1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 2001
REGISTRATION NO. 333-68694
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
DEVON ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Governing Instrument)
<Table>
DELAWARE 1311 73-1567067
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</Table>
---------------------
20 NORTH BROADWAY, SUITE 1500
OKLAHOMA CITY, OKLAHOMA 73102-8260
(405) 235-3611
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
J. LARRY NICHOLS
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DEVON ENERGY CORPORATION
20 NORTH BROADWAY, SUITE 1500
OKLAHOMA CITY, OKLAHOMA 73102-8260
(405) 235-3611
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------------
Copies to
<Table>
SCOTT J. DAVIS DUKE R. LIGON C. MICHAEL HARRINGTON
JAMES T. LIDBURY SENIOR VICE PRESIDENT VINSON & ELKINS L.L.P.
MAYER, BROWN & PLATT AND GENERAL COUNSEL 2300 FIRST CITY TOWER
190 SOUTH LASALLE STREET DEVON ENERGY CORPORATION 1001 FANNIN
CHICAGO, ILLINOIS 60603-3441 20 NORTH BROADWAY, SUITE 1500 HOUSTON, TEXAS 77002-6760
(312) 782-0600 OKLAHOMA CITY, OKLAHOMA 73102-8260 (713) 758-2148
(405) 235-3611
</Table>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
[MITCHELL ENERGY & DEVELOPMENT CORP. LOGO] [DEVON ENERGY LOGO]
PROPOSED MERGER -- YOUR VOTE IS VERY IMPORTANT
Dear Stockholders:
On August 13, 2001, Devon Energy Corporation agreed to acquire Mitchell
Energy & Development Corp. by merging Mitchell into a wholly owned subsidiary of
Devon. In the merger, each Mitchell stockholder, other than those exercising
dissenters' rights, will receive $31.00 in cash and 0.585 of a share of Devon
common stock for each share of Mitchell common stock that the stockholder owns.
We expect that Mitchell stockholders will not recognize gain or loss for U.S.
federal income tax purposes as a result of the merger, except to the extent of
the cash received in the merger.
The merger agreement requires the approval of Mitchell stockholders. The
issuance of shares of Devon common stock in the merger requires the approval of
Devon stockholders. Devon and Mitchell have each scheduled special meetings of
their stockholders on , 2001, to vote on these matters. Regardless of
the number of shares that you own or whether you plan to attend a meeting, it is
important that your shares be represented and voted. Voting instructions are
inside.
MITCHELL'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE
ADVISABLE AND IN THE BEST INTERESTS OF MITCHELL AND ITS STOCKHOLDERS.
ACCORDINGLY, MITCHELL'S BOARD OF DIRECTORS RECOMMENDS THAT MITCHELL STOCKHOLDERS
VOTE TO APPROVE THE MERGER AGREEMENT.
SIMILARLY, DEVON'S BOARD OF DIRECTORS HAS, BY A UNANIMOUS VOTE OF THOSE
DIRECTORS WHO ATTENDED THE MEETING, APPROVED AND ADOPTED THE MERGER AGREEMENT
AND DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE ADVISABLE AND IN THE
BEST INTERESTS OF DEVON AND ITS STOCKHOLDERS. ACCORDINGLY, DEVON'S BOARD OF
DIRECTORS RECOMMENDS THAT DEVON STOCKHOLDERS VOTE TO APPROVE THE ISSUANCE OF
DEVON COMMON STOCK IN THE MERGER.
This document provides you with detailed information about the proposed
merger. We encourage you to read the entire document carefully.
Mitchell's common stock is traded on the New York Stock Exchange under the
symbol "MND."
Devon's common stock is traded on the American Stock Exchange under the
symbol "DVN." In addition, a class of exchangeable shares issued by Devon's
subsidiary, Northstar Energy Corporation, is traded on The Toronto Stock
Exchange under the symbol "NSX." The Northstar exchangeable shares are
exchangeable at any time, on a one-for-one basis, for Devon common stock.
Holders of Devon common stock and Northstar exchangeable shares will vote as a
single class at the Devon meeting.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS DOCUMENT FOR A DISCUSSION
OF RISKS RELEVANT TO THE MERGER.
<Table>
George P. Mitchell J. Larry Nichols
Chairman and Chief Executive Officer Chairman, President and Chief Executive Officer
MITCHELL ENERGY & DEVELOPMENT CORP. DEVON ENERGY CORPORATION
</Table>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS DOCUMENT IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This document is dated , 2001, and was first mailed to stockholders on
or about , 2001.
3
This document incorporates by reference important business and financial
information about both Devon and Mitchell that is not included in or delivered
with this document. See "Additional Information -- Where You Can Find More
Information."
You can obtain any of the documents incorporated by reference into this
document through Devon or Mitchell, as the case may be, or from the Securities
and Exchange Commission's website at http://www.sec.gov. Documents incorporated
by reference are available from Devon and Mitchell without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference into this document. You may obtain documents incorporated by reference
into this document by requesting them in writing or by telephone from the
appropriate company as follows:
<Table>
Mitchell Energy & Development Corp. Devon Energy Corporation
2001 Timberloch Place -- P.O. Box 4000 20 North Broadway, Suite 1500
Attention: Investor Relations Attention: Investor Relations
The Woodlands, Texas 77387-4000 Oklahoma City, Oklahoma 73102-8260
Telephone: (713) 377-6625 Telephone: (405) 552-4570
</Table>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS INCORPORATED BY REFERENCE, PLEASE DO
SO BY , 2001, TO RECEIVE THEM BEFORE THE MEETING. PLEASE BE SURE TO
INCLUDE YOUR COMPLETE NAME AND ADDRESS IN YOUR REQUEST. IF YOU REQUEST ANY
DOCUMENTS, WE WILL MAIL THEM TO YOU BY FIRST CLASS MAIL, OR ANOTHER EQUALLY
PROMPT MEANS, WITHIN ONE BUSINESS DAY AFTER WE RECEIVE YOUR REQUEST.
---------------------
All information in this document concerning Devon has been furnished by
Devon. All information in this document concerning Mitchell has been furnished
by Mitchell, except as otherwise noted. All information in this document
concerning Anderson Exploration Ltd. has been furnished by Anderson Exploration
Ltd., except as otherwise noted. Devon has represented to Mitchell, and Mitchell
has represented to Devon, that the information furnished by and concerning it is
true and complete.
For an explanation of oil and gas terms used in this document, see the
section titled "Commonly Used Oil and Gas Terms."
All references to "U.S.$," "$" or "dollars" in this document are references
to United States dollars unless stated as "C$," "Canadian $" or "Canadian
dollars," which are references to Canadian dollars.
4
[DEVON ENERGY LOGO] [MITCHELL ENERGY & DEVELOPMENT CORP. LOGO]
PROPOSED MERGER -- YOUR VOTE IS VERY IMPORTANT
Dear Stockholders:
On August 13, 2001, Devon Energy Corporation agreed to acquire Mitchell
Energy & Development Corp. by merging Mitchell into a wholly owned subsidiary of
Devon. In the merger, each Mitchell stockholder, other than those exercising
dissenters' rights, will receive $31.00 in cash and 0.585 of a share of Devon
common stock for each share of Mitchell common stock that the stockholder owns.
We expect that Mitchell stockholders will not recognize gain or loss for U.S.
federal income tax purposes as a result of the merger, except to the extent of
the cash received in the merger.
The merger agreement requires the approval of Mitchell stockholders. The
issuance of shares of Devon common stock in the merger requires the approval of
Devon stockholders. Devon and Mitchell have each scheduled special meetings of
their stockholders on , 2001, to vote on these matters. Regardless of
the number of shares that you own or whether you plan to attend a meeting, it is
important that your shares be represented and voted. Voting instructions are
inside.
MITCHELL'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE
ADVISABLE AND IN THE BEST INTERESTS OF MITCHELL AND ITS STOCKHOLDERS.
ACCORDINGLY, MITCHELL'S BOARD OF DIRECTORS RECOMMENDS THAT MITCHELL STOCKHOLDERS
VOTE TO APPROVE THE MERGER AGREEMENT.
SIMILARLY, DEVON'S BOARD OF DIRECTORS HAS, BY A UNANIMOUS VOTE OF THOSE
DIRECTORS WHO ATTENDED THE MEETING, APPROVED AND ADOPTED THE MERGER AGREEMENT
AND DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE ADVISABLE AND IN THE
BEST INTERESTS OF DEVON AND ITS STOCKHOLDERS. ACCORDINGLY, DEVON'S BOARD OF
DIRECTORS RECOMMENDS THAT DEVON STOCKHOLDERS VOTE TO APPROVE THE ISSUANCE OF
DEVON COMMON STOCK IN THE MERGER.
This document provides you with detailed information about the proposed
merger. We encourage you to read the entire document carefully.
Mitchell's common stock is traded on the New York Stock Exchange under the
symbol "MND."
Devon's common stock is traded on the American Stock Exchange under the
symbol "DVN." In addition, a class of exchangeable shares issued by Devon's
subsidiary, Northstar Energy Corporation, is traded on The Toronto Stock
Exchange under the symbol "NSX." The Northstar exchangeable shares are
exchangeable at any time, on a one-for-one basis, for Devon common stock.
Holders of Devon common stock and Northstar exchangeable shares will vote as a
single class at the Devon meeting.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS DOCUMENT FOR A DISCUSSION
OF RISKS RELEVANT TO THE MERGER.
<Table>
J. Larry Nichols George P. Mitchell
Chairman, President and Chief Executive Chairman and Chief Executive
Officer Officer
DEVON ENERGY CORPORATION MITCHELL ENERGY & DEVELOPMENT CORP.
</Table>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS DOCUMENT IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This document is dated , 2001, and was first mailed to stockholders on
or about , 2001.
5
This document incorporates by reference important business and financial
information about both Devon and Mitchell that is not included in or delivered
with this document. See "Additional Information -- Where You Can Find More
Information."
You can obtain any of the documents incorporated by reference into this
document through Devon or Mitchell, as the case may be, or from the Securities
and Exchange Commission's website at http://www.sec.gov. Documents incorporated
by reference are available from Devon and Mitchell without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference into this document. You may obtain documents incorporated by reference
into this document by requesting them in writing or by telephone from the
appropriate company as follows:
<Table>
Devon Energy Corporation Mitchell Energy & Development Corp.
20 North Broadway, Suite 1500 2001 Timberloch Place -- P.O. Box 4000
Attention: Investor Relations Attention: Investor Relations
Oklahoma City, Oklahoma 73102-8260 The Woodlands, Texas 77387-4000
Telephone: (405) 552-4570 Telephone: (713) 377-6625
</Table>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS INCORPORATED BY REFERENCE, PLEASE DO
SO BY , 2001, TO RECEIVE THEM BEFORE THE MEETING. PLEASE BE SURE TO
INCLUDE YOUR COMPLETE NAME AND ADDRESS IN YOUR REQUEST. IF YOU REQUEST ANY
DOCUMENTS, WE WILL MAIL THEM TO YOU BY FIRST CLASS MAIL, OR ANOTHER EQUALLY
PROMPT MEANS, WITHIN ONE BUSINESS DAY AFTER WE RECEIVE YOUR REQUEST.
---------------------
All information in this document concerning Devon has been furnished by
Devon. All information in this document concerning Mitchell has been furnished
by Mitchell, except as otherwise noted. All information in this document
concerning Anderson Exploration Ltd. has been furnished by Anderson Exploration
Ltd., except as otherwise noted. Devon has represented to Mitchell, and Mitchell
has represented to Devon, that the information furnished by and concerning it is
true and complete.
For an explanation of oil and gas terms used in this document, see the
section titled "Commonly Used Oil and Gas Terms."
All references to "U.S.$," "$" or "dollars" in this document are references
to United States dollars unless stated as "C$," "Canadian $" or "Canadian
dollars," which are references to Canadian dollars.
6
MITCHELL ENERGY & DEVELOPMENT CORP.
2001 TIMBERLOCH PLACE -- P.O. BOX 4000
THE WOODLANDS, TEXAS 77387-4000
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2001
---------------------
To Mitchell Energy & Development Corp. Stockholders:
We will hold a special meeting of stockholders of Mitchell Energy &
Development Corp. for the following purposes:
- To consider and vote on the approval of the Agreement and Plan of Merger,
dated as of August 13, 2001, by and among Devon Energy Corporation, Devon
NewCo Corporation and Mitchell Energy & Development Corp., as it may be
amended from time to time, which contemplates the merger of Mitchell
Energy & Development Corp. with and into Devon NewCo Corporation, with
Devon NewCo Corporation being the surviving corporation of that merger
and a wholly owned subsidiary of Devon Energy Corporation; and
- To transact other business as may properly be presented at the meeting or
any adjournments of the meeting.
The date, time and place of the meeting are as follows:
, 2001
a.m., local time
MND Learning Center
2002 Timberloch Place
The Woodlands, Texas
Only stockholders of record at the close of business on , 2001,
are entitled to notice of and to vote at the meeting and any adjournments of the
meeting. Mitchell will keep at its offices in The Woodlands, Texas, a list of
stockholders entitled to vote at the meeting available for inspection for any
purpose relevant to the meeting during normal business hours for the 10 days
before the meeting.
YOUR PROXY IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
POSTAGE-PAID ENVELOPE. IT REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
THOMAS P. BATTLE
Secretary
The Woodlands, Texas
, 2001
7
DEVON ENERGY CORPORATION
20 NORTH BROADWAY, SUITE 1500
OKLAHOMA CITY, OKLAHOMA 73102-8260
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2001
---------------------
To Devon Energy Corporation Stockholders:
We will hold a special meeting of stockholders of Devon Energy Corporation
for the following purposes:
- To consider and vote on the approval of the issuance of Devon common
stock in the merger contemplated by the Agreement and Plan of Merger,
dated as of August 13, 2001, by and among Devon Energy Corporation, Devon
NewCo Corporation and Mitchell Energy & Development Corp., as it may be
amended from time to time; and
- To transact other business as may properly be presented at the meeting or
any adjournments of the meeting.
The date, time and place of the meeting are as follows:
, 2001
a.m., local time
Renaissance Oklahoma City Hotel
Ten North Broadway
Oklahoma City, Oklahoma
Only stockholders of record at the close of business on , 2001,
are entitled to notice of and to vote at the meeting and any adjournments of the
meeting. Devon will keep at its offices in Oklahoma City, Oklahoma, a list of
stockholders entitled to vote at the meeting available for inspection for any
purpose relevant to the meeting during normal business hours for the 10 days
before the meeting.
YOUR PROXY IS IMPORTANT TO ASSURE A QUORUM AT THE MEETING. WHETHER OR NOT
YOU EXPECT TO ATTEND THE MEETING, PLEASE VOTE IN ANY ONE OF THE FOLLOWING WAYS:
- USE THE TOLL-FREE TELEPHONE NUMBER SHOWN ON THE PROXY CARD;
- USE THE INTERNET WEBSITE SHOWN ON THE PROXY CARD; OR
- MARK, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
POSTAGE-PAID ENVELOPE. IT REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors,
JANICE A. DOBBS
Corporate Secretary
Oklahoma City, Oklahoma
, 2001
8
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why am I receiving these materials?
A: Devon and Mitchell have agreed to combine their businesses by merging
Mitchell into a wholly owned subsidiary of Devon. The merger cannot be
completed without the approval of the stockholders of both Devon and
Mitchell.
Q: What will happen to Mitchell as a result of the merger?
A: Mitchell will merge with and into a Devon subsidiary, and the Devon
subsidiary will be the surviving company of the merger and a wholly owned
subsidiary of Devon.
Q: What will Mitchell stockholders receive in the merger?
A: Each Mitchell stockholder, other than those exercising dissenters' rights,
will receive $31.00 in cash and 0.585 of a share of Devon common stock for
each share of Mitchell common stock that the stockholder owns at the
effective time of the merger. Instead of issuing fractional shares, Devon
will pay cash, without interest, for any fractional shares based on the
average closing price for a share of Devon common stock on the American
Stock Exchange on the five trading days immediately prior to the last
business day before the date of the merger.
Q: Should Mitchell stockholders send in their stock certificates now?
A: No. After the merger is completed, Mitchell stockholders will receive
written instructions for exchanging their stock certificates. Please do not
send in your Mitchell stock certificates with your proxy.
Q: What stockholder approvals are needed?
A: The following stockholder approvals are needed to complete the merger:
- the affirmative vote of the holders of at least two-thirds of the shares
of Mitchell common stock outstanding to approve the merger agreement; and
- the affirmative vote of the holders of at least a majority of the votes
cast in person or by proxy at the Devon meeting to approve the issuance
of Devon common stock in the merger.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as soon as possible. A number of
conditions must be satisfied before we can complete the merger, including
approval of the stockholders of both Devon and Mitchell. Although we cannot
be sure when all of the conditions to the merger will be satisfied, we hope
to complete the merger in the fourth quarter of 2001.
i
9
Q: Devon has also announced that it is acquiring Anderson Exploration Ltd. How
will that transaction affect the proposed merger involving Mitchell?
A: That transaction will not affect the proposed merger.
On August 31, 2001, Devon entered into an agreement to acquire all of the
outstanding shares of Anderson Exploration Ltd. and pay for the intrinsic
value of Anderson's outstanding options and appreciation rights for about
$3.5 billion, assuming the exchange rate between U.S. and Canadian dollars
in place on September 6, 2001. Anderson is a Canadian-based independent oil
and natural gas producer engaged in oil and natural gas exploration,
acquisition, development and production in western and northern Canada.
Devon expects to complete the acquisition in the fourth quarter of 2001.
More details on Anderson's business and Devon's proposed acquisition of
Anderson are contained elsewhere in this document.
The proposed merger involving Mitchell is not conditioned on completion of
Devon's acquisition of Anderson. Similarly, Devon's acquisition of Anderson
is not conditioned on completion of the proposed merger involving Mitchell.
Q: What do I need to do now?
A: You should carefully read this document. Then, if you choose to vote by
proxy, you should do so as soon as possible by completing, signing and
mailing your proxy card. Devon stockholders can also vote by proxy by
either (1) using the toll-free telephone number listed on their proxy cards
and following the recorded instructions or (2) going to the Internet
website listed on their proxy cards and following the instructions
provided.
Q: If I am planning on attending a meeting in person, should I still grant my
proxy?
A: Yes. Whether or not you plan to attend a meeting, you should grant your
proxy as described above. If you are a Mitchell stockholder, your shares
will not be voted if you neither attend the Mitchell meeting and vote in
person nor grant your proxy. This would have the same effect as a vote
against approval of the merger agreement. Assuming a quorum is present, the
failure of a Devon stockholder to vote in person or by proxy will not
affect the outcome of the Devon vote.
Q: Can I change my vote after I have granted my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at the
meeting by following the procedures set forth in this document under "The
Special Meetings -- Voting Procedures -- Revocation."
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No. Your broker will NOT vote your shares unless you tell the broker how to
vote. To do so, you should follow the directions that your broker provides
you.
Q: Am I entitled to dissenters' rights of appraisal?
A: Yes, but only if you are a Mitchell stockholder and you comply with the
procedures described in this document under "The Merger -- Dissenters'
Rights of Appraisal." Devon stockholders are not entitled to dissenters'
rights of appraisal in connection with the merger.
Q: Whom do I call if I have further questions about voting, the meetings or
the merger?
A: Mitchell stockholders may call Mitchell's Investor Relations at (713)
377-6625.
Devon stockholders may call Devon's Investor Relations at (405) 552-4570.
ii
10
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SUMMARY..................................................... 1
The Companies............................................. 1
The Special Meetings...................................... 1
What Mitchell Stockholders Will Receive in the Merger..... 2
Directors and Senior Management of the Combined Company
Following the Merger................................... 2
U.S. Federal Income Tax Consequences...................... 2
Market Prices of Devon and Mitchell Common Stock on
Important Dates........................................ 2
Our Recommendations to Stockholders....................... 3
Mitchell's Reasons for the Merger......................... 3
Devon's Reasons for the Merger............................ 3
Interests of Mitchell's Executive Officers and Directors
in the Merger.......................................... 3
Opinions of Financial Advisors............................ 4
The Merger Agreement...................................... 4
Agreements among Devon, George P. Mitchell and Cynthia
Woods Mitchell......................................... 5
Comparative Rights of Mitchell and Devon Stockholders..... 6
Material Terms of Devon's Proposed Acquisition of
Anderson............................................... 6
Other Information......................................... 7
Selected Historical Financial Data of Devon............... 8
Selected Historical Financial Data of Mitchell............ 9
Selected Unaudited Pro Forma Combined Condensed Financial
and Other Data......................................... 10
RISK FACTORS................................................ 14
We may not be able to integrate the operations of Devon,
Mitchell and Anderson successfully..................... 14
The value of consideration to Mitchell stockholders in the
merger will decrease if the market value of Devon
common stock decreases................................. 14
We expect to incur significant costs in connection with
the merger and in connection with Devon's acquisition
of Anderson............................................ 14
Mitchell's significant investment in the Barnett Shale in
North Texas may not generate the benefits expected by
Devon.................................................. 14
The combined company may not realize the accretion to
various financial measurements that Devon expects to
result from the merger and Devon's acquisition of
Anderson............................................... 15
The combined company will have significant assets located
in North Texas, which could heighten its exposure to
regulatory and environmental issues.................... 15
The combined company's debt level may limit its financial
flexibility............................................ 15
The combined company may not achieve the benefits that
Devon expects from Anderson's properties located in
Canada's Northern Frontier area if a sufficient gas
pipeline is not built to serve that area............... 16
Devon's offshore operations are exposed to the risk of
tropical weather disturbances.......................... 16
Devon is subject to uncertainties of foreign operations... 16
Devon is subject to federal acreage limitations and, as a
result, may be required to reduce its acreage in
Wyoming................................................ 17
Devon may incur a tax liability as a result of its 1999
merger with PennzEnergy................................ 17
Reported natural gas, oil and plant NGL reserve data and
future net revenue estimates are uncertain............. 17
Product prices are volatile, and low prices can adversely
impact results......................................... 18
Devon has charter and other provisions that may make it
difficult to cause a change of control................. 18
THE COMPANIES............................................... 19
Mitchell Energy & Development Corp........................ 19
Devon Energy Corporation.................................. 19
Anderson Exploration Ltd. ................................ 20
</Table>
iii
11
<Table>
<Caption>
PAGE
----
PROPERTIES OF THE COMBINED COMPANY.......................... 21
Primary Operating Areas................................... 21
Developed and Undeveloped Acreage......................... 26
COMPARATIVE PER SHARE DATA.................................. 27
MARKET PRICES AND DIVIDEND INFORMATION...................... 28
THE SPECIAL MEETINGS........................................ 30
Time, Place and Date...................................... 30
Purposes.................................................. 30
Quorum.................................................... 30
Record Date............................................... 30
Shares Entitled to Vote................................... 30
Recommendations of the Board of Directors................. 31
Votes Required............................................ 31
Shares Outstanding........................................ 31
Voting Procedures......................................... 31
Solicitation of Proxies................................... 33
Shares Held in Street Name................................ 34
Auditors.................................................. 34
THE MERGER.................................................. 35
Background of the Merger.................................. 35
Recommendation of Mitchell's Board of Directors and
Reasons for the Merger................................. 38
Recommendation of Devon's Board of Directors and Reasons
for the Merger......................................... 39
Opinions of Financial Advisors............................ 41
Interests of Mitchell's Executive Officers and Directors
in the Merger.......................................... 62
Devon's Financing of the Merger and the Anderson
Acquisition............................................ 63
Dissenters' Rights of Appraisal........................... 64
Regulatory Requirements................................... 66
THE MERGER AGREEMENT........................................ 67
Structure of the Merger................................... 67
When the Merger Becomes Effective......................... 67
Conversion of Stock, Stock Options and Other Awards....... 67
Exchange of Shares; Fractional Shares..................... 68
Conditions to the Merger.................................. 70
Representations and Warranties............................ 70
Covenants and Other Agreements............................ 72
Termination............................................... 75
Termination Fees and Expenses............................. 76
Amendment; Extension and Waiver........................... 77
AGREEMENTS AMONG DEVON, GEORGE P. MITCHELL AND CYNTHIA WOODS
MITCHELL.................................................. 78
Principal Shareholders Agreement Containing a Voting
Agreement and an Irrevocable Proxy..................... 78
Investor Rights Agreement................................. 78
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY.... 80
Directors................................................. 80
Executive Officers........................................ 80
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................... 81
Tax Treatment of the Companies and Mitchell
Stockholders........................................... 81
Treatment of Cash......................................... 82
Exercise of Dissenters' Rights of Appraisal............... 83
Backup Withholding; Information Reporting................. 83
</Table>
iv
12
<Table>
<Caption>
PAGE
----
COMPARISON OF THE RIGHTS OF MITCHELL AND DEVON
STOCKHOLDERS.............................................. 84
Authorized Capital Stock.................................. 84
Size of Board of Directors................................ 84
Cumulative Voting......................................... 84
Classes of Directors...................................... 84
Removal of Directors...................................... 85
Vacancies on the Board of Directors....................... 85
Action by Written Consent................................. 85
Amendments to Charter..................................... 86
Amendments to Bylaws...................................... 86
Special Meetings of Stockholders.......................... 86
Vote on Extraordinary Corporate Transactions.............. 87
Inspection of Documents................................... 87
Dissenters' Rights of Appraisal........................... 88
State Anti-Takeover Statutes.............................. 89
Constituency Statute...................................... 89
Stockholder Rights Plan................................... 90
Special Voting Stock...................................... 90
Notice of Stockholder Proposals and Director
Nominations............................................ 91
ADDITIONAL INFORMATION...................................... 92
Deadline for Future Stockholder Proposals................. 92
Legal Matters............................................. 92
Experts................................................... 92
Where You Can Find More Information....................... 93
Transfer Agents and Registrars............................ 95
Forward-Looking Statements................................ 95
COMMONLY USED OIL AND GAS TERMS............................. 97
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 99
INDEX TO HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF
ANDERSON EXPLORATION LTD.................................. FS-1
ANNEXES
Annex A: Agreement and Plan of Merger...................... A-1
Annex B: Principal Shareholders Agreement Containing a
Voting Agreement and Irrevocable Proxy............ B-1
Annex C: Investor Rights Agreement......................... C-1
Annex D: Opinion of Goldman, Sachs & Co. to Mitchell's
Board of Directors........................................ D-1
Annex E: Opinion of J.P. Morgan Securities Inc. to
Mitchell's Board of Directors..................... E-1
Annex F: Opinion of UBS Warburg LLC to Devon's Board of
Directors................................................. F-1
Annex G: Articles 5.11, 5.12 and 5.13 of the Texas Business
Corporation Act (Dissenters' Rights of
Appraisal)........................................ G-1
</Table>
v
13
SUMMARY
This summary highlights some of the information in this document. It may
not contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should carefully read this document and the other documents to which
we have referred you. See "Additional Information -- Where You Can Find More
Information" for more details.
THE COMPANIES
Mitchell Energy & Development Corp.
2001 Timberloch Place -- P.O. Box 4000
The Woodlands, Texas 77387-4000
Telephone: (713) 377-5500
Mitchell is one of the largest producers of natural gas and natural gas
liquids, or NGLs, in the United States. The company finds, develops and produces
natural gas and oil, primarily in North Texas, East Texas and along the Texas
Gulf Coast. Mitchell enhances the value of those assets through its
gas-gathering, processing and marketing operations.
Devon Energy Corporation
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8260
Telephone: (405) 235-3611
Devon is an independent energy company engaged primarily in oil and natural
gas exploration, development and production and in the acquisition of producing
properties. Devon currently owns oil and natural gas properties concentrated in
five operating divisions:
- - the Permian/Mid-Continent, Rocky Mountain and Gulf Divisions, which include
onshore properties in the continental United States and offshore properties
primarily in the Gulf of Mexico;
- - the Canadian Division, which includes properties in the Western Canadian
Sedimentary Basin in Alberta and British Columbia; and
- - the International Division, which includes properties in Azerbaijan, South
America, Southeast Asia, Egypt and West Africa.
On August 31, 2001, Devon entered into an agreement to acquire Anderson
Exploration Ltd. Anderson is a Canadian-based independent oil and natural gas
producer engaged in oil and natural gas exploration, acquisition, development
and production in western and northern Canada. Devon expects to complete its
acquisition of Anderson in the fourth quarter of 2001.
In this document, we sometimes refer to Devon, Mitchell and their
respective subsidiaries as "we" or the "combined company." Unless the context
otherwise indicates, when we refer to the "combined company" in this document we
are including Anderson.
THE SPECIAL MEETINGS
MITCHELL SPECIAL MEETING
Where and when: The Mitchell meeting will take place at MND Learning Center,
2002 Timberloch Place, The Woodlands, Texas, on , 2001, at a.m.,
local time.
What you are being asked to vote on: At the Mitchell meeting, Mitchell
stockholders will vote on the approval of the merger agreement. Mitchell
stockholders also may be asked to consider other matters as may properly come
before the meeting. At the present time, Mitchell knows of no other matters that
will be presented for consideration at the meeting.
Who may vote: You may vote at the Mitchell meeting if you owned Mitchell common
stock at the close of business on the record date, , 2001. On that
date, there were shares of Mitchell common stock outstanding and entitled
to vote. You may cast one vote for each share of Mitchell common stock that you
owned on that date.
What vote is needed: The affirmative vote, cast in person or by proxy, of the
holders of at least two-thirds of the shares of Mitchell common stock
outstanding on the record date is required for approval of the merger agreement.
DEVON SPECIAL MEETING
Where and when: The Devon meeting will take place at the Renaissance Oklahoma
City Hotel, Ten North Broadway, Oklahoma City, Oklahoma, on , 2001, at
a.m., local time.
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14
What you are being asked to vote on: At the Devon meeting, Devon stockholders
will vote on the approval of the issuance of Devon common stock in the merger.
Devon stockholders also may be asked to consider other matters as may properly
come before the meeting. At the present time, Devon knows of no other matters
that will be presented for consideration at the meeting.
Who may vote: You may vote at the Devon meeting if you owned Devon common stock
or exchangeable shares issued by Devon's subsidiary, Northstar Energy
Corporation, at the close of business on , 2001. On that date, there
were shares of Devon voting stock outstanding and entitled to vote,
consisting of shares of Devon common stock and Northstar
exchangeable shares. Holders of Devon common stock and Northstar exchangeable
shares will vote as a single class. You may cast one vote for each share of
Devon common stock and one vote for each Northstar exchangeable share that you
owned on that date.
Voting Northstar Exchangeable Shares: Each exchangeable share issued by
Northstar is entitled to one vote at the Devon meeting through a voting
agreement. Under the voting agreement, the trustee exercises voting rights on
behalf of holders of the exchangeable shares. The trustee holds one share of
special voting stock of Devon. The special voting share is entitled to one vote
for each outstanding exchangeable share held by persons other than Devon. The
trustee will vote only as instructed by the holders of exchangeable shares.
What vote is needed: The affirmative vote of the holders of at least a majority
of the votes cast in person or by proxy by holders of Devon voting stock is
required to approve the issuance of Devon common stock in the merger.
WHAT MITCHELL STOCKHOLDERS WILL RECEIVE IN THE MERGER
Each Mitchell stockholder, other than those exercising dissenters' rights,
will receive $31.00 in cash and 0.585 of a share of Devon's common stock for
each share of Mitchell common stock that the stockholder owns at the effective
time of the merger. Instead of issuing fractional shares, Devon will pay cash,
without interest, for any fractional shares based on the average closing price
for a share of Devon common stock on the American Stock Exchange on the five
trading days immediately prior to the last business day before the date of the
merger.
DIRECTORS AND SENIOR MANAGEMENT OF THE COMBINED COMPANY FOLLOWING THE MERGER
The board of directors of the combined company will consist of 10
directors: the nine members of Devon's current board of directors will retain
their positions and one new member designated by Mitchell, J. Todd Mitchell, who
is currently a member of Mitchell's board of directors, will be added to the
board.
J. Larry Nichols, the Chairman, President and Chief Executive Officer of
Devon, will be the Chairman, President and Chief Executive Officer of the
combined company. The other members of Devon's executive staff will continue in
their current capacities with the combined company. The combined company may
select members of Mitchell's and Anderson's executive staffs to augment its
management team.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The merger has been structured so that, in general, Mitchell stockholders
will not recognize gain or loss for U.S. federal income tax purposes as a result
of the merger, except to the extent of the cash received for shares of Mitchell
common stock. As a condition to the merger, Mitchell and Devon must each receive
a satisfactory opinion from its own legal counsel regarding the U.S. federal
income tax treatment of the merger.
Tax matters are very complicated. The tax consequences of the merger to you
will depend on your own situation. You should consult your tax advisor for a
full understanding of the U.S. federal, state, local and foreign tax
consequences of the merger to you.
MARKET PRICES OF DEVON AND MITCHELL COMMON STOCK ON IMPORTANT DATES
Shares of Devon common stock are traded on the American Stock Exchange
under the symbol "DVN" and shares of Mitchell common stock are traded on the New
York Stock Exchange under the symbol "MND." The following table shows
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15
the closing per share sales prices of Devon and Mitchell common stock on:
- - August 13, 2001 -- the last full trading day before Devon and Mitchell
announced the proposed merger; and
- - , 2001 -- the last full trading day before the date of this
document.
<Table>
<Caption>
DEVON MITCHELL
DATE COMMON STOCK COMMON STOCK
- ---- ------------ ------------
August 13, 2001...... $50.26 $45.65
, 2001....
</Table>
OUR RECOMMENDATIONS TO STOCKHOLDERS
TO MITCHELL STOCKHOLDERS:
Mitchell's board of directors has unanimously approved and adopted the
merger agreement and determined that the merger agreement and the merger are
advisable and in the best interests of Mitchell and its stockholders.
Accordingly, the board recommends that Mitchell stockholders vote to approve the
merger agreement.
Approximately 46% of the outstanding shares of Mitchell common stock
currently are held by Mitchell's directors, executive officers and their
respective affiliates, all of whom Mitchell expects will vote their shares for
approval of the merger agreement. George P. Mitchell, the Chairman and Chief
Executive Officer of Mitchell, and his wife, Cynthia Woods Mitchell, have
granted Devon an irrevocable proxy to vote their shares for approval of the
merger agreement. Mr. and Mrs. Mitchell collectively beneficially own
approximately 47% of the outstanding shares of Mitchell common stock, including
shares covered by outstanding options.
TO DEVON STOCKHOLDERS:
Devon's board of directors has, by a unanimous vote of those directors who
attended the meeting, approved and adopted the merger agreement and determined
that the merger agreement and the merger are advisable and in the best interests
of Devon and its stockholders. Accordingly, the board recommends that Devon
stockholders vote to approve the issuance of Devon common stock in the merger.
Less than 1% of Devon's outstanding voting shares currently are held by
Devon's directors, executive officers and their affiliates, all of whom Devon
expects will vote their shares for approval of the issuance of Devon common
stock in the merger.
MITCHELL'S REASONS FOR THE MERGER
Mitchell's board of directors considered various factors in unanimously
approving and adopting the merger agreement and the merger, including the merger
consideration, the opinions of Mitchell's financial advisors, the tax
consequences of the merger and the other matters referred to under "The
Merger -- Recommendation of Mitchell's Board of Directors and Reasons for the
Merger."
DEVON'S REASONS FOR THE MERGER
Devon's board of directors considered various factors in approving and
adopting the merger agreement, including expected per share accretion in various
financial measures on a pro forma basis, opportunities for increased production,
marketing and transportation opportunities, the addition of significant
midstream assets, expected benefits from improved technologies, increased size
and the other matters referred to under "The Merger -- Recommendation of Devon's
Board of Directors and Reasons for the Merger."
INTERESTS OF MITCHELL'S EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
Some of Mitchell's executive officers and directors have interests in the
merger that are different from yours:
- - at the effective time of the merger, J. Todd Mitchell, who is currently a
member of Mitchell's board of directors, or an alternate Mitchell designee,
will be appointed to Devon's board of directors to serve until his successor
is elected and qualified or until his earlier resignation or removal;
- - George P. Mitchell, who is currently the Chairman and Chief Executive Officer
of Mitchell, and his wife, Cynthia Woods Mitchell, have entered into an
agreement with Devon that, subject to a number of conditions, will provide
them with rights to require Devon to use its reasonable best efforts to
register the resale of the shares of Devon common stock that they receive in
the merger. Also, Mr. and Mrs. Mitchell will be subject to legal and
contractual restrictions on the resale of the shares of Devon common stock
that they
3
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receive in the merger not generally applicable to other Mitchell stockholders;
- - all outstanding stock options and bonus units, including those held by
Mitchell's executive officers, will fully vest at the effective time of the
merger and, if not exercised at that time, will be converted into fully vested
options to purchase shares of Devon common stock and bonus units redeemable
for cash based on the appreciation of Devon common stock, respectively, in
each case subject to adjustment to reflect the value of the consideration paid
by Devon in the merger;
- - after the merger, some Mitchell executive officers may remain executive
officers of the surviving corporation of the merger or may become officers of
Devon;
- - Mitchell executive officers will be entitled to severance payments and
enhanced pension benefits in the event that their employment ceases after the
merger;
- - benefits of Mitchell's executive officers under their individual severance
agreements cannot be reduced for 24 months following the merger;
- - benefits under Mitchell's non-qualified retirement plans held by some of
Mitchell's executive officers will automatically be distributed as a lump sum
into the Mitchell Energy & Development Corp. 1998 Mutual Fund Option Plan upon
their retirement; and
- - the merger agreement generally requires Devon to honor Mitchell's existing
employee benefit plans and commitments in accordance with their terms after
the merger.
Mitchell's directors and executive officers beneficially owned
approximately 47% of the outstanding shares of Mitchell common stock as of
August 13, 2001, including shares covered by outstanding options. Devon's
directors and executive officers did not beneficially own any shares of Mitchell
common stock as of that date.
The boards of directors of both companies were aware of these interests and
considered them in approving the merger and the merger agreement.
OPINIONS OF FINANCIAL ADVISORS
The opinions of Mitchell's and Devon's financial advisors are attached as
Annexes D, E and F. We encourage you to read those opinions carefully, as well
as the descriptions of the analyses and assumptions on which the opinions were
based in the "The Merger -- Opinions of Financial Advisors" section of this
document. Each opinion is directed to the applicable company's board of
directors and does not constitute a recommendation to any stockholder as to any
matter relating to the merger.
OPINIONS OF MITCHELL'S FINANCIAL ADVISORS
On August 13, 2001, Goldman, Sachs & Co. and J.P. Morgan Securities Inc.,
Mitchell's financial advisors, each delivered its opinion to Mitchell's board of
directors to the effect that, as of the date of its opinion and subject to the
matters and assumptions set forth in the opinion, the consideration to be
received by the holders of Mitchell common stock in the merger was fair from a
financial point of view to the holders.
At the request of Mitchell's board of directors, JPMorgan delivered its
updated opinion dated as of September 7, 2001, to the effect that, as of the
date of its opinion and subject to the matters and assumptions set forth in the
opinion, the consideration to be received by the holders of Mitchell common
stock in the merger was fair from a financial point of view to the holders.
JPMorgan's updated opinion took into account Devon's proposed acquisition of
Anderson. Mitchell's board of directors did not request, however, that Goldman
Sachs update its analysis or opinion to take into account Devon's proposed
acquisition of Anderson.
OPINION OF DEVON'S FINANCIAL ADVISOR
UBS Warburg LLC, Devon's financial advisor, delivered its opinion to
Devon's board of directors to the effect that, as of the date of its opinion and
subject to the matters and assumptions set forth in the opinion, the
consideration to be paid by Devon in connection with the merger was fair from a
financial point of view to Devon.
THE MERGER AGREEMENT
The merger agreement is attached as Annex A. We encourage you to read the
merger
4
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agreement because it is the legal document that governs the merger.
WHAT WE NEED TO DO TO COMPLETE THE MERGER
Devon and Mitchell will complete the merger only if the conditions set
forth in the merger agreement are satisfied or, in some cases, waived. These
conditions are:
- - approval by Mitchell's stockholders of the merger agreement;
- - approval by Devon's stockholders of the issuance of Devon common stock in the
merger;
- - the expiration of applicable antitrust waiting periods or the receipt of
necessary antitrust approvals;
- - the absence of legal prohibitions to the merger;
- - the continued effectiveness of the registration statement of which this
document is a part;
- - the approval for listing on the American Stock Exchange of the shares of Devon
common stock to be issued in the merger;
- - the continued accuracy of each company's representations and warranties;
- - the performance by each company of its obligations under the merger agreement;
and
- - the receipt of legal opinions from counsel for each company as to the
treatment of the merger for U.S. federal income tax purposes.
Either Devon or Mitchell may choose to complete the merger even though a
condition to that company's obligation has not been satisfied if the necessary
stockholder approvals have been obtained and the law allows the company to do
so.
TERMINATION OF THE MERGER AGREEMENT
Devon and Mitchell can agree to terminate the merger agreement at any time
without completing the merger, even after stockholder approval. In addition,
either company can terminate the merger agreement on its own without completing
the merger if:
- - the merger is not completed by March 13, 2002, other than due to a breach of
the merger agreement by the terminating party;
- - the necessary approval of the stockholders of the other company is not
obtained at their meeting and 20 days have passed since that meeting;
- - any legal prohibition to completing the merger has become final and
non-appealable; or
- - the other company materially breaches the merger agreement and cannot or does
not correct the breach within a 30-day cure period.
Devon can terminate the merger agreement if Mitchell's board of directors:
- - withdraws, modifies or changes, in a manner adverse to Devon, its approval or
recommendation of the merger; or
- - recommends approval of a proposed business transaction with a third party that
conflicts with the merger.
Mitchell can terminate the merger agreement if Devon's board of directors
withdraws, modifies or changes, in a manner adverse to Mitchell, its approval or
recommendation of the merger.
TERMINATION FEES AND EXPENSES
If the merger agreement is terminated under circumstances involving a
proposed business transaction between either Mitchell or Devon and a third party
that conflicts with the merger and certain other conditions are satisfied,
either Mitchell will be required to pay Devon (if Mitchell received the proposal
from the third party) or Devon will be required to pay Mitchell (if Devon
received the proposal from the third party) a $100 million termination fee and,
in addition, reimburse the other party for all expenses incurred by the other
party in connection with the merger agreement up to $10 million.
NO SOLICITATION BY MITCHELL
Mitchell has generally agreed not to initiate or continue any discussions
with another party regarding a business combination while the merger is pending
or to engage in any such discussions unless required by fiduciary obligations
under applicable law.
AGREEMENTS AMONG DEVON, GEORGE P. MITCHELL AND CYNTHIA WOODS MITCHELL
George P. Mitchell and Cynthia Woods Mitchell entered into two agreements,
discussed in the following paragraphs, with Devon in connec-
5
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tion with the merger. They collectively beneficially own approximately 47% of
the outstanding shares of Mitchell common stock, including shares covered by
outstanding options. George P. Mitchell is the Chairman and Chief Executive
Officer of Mitchell. Cynthia Woods Mitchell is his wife.
PRINCIPAL SHAREHOLDERS AGREEMENT CONTAINING A VOTING AGREEMENT AND AN
IRREVOCABLE PROXY
The principal shareholders agreement was entered into as an inducement to
Devon to enter into the merger agreement and as a condition to Devon's
willingness to do so. In that agreement, Mr. and Mrs. Mitchell:
- - agreed for two years to vote all of the shares of Mitchell common stock
beneficially owned by them in favor of the merger and, generally, against any
proposal inconsistent with the merger, including a competing transaction; and
- - granted Devon an irrevocable proxy to vote their shares of Mitchell common
stock in accordance with the agreement.
The principal shareholders agreement cannot be terminated by Mr. and Mrs.
Mitchell unless the merger agreement is (1) terminated by Devon or (2)
terminated by Mitchell because any of the conditions to its obligation to
complete the merger is not and cannot be satisfied, other than the condition
that the merger agreement be approved by the required vote of Mitchell
stockholders. Together with the termination fees provided for in the merger
agreement, the principal shareholders agreement may have the effect of
discouraging a third party from proposing a competing transaction, including one
that might be more favorable than the merger to Mitchell stockholders.
INVESTOR RIGHTS AGREEMENT
The investor rights agreement contains restrictions on Mr. and Mrs.
Mitchell's ability to sell or otherwise dispose of the Devon common stock that
they will receive in the merger. It also requires Devon to use reasonable best
efforts to register the resale of those shares at the request of Mr. and Mrs.
Mitchell, subject to some limitations.
COMPARATIVE RIGHTS OF MITCHELL AND DEVON STOCKHOLDERS
Some of the rights of a Mitchell stockholder are different from the rights
of a Devon stockholder. One of the most important differences is that Devon has
a stockholder rights plan that may discourage unwelcome or hostile takeover
attempts. Mitchell has no such plan. Another difference is that Devon's board of
directors is divided into three classes, with only one class elected each year.
In contrast, Mitchell's entire board of directors stands for election every
year. See "Comparison of the Rights of Mitchell and Devon Stockholders" for more
information concerning the comparative rights of Mitchell and Devon
stockholders.
MATERIAL TERMS OF DEVON'S PROPOSED ACQUISITION OF ANDERSON
On August 31, 2001, Devon entered into an agreement to acquire Anderson
Exploration Ltd. As required by that agreement, on September 6, 2001, Devon
commenced a tender offer to purchase all of the outstanding common shares,
including associated rights, of Anderson at a price of C$40.00 per common share.
Using the currency exchange rate of U.S.$0.6423 per Canadian dollar reported in
The Wall Street Journal on September 6, 2001, this represents an offer price of
U.S.$25.69 per Anderson common share. As of September 5, 2001, there were
131,436,682 Anderson common shares outstanding. The cost to Devon of acquiring
Anderson's outstanding common shares and paying for the intrinsic value of
Anderson's outstanding options and appreciation rights, based on the September
6, 2001 exchange rate, will be about U.S.$3.5 billion.
Devon's tender offer will expire on October 12, 2001, unless withdrawn or
extended. The tender offer is conditioned on, among other things:
- - acceptance of the tender offer by the holders of at least 66 2/3% of
Anderson's common shares on a diluted basis;
- - the receipt of necessary regulatory approvals;
- - the absence of legal prohibitions to the acquisition;
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19
- - the absence of any material change to Anderson or its operations; and
- - the waiver by Anderson's board of directors of the application of Anderson's
stockholder rights plan.
If Devon accepts the Anderson common shares tendered in the tender offer
and less than 100% of Anderson's common shares are tendered, Devon intends to
complete its acquisition of Anderson by a compulsory acquisition under the
Canada Business Corporations Act of the remaining Anderson common shares or
another method available under Canadian law.
Devon expects to complete its acquisition of Anderson in the fourth quarter
of 2001. The proposed merger involving Mitchell is not conditioned on completion
of Devon's acquisition of Anderson. Similarly, Devon's acquisition of Anderson
is not conditioned on completion of the proposed merger involving Mitchell.
OTHER INFORMATION
ANTITRUST CLEARANCE REQUIRED TO COMPLETE THE MERGER
The merger is subject to antitrust laws. We have made the required filings
with the Department of Justice and the Federal Trade Commission. We are not
permitted to complete the merger until the applicable waiting periods have
expired or otherwise terminated. We expect that the applicable waiting periods
will expire on or about October 1, 2001. Although we do not expect the federal
or any state government to attempt to stop the merger, we cannot assure you that
they will not try to do so.
DEVON'S FINANCING OF THE MERGER AND THE ANDERSON ACQUISITION
Devon currently intends to finance the Anderson acquisition and the cash
portion of the merger consideration with the proceeds of a senior unsecured
credit facility for which Devon has entered into a commitment letter with UBS
AG, Stamford Branch; UBS Warburg LLC; Bank of America, N.A. and Banc of America
Securities LLC and the proceeds from the sale of debt securities. See "The
Merger -- Devon's Financing of the Merger and the Anderson Acquisition." Devon's
obligation to complete the merger is not subject to any financing contingency.
LISTING OF DEVON COMMON STOCK TO BE ISSUED IN THE MERGER
Devon expects to obtain approval to list on the American Stock Exchange the
additional shares of Devon common stock to be issued in the merger.
DISSENTERS' RIGHTS OF APPRAISAL
Mitchell stockholders are entitled to exercise dissenters' rights of
appraisal in connection with the merger in accordance with Texas law. Devon
stockholders are not entitled to dissenters' rights of appraisal in connection
with the merger. See "The Merger -- Dissenters' Rights of Appraisal" for more
information regarding the dissenters' rights of Mitchell stockholders.
ACCOUNTING TREATMENT
Devon will account for the merger and the Anderson acquisition using the
purchase method of accounting. Under that method of accounting, the aggregate
consideration that Devon pays to Mitchell and Anderson stockholders will be
allocated to Mitchell's and Anderson's assets and liabilities based on their
fair values, with any excess being treated as goodwill.
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SELECTED HISTORICAL FINANCIAL DATA OF DEVON
Devon is providing the following information to aid in your analysis of the
financial aspects of the merger. Devon derived this information from audited
financial statements for the years 1996 through 2000 and from unaudited
financial statements for the six months ended June 30, 2000 and 2001. In the
opinion of Devon's management, the unaudited interim information reflects all
adjustments, consisting only of normal and recurring adjustments, necessary for
a fair presentation of Devon's results of operations and financial condition for
the six months ended June 30, 2000 and 2001. Results for interim periods should
not be considered indicative of results for any other periods or for the year.
This information is only a summary. You should read it along with Devon's
historical financial statements and related notes and the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Devon's annual reports, quarterly reports and other
information on file with the Securities and Exchange Commission and incorporated
by reference into this document. See "Additional Information -- Where You Can
Find More Information."
<Table>
<Caption>
DEVON
-------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- -----------------------
1996 1997 1998 1999 2000 2000 2001
-------- ---------- --------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
SELECTED HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Oil, gas and NGL revenue......... $833,787 $ 966,268 $ 681,978 $1,256,872 $2,718,445 $1,184,128 $1,721,035
Other revenue.................... 36,470 48,255 24,248 20,596 65,658 24,772 27,714
-------- ---------- --------- ---------- ---------- ---------- ----------
Total revenue............ $870,257 $1,014,523 $ 706,226 $1,277,468 $2,784,103 $1,208,900 $1,748,749
======== ========== ========= ========== ========== ========== ==========
Earnings (loss) before
extraordinary item and
cumulative effect of change in
accounting principle........... $157,003 $ (218,191) $(235,885) $ (149,944) $ 730,342 $ 258,521 $ 487,205
Extraordinary item............... (6,000) -- -- (4,200) -- -- --
Cumulative effect of change in
accounting principle........... -- -- -- -- -- -- 49,452
-------- ---------- --------- ---------- ---------- ---------- ----------
Net earnings (loss).............. $151,003 $ (218,191) $(235,885) $ (154,144) $ 730,342 $ 258,521 $ 536,657
======== ========== ========= ========== ========== ========== ==========
Net earnings (loss) per
share -- basic:
Earnings (loss) before
extraordinary item and
cumulative effect of change in
accounting principle........... $ 2.08 $ (3.35) $ (3.32) $ (1.64) $ 5.66 $ 2.00 $ 3.73
Extraordinary item............... (0.11) -- -- (0.04) -- -- --
Cumulative effect of change in
accounting principle........... -- -- -- -- -- -- 0.38
-------- ---------- --------- ---------- ---------- ---------- ----------
Net earnings (loss).............. $ 1.97 $ (3.35) $ (3.32) $ (1.68) $ 5.66 $ 2.00 $ 4.11
======== ========== ========= ========== ========== ========== ==========
Net earnings (loss) per share --
diluted:
Earnings (loss) before
extraordinary item and
cumulative effect of change in
accounting principle........... $ 2.03 $ (3.35) $ (3.32) $ (1.64) $ 5.50 $ 1.97 $ 3.59
Extraordinary item............... (0.11) -- -- (0.04) -- -- --
Cumulative effect of change in
accounting principle........... -- -- -- -- -- -- 0.37
-------- ---------- --------- ---------- ---------- ---------- ----------
Net earnings (loss).............. $ 1.92 $ (3.35) $ (3.32) $ (1.68) $ 5.50 $ 1.97 $ 3.96
======== ========== ========= ========== ========== ========== ==========
Cash dividends per share......... $ 0.09 $ 0.09 $ 0.10 $ 0.14 $ 0.17 $ 0.07 $ 0.10
======== ========== ========= ========== ========== ========== ==========
</Table>
<Table>
<Caption>
AS OF DECEMBER 31,
-------------------------------------------------------------- AS OF JUNE 30,
1996 1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ---------- --------------
(IN THOUSANDS)
SELECTED HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Investment in common stock of
Chevron Corporation.................... $ -- $ -- $ -- $ 614,382 $ 598,867 $ 641,865
Total assets............................. 2,241,890 1,965,386 1,930,537 6,096,360 6,860,478 7,804,038
Debentures exchangeable into shares of
Chevron Corporation common stock....... -- -- -- 760,313 760,313 642,329
Other long-term debt..................... 361,500 427,037 735,871 1,656,208 1,288,523 1,438,819
Convertible preferred securities of
subsidiary trust....................... 149,500 149,500 149,500 -- -- --
Stockholders' equity..................... 1,159,772 1,006,546 749,763 2,521,320 3,277,604 3,857,241
</Table>
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SELECTED HISTORICAL FINANCIAL DATA OF MITCHELL
Mitchell is providing the following information to aid in your analysis of
the financial aspects of the merger. Mitchell derived this information from
audited financial statements for the periods 1996 through 2000 and from
unaudited financial statements for the six months ended June 30, 2000 and 2001.
In the opinion of Mitchell's management, the unaudited interim information
reflects all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of Mitchell's results of operations and
financial condition for the six months ended June 30, 2000 and 2001. Results for
interim periods should not be considered indicative of results for any other
periods or for the year.
This information is only a summary. You should read it along with
Mitchell's historical financial statements and related notes and the section
titled "Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in Mitchell's annual reports, quarterly reports and
other information on file with the Securities and Exchange Commission and
incorporated by reference into this document. See "Additional
Information -- Where You Can Find More Information."
<Table>
<Caption>
MITCHELL
-----------------------------------------------------------------------------------
ELEVEN MONTHS SIX MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------------------------- ---------------------
1996(1) 1997 1998 1999 2000 2000 2001
------------- -------- -------- -------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
SELECTED HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Exploration and production
revenue......................... $236,177 $273,953 $227,440 $265,888 $ 531,228 $195,659 $ 423,277
Gas services revenue.............. 570,050 536,791 492,820 628,468 1,140,906 479,612 717,913
-------- -------- -------- -------- ---------- -------- ----------
Total revenue............. $806,227 $810,744 $720,260 $894,356 $1,672,134 $675,271 $1,141,190
======== ======== ======== ======== ========== ======== ==========
Earnings (loss) from continuing
operations...................... $ 76,219 $ 44,291 $(32,854) $ 67,334 $ 257,146 $ 87,421 $ 200,952
Discontinued operations........... 15,757 (58,515) 3,250 -- -- -- --
Extraordinary item................ -- (13,250) -- -- -- -- --
-------- -------- -------- -------- ---------- -------- ----------
Net earnings (loss)............... $ 91,976 $(27,474) $(29,604) $ 67,334 $ 257,146 $ 87,421 $ 200,952
======== ======== ======== ======== ========== ======== ==========
Net earnings (loss) per
share -- basic:
From continuing operations........ $ 1.47 $ 0.87 $ (0.67) $ 1.37 $ 5.22 $ 1.78 $ 4.03
Discontinued operations........... 0.30 (1.15) 0.07 -- -- -- --
Extraordinary item................ -- (0.26) -- -- -- -- --
-------- -------- -------- -------- ---------- -------- ----------
Net earnings (loss)............... $ 1.77 $ (0.54) $ (0.60) $ 1.37 $ 5.22 $ 1.78 $ 4.03
======== ======== ======== ======== ========== ======== ==========
Net earnings (loss) per share --
diluted:
From continuing operations........ $ 1.47 $ 0.87 $ (0.67) $ 1.37 $ 5.13 $ 1.76 $ 3.95
Discontinued operations........... 0.30 (1.15) 0.07 -- -- -- --
Extraordinary item................ -- (0.26) -- -- -- -- --
-------- -------- -------- -------- ---------- -------- ----------
Net earnings (loss)............... $ 1.77 $ (0.54) $ (0.60) $ 1.37 $ 5.13 $ 1.76 $ 3.95
======== ======== ======== ======== ========== ======== ==========
Cash dividends per share:
Combined........................ $ N/A $ N/A $ N/A $ N/A $ 0.2650 $ N/A $ 0.2650
Class A......................... 0.4800 0.7200 0.4800 0.4800 0.5025 0.5025 N/A
Class B......................... 0.5300 0.7950 0.5300 0.5300 0.5150 0.5150 N/A
</Table>
<Table>
<Caption>
AS OF DECEMBER 31,
-------------------------------------------------------------- AS OF
1996 1997 1998 1999 2000 JUNE 30, 2001
---------- ---------- ---------- ---------- ---------- -------------
(IN THOUSANDS)
SELECTED HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Total assets............................. $1,691,271 $1,273,959 $1,163,415 $1,163,679 $1,519,765 $1,731,587
Long-term debt, including current
maturities............................. 730,000 414,267 472,767 379,267 300,342 273,775
Stockholders' equity..................... 543,812 412,005 341,282 385,174 620,186 811,525
</Table>
- ---------------
(1) In 2000, Mitchell changed its fiscal year end from January 31 to December
31. Operating results related to the calendar years ended December 31, 1997,
1998 and 1999 were recast from the previously reported results ending on
January 31. To make this transition, it was necessary to have an
eleven-month transition reporting period ended December 31, 1996.
9
22
SELECTED UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL AND OTHER DATA
The following describes the pro forma effect of the merger and the Anderson
acquisition on (1) the statements of operations data of Devon, Anderson and
Mitchell for the year ended December 31, 2000 and the six months ended June 30,
2001 and (2) the balance sheet data of Devon, Anderson and Mitchell as of June
30, 2001. The following data assumes that Devon's merger with Mitchell and its
acquisition of Anderson had both occurred as of the dates indicated.
This information is only a summary. You should read the unaudited pro forma
combined financial information and the accompanying notes that are included in
this document. You should also read the historical information and related notes
of Devon and Mitchell that are incorporated by reference into this document. You
should also read the historical consolidated financial statements and related
notes of Anderson that are included elsewhere in this document.
We are providing the unaudited pro forma combined condensed financial and
other information for informational purposes only. It does not purport to
represent what the financial position and results of operations of the combined
company would actually have been had the merger, the Anderson acquisition and
other pro forma adjustments in fact occurred at the dates indicated. It also
does not purport to represent the future results that the combined company will
achieve after the merger and the Anderson acquisition.
The unaudited pro forma combined condensed balance sheet data and the
unaudited pro forma combined condensed statements of operations data show the
estimated effects of the merger and the Anderson acquisition as if they had
occurred on June 30, 2001 and January 1, 2000, respectively.
Anderson's historical financial information is prepared in accordance with
accounting standards generally accepted in Canada, and is presented in Canadian
dollars. Anderson's historical volumetric production data is prepared in
accordance with the Canadian convention whereby such production data is shown
before applicable royalty deductions. Also, Anderson's fiscal year ends on
September 30, as opposed to Devon's year-end of December 31. For purposes of
providing the pro forma effect of the pending Anderson acquisition on Devon's
financial condition and results of operations, the following adjustments were
made to Anderson's historical financial data:
- - Anderson's historical results for the year ended September 30, 2000 were
converted to results for the year ended December 31, 2000. This conversion was
done by subtracting Anderson's historical interim results for the three months
ended December 31, 1999 and adding its historical interim results for the
three months ended December 31, 2000. Anderson's historical results for the
nine months ended June 30, 2001 were converted to results for the six months
ended June 30, 2001. This conversion was done by subtracting Anderson's
historical interim results for the three months ended December 31, 2000.
- - Anderson's balance sheet data as of June 30, 2001, and its results of
operations for the year ended December 31, 2000 and the six months ended June
30, 2001, were converted to accounting principles generally accepted in the
United States, including the full cost method of accounting for oil and gas
properties. Such information was also converted to U.S. dollars using the
appropriate exchange rates.
- - Anderson's historical volumetric production data was converted to the U.S.
convention whereby such production data is shown after applicable royalty
deductions.
We prepared the pro forma information based on the following:
- - Devon uses the full cost method of accounting for its oil and gas activities,
while Mitchell uses the successful efforts method. Pro forma adjustments have
been made to estimate the effect of converting Mitchell's successful efforts
method to Devon's full cost method.
- - Devon will account for the merger and the Anderson acquisition using the
purchase method of accounting.
- - In the six-month period ended June 30, 2001, Devon recognized a $49.5 million
after-tax gain from the cumulative effect of a change in accounting principle.
This related to Devon's adoption, as of January 1, 2001, of a new accounting
principle related to accounting for
10
23
derivative financial instruments. The $49.5 million gain is not included in the
summary unaudited pro forma combined statements of operations for the six months
ended June 30, 2001.
- - We have not reflected as an adjustment to the historical data annual cost
savings of approximately $20 million and $25 million that Devon expects to
result from the elimination of duplicate expenses after the merger and the
Anderson acquisition, respectively.
- - In June 2000, Anderson sold its 50% interest in a pipeline transportation
company. For the year ended December 31, 2000, Anderson recognized earnings
from discontinued operations, net of tax, of $44.2 million. This gain is not
included in the summary unaudited pro forma combined statements of operations
for the year ended December 31, 2000.
No pro forma adjustments have been made with respect to the following
unusual items. These items are reflected in the historical results of Devon,
Anderson or Mitchell, as applicable, and should be considered when making
period-to-period comparisons:
- - In 2000, Devon recognized $60.4 million of expenses related to its merger with
Santa Fe Snyder Corporation. Devon accounted for the Santa Fe Snyder merger
using the pooling-of-interests method of accounting and, therefore, the
expenses incurred related to the merger were expensed. The after-tax effect of
these expenses in 2000 was $37.2 million.
- - In 2000, Mitchell realized income tax savings of $12.8 million related to
prior years' Section 29 tax credits and $6.3 million related to the reversal
of prior years' deferred income taxes.
- - In 2000, Mitchell recognized a $4.9 million gain from the exchange of certain
gas services assets. Also in 2000, Mitchell recognized a $10.8 million
impairment expense related to other gas services assets. Net of tax, these two
events reduced Mitchell's 2000 net earnings by $3.8 million.
- - On May 17, 2000, Anderson acquired all of the outstanding shares of Ulster
Petroleums Ltd. The summary unaudited pro forma combined statements of
operations do not include any results from Ulster's operations prior to May
17, 2000.
- - On February 12, 2001, Anderson acquired all of the outstanding shares of Numac
Energy Inc. The summary unaudited pro forma combined statements of operations
do not include any results from Numac's operations prior to February 12, 2001.
- - During the second quarter of 2001, Devon elected to discontinue operations in
Malaysia, Qatar and on certain properties in Brazil. Accordingly, during the
second quarter of 2001, Devon recorded a $76.9 million charge associated with
the impairment of those properties. The after-tax effect of this reduction was
$62.1 million.
- - Mitchell has incentive compensation plans pursuant to which it has
periodically issued awards referred to as "bonus units" under which employees
can earn compensation based on increases in the market price of Mitchell
common stock. Mitchell generally awards these bonus units in lieu of stock
option grants. Pro forma general and administrative expenses reported in the
accompanying unaudited pro forma statements of operations for the year 2000
include $21.3 million of expense related to these plans, while pro forma
general and administrative expenses for the first six months of 2001 include a
credit in the amount of $4.1 million related to these plans. After taxes,
these plans had the effect of decreasing 2000 unaudited pro forma net earnings
by $13.8 million and increasing net earnings for the first half of 2001 by
$2.7 million. Devon will not issue bonus units after the merger.
- - Devon's historical results of operations for the year 2000 and the first half
of 2001 include $41.3 million and $16.9 million, respectively, of amortization
expense for goodwill related to previous mergers. As of January 1, 2002, in
accordance with new accounting pronouncements recently issued, this goodwill
will cease to be amortized and, instead, will be tested for impairment at
least annually. No goodwill amortization expense has been recognized in the
pro forma statements of operations for the goodwill related to the merger and
the Anderson acquisition.
11
24
<Table>
<Caption>
COMBINED COMPANY PRO FORMA
------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 2000 JUNE 30, 2001
-------------------- -------------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating Results:
Oil, gas and NGL sales.................................... $ 4,247,880 $ 2,922,331
Gas services revenue...................................... 1,201,866 756,412
Other revenue............................................. 47,451 18,378
----------- -----------
Total revenue...................................... 5,497,197 3,697,121
----------- -----------
Lease operating expenses.................................. 639,954 377,370
Transportation costs...................................... 118,835 75,007
Production taxes.......................................... 128,420 95,396
Gas services costs and expenses........................... 984,092 672,098
Depreciation, depletion and amortization of property and
equipment............................................... 1,214,481 669,445
Amortization of goodwill.................................. 41,332 16,923
General and administrative expenses....................... 186,075 81,737
Expenses related to previous mergers...................... 60,373 --
Interest expense.......................................... 471,281 227,387
Deferred effect of changes in foreign currency exchange
rate on subsidiary's long-term debt..................... 3,168 (5,699)
Reduction of carrying value of oil and gas properties..... -- 76,942
----------- -----------
Total costs and expenses........................... 3,848,011 2,286,606
----------- -----------
Earnings before change in fair value of derivative
instruments and income taxes............................ 1,649,186 1,410,515
Change in fair value of derivative instruments............ -- (19,292)
----------- -----------
Earnings before income taxes.............................. 1,649,186 1,391,223
Income tax expense:
Current................................................. 161,324 187,985
Deferred................................................ 435,062 344,812
----------- -----------
Total income tax expense........................... 596,386 532,797
----------- -----------
Net earnings before cumulative effect of change in
accounting principle.................................... 1,052,800 858,426
Preferred stock dividends................................. 9,735 4,868
----------- -----------
Net earnings applicable to common stockholders............ $ 1,043,065 $ 853,558
=========== ===========
Net earnings per share:
Basic..................................................... $ 6.68 $ 5.39
Diluted................................................... 6.50 5.19
Cash dividends per share.................................... 0.18 0.10
Weighted average common shares outstanding:
Basic..................................................... 156,256 158,420
Diluted................................................... 161,029 165,182
CASH FLOW DATA:
Net cash provided by operating activities................... $ 2,520,132 $ 2,062,211
Net cash used in investing activities....................... (7,772,593) (2,187,619)
Net cash provided by financing activities................... 5,023,028 336,501
OTHER DATA:
Modified EBITDA(1)(3)....................................... $ 3,379,448 $ 2,395,513
Cash margin(2)(3)........................................... 2,746,843 1,980,141
PRODUCTION, PRICE AND OTHER DATA:
Production:
Oil (MBbls)............................................... 53,907 28,535
Gas (MMcf)................................................ 708,112 392,403
NGLs (MBbls).............................................. 16,168 7,967
MBoe...................................................... 188,094 101,902
Average prices:
Oil (per Bbl)............................................. $ 25.68 $ 23.13
Gas (per Mcf)............................................. 3.56 5.32
NGLs (per Bbl)............................................ 21.15 21.90
Per Boe................................................... 22.58 28.68
Costs per Boe:
Operating costs........................................... $ 4.72 $ 5.38
Depreciation, depletion and amortization of full-cost oil
and gas properties...................................... 5.86 6.00
General and administrative expenses....................... 0.99 0.80
</Table>
12
25
<Table>
<Caption>
COMBINED COMPANY
PRO FORMA
AS OF JUNE 30, 2001
--------------------------
(IN THOUSANDS, EXCEPT
FOR PER SHARE DATA)
BALANCE SHEET DATA:
Investment in common stock of Chevron Corporation........... $ 641,865
Total assets................................................ 19,075,267
Debentures exchangeable into shares of Chevron Corporation
common stock.............................................. 642,329
Other long-term debt, including current maturities.......... 7,898,499
Stockholders' equity........................................ 5,421,267
Book value per share........................................ 34.17
</Table>
- ---------------
(1) Modified EBITDA represents earnings before interest (including the deferred
effect of changes in foreign currency exchange rate on a subsidiary's
long-term debt), taxes, depreciation, depletion and amortization, reduction
of carrying value of oil and gas properties and change in fair value of
derivative instruments.
(2) Cash margin represents total revenue less cash expenses. Cash expenses are
all expenses other than the non-cash expenses of depreciation, depletion and
amortization, deferred effect of changes in foreign currency exchange rate
on a subsidiary's long-term debt, reduction of carrying value of oil and gas
properties, deferred income tax expense and change in fair value of
derivative instruments. We use cash margin to measure the net cash that is
generated by our operations during a given period, without regard to the
period in which the cash is actually physically received or spent by us.
Cash margin ignores the non-operational effect on our "net cash provided by
operating activities," as measured by accounting principles generally
accepted in the United States of America, from our activities as an operator
of oil and gas wells and gas services facilities. Those activities produce
net increases or decreases in temporary cash funds held by us that have no
effect on our net earnings.
(3) Modified EBITDA is presented because it is a commonly used measurement in
the oil and gas industry as a financial indicator of a company's ability to
service or incur debt. Cash margin is presented because it is a commonly
used measurement in the oil and gas industry as a financial indicator of a
company's ability to fund capital expenditures or service debt. Modified
EBITDA and cash margin are also presented because investors routinely
request this information. Managements of Devon and Mitchell use modified
EBITDA and cash margin as supplemental financial measurements in the
evaluation of their businesses and interpret the trends of modified EBITDA
and cash margin in a similar manner as trends in net earnings.
Neither modified EBITDA nor cash margin is a measurement of financial
performance under generally accepted accounting principles. Accordingly,
neither should be considered as an alternative to net cash provided by
operating activities, as a measure of liquidity or as an alternative to net
income as indicators of operating performance or any other measure of
performance derived in accordance with accounting principles generally
accepted in the United States of America. There may be operational or
financial demands and requirements that reduce management's discretion over
the use of modified EBITDA and cash margin. Modified EBITDA and cash margin
may not be comparable to similarly titled measures used by other companies.
13
26
RISK FACTORS
You should consider carefully the following risk factors before deciding
how to vote. Additional risks associated with Devon's and Mitchell's businesses
are described in our Securities and Exchange Commission filings that are
incorporated by reference into this document. See "Additional Information --
Where You Can Find More Information."
