee shall have failed to receive any aggregate cash proceeds
attributable to the royalty interests during the period commencing on the
effective time of the merger through the date of the third anniversary of
the date that none of the subject interests remain in their respective
primary terms (including by way of maintenance of any Subject Interest in
the absence of production beyond its stated primary term through
Suspension of Production orders or other regulatory relief granted by the
MMS or successor agency);
- the holders of 80% or more of the outstanding trust units vote in favor
of termination; or
- the trust violates the "rule against perpetuities;"
provided, however, that in no event shall the trust be terminable or terminated
if any Subject Interest remains in its primary term (including by way of
maintenance of such Subject Interest in the absence of production beyond its
stated primary term through a Suspension of Production order or other regulatory
relief granted by the MMS or successor agency). Upon termination of the trust,
the trustee would then sell all of the trust's assets, either by private sale or
public auction, and then distribute the net proceeds of the sale to the trust
unitholders.
93
FUNDING OF ADMINISTRATIVE EXPENSES
From time to time as the trustee deems reasonably necessary to assure
adequate funding for the administration of the trust until such time as cash
proceeds generated by the royalty interests that are received by the trustee on
behalf of the trust are sufficient for such purpose, the trustee may request
Newfield to make loans (and Newfield has agreed to make such loans), in amounts
estimated by the trustee to be required to cover administrative expenses
expected to be incurred within the 90-day period following the date each such
loan is made. In addition, if after such time as the royalty interests commence
generating cash proceeds, 8% of the amount of proceeds received by the trustee
is insufficient to cover these expenses, Newfield will lend the difference to
the trust. All such loans shall be senior unsecured obligations of the trust,
shall bear interest at the rate of eight percent (8%) per annum and shall be
repaid in quarterly installments only from the excess, if any, of (i) the
product of (A) the cash received by the trustee during the applicable quarter
and (B) .08 over (ii) all compensation, reimbursements and other charges owing
and paid to the trustee for such quarter.
AMENDMENT OF TRUST AGREEMENT
Any amendment of the Trust Agreement requires a vote of holders of 60% or
more of the outstanding trust units, except that any amendment that would permit
the holders of fewer than 80% of the outstanding trust units to approve a sale
of all or substantially all of the royalty interests, whether in a single
transaction or series of transactions, or to terminate the trust requires a vote
of holders of 80% or more of the outstanding trust units. However, Newfield and
the trustee may supplement or amend the agreement, without the approval of the
unitholders, in order to cure any ambiguity, to correct or supplement any
provision which may be defective or inconsistent with any other provision
thereof, or to change the name of the trust, provided that such supplement or
amendment does not adversely affect the interests of the unitholders. In
addition, no amendment may:
- alter the purposes of the trust or permit the trustee to engage in any
business or investment activities other than as specified in the Trust
Agreement;
- alter the rights of the trust unitholders as among themselves;
- permit the trustee to distribute the royalty interests in kind; or
- adversely affect the rights and duties of the trustee unless such
amendment is approved by the trustee.
DISPUTE RESOLUTION
Any dispute, controversy or claim that may arise between Newfield and the
trustee relating to the trust will be submitted to binding arbitration before a
tribunal of three arbitrators.
COMPENSATION OF THE TRUSTEE
The trustee is entitled to annual compensation of $15,000, plus
reimbursement of its reasonable out-of-pocket expenses incurred in connection
with the administration of the trust. The trustee is also entitled to a fee of
$5,000 upon the termination of the trust. The trustee's compensation will be
paid out of the trust's assets.
DESCRIPTION OF THE TRUST UNITS
GENERAL
Each trust unit represents an undivided share of beneficial interest in the
trust. Each holder of a trust unit has the same rights as the holder of any
other trust unit. The trust will have 42,574,298 trust units outstanding.
94
DISTRIBUTIONS AND INCOME COMPUTATIONS
Each quarter, the trustee will determine the amount of funds available for
distribution to the trust unitholders. Available funds will equal the excess
cash received by the trust from the royalty interests and other sources during
that quarter (which may, after such time as any of the royalty interests
commence generating cash proceeds, include loans from Newfield in the
circumstances described in "-- Funding of Administrative Expenses" above), over
the trust's liabilities for that quarter. In any event, no distributions will be
made until such time as the trustee receives cash proceeds from the royalty
interests. Available funds will be reduced by any cash the trustee decides to
hold as a reserve against future liabilities. The trustee shall establish a cash
reserve equal to such amount. Trust unitholders that own their trust units on
the close of business on the last business day of each calendar quarter (the
"Quarterly Record Date") will receive a pro-rata distribution of the amount of
the cash available for distribution no later than 10 business days after the
Quarterly Record Date.
Unless otherwise advised by counsel or the IRS, the trustee will record the
income and expenses of the trust for each quarterly period as belonging to the
trust unitholders of record on the Quarterly Record Date. Trust unitholders will
recognize income and expenses for tax purposes in the quarter of receipt or
payment by the trust, rather than in the quarter of distribution by the trust.
Minor variances may occur. For example, a reserve could be established in one
quarterly period that would not give rise to a tax deduction until a later
quarterly period, or an expenditure paid in one quarterly period would be
amortized for tax purposes over several quarterly periods. See "Material U.S.
Federal Income Tax Consequences -- Ownership of Trust Units."
TRANSFER OF TRUST UNITS
Trust unitholders may transfer their trust units by surrendering their
trust unit certificate and complying with such reasonable transfer regulations
as the trustee may prescribe. No service charge will be made to the transferor
or transferee for any transfer of a trust unit. The trustee may require payment
of any tax or other governmental charge imposed for a transfer. The trustee may
treat the owner of any trust unit as shown by its records as the owner of the
trust unit. The trustee will not be considered to know about any claim or demand
on a trust unit by any party except the record owner. Any transfer of a trust
unit will, as to the trustee, transfer to the transferee as of the close of
business on the date of transfer, all right, title and interest of the
transferor in the trust. However, a transfer of a trust unit after any Quarterly
Record Date will not transfer to the transferee the right to any distribution
relating to the Quarterly Record Date. Except as otherwise provided in the Trust
Agreement, the laws of the State of Texas will govern all matters affecting the
title, ownership, warranty or transfer of trust units. The trust units will not
be listed or quoted in any national securities exchange or market.
PERIODIC REPORTS
The trustee will mail to each trust unitholder of record on a Quarterly
Record Date during each quarter (except the fourth) a report showing the assets,
liabilities and distributable income of the trust for the quarter. No later than
120 days following the end of each year the trustee will mail to the trust
unitholders of record, as of a date to be selected by the trustee, an annual
report containing audited financial statements of the trust.
The trustee will file all required trust federal and state income tax and
information returns. Within 75 days following the end of each fiscal year, the
trustee will prepare and mail to each trust unitholder of record on a Quarterly
Record Date during such year a report in reasonable detail with the information
that trust unitholders need to correctly report their share of the income and
deductions of the trust.
Each trust unitholder and his representatives may examine, for any proper
purpose, during reasonable business hours the records of the trust and the
trustee.
95
LIABILITY OF TRUST UNITHOLDERS
Texas law is unclear whether a trust unitholder would be responsible for a
liability that exceeds the net assets of the trust and the trustee. Because of
the passive nature of the trust assets and the restrictions in the Trust
Agreement on the power of the trustee to incur liabilities, Newfield believes it
is unlikely that a trust unitholder would incur any liability from the trust.
VOTING RIGHTS OF TRUST UNITHOLDERS
Trust unitholders voting rights are more limited than those of stockholders
of most public companies. For example, there is no requirement for annual
meetings of trust unitholders or for annual or other periodic re-election of the
trustee.
The trustee or trust unitholders owning at least 15% of the outstanding
trust units may call meetings of trust unitholders. Meetings must be held in
Harris County, Texas. Written notice setting forth the time and place of the
meeting and the matters proposed to be acted upon must be given to all of the
trust unitholders of record as of a record date set by the trustee at least 20
days and not more than 60 days before the meeting. The presence in person or by
proxy of trust unitholders representing a majority of trust units outstanding
constitutes a quorum. Each trust unitholder is entitled to one vote for each
trust unit owned.
Unless otherwise required by the Trust Agreement, any matter may be
approved by holders of a majority of trust units constituting a quorum, although
less than a majority of the trust units then outstanding. The affirmative vote
of the holders of 80% of the outstanding trust units is required to terminate
the trust or approve a sale of all or substantially all of the royalty
interests, whether in a single transaction or series of transactions. The
affirmative vote of the holders of 60% of the outstanding trust units is
required to (1) amend the Trust Agreement (excluding the requirements for 80%
trust unitholder approval of termination of the trust or a sale of all or
substantially all of the royalty interests, which requires approval of holders
of 80% of the outstanding trust units), (2) approve other sales of the assets of
the trust or (3) approve any transaction with Newfield or any affiliate of
Newfield, any unitholder or any third person that holds a leasehold working
interest in any lease burdened by a royalty interest. The trustee may be
removed, with or without cause, by a vote of the holders of a majority of the
outstanding trust units.
Any action required or permitted to be authorized or taken at any meeting
of trust unitholders may be taken without a meeting, without prior notice and
without a vote if a consent in writing setting forth the authorization or action
as taken is signed by trust unitholders holding units representing not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all units entitled to vote thereon were present and
voted.
In determining whether trust unitholders holding the requisite number of
units have concurred in any vote, direction, consent or waiver under the trust
agreement, units which are beneficially owned (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) by (1) Newfield or any
affiliate of Newfield, or (2) for purposes of votes regarding termination of the
trust or transactions with parties owning a leasehold working interest in any
lease burdened by a royalty interest, any third person not an affiliate of
Newfield that owns a leasehold working interest in any such lease, or (3) for
purposes of any vote with respect to any transaction proposed to be entered into
by any unitholder with the trust, such unitholder, shall be disregarded and
deemed not to be outstanding for the purpose of any such vote or determination.
96
HISTORICAL AUDITED BALANCE SHEET OF TREASURE ISLAND ROYALTY TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Treasure Island Royalty Trust:
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Treasure Island Royalty Trust (the
"Trust") at June 19, 2002 in conformity with accounting principles generally
accepted in the United States of America. This financial statement is the
responsibility of the Trust's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this statement in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall balance sheet presentation. We believe that our audit of
the balance sheet provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
June 19, 2002
97
TREASURE ISLAND ROYALTY TRUST
BALANCE SHEET
<Table>
<Caption>
JUNE 19, 2002
-------------
ASSETS
Cash........................................................ $100
----
Total Assets.............................................. $100
====
TRUST CORPUS
Trust Corpus................................................ $100
----
Total Trust Corpus........................................ $100
====
</Table>
The accompanying note to the balance sheet is an integral part of this
statement.
TREASURE ISLAND ROYALTY TRUST
NOTE TO BALANCE SHEET
FORMATION OF THE TRUST:
Treasure Island Royalty Trust is a trust created under the laws of the
State of Texas pursuant to a trust agreement entered into on June 17, 2002
between Newfield, as grantor, and certain officers of Newfield, as trustees. At
the closing of the merger, Newfield and Wachovia Bank, National Association, as
successor trustee, will enter into an amended and restated trust agreement
pursuant to which the existing trustees will resign and the trust will issue to
Newfield 42,574,298 trust units. The trust will hold certain non-expense bearing
overriding royalty interests in any future production that may be achieved from
intervals at depths typically below 18,000 to 21,000 feet from EEX's Treasure
Island project, an exploration concept covering 116 Gulf of Mexico lease blocks
located on the federal Outer Continental Shelf in which EEX currently owns or
may acquire a working interest. At June 19, 2002, there was no production, and
there were no proved reserves, associated with the royalty interests. Other than
its formation, the trust has not conducted any activities.
98
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
THE MERGER
The following is a discussion of the material federal income tax
consequences of the merger to the holders of EEX common stock and constitutes
the opinions, as indicated, of Vinson & Elkins L.L.P., counsel to Newfield, and
Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to EEX, insofar as it relates
to matters of law and legal conclusions. It is based upon current provisions of
the Internal Revenue Code (referred to below as the Code), existing regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. No attempt has been made to comment on all federal income
tax consequences of the merger that may be relevant to particular holders,
including holders that are subject to special tax rules such as dealers in
securities, foreign persons, mutual funds, insurance companies, tax-exempt
entities and holders who do not hold their shares as capital assets. HOLDERS OF
EEX COMMON STOCK ARE URGED AND EXPECTED TO CONSULT THEIR OWN TAX ADVISERS
REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR
PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES UNDER APPLICABLE STATE, LOCAL AND
FOREIGN TAX LAWS.
OPINION OF COUNSEL TO NEWFIELD
In the opinion of Newfield's counsel, Vinson & Elkins L.L.P., the merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, Newfield, the merger subsidiary and EEX
will each be a party to the reorganization within the meaning of Section 368(b)
of the Code, and Newfield, the merger subsidiary and EEX will not recognize any
gain or loss as a result of the merger except with respect to the distribution
of the trust units.
OPINION OF COUNSEL TO EEX
In the opinion of EEX's counsel, Akin, Gump, Strauss, Hauer & Feld L.L.P.,
the merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, Newfield, the merger
subsidiary and EEX will each be a party to the reorganization within the meaning
of Section 368(b) of the Code, and:
- no gain or loss will be recognized by a holder of EEX common stock or EEX
preferred stock upon the exchange of all of such holder's shares of EEX
common stock or EEX preferred stock solely for shares of Newfield common
stock in the merger;
- the aggregate basis of the shares of Newfield common stock received by an
EEX shareholder in the merger (including any fractional share deemed
received) will be the same as the aggregate basis of the shares of EEX
common stock or EEX preferred stock surrendered in exchange therefor;
- the holding period of the shares of Newfield common stock received by a
shareholder in the merger (including any fractional share deemed
received) will include the holding period of the shares of EEX common
stock or EEX preferred stock surrendered in exchange therefor, provided
that such shares of EEX common stock or EEX preferred stock are held as
capital assets at the effective time;
- a shareholder of EEX who receives cash in lieu of a fractional share of
Newfield common stock will recognize gain or loss equal to the
difference, if any, between such shareholder's basis in the fractional
share (as described in the second bullet point above) and the amount of
cash received; and
- a holder of EEX common stock who elects to receive trust units will
recognize gain on that holder's exchange of shares of EEX common stock in
the merger (but in an amount not in excess of the fair market value of
the trust units received), all or a portion of which could be treated as
a dividend to that holder.
The foregoing opinions address all of the material federal income tax
consequences of the merger to the participants in the merger and to the
shareholders of EEX. Such opinions are based upon the merger agreement
(including the representations and warranties contained in Sections 4.25 and
5.11 thereof), the
99
facts set forth in this proxy statement/prospectus, written representations of
officers of EEX and Newfield contained in Exhibits A and B to the merger
agreement, current provisions of the Code, existing regulations thereunder,
current administrative rulings of the Internal Revenue Service, court decisions
and the assumption that the transactions contemplated by the merger agreement
will be carried out strictly in accordance with the terms thereof. Shareholders
of EEX should be aware that such opinions are not binding on the IRS and no
assurance can be given that the IRS will not adopt a contrary position or that a
contrary IRS position would not be sustained by a court. Each of such opinions
has been filed with the SEC as an exhibit to the registration statement of which
this proxy statement/prospectus is a part.
OWNERSHIP OF TRUST UNITS
This section summarizes the material federal income tax consequences of the
ownership and sale of the trust units and constitutes the opinion of Vinson &
Elkins L.L.P., counsel to Newfield, insofar as it relates to matters of law and
legal conclusions. Many aspects of federal income taxation that may be relevant
to a particular taxpayer or to certain types of taxpayers subject to specific
tax treatment are not addressed. In addition, the tax laws can and do change
regularly, and any future changes could have an adverse effect on the ownership
or sale of trust units. The trust will not request advance rulings from the IRS
dealing with the tax consequences of ownership of trust units.
CLASSIFICATION AND TAXATION OF THE TRUST
Under current law, the trust should be taxable as a grantor trust and not
as a business entity, although there is a remote possibility that the IRS would
attempt to treat the trust as a business entity. A grantor trust is not subject
to tax at the trust level. For tax purposes, trust unitholders will be
considered to own the trust's income and principal as though no trust were in
existence. A grantor trust simply files an information return, reporting all
items of income or deduction which must be included in the tax returns of the
trust unitholders based on their respective accounting methods and taxable years
without regard to the accounting method and tax year of the trust. Each trust
unitholder will recognize taxable income when the trust receives or accrues it,
even if it is not distributed until later. If the trust were determined to be a
business entity, it would be taxable as a partnership unless it failed to meet
certain qualifying income tests applicable to "publicly traded partnerships."
The income of the trust is expected to meet such qualifying income tests, so
that even if the trust were considered to be a publicly traded partnership it
would not be taxable as a corporation. The principal tax consequence of the
trust's being taxable as a partnership as opposed to a grantor trust is that all
trust unitholders would be required to report their share of income from the
trust on the accrual method of accounting regardless of their own method of
accounting.
REPORTING OF TRUST INCOME AND EXPENSES
The trustee intends to treat each royalty payment it receives as the
taxable income of the trust unitholders who own trust units on the day of
receipt by the trust. Similarly, the trustee intends to pay expenses only on the
day it receives a royalty payment. All expenses paid on a royalty receipt day
will be allocated as expenses of each trust unitholder who receives the
distribution of that royalty income. In most cases, therefore, the income and
expenses of the trust for a period will be reported as belonging to the trust
unitholder who received a distribution for that period. The amount of the
distribution for a trust unit will generally equal the net income allocated to
that trust unit, determined without regard to depletion. This correlation may
not exist if, for example, the trustee were to establish a cash reserve to pay
estimated future expenses or pay an expense with borrowed funds. Moreover, the
IRS could attempt to impute income to trust unitholders when a royalty payment
on the overriding royalty interests accrues. The IRS could also attempt to
disallow the deduction of administrative expenses to persons who were not trust
unitholders when the expenses were incurred. If the IRS were successful, trust
income might be taxed to trust unitholders other than those who received the
distribution relating to that income. Also, an accrual basis trust unitholder
might realize royalty income in a tax year earlier than that reported by the
trustee.
100
ROYALTY INCOME AND DEPLETION
The royalty interests are expected to qualify for an allowance for
depletion. The depletion allowance must be computed separately by each trust
unitholder for each oil or gas property, within the meaning of Section 614 of
the Code.
The deduction for depletion is determined annually and is the greater of
cost depletion or, if allowable, percentage depletion. Royalty income from
production attributable to trust units owned by independent producers will
qualify for percentage depletion. An individual or entity with production of the
equivalent of 1,000 barrels of oil per day or less is an independent producer.
Percentage depletion is a statutory allowance equal to 15% of the gross income
from production from a property. Percentage depletion is subject to a net income
limitation of 100% of the taxable income from the property, computed without
regard to depletion deductions and certain loss carrybacks. The depletion
deduction attributable to percentage depletion for a taxable year is limited to
65% of the taxpayer's taxable income for the year before allowance of
independent producers' percentage depletion. Unlike cost depletion, percentage
depletion is not limited to the adjusted tax basis of the property, although it
reduces the adjusted tax basis, but not below zero.
In computing cost depletion for each property for any year, the allowance
for the property is calculated by dividing the adjusted tax basis of the
property at the beginning of the year by the estimated total number of Bbls of
oil or Mcf of natural gas recoverable from the property. This amount is then
multiplied by the number of Bbls of oil or Mcf of natural gas produced and sold
from the property during the year. Cost depletion for a property cannot exceed
the adjusted tax basis of the property. Each trust unitholder will compute cost
depletion using his basis in his trust units. Information will be provided to
each trust unitholder reflecting how his basis should be allocated among each
property represented by his trust units.
OTHER INCOME AND EXPENSES
It is anticipated that the only other income of the trust will be interest
income earned on funds held as a reserve or pending distribution. Other expenses
of the trust will include any state and local taxes imposed on the trust and
administrative expenses of the trustee. Although the issue has not been finally
resolved, all or substantially all of those expenses should be deductible in
computing adjusted gross income and, therefore, are not the type of
miscellaneous itemized deductions that are allowable only to the extent that
they total more than 2% of adjusted gross income.
SALE OF TRUST UNITS; DEPLETABLE BASIS
Generally, a holder will recognize gain or loss on the sale or exchange of
his trust units measured by the difference between the amount realized on the
sale or exchange and his adjusted basis for such trust units. Gain or loss on
the sale of trust units by a holder who is not a dealer of the trust units will
generally be capital gain or loss. In the case of non-corporate taxpayers, such
capital gains will be taxable at a maximum rate of 20% if the trust units have
been held for more than 12 months. A portion of the gain will be treated as
ordinary income to the extent of the depletion recapture amount explained below.
A holder's basis in his trust units will be equal to the amount he paid for the
trust units (or in the case of trust units received in the merger, the fair
market value of such units on the date of the merger), reduced by deductions for
depletion claimed by the holder, but not below zero. Upon the sale of trust
units, the holder must treat as ordinary income his depletion recapture amount,
which is an amount equal to the lesser of the gain on such sale or the sum of
the prior depletion deductions taken with respect to the trust units, but not in
excess of the initial basis of the trust units. In addition, the IRS could take
the position that a portion of the sales proceeds is ordinary income to the
extent of any accrued income at the time of the sale that was allocable to the
trust units sold even though the cash representing such income had not been
distributed to the selling trust unitholder.
101
BACKUP WITHHOLDING
In general, distributions of trust income will not be subject to backup
withholding unless the trust unitholder is an individual or other noncorporate
taxpayer and he fails to comply with certain reporting procedures.
REPORTS
The trustee will furnish to trust unitholders of record quarterly and
annual reports to facilitate their computation of their tax liability. See
"Treasure Island Royalty Trust -- Description of the Trust Units -- Periodic
Reports."
102
COMPARATIVE RIGHTS OF NEWFIELD STOCKHOLDERS AND EEX SHAREHOLDERS
The rights of EEX shareholders are currently governed by the Texas Business
Corporation Act (the "TBCA") and EEX's articles of incorporation and bylaws. At
the time of the merger, EEX shareholders will become Newfield stockholders and
their rights will be governed by the Delaware General Corporation Law (the
"DGCL") and Newfield's certificate of incorporation and bylaws. The following is
a summary of material differences between the rights of EEX shareholders and the
rights of Newfield stockholders. It is not a complete statement of the
provisions affecting, and the differences between, the rights of EEX
shareholders and those of Newfield stockholders. The summary is qualified in its
entirety by reference to the TBCA, the DGCL, EEX's articles of incorporation and
bylaws and Newfield's certificate of incorporation and bylaws.
AUTHORIZED CAPITAL STOCK
<Table>
EEX NEWFIELD
Authorized: Authorized:
- - 150,000,000 shares of common stock, par - 100,000,000 shares of common stock, par
value $0.01 per share value $0.01 per share
- - 10,000,000 shares of preferred stock, no - 5,000,000 shares of preferred stock, par
par value, of which 1,000,000 shares are value $0.01 per share, of which 100,000
designated $200 Series A Junior shares are designated Junior Participating
Participating Preferred Stock and 3,000,000 Preferred Stock
shares are designated Series B 8%
Cumulative Perpetual Preferred Stock
Outstanding as of May 29, 2002: Outstanding as of May 29, 2002:
- - 42,487,395 shares of common stock - 44,393,341 shares of common stock
- - 1,937,450 shares of Series B 8% Cumulative - No shares of Junior Participating Preferred
Perpetual Preferred Stock Stock
- - No shares of $200 Series A Junior
Participating Preferred Stock
</Table>
SIZE OF BOARD OF DIRECTORS
<Table>
EEX NEWFIELD
EEX's bylaws provide for a Board of Directors Under Newfield's bylaws, the number of
consisting of not less than three (3) directors is determined from time to time by
directors and further provide that the exact a resolution of the Board of Directors.
number of directors will be fixed from time
to time by an affirmative vote of not less
than a majority of the continuing directors.
Currently, the number of directors is fixed
at six.
</Table>
103
CUMULATIVE VOTING
Cumulative voting entitles each stockholder to cast an aggregate number of
votes equal to the number of voting shares held, multiplied by the number of
directors to be elected. Each stockholder may cast all of his or her votes for
one nominee or distribute them among two or more nominees. The candidates
receiving the highest number of votes are elected.
<Table>
EEX NEWFIELD
Under the TBCA, shareholders do not have the Under the DGCL, stockholders do not have the
right to cumulative voting unless right to cumulate their votes in the election
specifically granted in the articles of of directors unless such right is granted in
incorporation. EEX's articles of the certificate of incorporation. Newfield's
incorporation expressly prohibit cumulative certificate of incorporation does not provide
voting rights for cumulative voting.
</Table>
CLASSIFICATION OF THE BOARD OF DIRECTORS
<Table>
EEX NEWFIELD
Under the TBCA, a corporation may, in its The DGCL permits classification of a Delaware
bylaws, provide for the classification of corporation's Board of Directors, and for
directors. EEX's board is divided into three staggered terms. Newfield's board is not
classes, as nearly equal in number as classified.
possible, with each class serving a staggered
three-year term. This means that only
one-third of the board is elected at each
annual meeting of shareholders. The
classification makes it more difficult to
change the composition of EEX's Board of
Directors because at least two annual
meetings of shareholders are required to
change control of the Board of Directors.
</Table>
QUALIFICATIONS OF DIRECTORS
<Table>
EEX NEWFIELD
The TBCA does not require any specific The DGCL does not require any specific
qualifications to be a director of a Texas qualifications to be a director of a Delaware
corporation, but permits a corporation's corporation but permits a corporation's
articles of incorporation or bylaws to do so. certificate of incorporation or bylaws to do
EEX's bylaws disqualify an individual from so. Neither Newfield's certificate of
being a Director of the company after the incorporation nor its bylaws contain any
date of the annual meeting of shareholders of requirements for the qualification of
the Company that occurs after such person's directors.
seventy-second birthday, although Directors
are not required to be shareholders or
residents of the State of Texas.
</Table>
104
FILLING VACANCIES ON THE BOARD
<Table>
EEX NEWFIELD
Subject to certain rights to elect Directors Under Newfield's bylaws, vacancies on
under specified circumstances granted to Newfield's Board of Directors may be filled
holders of Preferred Stock, newly created by majority vote of the remaining directors.
directorships resulting from any increase in
the number of Directors and any vacancies are
filled solely by the affirmative vote of a
majority of the remaining Directors, even if
the remaining Directors are less than a
quorum; provided that the Board may not fill
more than two such directorships between
annual meetings of shareholders.
</Table>
REMOVAL OF DIRECTORS
<Table>
EEX NEWFIELD
Directors may be removed from office, with or Any director or the entire Board of Directors
without cause, only by the affirmative vote may be removed, with or without cause, by the
of the holders of not less than a majority of holders of a majority of the shares then
the outstanding shares entitled to vote in entitled to vote at an election of directors.
the election of Directors, so long as notice
was given in the notice calling for the
meeting.
</Table>
NOMINATION OF DIRECTORS FOR ELECTION
<Table>
EEX NEWFIELD
EEX's bylaws contain detailed advance notice Newfield's bylaws do not provide for specific
and informational procedures that must be shareholder notice provisions to nominate
complied with in order for a shareholder to candidates for election to Newfield's Board
nominate a person to serve as a director, of Directors.
generally requiring the notice to be received
by EEX not less than fifty (50) nor more than
seventy-five (75) days prior to the
shareholders meeting at which directors will
be elected.
</Table>
ANTI-TAKEOVER PROVISIONS
<Table>
EEX NEWFIELD
Pursuant to the TBCA's Business Combination Section 203 of the DGCL prohibits "business
Law, Articles 13.01 through 13.08 of the combinations," including mergers, sales and
TBCA, an "affiliated shareholder" who leases of assets, issuances of securities and
beneficially owns 20% or more of a similar transactions by a corporation or a
corporation's outstanding voting shares is subsidiary with an "interested stockholder"
generally prevented from entering into or who beneficially owns 15 percent or more of a
engaging in a "business combination," corporation's voting stock, within three
including mergers, sales and leases of years after the person or entity becomes an
assets, issuances of securities and similar interested stockholder, unless:
transactions with a corporation or a
subsidiary, during the three-year period - the transaction that will cause the person
immediately following the affiliated to become an interested stockholder is
shareholder's acquisition of shares unless approved by the Board of Directors of the
specific conditions are satisfied. The target prior to the transaction,
three-year restriction does not apply if
either:
</Table>
105
<Table>
- - before the date a person became an - after the completion of the transaction in
affiliated shareholder, the Board of which the person becomes an interested
Directors of the corporation approved the stockholder, the interested stockholder
business combination or acquisition of holds at least 85% of the voting stock of
shares made by the affiliated shareholder the corporation not including (a) shares
on that date; or held by officers and directors of
interested stockholders and (b) shares held
- - not less than six months after the date a by specified employee benefit plans, or
person became an affiliated shareholder,
the business combination is approved by the - after the person becomes an interested
affirmative vote of at least two-thirds of stockholder, the business combination is
the corporation's outstanding voting shares approved by the Board of Directors and
not beneficially owned by the affiliated holders of at least 66 2/3% of the
shareholder or its affiliates or outstanding voting stock, excluding shares
associates. held by the interested stockholder.
In discharging the duties of a director A Delaware corporation may elect not to be
under Texas law, a director may, in governed by Section 203. Newfield has not
considering the best interests of EEX, made such an election.
consider the long-term as well as the
short-term interests of EEX and EEX's
shareholders, including the possibility
that those interests may be best served by
the continued independence of EEX.
In order to effect certain business
combinations, including mergers and sales
of assets, in which a 10% shareholder has
an interest, EEX's amended and restated
articles of incorporation require, in
addition to any other vote of shareholders,
an affirmative vote of not less than 80% of
the outstanding voting stock, including at
least 50% of shares not owned by such
interested shareholder, subject to certain
exceptions specified in the articles of
incorporation.
</Table>
RIGHTS PLANS
<Table>
EEX NEWFIELD
Pursuant to a rights agreement between EEX Pursuant to a rights agreement between
and the rights agent adopted by the EEX Board Newfield and the rights agent and adopted by
of Directors in 1996, as amended, one the Newfield Board of Directors in 1996, as
preferred stock purchase right was issued to amended, one preferred stock purchase right
and trades with each outstanding share of EEX was issued to and trades with each
common stock. Each right entitles its outstanding share of Newfield common stock.
registered holder to purchase 1/200th of a Each right entitles its registered holder to
share of EEX series A junior participating purchase 1/1000th of a Newfield junior
preferred stock for $45. participating preferred stock for $85.
The rights are not exercisable unless a The rights are not exercisable unless a
person or group (subject to certain person or group (subject to certain
exclusions) has acquired, or announces the exclusions) has acquired, or announces the
intent to acquire, 18% or more of EEX's intent to acquire, 20% or more of Newfield's
common shares, or commences, or announces the common shares, or commences, or announces the
intent to commence, a tender or exchange intent to commence, a tender or exchange
offer the consummation of which would result offer the consummation of which would result
in the beneficial ownership by such person or in the beneficial ownership by such person or
group of 18% of EEX's common shares. The group of 20% of Newfield's common shares. The
rights, once exercisable, entitle the holder rights, once exercisable, entitle the holder
to purchase, for the exercise price of the to purchase, for the exercise price of the
rights, the number of shares of EEX common rights, the number of shares of Newfield
stock having a market value of two times the common stock having a market value of two
exercise price of the rights. time the exercise price of the rights.
</Table>
106
<Table>
If the rights have become exercisable and EEX If the rights have become exercisable and
is acquired in a merger or other business Newfield is acquired in a merger or other
combination, or 50% or more of its assets, business combination, or 50% or more of its
cash flow, or earnings power are sold, each assets, cash flow, or earning power are sold,
right will entitle the holder to purchase, each right will entitle the holder to
for the exercise price of the right, the purchase, for the exercise price of the
number of shares of the acquiring company's right, the number of shares of the acquiring
common stock that, at the time of the company's common stock that, at the time of
transaction, have a market value of two times the transaction, have a market value of two
the exercise price of the right. times the exercise price of the right.
The rights plan has been amended to, among
other things, exclude the merger from its
operation.
</Table>
STOCKHOLDER ACTION WITHOUT A MEETING
<Table>
EEX NEWFIELD
EEX's articles of incorporation contain Newfield's bylaws provide that any action
provisions prohibiting shareholder actions by required or permitted to be taken at a
written consent stockholders' meeting may be taken without a
meeting pursuant to the written consent of
the holders of at least 66 2/3% of the
outstanding capital stock entitled to vote on
the proposed action.