WE MAY NOT BE ABLE TO INTEGRATE THE OPERATIONS OF DEVON, MITCHELL AND ANDERSON
SUCCESSFULLY
The merger will present challenges to management, including the integration
of the operations, technologies and personnel of Devon and Mitchell. For
example, the addition of Mitchell will substantially increase the midstream
(i.e., gas processing and similar activities) business of Devon. Devon's
acquisition of Anderson will present similar integration challenges,
significantly increasing Devon's Canadian operations. Moreover, the simultaneous
integration of Devon, Mitchell and Anderson into one combined company will
necessarily involve more risk than if only two companies were being integrated.
The merger and Devon's acquisition of Anderson will also include other risks
commonly associated with similar transactions, including unanticipated
liabilities, unanticipated costs and diversion of management's attention. Any
difficulties that we encounter in the transition and integration processes could
have an adverse effect on the revenue, level of expenses and operating results
of the combined company. The combined company may also experience operational
interruptions or the loss of key employees, customers or suppliers. As a result,
we may not realize any of the anticipated benefits of the merger and Devon's
acquisition of Anderson.
THE VALUE OF CONSIDERATION TO MITCHELL STOCKHOLDERS IN THE MERGER WILL DECREASE
IF THE MARKET VALUE OF DEVON COMMON STOCK DECREASES
Mitchell stockholders will not receive consideration in the merger with a
set market value or a minimum market value. The number of shares of Devon common
stock that Mitchell stockholders will receive in the merger is fixed. The value
of these shares will depend on the trading price of Devon common stock. No
adjustment will be made to the number of shares of Devon common stock to be
received by Mitchell stockholders regardless of whether the market price of
Devon common stock or Mitchell common stock increases or decreases. For
historical and current market prices of Devon common stock and Mitchell common
stock, see "Market Prices and Dividend Information."
WE EXPECT TO INCUR SIGNIFICANT COSTS IN CONNECTION WITH THE MERGER AND IN
CONNECTION WITH DEVON'S ACQUISITION OF ANDERSON
We expect to incur costs of approximately $90 million related to the merger
and approximately $125 million related to the Anderson acquisition. These costs
will include investment banking expenses, severance, legal and accounting fees,
printing expenses and other related charges incurred by Devon, Mitchell and
Anderson. We may also incur additional unanticipated costs and expenses in
connection with the merger and the Anderson acquisition. In addition, Devon
expects to incur approximately $50 million of expenses in connection with its
financing of the Anderson acquisition and the cash portion of the merger
consideration.
MITCHELL'S SIGNIFICANT INVESTMENT IN THE BARNETT SHALE IN NORTH TEXAS MAY NOT
GENERATE THE BENEFITS EXPECTED BY DEVON
Devon believes that a significant portion of Mitchell's value and future
potential is tied to its assets in the Barnett Shale in North Texas. To the
extent that these assets do not generate the return expected of them, the
benefits of the merger to Devon will be reduced. For more information on
Mitchell's investment and operations in the Barnett Shale, see "Properties of
the Combined Company -- Mitchell's Properties -- Exploration and Production
Operations."
14
27
THE COMBINED COMPANY MAY NOT REALIZE THE ACCRETION TO VARIOUS FINANCIAL
MEASUREMENTS THAT DEVON EXPECTS TO RESULT FROM THE MERGER AND DEVON'S
ACQUISITION OF ANDERSON
Devon expects the merger to be accretive to its reserves per share,
production per share, cash margin (i.e., revenue less cash expenses) per share
and earnings per share on a pro forma basis to varying degrees, although the
combination of both Anderson and Mitchell with Devon is expected to be dilutive
to earnings per share in the near term. However, these expectations are based on
various assumptions about future events and conditions that may or may not be
realized. These assumptions relate to, among other things:
- energy market conditions;
- commodity prices for natural gas, oil and NGLs;
- maintenance and growth of production levels;
- anticipated reserve levels;
- future operating results;
- competitive conditions;
- the effectiveness of technologies;
- the availability of capital resources;
- laws and regulations affecting the energy business;
- capital expenditure obligations; and
- general economic conditions.
There can be no assurance that the underlying assumptions will prove to
have been correct or that the merger will actually be accretive to Devon's
reserves per share, production per share, cash margin per share or earnings per
share for any future periods. It is possible that the merger or Devon's
acquisition of Anderson may, in fact, prove to be dilutive to Devon's actual per
share results in the future and it is possible that Devon's acquisition of
Anderson and the merger together will prove to be dilutive to Devon's earnings
per share beyond the near term.
THE COMBINED COMPANY WILL HAVE SIGNIFICANT ASSETS LOCATED IN NORTH TEXAS, WHICH
COULD HEIGHTEN ITS EXPOSURE TO REGULATORY AND ENVIRONMENTAL ISSUES
Most of Mitchell's assets are located near large population centers in
North Texas. This means that the combined company will be particularly sensitive
to regulatory or environmental issues relating to these large population centers
that could adversely affect the combined company's operating results.
THE COMBINED COMPANY'S DEBT LEVEL MAY LIMIT ITS FINANCIAL FLEXIBILITY
As of June 30, 2001, Devon had approximately $2.1 billion of total debt and
a total debt to total capital ratio of 27% as calculated under the provisions of
Devon's revolving credit facilities. After giving effect to Devon's financing of
the Anderson acquisition and the cash portion of the merger consideration, as of
June 30, 2001, the combined company would have had approximately $8.5 billion of
total debt and a total debt to total capital ratio of 59%. The combined company
may also incur additional debt in the future, including in connection with other
acquisitions. The level of the combined company's debt could have several
important effects on the combined company's future operations, including, among
others:
- a significant portion of the combined company's cash flow from operations
will be dedicated to the payment of principal and interest on the debt
and will not be available for other purposes;
- rating agencies may view the combined company's debt level negatively;
- covenants contained in Devon's existing debt arrangements, including
those contained in Devon's $6 billion facility that will be used to
finance the Anderson acquisition and the cash portion of the
15
28
merger consideration, will require the combined company to meet financial tests
that may affect the combined company's flexibility in planning for and reacting
to changes in its business, including possible acquisition opportunities;
- the combined company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate and other
purposes may be limited;
- the combined company may be at a competitive disadvantage to similar
companies that have less debt; and
- the combined company's vulnerability to adverse economic and industry
conditions may increase.
THE COMBINED COMPANY MAY NOT ACHIEVE THE BENEFITS THAT DEVON EXPECTS FROM
ANDERSON'S PROPERTIES LOCATED IN CANADA'S NORTHERN FRONTIER AREA IF A SUFFICIENT
GAS PIPELINE IS NOT BUILT TO SERVE THAT AREA
There currently is no gas pipeline to deliver to market the amount of
natural gas that Devon expects from Anderson's properties located in Canada's
Northern Frontier area, sometimes referred to as "North of 60." Plans to build a
gas pipeline that would enable the combined company to deliver natural gas from
North of 60 to southern markets have been under consideration for nearly 30
years, but no construction has begun to date. Whether such a gas pipeline will
be built and, if built, the timing of its construction and the gas pipeline's
location are uncertain and depend on a number of factors that are beyond our
control, including:
- the overall economic environment;
- political concerns, including relations between Canada and the United
States and relations among Canadian provinces and territories;
- possible legislative and regulatory changes in both Canada and the United
States; and
- related environmental risks and issues.
If a gas pipeline with sufficient capacity to deliver natural gas from North of
60 to southern markets is not built, the combined company will not achieve the
benefits that Devon expects from its North of 60 properties.
DEVON'S OFFSHORE OPERATIONS ARE EXPOSED TO THE RISK OF TROPICAL WEATHER
DISTURBANCES
Some of Devon's production and reserves are located offshore in the Gulf of
Mexico. Operations in this area are subject to tropical weather disturbances.
Some of these disturbances can be severe enough to cause substantial damage to
facilities and possibly interrupt production. In accordance with customary
industry practices, Devon maintains insurance against some, but not all, of
these risks. Losses could occur for uninsurable or uninsured risks or in amounts
in excess of existing insurance coverage. We cannot assure you that Devon will
be able to maintain adequate insurance in the future at rates that it considers
to be reasonable or that any particular types of coverage will be available. An
event that is not fully covered by insurance could have a material adverse
effect on the combined company's financial position and results of operations.
DEVON IS SUBJECT TO UNCERTAINTIES OF FOREIGN OPERATIONS
Devon has significant international operations in Azerbaijan, South
America, Southeast Asia and West Africa. Local political, economic and other
uncertainties may adversely affect these operations. These uncertainties
include:
- the risk of war, general strikes, civil unrest, expropriation, forced
renegotiation or modification of existing contracts, and import, export
and transportation regulations and tariffs;
- taxation policies, including royalty and tax increases and retroactive
tax claims;
16
29
- exchange controls, currency fluctuations, devaluation or other activities
that limit or disrupt markets and restrict payments or the movement of
funds, and other uncertainties arising out of foreign government
sovereignty over international operations;
- laws and policies of the United States affecting foreign trade, taxation
and investment;
- the possibility of being subject to the exclusive jurisdiction of foreign
courts in connection with legal disputes and the possible inability to
subject foreign persons to the jurisdiction of courts in the United
States; and
- difficulties in enforcing Devon's rights against a governmental agency
because of the doctrine of sovereign immunity.
DEVON IS SUBJECT TO FEDERAL ACREAGE LIMITATIONS AND, AS A RESULT, MAY BE
REQUIRED TO REDUCE ITS ACREAGE IN WYOMING
Current United States law restricts the amount of federal acreage that can
be controlled by individual parties within each state. This controlled acreage
is considered "chargeable" to individual parties. The current federal limit
within Wyoming is 246,080 chargeable acres. Controlled leasehold acreage that is
part of a federally authorized drilling or production unit is, however, not
considered chargeable acreage for the purposes of this limitation. Devon is
above the current federal limit on chargeable acres within Wyoming. Under
current law, Devon will be required to reduce its chargeable acreage. Devon has
petitioned the Bureau of Land Management for additional time to restructure its
leasehold acreage. The Bureau of Land Management has granted Devon an additional
year and has also assured Devon of its willingness to work together on any
additional delays. Currently there are only two ways available to reduce Devon's
chargeable acreage. One way is to sell or divest a portion of the acreage. The
other way is to apply to the Bureau of Land Management to "unitize" a portion of
the acreage. If approved, the acreage included in these federally authorized
drilling or production units would not be counted as chargeable acreage. If we
have to sell or divest to reduce our chargeable acreage in Wyoming, we will have
less acreage in Wyoming on which to drill, which could have a negative impact on
future production, cash flow and earnings.
DEVON MAY INCUR A TAX LIABILITY AS A RESULT OF ITS 1999 MERGER WITH PENNZENERGY
On August 17, 1999, Devon completed a merger with PennzEnergy Company. If
PennzEnergy's distribution to its stockholders of the stock of Pennzoil-Quaker
State Company in December 1998 were to be considered part of a plan or series of
related transactions that includes the merger of Devon with PennzEnergy, Devon
would recognize gain under section 355(e) of the Internal Revenue Code. Devon
believes the distribution and the merger with PennzEnergy should not be
considered part of such a plan or series of related transactions because, among
other things, prior to the distribution neither party contemplated a business
combination with the other and, until April 1999, the parties had no discussions
regarding a business combination. However, any transaction within a four-year
period beginning two years before the distribution is presumed to be a part of
such a plan. We cannot assure you that Devon will be able to overcome this
presumption. Devon currently estimates its potential tax liability upon such
transaction at $16 million in additional tax for 1998 and the elimination of
approximately $183 million in net operating loss carryovers.
REPORTED NATURAL GAS, OIL AND PLANT NGL RESERVE DATA AND FUTURE NET REVENUE
ESTIMATES ARE UNCERTAIN
Estimates of reserves are projections based on engineering data, projected
future rates of production and the timing of future expenditures. Mitchell's
estimates of its proved natural gas, oil and plant NGL reserves and projected
future net revenue are based on reserve reports that Mitchell prepares. Devon's
and Anderson's estimates of their respective proved natural gas, oil and plant
NGL reserves and projected future net revenue are based on reserve reports that
Devon or Anderson, as the case may be, prepares and on the reports of
independent consulting petroleum engineers that they hire for that purpose. The
process of estimating natural gas, oil and plant NGL reserves requires
substantial judgment, resulting in imprecise determinations, particularly for
new discoveries. Different reserve engineers may make different estimates
17
30
of reserve quantities and related revenue based on the same data. Future
performance that deviates significantly from the reserve reports could have a
material adverse effect on the combined company's financial position and results
of operations.
PRODUCT PRICES ARE VOLATILE, AND LOW PRICES CAN ADVERSELY IMPACT RESULTS
The results of operations of Devon, Mitchell and Anderson are highly
dependent on the prices of and demand for natural gas, oil and NGLs.
Historically, the markets for natural gas, oil and NGLs have been volatile and
are likely to continue to be volatile in the future. Accordingly, the prices
received by Devon, Mitchell and Anderson for their natural gas, oil and NGL
production depend on numerous factors beyond their control. These factors
include, among other things:
- the level of ultimate consumer product demand;
- governmental regulations and taxes;
- the price and availability of alternative fuels;
- the level of imports and exports of natural gas, oil and NGLs; and
- the overall economic environment.
Any significant decline in prices for natural gas, oil and NGLs, as has occurred
from time to time in the past, could have a material adverse effect on the
combined company's financial condition, results of operations and quantities of
reserves recoverable on an economic basis. Should the oil and gas industry
experience significant price declines or other adverse market conditions, the
combined company may not be able to generate sufficient cash flows from
operations to meet its obligations and to make planned capital expenditures.
DEVON HAS CHARTER AND OTHER PROVISIONS THAT MAY MAKE IT DIFFICULT TO CAUSE A
CHANGE OF CONTROL
Some provisions of Devon's charter and bylaws and of the Delaware General
Corporation Law, as well as Devon's stockholder rights plan, may make it
difficult for stockholders to cause a change of control of Devon and replace
incumbent management. These provisions include:
- a classified board, the members of which serve staggered three-year terms
and may be removed by stockholders only for cause;
- a prohibition on stockholders calling special meetings or acting by
written consent; and
- rights issued under Devon's rights plan that would be triggered if a
person acquired 15% or more of Devon's common stock.
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31
THE COMPANIES
MITCHELL ENERGY & DEVELOPMENT CORP.
Mitchell is one of the largest producers of natural gas and NGLs in the
United States. Mitchell's two primary businesses are: (1) the exploration,
development and production of natural gas and NGLs and (2) the gathering,
processing and marketing of natural gas and NGLs. In 2000, Mitchell produced 101
Bcf of natural gas and 6.5 MMBbls of liquid hydrocarbons (NGLs, oil and
condensate). Additionally, Mitchell sold 13.7 MMBbls of NGLs through its
midstream operations. (The volumes in this paragraph are calculated on a "dry"
gas basis which Devon uses to report its production.)
Exploration, Development and Production. As of December 31, 2000, Mitchell
had interests in approximately 3,400 gross wells and approximately 1.1 million
gross acres. Mitchell operates over 90% of its net wells and its proved reserve
base reached almost 2.1 Tcfe as of June 30, 2001 determined on a "wet" gas
basis. (On a "dry" gas basis, Devon estimates that Mitchell's June 30, 2001
proved reserves would have been 2.5 Tcfe.) These reserves are predominantly
natural gas with an average reserve life of 14 years.
Mitchell produced 101 Bcf of natural gas in 2000, a 25% increase from the
prior year, and is on pace to exceed the 25% growth target that it previously
set for 2001. With its large backlog of undrilled well locations, Mitchell
expects its gas production to increase at a compounded rate of more than 20%
over the three-year period ending December 31, 2003.
Gas Services. Mitchell owns and operates all of its major midstream
assets, including six natural gas processing plants and approximately 9,100
miles of natural gas gathering pipelines, virtually all of which are located in
Texas. Natural gas processing plants extract NGLs such as ethane, propane and
butanes from streams of natural gas. Mitchell increased NGL production by 13% in
2000 to 18.2 MMBbls and, at year-end, its proved plant NGL reserves (NGL
reserves committed to Mitchell-owned natural gas processing plants) totaled 175
MMBbls. (On a "dry" gas basis, Mitchell's 2000 midstream NGL sales volumes were
13.7 MMBbls. Also, on a "dry" gas basis, Devon estimates that Mitchell's plant
NGL reserves totaled 105 MMBbls at December 31, 2000 and 143 MMBbls at June 30,
2001.)
Mitchell's pipelines intersect with both interstate and intrastate
pipelines enhancing its natural gas marketing flexibility. In North Texas,
Mitchell benefits from the integration of its pipeline operations with its
natural gas production and processing operations. Mitchell also owns interests
in two significant downstream assets located in the Texas Gulf Coast area.
Specifically, the company has a one-third interest in an MTBE gasoline additive
plant and a 38.75% interest in an NGL fractionator.
DEVON ENERGY CORPORATION
Devon is an independent energy company engaged primarily in oil and natural
gas exploration, development and production and in the acquisition of producing
properties. Devon currently ranks among the five largest U.S.-based independent
oil and natural gas companies in terms of oil and natural gas reserves, oil and
natural gas production, equity market capitalization and enterprise value. As of
December 31, 2000, the company owned proved oil and natural gas reserves of 1.1
billion Boe. Approximately 53% of these reserves were natural gas and 47% were
oil and NGLs. North American proved reserves accounted for 75% of the company's
total reserves and were weighted 62% to natural gas. Devon's North American
reserves are concentrated in four operating divisions:
- the Gulf Division, which includes oil and natural gas properties located
primarily onshore in South Texas and South Louisiana and offshore in the
Gulf of Mexico;
- the Rocky Mountain Division, which includes oil and natural gas
properties located in the Rocky Mountains area of the United States
ranging from the Canadian border south into northern New Mexico;
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32
- the Permian/Mid-Continent Division, which includes oil and natural gas
properties located in the United States other than those included in the
Gulf Division and Rocky Mountain Division; and
- the Canadian Division, which includes properties in the Western Canadian
Sedimentary Basin in Alberta and British Columbia.
Devon's proved reserves outside of North America totaled approximately 278
MMBoe as of December 31, 2000. The company's international activities are
concentrated in four core areas:
- Azerbaijan;
- South America, which includes Argentina and Brazil;
- Southeast Asia, which includes Indonesia and China; and
- West Africa and Egypt.
In addition to proved oil and natural gas properties, Devon has an
inventory of exploration acreage of approximately 17.6 million net acres as of
December 31, 2000. This includes 5.4 million net acres in North America.
ANDERSON EXPLORATION LTD.
The reserve and production statistics in this section are before applicable
royalty deductions.
On August 31, 2001, Devon entered into an agreement to acquire Anderson
Exploration Ltd. Devon expects to complete its acquisition of Anderson in the
fourth quarter of 2001. See "Summary -- Material Terms of Devon's Proposed
Acquisition of Anderson" for more information regarding this proposed
acquisition.
Anderson is a Canadian-based independent oil and natural gas producer
engaged in oil and natural gas exploration, acquisition, development and
production in western and northern Canada. As of December 31, 2000, adjusted for
the February 2001 Numac acquisition, approximately 62% of the company's proved
reserves and approximately 66% of the company's current production were natural
gas. Anderson has a large oil and natural gas reserve base, operates over 75% of
its production and internally initiates new oil and natural gas prospects.
The company operates exclusively in western and northern Canada with
production concentrated in the Western Canadian Sedimentary Basin. Exploration
efforts are concentrated in the "west of 5" and "west of 6" areas of Alberta and
British Columbia, encompassing the Peace River Arch, Deep Basin, Foothills and
Northeast British Columbia. The company also holds exploration acreage north of
the 60th parallel in both the Mackenzie Delta/Beaufort Sea and the Yukon.
Anderson's operations are divided into seven main regions of exploration
and development activity. This diversity enables Anderson to participate in a
broad arena of geological plays and to produce all types of hydrocarbons. Devon
believes that Anderson's portfolio of properties in western Canada provides
substantial exploration and development opportunities over the near and
intermediate term.
Anderson is an exploration leader in Canada's far north. The company is the
largest holder of exploration acreage in the Mackenzie Delta region of the
Northwest Territories and the shallow water Beaufort Sea area. Anderson's
diverse portfolio of northern properties exposes the company to additional
long-term exploration and development opportunities.
In fiscal 2000, Anderson achieved record cash flow from operations,
earnings and earnings per share, as well as the highest production levels in the
company's history. Also in fiscal 2000, Anderson replaced 283% of its natural
gas production, 325% of its crude oil production and 602% of its NGL production
with proved reserve additions. The company added 648 Bcf of proved natural gas
reserves, 34.5 MMbls of proved crude oil reserves and 25.0 MMBbls of proved NGL
reserves during fiscal 2000. On a Boe basis, Anderson replaced 316% of its
production with proved reserves in fiscal 2000.
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PROPERTIES OF THE COMBINED COMPANY
The following table shows the total proved reserves of Devon, Anderson and
Mitchell as of December 31, 2000, July 31, 2001 and June 30, 2001, respectively,
and on a combined basis:
<Table>
<Caption>
DEVON AS OF ANDERSON AS OF MITCHELL AS OF
DECEMBER 31, JULY 31, JUNE 30,
BY OPERATING AREA 2000 2001(1) 2001(2) COMBINED MBoe%
- ----------------- ------------ -------------- -------------- --------- -----
NORTH AMERICA -- MBOE:
United States -- Onshore........... 587,634 -- 415,342 1,002,976 49%
United States -- Offshore.......... 103,639 -- -- 103,639 5%
--------- --------- --------- --------- ----
Total United States...... 691,273 -- 415,342 1,106,615 54%
Canada............................. 127,948 531,451 -- 659,399 32%
--------- --------- --------- --------- ----
Total North America...... 819,221 531,451 415,342 1,766,014 86%
--------- --------- --------- --------- ----
INTERNATIONAL -- MBOE:
Azerbaijan......................... 104,222 -- -- 104,222 5%
Southeast Asia..................... 94,521 -- -- 94,521 5%
South America...................... 70,395 -- -- 70,395 3%
Other.............................. 9,007 -- -- 9,007 1%
--------- --------- --------- --------- ----
Total International...... 278,145 -- -- 278,145 14%
--------- --------- --------- --------- ----
Total Company............ 1,097,366 531,451 415,342 2,044,159 100%
========= ========= ========= ========= ====
BY PRODUCT
- -----------------------------------
OIL -- MBBLS:
United States...................... 225,537 -- 19,770 245,307 12%
Canada............................. 36,492 128,688 -- 165,180 8%
International...................... 197,215 -- -- 197,215 10%
--------- --------- --------- --------- ----
Total Company -- Oil..... 459,244 128,688 19,770 607,702 30%
========= ========= ========= ========= ====
NATURAL GAS -- MMCF:
United States...................... 2,521,307 -- 1,761,771 4,283,078 35%
Canada............................. 523,509 2,117,789 -- 2,641,298 22%
International...................... 413,368 -- -- 413,368 3%
--------- --------- --------- --------- ----
Total Company -- Natural
Gas.................... 3,458,184 2,117,789 1,761,771 7,337,744 60%
========= ========= ========= ========= ====
NGLS -- MBBLS:
United States...................... 45,518 -- 101,943 147,461 7%
Canada............................. 4,204 49,798 -- 54,002 2%
International...................... 12,035 -- -- 12,035 1%
--------- --------- --------- --------- ----
Total Company -- NGLs.... 61,757 49,798 101,943 213,498 10%
========= ========= ========= ========= ====
Total Company -- MBoe.... 1,097,366 531,451 415,342 2,044,159 100%
========= ========= ========= ========= ====
</Table>
- ---------------
(1) These volumes represent Devon's estimates of Anderson's reserves as of July
31, 2001.
(2) These volumes represent Devon's estimates of Mitchell's reserves on a "dry"
gas basis, which Devon uses to report its reserves.
PRIMARY OPERATING AREAS
Based upon the distribution of proved reserves, 86% of the combined
company's oil and gas operations will be within North America. The remainder is
in several other regions. Devon has organized its operations geographically into
five separate divisions. Each division controls an underlying base of producing
oil and gas wells and an inventory of undeveloped lands on which to explore for
new oil and gas
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reserves. Anderson's operations are located entirely in Canada. Mitchell's
operations are located entirely in the United States and primarily within the
state of Texas.
DEVON'S PROPERTIES
ROCKY MOUNTAIN DIVISION
The Rocky Mountain Division extends north from New Mexico and includes the
states of Colorado, Utah and Wyoming. Over a dozen oil and gas producing basins
are located in the Rocky Mountains. As of December 31, 2000, this area comprised
24% of Devon's proved oil and gas reserves.
Devon's Rocky Mountain assets include interests in conventional oil and gas
properties as well as three significant coalbed methane projects. The most
significant conventional properties in the division lie in the gas-prone
Washakie, Wind River, Big Horn and Green River basins in Wyoming. Significant
coalbed methane properties are located in the San Juan Basin in northwest New
Mexico and southern Colorado, the Powder River Basin in Wyoming and the Raton
Basin of northeast New Mexico.
Devon was a pioneer in the production of natural gas from underground coal
deposits, or coalbed methane. In the mid-1980s, Devon advanced one of the first
and most successful coalbed methane projects in the world -- the Northeast
Blanco Unit in the San Juan Basin. More than 15 years after its initial
development this property is still producing significant quantities of natural
gas.
Using the expertise gained in the San Juan Basin, Devon has established
significant positions in two additional coalbed methane plays in the Rocky
Mountains. In the Powder River Basin of Wyoming, Devon has drilled over 700
coalbed methane wells since 1998. It plans to drill more than 1,000 additional
wells in the Powder River Basin over the next few years. Additionally, Devon
controls a majority interest in a 126-mile gas gathering system servicing the
Powder River Basin that commenced operations in the third quarter of 1999. The
system has access to multiple interstate pipelines, and when fully developed,
will have an estimated capacity of 450 MMcf of gas per day. Devon is also
aggressively developing coalbed methane production in the Raton Basin of
northeast New Mexico and southeast Colorado. With an interest in approximately
280,000 prospective acres, Devon has one of the largest land positions in the
play and expects to drill about 100 Raton Basin wells in each of the next few
years.
PERMIAN BASIN/MID-CONTINENT DIVISION
Permian Basin. The Permian Basin encompasses approximately 66,000 square
miles in southeastern New Mexico and west Texas and contains more than 500 major
oil and gas fields. The area is characterized by prolific, long-lived oil and
gas production from numerous formations found at a wide variety of depths. The
Permian Basin represented 18% of Devon's proved reserves at December 31, 2000.
In the first half of 2001, Devon acquired an additional 140,000 net acres
in the Permian Basin. The acquired acreage included 90,000 net acres in Lea and
Eddy counties in New Mexico. This increased Devon's holdings in these counties
to 330,000 net acres and provides an estimated 400 additional potential drilling
locations. Devon is now one of the largest exploration and production companies
in the area.
Mid-Continent. The mid-continent area includes all or portions of the
states of Kansas, Oklahoma, Texas, Arkansas, Louisiana, Mississippi and Alabama.
The mid-continent covers a wide spectrum of geologic formations producing both
oil and natural gas. Advanced technologies such as 3-D seismic enable Devon to
study complex geologic environments and identify new exploratory prospects on
its extensive undeveloped acreage base. Application of nuclear magnetic
resonance logging and advanced fracture stimulation technology have enabled
exploitation of previously bypassed gas reserves in the Carthage-Bethany and
Sligo fields of east Texas and north Louisiana. At December 31, 2000, the
mid-continent area represented about 10% of Devon's proved reserves.
In the first half of 2001, Devon established a significant acreage position
in a coalbed methane project in the mid-continent. It acquired an average
working interest of almost 100% in over 370,000 acres in the
22
35
Cherokee and Arkoma Basins of southeast Kansas and northeast Oklahoma. Devon
expects to drill up to 400 wells per year with a target of 2,500 wells over the
life of the play.
GULF DIVISION
Offshore. At December 31, 2000, 9% of Devon's proved reserves were
attributable to the offshore Gulf of Mexico. The Gulf of Mexico is comprised of
two major operating areas, as defined by water depth. In the shallow "shelf"
area, in water depths up to 600 feet, Devon is among the largest oil and gas
producers. The shelf is a relatively mature producing region that is a vital
source of U.S. natural gas supply. Devon holds approximately 650,000 net acres
on the shelf, about one-half of which are developed.
The deepwater Gulf is a promising frontier area. The deepwater is believed
to hold some of the largest remaining undiscovered reserves in North America.
Devon holds 400,000 net acres in the deepwater Gulf of Mexico of which about 90%
are unexplored. Because deepwater exploration is capital intensive, the
company's strategy is to move cautiously. Devon generally avoids ultra-deep
water and focuses drilling efforts on prospects at water depths for which
production technology is well-established. The company also shares projects with
industry partners to further mitigate risk.
Onshore. Devon's Gulf Division includes operations onshore in south Texas
and south Louisiana. This area accounted for 2% of proved reserves at year-end
2000. This area has a well-established infrastructure of pipelines and
production facilities. In south Texas, where exploration for oil and gas is
accelerating, Devon has 3-D seismic data covering its major acreage positions.
Much of this acreage is prospective for production from the Charco Lobo, Middle
Wilcox and Frio-Vicksburg formations. The company's exploration efforts in south
Louisiana are focused on natural gas prospects in the lower, mid and upper
Miocene age formations.
CANADIAN DIVISION
Devon's Canadian operations are conducted through Northstar Energy, its
subsidiary headquartered in Calgary, Alberta. Canada accounted for 12% of
Devon's proved reserves at year-end 2000. On a stand-alone basis, Devon's
Canadian operations would rank 12th among independent producers in Canada.
Over one-third of Devon's Canadian oil and gas reserves are located in the
shallow gas areas of northern Alberta. Wells here range between 1,000 and 2,500
feet in depth and can be drilled quickly and inexpensively. Devon has become
quite efficient at drilling shallow gas wells in Alberta, and over the past
three years has cut its average drilling costs in half.
Devon also has an extensive acreage position in the northern foothills of
British Columbia and Alberta. This is a high-potential exploration area with
prospect sizes ranging from 50 Bcf to more than 100 Bcf of gas reserves. Devon
has drilled 12 wells here since 1998, with several notable successes. A major
pipeline company is now constructing transportation and processing facilities
into the area. Devon expects to commence production from the northern foothills
area in mid-2002.
INTERNATIONAL DIVISION
Approximately 25% of Devon's proved oil and gas reserves at December 31,
2000 were in countries outside North America. As one of the five largest
U.S.-based independents, Devon has the technical capabilities and financial
strength necessary to support an international exploration and production
effort. The company's international focus is on selected oil and gas provinces
outside North America that can provide reserve growth opportunities, access to
markets and favorable fiscal regimes. Devon's international operations are
concentrated in Azerbaijan, Southeast Asia, South America and Egypt. Devon also
operates a minor amount of production offshore Gabon and is conducting an
exploration program offshore Congo and Gabon in West Africa.
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MITCHELL'S PROPERTIES
Mitchell's operations are located almost entirely within the state of
Texas. The operations include exploration and production activities in North
Texas, East Texas and the Texas Gulf Coast as well as significant gas
transportation, processing and marketing operations.
EXPLORATION AND PRODUCTION OPERATIONS
In North Texas, Mitchell has held acreage in the Fort Worth Basin since the
1950s and originally focused most of its drilling activities on the shallow
conventional reservoirs above the Barnett Shale. Beginning in the early 1980s
Mitchell directed its efforts towards unlocking the gas producing potential of
the dense Barnett Shale. By the early 1990s, Mitchell was completing wells in
the Barnett Shale using traditional heavy gel fracturing techniques. In 1998,
Mitchell implemented the use of a new fracture completion technology in the
Barnett Shale referred to as light sand fracturing, or LSF. LSF injects large
volumes of water into the formation to create fissures within the rock that are
propped open with a small amount of sand. This contrasts with gel fracturing
where a smaller amount of water and a heavy gel are used to create fissures that
are propped open with large amounts of sand. LSF not only materially reduced
total well costs, but also allowed the completion of another section of the
formation that was not economical to develop with the more expensive gel frac.
The results were higher per well production rates and reserves.
Mitchell estimates that it is recovering only about 8% of the Barnett Shale
gas reserves in place on the current 55-acre well spacing. To increase the rate
of recovery, Mitchell is conducting pilot projects to evaluate the effectiveness
of 27-acre spacing. Depending on the results of these pilot projects, the
potential number of drillable locations on existing acreage could essentially be
doubled.
Mitchell has also used LSF to rework and refrac more than 130 existing
Barnett Shale wells that were originally completed with a conventional gel frac.
This has resulted in an average eight-fold increase in individual well
production rates with some wells actually producing at rates higher than when
they were originally completed. Mitchell plans to rework and refrac over 200
additional existing wells that were originally completed with gel fracturing.
In addition, Mitchell expects to refrac LSF wells one or more times over
their lives. Although none have been refraced to date because sufficient time
has not elapsed from the original drilling date, refracs of LSF wells are
expected to perform similarly to a refrac and rework of a conventional gel frac
well. Mitchell believes that 27-acre well spacing, multiple refrac and reworks
or some combination of the two will meaningfully raise recovery rates above the
current 8% level.
More recently, Mitchell successfully transferred this LSF technology to the
North Personville field in East Texas where it has been developing the Cotton
Valley Limestone formation over the past 20 years. The combination of LSF and a
reduction in well spacing from 160 acres to 80 acres is expected to
significantly increase reserves produced from the formation.
MIDSTREAM OPERATIONS
Mitchell's midstream operations are the largest among independent producers
in the United States. Mitchell owns 9,100 miles of natural gas transportation
pipelines, six natural gas processing plants, a one-third interest in an MTBE
plant and a 38.75% interest in an NGL fractionating plant. Concentration of
these facilities near Mitchell's core operating areas in Texas enables it to
gather approximately 87% of its own gas. About 46% of the NGLs produced at the
six plants is from Mitchell operated gas. The remaining 54% is from third party
operated gas. Mitchell markets its natural gas and NGL products primarily in the
Dallas-Fort Worth and Texas Gulf Coast areas and also has interconnects with
multiple interstate pipeline systems.
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ANDERSON'S PROPERTIES
Anderson's oil and gas operations are located entirely in western and
northern Canada. The company is one of the five largest independent Canadian oil
and natural gas producers. Anderson's properties provide a variety of
opportunities for production and reserve growth through exploration and
development. The operations and properties are divided into seven core areas.
The Peace River Arch in northern Alberta and British Columbia provides both
exploration and exploitation opportunities. Anderson acquired additional lands
in the area through its acquisitions of Ulster and Numac in 2000 and 2001,
respectively. Anderson holds 784,000 net undeveloped acres in the Peace River
Arch area. The area accounted for approximately 28% of the company's 2000 gross
production. Anderson's major properties in the Peace River Arch are in the
Dunvegan, Belloy, Normandville, Knopcik/Valhalla/Progress and Hines areas.
Anderson's average working interest in its Peace River Arch acreage is 75%.
The Foothills is a gas prone area that is in the early stages of
exploration and development. This area, which includes portions of eastern
British Columbia and western Alberta, accounted for approximately 5% of
Anderson's 2000 gross production. Anderson expects the area to account for a
greater percentage in the future. The Foothills area is characterized by large
natural gas prospects, with individual reserve targets often in excess of 50
Bcf. Anderson is pursuing exploration plays at Sherman Meadows, Narraway,
Findley and Bighorn. Anderson owns an average 56% working interest in its
Foothills lands, resulting in 340,000 net undeveloped acres. The company is
expanding or building processing and gas transmission facilities at various
locations on its Foothills lands, including a 135 MMcf per day gas plant at
Narraway.
The Northern Plains of Alberta accounted for approximately 25% of
Anderson's 2000 gross production. The majority of this production is from the
shallow gas fields in this area. Much of this land is accessible only in the
months of December through March, when the soft, wet ground is frozen solid.
Wells in the area are shallow, from 1,000 to 2,500 feet, and can be drilled
quickly and inexpensively. Anderson's average working interest in the area is
high, about 80%. Within the Northern Plains area are Lloydminster and Manatokan,
year round access areas dominated by primary (cold flow) heavy oil production.
The company owns 138,000 net undeveloped acres in these heavy oil properties and
has identified over 600 potential drilling locations. Heavy oil recovery on
primary production is in the range of 6% to 12%. Small increases in recovery
through advances in technology could add very significant additional reserves.
Anderson has doubled its net cold flow production in the past 12 months to
17,000 Bbls per day. Anderson also has a 13% working interest in Surmont.
Surmont is a thermal heavy oil project with an estimated 1 billion barrels of
recoverable reserves. Anderson is also evaluating a 100% owned thermal heavy oil
prospect at Christina Lake.
The Central/Southern Plains area accounted for approximately 17% of
Anderson's 2000 gross production. Anderson holds average working interests of
74% in the area. Significant oil and gas development projects are underway at
Wimborne, Ferrier and Elswick. Wimborne was part of the Ulster acquisition while
Ferrier and Elswick were part of the Numac acquisition.
The Deep Basin Area is located in west central Alberta. Anderson is one of
the three most active exploration companies in this area. This area consists of
sweet and sour deep gas production that is rich in liquids. This area is also
characterized by large, multi-zone targets. Anderson has built an extensive land
position in the Deep Basin consisting of 670,000 net undeveloped acres. Anderson
has considerable gas processing capacity in the area, including the 300 MMcf per
day Wapiti plant. Anderson acquired much of its land position in the Deep Basin
with its acquisition of Ulster. The area accounted for about 7% of Anderson's
2000 gross production and is expected to increase in significance in the future.
Anderson's average working interest in its Deep Basin acreage is 48%.
Northeast British Columbia holds multi-zone oil and gas potential. Anderson
has established a large land position in this area of low historical drilling
density, with an average working interest of 78%. Northeast British Columbia
accounted for 17% of Anderson's 2000 gross production. Production includes both
sweet and sour oil and gas.
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"North of 60" describes Anderson's operations in Canada's Northern Frontier
area. Anderson holds 1.3 million net acres in the Mackenzie Delta and shallow
water Beaufort Sea, making it the largest exploration acreage holder in the
region. In addition, Anderson holds a 100% interest in three exploration permits
on 262,000 acres in the Eagle Plain area of the Yukon Territory and a 100%
interest in a 318,000 acre exploration license in the Central Mackenzie Valley
in the Northwest Territories. Existing production, about 1% of Anderson's 2000
gross production, is from Kotaneelee in the southeast Yukon and from Fort Liard
in the southwest portions of the Northwest Territories.
DEVELOPED AND UNDEVELOPED ACREAGE
The following tables set forth Devon's, Anderson's and Mitchell's combined
developed and undeveloped oil and gas lease and mineral acreage on a pro forma
basis. The information for Devon and Mitchell is as of December 31, 2000. The
information for Anderson is as of June 30, 2001.
<Table>
<Caption>
DEVELOPED -- GROSS DEVELOPED -- NET
-------------------------------------- --------------------------------------
DEVON ANDERSON MITCHELL COMBINED DEVON ANDERSON MITCHELL COMBINED
----- -------- -------- -------- ----- -------- -------- --------
(IN THOUSANDS OF ACRES)
United
States -- Onshore....... 2,545 -- 682 3,227 1,342 -- 521 1,863
United
States -- Offshore...... 756 -- -- 756 383 -- -- 383
Canada.................... 879 3,194 -- 4,073 540 1,893 -- 2,433
International............. 387 -- -- 387 102 -- -- 102
----- ----- --- ----- ----- ----- --- -----
Total............ 4,567 3,194 682 8,443 2,367 1,893 521 4,781
===== ===== === ===== ===== ===== === =====
</Table>
<Table>
<Caption>
UNDEVELOPED -- GROSS UNDEVELOPED -- NET
--------------------------------------- ---------------------------------------
DEVON ANDERSON MITCHELL COMBINED DEVON ANDERSON MITCHELL COMBINED
------ -------- -------- -------- ------ -------- -------- --------
(IN THOUSANDS OF ACRES)
United
States -- Onshore..... 4,518 -- 388 4,906 2,549 -- 284 2,833
United
States -- Offshore.... 919 -- -- 919 653 -- -- 653
Canada.................. 3,117 12,095 -- 15,212 2,228 7,962 -- 10,190
International........... 19,419 -- -- 19,419 12,195 -- -- 12,195
------ ------ --- ------ ------ ----- --- ------
Total.......... 27,973 12,095 388 40,456 17,625 7,962 284 25,871
====== ====== === ====== ====== ===== === ======
</Table>
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COMPARATIVE PER SHARE DATA
The following table presents: (1) historical per share data for Devon; (2)
pro forma per share data for Devon after giving effect to the Anderson
acquisition; (3) historical per share data for Mitchell; and (4) pro forma per
share data of the combined company after giving effect to the merger and the
Anderson acquisition. The combined company pro forma per share data was derived
by combining information from the historical consolidated financial statements
of Devon, Anderson and Mitchell using the purchase method of accounting for the
merger and the Anderson acquisition. You should read this table in conjunction
with the historical consolidated financial statements of Devon and Mitchell that
are filed with the Securities and Exchange Commission and incorporated by
reference into this document. See "Additional Information -- Where You Can Find
More Information." You should also read this table in conjunction with the
historical consolidated financial statements of Anderson included elsewhere in
this document. You should not rely on the pro forma per share data as being
necessarily indicative of actual results had the merger and the Anderson
acquisition occurred in the past, or of future results.
<Table>
<Caption>
DEVON
PRO FORMA
AFTER COMBINED
DEVON ANDERSON MITCHELL COMPANY
HISTORICAL ACQUISITION(1) HISTORICAL PRO FORMA(2)
---------- -------------- ---------- ------------
Net earnings per share -- basic:
Year ended December 31, 2000......... $ 5.66 $ 6.70 $ 5.22 $ 6.68
Six months ended June 30, 2001(3).... 3.73 5.30 4.03 5.39
Net earnings per share -- diluted:
Year ended December 31, 2000......... 5.50 6.52 5.13 6.50
Six months ended June 30, 2001(3).... 3.59 5.09 3.95 5.19
Cash dividends per share:
Year ended December 31, 2000(4)(5)... 0.17 0.17 0.78 0.18
Six months ended June 30, 2001....... 0.10 0.10 0.27 0.10
Book value per share as of June 30,
2001................................. 29.79 29.79 16.26 34.17
</Table>
- ---------------
(1) Devon's pro forma data after the Anderson acquisition includes the effect of
the Anderson acquisition on the basis described in the notes to the
unaudited pro forma combined financial information included elsewhere in
this document.
(2) The combined company's pro forma data includes the effect of the merger and
the Anderson acquisition on the basis described in the notes to the
unaudited pro forma combined financial information included elsewhere in
this document.
(3) Devon's historical basic and diluted earnings per share for the six months
ended June 30, 2001 do not include the effect of a $49.5 million gain
related to the cumulative effect of a change in accounting principle. The
gain related to Devon's adoption as of January 1, 2001, of a new accounting
principle related to accounting for derivative financial instruments. The
$49.5 million gain represented $0.38 and $0.37 of basic and diluted earnings
per share, respectively, for the six months ended June 30, 2001.
(4) For the year ended December 31, 2000, Devon's annual dividends were paid at
the rate of $0.20 per share. However, the table above presents Devon's 2000
historical dividends at the rate of $0.17 per share. The difference is
caused by the merger with Santa Fe Snyder Corporation, which was completed
on August 29, 2000. Devon accounted for the Santa Fe Snyder merger using the
pooling-of-interests method of accounting and, accordingly, historical
results for the year ended December 31, 2000 are presented as though Devon
and Santa Fe Snyder had been combined for the entire year. Since Santa Fe
Snyder did not pay dividends on its common stock prior to the merger, the
combined 2000 dividends per share of the two companies totaled $0.17, as
opposed to Devon's stand-alone dividend rate of $0.20 per share.
(5) Prior to June 29, 2000, Mitchell had two classes of common stock. On June
29, 2000, following stockholder approval, Mitchell combined the two classes
of common stock into a single class. Mitchell's historical 2000 dividends
per share of $0.78 are presented as though the single class of stock had
existed for the entire year. The $0.78 per share of historical dividends in
2000 includes a special dividend of $0.25 per share.
27
40
MARKET PRICES AND DIVIDEND INFORMATION
Shares of Devon common stock are traded on the American Stock Exchange
under the symbol "DVN" and shares of Mitchell common stock are traded on the New
York Stock Exchange under the symbol "MND." The following table sets forth, for
the periods indicated, the range of high and low sales prices per share for
Devon common stock, on the American Stock Exchange, and Mitchell common stock,
on the New York Stock Exchange composite tape, as well as information concerning
quarterly cash dividends paid on such shares. The sales prices are as reported
in published financial sources.
<Table>
<Caption>
SHARES OF DEVON COMMON STOCK SHARES OF MITCHELL COMMON STOCK
------------------------------ ---------------------------------------------
HIGH LOW DIVIDENDS(1) HIGH LOW DIVIDENDS
------ ------ ------------ ------------ ------------ -------------
1999
First Quarter........... $31.75 $20.13 $ 0.05 Mitchell had two classes of common stock
Second Quarter.......... 37.44 25.94 0.05 until June 29, 2000. See the table below for
Third Quarter........... 44.94 33.00 0.05 market price and dividend information on the
Fourth Quarter.......... 42.00 29.50 0.05 two classes prior to their combination into
2000 one class of Mitchell common stock.
First Quarter........... 48.56 31.38 0.05
Second Quarter.......... 60.94 43.75 0.05
Third Quarter........... 62.56 42.56 0.05 $50.50 $28.81 $0.3825
Fourth Quarter.......... 64.74 48.00 0.05 64.00 43.25 0.1325
2001
First Quarter........... 66.30 53.78 0.05 62.50 44.50 0.1325
Second Quarter.......... 62.42 49.15 0.05 59.45 46.20 0.1325
Third Quarter (through
, 2001)....
</Table>
- ---------------
(1) Devon paid dividends on its common stock in 1999, 2000 and 2001 at a per
share rate of $0.05 per quarter. No dividends were paid during 1999 or 2000
on shares of Santa Fe Snyder common stock prior to the August 2000 merger
pursuant to which Santa Fe Snyder became a part of Devon. As adjusted for
the Santa Fe Snyder merger, which Devon accounted for using the
pooling-of-interests method of accounting, Devon's dividends per share
reported for accounting purposes are lower than the historical per share
rate of $0.05 per quarter. See "Summary -- Selected Historical Financial
Data of Devon."
Until June 29, 2000, Mitchell had two classes of common stock, Class A
shares and Class B shares. The two classes of Mitchell common stock were
combined on June 29, 2000 when each Class B share was changed and converted into
one Class A share. The following table sets forth, for the periods indicated,
the range of high and low sales prices per share for Class A and Class B shares
of Mitchell common stock on the New York Stock Exchange composite tape, as well
as information concerning quarterly cash dividends paid on such shares.
<Table>
<Caption>
SHARES OF MITCHELL COMMON STOCK
----------------------------------------------------------
CLASS A CLASS B
--------------------------- ----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------ ------ --------- ------- ------ ---------
1999
First Quarter................ $14.38 $10.50 $ 0.12 $15.00 $11.00 $0.1325
Second Quarter............... 19.31 12.63 0.12 18.75 12.81 0.1325
Third Quarter................ 24.44 17.56 0.12 23.50 17.19 0.1325
Fourth Quarter............... 25.25 21.25 0.12 24.81 21.00 0.1325
2000
First Quarter................ 24.50 20.25 0.12 24.44 20.13 0.1325
Second Quarter (through June
29, 2000)................. 32.00 20.50 0.1325 31.75 21.00 0.1325
</Table>
28
41
Devon is currently paying a regular quarterly cash dividend of $0.05 per
share. The payment of dividends by Devon in the future will depend on business
conditions, Devon's financial condition, earnings and other factors.
Mitchell has paid regular quarterly cash dividends for more than 20 years
and, if the merger is not completed as expected, Mitchell currently intends to
continue to pay regular quarterly cash dividends. The cash dividends of $0.3825
per share paid by Mitchell in the third quarter of 2000 included a special cash
dividend of $0.25 and, in making that payment, Mitchell emphasized that the
special cash dividend did not signal any future departure in the level of
regular quarterly cash dividends. If the merger is not completed as expected,
determination of the amount of future cash dividends to be declared and paid
will depend on, among other things, Mitchell's results of operations, cash
flows, anticipated capital requirements and restrictions contained in its debt
instruments.
29
42
THE SPECIAL MEETINGS
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
DEVON MITCHELL
- --------------------------------------------------------------------------------------------
TIME, PLACE AND , 2001 , 2001
DATE a.m., local time a.m., local time
Renaissance Oklahoma City Hotel MND Learning Center
Ten North Broadway 2002 Timberloch Place
Oklahoma City, Oklahoma The Woodlands, Texas
The meeting may be adjourned or The meeting may be adjourned or
postponed to another date or place postponed to another date or place
for proper purposes, including for for proper purposes, including for
the purpose of soliciting the purpose of soliciting
additional proxies. additional proxies.
- --------------------------------------------------------------------------------------------
PURPOSES - To consider and vote on the - To consider and vote on the
approval of the issuance of Devon approval of the Agreement and Plan
common stock in the merger of Merger, dated as of August 13,
contemplated by the Agreement and 2001, by and among Devon Energy
Plan of Merger, dated as of Corporation, Devon NewCo
August 13, 2001, by and among Corporation and Mitchell Energy &
Devon Energy Corporation, Devon Development Corp., as it may be
NewCo Corporation and Mitchell amended from time to time, which
Energy & Development Corp., as it contemplates the merger of
may be amended from time to time; Mitchell Energy & Development
and Corp. with and into Devon NewCo
Corporation, with Devon NewCo
- To transact other business as may Corporation being the surviving
properly be presented at the corporation of that merger and a
meeting or any adjournments of wholly owned subsidiary of Devon
the meeting. Energy Corporation; and
At the present time, Devon knows of - To transact other business as may
no other matters that will be properly be presented at the
presented for consideration at the meeting or any adjournments of
meeting. the meeting.
At the present time, Mitchell knows
of no other matters that will be
presented for consideration at the
meeting.
- --------------------------------------------------------------------------------------------
QUORUM Presence, in person or by proxy, of Presence, in person or by proxy, of
stockholders holding a majority of stockholders holding a majority of
the shares entitled to vote at the the shares entitled to vote at the
meeting. meeting.
- --------------------------------------------------------------------------------------------
RECORD DATE Close of business on , Close of business on ,
2001. 2001.
- --------------------------------------------------------------------------------------------
SHARES ENTITLED - You may vote at the Devon meeting - You may vote at the Mitchell
TO if you owned Devon common stock meeting if you owned Mitchell
VOTE or exchangeable shares issued by common stock as of the record
Devon's subsidiary, Northstar date.
Energy Corporation, as of the
record date. Holders of Devon - You may cast one vote for each
common stock and Northstar share of Mitchell common stock that
exchangeable shares will vote as you owned on the record date.
a single class.
- --------------------------------------------------------------------------------------------
</Table>
30
43
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
DEVON MITCHELL
- --------------------------------------------------------------------------------------------
- You may cast one vote for each
share of Devon common stock and one
vote for each Northstar
exchangeable share that you owned
on the record date.
- --------------------------------------------------------------------------------------------
RECOMMENDATIONS Devon's board of directors has, by Mitchell's board of directors has
OF THE BOARD a unanimous vote of those directors unanimously approved and adopted
OF DIRECTORS who attended the meeting, approved the merger agreement and determined
and adopted the merger agreement that the merger agreement and the
and determined that the merger merger are advisable and in the
agreement and the merger are best interests of Mitchell and its
advisable and in the best interests stockholders. Accordingly, the
of Devon and its stockholders. board recommends that Mitchell
Accordingly, the board recommends stockholders vote to approve the
that Devon stockholders vote to merger agreement.
approve the issuance of Devon
common stock in the merger.
- --------------------------------------------------------------------------------------------
VOTES REQUIRED - The affirmative vote of the - The affirmative vote, cast in
holders of at least a majority of person or by proxy, of the holders
the votes cast in person or by of at least two-thirds of the
proxy by holders of Devon voting shares of Mitchell common stock
stock is required to approve the outstanding on the record date is
issuance of Devon common stock in required for approval of the
the merger. merger agreement.
- Abstentions will not affect the - Abstentions will have the same
outcome of the vote. effect as votes against approval of
the merger agreement.
- Assuming a quorum is present, the
failure of a stockholder to vote - The failure of a stockholder to
in person or by proxy also will vote in person or by proxy will
not affect the outcome of the also have the effect of a vote
vote. against approval of the merger
agreement.
- --------------------------------------------------------------------------------------------
SHARES As of the record date, there were As of the record date, there were
OUTSTANDING shares of Devon voting shares of Mitchell common
stock outstanding and entitled to stock outstanding and entitled to
vote, consisting of vote.
shares of Devon common stock and
Northstar exchangeable
shares.
- --------------------------------------------------------------------------------------------
VOTING PROCEDURES A proxy card will be sent to each Devon and Mitchell stockholder of
record.
If you have timely and properly submitted your proxy, clearly indicated
your vote and have not revoked your proxy, your shares will be voted as
indicated. If you have timely and properly submitted your proxy but have
not clearly indicated your vote, your shares will be voted FOR the
proposal to approve the issuance of Devon common stock in the merger or
FOR the proposal to approve the merger agreement, as the case may be.
If any other matters are properly presented at the meeting for
consideration, the persons named in your proxy will have the discretion
to vote on these matters in accordance with their best judgment. Proxies
voted against the proposals related to the merger will not be voted in
favor of any adjournment of the meeting for the purpose of soliciting
additional proxies.
- --------------------------------------------------------------------------------------------
</Table>
31
44
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
DEVON MITCHELL
- --------------------------------------------------------------------------------------------
Voting by Holders of Devon Common Voting by Holders of Mitchell
Stock Common Stock
Each share of Devon common stock is Each share of Mitchell common stock
entitled to one vote at the is entitled to one vote at the
meeting. You may vote using any of meeting. You may vote using either
the following methods: of the following methods:
- phone the toll-free number listed - complete, sign and mail your
on your proxy card and follow the proxy card in the postage-paid
recorded instructions; envelope; or
- go to the Internet website listed - attend the meeting and vote in
on your proxy card and follow the person.
instructions provided;
- complete, sign and mail your
proxy card in the postage-paid
envelope; or
- attend the meeting and vote in
person.
- --------------------------------------------------------------------------------------------
Voting by Holders of Northstar
Exchangeable Shares
Each Northstar exchangeable share
is also entitled to one vote at the
meeting through a voting and
exchange trust agreement. Under
that agreement, CIBC Mellon Trust
Company, the trustee, is entitled
to exercise voting rights on behalf
of holders of Northstar
exchangeable shares. The trustee
holds one share of special voting
stock of Devon. The share of
special voting stock is entitled to
a number of votes equal to the
number of Northstar exchangeable
shares outstanding that are held by
persons other than Devon. Each
holder of Northstar exchangeable
shares, other than Devon, is
entitled to give the trustee voting
instructions for a number of votes
equal to the number of that
holder's Northstar exchangeable
shares. A voting direction card is
a means by which a holder of
Northstar exchangeable shares may
authorize the voting of his or her
voting rights at the meeting. The
trustee will exercise each vote
only as directed by the relevant
holders on the voting direction
card. In the absence of
instructions from a holder as to
voting, the trustee will not
exercise those votes. A holder of
Northstar exchangeable shares may
also
- --------------------------------------------------------------------------------------------
</Table>
32
45
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
DEVON MITCHELL
- --------------------------------------------------------------------------------------------
instruct the trustee to give him or
her a proxy entitling him or her to
vote personally the relevant number
of votes or to grant to Devon's
management a proxy to vote those
votes.
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Revocation Revocation
You may revoke your proxy at any You may revoke your proxy at any
time prior to its exercise by: time prior to its exercise by:
- giving written notice of - giving written notice of
revocation to the Corporate revocation to the Secretary of
Secretary of Devon; Mitchell;
- appearing and voting in person at - appearing and voting in person at
the Devon meeting; or the Mitchell meeting; or
- properly completing and executing - properly completing and executing
a later dated proxy and delivering a later dated proxy and delivering
it to the Corporate Secretary of it to the Secretary of Mitchell
Devon at or before the Devon at or before the Mitchell
meeting. meeting.
Your presence without voting at the Your presence without voting at the
meeting will not automatically meeting will not automatically
revoke your proxy, and any revoke your proxy, and any
revocation during the meeting will revocation during the meeting will
not affect votes previously taken. not affect votes previously taken.
- --------------------------------------------------------------------------------------------
Validity Validity
The inspectors of election will The inspectors of election will
determine all questions as to the determine all questions as to the
validity, form, eligibility validity, form, eligibility
(including time of receipt) and (including time of receipt) and
acceptance of proxies. Their acceptance of proxies. Their
determination will be final and determination will be final and
binding. Devon's board of directors binding. Mitchell's board of
has the right to waive any directors has the right to waive
irregularities or conditions as to any irregularities or conditions as
the manner of voting. Devon may to the manner of voting. Mitchell
accept your proxy by any form of may accept your proxy by any form
communication permitted by Delaware of communication permitted by Texas
law so long as Devon is reasonably law so long as Mitchell is
assured that the communication is reasonably assured that the
authorized by you. communication is authorized by you.
- --------------------------------------------------------------------------------------------
SOLICITATION OF The accompanying proxy is being The accompanying proxy is being
PROXIES solicited on behalf of Devon's solicited on behalf of Mitchell's
board of directors. The expenses of board of directors. The expenses of
preparing, printing and mailing the preparing, printing and mailing the
proxy and materials used in the proxy and materials used in the
solicitation will be borne by solicitation will be borne by
Devon. Mitchell.
Georgeson Shareholder Proxies may be solicited from
Communications, Inc., New York, New Mitchell stockholders by personal
York, has been retained by Devon to interview, telephone and telegram
aid in the solicitation of proxies by Mitchell's directors, officers
for a fee of $10,000 and the and employees, who will not receive
reimbursement additional compensation
- --------------------------------------------------------------------------------------------
</Table>
33
46
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
DEVON MITCHELL
- --------------------------------------------------------------------------------------------
of out-of-pocket expenses. Proxies for performing that service.
may also be solicited by personal Arrangements also will be made with
interview, telephone and telegram brokerage houses and other
by Devon's directors, officers and custodians, nominees and
employees, who will not receive fiduciaries for the forwarding of
additional compensation for proxy materials to the beneficial
performing that service. owners of Mitchell shares held by
Arrangements also will be made with those persons, and Mitchell will
brokerage houses and other reimburse them for any reasonable
custodians, nominees and expenses that they incur.
fiduciaries for the forwarding of
proxy materials to the beneficial
owners of Devon shares held by
those persons, and Devon will
reimburse them for any reasonable
expenses that they incur.
- --------------------------------------------------------------------------------------------
SHARES HELD General
IN STREET NAME
If you hold your shares in the name of a bank, broker or other nominee,
you should follow the instructions provided by your bank, broker or
nominee when voting your shares or when granting or revoking a proxy.
Absent specific instructions from you, your broker is NOT empowered to
vote your shares, also known as "broker non-votes."
- --------------------------------------------------------------------------------------------
Effect of Broker Non-Votes Effect of Broker Non-Votes
Broker non-votes will be counted as Broker non-votes will be counted as
present and represented at the present and represented at the
Devon meeting but will not effect Mitchell meeting and will have the
the outcome of the vote to approve same effect as a vote against
the issuance of Devon common stock approval of the merger agreement.
in the merger.
- --------------------------------------------------------------------------------------------
AUDITORS KPMG LLP serves as Devon's Arthur Andersen LLP serves as
independent auditors. Mitchell's independent auditors.
Representatives of KPMG LLP plan to Representatives of Arthur Andersen
attend the Devon meeting and will LLP plan to attend the Mitchell
be available to answer appropriate meeting and will be available to
questions. Its representatives will answer appropriate questions. Its
also have an opportunity to make a representatives will also have an
statement at the meeting if they so opportunity to make a statement at
desire, although it is not expected the meeting if they so desire,
that any statement will be made. although it is not expected that
any statement will be made.
- --------------------------------------------------------------------------------------------
</Table>
34
47
THE MERGER
BACKGROUND OF THE MERGER
For Mitchell, the proposed merger with Devon represents the culmination of
a lengthy and deliberate process.
In the late summer of 1999, Mitchell's board of directors determined to
explore strategic alternatives for the company in order to increase stockholder
returns. On October 6, 1999, Mitchell announced its engagement of Goldman, Sachs
& Co. and a predecessor firm of J.P. Morgan Securities Inc. to advise Mitchell
regarding strategic alternatives, including possible transactions that might
result in a sale or merger.
Over the next six months, Goldman Sachs and JPMorgan contacted on behalf of
Mitchell numerous parties, including Devon, as to their interest in
participating in an auction process leading to a possible business combination
with Mitchell. Conditions within the energy industry and the stock market during
the auction process were not, however, generally supportive of a business
combination at a price acceptable to Mitchell. At that point, Mitchell's board
of directors decided to terminate sales efforts.
In April 2000, Mitchell announced that, as a result of its review of
strategic alternatives, the company planned to continue operating as an
independent oil and gas company and to take several steps to improve its stock
price performance. These steps included (1) accelerating its development
drilling program, (2) expanding its North Texas gas processing facilities, (3)
reducing long-term debt and (4) combining its Class A and Class B common stock
into a single voting class. Mitchell believes that these efforts, combined with
a 50% increase in reserves at mid-year 2000, rapidly growing gas production
volumes, increasing gas prices and record earnings, contributed to a doubling of
Mitchell's stock price by the early fall of 2000 and the realization of a stock
trading multiple comparable to the leaders in the independent oil and natural
gas sector. By mid-fall of 2000, Mitchell's management felt that its future
outlook was promising enough to consider again a possible merger or sale of the
company. Discussions ensued with Mitchell's financial advisors about the
strategy and timing of such initiatives. Meanwhile, Mitchell's stock price
continued to increase throughout the remainder of 2000, reaching an all time
high of $64 per share in late December.
Beginning in late November and continuing into mid-December 2000, contacts
occurred between Mitchell's senior management and another independent oil and
gas company regarding that company's possible interest in pursuing a business
combination with Mitchell. Although no transaction resulted from these contacts,
in the course of discussions, several verbal merger proposals were made to
Mitchell. A final offer was made in early March 2001 that valued Mitchell at or
near the then current market price for Mitchell's stock. George P. Mitchell and
W.D. Stevens, Mitchell's Chief Executive Officer and Chief Operating Officer,
respectively, responded that the offer did not represent fair value for the
company's assets and, consequently, Mitchell was not interested in pursuing the
proposal. All negotiations were then terminated. Throughout this process,
Mitchell management kept Mitchell's board of directors informed.
In the spring of 2001, George P. Mitchell, who was then the majority
stockholder of the company, decided to sell a significant block of his Mitchell
shares to meet certain personal estate planning, financial and philanthropic
goals. Specifically, in early May 2001, Mr. Mitchell sold 4.7 million shares of
Mitchell common stock in an underwritten public offering at a price to the
public of $53 per share. Mr. Mitchell retained Bracewell & Patterson, L.L.P. to
represent his personal interests in this offering.
Later in May 2001, Mitchell asked its two financial advisors, during the
course of their routine contacts with a select group of energy companies, to
make these companies aware of Mitchell's openness to a possible sale or merger.
Some of these contacts expressed a possible interest, but no meaningful
follow-up by them resulted. Subsequently, however, representatives of Goldman
Sachs and JPMorgan informally inquired of several of Devon's executive officers
whether or not Devon might be interested in assessing a possible business
combination with Mitchell. These inquiries met with a positive response from
Devon. Selected publicly available information regarding Mitchell was provided
to Devon.
35
48
On June 14, 2001, a meeting among J. Larry Nichols, Chairman, President and
Chief Executive Officer of Devon, another executive officer of Devon, Mr.
Stevens and Mitchell's Chief Financial Officer occurred in Houston, Texas. At
that meeting, Mitchell management confirmed Devon's interest in evaluating a
possible business combination in light of Mitchell's transaction expectations in
order to ensure that neither company would be wasting time and effort, as had
happened with Mitchell earlier in the year. Satisfied that there was a
reasonable basis for proceeding, the parties agreed generally on a schedule for
beginning the evaluation process. On June 21, 2001, Mitchell entered into a
confidentiality agreement with Devon. Shortly thereafter Devon commenced a due
diligence investigation of Mitchell. Over the next several weeks, Mitchell
furnished Devon with confidential evaluation materials in several meetings which
took place between senior operating management of the two companies. Management
of both companies informed the boards of directors of their respective companies
of these meetings.
On August 7, 2001, Mr. Nichols submitted a letter to Mitchell's financial
advisors proposing that Devon acquire Mitchell for cash of $30 per share and
0.585 of a share of Devon common stock for each share of Mitchell common stock.
The letter stated that the proposal would expire on August 17, 2001. The
Mitchell board of directors held a meeting the next day, August 8, 2001, at the
company's offices in Houston. At that meeting, Mitchell's management, together
with representatives of Mitchell's financial advisors and outside counsel,
reviewed with Mitchell's board of directors the proposal contained in Mr.
Nichols' August 7 letter as well as background information on Devon. Mitchell's
board of directors authorized Mitchell's management to negotiate with Devon.
Later that same day, August 8, a representative of Goldman Sachs telephoned
Mr. Nichols on behalf of Mitchell to inform him that Mitchell's board of
directors had considered Devon's proposal and to discuss the board's response to
that proposal.
At about this same time, Devon engaged UBS Warburg LLC to act as its
financial advisor in connection with its possible acquisition of Mitchell.
Mr. Nichols, in the course of a telephone conversation on the evening of
August 9 with a representative of Goldman Sachs, responded to the issues raised
by Mitchell's board of directors in considering Devon's August 7 proposal,
including the proposed merger consideration. Mr. Nichols stated that Devon was
prepared to raise the cash portion of its offer to $31 per share. Mr. Nichols
insisted that Devon would require Mr. and Mrs. George P. Mitchell to grant Devon
an irrevocable proxy to vote their Mitchell shares in connection with the merger
and an option to purchase those shares.
In telephone conversations on August 10, Mr. Stevens and a representative
of Goldman Sachs discussed with Mr. Nichols the proposed terms of the merger and
asked Devon to increase its offer again. Mr. Nichols refused to do so. Finally,
Messrs. Stevens and Nichols agreed to meet in Houston over the next several
days, together with their respective management teams, financial advisors and
legal counsel, to complete mutual due diligence and to determine if Devon and
Mitchell could agree on merger terms and if Devon could reach agreement with Mr.
and Mrs. George P. Mitchell on contractual support for the merger. Later that
same day, Devon instructed its outside legal counsel, Mayer, Brown & Platt, to
commence documentation of the proposed merger as well as the proposed
contractual arrangements between Devon and Mr. and Mrs. Mitchell.
The Devon and Mitchell groups met as proposed at the Houston offices of
Vinson & Elkins L.L.P. beginning on Saturday, August 11, and continuing until
the early evening of Monday, August 13. They were joined by Mr. and Mrs. George
P. Mitchell's legal counsel. At his initial meeting with Devon's General Counsel
and its outside legal counsel, Mayer, Brown & Platt, on August 11, Mr. and Mrs.
Mitchell's legal counsel explained his clients' objection to the proposed grant
of an option to Devon to purchase their Mitchell shares. In view of the
relatively large number of Devon shares that Mr. and Mrs. Mitchell would receive
in the proposed merger, Mr. and Mrs. Mitchell's legal counsel also requested
that Devon grant Mr. and Mrs. Mitchell both demand and "piggyback" registration
rights. He indicated, however, that Mr. and Mrs. Mitchell were generally
agreeable to entering an agreement with Devon to vote in favor of the merger and
not to sell their Mitchell shares during the next two years. By the following
Monday, August 13, Devon had reached the agreements with Mr. and Mrs. Mitchell
that are
36
49
embodied in the principal shareholders agreement and the investor rights
agreement described under "Agreements among Devon, George P. Mitchell and
Cynthia Woods Mitchell."
Mayer, Brown & Platt presented Mitchell and its outside legal counsel,
Vinson & Elkins L.L.P., with a draft of the proposed merger agreement early on
Saturday evening, August 11. Over the ensuing 48-hour period, Devon and Mitchell
negotiated and documented a definitive merger agreement. For a description of
the terms of the definitive merger agreement, see "The Merger Agreement."
During the course of negotiations in Houston on August 11 and 12, Mitchell
and Devon and their financial advisors also completed their respective due
diligence work.
During the afternoon of Monday, August 13, 2001, Mitchell's board of
directors met at the company's offices in Houston to discuss the proposed
transaction. After a management presentation, a member of Vinson & Elkins L.L.P.
presented to Mitchell's board of directors an overview of the terms and
conditions of the proposed merger agreement and advised the board as to its
fiduciary duties. Mr. and Mrs. Mitchell's legal counsel summarized for
Mitchell's board of directors the terms and conditions of the proposed principal
shareholders agreement and investor rights agreement among Devon and Mr. and
Mrs. Mitchell. Representatives of Goldman Sachs and JPMorgan then provided their
respective financial analyses with regard to the proposed merger agreement.
Goldman Sachs and JPMorgan then delivered their respective opinions to
Mitchell's board of directors to the effect that, as of that date and subject to
the assumptions and other matters set forth in the opinions, the consideration
to be received by the holders of Mitchell common stock pursuant to the merger
agreement was fair from a financial point of view to the holders. For a
discussion of the opinions of Goldman Sachs and JPMorgan, see "-- Opinions of
Financial Advisors -- Opinion of Goldman, Sachs & Co. -- Financial Advisor to
Mitchell" and "-- Opinion of J.P. Morgan Securities Inc. -- Financial Advisor to
Mitchell." Based on the information presented, Mitchell's board of directors
unanimously approved and adopted the merger agreement and determined that the
merger agreement and the merger are advisable and in the best interests of
Mitchell and its stockholders. Mitchell's board of directors also adopted a
resolution recommending to Mitchell stockholders that they vote FOR approval of
the merger agreement.