</Table>
CALLING SPECIAL MEETINGS OF STOCKHOLDERS
<Table>
EEX NEWFIELD
Under the TBCA, special meetings of the Newfield's bylaws provide that a special
shareholders may be called by the president, meeting of the stockholders for any proper
the Board of Directors or such other person purpose or purposes may be called at any time
or persons authorized by the articles of by the Chairman of the Board, by the
incorporation or bylaws or the holders of not President, by a majority of the Board of
less than 10% of all the shares entitled to Directors, or by a majority of the executive
vote at the special meeting, unless a committee and shall be called by the Chairman
different percentage, not to exceed 50%, is of the Board, by the President or the
provided for in the articles of Secretary upon receipt of a written request,
incorporation. Subject to a right to call stating the purpose or purposes of the
special meetings under specified meeting, signed by the holder(s) of at least
circumstances granted to holders of Preferred 15% of the stock entitled to vote at such
Stock, special meetings of shareholders may meeting.
be called only by the Chairman of the Board
or the President of the Company, at the
request in writing or by vote of not less
than a majority of the Directors or at the
request of the holders of not less than 50%
of the outstanding shares entitled to vote at
the meeting. A request for a special meeting
made by the Board of Directors will state the
purpose or purposes of the proposed meeting,
and business transacted at the meeting will
be confined to the objects stated in the
notice of the meeting.
</Table>
107
SUBMISSION OF STOCKHOLDER PROPOSALS
<Table>
EEX NEWFIELD
EEX's bylaws contain detailed advance notice Newfield's bylaws do not provide for specific
and informational procedures that must be stockholder notice provisions to propose
followed in order for an EEX shareholder to business to be brought before an annual
propose an item of business for consideration meeting. Only business within the proper
at a meeting of EEX shareholders. Generally, purpose or purposes described in the notice
notice of any proposal must be received by of meeting required by the bylaws may be
EEX not less than 50 nor more than 75 days conducted at any meeting of Newfield's
prior to the date of the next annual meeting stockholders.
</Table>
NOTICE OF STOCKHOLDERS MEETINGS
<Table>
EEX NEWFIELD
Under the TBCA and EEX's bylaws, a Under the DGCL and Newfield's bylaws,
corporation must send notice of a Newfield must send notice of a stockholders
shareholders' meeting at least 10 and not meeting at least 10 and not more than 60 days
more than 60 days before the date of the before the date of the meeting to each
meeting to each shareholder entitled to vote stockholder entitled to vote at the meeting.
at the meeting. However, a corporation must
give notice at least 20 days prior to a
meeting at which one of the purposes is to
consider a plan of merger to each
shareholder, irrespective of the
shareholder's right to vote at the meeting.
</Table>
STOCKHOLDER VOTE REQUIRED FOR MERGERS
<Table>
EEX NEWFIELD
The TBCA requires certain mergers to be Newfield's certificate of incorporation
approved by holders of at least two-thirds of requires the affirmative vote of 66 2/3% of
the outstanding shares entitled to vote the outstanding shares of common stock to
thereon and, if there is a class of stock approve any merger or consolidation of the
that is entitled to vote as a class, then the corporation and any sale or transfer of all
merger must be approved by the holders of or substantially all of the assets of the
two-thirds of the outstanding shares of each corporation.
class of stock entitled to vote thereon. The
TBCA similarly requires that a sale of all or
substantially all of the assets of a
corporation not made in the ordinary course
of business be approved by the affirmative
vote of the holders of at least two-thirds of
the outstanding shares entitled to vote
thereon. With respect to the approval of a
merger or asset sale, however, the articles
of incorporation may require a vote of a
different number, but not less than a
majority, of the shares outstanding.
In order to effect a business combination,
including mergers and sales of assets, in
which a 10% shareholder has an interest,
EEX's articles of incorporation require, in
addition to any other vote of shareholders,
an affirmative vote of not less than 80% of
the outstanding voting stock, including at
least 50% of shares not owned by that
shareholder, subject to certain exceptions
specified in the articles of incorporation.
</Table>
108
DIVIDENDS
<Table>
EEX NEWFIELD
Under the TBCA, a Texas corporation may make Delaware corporations may pay dividends out
a distribution to its shareholders if the of surplus or, if there is no surplus, out of
distribution does not exceed the net profits for the fiscal year in which
corporation's surplus and the corporation declared and for the preceding fiscal year.
would not become insolvent after giving Section 170 of the DGCL also provides that
effect to the distribution. dividends may not be paid out of net profits
if, after the payment of the dividend,
EEX's bylaws provide that distributions and capital is less than the capital represented
share dividends may be declared by the Board by the outstanding stock of all classes
of Directors at any regular or special having a preference upon the distribution of
meeting. Distributions may be paid in cash or assets.
property, and share dividends may be paid in
shares of EEX capital stock. Newfield's bylaws provide that the
stockholders have the right to receive
dividends if and when declared by Newfield's
board. Dividends may be paid in cash,
property or shares of capital stock.
</Table>
DISSENTERS' APPRAISAL RIGHTS
<Table>
EEX NEWFIELD
- - Dissenters' and appraisal rights are The DGCL provides stockholders of a
governed by Articles 5.11, 5.12 and 5.13 of corporation involved in a merger the right to
the TBCA. Shareholders of a Texas demand and receive payment of the fair value
corporation who dissent from a merger of of their stock in certain mergers. However,
the corporation for which a shareholders' appraisal rights are not available to holders
vote is required are entitled to of shares:
dissenters' rights, requiring the surviving
corporation to purchase the dissenting shares - listed on a national securities exchange,
at fair value. However, appraisal rights are
not available to holders of shares: - designated as a national market system
security on an interdealer quotation system
- listed on a national securities exchange, operated by the National Association of
Securities Dealers, Inc., or
- designated as a national market system
security on an interdealer quotation - held of record by more than 2,000
system operated by the National Association stockholders
of Securities Dealers, Inc., or
unless holders of stock are required to
- held of record by more than 2,000 accept in the merger anything other than any
stockholders combination of:
unless holders of stock are required to - shares of stock or depository receipts of
accept in the merger anything other than any the surviving corporation in the merger
combination of:
- shares of stock or depository receipts of
- - shares of stock or depository receipts of another corporation that, at the effective
the surviving corporation in the merger date of the merger, will be
- - shares of stock or depository receipts of - listed on a national securities exchange,
another corporation that, at the effective
date of the merger, will be - designated as a national market system
security on an interdealer quotation system
- listed on a national securities exchange, operated by the National Association of
Securities Dealers, Inc., or
- designated as a national market system
security on an interdealer quotation - held of record by more than 2,000 holders
system operated by the National Association
of Securities Dealers, Inc., or - cash instead of fractional shares of the
stock or depository receipts received.
- held of record by more than 2,000 holders
- - cash instead of fractional shares of the
stock or depository receipts received.
</Table>
109
<Table>
Dissenters' rights are not available to the
EEX shareholders in the merger.
</Table>
STOCKHOLDER PREEMPTIVE RIGHTS
<Table>
EEX NEWFIELD
Neither EEX's articles of incorporation nor Neither Newfield's certificate of
its bylaws grant preemptive rights to its incorporation nor its bylaws grant preemptive
shareholders. rights to its stockholders.
</Table>
STOCKHOLDER CLASS VOTING RIGHTS
<Table>
EEX NEWFIELD
The TBCA requires separate class voting for The DGCL requires voting by separate classes
approval of a merger plan if the plan of shares only with respect to amendments to
contains a provision that if contained in a a corporation's certificate of incorporation
proposed amendment to the articles of that adversely affect the holders of those
incorporation would require approval by the classes or that increase or decrease the
class under Article 4.03 of the TBCA. Article aggregate number of authorized shares or the
4.03 provides that holders vote as a class on par value of the shares of any of those
a proposed amendment if the amendment would classes.
effect an exchange, reclassification or
cancellation of all or part of the shares of
such class.
The series designation establishing the
Series B 8% Cumulative Perpetual Preferred
Stock entitles the holders of such shares to
a number of votes per share equal to the
quotient of (i) 8,000,000 divided by (ii) the
number of outstanding shares of Series B 8%
Cumulative Perpetual Preferred Stock, but in
no event more than 5.334 votes per share.
</Table>
INDEMNIFICATION
<Table>
EEX NEWFIELD
EEX's bylaws provide that EEX will indemnify, The DGCL provides that a corporation may
and advance or reimburse reasonable expenses indemnify any person who is made a party to a
incurred by, a director or officer of EEX or proceeding on account of being a director,
a person who, while a director or officer of officer, employee or agent of the corporation
EEX, was serving at the request of EEX as a against expenses reasonably incurred by him
director, officer or employee of another or her in connection with the action,
corporation or other entity to the fullest through, among other things, a majority vote
extent permitted or required under the TBCA. of a quorum consisting of directors who were
EEX may indemnify such person further as not parties to the suit or proceeding, if the
permitted by law pursuant to a resolution person:
adopted by the Board of Directors of EEX. EEX
may indemnify, and advance or reimburse - acted in good faith and in a manner he or
reasonable expenses incurred by, any other she reasonably believed to be in or not
person pursuant to a resolution adopted by opposed to the best interests of the
the Board of Directors of EEX. Actions by the corporation or, in some circumstances, at
Board of Directors of EEX to amend, modify or least not opposed to its best interests;
terminate these indemnification provisions and
shall be prospective from the date of such
action. - in a criminal proceeding, had no reasonable
cause to believe his or her conduct was
unlawful.
To the extent a director, officer, employee
or agent is successful in the defense of such
an action, suit
</Table>
110
<Table>
or proceeding, the corporation is required by
the DGCL to indemnify such person for
reasonable expenses incurred thereby.
Newfield's certificate of incorporation
provides that Newfield shall to the fullest
extent authorized by law, indemnity all of
its officers and directors and may, to the
fullest extent authorized by law, indemnify
any and all other persons against all
expenses, liabilities or other matters
arising out of their status as such, or their
acts, omissions or shares rendered in such
capacity. Newfield's bylaws further provide
that it shall indemnify, to the fullest
extent permitted by the DGCL, all directors,
officers, employees and agents against all
reasonable expense, liability and loss
suffered in connection with any proceeding to
which they are made a party or a result of
their service in such capacity for Newfield.
Newfield's bylaws to provide similar
indemnification to employees or agents of
Newfield.
Pursuant to Newfield's certificate of
incorporation, Newfield may maintain
insurance, at its expense, to protect itself
and any directors, officers, employees or
agents of Newfield or another entity against
any expense, liability or loss, regardless of
whether Newfield has the power or obligation
to indemnify that person against such
expense, liability or loss under the DGCL.
</Table>
LIMITATIONS ON DIRECTORS' LIABILITY
<Table>
EEX NEWFIELD
The Texas Miscellaneous Corporation Laws Act Newfield's certificate of incorporation
(TMCLA) permits a corporation's articles of provides that a director of Newfield shall
incorporation to set limits on the extent of not be liable personally to Newfield or its
a director's liability to the corporation or stockholders for monetary damages for breach
its shareholders, except liability for of fiduciary duty as a director, except for
monetary damages cannot be eliminated for: such liability that is expressly not subject
to limitation of liability under the DGCL,
which liability includes:
- - a breach of duty of loyalty to the - any breach of the director's duty of
corporation or its shareholders, loyalty to Newfield or its stockholders,
- - an act or omission not in good faith that - acts or omissions not in good faith or
constitutes a breach of duty to the which involve intentional misconduct or a
corporation or an act or omission that knowing violation of law,
involves intentional misconduct or a
knowing violation of law,
- - a transaction from which the director - payment of a dividend or approval of a
receives an improper benefit, whether or stock repurchase in violation of Section 174
not the benefit resulted from an action of the DGCL, or
taken within the scope of the director's
office, and
- - an act or omission for which liability is - any transaction from which the director
expressly provided for by statute. derived an improper personal benefit.
</Table>
111
<Table>
EEX's articles of incorporation contain This provision protects Newfield's directors
provisions limiting a director's liability to against personal liability for monetary
the fullest extent, consistent with the damages from breaches of their duty of care.
TMCLA, and contain a provision that any It does not eliminate the director's duty of
repeal or modification of such provisions care and has no effect on the availability of
will be prospective only and not adversely equitable remedies, such as an injunction or
affect any limitation of the personal rescission, based upon a director's breach of
liability of a director existing at the time his or her duty of care.
of the repeal or modification.
</Table>
AMENDMENT OF CERTIFICATE OF INCORPORATION
<Table>
EEX NEWFIELD
Under the TBCA, a Texas corporation's Under the DGCL, the certificate of
articles of incorporation may be amended only incorporation of Newfield may be amended by
if the proposed amendment is approved first the affirmative vote of a majority of the
by the corporation's Board of Directors and, outstanding stock entitled to vote on the
thereafter, approved by at least two-thirds amendment at a stockholders' meeting and a
of the outstanding shares entitled to vote on majority of the outstanding stock of each
a proposal to approve the amendment. EEX's class entitled to vote on the amendment as a
articles of incorporation provide for not class, unless the vote of a greater number is
less than 75% of voting stock to amend, required by the certificate of incorporation.
alter, or repeal Articles Six, Eight and Newfield's certificate of incorporation
Nine, and 75% of the voting stock and not provides that any amendment or repeal of
less than 50% of the voting stock without in Article X (which requires a 66 2/3% vote for
an interest in a business combination to approval of any merger or sale of
amend, alter or repeal Articles Ten and substantially all of Newfield's assets) shall
Eleven. require the affirmative vote of at least
66 2/3% of all outstanding shares of Newfield
common stock.
</Table>
AMENDMENT OF BYLAWS
<Table>
EEX NEWFIELD
Altering, amending, suspending or repealing Under the DGCL, the power to amend bylaws
the bylaws or adopting new bylaws requires resides in the stockholders entitled to vote,
the affirmative vote of not less than a provided that a corporation may, in its
majority of the Directors; provided that any certificate of incorporation, confer the
bylaw or amendment adopted by the Directors power to amend the bylaws upon the directors.
may be altered, amended, suspended or The fact that such power has been conferred
repealed by the affirmative vote of the on the directors does not divest nor limit
holders of not less than 66 2/3% of the the power of the stockholders to amend the
outstanding voting stock or a substitute bylaws. Newfield's certificate of
bylaw may be adopted by vote of the incorporation provides that the bylaws may be
shareholders. No bylaw that has been altered, adopted, amended or repealed by the Board of
amended or adopted by such a vote of the Directors upon approval of a majority of the
shareholders may be altered, amended or entire board.
repealed by vote of the Directors for two
years.
</Table>
112
EXPERTS
The consolidated financial statements of Newfield Exploration Company
incorporated in this proxy statement/prospectus by reference to the Annual
Report on Form 10-K for the year ended December 31, 2001 have been so
incorporated in reliance on the report (which contains an explanatory paragraph
relating to Newfield's change in accounting method for its derivatives and
hedging activities and its crude oil inventories as described in Note 1 to the
consolidated financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The balance sheet of Treasure Island Royalty Trust as of June 19, 2002
included in this proxy statement/prospectus has been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of EEX Corporation appearing in EEX
Corporation's Annual Report (Form 10-K) for the year ended December 31, 2001
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon (which contains an explanatory paragraph describing
conditions that raise substantial doubt about EEX's ability to continue as a
going concern as described in Note 2 to the consolidated financial statements)
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
The conclusions of Netherland, Sewell & Associates, Inc., independent
petroleum engineers, with respect to EEX's estimate of its proved reserves have
been included in this proxy statement/prospectus in reliance upon authority of
that firm as an expert in petroleum engineering and geology.
The conclusions of Huddleston & Co., Inc., independent petroleum engineers,
with respect to its review of the procedures and documentation prepared by EEX
and Netherland, Sewell & Associates, Inc. regarding EEX's proved reserves, have
been included in this proxy statement/prospectus in reliance upon authority of
that firm as an expert in petroleum engineering and geology.
LEGAL MATTERS
The validity of the Newfield common stock offered hereby will be passed
upon by Vinson & Elkins L.L.P. In addition, Akin, Gump, Strauss, Hauer & Feld,
L.L.P. and Vinson & Elkins L.L.P. have delivered opinions to EEX and Newfield,
respectively, as to certain tax matters.
STOCKHOLDER PROPOSALS
Any stockholder who desires to submit a proposal for inclusion in the proxy
material for presentation at Newfield's 2003 Annual Meeting of Stockholders must
forward such proposal to the Secretary of Newfield at the address indicated
under the caption "Where You Can Find More Information" below, so that the
Secretary receives it no later than November 13, 2002. Any notice of a proposal
to be considered at Newfield's 2003 Annual Meeting of Stockholders should also
be submitted to the Secretary of Newfield. Any such notice will be considered
untimely if not received by the Secretary on or before February 3, 2003.
WHERE YOU CAN FIND MORE INFORMATION
Newfield and EEX file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed at the SEC's public reference
room in Washington, D.C. Please call the SEC at 1-800-SEC-8330 for further
information on the public reference room. SEC filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at http://www.sec.gov.
Newfield filed a Registration Statement on Form S-4 to register with the
SEC the Newfield common stock and trust units that Newfield will issue to the
EEX shareholders in the merger. This document is part of that registration
statement and constitutes a prospectus of Newfield in addition to being a proxy
113
statement for EEX for its special meeting. As allowed by SEC rules, this proxy
statement/prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement.
The SEC allows Newfield and EEX to "incorporate by reference" information
into this proxy statement/prospectus, which means that Newfield and EEX can
disclose important information to you by referring to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this proxy statement/prospectus, except for any information
superseded by information in this proxy statement/prospectus.
This document incorporates by reference the documents set forth below and
any future filings made by Newfield and EEX with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior to the date of
the EEX special meeting:
NEWFIELD SEC FILINGS:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
2001;
2. Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2002;
3. Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2002;
4. Current Reports on Form 8-K filed on February 8, March 14, March
26, April 25, May 30, July 24, August 5, August 13 and August 14, 2002;
5. the description of the Newfield common stock contained in the
Registration Statement on Form 8-A filed on November 4, 1993; and
6. the description of Newfield's preferred share purchase rights
contained in the Registration Statement on Form 8-A filed on February 18,
1999.
EEX SEC FILINGS:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
2001;
2. Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2002;
3. Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2002; and
4. Current Reports on Form 8-K filed on March 7, June 6 and June 17,
2002.
You can obtain any of the documents incorporated by reference in this
document from Newfield or EEX or from the SEC through the SEC's website at
http://www.sec.gov. Documents incorporated by reference are available to you
from Newfield and EEX without charge, excluding any exhibits to those documents,
unless the exhibit is specifically incorporated by reference in this proxy
statement/prospectus. You can obtain documents incorporated by reference in this
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses and telephone numbers:
<Table>
Newfield Exploration Company EEX Corporation
363 N. Sam Houston Pkwy. E., Suite 2020 2500 CityWest Boulevard, Suite 1400
Houston, Texas 77060 Houston, Texas 77042
Attention: Steve Campbell Attention: Liz Bishop, Investor Relations
(281) 847-6000 (713) 243-3111
</Table>
If you would like to request documents, please do so by , 2002 so
that you may receive them before the EEX special meeting. You should rely only
on the information contained in this document to vote on the proposals submitted
by the EEX Board of Directors. Nobody else has been authorized to provide you
with information that is different from what is contained in this proxy
statement/prospectus. This proxy statement/prospectus is dated , 2002.
You should not assume
114
that the information contained in this document is accurate as of any date other
than such date, and neither the mailing of this document to shareholders of EEX
nor the issuance of Newfield common stock in the merger shall create any
implication to the contrary.
Newfield has provided all of the information contained in this document
with respect to Newfield and EEX has provided all of the information contained
in this document with respect to EEX.
AFTER YOU HAVE CAREFULLY READ THIS DOCUMENT AND THE ACCOMPANYING ANNEXES,
YOU ARE URGED TO SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE ENCLOSED
PREPAID ENVELOPE. PROMPT RETURN OF YOUR PROXY MAY SAVE EEX ADDITIONAL
SOLICITATION EXPENSE.
WE ENCOURAGE ALL SHAREHOLDERS OF EEX TO ATTEND THE EEX SPECIAL MEETING ON
, 2002.
115
CERTAIN OIL AND GAS TERMS
Set forth below are explanations of some commonly used terms in the oil and
gas industry.
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
BCFE. One billion cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
DEEPWATER. Generally considered to be water depths in excess of 1,000
feet.
FIELD. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature or
stratigraphic condition.
MBBLS. One thousand barrels.
MCF. One thousand cubic feet of natural gas.
MCFE. One thousand cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
MMBBLS. One million barrels.
MMCF. One million cubic feet of natural gas.
MMCFE. One million cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
MMS. The United States Minerals Management Service, a division of the U.S.
Department of the Interior.
NYMEX. The New York Mercantile Exchange.
OIL AND GAS LEASE. An instrument which grants to another (the lessee) the
exclusive right to enter to explore for, drill for, produce, store and remove
oil and natural gas on the mineral interest, in consideration for which the
lessor is entitled to certain rents and royalties payable under the terms of the
lease. Typically, the duration of the lessee's authorization is for a stated
term of years and "for so long thereafter" as minerals are producing.
OPERATOR. The individual or company responsible for the exploration,
exploitation and production of an oil or natural gas well or lease.
PRESENT VALUE. When used with respect to oil and natural gas reserves, the
estimated value of future gross revenues (estimated in accordance with the
requirements of the SEC) to be generated from the production of proved reserves,
net of estimated production and future development costs, using prices and costs
in effect as of the date indicated, without giving effect to nonproperty related
expenses such as general and administrative expenses, debt service and future
income tax expenses or to depreciation, depletion and amortization, discounted
using an annual discount rate of 10%.
PROVED RESERVES. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
ROYALTY INTEREST. An interest in an oil and natural gas lease that gives
the owner of the interest the right to receive a portion of the production from
the leased acreage (or the proceeds of the sale thereof), but generally does not
require the owner to pay any portion of the costs of drilling or operating the
wells on the leased acreage. Royalties may be either landowner's royalties,
which are reserved by the owner of the leased acreage at the time the lease is
granted, or overriding royalties, which are usually reserved by an owner of the
leasehold in connection with a transfer to a subsequent owner.
116
UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
WORKING INTEREST. The operating interest in an oil and gas lease that
gives the owner the right to drill, produce and conduct operating activities on
the property and a share of production.
117
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEWFIELD EXPLORATION COMPANY,
NEWFIELD OPERATING COMPANY
AND
EEX CORPORATION
DATED AS OF MAY 29, 2002
TABLE OF CONTENTS
<Table>
ARTICLE I THE MERGER
1.1 The Merger.................................................. A-1
1.2 Effective Time of the Merger................................ A-1
1.3 Tax Treatment............................................... A-1
ARTICLE II THE SURVIVING CORPORATION
2.1 Articles of Incorporation................................... A-2
2.2 Bylaws...................................................... A-2
2.3 Directors and Officers...................................... A-2
ARTICLE III CONVERSION OF SHARES
3.1 Conversion of Capital Stock................................. A-2
3.2 Election and Allocation Procedures.......................... A-3
3.3 Surrender and Exchange...................................... A-5
3.4 No Fractional Shares........................................ A-6
3.5 Closing..................................................... A-7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY
4.1 Organization and Qualification.............................. A-7
4.2 Capitalization.............................................. A-8
4.3 Authority................................................... A-9
4.4 Consents and Approvals; No Violation........................ A-9
4.5 Company SEC Reports......................................... A-10
4.6 Company Financial Statements................................ A-10
4.7 Absence of Undisclosed Liabilities.......................... A-10
4.8 Absence of Certain Changes.................................. A-10
4.9 No Default.................................................. A-11
4.10 Taxes....................................................... A-11
4.11 Litigation.................................................. A-12
4.12 Employee Benefit Plans; ERISA............................... A-12
4.13 Environmental Liability..................................... A-13
4.14 Compliance with Applicable Laws............................. A-14
4.15 Insurance................................................... A-14
4.16 Labor Matters; Employees.................................... A-15
4.17 Intellectual Property....................................... A-15
4.18 Properties.................................................. A-15
4.19 Reserve Report.............................................. A-16
4.20 Operations; Equipment....................................... A-17
4.21 Prepayments; Hedging; Calls................................. A-17
4.22 Restrictive Agreements...................................... A-17
4.23 Required Shareholder Vote or Consent........................ A-17
4.24 Brokers..................................................... A-18
4.25 Tax Matters................................................. A-18
4.26 Opinion of Financial Advisor................................ A-18
4.27 Rights Plan; Takeover Statutes; Etc......................... A-18
</Table>
A-i
<Table>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
5.1 Organization and Qualification.............................. A-18
5.2 Capitalization.............................................. A-19
5.3 Authority................................................... A-19
5.4 Consents and Approvals; No Violation........................ A-20
5.5 Parent SEC Reports.......................................... A-20
5.6 Parent Financial Statements................................. A-20
5.7 Absence of Undisclosed Liabilities.......................... A-21
5.8 Absence of Certain Changes.................................. A-21
5.9 Litigation.................................................. A-21
5.10 Brokers..................................................... A-21
5.11 Tax Matters................................................. A-21
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER
6.1 Conduct of Business by Company Pending the Merger........... A-21
Conduct of Business by Parent and Merger Sub Pending the A-24
6.2 Merger......................................................
ARTICLE VII ADDITIONAL AGREEMENTS
7.1 Access and Information...................................... A-24
7.2 No Solicitation............................................. A-25
7.3 Directors' and Officers' Indemnification and Insurance...... A-26
7.4 Appropriate Actions; Consents; Filings...................... A-27
7.5 Cooperation................................................. A-28
7.6 Publicity................................................... A-28
7.7 Employee Matters; Benefit Plans............................. A-29
7.8 Stock Plans................................................. A-29
7.9 Company Shareholder Meeting................................. A-29
Preparation of the Proxy Statement/Prospectus and A-30
7.10 Registration Statement......................................
7.11 Stock Exchange Listing...................................... A-31
7.12 Affiliate Agreements; Tax Treatment......................... A-31
7.13 Trust Units................................................. A-31
7.14 Unwind of Forward Sale...................................... A-31
7.15 Voting Agreement............................................ A-32
ARTICLE VIII CONDITIONS TO CONSUMMATION OF THE MERGER
8.1 Conditions to the Obligation of Each Party.................. A-32
8.2 Conditions to the Obligations of Parent and Merger Sub...... A-32
8.3 Conditions to the Obligations of Company.................... A-33
ARTICLE IX SURVIVAL
9.1 Survival of Representations and Warranties.................. A-34
9.2 Survival of Covenants and Agreements........................ A-34
ARTICLE X TERMINATION, AMENDMENT AND WAIVER
10.1 Termination................................................. A-34
10.2 Effect of Termination....................................... A-35
10.3 Fees, Expenses and Other Payments........................... A-35
ARTICLE XI MISCELLANEOUS
11.1 Notices..................................................... A-36
11.2 Separability................................................ A-37
</Table>
A-ii
<Table>
11.3 Assignment.................................................. A-37
11.4 Interpretation.............................................. A-37
11.5 Counterparts................................................ A-37
11.6 Entire Agreement............................................ A-37
11.7 Governing Law............................................... A-38
11.8 Attorneys' Fees............................................. A-38
11.9 No Third Party Beneficiaries................................ A-38
11.10 Disclosure Schedules........................................ A-38
11.11 Amendments and Supplements.................................. A-38
11.12 Extensions, Waivers, Etc.................................... A-38
</Table>
EXHIBITS
<Table>
Exhibit A Company Tax Certificate
Exhibit B Parent Tax Certificate
Exhibit C Affiliate Agreement
Exhibit D Master Conveyance of Overriding Royalty Interest
</Table>
A-iii
GLOSSARY OF DEFINED TERMS
<Table>
Acquisition Proposal........................... A-26
Agreement...................................... A-1
Allocated Trust Units.......................... A-2
Articles of Merger............................. A-1
Audit.......................................... A-12
Bankruptcy Court............................... A-31
Business Day................................... A-5
BWT............................................ A-31
Closing........................................ A-7
Closing Date................................... A-7
Code........................................... A-1
Common Stock Certificate....................... A-2
Common Stock Merger Consideration.............. A-2
Company........................................ A-1
Company Acquisition............................ A-36
Company Balance Sheet.......................... A-10
Company Common Stock........................... A-2
Company Confidentiality Agreement.............. A-24
Company Disclosure Schedule.................... A-7
Company Employee Benefit Plans................. A-12
Company Material Adverse Effect................ A-7
Company Payout Balances........................ A-17
Company Permits................................ A-14
Company Preferred Stock........................ A-3
Company Representatives........................ A-25
Company Reserve Report......................... A-16
Company Rights Plan............................ A-8
Company SEC Reports............................ A-10
Company Series A Preferred Stock............... A-8
Company Shareholder Meeting.................... A-29
Company Shareholders' Approval................. A-18
Company Stock Option Plans..................... A-8
Company Tax Certificate........................ A-18
Company Voting Debt............................ A-8
Customary Post Closing Consents................ A-9
D&O Insurance.................................. A-27
EEX E&P........................................ A-31
EEX Funding.................................... A-31
Effective Time................................. A-1
Electing Shareholders.......................... A-31
Election Deadline.............................. A-4
Election Form.................................. A-3
ENA............................................ A-31
Enforceability Exception....................... A-9
Environmental Laws............................. A-14
ERISA.......................................... A-12
Exchange Act................................... A-9
Exchange Agent................................. A-5
Exchange Fund.................................. A-5
Exchange Ratio................................. A-2
Expenses....................................... A-36
Forward Sale Contract.......................... A-31
GAAP........................................... A-10
Good and Marketable Title...................... A-16
Governmental Authority......................... A-9
Governmental Order............................. A-34
Hazardous Substances........................... A-14
Hedging Transaction............................ A-17
HSR Act........................................ A-9
Hydrocarbons................................... A-16
Indemnified Parties............................ A-26
Indemnified Party.............................. A-26
Information.................................... A-24
Intellectual Property.......................... A-15
Liens.......................................... A-10
Master Conveyance.............................. A-31
Merger......................................... A-1
Merger Consideration........................... A-3
Merger Sub..................................... A-1
Merger Sub Common Stock........................ A-3
Mid-Continent.................................. A-18
Oil and Gas Interests.......................... A-16
Optional Termination Date...................... A-34
Order.......................................... A-27
Parent......................................... A-1
Parent Common Stock............................ A-2
Parent Material Adverse Effect................. A-18
Parent Rights Plan............................. A-19
Parent SEC Reports............................. A-20
Parent Tax Certificate......................... A-21
Parent Voting Debt............................. A-19
Person......................................... A-6
Plan of Termination............................ A-31
Preferred Stock Certificate.................... A-3
Preferred Stock Merger Consideration........... A-3
Proxy Statement/Prospectus..................... A-9
RBC............................................ A-31
Registration Rights Agreement.................. A-1
Registration Statement......................... A-9
Restricted Stock............................... A-29
SEC............................................ A-9
Securities Act................................. A-9
Stock Certificates............................. A-3
Subsidiary..................................... A-7
Successor Bank................................. A-31
Superior Proposal.............................. A-26
Surviving Corporation.......................... A-1
Tax Authority.................................. A-12
Tax Returns.................................... A-12
Taxes.......................................... A-12
TBCA........................................... A-1
Trust.......................................... A-31
Trust Preferred Securities..................... A-19
Trust Units.................................... A-31
Unit Election.................................. A-4
Voting Agreement............................... A-1
Warburg Entities............................... A-1
Warrant Agreements............................. A-1
</Table>
A-iv
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"),
dated as of May 29, 2002, is by and among Newfield Exploration Company, a
Delaware corporation ("PARENT"), Newfield Operating Company, a Texas corporation
and a wholly owned subsidiary of Parent ("MERGER SUB"), and EEX Corporation, a
Texas corporation ("COMPANY").
WHEREAS, the respective Boards of Directors of each of Parent, Merger Sub
and Company deem it advisable and in the best interests of their respective
shareholders that Parent acquire Company through the merger of Merger Sub with
and into Company (the "MERGER") upon the terms and subject to the conditions set
forth herein, and such Boards of Directors have approved the Merger;
WHEREAS, concurrently with the execution and delivery of this Agreement,
with the approval of Company's Board of Directors, Parent, David A. Trice and
Terry W. Rathert have entered into a Voting Agreement and Irrevocable Proxy with
Warburg, Pincus Equity Partners, L.P., Warburg, Pincus Netherlands Equity
Partners I, C.V., Warburg, Pincus Netherlands Equity Partners II, C.V., Warburg,
Pincus Netherlands Equity Partners III, C.V. (collectively, the "WARBURG
ENTITIES"), Thomas M. Hamilton, David R. Henderson and Richard S. Langdon under
which such parties have, among other things, agreed to support the Merger upon
the terms and subject to the conditions set forth therein (the "VOTING
AGREEMENT");
WHEREAS, pursuant to the Voting Agreement, the Warburg Entities have agreed
to sell all of the warrants outstanding under each of the Company's Series A
Warrants, Series B Warrants and Series C Warrants issued to certain of the
Warburg Entities on January 7, 1999 (collectively, the "WARRANT AGREEMENTS") to
Parent at the Effective Time;
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent has entered into a Registration Rights Agreement (the "REGISTRATION
RIGHTS AGREEMENT") with the Warburg Entities, to be effective as of the
Effective Time, with respect to the shares of Parent Common Stock to be issued
to the Warburg Entities in the Merger; and
WHEREAS, for federal income tax purposes, the parties intend that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "CODE");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions hereof, at
the Effective Time (as defined in Section 1.2) Merger Sub shall merge with and
into Company and the separate corporate existence of Merger Sub shall cease and
Company shall be the surviving corporation in the Merger (sometimes referred to
herein as the "SURVIVING CORPORATION"). The Merger shall have the effects set
forth in Article 5.06 of the Texas Business Corporation Act (the "TBCA"),
including the Surviving Corporation's succession to and assumption of all rights
and obligations of Merger Sub.
1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective (the
"EFFECTIVE TIME") upon the later of (i) the filing of the properly executed
Articles of Merger relating to the Merger (the "ARTICLES OF MERGER") with the
Secretary of State of Texas in accordance with the TBCA, and the issuance by the
Secretary of State of Texas of a certificate of merger with respect thereto, and
(ii) at such later time as the parties shall agree and set forth in the Articles
of Merger. The filing of the Articles of Merger shall be made as soon as
practicable after the satisfaction or waiver of the conditions set forth in
Article VIII.
1.3 TAX TREATMENT. It is intended that the Merger shall constitute a
reorganization under Section 368(a) of the Code.
A-1
ARTICLE II
THE SURVIVING CORPORATION
2.1 ARTICLES OF INCORPORATION. At the Effective Time, the articles of
incorporation of the Surviving Corporation shall be amended so that they are
identical to the articles of incorporation of Merger Sub in effect immediately
prior to the Effective Time until thereafter amended in accordance with the
terms thereof and the TBCA.
2.2 BYLAWS. The bylaws of Merger Sub as in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation at and after
the Effective Time until thereafter amended in accordance with the terms thereof
and as provided by the articles of incorporation of the Surviving Corporation
and the TBCA.
2.3 DIRECTORS AND OFFICERS.
(a) The directors of Merger Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation, each to hold office in
accordance with the articles of incorporation and bylaws of the Surviving
Corporation until their respective successors are duly elected or appointed and
qualified.
(b) The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, each to hold office in
accordance with the articles of incorporation and bylaws of the Surviving
Corporation until their respective successors are duly elected or appointed and
qualified.
ARTICLE III
CONVERSION OF SHARES
3.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any capital
stock described below:
(a) TREASURY STOCK. All shares of common stock of Company, par value
$.01 per share (including the associated preferred stock purchase rights set
forth in the Company Rights Plan (as defined in Section 4.2)), "COMPANY COMMON
STOCK"), that are held in Company's treasury shall be canceled and retired and
no cash, capital stock or other consideration shall be delivered in exchange
therefor.
(b) CONVERSION OF COMPANY COMMON STOCK. Subject to Section 3.4, each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance with Section
3.1(a)) shall be converted into (i) .05703 of one share (the "EXCHANGE RATIO")
of Parent's common stock, par value $0.01 per share (including the associated
preferred stock purchase rights set forth in the Parent Rights Plan (as defined
in Section 5.2), "PARENT COMMON STOCK") or (ii) if the holder of such share has
made a Unit Election (as defined in Section 3.2(b)), (A) the quotient of (x) the
number of whole Trust Units (as defined in Section 7.13) elected to be received
by, and that are allocated to, such holder pursuant to the procedures set forth
in Section 3.2 (the "ALLOCATED TRUST UNITS") divided by (y) the number of shares
of Company Common Stock covered by the Election Form (as defined in Section
3.2(a)) for such holder and (B) the fraction of one share of Parent Common
Stock, if any, remaining after reducing the Exchange Ratio by the quotient of
(x) .00054 multiplied by the Allocated Trust Units for such holder and (y) the
number of shares of Company Common Stock covered by the Election Form for such
holder. Such consideration, together with cash in lieu of fractional shares of
Parent Common Stock as contemplated by Section 3.4, without interest, is
referred to herein as the "COMMON STOCK MERGER CONSIDERATION." All shares of
Company Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and the
holder of a certificate ("COMMON STOCK CERTIFICATE") that, immediately prior to
the Effective Time, represented outstanding shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive the
Common Stock Merger Consideration to be issued or paid in consideration therefor
upon the surrender of such certificate in accordance with Section 3.3.
A-2
(c) CONVERSION OF COMPANY PREFERRED STOCK. Subject to Section 3.4, the
shares of Series B 8% Cumulative Perpetual Preferred Stock, no par value, of
Company ("COMPANY PREFERRED STOCK") issued and outstanding immediately prior to
the Effective Time plus all accrued and unpaid dividends shall be converted into
an aggregate of 4,700,000 shares of Parent Common Stock, with each holder of
Company Preferred Stock to receive a pro rata portion of such shares of Parent
Common Stock based on such holder's ownership of Company Preferred Stock
immediately prior to the Effective Time. Such consideration, together with cash
in lieu of fractional shares thereof, as contemplated by Section 3.4, without
interest, is referred to herein as (the "PREFERRED STOCK MERGER CONSIDERATION"
and, together with the Common Stock Merger Consideration, the "MERGER
CONSIDERATION"). All shares of Company Preferred Stock, when so converted, shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and the holder of a certificate ("PREFERRED STOCK
CERTIFICATE" and, together with Common Stock Certificates, "STOCK CERTIFICATES")
that, immediately prior to the Effective Time, represented outstanding shares of
Company Preferred Stock shall cease to have any rights with respect thereto,
except the right to receive the Preferred Stock Merger Consideration to be
issued or paid in consideration therefor upon the surrender of such certificate
in accordance with Section 3.3.
(d) CONVERSION OF MERGER SUB COMMON STOCK. Each share of common stock
of Merger Sub, par value $0.01 per share ("MERGER SUB COMMON STOCK"), issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of the
common stock of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall from and after the Effective Time
evidence ownership of the same number of shares of capital stock of the
Surviving Corporation.
(e) PARENT COMMON STOCK. Each share of Parent Common Stock issued and
outstanding immediately prior to the Effective Time shall not be affected by the
Merger.
(f) DIVIDENDS/DISTRIBUTIONS. No dividends or other distributions
declared or made after the Effective Time with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Stock Certificate with
respect to the applicable Merger Consideration represented thereby until the
holder of record of such Stock Certificate shall surrender such Stock
Certificate in accordance with Section 3.3. Subject to the effect of applicable
laws (including escheat and abandoned property laws), following surrender of any
such Stock Certificate there shall be paid to the record holder of the
certificate or certificates representing the Merger Consideration issued in
exchange therefor, without interest, (i) the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to Merger Consideration, and (ii) if the payment date for any dividend
or distribution payable with respect to Merger Consideration has not occurred
prior to the surrender of such Stock Certificate, at the appropriate payment
date therefor, the amount of dividends or other distributions with a record date
after the Effective Time but prior to the surrender of such Stock Certificate
and a payment date subsequent to the surrender of such Stock Certificate.
(g) FULL SATISFACTION; NO REGISTRATION AT TRANSFER. All Merger
Consideration issued upon the surrender of Stock Certificates in accordance with
the terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to such Stock Certificates and Company Common Stock and
Company Preferred Stock formerly represented thereby, and from and after the
Effective Time there shall be no further registration of transfers effected on
the stock transfer books of the Surviving Corporation of shares of Company
Common Stock or Company Preferred Stock that were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Stock Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article III.
3.2 ELECTION AND ALLOCATION PROCEDURES.
(a) An election form (an "ELECTION FORM") and other appropriate and
customary transmittal materials, which shall specify that delivery shall be
effected, and risk of loss and title to Common Stock Certificates shall pass,
only upon proper delivery of such certificates to the Exchange Agent (as defined
in Section 3.3), in such form as Parent and Company shall mutually agree shall
be mailed contemporaneously with the Proxy Statement/Prospectus (as defined in
Section 4.4(b)) to shareholders of record of the
A-3
Company Common Stock as of the record date for the Company Shareholder Meeting
(as defined in Section 7.9). Company shall use all reasonable efforts to make an
Election Form available to all Persons who become holders of record of shares of
Company Common Stock between the date of mailing described in the immediately
preceding sentence and the Election Deadline.
(b) An Election Form shall entitle the holder of shares of Company
Common Stock (or the beneficial owner through appropriate and customary
documentation and instructions) to elect to receive whole Trust Units in lieu of
all or any portion of the Parent Common Stock that such holder would otherwise
receive in the Merger (a "UNIT ELECTION"). No holder of Company Common Stock may
elect to receive more Trust Units than the product of (i) 105.611 and (ii) the
number of shares of Company Common Stock owned by such holder, rounded down to
the nearest whole Trust Unit. Unit Elections may be made only for whole Trust
Units. No fractional interests in Trust Units will be issued. Shareholders of
record of Company Common Stock who hold shares of Company Common Stock as
nominees, trustees or in other representative capacities may submit multiple
Election Forms provided that such representative certifies that each such
Election Form covers all the shares of Company Common Stock held by that
representative for a particular beneficial owner.
(c) To be effective, a properly completed Election Form must be
submitted to the Exchange Agent on or before 5:00 p.m. Houston, Texas time on
the second business day prior to the date of the Company Shareholder Meeting (as
defined in Section 7.9) (or such other time and date as Parent and Company may
mutually agree) (the "ELECTION DEADLINE"). An election shall have been properly
made only if the Exchange Agent shall have actually received a properly
completed Election Form by the Election Deadline. An Election Form shall be
deemed properly completed only if accompanied by one or more Common Stock
Certificates (or customary affidavits and, if required by Parent pursuant to
Section 3.3, indemnification regarding the loss or destruction of such
certificates or the guaranteed delivery of such certificates) representing all
shares of Company Common Stock covered by such Election Form, together with duly
executed transmittal materials included with the Election Form. A holder of
Company Common Stock may, at any time prior to the Election Deadline, change
such holder's election by written notice received by the Exchange Agent prior to
the Election Deadline accompanied by a properly completed and signed revised
Election Form. The obligation to deliver Common Stock Certificates may be
satisfied by delivering a guarantee of delivery of such Common Stock
Certificates, as set forth in the Election Form, from a member of any registered
national securities exchange or of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States, provided such Common Stock Certificates are
in fact delivered by the time set forth in such guarantee of delivery. A holder
of Company Common Stock may, at any time prior to the Election Deadline, revoke
such holder's election by written notice received by the Exchange Agent prior to
the Election Deadline or by withdrawal prior to the Election Deadline of such
shareholder's Common Stock Certificates, or of the guarantee of delivery of such
certificates, previously deposited with the Exchange Agent. All elections shall
be revoked automatically if the Exchange Agent is notified in writing by Parent
and Company that this Agreement has been terminated. Subject to the terms of
this Agreement and of the Election Form, the Exchange Agent shall determine, in
its sole and absolute discretion, whether any election, revocation or change has
been properly or timely made and to disregard immaterial defects in any Election
Form, and the decision of the Exchange Agent regarding such matters shall be
binding and conclusive. Neither Parent nor the Exchange Agent shall have any
obligation to notify any Person of any defect in an Election Form submitted to
the Exchange Agent.
(d) Within ten business days after the later to occur of the Election
Deadline or the Effective Time, Parent shall cause the Exchange Agent to effect
the allocation among holders of Company Common Stock of rights to receive Trust
Units as follows:
(i) If, in the aggregate, the holders of Company Common Stock elect
to receive no more than 42,574,298 Trust Units, then the full number of
Trust Units elected to be received by each electing shareholder shall be
allocated to such shareholder; and
(ii) If, in the aggregate, the holders of Company of Common Stock
elect to receive more than 42,574,298 Trust Units, then each electing
holder shall be allocated a number of whole Trust Units equal to the sum
of (A) the lesser of (1) the number of Trust Units such electing holder
elected to
A-4
receive and (2) the number of shares of Company Common Stock covered by
the Election Form for such holder plus (B) the product of (1) the result
of 42,574,298 less the aggregate number of Trust Units allocated to all
electing holders pursuant to clause (A) above multiplied by (2) a
fraction the numerator of which is the amount, if any, by which the
number of Trust Units such electing holder elected to receive exceeds
the number of Trust Units allocated to such holder pursuant to clause
(A) above and the denominator of which is the amount by which the
aggregate number of Trust Units elected to be received by all electing
holders exceeds the aggregate number of Trust Units allocated to all
electing holders pursuant to clause (A) above, rounded down to the
nearest whole Trust Unit.
3.3 SURRENDER AND EXCHANGE.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall authorize
one or more transfer agent(s) reasonably acceptable to Company to act as
exchange agent hereunder (the "EXCHANGE AGENT") with respect to the Merger. At
or prior to the Effective Time, Parent shall deposit with the Exchange Agent for
the benefit of the holders of Company Common Stock and Company Preferred Stock,
for exchange in accordance with this Section 3.3 through the Exchange Agent,
certificates representing the shares of Parent Common Stock and Trust Units
issuable pursuant to Section 3.1 in exchange for outstanding shares of Company
Common Stock and certificates representing the shares of Parent Common Stock
issuable pursuant to Section 3.1 in exchange for outstanding shares of Company
Preferred Stock plus accrued and unpaid dividends with respect thereto (such
shares of Parent Common Stock and Trust Units, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"EXCHANGE FUND"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the applicable Merger Consideration in exchange for
surrendered Stock Certificates pursuant to Section 3.1 out of the Exchange Fund.
If an allocation is necessary pursuant to Section 3.2(d)(ii), upon completion of
such allocation, the Exchange Agent shall return any excess shares of Parent
Common Stock and Trust Units to Parent. Except as contemplated by Section
3.3(e), the Exchange Fund shall not be used for any other purpose.
(b) LETTER OF TRANSMITTAL. Promptly after the Effective Time, but in
any event not later than five Business Days (as defined below) thereafter,
Parent shall cause the Exchange Agent to mail to each shareholder of record of
Company at the Effective Time who did not submit a properly completed and
executed Election Form accompanied by an appropriately endorsed Stock
Certificate or Certificates representing all of the shares of Company Common
Stock owned by such holder (or, alternatively, by an appropriate guarantee of
delivery) a letter of transmittal (which shall specify that delivery shall be
effected and risk of loss and title to the Stock Certificates shall pass only
upon delivery of the Stock Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
instructions for use in effecting the exchange of such Stock Certificates for
the Common Stock Merger Consideration (with respect to the Company Common Stock)
or the Preferred Stock Merger Consideration (with respect to the Company
Preferred Stock). Provision also shall be made for holders of Company Preferred
Stock to procure in person immediately after the Effective Time a letter of
transmittal and instructions and to deliver in person immediately after the
Effective Time such letter of transmittal and Preferred Stock Certificates
representing the Company Preferred Stock in exchange for the applicable
Preferred Stock Merger Consideration. For purposes of this Agreement, "BUSINESS
DAY" means any date that is not a Saturday or Sunday or other day on which banks
are required or authorized by law to be closed in New York, New York.
(c) RIGHT TO RECEIVE MERGER CONSIDERATION. After the Effective Time,
Stock Certificates shall represent the right, upon surrender thereof to the
Exchange Agent, together with a duly executed and properly completed letter of
transmittal relating thereto, to receive in exchange therefor the applicable
Merger Consideration subject to any required tax withholding, and the Stock
Certificates so surrendered shall be canceled. No interest will be paid or will
accrue on any cash amount payable upon the surrender of any such Stock
Certificates. Until so surrendered, each such Stock Certificate shall, after the
Effective Time, represent for all purposes only the right to receive the
applicable Merger Consideration.
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(d) TRANSFER. If any Merger Consideration is to be paid to a Person (as
defined below) other than the registered holder of the Stock Certificate or
Certificates surrendered in exchange therefor, it shall be a condition to such
payment that the Stock Certificate or Certificates so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder or establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable. For purposes of this Agreement,
"PERSON" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a Governmental Authority (as defined in Section 4.4(b)).
(e) TERMINATION OF EXCHANGE FUND. Any Merger Consideration in the
Exchange Fund that remains unclaimed by the holders of Company Common Stock or
Company Preferred Stock one year after the Effective Time shall be returned to
Parent, upon demand, and any such holder who has not exchanged such holder's
Stock Certificates in accordance with this Section 3.3 prior to that time shall
thereafter look only to Parent, as a general creditor thereof, to exchange such
Stock Certificates for the Merger Consideration to which such holder is entitled
pursuant to Section 3.1. If outstanding Stock Certificates are not surrendered
prior to six years after the Effective Time (or, in any particular case, prior
to such earlier date on which any Merger Consideration deliverable in respect of
such Stock Certificates would otherwise escheat to or become the property of any
governmental unit or agency), the Merger Consideration deliverable in respect of
such Stock Certificates 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. Notwithstanding the foregoing, none of Parent,
Company, the Surviving Corporation, the Exchange Agent or any other Person shall
be liable to any holder of Stock Certificates for any amount paid, or Merger
Consideration delivered, to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) LOST STOCK CERTIFICATES. If any Stock Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Stock Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such Person of a bond in such reasonable
amount as Parent may direct as indemnity against any claim that may be made
against it with respect to such Stock Certificate, the Exchange Agent will
deliver in exchange for such lost, stolen or destroyed Stock Certificate the
Merger Consideration in respect thereof pursuant to this Agreement.
(g) WITHHOLDING OF TAX. Parent shall be entitled to deduct and withhold
from the Merger Consideration otherwise payable pursuant to this Agreement to
any former holder of Company Common Stock or Company Preferred Stock such
amounts as Parent (or any affiliate thereof) or the Exchange Agent is required
to deduct and withhold with respect to the making of such payment under the Code
or state, local or foreign tax law. To the extent that amounts are properly
withheld by Parent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the former holder of Company Common Stock
or Company Preferred Stock in respect of which such deduction and withholding
was made by Parent.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent may invest any cash
included in the Exchange Fund in deposit accounts (of commercial banks having
capital and surplus in excess of $100 million) or short-term money market funds
(having assets in excess of $1 billion), as directed by Parent, on a daily
basis. Any interest and other income resulting from such investments shall be
paid to Parent. Parent shall deposit with the Exchange Agent as part of the
Exchange Fund cash in an amount equal to any loss of principal resulting from
such investments promptly after the incurrence of such a loss.
3.4 NO FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Stock Certificates pursuant to this Article III, and, except as
provided in this Section 3.4, no dividend or other distribution, stock split or
interest shall relate to any such fractional interest, and such fractional
interests shall not entitle the owner thereof to vote or to any rights of an
interest holder of Parent. In lieu of any fractional interest, each holder of
shares of Company Common Stock and Company Preferred Stock who would otherwise
have been entitled to a fraction of a share of Parent Common Stock upon
surrender of Stock Certificates for exchange pursuant to Section 3.3 shall be
paid an amount in cash (without interest) as hereinafter provided. Parent shall
instruct the Exchange Agent to
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determine the number of whole shares and fractional shares of Parent Common
Stock allocable to each holder of record of Company Common Stock and Company
Preferred Stock at the Effective Time, to aggregate all such fractional shares
into whole shares, to sell whole shares obtained thereby in the open market at
then prevailing prices on behalf of holders who otherwise would be entitled to
receive fractional share interests and to distribute to each such holder such
holder's ratable share of the total proceeds of such sale, after making
appropriate deductions of the amount, if any, required for federal income tax
withholding purposes and after deducting any applicable transfer taxes. All
brokers' fees and commissions incurred in connection with such sales shall be
paid by Parent.
3.5 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at a location in Houston, Texas
mutually acceptable to Company and Parent, at 10:00 a.m., local time, on the day
(the "CLOSING DATE") on which all of the conditions set forth in Article VIII
are satisfied or waived (other than conditions that can be satisfied only by
delivery of certificates or other documents at the Closing and where such
delivery is in the control of a party hereto), or at such other date and time as
Company and Parent shall otherwise agree. At the conclusion of the Closing on
the Closing Date, the parties hereto shall cause the Articles of Merger to be
filed with the Secretary of State of the State of Texas.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub as follows:
4.1 ORGANIZATION AND QUALIFICATION.
(a) Each of Company and its Subsidiaries is a corporation, limited
liability company, partnership or other legal entity duly incorporated or
organized, validly existing and in good standing under the laws of its state of
incorporation or organization, and is duly qualified to do business and is in
good standing in the jurisdictions set forth in Section 4.1(a) of the disclosure
schedule delivered to Parent contemporaneously with the execution hereof (the
"COMPANY DISCLOSURE SCHEDULE"), which includes each jurisdiction in which the
character of the properties owned by it or the nature of its business makes such
qualification necessary, except in jurisdictions, if any, where the failure to
be so qualified would not reasonably be expected to result in a Company Material
Adverse Effect (as defined below). Each of Company and its Subsidiaries has all
requisite corporate or similar power and authority to own, use or lease its
properties and to carry on its business as it is now being conducted. Each of
Company and its Subsidiaries has made available to Parent a complete and correct
copy of its articles of incorporation and bylaws (or similar organizational
documents), each as amended to date, and such copies as so delivered are in full
force and effect.
(b) For purposes of this Agreement, (i) a "COMPANY MATERIAL ADVERSE
EFFECT" shall mean any change, effect, event, occurrence or state of facts that
is or would reasonably be expected to be materially adverse to the condition
(financial or otherwise), business, properties or results of operations of
Company and its Subsidiaries, taken as a whole, or that would reasonably be
expected to materially impair the ability of Company to perform its obligations
under this Agreement or to consummate the Merger; provided that Company Material
Adverse Effect shall not include changes or effects arising out of or resulting
from (A) the economy in general or (B) the oil and gas exploration and
production industry in general (including, without limitation, changes in
commodity prices, changes in prices for drilling goods and services and
regulatory changes) and (ii) "SUBSIDIARY" shall mean, with respect to any party,
any corporation or other organization whether incorporated or unincorporated, of
which (x) at least a majority of the securities or other interests having by
their terms voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly beneficially owned or controlled by such
party or by any one or more of its subsidiaries, or by such party and one or
more of its subsidiaries, or (y) such party or any Subsidiary of such party is a
general partner of a partnership or a manager of a limited liability company.
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4.2 CAPITALIZATION.
(a) The authorized capital stock of Company consists of 150,000,000
shares of Company Common Stock and 10,000,000 shares of preferred stock, no par
value per share, of which 1,000,000 shares have been designated as $200 Series A
Junior Participating Preferred Stock ("COMPANY SERIES A PREFERRED STOCK") and
3,000,000 shares have been designated as Company Preferred Stock. As of the date
of this Agreement, (i) 42,487,395 shares of Company Common Stock were issued and
outstanding, (ii) 826,121 shares of Company Common Stock were held in treasury,
(iii) no shares of Company Series A Preferred Stock were issued and outstanding,
(iv) 1,937,450 shares of Company Preferred Stock were issued and outstanding,
(v) options to acquire an aggregate of 2,306,837 shares of Company Common Stock
were outstanding under all stock option plans and agreements of Company or its
Subsidiaries, (vi) warrants to purchase 21,000,000 shares of Company Common
Stock were outstanding under the Warrant Agreements (8,000,000 of which are
represented by Series C Warrants which are stock appreciation rights unless
Company elects otherwise) and (vii) no bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into securities having the
right to vote) on any matters on which Company shareholders may vote ("COMPANY
VOTING DEBT") were issued or outstanding. All such outstanding shares have been
validly issued and are fully paid, nonassessable and free of preemptive rights.
Section 4.2(a) of the Company Disclosure Schedule sets forth a detailed
description of all options, warrants or other rights to purchase Company Common
Stock outstanding under each of the stock option plans of the Company (the
"COMPANY STOCK OPTION PLANS") and the Warrant Agreements, including the term and
exercise price, as applicable, of such options, warrants or other rights. Except
as set forth above or in Section 4.2(a) of the Company Disclosure Schedule, and
other than pursuant to this Agreement, the Company Preferred Stock and the
Rights set forth in the Rights Agreement dated as of September 10, 1996, by and
between Company, as successor to Lone Star Energy Plant Operations, Inc. and
Computershare Investor Services, LLC (as successor to Harris Trust Company of
New York), as Rights Agent (as amended, the "COMPANY RIGHTS PLAN"), there are no
outstanding subscriptions, options, rights, warrants, convertible securities,
stock appreciation rights, phantom equity, or other agreements or commitments
obligating Company to issue, transfer, sell, redeem, repurchase or otherwise
acquire any shares of its capital stock of any class. Except for any amendments
filed prior to the date of this Agreement with the Company SEC Reports (as
defined below) and the amendment adopted excepting the Voting Agreement and the
Merger Agreement, a copy of which has been provided to Parent, the Company
Rights Plan has not been amended, and no amendment thereof is proposed. No
Distribution Date (as defined in the Company Rights Plan) has occurred within
the meaning of the Company Rights Plan, and the execution and delivery of this
Agreement and the actions and consummation of the transactions contemplated
hereby will not result in the occurrence of a Distribution Date.
(b) Except as set forth in Section 4.2(b) of the Company Disclosure
Schedule, Company is, directly or indirectly, the record and beneficial owner of
all of the outstanding shares of capital stock of each Company Subsidiary, there
are no irrevocable proxies with respect to any such shares, and no equity
securities of any Company Subsidiary are or may become required to be issued
because of any options, warrants, rights to subscribe to, calls or commitments,
understandings or other agreements of any character whatsoever relating to, or
securities or rights convertible into or exchangeable or exercisable for, shares
of any capital stock of any Company Subsidiary. Except as set forth in Section
4.2(b) of the Company Disclosure Schedule, all such shares so owned by Company
are validly issued, fully paid and nonassessable and are owned by it free and
clear of all Liens (as defined herein).
(c) Except as set forth in Section 4.2(c) of the Company Disclosure
Schedule, there are not as of the date hereof and there will not be at the
Effective Time any shareholder agreements, voting trusts or other agreements or
understandings to which Company is a party relating to the voting of any shares
of the capital stock of Company that will limit in any way the solicitation of
proxies by or on behalf of Company from, or the casting of votes by, the
shareholders of Company with respect to the Merger. Except as set forth in
Section 4.2(c) of the Company Disclosure Schedule, there are no restrictions on
Company to vote the stock of any of its Subsidiaries.
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4.3 AUTHORITY. The Board of Directors of Company has, by the unanimous
vote of the directors voting thereon, adopted the Agreement and approved the
Merger and the transactions contemplated thereby and declared the Merger and the
Agreement to be advisable and in the best interests of the shareholders of
Company. Company has the requisite corporate power and authority to execute and
deliver this Agreement and, subject to obtaining the Company Shareholders'
Approval (as defined in Section 4.23) as contemplated by Section 7.9, to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and (subject to obtaining the Company
Shareholders' Approval) the consummation of the transactions contemplated hereby
have been duly and validly authorized by Company's Board of Directors, and no
other corporate proceedings on the part of Company are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Company and,
assuming the due authorization, execution and delivery hereof by the other
parties hereto and obtaining the Company Shareholders' Approval, constitutes the
valid and binding obligation of Company enforceable against Company in
accordance with its terms, except as such enforceability may be subject to the
effects of bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting the rights of creditors and of general principles of
equity (the "ENFORCEABILITY EXCEPTION").
4.4 CONSENTS AND APPROVALS; NO VIOLATION. The execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby and the
performance by Company of its obligations hereunder will not:
(a) subject to obtaining the Company Shareholders' Approval as
contemplated by Section 7.9, conflict with any provision of Company's articles
of incorporation or bylaws or the articles of incorporation or bylaws (or other
similar organizational documents) of any of its Subsidiaries;
(b) require any consent, waiver, approval, order, authorization or
permit of, or registration, filing with or notification to any governmental or
regulatory authority or agency (a "GOVERNMENTAL AUTHORITY"), except for (i)
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), (ii) the filing of the Articles of Merger with
the Secretary of State of Texas and the issuance by the Secretary of State of
Texas of a certificate of merger with respect thereto, (iii) the filing with the
Securities and Exchange Commission ("SEC") of (x) a proxy statement/prospectus
in preliminary and definitive form relating to the meeting of Company's
shareholders to be held in connection with the Merger (the "PROXY
STATEMENT/PROSPECTUS") and filings under Rule 14a-12 promulgated under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (y) such
reports under Section 13(a) of the Exchange Act, and such other compliance with
the Exchange Act and the rules and regulations thereunder, as may be required in
connection with this Agreement and the transactions contemplated hereby and (z)
one or more registration statements to be filed by Parent and the Trust in
connection with the Merger (collectively, the "REGISTRATION STATEMENT") and such
other filings under the Securities Act of 1933, as amended (the "SECURITIES
ACT") and the Exchange Act and the rules and regulations thereunder, including
Rule 425 under the Securities Act, as may be required in connection with this
Agreement and the transactions contemplated hereby, (iv) such consents,
approvals, orders, authorizations and regulations, declarations and filings, as
may be required under applicable state securities or blue sky laws, (v) such
governmental or tribal consents, qualifications or filings as are customarily
obtained or made following the transfer of interests in oil and gas properties
("CUSTOMARY POST CLOSING CONSENTS") and (vi) approvals and registrations that,
if not obtained or made, would not reasonably be expected to have a Company
Material Adverse Effect;
(c) except as set forth in Section 4.4(c) of the Company Disclosure
Schedule, require any consent, waiver, approval or result in any violation of or
the breach of or constitute a default (with or without notice or lapse of time
or both) under, or give rise to any right of termination, cancellation or
acceleration or guaranteed payments or a loss of a material benefit under, any
of the terms, conditions or provisions of any note, lease, mortgage, license,
agreement or other instrument or obligation to which Company or any of its
Subsidiaries is a party or by which Company or any of its Subsidiaries or any of
their respective properties or assets may be bound, except for such violations,
breaches, defaults, or rights of termination, cancellation or acceleration, or
losses as to which requisite waivers or consents have been obtained or which,
individually or in the aggregate, would not reasonably be expected to result in
a Company Material Adverse Effect;
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(d) violate the provisions of any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to Company or any of its
Subsidiaries;
(e) result in the creation of any lien, mortgage, pledge, security
interest, encumbrance, claim or charge of any kind (collectively, "LIENS") upon
any material properties or assets or on any shares of capital stock of Company
or any of its Subsidiaries under any agreement or instrument to which Company or
any of its Subsidiaries is a party or by which Company or any of its
Subsidiaries or any of their properties or assets is bound; or
(f) result in any holder of any securities of Company being entitled to
appraisal, dissenters' or similar rights.
4.5 COMPANY SEC REPORTS. Company has filed with the SEC, and has
heretofore made available (provided that all documents filed by Company
electronically with the SEC and publicly available prior to the date hereof
shall be deemed available) to Parent true and complete copies of, each form,
registration statement, report, schedule, proxy or information statement and
other document (including exhibits and amendments thereto, but excluding
preliminary materials), required to be filed with the SEC since January 1, 1999
under the Securities Act or the Exchange Act (collectively, the "COMPANY SEC
REPORTS"). As of their respective dates, such Company SEC Reports (a) complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act, as the case may be, and the applicable rules and
regulations promulgated thereunder, and (b) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.6 COMPANY FINANCIAL STATEMENTS. Except as set forth in Section 4.6 of
the Company Disclosure Schedule, each of the audited consolidated financial
statements and unaudited consolidated interim financial statements of Company
(including any related notes and schedules) included (or incorporated by
reference) in the Company SEC Reports complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as may be indicated in
the notes thereto and subject, in the case of quarterly financial statements, to
normal and recurring year-end adjustments) and fairly present, in conformity
with GAAP applied on a consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of Company and its Subsidiaries as
of the date thereof and the consolidated results of operations and cash flows
(and changes in financial position, if any) of Company and its Subsidiaries for
the periods presented therein (subject to normal year-end adjustments and the
absence of financial footnotes in the case of any unaudited interim financial
statements).
4.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the
Company SEC Reports (including the financial statements and notes thereto
included therein) filed prior to the date of this Agreement or in Section 4.7 of
the Company Disclosure Schedule, neither Company nor any of its Subsidiaries has
incurred any liabilities or obligations of any nature (contingent or otherwise)
that would reasonably be expected to have a Company Material Adverse Effect
other than (i) liabilities adequately provided for on, or described with
reasonable specificity in the notes to, the balance sheet of Company dated as of
March 31, 2002 contained in Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 2002 (the "COMPANY BALANCE SHEET") and (ii)
liabilities incurred in the ordinary course of business after March 31, 2002.