On August 13, 2001, Devon's board of directors also met to discuss the
proposed transaction. During that meeting, Devon's General Counsel and a
representative of Mayer, Brown & Platt presented to Devon's board of directors
and discussed with the board a legal overview of the terms and conditions of the
proposed merger agreement and the proposed principal shareholders agreement and
investor rights agreement among Devon and Mr. and Mrs. Mitchell. Representatives
of Devon's management and UBS Warburg LLC then provided an overview of
Mitchell's assets and a description of the combined company to Devon's board of
directors. UBS Warburg LLC also discussed with the board a strategic and
financial overview of the proposed merger. UBS Warburg LLC then delivered its
opinion to Devon's board of directors to the effect that the consideration to be
paid by Devon to holders of Mitchell common stock pursuant to the merger
agreement was fair to Devon from a financial point of view as of that date. For
a discussion of UBS Warburg LLC's opinion, see "-- Opinions of Financial
Advisors -- Opinion of UBS Warburg LLC -- Financial Advisor to Devon." Based on
the information presented, Devon's board of directors, by a unanimous vote of
those directors who attended the meeting, approved and adopted the merger
agreement and determined that the merger agreement and the merger are advisable
and in the best interests of Devon and its stockholders. Devon's board of
directors also adopted a resolution recommending to Devon stockholders that they
vote FOR approval of the issuance of Devon common stock in the merger.
Devon purchased 100 shares of Mitchell common stock from Mr. Mitchell for
$6,212 and the merger agreement, the principal shareholders agreement and the
investor rights agreement were signed after the close of trading on August 13,
2001. Devon and Mitchell issued a joint press release announcing the merger the
following morning before the stock markets opened.
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RECOMMENDATION OF MITCHELL'S BOARD OF DIRECTORS AND REASONS FOR THE MERGER
Mitchell's board of directors has unanimously approved and adopted the
merger agreement and determined that the merger agreement and the merger are
advisable and in the best interests of Mitchell and its stockholders.
Accordingly, the board recommends that Mitchell stockholders vote to approve the
merger agreement.
Mitchell's board of directors considered various factors, including the
following, in unanimously approving the merger agreement and the merger (the
order does not reflect the relative significance):
- Merger Consideration -- The value of the merger consideration, as of
August 13, 2001, represented a 32% premium over the closing price of
Mitchell's common stock on that date and, in the board's view, was the
only offer it had received for the company that appropriately reflected
the company's enterprise value. The merger agreement requires Devon to
pay approximately $1.6 billion and to issue approximately 30.2 million
shares of its common stock to Mitchell stockholders. Accordingly,
Mitchell stockholders will obtain in the merger cash for a substantial
portion of the value of their shares and will also have the opportunity
to participate in any post-merger appreciation in the value of Devon
common stock.
- Increased Liquidity -- The combined company's common stock will be traded
on the American Stock Exchange in substantially greater dollar volumes
than that of Mitchell on the New York Stock Exchange, providing greater
liquidity for Mitchell stockholders and for new institutional investors.
- Complementary Assets and Diversification -- Mitchell's operations and its
reserves are concentrated in North Texas, East Texas and along the Texas
Gulf Coast, complementing Devon's core operating areas elsewhere in the
United States. Mitchell's largest field, the Newark East Barnett Shale
field in North Texas, will also add a new high-growth core area to
Devon's domestic natural gas assets and operations. Further, Devon's
United States, Canadian and international oil and gas operations will
provide Mitchell stockholders with a more diversified exploration and
exploitation portfolio. Lastly, Mitchell is one of the nation's largest
independent producers of NGLs, and Mitchell's NGL assets will expand
considerably Devon's midstream business.
- Industry Leadership Position -- Devon and Mitchell together produced
approximately 1.4 Bcf of natural gas per day in the United States during
the second quarter of 2001, and the combined company (without giving
effect to Devon's acquisition of Anderson) will be the second largest
independent natural gas producer in the United States in terms of total
per day natural gas production. Based on year-end 2000 reserve
information and on a pro forma basis, Mitchell's merger with Devon will
increase Devon's proved reserves by approximately 38% to 1.5 billion Boe.
- Strong Pro Forma Financial Profile -- Devon has a strong balance sheet
and its debt securities carry higher ratings than Mitchell's debt
securities. Mitchell's board of directors believes that the pro forma
financial profile of the combined company will result in an improved
ability to increase reserves and production through expanded exploration
and development drilling programs than had Mitchell elected to remain
independent.
- Tax Consequences of the Merger -- The merger is structured to be tax
free, for U.S. federal income tax purposes, to Devon, Mitchell and their
respective stockholders, except to the extent that Mitchell stockholders
receive cash in the merger.
- Opinions of Financial Advisors -- Mitchell's board of directors also
considered the presentations and opinions of both Goldman Sachs and
JPMorgan described elsewhere in this document to the effect that, based
on their assumptions and other matters stated in their respective
opinions, the consideration to be received by holders of Mitchell's
common stock pursuant to the merger agreement was fair from a financial
point of view to the holders as of the date of those opinions.
On September 7, 2001, Mitchell's board of directors met to discuss Devon's
proposed acquisition of Anderson and the impact of that transaction on
Mitchell's proposed merger with Devon. After a
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management presentation, representatives of JPMorgan reviewed with Mitchell's
board of directors a financial analysis of the potential impact of the Anderson
transaction on the proposed merger. JPMorgan then delivered its oral opinion,
subsequently confirmed in writing, to Mitchell's board of directors to the
effect that, as of that date and subject to the assumptions and other matters
set forth in its written opinion dated as of September 7, 2001, the
consideration to be received by the holders of common stock of Mitchell in the
proposed merger with Devon was fair, from a financial view, to the holders.
Based on the information presented with respect to the Anderson transaction and
its impact on the proposed merger, Mitchell's board of directors confirmed, by a
unanimous vote of those directors present at the meeting, its earlier
determination that the merger agreement and the merger are advisable and in the
best interests of Mitchell and its stockholders.
The preceding discussion of the information and factors considered and
given weight by Mitchell's board of directors is not intended to be exhaustive.
However, Mitchell's board of directors believes that the discussion includes all
of the material factors that it considered. In reaching its decision to approve
and to recommend approval to Mitchell stockholders of the merger agreement,
Mitchell's board of directors did not assign any relative or specific weights to
the factors it considered. Individual directors may have given different weights
to different factors.
Mitchell's board of directors realizes that there are risks associated with
the merger, including the risks that:
- the operations of the two companies may not be successfully integrated;
and
- the merger might not be completed as a result of a failure to satisfy the
conditions contained in the merger agreement.
These factors and additional factors are discussed more fully under "Risk
Factors." However, Mitchell's board of directors believes that the positive
factors should outweigh any negative factors, although Mitchell's board of
directors can give no assurances in this regard.
RECOMMENDATION OF DEVON'S BOARD OF DIRECTORS AND REASONS FOR THE MERGER
Devon's board of directors has, by a unanimous vote of those directors who
attended the meeting, approved and adopted the merger agreement and determined
that the merger agreement and the merger are advisable and in the best interests
of Devon and its stockholders. Accordingly, the board recommends that Devon
stockholders vote to approve the issuance of Devon common stock in the merger.
The merger is part of Devon's overall business strategy for growth through
exploration and development of existing properties and through strategic mergers
and acquisitions. Following Devon's acquisitions of Anderson and Mitchell, Devon
will be the largest independent natural gas producer in North America based on
pro forma production for the quarter ended June 30, 2001. In reaching its
decision to approve and adopt the merger agreement, Devon's board of directors
consulted with Devon's management, as well as its financial and legal advisors.
Devon's board of directors believes that Devon and its stockholders will benefit
from the merger for the following reasons (the order does not reflect the
relative significance):
- Per Share Accretion -- Devon anticipates that the merger will provide
accretion, to varying degrees, in cash margin per share, earnings per
share, reserves per share and production per share on a pro forma basis
to varying degrees, although the combination of both Anderson and
Mitchell with Devon is expected to be dilutive to earnings per share in
the near term.
- Growth Oriented Asset Base -- Devon believes that there are significant
development and exploitation projects in each of Mitchell's core areas.
Devon expects these exploitation and development projects to provide
Devon with relatively low-risk (geological and technical) opportunities
to increase production for the next several years. Devon also anticipates
that the midstream business will grow significantly during the next two
years. Devon expects that this growth will come not only from the
expected production growth, but also from additional processing
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capacity and efficiency to be realized from the investment of over $200
million that Mitchell has made over the last two years to expand and
upgrade its midstream facilities.
- Marketing and Transportation Opportunities -- The pipeline infrastructure
that Mitchell owns currently transports gas both from Mitchell's wells
and from third parties' wells. These pipelines have multiple direct
connections to end users of natural gas and to major interstate pipelines
that can take gas to the east, midwest and southeast portions of the
United States. Because the Mitchell pipelines have capacity to accept
additional gas, Devon expects that these facilities will provide Devon an
opportunity to deliver and sell its own gas to the most favorable of the
multiple markets that the pipelines serve. In addition, the gas produced
from Mitchell's Texas fields, when aggregated with Devon's east Texas and
Permian Basin gas production, is expected to provide Devon with increased
ability to negotiate the sale of its natural gas production.
- Midstream Opportunities -- Natural gas production often contains NGLs,
which can either be (1) left in the natural gas stream and sold along
with the natural gas or (2) extracted from the natural gas at a
processing facility and sold separately, depending on the quality of the
liquid, as pentane, butane, propane or similar products. The decision of
whether to sell the liquids with the gas stream or to extract the liquids
and sell them separately is based on a number of factors, including (1)
access to a processing facility; (2) fees charged by such facilities; and
(3) prices for natural gas and the separated liquids. Generally,
extracting the liquids and selling them separately results in more value
per Mcf produced than selling the natural gas with the liquids.
Mitchell's natural gas produced from the Barnett Shale, and natural gas
produced from some of Devon's other properties in the area, contain NGLs.
Owning Mitchell's processing facilities is expected to give Devon:
- the ability to increase the value of Devon's own natural gas
production;
- additional revenue from processing third party natural gas; and
- a significant share of the regional NGL supply, which should enhance
Devon's ability to negotiate the sale of NGL production.
In addition to its tangible cash generating value, Devon believes that
there is significant intangible value to Mitchell's midstream business.
Although Devon currently has midstream operations associated with
existing producing properties, the merger would increase the size of
Devon's midstream assets by more than eight-fold. The addition of these
assets and the employees specialized in their operation is expected to
enable Devon to deepen and broaden its knowledge and experience base in
this business. It will also provide Devon a much larger platform on which
to build.
- Knowledge and Experience with a Unique Technology -- In 1998, Mitchell
began implementing a new fracture completion technology referred to as
light sand fracturing, or LSF. This technology has significant intangible
value to Devon. LSF costs materially less than more traditional hydraulic
fracturing techniques. This has made it economical to expand development
of the Barnett Shale. Devon believes that LSF technology can be used on
other Devon assets to enhance recoveries and economics. Devon views the
merger as an opportunity to gain Mitchell's experience and expertise with
a lower-cost technology that is not yet widely used.
- Increased Exposure to North American Natural Gas -- Mitchell's reserves
are in excess of 70% natural gas. Devon's reserves would increase from
53% natural gas to approximately 58% natural gas on a pro forma basis
after giving effect to the merger. Given the current supply/demand
balance within the North American natural gas market and the outlook for
this market, Devon believes that increasing its exposure to North
American natural gas is opportune.
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- Larger Size -- The combined company (without giving effect to Devon's
acquisition of Anderson) will be the fourth largest oil and gas company
in North America, based on enterprise value. There are several intangible
advantages to the larger size:
- Devon expects to have even greater liquidity in the market for its
shares;
- Based on Devon's prior experience with making acquisitions, the
combined company's larger size should allow Devon to consider future
transactions that would not otherwise be possible; and
- The combined company's larger size is expected to give Devon greater
marketing, purchasing and operating strengths.
- Opinion of Financial Advisor -- Devon's board of directors also
considered the presentation and opinion of UBS Warburg LLC described
elsewhere in this document to the effect that, based on its assumptions
and other matters stated in its opinion, the merger consideration to be
paid by Devon in the merger was fair from a financial paint of view to
Devon as of the date of the opinion.
The preceding discussion of the information and factors considered and
given weight by Devon's board of directors is not intended to be exhaustive.
However, Devon's board of directors believes that the discussion includes all of
the material factors that it considered. In reaching its decision to approve the
merger agreement and the transactions that it contemplates and to recommend
approval to Devon stockholders of the issuance of Devon common stock in the
merger, Devon's board of directors did not assign any relative or specific
weights to the factors it considered. Individual directors may have given
different weights to different factors.
Devon's board of directors realizes that there are risks associated with
the merger, including the risks that:
- the operations of the two companies may not be successfully integrated;
- the merger might not be completed as a result of a failure to satisfy the
conditions contained in the merger agreement;
- Mitchell's significant investment in the Barnett Shale may not generate
the benefits expected by Devon;
- the combined company may not realize the accretion that Devon expects
from the merger to its reserves per share, production per share or cash
margin per share; and
- Mitchell has significant assets located near large population centers in
North Texas, which makes it particularly sensitive to regulatory or
environmental issues relating to these large population centers.
These factors and additional factors are discussed more fully under "Risk
Factors." However, Devon's board of directors believes that the positive factors
should outweigh any negative factors, although Devon's board of directors can
give no assurances in this regard.
OPINIONS OF FINANCIAL ADVISORS
OPINION OF GOLDMAN, SACHS & CO. -- FINANCIAL ADVISOR TO MITCHELL
On August 13, 2001, Goldman Sachs delivered its opinion to Mitchell's board
of directors that as of the date of the opinion and based on and subject to the
various qualifications and assumptions described in the opinion, the
consideration to be received by the holders of shares of Mitchell common stock
pursuant to the merger agreement was fair from a financial point of view to such
holders.
The full text of the written opinion of Goldman Sachs, dated August 13,
2001, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached as Annex D.
You are urged to, and should, read the Goldman Sachs opinion in its entirety.
Goldman Sachs conducted its analysis and provided its opinion for the
information and assistance of Mitchell's board of directors in connection with
its consideration of the transactions contemplated by the
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merger agreement at the meeting of Mitchell's board of directors on August 13,
2001. Goldman Sachs has not been requested by Mitchell's board of directors to
update its analysis or its opinion for events occurring subsequent to August 13,
2001. As a result, neither Goldman Sachs' analysis nor its opinion takes into
account any events or circumstances relating to Mitchell or Devon that occurred
after the meeting of Mitchell's board of directors on August 13, 2001, including
the effects of Devon's proposed acquisition of Anderson on the closing of the
merger and on Devon in the future. The Goldman Sachs opinion is not a
recommendation as to how any Mitchell stockholder should vote with respect to
the approval of the merger agreement.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- annual reports to stockholders and annual reports on Form 10-K of
Mitchell for the year ended December 31, 2000 and for the four fiscal
years ended January 31, 2000;
- annual reports to stockholders and annual reports on Form 10-K of Devon
for the five years ended December 31, 2000;
- interim reports to stockholders and quarterly reports on Form 10-Q of
Mitchell and Devon, including a draft report on Form 10-Q of Devon for
the six-month period ended June 30, 2001;
- other communications from Mitchell and Devon to their respective
stockholders;
- reports of Mitchell management with respect to the estimated oil and gas
reserves of Mitchell;
- reports of Devon management with respect to the estimated oil and gas
reserves of Devon; and
- internal financial analyses and forecasts for Mitchell and Devon prepared
by their respective managements, including certain cost savings and
operating synergies projected by the managements of Mitchell and Devon to
result from the merger.
Goldman Sachs also held discussions with the senior management of each of
Mitchell and Devon regarding their assessment of the strategic rationale for,
and the potential benefits of, the merger and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, Goldman Sachs:
- reviewed the reported price and trading activity for shares of Mitchell
common stock and shares of Devon common stock;
- compared financial and stock market information for Mitchell and Devon
with similar information for certain other companies that have publicly
traded securities;
- reviewed the financial terms of certain recent business combinations in
the oil and gas industry specifically and in other industries generally;
and
- performed other studies and analyses that Goldman Sachs considered
appropriate.
Goldman Sachs relied on the accuracy and completeness of all of the
financial, accounting and other information discussed with or reviewed by it and
assumed such accuracy and completeness for purposes of rendering its opinion. In
that regard, Goldman Sachs assumed, with the consent of Mitchell's board of
directors, that the financial forecasts prepared by the managements of Mitchell
and Devon have been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of Mitchell and Devon. In addition, Goldman
Sachs did not make an independent evaluation or appraisal of the assets and
liabilities of Mitchell or Devon or any of their subsidiaries and, except for
the reserve reports provided by Devon's and Mitchell's management, was not
furnished with any such evaluation or appraisal. The financial forecasts and
other information provided to Goldman Sachs did not include any effects of
Devon's proposed acquisition of Anderson.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to Mitchell's board of
directors on August 13, 2001. This summary does not
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purport to be a complete description of the analyses performed by Goldman Sachs.
The following summary of the financial analyses include information presented in
tabular form. In order to more fully understand each financial analysis used by
Goldman Sachs, each table must be read together with the full text of the
related part of the summary.
Selected Companies Analysis -- Mitchell. Goldman Sachs reviewed and
compared selected financial information, ratios and public market multiples
relating to Mitchell to corresponding financial information, ratios and public
market multiples for the following six publicly traded companies:
- Burlington Resources Inc.;
- Cross Timbers Oil Company;
- EOG Resources, Inc.;
- Louis Dreyfus Natural Gas Corp.;
- Newfield Exploration Company; and
- Noble Affiliates, Inc.
Goldman Sachs calculated and compared various financial multiples and
ratios based on the most recent publicly available information. The multiples
and ratios for Mitchell and each of the six selected companies were calculated
using closing share prices as of August 10, 2001. Goldman Sachs' analyses of the
selected companies compared the following to the results for Mitchell:
- closing share price on August 10, 2001 as a percentage of the highest
share price over the prior 52-week period;
- closing share price on August 10, 2001 as a multiple of First Call mean
estimated discretionary cash flow ("DCF") per share for 2001 and 2002;
- total enterprise value, which is the market value of common equity plus
preferred stock plus minority interest plus total debt less working
capital, as a multiple of estimated debt adjusted cash flow, which is DCF
plus after-tax interest expense ("DACF"), for 2001 and 2002; and
- closing share price on August 10, 2001 as a multiple of First Call mean
estimated earnings per share for 2001 and 2002.
The results of these analyses are summarized as follows:
SELECTED PUBLICLY TRADED OIL AND GAS COMPANIES
<Table>
<Caption>
RANGE MEAN MEDIAN MITCHELL
----------- ----- ------ --------
August 10, 2001 closing share price as a
percentage of 52-week high share price......... 57.3%-75.5% 65.0% 63.4% 70.3%
August 10, 2001 closing share price as a multiple
of First Call mean estimated 2001 DCF per
share.......................................... 2.9x-4.3x 3.3x 3.2x 4.0x
August 10, 2001 closing share price as a multiple
of First Call mean estimated 2002 DCF per
share.......................................... 3.3x-5.2x 3.9x 3.7x 4.2x
Total enterprise value as a multiple of estimated
2001 DACF...................................... 3.7x-5.3x 4.4x 4.2x 4.5x
Total enterprise value as a multiple of estimated
2002 DACF...................................... 4.1x-6.2x 5.1x 5.1x 4.8x
August 10, 2001 closing share price as a multiple
of First Call mean estimated 2001 earnings per
share.......................................... 6.5x-10.9x 8.4x 8.3x 7.5x
August 10, 2001 closing share price as a multiple
of First Call mean estimated 2002 earnings per
share.......................................... 8.6x-17.6x 13.7x 13.7x 8.9x
</Table>
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Goldman Sachs also compared the following for the selected companies:
- total enterprise value per Mcfe of proved reserves;
- proved reserves as a multiple of production; and
- percentage of proved gas reserves.
The results of these analyses are summarized as follows:
SELECTED PUBLICLY TRADED OIL AND GAS COMPANIES
<Table>
<Caption>
MITCHELL WITH
RESERVES AS OF
RANGE MEAN MEDIAN DECEMBER 31, 2000
------------ ----- ------ -----------------
Total enterprise value per Mcfe of
proved reserves....................... $0.90- $2.09 $1.23 $1.06 $1.73
Proved reserves as a multiple of
production............................ 5.5x- 12.6x 10.4x 11.2x 10.0x
% proved gas reserves................... 62%- 89% 79% 79% 95%
</Table>
Selected Companies Analysis -- Devon. Goldman Sachs also reviewed and
compared selected financial information, ratios and public market multiples
relating to Devon to corresponding financial information, ratios and public
market multiples for the following eight publicly traded companies:
- Anadarko Petroleum Corporation;
- Apache Corporation;
- Burlington Resources Inc.;
- EOG Resources, Inc.;
- Kerr-McGee Corporation;
- Murphy Oil Corporation;
- Ocean Energy, Inc.; and
- Unocal Corporation.
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Goldman Sachs calculated and compared the same financial multiples and
ratios that were used with respect to Mitchell based also on the most recent
publicly available information and closing share prices as of August 10, 2001.
The results of these analyses are summarized as follows:
SELECTED PUBLICLY TRADED OIL AND GAS COMPANIES
<Table>
<Caption>
RANGE MEAN MEDIAN DEVON
----------- ----- ------ -----
August 10, 2001 closing share price as a
percentage of 52-week high share price...... 57.3%-89.3% 77.4% 78.8% 74.6%
August 10, 2001 closing share price as a
multiple of First Call mean estimated 2001
DCF per share............................... 3.3x-4.5x 3.9x 3.9x 3.6x
August 10, 2001 closing share price as a
multiple of First Call mean estimated 2002
DCF per share............................... 3.6x-5.4x 4.5x 4.5x 4.3x
Total enterprise value as a multiple of
estimated 2001 DACF......................... 4.0x-5.9x 5.0x 5.1x 3.7x
Total enterprise value as a multiple of
estimated 2002 DACF......................... 5.0x-6.7x 5.7x 5.6x 4.5x
August 10, 2001 closing share price as a
multiple of First Call mean estimated 2001
earnings per share.......................... 7.6x-11.5x 9.8x 10.2x 8.4x
August 10, 2001 closing share price as a
multiple of First Call mean estimated 2002
earnings per share.......................... 9.8x-17.6x 13.8x 14.3x 12.9x
</Table>
Goldman Sachs also calculated and compared the same reserve multiples and
ratios used with respect to Mitchell for Devon and the selected companies with
operations similar to Devon. The results of these analyses are summarized as
follows:
SELECTED PUBLICLY TRADED OIL AND GAS COMPANIES
<Table>
<Caption>
DEVON WITH
RESERVES AS OF
RANGE MEAN MEDIAN DECEMBER 31, 2000
------------ ----- ------ -----------------
Total enterprise value per Mcfe of
proved reserves...................... $1.05-$1.66 $1.34 $1.33 $1.10
Proved reserves as a multiple of
production........................... 8.7x-12.6x 10.1x 9.8x 8.9x
% proved gas reserves.................. 26%-88% 56% 52% 53%
</Table>
Premium Analysis. Goldman Sachs reviewed the historical trading prices for
Mitchell common stock and compared the closing prices to the $60.13 implied per
share value of the consideration to be received by the holders of Mitchell
common stock in the merger based on the closing price of Devon common stock as
of August 10, 2001. The following table presents the premium of such implied per
share value to the closing prices of Mitchell common stock for the periods
presented.
PREMIUM ANALYSIS
<Table>
<Caption>
CLOSING PRICE PREMIUM
------------- -------
August 10, 2001............................................. $44.97 34%
30-day Average.............................................. 45.08 33
60-day Average.............................................. 47.69 26
5-year High................................................. 64.00 (6)
5-year Low.................................................. 9.63 525
52 Week High................................................ 64.00 (6)
52 Week Low................................................. 32.17 87
</Table>
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Selected Transactions Analysis. Goldman Sachs analyzed publicly available
information relating to 19 selected transactions in the oil and gas exploration
and production industry since 1998. Goldman Sachs' analyses of the selected
transactions compared the following to the results for Mitchell:
- the percentage premium of the announced transaction price over the
acquired company's undisturbed market price;
- equity value as a multiple of DCF (one and two years forward); and
- reserve value, which is enterprise value less the value of nonreserve
assets, to proved reserves.
The following table summarizes the results of the selected transactions
analysis:
SELECTED TRANSACTIONS ANALYSIS
<Table>
<Caption>
MITCHELL AT DEVON
OFFER WITH RESERVES
RANGE MEDIAN AS OF MAY 31, 2001
----------- ------ -------------------
Percentage premium over undisturbed price...... 6%-61% 31% 34%
Equity value as a multiple of DCF:
1 year forward............................... 3.1x-10.3x 4.4x 5.4x
2 years forward.............................. 1.5x-9.6x 4.4x 5.7x
Reserve value/proved reserves.................. $0.60-$1.57 $0.91 $1.06
</Table>
The following table summarizes the results of those of the selected
transactions in which gas comprised more than 60% of reserves:
<Table>
<Caption>
MITCHELL AT DEVON
OFFER WITH RESERVES
RANGE MEDIAN AS OF MAY 31, 2001
----------- ------ -------------------
Percentage premium over undisturbed price...... 19%-61% 28% 34%
Equity value as a multiple of DCF:
1 year forward............................... 3.8x-8.6x 4.6x 5.4x
2 years forward.............................. 4.1x-9.6x 4.4x 5.7x
Reserve value/proved reserves.................. $1.08-$1.57 $1.22 $1.06
</Table>
Financial Analysis of 3-Year Forecast. Goldman Sachs performed analyses to
determine the present values as of August 10, 2001 of hypothetical future stock
prices for Mitchell and future Mitchell dividends at Mitchell's current
quarterly rate. These analyses were based on Mitchell management's three-year
financial forecast, including its oil and gas pricing assumptions, and were
calculated on the basis of both price to discretionary cash flow terminal
multiples and enterprise value to debt adjusted cash flow terminal multiples.
The following tables present the ranges of present values indicated by
these analyses.
BASED ON PRICE/DISCRETIONARY CASH FLOW TERMINAL MULTIPLES
<Table>
<Caption>
TERMINAL YEAR 2002E TERMINAL YEAR 2003E
- -------------------------------------------------------------- --------------------------------------------------------------
EQUITY DISCOUNT RATE EQUITY DISCOUNT RATE
TERMINAL ------------------------------------------ TERMINAL ------------------------------------------
MULTIPLES 8.0% 9.0% 10.0% 11.0% 12.0% MULTIPLES 8.0% 9.0% 10.0% 11.0% 12.0%
- --------- ------ ------ ------ ------ ------ --------- ------ ------ ------ ------ ------
3.0X............ $36.79 $36.45 $36.12 $35.80 $35.48 3.0X.............. $38.20 $37.51 $36.84 $36.19 $35.55
3.5X............ 42.83 42.44 42.06 41.68 41.31 3.5X.............. 44.40 43.60 42.82 42.06 41.32
4.0X............ 48.88 48.43 48.00 47.57 47.14 4.0X.............. 50.60 49.69 48.80 47.93 47.09
4.5X............ 54.93 54.43 53.93 53.45 52.97 4.5X.............. 56.81 55.78 54.78 53.81 52.86
5.0X............ 60.97 60.42 59.87 59.33 58.80 5.0X.............. 63.01 61.87 60.76 59.68 58.62
</Table>
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BASED ON ENTERPRISE VALUE/DEBT ADJUSTED CASH FLOW TERMINAL MULTIPLES
<Table>
<Caption>
TERMINAL YEAR 2002E TERMINAL YEAR 2003E
- -------------------------------------------------------------- --------------------------------------------------------------
EQUITY DISCOUNT RATE EQUITY DISCOUNT RATE
TERMINAL ------------------------------------------ TERMINAL ------------------------------------------
MULTIPLES 8.0% 9.0% 10.0% 11.0% 12.0% MULTIPLES 8.0% 9.0% 10.0% 11.0% 12.0%
- --------- ------ ------ ------ ------ ------ --------- ------ ------ ------ ------ ------
3.5X............ $39.30 $38.94 $38.59 $38.25 $37.91 3.5X.............. $43.58 $42.79 $42.03 $41.28 $40.56
4.0X............ 45.49 45.08 44.67 44.27 43.88 4.0X.............. 49.87 48.97 48.09 47.24 46.41
4.5X............ 51.68 51.21 50.75 50.29 49.85 4.5X.............. 56.17 55.15 54.16 53.20 52.26
5.0X............ 57.87 57.34 56.82 56.31 55.81 5.0X.............. 62.46 61.33 60.23 59.16 58.12
5.5X............ 64.06 63.48 62.90 62.34 61.78 5.5X.............. 68.76 67.51 66.30 65.12 63.97
</Table>
In addition, Goldman Sachs performed analyses with respect to the present
values as of August 10, 2001 of hypothetical future stock prices for Mitchell
and Mitchell dividends based on Mitchell management's forecasts as adjusted to
reflect alternative assumptions as to future oil and gas pricing. The following
table presents the ranges of present values indicated by the analyses using
alternative pricing assumptions identified by Mitchell management and assuming
the same range of discount rates and terminal multiples.
<Table>
<Caption>
ALTERNATIVE 1 PRICING ALTERNATIVE 2 PRICING
--------------------------- ---------------------------
TERMINAL YEAR TERMINAL YEAR
--------------------------- ---------------------------
2002E 2003E 2002E 2003E
------------ ------------ ------------ ------------
Based on price/discretionary cash
flow terminal multiples............ $38.64-66.44 $33.47-59.28 $36.85-63.33 $37.28-66.10
Based on enterprise value/debt
adjusted cash flow terminal
multiples.......................... $42.47-70.90 $38.23-64.66 $39.88-67.02 $43.35-72.89
</Table>
Mitchell Net Asset Valuation Analysis. Goldman Sachs analyzed the present
value of the net assets of Mitchell based on projections provided by Mitchell's
management, including estimates with respect to future production for proved,
probable and possible reserves based on a reserve summary prepared by Mitchell's
management as of May 31, 2001 and financial projections with respect to
Mitchell's natural gas gathering, processing and marketing assets, and oil and
gas pricing forecasts provided by Mitchell's management. The results of these
analyses suggested a range of net asset values of $47.89 to $63.27 per share of
Mitchell common stock. Goldman Sachs also performed these analyses on the net
asset values using two alternative oil and gas pricing assumptions provided by
Mitchell's management. Based on these alternative pricing assumptions, these
analyses suggested a range of net asset values of $44.32 to $56.69 per share of
Mitchell common stock using Alternative 1 pricing and $52.25 to $68.10 per share
of Mitchell common stock using Alternative 2 pricing.
Pro Forma Merger Analysis. Goldman Sachs prepared a pro forma analysis of
the financial impact of the merger on Devon. The analysis was based on First
Call mean estimates as of August 10, 2001 and guidance from Mitchell and Devon
management, and assumed $10 million and $20 million in pre-tax synergies in 2002
and 2003, respectively.
This analysis indicated that the merger would be accretive to Devon -- that
is, would represent an addition -- to both 2002 and 2003 estimated earnings per
share and 2002 and 2003 estimated discretionary cash flow per share.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses and did not attribute
any particular weight to any factor or analysis considered by it. Rather,
Goldman Sachs made its determination on the basis of its experience and
professional judgment after considering the results of all of these analyses. No
company or transaction used in the above analyses as a comparison is directly
comparable to Mitchell or Devon or the transaction contemplated by the merger
agreement.
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The analyses were prepared as of August 13, 2001 solely for purposes of
providing an opinion to Mitchell's board of directors as to the fairness from a
financial point of view of the consideration to be received by the holders of
shares of Mitchell common stock in the merger. The analyses do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based on forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based on numerous factors or events
beyond the control of the parties or their respective advisors, none of
Mitchell, Devon, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast.
As described above, Goldman Sachs' opinion was one of many factors taken
into consideration by Mitchell's board of directors in making its determination
to approve the merger agreement and the merger. The foregoing summary does not
purport to be a complete description of the analyses performed by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
Goldman Sachs is familiar with Mitchell, having provided certain investment
banking services to Mitchell from time to time, including having acted as a
co-managing underwriter of a public offering in May 2001 of Mitchell common
stock, and having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the merger agreement.
Goldman Sachs has also provided certain investment banking services to Devon
from time to time and may provide investment banking services to Devon in the
future.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Mitchell or Devon for its own account and for the accounts of customers.
Pursuant to a letter agreement dated August 27, 1999, Mitchell engaged
Goldman Sachs to act as its financial advisor in connection with various
financial alternatives available to it, including a possible merger or sale of
Mitchell. Pursuant to the terms of that agreement, Mitchell has agreed to pay
Goldman Sachs a fee in cash upon consummation of the merger equal to 0.5% of the
aggregate consideration paid in connection with the merger. Mitchell has also
agreed to reimburse Goldman Sachs for reasonable out-of-pocket expenses,
including attorneys' fees, and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
OPINION OF J.P. MORGAN SECURITIES INC. -- FINANCIAL ADVISOR TO MITCHELL
On August 13, 2001 and on September 7, 2001, JPMorgan delivered its oral
opinions, subsequently confirmed in writing, to Mitchell's board of directors,
to the effect that, as of those dates and based on and subject to certain
matters stated in its written opinions, the merger consideration to be received
by the holders of Mitchell common stock in the merger was fair, from a financial
point of view, to the holders.
The full text of the JPMorgan's opinion, dated as of September 7, 2001,
which sets forth the assumptions made, factors considered and limitations on the
review undertaken by JPMorgan in rendering this opinion, is attached as Annex E.
JPMorgan's written opinions were addressed to Mitchell's board of directors,
were directed only to the merger consideration to be received by the holders of
Mitchell common stock in the merger and did not constitute a recommendation to
any Mitchell stockholder as to how such stockholder should vote on the merger or
any other matter. The following summary of the material provisions of JPMorgan's
opinion dated as of September 7, 2001 is qualified by reference to the opinion.
Mitchell stockholders are urged to read JPMorgan's opinion in its entirety.
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In arriving at its opinion, JPMorgan, among other things:
- reviewed the merger agreement and the principal shareholders agreement;
- reviewed the acquisition agreement between Devon and Anderson dated
August 31, 2001;
- compared certain publicly available business and financial information
concerning Mitchell, Devon and Anderson and the industries in which they
operate;
- compared the proposed financial terms of the merger and the Anderson
acquisition with the publicly available financial terms of certain
transactions involving companies deemed relevant and the consideration
received for such companies;
- compared the financial and operating performance of Mitchell, Devon and
Anderson with publicly available information concerning certain other
companies deemed relevant and the current and historical market prices of
Mitchell's, Devon's and Anderson's common stock and certain other
publicly traded securities of those other companies;
- reviewed certain internal financial analyses and forecasts prepared by
the managements of Mitchell and Devon relating to their respective
businesses and certain financial analyses and forecasts prepared by the
management of Devon with respect to Anderson's business;
- reviewed certain internal financial analyses and forecasts prepared by
certain engineering consultants, including each of LaRoche Petroleum
Consultants, Ryder Scott Company Petroleum Consultants and Paddock
Lindstrom & Associates relating to the oil, gas and natural gas liquids
reserves of Devon as of December 31, 2000; and
- reviewed other financial studies and analyses and other information
deemed relevant by JPMorgan.
JPMorgan held discussions with certain members of the managements of
Mitchell and Devon with respect to certain aspects of the merger, and the past
and current business operations of Mitchell and Devon, the financial condition
and future prospects and operations of Mitchell and Devon, the effects of the
merger on the financial condition and future prospects of Mitchell and Devon,
and certain other matters believed necessary or appropriate to JPMorgan's
inquiry. JPMorgan also held discussions with certain members of Devon with
respect to certain aspects of the Anderson acquisition, and the past and current
business operations of Anderson, the financial condition and future prospects
and operations of Anderson, the effects of the acquisition on the financial
condition and future prospects of Devon, and certain other matters JPMorgan
believed necessary or appropriate to its inquiry. JPMorgan noted that it relied
solely upon its discussions with, and other materials, including financial
forecasts, provided to it by, Devon in connection with JPMorgan's review of
Anderson, and that JPMorgan did not receive any financial forecasts or other
non-public information from Anderson.
In rendering its opinion, JPMorgan relied on and assumed, without
independent verification, the accuracy and completeness of all information that
was publicly available or that was furnished to it by Mitchell, Devon and the
engineering consultants 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
(other than the reserve reports written by the engineering consultants) been
provided to it. 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
Mitchell, Devon and Anderson to which such analyses or forecasts relate. In
addition, JPMorgan assumed that the merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes, and that the other
transactions contemplated by the merger agreement will be consummated as
described in the merger agreement and the parties to the principal shareholders
agreement will perform their obligations under that agreement necessary for the
merger to be effected. JPMorgan further assumed that the Anderson acquisition
and the other transactions contemplated by the acquisition agreement will be
consummated as described in the acquisition agreement. JPMorgan further assumed
that all material governmental, regulatory or other consents necessary for the
consummation of
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the merger and the Anderson acquisition will be obtained without any adverse
effect on Mitchell, Devon or Anderson or on the contemplated benefits of the
merger or the Anderson acquisition.
The projections furnished to JPMorgan for Mitchell and Devon were prepared
by the respective managements of each company and the projections furnished to
JPMorgan for Anderson were prepared by the management of Devon. Neither Mitchell
nor Devon publicly discloses internal management projections of the type
provided to JPMorgan in connection with JPMorgan's analysis of the merger
consideration, and such projections were not prepared with a view toward public
disclosure. These projections were based on numerous variables and assumptions
that are inherently uncertain and may be beyond the control of management,
including, without limitation, factors related to general economic and
competitive conditions and prevailing interest rates. Accordingly, actual
results could vary significantly from those set forth in such projections.
JPMorgan's opinions were necessarily based on economic, market and other
conditions as in effect on, and the information made available to JPMorgan as
of, the dates of its opinions. Subsequent developments may affect the written
opinion dated as of September 7, 2001, and JPMorgan does not have any obligation
to update, revise or reaffirm such opinion. JPMorgan's opinions were limited to
the fairness, from a financial point of view, of the consideration to be
received by the holders of Mitchell common stock and JPMorgan expressed no
opinion as to the underlying decision by Mitchell to engage in the merger.
JPMorgan expressed no opinion as to the price at which Mitchell's or Devon's
common stock will trade at any future time.
JPMorgan's opinions noted that, although JPMorgan worked for Mitchell from
August 1999 through April 2000, that engagement did not result in the
consummation of a transaction. Since that time and in connection with the
preparation of its opinions dated as of August 13, 2001 and as of September 7,
2001, 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
Mitchell or any other alternative transaction. Therefore, JPMorgan assumed that
such terms were the most beneficial terms from Mitchell'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 Mitchell stockholders 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 opinions. The following is
a summary of the material financial analyses utilized by JPMorgan in connection
with delivering its opinion dated as of August 13, 2001.
Analysis of Mitchell
Net Asset Value Analysis. JPMorgan conducted a net asset value analysis to
determine the net asset value per share of Mitchell's common stock. Using
financial forecasts provided by Mitchell's management, JPMorgan estimated
Mitchell's net asset value by discounting the projected after-tax cash flows
from Mitchell's exploration and production business at rates of 8% to 10% and
Mitchell's natural gas gathering, processing and marketing business, referred to
as its midstream business, at rates of 10% to 12%.
For the exploration and development business, free cash flows derived from
production of existing reserves were discounted to July 31, 2001, based on
management's current production forecast. Cash flows were taxed at an effective
rate of 35%, with adjustments for certain existing tax assets that were valued
at approximately $100 million in the aggregate. Based on the foregoing, this
analysis indicated a value range for the exploration and production business of
approximately $1,661 million to $1,895 million.
For the midstream business, free cash flows derived from financial
forecasts provided by Mitchell's management for 2001 to 2005 were discounted to
July 31, 2001. Cash flows were taxed at an effective rate of 35%. The present
value of the 2005 terminal value was derived by applying a 6x to 8x multiple to
2005 projected EBITDA for the business and discounting this estimate at the
above stated range of rates. Based on the foregoing, this analysis indicated a
value range for the midstream business of approximately $1,038 million to $1,397
million.
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JPMorgan then calculated an implied net asset value by summing the above
value ranges and subtracting from this sum the net indebtedness of Mitchell and
adding the value of current net working capital, both of which values came from
Mitchell's June 30, 2001 unaudited financial statements. Based on the foregoing,
this analysis implied a net asset value range of between approximately $52 and
$57 per share of Mitchell common stock on a fully diluted basis, compared to the
implied value of the consideration to be received in the merger of $60.13 per
share of Mitchell common stock, based on the closing price per share of Devon
common stock on August 10, 2001 of $49.79. In addition, JPMorgan calculated an
implied asset value associated with further development of infill drilling
locations and the refracturing of existing wells, which implied an incremental
$2 of value per share of Mitchell common stock on a fully diluted basis.
Comparable Public Companies Analysis. Using publicly available
information, JPMorgan compared certain financial and operating information and
ratios for Mitchell with corresponding financial and operating information and
ratios for the following five exploration and production companies:
- Cabot Corporation;
- EOG Resources, Inc.;
- Louis Dreyfus Natural Gas Corp.;
- Noble Affiliates, Inc.; and
- XTO Energy Inc.
This analysis indicated that:
- the ratio of the firm value to projected 2002 EBITDAX ranged from 3.8x to
4.6x, with a mean of 4.3x and a median of 4.5x; and
- the ratio of the equity value to projected 2002 cash flow ranged from
3.3x to 4.2x, with a mean and median of 3.7x.
This analysis indicated a range of implied prices per share of Mitchell's
common stock on a fully-diluted basis of approximately $42 to $48 value per
share by applying a range of 4.0x to 4.5x for the ratio of equity value to
projected 2002 cash flow. JPMorgan also calculated a range of implied prices per
share of Mitchell's common stock of approximately $44 to $50 by applying a range
of 4.0x to 4.5x for the ratio of firm value to 2002 estimated EBITDAX, compared
to the implied value of the consideration to be received in the merger of $60.13
per share of Mitchell common stock, based on the closing price per share of
Devon common stock on August 10, 2001 of $49.79.
Premiums Paid Analysis. JPMorgan reviewed the premiums paid in selected
business combinations in the oil and gas exploration and production industry.
The transactions considered and the month and year in which each transaction was
announced were:
- Westport Resources Corporation's acquisition of Belco Oil & Gas Corp.
(June 2001);
- Conoco Inc.'s acquisition of Gulf Canada Resources Limited (May 2001);
- Kerr-McGee Corporation's acquisition of HS Resources, Inc. (May 2001);
- The Williams Companies, Inc. acquisition of Barrett Resources Corporation
(March 2001);
- Calpine Corporation's acquisition of Encal Energy Ltd. (February 2001);
- Anadarko Petroleum Corporation's acquisition of Berkely Petroleum Corp.
(December 2000);
- Pogo Producing Company's acquisition of NORIC Corporation (the parent of
North Central Oil Corporation) (November 2000);
- Gulf Canada Resources Limited's acquisition of Crestar Energy Inc.
(October 2000);
- Forest Oil Corporation's acquisition of Forcenergy Inc. (July 2000);
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- Devon Energy Corporation's acquisition of Santa Fe Snyder Corporation
(May 2000); and
- Anadarko Petroleum Corporation's acquisition of Union Pacific Resources
Group Inc. (April 2000).
For each transaction listed above, JPMorgan calculated the premium
represented by the offer price over the target company's share price for the
period one day, one week and one month prior to the date of the transaction's
announcement. The analysis indicated that:
- the premium to the share price one day prior to the announcement ranged
from negative 4% to 61%, with a mean of 21.9% and a median of 21.0%;
- the premium to the average share price one week prior to the announcement
ranged from negative 2% to 63%, with a mean of 25.9% and a median of
28.7%; and
- the premium to the average share price one month prior to the
announcement ranged from 4% to 55%, with a mean of 31.2% and a median of
32.0%.
JPMorgan calculated a range of implied prices per share of Mitchell's
common stock by applying the median figures listed above to the corresponding
average closing share price of Mitchell's common stock for the periods one day,
one week and one month prior to the announcement. This analysis indicated an
implied offer price per share of Mitchell's common stock on a fully diluted
basis of approximately $54, $58 and $59, respectively, compared to the implied
value of the consideration to be received in the merger of $60.13 per share of
Mitchell common stock, based on the closing price per share of Devon common
stock on August 10, 2001 of $49.79.
Selected Transaction Analysis. Using publicly available information,
JPMorgan examined selected transactions in the oil and gas exploration and
production industry to value Mitchell's exploration and production business. The
transactions selected were the same transactions listed above in the premiums
paid analysis. In addition, JPMorgan examined certain transactions involving
companies with significant midstream operations in order to value Mitchell's
midstream business.
The analysis of the exploration and production transactions indicated that:
- the consideration paid in the transaction divided by the most recently
disclosed quantity of estimated reserves, on a dollars per millions of
cubic feet equivalent, referred to as Mcfe, basis, ranged from $0.84 to
$1.40, with a mean of $1.14 and a median of $1.19; and
- the ratio of transaction value to projected two-year forward EBITDAX
ranged from 3.6x to 8.1x, with a mean of 5.2x and a median of 5.0x.
The analysis of the midstream transactions indicated that:
- the ratio of transaction value to LTM EBITDA ranged from 6.3x to 13.4x,
with a mean of 8.9x and a median of 8.4x.
Based on the ranges of multiples derived from the above analyses, JPMorgan
calculated the implied firm value of Mitchell by selecting a range of +/- 10%
around the median value from each of the above metrics and applying these ranges
to the relevant Mitchell statistics. JPMorgan combined the exploration and
production value derived by applying the range of values paid per Mcfe to the
range of values derived for the midstream business to arrive at a value per
share of Mitchell common stock on a fully diluted basis of approximately $60 to
$70. JPMorgan combined the exploration and production value derived by applying
the range of EBITDAX multiples to the range of values derived for the midstream
business to arrive at a value per share of Mitchell common stock on a fully
diluted basis of approximately $54 to $65, compared to the implied value of the
consideration to be received in the merger of $60.13 per share of Mitchell
common stock, based on the closing price per share of Devon common stock on
August 10, 2001 of $49.79.
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Analysis of Devon
Comparable Public Company Analysis. Using publicly available information,
JPMorgan compared certain financial and operating information and ratios for
Devon with corresponding financial and operating information and ratios for the
following companies in lines of business believed to be generally comparable to
those of Devon:
- Anadarko Petroleum Corporation;
- Apache Corporation;
- Burlington Resources Inc.;
- EOG Resources, Inc.;
- Kerr-McGee Corporation;
- Ocean Energy, Inc.; and
- Unocal Corporation.
This analysis indicated that:
- the ratio of the firm value to projected 2002 EBITDAX ranged from 4.2x to
6.2x, with a mean of 4.9x and a median of 4.8x;
- the ratio of the equity value to projected 2002 cash flow ranged from
3.6x to 5.4x, with a mean and median of 4.5x; and
- the ratio of firm value to total reserves on a dollars per Mcfe basis
ranged from $0.98 to $1.55, with a mean of $1.24 and a median of $1.20.
Using First Call consensus estimates of 2002 EBITDAX and cash flow, and
Devon's most recently published reserve estimate, and applying a ratio of equity
value to projected 2002 cash flow of between 4.0x and 5.0x, a ratio of firm
value to projected 2002 EBITDAX of between 4.25x and 5.25x and ratio of firm
value to total reserves on a dollars per Mcfe basis of between $1.10 and $1.30,
this analysis indicated a range of implied per share values of Devon common
stock on a fully diluted basis of approximately $46 to $57, $53 to $67 and $50
to $60, respectively, compared to the closing price per share of Devon common
stock on August 10, 2001 of $49.79.
Net Asset Value Analysis. JPMorgan conducted a net asset value analysis to
determine the net asset value per share of Devon's common stock. Using financial
forecasts provided by Devon's management, JPMorgan estimated Devon's net asset
value by discounting Devon's projected after-tax cash flows from Devon's
exploration and development business at rates of 8% to 10%. Cash flows derived
from production of existing reserves were discounted to July 31, 2001, based on
management's current production forecast. Cash flows were taxed at an effective
rate of 38%. Based on the foregoing, this analysis indicated a value range for
Devon's exploration and production business of approximately $9,746 million to
$10,877 million.
JPMorgan then calculated an implied net asset value by subtracting from
this range the net indebtedness of Devon and adding the value of current net
working capital, both of which values came from Devon's June 30, 2001 unaudited
financial statements. Based on the foregoing, this analysis implied a net asset
value range of between approximately $68 and $76 per share of Devon common stock
on a fully diluted basis, compared with the closing price per share of Devon
common stock on August 10, 2001 of $49.79.
Pro Forma Merger Analysis. JPMorgan also analyzed the pro forma effects of
the merger on the projected cash flow of Devon for fiscal year 2002 based on
projections provided by the managements of Mitchell and Devon. Incorporating
assumptions with respect to various structural considerations, transaction and
financing costs and estimated annual synergies of $20 million to be realized in
2002, this analysis indicated that the merger would be accretive to cash flow
and dilutive to earnings per share of Devon common stock in 2002.
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In connection with its written opinion dated as of September 7, 2001, in
addition to the matters set forth in that opinion, JPMorgan reviewed the
analysis used to render its August 13, 2001 opinion by performing procedures to
update certain analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection therewith.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by JPMorgan. The preparation of an opinion
regarding fairness 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 on which JPMorgan
based its analyses are set forth above under the description of each 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 comparable companies used in the comparable public companies
analysis described above is identical to Mitchell or Devon, and none of the
comparable transactions used in the comparable transactions 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 advise Mitchell with respect to the
merger and deliver an opinion to Mitchell's board of directors with respect to
the merger on the basis of such experience and JPMorgan's familiarity with
Mitchell.
For services rendered in connection with the merger and the delivery of its
opinion, Mitchell has agreed to pay JPMorgan customary fees where the aggregate
consideration will be determined by the average of the last sales price for
Devon common stock on the five trading days ending prior to the consummation of
the merger, payable upon the closing of the merger. Mitchell has agreed to pay
JPMorgan an additional customary fee in connection with JPMorgan's analysis of
the potential financial impact of Devon's proposed acquisition of Anderson on
the proposed merger. In addition, Mitchell 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 affiliates of JPMorgan have, from time to time, performed certain
financial advisory and other commercial and investment banking services for
Mitchell and Devon, for which they received customary compensation, and in the
future may continue to perform, from time to time, certain financial advisory
and other commercial and investment banking services for Mitchell or Devon, for
which they would receive customary compensation. Specifically, affiliates of
JPMorgan have acted as co-lead manager for a secondary offering of shares of
Mitchell common stock of George P. Mitchell, have a commitment under Mitchell's
revolving credit facility and have a commitment under Devon's revolving credit
facility that currently has not been drawn upon; that affiliate is also the
documentation agent with regard to Devon's revolving credit facility and was
selected to be one of Devon's commercial paper dealers.
In addition, in the ordinary course of their businesses, JPMorgan and its
affiliates may actively trade the debt and equity securities and loans of
Mitchell, Devon or Anderson for their own account or for the
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accounts of customers and, accordingly, they may at any time hold long or short
positions in such securities or loans.
OPINION OF UBS WARBURG LLC -- FINANCIAL ADVISOR TO DEVON
On August 13, 2001, UBS Warburg LLC rendered its oral opinion, which was
confirmed by its written opinion dated August 13, 2001, to Devon's board of
directors to the effect that, as of the date of such opinion and based on and
subject to various assumptions, matters considered and limitations described in
the opinion, the merger consideration to be paid by Devon in the merger was
fair, from a financial point of view, to Devon.
The full text of UBS Warburg LLC's opinion, dated August 13, 2001, which
sets forth a description of the assumptions made, general procedures followed,
matters considered and limitations on the review undertaken, is attached as
Annex F. UBS Warburg LLC's opinion is directed only to the fairness, from a
financial point of view, of the merger consideration to be paid by Devon in the
merger and does not constitute a recommendation to any Devon stockholder as to
how such stockholder should vote on the approval of the issuance of Devon common
stock in the merger. Devon stockholders are urged to read the opinion carefully
in its entirety, especially with regard to the assumptions made and matters
considered by UBS Warburg LLC. The summary of UBS Warburg LLC's opinion set
forth in this document is qualified in its entirety by reference to the full
text of such opinion.
In arriving at its opinion, UBS Warburg LLC, among other things:
- reviewed the August 13, 2001 draft of the merger agreement;
- reviewed certain publicly available business and historical financial
information relating to Devon and Mitchell;
- reviewed certain information and other data provided to it by Devon that
is not publicly available relating to the business and prospects of Devon
that was prepared by the management of Devon, including operating
estimates and financial forecasts;
- reviewed certain information and other data provided to it by Devon and
Mitchell that is not publicly available relating to the business and
prospects of Mitchell that was prepared by the managements of Devon and
Mitchell, including operating estimates and financial forecasts;
- considered estimates, prepared by the management of Devon and not
publicly available, of the amounts and timing of the synergies expected
to result from the merger;
- considered the pro forma financial effects of the merger on Devon;
- reviewed publicly available financial and stock market data with respect
to certain other companies in lines of business it believes to be
generally comparable to those of Devon and Mitchell;
- compared the financial terms of the merger with the financial terms of
certain other selected transactions that it deemed to be relevant;
- reviewed the historical market prices and trading volumes of both Devon
and Mitchell common stock;
- conducted discussions regarding Devon with selected members of Devon's
senior management;
- conducted discussions regarding Mitchell with selected members of the
senior management of Mitchell and Devon; and
- conducted such other financial studies, analyses and investigations, and
considered such other information, as it deemed necessary or appropriate.
In connection with its review, and at Devon's direction, UBS Warburg LLC
did not assume any responsibility for independent verification of any of the
information reviewed by UBS Warburg LLC for the purposes of its opinion and, at
Devon's direction, relied on its being complete and accurate in all
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material respects. In addition, UBS Warburg LLC did not make any independent
evaluation or appraisal of any of the assets or liabilities, contingent or
otherwise, of Devon or Mitchell, nor has UBS Warburg LLC been furnished with any
such evaluation or appraisal.
UBS Warburg LLC's opinion does not address Devon's underlying business
decision to effect the merger and does not constitute a recommendation to any
Devon stockholder as to how such stockholder should vote with respect to the
approval of the issuance of Devon common stock in the merger. UBS Warburg LLC
was not asked to, nor did UBS Warburg LLC, offer any opinion as to the material
terms of the merger agreement or the form of the merger. UBS Warburg LLC
expressed no opinion as to what the value of Mitchell common stock or Devon
common stock would be at the time of the merger or the prices at which either
would trade at any time in the future. In rendering its opinion, UBS Warburg LLC
assumed, with Devon's consent, that Devon and Mitchell would comply with all of
the material terms of the merger agreement.
With respect to the projected operating and financial information,
estimates, pro forma effects and calculations of synergies referred to above,
UBS Warburg LLC assumed, at Devon's direction, that they were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of each company as to the future performance of
their respective companies. Moreover, UBS Warburg LLC assumed that all
governmental, regulatory and other consents and approvals necessary for the
consummation of the merger would be obtained without any adverse effect on Devon
or Mitchell. UBS Warburg LLC's opinion was necessarily based on economic,
monetary, market and other conditions as in effect on, and the information made
available to UBS Warburg LLC as of, the date of the opinion.
The following paragraphs summarize the material quantitative analyses
performed by UBS Warburg LLC in arriving at the opinion dated August 13, 2001
presented to Devon's board of directors. The financial analyses summarized below
include information presented in tabular format. In order to fully understand
UBS Warburg LLC's financial analyses, 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. Considering the data below without considering the
full narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could create a misleading
or incomplete view of UBS Warburg LLC's financial analyses.
Mitchell Valuation Analysis
Comparable Company Analysis. UBS Warburg LLC reviewed the public stock
market trading multiples for selected publicly traded independent exploration
and production companies with financial and operating characteristics that UBS
Warburg LLC deemed to be similar to those of Mitchell, including:
- EOG Resources, Inc.;
- Evergreen Resources, Inc.;
- Forest Oil Corporation;
- Louis Dreyfus Natural Gas Corp.;
- Newfield Exploration Company;
- Pioneer Natural Resources Company;
- Pogo Producing Company;
- Stone Energy Corporation;
- Western Gas Resources, Inc.; and
- XTO Energy, Inc.
Using publicly available information, including certain published equity
research estimates from UBS Warburg LLC equity research and elsewhere, UBS
Warburg LLC calculated and analyzed indicated
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reserve value ("IRV"), total enterprise value ("TEV") and equity market value
("EMV") multiples of certain historical and projected financial and operating
metrics such as proved reserves, earnings before interest, taxes, exploration
expense, depreciation, depletion and amortization ("EBITDA"), and cash flow from
operations ("CFFO") for each of these companies. The total enterprise value of
each company was obtained by adding its total debt at book value to the sum of
the market value of its common equity, the liquidation value of its preferred
stock, the book value of its long-term liabilities (excluding deferred taxes)
and the book value of any minority interest minus cash and cash equivalents. The
indicated reserve value of each company was obtained by subtracting from its
total enterprise value the value of its working capital, excluding cash and cash
equivalents and short-term debt, and an estimate of the value of its non-
reserve tangible assets and undeveloped acreage. The indicated reserve value per
proved reserves valuation for these companies ranged from $3.34 per Boe to
$12.03 per Boe, with a median of $6.15 per Boe. The total enterprise value to
projected 2001 EBITDA multiples ranged from 2.8x to 8.9x, with a median of 4.0x.
The total enterprise value to projected 2002 EBITDA multiples ranged from 3.6x
to 8.7x, with a median of 4.7x. The equity market value to projected 2001 CFFO
multiples ranged from 2.4x to 8.5x, with a median of 3.3x. The equity market
value to projected 2002 CFFO multiples ranged from 3.1x to 10.6x, with a median
of 3.8x. UBS Warburg LLC then calculated and analyzed the corresponding
statistics for Mitchell at the implied value per share of $60.13, based on the
Devon closing price of $49.79 on August 10, 2001. Based on this implied value
per share, Mitchell's indicated reserve value per proved reserves valuation was
$6.23 per Boe. The total enterprise value to projected 2001 EBITDA and 2002
EBITDA multiples were 5.1x and 5.8x, respectively. The equity market value to
projected 2001 CFFO and projected 2002 CFFO multiples were 5.4x and 5.7x,
respectively.
Because of the inherent differences between the corporate structure,
businesses, operations and prospects of Mitchell and the corporate structure,
businesses, operations and prospects of the companies included in the group of
selected comparable companies, UBS Warburg LLC believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis and, accordingly, also made qualitative judgments concerning
differences between the financial and operating characteristics of Mitchell and
those of the companies in the comparable company group that would affect the
public trading values of Mitchell and such comparable companies.
SUMMARY OF COMPARABLE COMPANY ANALYSIS
<Table>
<Caption>
COMPARABLE COMPANIES
--------------------- MITCHELL AT
VALUATION MEASURE LOW MEDIAN HIGH $60.13
- ----------------- ---- ------ ----- -----------
IRV/Proved Reserves ($/Boe)......................... 3.34 6.15 12.03 6.23
TEV/Projected 2001 EBITDA(x)........................ 2.8 4.0 8.9 5.1
TEV/Projected 2002 EBITDA(x)........................ 3.6 4.7 8.7 5.8
EMV/Projected 2001 CFFO(x).......................... 2.4 3.3 8.5 5.4
EMV/Projected 2002 CFFO(x).......................... 3.1 3.8 10.6 5.7
</Table>
Comparable Transactions Analysis. UBS Warburg LLC reviewed certain
acquisition multiples for selected independent exploration and production
company transactions announced between April 1997 and July 2001. The selected
transactions UBS Warburg LLC analyzed included:
- Amerada Hess Corporation/Triton Energy Limited;
- Westport Resources Corporation/Belco Oil & Gas Corp.;
- Kerr-McGee Corporation/HS Resources, Inc.;
- The Williams Companies, Inc./Barrett Resources Corporation;
- USX Marathon/Pennaco Energy, Inc.;
- Stone Energy Corporation/Basin Exploration, Inc.;
- Forest Oil Corporation/Forcenergy, Inc.;
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- Devon Energy Corporation/Santa Fe Snyder Corporation;
- Anadarko Petroleum Corporation/Union Pacific Resources Group, Inc.;
- Devon Energy Corporation/PennzEnergy Company;
- Santa Fe Energy Resources Inc./Snyder Oil Corporation;
- Seagull Energy Corporation/Ocean Energy, Inc.;
- Kerr-McGee Corporation/Oryx Energy Company;
- Atlantic Richfield Co./Union Texas Petroleum Holdings, Inc.;
- Ocean Energy, Inc./United Meridian Corporation;
- Texaco, Inc./Monterey Resources Corp.;
- Burlington Resources Inc./Louisiana Land and Exploration Company; and
- Mesa Inc./Parker & Parsley Petroleum Co.
Using publicly available information, including certain published equity
research estimates, UBS Warburg LLC calculated and analyzed indicated reserve
value, total enterprise value and equity market value multiples of certain
historical and projected financial and operating metrics such as proved
reserves, EBITDA and CFFO. The indicated reserve value per proved reserves
valuation ranged from $4.86 per Boe to $12.87 per Boe, with a median of $7.12
per Boe. The total enterprise value to latest twelve months ("LTM") EBITDA
multiples ranged from 4.8x to 38.2x, with a median of 6.9x. The equity market
value to LTM CFFO multiples ranged from 2.2x to 33.7x, with a median of 6.1x.
The equity market value to one-year forward projected CFFO multiples ranged from
3.7x to 15.8x, with a median of 5.3x. The equity market value to two-year
forward projected CFFO multiples ranged from 2.6x to 8.7x, with a median of
4.4x. UBS Warburg LLC noted that commodity prices increased sharply in late-2000
and remained at these increased levels in early-2001. As a result, UBS Warburg
LLC deemed the six most recent transactions (the first six listed above)
beginning October 2000 to be the most relevant transactions. For this group of
six transactions, the median indicated reserve value per Boe was $8.21. The
median total enterprise value to LTM EBITDA multiple was 8.3x. The median
multiples of equity market value to LTM CFFO, and one-year and two-year forward
projected CFFO for this group were 6.9x, 5.4x and 5.2x, respectively. UBS
Warburg LLC then calculated and analyzed the corresponding statistics for
Mitchell at the implied value per share of $60.13. Based on this implied value
per share, Mitchell's indicated reserve value per proved reserves valuation was
$6.23 per Boe. The total enterprise value to LTM EBITDA multiple was 4.9x. The
multiples of equity market value to LTM CFFO, and one-year and two-year forward
CFFO were 5.3x, 5.4x and 5.7x, respectively.
SUMMARY OF COMPARABLE TRANSACTIONS ANALYSIS
<Table>
<Caption>
ALL COMPARABLE
TRANSACTIONS SIX MOST
--------------------- RECENT MITCHELL AT
VALUATION MEASURE LOW MEDIAN HIGH MEDIAN $60.13
- ----------------- ---- ------ ----- -------- -----------
IRV/Proved Reserves ($/Boe)............... 4.86 7.12 12.87 8.21 6.23
TEV/LTM EBITDA(x)......................... 4.8 6.9 38.2 8.3 4.9
EMV/LTM CFFO(x)........................... 2.2 6.1 33.7 6.9 5.3
EMV/Projected One-Year
Forward CFFO(x)........................... 3.7 5.3 15.8 5.4 5.4
EMV/Projected Two Years
Forward CFFO(x)........................... 2.6 4.4 8.7 5.2 5.7
</Table>
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to such transaction and because of
the inherent differences between the businesses, operations and prospects of
Mitchell and those of the acquired businesses analyzed, UBS Warburg LLC
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believed that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgments concerning differences between the characteristics of each of these
transactions and the proposed transaction.
Net Asset Value Analysis. UBS Warburg LLC estimated the present value of
pre-tax cash flows that Devon expected Mitchell to generate from its total
proved, probable and possible reserves in each of Mitchell's major operating
regions. The present value calculations were performed as of June 1, 2001, used
a pre-tax discount rate of 10% and were calculated under four separate price
forecasts, set forth below. In addition, UBS Warburg LLC, at Devon's direction,
applied a risk adjustment of 47% to the value of Mitchell's probable reserves
and applied a risk adjustment of 45% to Mitchell's possible reserves.
In performing the net asset value analysis, UBS Warburg LLC used four
separate commodity price forecasts, hereinafter referred to as the "UBS Warburg
forecast", the "Devon price forecast", "the NYMEX strip price forecast" and the
"Wall Street consensus forecast". The "UBS Warburg forecast" was based on
commodity prices forecasted by UBS Warburg LLC equity research. The "Devon price
forecast" was based on commodity prices forecasted by Devon's management. The
"NYMEX strip price forecast" was based on the average futures prices listed on
the NYMEX as of August 10, 2001. The "Wall Street consensus forecast" was based
on the consensus forecasts for natural gas and oil prices as reported by First
Call.
UBS Warburg LLC included in the net asset value analysis an assessment of
the fair value of Mitchell's natural gas processing business. This assessment
was made by UBS Warburg LLC based on information and assumptions provided by
Devon's and Mitchell's managements and on various industry benchmarks.
Mitchell's aggregate net asset value was calculated by adding the risk-adjusted
present value of Mitchell's proved, probable and possible reserves to its
working capital (including cash and cash equivalents), the value of its natural
gas processing business and the value of its undeveloped acreage. After
subtracting Mitchell's total debt, and other long-term liabilities other than
deferred taxes, as of June 30, 2001, UBS Warburg LLC then determined a range of
net asset values per share on a diluted basis. A summary of the per share value
calculated as part of the net asset value analysis is set forth below:
SUMMARY OF NET ASSET VALUE ANALYSIS
<Table>
<Caption>
COMMODITY PRICE FORECASTS
-----------------------------------------------
NYMEX WALL STREET
($/SHARE) UBS WARBURG DEVON STRIP PRICE CONSENSUS
- --------- ----------- ----- ----------- -----------
Net Asset Value per Share.................. 59.24 47.28 64.72 63.69
</Table>
Premiums Paid Analysis. UBS Warburg LLC, using a sample of 18 selected
independent exploration and production company transactions announced between
April 1997 and July 2001, reviewed the premiums paid to the price of the target
one day, one week and one month prior to the announcement of the transaction.
Using this information, UBS Warburg LLC determined the mean and median premiums
paid one day prior to the announcement of such transactions to be 22.7% and
21.1%, respectively, the mean and median premiums paid one week prior to the
announcement of such transactions to be 27.2% and 30.9%, respectively, and the
mean and median premiums paid one month prior to the announcement of such
transactions to be 30.2% and 33.4%, respectively. Further, UBS Warburg LLC
reviewed 15 selected business combinations with disclosed total enterprise
values of $3 billion to $4 billion announced since August 1, 1999. Using this
information, UBS Warburg LLC determined the mean and median premiums paid one
day prior to the announcement of such transactions to be 26.3% and 22.7%,
respectively, the mean and median premiums paid one week prior to the
announcement of such transactions to be 29.4% and 32.8%, respectively, and the
mean and median premiums paid one month prior to the announcement of such
transactions to be 39.6% and 38.4%, respectively. Based on implied consideration
of $60.13 per share of Mitchell common stock, the premiums to Mitchell's stock
price one day, one week and four weeks prior to announcement were 33.7%, 29.9%
and 37.5%, respectively.
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SUMMARY OF PREMIUMS PAID ANALYSIS
<Table>
<Caption>
MITCHELL AT
MEAN MEDIAN $60.13
---- ------ -----------
Selected US E&P Transactions
One Day (%).............................................. 22.7 21.1 33.7
One Week (%)............................................. 27.2 30.9 29.9
One Month (%)............................................ 30.2 33.4 37.5
Selected M&A Transactions
One Day (%).............................................. 26.3 22.7 33.7
One Week (%)............................................. 29.4 32.8 29.9
One Month (%)............................................ 39.6 38.4 37.5
</Table>
Pro Forma Merger Consequences Analysis. UBS Warburg LLC analyzed certain
pro forma effects that could result from the merger. In connection with such
analyses, UBS Warburg LLC reviewed the estimates of UBS Warburg LLC equity
research for Devon and the First Call consensus estimates for Mitchell. Based on
these projections, certain financing assumptions and certain cost savings and
synergies that Devon's management expected to result from the merger, UBS
Warburg LLC examined the impact of the merger on Devon's diluted earnings per
share and CFFO per share. The analysis indicated that the merger, assuming that
the acquisition occurred at the beginning of each respective fiscal year, would
be accretive to both earnings per share and CFFO per share for 2001 and 2002.
Devon Valuation Analysis
UBS Warburg LLC performed a valuation of Devon using the following
methodologies: comparable company analysis and net asset value analysis.
Comparable Company Analysis. UBS Warburg LLC reviewed the public stock
market trading multiples for selected publicly traded independent exploration
and production companies with financial and operating characteristics that UBS
Warburg LLC deemed to be similar to those of Devon, including:
- Anadarko Petroleum Corporation;
- Apache Corporation;
- Burlington Resources, Inc.;
- EOG Resources, Inc.;
- Kerr-McGee Corporation;
- Noble Affiliates, Inc.;
- Ocean Energy, Inc.; and
- Unocal Corporation.
Using publicly available information, including certain published equity
research estimates from UBS Warburg LLC equity research and elsewhere, UBS
Warburg LLC calculated and analyzed indicated reserve value, total enterprise
value and equity market value multiples of certain historical and projected
financial and operating metrics such as proved reserves, EBITDA and CFFO for
each of these companies. The indicated reserve value per proved reserves
valuation for these companies ranged from $5.27 per Boe to $8.93 per Boe, with a
median of $6.28 per Boe. The total enterprise value to projected 2001 EBITDA
multiples ranged from 3.4x to 5.2x, with a median of 4.4x. The total enterprise
value to projected 2002 EBITDA multiples ranged from 4.4x to 6.6x, with a median
of 5.0x. The equity market value to projected 2001 CFFO multiples ranged from
3.1x to 4.3x, with a median of 3.6x. The equity market value to projected 2002
CFFO multiples ranged from 3.6x to 5.5x, with a median of 4.0x. UBS Warburg LLC
then calculated and analyzed the corresponding statistics for Devon at its
closing price as of August 10, 2001 of $49.79. Based on this price per share,
Devon's indicated reserve value per proved reserves valuation was
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$6.24 per Boe. The total enterprise value to projected 2001 EBITDA and 2002
EBITDA multiples were 3.4x and 4.2x, respectively. The equity market value to
projected 2001 CFFO and projected 2002 CFFO multiples were 3.5x and 4.3x,
respectively.