4.8 ABSENCE OF CERTAIN CHANGES.
(a) Except as contemplated by this Agreement, as set forth in Section
4.8 of the Company Disclosure Schedule or as disclosed in the Company SEC
Reports filed prior to the date of this Agreement, since December 31, 2001 (a)
Company and its Subsidiaries have conducted their business in all material
respects in the ordinary course consistent with past practices, (b) there has
not been any change or development, or combination of changes or developments
that, individually or in the aggregate, would reasonably be expected to have a
Company Material Adverse Effect, (c) except for normal dividends on the Company
Preferred Stock, there has not been any declaration, setting aside or payment of
any dividend or other distribution with respect to any shares of capital stock
of Company or any repurchase, redemption or
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other acquisition by Company or any of its Subsidiaries of any outstanding
shares of capital stock or other securities of, or other ownership interests in,
Company or any of its Subsidiaries, (d) there has not been any amendment of any
term of any outstanding security of Company or any of its Subsidiaries, (e)
there has not been any change in any method of accounting or accounting practice
or any tax method, practice or election by Company or any of its Subsidiaries,
except for any such change required because of a concurrent change in GAAP or to
conform a Subsidiary's accounting policies and practices to those of Company and
(f) there has not been any other transaction, commitment, dispute or other event
or condition (financial or otherwise) of any character (whether or not in the
ordinary course of business) that has had a Company Material Adverse Effect.
4.9 NO DEFAULT. Neither Company nor any of its Subsidiaries is in default
or violation (and no event has occurred which, with notice or the lapse of time
or both, would constitute a default or violation) of any term, condition or
provision of (i) their respective articles of incorporation or bylaws (or other
similar organizational documents), (ii) except as disclosed in Section 4.9 of
the Company Disclosure Schedule, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Company or any of its
Subsidiaries is now a party or by which Company or any of its Subsidiaries or
any of their respective properties or assets may be bound or (iii) any order,
writ, injunction, decree, statute, rule or regulation applicable to Company or
any of its Subsidiaries, except in the case of (ii) and (iii) for defaults or
violations which in the aggregate would not reasonably be expected to have a
Company Material Adverse Effect.
4.10 TAXES. Except as otherwise disclosed in Section 4.10 of the Company
Disclosure Schedule:
(a) Company and each of its Subsidiaries have timely filed all Tax
Returns (as defined below) required by applicable law to be filed by any of them
prior to or as of the Closing Date. All such Tax Returns and any amendments
thereto are or will be true, complete and correct in all material respects.
Company and each of its Subsidiaries have paid (or made adequate provision in
Company's consolidated financial statements for) all Taxes (as defined below),
due with respect to any period (or portion thereof) ending prior to or as of the
Closing Date. Company and each of its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes.
(b) No Audit (as defined below) by a Tax Authority (as defined below) is
pending with respect to any Tax Returns filed by, or Taxes due from, Company or
any of its Subsidiaries. No material deficiency or adjustment for any Taxes has
been proposed, asserted or assessed against Company or any of its Subsidiaries.
There are no liens for Taxes upon the assets of Company or any of its
Subsidiaries, except liens for current Taxes not yet delinquent.
(c) Neither Company nor any of its Subsidiaries has given any waiver of
statutes of limitations relating to the payment of Taxes, has executed any
powers of attorney with respect to Tax matters, or has agreed to any extension
of time with respect to a Tax assessment or deficiency, which will be
outstanding as of the Closing Date. Neither Company nor any of its Subsidiaries
is currently the beneficiary of any extension of time within which to file any
Tax Return.
(d) Section 4.10 of the Company Disclosure Schedule lists all federal
and material state income Tax Returns filed with respect to the Company or any
of its Subsidiaries for the six taxable years ending prior to the date hereof,
indicates those Tax Returns that have been audited, indicates those Tax Returns
that are currently the subject of Audit, and indicates those Tax Returns whose
Audits have been closed.
(e) No payments are due or will become due by the Company or any of its
Subsidiaries pursuant to any Tax allocation or sharing agreement or arrangement
or any Tax indemnification agreement.
(f) None of the property of Company or any of its Subsidiaries is held
in an arrangement that could be classified as a partnership for Tax purposes,
and neither Company nor any of its Subsidiaries owns any interest in any
controlled foreign corporation (as defined in section 957 of the Code), foreign
personal holding company (as defined in Section 552 of the Code), passive
foreign investment company (as defined in section 1297 of the Code) or other
entity the income of which is or could be required to be included in the income
of any of Company and its Subsidiaries.
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(g) Neither Company nor any of its Subsidiaries has made any payments,
is obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that would not be
deductible under Section 280G of the Code.
(h) Neither Company nor any of its Subsidiaries (i) has been a member of
an affiliated group filing a consolidated federal income Tax Return (other than
a group the common parent of which was Company) or (ii) has any liability for
the Taxes of any Person (other than Company and any of its Subsidiaries) under
Treas. Reg. sec. 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(i) Neither Company nor any of its Subsidiaries has been a party to a
distribution of stock pursuant to section 355 of the Code during the two-year
period preceding the date hereof as either a distributing corporation or a
controlled corporation, as those terms are defined in section 355(a) of the
Code.
(j) As used in this Agreement, (i) "AUDIT" shall mean any audit,
assessment of Taxes, other examination by any tax attorney, proceeding or appeal
of such proceeding relating to Taxes; (ii) "TAXES" shall mean all federal,
state, local and foreign taxes, and other assessments of a similar nature
(whether imposed directly or through withholding), including any interest,
additions to tax, or penalties applicable thereto; (iii) "TAX AUTHORITY" shall
mean the Internal Revenue Service and any other domestic or foreign Governmental
Authority responsible for the administration of any Taxes; and (iv) "TAX
RETURNS" shall mean all federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amended Tax Return.
4.11 LITIGATION. Except as disclosed in the Company SEC Reports filed
prior to the date of this Agreement or in Section 4.11 of the Company Disclosure
Schedule and for matters that would not reasonably be expected to have a Company
Material Adverse Effect, there is no suit, claim, action, proceeding or
investigation pending or, to Company's knowledge, threatened against or
affecting Company or any of its Subsidiaries, and Company has no knowledge of
any facts that would reasonably be expected to give rise to any such suit,
claim, action, proceeding or investigation. Except as disclosed in the Company
SEC Reports filed prior to the date of this Agreement or Section 4.11 of the
Company Disclosure Schedule and for matters that would not reasonably be
expected to have a Company Material Adverse Effect, there is not in existence
any order, judgment, injunction or decree of any court or other tribunal or
other agency or arbitrator enjoining or requiring Company or any of its
Subsidiaries to take any action of any kind with respect to its business, assets
or properties. Notwithstanding the foregoing, no representation or warranty in
this Section 4.11 is made with respect to Environmental Laws, which are covered
exclusively by the provisions set forth in Section 4.13.
4.12 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 4.12(a) of the Company Disclosure Schedule sets forth a
complete and accurate list of all employee benefit plans (whether or not
described in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) and incentive and compensation plans, contracts,
agreements and arrangements (written or oral) of every type, including severance
pay, sick leave, vacation pay, salary continuation for disability, change of
control, employment and consulting agreements, retirement, deferred
compensation, bonus, long-term incentive, stock option, restricted stock,
phantom equity, stock purchase, hospitalization, medical insurance, life
insurance and scholarship programs or other similar plans or programs sponsored,
maintained, contributed to, or obligated to be contributed to by Company or any
of its Subsidiaries or with respect to which Company or any of its Subsidiaries
has any liability (contingent, secondary or otherwise) (the "COMPANY EMPLOYEE
BENEFIT PLANS"). True and complete copies of each Company Employee Benefit Plan,
their summary plan descriptions, funding instruments, if applicable, and all
amendments have been furnished to Parent. Except for the Company Employee
Benefit Plans, neither Company nor any of its Subsidiaries maintains or has any
fixed or contingent liability with respect to any other employee benefit or
compensation plan, program, policy, arrangement or agreement.
(b) There is no material violation of ERISA with respect to the filing
of applicable reports, documents and notices regarding any Company Employee
Benefit Plan with any Governmental Authority or the furnishing of such documents
to the participants or beneficiaries of the Company Employee Benefit Plans.
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With respect to the Company Employee Benefit Plans, there exists no condition or
set of circumstances that, individually or in the aggregate, would reasonably be
expected to result in a Company Material Adverse Effect. With respect to the
Company Employee Benefit Plans, there are no unfunded benefit obligations that
have not been accounted for by reserves, or otherwise properly footnoted, in
accordance with GAAP, on the financial statements of Company. All contributions
required to be made to or pursuant to the terms of each of the Company Employee
Benefit Plans have been timely made.
(c) The Company Employee Benefit Plans have been maintained, in all
material respects, in accordance with their terms and in accordance with all
applicable federal and state laws, and none of Company, any of its Subsidiaries,
and, to the knowledge of Company, any other "party in interest" (as defined in
Section 3(14) of ERISA) or "disqualified person" (as defined in Section
4975(e)(2) of the Code) with respect to any of the Company Employee Benefits
Plans has engaged in any "prohibited transaction" within the meaning of Section
4975 of the Code or Section 406 of ERISA.
(d) Except as otherwise set forth in Section 4.12(d) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transaction contemplated hereby will result in any
payment becoming due to any employee or group of employees of either the Company
or any Subsidiary.
(e) Each Company Employee Benefit Plan intended to be a qualified plan
under section 401(a) of the Code either has received a favorable determination
letter from the IRS that such plan complies with the requirements of GUST (as
such term is commonly used by tax practitioners) or a timely application for
such a letter has been made and is pending with the IRS.
(f) There are no pending or, to Company's knowledge, threatened actions,
suits, audits, investigations, claims or proceedings against or relating to any
Company Employee Benefit Plan (other than routine claims for benefits
thereunder).
(g) Except as set forth in Section 4.12(g) of the Company Disclosure
Schedule, in connection with the consummation of the transactions contemplated
by this Agreement, no payments of money or other property, acceleration of
benefits, vesting or provision of other rights have or will be made that would
result in an excess parachute payment, as defined in section 280G of the Code,
whether or not some other subsequent action or event would be required to cause
such payment, acceleration, vesting or provision to be triggered.
(h) Except as set forth in Section 4.12(h) of the Company Disclosure
Schedule, each Company Employee Benefit Plan may be unilaterally terminated at
any time by Company without liability, other than for benefits accrued
thereunder prior to such termination.
(i) Except as set forth in Section 4.12(i) of the Company Disclosure
Schedule, neither Company nor any Subsidiary has any obligation to provide
health or other welfare benefits to any person after his termination of
employment except as required by sections 601 through 609 of ERISA.
(j) Except as set forth in Section 4.12(j) of the Company Disclosure
Schedule, no Company Employee Benefit Plan is subject to Title IV of ERISA.
(k) Company has taken all necessary action to cause the EEX Corporation
Deferred Compensation Plan for Directors and the EEX Corporation Deferred
Compensation Plan to be terminated as of or prior to the Effective Time in
accordance with the draft board of directors and compensation committee
resolutions provided to Parent.
(l) Company has taken all necessary action to cause all unexercised
options to acquire Company Common Stock to terminate at or prior to the
Effective Time in accordance with the draft compensation committee resolutions
provided to Parent.
4.13 ENVIRONMENTAL LIABILITY. Except as set forth in Section 4.13 of the
Company Disclosure Schedule:
(a) The businesses of Company and its Subsidiaries have been and are
operated in material compliance with all federal, state and local statutes,
regulations or rules relating to the regulation or protection
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of human health, safety or the environment, including, without limitation, the
federal Clean Water Act, Oil Pollution Act, Safe Drinking Water Act, Resource
Conservation & Recovery Act, Clean Air Act, Comprehensive Environmental
Response, Compensation and Liability Act, Hazardous Materials Transportation
Act, Solid Waste Disposal Act, Toxic Substances Control Act and Emergency
Planning and Community Right-to-Know Act and analogous state and local laws,
each as amended and currently in effect (together, the "ENVIRONMENTAL LAWS").
(b) Neither Company nor any of its Subsidiaries has caused or allowed
the generation, treatment, storage, discharge, release, disposal or transport of
any pollutant, contaminant or waste that is regulated by any Governmental
Authority or any material that is defined as a "hazardous waste," "hazardous
substance," "hazardous material," "restricted hazardous waste," or "toxic
substance" under any Environmental Laws ("HAZARDOUS SUBSTANCES") at any of its
properties or facilities, except in material compliance with all Environmental
Laws and then only in a manner that does not give rise to any potentially
material remedial obligations compelled by any Governmental Authority under
Environmental Laws.
(c) Neither Company nor any of its Subsidiaries has received any written
notice from any Governmental Authority or third party alleging or concerning any
potentially material violation by Company or any of its Subsidiaries of, or
responsibility or liability of Company or any of its Subsidiaries under, any
Environmental Law. There are no pending, or to the knowledge of Company,
threatened, claims, suits, actions, proceedings or investigations with respect
to the businesses or operations of Company or any of its Subsidiaries alleging
or concerning any violation of or responsibility or liability under any
Environmental Law that, if adversely determined, would reasonably be expected to
have a Company Material Adverse Effect.
(d) Company and its Subsidiaries are in possession of and in material
compliance with all material approvals, permits, licenses, registrations and
similar type authorizations required by, all Governmental Authorities under
Environmental Laws for the operation of the businesses of Company and its
Subsidiaries as currently conducted.
(e) To Company's knowledge, no claims have been asserted or threatened
against Company or its Subsidiaries for any personal injury or property damage
alleged to arise out of exposure to Hazardous Substances used, handled,
generated, transported or disposed by Company or its Subsidiaries, except as
would not reasonably be expected to result in liabilities that have a Company
Material Adverse Effect.
4.14 COMPLIANCE WITH APPLICABLE LAWS. Except for Customary Post-Closing
Consents, Company and its Subsidiaries hold all of the permits, licenses,
certificates, consents, approvals, entitlements, plans, surveys, relocation
plans, environmental impact reports and other authorizations of Governmental
Authorities (collectively, "COMPANY PERMITS") required or necessary to
construct, own, operate, use and/or maintain their respective properties and
conduct their operations as currently conducted, except for such Company
Permits, the lack of which, individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect. Company and
its Subsidiaries are in compliance with the terms of the Company Permits, except
where the failure so to comply would not reasonably be expected to have a
Company Material Adverse Effect. The businesses of Company and its Subsidiaries
are not being, and neither Company nor any of its Subsidiaries has received any
notice from any Person that any such business has been or is being, conducted in
violation of any law, statute, code, order, ordinance or regulation, including
any law, ordinance or regulation relating to energy regulations and occupational
health and safety, except for possible violations which either individually or
in the aggregate have not resulted and would not reasonably be expected to
result in a Company Material Adverse Effect; provided, however, notwithstanding
the foregoing, no representation or warranty in this Section 4.14 is made with
respect to Taxes, ERISA matters or Environmental Laws, which are covered
exclusively by the provisions set forth in Sections 4.10, 4.12 and 4.13.
4.15 INSURANCE. Company has made available to Parent a true, complete and
correct copy of each insurance policy or the binder therefor relating to Company
or its Subsidiaries that are currently in effect. The transactions contemplated
hereby will not materially adversely affect coverage under such policies or
binders. With respect to each insurance policy or binder, none of Company, any
of its Subsidiaries or any other party to the policy is in breach or default
thereunder (including with respect to the payment of premiums or the giving of
notices), and Company does not know of any occurrence or any event which (with
or without notice or the
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lapse of time or both) would constitute such a breach or default or permit
termination, modification or acceleration under any such policy, except for such
breaches or defaults which, individually or in the aggregate, would not
reasonably be expected to result in a Company Material Adverse Effect. Section
4.15 of the Company Disclosure Schedule describes any self-insurance
arrangements affecting Company or its Subsidiaries.
4.16 LABOR MATTERS; EMPLOYEES.
(a) Except as otherwise set forth in Section 4.16(a) of the Company
Disclosure Schedule, no employees of Company or any of its Subsidiaries are
represented by any labor organization. No labor organization or group of
employees of Company or any of its Subsidiaries has made a demand for
recognition or certification as a union or other labor organization, and there
are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority. There are no organizing activities involving
Company or any of its Subsidiaries pending with any labor organization or group
of employees of Company or any of its Subsidiaries.
(b) Each of Company and its Subsidiaries is in compliance with all laws,
rules, regulations and orders relating to the employment of labor, including all
such laws, rules, regulations and orders relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding or social security
taxes and similar taxes, except where the failure to comply would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
4.17 INTELLECTUAL PROPERTY. Company and its Subsidiaries own or license,
or otherwise have the right to use, all patent, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service mark
rights, copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs ("INTELLECTUAL PROPERTY")
currently used in the conduct of the business of Company and its Subsidiaries.
To Company's knowledge, Company's and its Subsidiaries' use of the Intellectual
Property does not infringe on the rights of any Person and no Person is
infringing on any right of Company or any of its Subsidiaries with respect to
any such Intellectual Property. No claims are pending or, to Company's
knowledge, threatened that Company or any of its Subsidiaries is infringing or
otherwise adversely affecting the rights of any Person with regard to any
Intellectual Property.
4.18 PROPERTIES.
(a) Except for goods and other property sold, used or otherwise disposed
of since December 31, 2001 in the ordinary course of business and except as set
forth in Section 4.18 of the Company Disclosure Schedule, Company and its
Subsidiaries have Good and Marketable Title (as defined below), in and to all
real properties, interests in real properties and other assets (including
Company's Oil and Gas Interests (as defined in Section 4.19(b) but excluding
personal property) included as an asset on the Company Balance Sheet and good
and defensible title to all personal properties, interests in properties and
other assets included as an asset on the Company Balance Sheet, free and clear
of any Liens, except (i) Liens associated with obligations reflected in the
Company Balance Sheet, (ii) Liens for current taxes not yet due and payable,
(iii) materialman's, mechanic's, repairman's, employee's, contractor's,
operator's, and other similar liens, charges or encumbrances arising in the
ordinary course of business to the extent (A) the same have not yet become due
and payable, (B) payment is being withheld as provided by law or (C) their
validity is being contested in good faith by appropriate action, (iv) all rights
to consent by, required notices to, filings with, or other actions by any
Governmental Authority in connection with the sale or conveyance of oil and gas
leases or interests if they are customarily obtained subsequent to the sale or
conveyance, and (v) such imperfections of title, easements and Liens as would
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Except as set forth in Section 4.18 of the Company
Disclosure Schedule, all leases and other agreements pursuant to which Company
or any of its Subsidiaries leases or otherwise acquires or obtains operating
rights affecting any real or personal property are in good standing and are
valid and enforceable in accordance with their terms, and all royalties, rentals
and other payments due by Company or any of its Subsidiaries to any lessor of
any such oil and gas leases have been paid, except in each case as
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would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. There have been no material changes proposed in
the production allowables for any wells included in the Oil and Gas Interests of
Company and its Subsidiaries.
(b) "GOOD AND MARKETABLE TITLE" means such title that: (i) is deducible
of record (from the records of the applicable parish or county or (A) in the
case of federal leases, from the records of the applicable office of the
Minerals Management Service or Bureau of Land Management, (B) in the case of
Indian leases, from the applicable office of the Bureau of Indian Affairs, (C)
in the case of state leases, from the records of the applicable state land
office) or is assignable to Company or its Subsidiaries out of an interest of
record (as so defined) because of the performance by Company or its Subsidiaries
of all operations required to earn an enforceable right to such assignment; (ii)
is free from reasonable doubt to the end that a prudent purchaser engaged in the
business of owning, developing and operating producing oil and gas properties
with knowledge of all of the facts and their legal bearing would be willing to
accept and pay full value for the same and a prudent lender would be willing to
lend against it as collateral without discount for title matters; (iii) except
as set forth in Section 4.18(b)(iii) of the Company Disclosure Schedule,
entitles Company or its Subsidiaries to receive a percentage of Hydrocarbons
produced, saved and marketed from such well or property not less than the
interest set forth in the Company Reserve Report with respect to each proved
property evaluated therein under the caption "Net Revenue Interest" or "NRI"
without reduction during the life of such property except as stated in the
Company Reserve Report; (iv) obligates Company and its Subsidiaries to pay costs
and expenses relating to each such proved property in an amount not greater than
the interest set forth under the caption "Working Interest" or "WI" in the
Company Reserve Report with respect to such property without increase over the
life of such property except as shown on the Company Reserve Report; and (v)
does not restrict the ability of Company or its Subsidiaries to use the
properties as currently intended.
4.19 RESERVE REPORT.
(a) Company has furnished Parent estimates of Company's oil and gas
reserves attributable to Company's Oil and Gas Interests (as defined below) as
of January 1, 2002 in reports as described in Section 4.19 of the Company
Disclosure Schedule (collectively, the "COMPANY RESERVE REPORT"). The factual,
non-interpretive data on which the Company Reserve Report was based for purposes
of estimating the oil and gas reserves set forth therein and in any supplement
thereto or update thereof, each of which has been furnished to Parent, was
accurate in all material respects, and Company has no knowledge of any material
errors in such information that existed at the time such information was
provided. There has been no change in respect of the matters addressed in the
Company Reserve Report that would reasonably be expected to have a Company
Material Adverse Effect. Set forth in Section 4.19 of the Company Disclosure
Schedule is a list of all material Oil and Gas Interests of Company that were
included in the Company Reserve Report that have been disposed of prior to the
date of this Agreement. To the knowledge of Company, and based on the
information given to Company by third-party operators for all wells not operated
by Company, the Company Payout Balances (as defined below) for each of the wells
as used in the Company Reserve Report were accurate in all material respects as
of the dates to which Company had calculated them.
(b) For purposes of this Agreement, "OIL AND GAS INTERESTS" means (i)
direct and indirect interests in and rights with respect to oil, gas, mineral,
and related properties and assets of any kind and nature, direct or indirect,
including working, leasehold and mineral interests and operating rights and
royalties, overriding royalties, production payments, net profit interests and
other nonworking interests and nonoperating interests; (ii) all interests in
rights with respect to oil, condensate, gas, casinghead gas and other liquid or
gaseous hydrocarbons (collectively, "HYDROCARBONS") and other minerals or
revenues therefrom, all contracts in connection therewith and claims and rights
thereto (including all oil and gas leases, operating agreements, unitization and
pooling agreements and orders, division orders, transfer orders, mineral deeds,
royalty deeds, oil and gas sales, exchange and processing contracts and
agreements, and in each case, interests thereunder), surface interests, fee
interests, reversionary interests, reservations, and concessions; (iii) all
easements, rights of way, licenses, permits, leases, and other interests
associated with, appurtenant to, or necessary for the operation of any of the
foregoing; and (iv) all interests in equipment and machinery (including wells,
well equipment and machinery), oil and gas production, gathering, transmission,
treating, processing, and storage facilities (including tanks, tank batteries,
pipelines, and gathering systems), pumps, water plants, electric
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plants, gasoline and gas processing plants, refineries, and other tangible
personal property and fixtures associated with, appurtenant to, or necessary for
the operation of any of the foregoing.
(c) For purposes of this Agreement, "COMPANY PAYOUT BALANCES" means the
status, as of the dates of Company's calculations, of the recovery by Company or
a third party of a cost amount specified in the contract relating to a well out
of the revenue from such well where the net revenue interest of Company therein
will be reduced or increased when such amount has been recovered.
4.20 OPERATIONS; EQUIPMENT. Except as otherwise set forth in Section 4.20
of the Company Disclosure Schedule:
(a) all wells included in the Oil and Gas Interests of Company and its
Subsidiaries have been drilled and (if completed) completed, operated and
produced in accordance with good oil and gas field practices and in compliance
in all respects with applicable oil and gas leases and applicable Laws, except
where any failure or violation has not had, and would not reasonably be expected
to have, a Company Material Adverse Effect; and
(b) to the knowledge of Company, all equipment and machinery currently
in use and material to the operation of the Oil and Gas Interests of Company and
of its Subsidiaries as conducted prior to the date hereof are in reasonable
working condition, ordinary wear and tear excepted.
4.21 PREPAYMENTS; HEDGING; CALLS. As of the date hereof, except as set
forth in Section 4.21 of the Company Disclosure Schedule or in the Company SEC
Reports filed prior to the date of this Agreement:
(a) neither Company nor any of the Company Subsidiaries has any
outstanding obligations for the delivery of Hydrocarbons attributable to any of
the Oil and Gas Interests of Company or any of its Subsidiaries in the future on
account of prepayment, advance payment, take-or-pay or similar obligations
without then or thereafter being entitled to receive full value therefor;
(b) neither Company nor any of the Company Subsidiaries is bound by any
future, hedge, swap, collar, put, call, floor, cap, option or other contract
that is intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in the price of commodities, including Hydrocarbons, interest
rates, currencies or securities (each, a "HEDGING TRANSACTION"); and
(c) no Person has any call upon, option to purchase, or similar rights
with respect to the production of Hydrocarbons attributable to the Oil and Gas
Interests of Company and its Subsidiaries, except for any such call, option or
similar right at market prices, and upon consummation of the transactions
contemplated by this Agreement, Company or its Subsidiaries will have the right
to market production from the Oil and Gas Interests of Company and its
Subsidiaries on terms no less favorable than the terms upon which such
production is currently being marketed.
4.22 RESTRICTIVE AGREEMENTS. Except as set forth in Section 4.22 of the
Company Disclosure Schedule, neither Company nor any of its Subsidiaries is a
party to, or bound by, any contract, agreement or similar arrangement which upon
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby would purport to restrict, by virtue of a
confidentiality, non-competition, territorial exclusivity or other provision,
the scope of the business or operation of Parent or any of its affiliates (other
than Company and its Subsidiaries) geographically or otherwise; provided,
however, any agreement that would purport to restrict Parent or any of its
affiliates scope of business with respect to a territorial area of less than
5,000 acres onshore or two federal offshore blocks in the Gulf of Mexico, shall
not be deemed to be a restrictive agreement for purposes of this Section 4.22.
4.23 REQUIRED SHAREHOLDER VOTE OR CONSENT. The only vote of the holders
of any class or series of Company's capital stock that will be necessary to
approve this Agreement and the Merger and the other transactions contemplated
hereby is the affirmative vote by the holders of (i) two-thirds of the votes
entitled to be cast by the holders of record of the outstanding shares of
Company Common Stock and Company Preferred Stock (voting together as a single
class) on the applicable record date, (ii) two-thirds of the votes entitled to
be cast by the holders of record of the outstanding shares of Company Common
Stock (voting as a separate class) on the applicable record date and (iii) a
majority of the votes entitled to be cast by the holders
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of record of the outstanding shares of Company Preferred Stock (voting as a
separate class) on the applicable record date to approve this Agreement and the
Merger (collectively, the "COMPANY SHAREHOLDERS' APPROVAL").
4.24 BROKERS. No broker, finder or investment banker (other than Morgan
Stanley, J.P. Morgan Securities Inc. and Evercore, the fees and expenses of
which will be paid by Company) is entitled to any brokerage, finder's fee or
other fee or commission payable by Company or any of its Subsidiaries in
connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of Company or any of its Subsidiaries.
Company has provided Parent with a copy of all agreements with Morgan Stanley,
J.P. Morgan Securities Inc. and Evercore related to the transactions
contemplated by this Agreement.
4.25 TAX MATTERS. As of the date hereof, the representations set forth in
the numbered paragraphs of the form of Certificate of Company attached hereto as
EXHIBIT A (the "COMPANY TAX CERTIFICATE") are true and correct, assuming for
purposes of this representation and warranty that the Merger referred to in such
form had been consummated on the date hereof.
4.26 OPINION OF FINANCIAL ADVISOR. The Board of Directors of Company has
received the opinions of Morgan Stanley & Co. Incorporated and J.P. Morgan
Securities Inc. to the effect that, as of the date of such opinion, the
aggregate consideration to be received by the holders of the Company Common
Stock is fair, from a financial point of view, to such holders.
4.27 RIGHTS PLAN; TAKEOVER STATUTES; ETC. Company has taken all action so
that (a) neither Parent nor any of its affiliates will be an "Acquiring Person"
under the Company Rights Plan, (b) neither Parent nor any of its affiliates will
be a "Related Person" under Article Ten of Company's articles of incorporation
as a result of (i) the execution of this Agreement and the Voting Agreement and
the consummation of the transactions contemplated hereby and thereby and (ii)
the acquisition by Parent or its affiliates of less than 18% of the outstanding
Company Common Stock and (c) the restrictions contained in Article 13 of the
TBCA, and any other similar law, will not apply to Parent or any of its
affiliates. Company has provided Parent with a true and correct copy of all such
actions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and warrant to
Company as follows:
5.1 ORGANIZATION AND QUALIFICATION.
(a) Each of Parent, Merger Sub and Newfield Exploration Mid-Continent,
Inc., a Delaware corporation ("MID-CONTINENT"), is a corporation duly
incorporated, validly existing and in good standing under the laws of its state
of incorporation, and is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the properties owned by it or the
nature of its business makes such qualification necessary, except in
jurisdictions, if any, where the failure to be so qualified would not reasonably
be expected to result in a Parent Material Adverse Effect (as defined below).
Each of Parent, Merger Sub and Mid-Continent has all requisite corporate or
similar power and authority to own, use or lease its properties and to carry on
its business as it is now being conducted.
(b) For purposes of this Agreement, a "PARENT MATERIAL ADVERSE EFFECT"
shall mean any change, effect, event, occurrence or state of facts that is or
would reasonably be expected to be materially adverse to the condition
(financial or otherwise), business, properties or results of operations of
Parent and its Subsidiaries, taken as a whole, or that would reasonably be
expected to materially impair the ability of Parent to perform its obligations
under this Agreement or to consummate the Merger; provided that Parent Material
Adverse Effect shall not include changes or effects arising out of or resulting
from (A) the economy in general or (B) the oil and gas exploration and
production industry in general (including, without limitation, changes in
commodity prices, changes in prices for drilling goods and services and
regulatory changes).
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5.2 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of 100,000,000
shares of Parent Common Stock, and 5,000,000 shares of preferred stock, par
value $.01 per share, of which 100,000 shares have been designated as Junior
Participating Preferred Stock. As of the date of this Agreement, (i) 44,393,341
shares of Parent Common Stock were issued and outstanding, (ii) 867,992 shares
of Parent Common Stock were held in treasury, (iii) no shares of preferred stock
of Parent were issued and outstanding, (iv) options to acquire an aggregate of
no more than 3,550,000 shares of Parent Common Stock were outstanding under all
plans and agreements of Parent or its Subsidiaries and (v) no bonds, debentures,
notes or other indebtedness having the right to vote (or convertible into
securities having the right to vote) on any matters on which Parent stockholders
may vote ("PARENT VOTING DEBT") were issued or outstanding (other than
$143,750,000 (2,875,000 securities) of 6.5% Cumulative Quarterly Income
Convertible Securities (the "TRUST PREFERRED SECURITIES") of Newfield Financial
Trust I, which are convertible at the option of the holder at any time into
Parent Common Stock at the rate of 1.3646 shares of Parent Common Stock per
Trust Preferred Security). All such outstanding shares have been validly issued
and are fully paid, nonassessable and free of preemptive rights. Except as set
forth above and as contemplated by (w) this Agreement, (x) the Rights Agreement,
dated as of February 12, 1999, between Parent and ChaseMellon Shareholder
Services L.L.C. (the "PARENT RIGHTS PLAN"), (y) plans of Parent described in the
Parent SEC Reports and (z) the Newfield Australia Employee Share Plan, there
are, as of the date of this Agreement, no outstanding subscriptions, options,
rights, warrants, convertible securities, stock appreciation rights, phantom
equity, or other agreements or commitments obligating Parent to issue, transfer,
sell, redeem, repurchase or otherwise acquire any shares of its capital stock of
any class. The Parent Rights Plan has not been amended, and no amendment thereof
is proposed. No Distribution Date (as defined in the Parent Rights Plan) has
occurred within the meaning of the Parent Rights Plan, and the execution and
delivery of this Agreement and the Voting Agreement and the actions and
consummation of the transactions contemplated hereby and thereby will not result
in the occurrence of a Distribution Date.
(b) Parent is the record and beneficial owner of all of the outstanding
shares of capital stock of Mid-Continent, there are no irrevocable proxies with
respect to any such shares and no equity securities of Mid-Continent are or may
become required to be issued because of any options, warrants, rights to
subscribe to, calls or commitments, understandings or other agreements of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable or exercisable for, shares of any capital stock of Mid-Continent.
All of the shares of capital stock of Mid-Continent owned by Parent are validly
issued, fully paid and nonassessable and are owned by Parent free and clear of
all Liens.
(c) The shares of Parent Common Stock to be issued pursuant to the
Merger have been duly authorized and, upon their issuance in the Merger in
accordance with the terms of this Agreement, will be validly issued, fully paid,
nonassessable and free and clear of all Liens created by Parent (other than
pursuant to applicable securities laws, the HSR Act or the Registration Rights
Agreement).
5.3 AUTHORITY. The Board of Directors of Parent has, by the unanimous
vote of the directors voting thereon, (a) approved this Agreement and the Merger
and the transactions contemplated hereby and (b) approved for all purposes the
transactions contemplated by the Voting Agreement. Each of Parent and, solely
with respect to this Agreement, Merger Sub, has the requisite corporate power
and authority to execute and deliver this Agreement and the Voting Agreement and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Voting Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the Board of Directors of Parent and the Board of
Directors and shareholders of Merger Sub, and no other corporate proceedings on
the part of Parent or Merger Sub are necessary to authorize this Agreement or
the Voting Agreement or to consummate the transactions contemplated hereby or
thereby. This Agreement and the Voting Agreement have been duly and validly
executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery hereof and thereof by the other parties
hereto and thereto, constitute valid and binding obligations of Parent and
Merger Sub enforceable against Parent and Merger Sub in accordance with their
respective terms, except for the Enforceability Exception.
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5.4 CONSENTS AND APPROVALS; NO VIOLATION. The execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby and the
performance by Parent and Merger Sub of its obligations hereunder will not:
(a) conflict with any provision of the certificate of incorporation or
bylaws of Parent or Merger Sub or the certificates of incorporation or bylaws
(or other similar organizational documents) of any of Parent's Subsidiaries;
(b) require any consent, waiver, approval, order, authorization or
permit of, or registration, filing with or notification to any Governmental
Authority, except for (i) applicable requirements of the HSR Act, (ii) the
filing of the Articles of Merger with the Secretary of State of Texas and the
issuance by the Secretary of State of Texas of a certificate of merger with
respect thereto, (iii) the filing with the SEC of (x) the Proxy
Statement/Prospectus and filings under Rule 14a-12 promulgated under the
Exchange Act, (y) such reports under Section 13(a) of the Exchange Act, and such
other compliance with the Exchange Act and the rules and regulations thereunder,
as may be required in connection with this Agreement and the transactions
contemplated hereby and (z) the Registration Statement and such other filings
under the Securities Act and the Exchange Act and the rules and regulations
thereunder, including Rule 425 under the Securities Act, as may be required in
connection with this Agreement and the transactions contemplated hereby, (iv)
such consents, approvals, orders, authorizations and regulations, declarations
and filings as may be required under applicable state securities or blue sky
laws, (v) Customary Post Closing Consents and (vi) approvals and registrations
that, if not obtained or made, would not reasonably be expected to have a Parent
Material Adverse Effect;
(c) require any consent, waiver or approval or result in any violation
of or the breach of or constitute a default (with or without notice or lapse of
time or both) under, or give rise to any right of termination, cancellation or
acceleration or guaranteed payments or a loss of a material benefit under, any
of the terms, conditions or provisions of any note, lease, mortgage, license,
agreement 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 respective properties or assets may be bound, except for such violations,
breaches, defaults, or rights of termination, cancellation or acceleration, or
losses as to which requisite waivers or consents have been obtained or which,
individually or in the aggregate, would not reasonably be expected to result in
a Parent Material Adverse Effect;
(d) violate the provisions of any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to Parent or any of its
Subsidiaries; or
(e) result in the creation of any Lien upon any material properties or
assets or on any shares of capital stock of Parent or any of its Subsidiaries
(other than Company and its Subsidiaries after the Effective Time) under any
agreement or instrument 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 or assets
is bound.
5.5 PARENT SEC REPORTS. Parent has filed with the SEC, and has heretofore
made available (provided that all documents filed by Parent electronically with
the SEC and publicly available prior to the date hereof shall be deemed
available) to Company true and complete copies of, each form, registration
statement, report, schedule, proxy or information statement and other document
(including exhibits and amendments thereto, but excluding preliminary
materials), required to be filed with the SEC since January 1, 1999 under the
Securities Act or the Exchange Act (collectively, the "PARENT SEC REPORTS"). As
of their respective dates, such Parent SEC Reports (a) complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and the applicable rules and regulations promulgated
thereunder and (b) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
5.6 PARENT FINANCIAL STATEMENTS. Each of the audited consolidated
financial statements and unaudited consolidated interim financial statements of
Parent (including any related notes and schedules) included (or incorporated by
reference) in the Parent SEC Reports complied as to form in all material
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respects with the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP applied on a consistent
basis (except as may be indicated in the notes thereto and subject, in the case
of quarterly financial statements, to normal and recurring year-end adjustments)
and fairly present, in conformity with GAAP applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of Parent and its Subsidiaries as of the date thereof and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of Parent and its Subsidiaries for the periods presented
therein (subject to normal year-end adjustments and the absence of financial
footnotes in the case of any unaudited interim financial statements).
5.7 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date hereof, except as
disclosed in the Parent SEC Reports (including the financial statements and
notes thereto included therein) filed prior to the date of this Agreement,
neither Parent nor any of its Subsidiaries has incurred any liabilities or
obligations of any nature (contingent or otherwise) that would reasonably be
expected to have a Parent Material Adverse Effect other than (i) liabilities
adequately provided for on, or described with reasonable specificity in the
notes to, the balance sheet of Parent dated as of March 31, 2002 contained in
Parent's Quarterly Report on Form 10-Q for the three months ended March 31,
2002, (ii) liabilities incurred in the ordinary course of business after March
31, 2002 and (iii) obligations incurred with respect to this Agreement or the
transactions contemplated hereby.
5.8 ABSENCE OF CERTAIN CHANGES. Except as contemplated by this Agreement
or as disclosed in the Parent SEC Reports filed prior to the date of this
Agreement, since December 31, 2001 there has not been any change or development,
or combination of changes or developments that, individually or in the
aggregate, would reasonably be expected to have a Parent Material Adverse
Effect.
5.9 LITIGATION. Except for matters that would not reasonably be expected
to have a Parent Material Adverse Effect, there is no suit, claim, action,
proceeding or investigation pending or, to Parent's knowledge, threatened
against or affecting Parent or any of its Subsidiaries, and Parent has no
knowledge of any facts that would reasonably be expected to give rise to any
such suit, claim, action, proceeding or investigation. Except as disclosed in
the Parent SEC Reports filed prior to the date of this Agreement and for matters
that would not reasonably be expected have a Parent Material Adverse Effect,
there is not in existence any order, judgment, injunction or decree of any court
or other tribunal or other agency or arbitrator enjoining or requiring Parent or
any of its Subsidiaries to take any action of any kind with respect to its
business, assets or properties.
5.10 BROKERS. Other than UBS Warburg L.L.C., no broker, finder or
investment banker is entitled to any brokerage, finder's fee or other fee or
commission payable by Parent or any of its Subsidiaries in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of Parent or any of its Subsidiaries.
5.11 TAX MATTERS. As of the date hereof, the representations set forth in
the numbered paragraphs of the form of Certificate of Parent attached hereto as
EXHIBIT B (the "PARENT TAX CERTIFICATE") are true and correct, assuming for
purposes of this representation and warranty that the Merger referred to in such
form had been consummated on the date hereof.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
6.1 CONDUCT OF BUSINESS BY COMPANY PENDING THE MERGER. From the date
hereof until the Effective Time, unless Parent shall otherwise agree in writing,
or except as set forth in the Company Disclosure Schedule or as otherwise
contemplated by this Agreement, Company shall conduct its business, and shall
cause each of its Subsidiaries to conduct its business, in the ordinary course
consistent with past practice and shall use, and shall cause each of its
Subsidiaries to use, all reasonable efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of its present officers and key employees, subject to the terms of this
Agreement. Except as set forth in the Company Disclosure Schedule or as
otherwise provided in this Agreement, and without limiting the generality of the
foregoing,
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from the date hereof until the Effective Time, without the written consent of
Parent, which consent shall not be unreasonably withheld:
(a) Company will not, and will not permit any of its Subsidiaries to,
adopt changes to its articles of incorporation or bylaws (or similar
organizational documents);
(b) Company will not, and will not permit any of its Subsidiaries to,
(i) declare, set aside or pay any dividend or other distribution with respect to
any shares of capital stock of Company or any of its Subsidiaries (except for
cumulative dividends on Company Preferred Stock and intercompany dividends from
direct or indirect wholly owned subsidiaries), (ii) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to such party, the terms of which
are set forth in Section 6.1(b) of the Company Disclosure Schedule, and other
than intercompany acquisitions of such capital stock;
(c) Company will not, and will not permit any of its Subsidiaries to,
(i) 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;
(d) Company will not, and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise surrender, relinquish or dispose of any assets
or properties (including through any farm-out arrangements), other than among
Company and its direct and indirect wholly owned Subsidiaries and other than
sales of Hydrocarbons in the ordinary course of business;
(e) Company will not settle any material Audit, make or change any
material Tax method, practice or election or file any material amended Tax
Return;
(f) Company will not, and will not permit any of its Subsidiaries to,
issue, deliver or sell, or authorize, any shares of its capital stock of any
class, any Company Voting Debt or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, Company Voting Debt or
convertible securities, other than: (i) the issuance of Company Common Stock
upon the exercise of stock options or other stock based awards granted under the
Company Stock Option Plans that are outstanding on the date hereof, or in
satisfaction of stock grants or stock based awards made prior to the date hereof
pursuant to the Company Stock Option Plans; (ii) the issuance of additional
shares of Company Preferred Stock as regular dividends to the holder of the
Company Preferred Stock in accordance with its terms; (iii) issuances by a
wholly owned Subsidiary of its capital stock to its parent; and (iv) the
issuance of 86,903 restricted shares of Company Common Stock pursuant to the EEX
Corporation 1998 Stock Incentive Plan to non-employee directors of Company in
connection with Company's 2002 annual meeting of shareholders;
(g) Company will not change any method of accounting or accounting
practice by Company or any of its Subsidiaries, except for any such change
required by GAAP;
(h) Company will not, and will not permit any of its Subsidiaries to,
pay, discharge or satisfy any material claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business and
consistent with past practice, of liabilities reflected or reserved against in
the Company Balance Sheet or subsequently incurred in the ordinary course of
business and consistent with past practice;
(i) Company will not, and will not permit any of its Subsidiaries to,
enter into any obligation for the delivery of Hydrocarbons attributable to any
of the Oil and Gas Interests of Company or any of its Subsidiaries in the future
on account of prepayment, advance payment, take-or-pay or similar obligations
without then or thereafter being entitled to receive full value therefore;
(j) Company will not, and will not permit any of its Subsidiaries to,
(i) enter into any futures, hedge, swap, collar, put, call, floor, cap, option
or other contracts that are intended to benefit from or reduce or
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eliminate the risk of fluctuations in the price of commodities, including
Hydrocarbons, currencies or securities, other than in the ordinary course of
business in accordance with Company's current policies or (ii) enter into any
fixed price commodity sales agreements with a duration of more than three
months;
(k) Company will not, and will not permit any of its Subsidiaries to,
sell or grant to any Person any call upon, option to purchase, or similar right
with respect to the production of Hydrocarbons attributable to the Oil and Gas
Interests of Company and its Subsidiaries at a price less than the prevailing
market price;
(l) Company will not, and will not permit any of its Subsidiaries to,
become a party to, or bound by, any contract, agreement or similar arrangement
that restricts, by virtue of a confidentiality, non-competition, territorial
exclusivity or other provision, the scope of the business or operation of
Company or any of its Subsidiaries geographically or otherwise.
(m) Company will not, and will not permit any of its Subsidiaries to,
(i) grant any increases in the compensation of any of its directors, officers or
employees, except increases to employees who are not officers or directors in
the ordinary course of business and in accordance with past practice; (ii) pay
or agree to pay any pension, retirement allowance or other employee benefit not
required or contemplated by any of the existing Company Employee Benefit Plans
as in effect on the date hereof to any director, officer or employee, whether
past or present or (iii) terminate the employment of any executive of Company
without cause;
(n) Company will not, and will not permit any of its Subsidiaries to,
(i) adopt, amend (other than amendments that reduce the amounts payable by
Company or any of its Subsidiaries or amendments required by law) or assume an
obligation to contribute to any employee benefit plan or arrangement of any type
or collective bargaining agreement or enter into any employment, severance or
similar contract with any Person (including contracts with management of Company
or any of its Subsidiaries that would reasonably be expected to require that
payments be made upon consummation of the transactions contemplated hereby) or
amend any such existing contracts to increase any amounts payable thereunder or
benefits provided thereunder, (ii) engage in any transaction (either acting
alone or in conjunction with any Company Employee Benefit Plan or trust created
thereunder) in connection with which Company or any of its Subsidiaries would be
subjected (directly or indirectly) to either a civil penalty assessed pursuant
to subsections (c), (i) or (l) of Section 502 of ERISA or a tax imposed pursuant
to Chapter 43 of Subtitle D of the Code, (iii) terminate any Company Employee
Benefit Plan in a manner, or take any other action with respect to any Company
Employee Benefit Plan, that would result in the liability of Company or any of
its Subsidiaries to any Person, (iv) take any action that would adversely affect
the qualification of any Company Employee Benefit Plan or its compliance with
the applicable requirements of ERISA, (v) fail to make full payment when due of
all amounts which, under the provisions of any Company Employee Benefit Plan,
any agreement relating thereto or applicable law, Company or any of its
Subsidiaries is required to pay as contributions thereto or (vi) fail to file,
on a timely basis, all reports and forms required by federal regulations with
respect to any Company Employee Benefit Plan;
(o) Company will not, and will not permit any of its Subsidiaries to,
authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation or dissolution of Company or any of its
Subsidiaries;
(p) Company will not, and will not permit any of its Subsidiaries to,
(i) incur any indebtedness for borrowed money (except for working capital under
Company's existing credit facilities and refinancings of existing debt that
permit prepayment of such debt without penalty (other than LIBOR breakage
costs)) or guarantee any such indebtedness or issue or sell any debt securities
or warrants or rights to acquire any debt securities of Company or any of its
Subsidiaries or guarantee any debt securities of others, (ii) except in the
ordinary course of business, enter into any lease (whether such lease is an
operating or capital lease) or create any Liens on the property of Company or
any of its Subsidiaries in connection with any indebtedness thereof, or (iii)
commit to aggregate capital expenditures in excess of $1,000,000 outside the
capital budget, as amended and approved by Company prior to the date hereof and
disclosed to Parent in Section 6.1(p) of the Company Disclosure Schedule; and
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(q) Company will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
6.2 CONDUCT OF BUSINESS BY PARENT AND MERGER SUB PENDING THE
MERGER. Except as otherwise provided in this Agreement, from the date hereof
until the Effective Time, without the written consent of Company, which consent
shall not be unreasonably withheld:
(a) Parent shall not adopt changes to its certificate of incorporation
or bylaws that would alter the terms of the Parent Common Stock;
(b) Parent shall not (i) declare, set aside or pay any dividend or other
distribution with respect to any shares of its capital stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) issue any shares of Parent Common Stock
for cash at a price less than market value, except (A) in an underwritten
offering or (B) in a "bought deal" with one or more investment banks; and
(c) Parent will not agree or commit to do any of the foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 ACCESS AND INFORMATION.
(a) The parties shall each afford to the other and to the other's
financial advisors, legal counsel, accountants, consultants, financing sources,
and other authorized representatives access during normal business hours
throughout the period prior to the Effective Time to all of its books, records,
properties, contracts, leases, plants and personnel and, during such period,
each shall furnish promptly to the other (a) a copy of each report, schedule and
other document filed or received by it pursuant to the requirements of federal
or state securities laws and (b) all other information as such other party
reasonably may request ("INFORMATION"), provided that no investigation pursuant
to this Section 7.1 shall affect any representations or warranties made herein
or the conditions to the obligations of the respective parties to consummate the
Merger. The letter agreement regarding confidentiality dated October 4, 2000
between Parent and Company (the "COMPANY CONFIDENTIALITY AGREEMENT") shall
survive the execution and delivery of this Agreement except that Parent and
Company hereby agree that Paragraph 4 of the Company Confidentiality Agreement
is hereby terminated and of no further force or effect.
(b) Company agrees, and agrees to cause its Subsidiaries and the Company
Representatives (as defined below), (i) to keep confidential any Information
provided by Parent or any of its Subsidiaries to Company, its Subsidiaries or
the Company Representatives pursuant to Section 7.1(a), (ii) to utilize such
Information solely for purposes reasonably related to facilitating the
consummation of the Merger and the other transactions contemplated by this
Agreement and (iii) not to disclose any of such Information to any Persons other
than the Company Representatives; provided, however, that the foregoing
restrictions shall not apply to any of such Information that (x) is already in
the possession of Company, other than through the confidential disclosure of
such Information to any of Company, its Subsidiaries or the Company
Representatives, (y) is or becomes available in the public domain, other than as
the result of an unauthorized disclosure by any of Company, its Subsidiaries or
the Company Representatives or (z) is acquired from any Person that, to the
knowledge of Company, is not subject to a confidentiality agreement with Parent.
Notwithstanding the foregoing, the disclosure of any such Information by Company
will not be deemed to be a breach of this Section 7.1(b) if such disclosure is
made with the consent of Parent or pursuant to a subpoena or order issued by a
court of competent jurisdiction or by a judicial or administrative or
legislative body or committee or by the New York Stock Exchange; provided,
however, that upon receipt by Company of any subpoena or order covering any of
such Information, Company will promptly notify Parent of such subpoena or order.
Company agrees that it shall be liable for breaches of this Section 7.1(b) by
the Company Representatives.
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7.2 NO SOLICITATION.
(a) From the date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement pursuant to Section 10.1, Company
agrees that it (i) will not, (ii) will not authorize or permit any of its
Subsidiaries, any of its or its Subsidiaries' directors, officers and employees
to, (iii) will not authorize its or any of its Subsidiaries' agents,
representatives, investment bankers, attorneys and accountants (collectively,
the "COMPANY REPRESENTATIVES") or any other Person to and (iv) will use all
reasonable efforts to ensure that the Company Representatives do not, directly
or indirectly, (A) initiate, solicit, or knowingly encourage or otherwise
facilitate (including by providing any nonpublic information relating to Company
and its Subsidiaries and the waiver of any standstill obligation) the making of,
or the consummation of any transaction contemplated by, an Acquisition Proposal
(as defined below), (B) engage in any discussions or negotiations with, or
provide any nonpublic information relating to Company and its Subsidiaries to,
any Person relating to or that would reasonably be expected to lead to an
Acquisition Proposal, (C) approve or recommend or propose publicly to approve or
recommend any Acquisition Proposal or (D) enter into any agreement, arrangement
or understanding contemplating or relating to any Acquisition Proposal or
requiring Company to abandon, terminate or fail to consummate the Merger or any
other transactions contemplated by this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, Company
or its Board of Directors may:
(i) to the extent applicable, comply with Rules 14e-2(a) and 14d-9
promulgated under the Exchange Act; and
(ii) prior to obtaining the Company Shareholders' Approval, furnish
information to, and negotiate or otherwise engage in discussions with,
any Person who, other than as a result of a breach of this Section 7.2,
has indicated the willingness to make or has made an Acquisition
Proposal, provided that (A) no information may be furnished unless (1)
Company then has or obtains a confidentiality agreement from such Person
with terms no less favorable to Company than those contained in the
Company Confidentiality Agreement (prior to any modification thereof
effected by Section 7.1) and that permits Company to comply with its
obligations under this Agreement and (2) Company has provided a copy of
such confidentiality agreement to Parent and (B) that Company shall not
commence negotiations or discussions with or provide information to any
such Person (1) until 48 hours after Company has advised Parent of its
intention to take any such actions and (2) unless the Board of Directors
of Company has determined in good faith by the affirmative vote of a
majority of its members, after consultation with its outside legal
counsel, that such action is necessary for the Board of Directors of
Company to comply with its fiduciary duties under applicable law.
(c) Nothing in this Section 7.2 shall (i) permit Company to terminate
this Agreement or (ii) affect any other obligation of Company under this
Agreement.
(d) From and after the date of this Agreement, Company shall as promptly
as practicable after receipt (and in any event within 24 hours) notify Parent in
writing of any inquiries, proposals or offers, or any discussions or
negotiations sought to be initiated or continued by any Person with Company, any
of its Subsidiaries, any of its or its Subsidiaries' directors, officers and
employees or any of the Company Representatives relating to, constituting or
which would reasonably be expected to lead to an Acquisition Proposal or any
request by any Person for information relating to Company or any of its
Subsidiaries contemplating, relating to or which would reasonably be expected to
lead to any Acquisition Proposal. Such notice shall include the name of such
Person and the material terms and conditions of any proposal, inquiry, offer or
request, and Company shall as soon as practicable (and in any event within 24
hours) provide such other details of the Acquisition Proposal, inquiry, offer or
request as Parent may reasonably request. Company will keep Parent fully
informed on a prompt basis (and in any event within 24 hours) of the status and
terms, including any material changes or adjustments made to or proposed to be
made to the terms, of any such inquiry, proposal, offer or request. If Company
is permitted to provide information to any Person pursuant to Section
7.2(b)(ii), Company shall provide to Parent a list of, and copies of, the
information provided to such
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Person concurrently with delivery to such Person and immediately provide Parent
with access to all information to which such Person was provided access.
(e) Company shall immediately cease and cause to be terminated all
existing activities, discussions or negotiations by it, any of its Subsidiaries,
any of its or its Subsidiaries' directors, officers and employees or any of the
Company Representatives with any Person other than Parent conducted heretofore
with respect to any Acquisition Proposal.
(f) Company shall take such action as is necessary to inform promptly
the Company Representatives of the provisions of this Section 7.2.
(g) For purposes of this Agreement:
(i) "ACQUISITION PROPOSAL" means a bona fide proposal or public
announcement of an intention to do any of the following (other than the
transactions contemplated by this Agreement or the Merger): (a) any
merger, amalgamation, arrangement, tender offer, share exchange,
take-over bid, recapitalization, consolidation or other business
combination directly or indirectly involving Company or one or more
Subsidiaries of Company with aggregate net revenues or assets of 35% or
more of Company's consolidated net revenues (based on the most recent
income statement filed with the SEC) or consolidated assets (based on
fair market value), as applicable, (b) any acquisition by any Person or
"group" (as defined under Section 13(d) of the Exchange Act) of any
business that constitutes 35% or more of Company's consolidated net
revenues, (based on the most recent income statement filed with the
SEC), or assets representing 35% or more of Company's assets on a
consolidated basis (based on fair market value) (or any lease, long-term
supply agreement, exchange, mortgage, pledge or other arrangement having
a similar economic effect) in each case in a single transaction or a
series of related transactions or (c) any acquisition of beneficial
ownership (as defined under Section 13(d) of the Exchange Act) of 35% or
more of the voting capital stock of Company or any of its Subsidiaries
by any Person or "group" (as defined under Section 13(d) of the Exchange
Act).
(ii) "SUPERIOR PROPOSAL" means any bona fide written proposal by a
third Person directly or indirectly, to acquire businesses representing
more than 50% of Company's consolidated net revenues, (based on the most
recent income statement filed with the SEC), or assets representing more
than 50% of Company's total assets on a consolidated basis (based on
fair market value), or more than 50% of Company's voting capital stock,
whether by way of merger, amalgamation, arrangement, tender offer, share
exchange, take-over bid, recapitalization, consolidation, sale of assets
or otherwise, that in the good faith determination by affirmative vote
of a majority of the members of the Board of Directors of Company, after
taking into account all legal, financial, regulatory and other aspects
of such proposal and the Person making such proposal, (a) is reasonably
capable of being completed without undue delay and (b) is more favorable
to Company's stockholders from a financial point of view than the
Merger.
7.3 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) Parent shall, to the extent that Company would be permitted by
applicable law or its bylaws, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof, or who becomes
prior to the Effective Time, an officer or director of Company or any of its
Subsidiaries (each an "INDEMNIFIED PARTY" and collectively, the "INDEMNIFIED
PARTIES") against all losses, expenses (including reasonable attorney's fees and
expenses), claims, damages or liabilities or, subject to the next succeeding
sentence, settlements arising out of actions or omissions occurring at or prior
to the Effective Time whether asserted or claimed prior to, at or after the
Effective Time based on or arising out of the fact, in whole or in part, that
such person is or was a director or officer of such party. Parent shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld). Parent shall, to the fullest extent that
Company would be permitted under applicable law, advance expenses to the
Indemnified Parties. Parent and Surviving Corporation shall cooperate in the
defense of any such matters contemplated by this Section 7.3.
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(b) Parent shall maintain Company's existing officers' and directors'
liability insurance policy ("D&O INSURANCE") for a period of not less than six
years after the Effective Time, but only to the extent related to actions or
omissions prior to the Effective Time; provided, that Parent may substitute
therefor policies of substantially similar coverage and amounts containing terms
no less advantageous to such former directors or officers if (i) the carrier of
such substitute policies maintains a Best rating equal to or greater than the
Company's existing carrier and (ii) such substitution shall not result in gaps
or lapses of coverage with respect to matters occurring prior to the Effective
Time; provided, further, that in no event will Parent be required to expend
annually more than 200% of the last annual premium paid by Company prior to the
date hereof for such insurance (the amount of which is set forth in Section
7.3(b) of the Company Disclosure Schedule), but in such event shall purchase as
much coverage as reasonably practicable for such amount.
(c) Notwithstanding any other provisions hereof, the obligations of
Parent contained in this Section 7.3 shall be binding upon the successors and
assigns of Parent. In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other Person or (ii) transfers all or
substantially all of its properties or assets to any Person, then, and in each
case, proper provision shall be made so that successors and assigns of Parent
honor the indemnification obligations set forth in this Section 7.3.
(d) The obligations of Parent under this Section 7.3 shall survive the
consummation of the Merger and shall not be terminated or modified in such a
manner as to adversely affect any Indemnified Party to whom this Section 7.3
applies without the consent of such affected Indemnified Party (it being
expressly agreed that the Indemnified Parties to whom this Section 7.3 applies
shall be third party beneficiaries of this Section 7.3, each of whom may enforce
the provisions of this Section 7.3).
7.4 APPROPRIATE ACTIONS; CONSENTS; FILINGS.
(a) Company and Parent shall each use their reasonable efforts to (i)
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things that, in either case, are necessary, proper or advisable under
applicable law or otherwise to consummate and make effective the transactions
contemplated hereby as promptly as practicable, (ii) obtain from any
Governmental Authority or any other third party any consents, licenses, permits,
waivers, approvals, authorizations, or orders required to be obtained or made by
Company or Parent or any of their Subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby including, without limitation, the Merger,
and (iii) as promptly as practicable, make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act and the rules
and regulations thereunder, and any other applicable federal or state securities
laws, (B) the HSR Act and any related governmental request thereunder and (C)
any other applicable law. Company and Parent acknowledge that the Warburg
Entities and certain of their affiliates may be required to make a filing under
the HSR Act and shall provide such assistance to the Warburg Entities and their
affiliates as is reasonably required for the Warburg Entities and their
affiliates to obtain approval from the Federal Trade Commission in connection
therewith. Company and Parent shall cooperate with each other in connection with
the making of all such filings, including providing copies of all such documents
to the non-filing party and its advisors prior to filing and, if requested, to
accept all reasonable additions, deletions or changes suggested in connection
therewith. Company and Parent shall furnish to each other all information
required for any application or other filing to be made pursuant to any
applicable law or the regulations of any Governmental Authority (including all
information required to be included in the Proxy Statement/ Prospectus and the
Registration Statement) in connection with the transactions contemplated by this
Agreement.
(b) Parent and Company agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use all of their respective reasonable efforts
to obtain any government clearances required for Closing (including through
compliance with the HSR Act and any applicable foreign government reporting
requirements), to respond to any government requests for information, and to
contest and resist any action, including any legislative, administrative or
judicial action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) (each, an "ORDER") that restricts, prevents or prohibits the
consummation of the Merger or any other transactions
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contemplated by this Agreement, including, without limitation, by vigorously
pursuing all available avenues of administrative and judicial appeal and all
available legislative action. Parent and Company also agree to take any and all
of the following actions to the extent necessary to obtain the approval of any
Governmental Authority with jurisdiction over the enforcement of any applicable
laws regarding the Merger: entering into negotiations; providing information;
substantially complying with any second request for information pursuant to the
HSR Act; making proposals; and entering into and performing agreements or
submitting to judicial or administrative orders; provided, however, that in no
event shall Parent or Company take, or be required to take, any action that
would reasonably be expected to result in a Company Material Adverse Effect or a
Parent Material Adverse Effect, as the case may be. The parties hereto will
consult and cooperate with one another, and consider in good faith the views of
one another, in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or relating to
the HSR Act or any other federal, state or foreign antitrust or fair trade law.
(c) Company and Parent shall give prompt notice to the other of (i) any
notice or other communication from any Person alleging that the consent of such
Person is or is reasonably likely to be required as a condition to the Merger,
(ii) any notice or other communication from any Governmental Authority in
connection with the Merger, (iii) any actions, suits, claims, investigations or
proceedings commenced or threatened in writing against, relating to or involving
or otherwise affecting Company, Parent or their Subsidiaries that relate to the
consummation of the Merger; and (iv) any change that is reasonably likely to
have a Company Material Adverse Effect or Parent Material Adverse Effect,
respectively, or is likely to delay or impede the ability of either Company or
Parent, respectively, to consummate the transactions contemplated by this
Agreement or to fulfill their respective obligations set forth herein.
(d) (i) Company and Parent shall give (or shall cause their respective
Subsidiaries to give) any notices to third Persons, and use, and cause their
respective Subsidiaries to use, all reasonable efforts to obtain any consents
from third Persons (A) necessary, proper or advisable to consummate the
transactions contemplated by this Agreement or to satisfy any of the conditions
set forth in Article VIII, (B) otherwise required under any contracts, licenses,
leases or other agreements in connection with the consummation of the
transactions contemplated hereby or (C) required to prevent a Company Material
Adverse Effect from occurring prior to or after the Effective Time or a Parent
Material Adverse Effect from occurring after the Effective Time.
(ii) If any party shall fail to obtain any consent from a third Person
described in subsection (d)(i) above, such party shall use all reasonable
efforts, and shall take any such actions reasonably requested by the other
parties, to limit the adverse effect upon Company and Parent, their respective
Subsidiaries, and their respective businesses resulting, or that would
reasonably be expected to result after the Effective Time, from the failure to
obtain such consent.
7.5 COOPERATION. Subject to compliance with applicable law, including the
antitrust laws, from the date hereof until the Effective Time, (a) each of the
parties hereto shall confer on a periodic basis with one or more representatives
of the other parties to report operational matters of materiality and the
general status of ongoing operations, (b) Company agrees to provide a reasonable
amount of office space and reasonable support in its San Antonio office to a
representative of Parent for transition related matters, (c) Company agrees to
provide Parent with reasonable assistance on transition matters and ministerial
assistance in connection with Parent's financing of the transactions
contemplated by this Agreement and (d) each of the parties shall promptly
provide the other party or its counsel with copies of all filings made by such
party with any Governmental Authority in connection with this Agreement and the
transactions contemplated hereby.
7.6 PUBLICITY. Neither Company, Parent nor any of their respective
affiliates shall issue or cause the publication of any press release or other
announcement with respect to the Merger, this Agreement or the other
transactions contemplated hereby without prior consultation of the other party,
except as may be required by law or by any listing agreement with a national
securities exchange and shall use reasonable efforts to provide copies of such
release or other announcement to the other party hereto, and give due
consideration to such comments as such other party may have, prior to such
release.
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7.7 EMPLOYEE MATTERS; BENEFIT PLANS.
(a) For a period of one year following the Effective Time, Parent shall
maintain, or cause Company to maintain, employee welfare, pension and savings
plans that in the aggregate provide a level of benefits for individuals who are
employees of Company and its Subsidiaries as of the Effective Time that is
either (i) substantially comparable to the level of benefits (other than those
provided under any qualified or nonqualified defined benefit plan) in effect
immediately prior to the Effective Time (provided that changes may be made to
such employee benefit plans to the extent necessary to comply with applicable
law) or (ii) no less favorable than those provided by Parent to similarly
situated employees of Parent from time to time; provided, however, that nothing
in this Agreement shall be deemed to require that the employment of any employee
of Company and its Subsidiaries as of the Effective Time be continued for any
specific period of time after the Effective Time.
(b) To the extent service is relevant for purposes of eligibility, to
participate or vesting (but not the accrual of benefits) under any employee
benefit plan, program or arrangement established or maintained by Parent or
Company for the benefit of employees of Company and its Subsidiaries, employees
of Company and its Subsidiaries as of the Effective Time shall be credited for
service accrued as of the Effective Time with Company and its Subsidiaries to
the extent such service was credited under a similar plan, program or
arrangement of Company.