SUMMARY OF COMPARABLE COMPANY ANALYSIS
<Table>
<Caption>
COMPARABLE COMPANIES
-------------------- DEVON AT
VALUATION MEASURE LOW MEDIAN HIGH $49.79
- ----------------- ---- ------ ---- --------
IRV/Proved Reserves ($/Boe)........................... 5.27 6.28 8.93 6.24
TEV/Projected 2001 EBITDA (x)......................... 3.4 4.4 5.2 3.4
TEV/Projected 2002 EBITDA (x)......................... 4.4 5.0 6.6 4.2
EMV/Projected 2001 CFFO (x)........................... 3.1 3.6 4.3 3.5
EMV/Projected 2002 CFFO (x)........................... 3.6 4.0 5.5 4.3
</Table>
Because of the inherent differences between the corporate structure,
businesses, operations and prospects of Devon and the corporate structure,
businesses, operations and prospects of the companies included in the group of
selected comparable companies, UBS Warburg LLC believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis and, accordingly, also made qualitative judgments concerning
differences between the financial and operating characteristics of Devon and
those of the companies in the comparable company group that would affect the
public trading values of Devon and such comparable companies.
Net Asset Value Analysis. UBS Warburg LLC estimated the present value of
pre-tax cash flows that Devon expected to generate from its total proved,
probable and possible reserves in each of its major operating regions. The
present value calculations were performed as of January 1, 2001, used a pre-tax
discount rate of 10% and were calculated assuming the same four commodity price
forecasts used to perform the net asset value analysis on Mitchell described
above. In addition, UBS Warburg LLC, at Devon's direction, applied a risk
adjustment of 40% to the value of Devon's probable reserves and applied a risk
adjustment of 30% to Devon's possible reserves.
Devon's aggregate net asset value was calculated by adding the
risk-adjusted present value of its proved, probable and possible reserves to its
working capital (including cash), the value of its other assets and undeveloped
acreage. After subtracting its total debt at book value, preferred stock at
liquidation value and other long-term liabilities (excluding certain deferred
tax liabilities) at book value, as of March 31, 2001, a range of net asset
values per share was then determined on a diluted basis. A summary of the per
share value calculated as part of the net asset value analysis is set forth
below:
SUMMARY OF NET ASSET VALUE ANALYSIS
<Table>
<Caption>
COMMODITY PRICE FORECASTS
-----------------------------------------------
NYMEX WALL STREET
($/SHARE) UBS WARBURG DEVON STRIP PRICE CONSENSUS
- --------- ----------- ----- ----------- -----------
Net Asset Value per Share.................. 62.16 61.42 70.86 70.01
</Table>
UBS Warburg LLC is an internationally recognized investment banking firm
that, as a part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Devon's board of directors
selected UBS Warburg LLC on the basis of its experience and independence. UBS
Warburg LLC and its predecessors have provided, and may in the future provide,
investment banking services to Devon, and received, and may in the future
receive, compensation for the rendering of such services. In the ordinary course
of business, UBS Warburg LLC, its successors and affiliates may trade securities
of Devon or Mitchell for their own accounts and, accordingly, may at any time
hold a long or short position in such securities.
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Pursuant to the engagement letter, dated as of August 10, 2001, between
Devon and UBS Warburg LLC, Devon has agreed to pay UBS Warburg LLC customary
fees for services rendered in connection with the merger. Devon also has agreed
to reimburse UBS Warburg LLC for the expenses reasonably incurred by it entering
into and performing services in connection with its engagement and to indemnify
UBS Warburg LLC and its officers, directors, employees, agents and controlling
persons against certain expenses, losses, claims, damages or liabilities in
connection with its services performed in connection with its engagement.
INTERESTS OF MITCHELL'S EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of Mitchell's board of directors with
respect to the merger, Mitchell stockholders should be aware that some of
Mitchell's executive officers and directors have interests in the merger that
are different from the interests of Mitchell stockholders generally. The boards
of directors of both companies were aware of these interests and considered them
in approving the merger and the merger agreement.
Appointment of Mitchell's Designee to Devon's Board of Directors
The merger agreement requires Devon's board of directors to appoint J. Todd
Mitchell to fill a vacancy on Devon's board of directors immediately prior to
the effective time of the merger. He will hold office until his successor is
elected and qualified or until his earlier resignation or removal. If J. Todd
Mitchell becomes unavailable or unwilling to serve, a substitute Mitchell
designee acceptable to Devon will fill the vacancy on Devon's board of
directors. Accordingly, either J. Todd Mitchell or a substitute Mitchell
designee will become a director of Devon at the effective time of the merger.
Additional information regarding J. Todd Mitchell and his principal occupation
and experience during the past five years follows:
J. Todd Mitchell, age 42, has been a member of Mitchell's board of
directors since 1993. Mr. Mitchell has served as president of GPM, Inc., a
family-owned investment company, since 1988. He has also served as President of
and geologist to Dolomite Resources, Inc., a privately owned mineral exploration
and investments company, since 1987 and as Chairman of Rock Solid Images, a
privately owned seismic data analysis software company, since 1998. J. Todd
Mitchell is the son of George P. Mitchell, the Chairman and Chief Executive
Officer of Mitchell.
Investor Rights Agreement among Devon, George P. Mitchell and Cynthia Woods
Mitchell
George P. Mitchell, who is currently the Chairman and Chief Executive
Officer of Mitchell, and his wife, Cynthia Woods Mitchell, have entered into an
agreement with Devon that, subject to a number of conditions, will provide them
with rights to require Devon to use its reasonable best efforts to register the
resale of the shares of Devon common stock that they receive in the merger. This
agreement also imposes limitations on Mr. and Mrs. Mitchell's ability to sell or
transfer the shares of Devon common stock to be received by them that will not
apply to other Mitchell stockholders. More details regarding the terms of this
agreement can be found under "Agreements among Devon, George P. Mitchell and
Cynthia Woods Mitchell -- Investor Rights Agreement."
Other Interests
Mitchell's executive officers also have the following interests in the
merger that are different from Mitchell stockholders' interests generally:
- All outstanding stock options and bonus units, including those held by
Mitchell's executive officers, will fully vest at the effective time of
the merger and, if not exercised at that time, will be converted into
fully vested options to purchase shares of Devon common stock and bonus
units redeemable for cash based on the appreciation of Devon common
stock, respectively, in each case subject to adjustment to reflect the
value of the consideration to be paid by Devon in the merger.
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- At the effective time of the merger, 439,735 bonus units held by
Mitchell's executive officers and options held by them relating to
253,334 shares of Mitchell common stock, will vest.
- After the merger, some Mitchell executive officers may remain officers of
the surviving corporation of the merger or may become officers of Devon.
- Mitchell executive officers will be entitled to severance payments and
enhanced pension benefits in the event that their employment ceases after
the merger. If qualifying terminations are made after the merger, the
estimated amounts of the severance payments, exclusive of any possible
gross-ups for income taxes applicable to parachute payments, that would
be payable as of September 30, 2001 to Mitchell's executive officers are
as follows:
<Table>
<Caption>
NAME/TITLE AMOUNT
- ---------- ----------
George P. Mitchell....................................... $2,900,000
Chairman and Chief Executive Officer
W.D. Stevens............................................. 4,000,000
President and Chief Operating Officer
Philip S. Smith.......................................... 2,200,000
Senior Vice President
Allen J. Tarbutton, Jr. ................................. 1,900,000
Senior Vice President
Thomas P. Battle......................................... 900,000
Senior Vice President
</Table>
- Benefits of Mitchell's executive officers under their individual
severance agreements cannot be reduced for 24 months following the
merger.
- Except for Mr. Mitchell, benefits under Mitchell's non-qualified
retirement plans held by Mitchell executive officers will automatically
be distributed as a lump sum into the Mitchell Energy & Development Corp.
1998 Mutual Fund Option Plan upon their retirement.
- The merger agreement generally requires Devon to honor Mitchell's
existing employee benefit plans and commitments in accordance with their
terms after the merger. The merger agreement also provides assurances
that Mitchell officers and employees who become and remain full-time
employees of Devon after the merger will receive employee benefits (other
than stock-based benefits) no less favorable than those provided to
similarly situated Devon employees for a two-year period after the
merger. Details regarding Devon's obligations with respect to Mitchell's
existing employee benefit plans and commitments can be found under "The
Merger Agreement -- Covenants and Other Agreements -- Employee Benefits."
Mitchell's directors and executive officers beneficially owned, as of
August 13, 2001, approximately 47% of the outstanding shares of Mitchell common
stock, including shares covered by outstanding options. They will be entitled to
receive the same consideration as all other Mitchell stockholders.
Devon's directors and executive officers did not beneficially own any
shares of Mitchell common stock as of August 13, 2001.
DEVON'S FINANCING OF THE MERGER AND THE ANDERSON ACQUISITION
Devon currently intends to finance the Anderson acquisition and the cash
portion of the merger consideration with the proceeds of a senior unsecured bank
loan facility or through the sale of debt securities. Devon has entered into a
binding commitment letter dated August 31, 2001 with UBS AG, Stamford Branch;
UBS Warburg LLC; Bank of America, N.A. and Banc of America Securities LLC under
which a commitment for a $6 billion senior unsecured term loan facility has been
made available to Devon. The facility will have a term of five years from the
date of execution of definitive loan documentation. The funds advanced under
this facility will bear interest at rates customary in commercial
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lending transactions of this type and size. The commitment of the lenders to
advance funds pursuant to this facility is subject to conditions usual in
commercial transactions of this nature, including execution of documentation
satisfactory to the parties and the absence of any default under the terms of
this documentation; and, with respect to the $4.3 billion of this commitment
available for the Anderson acquisition, the absence of any pending or threatened
litigation or other proceedings by any governmental entity that could reasonably
be expected to have a material adverse effect on Anderson, the absence of any
other change that could reasonably be expected to have a material adverse effect
on Anderson and the satisfaction of the conditions in Devon's offer to purchase
the outstanding common shares of Anderson; and, with respect to the $1.7 billion
of this commitment available for consummation of the merger, the absence of any
pending or threatened litigation or other proceedings by any governmental entity
that could reasonably be expected to have a material adverse effect on Devon or
Mitchell, the absence of any other change that could reasonably be expected to
have a material adverse effect on Mitchell and the satisfaction of the
conditions to consummation of the merger set forth in the merger agreement. The
facility will contain covenants, events of default and other terms customary for
credit facilities of this nature, including affirmative and negative covenants
similar to those covenants in Devon's existing bank facility. Devon anticipates
finalizing the terms and definitive documentation for this senior unsecured term
loan facility, and closing such facility, prior to completing the merger or the
acquisition of Anderson. Devon's obligation to complete the merger is not
subject to any financing condition.
DISSENTERS' RIGHTS OF APPRAISAL
Mitchell Stockholders
Any stockholder of record of Mitchell may exercise dissenters' rights of
appraisal in connection with the merger by properly complying with the
requirements of Articles 5.11, 5.12 and 5.13 of the Texas Business Corporation
Act. If you are a Mitchell stockholder and you want to exercise your dissenters'
rights, you must follow the required procedure set forth in Articles 5.11, 5.12
and 5.13 of the Texas Business Corporation Act exactly or you may lose your
right to dissent from the merger. The information that follows is a general
summary of dissenters' rights available to Mitchell stockholders. It is
qualified by and not a substitute for the provisions of Articles 5.11, 5.12 and
5.13 of the Texas Business Corporation Act, the full text of which is attached
as Annex G. Mitchell stockholders should read Annex G in its entirety for more
complete information concerning their right to dissent from the merger.
Mitchell stockholders of record who follow the procedures set forth in
Articles 5.11, 5.12 and 5.13 of the Texas Business Corporation Act will be
entitled to demand that Devon purchase their shares of Mitchell common stock for
a purchase price in cash equal to the fair value of their shares. Under Texas
law, fair value of shares for purposes of the exercise of dissenters' rights is
defined as the value of the shares as of the day immediately preceding the day
the vote is taken approving the merger agreement, excluding any appreciation or
depreciation in value of the shares in anticipation of the proposed merger.
In order to be entitled to exercise dissenters' rights, you must file a
written objection to the merger with Mitchell prior to the date of the Mitchell
meeting. The written objection must state that you will exercise your right to
dissent if the merger becomes effective and give your address where notice of
the effectiveness of the merger should be delivered or mailed. Mitchell
stockholders who desire to exercise their dissenter's rights should send this
written objection to Mitchell Energy & Development Corp., P.O. Box 4000, The
Woodlands, Texas 77387-4000, Attention: General Counsel. Neither a proxy nor a
vote against the merger is sufficient to constitute a written objection as
required under the Texas Business Corporation Act.
If the merger is approved by the Mitchell stockholders and subsequently
becomes effective, within 10 days of the effectiveness of the merger, Devon must
deliver or mail notice of the effectiveness of the merger to each dissenting
stockholder that did not vote in favor of the merger. Any dissenting stockholder
that did not vote to approve the merger agreement may then make a written demand
on Devon for the payment of the fair value of the stockholder's shares within 10
days from the delivery or mailing of the notice by Devon. The failure to vote
against approval of the merger agreement will not constitute a waiver
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of your right to dissent. Such demand must state the number and class of shares
of Mitchell stock owned by the dissenting stockholder and the dissenting
stockholder's estimate of the fair value of the dissenting stockholder's
Mitchell stock. Any dissenting stockholder that fails to make such a demand
within the 10-day period will lose the right to dissent and will be bound by the
terms of the merger. In order to preserve dissenters' rights, within 20 days of
making a demand for payment, a dissenting stockholder must also submit such
dissenting stockholder's Mitchell stock certificates to Devon for the
appropriate notation of the demand. Devon, at its option, may terminate the
dissenting stockholder's rights under Article 5.12 of the Texas Business
Corporation Act for failure to submit the Mitchell stock certificates within the
20-day period unless a court of competent jurisdiction directs otherwise upon a
showing to the court that there is good and sufficient cause.
Within 20 days of receipt of a proper demand for payment by a dissenting
stockholder, Devon must deliver or mail to the dissenting stockholder written
notice that either (1) Devon accepts the amount the dissenting stockholder
claimed and agrees to pay the amount of the stockholder's demand within 90 days
after the effectiveness of the merger upon receipt of the dissenting
stockholder's duly endorsed Mitchell stock certificates or (2) (A) contains an
estimate by Devon of the fair value of the dissenting stockholders' Mitchell
stock and (B) includes an offer to pay the amount of Devon's estimate upon
receipt of the dissenting stockholder's duly endorsed Mitchell stock
certificates within 90 days after the effectiveness of the merger, provided that
Devon receives notice from the stockholder within 60 days after the effective
date of the merger that the dissenting stockholder agrees to accept Devon's
estimate. If the dissenting stockholder and Devon agree upon the value of the
dissenting stockholder's shares within 60 days after effectiveness of the
merger, Devon must pay the amount of the agreed value to the dissenting
stockholder upon receipt of the dissenting stockholder's duly endorsed Mitchell
stock certificates within 90 days of the effectiveness of the merger. Upon
payment of the agreed value, the dissenting stockholder will no longer have any
interest in such shares of Mitchell or in Devon.
If the dissenting Mitchell stockholder and Devon do not agree on the value
of the dissenting stockholder's shares within 60 days after the effectiveness of
the merger, then either the dissenting stockholder or Devon may, within 60 days
after the expiration of that 60-day period, file a petition in a court of
competent jurisdiction in the county in Texas where the principal office of
Mitchell is located (Montgomery County), seeking a determination of the fair
value of the dissenting stockholder's shares. Devon must file with the court a
list of all stockholders who have demanded payment for their shares with whom an
agreement as to value has not been reached within 10 days following receipt of a
petition filed by a dissenting stockholder or upon the filing of such a claim by
Devon. The clerk of the court will give notice of the hearing of any such claim
to Devon and to all of the dissenting stockholders on the list provided by
Devon. All dissenting stockholders notified in this manner and Devon will be
bound by the final judgment of the court as to the value of the shares.
In considering such a petition, the court will determine which of the
dissenting Mitchell stockholders have complied with the provisions of the Texas
Business Corporation Act and are entitled to the payment of the fair value of
their shares and will appoint one or more qualified appraisers to determine the
fair value of the shares who are directed to make such determination "upon such
investigation as to them may seem proper." The appraisers will also allow the
dissenting stockholders and Devon to submit to them evidence as to the fair
value of the shares.
Upon receipt of the appraisers' report, the court will determine the fair
value of the shares of the dissenting stockholders and will direct the payment
to the dissenting stockholders of the amount of the fair value of their Mitchell
shares, with interest from the date 91 days after the effectiveness of the
merger to the date of the judgment, by Devon, upon receipt of the dissenting
stockholder's Mitchell stock certificates. Upon payment of the judgment, the
dissenting stockholders will no longer have any interest in such Mitchell shares
or in Devon. The court will allow the appraisers a reasonable fee as court costs
and will allocate all court costs between the parties in such manner as it
determines to be fair and equitable.
Any dissenting stockholder may withdraw his or her demand at any time
before receiving payment for the shares or before a petition has been filed
seeking determination of the fair value of the shares. No
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dissenting stockholder may withdraw his or her demand after payment has been
made or, unless Devon consents to the withdrawal, where a petition has been
filed.
Any dissenting stockholder who has properly demanded payment for his or her
shares of Mitchell stock will not have any rights as a stockholder, except the
right to receive payment for such shares and the right to claim that the merger
and the related transactions were fraudulent.
For a discussion of the tax consequences of exercising dissenters' rights,
please see "Certain Federal Income Tax Considerations -- Exercise of Dissenters'
Rights of Appraisal."
If you are a Mitchell stockholder who is considering dissenting from the
merger, we urge you to consult with legal counsel.
Devon Stockholders
Devon stockholders are not entitled to dissenters' rights of appraisal in
connection with the merger.
REGULATORY REQUIREMENTS
Under the Hart-Scott-Rodino Act and the rules promulgated thereunder by the
Federal Trade Commission, the merger cannot be completed until notifications
have been given and certain information has been furnished to the Federal Trade
Commission and the Antitrust Division of the Department of Justice and specified
waiting period requirements have been satisfied. Devon and Mitchell filed
notification and report forms under the Hart-Scott-Rodino Act with the Federal
Trade Commission and the Antitrust Division on August 30, 2001. The waiting
period under the Hart-Scott-Rodino Act will expire at 11:59 p.m., Eastern Time,
on October 1, 2001, unless a request for additional information or documentary
material is made by the Department of Justice or Federal Trade Commission before
that time or the waiting period is terminated earlier.
At any time before or after completion of the merger, the Antitrust
Division or the Federal Trade Commission or any state could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the completion of the merger, to rescind
the merger or to seek divestiture of particular assets of Devon or Mitchell.
Private parties also may seek to take legal action under the antitrust laws
under certain circumstances. In addition, non-United States governmental and
regulatory authorities may seek to take action under applicable antitrust laws.
A challenge to the merger on antitrust grounds may be made and, if such a
challenge is made, it is possible that Devon and Mitchell will not prevail.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement.
It is qualified in its entirety by reference to the merger agreement, a copy of
which is attached as Annex A. You should read the merger agreement because it,
and not this document, is the legal document that governs the merger.
STRUCTURE OF THE MERGER
At the effective time of the merger, Mitchell will merge with and into
Devon NewCo Corporation, a newly formed, nominally capitalized Delaware
corporation that is wholly owned by Devon. Devon NewCo Corporation will be the
surviving corporation in the merger, and the surviving corporation will be
wholly owned by Devon.
The certificate of incorporation and bylaws of Devon NewCo Corporation
immediately before the effective time of the merger will be the certificate of
incorporation and bylaws of the surviving corporation until duly amended. The
directors of Devon NewCo Corporation at the effective time of the merger will be
the directors of the surviving corporation. In addition, at the effective time
of the merger, J. Todd Mitchell, or a substitute designee of Mitchell, will be
appointed to fill a vacancy on Devon's board of directors. See "The
Merger -- Interests of Mitchell's Executive Officers and Directors in the
Merger -- Appointment of Mitchell's Designee to Devon's Board of Directors."
WHEN THE MERGER BECOMES EFFECTIVE
Mitchell and Devon NewCo Corporation will execute and file a certificate of
merger with the Delaware Secretary of State and articles of merger with the
Texas Secretary of State on the first business day after the day on which the
last condition to completing the merger is satisfied or waived or at such other
time as Devon and Mitchell may agree. The merger will become effective at the
time and on the date on which those documents are filed or such other time and
date on which the parties agree and specify in those documents. That time is
referred to as the "effective time of the merger."
CONVERSION OF STOCK, STOCK OPTIONS AND OTHER AWARDS
At the effective time of the merger:
- each outstanding share of Mitchell common stock, other than (1) shares
owned or held by Devon, Devon NewCo Corporation, Mitchell or their
respective subsidiaries, including treasury stock, and (2) shares held by
Mitchell stockholders who validly exercise their dissenters' rights under
Texas law, will be converted into the right to receive $31.00 in cash and
0.585 of a share of Devon common stock;
- shares of Mitchell common stock held by Mitchell stockholders who
exercise their dissenters' rights under Texas law will be treated as
described under "The Merger -- Dissenters' Rights of Appraisal," assuming
that those stockholders validly exercise their dissenters' rights; and
- shares of Mitchell common owned or held by Devon, Devon NewCo
Corporation, Mitchell or their respective subsidiaries, including
treasury stock, will be canceled.
If, before the effective time of the merger, the issued and outstanding
shares of Devon or Mitchell common stock are changed into a different number of
shares as a result of a reclassification, stock split, reverse stock split,
stock dividend, stock distribution or similar event, an appropriate adjustment
will be made to the consideration to be received by the Mitchell stockholders.
Each outstanding option to purchase Mitchell common stock granted under
Mitchell's stock plans that is unexercised as of the effective time of the
merger will vest and will be converted automatically at the effective time of
the merger into, and will become, a fully vested option to purchase 1.20 shares
of Devon common stock for each share of Mitchell common stock covered by the
option before the merger. After conversion, the exercise price per share of
Devon common stock subject to each option will equal
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the pre-conversion exercise price per share of Mitchell common stock subject to
each option, divided by 1.20. Bonus units issued by Mitchell will be similarly
converted into Devon bonus units.
For a description of Devon's or Mitchell's common stock and a description
of the comparative rights of holders of Devon common stock and Mitchell common
stock, see "Comparison of the Rights of Mitchell and Devon Stockholders."
EXCHANGE OF SHARES; FRACTIONAL SHARES
Exchange Agent. At or prior to the effective time of the merger, Devon
will (1) deposit with the exchange agent, for the benefit of the holders of
Mitchell common stock, an amount in cash sufficient to effect the conversion of
Mitchell common stock into the cash consideration to be paid in the merger and
(2) authorize the exchange agent to credit a sufficient number of shares of
Devon common stock to direct registration (book-entry) accounts maintained by
Devon's transfer agent, or to issue certificates representing those shares, to
effect the conversion of Mitchell common stock into the stock consideration to
be paid in the merger. Devon will also make funds available to the exchange
agent from time to time after the effective time of the merger as needed to pay
any cash instead of fractional shares or any dividends or other distributions
declared by Devon on its common stock with a record date after the effective
time of the merger and a payment date on or before the date the relevant
Mitchell stock certificate was surrendered.
At the effective time of the merger, the stock transfer books of Mitchell
will be closed and no further issuances or transfers of shares of Mitchell
common stock will be made. If, after the effective time, valid Mitchell stock
certificates are presented to the surviving corporation for any reason, they
will be cancelled and exchanged as described above to the extent allowed by
applicable law.
Exchange of Shares. If you own Mitchell common stock, promptly after the
merger, but in no event more than three business days following the effective
time of the merger, the exchange agent will mail to you a transmittal letter and
instructions explaining how to surrender your certificates to the exchange
agent.
Mitchell stockholders who surrender their stock certificates to the
exchange agent, together with a properly completed and signed transmittal letter
and any other documents required by the instructions to the transmittal letter,
will receive:
- the number of shares of Devon common stock to which each holder is
entitled in accordance with the 0.585 exchange ratio; and
- after giving effect to any required tax withholdings, a check in the
aggregate amount of:
- $31.00 per share of Mitchell common stock surrendered to the exchange
agent;
- the amount of cash being paid in lieu of fractional shares of Devon
common stock; and
- any cash dividends and any other dividends or other distributions
declared by Devon on its common stock with a record date after the
effective time of the merger and a payment date on or before the date
the relevant Mitchell stock certificate was surrendered.
Devon uses a direct registration (book-entry) program with respect to
record ownership of Devon common stock. Direct registration is a service that
allows shares to be owned, reported and transferred electronically without
having a physical stock certificate issued. Ownership of the shares is recorded
in the names of the owner electronically on Devon's books and records. Direct
registration is intended to alleviate problems relating to stolen, misplaced or
lost stock certificates and to reduce the paperwork relating to the transfer of
ownership of Devon common stock. Under direct registration, the voting, dividend
and other rights and benefits of holders of Devon common stock remain the same
as with holders of certificates.
Mitchell stockholders who surrender their stock certificates to the
exchange agent, together with a properly completed and signed transmittal letter
and any other documents required by the instructions to the transmittal letter,
will be issued the appropriate number of shares of Devon common stock through
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direct registration. As soon as reasonably practicable following the crediting
of shares to their respective book-entry account, Mitchell stockholders will
receive account statements from Devon's transfer agent evidencing their
holdings, as well as general information on the book-entry form of ownership
through Devon's direct registration system. You are not required to maintain a
book-entry account and you may at any time obtain a physical stock certificate
for all or a portion of your shares of Devon common stock received in the merger
at no cost to you. Instructions describing how you can obtain stock certificates
will be included with the account statement mailed to you and can also be
obtained upon request from Devon's transfer agent.
If you have a Mitchell stock certificate, you should surrender that
certificate for exchange after the effective time of the merger. Until you
surrender your Mitchell stock certificates, dividends or other distributions
declared with a record date after the effective time of the merger will accrue,
but will not be paid, on shares of Devon common stock that you are entitled to
receive as a result of the conversion of your shares of Mitchell common stock.
When you surrender your certificates, any unpaid dividends or other
distributions will be paid, less the amount of any withholding taxes that may be
required. No interest will be paid or accrued on:
- the $31.00 in cash being paid per share of Mitchell common stock
surrendered to the exchange agent;
- the amount of cash being paid in lieu of fractional shares of Devon
common stock; or
- any cash dividends and any other dividends or other distributions
declared by Devon on its common stock with a record date after the
effective time of the merger and a payment date on or before the date the
relevant Mitchell stock certificate was surrendered.
The exchange agent will deliver to Devon any shares of Devon common stock
to be issued in the merger or funds set aside by Devon to pay the cash
consideration, cash in lieu of fractional shares in connection with the merger
or to pay dividends or other distributions on shares of Devon common stock to be
issued in the merger that are not claimed by former Mitchell stockholders within
180 days after the effective time of the merger. Thereafter, Devon will act as
the exchange agent and former Mitchell stockholders may look only to Devon for
payment of their shares of Devon common stock, cash consideration, cash in lieu
of fractional shares and unpaid dividends and distributions. None of Devon, the
surviving corporation, the exchange agent or any other person will be liable to
any former Mitchell stockholder for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
If any shares of Devon common stock are to be issued in a name other than
that in which the Mitchell common stock certificate surrendered in exchange for
such shares is registered, the person requesting the exchange must (1) pay any
transfer or other taxes required by reason of the issuance of shares of Devon
common stock in a name other than that of the registered holder of the
certificate surrendered or (2) establish to the satisfaction of Devon or the
exchange agent that such tax has been paid or is not applicable.
MITCHELL STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY
CARD. A TRANSMITTAL LETTER AND ACCOMPANYING INSTRUCTIONS WILL BE PROVIDED TO
MITCHELL STOCKHOLDERS FOLLOWING THE MERGER.
Fractional Shares. No fractional shares of Devon common stock will be
issued to Mitchell stockholders. Instead of fractional shares, each Mitchell
stockholder otherwise entitled to a fractional share will receive, in cash and
without interest, an amount representing the fractional share, rounded to the
nearest one-hundredth of a share, multiplied by the average closing price of
Devon common stock as reported in The Wall Street Journal, Southwestern edition,
on the five trading days immediately prior to the last business day before the
effective time of the merger.
Lost, Stolen or Destroyed Certificates. If a Mitchell stock certificate
has been lost, stolen or destroyed, the exchange agent will issue the
consideration properly payable in accordance with the merger agreement, without
interest, upon receipt of (1) an affidavit of that fact by the person claiming
the
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certificate is lost, stolen or destroyed and (2) appropriate and customary
indemnification or the posting of a bond in the form customarily required by
Devon to indemnify against any claim that may be made against it with respect to
such certificate.
CONDITIONS TO THE MERGER
Conditions to Each Company's Obligation to Effect the Merger. The
obligations of Devon and Mitchell to complete the merger are subject to the
following conditions:
- approval by Mitchell's stockholders of the merger agreement;
- approval by Devon's stockholders of the issuance of Devon common stock in
the merger;
- the expiration or early termination of the waiting period under (1) the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and (2) any
mandatory waiting period or required consent under any applicable
material foreign competition or antitrust law or regulation;
- the absence of any statute, rule, regulation, decree, order or injunction
prohibiting the consummation of the merger, provided that the parties
have agreed to use their reasonable best efforts to have any applicable
decree, order or injunction lifted;
- the continued effectiveness of the registration statement of which this
document is a part, provided that the Securities and Exchange Commission
shall not have issued or threatened to issue a stop order suspending the
effectiveness of that registration statement; and
- the approval for listing on the American Stock Exchange of the shares of
Devon common stock to be issued in the merger, subject to official notice
of issuance.
Additional Conditions to Each Company's Obligations. The obligations of
Devon and Mitchell to complete the merger are subject to the following
additional conditions, unless waived by the other:
- material compliance with its agreements and covenants contained in the
merger agreement;
- the representations and warranties set forth in the merger agreement and
the documents delivered in connection with the merger agreement to the
extent (1) qualified as to materiality shall be true and correct and (2)
not qualified as to materiality shall be true and correct in all material
respects; and
- receipt of a written opinion of Vinson & Elkins L.L.P., in the case of
Mitchell, and Mayer, Brown & Platt, in the case of Devon, that:
- the merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Internal
Revenue Code; and
- in the case of the Vinson & Elkins L.L.P. opinion, no gain or loss will
be recognized by Mitchell or its stockholders to the extent that they
receive Devon common stock, and, in the case of the Mayer, Brown &
Platt opinion, no gain or loss will be recognized by any corporation
that is a party to the merger.
Waiver of Conditions. Either Devon or Mitchell may choose to complete the
merger even though a condition to that company's obligation has not been
satisfied if the necessary stockholder approvals have been obtained and the law
allows the company to do so.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties by Mitchell as
to itself and its subsidiaries concerning, among other things:
- incorporation, standing and authority;
- corporate authorization to enter into the merger and related
transactions;
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- capital structure;
- significant subsidiaries;
- compliance with agreements, court orders and laws;
- the absence of defaults caused by execution or consummation of the merger
agreement;
- accuracy of financial statements and reports filed with the Securities
and Exchange Commission;
- the absence of material litigation;
- the absence of certain changes or events;
- tax matters;
- employee benefits and labor matters;
- the absence of violations or liabilities under environmental laws;
- the ownership and rights to use intellectual property;
- title to properties;
- insurance matters;
- broker's and finder's fees;
- receipt of financial advisors' opinions;
- material contracts;
- required board and stockholder approvals;
- the inapplicability of Section 13.03 of the Texas Business Corporation
Act or any other fair price, moratorium, control share acquisition,
interested stockholder or other similar anti-takeover provision; and
- the absence of non-competition and material asset sale or purchase
contracts.
The merger agreement contains representations and warranties by Devon as to
itself and its subsidiaries concerning, among other things:
- incorporation, standing and authority;
- corporate authorization to enter into the merger and related
transactions;
- capital structure;
- significant subsidiaries;
- compliance with agreements, court orders and laws;
- the absence of defaults caused by the execution or consummation of the
merger agreement;
- accuracy of financial statements and reports filed with the Securities
and Exchange Commission;
- the absence of certain changes or events;
- broker's and finder's fees;
- receipt of financial advisor's opinion;
- required board and stockholder approvals;
- ability to finance the merger;
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- the absence of material litigation; and
- title to properties.
COVENANTS AND OTHER AGREEMENTS
Operating Covenants. Prior to the merger and unless Devon has consented in
writing, with certain exceptions Mitchell has agreed:
- to conduct its operations in the ordinary course in substantially the
same manner as previously conducted and to use its reasonable best
efforts to preserve intact its business organization and goodwill;
- to keep available the services of its officers and maintain satisfactory
relationships with those persons with whom it has business relationships;
- not to amend its articles of incorporation or bylaws;
- to promptly notify Devon of any material change in its financial
condition or business or any material litigation or material governmental
complaints, investigations or hearings or the breach in any material
respect of any representation or warranty contained in the merger
agreement;
- to promptly deliver to Devon any filings made with the Securities and
Exchange Commission subsequent to the date of the merger agreement;
- not to issue any shares of its capital stock, effect any change in its
capitalization or grant any right to acquire shares of its capital stock,
other than to new employees consistent with past practice in an amount
not to exceed 100,000 shares of Mitchell common stock or pursuant to
existing contractual commitments;
- not to increase any compensation or benefits, other than in the ordinary
course of business consistent with past practice;
- not to enter into or amend any employment agreement with any of its
present or future officers or directors, except with new employees
consistent with past practice;
- not to adopt any new employee benefit plan or amend any existing employee
benefit plan in any material respect;
- not to declare, set aside or pay dividends, other than its ordinary
quarterly dividend, or redeem, purchase or otherwise acquire any shares
of its capital stock;
- not to dispose of material assets outside the ordinary course of
business;
- not to acquire businesses or entities for aggregate consideration in
excess of $3.0 million;
- not to change any of its accounting principles or practices, except as
may be required by a change in law or in generally accepted accounting
principles;
- to use its reasonable best efforts to maintain its insurance;
- not to make or rescind any tax election, settle or compromise any tax
liability, or materially change its method of reporting income or
deductions for U.S. federal income tax purposes from those used in the
preparation of its federal income tax return for the most recent fiscal
year for which a return has been filed, except as may be required by
applicable law or where it would not have a material adverse effect on
Mitchell;
- not to incur any indebtedness for borrowed money, except under credit
lines existing as of the date of the merger agreement;
- not to guarantee any indebtedness, issue any debt securities or warrants
or rights to acquire any debt securities or guarantee any debt securities
of others;
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- not to enter into any material leases or create any material mortgages,
liens, security interests or other encumbrances on its property in
connection with any indebtedness, except in the ordinary course of
business;
- not to make or commit to make any capital expenditures in excess of $50
million over its fiscal 2001 capital expenditures budget;
- not to take any action that is likely to delay materially or adversely
affect any party's ability to obtain any consent or approval of any
regulatory body or the expiration of any waiting period required to
consummate the merger;
- not to terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it is a party or fail to
enforce to the fullest extent permitted under applicable law the
provisions of those agreements;
- not to enter into or amend any agreement with any holder of Mitchell
common stock with respect to holding, voting or disposing of shares;
- not to cause the acceleration of rights, benefits or payments under any
of its benefit plans by a resolution of its board of directors; or
- not to enter into any additional hedging arrangements with respect to its
oil production and more than 10% of its budgeted natural gas production
for 2001 and, in any event, for a term longer than 12 months.
Other Agreements Relating to the Period Before the Effective Time. The
merger agreement contains additional agreements between Devon and Mitchell
relating to, among other things:
- the preparation, filing and distribution of this document and Devon's
filing of the registration statement of which this document is a part;
- the required recommendations by each company's board of directors to
their respective stockholders;
- convening and holding the Devon and Mitchell stockholders meetings;
- access to information and cooperation regarding filings with governmental
and other agencies and organizations;
- using their reasonable best efforts to satisfy the conditions to closing;
- Mitchell refraining from, without Devon's prior written consent,
committing to any divestitures, licenses, hold separate agreements or
similar matters, and Mitchell using its reasonable best efforts to effect
any such divestitures, licenses, hold separate arrangements or similar
matters as Devon may request, if such actions are contingent on the
consummation of the merger;
- Devon's ability to enter into agreements with respect to other business
combinations, except where those agreements would not be reasonably
likely to prevent or delay the satisfaction of any of the conditions to
the merger;
- public announcements;
- the listing on the American Stock Exchange of the Devon common stock to
be issued in the merger;
- if requested by either Devon or Mitchell, the delivery of "comfort
letters" from Devon's and Mitchell's independent accountants;
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- actions or omissions that would result in the merger not qualifying as a
reorganization under section 368(a) of the Internal Revenue Code; and
- the coordination of dividend record and payment dates so that Mitchell
stockholders do not fail to receive a dividend in any calendar quarter or
receive dividends on both Mitchell common stock and Devon common stock
received in the merger in any calendar quarter.
Employee Benefits. The merger agreement provides that Devon will honor
Mitchell's employee benefit plans and commitments entered into prior to the date
of the merger agreement, provided that Devon may modify any such plan or
commitment in accordance with its terms, subject to some exceptions.
Specifically, Devon has agreed to, among other things:
- continue retiree medical benefits for former Mitchell employees receiving
such benefits at the effective time of the merger and provide
substantially equivalent retiree medical benefits, upon termination, for
Mitchell employees that become or remain full-time employees of Devon,
referred to as continuing employees, who have attained the age of 55 and
have had 10 years of service with Mitchell at the effective time of the
merger;
- for at least one year after the effective time of the merger, provide to
continuing employees severance benefits at least as favorable as those
provided by Mitchell; and
- for at least one year after the effective time of the merger, either (1)
continue Mitchell's defined benefit pension plan and supplemental
retirement plans for continuing employees or (2) provide benefits under
another Devon defined benefit pension plan, and for at least 13 months
after the effective time of the merger, not amend the form of payment
provisions in Mitchell's supplemental retirement plans.
In addition, if Devon materially modifies the benefits of continuing
employees within two years of the effective time of the merger, Devon has agreed
to provide those employees for the remainder of such two-year period with
benefits, other than stock options and stock appreciation rights, no less
favorable than those provided to similarly situated Devon employees. Mitchell
employees that become participants in Devon's employee benefit plans will be
given credit under the plans for their prior service with Mitchell for purposes
of eligibility, vesting and benefit determination.
Affiliate Agreements. Mitchell has agreed to use its reasonable best
efforts to cause its affiliates, as defined by Rule 145 under the Securities Act
of 1933, to enter into written agreements prior to the effective time of the
merger that restrict their ability to sell, pledge, transfer or otherwise
dispose of any shares of Devon common stock issued to them in connection with
the merger, except:
- in compliance with Rule 145 under the Securities Act of 1933;
- pursuant to an effective registration statement under the Securities Act
of 1933; or
- in reliance upon a written opinion of counsel delivered to Devon, in a
form and substance reasonably acceptable to Devon, to the effect that
such sale, pledge, transfer or other disposition is exempt from
registration under the Securities Act of 1933.
Indemnification and Insurance. For a period of six years after the merger,
Devon will cause the surviving corporation to indemnify and hold harmless to the
fullest extent permitted under applicable law each person who is, or has been at
any time prior to the effective time of the merger, an officer or director of
Mitchell and each person who served at the request of Mitchell as a director,
officer, trustee or fiduciary of another entity. Those persons will be
indemnified to the fullest extent permitted by law against all losses, including
fees and expenses of counsel, arising out of or pertaining to actions taken by
them, or failures to act, while serving in those capacities, whether claimed
before or after the effective time of the merger.
The surviving corporation will maintain directors' and officers' liability
insurance for six years after the effective time of the merger to cover persons
who are or were covered by Mitchell's existing directors' and officers'
liability insurance policies at any time before the effective time of the
merger. The terms of the
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insurance will be substantially no less advantageous to such persons than the
existing insurance with respect to acts or omissions prior to the effective time
of the merger. However, the surviving corporation will not be required to pay
annual premiums in excess of 250% of the last annual premium paid by Mitchell,
but will be required to purchase as much coverage as reasonably practicable for
such amount. Devon has the right to cause Mitchell's directors and officers
liability insurance to be extended by obtaining a six-year "tail" policy on
terms no less advantageous than Mitchell's existing directors and officers
liability insurance.
Other Acquisition Proposals. In the merger agreement, Mitchell has agreed
that it and its subsidiaries:
- will not, and will not permit any of their officers, directors,
employees, agents or representatives to, solicit, initiate or encourage
any inquiry, proposal or offer for a third-party tender offer, merger,
consolidation, business combination or similar transaction involving 10%
or more of Mitchell's assets or capital stock, taken as a whole, or
participate in any discussions or negotiations concerning such an
acquisition proposal; and
- will immediately cease any existing negotiations with any third parties
with respect to any of the above transactions, except that Mitchell or
its board of directors may respond publicly to a third-party tender offer
as required by the federal securities laws or provide information prior
to the vote of its stockholders on a confidential basis to any person, or
have negotiations or discussions with any person, who makes an
unsolicited bona fide acquisition proposal, provided that:
- Mitchell (1) provides notice to Devon within 24 hours that it has
received the unsolicited request for information or an acquisition
proposal identifying the person requesting the information or making
the acquisition proposal and stating the material terms and conditions
of the acquisition proposal, and (2) continues to provide updates as to
material developments within 24 hours;
- Mitchell's board of directors in good faith (1) after consultation with
its financial advisors and taking into account the likelihood of
consummation, determines that the acquisition proposal is reasonably
likely to result in a transaction that is more favorable from a
financial point of view to Mitchell stockholders than the merger, and
(2) after consultation with its outside legal counsel, determines that
the failure to respond to the information request or to engage in
discussions would be inconsistent with its fiduciary obligations under
applicable law; and
- Mitchell may not enter into any agreement with respect to an acquisition
proposal prior to the termination of the merger agreement.
Prior to the effective time of the merger, the board of directors of Devon
or Mitchell may withdraw or change its original recommendation to stockholders
to vote for the merger, or recommend that stockholders vote instead for a
superior acquisition proposal, but only if the board determines in good faith,
after consultation with its outside legal counsel, that the failure to do so
would be inconsistent with its fiduciary obligations under applicable law.
TERMINATION
Before the effective time of the merger, the merger agreement may be
terminated:
- by mutual written consent of Devon and Mitchell;
- by either Devon or Mitchell, in either case upon payment, if applicable,
of the termination fee described below, if:
- the merger is not consummated by March 13, 2002, so long as the party
seeking to terminate did not prevent the merger from occurring by
failing to perform or observe its obligations under the merger
agreement in any material respect;
- 20 days elapse after the meeting of the Mitchell stockholders at which
the stockholders fail to approve the merger agreement; or
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- 20 days elapse after the meeting of the Devon stockholders at which the
stockholders fail to approve the issuance of shares of Devon common
stock in the merger.
- by either Devon or Mitchell, if there is a legal prohibition to closing
the merger that has become final and non-appealable, so long as the party
seeking termination has used its reasonable best efforts to remove the
prohibition;
- by Mitchell, after consultation with its legal advisors, if:
- Devon breaches any of its representations, warranties or agreements in
the merger agreement or if any representation or warranty of Devon
becomes untrue resulting in a condition of the merger not being
satisfied, and the breach is not cured within 30 days, provided that
Mitchell is not also in material breach of the merger agreement; or
- Devon's board of directors withdraws, modifies or changes, in a manner
adverse to Mitchell, its approval or recommendation of the merger, or
resolves to do so; or
- by Devon, after consultation with its legal advisors, if:
- Mitchell breaches any of its representations, warranties or agreements
in the merger agreement or if any representation or warranty of
Mitchell becomes untrue resulting in a condition of the merger not
being satisfied, and the breach is not cured within 30 days, provided
that Devon is not also in material breach of the merger agreement; or
- Mitchell's board of directors withdraws, modifies or changes, in a
manner adverse to Devon, its approval or recommendation of the merger
or recommends an acquisition proposal, or resolves to do so.
TERMINATION FEES AND EXPENSES
Termination Fees and Expenses Potentially Payable by Mitchell. Mitchell
has agreed to pay Devon a $100 million termination fee and to reimburse Devon
for expenses incurred in connection with the merger agreement up to a maximum of
$10 million if either of the following circumstances occurs:
- Devon terminates the merger agreement after Mitchell's board of directors
has (1) withdrawn, modified or changed, in a manner adverse to Devon, its
approval or recommendation of the merger or (2) recommended an
acquisition proposal, or resolves to do either; or
- Devon or Mitchell terminates the merger agreement after a person publicly
makes, or publicly announces an intention to make, an acquisition
proposal for Mitchell prior to or at the time of the Mitchell meeting
and, at the time of such termination, (1) the Devon stockholders have
approved the issuance of Devon common stock in the merger and (2) the
Mitchell stockholders have not approved the merger agreement.
Termination Fees and Expenses Potentially Payable by Devon. Devon has
agreed to pay Mitchell a $100 million termination fee and reimburse Mitchell for
expenses incurred in connection with the merger agreement up to a maximum of $10
million if either of the following circumstances occurs:
- Mitchell terminates the merger agreement after Devon's board of directors
has withdrawn, modified or changed, in a manner adverse to Mitchell, its
approval or recommendation of the merger, or resolves to do so; or
- Devon or Mitchell terminates the merger agreement after a person publicly
makes, or publicly announces an intention to make, an acquisition
proposal for Devon prior to or at the time of the Devon meeting and, at
the time of such termination, (1) the Mitchell stockholders have approved
the merger agreement and (2) the Devon stockholders have not approved the
issuance of Devon common stock in the merger.
If either company fails to promptly pay any termination fee due and, in
order to obtain payment, the other party commences a suit that results in a
judgment against the party owing the termination fee, the
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party owing the termination fee must pay to the other party its costs and
expenses in connection with the suit, together with interest on the termination
fee from the date payment was required until the date such payment is made at
the annual prime lending rate of The Chase Manhattan Bank in effect on the date
the payment was required to be made, plus 1%.
Other Expenses. All costs and expenses incurred in connection with the
merger agreement and related transactions will be paid by the party incurring
them, except that termination fees and expenses will be paid as described above.
AMENDMENT; EXTENSION AND WAIVER
Amendment. Subject to the next sentence, the merger agreement may be
amended at any time with the consent of Devon's board of directors and
Mitchell's board of directors. If the merger agreement has been approved by the
Devon stockholders and the Mitchell stockholders, then no amendment can be made
that by law requires the further approval of stockholders without obtaining such
further stockholder approval.
Extension and Waiver. At any time prior to the effective time of the
merger, each of Devon and Mitchell may, to the extent permitted by law, (1)
grant the other party additional time to perform its obligations under the
merger agreement, (2) waive any inaccuracies in the representations and
warranties of the other party and (3) waive compliance with any agreements or
conditions for the benefit of that party.
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AGREEMENTS AMONG DEVON, GEORGE P. MITCHELL AND CYNTHIA WOODS MITCHELL
The following is a summary of the material terms of the agreements that
Devon entered into with George P. Mitchell and Cynthia Woods Mitchell in
connection with the merger agreement. This summary is qualified in its entirety
by reference to those agreements, copies of which are attached as Annexes B and
C. You should read those agreements because they, and not this document, are the
legal documents that govern the matters described in this section. Mr. and Mrs.
Mitchell collectively beneficially own approximately 47% of the outstanding
shares of Mitchell common stock, including shares covered by outstanding
options.
PRINCIPAL SHAREHOLDERS AGREEMENT CONTAINING A VOTING AGREEMENT AND AN
IRREVOCABLE PROXY
Mr. and Mrs. Mitchell have agreed, among other things, to vote, and have
granted Devon an irrevocable proxy to vote, the shares of Mitchell common stock
beneficially owned by them in favor of the approval of the merger agreement and
against any action that would result in a breach of any covenant, representation
or warranty or any other obligation of Mitchell in the merger agreement or of
Mr. and Mrs. Mitchell in the principal shareholders agreement. Mr. and Mrs.
Mitchell have also agreed, except as otherwise agreed to in writing by Devon, to
vote, and have granted Devon an irrevocable proxy to vote, against:
- any extraordinary corporate transactions involving Mitchell, including
any merger, consolidation or other business combination;
- any sale, lease or transfer of a significant part of Mitchell's assets,
or any reorganization, recapitalization, dissolution or liquidation of
Mitchell;
- any change in the persons that comprise Mitchell's board of directors,
unless approved in advance by at least a majority of Mitchell's directors
who were directors on August 13, 2001;
- any change in Mitchell's capitalization or any amendment to Mitchell's
articles of incorporation or bylaws;
- any other material change in Mitchell's corporate structure or business;
and
- any other action or proposal involving Mitchell that is intended or
expected to prevent, impede, interfere with, delay, postpone or adversely
affect the merger.
Mr. and Mrs. Mitchell have also agreed that, except for pledges in
existence on August 13, 2001 and transfers to any trust, estate, family
partnership, foundation or charitable organization that agrees to be bound by
the terms of the principal shareholders agreement, not to sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of the shares of Mitchell
common stock beneficially owned by them.
The voting agreement and irrevocable proxy granted to Devon by Mr. and Mrs.
Mitchell will terminate on the earliest to occur of: (1) August 13, 2003; (2)
the termination of the agreement with the mutual consent of Devon and Mr. and
Mrs. Mitchell; (3) the effective time of the merger; and (4) the termination of
the merger agreement (A) by Devon for any reason or (B) by Mitchell because any
of the conditions to Mitchell's obligation to complete the merger is not and
cannot be satisfied, other than the condition that the merger agreement be
approved by the required vote of Mitchell stockholders.
The principal shareholders agreement was entered into as an inducement to
Devon to enter into the merger agreement and as a condition to Devon's
willingness to do so. Together with the termination fees provided for in the
merger agreement, the principal shareholders agreement may have the effect of
discouraging a third party from proposing a competing transaction, including one
that might be more favorable than the merger to Mitchell stockholders.
INVESTOR RIGHTS AGREEMENT
The investor rights agreement contains restrictions on Mr. and Mrs.
Mitchell's ability to sell or otherwise dispose of the Devon common stock that
they will receive in the merger. Specifically, Mr. and
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Mrs. Mitchell have agreed not to sell, other than pursuant to an underwritten
registered offering or to certain permitted transferees, the Devon common stock
that they will receive in the merger for nine months after the effective time of
the merger. After that date, Mr. and Mrs. Mitchell have agreed not dispose of
more than 1,000,000 shares of Devon common stock in any calendar quarter,
subject to the same exceptions.
In the investor rights agreement, Devon has granted Mr. and Mrs. Mitchell
the right to demand registration on two separate occasions of the shares of
Devon common stock that they will receive in the merger and the right to
"piggyback" registration of those shares in the event that Devon effects a
registration for other reasons. Mr. and Mrs. Mitchell's registration rights are
subject to customary restrictions such as blackout periods and limitations on
the number of shares to be included in any underwritten offering imposed by the
managing underwriter. All registration expenses, other than underwriting
discounts, selling commissions, stock transfer taxes and Mr. and Mrs. Mitchell's
legal fees, will be paid by Devon.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY
DIRECTORS
Devon's charter divides Devon's board of directors into three classes. At
each annual meeting, Devon stockholders elect the members of one of the three
classes to three-year terms. Immediately following the merger, Devon expects
that the board of directors of the combined company will consist of the
following 10 members:
<Table>
<Caption>
CURRENT BOARD EXPIRATION
NAME AGE MEMBERSHIP OF TERM
- ---- --- ------------- ----------
John A. Hill............................................ 59 Devon 2002
William J. Johnson...................................... 67 Devon 2002
Michael M. Kanovsky..................................... 52 Devon 2002
Robert A. Mosbacher, Jr. ............................... 50 Devon 2002
J. Larry Nichols(1)..................................... 59 Devon 2003
Robert B. Weaver........................................ 62 Devon 2003
Thomas F. Ferguson(2)................................... 65 Devon 2004
David M. Gavrin(3)...................................... 67 Devon 2004
Michael E. Gellert(4)................................... 70 Devon 2004
J. Todd Mitchell........................................ 42 Mitchell 2004
</Table>
- ---------------
(1) Chairman of the Board.
(2) Chairman of the Audit Committee.
(3) Chairman of the Compensation and Stock Option Committee.
(4) Chairman of the Nominating Committee.
EXECUTIVE OFFICERS
The following executive officers of Devon will continue to serve in their
respective capacities as executive officers of the combined company until their
successors are duly elected and qualified or until their earlier resignation or
removal:
<Table>
<Caption>
CURRENT COMPANY
NAME AGE POSITION IN THE COMBINED COMPANY AFFILIATION
- ---- --- -------------------------------- ---------------
J. Larry Nichols............... 59 Chairman, President and Chief Devon
Executive Officer
Brian J. Jennings.............. 41 Senior Vice President -- Devon
Corporate Development
J. Michael Lacey............... 55 Senior Vice President -- Devon
Exploration and Production
Duke R. Ligon.................. 60 Senior Vice President -- General Devon
Counsel
Marian J. Moon................. 51 Senior Vice President -- Devon
Administration
John Richels................... 50 Senior Vice President -- Devon
Canadian Division
Darryl G. Smette............... 54 Senior Vice Devon
President -- Marketing
William T. Vaughn.............. 54 Senior Vice President -- Finance Devon
</Table>
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
consequences of the merger. These consequences do not depend on whether Devon
completes its proposed acquisition of Anderson. This summary is based on the
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, administrative pronouncements, judicial
decisions and Treasury regulations, all of which are subject to change, possibly
with retroactive effect. This summary does not purport to be a complete
discussion of all U.S. federal income tax considerations relating to the merger
and does not address the tax consequences of the merger under state, local or
non-U.S. tax laws. In addition, this summary may not apply, in whole or in part,
to particular categories of holders of Mitchell common stock, such as financial
institutions, dealers in securities, insurance companies, tax-exempt
organizations, investment companies, foreign taxpayers, domestic stockholders
whose "functional currency" is not the U.S. dollar, holders holding Mitchell
common stock as a part of a hedging, conversion or straddle transaction,
individuals who acquired Mitchell common stock pursuant to employee stock
options and other special status taxpayers. Moreover, Mitchell stockholders
should be aware that the Code contains limitations on the extent to which a
holder may deduct capital losses from ordinary income, and the federal income
tax rate for individual holders on long-term capital gains may be significantly
lower than the rate imposed on ordinary income or short-term capital gains.
Finally, a tax ruling from the Internal Revenue Service has not been requested.
THIS SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ALL HOLDERS OF MITCHELL
COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING ANY ESTATE, GIFT, STATE, LOCAL AND
NON-U.S. TAX CONSEQUENCES.
It is a condition to closing of the merger that each of Devon and Mitchell
receive an opinion as of the closing from its respective tax counsel that the
merger will be treated for U.S. federal income tax purposes as a reorganization
within the meaning of sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. The
tax opinions will be based in part on factual representations made by Devon,
Devon NewCo Corporation and Mitchell. If those representations are inaccurate,
the tax opinions could become invalid. Although Devon and Mitchell expect, based
on conditions as they exist as of the date of this document, to be able to
obtain the tax opinions, there can be no assurance that they will be able to do
so. The tax opinions will not be binding on the Internal Revenue Service, and
there can be no assurance that the Internal Revenue Service will not contest the
conclusions expressed in the tax opinions. The discussion below assumes that the
merger will be treated as a reorganization within the meaning of sections
368(a)(1)(A) and 368(a)(2)(D) of the Code. In general, based on that assumption,
Mitchell stockholders will not recognize gain or loss for U.S. federal income
tax purposes as a result of the merger, except to the extent of cash received in
the merger.
TAX TREATMENT OF THE COMPANIES AND MITCHELL STOCKHOLDERS
No gain or loss will be recognized by Devon, Devon NewCo Corporation or
Mitchell as a result of the merger. Mitchell stockholders, who will receive a
combination of Devon common stock and cash in exchange for Mitchell common stock
in the merger, will not be permitted to recognize any loss for U.S. federal
income tax purposes. Holders will recognize gain, if any, equal to the lesser of
(1) the amount of cash received or (2) the amount of gain "realized" in the
transaction. The amount of gain a holder "realizes" will equal the amount by
which (1) the cash plus the fair market value at the effective time of the
merger of the Devon common stock received exceeds (2) the holders' basis in the
Mitchell common stock to be surrendered in exchange therefor. The tax treatment
of recognized gain is described under the next heading below. The tax basis of
the shares of Devon common stock received by a holder will be the same as the
basis of the shares of Mitchell common stock surrendered in exchange therefor,
increased by the amount of gain recognized in the merger and decreased by the
amount of cash received in the merger. The holding period for shares of Devon
common stock received by the holder will include the holder's holding period for
the Mitchell common stock surrendered in exchange therefor, provided that such
shares were held as capital assets of the holder at the effective time of the
merger.
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A holder's U.S. federal income tax consequences will also depend on whether
his or her shares of Mitchell common stock were purchased at different times at
different prices. If they were, the holder could realize gain with respect to
some of the shares of Mitchell common stock and loss with respect to other
shares. Such holder would have to recognize gain to the extent that the holder
receives cash with respect to those shares in which the holder's adjusted tax
basis is less than the amount of cash plus the fair market value at the
effective time of the merger of the Devon common stock received, but could not
recognize loss with respect to those shares in which the holder's adjusted tax
basis is greater than the amount of cash plus the fair market value at the
effective time of the merger of the Devon common stock received. Any disallowed
loss would be included in the adjusted basis of the Devon common stock. Such a
holder is urged to consult his or her own tax advisor respecting the tax
consequences of the merger to that holder.
TREATMENT OF CASH
The character of income of a holder of Mitchell common stock attributable
to cash received in the merger is determined by reference to the rules of
sections 356(a)(2) and 302 of the Code and, except in atypical circumstances, it
is expected under these rules that holders will recognize capital gain rather
than dividend income. Under section 356(a)(2) of the Code, each holder of
Mitchell common stock will be treated for tax purposes as if such holder had
received only Devon common stock in the merger and, immediately thereafter,
Devon had redeemed an appropriate portion of Devon common stock in exchange for
the cash actually distributed to the holder in the merger. Under section 302 of
the Code, all of the cash representing gain recognized by a holder on the
exchange will be taxed as capital gain if the deemed redemption from the holder
(1) is a "substantially disproportionate redemption" of stock with respect to
the holder or (2) is "not essentially equivalent to a dividend" taking into
account, in either case, certain constructive ownership rules described below
and all other deemed redemptions. Under section 318 of the Code, a holder may be
considered to constructively own, after the merger, Devon common stock owned
(and in some cases constructively owned) by certain members of the holder's
family or certain entities in which the holder has an ownership or beneficial
interest and Devon common stock that the holder (or such individuals or
entities) has the right to acquire upon the exercise of options. This gain or
loss will be a long-term capital gain or loss if the holder's holding period is
more than twelve months at the effective time of the merger. Under current law,
the maximum tax rate on long-term capital gains realized by an individual is
20%.
The deemed redemption of a holder's Devon common stock will be a
"substantially disproportionate redemption" if, as a result of the deemed
redemption, there is a greater than 20% reduction in (1) the percentage of all
then-outstanding shares of Devon common stock then owned by the holder and (2)
the percentage of the voting power of all then-outstanding shares of Devon
common stock represented by all Devon common stock then owned by the holder.
The deemed redemption of a holder's Devon common stock will be "not
essentially equivalent to a dividend" if the holder experiences a "meaningful
reduction" in his or her proportionate equity interest in Devon by reason of the
deemed redemption. In general, there are no fixed rules for determining when a
"meaningful reduction" has occurred. However, based on a published ruling of the
Internal Revenue Service, the receipt of cash in the merger would not be
characterized as a dividend if the holder's percentage stock ownership interest
in Devon and Mitchell prior to the merger is minimal, the holder exercises no
control over the affairs of Devon or Mitchell, and the holder's percentage
equity interest in Devon is reduced in the deemed redemption to any extent.
If neither of the redemption tests described above is satisfied, a holder
will be treated as having received a dividend equal to the amount of the
holder's recognized gain (as described in the preceding heading), assuming that
the holder's ratable share of the accumulated earnings and profits of Mitchell
(or possibly the total earnings and profits of Mitchell and Devon) equals or
exceeds such recognized gain.
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EXERCISE OF DISSENTERS' RIGHTS OF APPRAISAL
The transaction will be a taxable event for a holder who perfects his or
her dissenters' rights of appraisal under Texas law and receives solely cash in
exchange for his or her shares. Such a holder should generally recognize capital
gain or loss, provided that the holder's shares were held by the holder as
capital assets at the effective time of the merger, equal to the difference
between the amount of cash received and the holder's tax basis in the shares
surrendered.
BACKUP WITHHOLDING; INFORMATION REPORTING
The cash payments due to a holder on the exchange of Mitchell common stock
in the merger, other than certain exempt persons or entities, will be subject to
"backup withholding" for U.S. federal income tax purposes unless certain
requirements are met. Devon or a third-party paying agent, as the case may be,
must withhold approximately 30% of the cash payments to a holder, unless the
holder (1) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or (2) provides Devon or a third-party
paying agent, as the case may be, with his or her taxpayer identification number
and completes a form in which he or she certifies that he or she has not been
notified by the IRS that he or she is subject to backup withholding as a result
of a failure to report interest and dividends. The taxpayer identification
number of an individual is his or her Social Security number. Any amount paid as
backup withholding will be credited against the holder's U.S. federal income tax
liability. On account of receiving Devon common stock in the merger, holders
must also comply with the information reporting requirements of the Treasury
regulations under section 368 of the Code. Appropriate documentation for the
foregoing purposes will be provided to holders by the exchange agent.
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COMPARISON OF THE RIGHTS OF MITCHELL AND DEVON STOCKHOLDERS
The rights of Mitchell stockholders are currently governed by Texas law,
Mitchell's restated articles of incorporation, as amended, and Mitchell's
bylaws. Upon completion of the merger, Mitchell stockholders will become Devon
stockholders and their rights as Devon stockholders will be governed by Delaware
law, Devon's restated certificate of incorporation, as amended, Devon's amended
and restated bylaws and Devon's rights plan, dated as of August 17, 1999, as
amended, between Devon and BankBoston, N.A. relating to the rights to purchase
shares of Devon common stock. The successor rights agent to the aforementioned
agreement is EquiServe Trust Company, N.A.
The following is a summary of material differences between the rights of
Mitchell stockholders and the rights of Devon stockholders. It is not a complete
summary of the provisions affecting, and the differences between, the rights of
Mitchell stockholders and Devon stockholders. The identification of specific
differences is not meant to indicate that other equally or more significant
differences do not exist. The summary is qualified in its entirety by reference
to the Texas Business Corporation Act; the Delaware General Corporation Law;
Mitchell's restated articles of incorporation, as amended; Mitchell's bylaws;
Devon's restated certificate of incorporation, as amended; Devon's amended and
restated bylaws; and Devon's rights plan. We refer to Devon's restated
certificate of incorporation, as amended, as "Devon's charter," and to
Mitchell's restated articles of incorporation, as amended, as "Mitchell's
charter" in the summary.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
AUTHORIZED CAPITAL STOCK
- ---------------------------------------------------------------------------------------------
Mitchell Devon
The authorized capital stock of Mitchell The authorized capital stock of Devon
consists of 200,000,000 shares of common consists of 400,000,000 shares of common
stock, par value $0.10 per share, and stock, par value $0.10 per share, 4,500,000
10,000,000 shares of preferred stock, par shares of preferred stock, par value $1.00
value $0.10 per share. per share, and one share of special voting
stock, par value $0.10 per share.
- ---------------------------------------------------------------------------------------------
SIZE OF BOARD OF DIRECTORS
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Mitchell's board of directors has nine Devon's board of directors has nine members.
members. Mitchell's bylaws provide that the Devon's charter and bylaws provide that the
minimum number of directors is three, and number of directors will not be less than
that the actual number of directors may be three nor more than 20, and that the actual
fixed by the board of directors. number of directors may be fixed by a
majority of the board of directors.
- ---------------------------------------------------------------------------------------------
CUMULATIVE VOTING
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Mitchell's charter expressly prohibits Under Delaware law, stockholders of a
cumulative voting by Mitchell stockholders. Delaware corporation do not have the right to
cumulate their votes in the election of
directors, unless that right is granted in
the certificate of incorporation of the
corporation. Devon's charter expressly
prohibits cumulative voting by Devon
stockholders.
- ---------------------------------------------------------------------------------------------
CLASSES OF DIRECTORS
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Mitchell's charter and bylaws do not provide Devon's charter provides that its board of
for the classification of its board of directors is divided into three classes of
directors. directors, of as equal size as practicable,
with each class being elected to a staggered
three-year term.
- ---------------------------------------------------------------------------------------------
</Table>
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<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
REMOVAL OF DIRECTORS
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Mitchell's bylaws provide that any director Under Delaware law, unless the certificate of
may be removed, with or without cause, by incorporation provides otherwise, a director
the affirmative vote of a majority of the of a Delaware corporation with a classified
votes of the issued and outstanding stock board may be removed only for cause and only
entitled to vote for the election of by the holders of a majority of the shares
directors given at a special meeting of the entitled to vote. Devon's charter is silent
stockholders called and held for that on this point and, accordingly, Devon's
purpose, or by the affirmative vote of a directors may be removed only in the manner
majority of its board of directors given at provided by Delaware law.
a special meeting of the board of directors
called and held for that purpose.
- ---------------------------------------------------------------------------------------------
VACANCIES ON THE BOARD OF DIRECTORS
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Mitchell's bylaws provide that a vacancy Under Delaware law, unless the certificate of
occurring in the board of directors may be incorporation or bylaws provide otherwise,
filled by a majority of the directors, the board of directors of a corporation may
though less than a quorum, or by a sole fill any vacancy on the board, including
remaining director. A directorship to be vacancies resulting from an increase in the
filled by reason of an increase in the number of directors. Devon's charter provides
number of directors may be filled either by that newly created directorships resulting
election at an annual or special meeting of from any increase in the authorized number of
stockholders called for that purpose or by directors, or resulting from death,
the board of directors for a term of office resignation, disqualification, removal or
continuing only until the next election of other cause, may be filled only by the
one or more directors by the stockholders, affirmative vote of a majority of the
provided that the board of directors may not remaining directors.
fill more than two directorships during the
period between any two successive annual
meetings of stockholders.
- ---------------------------------------------------------------------------------------------
ACTION BY WRITTEN CONSENT
- ---------------------------------------------------------------------------------------------
Mitchell Devon
As permitted by Texas law, Mitchell's bylaws As permitted by Delaware law, Devon's charter
provide that any action required to be taken provides that any action required or
at an annual or special meeting of permitted to be taken by stockholders must be
stockholders may be taken without a meeting effected at a duly called annual or special
only if all stockholders entitled to vote meeting of stockholders. Devon's charter
with respect to the action consent in specifically prohibits stockholders from
writing to that action. taking action by written consent.
- ---------------------------------------------------------------------------------------------
</Table>
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<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
AMENDMENTS TO CHARTER
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Under Texas law, an amendment to Mitchell's As permitted by Delaware law, Devon's charter
charter generally would require the approval provides that any alteration, amendment,
of the holders of at least two-thirds of the repeal or rescission of Devon's charter must
shares entitled to vote or, if any class is be approved by a majority of the authorized
entitled to vote separately, the approval of number of directors and by a majority of the
the holders of at least two-thirds of the combined voting power of the outstanding
shares of the class entitled to vote and at shares of voting stock, voting together as a
least two-thirds of the total shares entitled single class, provided that any amendment
to vote. related to the election of directors,
meetings of the stockholders, stockholder
consent, director liability, indemnification
or the required vote to amend Devon's charter
or bylaws requires the approval of 66 2/3% of
the combined voting power of the outstanding
shares of voting stock, voting together as a
single class.
- ---------------------------------------------------------------------------------------------
AMENDMENTS TO BYLAWS
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Mitchell's bylaws may be amended or repealed, As permitted by Delaware law, Devon's charter
or new bylaws may be adopted, at any annual provides that any alteration, amendment,
or special meeting of the stockholders by a repeal or rescission of Devon's bylaws may be
majority of the total votes of the adopted either by the affirmative vote of at
stockholders or when stockholders are least a majority of its board of directors or
required to vote by class by a majority of by the stockholders by the affirmative vote
the appropriate class. Mitchell's bylaws may of at least 66 2/3% of the combined voting
also be amended or repealed, or new bylaws power of the outstanding shares of voting
may be adopted, by its board of directors at stock, voting together as a single class.
any meeting. In addition, Devon's charter authorizes
Devon's board of directors, without
additional authorization of the stockholders,
to adopt, amend or repeal Devon's bylaws,
including bylaws relating to (1) regulation
of the procedure for submission by the
stockholders of the nomination of directors,
(2) regulation of the attendance at annual or
special meetings of stockholders by persons
other than holders of record or their proxies
and (3) regulation of the business that may
properly be brought by a stockholder before
an annual or special meeting of stockholders.
- ---------------------------------------------------------------------------------------------
SPECIAL MEETINGS OF STOCKHOLDERS
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Mitchell's bylaws provide that special Devon's charter and bylaws provide that
meetings of the stockholders may be called special meetings of the stockholders may be
by the holders of at least 10% of the called by a resolution adopted by a majority
outstanding stock entitled to vote at of Devon's board of directors or by its
meeting or by Mitchell's board of directors, Chairman of the Board or President, in either
Chairman of the Board or President. case with the concurrence of a majority of
its directors. Devon stockholders do not have
the ability to call a special meeting of the
stockholders.
- ---------------------------------------------------------------------------------------------
</Table>
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<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Unless the board of directors requires a Under Delaware law, a sale or other
greater vote, Texas law, with limited disposition of all or substantially all of a
exceptions, requires the affirmative vote of corporation's assets, a merger or
the holders of at least two-thirds of the consolidation of a corporation with another
outstanding shares entitled to vote to corporation or a dissolution of a corporation
approve a merger agreement, in addition to requires the affirmative vote of the
any required class vote. Similar voting corporation's board of directors (except in
requirements apply for statutory share limited circumstances) plus, with limited
exchanges or conversions. exceptions, the affirmative vote of a
Texas law generally requires the affirmative majority of the outstanding stock entitled to
vote of the holders of at least two-thirds vote on the transaction. Delaware law does
of the shares entitled to vote to approve not provide for statutory share exchanges.
the sale, lease, exchange or other Also, unlike the Texas corporate statute, the
disposition of all or substantially all a Delaware corporate statute does not define
corporation's assets if other than in the what constitutes a sale of substantially all
usual and regular course of business and, if of a corporation's assets.
any class of shares is entitled to vote as a
class on a transaction, the affirmative vote
of the holders of at least two-thirds of the
outstanding shares of that class. Texas law
does not require stockholder approval of a
sale of assets in the usual and regular
course of business unless otherwise
specified in the articles of incorporation.
Under Texas law, a sale of assets is deemed
to be in the usual and regular course of
business if the corporation continues to
engage in one or more businesses or applies
a portion of the proceeds to the conduct of
a business in which it engages following the
transaction.
- ---------------------------------------------------------------------------------------------
INSPECTION OF DOCUMENTS
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Under Texas law, any person who has been a Delaware law allows any stockholder the right
stockholder of a corporation for at least to inspect for any proper purpose the
six months immediately preceding the corporation's stock ledger, a list of its
stockholder's demand, or is the holder of at stockholders and its other books and records,
least 5% of the outstanding shares of a and to make copies or extracts from those
corporation, has the right to examine the documents. A proper purpose means a purpose
corporation's relevant books and records of reasonably related to the person's interest
account, minutes and share transfer records as a stockholder.
for any proper purpose.
- ---------------------------------------------------------------------------------------------
</Table>
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<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
DISSENTERS' RIGHTS OF APPRAISAL
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Stockholders of a Texas corporation Delaware law provides for dissenters' rights
generally have the right to dissent from of appraisal with respect to mergers or
significant business transactions requiring consolidations. However, stockholders of a
stockholder approval, including mergers. Delaware corporation generally have no
However, a stockholder of a Texas appraisal rights in the event of a merger or
corporation has no right to dissent from any consolidation of a corporation if the stock
plan of merger pursuant to which there is a of the Delaware corporation is listed on a
single surviving or new domestic or foreign national securities exchange or the NASDAQ
corporation or with respect to any plan of National Market; is held of record by more
exchange if: than 2,000 stockholders; or in the case of a
- the shares held by the stockholder are merger for which stockholder approval is not
part of a class of shares listed on a required by statute, in each such case,
national securities exchange, listed on unless stockholders of the Delaware
the NASDAQ National Market or held of corporation are required to accept for their
record by not less than 2,000 holders; stock anything other than:
- the stockholder is not required to accept - shares of stock of the surviving
for his or her shares any consideration corporation or depositary receipts in
that is different than the consideration respect thereof, or shares of stock or
to be received by other holders of the depositary receipts of any other
same class or series of shares held by corporation whose share or depositary
such stockholder other than cash in lieu receipts will satisfy the listing or
of fractional shares; and ownership requirements described above; and
- the stockholder is not required to accept - cash in lieu of fractional shares.
any consideration other than shares of a Delaware law does not provide dissenters'
corporation that satisfy the requirements rights of appraisal in connection with the
of the first bullet point above and cash sale of substantially all the assets of a
in lieu of fractional shares. corporation, reclassification of stock or
The dissenters' rights of appraisal of other amendments to the certificate of
Mitchell stockholders in the merger are incorporation that adversely affect a
summarized under "The Merger -- Dissenters' class of stock.
Rights of Appraisal."
- ---------------------------------------------------------------------------------------------
</Table>
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<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
STATE ANTI-TAKEOVER STATUTES
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Texas law generally prohibits public Delaware law generally prohibits public
corporations from engaging in significant corporations from engaging in significant
business transactions, including mergers, business transactions, including mergers,
with a beneficial owner of 20% or more of with a holder of 15% or more of the
the corporation's stock for a period of corporation's stock for a period of three
three years after the holder exceeds that years after the holder exceeds that ownership
ownership level, unless: level, unless:
- the board approves either the transaction - the board approves either the transaction
in question or the acquisition of shares in question or the acquisition of shares by
by the affiliated stockholder prior to the the interested stockholder prior to the
interested stockholder's share acquisition time the stockholder becomes an interested
date; or stockholder based on its direct or indirect
- the transaction is approved by the holders ownership of 15% of the corporation's
of at least two-thirds of the stock; or
corporation's outstanding voting shares - when the interested stockholder exceeds the
not beneficially owned by the affiliated 15% threshold, it acquires at least 85% of
stockholder or its affiliates or the outstanding shares not held by certain
associates, at a meeting of stockholders affiliates, such as pursuant to a tender
not less than six months after the offer; or
affiliated stockholder's share acquisition - the transaction is approved by the board of
date. directors and the holders of at least
two-thirds of the corporation's shares
entitled to vote thereon, excluding the
shares held by the interested stockholder,
at a meeting of stockholders.
Delaware law does not require that this vote
occur at least six months after the
interested stockholder's share acquisition
date.
- ---------------------------------------------------------------------------------------------
CONSTITUENCY STATUTE
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Texas law expressly provides that, in Delaware law does not have such a provision
discharging a director's fiduciary duties, a in its corporate statute.
director, in considering the best interests
of the corporation, may consider the
long-term as well as the short-term
interests of the corporation and its
stockholders, including the possibility that
those interests may be best served by the
continued independence of the corporation.
- ---------------------------------------------------------------------------------------------
</Table>
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<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
STOCKHOLDER RIGHTS PLAN
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Mitchell does not have a rights plan. Under Devon's rights plan, holders of Devon
common stock have one right with respect to
each share of Devon common stock held. The
certificates representing outstanding shares
of Devon common stock also evidence one right
for each share. Currently, the rights trade
with the shares of Devon common stock. Upon
the occurrence of events generally associated
with an unsolicited takeover attempt of Devon
or transactions involving a change of
control, the rights will be distributed, will
become exercisable and will be tradeable
separately from Devon common stock.
If a person or group becomes the beneficial
owner of, or commences a tender or exchange
offer for, 15% or more of the voting shares
of Devon, then each right would entitle the
holders other than the acquiring person or
group to purchase Devon common stock having a
market value equal to twice the applicable
purchase price.
The rights do not become exercisable as a
result of a stock acquisition by a tender or
exchange offer for all outstanding shares of
Devon common stock that is determined by the
independent directors of Devon to be fair,
not inadequate and otherwise in the best
interest of Devon and its stockholders.
The rights have some anti-takeover effects.
They will cause substantial dilution to a
person or group that attempts to acquire
Devon in a manner that causes the rights to
become exercisable. The rights may be
redeemed by Devon's board of directors for
$0.01 per right. The terms of the rights plan
may be amended by Devon's board of directors
without the consent of the holders of the
Devon common stock or the rights.
- ---------------------------------------------------------------------------------------------
SPECIAL VOTING STOCK
- ---------------------------------------------------------------------------------------------
Mitchell Devon
Mitchell does not have special voting stock. Devon's charter provides for one share of
special voting stock that is entitled to the
number of votes equal to the number of
exchangeable shares of Devon's subsidiary,
Northstar Energy Corporation, outstanding
from time to time that are held by persons
other than Devon or its subsidiaries.
- ---------------------------------------------------------------------------------------------
</Table>
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<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
NOTICE OF STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
- ---------------------------------------------------------------------------------------------
Mitchell Devon
A Mitchell stockholder must give notice, in A Devon stockholder must give notice, in
proper form, of director nominations and proper form, of director nominations or
proposed business to be conducted at an proposals for each annual meeting to the
annual meeting of stockholders to the secretary between 90 and 120 days before the
secretary between 20 and 60 days prior to one-year anniversary of the last annual
the meeting. If less than 30 days' prior meeting. If the date of the annual meeting is
notice or prior public disclosure of the moved more than 30 days before or after the
date of the meeting is given or made to anniversary date, a stockholder notice must
stockholders, the stockholder notice must be be given to the secretary between 70 and 90
received within 10 days after the date the days prior to the date of the meeting, or
notice of the meeting was mailed or the within 10 days after the public announcement
public disclosure was made. of the date of the meeting, if later. For a
special meeting called to elect directors, a
stockholder must give notice, in proper form,
of director nominations to the secretary
within 10 days after the public announcement
of the date of the meeting.
- ---------------------------------------------------------------------------------------------
</Table>
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ADDITIONAL INFORMATION
DEADLINE FOR FUTURE STOCKHOLDER PROPOSALS
Whether or not the merger is completed as expected, Devon will hold an
annual stockholders' meeting in 2002. If the merger is not completed, Mitchell
will hold an annual stockholders' meeting in 2002.
Devon 2002 Annual Meeting
Any Devon stockholder desiring to present a proposal for inclusion in
Devon's proxy statement for the Devon 2002 annual meeting of stockholders must
present the proposal to the Corporate Secretary of Devon by December 10, 2001.
Only those proposals that comply with the requirements of Rule 14a-8 promulgated
under the Securities Exchange Act of 1934 will be included in Devon's proxy
statement for Devon's 2002 annual meeting. Written notice of stockholder
proposals submitted outside the process of Rule 14a-8 for consideration at
Devon's 2002 annual meeting, but not included in Devon's proxy statement, must
be received by the Corporate Secretary of Devon between January 17, 2002 and
February 16, 2002 in order to be considered timely, subject to any provisions of
Devon's bylaws. The chairman of the meeting may determine that any proposal for
which Devon did not receive timely notice shall not be considered at the
meeting. If, in the discretion of the chairman, any such proposal is to be
considered at the meeting, the persons designated in Devon's proxy statement
shall be granted discretionary authority with respect to the untimely
stockholder proposal.
Mitchell 2002 Annual Meeting
In order to be included in the proxy materials for Mitchell's 2002 annual
meeting of stockholders, stockholder proposals must be received by Mitchell by
December 6, 2001.
LEGAL MATTERS
The validity of the securities to be issued in the merger will be passed
upon for Devon by Mayer, Brown & Platt. We expect that the opinions referred to
in the discussion set forth under "Certain Federal Income Tax Considerations"
will be provided to Devon by Mayer, Brown & Platt and to Mitchell by Vinson &
Elkins L.L.P. Vinson & Elkins L.L.P. represents Devon from time to time in
matters unrelated to the merger.
EXPERTS
The consolidated financial statements of Mitchell and its subsidiaries as
of December 31, 2000 and 1999 and for each of the three years in the period
ended December 31, 2000 included in Mitchell's Annual Report on Form 10-K for
the year ended December 31, 2000, incorporated by reference into this document,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The consolidated financial statements of Devon and its subsidiaries as of
December 31, 2000, 1999, and 1998 and for each of the years then ended have been
incorporated by reference into this document in reliance on the report of KPMG
LLP, independent certified public accountants, incorporated by reference into
this document, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG LLP expresses reliance on other auditors for 1999
and 1998.
The consolidated financial statements of Northstar Energy Corporation as of
and for the year ended December 31, 1998, not separately presented in this
Registration Statement on Form S-4 have been audited by Deloitte & Touche LLP,
Chartered Accountants, whose report thereon appears in Devon's 2000 Annual
Report on Form 10-K, incorporated by reference herein. Such consolidated
financial statements, to the extent they have been included in the consolidated
financial statements of Devon, have been so
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included in reliance on the report of such independent accountants given on the
authority of said firm as experts in accounting and auditing.
The audited consolidated financial statements of Santa Fe Snyder
Corporation as of December 31, 1999 and 1998 and for the years then ended, not
separately presented in this Devon Energy Corporation Registration Statement on
Form S-4, have been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report thereon appears in Devon Energy Corporation's Annual
Report on Form 10-K for the year ended December 31, 2000, incorporated by
reference herein. Such consolidated financial statements, to the extent they
have been included in the consolidated financial statements of Devon Energy
Corporation, have been so included in reliance on the report of such independent
accountants given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Anderson Exploration Ltd. as of
September 30, 2000 and 1999, and for each of the years in the three-year period
ended September 30, 2000 have been included in this document and in the
registration statement of which this document is a part in reliance on the
report of KPMG LLP, Chartered Accountants, appearing elsewhere in this document
and on the authority of said firm as experts in accounting and auditing.
Certain information with respect to Devon's oil and gas reserves derived
from the reports of LaRoche Petroleum Consultants, Ltd., Ryder Scott Company,
L.P., AMH Group, Ltd. and Paddock Lindstrom & Associates, Ltd., independent
consulting petroleum engineers, has been included and incorporated by reference
into this document on the authority of said firms as experts with respect to
matters covered by such reports and in giving such reports.
Certain information relating to Anderson's oil and gas reserves derived
from the reports of Gilbert Laustsen Jung Associates Ltd., independent
consulting petroleum engineers, has been included in this document on the
authority of said firm as experts with respect to such reports and in giving
such reports.
WHERE YOU CAN FIND MORE INFORMATION
Devon has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933 that registers the distribution of
the shares of Devon common stock to be issued to Mitchell stockholders in
connection with the merger. The registration statement, including the attached
exhibits and schedules, contains additional relevant information about Devon and
Devon common stock. The rules and regulations of the Securities and Exchange
Commission allow Devon and Mitchell to omit some of the information included in
the registration statement from this document.
In addition, Devon and Mitchell file reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. You may read and copy that information at the Securities
and Exchange Commission's public reference room at the following location:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
1-800-732-0330
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
The Securities and Exchange Commission also maintains an Internet world
wide website that contains reports, proxy statements and other information about
issuers, including Devon and Mitchell, that file electronically with the
Securities and Exchange Commission. The address of that site is
http://www.sec.gov.
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The Securities and Exchange Commission allows Devon and Mitchell to
"incorporate by reference" information into this document. This means that Devon
and Mitchell can disclose important information by referring you to another
document filed separately with the Securities and Exchange Commission. The
information incorporated by reference is considered to be part of this document,
except for any information that is superseded by information that is included
directly in this document.
This document incorporates by reference the documents listed below that
Devon and Mitchell have previously filed with the Securities and Exchange
Commission. The documents contain important information about Devon and Mitchell
and their respective financial conditions.
<Table>
<Caption>
MITCHELL'S FILINGS PERIOD
- ------------------ ------
Annual Report on Form 10-K............................. Year ended December 31, 2000
Quarterly Reports on Form 10-Q......................... Quarters ended:
- March 31, 2001
- June 30, 2001
Current Report on Form 8-K............................. Filed on August 14, 2001
The description of Mitchell capital stock set forth in the registration statement on
Form S-3 filed by Mitchell with the Securities and Exchange Commission on April 3,
2001, including any amendment or report filed with the Securities and Exchange
Commission for the purpose of updating that description.
</Table>
<Table>
<Caption>
DEVON'S FILINGS PERIOD
- --------------- ------
Annual Report on Form 10-K............................. Year ended December 31, 2000
Quarterly Reports on Form 10-Q......................... Quarters ended:
- March 31, 2001
- June 30, 2001
Current Reports on Form 8-K............................ Filed on:
- January 30, 2001
- , 2001
The description of Devon capital stock set forth in the registration statement on
Form S-3 filed by Devon with the Securities and Exchange Commission on December 15,
2000, including any amendment or report filed with the Securities and Exchange
Commission for the purpose of updating that description.
</Table>
Devon and Mitchell also incorporate by reference additional documents that
either company may file with the Securities and Exchange Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between
the date of this document and the date of the Mitchell and Devon stockholders'
meetings. Those documents include periodic reports such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
You can obtain any of the documents incorporated by reference into this
document through Devon or Mitchell, as the case may be, or from the Securities
and Exchange Commission's website at http://www.sec.gov. Documents incorporated
by reference are available from Devon and Mitchell without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference into this document. You may obtain documents incorporated by reference
into this document by requesting them in writing or by telephone from the
appropriate company as follows:
<Table>
Mitchell Energy & Development Corp. Devon Energy Corporation
2001 Timberloch Place -- P.O. Box 4000 20 North Broadway, Suite 1500
Attention: Investor Relations Attention: Investor Relations
The Woodlands, Texas 77387-4000 Oklahoma City, Oklahoma 73102-8260
Telephone: (713) 377-6625 Telephone: (405) 552-4570
</Table>
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If you would like to request documents incorporated by reference, please do
so by , 2001, to receive them before the meeting. Please be sure to
include your complete name and address in your request. If you request any
documents, we will mail them to you by first class mail, or another equally
prompt means, within one business day after we receive your request.
Neither Devon nor Mitchell has authorized anyone to give any information or
make any representation about the merger, Devon or Mitchell, that is different
from, or in addition to, the information contained in this document or in any of
the materials that we have incorporated into this document by reference.
Therefore, if anyone does give you information of this sort, you should not rely
on it. If you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities offered by this
document or the solicitation of proxies is unlawful, or if you are a person to
whom it is unlawful to direct these types of activities, then the offer
presented in this document does not extend to you. The information contained in
this document speaks only as of the date of this document unless the information
specifically indicates that another date applies.
TRANSFER AGENTS AND REGISTRARS
EquiServe Trust Company is the transfer agent and registrar for Devon
common stock. CIBC Mellon Trust Company is the Canadian co-registrar for Devon
common stock and the transfer agent and registrar for Northstar exchangeable
shares. In addition, CIBC Mellon Trust Company is the trustee under the voting
and exchange trust agreement. The transfer agent for Mitchell common stock is
Mellon Investor Services LLC. You may write to or telephone the appropriate
company as follows:
<Table>
<Caption>
DEVON COMMON STOCK AND NORTHSTAR EXCHANGEABLE SHARES MITCHELL COMMON STOCK
---------------------------------------------------- ---------------------
EquiServe Trust Company, N.A. CIBC Mellon Trust Company Mellon Investor Services LLC
Client Administration P.O. Box 1036 85 Challenger Road
P.O. Box 8029 Adelaide Street Postal Station Overpeck Centre
Boston, MA 02266-8029 Toronto, Ontario M5C 2K4 Ridgefield Park, New Jersey
(800) 733-5001 (800) 387-0825 07660-2104
http://www.equiserve.com http://www.cibcmellon.ca (800) 522-6645
http://www.mellon-investor.com
</Table>
FORWARD-LOOKING STATEMENTS
Devon and Mitchell have made forward-looking statements in this document
and in the documents incorporated by reference into this document, which are
subject to risks and uncertainties. These statements are based on the beliefs
and assumptions of our managements and on the information currently available to
them.
Statements and calculations concerning oil and natural gas reserves and
their present value also are forward-looking statements in that they reflect the
determination, based on estimates and assumptions, that oil and natural gas
reserves may be profitably exploited in the future. When used or referred to in
this document or the documents incorporated by reference into this document,
these forward-looking statements may be preceded by, followed by or otherwise
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "projects" or similar expressions, or statements that certain
events or conditions "will" or "may" occur. Forward-looking statements in this
document also include:
- statements regarding Devon's expectation that the merger will be
accretive to its reserves per share, production per share, cash margin
per share and earnings per share;
- statements relating to the cost savings that Devon anticipates from the
merger and Devon's acquisition of Anderson;
- statements regarding the number and location of undrilled well locations
and planned wells;
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- statements relating to future reserve replacement;
- statements with respect to various actions to be taken or requirements to
be met in connection with completing the merger and Devon's acquisition
of Anderson or integrating Devon, Mitchell and Anderson; and
- statements relating to revenue, income and operations of the combined
company after the merger and Devon's acquisition of Anderson.
These forward-looking statements are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. The following factors, among
others, could cause actual results to differ materially from those described in
the forward-looking statements:
- expected cost savings from the merger or Devon's acquisition of Anderson
may not be fully realized or realized within the expected time frame;
- revenue of the combined company following the merger and Devon's
acquisition of Anderson may be lower than expected;
- assumptions about energy markets, production levels, reserve levels,
operating results, competitive conditions, technology, the availability
of capital resources and capital expenditure obligations may prove to be
incorrect;
- changes may occur in the supply and demand for oil, natural gas, NGLs and
the other products or services provided or consumed by our three
companies;
- changes may occur in the price of oil, natural gas, NGLs and the other
products or services provided or consumed by our three companies;
- costs or difficulties related to obtaining regulatory approvals for
completing the merger and Devon's acquisition of Anderson and, following
the merger and the Anderson acquisition, to the integration of the
businesses of Devon, Mitchell and Anderson, may be greater than expected;
- general economic conditions, either internationally or nationally or in
the jurisdictions in which Devon, Mitchell or Anderson is doing business,
may be less favorable than expected;
- legislative or regulatory changes, including changes in environmental
regulation, may adversely affect the businesses in which Devon, Mitchell
and Anderson are engaged;
- there may be environmental risks and liability under federal, state and
foreign environmental laws and regulations; and
- changes may occur in the securities or capital markets.
Except for its ongoing obligations to disclose material information as
required by the federal securities laws, neither Devon nor Mitchell has any
intention or obligation to update these forward-looking statements after it
distributes this document.
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COMMONLY USED OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and in this document:
"Bbl" means one stock tank barrel, or 42 U.S. gallons liquid volume of oil
or NGLs.
"Bcf" means one billion cubic feet.
"Boe" means barrel of oil equivalent, determined by using the ratio of one
Bbl of oil or NGLs to six Mcf of natural gas.
"gross acres" or "gross wells" means the total acres or number of wells in
which a working interest is owned.
"MBbls" means one thousand Bbls.
"MBoe" means one thousand Boe.
"Mcf" means thousand cubic feet.
"Mcfe" means one thousand cubic feet equivalent of natural gas, determined
using the ratio of six Mcf of natural gas to one Bbl of oil or NGLs.
"MMBbls" means one million Bbls.
"MMBoe" means one million Boe.
"MMcf" means one million cubic feet.
"MTBE" means methyl tertiary butyl ether.
"net acres" or "net wells" means the sum of the fractional working
interests owned in gross acres or gross wells.
"NGL" or "NGLs" means natural gas liquids.
"oil" includes crude oil and condensate.
"Proved reserves" are the estimated quantities of crude oil, natural gas
and NGLs that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions (i.e., prices and costs as of the date the
estimate is made). Prices include consideration of changes in existing prices
provided only by contractual arrangements, but not on escalations based on
future conditions.
(1) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes:
(A) that portion delineated by drilling and defined by gas-oil
and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which
can be reasonably judged as economically productive on the basis of
available geological and engineering data. In the absence of information
on fluid contacts, the lowest known structural occurrence of
hydrocarbons controls the lower proved limit of the reservoir.
(2) Reserves that can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for
the engineering analysis on which the project or program was based.
97
110
(3) Estimates of proved reserves do not include the following:
(A) oil that may become available from known reservoirs but is
classified separately as "indicated additional reserves;"
(B) crude oil, natural gas and NGLs, the recovery of which is
subject to reasonable doubt because of uncertainty as to geology,
reservoir characteristics or economic factors;
(C) crude oil, natural gas and NGLs, that may occur in undrilled
prospects; and
(D) crude oil, natural and NGLs, that may be recovered from oil
shales, coal, gilsonite and other such sources.
"Tcfe" means one trillion cubic feet equivalent of natural gas, determined
by using the ratio of six Mcf of natural gas to one Bbl of oil or NGLs.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information has been
prepared to assist in your analysis of the financial effects of the merger. This
pro forma information is based on the historical financial statements of Devon
and Mitchell and should be read in conjunction with those historical financial
statements and related notes, which are incorporated by reference into this
document. The pro forma information also includes the effect on Devon of its
pending acquisition of Anderson. You should read the historical consolidated
financial statements and related notes of Anderson that are included elsewhere
in this document.
The pro forma information is based on the estimates and assumptions set
forth in the notes to such information. The pro forma information is preliminary
and is being furnished solely for information purposes and, therefore, is not
necessarily indicative of the results of operations or financial position that
might have been achieved for the dates or periods indicated, nor is it
necessarily indicative of the results of operations or financial position that
may occur in the future.
Anderson's historical financial information is prepared in accordance with
accounting standards generally accepted in Canada, and is presented in Canadian
dollars. Anderson's historical volumetric production data is prepared in
accordance with the Canadian convention whereby such production data is shown
before applicable royalty deductions. Also, Anderson's fiscal year ends on
September 30, as opposed to Devon's year-end of December 31. For purposes of
providing the pro forma effect of the pending Anderson acquisition on Devon's
financial condition and results of operations, the following adjustments were
made to Anderson's historical financial data:
- Anderson's historical results for the year ended September 30, 2000 were
converted to results for the year ended December 31, 2000. This
conversion was done by subtracting Anderson's historical interim results
for the three months ended December 31, 1999 and adding its historical
interim results for the three months ended December 31, 2000. Anderson's
historical results for the nine months ended June 30, 2001 were converted
to results for the six months ended June 30, 2001. This conversion was
done by subtracting Anderson's historical interim results for the three
months ended December 31, 2000.
- Anderson's balance sheet data as of June 30, 2001, and its results of
operations for the year ended December 31, 2000 and the six months ended
June 30, 2001, were converted to accounting principles generally accepted
in the United States, including the full cost method of accounting for
oil and gas properties. Such information was also converted to U.S.
dollars using the appropriate exchange rates.
- Anderson's historical volumetric production data was converted to the
U.S. convention whereby such production data is shown after applicable
royalty deductions.
The information was prepared based on the following:
- Devon uses the full cost method of accounting for its oil and gas
activities, while Mitchell uses the successful efforts method. Pro forma
adjustments have been made to estimate the effect of converting
Mitchell's successful efforts method to Devon's full cost method.
- Devon will account for the merger and the Anderson acquisition using the
purchase method of accounting.
- The unaudited pro forma balance sheet has been prepared as if the merger
and the Anderson acquisition occurred on June 30, 2001. The unaudited pro
forma statements of operations have been prepared as if the merger and
the Anderson acquisition occurred on January 1, 2000.
- In the six-month period ended June 30, 2001, Devon recognized a $49.5
million after-tax gain from the cumulative effect of a change in
accounting principle. This related to Devon's adoption, as of January 1,
2001, of a new accounting principle related to accounting for derivative
financial
99
112
instruments. The $49.5 million gain is not included in the unaudited pro
forma combined statements of operations for the six months ended June 30,
2001.
- We have not reflected as an adjustment to the historical data annual cost
savings of approximately $20 million and $25 million that Devon expects
to result from the elimination of duplicate expenses after the merger and
the Anderson acquisition, respectively.
- In June 2000, Anderson sold its 50% interest in a pipeline transportation
company. For the year ended December 31, 2000, Anderson recognized
earnings from discontinued operations, net of tax, of $44.2 million. This
gain is not included in the summary unaudited pro forma combined
statements of operations for the year ended December 31, 2000.
No pro forma adjustments have been made with respect to the following
unusual items. These items are reflected in the historical results of Devon,
Anderson or Mitchell, as applicable, and should be considered when making
period-to-period comparisons:
- In 2000, Devon recognized $60.4 million of expenses related to its merger
with Santa Fe Snyder Corporation. Devon accounted for the Santa Fe Snyder
merger using the pooling-of-interests method of accounting and,
therefore, the expenses incurred related to the merger were expensed. The
after-tax effect of these expenses in 2000 was $37.2 million.
- In 2000, Mitchell realized income tax savings of $12.8 million related to
prior years' Section 29 tax credits and $6.3 million related to the
reversal of prior years' deferred income taxes.
- In 2000, Mitchell recognized a $4.9 million gain from the exchange of
certain gas services assets. Also in 2000, Mitchell recognized a $10.8
million impairment expense related to other gas services assets. Net of
tax, these two events reduced Mitchell's 2000 net earnings by $3.8
million.
- On May 17, 2000, Anderson acquired all the outstanding shares of Ulster
Petroleums Ltd. The summary unaudited pro forma combined statements of
operations do not include any results from Ulster's operations prior to
May 17, 2000.
- On February 12, 2001, Anderson acquired all of the outstanding shares of
Numac Energy Inc. The summary unaudited pro forma combined statements of
operations do not include any results from Numac's operations prior to
February 12, 2001.
- During the second quarter of 2001, Devon elected to discontinue
operations in Malaysia, Qatar and on certain properties in Brazil.
Accordingly, during the second quarter of 2001, Devon recorded a $76.9
million charge associated with the impairment of those properties. The
after-tax effect of this reduction was $62.1 million.
- Mitchell has incentive compensation plans pursuant to which it has
periodically issued awards referred to as "bonus units" under which
employees can earn compensation based on increases in the market price of
Mitchell common stock. Mitchell generally awards these bonus units in
lieu of stock option grants. Pro forma general and administrative
expenses reported in the accompanying unaudited pro forma statements of
operations for the year 2000 include $21.3 million of expense related to
these plans, while pro forma general and administrative expenses for the
first six months of 2001 include a credit in the amount of $4.1 million
related to these plans. After taxes, these plans had the effect of
decreasing 2000 unaudited pro forma net earnings by $13.8 million and
increasing net earnings for the first half of 2001 by $2.7 million. Devon
will not issue such bonus units after the merger.
- Devon's historical results of operations for the year 2000 and the first
half of 2001 include $41.3 million and $16.9 million, respectively, of
amortization expense for goodwill related to previous mergers. As of
January 1, 2002, in accordance with new accounting pronouncements
recently issued, such goodwill will cease to be amortized and, instead,
will be tested for impairment at least annually. No goodwill amortization
expense has been recognized in the pro forma statements of operations for
the goodwill related to the merger and the Anderson acquisition.
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UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 2001
<Table>
<Caption>
DEVON
PRO FORMA MITCHELL
AFTER ANDERSON PRO FORMA COMBINED
ACQUISITION MITCHELL ADJUSTMENTS COMPANY
(NOTES 1 AND 8) HISTORICAL (NOTE 3) PRO FORMA
--------------- ---------- ----------- -----------
(IN THOUSANDS)
ASSETS:
Current assets......................... $ 1,293,115 $ 250,854 $ -- $ 1,543,969
Property and equipment, net............ 9,808,344 1,438,347 1,821,231(a) 13,067,922
Investment in common stock of Chevron
Corporation.......................... 641,865 -- -- 641,865
Goodwill, net.......................... 2,300,116 -- 1,198,575(a) 3,498,691
Other assets........................... 267,351 42,386 (572)(a) 322,820
13,655(c)
----------- ---------- ---------- -----------
Total assets................. $14,310,791 $1,731,587 $3,032,889 $19,075,267
=========== ========== ========== ===========
LIABILITIES:
Current liabilities.................... $ 1,223,592 $ 365,246 $ 105,340(a) $ 1,707,833
13,655(c)
Debentures exchangeable into shares of
Chevron Corporation common stock..... 642,329 -- -- 642,329
Other long-term debt................... 5,802,576 210,855 1,547,148(c) 7,560,579
Other long-term liabilities............ 257,120 90,714 (22,467)(a) 325,367
Fair value of derivative instruments... 48,025 -- -- 48,025
Deferred income taxes.................. 2,479,908 253,247 636,712(a) 3,369,867
STOCKHOLDERS' EQUITY:
Preferred stock........................ 1,500 -- -- 1,500
Common stock........................... 12,963 5,386 2,920(a) 15,883
(5,386)(b)
Additional paid-in capital............. 3,590,233 149,283 1,561,106(a) 5,151,339
(149,283)(b)
Retained earnings...................... 304,130 752,868 (752,868)(b) 304,130
Accumulated other comprehensive loss... (43,313) (8,896) 8,896(b) (43,313)
Treasury stock......................... (7,785) (87,116) 87,116(b) (7,785)
Other.................................. (487) -- -- (487)
----------- ---------- ---------- -----------
Total stockholders' equity... 3,857,241 811,525 752,501 5,421,267
----------- ---------- ---------- -----------
Total liabilities and
stockholders' equity....... $14,310,791 $1,731,587 $3,032,889 $19,075,267
=========== ========== ========== ===========
</Table>
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UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
DEVON
PRO FORMA MITCHELL MITCHELL
AFTER ANDERSON HISTORICAL PRO FORMA COMBINED
ACQUISITION RECLASSIFIED ADJUSTMENTS COMPANY
(NOTES 1 AND 8) (NOTE 6) (NOTE 3) PRO FORMA
--------------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE:
Oil sales................................ $1,326,725 $ 57,516 $ -- $1,384,241
Gas sales................................ 2,140,726 380,981 -- 2,521,707
NGL sales................................ 250,344 91,588 -- 341,932
Gas services revenue..................... 60,960 1,140,906 -- 1,201,866
Other revenue............................ 43,357 4,094 -- 47,451
---------- ---------- --------- ----------
Total revenue.................. 3,822,112 1,675,085 -- 5,497,197
---------- ---------- --------- ----------
COSTS AND EXPENSES:
Lease operating expenses................. 594,853 45,101 -- 639,954
Transportation costs..................... 93,018 25,817 -- 118,835
Production taxes......................... 106,433 21,987 -- 128,420
Exploration expenses..................... -- 12,028 (12,028)(f) --
Gas services costs and expenses.......... 32,646 951,446 -- 984,092
Depreciation, depletion and amortization
of property and equipment.............. 1,003,472 155,376 55,633(d) 1,214,481
Amortization of goodwill................. 41,332 -- -- 41,332
General and administrative expenses...... 114,192 79,556 (7,673)(f) 186,075
Expenses related to previous mergers..... 60,373 -- -- 60,373
Interest expense......................... 371,874 25,817 73,590(e) 471,281
Deferred effect of changes in foreign
currency exchange rate on subsidiary's
long-term debt......................... 3,168 -- -- 3,168
---------- ---------- --------- ----------
Total costs and expenses....... 2,421,361 1,317,128 109,522 3,848,011
---------- ---------- --------- ----------
Earnings before income tax expense....... 1,400,751 357,957 (109,522) 1,649,186
INCOME TAX EXPENSE:
Current.................................. 143,258 46,766 (28,700)(g) 161,324
Deferred................................. 393,593 54,045 (12,576)(g) 435,062
---------- ---------- --------- ----------
Total income tax expense....... 536,851 100,811 (41,276) 596,386
---------- ---------- --------- ----------
Net earnings............................. 863,900 257,146 (68,246) 1,052,800
Preferred stock dividends................ 9,735 -- -- 9,735
---------- ---------- --------- ----------
Net earnings applicable to common
stockholders........................... $ 854,165 $ 257,146 $ (68,246) $1,043,065
========== ========== ========= ==========
Net earnings per average common share
outstanding:
Basic.................................. $ 6.70 $ 5.22 $ 6.68
Diluted................................ 6.52 5.13 6.50
Weighted average common shares
outstanding:
Basic.................................. 127,421 49,291 156,256
Diluted................................ 131,730 50,084 161,029
</Table>
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115
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
<Table>
<Caption>
DEVON
PRO FORMA
AFTER MITCHELL MITCHELL
ANDERSON HISTORICAL PRO FORMA COMBINED
ACQUISITION RECLASSIFIED ADJUSTMENTS COMPANY
(NOTES 1 AND 8) (NOTE 6) (NOTE 3) PRO FORMA
--------------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE:
Oil sales.................................... $ 632,782 $ 27,220 $ -- $ 660,002
Gas sales.................................... 1,742,695 345,178 -- 2,087,873
NGL sales.................................... 124,080 50,376 -- 174,456
Gas services revenue......................... 38,499 717,913 -- 756,412
Other revenue................................ 18,958 (580) -- 18,378
---------- ---------- -------- ----------
Total revenue...................... 2,557,014 1,140,107 -- 3,697,121
---------- ---------- -------- ----------
COSTS AND EXPENSES:
Lease operating expenses..................... 348,629 28,741 -- 377,370
Transportation costs......................... 59,647 15,360 -- 75,007
Production taxes............................. 77,632 17,764 -- 95,396
Exploration expenses......................... -- 8,697 (8,697)(f) --
Gas services costs and expenses.............. 30,114 641,984 -- 672,098
Depreciation, depletion and amortization of
property and equipment..................... 551,793 89,944 27,708(d) 669,445
Amortization of goodwill..................... 16,923 -- -- 16,923
General and administrative expenses.......... 59,413 26,422 (4,098)(f) 81,737
Interest expense............................. 183,178 7,413 36,796(e) 227,387
Deferred effect of changes in foreign
currency exchange rate on subsidiary's
long-term debt............................. (5,699) -- -- (5,699)
Reduction of carrying value of oil and gas
properties................................. 76,942 -- -- 76,942
---------- ---------- -------- ----------
Total costs and expenses........... 1,398,572 836,325 51,709 2,286,606
---------- ---------- -------- ----------
Earnings before change in fair value of
derivative instruments and income tax
expense.................................... 1,158,442 303,782 (51,709) 1,410,515
Change in fair value of derivative
instruments................................ (19,292) -- -- (19,292)
---------- ---------- -------- ----------
Earnings before income tax expense........... 1,139,150 303,782 (51,709) 1,391,223
INCOME TAX EXPENSE:
Current...................................... 150,229 52,106 (14,350)(g) 187,985
Deferred..................................... 299,308 50,724 (5,220)(g) 344,812
---------- ---------- -------- ----------
Total income tax expense........... 449,537 102,830 (19,570) 532,797
---------- ---------- -------- ----------
Net earnings before cumulative effect of
change in accounting principle............. 689,613 200,952 (32,139) 858,426
Preferred stock dividends.................... 4,868 -- -- 4,868
---------- ---------- -------- ----------
Net earnings applicable to common
stockholders............................... $ 684,745 $ 200,952 $(32,139) $ 853,558
========== ========== ======== ==========
Net earnings per average common share
outstanding:
Basic...................................... $ 5.30 $ 4.03 $ 5.39
Diluted.................................... 5.09 3.95 5.19
Weighted average common shares outstanding:
Basic...................................... 129,260 49,847 158,420
Diluted.................................... 135,402 50,906 165,182
</Table>
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
DECEMBER 31, 2000 AND JUNE 30, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma balance sheet and statements of
operations present the pro forma effects of Devon's proposed merger with
Mitchell. On August 31, 2001, Devon entered into an agreement with Anderson
Exploration Ltd. whereby Devon will offer to acquire all the outstanding shares
of Anderson, and pay for the intrinsic value of Anderson's outstanding options
and appreciation rights, for approximately $3.5 billion in cash, assuming the
exchange rate between U.S. and Canadian dollars in place on September 6, 2001.
The accompanying unaudited pro forma financial statements present the effect of
the Mitchell merger on Devon's financial position and results of operations,
assuming that the Anderson acquisition had already occurred. See Note 8 for the
unaudited pro forma statements that combine, on a pro forma basis, the financial
positions and results of operations of Devon and Anderson.
2. METHOD OF ACCOUNTING FOR THE MERGER
Devon will account for the merger using the purchase method of accounting
for business combinations. Accordingly, Mitchell's assets acquired and
liabilities assumed by Devon will be revalued and recorded at their estimated
"fair values." In the merger, Devon will pay $31.00 in cash and issue 0.585 of a
share of Devon common stock for each outstanding share of Mitchell common stock.
On a pro forma basis, assuming that the merger had occurred on June 30, 2001,
this would have resulted in Devon paying approximately $1.5 billion in cash and
issuing approximately 29.2 million shares of its common stock to Mitchell
stockholders.
The purchase price of Mitchell's net assets acquired will be based on the
total value of the cash paid and the Devon common stock issued to the Mitchell
stockholders. The value of the Devon common stock issued is based on the average
closing price of Devon's common stock for a period of three days before and
after the public announcement of the merger. This average closing price equaled
$50.95 per share.
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
3. PRO FORMA ADJUSTMENTS RELATED TO THE MERGER
The unaudited pro forma balance sheet includes the following adjustments:
(a) This entry adjusts the historical book values of Mitchell's assets
and liabilities to their estimated fair values as of June 30, 2001. The
calculation of the total purchase price and the preliminary allocation to
assets and liabilities are shown below.
<Table>
<Caption>
(IN THOUSANDS,
EXCEPT FOR SHARE
PRICE)
Calculation and preliminary allocation of purchase price:
Shares of Devon common stock to be issued to Mitchell
stockholders........................................... 29,196
Average Devon stock price................................. $ 50.95
----------
Fair value of common stock to be issued................... 1,487,536
Cash to be paid to Mitchell stockholders.................. 1,547,148
----------
Fair value of Devon common stock and cash to be issued to
Mitchell stockholders.................................. 3,034,684
Plus estimated merger costs to be incurred................ 90,000
Plus fair value of Mitchell employee stock options to be
assumed by Devon....................................... 76,490
----------
Total purchase price.............................. 3,201,174
Plus fair value of liabilities to be assumed by Devon:
Current liabilities....................................... 380,586
Long-term debt............................................ 210,855
Other long-term liabilities............................... 68,247
Deferred income taxes..................................... 889,959
----------
Total purchase price plus liabilities assumed..... $4,750,821
==========
Fair value of assets to be acquired by Devon:
Current assets............................................ $ 250,854
Proved oil and gas properties............................. 1,663,751
Unproved oil and gas properties........................... 752,827
Gas services facilities and equipment..................... 840,000
Other property and equipment.............................. 3,000
Other assets.............................................. 41,814
Goodwill.................................................. 1,198,575
----------
Total fair value of assets to be acquired......... $4,750,821
==========
</Table>
The total purchase price includes the value of the cash and Devon common
stock to be issued to Mitchell stockholders. The total purchase price also
includes:
- $90.0 million of estimated merger costs. These costs include investment
banking expenses, severance, legal and accounting fees, printing expenses
and other merger-related costs. These costs have been added to current
liabilities in the unaudited pro forma balance sheet.
- $76.5 million of Devon employee stock options to be issued in exchange
for existing vested Mitchell employee stock options. The value of these
options is added to additional paid-in capital in the unaudited pro forma
balance sheet.
The purchase price allocation is preliminary and is subject to change due
to several factors, including: (1) changes in the fair values of Mitchell's
assets and liabilities as of the effective time of the merger; (2) the actual
merger costs incurred; (3) the number of Mitchell shares and stock options
outstanding as of the effective time of the merger; and (4) changes in Devon's
valuation estimates that may be made between now and the effective time of the
merger. These changes will not be known until after the
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
effective time of the merger. However, Devon does not believe that the final
purchase price allocation will differ materially from the estimated allocation
presented herein.
(b) This adjustment includes a $5.4 million reduction of common stock,
a $149.3 million reduction of additional paid-in capital, a $752.9 million
reduction of retained earnings, an $8.9 million reduction of accumulated
other comprehensive loss and an $87.1 million reduction of treasury stock.
These adjustments eliminate the historical book value of Mitchell's
stockholders' equity.
(c) This adjustment increases long-term debt by $1.5 billion to
include the long-term debt that Devon will incur to fund the cash portion
of the merger consideration. It also includes $13.7 million of costs
estimated to be incurred in connection with issuing this debt. The
liability for these costs has been added to current liabilities in the
unaudited pro forma balance sheet.
The unaudited pro forma statements of operations include the following
adjustments:
(d) This adjustment increases historical depreciation, depletion and
amortization to reflect the adjustment of Mitchell's assets from historical
book value to fair value and a change to the full cost accounting method
from the successful efforts method.
(e) This adjustment increases interest expense due to the $1.5 billion
of long-term debt that Devon will incur to fund the cash portion of the
merger consideration. This adjustment has been calculated using an
estimated interest rate on the debt of 4.58%, plus the amortization of
estimated financing costs to be incurred. This assumed interest rate is
based on the proposed terms of Devon's $6 billion credit facility, as set
forth in the commitment letter dated August 31, 2001.
(f) This adjustment eliminates historical amounts recognized by
Mitchell under the successful efforts accounting method that are not
recognized as expenses under the full cost accounting method.
(g) This adjustment records the income tax impact of all pro forma
adjustments at an effective tax rate of approximately 38%.
4. COMMON SHARES OUTSTANDING
Net earnings per average share outstanding have been calculated based on
the pro forma weighted average number of shares outstanding as follows:
<Table>
<Caption>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 2000 JUNE 30, 2001
----------------- ----------------
(IN THOUSANDS)
Basic:
Devon's weighted average common shares
outstanding..................................... 127,421 129,260
New Devon shares to be issued to Mitchell
stockholders.................................... 28,835 29,160
------- -------
Pro forma weighted average Devon shares
outstanding..................................... 156,256 158,420
======= =======
Diluted:
Devon's weighted average common shares
outstanding..................................... 131,730 135,402
New Devon shares to be issued to Mitchell
stockholders.................................... 29,299 29,780
------- -------
Pro forma weighted average Devon shares
outstanding..................................... 161,029 165,182
======= =======
</Table>
Pro forma shares of Devon common stock outstanding at June 30, 2001,
assuming the merger occurred on that date, are as follows:
<Table>
<Caption>
(IN THOUSANDS)
Devon's common shares outstanding...................... 129,475
New Devon shares to be issued to Mitchell
stockholders......................................... 29,196
-------
Pro forma Devon common shares outstanding.............. 158,671
=======
</Table>
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
5. GOODWILL
The preliminary allocation of the purchase price includes approximately
$1.2 billion of goodwill. In July 2001, the Financial Accounting Standards Board
issued Statement No. 141, "Business Combinations," and Statement No. 142,
"Goodwill and Other Intangible Assets." As a result of these two recent
pronouncements, goodwill recorded in connection with business combinations
completed after June 30, 2001 (including the merger) will not be amortized but,
instead, will be tested for impairment at least annually. Accordingly, the
accompanying unaudited pro forma statements of operations include no
amortization of the goodwill to be recorded in the merger.
Statement No. 142 will be adopted by Devon as of January 1, 2002. Until
that date, goodwill recognized from business combinations completed prior to
June 30, 2001 must continue to be amortized. Therefore, Devon's historical
goodwill amortization related to previous mergers has not been reversed in the
accompanying unaudited pro forma statements of operations. As of January 1,
2002, goodwill related to these previous mergers will no longer be amortized
but, instead, will be tested for impairment at least annually. The accompanying
unaudited pro forma statements of operations for the year ended December 31,
2000 and the six months ended June 30, 2001 include amortization of goodwill
related to previous mergers of $41.3 million and $16.9 million, respectively.
As indicated in Note 3, the allocation of the purchase price presented is
preliminary. At the effective time of the merger, or shortly thereafter, Devon
will finalize the purchase price allocation. Prior to that time, Devon may
determine that there are intangible assets acquired in the merger separate and
apart from goodwill. To the extent that such intangible assets, if any, have
definite useful lives, the value assigned to those intangible assets would be
amortized over such lives. Although the amount allocated to such intangible
assets, if any, will not be known until the effective time of the merger, Devon
does not believe that any such value, or the related amortization, would have a
material effect on the unaudited pro forma financial information presented
herein.
6. DEVON AND MITCHELL HISTORICAL AND RECLASSIFIED BALANCES
Devon and Mitchell record certain revenue and expenses differently in their
respective consolidated financial statements. To make the unaudited pro forma
financial information consistent, we have reclassified certain of Devon's and
Mitchell's balances to conform presentation.
Devon's historical balances for other revenue have been reclassified to
include separate line items for gas services revenue and gas services costs and
expenses to conform to Mitchell's presentation and Devon's expected presentation
subsequent to the merger.
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The following tables present Mitchell's balances as presented in its
historical financial statements and the reclassified balances that are included
in the accompanying unaudited pro forma statements of operations.
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2000 SIX MONTHS ENDED JUNE 30, 2001
------------------------------------- -------------------------------------
MITCHELL MITCHELL
MITCHELL RECLASSI- HISTORICAL MITCHELL RECLASSI- HISTORICAL
HISTORICAL FICATIONS RECLASSIFIED HISTORICAL FICATIONS RECLASSIFIED
---------- --------- ------------ ---------- --------- ------------
(IN THOUSANDS)
REVENUE:
Exploration and production...... $ 531,228 $(531,228) $ -- $ 423,277 $(423,277) $ --
Oil sales....................... -- 57,516 57,516 -- 27,220 27,220
Gas sales....................... -- 380,981 380,981 -- 345,178 345,178
NGL sales....................... -- 91,588 91,588 -- 50,376 50,376
Gas services revenue............ 1,140,906 -- 1,140,906 717,913 -- 717,913
Other revenue................... -- 4,094 4,094 -- (580) (580)
---------- --------- ---------- ---------- --------- ----------
Total revenue......... 1,672,134 2,951 1,675,085 1,141,190 (1,083) 1,140,107
---------- --------- ---------- ---------- --------- ----------
COSTS AND EXPENSES:
Exploration and production...... 239,628 (239,628) -- 149,561 (149,561) --
Lease operating expenses........ -- 45,101 45,101 -- 28,741 28,741
Transportation costs............ -- 25,817 25,817 -- 15,360 15,360
Production taxes................ -- 21,987 21,987 -- 17,764 17,764
Exploration expenses............ -- 12,028 12,028 -- 8,697 8,697
Gas services.................... 1,007,944 (56,498) 951,446 665,366 (23,382) 641,984
Depreciation, depletion and
amortization of property and
equipment..................... -- 155,376 155,376 -- 89,944 89,944
General and administrative
expenses...................... 43,739 35,817 79,556 13,985 12,437 26,422
Interest expense................ 28,765 (2,948) 25,817 10,868 (3,455) 7,413
Other (income) expense,
net........................... (5,899) 5,899 -- (2,372) 2,372 --
---------- --------- ---------- ---------- --------- ----------
Total costs and
expenses............ 1,314,177 2,951 1,317,128 837,408 (1,083) 836,325
---------- --------- ---------- ---------- --------- ----------
Earnings before income
taxes......................... 357,957 -- 357,957 303,782 -- 303,782
Income tax expense.............. 100,811 -- 100,811 102,830 -- 102,830
---------- --------- ---------- ---------- --------- ----------
Net earnings.......... $ 257,146 $ -- $ 257,146 $ 200,952 $ -- $ 200,952
========== ========= ========== ========== ========= ==========
</Table>
108
121
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
7. GAS SERVICES INFORMATION
The following table provides certain information relating to the unaudited
pro forma gas services revenues and costs and expenses for the year ended
December 31, 2000 and the six months ended June 30, 2001.
<Table>
<Caption>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
2000 2001
------------ ----------
(IN THOUSANDS)
GAS SERVICES REVENUE:
Gas processing operations:
Percentage of proceeds NGL volumes (MBbls)............. 6,391 3,037
Keep whole NGL volumes (MBbls)......................... 8,074 3,987
---------- --------
Total NGL volumes................................. 14,465 7,024
Average NGL price per barrel........................... $ 22.36 $ 22.34
---------- --------
NGL revenue............................................ 323,462 156,900
NGL marketing and other revenue........................ 388,469 231,483
---------- --------
Total gas processing revenue...................... 711,931 388,383
Natural gas gathering and marketing revenue............... 468,850 363,357
Other gas services revenue................................ 21,085 4,672
---------- --------
Total gas services revenue........................ $1,201,866 $756,412
========== ========
GAS SERVICES COSTS AND EXPENSES:
Gas processing operations:
Percentage of proceeds payments........................ $ 49,494 $ 33,830
Keep whole gas purchased............................... 146,764 82,283
Other NGL costs........................................ 31,908 20,282
---------- --------
Total NGL costs................................... 228,166 136,395
NGL marketing and other costs and expenses............. 366,317 212,773
---------- --------
Total gas processing costs and expenses........... 594,483 349,168
Natural gas gathering and marketing costs and expenses.... 388,965 322,624
Other gas services costs and expenses..................... 644 306
---------- --------
Total gas services costs and expenses............. $ 984,092 $672,098
========== ========
</Table>
Natural gas gathering and marketing margins (natural gas gathering and
marketing revenue less natural gas gathering and marketing costs and expenses)
were unusually high in the periods presented in the above table. After the
merger, Devon expects the combined company's natural gas gathering and marketing
margin to approximate between $30 million and $40 million per year.
109
122
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
8. UNAUDITED PRO FORMA EFFECT OF ANDERSON ACQUISITION
The following presents the pro forma effect of the pending Anderson
acquisition on Devon's historical balance sheet as of June 30, 2001 and Devon's
historical statements of operations for the year ended December 31, 2000 and the
six months ended June 30, 2001.
Anderson's historical amounts presented in the following statements have
been converted to accounting principles generally accepted in the United States
and to U.S. dollars. For information on such conversions, see Note 9.
Devon will account for the Anderson acquisition using the purchase method
of accounting for business combinations. Accordingly, Anderson's assets acquired
and liabilities assumed by Devon will be revalued and recorded at their
estimated "fair values." In the Anderson acquisition, Devon will pay C$40 per
share for each outstanding common share, including associated rights, of
Anderson. On a pro forma basis, assuming that the Anderson acquisition had
occurred on June 30, 2001, this would have resulted in Devon paying
approximately $3.5 billion in cash to Anderson stockholders, as well as an
additional $0.1 billion of cash which would have been paid to Anderson employees
for the intrinsic value of outstanding stock options and appreciation rights.
These U.S. dollar amounts are based on the June 30, 2001 exchange rate of C$1.00
to U.S.$0.6589.
110
123
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
DEVON-ANDERSON
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 2001
<Table>
<Caption>
ANDERSON DEVON
DEVON HISTORICAL PRO FORMA
HISTORICAL RECLASSIFIED AFTER
RECLASSIFIED U.S. GAAP PRO FORMA ANDERSON
(NOTE 5) (NOTE 9) ADJUSTMENTS ACQUISITION
------------ ------------ ----------- -----------
(IN THOUSANDS)
ASSETS:
Current assets......................... $ 1,111,513 $ 181,602 $ -- $ 1,293,115
Property and equipment, net............ 5,640,137 3,431,437 736,770(a) 9,808,344
Investment in common stock of Chevron
Corporation......................... 641,865 -- -- 641,865
Goodwill, net.......................... 277,767 -- 2,022,349(a) 2,300,116
Other assets........................... 132,756 6,430 93,570(a) 267,351
34,595(c)
------------ ---------- ----------- -----------
Total assets................... $ 7,804,038 $3,619,469 $ 2,887,284 $14,310,791
============ ========== =========== ===========
LIABILITIES:
Current liabilities.................... $ 587,837 $ 326,160 $ 309,595(c) $ 1,223,592
Debentures exchangeable into shares of
Chevron Corporation common stock.... 642,329 -- -- 642,329
Other long-term debt................... 1,438,819 969,843 (20,327)(a) 5,802,576
3,414,241(c)
Other long-term liabilities............ 249,449 42,186 (34,515)(a) 257,120
Fair value of derivative instruments... 17,979 30,046 -- 48,025
Deferred income taxes.................. 1,010,384 1,077,677 391,847(a) 2,479,908
STOCKHOLDERS' EQUITY:
Preferred stock........................ 1,500 -- -- 1,500
Common stock........................... 12,963 590,856 (590,856)(b) 12,963
Additional paid-in capital............. 3,590,233 68,153 (68,153)(b) 3,590,233
Retained earnings...................... 304,130 614,733 (614,733)(b) 304,130
Accumulated other comprehensive loss... (43,313) (100,185) 100,185(b) (43,313)
Treasury stock......................... (7,785) -- -- (7,785)
Other.................................. (487) -- -- (487)
------------ ---------- ----------- -----------
Total stockholders' equity..... 3,857,241 1,173,557 (1,173,557) 3,857,241
------------ ---------- ----------- -----------
Total liabilities and
stockholders' equity......... $ 7,804,038 $3,619,469 $ 2,887,284 $14,310,791
============ ========== =========== ===========
</Table>
111
124
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
DEVON-ANDERSON
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
ANDERSON DEVON
DEVON HISTORICAL PRO FORMA
HISTORICAL RECLASSIFIED AFTER
RECLASSIFIED U.S. GAAP PRO FORMA ANDERSON
(NOTE 5) (NOTE 9) ADJUSTMENTS ACQUISITION
------------ ------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE:
Oil sales................................ $1,078,759 $ 247,966 $ -- $1,326,725
Gas sales................................ 1,485,221 655,505 -- 2,140,726
NGL sales................................ 154,465 95,879 -- 250,344
Gas services revenue..................... 53,186 7,774 -- 60,960
Other.................................... 41,078 2,665 (386)(h) 43,357
---------- ---------- --------- ----------
Total revenues................... 2,812,709 1,009,789 (386) 3,822,112
---------- ---------- --------- ----------
COSTS AND EXPENSES:
Lease operating expenses................. 440,780 154,073 -- 594,853
Transportation costs..................... 53,309 39,709 -- 93,018
Production taxes......................... 103,244 3,189 -- 106,433
Gas services costs and expenses.......... 28,606 4,040 -- 32,646
Depreciation, depletion and amortization
of property and equipment............. 693,340 216,225 93,907(d) 1,003,472
Amortization of goodwill................. 41,332 -- -- 41,332
General and administrative expenses...... 93,008 40,400 (19,216)(e) 114,192
Expenses related to previous mergers..... 60,373 -- -- 60,373
Interest expense......................... 154,329 46,830 179,730(f) 371,874
(9,015)(g)
Deferred effect of changes in foreign
currency exchange rate on subsidiary's
long-term
debt.................................. 2,408 760 -- 3,168
---------- ---------- --------- ----------
Total costs and expenses......... 1,670,729 505,226 245,406 2,421,361
---------- ---------- --------- ----------
Earnings before income tax expense......... 1,141,980 504,563 (245,792) 1,400,751
INCOME TAX EXPENSE:
Current.................................. 130,793 14,439 (1,974)(i) 143,258
Deferred................................. 280,845 215,481 (102,733)(i) 393,593
---------- ---------- --------- ----------
Total income tax expense......... 411,638 229,920 (104,707) 536,851
---------- ---------- --------- ----------
Net earnings............................... 730,342 274,643 (141,085) 863,900
Preferred stock dividends.................. 9,735 -- -- 9,735
---------- ---------- --------- ----------
Net earnings applicable to common
stockholders............................. $ 720,607 $ 274,643 $(141,085) $ 854,165
========== ========== ========= ==========
Net earnings per average common share
outstanding:
Basic.................................... $ 5.66 $ 6.70
Diluted.................................. 5.50 6.52
Weighted average common shares outstanding:
Basic.................................... 127,421 127,421
Diluted.................................. 131,730 131,730
</Table>
112
125
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
DEVON-ANDERSON
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
<Table>
<Caption>
ANDERSON DEVON
DEVON HISTORICAL PRO FORMA
HISTORICAL RECLASSIFIED AFTER
RECLASSIFIED U.S. GAAP PRO FORMA ANDERSON
(NOTE 5) (NOTE 9) ADJUSTMENTS ACQUISITION
------------ ------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE:
Oil sales.................................. $ 488,556 $144,226 $ -- $ 632,782
Gas sales.................................. 1,168,178 574,517 -- 1,742,695
NGL sales.................................. 64,301 59,779 -- 124,080
Gas services revenue....................... 34,644 3,855 -- 38,499
Other...................................... 21,179 (2,059) (162)(h) 18,958
---------- -------- -------- ----------
Total revenues..................... 1,776,858 780,318 (162) 2,557,014
---------- -------- -------- ----------
COSTS AND EXPENSES:
Lease operating expenses................... 238,103 110,526 -- 348,629
Transportation costs....................... 35,823 23,824 -- 59,647
Production taxes........................... 74,058 3,574 -- 77,632
Gas services costs and expenses............ 28,109 2,005 -- 30,114
Depreciation, depletion and amortization of
property and equipment.................. 367,594 167,900 16,299(d) 551,793
Amortization of goodwill................... 16,923 -- -- 16,923
General and administrative expenses........ 46,890 23,082 (10,559)(e) 59,413
Interest expense........................... 68,940 34,742 86,995(f) 183,178
(7,499)(g)
Deferred effect of changes in foreign
currency exchange rate on subsidiary's
long-term debt.......................... -- (5,699) -- (5,699)
Reduction of carrying value of oil and gas
properties.............................. 76,942 -- -- 76,942
---------- -------- -------- ----------
Total costs and expenses........... 953,382 359,954 85,236 1,398,572
---------- -------- -------- ----------
Earnings before change in fair value of
derivative instruments and income tax
expense.................................... 823,476 420,364 (85,398) 1,158,442
Change in fair value of derivative
instruments................................ (6,582) (12,710) -- (19,292)
---------- -------- -------- ----------
Earnings before income tax expense........... 816,894 407,654 (85,398) 1,139,150
INCOME TAX EXPENSE:
Current.................................... 142,892 22,284 (14,947)(i) 150,229
Deferred................................... 186,797 126,663 (14,152)(i) 299,308
---------- -------- -------- ----------
Total income tax expense........... 329,689 148,947 (29,099) 449,537
---------- -------- -------- ----------
Net earnings before cumulative effect of
change in accounting principle............. 487,205 258,707 (56,299) 689,613
Preferred stock dividends.................... 4,868 -- -- 4,868
---------- -------- -------- ----------
Net earnings applicable to common
stockholders............................... $ 482,337 $258,707 $(56,299) $ 684,745
========== ======== ======== ==========
Net earnings per average common share
outstanding:
Basic...................................... $ 3.73 $ 5.30
Diluted.................................... 3.59 5.09
Weighted average common shares outstanding:
Basic...................................... 129,260 129,260
Diluted.................................... 135,402 135,402
</Table>
113
126
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
PRO FORMA ADJUSTMENTS RELATED TO THE ANDERSON ACQUISITION
The Devon-Anderson unaudited pro forma balance sheet presented in this note
includes the following adjustments:
(a) This entry adjusts the historical book values of Anderson's assets
and liabilities to their estimated fair values as of June 30, 2001. The
calculation of the total purchase price and the preliminary allocation to
assets and liabilities are shown below.
<Table>
<Caption>
(IN THOUSANDS,
EXCEPT FOR
SHARE PRICE)
--------------
Calculation and preliminary allocation of purchase price:
Number of Anderson common shares outstanding.............. 131,477
Acquisition price per share............................... $ 26.36
----------
Cash to be paid to Anderson stockholders.................. 3,465,212
Cash to be paid to settle Anderson employees' stock
options and appreciation rights........................ 99,029
----------
3,564,241
Plus estimated acquisition costs to be incurred........... 125,000
----------
Total purchase price.............................. 3,689,241
Plus fair value of liabilities to be assumed by Devon:
Current liabilities....................................... 326,160
Long-term debt............................................ 949,516
Other long-term liabilities............................... 7,671
Fair value of financial instruments....................... 30,046
Deferred income taxes..................................... 1,469,524
----------
Total purchase price plus liabilities assumed..... $6,472,158
==========
Fair value of assets to be acquired by Devon:
Current assets............................................ $ 181,602
Proved oil and gas properties............................. 2,819,207
Unproved oil and gas properties........................... 1,329,000
Other property and equipment.............................. 20,000
Other assets.............................................. 100,000
Goodwill.................................................. 2,022,349
----------
Total fair value of assets to be acquired......... $6,472,158
==========
</Table>
The total purchase price includes $125 million of estimated
acquisition costs. These costs include investment banking expenses,
severance, legal and accounting fees, printing expenses and other
merger-related costs. These costs have been added to long-term debt in the
Devon-Anderson unaudited pro forma balance sheet.
The purchase price allocation is preliminary and is subject to change
due to several factors, including: (1) changes in the fair values of
Anderson's assets and liabilities as of the effective time of the Anderson
acquisition; (2) the actual acquisition costs incurred; (3) the number of
Anderson shares and stock options and appreciation rights outstanding as of
the effective time of the Anderson acquisition; and (4) changes in Devon's
valuation estimates that may be made between now and the effective time of
the Anderson acquisition. These changes will not be known until after the
effective time of the Anderson acquisition. However, Devon does not believe
that the final purchase price allocation will differ materially from the
estimated allocation presented herein.
114
127
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(b) This adjustment includes a $590.9 million reduction of common
stock, a $68.2 million reduction of additional paid-in capital, a $614.7
million reduction of retained earnings and a $100.2 million reduction in
accumulated other comprehensive loss. These adjustments eliminate the
historical book value of Anderson's stockholders' equity.
(c) This adjustment increases long-term debt by $3.7 billion to
include the long-term debt that Devon will incur to fund the Anderson
acquisition. Of this increase in debt, $3.4 billion is included as
long-term debt in the accompanying Devon-Anderson unaudited pro forma
balance sheet, and $0.3 billion is included in current liabilities.
Although the proposed terms of Devon's $6 billion credit facility, as set
forth in the commitment letter dated August 31, 2001, require $0.9 billion
to be repaid at the end of one year, only $0.3 billion is included in
current liabilities in the pro forma adjustment. As of June 30, 2001, Devon
had $0.6 billion of availability under its revolving credit facilities that
would have been available to reclassify such amount of current maturities
as long-term debt.
This adjustment (c) also includes $34.6 million of costs estimated to
be incurred in connection with issuing this debt. The liability for these
costs has been added to current liabilities in the Devon-Anderson unaudited
pro forma balance sheet.
The Devon-Anderson unaudited pro forma statements of operations included in
this note include the following adjustments:
(d) This adjustment increases historical depreciation, depletion and
amortization expense to reflect the adjustment of Anderson's assets from
historical book value to fair value.
(e) This adjustment reduces Anderson's historical general and
administrative expense by an estimated amount which would be capitalized
under Devon's U.S. full cost accounting method.
(f) This adjustment increases interest expense due to the $3.7 billion
of long-term debt that Devon will incur to fund the Anderson acquisition.
This adjustment has been calculated using an interest rate on the debt of
4.58%, plus the amortization of estimated financing costs to be incurred.
This assumed interest rate is based on the proposed terms of Devon's $6
billion credit facility, as set forth in the commitment letter dated August
31, 2001.
(g) This adjustment reduces interest expense to reflect the repayment
of Anderson's bank debt with debt borrowed under Devon's proposed $6
billion credit facility that bears a lower interest rate, net of an
increase in interest expense related to the effect of valuing Anderson's
fixed-rate debt at the estimated fair value of such debt. The adjustment
relating to the repayment of Anderson's bank debt reduced interest expense
for the year 2000 and the first half of 2001 by $11.9 million and $8.9
million, respectively. The adjustment relating to recording Anderson's
fixed-rate debt at fair value increased interest expense for the year 2000
and the first half of 2001 by $2.9 million and $1.4 million, respectively.
(h) This adjustment reduces the Alberta Royalty Tax Credit as a result
of the acquisition of Anderson.
(i) This adjustment records the income tax impact of all pro forma
adjustments at an effective tax rate of approximately 43% for the year 2000
and 34% for the six months ended June 30, 2001. The rate for the first half
of 2001 included the effect of a change in Canadian tax rates enacted
during the second quarter of 2001. Excluding the retroactive effect of this
rate change, the rate applied to the 2001 pro forma adjustments would have
been 40%.
GOODWILL
The preliminary allocation of the purchase price for the Anderson
acquisition includes approximately $2.0 billion of goodwill. In July 2001, the
Financial Accounting Standards Board issued Statement No. 141, "Business
Combinations," and Statement No. 142, "Goodwill and Other Intangible Assets." As
a
115
128
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
result of these two recent pronouncements, goodwill recorded in connection with
business combinations completed after June 30, 2001 (including the Anderson
acquisition) will not be amortized but, instead, will be tested for impairment
at least annually. Accordingly, the Devon-Anderson unaudited pro forma
statements of operations included in this note include no amortization of the
goodwill to be recorded in the Anderson acquisition.
Statement No. 142 will be adopted by Devon as of January 1, 2002. Until
that date, goodwill recognized from business combinations completed prior to
June 30, 2001 must continue to be amortized. Therefore, Devon's historical
goodwill related to previous mergers has not been reversed in the Devon-
Anderson unaudited pro forma statements of operations included in this note. As
of January 1, 2002, goodwill related to these previous mergers will no longer be
amortized but, instead, will be tested for impairment at least annually. The
Devon-Anderson unaudited pro forma statements of operations included in this
note for the year ended December 31, 2000 and the six months ended June 30, 2001
include amortization of goodwill related to previous mergers of $41.3 million
and $16.9 million, respectively.
As indicated previously in this note, the allocation of the Anderson
acquisition purchase price is preliminary. At the effective time of the Anderson
acquisition, or shortly thereafter, Devon will finalize the purchase price
allocation. Prior to that time, Devon may determine that there are intangible
assets acquired in the merger separate and apart from goodwill. To the extent
that such intangible assets, if any, have definite useful lives, the value
assigned to those intangible assets would be amortized over such lives. Although
the amount allocated to such intangible assets, if any, will not be known until
the effective time of the Anderson acquisition, Devon does not believe that any
such value, or the related amortization, would have a material effect on the
Devon-Anderson unaudited pro forma financial information presented in this note.
9. CONVERSION OF ANDERSON'S HISTORICAL FINANCIAL STATEMENTS
Anderson prepares its historical financial statements based on a fiscal
year of September 30. To conform to Devon's year-end of December 31, Anderson's
historical results for the year ended September 30, 2000 were converted to
results for the year ended December 31, 2000. This conversion was done by
subtracting Anderson's historical interim results for the three months ended
December 31, 1999 and adding its historical interim results for the three months
ended December 31, 2000. Anderson's historical results for the nine months ended
June 30, 2001 were converted to results for the six months ended June 30, 2001.
This conversion was done by subtracting Anderson's historical interim results
for the three months ended December 31, 2000.
Anderson prepares its historical financial statements using accounting
principles generally accepted in Canada ("Canadian GAAP") and Canadian dollars.
The following tables provide information relating to the conversion of
Anderson's historical financial statements to those prepared using accounting
principles generally accepted in the United States ("U.S. GAAP") and U.S.
dollars.