(c) To the extent Parent substitutes a group health plan for Company's
group health plan, employees of Company and its Subsidiaries shall receive
credit for the year during which participation in the substituted group health
plan begins with any deductibles and copayments already incurred during such
year under the terminated or discontinued group health plan, and Parent shall
waive any preexisting condition limitation applicable to such employees to the
extent that the employee's or dependent's condition would not have operated as a
preexisting condition under the terminated or discontinued group health plan.
(d) Prior to the Effective Time, Company shall take all action necessary
to terminate the EEX Corporation Employee Stock Purchase and Savings Plan
effective immediately prior to the Effective Time.
7.8 STOCK PLANS.
(a) Prior to the Closing, the Board of Directors of Company shall, by
resolution duly adopted by such Board of Directors or a duly authorized
committee thereof, approve and adopt, for purposes of exemption from
"short-swing" profit liability under Section 16(b) of the Exchange Act, the
disposition and the conversion at the Effective Time of the shares of Company
Common Stock or Company Preferred Stock held by officers, directors and
affiliates of Company into shares of Parent Common Stock as a result of the
conversion of shares in the Merger. Such resolution shall set forth the name of
applicable "insiders" for purposes of Section 16 of the Exchange Act and, for
each "insider," the number of shares of Company Common Stock or Company
Preferred Stock to be converted into shares of Parent Common Stock at the
Effective Time and shall state that the approval is being granted to exempt the
transaction under Rule 16b-3 under the Exchange Act.
(b) All unvested shares of restricted stock of Company ("RESTRICTED
STOCK") shall, by virtue of this Agreement and without further action of
Company, Parent or the holder of such shares of Restricted Stock, vest and
become free of all restrictions (other than any under applicable law)
immediately prior to the Effective Time and shall be converted into the Common
Stock Merger Consideration pursuant to Section 3.1(b).
7.9 COMPANY SHAREHOLDER MEETING. Company shall, promptly after the date
of this Agreement, take all actions necessary in accordance with federal
securities laws, the TBCA and its articles of incorporation and bylaws to call,
give notice of, convene and hold a meeting of Company's shareholders to be held
on the earliest practicable date determined in consultation with Parent to
consider and vote on approval of this Agreement and the Merger (the "COMPANY
SHAREHOLDER MEETING"), and Company shall consult with Parent in connection
therewith. Subject to Section 7.2(b)(i) and to Company's right to terminate this
Agreement pursuant to Section 10.1(h), (a) the Board of Directors of Company
shall recommend to the shareholders of Company the approval of this Agreement
and the Merger, (b) the Board of Directors shall not withdraw or
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modify such recommendation in a manner adverse to Parent or propose publicly to
withdraw or so modify such proposal and (c) Company and the Board of Directors
of Company shall use all reasonable efforts to solicit from shareholders of
Company proxies in favor of the approval of this Agreement and the Merger and to
secure the Company Shareholders' Approval.
7.10 PREPARATION OF THE PROXY STATEMENT/PROSPECTUS AND REGISTRATION
STATEMENT.
(a) Each of Parent and Company shall cooperate and as promptly as
practicable prepare, and Parent and the Trust shall file with the SEC, as
promptly as practicable, the Registration Statement (including the Proxy
Statement/Prospectus constituting a part thereof) under the Securities Act and,
if required, the Exchange Act with respect to the issuance of Parent Common
Stock and Trust Units in the Merger. Parent and Company shall each use all
reasonable efforts to have the Registration Statement declared effective by the
SEC as promptly as practicable. Parent shall use all reasonable efforts to
obtain, prior to the effective date of the Registration Statement, all necessary
state securities or "blue sky" Law permits or approvals required to carry out
the transactions contemplated by this Agreement. Parent shall advise Company,
promptly after it receives notice thereof, of the time when the Registration
Statement has become effective under the Securities Act and, if applicable, the
Exchange Act or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the shares of Parent Common
Stock and Trust Units issuable in connection with the Merger for offering or
sale in any jurisdiction or any request by the SEC for an amendment to the Proxy
Statement/Prospectus or the Registration Statement or comments thereon and
responses thereto or requests by the SEC for additional information. Each of the
parties hereto shall also promptly provide each other party copies of all
written correspondence received from the SEC and summaries of all oral comments
received from the SEC in connection with the transactions contemplated by this
Agreement. Each of the parties shall promptly provide each other party with
drafts of all amendments or supplements to the Proxy Statement/Prospectus and
any correspondence intended to be sent to the SEC in connection with the
transactions contemplated by this Agreement and in each case allow each such
party a reasonable opportunity to comment thereon prior to filing with or
delivery to the SEC. The Proxy Statement/Prospectus shall include the
recommendation of Company's Board of Directors in favor of approval of this
Agreement and the Merger.
(b) Company shall (i) use all reasonable efforts to cause the Proxy
Statement/Prospectus to be mailed to the shareholders entitled to notice of and
to vote at the Company Shareholder Meeting as promptly as practicable after the
Registration Statement is declared effective under the Securities Act and, if
applicable, the Exchange Act and (ii) if necessary, after the definitive Proxy
Statement/Prospectus has been mailed, will promptly circulate amended,
supplemented or supplemental proxy materials and, if required in connection
therewith, re-solicit proxies or written consents, as applicable.
(c) Parent and Company shall each ensure 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, at the time of the Company
Shareholder Meeting and at the Effective Time, and, in the case of information
provided by it for inclusion in the Registration Statement or any amendment or
supplement thereto, at the time it becomes effective (i) shall 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 not misleading and
(ii) shall comply as to form in all material respects with the provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder. If
at any time prior to the Effective Time any event or circumstance relating to
Company or any of its Subsidiaries, or its or their respective officers or
directors, should be discovered by Company that should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Company shall promptly inform Parent thereof in writing.
If at any time prior to the Effective Time, any event or circumstance relating
to Parent or any of its Subsidiaries, or its respective officers or directors,
should be discovered by Parent that should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus, Parent
shall promptly inform Company thereof in writing.
(d) Following receipt by PricewaterhouseCoopers LLP, Parent's
independent auditors, of an appropriate request from Company pursuant to SAS No.
72, Parent shall use all reasonable efforts to cause to
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be delivered to Company a letter of PricewaterhouseCoopers LLP, dated a date
within two business days before the effective date of the Registration
Statement, and addressed to Company, in form and substance reasonably
satisfactory to Company and customary in scope and substance for "cold comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(e) Following receipt by Ernst & Young LLP, Company's independent
auditors, of an appropriate request from Parent pursuant to SAS No. 72, Company
shall use all reasonable efforts to cause to be delivered to Parent a letter of
Ernst & Young LLP, dated a date within two business days before the effective
date of the Registration Statement, and addressed to Parent, in form and
substance satisfactory to Parent and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
7.11 STOCK EXCHANGE LISTING. Parent shall use all reasonable efforts to
cause the Parent Common Stock to be issued in the Merger to be approved for
listing on the New York Stock Exchange prior to the Effective Time, subject to
official notice of issuance.
7.12 AFFILIATE AGREEMENTS; TAX TREATMENT.
(a) Company shall identify in a letter to Parent all persons who are, on
the date hereof or prior to the Effective Time, "affiliates" of Company, as such
term is used in Rule 145 under the Securities Act. Company shall use all
reasonable efforts to cause its respective affiliates to deliver to Parent not
later than 20 business days after the date of this Agreement a written agreement
substantially in the form attached hereto as EXHIBIT C.
(b) Each party hereto shall use all reasonable efforts to cause the
Merger to qualify, and shall not take, nor permit any of its Subsidiaries to
take, any actions which could prevent the Merger from qualifying, as a
reorganization under the provisions of Section 368(a) of the Code.
7.13 TRUST UNITS. Prior to the Effective Time, Parent shall cause a trust
to be created pursuant to a trust agreement in form and substance reasonably
satisfactory to the Parties hereto (the "TRUST"). After the Effective Time,
Parent shall distribute units in the Trust ("TRUST UNITS") to holders of shares
of the Common Stock of Company that elect to receive such units ("ELECTING
SHAREHOLDERS") as a part of the Merger Consideration. After the Effective Time
but on or before the date Parent causes the Trust to issue the Trust Units to
the Electing Shareholders, Parent shall cause Company or its Subsidiaries to
enter into the Master Conveyance of Overriding Royalty Interest in the form of
EXHIBIT D attached hereto (the "MASTER CONVEYANCE") and convey the overriding
royalty interest contemplated by the Master Conveyance to the Trust pursuant to
the conveyances referred to in the Master Conveyance in consideration for the
issuance by the Trust to Parent of such number of Trust units which, in the
aggregate, would represent ownership of the entire beneficial interest in the
assets of the Trust, which conveyance shall be effective as of the Effective
Time.
7.14 UNWIND OF FORWARD SALE.
(a) Prior to August 31, 2002, Company shall use all reasonable efforts
to cause Enron North America Corp. ("ENA") or any applicable affiliate of ENA to
take all necessary actions to obtain the approval of the United States
Bankruptcy Court for the Southern District of New York presiding over ENA's or
such applicable affiliate's bankruptcy proceeding filed in such court
("BANKRUPTCY COURT") of a plan submitted by ENA and any applicable affiliate for
the (i) termination of the Natural Gas Prepaid Forward Sale Contract, dated as
of December 17, 1999, by and between EEX E&P Company, L.P. ("EEX E&P") and Bob
West Treasure L.L.C. ("BWT"), as amended on May 16, 2001 (the "FORWARD SALE
CONTRACT"), (ii) acquisition of all but a 1% interest in EEX Reserves Funding
LLC ("EEX FUNDING") by EEX Capital, Inc., or another wholly owned Subsidiary of
Company, (iii) termination of all liens, encumbrances or other security
interests on the properties or assets of EEX E&P for the benefit of ENA, BWT,
the Royal Bank of Canada ("RBC") or their respective assigns and (iv)
termination of all guarantees by EEX E&P of BWT's obligations to ENA, all on
terms and conditions reasonably satisfactory to Parent (the "PLAN OF
TERMINATION") including through a refinancing of the Forward Sale Contract with
a successor financial institution ("SUCCESSOR BANK").
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(b) Company shall contemporaneously with the Closing (i) terminate the
Forward Sale Contract or any replacement forward sale or similar arrangement
entered into in replacement thereof, (ii) cause EEX Capital, Inc., or another
wholly owned Subsidiary of Company, to validly acquire (free and clear of all
Liens) all but a 1% interest in EEX Funding by a Subsidiary of Company, (iii)
terminate all Liens on the properties or assets of EEX E&P for the benefit of
BWT, ENA, RBC, Successor Bank or their respective assigns and (iv) terminate all
guarantees by EEX E&P of BWT's obligations to ENA or Successor Bank, in each
case on terms and conditions consistent with the Plan of Termination approved by
the Bankruptcy Court.
(c) Neither Company nor any Subsidiary shall release or otherwise
terminate any liens or security interests associated with the Forward Sale
Contract or any hedging arrangements associated therewith or any guarantees
associated with the Forward Sale Contract or such hedging arrangements or any
agreements replacing such arrangements without the prior consent of the Company,
such consent not to be unreasonably withheld.
7.15 VOTING AGREEMENT. Parent agrees that, without the prior written
consent of Company, it shall not take any action that would give any of the
Warburg Entities the right, pursuant to Section 4.13 of the Voting Agreement, to
terminate their obligations pursuant to Article I of the Voting Agreement unless
the Warburg Entities have previously waived their right to terminate as a result
of such action.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
8.1 CONDITIONS TO THE OBLIGATION OF EACH PARTY. The respective
obligations of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) the Company Shareholders' Approval has been obtained;
(b) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger is in effect;
provided, however, that prior to invoking this condition, each party shall have
complied fully with its obligations under Section 7.7 and, in addition, shall
use all reasonable efforts to have any such decree, ruling, injunction or order
vacated, except as otherwise contemplated by this Agreement;
(c) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act and, if applicable, the Exchange Act
and no stop order suspending the effectiveness of the Registration Statement
shall be in effect and no proceeding for such purpose shall be pending before or
threatened by the SEC;
(d) all permits, authorizations, consents, or approvals required to be
obtained prior to the Effective Time from any Governmental Authority in
connection with the consummation of the transactions contemplated hereby by
Parent, Merger Sub or Company shall have been made or obtained (as the case may
be) except where the failure to obtain such permits, authorizations, consents,
or approvals would not reasonably be expected to result in a Parent Material
Adverse Effect (assuming the Merger has taken place);
(e) the shares of Parent Common Stock to be issued in the Merger shall
have been approved for listing on the New York Stock Exchange, subject to
official notice of issuance; and
(f) any applicable waiting period under the HSR Act shall have expired
or been terminated.
8.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The
obligation of Parent and Merger Sub to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Company shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time;
(b) each of the representations and warranties of Company contained in
this Agreement (without giving effect to any materiality qualifications or
limitations therein or any references therein to Company
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Material Adverse Effect), shall be true and correct, in each case as of the
Effective Time as though made on and as of the Effective Time, except (i) for
such failures, individually or in the aggregate, to be true and correct that
would not reasonably be expected to have a Company Material Adverse Effect; (ii)
that those representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date, subject to the
qualifications in (i) above; and (iii) for changes expressly permitted as
contemplated by the terms of this Agreement;
(c) from the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of Company and its Subsidiaries, taken as a whole, that constitutes
or would reasonably be expected to constitute a Company Material Adverse Effect;
(d) Parent shall have received a certificate signed on behalf of Company
by a duly authorized officer of the Company to the effect that each of the
conditions specified in Section 8.2(a)-(c) has been satisfied in all respects;
(e) Parent shall have received opinions from Vinson & Elkins L.L.P. both
prior to the effectiveness of the Registration Statement and immediately prior
to the Effective Time to the effect that (i) the Merger, if consummated in
accordance with the terms of this Agreement, will constitute a reorganization
under Section 368(a) of the Code, (ii) Parent, Company and Merger Sub will each
be a party to that reorganization, and (iii) no gain or loss will be recognized
for U.S. income tax purposes by Parent or Company, except with respect to the
distribution of the Trust Units, because of the Merger; provided, however, that
if the counsel to Parent shall not render such opinion, this condition shall
nonetheless be deemed to be satisfied if counsel to Company shall render such
opinion to Parent; provided, further, that in rendering such opinion, such
counsel may rely upon the Parent Tax Certificate and the Company Tax
Certificate; and
(f) each of the consent, waivers and approvals set forth in Section
4.4(c) of the Company Disclosure Schedule (other than with respect to the office
leases in Houston, Texas and DeSoto, Texas) shall have been obtained, and
Company shall have provided Parent with copies thereof.
8.3 CONDITIONS TO THE OBLIGATIONS OF COMPANY. The obligation of Company
to effect the Merger is subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) each of Parent and Merger Sub shall have performed in all material
respects its obligations under this Agreement required to be performed by it at
or prior to the Effective Time;
(b) each of the representations and warranties of Parent and Merger Sub
contained in this Agreement (without giving effect to any materiality
qualifications or limitations therein or any references therein to Parent
Material Adverse Effect) shall be true and correct, in each case as of the
Effective Time as though made on and as of the Effective Time, except (i) for
such failures, individually or in the aggregate, to be true and correct that
would not reasonably be expected to have a Parent Material Adverse Effect; (ii)
that those representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date, subject to the
qualifications in (i) above; and (iii) for changes expressly permitted as
contemplated by the terms of this Agreement;
(c) from the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of Parent and its Subsidiaries, taken as a whole, that constitutes or
would reasonably be expected to constitute a Parent Material Adverse Effect;
(d) Company shall have received a certificate signed on behalf of Parent
by a duly authorized officer of the Parent to the effect that each of the
conditions specified in Section 8.3(a)-(c) has been satisfied in all respects;
(e) Company shall have received opinions from Akin, Gump, Strauss, Hauer
& Feld, L.L.P. both prior to the effectiveness of the Registration Statement and
immediately prior to the Effective Time to the effect that (i) the Merger, if
consummated in accordance with the terms of this Agreement, will constitute a
reorganization under Section 368(a) of the Code, (ii) Company, Parent and Merger
Sub will each be a party to that reorganization, and (iii) no gain or loss will
be recognized for U.S. income tax purposes by the shareholders of Company upon
the receipt of shares of Parent Common Stock in exchange for shares of
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Company Common Stock and Company Preferred Stock pursuant to the Merger except
with respect to any cash received in lieu of fractional share interests and
except with respect to the receipt of the Trust Units; provided, however, that
if the counsel to Company shall not render such opinion, this condition shall
nonetheless be deemed to be satisfied if counsel to Parent shall render such
opinion to Company; provided, further, that in rendering such opinion, such
counsel may rely upon the Parent Tax Certificate and the Company Tax
Certificate; and
(f) Company shall have received, prior to the Closing Date, a written
consent of the sole shareholder of Merger Sub approving and adopting this
Agreement.
ARTICLE IX
SURVIVAL
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the parties contained in this Agreement shall not survive the
Effective Time.
9.2 SURVIVAL OF COVENANTS AND AGREEMENTS. Except as provided in Section
10.2, the covenants and agreements of the parties to be performed after the
Effective Time contained in this Agreement shall survive the Effective Time.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION. Except as provided in paragraph (h) below, this
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time, whether before or after the Company Shareholders' Approval
has been obtained:
(a) by the mutual written consent of Company and Parent;
(b) by Parent, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of Company set forth in this Agreement or if
any representation or warranty of Company is untrue, in either case such that
the conditions set forth in Section 8.2(a) or Section 8.2(b) would not be
satisfied and such breach or untruth is not curable by Company or if curable, is
not cured within 30 days after notice thereof has been received by Company;
(c) by Company, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of Parent or Merger Sub set forth in this
Agreement or if any representation or warranty of Parent or Merger Sub is
untrue, in either case such that the conditions set forth in Section 8.3(a) or
Section 8.3(b) would not be satisfied and such breach or untruth is not curable
by Parent or Merger Sub or, if curable, is not cured within 30 days after notice
thereof has been received by Parent;
(d) by Parent or Company, if any Governmental Authority or court of
competent jurisdiction shall have adopted any law or amendment to any law or
issued any order, decree or ruling or taken any other action (collectively,
"GOVERNMENTAL ORDER") permanently restraining, enjoining or otherwise
prohibiting the Merger and such Governmental Order shall have become final and
nonappealable, provided that the party seeking to terminate this Agreement shall
have used all reasonable efforts to remove or lift such Governmental Order;
(e) by Parent or Company, if the Merger has not been consummated on or
before November 30, 2002 (the "OPTIONAL TERMINATION DATE"); provided, however,
that the right to terminate this Agreement pursuant to this Section 10.1(e)
shall not be available to any party whose failure or whose Affiliates' failure
to perform in all material respects any covenant, obligation or agreement
hereunder has been the cause of, or resulted in, the failure of the Merger to
occur on or before such date;
(f) by Parent or Company, if the Company Shareholders' Approval is not
obtained at the Company Shareholder Meeting (including any adjournment or
postponement thereof);
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(g) by Parent, if the Board of Directors of Company (i) fails to
recommend, or withdraws, modifies or changes in any manner adverse to Parent its
recommendation of, this Agreement and the Merger to the shareholders of Company,
(ii) approves or recommends any Acquisition Proposal (other than an Acquisition
Proposal by Parent), (iii) has not sent to its shareholders pursuant to Rule
14e-2 promulgated under the Securities Act a statement disclosing that the Board
of Directors of Company recommends rejection of any tender or exchange offer
relating to its securities that has been commenced by a Person unaffiliated with
Parent within ten Business Days after such tender or exchange offer is first
published, sent or given or (iv) resolves to take any of the actions specified
in clause (i) or (ii) of this Section 10.1(g); or
(h) by Company, at any time prior to receipt of the Company
Shareholders' Approval, upon 48 hours prior written notice to Parent, if (i) a
Superior Proposal has been made and not been withdrawn, (ii) such Superior
Proposal did not result from a breach of Section 7.2, (iii) the Board of
Directors of Company has determined in good faith by the affirmative vote of a
majority of its members that, as the result of such Superior Proposal, after
consultation with its outside legal counsel, such action is necessary for the
Board of Directors of Company to comply with its fiduciary duties under
applicable law and (iv) Parent does not make, within 48 hours of receipt of
Company's written notification of its intention to terminate this Agreement, a
written offer that the Board of Directors of Company determines in good faith,
is at least as favorable, from a financial point of view, to the shareholders of
Company as such Superior Proposal.
10.2 EFFECT OF TERMINATION. Except as provided in Section 10.3, if this
Agreement is terminated pursuant to Section 10.1, this Agreement shall forthwith
become void, there shall be no liability on the part of the parties hereto or
any of their respective officers or directors to any of the other parties hereto
and all rights and obligations of any party hereto shall cease, except that (i)
Section 7.1(b) shall survive such termination for a period of two years from the
date of such termination and (ii) Sections 7.6, 10.3 and 11.8 and, to the extent
relevant, the remaining provisions of Article XI shall survive such termination
indefinitely. Notwithstanding the foregoing, neither the termination of this
Agreement nor anything herein will relieve any party from liability for any
willful misrepresentation or inaccuracy in any of its representations or
warranties or any material breach or non-performance of any of its covenants or
agreements under this Agreement. If it shall be judicially determined (and such
determination shall have become final and nonappealable) that termination of
this Agreement was caused by a willful inaccuracy or breach of this Agreement,
then, in addition to any other remedies at law or equity for such inaccuracy or
breach of this Agreement, the party so found to have willfully caused such
inaccuracy or breach shall indemnify and hold harmless the other parties for
their Expenses. For the avoidance of doubt, the Company Confidentiality
Agreement shall survive any termination of this Agreement pursuant to Section
10.1.
10.3 FEES, EXPENSES AND OTHER PAYMENTS.
(a) Except as provided in Section 10.2, (i) all Expenses related to
printing, filing and mailing the Registration Statement and the Proxy
Statement/Prospectus and all SEC and other regulatory filing fees and
solicitation costs incurred by Parent or Company in connection with the
Registration Statement and the Proxy Statement/Prospectus shall be shared
equally by Parent and Company and (ii) all other Expenses incurred by the
parties hereto shall be paid by the party incurring such Expenses.
(b) If this Agreement is terminated by Company pursuant to Section
10.1(e)(Merger not consummated on or before the Optional Termination Date) and
(i) after the date of this Agreement and prior to the Optional Termination Date
an Acquisition Proposal was made or any proposal or expression of interest by a
third Person regarding an Acquisition Proposal was publicly disclosed in either
case that was not withdrawn and (ii) within 12 months after the date of such
termination, Company or any of its Subsidiaries enters into any agreement for a
Company Acquisition or consummates a transaction that constitutes a Company
Acquisition, then Company shall, upon consummation of such a transaction, pay
$13.5 million to Parent by wire transfer in immediately available funds to an
account designated by Parent.
(c) If this Agreement is terminated pursuant to Section 10.1(f) (failure
to obtain Company Shareholders' Approval) and (i) after the date of this
Agreement and prior to the Company Shareholder Meeting an Acquisition Proposal
was made or any proposal or expression of interest by a third Person regarding
an Acquisition Proposal was publicly disclosed in either case that was not
withdrawn prior to the
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Company Shareholder Meeting and (ii) within 12 months after the date of such
termination, Company or any of its Subsidiaries enters into any agreement for a
Company Acquisition or consummates a transaction that constitutes a Company
Acquisition, then Company shall, upon consummation of such a transaction, pay
$13.5 million to Parent by wire transfer in immediately available funds to an
account designated by Parent.
(d) If this Agreement is terminated by Parent pursuant to Section
10.1(g)(change of recommendation; recommendation of an Acquisition Proposal
other than by Parent; failure to reject), then Company shall, within three
Business Days following notice of such termination, pay $13.5 million to Parent
by wire transfer in immediately available funds to an account designated by
Parent.
(e) If this Agreement is terminated by Company pursuant to Section
10.1(h)(Superior Proposal), then, as a condition to terminating this Agreement,
Company shall pay $13.5 million to Parent by wire transfer in immediately
available funds to an account designated by Parent.
(f) If either party shall fail to pay the other party any fee or other
amount due hereunder, the failing party shall pay the costs and expenses
(including legal fees and expenses) of the other party in connection with any
action, including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of any unpaid fee or other
amount at the publicly announced prime interest rate of the Chase Manhattan
Bank, in effect from time to time, from the date such fee or other payment was
required to be paid until payment in full.
(g) Notwithstanding anything to the contrary contained herein, receipt
by Parent of the amount payable pursuant to Section 10.3(b), (c), (d) or (e)
shall constitute full settlement of any and all liabilities of Company for
damages under this Agreement in respect of a termination of this Agreement
pursuant to Section 10.1(e), (f), (g) or (h).
(h) "COMPANY ACQUISITION" means any acquisition by a third Person of
businesses representing more than 50% of Company's consolidated net revenues or
assets representing more than 50% of Company's total assets on a consolidated
basis, or more than 50% of Company's voting capital stock whether by way of
merger, amalgamation, arrangement, tender offer, share exchange, take-over bid,
recapitalization, consolidation, sale of assets or otherwise or any transaction
pursuant to which or as a result of which the shareholders of Company
immediately preceding such transaction hold less than 50% of the aggregate
voting capital stock of the surviving or resulting entity in such transaction.
(i) "EXPENSES" means all reasonable out-of-pocket expenses (including
all reasonable fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its Affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement, the
preparation, printing, filing and mailing of the Registration Statement, the
Proxy Statement/Prospectus, the solicitation of shareholder approvals and all
other matters related to the consummation of the transactions contemplated
hereby.
ARTICLE XI
MISCELLANEOUS
11.1 NOTICES. All notices or communications hereunder shall be in writing
(including facsimile or similar writing) addressed as follows:
To Parent or Merger Sub:
Newfield Exploration Company
363 N. Houston Pkwy. E.
Suite 2020
Houston, Texas 77060
Attention: Chief Financial Officer
Facsimile No.: (281) 405-4255
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With a copy (which shall not constitute notice) to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin St.
Houston, Texas 77002-6760
Attention: James H. Wilson
Facsimile No.: (713) 615-5926
To Company:
EEX Corporation
2500 City West Blvd., Suite 1400
Houston, Texas 77042
Attention: Richard L. Edmunson
Facsimile No.: (713) 243-3359
With a copy (which shall not constitute notice) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana St.
Suite 1900 South
Houston, Texas 77002
Attention: Michael E. Dillard, P.C.
Julien R. Smythe
Facsimile No.: (713) 236-0822
Any such notice or communication shall be deemed given (i) when made, if made by
hand delivery, and upon confirmation of receipt, if made by facsimile, (ii) one
Business Day after being deposited with a next-day courier, postage prepaid, or
(iii) three Business Days after being sent certified or registered mail, return
receipt requested, postage prepaid, in each case addressed as above (or to such
other address as such party may designate in writing from time to time).
11.2 SEPARABILITY. If any provision of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
11.3 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors, and assigns; provided, however, that neither this Agreement nor any
rights hereunder shall be assignable or otherwise subject to hypothecation and
any assignment in violation hereof shall be null and void.
11.4 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to a party's knowledge in this
Agreement shall mean (a) with respect to Company, the actual knowledge of
Company's chief executive officer, chief financial officer and general counsel,
with no investigation other than performing their duties for Company and its
Subsidiaries in the historical course of such duties and (b) with respect to
Parent, the actual knowledge of Parent's chief executive officer, chief
financial officer and general counsel, with no investigation other than
performing their duties for Parent and its Subsidiaries in the historical course
of such duties.
11.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each party.
11.6 ENTIRE AGREEMENT. This Agreement (including the Company Disclosure
Schedule) and the Company Confidentiality Agreement represent the entire
Agreement of the parties hereto with respect to the
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subject matter hereof and shall supersede any and all previous contracts,
arrangements or understandings between the parties hereto with respect to the
subject matter hereof.
11.7 GOVERNING LAW. This Agreement shall be construed, interpreted, and
governed in accordance with the laws of the State of Texas, without reference to
rules relating to conflicts of law.
11.8 ATTORNEYS' FEES. If any action at law or equity, including an action
for declaratory relief, is brought to enforce or interpret any provision of this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and expenses from the other party, which fees and expenses shall
be in addition to any other relief which may be awarded.
11.9 NO THIRD PARTY BENEFICIARIES. Except as provided in the penultimate
sentence of Section 3.3(b), in Section 7.3 and in the second sentence of Section
7.4(a), no Person other than the parties hereto is an intended beneficiary of
this Agreement or any portion hereof.
11.10 DISCLOSURE SCHEDULES. The inclusion of any matter on any disclosure
schedule will not be deemed an admission by any party that such listed matter is
material or that such listed matter has or would reasonably be expected to have
a Company Material Adverse Effect or a Parent Material Adverse Effect, as
applicable.
11.11 AMENDMENTS AND SUPPLEMENTS. At any time before or after approval of
the matters presented in connection with the Merger by the shareholders of
Company and prior to the Effective Time, this Agreement may be amended or
supplemented in writing by Parent and Company with respect to any of the terms
contained in this Agreement, except as otherwise provided by law; provided,
however, that following approval and adoption of this Agreement by the
shareholders of Company there shall be no amendment or change to the provisions
hereof without the further approval of the shareholders of Company unless
permitted by the TBCA.
11.12 EXTENSIONS, WAIVERS, ETC. At any time prior to the Effective Time,
either party may:
(a) extend the time for the performance of any of the obligations or
acts of the other party;
(b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto; or
(c) subject to the proviso of Section 11.11 waive compliance with any of
the agreements or conditions of the other party contained herein.
Notwithstanding the foregoing, no failure or delay by Parent or Company in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. 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.
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EXHIBIT A
FORM OF COMPANY TAX CERTIFICATE
The undersigned, a duly authorized officer of EEX Corporation ("COMPANY"),
a Texas corporation, and acting as such, in connection with the opinions to be
rendered by Akin, Gump Strauss, Hauer & Feld, L.L.P. and Vinson & Elkins L.L.P.
with respect to certain federal income tax consequences under the Internal
Revenue Code of 1986, as amended (the "CODE") of the merger (the "MERGER") of
Newfield Operating Company ("MERGER SUB"), a Texas corporation and a direct
wholly owned subsidiary of Newfield Exploration Company ("PARENT"), a Delaware
corporation, with and into Company pursuant to the Amended and Restated
Agreement and Plan of Merger dated as of May 29, 2002 by and among Parent,
Merger Sub and Company (the "MERGER AGREEMENT"), hereby certifies as follows:(1)
1. The consideration to be received in the Merger by holders of Company
Common Stock and Company Preferred Stock was determined by arm's-length
negotiations between the managements of Parent and Company, respectively. The
fair market value of the Parent Common Stock to be received by each holder of
Company Common Stock will be approximately equal to the fair market value of the
Company Common Stock exchanged therefor, and the fair market value of the Parent
Common Stock to be received by the holder of Company Preferred Stock will be
approximately equal to the fair market value of the Company Preferred Stock
exchanged therefor.
2. Prior to and in connection with the Merger, (i) except for Trust Units,
no consideration was received by a holder of Company Common Stock or Company
Preferred Stock, either in a redemption of Company Common Stock or Company
Preferred Stock or in a distribution with respect to Company Common Stock or
Company Preferred Stock, that could be treated for purposes of section 356 of
the Code as other property or money received in the exchange of Company Common
Stock or Company Preferred Stock for Parent Common Stock (within the meaning of
Treas. Reg. 1.368-1(e)(1)(ii)), and (ii) none of the Company Common Stock or
Company Preferred Stock will be acquired by any person related (as defined in
Treas. Reg. sec. 1.368-1(e)(3) without regard to sec. 1.368-1(e)(3)(i)(A)) to
Company.
3. Following the Merger, Company will hold at least 90 percent of the fair
market value of its net assets, at least 70 percent of the fair market value of
its gross assets, at least 90 percent of the fair market value of the net assets
of Merger Sub and at least 70 percent of the fair market value of the gross
assets of Merger Sub, held immediately prior to the Merger, taking into account
amounts used to pay Merger expenses and any distributions (other than regular
dividends), including the issuance of the Trust Units.
4. Merger Sub will have no liabilities assumed by Company, and will not
transfer to Company any assets subject to liabilities, in the Merger.
5. Following the Merger, Company will continue its historic business or use
a significant portion of its historic business assets in a business, within the
meaning of Treas. Reg. sec. 1.368-1(d).
6. Except as provided in Section 10.3 of the Merger Agreement, Parent,
Merger Sub, Company and the shareholders of Company will pay their respective
expenses, if any, incurred in connection with the Merger. Parent will pay or
assume only those expenses of Company and its shareholders that are solely and
directly related to the Merger in accordance with Rev. Rul. 73-54, 1973-1 C.B.