116
129
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
ANDERSON UNAUDITED U.S. GAAP BALANCE SHEET
AS OF JUNE 30, 2001
<Table>
<Caption>
U.S. GAAP
ANDERSON AND OTHER ANDERSON
HISTORICAL ADJUSTMENTS U.S. GAAP CONVERTED TO
C$ C$ C$ U.S.$
----------- ----------- ----------- ------------
(IN THOUSANDS)
ASSETS:
Current assets..................... C$ 275,614 C$ -- C$ 275,614 $ 181,602
Property and equipment, net........ 5,593,729 (528,100)(a) 5,207,827 3,431,437
218,700(c)
(76,502)(e)
Other assets....................... (1,542) 11,300(b) 9,758 6,430
----------- ---------- ----------- ----------
Total assets............... C$5,867,801 C$(374,602) C$5,493,199 $3,619,469
=========== ========== =========== ==========
LIABILITIES:
Current liabilities................ C$ 495,007 C$ -- C$ 495,007 $ 326,160
Other long-term debt............... 1,471,913 -- 1,471,913 969,843
Other long-term liabilities........ 140,527 (76,502)(e) 64,025 42,186
Fair value of derivative
instruments..................... -- 45,600(d) 45,600 30,046
Deferred income taxes.............. 1,771,670 (231,100)(a) 1,635,570 1,077,677
4,700(b)
110,800(c)
(20,500)(d)
STOCKHOLDERS' EQUITY:
Common stock....................... 795,541 -- 795,541 590,856
Additional paid-in capital......... 91,763 -- 91,763 68,153
Retained earnings.................. 1,101,380 (297,000)(a) 906,180 614,733
6,600(b)
107,900(c)
(12,700)(d)
Accumulated other comprehensive
loss............................ -- (12,400)(d) (12,400) (100,185)
----------- ---------- ----------- ----------
Total stockholders'
equity................... 1,988,684 (207,600) 1,781,084 1,173,557
----------- ---------- ----------- ----------
Total liabilities and
stockholders' equity..... C$5,867,801 C$(374,602) C$5,493,199 $3,619,469
=========== ========== =========== ==========
</Table>
117
130
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
ANDERSON UNAUDITED U.S. GAAP STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
U.S. GAAP
ANDERSON AND OTHER ANDERSON
HISTORICAL ADJUSTMENTS U.S. GAAP CONVERTED TO
C$ C$ C$ U.S.$
---------- ----------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE:
Oil sales............................... C$ 444,045 C$(75,760)(f) C$ 368,285 $ 247,966
Gas sales............................... 1,210,216 (236,646)(f) 973,570 655,505
NGL sales............................... 149,637 (7,235)(f) 142,402 95,879
Less royalties.......................... (393,104) 393,104(f) -- --
Gas services revenue.................... -- 11,546(f) 11,546 7,774
Other................................... 13,708 (9,750)(f) 3,958 2,665
---------- --------- ---------- ----------
Total revenues.................. 1,424,502 75,259 1,499,761 1,009,789
---------- --------- ---------- ----------
COSTS AND EXPENSES:
Lease operating expenses................ 223,286 5,546(f) 228,832 154,073
Transportation costs.................... -- 58,977(f) 58,977 39,709
Production taxes........................ -- 4,736(f) 4,736 3,189
Gas services costs and expenses......... -- 6,000(f) 6,000 4,040
Depreciation, depletion and amortization
of property and equipment............ 364,642 (63,000)(g) 321,142 216,225
19,500(i)
General and administrative expenses..... 60,003 -- 60,003 40,400
Interest expense........................ 69,782 (229)(h) 69,553 46,830
Deferred effect of changes in foreign
currency exchange rate on long-term
debt................................. -- 1,129(h) 1,129 760
---------- --------- ---------- ----------
Total costs and expenses........ 717,713 32,659 750,372 505,226
---------- --------- ---------- ----------
Earnings before income tax expense........ 706,789 42,600 749,389 504,563
INCOME TAX EXPENSE:
Current................................. 21,445 -- 21,445 14,439
Deferred................................ 307,137 12,900(k) 320,037 215,481
---------- --------- ---------- ----------
Total income tax expense........ 328,582 12,900 341,482 229,920
---------- --------- ---------- ----------
Net earnings before discontinued
operations.............................. C$ 378,207 C$ 29,700 C$ 407,907 $ 274,643
========== ========= ========== ==========
Net earnings per average common share
outstanding:
Basic................................... C$ 2.94 C$ 3.17 $ 2.13
Diluted................................. 2.87 3.09 2.08
Weighted average common shares
outstanding:
Basic................................... 128,806 128,806 128,806
Diluted................................. 131,857 131,857 131,857
</Table>
118
131
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
ANDERSON UNAUDITED U.S. GAAP STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
<Table>
<Caption>
U.S. GAAP
ANDERSON AND OTHER ANDERSON CONVERTED
HISTORICAL ADJUSTMENTS U.S. GAAP TO
C$ C$ C$ U.S.$
----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES:
Oil sales............................. C$ 261,923 C$ (40,650)(f) C$ 221,273 $144,226
Gas sales............................. 1,124,760 (243,329)(f) 881,431 574,517
NGL sales............................. 112,250 (20,536)(f) 91,714 59,779
Less royalties........................ (351,019) 351,019(f) -- --
Gas services revenue.................. -- 5,915(f) 5,915 3,855
Other................................. 1,311 (4,470)(f) (3,159) (2,059)
----------- ---------- ----------- --------
Total revenues................ 1,149,225 47,949 1,197,174 780,318
----------- ---------- ----------- --------
COSTS AND EXPENSES:
Lease operating expenses.............. 166,731 2,839(f) 169,570 110,526
Transportation costs.................. -- 36,551(f) 36,551 23,824
Production taxes...................... -- 5,483(f) 5,483 3,574
Gas services costs and expenses....... -- 3,076(f) 3,076 2,005
Depreciation, depletion and
amortization of property and
equipment.......................... 275,494 (30,500)(g) 257,594 167,900
12,600(i)
General and administrative expenses... 35,412 -- 35,412 23,082
Interest expense...................... 56,757 (3,456)(h) 53,301 34,742
Deferred effect of changes in foreign
currency exchange rate on long-term
debt............................... -- (8,744)(h) (8,744) (5,699)
----------- ---------- ----------- --------
Total costs and expenses...... 534,394 17,849 552,243 359,954
----------- ---------- ----------- --------
Earnings before change in fair value of
derivative instruments and income tax
expense............................... 614,831 30,100 644,931 420,364
Change in fair value of derivative
instruments........................... -- (19,500)(j) (19,500) (12,710)
----------- ---------- ----------- --------
Earnings before income tax expense...... 614,831 10,600 625,431 407,654
INCOME TAX EXPENSE:
Current............................... 34,189 -- 34,189 22,284
Deferred.............................. 190,328 4,000(k) 194,328 126,663
----------- ---------- ----------- --------
Total income tax expense...... 224,517 4,000 228,517 148,947
----------- ---------- ----------- --------
Net earnings............................ C$ 390,314 C$ 6,600 C$ 396,914 $258,707
=========== ========== =========== ========
Net earnings per average common share
outstanding:
Basic................................. C$ 2.98 C$ 3.03 $ 1.97
Diluted............................... 2.89 2.94 1.92
Weighted average common shares
outstanding:
Basic................................. 131,141 131,141 131,141
Diluted............................... 135,227 135,227 135,227
</Table>
119
132
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The following adjustments convert Anderson's Canadian GAAP balance sheet to
a U.S. GAAP balance sheet:
(a) This adjustment reflects the cumulative effect of reductions to
the carrying value of Anderson's oil and gas properties using the full cost
ceiling limitations set forth by the Securities and Exchange Commission for
the full cost method of accounting for oil and gas operations.
(b) This adjustment reverses foreign exchange gains deferred under
Canadian GAAP but required to be included in the determination of earnings
under U.S. GAAP.
(c) This adjustment reflects the impact of the adoption of the
liability method of accounting for income taxes under U.S. GAAP.
(d) This adjustment records the fair value of derivative financial
instruments under U.S. GAAP.
(e) This adjustment reclassifies accrued site restoration costs from
other liabilities to accumulated depreciation, depletion and amortization
to conform to Devon's presentation.
The following adjustments convert Anderson's Canadian GAAP statements of
operating results to U.S. GAAP statements of operating results:
(f) This adjustment (1) allocates oil, gas and NGL royalty payments to
oil, gas and NGL revenues in accordance with U.S. GAAP; (2) reclassifies
third party processing revenues from lease operating expenses to gas
services revenues and expenses, and freehold mineral taxes from royalties
to production taxes, to conform to Devon's presentation; and (3)
reclassifies transportation costs which are netted against oil, gas and NGL
sales in Anderson's historical results as expenses in accordance with U.S.
GAAP.
(g) This adjustment records the impact of a lower depreciation,
depletion and amortization rate for U.S. GAAP as a result of a reduction in
carrying value of oil and gas properties which Anderson would have
recognized in 1998 due to a U.S. full cost ceiling limitation.
(h) This adjustment recognizes foreign exchange gains and losses in
accordance with U.S. GAAP.
(i) This adjustment reflects additional depreciation, depletion and
amortization resulting from the accounting for the initial adoption of the
liability method of accounting for income taxes as an adjustment to
property and equipment.
(j) This adjustment records the impact of changes in the fair value of
derivative instruments that do not qualify as hedges under U.S. GAAP.
(k) This adjustment records the income tax impact of all the U.S. GAAP
adjustments described above.
For the June 30, 2001 U.S. GAAP balance sheet, the historical Canadian
dollar amounts were converted to U.S. dollars using the June 30, 2001 exchange
rate of C$1.00 to U.S.$0.6589. For the U.S. GAAP statements of operations for
the year ended December 31, 2000 and six months ended June 30, 2001, Canadian
dollars were converted to U.S. dollars using the exchange rates of $0.6733 and
$0.6518, respectively. Such rates are the averages of the month end exchange
rates for the year and six-month periods.
120
133
INDEX TO HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
OF ANDERSON EXPLORATION LTD.
<Table>
<Caption>
PAGE
-----
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL
YEARS ENDED SEPTEMBER 2000, 1999
AND 1998:
Report of KPMG LLP to the Directors of Anderson Exploration
Ltd....................................................... FS-2
Consolidated Balance Sheets as of September 30, 2000 and
1999...................................................... FS-3
Consolidated Statements of Earnings for the fiscal years
ended September 30, 2000, 1999
and 1998.................................................. FS-4
Consolidated Statements of Retained Earnings for the fiscal
years ended September 30, 2000, 1999 and 1998............. FS-5
Consolidated Statements of Cash Flows for the fiscal years
ended September 30, 2000, 1999 and 1998................... FS-6
Notes to Consolidated Financial Statements for the fiscal
years ended September 30, 2000, 1999 and 1998............. FS-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD
ENDED JUNE 30, 2001:
Consolidated Balance Sheets as of June 30, 2001 and
September 30, 2000........................................ FS-22
Consolidated Statements of Earnings for the three months
ended June 30, 2001 and 2000 and for the nine months ended
June 30, 2001 and 2000.................................... FS-23
Consolidated Statements of Retained Earnings for the nine
months ended June 30, 2001
and 2000.................................................. FS-24
Consolidated Statements of Cash Flows for the three months
ended June 30, 2001 and 2000 and for the nine months ended
June 30, 2001 and 2000.................................... FS-25
Selected Notes to Consolidated Financial Statements for the
period ended June 30, 2001................................ FS-26
</Table>
FS-1
134
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheets of Anderson Exploration
Ltd. as at September 30, 2000, and 1999 and the consolidated statements of
earnings, retained earnings and cash flows for the years ended September 30,
2000, 1999 and 1998. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at September 30,
2000 and 1999 and the results of its operations and its cash flows for the years
ended September 30, 2000, 1999 and 1998 in accordance with Canadian generally
accepted accounting principles.
Accounting principles generally accepted in Canada vary in certain
significant respects from accounting principles generally accepted in the United
States. Application of accounting principles generally accepted in the United
States would have affected results of operations for each of the years in the
three year period ended September 30, 2000, and shareholders' equity as at
September 30, 2000 and 1999, to the extent summarized in Note 13 to the
consolidated financial statements.
/s/ KPMG LLP
Chartered Accountants
Calgary, Canada
November 15, 2000
(except with respect to Note 13, which
is dated as of April 24, 2001 and Note 14,
which is dated as of September 10, 2001)
FS-2
135
ANDERSON EXPLORATION LTD.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
SEPTEMBER 30
---------------------
2000 1999
--------- ---------
(STATED IN MILLIONS
OF CANADIAN DOLLARS)
ASSETS
Current assets
Accounts receivable....................................... $ 227.7 $ 125.0
Inventories............................................... 17.8 11.2
-------- --------
245.5 136.2
Property, plant and equipment (note 3)...................... 3,728.1 2,470.0
-------- --------
$3,973.6 $2,606.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness......................................... $ 32.4 $ 14.7
Accounts payable and accrued liabilities.................. 272.9 136.2
Taxes payable............................................. 3.2 14.3
Current portion of long term debt......................... -- 0.9
-------- --------
308.5 166.1
Long term debt (note 4)..................................... 1,126.9 545.2
Other credits (note 5)...................................... 133.6 136.7
Deferred income taxes....................................... 841.1 622.4
-------- --------
2,410.1 1,470.4
-------- --------
Shareholders' equity
Share capital (note 6).................................... 905.3 791.1
Retained earnings......................................... 658.2 344.7
-------- --------
1,563.5 1,135.8
-------- --------
$3,973.6 $2,606.2
======== ========
</Table>
Subsequent events (note 14)
See accompanying notes to consolidated financial statements.
On behalf of the Board:
<Table>
/s/ J.C. ANDERSON /s/ CHARLES J. HOWARD
- ----------------------------------------------------- -----------------------------------------------------
Director Director
</Table>
FS-3
136
ANDERSON EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF EARNINGS
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
----------------------------------
2000 1999 1998
---------- --------- ---------
(STATED IN MILLIONS OF CANADIAN
DOLLARS, EXCEPT PER SHARE AMOUNTS)
Revenues
Oil and gas............................................... $1,417.1 $ 770.9 $ 655.9
Royalties, net of ARTC of $0.7 million (1999 -- $1.5
million, 1998 -- $1.4 million)......................... (291.8) (125.9) (107.7)
-------- ------- -------
1,125.3 645.0 548.2
-------- ------- -------
Expenses
Operating................................................. 209.4 153.6 160.5
Depletion and depreciation................................ 312.0 260.7 252.8
General and administrative................................ 52.9 40.7 31.6
Interest (including $58.3 million on long term debt;
1999 -- $41.9 million, 1998 -- $43.3 million).......... 58.3 42.5 44.0
Future site restoration................................... 18.6 18.5 11.7
-------- ------- -------
651.2 516.0 500.6
-------- ------- -------
Earnings from continuing operations before taxes............ 474.1 129.0 47.6
-------- ------- -------
Taxes (note 8)
Current................................................... 7.8 20.5 6.7
Deferred.................................................. 218.1 42.1 23.0
-------- ------- -------
225.9 62.6 29.7
-------- ------- -------
Earnings from continuing operations......................... 248.2 66.4 17.9
Earnings from discontinued operations (note 2).............. 65.3 4.0 6.7
-------- ------- -------
Earnings.................................................... $ 313.5 $ 70.4 $ 24.6
======== ======= =======
Basic earnings per common share
From continuing operations................................ $ 1.95 $ 0.54 $ 0.15
From discontinued operations.............................. 0.51 0.03 0.05
-------- ------- -------
$ 2.46 $ 0.57 $ 0.20
======== ======= =======
Diluted earnings per common share (note 7)
From continuing operations................................ $ 1.92 $ 0.54 $ 0.15
From discontinued operations.............................. 0.51 0.03 0.05
-------- ------- -------
$ 2.43 $ 0.57 $ 0.20
======== ======= =======
Weighted average number of common shares outstanding
(millions)................................................ 127.4 124.1 122.8
======== ======= =======
</Table>
See accompanying notes to consolidated financial statements.
FS-4
137
ANDERSON EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
---------------------------------
2000 1999 1998
--------- --------- ---------
(STATED IN MILLIONS OF CANADIAN
DOLLARS)
Retained earnings, beginning of year........................ $344.7 $274.3 $249.7
Earnings.................................................... 313.5 70.4 24.6
------ ------ ------
Retained earnings, end of year.............................. $658.2 $344.7 $274.3
====== ====== ======
</Table>
See accompanying notes to consolidated financial statements.
FS-5
138
ANDERSON EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30
--------------------------------
2000 1999 1998
---------- -------- --------
(STATED IN MILLIONS OF CANADIAN
DOLLARS)
Cash provided by (used in):
Operations
Earnings from continuing operations....................... $ 248.2 $ 66.4 $ 17.9
Add (deduct) non-cash items:
Depletion and depreciation............................. 312.0 260.7 252.8
Future site restoration................................ 18.6 18.5 11.7
Deferred taxes......................................... 218.1 42.1 23.0
Other.................................................. -- (0.1) (9.1)
--------- ------- -------
796.9 387.6 296.3
Cash flow from discontinued operations (note 2)........... 4.4 8.0 9.7
--------- ------- -------
801.3 395.6 306.0
Change in deferred revenue.................................. (10.4) (10.6) 61.2
Change in non-cash working capital related to:
-- continuing operations (note 9)......................... (17.6) 21.1 17.5
-- discontinued operations (notes 2 and 9)................ 0.9 1.0 0.3
--------- ------- -------
774.2 407.1 385.0
--------- ------- -------
Investments
Additions to property, plant and equipment................ (679.8) (293.4) (500.4)
Proceeds on disposition of property, plant and
equipment.............................................. 10.4 9.6 24.2
Acquisition of Ulster Petroleums Ltd. (note 2)............ (550.1) -- --
Proceeds on disposition of Federated Pipe Lines Ltd. (note
2)..................................................... 103.3 -- --
Site restoration expenditures............................. (10.1) (6.3) (6.3)
Change in non-cash working capital related to investments
(note 9)............................................... (2.0) 4.8 (12.4)
Discontinued operations (notes 2 and 9)................... (0.2) (8.0) (60.9)
--------- ------- -------
(1,128.5) (293.3) (555.8)
--------- ------- -------
Financing
Increase (decrease) in long term debt..................... 331.7 (150.3) 100.4
Issue of common shares.................................... 49.4 42.7 12.0
Repurchase of common shares............................... (38.7) -- --
Discontinued operations (note 2).......................... (5.8) -- 50.1
--------- ------- -------
336.6 (107.6) 162.5
--------- ------- -------
Increase (decrease) in cash................................. (17.7) 6.2 (8.3)
Cash position, beginning of year............................ (14.7) (20.9) (12.6)
--------- ------- -------
Cash position, end of year.................................. $ (32.4) $ (14.7) $ (20.9)
========= ======= =======
</Table>
See accompanying notes to consolidated financial statements.
Cash position includes cash net of current bank indebtedness. Current bank
indebtedness includes outstanding cheques.
The Ulster acquisition amount represents the value assigned to property,
plant and equipment of $1,000.7 million less share consideration of $103.5
million and debt and non-cash working capital deficiency of $347.1 million
assumed from Ulster. The Federated disposition amount represents net proceeds of
$102.5 million plus bank indebtedness of $0.8 million assumed by the purchaser.
FS-6
139
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS, UNLESS OTHERWISE STATED)
ALL DOLLAR AMOUNTS IN THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF
ANDERSON EXPLORATION LTD. AND IN THESE NOTES ARE EXPRESSED IN CANADIAN DOLLARS,
UNLESS OTHERWISE STATED.
Anderson Exploration Ltd. ("Anderson Exploration" or "the Company") is
engaged in the acquisition, exploration, development and production of oil and
gas resources in western and northern Canada. The consolidated financial
statements include the accounts of Anderson Exploration and its wholly owned
subsidiaries and have been prepared in accordance with generally accepted
accounting principles in Canada.
1. SIGNIFICANT ACCOUNTING POLICIES
(a) Joint interest operations
A significant proportion of the Company's oil and gas exploration,
development and production activities are conducted with others and accordingly
the accounts reflect only the Company's proportionate interest in such
activities.
(b) Inventories
Inventories are stated at the lower of cost and net realizable value. Cost
is determined using the specific item or average cost method.
(c) Property, plant and equipment
The Company follows the full cost method of accounting for oil and gas
properties. Under this method, all costs relative to the exploration for and
development of oil and gas reserves are capitalized into cost centres on a
country by country basis. Capitalized costs include lease acquisitions,
geological and geophysical costs, lease rentals on non-producing properties,
costs of drilling productive and non-productive wells and plant and production
equipment costs. General and administrative costs are not capitalized, except to
the extent of the Company's working interest in operated capital expenditure
programs to which overhead fees have been charged under standard industry
operating agreements. Overhead fees are not charged on 100 percent owned
projects. Proceeds received from disposals of oil and gas properties and
equipment are credited against capitalized costs unless the disposal would alter
the rate of depletion and depreciation by more than 20 percent, in which case a
gain or loss on disposal is recorded.
Depletion of oil and gas properties and depreciation of plant and
production equipment are provided on the unit of production method based on
total proven reserves before royalties as estimated by Company engineers.
Natural gas sales and reserves are converted to equivalent units of crude oil
using their relative energy content. Buildings and other equipment are
depreciated over their useful lives using the declining balance and straight
line methods at rates varying from five percent to 40 percent per annum.
The Company applies a ceiling test to capitalized oil and gas property
costs to ensure that such costs do not exceed the estimated future net revenues
from production of proven reserves, at prices and operating costs in effect at
the balance sheet date, plus the cost of unevaluated properties less
management's estimate of impairment. The test also provides for estimated future
administrative overhead, financing costs and taxes.
FS-7
140
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Future site restoration costs
Provisions for future site restoration costs are made using the unit of
production method based on established reserves. Costs are based on engineering
estimates considering current regulations, costs and industry standards. Actual
expenditures incurred are applied against deferred future site restoration
costs.
(e) Stock based compensation plans
Consideration received from employees or directors on the exercise of stock
options under the employee stock option plan and the purchase of stock under the
employee stock savings plan is recorded as share capital. The Company matches
employee contributions to the stock savings plan and these cash payments are
recorded as compensation expense.
Obligations for cash payments under the share appreciation rights plan are
accrued as compensation expense over the vesting period of the rights. Changes
in the share price, up or down, will change the compensation expense and are
recognized prospectively when they occur.
(f) Income tax
The Company follows the tax allocation method of accounting for income
taxes. Under this method, deferred income taxes are recorded to the extent that
taxable income otherwise determined is adjusted by timing differences.
New recommendations issued in 1997 by the Accounting Standards Board of the
Canadian Institute of Chartered Accountants will be adopted effective October 1,
2000.
(g) Revenue recognition
Settlement payments received for restructuring or terminating long term
natural gas sales contracts are recognized as revenue over the remaining period
of the contracts or over the life of the reserves associated with the contracts.
(h) Foreign currency translation
Monetary assets and liabilities denominated in a foreign currency are
translated at the rate of exchange in effect at the balance sheet date while
non-monetary assets and liabilities are translated at historical rates of
exchange. Revenues and expenses are translated at monthly average rates of
exchange. Translation gains and losses are included in earnings except for
unrealized gains and losses on long term monetary items which are deferred and
amortized to earnings over their remaining term.
(i) Hedging
Amounts received or paid under interest rate swaps are recognized in
interest expense on an accrual basis. The fair values of the interest rate swap
contracts are not recorded in the balance sheet.
(j) Per share amounts
Basic earnings per common share and cash flow from operations per common
share are computed by dividing earnings and cash flow from operations by the
weighted average number of common shares outstanding for the period. Diluted per
share amounts reflect the potential dilution that could occur if securities or
other contracts to issue common shares were exercised or converted to common
shares. The treasury stock method is used to determine the dilutive effect of
stock options and other dilutive instruments, in accordance with new standards
approved by the Canadian Institute of Chartered Accountants.
FS-8
141
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Use of estimates
Management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reported period. Actual results could differ
from these estimates.
2. CORPORATE ACQUISITION AND DISPOSITION
(a) Acquisition of Ulster Petroleums Ltd.
On May 17, 2000, the Company acquired all the outstanding shares of Ulster
Petroleums Ltd. ("Ulster"), an oil and gas production company. The consideration
given for each Ulster share was $13.10, made up of $11.00 cash and 0.09655 of an
Anderson Exploration common share based on Anderson Exploration's closing price
of $21.75 per share on the offer date. The transaction has been accounted for
using the purchase method with the results of operations included in these
financial statements from the date of acquisition. Details of the acquisition
are as follows:
<Table>
Net assets acquired, at assigned values:
Property, plant and equipment............................. $1,000.7
Working capital deficiency................................ (32.1)
Long term debt assumed.................................... (312.2)
--------
$ 656.4
========
Purchase price:
Cash...................................................... $ 542.2
Common shares (4,758,727 shares).......................... 103.5
Transaction costs......................................... 10.7
--------
$ 656.4
========
</Table>
(b) Disposition of Federated Pipe Lines Ltd.
On June 28, 2000, the Company entered into an agreement to sell its 50
percent interest in Federated Pipe Lines Ltd. ("Federated"), a pipeline
transportation company. The Company received net proceeds on the sale of $102.5
million, which were used to reduce debt related to the acquisition of Ulster.
The Company's proportionate interest in the results of operations of
Federated are shown as discontinued operations in the consolidated statements of
earnings and cash flows. The carrying values of the assets and liabilities
attributable to the discontinued operations and included in the consolidated
balance sheet at September 30, 1999 were as follows:
<Table>
Current assets.............................................. $ 3.6
Property, plant and equipment............................... 102.8
Current liabilities......................................... (3.7)
Long term debt.............................................. (65.0)
Other....................................................... (0.5)
------
Net assets........................................ $ 37.2
======
</Table>
For the six months ended March 31, 2000, revenues from discontinued
operations were $16.7 million, earnings were $1.8 million (net of taxes of $1.5
million) and net capital expenditures were $0.1 million. Results of discontinued
operations subsequent to this date were included in the gain on sale of
FS-9
142
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$63.5 million (net of taxes of $1.6 million), as a plan of arrangement to
dispose of the assets existed at March 31, 2000.
3. PROPERTY, PLANT AND EQUIPMENT
<Table>
<Caption>
2000 1999
------------------------ ------------------------
ACCUMULATED ACCUMULATED
DEPLETION AND DEPLETION AND
COST DEPRECIATION COST DEPRECIATION
-------- ------------- -------- -------------
Oil and gas properties, including plant and
production equipment.......................... $6,440.0 $(2,743.1) $4,777.7 $(2,436.1)
Buildings, land and other....................... 83.9 (52.7) 73.4 (47.8)
Discontinued operations (note 2)................ -- -- 155.9 (53.1)
-------- --------- -------- ---------
$6,523.9 $(2,795.8) $5,007.0 $(2,537.0)
======== ========= ======== =========
Net book value........................ $ 3,728.1 $ 2,470.0
========= =========
</Table>
At September 30, 2000, oil and gas properties included $375.0 million (1999
-- $179.0 million) relating to unproved properties which have been excluded
from depletion and depreciation calculations. Future development costs of proven
undeveloped reserves of $340.3 million (1999 -- $301.7 million) are included in
depletion and depreciation calculations.
At the balance sheet dates, the Company had substantial surpluses in its
ceiling tests using balance sheet date prices.
4. LONG TERM DEBT
<Table>
<Caption>
2000 1999
---------------------- ----------------------
BALANCE INTEREST BALANCE INTEREST
OUTSTANDING RATE* OUTSTANDING RATE*
----------- -------- ----------- --------
Continuing operations
Bank loans.......................................... $ 385.9 6.68% $ 27.2 5.30%
Bank loans subject to swaps......................... 253.0 6.94% 253.0 6.69%
Medium term notes, maturing July 2005............... 175.0 7.25% --
Senior U.S. dollar notes, maturing October 2000 to
October 2006 (U.S.$75.0 million)................. 113.0 7.44% --
Oil indexed debentures, maturing October 2000....... 200.0 8.26% 200.0 8.26%
-------- ---- ------ ----
$1,126.9 $480.2
======== ======
Discontinued operations (note 2)
Bank loans.......................................... -- 55.1 5.39%
9.54% sinking fund debentures, maturing October
2002............................................. -- 10.8 9.54%
Less current portion................................ -- (0.9)
-------- ------
65.0
------
$1,126.9 $545.2
======== ======
</Table>
- ---------------
*As at September 30.
The Company has a $500 million syndicated revolving credit facility with an
extendible 364 day revolving period and a six year term period. Advances under
the facility can be drawn in either Canadian or U.S. funds. The facility bears
interest at the bank's prime lending rate, bankers' acceptance rates plus
applicable margins or U.S. LIBOR rates plus applicable margins.
FS-10
143
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has another syndicated revolving credit facility that was
arranged in May 2000 to finance the acquisition of Ulster (note 2). The facility
is made up of three separate components. Tranche A is a committed 364 day $100
million bridge facility available by way of a single draw. Tranche B is a
committed 18 month $300 million bridge facility available by way of a single
draw. Tranche C is a committed $500 million 364 day revolving credit facility,
followed by a committed two year term period. In July 2000, the full amount of
Tranche A and $75 million of Tranche B were repaid with proceeds from the issue
of medium term notes. Tranche A is no longer available and Tranche B has been
reduced to $225 million. Advances under the facility can be drawn in either
Canadian or U.S. funds. The facility bears interest at the bank's prime lending
rate, bankers' acceptance rates plus applicable margins or U.S. Libor rates plus
applicable margins.
The Company has fixed the rate of interest on $253.0 million of its bank
loans through swap agreements at an average rate of 6.94 percent. These
agreements mature at various dates as shown below:
<Table>
<Caption>
AMOUNT INTEREST RATE* MATURITY DATE
- ------ -------------- --------------
$ 35.0 7.36% September 2001
32.5 6.66% October 2001
53.0 6.05% November 2001
7.5 6.80% October 2002
40.0 7.32% February 2007
30.0 7.53% March 2007
30.0 7.32% June 2007
25.0 6.85% July 2007
- ------ ----
$253.0 6.94%
====== ====
</Table>
- ---------------
*Includes margin.
On June 29, 2000, the Company filed a short form shelf prospectus in
connection with a two year medium term note program. Medium term notes may be
issued from time to time in an aggregate principal amount of up to $500 million
and are offered at prices and contain such other terms as may be determined at
the time of issue. On July 18, 2000, the Company issued $175 million of 7.25
percent unsecured, non-redeemable notes maturing July 18, 2005 pursuant to the
program. At September 30, 2000, the medium term notes were rated "A-" by CBRS
Inc. and "BBB (high)" by Dominion Bond Rating Service Limited.
The senior U.S. dollar notes were assumed on the acquisition of Ulster
(note 2). The senior notes are denominated in U.S. dollars and were issued in
October 1995 in three series as follows:
<Table>
Series A 7.23%, due in total in October 2000......................... U.S.$15.0
Series B 7.42%, due in October 2005, annual principal repayments of
U.S.$5.8 million begin in October 2001...................... 29.0
Series C 7.57%, due in October 2006, annual principal repayments of
U.S.$10.3 million begin in October 2004..................... 31.0
---------
U.S.$75.0
=========
</Table>
The bank loans, medium term notes and senior U.S. dollar notes are
unsecured and rank equally with one another and are subject to the maintenance
of certain financial ratios.
The oil indexed debentures bear interest at a fixed rate of 5.0 percent per
annum plus a variable rate of up to 16.8 percent per annum based upon the
average price of crude oil. The effective rate of interest
FS-11
144
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the debentures has been fixed to maturity at 8.26 percent by an unsecured
interest rate swap agreement.
The Company has a $100 million operating line of credit, of which $14.7
million was unused at September 30, 2000. The operating line is being used to
support outstanding letters of credit associated with the Company's work
proposals in northern Canada (note 12).
It is anticipated that the revolving credit facilities (other than the
bridge facilities) will be extended. If this is the case, the aggregate amount
of payments estimated to be required in each of the next five years are $222.6
million in 2001, $232.7 million in 2002, $8.7 million in 2003, $8.7 million in
2004 and $199.3 million in 2005. If the revolving credit facilities are not
extended, the payments would be $222.6 million in 2001, $296.1 million in 2002,
$107.0 million in 2003, $72.1 million in 2004 and $262.7 million in 2005. The
payments in 2001 consist of the Series A senior U.S. dollar notes repaid on
October 4, 2000 and the oil indexed debentures repaid on October 31, 2000. The
repayments were financed using existing long term revolving credit facilities
and so were not classified as current liabilities in these consolidated
financial statements.
5. OTHER CREDITS
<Table>
<Caption>
2000 1999
------ ------
Continuing operations
Deferred future site restoration costs.................... $ 68.4 $ 60.0
Deferred revenue.......................................... 59.7 70.0
Pension accrual (note 10)................................. 5.5 5.6
------ ------
133.6 135.6
Discontinued operations (note 2)............................ -- 1.1
------ ------
$133.6 $136.7
====== ======
</Table>
Site restoration involves the surface clean-up and reclamation of well
sites and field production facilities to ensure they can be safely returned to
appropriate land uses. In addition, certain plant facilities will require
decommissioning which will involve dismantling of facilities as well as the
decontamination and reclamation of these lands. Total estimated future costs,
given the current inventory of wells and facilities, are approximately $283.4
million, of which $68.4 million has been accrued to date.
6. SHARE CAPITAL
Authorized:
Common shares: unlimited
Preferred shares: unlimited
Junior preferred shares, redeemable, participating: unlimited
FS-12
145
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Issued:
<Table>
<Caption>
2000 1999 1998
------------------------ ------------------------ ------------------------
NUMBER OF AMOUNT NUMBER OF AMOUNT NUMBER OF AMOUNT
SHARES (MILLIONS) SHARES (MILLIONS) SHARES (MILLIONS)
----------- ---------- ----------- ---------- ----------- ----------
Common shares
Balance, beginning of
year.................... 126,030,334 $637.6 123,260,352 $594.9 122,360,963 $582.8
Issued for cash on exercise
of stock options........ 2,857,210 45.3 2,553,155 39.2 694,207 8.9
Issued for cash under
employee stock savings
plan.................... 183,793 4.1 216,827 3.5 205,182 3.2
Issued on acquisition of
Ulster.................. 4,758,727 103.5 -- -- -- --
Repurchase of shares under
Normal Course Issuer
Bid..................... (2,303,138) (11.7) -- -- -- --
----------- ------ ----------- ------ ----------- ------
Balance, end of year....... 131,526,926 778.8 126,030,334 637.6 123,260,352 594.9
----------- ------ ----------- ------ ----------- ------
Contributed surplus
Balance, beginning of
year.................... 153.5 153.5 153.5
Repurchase of shares under
Normal Course Issuer
Bid..................... (27.0) -- --
----------- ------ ----------- ------ ----------- ------
Balance, end of year....... 126.5 153.5 153.5
----------- ------ ----------- ------ ----------- ------
131,526,926 $905.3 126,030,334 $791.1 123,260,352 $748.4
=========== ====== =========== ====== =========== ======
</Table>
The Company has an employee stock option plan under which both employees
and directors are eligible to receive grants. On September 30, 2000, 6,769,320
common shares were reserved for issuance under the plan. Options granted under
the plan generally have a term of five years to expiry and vest equally over a
three year period starting on the first anniversary date of the grant. The
exercise price of each option equals the market price of the Company's common
shares on the date of the grant. At September 30, 2000, 6,466,771 options with
exercise prices between $13.15 and $32.90 were outstanding and exercisable at
various dates to the year 2005.
<Table>
<Caption>
2000 1999 1998
--------------------------- --------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- -------------- ---------- -------------- --------- --------------
Stock options
outstanding,
beginning of
year............... 7,423,564 $15.71 7,647,502 $15.95 6,066,176 $15.42
Granted.............. 2,109,600 19.35 2,595,800 14.68 2,746,600 16.36
Exercised............ (2,857,210) 15.87 (2,553,155) 15.35 (694,207) 12.78
Cancelled............ (209,183) 16.16 (266,583) 15.93 (471,067) 16.27
---------- ------ ---------- ------ --------- ------
Stock options
outstanding, end of
year............... 6,466,771 $16.81 7,423,564 $15.71 7,647,502 $15.95
========== ====== ========== ====== ========= ======
Exercisable at year
end................ 2,000,936 $16.05 2,560,734 $15.95 3,125,100 $15.32
========== ====== ========== ====== ========= ======
</Table>
FS-13
146
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING TERM (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ -------- ----------- --------
Under $15.00............................ 2,137,320 3.2 $14.46 613,820 $14.49
$15.00 to 16.99......................... 1,459,201 2.5 16.33 693,099 16.34
$17.00 to 18.99......................... 798,950 2.0 17.06 662,650 17.03
Over $19.00............................. 2,071,300 4.5 19.47 31,367 19.40
--------- --- ------ --------- ------
6,466,771 3.3 $16.81 2,000,936 $16.05
========= === ====== ========= ======
</Table>
In 1999, the employee stock option plan was amended to give the Board of
Directors the discretion to attach share appreciation rights to stock options
granted after February 10, 1999. Share appreciation rights give the holder of
the options the right to surrender his or her options for cancellation and
receive a cash payment from the Company equal to the excess of the then current
market price of the common shares over the exercise price of the options. To
date, share appreciation rights have not been attached to stock options granted.
A separate share appreciation rights plan, where employees are granted the
right to receive cash payments from the Company, but not common shares, was
established in 2000. Under this plan, employees are entitled to cash payments
equal to the excess of the then current market price of the common shares over
the exercise price of the right. Other terms of the plan are similar to the
employee stock option plan. During the year ended September 30, 2000, 1,738,101
rights at a weighted average exercise price of $22.09 were granted and,
following employee departures, 95,040 rights at a weighted average price of
$24.55 were cancelled. At September 30, 2000, 1,643,061 rights with exercise
prices between $17.75 and $32.90 were outstanding and exercisable at various
dates to the year 2005. At September 30, 2000, the weighted average exercise
price of the rights was $21.95 and the weighted average remaining contractual
life of the rights was 4.5 years. Compensation expense of $4.1 million has been
recorded in the current year related to this plan.
Under the employee stock savings plan, the Company is authorized to issue
shares of common stock to all of its permanent employees. Under the terms of the
plan, qualifying employees may contribute from four percent to eight percent of
basic annual earnings. Employee contributions are invested in the Company's
common shares purchased from treasury at market prices. The Company matches the
employees' contributions, investing in qualified money market instruments or
additional common shares of the Company purchased on the open market. The
Company's share of contributions is recorded as compensation expense and
amounted to $4.1 million in 2000 (1999 -- $3.5 million, 1998 -- $3.2 million).
At September 30, 2000, 859,565 common shares were reserved for issuance under
the plan.
On November 16, 1999, the Board of Directors approved a Notice of Intention
to make a Normal Course Issuer Bid, under which the Company could acquire up to
five percent of its outstanding common shares through the facilities of The
Toronto Stock Exchange. During the year, the Company repurchased 2.3 million
shares at an average price of $16.81 per share. The repurchased shares were
cancelled and returned to treasury.
On August 18, 1999, the Board of Directors adopted a Shareholder Rights
Plan to replace the Company's previous plan which expired in 1999. The Plan was
approved by shareholders on February 16, 2000. If a bid to acquire control of
the Company is made, the Plan is designed to give the Board of Directors of the
Company time to consider alternatives to allow shareholders to receive full and
fair value for their shares. In the event that a bid, other than a permitted
bid, is made, shareholders become entitled to exercise rights to acquire common
shares of the Company at 50 percent of market value. This would significantly
dilute the value of the bidder's holdings.
FS-14
147
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PER SHARE AMOUNTS
The Canadian Institute of Chartered Accountants has approved a new standard
for the computation, presentation and disclosure of earnings per share. In the
fourth quarter of fiscal 2000, the Company retroactively adopted the new
standard. Under the new standard, the treasury stock method is used instead of
the imputed earnings method to determine the dilutive effect of stock options
and other dilutive instruments. Under the treasury stock method, only "in the
money" dilutive instruments impact the diluted calculations.
In computing diluted earnings and cash flow from operations per share, 1.9
million shares were added to the weighted average number of common shares
outstanding during the year ended September 30, 2000 (1999 -- 0.4 million
shares, 1998 -- 0.3 million shares) for the dilutive effect of employee stock
options. No adjustments were required to reported earnings or cash flow from
operations in computing diluted per share amounts.
Prior period diluted earnings per share and cash flow from operations per
share have been restated for this change. If the imputed earnings method had
been used to calculate these amounts, the reported amounts would have been:
<Table>
<Caption>
2000 1999 1998
----- ----- -----
Diluted earnings per common share
From continuing operations................................ $1.87 $0.53 $0.15
From discontinued operations.............................. 0.49 0.03 0.05
----- ----- -----
$2.36 $0.56 $0.20
===== ===== =====
</Table>
8. TAXES
The provision for taxes differs from the result which would have been
obtained by applying the combined federal and provincial tax rate to earnings
before taxes. The difference results from the following items:
<Table>
<Caption>
2000 1999 1998
------- ------ ------
Earnings from continuing operations before taxes.......... $ 474.1 $129.0 $ 47.6
======= ====== ======
Combined federal and provincial tax rate.................. 44.8% 44.8% 44.8%
======= ====== ======
Computed "expected" tax................................... $ 212.4 $ 57.8 $ 21.3
Increase (decrease) in taxes resulting from:
Royalties and other payments to provincial
governments.......................................... 116.4 49.5 42.1
Non-deductible depletion................................ 6.4 1.2 2.2
Resource allowance...................................... (111.9) (49.7) (39.0)
Income tax rebates and credits.......................... (7.6) (2.1) (2.7)
Capital taxes........................................... 10.3 7.0 7.0
Other................................................... (0.1) (1.1) (1.2)
------- ------ ------
Provision for taxes....................................... $ 225.9 $ 62.6 $ 29.7
======= ====== ======
</Table>
Property, plant and equipment with a net book value of $435.7 million
(1999 -- $33.1 million, 1998 -- $37.3 million) has no cost base for income tax
purposes.
FS-15
148
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. CHANGE IN NON-CASH WORKING CAPITAL
<Table>
<Caption>
2000 1999 1998
------- ------ ------
Accounts receivable....................................... $(102.7) $(23.6) $ 17.3
Inventories............................................... (6.7) (1.4) (0.3)
Accounts payable and accrued liabilities.................. 136.7 35.9 (33.1)
Taxes payable............................................. (11.1) 13.4 12.0
Acquisition of non-cash working capital deficiency........ (34.9) -- --
Disposition of non-cash working capital deficiency........ (0.2) -- --
------- ------ ------
$ (18.9) $ 24.3 $ (4.1)
======= ====== ======
</Table>
The following cash receipts (payments) have been included in the
determination of earnings from continuing operations:
<Table>
<Caption>
2000 1999 1998
------ ------ ------
Dividends received......................................... $ 1.0 $ 1.1 $ 0.1
Interest paid.............................................. (54.1) (42.2) (44.7)
Taxes (paid) recovered..................................... (19.0) (7.3) 0.3
</Table>
10. PENSION PLANS
The Company has a non-contributory registered defined benefit pension plan.
In June 1995, the plan was amended to give active employees an opportunity to
opt out of the plan in favour of a defined contribution alternative. Most
employees opted out of the plan. These employees and all new employees accrue
future benefits based on defined contributions. Employees remaining in the plan
continue to accrue benefits under the defined benefit plan. The plan is funded
based on independent actuarial valuations. Plan assets are invested primarily in
treasury bills and/or publicly traded equity and fixed income securities.
Retirement benefits are based on the employees' years of credited service and
salaries during the last years of employment.
The retirement benefit under the registered plan is subject to a maximum
pension as determined under the Income Tax Act (Canada). To the extent this
limitation applied, supplemental retirement allowances were provided to
qualifying employees at the time so that the total retirement benefits were
sufficient to provide the annuity that those employees would have been entitled
to without the limitation. To support the Company's obligations under the
supplemental plan, the Company has issued a letter of credit to the custodian of
the supplemental plan.
In August 1997, the Company purchased annuity contracts in respect of all
the then retired and deferred vested members of the registered plan. Pension
assets were used to purchase the annuities. Projected benefit obligations were
reduced to reflect this purchase of annuities.
Based on an actuarial valuation dated September 30, 2000, the status of the
plans on that date was:
<Table>
<Caption>
2000 1999
----- -----
Pension plan assets......................................... $21.0 $20.3
Projected benefit obligations............................... (9.0) (8.8)
----- -----
Excess of pension plan assets over projected benefit
obligations............................................... $12.0 $11.5
===== =====
</Table>
In 2000, the Company recorded pension expense of $0.4 million (1999 -- $0.4
million, 1998 -- $0.4 million).
FS-16
149
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 6, 2000, a benefit enhancement of approximately $8.3 million was
granted to those retired and deferred vested members of the registered plan as
of December 31, 2000 for whom annuities were purchased in 1997. Pension plan
assets were reduced by this amount subsequent to September 30, 2000.
11. FINANCIAL INSTRUMENTS
(a) Interest rate risk
The Company has entered into fixed rate debt agreements and interest rate
swap agreements in order to manage its interest rate exposure on debt
instruments. These agreements are described in note 4.
(b) Foreign currency exchange risk
The Company is exposed to foreign currency fluctuations as crude oil and
natural gas prices received are referenced to U.S. dollar denominated prices.
(c) Credit risk
A substantial portion of the Company's accounts receivable are with
customers and joint venture partners in the oil and gas industry and are subject
to normal industry credit risks. Purchasers of the Company's natural gas, crude
oil and natural gas liquids are subject to an internal credit review to minimize
the risk of non-payment.
The Company is also exposed to credit risk associated with possible
non-performance by counterparties to the interest rate swap agreements. The
Company believes these risks to be minimal as the counterparties are major
financial institutions which have at least an AA credit rating as determined by
recognized credit rating agencies.
(d) Fair value of financial instruments
The carrying amounts of financial instruments included in the consolidated
balance sheet, other than long term debt, approximate their fair value due to
their short term maturity.
The estimated fair values of long term debt and derivative instruments have
been determined based on discounted cash flow analysis using current market
interest rates for financial instruments with similar maturities.
The carrying values and estimated fair values of long term debt and
derivative instruments are as follows:
<Table>
<Caption>
2000 1999
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------ -------- ------
Continuing operations
Bank loans...................................... $638.9 $638.9 $280.2 $280.2
Interest rate swaps on bank loans............... -- 2.2 -- 2.4
Medium term notes............................... 175.0 177.2 -- --
Senior U.S. dollar notes........................ 113.0 112.6 -- --
Oil indexed debentures.......................... 200.0 200.0 200.0 199.3
Interest rate swap on oil indexed debentures.... -- -- -- 6.2
Discontinued operations (note 2)
Bank loans...................................... -- -- 55.1 55.1
9.54% sinking fund debentures................... -- -- 10.8 11.6
</Table>
FS-17
150
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS
In 1999 and 2000, the Company acquired interests in northern Canada for
total work expenditure proposals of $376.7 million. Work expenditures commenced
in fiscal 2000, with $4.6 million of eligible expenditures incurred.
Expenditures will continue over the next five years and include obligations to
drill at least one well on each licence or permit. The proposals are supported
by deposits of $85.0 million in letters of credit. The letters of credit will be
reduced proportionately as eligible expenditures are incurred.
13. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") that, in
most respects, conform to accounting principles generally accepted in the United
States ("U.S. GAAP"). Canadian GAAP differs from U.S. GAAP in the following
respects:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
NOTE 2000 1999 1998
---- ------------- ------------- -------------
(MILLIONS OF DOLLARS)
Earnings from continuing operations, as
reported.............................. $248.2 $ 66.4 $ 17.9
Impact of U.S. GAAP
Full cost accounting.................. A 64.9 72.2 (711.0)
Related income taxes............... (28.4) (31.5) 311.0
Foreign exchange on long term debt.... B (1.6) -- --
Related income taxes............... 0.7 -- --
Accounting for income taxes -- impact
on depletion and depreciation
expense............................ C (13.9) (2.6) (3.5)
Related income taxes............... 11.9 2.3 3.6
------ ------ -------
Earnings from continuing operations, as
adjusted.............................. 281.8 106.8 (382.0)
Discontinued operations................. 65.3 4.0 6.7
------ ------ -------
Earnings, as adjusted................... $347.1 $110.8 $(375.3)
====== ====== =======
Basic earnings per common share
From continuing operations, as
adjusted........................... $ 2.21 $ 0.86 $ (3.11)
From discontinued operations.......... 0.51 0.03 0.05
------ ------ -------
$ 2.72 $ 0.89 $ (3.06)
====== ====== =======
Diluted earnings per common share
From continuing operations, as
adjusted........................... $ 2.17 $ 0.86 $ (3.10)
From discontinued operations.......... 0.51 0.03 0.05
------ ------ -------
$ 2.68 $ 0.89 $ (3.05)
====== ====== =======
</Table>
Under U.S. GAAP, the classification of certain revenue and expense items
differs from Canadian GAAP. These classification differences do not have an
impact on reported earnings.
FS-18
151
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Balance sheet items in accordance with U.S. GAAP are as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------- -------------------
CANADIAN U.S. CANADIAN U.S.
NOTE GAAP GAAP GAAP GAAP
---- -------- -------- -------- --------
(MILLIONS OF DOLLARS)
Current assets, net of current
liabilities......................... $ (63.0) $ (63.0) $ (29.9) $ (29.9)
Property, plant and equipment....... A,B 3,728.1 3,467.3 2,470.0 1,854.4
Long term debt...................... 1,126.9 1,126.9 545.2 545.2
Other credits....................... 133.6 133.6 136.7 136.7
Deferred taxes...................... A,C 841.1 906.3 622.4 366.4
Capital stock....................... 905.3 905.3 791.1 791.1
Retained earnings (deficit)......... A-C 658.2 332.2 344.7 (14.9)
</Table>
Cash flows by activity on the consolidated statement of cash flows in
accordance with U.S. GAAP would be as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 1998
------------- ------------- -------------
(MILLIONS OF DOLLARS)
Cash flows from operating activities.......... $ 764.1 $ 400.8 $ 378.7
Cash flows from investing activities.......... (1,118.4) (287.0) (549.5)
Cash flows from financing activities.......... 336.6 (107.6) 162.5
</Table>
On the consolidated statement of cash flows, site restoration expenditures
of $10.1 million (1999 -- $6.3 million; 1998 -- $6.3 million) which are
disclosed as investing activities under Canadian GAAP would be disclosed as
operating activities under U.S. GAAP.
(a) Full cost accounting
Under the full cost method of accounting in the United States, a ceiling
test is applied to ensure that capitalized oil and gas property costs do not
exceed the present value, discounted at 10%, of the unescalated estimated future
net revenues from the production of proven reserves, plus the cost of
unevaluated properties less management's estimate of impairment, less applicable
taxes. Under Canadian GAAP, future net revenues are not discounted but interest
and general and administrative expenses are deducted.
As a result of applying the U.S. GAAP ceiling test rules in prior years,
the Company recorded additional depletion of $711.0 million ($400.0 million
after tax) that reduced the carrying amount of its property, plant and
equipment. This additional depletion was not recorded for Canadian GAAP
purposes. As a result, depletion and depreciation expense is lower under U.S.
GAAP.
(b) Foreign exchange on long term debt
U.S. GAAP requires long term debt denominated in foreign currencies be
translated at the rates of exchange in effect on the balance sheet date, with
inclusion of the resulting gain or loss in earnings for the period. Canadian
GAAP requires these gains and losses be amortized over the life of the long term
debt.
(c) Accounting for income taxes -- impact on depletion and depreciation expense
U.S. GAAP required the adoption of the liability method of accounting for
income taxes in 1993, while under Canadian GAAP the Company followed the
deferral method until September 30, 2000.
FS-19
152
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 1, 2000, the Company adopted the liability method for Canadian
GAAP purposes. While this will eliminate a conceptual difference between
Canadian and U.S. GAAP, adoption under Canadian GAAP resulted in a charge of
$120.8 million to retained earnings, whereas, under U.S. GAAP, this adjustment
would be reflected in property, plant and equipment. As a result of the
different implementation methods, differences in depletion and depreciation
expense will continue to exist in future years.
(d) Derivative financial instruments
The Company has designated, for Canadian GAAP purposes, its derivative
financial instruments as hedges of anticipated revenue and expenses. In
accordance with Canadian GAAP, payments or receipts on these contracts are
recognized in earnings concurrently with the hedged transaction. The fair value
of contracts deemed to be hedges are not reflected in the financial statements.
Effective October 1, 2000, for U.S. GAAP purposes, the Company would be
required to adopt the provisions of Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(as amended by SFAS No. 137 and 138). The statement, as amended, establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value, and that changes in the fair value be recognized currently in
earnings unless specific hedge accounting criteria are met, including formal
documentation requirements. The standard is applied prospectively.
If the statement provisions were required to be applied to financial
instruments in place at September 30, 2000, approximately $4.0 million of
additional net liabilities would be recognized on the balance sheet,
representing the fair value of those financial instruments not currently
recognized for accounting purposes. As none of these financial instruments have
been designated as hedges for U.S. GAAP purposes, a $2.3 million after tax
charge to earnings would have been recorded.
(e) Recent Developments in U.S. Accounting Standards
The Financial Accounting Standards Board recently issued Statement No. 143,
Accounting for Asset Retirement Obligations. This Statement addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. Statement
No. 143 requires an enterprise to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of a tangible long-lived asset. Since the
requirement is to recognize the obligation when incurred, approaches that have
been used in the past to accrue the asset retirement obligation over the life of
the asset are no longer acceptable. Statement No. 143 also requires the
enterprise to record an increase to the carrying amount of the related
long-lived asset (i.e., the associated asset retirement costs) and to depreciate
that cost over the remaining useful life of the asset. The liability is changed
at the end of each period to reflect the passage of time (i.e., accretion
expense) and changes in the estimated future cash flows underlying the initial
fair value measurement. Enterprises are required to adopt Statement No. 143 for
fiscal years beginning after June 15, 2002. Anderson Exploration is currently
assessing the impact that adoption of this standard would have on the
consolidated financial position and results of operations of the Company.
NOTE 14 -- SUBSEQUENT EVENTS
(a) Acquisition of Numac Energy Inc.
Effective February 12, 2001, the Company acquired all of the outstanding
shares of Numac Energy Inc. ("Numac"), an oil and gas production company for a
cash consideration of $8.00 per share. The
FS-20
153
ANDERSON EXPLORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transaction has been accounted for using the purchase method with the results of
operations included in these financial statements from the date of acquisition.
Details of the acquisition are as follows:
<Table>
<Caption>
($ MILLIONS)
Net assets acquired
Property, plant and equipment............................. $ 933.5
Deferred financing costs.................................. 3.5
Working capital deficiency, including bank indebtedness
assumed of $1.5 million................................ (12.4)
Long term debt assumed.................................... (135.7)
Pension and lease obligations assumed..................... (6.6)
Future income tax adjustment to property, plant and
equipment.............................................. 419.8
Future income taxes....................................... (419.8)
-------
$ 782.3
=======
Purchase price
Cash...................................................... $ 773.3
Transaction costs......................................... 9.0
-------
$ 782.3
=======
</Table>
The Company arranged a new $1 billion non-revolving bridge credit facility
through a group of Canadian chartered banks to finance the acquisition of Numac.
In March 2001, a new U.S. debt issue and existing credit facilities were used to
repay the outstanding amount under the bridge facility, and the facility was
cancelled.
(b) Issuance of Senior Unsecured 6.75% Notes
On March 14, 2001, Anderson Exploration sold U.S. $400 million principal
amount of 6.75% senior unsecured notes due 2011 to purchasers in the United
States. Net proceeds from the issue were used to repay a portion of the bridge
facility associated with the Numac acquisition.
(c) Issuance of Unsecured, Non-redeemable 6.55% Notes
On August 2, 2001, Anderson Exploration issued $200 million principal
amount of 6.55% unsecured, non-redeemable notes due 2006. Net proceeds from the
issue were used to repay bank debt.
(d) Property Disposition
Effective July 1, 2001, Anderson Exploration agreed to sell certain
non-core producing oil and gas properties for proceeds of approximately $150
million. The transaction closed on September 6, 2001.
(e) Devon Energy Corporation Acquisition of Anderson Exploration
On September 6, 2001, Devon Energy Corporation mailed an offer to purchase
all of the issued and outstanding shares of Anderson Exploration. Under the
terms of the agreement, a subsidiary of Devon will offer to purchase all the
outstanding common shares of Anderson Exploration for $40.00 per share in cash.
Anderson Exploration's board of directors has unanimously voted to recommend
that all Anderson shareholders tender their shares. The tender offer is
contingent upon receiving at least 66 2/3% of Anderson Exploration's outstanding
shares and certain other conditions. Upon the expiration of the tender offer,
Devon intends to acquire the balance of Anderson Exploration's shares by
compulsory acquisition or a second step transaction for the same cash price as
the tender offer.
The acquisition agreement provides that Anderson Exploration will pay Devon
a non-completion fee of $210 million in certain circumstances. Anderson
Exploration has agreed not to solicit further offers and has reserved the right
to respond to a superior proposal, should one be forthcoming.
FS-21
154
ANDERSON EXPLORATION LTD.
INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2001
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(STATED IN MILLIONS OF CANADIAN DOLLARS)
<Table>
<Caption>
JUNE 30, SEPTEMBER 30,
2001 2000
-------- -------------
ASSETS
Current assets
Accounts receivable....................................... $ 258.6 $ 227.7
Inventories............................................... 17.0 17.8
-------- --------
275.6 245.5
Property, plant and equipment (notes 1 and 2)............... 5,592.2 3,728.1
-------- --------
$5,867.8 $3,973.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness......................................... $ 19.5 $ 32.4
Accounts payable and accrued liabilities.................. 433.5 272.9
Taxes payable............................................. 42.0 3.2
-------- --------
495.0 308.5
Long term debt (note 2)..................................... 1,471.9 1,126.9
Other credits (notes 1 and 2)............................... 140.5 133.6
Future income taxes (notes 1 and 2)......................... 1,771.7 841.1
-------- --------
3,879.1 2,410.1
-------- --------
Shareholders' equity
Share capital (note 3).................................... 887.3 905.3
Retained earnings (note 1)................................ 1,101.4 658.2
-------- --------
1,988.7 1,563.5
-------- --------
$5,867.8 $3,973.6
======== ========
</Table>
See selected notes to consolidated financial statements.
FS-22
155
ANDERSON EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(STATED IN MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
------------------ ------------------
2001 2000 2001 2000
-------- ------- -------- -------
Revenues
Oil and gas.......................................... $ 680.6 $382.7 $2,166.8 $ 925.9
Royalties, net of ARTC of $0.4 million (2000 -- $0.5
million).......................................... (152.1) (79.4) (503.0) (185.0)
------- ------ -------- -------
528.5 303.3 1,663.8 740.9
------- ------ -------- -------
Expenses
Operating............................................ 91.0 52.9 223.7 142.5
Depletion and depreciation........................... 142.4 82.7 364.2 216.7
General and administrative........................... 17.2 14.3 53.4 35.8
Interest............................................. 26.9 17.7 77.1 35.6
Future site restoration.............................. 6.5 4.8 16.2 13.6
------- ------ -------- -------
284.0 172.4 734.6 444.2
------- ------ -------- -------
Earnings from continuing operations before taxes....... 244.5 130.9 929.2 296.7
------- ------ -------- -------
Taxes
Current.............................................. 3.4 (0.2) 52.1 7.3
Future (note 1)...................................... 50.7 63.0 312.8 132.9
------- ------ -------- -------
54.1 62.8 364.9 140.2
------- ------ -------- -------
Earnings from continuing operations.................... 190.4 68.1 564.3 156.5
Earnings from discontinued operations (note 5)......... -- 63.5 -- 65.3
------- ------ -------- -------
Earnings............................................... $ 190.4 $131.6 $ 564.3 $ 221.8
======= ====== ======== =======
Basic earnings per common share
From continuing operations........................... $ 1.45 $ 0.53 $ 4.30 $ 1.24
From discontinued operations......................... -- 0.50 -- 0.51
------- ------ -------- -------
$ 1.45 $ 1.03 $ 4.30 $ 1.75
======= ====== ======== =======
Diluted earnings per common share
From continuing operations........................... $ 1.42 $ 0.52 $ 4.21 $ 1.23
From discontinued operations......................... -- 0.49 -- 0.51
------- ------ -------- -------
$ 1.42 $ 1.01 $ 4.21 $ 1.74
======= ====== ======== =======
Weighted average number of common shares outstanding
(millions)........................................... 131.5 128.2 131.2 126.2
======= ====== ======== =======
</Table>
See selected notes to consolidated financial statements.
FS-23
156
ANDERSON EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
(STATED IN MILLIONS OF CANADIAN DOLLARS)
<Table>
<Caption>
NINE MONTHS ENDED
JUNE 30
-----------------
2001 2000
-------- ------
Retained earnings, beginning of period...................... $ 658.2 $344.7
Retroactive adjustment to opening retained earnings (note
1)........................................................ (121.1) --
Earnings.................................................... 564.3 221.8
-------- ------
Retained earnings, end of period............................ $1,101.4 $566.5
======== ======
</Table>
See selected notes to consolidated financial statements.
FS-24
157
ANDERSON EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(STATED IN MILLIONS OF CANADIAN DOLLARS)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
------------------- ---------------------
2001 2000 2001 2000
-------- -------- --------- ---------
Cash provided by (used in):
Operations
Earnings from continuing operations............... $ 190.4 $ 68.1 $ 564.3 $ 156.5
Add (deduct) non-cash items:
Depletion and depreciation..................... 142.4 82.7 364.2 216.7
Future site restoration........................ 6.5 4.8 16.2 13.6
Future taxes................................... 50.7 63.0 312.8 132.9
Other.......................................... (0.3) -- 6.9 --
------- ------- --------- ---------
389.7 218.6 1,264.4 519.7
Cash flow from discontinued operations (note 5)... -- -- -- 4.4
------- ------- --------- ---------
389.7 218.6 1,264.4 524.1
Change in deferred revenue........................ (2.1) (2.6) (7.2) (7.7)
Change in non-cash working capital related to:
-- continuing operations....................... 37.2 (44.6) 126.7 (53.4)
-- discontinued operations (note 5)............ -- -- -- 0.9
------- ------- --------- ---------
424.8 171.4 1,383.9 463.9
------- ------- --------- ---------
Investments
Additions to property, plant and equipment........ (196.5) (117.9) (807.6) (503.6)
Proceeds on disposition of property, plant and
equipment...................................... 1.3 0.6 5.6 9.4
Acquisition of Numac Energy Inc. (note 2)......... -- -- (783.8) --
Acquisition of Ulster Petroleums Ltd.............. -- (550.1) -- (550.1)
Proceeds on disposition of Federated Pipe Lines
Ltd. (note 5).................................. -- 103.3 -- 103.3
Site restoration expenditures..................... (2.7) (2.2) (8.2) (6.6)
Change in non-cash working capital related to
investments.................................... (124.9) (189.3) 27.7 (106.4)
Discontinued operations (note 5).................. -- -- -- (0.2)
------- ------- --------- ---------
(322.8) (755.6) (1,566.3) (1,054.2)
------- ------- --------- ---------
Financing
Increase (decrease) in long term debt............. (68.4) 538.3 209.3 589.1
Issue of common shares............................ 10.8 33.1 26.1 41.8
Repurchase of common shares....................... (7.7) -- (44.1) (38.5)
Change in non-cash working capital related to
financing...................................... 4.0 -- 4.0 --
Discontinued operations (note 5).................. -- -- -- (5.8)
------- ------- --------- ---------
(61.3) 571.4 195.3 586.6
------- ------- --------- ---------
Increase (decrease) in cash......................... 40.7 (12.8) 12.9 (3.7)
Cash position, beginning of period.................. (60.2) (5.6) (32.4) (14.7)
------- ------- --------- ---------
Cash position, end of period........................ $ (19.5) $ (18.4) $ (19.5) $ (18.4)
======= ======= ========= =========
</Table>
See selected notes to consolidated financial statements.
Cash position includes cash net of current bank indebtedness. Current bank
indebtedness includes outstanding cheques.
The Numac acquisition amount represents the value assigned to property,
plant and equipment of $933.5 million less debt, non-cash working capital
deficiency and other obligations of $149.7 million assumed from Numac.
FS-25
158
ANDERSON EXPLORATION LTD.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
The interim consolidated financial statements of Anderson Exploration Ltd.
("Anderson Exploration" or "the Company") have been prepared by management in
accordance with accounting principles generally accepted in Canada. The interim
consolidated financial statements have been prepared following the same
accounting policies and methods of computation as the consolidated financial
statements for the fiscal year ended September 30, 2000, except as described
below. The disclosures included below are incremental to those included with the
annual consolidated financial statements. The interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto in the Company's annual report for the year
ended September 30, 2000.
NOTE 1 -- CHANGE IN ACCOUNTING POLICY
Effective October 1, 2000, the Company adopted the Canadian Institute of
Chartered Accountants accounting recommendations with respect to income taxes
and employee future benefits. The new recommendations were applied retroactively
without restatement of prior year financial statements. Under the new
recommendations for income taxes, the liability method of tax allocation
accounting is used. The change in policy resulted in an increase in property,
plant and equipment of $77.2 million, an increase in future income tax
liabilities of $198.0 million and a charge to retained earnings of $120.8
million. As a result of applying the liability method of tax allocation
accounting, earnings at June 30, 2001 were increased by $57 million ($0.43 per
share), representing the reduction in the future tax liability resulting from a
reduction in the Alberta provincial corporate tax rate on April 1, 2001.
As a result of the adoption of the new accounting recommendations relating
to future employee benefits, a charge of $0.3 million was recorded against
retained earnings with the corresponding liability reflected in the pension
accrual. The effect of this change on earnings in the first nine months of
fiscal 2001 was not significant.
NOTE 2 -- ACQUISITION OF NUMAC ENERGY INC.
Effective February 12, 2001, the Company acquired all of the outstanding
shares of Numac Energy Inc. ("Numac"), an oil and gas production company for a
cash consideration of $8.00 per share. The transaction has been accounted for
using the purchase method with the results of operations included in these
financial statements from the date of acquisition. Details of the acquisition
are as follows:
<Table>
<Caption>
($ MILLIONS)
Net assets acquired
Property, plant and equipment............................. $ 933.5
Deferred financing costs.................................. 3.5
Working capital deficiency, including bank indebtedness
assumed of $1.5 million................................ (12.4)
Long term debt assumed.................................... (135.7)
Pension and lease obligations assumed..................... (6.6)
Future income tax adjustment to property, plant and
equipment.............................................. 419.8
Future income taxes....................................... (419.8)
-------
$ 782.3
=======
Purchase price
Cash...................................................... $ 773.3
Transaction costs......................................... 9.0
-------
$ 782.3
=======
</Table>
FS-26
159
ANDERSON EXPLORATION LTD.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company arranged a new $1 billion non-revolving bridge credit facility
through a group of Canadian chartered banks to finance the acquisition of Numac.
The unsecured facility had a maturity date of October 1, 2002. On March 14,
2001, Anderson Exploration sold US$400 million principal amount of 6.75% senior
unsecured notes due 2011 to purchasers in the United States. Net proceeds from
the issue were used to repay a portion of the bridge facility. In March 2001,
existing credit facilities were used to repay the remainder of the outstanding
amount under the bridge facility, and the facility was cancelled.
NOTE 3 -- SHARE CAPITAL
Authorized:
Common shares: unlimited
Preferred shares: unlimited
Junior preferred shares, redeemable, participating: unlimited
Issued:
<Table>
<Caption>
NUMBER OF AMOUNT
SHARES ($ MILLIONS)
----------- ------------
Common shares
Balance at September 30, 2000............................. 131,526,926 $778.8
Issued for cash on exercise of stock options.............. 1,406,500 22.6
Issued for cash under employee stock savings plan......... 110,461 3.5
Repurchase of shares under Normal Course Issuer Bid....... (1,566,700) (9.3)
----------- ------
Balance at June 30, 2001.................................. 131,477,187 795.6
----------- ------
Contributed surplus
Balance at September 30, 2000............................. -- 126.5
Repurchase of shares under Normal Course Issuer Bid....... -- (34.8)
----------- ------
Balance at June 30, 2001.................................. -- 91.7
----------- ------
----------- ------
131,477,187 $887.3
=========== ======
</Table>
The Company has an employee stock option plan under which both employees
and directors are eligible to receive grants. On February 13, 2001, the
shareholders of the Company approved an amendment to the plan to increase the
maximum number of common shares reserved for issuance thereunder by 6,300,000.
At June 30, 2001, there were 11,662,820 common shares reserved for issuance
under the plan of which 7,470,520 options with exercise prices between $13.15
and $34.05 were outstanding and exercisable at various dates to the year 2006.
<Table>
<Caption>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
Stock options outstanding at September 30, 2000........... 6,466,771 $16.81
Granted................................................. 2,563,300 32.44
Exercised............................................... (1,406,500) 16.09
Cancelled............................................... (153,051) 21.23
---------- ------
Stock options outstanding at June 30, 2001................ 7,470,520 22.21
---------- ------
Exercisable at June 30, 2001.............................. 2,776,069 $16.46
========== ======
</Table>
The Company also has a share appreciation rights plan, where employees are
granted the right to receive cash payments from the Company, but not common
shares. Other terms are similar to the employee stock option plan. At June 30,
2001, 1,538,438 rights with exercise prices between $17.75 and
FS-27
160
ANDERSON EXPLORATION LTD.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$34.05 were outstanding and exercisable at various dates to the year 2006. The
weighted average exercise price of the rights was $23.06. Compensation expense
of $7.1 million has been recorded in the nine months ended June 30, 2001 related
to this plan.
At June 30, 2001, 749,104 common shares were also reserved for issuance
under the employee stock savings plan.
NOTE 4 -- FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of fixed rate long term debt
and the unrecognized gains (losses) on other financial instruments are as
follows:
<Table>
<Caption>
AT SEPTEMBER 30,
AT JUNE 30, 2001 2000
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------ -------- ------
Fixed rate long term debt................................. $873.1 $868.8 $488.0 $489.8
Unrecognized gains/(losses):
Interest rate swaps on bank loans....................... -- (6.3) -- (2.2)
Foreign currency swap................................... -- (2.1) -- --
Oil and gas sales contracts............................. -- (15.1) -- --
Power hedging contracts................................. -- (22.1) -- --
</Table>
NOTE 5 -- DISCONTINUED OPERATIONS
On June 28, 2000, the Company sold its 50% interest in Federated Pipe Lines
Ltd. ("Federated"), a pipeline transportation company. Anderson Exploration's
proportionate interest in the results of operations of Federated is shown as
discontinued operations in the consolidated statements of earnings and cash
flows.
FS-28
161
ANDERSON EXPLORATION LTD.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") that, in
most respects, conform to accounting principles generally accepted in the United
States ("U.S. GAAP"). Canadian GAAP differs from U.S. GAAP in the following
respects:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
------------------- -----------------
NOTE 2001 2000 2001 2000
---- -------- -------- ------- -------
(MILLIONS OF DOLLARS)
Earnings from continuing operations................. $190.4 $ 68.1 $564.3 $156.5
Impact of U.S. GAAP
Full cost accounting.............................. A 14.4 16.3 45.8 49.8
Related income taxes........................... (6.3) (7.1) (20.0) (21.8)
Foreign exchange on long term debt................ B 30.7 0.5 12.9 0.5
Related income taxes........................... (13.2) (0.2) (5.4) (0.2)
Accounting for income taxes -- impact on depletion
and depreciation expense....................... C (6.7) (4.4) (18.8) (5.6)
Related income taxes........................... 2.8 4.0 7.9 4.5
Derivative financial instruments.................. D 22.9 -- (23.5) --
Related income taxes........................... (9.5) -- 10.8 --
------ ------ ------ ------
Earnings from continuing operations, as adjusted.... 225.5 77.2 574.0 183.7
Discontinued operations............................. -- 63.5 -- 65.3
------ ------ ------ ------
Earnings, as adjusted............................... $225.5 $140.7 $574.0 $249.0
====== ====== ====== ======
Basic earnings per common share
From continuing operations, as adjusted........... $ 1.71 $ 0.60 $ 4.38 $ 1.46
From discontinued operations...................... -- 0.50 -- 0.51
------ ------ ------ ------
$ 1.71 $ 1.10 $ 4.38 $ 1.97
====== ====== ====== ======
Diluted earnings per common share
From continuing operations, as adjusted........... $ 1.68 $ 0.59 $ 4.28 $ 1.44
From discontinued operations...................... -- 0.47 -- 0.48
------ ------ ------ ------
$ 1.68 $ 1.06 $ 4.28 $ 1.92
====== ====== ====== ======
</Table>
Under U.S. GAAP, the classification of certain revenue and expense items
differs from Canadian GAAP. These classification differences do not have an
impact on reported earnings.