187.
7. There is no intercorporate indebtedness existing between Company and
Parent or between Company and Merger Sub that was issued, acquired, or will be
settled at a discount.
8. In the Merger, shares of Company Common Stock and Company Preferred
Stock representing "Control" (within the meaning of section 368(a) of the Code)
of Company will be exchanged solely for voting stock of Parent. For purposes of
this paragraph, any shares of Company Common Stock or Company
- ---------------
1 Capitalized terms used but not defined herein have the meanings ascribed
to them in the Merger Agreement.
A-39
Preferred Stock exchanged for cash or other property furnished by Parent will be
treated as outstanding Company Common Stock or Company Preferred Stock at the
Effective Time.
9. At the time of the Merger, Company will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Company that, if exercised or
converted, would affect Parent's acquisition of Control of Company.
10. Company is not an "investment company," as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
11. Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
12. None of the compensation received by any shareholder-employees of
Company will be separate consideration for, or allocable to, any of their shares
of Company Common Stock or Company Preferred Stock; none of the shares of Parent
Common Stock received by any shareholder-employees of Company will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees of Company will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
13. The Merger Agreement and the documents described in the Merger
Agreement represent the entire understanding of Parent, Company, Merger Sub and
the shareholders of Company with respect to the Merger. The Merger is being
effected for bona fide business reasons and will be carried out strictly in
accordance with the Merger Agreement, and none of the material terms and
conditions thereof have been or will be waived or modified.
We understand that the representations above will be relied upon by Akin,
Gump, Strauss, Hauer & Feld, L.L.P. and Vinson & Elkins L.L.P. as a basis for
their respective opinions, and that such opinions will be conditioned upon the
initial and continuing accuracy and fulfillment of these representations.
EEX CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
Dated: , 2002
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EXHIBIT B
FORM OF PARENT TAX CERTIFICATE
The undersigned, a duly authorized officer of Newfield Exploration Company
("PARENT"), a Delaware corporation, and acting as such, in connection with the
opinions to be rendered by Akin, Gump, Strauss, Hauer & Feld, L.L.P. and Vinson
& Elkins L.L.P. with respect to certain federal income tax consequences under
the Internal Revenue Code of 1986, as amended (the "CODE") of the merger (the
"MERGER") of Newfield Operating Company ("MERGER SUB"), a Texas corporation and
a direct wholly owned subsidiary of Parent, with and into EEX Corporation
("COMPANY"), a Texas corporation, pursuant to the Amended and Restated Agreement
and Plan of Merger dated as of May 29, 2002 by and among Parent, Merger Sub and
Company (the "MERGER AGREEMENT"), hereby certifies as follows:(1)
1. The consideration to be received in the Merger by holders of Company
Common Stock and Company Preferred Stock was determined by arm's-length
negotiations between the managements of Parent and Company, respectively. The
fair market value of the Parent Common Stock to be received by each holder of
Company Common Stock will be approximately equal to the fair market value of the
Company Common Stock exchanged therefor, and the fair market value of the Parent
Common Stock to be received by the holder of Company Preferred Stock will be
approximately equal to the fair market value of the Company Preferred Stock
exchanged therefor.
2. In connection with the Merger, none of the Company Common Stock or
Company Preferred Stock will be acquired by Parent or a person related (as
defined in Treas. Reg. sec. 1.368-1(e)(3)) to Parent for consideration other
than Parent Common Stock except for Trust Units and any cash received in lieu of
fractional share interests in Parent Common Stock pursuant to Section 3.3 of the
Merger Agreement.
3. Following the Merger, Company will hold at least 90 percent of the fair
market value of its net assets, at least 70 percent of the fair market value of
its gross assets, at least 90 percent of the fair market value of the net assets
of Merger Sub and at least 70 percent of the fair market value of the gross
assets of Merger Sub, held immediately prior to the Merger, taking into account
amounts used to pay Merger expenses and any distributions (other than regular
dividends), including the issuance of the Trust Units.
4. Prior to the Merger, Parent will be in "Control" (within the meaning of
section 368(c) of the Code) of Merger Sub.
5. Parent has no plan or intention to (i) liquidate the Surviving
Corporation, (ii) merge the Surviving Corporation with or into another
corporation, (iii) sell or otherwise dispose of the stock of the Surviving
Corporation except for transfers or successive transfers to one or more
corporations Controlled in each case by the transferor corporation, (iv) cause
or permit the Surviving Corporation to issue additional shares of its capital
stock that would result in Parent's losing Control of the Surviving Corporation,
(v) cause or permit the Surviving Corporation to sell or otherwise dispose of
any of its assets or of any of the assets acquired from Merger Sub except for
dispositions made in the ordinary course of business or transfers or successive
transfers to one or more corporations Controlled in each case by the transferor
corporation, or (vi) reacquire or cause or permit any person related (as defined
in Treas. Reg. sec. 1.368-1(e)(3)) to Parent to acquire any of the Parent Common
Stock issued to the holders of Company Common Stock and Company Preferred Stock
pursuant to the Merger.
6. Merger Sub will have no liabilities assumed by Company, and will not
transfer to Company any assets subject to liabilities, in the Merger.
7. Following the Merger, Company will continue its historic business or use
a significant portion of its historic business assets in a business, within the
meaning of Treas. Reg. sec. 1.368-1(d).
- ---------------
1 Capitalized terms used but not defined herein have the meanings ascribed
to them in the Merger Agreement.
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8. Except as provided in Section 10.3 of the Merger Agreement, Parent,
Merger Sub, Company and the shareholders of Company will pay their respective
expenses, if any, incurred in connection with the Merger. Parent will pay or
assume only those expenses of Company and its shareholders that are solely and
directly related to the Merger in accordance with Rev. Rul. 73-54, 1973-1 C.B.
187.
9. There is no intercorporate indebtedness existing between Company and
Parent or between Company and Merger Sub that was issued, acquired, or will be
settled at a discount.
10. In the Merger, shares of Company Common Stock and Company Preferred
Stock representing Control of Company will be exchanged solely for voting stock
of Parent. For purposes of this paragraph, any shares of Company Common Stock or
Company Preferred Stock exchanged for cash or other property furnished by Parent
will be treated as outstanding Company Common Stock or Company Preferred Stock
at the Effective Time.
11. At the time of the Merger, Company will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Company that, if exercised or
converted, would affect Parent's acquisition of Control of Company.
12. Neither Parent nor any person related (as defined in Treas. Reg.
sec. 1.368-1(e)(3)) to Parent owns, nor has it owned during the past five years,
any shares of the capital stock of Company.
13. Neither Parent nor Merger Sub is an "investment company," as defined in
section 368(a)(2)(F)(iii) and (iv) of the Code.
14. Neither Parent nor Merger Sub is under the jurisdiction of a court in a
Title 11 or similar case within the meaning of section 368(a)(3)(A) of the Code.
15. The payment of cash in lieu of fractional shares of Parent Common Stock
is solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
holders of Company Common Stock or Company Preferred Stock in lieu of issuing
fractional shares of Parent Common Stock will not exceed 1% of the total
consideration that will be issued in the Merger to the holders of Company Common
Stock and Company Preferred Stock in exchange for their Company Common Stock and
Company Preferred Stock. The fractional share interests of each holder of
Company Common Stock or Company Preferred Stock will be aggregated, and no
holder of Company Common Stock or Company Preferred Stock will receive cash in
an amount greater than the value of one full share of Parent Common Stock.
16. None of the compensation received by any shareholder-employees of
Company will be separate consideration for, or allocable to, any of their shares
of Company Common Stock or Company Preferred Stock; none of the shares of Parent
Common Stock received by any shareholder-employees of Company will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees of Company will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
17. The Merger Agreement and the documents described in the Merger
Agreement represent the entire understanding of Parent, Company, Merger Sub and
the shareholders of Company with respect to the Merger. The Merger is being
effected for bona fide business reasons and will be carried out strictly in
accordance with the Merger Agreement and none of the material terms and
conditions thereof have been or will be waived or modified.
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We understand that the representations above will be relied upon by Akin,
Gump, Strauss, Hauer & Feld, L.L.P. and Vinson & Elkins L.L.P. as a basis for
their respective opinions, and that such opinions will be conditioned upon the
initial and continuing accuracy and fulfillment of these representations.
NEWFIELD EXPLORATION COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
Dated: , 2002
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ANNEX B
VOTING AGREEMENT AND IRREVOCABLE PROXY
THIS VOTING AGREEMENT AND IRREVOCABLE PROXY (this "AGREEMENT"), dated as of
May 29, 2002, is by and among Newfield Exploration Company, a Delaware
corporation ("PARENT"), Warburg, Pincus Equity Partners, L.P., a Delaware
limited partnership, Warburg, Pincus Netherlands Equity Partners I, C.V., a
Dutch limited partnership, Warburg, Pincus Netherlands Equity Partners II, C.V.,
a Dutch limited partnership, and Warburg, Pincus Netherlands Equity Partners
III, C.V., a Dutch limited partnership (collectively, the "WARBURG
SHAREHOLDERS"), Thomas M Hamilton, David R. Henderson and Richard S. Langdon
(collectively, the "INDIVIDUAL SHAREHOLDERS" and, together with the Warburg
Shareholders, the "SHAREHOLDERS") and David A. Trice and Terry W. Rathert.
WHEREAS, Parent, Newfield Operating Company, a Texas corporation and a
wholly owned subsidiary of Parent ("MERGER SUB"), and EEX Corporation, a Texas
corporation ("COMPANY"), are entering into an Agreement and Plan of Merger dated
as of the date hereof (as amended from time to time pursuant thereto, the
"MERGER AGREEMENT");
WHEREAS, each of the Shareholders is the beneficial owner of that number of
shares of capital stock of Company set forth opposite such Shareholder's name on
Annex A hereto (such shares, together with any additional shares of capital
stock of Company acquired after the date hereof, being collectively referred to
herein as the "SHAREHOLDER SHARES"); and
WHEREAS, as a condition to the willingness of Parent to enter into the
Merger Agreement, and as an inducement to it to do so, each of the Shareholders
has agreed for the benefit of Parent as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereby agree as follows:
ARTICLE I
COVENANTS OF THE SHAREHOLDERS
SECTION 1.1. Agreement to Vote. At any meeting of the shareholders of
Company held prior to the termination of a Shareholder's obligations under
Article I of this Agreement pursuant to Section 4.13 hereof (the "APPLICABLE
TERMINATION TIME"), however called, and at every adjournment or postponement
thereof prior to such Shareholder's Applicable Voting Termination Time, such
Shareholder shall vote or cause to be voted the Shareholder Shares held by such
Shareholder (a) in favor of (i) approval of the Merger and each of the other
transactions contemplated by the Merger Agreement, (ii) approval and adoption of
the Merger Agreement and (iii) any actions required in furtherance thereof and
(b) against (i) any Acquisition Proposal (other than any Acquisition Proposal by
Parent), (ii) any proposal for action or agreement that is reasonably likely to
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or which is
reasonably likely to result in any of the conditions to the obligations of
Parent and Merger Sub under the Merger Agreement not being fulfilled, (iii) any
change in the directors of the Company, or (iv) any other action which could
reasonably be expected to impede, interfere with, delay, postpone or materially
affect the transactions contemplated by the Merger Agreement or the likelihood
of such transactions being consummated.
SECTION 1.2 Irrevocable Proxy. In order to better effect the provisions
of Section 1.1 hereof, each of the Shareholders hereby appoints David A. Trice
and Terry W. Rathert, and each of them, as the proxy of such Shareholder, each
with full power of substitution, to vote the Shareholder Shares held by such
Shareholder at any meeting of the shareholders of Company held prior to such
Shareholder's Applicable Termination Time, however called, and at every
adjournment or postponement thereof prior to such Shareholder's Applicable
Termination Time in accordance with the terms of Section 1.1 hereof. Each of
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the Shareholders acknowledges that Parent is relying on this Agreement in
incurring expenses in connection with the investigation of Company's business,
the filing of applications for regulatory approvals and other actions necessary
for the consummation of the Merger. EACH OF THE SHAREHOLDERS ACKNOWLEDGES THAT
THE PROXY GRANTED HEREBY IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE TO THE
FULL EXTENT PERMITTED BY APPLICABLE LAW, INCLUDING ARTICLE 2.29C OF THE TBCA,
AND SHALL NOT BE TERMINATED BY ANY ACT OF SUCH SHAREHOLDER, BY LACK OF
APPROPRIATE POWER OR AUTHORITY OR BY THE OCCURRENCE OF ANY OTHER EVENT OR
EVENTS, EXCEPT AS PROVIDED IN THIS AGREEMENT. Each of the Shareholders
acknowledges that the performance of this Agreement is intended to benefit
Parent.
SECTION 1.3 Proxies and Voting Agreements. Each of the Shareholders
hereby revokes any and all previous proxies (other than (i) the proxy granted
pursuant to Section 1.2 hereof and (ii) any proxy granted by such Shareholder
for use at Company's annual meeting of shareholders to be held on May 30, 2002
(the "2002 ANNUAL MEETING")) granted with respect to the Shareholder Shares held
by such Shareholder. Prior to such Shareholder's Applicable Termination Time,
such Shareholder agrees not to, directly or indirectly, with respect to the
Shareholder Shares held by such Shareholder (a) grant any proxies or powers of
attorney (except pursuant to Section 1.2 hereof and with respect to matters to
be voted upon at the 2002 Annual Meeting), (b) deposit any of such shares into
any voting trust or (c) enter into any other voting agreement or understanding.
SECTION 1.4 No Solicitation. Each of the Shareholders hereby agrees:
(a) from and after the date hereof until such Shareholder's Applicable
Termination Time, (i) not to, (ii) not to authorize or permit any of such
Shareholder's affiliates or any of such Shareholder's or such Shareholder's
affiliates' officers, directors, employees and partners to, (iii) not to
authorize such Shareholder's or any of such Shareholder's affiliates'
agents or representatives to and (iv) to use all reasonable efforts to
ensure that such Shareholder's and such Shareholder's affiliates' agents
and representatives do not, directly or indirectly, (x) initiate, solicit
or knowingly encourage or otherwise facilitate (including providing any
nonpublic information relating to Company and its Subsidiaries) the making
of an Acquisition Proposal or (y) engage in any discussions or negotiations
with, or provide any nonpublic information relating to Company and its
Subsidiaries to, any Person relating to, or that would reasonably be
expected to lead to the making of, an Acquisition Proposal;
(b) to immediately cease and cause to be terminated all existing
activities, discussions or negotiations by such Shareholder, any of such
Shareholder's affiliates or any of such Shareholder's or such Shareholder's
affiliates' officers, directors, employees, partners, agents and
representatives with any Person other than Parent with respect to any
Acquisition Proposal or the solicitation or making of any Acquisition
Proposal;
(c) from and after the date hereof until such Shareholder's Applicable
Termination Time, promptly notify Parent if any Person makes, or indicates
an interest in making, an Acquisition Proposal to such Shareholder or any
of such Shareholder's affiliates or to such Shareholder's or any of such
Shareholder's affiliates' officers, directors, employees, partners, agents
and representatives, and to include in such notice the identity of the
Person or group making or indicating an interest in making an Acquisition
Proposal and the material terms and conditions of any such Acquisition
Proposal; and
(d) from and after the date hereof until such Shareholder's Applicable
Termination Time, not to enter into any agreement or understanding with any
person that provides for, or in any way facilitates, an Acquisition
Proposal.
(e) This Section 1.4 shall not prevent any Shareholder or any of its
affiliates, officers, directors, employees, partners, agents or
representatives who is a member of the Board of Directors of Company from
taking any actions otherwise prohibited by this Section 1.4 to the extent
that such actions are expressly permitted by the Merger Agreement. For
purposes of this Section 1.4, Company shall be deemed not to be an
affiliate of any Shareholder.
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SECTION 1.5 Transfer of Shareholder Shares by the Shareholders. Prior to
such Shareholder's Applicable Termination Time, each of the Shareholders agrees
not to sell, transfer, assign, convey or otherwise dispose of, directly or
indirectly, any of the Shareholder Shares held by such Shareholder.
SECTION 1.6 Public Announcement. Each of the Shareholders hereby consents
to Parent's announcement in any press release, public filing, advertisement or
other document that such Shareholder has entered into this Agreement.
SECTION 1.7 Several Obligations. The obligations of each Shareholder
hereunder shall be several and not joint.
ARTICLE II
ADDITIONAL AGREEMENTS
SECTION 2.1. Purchase of Warrants; Termination of Certain Registration
Rights.
(a) Notwithstanding anything to the contrary set forth in the Warrant
Agreements, each of the Warburg Shareholders hereby agrees that it will
sell to Parent, and Parent hereby agrees that it will purchase from such
Warburg Shareholder, all of the warrants held by such Warburg Shareholder
under the Warrant Agreements, effective as of the Effective Time without
any further action by any Person, for an aggregate purchase price of
$10.00, the receipt and sufficiency of which are hereby acknowledged.
(b) Notwithstanding anything to the contrary set forth in that certain
Registration Rights Agreement, dated as of January 8, 1999, by and among
Company and the Warburg Shareholders (the "COMPANY REGISTRATION RIGHTS
AGREEMENT"), and in consideration for the execution by Parent of the Parent
Registration Rights Agreement (as defined below), each of the Warburg
Shareholders hereby agrees that the rights of such Warburg Shareholder
under the Company Registration Rights Agreement shall terminate and be of
no further force and effect at and after the Effective Time.
SECTION 2.2. Certain Additional Agreements with the Warburg
Shareholders. In consideration of the Warburg Shareholders entering into this
Agreement, Parent further agrees as follows:
(a) Parent represents and warrants that its Board of Directors has
approved the acquisition of shares of Parent Common Stock in the Merger by
Howard Newman and by the Warburg Shareholders (to the extent that they are
deemed to be "directors" of Parent by virtue of Howard Newman's position as
a director of Parent) pursuant to Rule 16b-3(d) promulgated under the
Securities Exchange Act of 1934, as amended, such that such acquisition is
exempt from the provisions of Section 16(b) of the Exchange Act. Parent
covenants and agrees that such approval shall not be withdrawn.
(b) Concurrently with the execution of this Agreement, and as a
condition to the Warburg Shareholders entering into this Agreement, Parent
has executed and delivered to the Warburg Shareholders a Registration
Rights Agreement providing for certain registration rights with respect to
the shares of Parent Common Stock to be issued to the Warburg Shareholders
(the "PARENT REGISTRATION RIGHTS AGREEMENT"). The Parent Registration
Rights Agreement has been duly authorized, executed and delivered by
Parent, and constitutes a legal, valid and binding obligation enforceable
against Parent in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights generally and by equitable principles to
which the remedies of specific performance and injunctive and similar forms
of relief are subject.
(c) Parent represents and warrants that this Agreement has been duly
executed and delivered by it and is a valid and binding obligation of
Parent, enforceable against Parent in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar
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laws relating to creditors' rights generally and by equitable principles to
which the remedies of specific performance and injunctive and similar forms
of relief are subject.
(d) Parent acknowledges that the Warburg Shareholders may be required
to make a filing under the HSR Act and shall provide such assistance to the
Warburg Shareholders as is reasonably required for the Warburg Shareholders
to obtain approval from the Federal Trade Commission or the Department of
Justice in connection therewith, including the taking of any or all of the
following actions to the extent necessary to obtain such approval: entering
into negotiations, providing information, substantially complying with any
second request for information pursuant to the HSR Act, making proposals,
and entering into and performing agreements or submitting to judicial or
administrative orders; provided, however, that in no event shall Parent
take, or be required to take, any action that would reasonably be expected
to result in a Parent Material Adverse Effect. Parent will consult and
cooperate with the Warburg Shareholders in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of the Warburg Shareholders in
connection with proceedings under or relating to the HSR Act or any other
federal, state or foreign antitrust or fair trade law. All filing fees
relating to the filing by the Warburg Shareholders under the HSR Act shall
be paid by the Warburg Shareholders; provided, however, that, if the Merger
is consummated, as soon as practicable after the Effective Time, Parent
shall reimburse the Warburg Shareholders for 50% of such fees.
(e) The obligation of each Warburg Shareholder under this Agreement
shall be limited to the assets of such Warburg Shareholder, and no party
shall have any recourse to any partner or affiliate of any Warburg
Shareholder for any breach of this Agreement by any Warburg Shareholder.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS OF SHAREHOLDERS
Each of the Shareholders severally represents, warrants and covenants to
Parent with respect to such Shareholder that:
SECTION 3.1. Ownership. Such Shareholder is as of the date hereof the
beneficial owner of the Shareholder Shares described herein as owned by such
Shareholder, such Shareholder Shares are held of record by such Shareholder or
by a nominee or custodian for the benefit of such Shareholder, such Shareholder
has the sole right to vote such Shareholder Shares, and there are no
restrictions on rights of disposition or other lien, pledge, security interest,
charge or other encumbrance or restriction pertaining to such Shareholder
Shares. None of such Shareholder Shares is subject to any voting trust or other
agreement, arrangement or restriction with respect to the voting of such
Shareholder Shares, and no proxy, power of attorney or other authorization has
been granted with respect to such Shareholder Shares, other than as contemplated
by Article I hereof.
SECTION 3.2. Authority and Non-Contravention. If such Shareholder is a
Warburg Shareholder, such Shareholder is a limited or general partnership duly
formed and validly existing under the laws of the jurisdiction of its
organization. Such Shareholder has the right, power and authority, and such
Shareholder has been duly authorized by all necessary action (including
consultation, approval or other action by or with any other Person), to execute,
deliver and perform this Agreement and consummate the transactions contemplated
hereby. Such actions by such Shareholder (a) require no action by or in respect
of, or filing with, any Governmental Authority with respect to such Shareholder,
other than any required filings under Section 13 and 16 of the Exchange Act or
under the HSR Act, and (b) do not and will not contravene or constitute a
default under any provision of applicable law or regulation or any agreement,
judgment, injunction, order, decree or other instrument binding on such
Shareholder or result in the imposition of any lien, pledge, security interest,
charge or other encumbrance or restriction on any of the Shareholder Shares held
by such Shareholder (other than as provided in this Agreement with respect to
such Shareholder Shares).
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SECTION 3.3. Binding Effect. This Agreement has been duly executed and
delivered by such Shareholder and is a valid and binding obligation of such
Shareholder, enforceable against such Shareholder in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights generally and by equitable
principles to which the remedies of specific performance and injunctive and
similar forms of relief are subject.
SECTION 3.4. Total Shares. The Shareholder Shares indicated as held by
such Shareholder on Annex A hereto are the only shares of capital stock of
Company owned beneficially or of record as of the date hereof by such
Shareholder (other than, with respect to the Warburg Shareholders, the warrants
referenced in Section 2.1 of this Agreement and, with respect to the Individual
Shareholders who are officers or directors of Company, shares of capital stock
that may be acquired upon the exercise of options granted pursuant to any
Company's stock option plans), and such Shareholder does not have any option to
purchase or right to subscribe for or otherwise acquire any securities of
Company (other than, with respect to the Warburg Shareholders, the warrants
referenced in Section 2.1 of this Agreement and, with respect to the Individual
Shareholders who are officers or directors of Company, shares of capital stock
that may be acquired upon the exercise of options granted pursuant to any of
Company's stock option plans) and has no other interest in or voting rights with
respect to any other securities of Company.
SECTION 3.5. Finder's Fees. No investment banker, broker or finder is
entitled to a commission or fee from Company, Parent or Merger Sub in respect of
this Agreement based upon any arrangement or agreement made by or on behalf of
such Shareholder, except as otherwise provided in the Merger Agreement.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Expenses. Except as expressly set forth herein, each party
hereto shall pay its own expenses (including, without limitation, the fees,
costs and disbursements of counsel and other advisors) incident to preparing
for, entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby.
SECTION 4.2. Further Assurances. From time to time, at the reasonable
request of Parent, each of the other parties hereto shall execute and deliver or
cause to be executed and delivered such additional documents and instruments and
take all such further action as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
SECTION 4.3. Specific Performance. Each of the Shareholders agrees that
Parent would be irreparably damaged if for any reason such Shareholder fails to
perform any of its obligations under this Agreement, and that Parent would not
have an adequate remedy at law for money damages in such event. Accordingly,
Parent shall be entitled to seek specific performance and injunctive and other
equitable relief to enforce the performance of this Agreement by such
Shareholder. This provision is without prejudice to any other rights that Parent
may have against such Shareholder for any failure to perform its obligations
under this Agreement.
SECTION 4.4. Notices. All notices or communications hereunder shall be in
writing (including facsimile or similar writing) addressed as follows:
To Parent:
Newfield Exploration Company
363 N. Sam Houston Pkwy E.
Suite 2020
Houston, Texas 77060
Attention: Terry W. Rathert
Facsimile No.: (281) 847-6006
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with a copy (which shall not constitute notice) to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin St.
Houston, Texas 77002-6760
Attention: James H. Wilson
Facsimile No.: (713) 615-5926
To any of the Warburg Shareholders:
c/o Warburg, Pincus & Co.
466 Lexington Avenue
New York, New York 10017
Attention: Peter R. Kagan
Facsimile No.: (212) 878-9351
With a copy (which shall not constitute notice) to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Maurice M. Lefkort
Facsimile No.: (212) 728-8111
To any of the Individual Shareholders:
c/o EEX Corporation
2500 CityWest Blvd.
Suite 1400
Houston, Texas 77042
Facsimile No.: (713) 243-3359
To David A. Trice or Terry W. Rathert
c/o Newfield Exploration Company
363 N. Sam Houston Pkwy E.
Suite 2020
Houston, Texas 77060
Facsimile No.: (281) 847-6006
Any such notice or communication shall be deemed given (i) when made, if made by
hand delivery, and upon confirmation of receipt, if made by facsimile, (ii) one
Business Day after being deposited with a nationally recognized next-day courier
or (iii) three Business Days after being sent certified or registered mail,
return receipt requested, postage prepaid, in each case addressed as above (or
to such other address as such party may designate in writing from time to time).
SECTION 4.5. Interpretation. Capitalized terms that are used but not
defined herein shall have the meanings ascribed to them in the Merger Agreement.
When a reference is made in this Agreement to Sections or Articles, such
reference shall be to a Section or Article of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Unless the context otherwise requires, "or" is disjunctive but not
necessarily exclusive, and words in the singular include the plural and in the
plural include the singular.
SECTION 4.6. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement.
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SECTION 4.7. Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
(b) Except as set forth in Section 2.1(b) hereof, no Person other than
the parties hereto is an intended beneficiary of this Agreement or any
portion hereof. For greater certainty, Section 2.1(b) hereof shall inure to
the benefit of, and shall be enforceable against the parties hereto by,
Company.
SECTION 4.8. Governing Law. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Texas, without
giving effect to the principles of conflicts of law thereof that would require
the application of another state's law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of Texas 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 such courts and
agrees not to plead or claim that litigation brought in such courts has been
brought in an inconvenient forum.
SECTION 4.9. Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors and assigns.
SECTION 4.10. Amendment; Waiver.
(a) Except as provided in Section 4.10(b) below, this Agreement may
not be modified, amended, altered or supplemented, except upon the
execution and delivery of a written agreement executed by each of the
parties hereto.
(b) Without the consent of each of the parties hereto, (i) Article II
and Sections 4.13(b) and 4.13(c) hereof may be modified, amended, altered
or supplemented upon the execution and delivery of a written agreement
executed by Parent and the Warburg Shareholders and (ii) the Warburg
Shareholders may waive their termination right under Section 4.13(c) upon
the execution and delivery of a written waiver executed by the Warburg
Shareholders. Any amendment or waiver of any provision of this Agreement
pursuant to this Section 4.10(b) shall have no effect on the rights or
obligations under this Agreement of the parties hereto that are not party
to such amendment or waiver.
SECTION 4.11. Severability. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid but if any provision or portion of any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision, and this Agreement will be reformed, construed and
enforced as if such invalid, illegal or unenforceable provision or portion of
any provision had never been contained herein. The parties shall endeavor in
good faith negotiations to replace any invalid, illegal or unenforceable
provision with a valid provision the effects of which come as close as possible
to those of such invalid, illegal or unenforceable provision.
SECTION 4.12. Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements, in addition to any other relief to which such party may be
entitled.
SECTION 4.13. Termination.
(a) This Agreement shall terminate and be of no further force and
effect upon the first to occur of (i) the Effective Time; (ii) the
termination of the Merger Agreement by any party thereto in accordance with
its terms; or (iii) any amendment of the Merger Agreement without the
written consent of the Shareholders that (x) provides for a reduction in
the Merger Consideration or (y) changes the form of the payment of the
Merger Consideration; provided, however, that Articles II and IV shall
survive the termination of this Agreement pursuant to clause (i) of this
Section 4.13(a).
B-7
(b) Upon any amendment of the Merger Agreement without the written
consent of the Warburg Shareholders that has the effect of increasing the
Merger Consideration payable to the holders of the Company Common Stock or
decreasing the Merger Consideration payable to the holders of the Company
Preferred Stock, the Warburg Shareholders may elect to terminate this
Agreement as it relates to the Warburg Shareholders; provided, however,
that the Warburg Shareholders shall be required, with respect to any such
amendment, to exercise their right to terminate this Agreement pursuant to
this Section 4.13(b) no later than three Business Days after receiving
notice of such amendment in accordance with the Merger Agreement.
(c) If, prior to the Effective Time, Parent shall purchase or agree to
purchase any shares of Company Common Stock at a per share purchase price
greater than the Negotiated Price, the Warburg Shareholders may elect to
terminate this Agreement (other than Article II hereof) as it relates to
the Warburg Shareholders; provided, however, that the Warburg Shareholders
shall be required, with respect to any particular purchase by Parent, to
exercise their right to terminate this Agreement (other than Article II
hereof) pursuant to this Section 4.13(c) no later than three Business Days
after receiving notice from Parent of such purchase. Parent hereby agrees
to provide prompt notice to the Warburg Shareholders of any such purchase
by Parent. If the Warburg Shareholders elect to terminate this Agreement
(other than Article II hereof) pursuant to this Section 4.13(c), Article II
of this Agreement shall remain in full force and effect as it relates to
the Warburg Shareholders. For the purposes of this Section 4.13(c),
"NEGOTIATED PRICE" shall mean the product of (i) 0.05703 multiplied by (ii)
(A) in the case of any purchase by Parent of shares of Company Common Stock
in any regular way, block or other trades on the New York Stock Exchange
("NYSE"), the then prevailing market price per share of Parent Common Stock
as reported by the NYSE or (B) in the case of any purchase by Parent of
shares of Company Common Stock by any other means, the average of the high
and low sales prices, as reported by the NYSE, of Parent Common Stock for
the most recently completed trading day.
[Signature pages excluded.]