FS-29
162
ANDERSON EXPLORATION LTD.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Balance sheet items in accordance with U.S. GAAP are as follows:
<Table>
<Caption>
JUNE 30, 2001 SEPTEMBER 30, 2000
------------------- -------------------
CANADIAN U.S. CANADIAN U.S.
NOTE GAAP GAAP GAAP GAAP
---- -------- -------- -------- --------
(MILLIONS OF DOLLARS)
Current assets, net of current
liabilities......................... $ (219.4) $ (219.4) $ (63.0) $ (63.0)
Property, plant and equipment......... A,B 5,592.2 5,294.1 3,728.1 3,467.3
Long term debt........................ 1,471.9 1,471.9 1,126.9 1,126.9
Other credits......................... D 140.5 186.1 133.6 133.6
Deferred taxes........................ A,C 1,771.7 1,635.6 841.1 906.3
Capital stock......................... 887.3 887.3 905.3 905.3
Retained earnings..................... A-D 1,101.4 906.2 658.2 332.2
Accumulated Other Comprehensive
Loss................................ D -- (12.4) -- --
</Table>
Cash flows by activity on the consolidated statements of cash flows in
accordance with U.S. GAAP would be as follows:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
------------------- ---------------------
2001 2000 2001 2000
-------- -------- --------- ---------
(MILLIONS OF DOLLARS)
Cash flows from operating activities........ $ 422.1 $ 169.2 $ 1,375.7 $ 457.3
Cash flows from investing activities........ (320.1) (753.4) (1,558.1) (1,047.6)
Cash flows from financing activities........ (61.3) 571.4 195.3 586.6
</Table>
On the consolidated statements of cash flows, site restoration expenditures
which are disclosed as investing activities under Canadian GAAP would be
disclosed as operating activities under U.S. GAAP.
(a) Full cost accounting
Under the full cost method of accounting in the United States, a ceiling
test is applied to ensure that capitalized oil and gas property costs do not
exceed the present value, discounted at 10%, of the unescalated estimated future
net revenues from the production of proven reserves, plus the cost of
unevaluated properties less management's estimate of impairment, less applicable
taxes. Under Canadian GAAP, future net revenues are not discounted but interest
and general and administrative expenses are deducted.
As a result of applying the U.S. GAAP ceiling test rules in prior years,
the Company recorded additional depletion of $711.0 million ($400.0 million
after tax) that reduced the carrying amount of its property, plant and
equipment. This additional depletion was not recorded for Canadian GAAP
purposes. As a result, depletion and depreciation expense is lower under U.S.
GAAP.
(b) Foreign exchange on long term debt
U.S. GAAP requires long term debt denominated in foreign currencies be
translated at the rates of exchange in effect on the balance sheet date, with
inclusion of the resulting gain or loss in earnings for the period. Canadian
GAAP requires these gains and losses be amortized over the life of the long term
debt.
(c) Accounting for income taxes -- impact on depletion and depreciation expense
U.S. GAAP required the adoption of the liability method of accounting for
income taxes in 1993, while under Canadian GAAP the Company followed the
deferral method until September 30, 2000.
FS-30
163
ANDERSON EXPLORATION LTD.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 1, 2001, the Company adopted the liability method for Canadian
GAAP purposes. While this will eliminate a conceptual difference between
Canadian and U.S. GAAP, adoption under Canadian GAAP resulted in a charge of
$120.8 million to retained earnings, whereas, under U.S. GAAP, this adjustment
would be reflected in property, plant and equipment. As a result of the
different implementation methods, differences in depletion and depreciation
expense will continue to exist in future years.
(d) Derivative financial instruments
The Company has designated, for Canadian GAAP purposes, its derivative
financial instruments as hedges of anticipated revenue and expenses. In
accordance with Canadian GAAP, payments or receipts on these contracts are
recognized in earnings concurrently with the hedged transaction. The fair value
of contracts deemed to be hedges are not reflected in the financial statements.
Effective October 1, 2000, for U.S. GAAP purposes, the Company was required
to adopt the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (as
amended by SFAS No. 137 and 138). The statement, as amended, establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value, and that changes in the fair value be recognized currently in
earnings unless specific hedge accounting criteria are met, including formal
documentation requirements. The standard was applied prospectively. The
cumulative impact of the adoption of this standard has been included in the
income statement reconciliation with current year activity. The cumulative
adjustment was a loss of $4.0 million ($2.3 million after tax).
(e) Recent Developments in U.S. Accounting Standards
The Financial Accounting Standards Board recently issued Statement No. 143,
Accounting for Asset Retirement Obligations. This Statement addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. Statement
No. 143 requires an enterprise to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of a tangible long-lived asset. Since the
requirement is to recognize the obligation when incurred, approaches that have
been used in the past to accrue the asset retirement obligation over the life of
the asset are no longer acceptable. Statement No. 143 also requires the
enterprise to record an increase to the carrying amount of the related
long-lived asset (i.e., the associated asset retirement costs) and to depreciate
that cost over the remaining useful life of the asset. The liability is changed
at the end of each period to reflect the passage of time (i.e., accretion
expense) and changes in the estimated future cash flows underlying the initial
fair value measurement. Enterprises are required to adopt Statement No. 143 for
fiscal years beginning after June 15, 2002. Anderson Exploration is currently
assessing the impact that adoption of this standard would have on the
consolidated financial position and results of operations of the Company.
FS-31
164
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DEVON ENERGY CORPORATION,
DEVON NEWCO CORPORATION
AND
MITCHELL ENERGY & DEVELOPMENT CORP.
DATED AS OF AUGUST 13, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
165
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 THE MERGER.................................................. A-4
Section 1.1 The Merger.................................................. A-4
Section 1.2 The Closing................................................. A-4
Section 1.3 Effective Time.............................................. A-4
Section 1.4 Certificate of Incorporation................................ A-5
Section 1.5 Bylaws...................................................... A-5
Section 1.6 Board of Directors.......................................... A-5
ARTICLE 2 DIRECTORS OF PARENT......................................... A-5
Section 2.1 Directors of Parent......................................... A-5
ARTICLE 3 CONVERSION OF COMPANY SHARES................................ A-5
Section 3.1 Effect on Capital Stock..................................... A-5
Section 3.2 Exchange of Certificates for Shares......................... A-6
Section 3.3 Dissenters' Rights.......................................... A-7
Section 3.4 Adjustments to Prevent Dilution............................. A-8
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-8
Section 4.1 Existence; Good Standing; Corporate Authority............... A-8
Section 4.2 Authorization, Validity and Effect of Agreements............ A-8
Section 4.3 Capitalization.............................................. A-8
Section 4.4 Significant Subsidiaries.................................... A-9
Section 4.5 No Violation................................................ A-9
Section 4.6 No Conflict................................................. A-9
Section 4.7 SEC Documents............................................... A-10
Section 4.8 Litigation and Liabilities.................................. A-10
Section 4.9 Absence of Certain Changes.................................. A-11
Section 4.10 Taxes....................................................... A-11
Section 4.11 Employee Benefit Plans...................................... A-12
Section 4.12 Labor Matters............................................... A-13
Section 4.13 Environmental Matters....................................... A-13
Section 4.14 Intellectual Property....................................... A-14
Section 4.15 Title to Properties......................................... A-14
Section 4.16 Insurance................................................... A-14
Section 4.17 No Brokers.................................................. A-14
Section 4.18 Opinions of Financial Advisors.............................. A-14
Section 4.19 Contracts; Debt Instruments................................. A-15
Section 4.20 Vote Required............................................... A-15
Section 4.21 Certain Approvals........................................... A-15
Section 4.22 Certain Contracts........................................... A-15
</Table>
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<Table>
<Caption>
PAGE
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ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... A-15
Section 5.1 Existence; Good Standing; Corporate Authority............... A-16
Section 5.2 Authorization, Validity and Effect of Agreements............ A-16
Section 5.3 Capitalization.............................................. A-16
Section 5.4 Significant Subsidiaries.................................... A-17
Section 5.5 No Violation................................................ A-17
Section 5.6 No Conflict................................................. A-17
Section 5.7 SEC Documents............................................... A-18
Section 5.8 Absence of Certain Changes.................................. A-18
Section 5.9 No Brokers.................................................. A-19
Section 5.10 Opinion of Financial Advisor................................ A-19
Section 5.11 Vote Required............................................... A-19
Section 5.12 Financing................................................... A-19
Section 5.13 Litigation and Liabilities.................................. A-19
Section 5.14 Title to Properties......................................... A-19
ARTICLE 6 COVENANTS................................................... A-20
Section 6.1 Conduct of Business......................................... A-20
Section 6.2 No Solicitation by the Company.............................. A-22
Section 6.3 Meetings of Stockholders.................................... A-22
Section 6.4 Filings; Reasonable Best Efforts............................ A-23
Section 6.5 Inspection.................................................. A-24
Section 6.6 Publicity................................................... A-25
Section 6.7 Registration Statement...................................... A-25
Section 6.8 Listing Application......................................... A-25
Section 6.9 Letters of Accountants...................................... A-25
Section 6.10 Agreements of Affiliates.................................... A-26
Section 6.11 Expenses.................................................... A-26
Section 6.12 Indemnification and Insurance............................... A-26
Section 6.13 Employee Benefits........................................... A-27
Section 6.14 Reorganization.............................................. A-29
Section 6.15 Dividends................................................... A-29
ARTICLE 7 CONDITIONS.................................................. A-30
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-30
Section 7.2 Conditions to Obligation of the Company to Effect the
Merger...................................................... A-30
Section 7.3 Conditions to Obligation of Parent to Effect the Merger..... A-31
ARTICLE 8 TERMINATION................................................. A-31
Section 8.1 Termination by Mutual Consent............................... A-31
Section 8.2 Termination by Parent or the Company........................ A-31
Section 8.3 Termination by the Company.................................. A-32
Section 8.4 Termination by Parent....................................... A-32
Section 8.5 Effect of Termination....................................... A-32
Section 8.6 Extension; Waiver........................................... A-33
</Table>
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<Table>
<Caption>
PAGE
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ARTICLE 9 GENERAL PROVISIONS.......................................... A-33
Section 9.1 Nonsurvival of Representations, Warranties and Agreements... A-33
Section 9.2 Notices..................................................... A-34
Section 9.3 Assignment; Binding Effect; Benefit......................... A-34
Section 9.4 Entire Agreement............................................ A-35
Section 9.5 Amendments.................................................. A-35
Section 9.6 Governing Law; Jurisdiction; Waiver of Jury Trial........... A-35
Section 9.7 Counterparts................................................ A-35
Section 9.8 Headings.................................................... A-35
Section 9.9 Interpretation.............................................. A-35
Section 9.10 Waivers..................................................... A-36
Section 9.11 Incorporation of Exhibits................................... A-36
Section 9.12 Severability................................................ A-36
Section 9.13 Enforcement of Agreement.................................... A-36
Section 9.14 Obligation of Merger Sub.................................... A-36
</Table>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 13,
2001, is among Devon Energy Corporation, a Delaware corporation ("Parent"),
Devon NewCo Corporation, a Delaware corporation and a direct and wholly owned
subsidiary of Parent ("Merger Sub"), and Mitchell Energy & Development Corp., a
Texas corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of each of Parent, Merger Sub
and the Company have determined that the merger of the Company with and into
Merger Sub (the "Merger"), in the manner contemplated herein, is advisable and
in the best interests of their respective corporations and stockholders, and, by
resolutions duly adopted, have approved and adopted this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of section 368(a) of the Internal
Revenue Code of 1986, as amended, and the rules and regulations promulgated
thereunder (the "Code"); and
WHEREAS, as a condition and inducement to the willingness of Parent to
enter into this Agreement, certain principal stockholders of the Company have
entered into a shareholders agreement with Parent and Merger Sub pursuant to
which such stockholders have (i) agreed, among other things, to vote their
shares of Company common stock in favor of the Merger and (ii) granted to Parent
and Merger Sub an irrevocable proxy to vote their shares of Company common stock
upon the terms and conditions set forth therein (the "Principal Shareholders
Agreement").
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), the Company shall
be merged with and into Merger Sub in accordance with this Agreement, and the
separate corporate existence of the Company shall thereupon cease. Merger Sub
shall be the surviving corporation in the Merger and shall be a wholly owned
subsidiary of Parent (sometimes hereinafter referred to as the "Surviving
Corporation"). The Merger shall have the effects specified in the Delaware
General Corporation Law ("DGCL") and the Texas Business Corporation Act (the
"TBCA"). At the election of Parent, any direct wholly owned subsidiary of Parent
may be substituted for Merger Sub as a constituent corporation in the Merger. In
such event, the parties hereto agree to execute an appropriate amendment to this
Agreement in order to reflect such substitution.
SECTION 1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place (a) at the
offices of Mayer, Brown & Platt, 700 Louisiana Street, Houston, Texas 77002, at
9:00 a.m., local time, on the first business day immediately following the day
on which the last to be fulfilled or waived of the conditions set forth in
Article 7 (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to fulfillment or waiver of those conditions) shall
be fulfilled or waived in accordance herewith or (b) at such other time, date or
place as Parent and the Company may agree in writing. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
SECTION 1.3 Effective Time. If all the conditions to the Merger set forth
in Article 7 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 8, on the
Closing Date, a certificate of merger (the "Certificate of Merger") meeting the
requirements of Section 251 of the DGCL shall be properly executed and filed
with the Secretary of State of the State of Delaware and articles of merger (the
"Articles of Merger") meeting the requirements
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of Article 5.04 of the TBCA will be filed with the Secretary of State of the
State of Texas. The Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the DGCL and the issuance of a certificate of merger by the
Secretary of State of the State of Texas in accordance with the TBCA, or at such
later time that the parties hereto shall have agreed upon and designated in such
filing as the effective time of the Merger (the "Effective Time").
SECTION 1.4 Certificate of Incorporation. The certificate of
incorporation of Merger Sub in effect immediately prior to the Effective Time
shall be the certificate of incorporation of the Surviving Corporation, until
duly amended in accordance with applicable law.
SECTION 1.5 Bylaws. The bylaws of Merger Sub in effect immediately prior
to the Effective Time shall be the bylaws of the Surviving Corporation, until
duly amended in accordance with applicable law.
SECTION 1.6 Board of Directors. The Board of Directors of the Surviving
Corporation shall consist of the Board of Directors of Merger Sub, as it existed
immediately prior to the Effective Time.
ARTICLE 2
DIRECTORS OF PARENT
SECTION 2.1 Directors of Parent. At the Effective Time, the Board of
Directors of Parent shall consist of a number of persons as determined by
Parent. One member of the Board of Directors of Parent shall be J. Todd Mitchell
(the "Company Designee"). The Company Designee shall be appointed to fill a
vacancy on the Board of Directors existing immediately prior to the Effective
Time. If, prior to the Effective Time, the Company Designee becomes unavailable
or unwilling to serve, the Company shall designate a substitute designee
acceptable to Parent. If necessary to comply with this Section 2.1, Parent shall
cause to be presented to the meeting of its stockholders contemplated by Section
6.3 of this Agreement a proposal to amend Parent's certificate of incorporation
to increase the number of directors that constitutes the entire Board of
Directors.
ARTICLE 3
CONVERSION OF COMPANY SHARES
SECTION 3.1 Effect on Capital Stock. At the Effective Time, the Merger
shall have the following effects on the capital stock of the Company and Merger
Sub, without any action on the part of the holder of any capital stock of the
Company or Merger Sub:
(a) Conversion of the Company Common Stock. Subject to the provisions
of this Section 3.1 and Section 3.3, each share of Class A common stock,
$0.10 par value per share, of the Company (each a "Company Share" and
collectively the "Company Shares") issued and outstanding immediately prior
to the Effective Time (but not including any Dissenting Shares (as defined
below) and any Company Shares that are (i) owned (A) by Parent, Merger Sub
or any other direct or indirect Subsidiary of Parent or (B) by the Company
or any direct or indirect Subsidiary of the Company and (ii) are not held
on behalf of third parties (the "Excluded Company Shares")) shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into (i) the right to receive $31.00 in cash (the
"Cash Consideration") and (ii) 0.585 of a share (the "Exchange Ratio") of
Parent Common Stock (the "Stock Consideration" and, together with the Cash
Consideration, the "Merger Consideration"). "Parent Common Stock" shall
mean the common stock, par value $0.10 per share, of Parent.
(b) Cancellation of Excluded Company Shares. Each Excluded Company
Share issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, no longer be outstanding, shall be canceled and retired without
payment of any consideration therefor and shall cease to exist.
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(c) Merger Sub. At the Effective Time, each share of common stock,
par value $0.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into one share of common
stock of the Surviving Corporation, and the Surviving Corporation shall
thereby become a wholly owned subsidiary of Parent.
SECTION 3.2 Exchange of Certificates for Shares.
(a) Exchange Procedures. At or prior to the Effective Time, Parent shall
deposit with the Exchange Agent, in trust for the benefit of the holders of
Company Shares, an amount in cash and certificates representing shares of Parent
Common Stock required to effect the conversion of the Company Shares into the
Merger Consideration pursuant to Section 3.1(a). Parent shall make sufficient
funds available to an exchange agent (the "Exchange Agent"), selected by Parent
with the Company's prior approval, which shall not be unreasonably withheld,
from time to time as needed to pay cash in respect of dividends or other
distributions in accordance with Section 3.2(b). Promptly after the Effective
Time, but in no event later than three business days following the Closing Date,
the Surviving Corporation shall cause the Exchange Agent to mail to each holder
of record as of the Effective Time of a certificate representing Company Shares
(each a "Certificate") (other than holders of a Certificate in respect of
Excluded Company Shares) (i) a letter of transmittal specifying that delivery of
the Certificates shall be effected, and that risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates (or, in lieu of
such Certificates, affidavits of loss together with either a reasonable
undertaking to indemnify Parent or the Company, if Parent believes that the
person providing the indemnity is sufficiently creditworthy, or, if Parent does
not so believe, indemnity bonds) to the Exchange Agent, such letter of
transmittal to be in such form and have such other provisions as Parent and the
Company may reasonably agree, and (ii) instructions for exchanging the
Certificates and receiving the Merger Consideration to which such holder shall
be entitled therefore pursuant to Section 3.1(a). Subject to Section 3.2(g),
upon surrender of a Certificate for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor (i) a certificate representing
that number of whole shares of Parent Common Stock that such holder is entitled
to receive pursuant to Section 3.1(a) and (ii) a check in the aggregate amount
(after giving effect to any required tax withholdings) of (A) the cash that such
holder is entitled to receive pursuant to Section 3.1(a) plus (B) any cash in
lieu of fractional shares determined in accordance with Section 3.2(d) plus (C)
any cash dividends and any other dividends or other distributions that such
holder has the right to receive pursuant to the provisions of this Section 3.2.
The Certificate so surrendered shall forthwith be canceled. No interest will be
paid or accrued on any amount payable upon due surrender of any Certificate. In
the event of a transfer of ownership of Company Shares that occurred prior to
the Effective Time, but is not registered in the transfer records of the
Company, the Merger Consideration may be issued and/or paid to such a transferee
if the Certificate formerly representing such Company Shares is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer taxes have been
paid. If any certificate for shares of Parent Common Stock is to be issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of such exchange that the Person
requesting such exchange shall pay any transfer or other taxes required by
reason of the issuance of certificates for shares of Parent Common Stock in a
name other than that of the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of Parent or the Exchange Agent that such
tax has been paid or is not applicable.
(b) Distributions with Respect to Unexchanged Shares. Whenever a dividend
or other distribution is declared by Parent in respect of Parent Common Stock,
the record date for which is at or after the Effective Time, that declaration
shall include dividends or other distributions in respect of all shares of
Parent Common Stock issuable pursuant to this Agreement. No dividends or other
distributions so declared in respect of such Parent Common Stock shall be paid
to any holder of any unsurrendered Certificate until such Certificate is
surrendered for exchange in accordance with this Section 3.2. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be issued or paid, less the amount of any withholding taxes that may be
required thereon, to the holder of the certificates
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representing whole shares of Parent Common Stock issued in exchange for such
Certificate, without interest, (i) at the time of such surrender, the dividends
or other distributions with a record date that is at or after the Effective Time
and a payment date on or prior to the date of surrender of such whole shares of
Parent Common Stock and not previously paid and (ii) at the appropriate payment
date, the dividends or other distributions payable with respect to such whole
shares of Parent Common Stock with a record date at or after the Effective Time
but with a payment date subsequent to surrender. For purposes of dividends or
other distributions in respect of shares of Parent Common Stock, all shares of
Parent Common Stock to be issued pursuant to the Merger shall be deemed issued
and outstanding as of the Effective Time.
(c) Transfers. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Company Shares that were
outstanding immediately prior to the Effective Time.
(d) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and any
holder of Company Shares entitled to receive a fractional share of Parent Common
Stock (after taking into account the aggregate number of shares of Parent Common
Stock to be received in exchange for all shares held by such holder) but for
this Section 3.2(d) shall be entitled to receive in lieu thereof an amount in
cash (without interest) determined by multiplying such fraction (rounded to the
nearest one-hundredth of a share) by the average closing price of a share of
Parent Common Stock, as reported in The Wall Street Journal, Southwestern
edition, on the five trading days immediately prior to the last business day
before the Effective Time.
(e) Termination of Exchange Period; Unclaimed Merger Consideration. Any
shares of Parent Common Stock and any portion of the cash, dividends or other
distributions with respect to the Parent Common Stock deposited by Parent with
the Exchange Agent (including the proceeds of any investments thereof) that
remain unclaimed by the stockholders of the Company 180 days after the Effective
Time shall be paid to Parent. Any stockholders of the Company who have not
theretofore complied with this Article 3 shall thereafter be entitled to look
only to Parent for payment of their Merger Consideration and any cash, dividends
and other distributions in respect thereof issuable and/or payable pursuant to
Section 3.1, Section 3.2(b) and Section 3.2(d) upon due surrender of their
Certificates (or, in lieu of such Certificates, affidavits of loss together with
either a reasonable undertaking to indemnify Parent or the Company, if Parent
believes that the Person providing the indemnity is sufficiently creditworthy,
or, if Parent does not so believe, indemnity bonds), in each case, without any
interest thereon. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation, the Exchange Agent or any other Person shall be liable to any
former holder of Company Shares for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(f) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed, and if Parent believes that the Person providing the indemnity is
sufficiently creditworthy, the making of a reasonable undertaking to indemnify
Parent or the Company, or, if Parent does not so believe, the posting by such
Person of a bond in the form customarily required by Parent to indemnify against
any claim that may be made against it with respect to such Certificate, Parent
will issue the shares of Parent Common Stock and the Exchange Agent will
distribute such Merger Consideration, dividends and other distributions in
respect thereof issuable or payable in exchange for such lost, stolen or
destroyed Certificate pursuant to Section 3.1, Section 3.2(b) and Section
3.2(d), in each case, without interest.
(g) Affiliates. Notwithstanding anything in this Agreement to the
contrary, Certificates surrendered for exchange by any Rule 145 Affiliate (as
determined pursuant to Section 6.10) of the Company shall not be exchanged until
Parent has received a written agreement from such Person as provided in Section
6.10.
SECTION 3.3 Dissenters' Rights. Company Shares that are outstanding
immediately prior to the Effective Time and that are held by stockholders who
shall have not voted in favor of the Merger and who shall have made written
demand for payment of the fair value for such shares in accordance with Section
5.12 of the TBCA (collectively, the "Dissenting Shares") shall not be converted
into or represent
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the right to receive the Merger Consideration. Such stockholders shall be
entitled to receive payment of the fair value of the Company Shares held by them
in accordance with the TBCA, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such Company Shares under the
TBCA shall thereupon be deemed to have been converted into and to be
exchangeable, as of the Effective Time, for Merger Consideration in the manner
provided in Section 3.1(a).
SECTION 3.4 Adjustments to Prevent Dilution. In the event that prior to
the Effective Time, there shall have been declared or effected a
reclassification, stock split (including a reverse split), stock dividend, stock
distribution or similar event made with respect to the Company Shares or the
Parent Common Stock, the Merger Consideration shall be equitably adjusted to
reflect such event.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter delivered to Parent
concurrently with the execution hereof (the "Company Disclosure Letter") or as
disclosed with reasonable specificity in the Company Reports (as defined in
Section 4.7), the Company represents and warrants to Parent that:
SECTION 4.1 Existence; Good Standing; Corporate Authority. The Company is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Texas. The Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of any jurisdiction
in which the character of the properties owned or leased by it therein or in
which the transaction of its business makes such qualification necessary, except
where the failure to be so qualified would not have or reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect (as
defined in Section 9.9). The Company has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now conducted. The copies of the Company's articles of incorporation and
bylaws previously made available to Parent are true and correct and contain all
amendments as of the date hereof.
SECTION 4.2 Authorization, Validity and Effect of Agreements. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and all other agreements and documents contemplated hereby, to which
it is a party. The consummation by the Company of the transactions contemplated
hereby has been duly authorized by all requisite corporate action, other than,
with respect to the Merger, the approval and adoption of this Agreement by the
Company's stockholders. This Agreement constitutes the valid and legally binding
obligation of the Company to the extent it is a party, enforceable in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
SECTION 4.3 Capitalization. The authorized capital stock of the Company
consists of 200,000,000 Company Shares, and 10,000,000 shares of the Company
preferred stock, par value $0.10 per share ("Company Preferred Stock"). As of
August 10, 2001, there were (a) 49,911,612 Company Shares issued and
outstanding, (b) no shares of Company Preferred Stock issued and outstanding,
(c) 2,136,588 Company Shares subject to outstanding employee stock options, of
which the weighted average exercise price was approximately $27.67 per share and
(d) 1,056,257 Company bonus units outstanding, of which the weighted average
Designation Date Price (as defined in the Bonus Unit Plan) was approximately
$31.85 per unit. All issued and outstanding Company Shares (i) are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights, (ii) were not issued in violation of the terms of any agreement or other
understanding binding upon the Company and (iii) were issued in compliance with
all applicable charter documents of the Company and all applicable federal and
state securities laws, rules and regulations. Except as set forth in this
Section 4.3 and except for any Company Shares issued pursuant to the plans
described in the Company Disclosure Letter, there are no outstanding shares of
capital stock and there are no options, warrants, calls, subscriptions,
shareholder rights plan or similar instruments, convertible securities, or other
rights, agreements or commitments which obligate the Company or any of
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its Subsidiaries to issue, transfer or sell any shares of capital stock or other
voting securities of the Company or any of its Subsidiaries. The Company has no
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on any
matter.
SECTION 4.4 Significant Subsidiaries. For purposes of this Agreement,
"Significant Subsidiary" shall mean significant subsidiary as defined in Rule
1-02 of Regulation S-X of the Securities Exchange Act (the "Exchange Act"). Each
of the Company's Significant Subsidiaries is a corporation, limited liability
company or partnership duly organized, validly existing and in good standing
(where applicable) under the laws of its jurisdiction of incorporation or
organization, has the corporate or partnership power and authority to own,
operate and lease its properties and to carry on its business as it is now being
conducted, and is duly qualified to do business and is in good standing (where
applicable) in each jurisdiction in which the ownership, operation or lease of
its property or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing would not have or reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect. All of the outstanding shares
of capital stock of, or other ownership interests in, each of the Company's
Significant Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned, directly or indirectly, by the Company free and
clear of all liens, pledges, security interests, claims, preferential purchase
rights or other rights, interests or encumbrances ("Liens"). Schedule 4.4 to the
Company Disclosure Letter sets forth for each Significant Subsidiary of the
Company, its name and jurisdiction of incorporation or organization.
SECTION 4.5 No Violation. Neither the Company nor any of its Subsidiaries
is, or has received notice that it would be with the passage of time, in
violation of any term, condition or provision of (a) its charter documents or
bylaws, (b) any loan or credit agreement, note, bond, mortgage, indenture,
contract, agreement, lease, license or other instrument or (c) any order of any
court, governmental authority or arbitration board or tribunal, or any law,
ordinance, governmental rule or regulation to which the Company or any of its
Subsidiaries or any of their respective properties or assets is subject, or is
delinquent with respect to any report required to be filed with any governmental
entity, except, in the case of matters described in clause (b) or (c), as would
not have or reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. Except where it would not have a Company
Material Adverse Effect, the Company and its Subsidiaries hold all permits,
licenses, variances, exemptions, orders, franchises and approvals of all
governmental authorities necessary for the lawful conduct of their respective
businesses (the "Company Permits") and the Company and its Subsidiaries are in
compliance with the terms of the Company Permits. No investigation by any
governmental authority with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the Company, threatened, other than those that
would not have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
SECTION 4.6 No Conflict.
(a) Neither the execution and delivery by the Company of this Agreement nor
the consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof will: (i) conflict with or result in a breach
of any provisions of the charter documents or bylaws of the Company; (ii)
violate, or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or give rise to a right of purchase under, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties of the Company or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, or
otherwise result in a detriment to the Company or any of its Subsidiaries under
any of the terms, conditions or provisions of, any note, bond, mortgage,
indenture, deed of trust, Company Permit, lease, contract, agreement, joint
venture or other instrument or obligation to which the Company or any of its
Subsidiaries is a party, or by which the Company or any of its Subsidiaries or
any of their properties is bound or affected; or (iii) contravene or conflict
with or constitute a violation of any provision of any law, rule, regulation,
judgment, order or decree binding upon or applicable to the Company or any of
its
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Subsidiaries, except, in the case of matters described in clause (ii) or (iii),
as would not have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(b) Neither the execution and delivery by the Company of this Agreement nor
the consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof or thereof will require any consent, approval
or authorization of, or filing or registration with, any governmental or
regulatory authority, other than (i) the filings provided for in Article l and
(ii) filings required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the Exchange Act, the Securities Act or
applicable state securities and "Blue Sky" laws and applicable foreign
competition or antitrust laws ((i) and (ii) collectively, the "Regulatory
Filings"), except for any consent, approval or authorization the failure of
which to obtain and for any filing or registration the failure of which to make
would not prevent the consummation of the Merger or otherwise prevent the
Company from performing its obligations under this Agreement and would not have
or reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(c) Other than as contemplated by Section 4.6(b), no consents, assignments,
waivers, authorizations or other certificates are necessary in connection with
the transactions contemplated hereby to provide for the continuation in full
force and effect of all of the Company's material contracts or leases or for the
Company to consummate the transactions contemplated hereby, except when the
failure to receive such consents or other certificates would not have or
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(d) Except as set forth on Schedule 4.6(d) to the Company Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) result in any
payment from the Company or its Subsidiaries (including severance, unemployment
compensation, parachute payment, bonus or otherwise) becoming due to any
director, employee or independent contractor of the Company or any of its
Subsidiaries under any Company Plan (as defined in Section 4.11) or otherwise;
(ii) increase any benefits otherwise payable under any Company Plan or
otherwise; or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
SECTION 4.7 Sec Documents. The Company has made available to Parent each
registration statement, report, proxy statement or information statement (other
than preliminary materials) filed by the Company with the Securities and
Exchange Commission ("SEC") since January 1, 2000, each in the form (including
exhibits and any amendments thereto) filed with the SEC prior to the date hereof
(collectively, the "Company Reports"), and the Company has filed all forms,
reports and documents required to be filed by it with the SEC pursuant to
relevant securities statutes, regulations, policies and rules since such time.
As of their respective dates, the Company Reports (i) were prepared in
accordance with the applicable requirements of the Securities Act of 1933
("Securities Act"), the Exchange Act, and the rules and regulations thereunder
and complied with the then applicable accounting requirements and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading
except for such statements, if any, as have been modified by subsequent filings
with the SEC prior to the date hereof. Each of the consolidated balance sheets
included in or incorporated by reference into the Company Reports (including the
related notes and schedules) fairly presents the consolidated financial position
of the Company and its Subsidiaries as of its date and each of the consolidated
statements of earnings, cash flows and stockholders' equity included in or
incorporated by reference into the Company Reports (including any related notes
and schedules) fairly presents the results of operations, cash flows or changes
in stockholders' equity, as the case may be, of the Company and its Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to such exceptions as may be permitted by Form 10-Q of the SEC), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein.
SECTION 4.8 Litigation and Liabilities. There are no actions, suits or
proceedings pending against the Company or any of its Subsidiaries or, to the
Company's knowledge, threatened against the Company
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or any of its Subsidiaries, at law or in equity, or before or by any federal,
state or foreign commission, board, bureau, agency or instrumentality, other
than those that would not have or reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect. There are no outstanding
judgments, decrees, injunctions, awards or orders against the Company or any of
its Subsidiaries, other than those that would not have or reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect.
There are no obligations or liabilities of any nature, whether or not accrued,
contingent or otherwise and whether or not required to be disclosed, including
those relating to environmental and occupational safety and health matters, or
any other facts or circumstances that could result in any claims against, or
obligations or liabilities of, the Company or any of its affiliates, except for
those that would not have or reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
SECTION 4.9 Absence of Certain Changes. Since December 31, 2000, the
Company has conducted its business only in the ordinary and usual course of
business, and during such period there have not been (i) events, conditions,
actions, occurrences or omissions that would have or would reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect; (ii) any change by the Company or any of its Subsidiaries in any of its
accounting methods, principles or practices or any of its tax methods, practices
or elections, except for changes required by generally accepted accounting
principles; (iii) any material damage, destruction, or loss to the business or
properties of the Company and its Subsidiaries (whether or not covered by
insurance) taken as a whole; (iv) any declaration, setting aside or payment of
any dividend (other than ordinary quarterly dividends of $0.1325 per share) or
other distribution in respect of the capital stock of the Company, or any direct
or indirect redemption, purchase or any other acquisition by the Company of any
such stock; (v) any change in the capital stock or in the number of shares or
classes of the Company's authorized or outstanding capital stock (other than as
a result of issuances under the Company Plans or exercises of options to
purchase the Company Shares outstanding or issued as permitted hereunder); (vi)
any increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option, stock purchase
or other employee benefit plan, except in the ordinary course of business; or
(vii) any event, condition, action, occurrence or omission that is prohibited on
or after the date of this Agreement under Section 6.1 of this Agreement.
SECTION 4.10 Taxes.
(a) Each of the Company, its Subsidiaries and each affiliated,
consolidated, combined, unitary or similar group of which any such corporation
is or, since January 1, 1991, was a member has (i) duly filed (or there has been
filed on its behalf) on a timely basis (taking into account any extensions of
time to file before the date hereof) with appropriate governmental authorities
all tax returns, statements, reports, declarations, estimates and forms
("Returns") required to be filed by or with respect to it, except to the extent
that any failure to file would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and (ii)
duly paid or deposited in full on a timely basis or made adequate provisions in
accordance with generally accepted accounting principles (or there has been paid
or deposited or adequate provision has been made on its behalf) for the payment
of all taxes required to be paid by it other than those being contested in good
faith by the Company or a Subsidiary of the Company and except to the extent
that any failure to pay or deposit or make adequate provision for the payment of
such taxes would not have or reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
(b) (i) The federal income tax returns of the Company and each of its
Subsidiaries have been examined by the Internal Revenue Service (the "IRS") (or
the applicable statutes of limitation for the assessment of federal income taxes
for such periods have expired) for all periods; (ii) except to the extent being
contested in good faith, all material deficiencies asserted as a result of such
examinations and any other examinations of the Company and its Subsidiaries by
any taxing authority have been paid fully, settled or adequately provided for in
the financial statements contained in the Company Reports; (iii) as of the date
hereof, neither the Company nor any of its Subsidiaries has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any taxes
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with respect to any Returns of the Company or any of its Significant
Subsidiaries that will be outstanding as of the Effective Time; (iv) neither the
Company nor any of its Subsidiaries is a party to, is bound by or has any
obligation under any tax sharing, allocation or indemnity agreement or any
similar agreement or arrangement that would have or would reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect;
(v) there are no tax liens on any assets of the Company or its Subsidiaries
except for taxes not yet currently due, with respect to matters being contested
by the Company in good faith for which adequate reserves are reflected in the
financial statements and those which could not reasonably be expected,
individually or in the aggregate, to result in a Company Material Adverse
Effect; and (vi) neither the Company nor any of its Subsidiaries is a party to
an agreement that provides for the payment of any amount that would constitute a
"parachute payment" within the meaning of section 280G of the Code.
For purposes of this Agreement, "tax" or "taxes" means all federal, state,
county, local, foreign or other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, accumulated earnings, personal holding, excess
profits, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, disability, capital stock, or
windfall profits taxes, customs duties or other taxes, fees, assessments or
governmental charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign).
SECTION 4.11 Employee Benefit Plans. For purposes of this Section 4.11,
the Company Subsidiaries shall include any enterprise which, with the Company,
forms or formed a controlled group of corporations, a group of trades or
business under common control or an affiliated service group, within the meaning
of section 414(b), (c) or (m) of the Code. All employee benefit plans, programs,
arrangements and agreements covering active, former or retired employees of the
Company and the Company Subsidiaries which provide material benefits to such
employees are listed in the Company Disclosure Letter (the "Company Plans"). The
Company has made available to Parent true, complete and correct copies of each
Company Plan, any related trust agreement, annuity or insurance contract or
other funding vehicle, and, except as would not have or reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect:
(a) each Company Plan has been maintained and administered in compliance with
its terms and is, to the extent required by applicable law or contract, fully
funded without having any deficit or unfunded actuarial liability or adequate
provision has been made therefor; (b) all required employer contributions under
any such plans have been made and the applicable funds have been funded in
accordance with the terms thereof, (c) each Company Plan that is required or
intended to be qualified under applicable law or registered or approved by a
governmental agency or authority has been so qualified, registered or approved
by the appropriate governmental agency or authority, and nothing has occurred
since the date of the last qualification, registration or approval to adversely
affect, or cause, the appropriate governmental agency or authority to revoke
such qualification, registration or approval; (d) to the extent applicable, the
Company Plans comply, in all respects, with the requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code and any
other applicable tax act and other laws, and any Company Plan intended to be
qualified under section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and nothing has occurred to cause the loss of
such qualified status; (e) no Company Plan is covered by Title IV of ERISA or
section 412 of the Code; (f) there are no pending or anticipated claims against
or otherwise involving any of the Company Plans and no suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of the
Company Plan activities) has been brought against or with respect to any Company
Plan; (g) all contributions, reserves or premium payments required to be made as
of the date hereof to the Company Plans have been made or provided for; (h)
neither the Company nor any Company Subsidiary has incurred or reasonably
expects to incur any liability under subtitle C or D of Title IV of ERISA with
respect to any "single-employer plan," within the meaning of section 4001(a)(15)
of ERISA, currently or formerly maintained by the Company, any Company
Subsidiary or any entity which is considered one employer with the Company under
section 4001 of ERISA; (i) neither the Company nor any Company Subsidiary has
incurred or reasonably expects to incur any withdrawal liability under subtitle
E of Title IV of ERISA with respect to any "multi-employer plan," within the
meaning of section 4001(a)(3) of
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ERISA; and (j) neither the Company nor any Company Subsidiary has any
obligations for retiree health and life benefits under any Company Plan.
SECTION 4.12 Labor Matters.
(a) Neither the Company nor any of its Subsidiaries is a party to, or bound
by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization.
(b) Neither the Company nor any of its Subsidiaries is subject to a
dispute, strike or work stoppage with respect to any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization to which it is a party or by which it is bound that would
have or would be reasonably expected to have, individually or in the aggregate,
a Company Material Adverse Effect.
(c) To the Company's knowledge, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened involving employees of the Company or any of its Subsidiaries.
SECTION 4.13 Environmental Matters.
(a) Except as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, there are
not any present or, to the knowledge of the Company, past conditions or
circumstances that interfere with the conduct of the business of the Company and
each of its Subsidiaries in the manner now conducted or which interfere with
compliance with any order of any court, governmental authority or arbitration
board or tribunal, or any law, ordinance, governmental rule or regulation
related to human health or the environment ("Environmental Law");
(b) Except as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, there are
not any present or, to the knowledge of the Company, past conditions or
circumstances at, or arising out of, any current or, to the knowledge of the
Company, former businesses, assets or properties of the Company or any
Subsidiary of the Company, including but not limited to, on-site or off-site
disposal or release of any chemical substance, product or waste, which
constitute a violation under any Environmental Law or could reasonably be
expected to give rise to: (i) liabilities or obligations for any cleanup,
remediation, disposal or corrective action under any Environmental Law or (ii)
claims arising for personal injury, property damage, or damage to natural
resources;
(c) Except as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, neither the
Company nor any of its Subsidiaries has (i) received any notice of noncompliance
with, violation of, or liability or potential liability under any Environmental
Law, (ii) received any notice regarding any existing, pending or threatened
investigation or inquiry related to alleged violations under any Environmental
Laws or regarding any claims for remedial obligations or contribution under any
Environmental Laws or (iii) entered into any consent decree or order or is
subject to any order of any court or governmental authority or tribunal under
any Environmental Law or relating to the cleanup of any hazardous materials
contamination;
(d) Except as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, the Company
and its Subsidiaries have in full force and effect all material environmental
permits, licenses, approvals and other authorizations required to conduct their
operations and are operating in material compliance thereunder; and
(e) Except as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, the Company
does not know of any reason that would preclude it from renewing or obtaining a
reissuance of the material permits, licenses or other authorizations required
pursuant to any applicable Environmental Laws to operate and use any of the
Company's or its Subsidiaries' assets for their current purposes and uses.
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SECTION 4.14 Intellectual Property. The Company and its Subsidiaries own
or possess all necessary licenses or other valid rights to use all patents,
patent rights, trademarks, trademark rights and proprietary information used or
held for use in connection with their respective businesses as currently being
conducted, free and clear of Liens, except where the failure to own or possess
such licenses and other rights would not have or would not be reasonably
expected to have, individually or in the aggregate, a Company Material Adverse
Effect, and there are no assertions or claims challenging the validity of any of
the foregoing which would have or would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Except in
the ordinary course of business, neither the Company nor any of its Subsidiaries
has granted to any other person any license to use any of the foregoing. The
conduct of the Company's and its Subsidiaries' respective businesses as
currently conducted does not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others in a way which would have, or would be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse Effect. There is no
infringement of any proprietary right owned by or licensed by or to the Company
or any of its Subsidiaries in a way which would have, or would be reasonably
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
SECTION 4.15 Title to Properties. Except for goods and other property
sold, used or otherwise disposed of since December 31, 2000 in the ordinary
course of business for fair value, the Company has defensible title for oil and
gas purposes to all its properties, interests in properties and assets, real and
personal, reflected in its December 31, 2000 financial statements, free and
clear of any Lien, except: (a) Liens reflected in the balance sheet of the
Company as of December 31, 2000; (b) Liens for current taxes not yet due and
payable; and (c) such imperfections of title, easements and Liens that would not
have or be reasonably expected to have, individually or in the aggregate, a
Company Material Adverse Effect. All leases and other agreements pursuant to
which the Company or any of its Subsidiaries leases or otherwise acquires or
obtains operating rights affecting any real or personal property are in good
standing, valid, and effective; and there is not, under any such leases, any
existing or prospective default or event of default or event which with notice
or lapse of time, or both, would constitute a default by the Company or any of
its Subsidiaries that would not have or be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse Effect. All
operating equipment of the Company and its Subsidiaries is in good operating
condition, ordinary wear and tear excepted. The Company has not received any
material advance, take-or-pay or other similar payments that entitle purchasers
of production to receive deliveries of hydrocarbons without paying therefor,
and, on a net, company-wide basis, the Company is neither underproduced nor
overproduced under gas balancing or similar arrangements.
SECTION 4.16 Insurance. The Company and its Subsidiaries maintain
insurance coverage adequate and customary in the industry for the operation of
their respective businesses.
SECTION 4.17 No Brokers. The Company has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Parent, Merger Sub or the Company pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that the Company has retained Goldman, Sachs & Co.
and J.P. Morgan Securities Inc. to act as its financial advisors in connection
with the Merger and render the opinions referred to in Section 4.18, the terms
of which have been disclosed in writing to Parent prior to the date hereof.
SECTION 4.18 Opinions of Financial Advisors. The Board of Directors of
the Company has received the opinion of Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. to the effect that, as of the date of this Agreement, the Merger
Consideration is fair, from a financial point of view, to the holders of the
Company Shares (other than Parent); it being understood and acknowledged by
Parent that each such opinion has been rendered for the benefit of the Board of
Directors of the Company, and is not intended to, and may not, be relied upon by
Parent, its affiliates or their respective Subsidiaries.
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SECTION 4.19 Contracts; Debt Instruments.
(a) Except as disclosed on Schedule 4.19 of the Company Disclosure Letter,
there are no contracts that are material to the business, properties, assets,
financial condition or results of operations of the Company and its Subsidiaries
taken as a whole ("Material Contracts"). Neither the Company nor any of its
Subsidiaries is in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice or both would
cause such a violation of or default under) any Material Contract to which it is
a party or by which it or any of its properties or assets is bound, except for
violations or defaults that have not and could not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect. Each Material Contract is in full force and effect, and is a legal,
valid and binding obligation of the Company or a Company Subsidiary and, to the
knowledge of the Company, each of the other parties thereto, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity. No condition exists or event has
occurred which (whether with or without notice or lapse of time or both) would
constitute a default by the Company or a Company Subsidiary or, to the knowledge
of the Company, any other party thereto under any Material Contract or result in
a right of termination of any Material Contract.
(b) Set forth in Schedule 4.19(b) of the Company Disclosure Letter is (i) a
list of all loan or credit agreements, notes, bonds, mortgages, indentures and
other agreements and instruments pursuant to which any indebtedness of the
Company or its Subsidiaries in an aggregate principal amount in excess of
$5,000,000 is outstanding or may be incurred, and (ii) the respective principal
amounts currently outstanding thereunder.
(c) Neither the Company nor any of its Subsidiaries has entered into any
contract and there is no commitment, judgment, injunction, order or decree to
which the Company or any of its Subsidiaries is a party or subject to that has
or could reasonably be expected to have the effect of prohibiting or impairing
the conduct of business by the Company or any of its Subsidiaries or any
contract that may be terminable as a result of Parent's status as a competitor
of any party to such contract or arrangement.
SECTION 4.20 Vote Required. The affirmative vote of holders of two-thirds
of the outstanding Company Shares is the only vote necessary to approve this
Agreement and the transactions contemplated hereby (the "Company Requisite
Vote").
SECTION 4.21 Certain Approvals. The Company's Board of Directors has
taken any and all necessary and appropriate action to render inapplicable to the
Merger and the transactions contemplated by this Agreement and the Principal
Shareholders Agreement the provisions of Section 13.03 of the TBCA and any other
"fair price," "moratorium," control share acquisition, interested shareholder or
other similar antitakeover provision or regulation and any restrictive provision
of any antitakeover provision in the articles of incorporation or bylaws of the
Company.
SECTION 4.22 Certain Contracts. Neither the Company nor any of its
Subsidiaries is a party to or bound by (i) any non-competition agreement or any
other agreement or obligation which purports to limit the manner in which, or
the localities in which, the current business of the Company and its
Subsidiaries, taken as a whole, or Parent and its Subsidiaries, taken as a
whole, is conducted or (ii) any executory agreement or obligation which pertains
to the acquisition or disposition of any asset, or which provides any third
party any lien, claim or preferential right with regard thereto, except, in the
case of this clause (ii), for such agreements or obligations that would not have
or be reasonably expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the disclosure letter delivered to the Company
concurrently with the execution hereof (the "Parent Disclosure Letter") or as
disclosed with reasonable specificity in the Parent Reports
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(as defined in Section 5.7), Parent and Merger Sub, jointly and severally,
represent and warrant to the Company that:
SECTION 5.1 Existence; Good Standing; Corporate Authority. Each of Parent
and Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Each of Parent and Merger Sub
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of any jurisdiction in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have or reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect (as defined in Section 9.9).
Each of Parent and Merger Sub has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as now
conducted. As of the date hereof, the copies of each of Parent's and Merger
Sub's certificate of incorporation and bylaws previously made available to the
Company are true and correct and contain all amendments.
SECTION 5.2 Authorization, Validity and Effect of Agreements. Each of
Parent and Merger Sub has the requisite corporate power and authority to execute
and deliver this Agreement and all other agreements and documents contemplated
hereby, to which it is a party. The consummation by each of Parent and Merger
Sub of the transactions contemplated hereby, including the issuance and delivery
by Parent of shares of Parent Common Stock pursuant to the Merger, has been duly
authorized by all requisite corporate action, other than, with respect to the
Merger, the approval and adoption of this Agreement by Parent's stockholders.
This Agreement constitutes the valid and legally binding obligation of each of
Parent and Merger Sub to the extent it is a party, enforceable in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
SECTION 5.3 Capitalization. The authorized capital stock of Parent
consists of 400,000,000 shares of Parent Common Stock, one share of Parent
Special Voting Stock, par value $0.10 per share, and 4,500,000 shares of
Parent's preferred stock, par value $1.00 per share "Parent Preferred Stock").
As of August 10, 2001, there were (a) 125,983,553 shares of Parent Common Stock
issued and outstanding, (b) one share of Parent Special Voting Stock issued and
outstanding, (c) 5,842,587 shares of Parent Common Stock reserved for issuance
under the stock options plans of Parent described in the Parent Disclosure
Letter, (d) 125,444 shares of Parent Common Stock reserved for issuance under
the Parent Restricted Stock Award Plan, (e) 40,646 shares of Parent Common Stock
reserved for issuance under certain conditional stock awards granted to former
employees of PennzEnergy Company, (f) 2,128,248 shares reserved for issuance
upon exchange of outstanding exchangeable shares ("Northstar Exchangeable
Shares") issued by Northstar Energy Corporation, an Alberta corporation
("Northstar"), (g) 1,500,000 shares of Parent Preferred Stock designated as
6.49% Cumulative Preferred Stock, Series A, issued and outstanding and (h)
1,000,000 unissued shares of Parent Preferred Stock designated as Series A
Junior Participating Preferred Stock. All issued and outstanding shares of
Parent Common Stock (i) are duly authorized, validly issued, fully paid,
nonassessable and, except as set forth in the Parent Disclosure Letter, free of
preemptive rights, (ii) were not issued in violation of the terms of any
agreement or other understanding binding upon Parent and (iii) were issued in
compliance with all applicable charter documents of Parent and all applicable
federal and state securities laws, rules and regulations. One right to purchase
Series A Junior Participating Preferred Stock of Parent (each, a "Parent Right")
issued pursuant to a Rights Agreement, dated as of August 17, 1999 (the "Parent
Rights Agreement"), between Parent and BankBoston, N.A., is associated with and
attached to each outstanding share of Parent Common Stock. The shares of Parent
Common Stock to be issued in connection with the Merger, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable. As of the date of this Agreement, except as set forth in this
Section 5.3 and except for any shares of Parent Common Stock issued pursuant to
the plans described in the Parent Disclosure Letter, there are no outstanding
shares of capital stock and there are no options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate Parent or any of its Subsidiaries to issue, transfer
or sell any shares of capital stock or other voting securities of Parent or any
of its Subsidiaries. As of the date of this
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Agreement, Parent has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of Parent on any matter.
SECTION 5.4 Significant Subsidiaries.
(a) Each of Parent's Significant Subsidiaries is a corporation, limited
liability company or partnership duly organized, validly existing and in good
standing (where applicable) under the laws of its jurisdiction of incorporation
or organization, has the corporate, limited liability company or partnership
power and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business and
is in good standing (where applicable) in each jurisdiction in which the
ownership, operation or lease of its property or the conduct of its business
requires such qualification, except for jurisdictions in which such failure to
be so qualified or to be in good standing would not have or reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect. All of the outstanding shares of capital stock of, or other ownership
interests in, each of Parent's Significant Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and is owned, directly or
indirectly, by Parent free and clear of all Liens. Schedule 5.4 to the Parent
Disclosure Letter sets forth for each Significant Subsidiary of Parent its name
and jurisdiction of incorporation or organization.
(b) Devon Energy Production Company, L.P. ("Devon Production"), a
Significant Subsidiary, is a limited partnership (except for tax purposes) duly
organized and validly existing under Oklahoma law, the general partner of which
is Devon Energy Management Company, L.L.C., an Oklahoma limited liability
company which is wholly owned by Devon Energy Corporation (Oklahoma), an
Oklahoma corporation, and has elected to be treated as a sole proprietorship for
federal income tax purposes. Devon Production has one limited partner. All of
the outstanding partnership interests of Devon Production are owned directly or
indirectly by Parent.
(c) All of the outstanding shares of capital stock of Merger Sub are owned
directly by Parent. Merger Sub was formed solely for the purpose of engaging in
the transactions contemplated hereby and has not engaged in any activities other
than in connection with the transactions contemplated by this Agreement.
SECTION 5.5 No Violation. Neither Parent nor any of its Subsidiaries is,
or has received notice that it would be with the passage of time, in violation
of any term, condition or provision of (a) its charter documents or bylaws, (b)
any loan or credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license or other instrument or (c) any order of any court,
governmental authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Parent or any of its Subsidiaries or
any of their respective properties or assets is subject, or is delinquent with
respect to any report required to be filed with any governmental entity, except,
in the case of matters described in clause (b) or (c), as would not have or
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Except as would not have a Parent Material Adverse
Effect, Parent and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders, franchises and approvals of all governmental authorities
necessary for the lawful conduct of their respective businesses (the "Parent
Permits") and Parent and its Subsidiaries are in compliance with the terms of
the Parent Permits. No investigation by any governmental authority with respect
to Parent or any of its Subsidiaries is pending or, to the knowledge of Parent,
threatened, other than those that would not have or reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect.
SECTION 5.6 No Conflict.
(a) Neither the execution and delivery by Parent and Merger Sub of this
Agreement nor the consummation by Parent and Merger Sub of the transactions
contemplated hereby in accordance with the terms hereof will: (i) conflict with
or result in a breach of any provisions of the charter documents or bylaws of
Parent or Merger Sub; (ii) violate, or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default)
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under, or result in the termination or in a right of termination or cancellation
of, or give rise to a right of purchase under, or accelerate the performance
required by, or result in the creation of any Lien upon any of the properties of
Parent or its Subsidiaries under, or result in being declared void, voidable, or
without further binding effect, or otherwise result in a detriment to Parent or
any of its Subsidiaries under any of the terms, conditions or provisions of, any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
lease, contract, agreement, joint venture or other instrument or obligation to
which Parent or any of its Subsidiaries is a party, or by which Parent or any of
its Subsidiaries or any of their properties is bound or affected; or (iii)
contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, order or decree binding upon or applicable to
Parent or any of its Subsidiaries, except, in the case of matters described in
clause (ii) or (iii), as would not have or reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
(b) Neither the execution and delivery by Parent or Merger Sub of this
Agreement nor the consummation by Parent or Merger Sub of the transactions
contemplated hereby in accordance with the terms hereof will require any
consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, other than Regulatory Filings, and listing
of the Parent Common Stock to be issued in the Merger on the AMEX, except for
any consent, approval or authorization the failure of which to obtain and for
any filing or registration the failure of which to make would not prevent the
consummation of the Merger or otherwise prevent Parent from performing its
obligations under this Agreement and would not have or reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect.
(c) Other than as contemplated by Section 5.6(b), no consents, assignments,
waivers, authorizations or other certificates are necessary in connection with
the transactions contemplated hereby to provide for the continuation in full
force and effect of all of Parent's material contracts or leases or for Parent
to consummate the transactions contemplated hereby, except when the failure to
receive such consents or other certificates would not have or reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
SECTION 5.7 SEC Documents. Parent has made available to the Company each
registration statement, report, proxy statement or information statement (other
than preliminary materials) filed by Parent with the SEC since January 1, 2000,
each in the form (including exhibits and any amendments thereto) filed with the
SEC prior to the date hereof (collectively, the "Parent Reports"), and Parent
has filed all forms, reports and documents required to be filed by it with the
SEC pursuant to relevant securities statutes, regulations, policies and rules
since such time. As of their respective dates, the Parent Reports (i) were
prepared in accordance with the applicable requirements of the Securities Act,
the Exchange Act, and the rules and regulations thereunder and complied with the
then applicable accounting requirements and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading except for such
statements, if any, as have been modified by subsequent filings with the SEC
prior to the date hereof. Each of the consolidated balance sheets included in or
incorporated by reference into the Parent Reports (including the related notes
and schedules) fairly presents the consolidated financial position of Parent and
its Subsidiaries as of its date and each of the consolidated statements of
operations, cash flows and stockholders' equity included in or incorporated by
reference into the Parent Reports (including any related notes and schedules)
fairly presents the results of operations, cash flows or changes in
stockholders' equity, as the case may be, of Parent and its Subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to such
exceptions as may be permitted by Form 10-Q of the SEC), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein.
SECTION 5.8 Absence of Certain Changes. Since December 31, 2000, Parent
has conducted its business only in the ordinary and usual course of business,
and during such period there have not been (i) events, conditions, actions,
occurrences or omissions that would have or would reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect; (ii)
any change by Parent or
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any of its Subsidiaries in any of its accounting methods, principles or
practices or any of its tax methods, practices or elections, except for changes
required by generally accepted accounting principles; or (iii) any declaration,
setting aside or payment of any dividend or other distribution in respect of the
capital stock of Parent (except for, and provided that, Parent may continue to
pay or cause to be paid, dividends upon the shares of Parent Common Stock and
the Northstar Exchangeable Shares at a rate not greater than $.05 per share in
any quarter and dividends upon its 6.49% cumulative preferred stock).
SECTION 5.9 No Brokers. Other than UBS Warburg LLC, Parent has not
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of Parent, Merger Sub or the Company to pay
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
SECTION 5.10 Opinion of Financial Advisor. The Board of Directors of
Parent has received the opinion of UBS Warburg LLC to the effect that, as of the
date of this Agreement, the Merger Consideration is fair, from a financial point
of view, to Parent; it being understood and acknowledged by Parent that such
opinion has been rendered for the benefit of the Board of Directors of Parent,
and is not intended to, and may not, be relied upon by the Company, its
affiliates or their respective Subsidiaries.
SECTION 5.11 Vote Required. The affirmative vote of the holders of a
majority of the votes cast in person or by proxy by holders of Parent Common
Stock and the outstanding Northstar Exchangeable Shares, voting as a single
class with the Parent Special Voting Share voting for the Northstar Exchangeable
Shares as provided in Parent's charter, represented in person or by proxy at a
meeting at which a quorum is present, approving the issuance of shares of Parent
Common Stock required to be issued pursuant to Article 3, is the only vote of
the holders of any class or series of Parent capital stock necessary to approve
this Agreement and the transactions contemplated hereby (the "Parent Requisite
Vote"); provided, however, if a proposal to amend Parent's certificate of
incorporation is presented at the meeting for approval pursuant to Section 2.1
hereof, the affirmative vote of the holders of a majority of the outstanding
shares of Parent Common Stock and the outstanding Northstar Exchangeable Shares,
voting as a single class with the Parent Special Voting Share voting for the
Northstar Exchangeable Shares as provided in Parent's charter, will be required
for approval.
SECTION 5.12 Financing. Parent has available to it sources of financing
sufficient to satisfy its obligation to make the payment of the aggregate cash
consideration when such payment is required pursuant to this Agreement.
SECTION 5.13 Litigation and Liabilities. There are no actions, suits or
proceedings pending against Parent or any of its Subsidiaries or, to Parent's
knowledge, threatened against Parent or any of its Subsidiaries, at law or in
equity, or before or by any federal, state or foreign commission, board, bureau,
agency or instrumentality, other than those that would not have or be reasonably
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect. There are no outstanding judgments, decrees, injunctions, awards or
orders against Parent or any of its Subsidiaries, other than those that would
not have or be reasonably expected to have, individually or in the aggregate, a
Parent Material Adverse Effect.
SECTION 5.14 Title to Properties. Except for goods and other property
sold, used or otherwise disposed of since December 31, 2000 in the ordinary
course of business for fair value, Parent has defensible title for oil and gas
purposes to all its properties, interests in properties and assets, real and
personal, reflected in its December 31, 2000 financial statements, free and
clear of any Lien, except: (a) Liens reflected in the balance sheet of Parent as
of December 31, 2000; (b) Liens for current taxes not yet due and payable and
(c) such imperfections of title, easements and Liens that would not have or be
reasonably expected to have, individually or in the aggregate, a Parent Material
Adverse Effect.
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ARTICLE 6
COVENANTS
SECTION 6.1 Conduct of Business. Prior to the Effective Time, except as
set forth in the Company Disclosure Letter or as expressly contemplated by any
other provision of this Agreement, including Schedule 6.13, unless Parent has
consented in writing thereto, the Company:
(a) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) shall use its reasonable best efforts, and shall cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships
with those persons having business relationships with them;
(c) shall not amend its articles of incorporation or bylaws;
(d) shall promptly notify Parent of any material change in its
financial condition or business or any material litigation or material
governmental complaints, investigations or hearings (or communications in
writing indicating that such litigation, complaints, investigations or
hearings may be contemplated), or the breach in any material respect of any
representation or warranty contained herein;
(e) shall promptly deliver or otherwise make available to the other
true and correct copies of any report, statement or schedule filed with the
SEC subsequent to the date of this Agreement;
(f) shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed in the Company Disclosure Letter, issue any
shares of its capital stock, effect any stock split or otherwise change its
capitalization as it existed on the date hereof; (ii) grant, confer or
award any option, warrant, conversion right or other right not existing on
the date hereof to acquire any shares of its capital stock except the grant
of options to new employees consistent with past practice in an amount not
to exceed 100,000 Company Shares or pursuant to contractual commitments
existing on the date of this Agreement and disclosed in the Company
Disclosure Letter; (iii) increase any compensation or benefits, except in
the ordinary course of business consistent with past practice, or enter
into or amend any employment agreement with any of its present or future
officers or directors, except with new employees consistent with past
practice, or (iv) adopt any new employee benefit plan (including any stock
option, stock benefit or stock purchase plan) or amend (except as required
by law) any existing employee benefit plan in any material respect, except
for changes which are less favorable to participants in such plans;
(g) shall not, and, in the case of clause (ii) below, shall not permit
any of its Subsidiaries to (i) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its
capital stock (other than the Company's ordinary quarterly dividends
payable with respect to the Company Common Stock of $0.1325 per share) or
(ii) redeem, purchase or otherwise acquire any shares of its capital stock
or capital stock of any of its Subsidiaries or any option, warrant,
conversion right or other right to acquire such shares, or make any
commitment for any such action;
(h) shall not, and shall not permit any of its Subsidiaries to, sell,
lease or otherwise dispose of any of its assets (including capital stock of
Subsidiaries) which are material to the Company, individually or in the
aggregate, except in the ordinary course of business;
(i) shall not, and shall not permit any of its Subsidiaries to, except
pursuant to contractual commitments in effect on the date hereof and
disclosed in the Company Disclosure Letter and except for amounts that in
the aggregate do not exceed $3,000,000, authorize, propose, agree to, enter
into or consummate any merger, consolidation or business combination
transaction (other than the Merger) or acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
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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;
(j) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(k) shall, and shall cause any of its Subsidiaries to, use reasonable
best efforts to maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are
customary for such party;
(l) shall not, and shall not permit any of its Subsidiaries to, except
where it would not have and would not be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse Effect, (i)
make or rescind any express or deemed election relating to taxes, including
elections for any and all joint ventures, partnerships, limited liability
companies, working interests or other investments where it has the capacity
to make such binding election, (ii) settle or compromise any claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes, or (iii) change in any respect any of its
methods of reporting any item for federal income tax purposes from those
employed in the preparation of its federal income tax return for the most
recent taxable year for which a return has been filed, except as may be
required by applicable law;
(m) shall not, nor shall it permit any of its Subsidiaries to, (i)
incur any indebtedness for borrowed money (except under credit lines in
existence as of the date of this Agreement) or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of such party or any of its Subsidiaries or
guarantee any debt securities of others, (ii) except in the ordinary course
of business, enter into any material lease (whether such lease is an
operating or capital lease) or create any material mortgages, liens,
security interests or other encumbrances on the property of Parent or the
Company or any of their Subsidiaries in connection with any indebtedness
thereof, or (iii) make or commit to make aggregate capital expenditures in
excess of $50 million over the fiscal 2001 capital expenditures budget
disclosed in reasonable detail on the Company Disclosure Letter;
(n) subject to Section 6.4, shall not take any action that is likely
to delay materially or adversely affect the ability of any of the parties
hereto to obtain any consent, authorization, order or approval of any
governmental commission, board or other regulatory body or the expiration
of any applicable waiting period required to consummate the Merger;
(o) shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its
respective Subsidiaries is a party; and during such period shall enforce,
to the fullest extent permitted under applicable law, the provisions of
such agreement, including by obtaining injunctions to prevent any breaches
of such agreements and to enforce specifically the terms and provisions
thereof in any court of the United States of America or any state having
jurisdiction;
(p) shall not enter into or amend any agreement with any holder of
Company Shares with respect to holding, voting or disposing of shares;
(q) shall not by resolution of its Board of Directors cause the
acceleration of rights, benefits or payments under any Company Plans;
(r) shall not enter into any additional forward sales contracts, fixed
price purchase or sale contracts, fixed price financial swaps, collars,
options or other hedging arrangements with respect to its oil production
and more than 10% of its budgeted gas production for the year 2001, and, in
any event, for a term longer than 12 months; or
(s) shall not, nor shall it permit any of its Subsidiaries to, agree
in writing or otherwise to take any of the foregoing actions.
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SECTION 6.2 No Solicitation by the Company.
(a) The Company agrees that it and its Subsidiaries (i) will not (and it
will not permit their officers, directors, employees, agents or representatives,
including any investment banker, attorney or accountant retained by it or any of
its Subsidiaries to) solicit, initiate or encourage (including by way of
furnishing material non-public information) any inquiry, proposal or offer
(including any proposal or offer to its stockholders) with respect to a third
party tender offer, merger, consolidation, business combination or similar
transaction involving any assets or class of capital stock of the Company, or
any acquisition of 10% or more of the capital stock (other than upon exercise of
the Company Options that are outstanding as of the date hereof) or 10% or more
of the assets of the Company and its subsidiaries, taken as a whole, in a single
transaction or a series of related transactions, or any combination of the
foregoing (any such proposal, offer or transaction being hereinafter referred to
as a "Company Acquisition Proposal") or participate or engage in any discussions
or negotiations concerning a Company Acquisition Proposal; and (ii) will
immediately cease and cause to be terminated any existing negotiations with any
third parties conducted heretofore with respect to any of the foregoing;
provided that, subject to Section 6.3(b), nothing contained in this Agreement
shall prevent the Company or its Board of Directors from (A) complying with Rule
14e-2 promulgated under the Exchange Act with regard to a Company Acquisition
Proposal or (B) prior to the Cutoff Date (as defined below), providing
information (pursuant to a confidentiality agreement containing terms identical
in all material respects to the terms of the confidentiality agreement, dated
June 21, 2001, entered into between the Company and Parent (the "Company/Parent
Confidentiality Agreement")) to or engaging in any negotiations or discussions
with any person or entity who has made an unsolicited bona fide Company
Acquisition Proposal if (x) in the good faith judgment of the Company's Board of
Directors, taking into account the likelihood of consummation and after
consultation with its financial advisors, such Company Acquisition Proposal is
reasonably likely to result in a transaction more favorable to the holders of
the Company Shares from a financial point of view than the Merger and (y) the
Board of Directors of the Company, after consultation with its outside legal
counsel, determines in good faith that the failure to do so would be
inconsistent with its fiduciary obligations under applicable law.
(b) The Company will promptly (but in any event within 24 hours) notify
Parent of any requests referred to in Section 6.2(a) for information or the
receipt of any Company Acquisition Proposal, including the identity of the
person or group engaging in such discussions or negotiations, requesting such
information or making such Company Acquisition Proposal, and the material terms
and conditions of any Company Acquisition Proposal, and shall keep Parent
informed on a timely basis (but in any event within 24 hours) of any material
changes with respect thereto. Prior to taking any action referred to in the
proviso of Section 6.2(a), if the Company intends to participate in any such
discussions or negotiations or provide any such information to any such third
party, the Company shall give prompt prior notice to Parent of each such action.
(c) Nothing in this Section 6.2 shall permit the Company to enter into any
agreement with respect to a Company Acquisition Proposal during the term of this
Agreement, it being agreed that, during the term of this Agreement, the Company
shall not enter into any agreement with any person that provides for, or in any
way facilitates, a Company Acquisition Proposal, other than a confidentiality
agreement containing terms identical in all material respects to the terms of
the Company/Parent Confidentiality Agreement.
(d) For purposes hereof, the "Cutoff Date" means the date the Company
Requisite Vote has been obtained.
SECTION 6.3 Meetings of Stockholders.
(a) The Company will take all action necessary in accordance with
applicable law and its articles of incorporation and bylaws to convene as
promptly as practicable a meeting of its stockholders for purposes of obtaining
the Company Requisite Vote. Parent will take all action necessary in accordance
with applicable law and its certificate of incorporation and bylaws to convene
as promptly as practicable a meeting of its stockholders for purposes of
obtaining the Parent Requisite Vote.