B-8
ANNEX A
SHAREHOLDER SHARES
<Table>
<Caption>
SHARES OF COMPANY SHARES OF COMPANY
SHAREHOLDER COMMON STOCK PREFERRED STOCK
- ----------- ----------------- -----------------
Warburg, Pincus Equity Partners, L.P........................ -- 1,830,888
Warburg, Pincus Netherlands Equity Partners I, C.V.......... -- 58,123
Warburg, Pincus Netherlands Equity Partners II, C.V......... -- 38,749
Warburg, Pincus Netherlands Equity Partners III, C.V........ -- 9,687
Thomas M Hamilton........................................... 384,133 --
David R. Henderson.......................................... 67,700 --
Richard S. Langdon.......................................... 58,934 --
------- ---------
Total Shareholder Shares.................................. 510,767 1,937,447
======= =========
</Table>
B-9
ANNEX C
1585 Broadway
New York, NY 10036
Morgan Stanley Logo
May 29, 2002
Board of Directors
EEX Corporation
2500 CityWest Blvd.
Suite 1400
Houston, TX 77042
Members of the Board,
We understand that EEX Corporation (the "Company"), Newfield Exploration
Company (the "Parent") and Newfield Operating Company, a wholly-owned subsidiary
of Newfield Exploration Company (the "Merger Sub") propose to enter into an
Agreement and Plan of Merger, substantially in the form of the draft dated as of
May 29, 2002 (the "Merger Agreement"). Pursuant to the Merger Agreement, the
Company will become a wholly-owned subsidiary of the Parent, and (i) each
outstanding share of common stock, par value $0.01 per share (the "Company
Common Stock") of the Company, other than shares of Company Common Stock held in
treasury, will be converted into the right to receive (a) 0.05703 shares of the
Parent's common stock, par value $0.01 per share (the "Parent Common Stock"), or
(b) if the holder thereof shall have so elected, a number of Trust Units (as
defined in the Merger Agreement) and a number of shares, if any, as set forth in
the Merger Agreement of the Parent Common Stock, subject to the terms,
limitations and procedures of the Agreement, and (ii) each share of Series B 8%
Cumulative Perpetual Preferred Stock, no par value, of the Company (the "Company
Preferred Stock"), will be converted into the right to receive a pro rata
portion of 4,700,000 shares of the Parent Common Stock. We note that for
purposes of our opinion, we have assumed, with your consent, that the aggregate
consideration (the "Aggregate Consideration") to be received by the holders of
the Company Common Stock will consist solely of Parent Common Stock, and that no
such holder will elect to receive any Trust Units in the Merger. 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 Aggregate Consideration to
be received by the holders, as a group, of shares of the Company Common Stock
pursuant to the Merger Agreement is fair from a financial point of view to such
holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and the Parent, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data, including internal oil and gas reserve
estimates concerning the Company, prepared by the management of the
Company;
(iii) reviewed certain financial forecasts prepared by the management
of the Company;
(iv) reviewed certain financial forecasts and estimates for the Parent
of certain securities analysts contained in publicly available research
reports and discussed with management of the Company and the Parent such
forecasts and estimates;
(v) reviewed and 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 management of the Company, including, the
Company's management's view of the strategic rationale for, and the timing
of, the Merger, and management's view of the risks and uncertainties
associated with not pursuing the Merger;
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(vi) reviewed and discussed the past and current operations and
financial condition and the prospects of the Parent, including information
relating to certain strategic, financial and operational benefits
anticipated from the Merger, with management of the Parent;
(vii) reviewed the pro forma impact of the transaction on the Parent's
cash flow per share, oil and gas reserves and production and financial
ratios;
(viii) reviewed the reported prices and trading activity for the
Company Common Stock and Parent Common Stock;
(ix) compared the financial performance of the Company and the Parent
and the prices and trading activity of the Company Common Stock and Parent
Common Stock with that of certain comparable publicly-traded companies and
their securities;
(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 acquisition transactions;
(xii) participated in discussions and negotiations among
representatives of the Company and the Parent and their financial and legal
advisors;
(xiii) reviewed a draft of 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 supplied or otherwise made
available to 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
the Parent. As you are aware, Morgan Stanley did not receive financial forecasts
or internal financial or operating information for the Parent from either the
Parent or the Company. Instead, for the purposes of our analysis, we have relied
with your consent on publicly available information of the Parent, including
certain financial forecasts and estimates for the Parent of certain securities
analysts contained in publicly available research reports. We have relied upon,
without independent verification, the assessment by the management of the
Company of (i) the strategic, financial and other benefits expected to result
from the Merger and (ii) the strategic rationale for, and the timing of, the
Merger, and management's view of the risks and uncertainties associated with not
pursuing the Merger.
We have assumed that in connection with the receipt of all necessary
regulatory approvals for the proposed Merger, no restrictions will be imposed
that would have a material adverse effect on the contemplated benefits expected
to be derived in the proposed Merger. 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, as
amended. We have not made any independent valuation or appraisals of the assets
or liabilities of the Company, nor have we been furnished with any such
appraisals, other than the reserve reports referred to in (x) above. With
respect to reserve estimates and reports referred to in (ii) 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, upon the
internal reserve estimates prepared by the Company. Our opinion is necessarily
based on financial, economic, market and other conditions in effect on, and the
information made available to us as of, the date hereof.
We note that, in accordance with the terms of the Merger Agreement, a
holder of the Company Common Stock may elect to receive Trust Units in lieu of
shares of Parent Common Stock, and, as a result, holders of the Company Common
Stock may receive a combination of Parent Common Stock and
C-2
Trust Units in the Merger that is different from the combination that the other
holders of the Company Common Stock receive. Our opinion addresses only the
fairness, from a financial point of view, of the Aggregate Consideration to be
received by holders of shares of the Company Common Stock pursuant to the Merger
Agreement to such holders as a group, and does not address the fairness of the
consideration to be received by any individual holder of the Company Common
Stock. In addition, we express no opinion as to the consideration to be received
by the holders of the Company Preferred Stock or the relative allocation of the
consideration to be received in the Merger by the holders of the Company Common
Stock and by the holders of the Company Preferred Stock. Our opinion does not
address the underlying business decision or the legal basis to effect the
transactions contemplated by the Merger Agreement or the relative merits of the
transactions contemplated by the Merger Agreement as compared to any alternate
business transaction, or other alternative, whether or not such alternative
could be achieved. In addition, this opinion does not in any manner address the
prices at which the Parent Common Stock will trade at any time, and Morgan
Stanley expresses no opinion or recommendation as to how the shareholders of the
Company should vote at the shareholders' meeting held in connection with the
Merger or as to whether holders of the Company Common Stock should elect to
receive the Parent Common Stock or any Trust Units in lieu of Parent Common
Stock.
We have acted as financial advisor to the Board of Directors of the Company
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 the Company and have received fees
for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Aggregate Consideration to be received by the holders of shares
of the Company Common Stock pursuant to the Merger Agreement is fair from a
financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ MICHAEL J. DICKMAN
------------------------------------
Michael J. Dickman
Managing Director
C-3
ANNEX D
[JPMORGAN LOGO]
May 29, 2002
The Board of Directors
EEX Corporation
2500 City West Blvd., Suite 1400
Houston, TX 77042
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders, as a group, of common stock, par value $0.01 per share
(the "Company Common Stock"), of EEX Corporation (the "Company") of the
aggregate consideration (the "Aggregate Consideration") to be received by such
holders in the proposed merger (the "Merger") of the Company with a wholly-owned
subsidiary of Newfield Exploration Company (the "Merger Partner"). Pursuant to
the Agreement and Plan of Merger (the "Agreement"), among the Company, the
Merger Partner and a subsidiary of the Merger Partner, the Company will become a
wholly-owned subsidiary of the Merger Partner, and (i) each outstanding share of
Company Common Stock, other than shares of Company Common Stock held in
treasury, will be converted into the right to receive (a) .05703 shares of the
Merger Partner's common stock, par value $0.01 per share (the "Merger Partner
Common Stock"), or (b) if the holder thereof shall have so elected, a number of
Trust Units (as defined in the Agreement) and a number of shares, if any, as set
forth in the Agreement, of the Merger Partner Common Stock, subject to the
terms, limitations and procedures of the Agreement, and (ii) each share of
Series B 8% Cumulative Perpetual Preferred Stock, no par value, of the Company
(the "Company Preferred Stock"), will be converted into the right to receive a
pro rata portion of 4,700,000 shares of the Merger Partner Common Stock. We note
that for purposes of our opinion, we have assumed, with your consent, that the
Aggregate Consideration to be received by the holders of the Company Common
Stock will consist solely of Merger Partner Common Stock, and that no such
holder will elect to receive any Trust Units in the Merger.
In arriving at our opinion, we have (i) reviewed a draft dated May 29, 2002
of the Agreement; (ii) reviewed certain publicly available business and
financial information concerning the Company and the Merger Partner and the
industries in which they operate; (iii) compared the proposed financial terms of
the Merger with the publicly available financial terms of certain transactions
involving companies we deemed relevant and the consideration received for such
companies; (iv) compared the financial and operating performance of the Company
and the Merger Partner with publicly available information concerning certain
other companies we deemed relevant and reviewed the current and historical
market prices of the Company Common Stock and the Merger Partner Common Stock
and certain publicly traded securities of such other companies; (v) reviewed
certain internal financial analyses and forecasts prepared by the management of
the Company relating to its business and equity research reports with respect to
the Merger Partner and its business; (vi) reviewed copies of reports relating to
oil and gas reserves of the Company provided by the Company and copies of
summary information relating to oil and gas reserves of the Merger Partner
(collectively, the "Reserve Reports"); (vii) discussed with management of the
Company alternatives available to the Company in the absence of the Merger; and
(viii) performed such other financial studies and analyses and considered such
other information as we deemed appropriate for the purposes of this opinion.
In addition, we have held discussions with certain members of the
management of the Company and the Merger Partner with respect to certain aspects
of the Merger, and the past and current business operations of the Company and
the Merger Partner, the financial condition and future prospects and operations
of the Company and the Merger Partner, the effects of the Merger on the
financial condition and future prospects of the Company and the Merger Partner,
and certain other matters we believed
D-1
necessary or appropriate to our inquiry. We note that we did not receive any
financial analyses or forecasts from the Merger Partner as to its projected
financial performance.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Merger Partner or
otherwise reviewed by us, and we have not assumed any responsibility or
liability therefor. We have not conducted any valuation or appraisal of any
assets or liabilities, nor have any such valuations or appraisals been provided
to us (other than the Reserve Reports), and we have not assumed any
responsibility or liability for undertaking any valuation or appraisal of the
Company or the Merger Partner, or as to the solvency of or issues relating to
solvency concerning the Company. In relying on financial analyses and forecasts
provided to us, we have assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by
management as to the expected future results of operations and financial
condition of the Company to which such analyses or forecasts relate. We have
also assumed that the Merger will qualify as a tax-free reorganization for
United States federal income tax purposes, and that the Merger and the other
transactions contemplated by the Agreement will be consummated as described in
the Agreement. We have relied as to all legal matters relevant to rendering our
opinion upon the advice of counsel. We have also assumed that the definitive
Agreement will not differ in any material respects from the draft thereof
furnished to us. We have further assumed that all material governmental,
regulatory or other consents and approvals necessary for the consummation of the
Merger will be obtained without any adverse effect on the Company or the Merger
Partner or on the contemplated benefits of the Merger.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect this
opinion and that we do not have any obligation to update, revise, or reaffirm
this opinion. Our opinion is limited to the fairness, from a financial point of
view, of the Aggregate Consideration to be received by the holders, as a group,
of the Company Common Stock in the proposed Merger and we express no opinion as
to the underlying decision by the Company to engage in the Merger. We are
expressing no opinion herein as to the price at which the Merger Partner Common
Stock will trade at any future time. In addition, we are expressing no opinion
as to the consideration to be received by the holders of the Company Preferred
Stock or the relative allocation of the consideration to be received in the
Merger by the holders of the Company Common Stock and by the holders of the
Company Preferred Stock.
In addition, we were not requested to and did not provide advice concerning
the structure, the specific amount of the Common Stock Consideration, or any
other aspects of the Merger, or to provide services other than the delivery of
this opinion. We were not authorized to and did not solicit any expressions of
interest from any other parties with respect to the sale of all or any part of
the Company or any other alternative transaction. We did not participate in
negotiations with respect to the terms of the Merger and related transactions.
Consequently, we have assumed that such terms are the most beneficial terms from
the Company's perspective that could under the circumstances be negotiated among
the parties to such transactions, and no opinion is expressed whether any
alternative transaction might produce consideration for the holders of the
Company Common Stock in an amount in excess of that contemplated in the Merger.
We have acted as financial advisor to the Company with respect to the
delivery of this opinion and will receive a fee from the Company if the proposed
Merger is consummated. Certain of our affiliates are agent bank on credit
facilities for each of the Company and the Merger Partner and we and our
affiliates have in the past provided other investment banking and commercial
banking services for the Company and the Merger Partner, respectively. The
Company is currently in default under its credit facility. In addition, in the
ordinary course of our businesses, we and our affiliates may actively trade the
debt and equity securities of the Company or the Merger Partner for our own
account or for the accounts of customers and, accordingly, we may at any time
hold long or short positions in such securities.
D-2
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the Aggregate Consideration to be received by the holders of
the Company Common Stock in the proposed Merger is fair, from a financial point
of view, to such holders.
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Merger. Because
different holders of the Company Common Stock may receive different combinations
of Merger Partner Common Stock and Trust Units pursuant to the Merger, our
opinion addresses the fairness from a financial point of view of the Aggregate
Consideration to be issued to holders of the Company Common Stock pursuant to
the Merger as a group, rather than the fairness of the consideration to be
issued to any individual holder of Company Common Stock. This opinion does not
constitute a recommendation to any holder of the Company Common Stock as to how
such holder should vote with respect to the Merger or any other matter or as to
whether such holder should elect to receive the Merger Partner Common Stock or
the Trust Units. This opinion may not be disclosed, referred to, or communicated
(in whole or in part) to any third party for any purpose whatsoever except with
our prior written approval. This opinion may be reproduced in full in any proxy
or information statement mailed to shareholders of the Company but may not
otherwise be disclosed publicly in any manner without our prior written
approval.
Very truly yours,
J.P. MORGAN SECURITIES INC.
D-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") authorizes a corporation, under certain circumstances, to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that the person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of that corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. With respect to any criminal action or proceeding, such
indemnification is available if he had no reasonable cause to believe his
conduct was unlawful.
With respect to actions by or in the right of the corporation, no
indemnification shall be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper. A director or officer who is successful, on
the merits or otherwise, in defense of any proceeding subject to the DGCL's
indemnification provisions shall be indemnified by the corporation for
reasonable expenses incurred in connection therewith, including attorneys' fees.
Section 145 of the DGCL authorizes a corporation to advance its officers
and directors expenses, provided that an officer or director provide the
corporation with an undertaking to repay the advanced expenses should it
ultimately be determined that such officer or director is not entitled to
indemnification.
Article Seventh of the registrant's Second Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), together with
Article VI of the registrant's Restated Bylaws, as amended (the "Bylaws"),
provide for indemnification of each person who is or was made a party to any
actual or threatened civil, criminal, administrative or investigative action,
suit or proceeding because such person is, was or has agreed to become an
officer or director of the registrant or is a person who is or was serving or
has agreed to serve at the request of the registrant as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another corporation or of a partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise to the fullest extent permitted
by the DGCL as it existed at the time the indemnification provisions of the
Certificate of Incorporation and Bylaws were adopted or as may be thereafter
amended. Article VI expressly provides that it is not the exclusive method of
indemnification. Each of the current trustees of the Treasure Island Royalty
Trust (the "Trust") are employees of the registrant and are serving as trustees
at the request of the registrant. Accordingly the indemnification provisions
under Article Seventh will apply to such individuals in their capacities as
trustees of the Trust. In addition, the current trust agreement governing the
Trust provides that the registrant, as Settlor of the Trust, will indemnify,
defend, save, release and hold harmless each trustee from and against any cost,
expense, claim, damage or liability that may arise or that is related to the
trust agreement, the Trust or such trustee's activities as a trustee of the
Trust.
Section 145 of the DGCL also empowers a corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of such corporation against liability asserted against or
incurred by him in any such capacity, whether or not such corporation would have
the power to indemnify such officer or director against such liability under the
provisions of Section 145.
II-1
Article Seventh of the Certificate of Incorporation and Article VI of the
Bylaws also provide that the registrant may maintain insurance, at the
registrant's expense, to protect the registrant and any director, officer,
employee or agent of the registrant or of another entity against any expense,
liability, or loss, regardless of whether the registrant would have the power to
indemnify such person against such expense, liability or loss under the DGCL.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (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 or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (d) for any transaction from which the director derived
improper personal benefit. Article Seventh of the Certificate of Incorporation
contains such a provision.
Howard H. Newman, a director of the registrant and a Vice Chairman,
Managing Director and member of Warburg Pincus, L.L.C. and a general partner of
Warburg, Pincus & Co., is indemnified by affiliates of Warburg Pincus, L.L.C.
and Warburg, Pincus & Co. against certain liabilities that he may incur as a
result of his serving as a director of the registrant.
Thomas G. Ricks, a director of the registrant, served as President and
Chief Executive Officer of the University of Texas Investment Management Company
("UTIMCO") until April 24, 2001. Mr. Ricks is indemnified by UTIMCO against
certain liabilities that he may incur as a result of his serving as a director
of the registrant while he was employed by UTIMCO.
II-2
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Unless otherwise indicated below as being incorporated by reference to
another filing of the registrant with the SEC, each of the following exhibits is
filed herewith:
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
----------- -----------
+2.1.1 -- Amendatory Agreement dated as of May 29, 2002 by and
among Newfield Exploration Company, Newfield Operating
Company and EEX Corporation (Annex A omitted)
*2.1.2 -- Amended and Restated Agreement and Plan of Merger dated
as of May 29, 2002 by and among Newfield Exploration
Company, Newfield Operating Company and EEX Corporation
(included as Annex A to the proxy statement/prospectus in
this registration statement)
3.1.1 -- Second Restated Certificate of Incorporation of Newfield
(incorporated by reference to Exhibit 3.1 to Newfield's
Annual Report on Form 10-K for the year ended December
31, 1999 (File No. 1-12534))
3.1.2 -- Certificate of Amendment to Second Restated Certificate
of Incorporation of Newfield dated May 15, 1997
(incorporated by reference to Exhibit 3.1.1 to the
Company's Registration Statement on Form S-3
(Registration No. 333-32582))
3.1.3 -- Certificate of Designation of Series A Junior
Participating Preferred Stock, par value $0.01 per share,
setting forth the terms of the Series A Junior
Participating Preferred Stock, par value $0.01 per share
(incorporated by reference to Exhibit 3.5 to Newfield's
Annual Report on Form 10-K for the year ended December
31, 1998 (File No. 1-12534))
3.2 -- Restated Bylaws of Newfield as amended by Amendment No. 1
thereto adopted January 31, 2000 (incorporated by reference
to Exhibit 3.3 to Newfield's Annual Report on Form 10-K
for the year ended December 31, 1999 (File No. 1-12534))
4.1 -- Rights Agreement, dated as of February 12, 1999, between
Newfield and ChaseMellon Shareholder Services L.L.C., as
Rights Agent, specifying the terms of the Rights to
Purchase Series A Junior Participating Preferred Stock,
par value $0.01 per share, of Newfield (incorporated by
reference to Exhibit 1 to Newfield's Registration
Statement on Form 8-A filed with the Securities and
Exchange Commission on February 18, 1999 (File No.
1-12534))
4.2 -- Indenture dated as of October 15, 1997 among Newfield, as
issuer, and First Union National Bank, as trustee
(incorporated by reference to Exhibit 4.3 to Newfield's
Registration Statement on Form S-4 (Registration No.
333-39563))
4.3.1 -- Amended and Restated Trust Agreement of Newfield
Financial Trust I, dated as of August 13, 1999 (incorporated
by reference to Exhibit 4.1 of Newfield's Current Report
on Form 8-K filed with the Securities and Exchange
Commission on August 13, 1999 (File No. 1-12534))
4.3.2 -- Form of Preferred Security of Newfield Financial Trust I
(incorporated by reference to Exhibit 4.2 of Newfield's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 13, 1999 (File No.
1-12534))
</Table>
II-3
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
----------- -----------
4.3.3 -- Junior Subordinated Convertible Indenture, dated as of
August 13, 1999, between Newfield and First Union National
Bank, as Trustee (incorporated by reference to Exhibit
4.3 of Newfield's Current Report on Form 8-K filed with
the Securities and Exchange Commission on August 13, 1999
(File No. 1-12534))
4.3.4 -- Guarantee Agreement, dated as of August 13, 1999,
relating to Newfield Financial Trust I (incorporated by
reference to Exhibit 4.5 of Newfield's Current Report on
Form 8-K filed with the Securities and Exchange
Commission on August 13, 1999 (File No. 1-12534))
4.4 -- Form of 6 1/2% Junior Subordinated Convertible Debenture,
Series A due 2029 (incorporated by reference to Exhibit 4.4
of Newfield's Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 13, 1999
(File No. 1-12534))
4.5 -- Senior Indenture dated as of February 28, 2001 between
Newfield and First Union National Bank, as Trustee
(incorporated by reference to Exhibit 4.1 of Newfield's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 28, 2001 (File No.
1-12534))
+4.6 -- Trust Agreement of the Treasure Island Royalty Trust
dated as of June 17, 2002 by and among Newfield Exploration
Company, as grantor, and David A. Trice, C. William
Austin and Brian Rickmers, as trustees
+4.7 -- Form of Amended and Restated Trust Agreement of the
Treasure Island Royalty Trust by and among Newfield
Exploration Company and Wachovia Bank, National
Association, as successor trustee
*5.1 -- Opinion of Vinson & Elkins L.L.P. as to the legality of
the securities registered hereby
*8.1 -- Form of Opinion of Vinson & Elkins L.L.P. as to certain
federal income tax matters
*8.2 -- Form of Opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. as to certain federal income tax matters
*10.1 -- Form of Master Conveyance of Overriding Royalty Interest
between EEX Corporation and Treasure Island Royalty Trust
*10.2 -- Voting Agreement and Irrevocable Proxy dated as of May
29, 2002 by and among Newfield Exploration Company, Warburg,
Pincus Equity Partners, L.P., Warburg, Pincus Netherlands
Equity Partners I, C.V., Warburg, Pincus Netherlands
Equity Partners II, C.V., and Warburg, Pincus Netherlands
Equity Partners III, C.V., Thomas M Hamilton, David R.
Henderson and Richard S. Langdon and David A. Trice and
Terry W. Rathert (included as Annex B to the proxy
statement/prospectus in this registration statement)
10.3 -- Registration Rights Agreement dated as of May 29, 2002 by
and among Newfield Exploration Company, Warburg, Pincus
Equity Partners, L.P., Warburg, Pincus Netherlands Equity
Partners I, C.V., Warburg, Pincus Netherlands Equity
Partners II, C.V., and Warburg, Pincus Netherlands Equity
Partners III, C.V. (incorporated by reference to Exhibit
10.3 of Newfield's Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 30, 2002
(File No. 1-12534))
</Table>
II-4
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
----------- -----------
10.4 -- Asset Purchase, Farmout and Joint Exploration Agreement
dated as of March 1, 2002, between BP Exploration &
Production Inc. and EEX Corporation (incorporated by
reference to Exhibit 10.1 of EEX's Quarterly Report on
Form 10-Q for the Quarterly Period ended June 30, 2002
filed with the Securities and Exchange Commission on
August 14, 2002 (File No. 1-12905))
10.5 -- Offshore Operating Agreement effective March 1, 2002,
between BP Exploration & Production Inc. and EEX Corporation
(incorporated by reference to Exhibit 10.2 of EEX's
Quarterly Report on Form 10-Q for the Quarterly Period
ended June 30, 2002 filed with the Securities and
Exchange Commission on August 14, 2002 (File No.
1-12905))
10.6 -- Letter Agreement dated May 8, 2002, between BP
Exploration & Production Inc. and EEX Corporation
(incorporated by reference to Exhibit 10.3 of EEX's
Quarterly Report on Form 10-Q for the Quarterly Period
ended June 30, 2002 filed with the Securities and
Exchange Commission on August 14, 2002 (File No.
1-12905))
10.7 -- Amendatory Letter dated July 17, 2002, between BP
Exploration & Production Inc. and EEX Corporation
(incorporated by reference to Exhibit 10.4 of EEX's
Quarterly Report on Form 10-Q for the Quarterly Period
ended June 30, 2002 filed with the Securities and
Exchange Commission on August 14, 2002 (File No.
1-12905))
*23.1 -- Consent of PricewaterhouseCoopers LLP
*23.2 -- Consent of Ernst & Young LLP
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*23.4 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 and Exhibit 8.1)
*23.5 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(contained in Exhibit 8.2)
*23.6 -- Consent of Morgan Stanley & Co. Incorporated
*23.7 -- Consent of J.P. Morgan Securities Inc.
*23.8 -- Consent of Huddleston & Co., Inc.
*23.9 -- Consent of Evercore Partners L.P.
+24.1 -- Power of Attorney (contained in the signature pages to
this registration statement as originally filed with the
SEC)
*99.1 -- Form of Proxy Card
*99.2 -- Form of Trust Units Election and Letter of Transmittal
</Table>
- ---------------
+ Previously filed.
* Filed herewith.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 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
II-5
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: 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.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or that purports to meet the
requirements of Section 10(a)(3) of the Act 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on the 20th day of August,
2002.
NEWFIELD EXPLORATION COMPANY
By: /s/ TERRY W. RATHERT
------------------------------------
Terry W. Rathert
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 20th day of August, 2002.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ DAVID A. TRICE President and Chief Executive Officer and Director
------------------------------------------------ (Principal Executive Officer)
David A. Trice
/s/ TERRY W. RATHERT Vice President and Chief Financial Officer
------------------------------------------------ (Principal Financial Officer)
Terry W. Rathert
/s/ BRIAN L. RICKMERS Controller (Principal Accounting Officer)
------------------------------------------------
Brian L. Rickmers
* Director
------------------------------------------------
Philip J. Burguieres
* Director
------------------------------------------------
Charles W. Duncan
* Director
------------------------------------------------
Joe B. Foster
* Director
------------------------------------------------
Claire S. Farley
* Director
------------------------------------------------
Dennis R. Hendrix
* Director
------------------------------------------------
Terry Huffington
Director
------------------------------------------------
Howard H. Newman
</Table>
II-7
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
* Director
------------------------------------------------
Thomas G. Ricks
* Director
------------------------------------------------
David F. Schaible
* Director
------------------------------------------------
C.E. Shultz
*By: /s/ TERRY W. RATHERT
------------------------------------------
Terry W. Rathert
Attorney-in-Fact
</Table>
II-8
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
+2.1.1 -- Amendatory Agreement dated as of May 29, 2002 by and
among Newfield Exploration Company, Newfield Operating
Company and EEX Corporation (Annex A omitted)
*2.1.2 -- Amended and Restated Agreement and Plan of Merger dated
as of May 29, 2002 by and among Newfield Exploration
Company, Newfield Operating Company and EEX Corporation
(included as Annex A to the proxy statement/prospectus in
this registration statement)
3.1.1 -- Second Restated Certificate of Incorporation of Newfield
(incorporated by reference to Exhibit 3.1 to Newfield's
Annual Report on Form 10-K for the year ended December
31, 1999 (File No. 1-12534))
3.1.2 -- Certificate of Amendment to Second Restated Certificate
of Incorporation of Newfield dated May 15, 1997
(incorporated by reference to Exhibit 3.1.1 to the
Company's Registration Statement on Form S-3
(Registration No. 333-32582))
3.1.3 -- Certificate of Designation of Series A Junior
Participating Preferred Stock, par value $0.01 per share,
setting forth the terms of the Series A Junior
Participating Preferred Stock, par value $0.01 per share
(incorporated by reference to Exhibit 3.5 to Newfield's
Annual Report on Form 10-K for the year ended December
31, 1998 (File No. 1-12534))
3.2 -- Restated Bylaws of Newfield as amended by Amendment No. 1
thereto adopted January 31, 2000 (incorporated by reference
to Exhibit 3.3 to Newfield's Annual Report on Form 10-K
for the year ended December 31, 1999 (File No. 1-12534))
4.1 -- Rights Agreement, dated as of February 12, 1999, between
Newfield and ChaseMellon Shareholder Services L.L.C., as
Rights Agent, specifying the terms of the Rights to
Purchase Series A Junior Participating Preferred Stock,
par value $0.01 per share, of Newfield (incorporated by
reference to Exhibit 1 to Newfield's Registration
Statement on Form 8-A filed with the Securities and
Exchange Commission on February 18, 1999 (File No.
1-12534))
4.2 -- Indenture dated as of October 15, 1997 among Newfield, as
issuer, and First Union National Bank, as trustee
(incorporated by reference to Exhibit 4.3 to Newfield's
Registration Statement on Form S-4 (Registration No.
333-39563))
4.3.1 -- Amended and Restated Trust Agreement of Newfield
Financial Trust I, dated as of August 13, 1999 (incorporated
by reference to Exhibit 4.1 of Newfield's Current Report
on Form 8-K filed with the Securities and Exchange
Commission on August 13, 1999 (File No. 1-12534))
4.3.2 -- Form of Preferred Security of Newfield Financial Trust I
(incorporated by reference to Exhibit 4.2 of Newfield's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 13, 1999 (File No.
1-12534))
4.3.3 -- Junior Subordinated Convertible Indenture, dated as of
August 13, 1999, between Newfield and First Union National
Bank, as Trustee (incorporated by reference to Exhibit
4.3 of Newfield's Current Report on Form 8-K filed with
the Securities and Exchange Commission on August 13, 1999
(File No. 1-12534))
4.3.4 -- Guarantee Agreement, dated as of August 13, 1999,
relating to Newfield Financial Trust I (incorporated by
reference to Exhibit 4.5 of Newfield's Current Report on
Form 8-K filed with the Securities and Exchange
Commission on August 13, 1999 (File No. 1-12534))
4.4 -- Form of 6 1/2% Junior Subordinated Convertible Debenture,
Series A due 2029 (incorporated by reference to Exhibit 4.4
of Newfield's Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 13, 1999
(File No. 1-12534))
</Table>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.5 -- Senior Indenture dated as of February 28, 2001 between
Newfield and First Union National Bank, as Trustee
(incorporated by reference to Exhibit 4.1 of Newfield's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 28, 2001 (File No.
1-12534))
+4.6 -- Trust Agreement of the Treasure Island Royalty Trust
dated as of June 17, 2002 by and among Newfield Exploration
Company, as grantor, and David A. Trice, C. William
Austin and Brian Rickmers, as trustees
+4.7 -- Form of Amended and Restated Trust Agreement of the
Treasure Island Royalty Trust by and among Newfield
Exploration Company and Wachovia Bank, National
Association, as successor trustee
*5.1 -- Opinion of Vinson & Elkins L.L.P. as to the legality of
the securities registered hereby
*8.1 -- Form of Opinion of Vinson & Elkins L.L.P. as to certain
federal income tax matters
*8.2 -- Form of Opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. as to certain federal income tax matters
*10.1 -- Form of Master Conveyance of Overriding Royalty Interest
between EEX Corporation and Treasure Island Royalty Trust
*10.2 -- Voting Agreement and Irrevocable Proxy dated as of May
29, 2002 by and among Newfield Exploration Company, Warburg,
Pincus Equity Partners, L.P., Warburg, Pincus Netherlands
Equity Partners I, C.V., Warburg, Pincus Netherlands
Equity Partners II, C.V., and Warburg, Pincus Netherlands
Equity Partners III, C.V., Thomas M Hamilton, David R.
Henderson and Richard S. Langdon and David A. Trice and
Terry W. Rathert (included as Annex B to the proxy
statement/prospectus in this registration statement)
10.3 -- Registration Rights Agreement dated as of May 29, 2002 by
and among Newfield Exploration Company, Warburg, Pincus
Equity Partners, L.P., Warburg, Pincus Netherlands Equity
Partners I, C.V., Warburg, Pincus Netherlands Equity
Partners II, C.V., and Warburg, Pincus Netherlands Equity
Partners III, C.V. (incorporated by reference to Exhibit
10.3 of Newfield's Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 30, 2002
(File No. 1-12534))
10.4 -- Asset Purchase, Farmout and Joint Exploration Agreement
dated as of March 1, 2002, between BP Exploration &
Production Inc. and EEX Corporation (incorporated by
reference to Exhibit 10.1 of EEX's Quarterly Report on
Form 10-Q for the Quarterly Period ended June 30, 2002
filed with the Securities and Exchange Commission on
August 14, 2002 (File No. 1-12905))
10.5 -- Offshore Operating Agreement effective March 1, 2002,
between BP Exploration & Production Inc. and EEX Corporation
(incorporated by reference to Exhibit 10.2 of EEX's
Quarterly Report on Form 10-Q for the Quarterly Period
ended June 30, 2002 filed with the Securities and
Exchange Commission on August 14, 2002 (File No.
1-12905))
10.6 -- Letter Agreement dated May 8, 2002, between BP
Exploration & Production Inc. and EEX Corporation
(incorporated by reference to Exhibit 10.3 of EEX's
Quarterly Report on Form 10-Q for the Quarterly Period
ended June 30, 2002 filed with the Securities and
Exchange Commission on August 14, 2002 (File No.
1-12905))
10.7 -- Amendatory Letter dated July 17, 2002, between BP
Exploration & Production Inc. and EEX Corporation
(incorporated by reference to Exhibit 10.4 of EEX's
Quarterly Report on Form 10-Q for the Quarterly Period
ended June 30, 2002 filed with the Securities and
Exchange Commission on August 14, 2002 (File No.
1-12905))
*23.1 -- Consent of PricewaterhouseCoopers LLP
</Table>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*23.2 -- Consent of Ernst & Young LLP
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*23.4 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 and Exhibit 8.1)
*23.5 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(contained in Exhibit 8.2)
*23.6 -- Consent of Morgan Stanley & Co. Incorporated
*23.7 -- Consent of J.P. Morgan Securities Inc.
*23.8 -- Consent of Huddleston & Co., Inc.
*23.9 -- Consent of Evercore Partners L.P.
+24.1 -- Power of Attorney (contained in the signature pages to
this registration statement as originally filed with the
SEC)
*99.1 -- Form of Proxy Card
*99.2 -- Form of Trust Units Election and Letter of Transmittal
</Table>
- ---------------
+ Previously filed.
* Filed herewith.