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(b) The Company and Parent, through their respective Boards of Directors,
shall recommend approval of such matters; provided that the Board of Directors
of the Company or Parent may at any time prior to the Effective Time withdraw,
modify, or change any recommendation regarding this Agreement or the
transactions contemplated hereby, or recommend and declare advisable any other
offer or proposal, if its Board of Directors determines in good faith after
consultation with its outside counsel that the failure to so withdraw, modify,
or change its recommendation would be inconsistent with its fiduciary
obligations under applicable law. Each of the Company and Parent shall be
required to comply with its obligations under Section 6.3(a) whether or not its
Board of Directors withdraws, modifies, or changes its recommendation regarding
this Agreement or the transactions contemplated hereby or recommends any other
offer or proposal.
(c) In the event that stockholders of the Company or Parent fail to approve
this Agreement at a meeting (or any adjournment or postponement thereof) at
which such stockholders considered and voted on this Agreement, the parties
shall negotiate in good faith for at least 20 days to attempt to revise the
structure and terms of the Merger to allow the combination of the respective
businesses of Parent and the Company on terms they regard as likely to be
approved by such stockholders.
SECTION 6.4 Filings; Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided, the Company and
Parent shall:
(i) promptly (but in not more than 20 business days from the date
hereof) make their respective filings under the HSR Act with respect to the
Merger and thereafter shall promptly make any other required submissions
under the HSR Act;
(ii) use their reasonable best efforts to satisfy the conditions to
closing in Article VII (including, in the case of the Company, obtaining
the opinion described in Section 7.2(b) and, in the case of Parent,
obtaining the opinion described in Section 7.3(b)) and to cooperate with
one another in (a) determining which filings are required to be made prior
to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from
governmental or regulatory authorities of the United States, the several
states, and foreign jurisdictions in connection with the execution and
delivery of this Agreement and the consummation of the Merger and the
transactions contemplated hereby; and (b) timely making all such filings
and timely seeking all such consents, approvals, permits or authorizations;
(iii) promptly notify each other of any communication concerning this
Agreement or the Merger to that party from any governmental authority and
permit the other party to review in advance any proposed communication
concerning this Agreement or the Merger to any governmental entity;
(iv) not agree to participate in any meeting or discussion with any
governmental authority in respect of any filings, investigation or other
inquiry concerning this Agreement or the Merger unless it consults with the
other party in advance and, to the extent permitted by such governmental
authority, gives the other party the opportunity to attend and participate
thereat;
(v) furnish the other party with copies of all correspondence, filings
and communications (and memoranda setting forth the substance thereof)
between them and their affiliates and their respective representatives on
the one hand, and any government or regulatory authority or members or
their respective staffs on the other hand, with respect to this Agreement
and the Merger; and
(vi) furnish the other party with such necessary information and
reasonable assistance as such other parties and their respective affiliates
may reasonably request in connection with their preparation of necessary
filings, registrations or submissions of information to any governmental or
regulatory authorities, including without limitation, any filings necessary
or appropriate under the provisions of the HSR Act.
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(b) Without limiting Section 6.4(a), Parent and the Company shall:
(i) each use its reasonable best efforts to avoid the entry of, or to
have vacated or terminated, any decree, order or judgment that would
restrain, prevent or delay the Closing, including without limitation
defending through litigation on the merits any claim asserted in any court
by any party; and
(ii) each use reasonable best efforts to avoid or eliminate each and
every impediment under any antitrust, competition or trade regulation law
that may be asserted by any governmental entity with respect to the Merger
so as to enable the Closing to occur as soon as reasonably possible (and in
any event no later than 60 days following the termination of all applicable
waiting periods under the HSR Act, unless the parties are in litigation
with the government, in which case at the conclusion of such litigation).
(c) Notwithstanding anything to the contrary in this Agreement, (i) the
Company shall not, without Parent's prior written consent, commit to any
divestitures, licenses, hold separate arrangements or similar matters, including
covenants affecting business operating practices (or allow its Subsidiaries to
commit to any divestitures, licenses, hold separate arrangements or similar
matters), and the Company shall commit to, and shall use reasonable best efforts
to effect (and shall cause its Subsidiaries to commit to and use reasonable best
efforts to effect), any such divestitures, licenses, hold separate arrangements
or similar matters as Parent shall request, but solely if such divestitures,
licenses, hold separate arrangements or similar matters are contingent on
consummation of the Merger and (ii) neither Parent nor any of its Subsidiaries
shall be required (pursuant to Section 6.4(a)(ii) or otherwise) to agree (with
respect to (x) Parent or its Subsidiaries or (y) the Company or its
Subsidiaries) to any divestitures, licenses, hold separate arrangements or
similar matters, including covenants affecting business operating practices, if
such divestitures, licenses, arrangements or similar matters, individually or in
the aggregate, would have or reasonably be expected to have a Parent Material
Adverse Effect or a Company Material Adverse Effect.
(d) Except as provided below, nothing in this Section 6.4 or any other part
of this Agreement shall require Parent to refrain from entering into any
agreement with respect to, or issuing Parent Common Stock or other consideration
in connection with, a business combination with, or an acquisition of, a third
party after the date of this Agreement and prior to the Effective Time (a
"Subsequent Transaction"); provided, however, that Parent has a good faith
belief at the time it enters into the definitive agreement calling for any such
Subsequent Transaction that such Subsequent Transaction is not reasonably likely
to prevent or delay satisfaction of any of the conditions set forth in Article
7. In the event of a Subsequent Transaction which would be permissible under the
preceding sentence, Parent shall agree to any divestitures, licenses, hold
separate arrangements or similar matters (including covenants affecting business
operating practices) necessary in order to obtain prompt approval of the
transactions contemplated by this Agreement under applicable competition laws
that would not otherwise have been required in order to obtain such approval but
for the Subsequent Transaction.
SECTION 6.5 Inspection. From the date hereof to the Effective Time, the
Company and Parent shall allow all designated officers, attorneys, accountants
and other representatives of the other party access at all reasonable times upon
reasonable notice to the records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs of the Company and its Subsidiaries or Parent and its Subsidiaries,
including inspection of such properties; provided that no investigation pursuant
to this Section 6.5 shall affect any representation or warranty given by any
party hereunder, and provided further that notwithstanding the provision of
information or investigation by any party, no party shall be deemed to make any
representation or warranty except as expressly set forth in this Agreement.
Notwithstanding the foregoing, neither party shall be required to provide any
information which it reasonably believes it may not provide to the other party
by reason of applicable law, rules or regulations, which that party reasonably
believes constitutes information protected by attorney/client privilege, or
which it is required to keep confidential by reason of contract or agreement
with third parties. The parties hereto will make reasonable and appropriate
substitute disclosure arrangements under circumstances in which the restrictions
of the preceding sentence apply. The Company and Parent agree that they will
not, and will cause their
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representatives not to, use any information obtained pursuant to this Section
6.5 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement.
SECTION 6.6 Publicity. The parties will consult with each other and will
mutually agree upon any press releases or public announcements pertaining to
this Agreement or the transactions contemplated hereby and shall not issue any
such press releases or make any such public announcements prior to such
consultation and agreement, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange, in which case the party proposing to issue such press release or make
such public announcement shall use its reasonable best efforts to consult in
good faith with the other party before issuing any such press releases or making
any such public announcements.
SECTION 6.7 Registration Statement.
(a) Each of Parent and the Company shall cooperate and promptly prepare and
Parent shall file with the SEC as soon as practicable a Registration Statement
on Form S-4 under the Securities Act (the "Registration Statement"), with
respect to the Parent Common Stock issuable in the Merger. A portion of the
Registration Statement shall also serve as the joint proxy statement with
respect to the meetings of the stockholders of Parent and of the Company in
connection with the Merger (the "Proxy Statement/ Prospectus"). The respective
parties will cause the Proxy Statement/Prospectus and the Registration Statement
to comply as to form in all material respects with the applicable provisions of
the Securities Act, the Exchange Act and the rules and regulations thereunder.
Parent shall use its reasonable best efforts, and the Company will cooperate
with Parent, to have the Registration Statement declared effective by the SEC as
promptly as practicable. Parent shall use its reasonable best efforts to obtain,
prior to the effective date of the Registration Statement, all necessary state
securities law or "Blue Sky" permits or approvals required to carry out the
transactions contemplated by this Agreement and will pay all expenses incident
thereto. Parent will advise the Company, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement/ Prospectus or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
(b) Each of Parent and the Company will use its reasonable best efforts to
cause the Proxy Statement/Prospectus to be mailed to its stockholders as
promptly as practicable after the date hereof.
(c) Each of Parent and the Company agrees that the information provided by
it for inclusion in the Proxy Statement/Prospectus and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
respective meetings of stockholders of Parent and of the Company, or, in the
case of information provided by it for inclusion in the Registration Statement
or any amendment or supplement thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
SECTION 6.8 Listing Application. Parent shall use its reasonable best
efforts to cause the Parent Common Stock to be issued in the Merger to be
approved for listing on the AMEX prior to the Effective Time, subject to
official notice of issuance. Parent shall promptly prepare and submit to the
AMEX a supplemental listing application covering the shares of Parent Common
Stock issuable in the Merger and shares issuable pursuant to Assumed Options (as
defined below).
SECTION 6.9 Letters of Accountants.
(a) If requested to do so by Parent, the Company shall use its reasonable
best efforts to cause to be delivered to Parent "comfort" letters of Arthur
Andersen LLP, the Company's independent public accountants, dated the effective
date of the Registration Statement and the Closing Date, respectively, and
addressed to Parent with regard to certain financial information regarding the
Company included in the Registration Statement, in form reasonably satisfactory
to Parent and customary in scope and substance for
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"comfort" letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(b) If requested to do so by the Company, Parent shall use its reasonable
best efforts to cause to be delivered to the Company "comfort" letters of KPMG
LLP, Parent's independent public accountants, dated the effective date of the
Registration Statement and the Closing Date, respectively, and addressed to the
Company, with regard to certain financial information regarding Parent included
in the Registration Statement, in form reasonably satisfactory to the Company
and customary in scope and substance for "comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
SECTION 6.10 Agreements of Affiliates.
(a) Prior to the Effective Time, the Company shall cause to be prepared and
delivered to Parent a list identifying all persons who, at the time of the
meeting or the meeting of the Company's stockholders pursuant to Section 6.3,
the Company believes may be deemed to be "affiliates" of the Company, as that
term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Rule 145 Affiliates"). Parent shall be entitled to place restrictive legends on
any shares of Parent Common Stock received by such Rule 145 Affiliates. The
Company shall use its reasonable best efforts to cause each person who is
identified as a Rule 145 Affiliate in such list to deliver to Parent, at or
prior to the Effective Time, a written agreement, in the form attached hereto as
Exhibit A.
SECTION 6.11 Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, except as expressly provided in Section 8.5.
SECTION 6.12 Indemnification and Insurance.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to indemnify, defend and hold harmless to the fullest extent
permitted under applicable law each person who is, or has been at any time prior
to the Effective Time, an officer or director of the Company (or any Subsidiary
or division thereof) and each person who served at the request of the Company as
a director, officer, trustee or fiduciary of another corporation, partnership,
joint venture, trust, pension or other employee benefit plan or enterprise
(individually, an "Indemnified Party" and, collectively, the "Indemnified
Parties") against all losses, claims, damages, liabilities, costs or expenses
(including attorneys' fees), judgments, fines, penalties and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to acts or omissions, or alleged acts
or omissions, by them in their capacities as such, whether commenced, asserted
or claimed before or after the Effective Time. In the event of any such claim,
action, suit, proceeding or investigation (an "Action"), (i) Parent shall cause
the Surviving Corporation to pay, as incurred, the fees and expenses of counsel
selected by the Indemnified Party, which counsel shall be reasonably acceptable
to Parent, in advance of the final disposition of any such Action to the fullest
extent permitted by applicable law, and, if required, upon receipt of any
undertaking required by applicable law, and (ii) Parent will, and will cause the
Surviving Corporation to, cooperate in the defense of any such matter; provided,
however, neither Parent nor the Surviving Corporation shall be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed), and provided further that neither Parent nor
the Surviving Corporation shall be obligated pursuant to this Section 6.12(a) to
pay the fees and disbursements of more than one counsel for all Indemnified
Parties in any single Action, unless, in the good faith judgment of any of the
Indemnified Parties, there is or may be a conflict of interests between two or
more of such Indemnified Parties, in which case there may be separate counsel
for each similarly situated group.
(b) The parties agree that the rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any action or
suit, in the articles of incorporation, bylaws and any indemnification agreement
of the Company and its Subsidiaries with respect to matters occurring through
the Effective Time, shall survive the Merger and shall continue in full force
and effect for a period of six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any
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Action pending or asserted or claim made within such period shall continue until
the disposition of such Action or resolution of such claim.
(c) For a period of six years after the Effective Time, the Surviving
Corporation shall maintain officers' and directors' liability insurance covering
the Indemnified Parties who are or at any time prior to the Effective Time were
covered by the Company's existing officers' and directors' liability insurance
("D&O Insurance") policies on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance with respect to acts or
omissions, or alleged acts or omissions, prior to the Effective Time (whether
claims, actions or other proceedings relating thereto are commenced, asserted or
claimed before or after the Effective Time); provided, that after the Effective
Time, the Surviving Corporation shall not be required to pay annual premiums in
excess of 250% of the last annual premium paid by the Company prior to the date
hereof (the amount of which premiums are set forth in the Company Disclosure
Letter) (the "Maximum Premium"), but in such case shall purchase as much
coverage as reasonably practicable for such amount. Parent shall have the right
to cause coverage to be extended under the Company's D&O Insurance by obtaining
a six-year "tail" policy on terms and conditions no less advantageous than the
Company's existing D&O Insurance, and such "tail" policy shall satisfy the
provisions of this Section 6.12(c).
(d) The rights of each Indemnified Party hereunder shall be in addition to
any other rights such Indemnified Party may have under the articles of
incorporation or bylaws of the Company or any of its Subsidiaries, under the
TBCA, or otherwise. The provisions of this Section 6.12 shall survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.
(e) In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provision shall be made so that the
successors and assigns of Parent, as the case may be, shall assume the
obligations set forth in this Section 6.12.
SECTION 6.13 Employee Benefits
(a) Parent hereby agrees to honor, and agrees to cause its Subsidiaries to
honor, all employee benefit plans, contracts, agreements and commitments of the
Company or any of its Subsidiaries maintained or entered into by the Company or
any of its Subsidiaries prior to the date hereof that apply to any current or
former employee or current or former director of the Company or any of its
Subsidiaries, including, without limitation, the executive change-in-control
severance agreements between the Company and certain of its key employees
(copies of which executive change-in-control severance agreements have been
furnished to Parent); provided, however, that except as provided in Section
6.13(c), Parent reserves the right to modify any such contract, agreement or
commitment in accordance with its terms.
(b) If, within two years after the Effective Time, the benefits applicable
to Continuing Employees are materially modified then, for the remainder of the
two-year period after the Effective Time, Parent hereby agrees to, and agrees to
cause its Subsidiaries to, provide to officers and employees of the Company and
its Subsidiaries who become or remain regular (full-time) employees of Parent or
any of its Subsidiaries ("Continuing Employees") employee benefits, other than
stock options and stock appreciation rights, no less favorable than those
provided by Parent and its Subsidiaries to their similarly situated officers and
employees. Any employee of the Company or any of its Subsidiaries who becomes a
participant in any employee benefit plan, program, policy, or arrangement of
Parent or any of its Subsidiaries after the Effective Time shall be given credit
under such plan, program, policy, or arrangement for all service with the
Company or any of its Subsidiaries, and, if applicable, with Parent or any of
its Subsidiaries, prior to becoming such a participant for purposes of
eligibility and vesting and benefit determination (other than for determining
accrual services under any defined benefit pension plan as defined in Section
3(35) of ERISA).
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(c) Parent hereby agrees to, and agrees to cause its Subsidiaries to,
provide the following benefits to Continuing Employees or to former employees of
the Company and its Subsidiaries, as described below:
(i) Parent shall continue retiree medical benefits for each former
employee of the Company and its Subsidiaries who was receiving retiree
medical benefits at the Effective Time in accordance with the terms of the
retiree medical benefit arrangements applicable to that employee.
(ii) Parent shall provide retiree medical benefits for Continuing
Employees who have attained age 55 and have 10 years of service with the
Company and its Subsidiaries at the Effective Time, with such retiree
medical benefits to be provided when such Continuing Employee terminates
employment with Parent or its Subsidiaries and with benefits substantially
equivalent to the retiree medical benefits being provided to former
employees of the Company and its Subsidiaries at the Effective Time and at
the same percentage of contribution rate as in effect at the Effective Time
in accordance with the terms of the retiree medical benefit arrangements in
effect on the date hereof.
(iii) Parent shall provide coverage for severance benefits for
Continuing Employees for a period of at least one year after the Effective
Time, and the eligibility and coverage for, and the amount of, such
severance benefits shall be at least as favorable as is provided by the
Mitchell Energy & Development Corp. Severance Benefit Plan.
(iv) For a period of at least one year after the Effective Time,
Parent shall continue defined benefit pension benefits for Continuing
Employees by continuing the Mitchell Energy & Development Corp. Retirement
Plan (the "Company Retirement Plan") and each of the Company's supplemental
retirement plans (the "Company's Supplemental Retirement Plans") for such
Continuing Employees or by providing benefits under another defined benefit
pension plan sponsored by Parent or its Subsidiaries, and for a period of
at least 13 months after the Effective Time, Parent shall not permit the
form of payment provisions in the Company's Supplemental Retirement Plans
to be amended.
(v) At such time as Parent causes a Continuing Employee to be covered
under a group health plan maintained by Parent or one of its Subsidiaries
(other than the group health plan maintained by the Company at the
Effective Time), Parent shall cause (1) such Continuing Employee and his or
her eligible dependents (including, without limitation, all such Continuing
Employee's dependents covered immediately prior to such time under the
Company's group health plan) to be credited under such Parent group health
plan, for the year during which such coverage under such group health plan
begins, with any deductibles and copayments already incurred during such
year under the Company's group health plan, and (ii) such Parent group
health plan to waive any preexisting condition restrictions to the extent
necessary to provide immediate coverage. Parent shall cause each other
employee welfare benefit plan or program sponsored by Parent or one of its
Subsidiaries that is of a similar type to a plan or program Continuing
Employees participated in prior to the Effective Time to waive any
preexisting condition exclusion with respect to Continuing Employees.
(d) Parent and the Company shall take such actions, including (with respect
to the Company) the amendment of the options ("Stock Options") to purchase
Company Shares, and the plans pursuant to which such options have been issued,
to permit Parent to assume, and Parent shall assume, effective at the Effective
Time, each Option Plan and each Stock Option that remains unexercised in whole
or in part as of the Effective Time and substitute shares of Parent Common Stock
for the Company Shares purchasable under each such assumed option ("Assumed
Option"), which assumption and substitution shall be effected as follows:
(i) the number of shares of Parent Common Stock purchasable under the
Assumed Option shall be equal to 1.20 times the number of shares of Company
Common Stock underlying the Assumed Option (without regard to any vesting
schedule and with any fractional amount rounded to the next lowest share);
(ii) the per share exercise price of such Assumed Option shall be an
amount (with fractional amounts rounded to the next highest cent) equal to
the per share exercise price of the Stock Option being assumed divided by
1.20;
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(iii) Parent will provide each holder of each Stock Option being
assumed with a statement showing the converted number of shares, the
exercise price, and the expiration date for each Assumed Option; and
(iv) any other provisions of each Assumed Option shall remain in
effect, and Parent shall not permit the acceleration of the exercisability
or require the mandatory surrender of the Assumed Options in connection
with the Merger pursuant to applicable provisions of the Option Plans.
(e) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Assumed Options, and, as soon as practicable after the Effective
Time, Parent shall file a registration statement on Form S-8 (or other
appropriate form) with respect to the shares of Parent Common Stock subject to
the Assumed Options, and shall use its reasonable best efforts to maintain the
effectiveness of such registration statement for so long as any of the Assumed
Options remain outstanding.
(f) Parent and the Company shall take such actions to permit Parent to
assume, and Parent shall assume, effective at the Effective Time, each bonus
unit ("Bonus Unit") issued under the Mitchell Energy & Development Corp. 1997
Bonus Unit Plan ("Bonus Unit Plan") that remains unredeemed in whole or in part
as of the Effective Time and substitute the value of shares of Parent Common
Stock for the value of the shares of Company Common Stock that is used to
determine the amount payable to an employee upon redemption of the Bonus Unit
("Assumed Bonus Unit"), which assumption and substitution shall be effected as
follows:
(i) the number of Bonus Units redeemable under the Assumed Bonus Unit
shall be equal to 1.20 times the number of Bonus Units being assumed
(without regard to any vesting schedule and with any fractional amount
rounded to the next lowest share);
(ii) the value of each Assumed Bonus Unit as of the Redemption Date
(as defined in the Bonus Unit Plan) shall be equal to the amount, if any,
by which (A) the closing price of a share of Parent Common Stock on such
date exceeds (B) the "exercise price" of the Assumed Bonus Unit, which
shall be the closing price of Company Common Stock on the Designation Date
(as defined in the Bonus Unit Plan) divided by 1.20 (with fractional
amounts rounded to the next highest cent);
(iii) Parent will provide each holder of Bonus Units being assumed
with a statement showing the converted number of units, the exercise price
of the Assumed Bonus Units, and the expiration date for each Assumed Bonus
Unit; and
(iv) any other provisions of each Assumed Bonus Unit shall remain in
effect, and Parent shall not permit the acceleration of the exercisability
of the Assumed Bonus Units in connection with the Merger pursuant to
Section VII of the Bonus Unit Plan.
(g) Parent agrees that its Board of Directors (or the Compensation
Committee thereof) shall, at or prior to the Effective Time, adopt resolutions
specifically approving, for purposes of Rule 16b-3 under the Securities Exchange
Act of 1934, the receipt, pursuant to this Section 6.13, of Assumed Options and
Assumed Bonus Units.
SECTION 6.14 Reorganization. From and after the date hereof and until the
Effective Time, none of Parent, the Company or any of their respective
Subsidiaries shall knowingly (i) take any action, or fail to take any reasonable
action, as a result of which the Merger would fail to qualify as a
reorganization within the meaning of section 368(a) of the Code or (ii) enter
into any contract, agreement, commitment or arrangement to take or fail to take
any such action. Following the Effective Time, Parent shall not knowingly take
any action or knowingly cause any action to be taken which would cause the
Merger to fail to qualify as a reorganization within the meaning of section
368(a) of the Code (and any comparable provisions of applicable state or local
law).
SECTION 6.15 Dividends. The Company shall coordinate with Parent the
declaration, setting of record dates and payment dates of dividends on Company
Shares so that holders of Company Shares do not receive dividends on both
Company Shares and Parent Common Stock received in the Merger in
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respect of any calendar quarter or fail to receive a dividend on Company Shares
or Parent Common Stock received in the Merger in respect of any calendar
quarter.
ARTICLE 7
CONDITIONS
SECTION 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) (i) The Company Requisite Vote shall have been obtained and (ii)
the Parent Requisite Vote shall have been obtained.
(b) (i) The waiting period applicable to the consummation of the
Merger shall have expired or been terminated under the HSR Act and (ii) any
mandatory waiting period or required consent under any applicable foreign
competition or antitrust law or regulation shall have expired or been
obtained except where the failure to observe such waiting period or obtain
a consent referred to in this clause (ii) would not reasonably be expected
to delay or prevent the consummation of the Merger or have a material
adverse effect on the expected benefits of the transactions contemplated by
this Agreement to Parent.
(c) None of the parties hereto shall be subject to any decree, order
or injunction of a court of competent jurisdiction, U.S. or foreign, which
prohibits the consummation of the Merger; and no statute, rule or
regulation shall have been enacted by any governmental authority which
prohibits or makes unlawful the consummation of the Merger.
(d) The Registration Statement shall have become effective and no stop
order with respect thereto shall be in effect and no proceedings for that
purpose shall have been commenced or threatened by the SEC.
(e) The shares of Parent Common Stock to be issued pursuant to the
Merger and shares issuable pursuant to Assumed Options shall have been
authorized for listing on the AMEX, subject to official notice of issuance.
SECTION 7.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment or waiver by the Company at or prior to the Closing Date of the
following conditions:
(a) Parent shall have performed in all material respects its covenants
and agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of Parent
and Merger Sub contained in this Agreement and in any document delivered in
connection herewith (i) to the extent qualified by Parent Material Adverse
Effect or any other materiality qualification shall be true and correct and
(ii) to the extent not qualified by Parent Material Adverse Effect or any
other materiality qualification shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the
Closing Date (except for representations and warranties made as of a
specified date, which need be true and correct only as of the specified
date), and the Company shall have received a certificate of Parent,
executed on its behalf by its President or a Senior Vice President of
Parent, dated the Closing Date, certifying to such effect.
(b) The Company shall have received the opinion of Vinson & Elkins
L.L.P., counsel to the Company, in form and substance reasonably
satisfactory to the Company, on the basis of certain facts, representations
and assumptions set forth in such opinion, dated the Closing Date, a copy
of which shall be furnished to Parent, to the effect that (i) the Merger
will be treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code and (ii) no gain or loss will be
recognized by the Company or the stockholders of the Company to the extent
they
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receive Parent Common Stock in exchange for Company Shares pursuant to the
Merger. In rendering such opinion, such counsel shall be entitled to
receive and rely upon representations of officers of the Company, Merger
Sub and Parent as to such matters as such counsel may reasonably request.
SECTION 7.3 Conditions to Obligation of Parent to Effect the Merger. The
obligations of Parent and Merger Sub to effect the Merger shall be subject to
the fulfillment or waiver by Parent at or prior to the Closing Date of the
following conditions:
(a) the Company shall have performed in all material respects its
covenants and agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of the Company contained in this Agreement and in any document
delivered in connection herewith (i) to the extent qualified by Company
Material Adverse Effect or any other materiality qualification shall be
true and correct and (ii) to the extent not qualified by Company Material
Adverse Effect or any other materiality qualification shall be true and
correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct only
as of the specified date), and Parent shall have received a certificate of
the Company, executed on its behalf by its President or a Vice President of
the Company, dated the Closing Date, certifying to such effect.
(b) Parent shall have received the opinion of Mayer, Brown & Platt,
counsel to Parent, in form and substance reasonably satisfactory to Parent,
on the basis of certain facts, representations and assumptions set forth in
such opinion, dated the Closing Date, a copy of which will be furnished to
the Company, to the effect that (i) the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of section
368(a) of the Code and (ii) no gain or loss will be recognized by any
corporation which is a party to the reorganization. In rendering such
opinion, such counsel shall be entitled to receive and rely upon
representations of officers of the Company, Merger Sub and Parent as to
such matters as such counsel may reasonably request.
ARTICLE 8
TERMINATION
SECTION 8.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Effective Time by the mutual written consent
of the Company and Parent.
SECTION 8.2 Termination by Parent or the Company. This Agreement may be
terminated by action of the Board of Directors of the Company or by action of
the Board of Directors of Parent (in either case upon payment of the Termination
Amount (as defined below) if payable), if:
(a) the Merger shall not have been consummated by the date that is
seven months after the date of this Agreement; provided, however, that the
right to terminate this Agreement pursuant to this clause (a) shall not be
available to any party whose failure to perform or observe in any material
respect any of its obligations under this Agreement in any manner shall
have been the cause of, or resulted in, the failure of the Merger to occur
on or before such date; or
(b) after the twentieth day following the date of the meeting
(including adjournments and postponements) of the Company's stockholders
for the purpose of obtaining the Company Requisite Vote, if such Company
Requisite Vote shall not have been obtained; or
(c) after the twentieth day following the date of the meeting
(including adjournments and postponements) of Parent's stockholders for the
purpose of obtaining the Parent Requisite Vote, if such Parent Requisite
Vote shall not have been obtained; or
(d) a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting
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the Merger and such order, decree, ruling or other action shall have become
final and non-appealable; provided, however, that the party seeking to
terminate this Agreement pursuant to this clause (d) shall have complied
with Section 6.4 and with respect to other matters not covered by Section
6.4 shall have used its reasonable best efforts to remove such injunction,
order or decree.
SECTION 8.3 Termination by the Company. This Agreement may be terminated
prior to the Effective Time, by action of the Board of Directors of the Company
after consultation with its legal advisors, if:
(a) (i) there has been a breach by Parent or Merger Sub of any
representation, warranty, covenant or agreement set forth in this Agreement
or if any representation or warranty of Parent or Merger Sub shall have
become untrue, in either case such that the conditions set forth in Section
7.2(a) would not be satisfied and (ii) such breach is not curable, or, if
curable, is not cured within 30 days after written notice of such breach is
given to Parent by the Company; provided, however, that the right to
terminate this Agreement pursuant to this Section 8.3(a) shall not be
available to the Company if it, at such time, is in material breach of any
representation, warranty, covenant or agreement set forth in this Agreement
such that the conditions set forth in Section 7.3(a) shall not be
satisfied; or
(b) the Board of Directors of Parent shall have withdrawn, modified or
changed, in a manner adverse to the Company, the Board's approval or
recommendation of the Merger, or resolved to do so.
SECTION 8.4 Termination by Parent. This Agreement may be terminated at
any time prior to the Effective Time, by action of the Board of Directors of
Parent after consultation with its legal advisors, if:
(a) (i) there has been a breach by the Company of any representation,
warranty covenant or agreement set forth in this Agreement or if any
representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 7.3(a) would not
be satisfied and (ii) such breach is not curable, or, if curable, is not
cured within 30 days after written notice of such breach is given by Parent
to the Company; provided, however, that the right to terminate this
Agreement pursuant to this Section 8.4(a) shall not be available to Parent
if it, at such time, is in material breach of any representation, warranty,
covenant or agreement set forth in this Agreement such that the conditions
set forth in Section 7.2(a) shall not be satisfied; or
(b) the Board of Directors of the Company shall have withdrawn,
modified or changed, in a manner adverse to Parent, the Board's approval or
recommendation of the Merger or recommended approval of a Company
Acquisition Proposal, or resolved to do so.
SECTION 8.5 Effect of Termination.
(a) If this Agreement is terminated (i) by the Company or Parent pursuant
to Section 8.2(a) or 8.2(b) (and in either such case (x) prior to, or at the
time of the meeting for the purpose of obtaining the approval required by
Section 7.1(a)(i) (including adjournments or postponements), any person shall
have made a Company Acquisition Proposal that has become public or shall have
publicly announced an intention (whether or not conditional) to make a Company
Acquisition Proposal, (y) the condition set forth in Section 7.1(a)(i) was not
satisfied at the time of such termination and (z) the condition set forth in
Section 7.1(a)(ii) was satisfied at the time of such termination) or (ii) by
Parent pursuant to Section 8.4(b); then, the Company shall immediately pay
Parent the Termination Amount (as defined below) and, in addition, reimburse
Parent for all expenses incurred by Parent in connection with this Agreement up
to the Reimbursement Maximum Amount (as defined below) upon termination of this
Agreement. All payments shall be made in cash by wire transfer to an account
designated by Parent. The term "Termination Amount" shall mean $100 million and
the term "Reimbursement Maximum Amount" shall mean $10 million. The Company
acknowledges that the agreements contained in this Section 8.5(a) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent would not enter into this Agreement;
accordingly, if the Company fails promptly to pay any amount due pursuant to
this Section 8.5(a), and, in order to obtain such payment, Parent commences a
suit which results in a judgment against the Company for the payment set forth
in this Section 8.5(a),
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the Company shall pay to Parent its costs and expenses (including attorneys'
fees) in connection with such suit, together with interest on such amount from
the date payment was required to be made until the date such payment is actually
made at the annual prime lending rate of The Chase Manhattan Bank in effect on
the date such payment was required to be made plus one percent (1%) (the
"Adjusted Prime Rate").
(b) If this Agreement is terminated (i) by the Company or Parent pursuant
to Section 8.2(a) or 8.2(c) (and in either such case (x) prior to, or at the
time of the meeting for the purpose of obtaining the approval required by
Section 7.1(a)(ii), (including adjournments or postponements), any person shall
have made a Parent Acquisition Proposal (as defined below) that has become
public or shall have publicly announced an intention (whether or not
conditional) to make a Parent Acquisition Proposal, (y) the condition set forth
in Section 7.1(a)(ii) was not satisfied at the time of such termination and (z)
the condition set forth in Section 7.1(a)(i) was satisfied at the time of such
termination) to make a Parent Acquisition Proposal) or (ii) by the Company
pursuant to Section 8.3(b); then Parent shall immediately pay the Company the
Termination Amount and, in addition, reimburse the Company for all expenses
incurred by the Company in connection with this Agreement up to the
Reimbursement Maximum Amount upon termination of this Agreement. All payments
shall be made in cash by wire transfer to an account designated by the Company.
The term "Parent Acquisition Proposal" shall mean any inquiry, proposal or offer
(including any proposal or offer to its stockholders) with respect to a third
party tender offer, merger, consolidation, business combination or similar
transaction involving any assets or class of capital stock of Parent, or any
acquisition of 10% or more of the capital stock (other than upon exercise of
Parent employee stock options that are outstanding as of the date hereof) or 10%
or more of the assets of the Company and its subsidiaries, taken as a whole, in
a single transaction or a series of related transactions, or any combination of
the foregoing. Parent acknowledges that the agreements contained in this Section
8.5(b) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, the Company would not enter into this
Agreement; accordingly, if Parent fails promptly to pay any amount due pursuant
to this Section 8.5(b) and, in order to obtain such payment, the Company
commences a suit which results in a judgment against Parent for the payment set
forth in this Section 8.5(b), Parent shall pay to the Company its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest on such amount from the date payment was required to be made until the
date such payment is actually made at the Adjusted Prime Rate.
(c) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article 8, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
8.5 and Section 6.11 and except for the provisions of Sections 9.3, 9.4, 9.6,
9.8, 9.9, 9.12, 9.13 and 9.14, provided that nothing herein shall relieve any
party from any liability for any breach by such party of any of its covenants or
agreements set forth in this Agreement and all rights and remedies of such
nonbreaching party under this Agreement in the case of such a breach, at law or
in equity, shall be preserved.
SECTION 8.6 Extension; Waiver. At any time prior to the Effective Time,
each party may by action taken by its Board of Directors, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Merger; provided, however, that the agreements contained in Article
2,
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Article 3 and in Sections 6.10, 6.11, 6.12, 6.13, 6.14 and this Article 9 and
the agreements delivered pursuant to this Agreement shall survive the Merger,
unless otherwise provided herein.
SECTION 9.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission or by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
(a) if to Parent or Merger Sub:
Devon Energy Corporation
20 N. Broadway, Suite 1500
Oklahoma City, Oklahoma 73102
Attn: J. Larry Nichols
Chairman, President and Chief Executive Officer
Telecopy No.: (405) 552-8171
and
Devon Energy Corporation
20 N. Broadway, Suite 1500
Oklahoma City, Oklahoma 73102
Attn: Duke R. Ligon
Senior Vice President and General Counsel
Telecopy No.: (405) 552-4550
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Facsimile: (312) 701-7711
Attn: Scott J. Davis
James T. Lidbury
(b) if to the Company:
2002 Timberloch Place
P.O. Box 4000
The Woodlands, Texas 77387-4000
Facsimile: (713) 377-7000
Attn: General Counsel
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002
Facsimile: (713) 615-5306
Attn: C. Michael Harrington
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
SECTION 9.3 Assignment; Binding Effect; Benefit. Except as provided in
Section 1.1 hereof, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Except as provided in Section 6.12
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and Section 6.13, notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, expressed or implied, is intended to confer
on any person other than the parties hereto any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 9.4 Entire Agreement. This Agreement, the Parent/Company
Confidentiality Agreement (other than the sixth and seventh paragraphs thereof,
which are hereby terminated and of no further force or effect), the exhibits to
this Agreement, the Company Disclosure Letter, the Parent Disclosure Letter and
any documents delivered by the parties in connection herewith constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement shall
be binding upon any party hereto unless made in writing and signed by all
parties hereto.
SECTION 9.5 Amendments. This Agreement may be amended by the parties
hereto, by action taken or authorized by their Boards of Directors, at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of the Company or Parent, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 9.6 Governing Law; Jurisdiction; Waiver of Jury Trial. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS. EACH OF THE COMPANY, MERGER SUB AND PARENT HEREBY IRREVOCABLY
AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
COMPETENT COURTS OF THE STATE OF TEXAS AND OF THE UNITED STATES OF AMERICA, IN
EITHER CASE LOCATED IN DALLAS COUNTY, TEXAS (THE "TEXAS COURTS") FOR ANY
LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO
EXCEPT IN SUCH COURTS), WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION IN THE TEXAS COURTS AND AGREES NOT TO PLEAD OR CLAIM IN ANY TEXAS
COURT THAT SUCH LITIGATION BROUGHT THEREIN HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
SECTION 9.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together shall be deemed to be one and the same instrument.
SECTION 9.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
SECTION 9.9 Interpretation. In this Agreement:
(a) Unless the context otherwise requires, words describing the
singular number shall include the plural and vice versa, and words denoting
any gender shall include all genders and words denoting natural persons
shall include corporations and partnerships and vice versa.
(b) The words "include," "includes" and "including" are not limiting.
(c) The phrase "to the knowledge of" and similar phrases relating to
knowledge of the Company or Parent, as the case may be, shall mean the
actual knowledge of its executive officers.
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(d) "Material Adverse Effect" with respect to the Company or Parent
shall mean a material adverse effect on or change in (a) the business,
assets and liabilities (taken together) or financial condition of a party
and its Subsidiaries on a consolidated basis or (b) the ability of the
party to consummate the transactions contemplated by this Agreement or
fulfill the conditions to closing set forth in Article 7. "Company Material
Adverse Effect" and "Parent Material Adverse Effect" mean a Material
Adverse Effect with respect to the Company and Parent, respectively.
(e) "Person" or "person" means an individual, a corporation, a limited
liability company, a partnership, an association, a trust or other entity
or organization.
(f) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
of which such party directly or indirectly owns or controls at least a
majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or
others performing similar functions with respect to such corporation or
other organization, or any organization of which such party is a general
partner.
SECTION 9.10 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
SECTION 9.11 Incorporation of Exhibits. The Company Disclosure Letter,
the Parent Disclosure Letter and all exhibits attached hereto and referred to
herein are hereby incorporated herein and made a part hereof for all purposes as
if fully set forth herein.
SECTION 9.12 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 9.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Texas Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 9.14 Obligation of Merger Sub. Whenever this Agreement requires
Merger Sub (or its successors) to take any action prior to the Effective Time,
such requirement shall be deemed to include an undertaking on the part of Parent
to cause Merger Sub to take such action and a guarantee of the performance
thereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
DEVON ENERGY CORPORATION
By: /s/ J. LARRY NICHOLS
----------------------------------
Name: J. Larry Nichols
Title: Chairman, President and
Chief Executive Officer
DEVON NEWCO CORPORATION
By: /s/ J. LARRY NICHOLS
----------------------------------
Name: J. Larry Nichols
Title: President
MITCHELL ENERGY & DEVELOPMENT CORP.
By: /s/ GEORGE P. MITCHELL
----------------------------------
Name: George P. Mitchell
Title: Chairman of the Board and
Chief Executive Officer
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EXHIBIT A
FORM OF COMPANY AFFILIATE'S LETTER
This SHAREHOLDER AGREEMENT, dated as of , 2001 (this
"Agreement") is between Devon Energy Corporation, a Delaware corporation
("Parent"), and the undersigned shareholder ("Shareholder") of Mitchell Energy &
Development Corp., a Texas corporation (the "Company"). Capitalized terms not
otherwise defined in this Agreement have the meanings ascribed to them in the
Merger Agreement.
RECITALS
A. Parent, Devon Newco Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and the Company have entered into an
Agreement and Plan of Merger, dated as of August 13, 2001 (the "Merger
Agreement"), pursuant to which the Company will merge (the "Merger") with and
into Merger Sub, with Merger Sub surviving the Merger;
B. Pursuant to the Merger Agreement, at the Effective Time, outstanding
Company Shares will be converted into (i) the right to receive cash and (ii)
shares of Parent Common Stock;
C. The execution and delivery of this Agreement by Shareholder is a
material inducement to Parent to enter into the Merger Agreement; and
D. Shareholder has been advised that Shareholder may be deemed to be an
"affiliate" of the Company, as such term is used (i) for purposes of paragraphs
(c) and (d) of Rule 145 of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act").
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
2. Acknowledgments by Shareholder. Shareholder acknowledges and
understands that the representations, warranties and covenants made by
Shareholder set forth in this Agreement will be relied upon by Parent, the
Company, and their respective affiliates and counsel, and that substantial
losses and damages may be incurred by such persons if Shareholder's
representations, warranties or covenants are breached. Shareholder has carefully
read this Agreement and the Merger Agreement and has consulted with such legal
counsel and financial advisers as Shareholder has deemed appropriate in
connection with the execution of this Agreement.
3. Compliance with Rule 145 and the Act.
(a) Shareholder has been advised that (i) the issuance of shares of
Parent Common Stock in connection with the Merger is expected to be
effected pursuant to a Registration Statement filed by Parent on Form S-4,
and the resale of such shares will be subject to the restrictions set forth
in Rule 145 under the Act unless such shares are otherwise transferred
pursuant to an effective registration statement under the Act or an
appropriate exemption from registration, and (ii) Shareholder may be deemed
to be an affiliate of the Company. Shareholder accordingly agrees not to
sell, pledge, transfer or otherwise dispose of any shares of Parent Common
Stock issued to Shareholder in the Merger unless (i) such sale, pledge,
transfer or other disposition is made in conformity with the requirements
of Rule 145 under the Act, (ii) such sale, pledge, transfer or other
disposition is made pursuant to an effective registration statement under
the Act, or (iii) Shareholder delivers to Parent a written opinion of
counsel, in form and substance reasonably acceptable to Parent, to the
effect that such sale, pledge, transfer or other disposition is otherwise
exempt from registration under the Act.
(b) Parent will give stop transfer instructions to its transfer agent
with respect to any Parent Common Stock received by Shareholder pursuant to
the Merger, and there will be placed on the
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certificates representing such Parent Common Stock, or any substitutions
therefor, legends stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES, AND MAY ONLY BE TRANSFERRED IN CONFORMITY WITH RULE 145,
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR IN ACCORDANCE WITH A
WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER, IN FORM
AND SUBSTANCE TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend), and Parent shall so instruct its transfer
agent, if a registration statement respecting the sale of the shares has been
declared effective under the Act or if Shareholder delivers to Parent (i)
satisfactory written evidence that the shares have been sold in compliance with
Rule 145 (in which case, the substitute certificate will be issued in the name
of the transferee), or (ii) an opinion of counsel, in form and substance
reasonably acceptable to Parent, to the effect that sale of the shares by the
holder thereof is no longer subject to Rule 145.
4. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same document. Delivery of an executed counterpart
of this Agreement by facsimile shall be effective to the fullest extent
permitted by applicable law.
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties and their respective successors
and assigns. As used in this Agreement, the term "successors and assigns"
means, where the context to permits, heirs, executors, administrators,
trustees and successor trustees, and personal and other representatives.
(c) This Agreement shall be deemed to be made in and in all respects
shall be interpreted, construed and governed by and in accordance with the
laws of the State of Texas. The parties irrevocably and unconditionally
consent to submit to the exclusive jurisdiction of the courts of the State
of Texas and of the United States of America, in either case located in
Dallas County, Texas (the "Texas Courts") for any litigation arising out of
or relating to this Agreement and the transactions contemplated by this
Agreement (and agree not to commence any litigation relating thereto except
in such Texas Courts), waive any objection to the laying of venue of any
such litigation in the Texas Courts and agree not to plead or claim in any
Texas Court that such litigation brought therein has been brought in an
inconvenient forum.
(d) If any term, provision, covenant, or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void, or unenforceable, the remainder
of the terms, provisions, covenants, and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated.
(e) Counsel to the parties to the Merger Agreement shall be entitled
to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any right
waived or any obligations excused, except by a written agreement signed by
both parties.
(g) Notwithstanding any other provision contained in this Agreement,
this Agreement and all obligations under this Agreement shall terminate
upon the termination of the Merger Agreement in accordance with its terms.
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(h) From and after the Effective Time of the Merger and as long as is
necessary in order to permit Shareholder to sell Parent Common Stock held
by Shareholder pursuant to Rule 145 and, to the extent applicable, Rule 144
under the Act, Parent will file on a timely basis all reports required to
be filed by it pursuant to the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, as the same shall be in effect at
the time, and shall otherwise make available adequate public information
regarding Parent in such manner as may be required to satisfy the
requirements of paragraph (c) of Rule 144 under the Act.
IN WITNESS WHEREOF, this Agreement is executed as of the date first stated
above.
DEVON ENERGY CORPORATION,
a Delaware corporation
By:
----------------------------------
Name:
Title:
SHAREHOLDER
------------------------------------
Name:
Number of Shares Owned:
Number of Shares Issuable upon
Exercise of Stock Options:
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ANNEX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL SHAREHOLDERS AGREEMENT
CONTAINING A VOTING AGREEMENT AND
AN IRREVOCABLE PROXY
BY AND AMONG
DEVON ENERGY CORPORATION
GEORGE P. MITCHELL
AND
CYNTHIA WOODS MITCHELL
DATED AS OF AUGUST 13, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
206
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE I DEFINITIONS...................................................... B-2
Section 1.1 Definitions................................................. B-2
ARTICLE II VOTING AGREEMENT AND IRREVOCABLE PROXY.......................... B-2
Section 2.1 Agreement to Vote the Subject Shares........................ B-2
Section 2.2 Grant of Irrevocable Proxy.................................. B-3
Section 2.3 Nature of Irrevocable Proxy................................. B-3
Section 2.4 Legend...................................................... B-3
ARTICLE III COVENANTS...................................................... B-4
Section 3.1 Generally................................................... B-4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.................. B-4
Section 4.1 Due Authority............................................... B-4
Section 4.2 Ownership of Shares......................................... B-4
Section 4.3 No Conflicts................................................ B-4
Section 4.4 Title to Purchased Shares................................... B-4
Section 4.5 Reliance by Parent.......................................... B-4
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT......................... B-5
Section 5.1 Due Organization, etc....................................... B-5
Section 5.2 Conflicts................................................... B-5
Section 5.3 Reliance by Shareholder..................................... B-5
ARTICLE VI MISCELLANEOUS................................................... B-5
Section 6.1 Shareholder Capacity........................................ B-5
Section 6.2 Publication................................................. B-5
Section 6.3 Further Actions............................................. B-5
Section 6.4 Entire Agreement............................................ B-5
Section 6.5 Binding Effect; Benefit; Assignment......................... B-5
Section 6.6 Amendments, Waivers, etc.................................... B-6
Section 6.7 Notices..................................................... B-6
Section 6.8 Specific Enforcement........................................ B-6
Section 6.9 Remedies Cumulative......................................... B-7
Section 6.10 No Waiver................................................... B-7
Section 6.11 Governing Law; Jurisdiction; Waiver of Jury Trial........... B-7
Section 6.12 Headings.................................................... B-7
Section 6.13 Counterparts; Facsimiles.................................... B-7
Section 6.14 Termination................................................. B-7
</Table>
B-1
207
PRINCIPAL SHAREHOLDERS AGREEMENT
This PRINCIPAL SHAREHOLDERS AGREEMENT (this "Agreement") dated as of August
13, 2001, by and among Devon Energy Corporation, a Delaware corporation
("Parent"), George P. Mitchell and Cynthia Woods Mitchell each being
shareholders (each, a "Shareholder") of Mitchell Energy & Development Corp., a
Texas corporation (the "Company").
WITNESSETH:
WHEREAS, Parent, Devon Newco Corporation, a Delaware corporation and a
wholly owned subsidiary of Parent, and the Company propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), pursuant to which the Company will merge with and into Sub with Sub
surviving as a wholly owned subsidiary of Parent;
WHEREAS, as of the date hereof, each Shareholder "beneficially owns" (as
such term is defined in Rule 13d-3 promulgated under the Exchange Act) and each
Shareholder is entitled to dispose of (or to direct the disposition of) and to
vote (or to direct the voting of) the number of shares of Class A Common Stock,
par value $0.10 per share of the Company (the "Common Stock") set forth opposite
the Shareholder's name on Annex A hereto, as such shares may be adjusted by
stock dividend, stock split, recapitalization, combination, merger,
consolidation, reorganization or other change in the capital structure of the
Company affecting the Common Stock (such shares of Common Stock, together with
any other shares of Common Stock the voting power over which is acquired by the
Shareholders during the period from and including the date hereof through and
including the date on which this Agreement is terminated in accordance with its
terms, are collectively referred to herein as the Shareholder's "Subject
Shares"); and
WHEREAS, prior to the execution and delivery of this Agreement by any party
hereto, Parent has purchased from George P. Mitchell 100 shares of Common Stock
(the "Purchased Shares"); and
WHEREAS, as a condition to the willingness of Parent to enter into the
Merger Agreement, and as an inducement and in consideration therefor, Parent has
required that each Shareholder agrees, and each Shareholder has agreed, to enter
into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For purposes of this Agreement, capitalized
terms used and not defined herein shall have the respective meanings ascribed to
them in the Merger Agreement.
ARTICLE II
VOTING AGREEMENT AND IRREVOCABLE PROXY
SECTION 2.1 Agreement to Vote the Subject Shares. Each Shareholder, in
its capacity as such, hereby agrees that during the period commencing on the
date hereof and continuing until the termination of this Agreement (such period,
the "Voting Period"), at any meeting (or any adjournment or postponement
thereof) of the holders of any class or classes of the capital stock of the
Company, however called, or in connection with any written consent of the
holders of any class or classes of the capital stock of the Company, the
Shareholders shall vote (or cause to be voted) their Subject Shares (x) in favor
of the approval of the terms of the Merger Agreement and each of the other
transactions contemplated by the Merger Agreement (and any actions required in
furtherance thereof) at every meeting of the
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208
shareholders of the Company (or in connection with any written consent) at which
such matters are considered and at every adjournment thereof, (y) against any
action, proposal, transaction or agreement that would result in a breach in any
respect of any covenant, representation or warranty or any other obligation or
agreement of the Company or any of its subsidiaries under the Merger Agreement
or of the Shareholders under this Agreement, and (z) except as otherwise agreed
to in writing in advance by Parent, against the following actions or proposals
(other than the transactions contemplated by the Merger Agreement): (i) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or any of its subsidiaries and any
Company Acquisition Proposal; (ii) a sale, lease or transfer of a significant
part of the assets of the Company or any of its subsidiaries, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
any of its subsidiaries (each of the actions in clauses (i) or (ii), a "Business
Combination"); and (iii) (A) any change in the persons who constitute the board
of directors of the Company that is not approved in advance by at least a
majority of the persons who were directors of the Company as of the date of this
Agreement (or their successors who were so approved); (B) any change in the
present capitalization of the Company or any amendment of the Company's articles
of incorporation or bylaws; (C) any other material change in the Company's
corporate structure or business; or (D) any other action or proposal involving
the Company or any of its subsidiaries that is intended, or could reasonably be
expected, to prevent, impede, interfere with, delay, postpone, or adversely
affect the transactions contemplated by the Merger Agreement. Any such vote
shall be cast or consent shall be given in accordance with such procedures
relating thereto as shall ensure that it is duly counted for purposes of
determining that a quorum is present and for purposes of recording the results
of such vote or consent. Each of the Shareholders agrees not to enter into any
agreement, letter of intent, agreement in principle or understanding with any
person that violates or conflicts with or could reasonably be expected to
violate or conflict with the provisions and agreements contained in this
Agreement or the Merger Agreement. For the avoidance of doubt, this Agreement is
intended to constitute a voting agreement entered into under Section B, Article
2.30 of the TBCA for the duration of the Voting Period.
SECTION 2.2 Grant of Irrevocable Proxy. Each Shareholder hereby appoints
Parent and any designee of Parent, and each of them individually, such
Shareholder's proxy and attorney-in-fact, with full power of substitution and
resubstitution, to vote or act by written consent during the Voting Period with
respect to each of the Shareholders' Subject Shares in accordance with Section
2.1. This proxy is given to secure the performance of the duties of each of the
Shareholders under this Agreement. The Shareholders shall promptly cause a copy
of this Agreement to be deposited with the Company at its principal place of
business. Each Shareholder shall take such further action or execute such other
instruments as may be necessary to effectuate the intent of this proxy.
SECTION 2.3 Nature of Irrevocable Proxy. The proxy and power of attorney
granted pursuant to Section 2.2 by each Shareholder shall be irrevocable during
the term of this Agreement, shall be deemed to be coupled with an interest
sufficient in law to support an irrevocable proxy and shall revoke all prior
proxies granted by the Shareholders. The power of attorney granted herein is a
durable power of attorney and shall survive the dissolution, bankruptcy, death
or incapacity of each Shareholder. For the avoidance of doubt, the proxy and
power of attorney is granted pursuant to Section C, Article 2.29 of the TBCA, is
coupled with an interest and is granted to Parent as a shareholder of the
Company and a party to this voting agreement which is created under Section B,
Article 2.30 of the TBCA and is intended to be valid during the Voting Period,
which the parties understand and agree may be more than eleven months from the
date hereof.
SECTION 2.4 Legend. Each Shareholder shall promptly cause the following
legend to be conspicuously noted on each certificate representing its Subject
Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A PRINCIPAL
SHAREHOLDERS AGREEMENT DATED AS OF AUGUST 13, 2001. THE PRINCIPAL
SHAREHOLDERS AGREEMENT RESTRICTS THE TRANSFERABILITY OF THE SHARES
REPRESENTED BY THIS CERTIFICATE AND INCLUDES A VOTING AGREEMENT AND AN
IRREVOCABLE PROXY TO VOTE THE SHARES REPRESENTED BY THIS CERTIFICATE."
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ARTICLE III
COVENANTS
SECTION 3.1 Generally. Except for pledges in existence as of the date
hereof, each Shareholder agrees that, except as contemplated by the terms of
this Agreement, it shall not (i) sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
agreement with respect to, or consent to, the sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of its Subject
Shares; (ii) grant any proxies or powers of attorney in respect of the Subject
Shares, deposit any of its Subject Shares into a voting trust or enter into a
voting agreement with respect to any of its Subject Shares; and (iii) take any
action that would have the effect of preventing, impeding, interfering with or
adversely affecting its ability to perform its respective obligations under this
Agreement. Notwithstanding the foregoing, nothing herein shall prevent the
Shareholders from assigning or transferring any Subject Shares beneficially
owned by either of them to any trust, estate, family partnership, foundation or
charitable organization (a "Permitted Transferee") if such Permitted Transferee
agrees in writing to be bound by all of the provisions of this Agreement as a
Shareholder hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Shareholders hereby represents and warrants to Parent as
follows:
SECTION 4.1 Due Authority. Each Shareholder has the capacity to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
SECTION 4.2 Ownership of Shares. Each Shareholder legally or
beneficially owns the number of shares of Common Stock set forth opposite
their name on Annex A hereto. The number of shares of Common Stock set
forth opposite their name on Annex A hereto are all of the shares of Common
Stock legally or beneficially owned by them. Each Shareholder has sole
voting power and sole power of disposition, in each case with respect to
all of shares of Common Stock set forth opposite his or her name on Annex A
hereto, with no limitations, qualifications or restrictions on such rights,
subject only to applicable securities laws and the terms of this Agreement
and as otherwise noted on Annex A.
SECTION 4.3 No Conflicts. (i) No filing with any governmental
authority, and no authorization, consent or approval of any other person is
necessary for the execution of this Agreement by the Shareholders and the
consummation by the Shareholders of the transactions contemplated hereby
and (ii) none of the execution and delivery of this Agreement by the
Shareholders, the consummation by the Shareholders of the transactions
contemplated hereby or compliance by the Shareholders with any of the
provisions hereof shall (A) result in, or give rise to, a violation or
breach of or a default under any of the terms of any material contract,
understanding, agreement or other instrument or obligation to which either
Shareholder is a party or by which either Shareholder or any of his or her
Subject Shares or assets may be bound, or (B) violate any applicable order,
writ, injunction, decree, judgment, statute, rule or regulation which could
reasonably be expected to adversely affect the Shareholder's ability to
perform its obligations under this Agreement.
SECTION 4.4 Title to Purchased Shares. The transfer by George P.
Mitchell of the Purchased Shares to Parent has passed to and
unconditionally vested in Parent good and valid title to all of the
Purchased Shares, free and clear of all claims, Liens, restrictions,
limitations and encumbrances whatsoever, other than any such encumbrances
created by Parent.
SECTION 4.5 Reliance by Parent. Each Shareholder understands and
acknowledges that Parent is entering into the Merger Agreement in reliance
upon the execution and delivery of this Agreement by such Shareholder.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to each Shareholder as follows:
SECTION 5.1 Due Organization, etc. Parent is a company duly
organized and validly existing under the laws of the jurisdiction of its
incorporation. Parent has all necessary corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Parent has been
duly authorized by all necessary action on the part of Parent and, assuming
its due authorization, execution and delivery by each Shareholder
constitutes a valid and binding obligation of Parent, enforceable against
Parent in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
SECTION 5.2 Conflicts. (i) No filing with any governmental
authority, and no authorization, consent or approval of any other person is
necessary for the execution of this Agreement by Parent and the
consummation by Parent of the transactions contemplated hereby and (ii)
none of the execution and delivery of this Agreement by Parent, the
consummation by Parent of the transactions contemplated hereby shall (A)
conflict with or result in any breach of the organizational documents of
Parent, (B) result in a violation or breach of or a default under any of
the terms of any material contract, understanding, agreement or other
instrument or obligation to which Parent is a party or by which Parent or
any of its assets may be bound, or (C) violate any applicable order, writ,
injunction, decree, judgment, statute, rule or regulation which could
reasonably be expected to adversely affect Parent's ability to perform its
obligations under this Agreement.
SECTION 5.3 Reliance by Shareholder. Parent understands and
acknowledges that each Shareholder is entering into this Agreement in
reliance upon the execution and delivery of the Merger Agreement by Parent.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Shareholder Capacity. No Shareholder executing this Agreement
who is or becomes during the term hereof a director or officer of the Company
makes any agreement or understanding herein in his or her capacity as such
director or officer. Each Shareholder executes this Agreement solely in his or
her capacity as the record holder or beneficial owner of his or her Subject
Shares and nothing herein shall limit or affect any actions taken by a
Shareholder in his or her capacity as an officer or director of the Company.
SECTION 6.2 Publication. Each Shareholder hereby permits Parent to
publish and disclose in the Proxy Statement/Prospectus (including all documents
and schedules filed with the Securities and Exchange Commission) its identity
and ownership of shares of Common Stock and the nature of its commitments,
arrangements, and understandings pursuant to this Agreement.
SECTION 6.3 Further Actions. Each of the parties hereto agrees that it
will use its best efforts to do all things necessary to effectuate this
Agreement.
SECTION 6.4 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and supersedes all prior agreements and understandings, oral and written,
with respect thereto.
SECTION 6.5 Binding Effect; Benefit; Assignment. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
Permitted Transferees, heirs, estates and successors. Neither
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this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto, except by will or by the laws of
descent and distribution, without the prior written consent of each of the other
parties, except that each of Parent and Sub may assign and transfer its rights
and obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent. Nothing in this Agreement, expressed or implied, is intended to confer
on any person, other than the parties hereto, any rights or remedies.
SECTION 6.6 Amendments, Waivers, etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by all of the
relevant parties hereto.
SECTION 6.7 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered in person or
mailed, certified or registered mail with postage prepaid, or sent by facsimile
(upon confirmation of receipt), as follows:
(i) If to any Shareholder, to such Shareholder at the address set forth
immediately beneath such Shareholder's name on Annex A:
with a copy (which shall not constitute notice) to:
Bracewell & Patterson L.L.P.
711 Louisiana Street, Suite 2900
Houston, Texas 77002
Attention: Edgar J. Marston III
Fax: (713) 221-1188
(ii) If to Parent, to it at:
Devon Energy Corporation
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102
Attention: J. Larry Nichols
Fax: (405) 552-7602
and
Duke R. Ligon
Fax: (405) 552-4648
with a copy (which shall not constitute notice) to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Scott J. Davis
James T. Lidbury
Fax: (312) 701-7711
or to such other person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery, except for a notice of a change of address, which shall be effective
only upon receipt thereof.
SECTION 6.8 Specific Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Accordingly, the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity.
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SECTION 6.9 Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
SECTION 6.10 No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
SECTION 6.11 Governing Law; Jurisdiction; Waiver of Jury Trial. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS. EACH OF THE SHAREHOLDERS AND PARENT HEREBY IRREVOCABLY AND
UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
COMPETENT COURTS OF THE STATE OF TEXAS AND OF THE UNITED STATES OF AMERICA, IN
EITHER CASE LOCATED IN DALLAS COUNTY, TEXAS (THE "TEXAS COURTS") FOR ANY
LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO
EXCEPT IN SUCH COURTS), WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION IN THE TEXAS COURTS AND AGREES NOT TO PLEAD OR CLAIM IN ANY TEXAS
COURT THAT SUCH LITIGATION BROUGHT THEREIN HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
SECTION 6.12 Headings. The descriptive headings of this Agreement are
inserted for convenience only, do not constitute a part of this Agreement and
shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 6.13 Counterparts; Facsimiles. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, and all
of which together shall be deemed to be one and the same instrument. A signature
transmitted by facsimile shall be treated for all purposes by the parties hereto
as an original, shall be binding upon the party transmitting such signature
without limitation.
SECTION 6.14 Termination. This Agreement shall terminate, and none of
Parent, Sub or any Shareholder shall have any rights or obligations hereunder
and this Agreement shall become null and void and have no effect upon the
earliest to occur of (a) the mutual consent of Parent, Sub and the Shareholder,
(b) the second anniversary of the date of this Agreement, (c) the Effective Time
or (d) the termination of the Merger Agreement (i) by Parent for any reason or
(ii) by the Company because of the failure of the conditions contained in
Sections 7.1(a)(ii), 7.1(b), 7.1(c), 7.1(d), 7.1(e) or 7.2 to have been
satisfied; provided, further, that termination of this Agreement shall not
prevent any party hereunder from seeking any remedies (at law or in equity)
against any other party hereto for such party's breach of any of the terms of
this Agreement. Notwithstanding the foregoing, Sections 6.4, 6.5, 6.7, 6.9 and
6.11 shall survive the termination of this Agreement.
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IN WITNESS WHEREOF, Parent and each Shareholder have caused this Agreement
to be duly executed as of the day and year first above written.
DEVON ENERGY CORPORATION
By: /s/ J. LARRY NICHOLS
----------------------------------
Name: J. Larry Nichols
Title: Chairman, President and
Chief
Executive Officer
THE SHAREHOLDERS
/s/ GEORGE P. MITCHELL
------------------------------------
George P. Mitchell
/s/ CYNTHIA WOODS MITCHELL
------------------------------------
Cynthia Woods Mitchell
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ANNEX A
LIST OF SHAREHOLDERS AND OWNERSHIP
OF COMMON STOCK
<Table>
<Caption>
NUMBER OF SHARES OF
COMMON STOCK
SHAREHOLDER ADDRESS AS OF AUGUST 10, 2001
- ----------- ------- ---------------------
George P. Mitchell.......................... c/o J. Todd Mitchell 23,380,811(1)(2)(3)(4)
600 Travis Street
Suite 3600
Houston, Texas 77002
Cynthia Woods Mitchell...................... c/o J. Todd Mitchell 1,022,506(1)
600 Travis Street
Suite 3600
Houston, Texas 77002
</Table>
- ---------------
(1) Subject to shared power of spouse under applicable Texas marital property
laws.
(2) Includes 404,666 shares of Common Stock which George P. Mitchell has the
right to acquire within 60 days on the exercise of stock options.
(3) 1,022,506 shares of Common Stock owned of record by Cynthia Woods Mitchell.
George P. Mitchell disclaims beneficial ownership of these shares.
(4) Includes 5,888,998 shares of Common Stock which George P. Mitchell has
pledged with lenders to secure existing credit facilities. The certificates
representing these shares will not be stamped with the legend referred to in
Section 2.4.
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ANNEX C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTOR RIGHTS AGREEMENT
BETWEEN
DEVON ENERGY CORPORATION
AND
GEORGE P. MITCHELL
AND
CYNTHIA WOODS MITCHELL
DATED AS OF AUGUST 13, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
216
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
1. CERTAIN DEFINITIONS.................................... C-2
2. REQUESTED REGISTRATION................................. C-3
3. PARENT REGISTRATION.................................... C-3
4. BLACK OUT.............................................. C-4
5. EXPENSES OF REGISTRATION............................... C-5
6. REGISTRATION PROCEDURES................................ C-5
7. INDEMNIFICATION........................................ C-5
8. INFORMATION FROM INVESTORS............................. C-6
9. RULE 144 REPORTING..................................... C-6
10. AMENDMENT.............................................. C-7
11. LOCKUP................................................. C-7
12. TERMINATION............................................ C-7
13. GOVERNING LAW.......................................... C-7
14. ENTIRE AGREEMENT....................................... C-7
15. NOTICES AND DATES...................................... C-8
16. COUNTERPARTS; FACSIMILES............................... C-8
17. FURTHER ASSURANCES..................................... C-8
18. SEVERABILITY........................................... C-9
19. INTERPRETATION......................................... C-9
20. MUTUAL DRAFTING........................................ C-9
</Table>
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INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "Agreement") is made as of August 13,
2001 by and between Devon Energy Corporation, a Delaware corporation (the
"Parent") George P. Mitchell and Cynthia Woods Mitchell ("Investors").
RECITALS
WHEREAS, pursuant to the merger contemplated by the Agreement and Plan of
Merger, dated as of August 13, 2001 (the "Merger Agreement"), by and among
Parent, Devon Newco Corporation, and Mitchell Energy & Development Corp. (the
"Company") ("Merger Agreement"), Investors may acquire shares (the "Shares") of
Parent's common stock, par value $0.10 per share ("Parent Common Stock") in
exchange for their shares of common stock, par value $0.10 per share, of the
Company; and
WHEREAS, Parent is granting Investors certain demand and piggyback
registration rights in connection with Investors' receipt of the Shares pursuant
to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Affiliate" shall mean, with respect to any person, each of such
person's officers, directors, employees and agents, and each other
person controlling such person within the meaning of the Securities
Act.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at
the time.
"Register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement
in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
"Registrable Securities" shall mean the Shares and any shares of
Parent Common Stock issued or issuable in respect of the Shares upon
any stock split, stock dividend, recapitalization, or similar event
and held by Investors until such time as (i) a registration statement
covering such securities has been declared effective by the Commission
and such securities have been disposed of pursuant to such effective
registration statement, or (ii) such securities may be sold pursuant
to Rule 145 or Rule 144 (or any successor or similar rule) under the
Securities Act without regard to the volume of sale restrictions
referred to therein, or (iii) such securities have been transferred
and may be sold by the transferee without registration under the
Securities Act, after which such securities shall no longer be
Registrable Securities.
"Registration Expenses" shall mean all expenses incurred by
Parent in complying with Sections 2 and 3 hereof, including all
registration, qualification and filing fees, printing expenses, escrow
fees, fees and disbursements of counsel and of the accountants for
Parent, blue sky fees and expenses and the expense of any special
audits incident to or required by any such compliance.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at
the time.
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"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the Registrable
Securities registered by Investors and all fees and disbursements of
counsel for Investors.
Capitalized terms used and not defined herein shall have the
respective meanings ascribed to the in the Merger Agreement.
2. Requested Registration.
a. Request for Registration. In case Parent shall receive from
Investors a written request that Parent effect any registration with
respect to any of the Registrable Securities, Parent shall, as soon as
practicable, use reasonable best efforts to effect such registration
(including appropriate qualification under applicable blue sky or
other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) on Form S-3 or, if Form S-3 is not
available, then on Form S-1 (or any successor forms of registration
statements to such Forms S-3 or S-1 or other available registration
statements) and as would permit or facilitate the sale and
distribution of the Registrable Securities for which registration is
requested. The registration statement filed pursuant to the request of
Investors under this Section 2(a) may include securities of Parent
held by other securityholders of Parent who, by virtue of agreements
with Parent, are entitled to include their securities in any such
registration, but Parent shall have no absolute right to include
securities for its own account in any such registration.
b. Notwithstanding the foregoing, Parent shall not be obligated
to file a registration statement to effect any such registration
pursuant to this Section 2:
i. unless the amount of Registrable Securities for which
registration is requested is at least 5,000,000 shares (as
adjusted for any stock split, stock dividend, recapitalization or
similar event); provided, however, that if the total number of
Registrable Securities held by Investors (but not a transferee of
Investors) is less than 5,000,000 shares (as adjusted to give
effect to any stock split, reverse stock split, stock dividend,
recapitalization or any similar event or transaction), then
Investors (but not a transferee of Investors) may request
registration under this Section 2 as to all but not less than all
of such Registrable Securities as may then be held by Investors;
and
ii. after Parent has initiated two such registrations
pursuant to this Section 2 (counting for these purposes only
registrations that have been declared effective).
c. Underwriting. Any offering of securities made under this
Section 2 shall be pursuant to a "firm commitment" underwriting.
Parent (together with Investors) shall enter into an underwriting
agreement in customary form with the managing underwriter selected for
such underwriting by the Investors with the consent of Parent, which
consent shall not be unreasonably withheld. Notwithstanding any other
provision of this Section 2, if the managing underwriter determines
that marketing factors require a limitation of the number of shares to
be underwritten, the managing underwriter may limit the number of
Registrable Securities to be included in such registration to the
extent required by such limitation. If the managing underwriter has
not limited the number of Registrable Securities to be included in
such registration, Parent may include securities for its own account
or for the account of others in such registration if the number of
Registrable Securities to be included in such registration will not
thereby be limited.
3. Parent Registration.
a. Notice of Registration. If Parent shall determine to register
any of its securities, either for its own account or the account of a
security holder or holders exercising their respective registration
rights, other than (i) a registration relating solely to employee
benefit plans on
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Form S-8 (or similar successor form), or (ii) a registration on Form
S-4 (or similar successor form) relating solely to a Commission Rule
145 transaction, Parent will:
i. promptly give Investors written notice thereof; and
ii. use its reasonable best efforts to include in such
registration (and any related qualification under blue sky laws
or other compliance), and in any underwriting involved therein,
all Registrable Securities specified in a written request to
Parent made within 15 business days after receipt of such written
notice by Investors.
b. Underwriting. If the registration of securities pursuant to
this Section 3 is underwritten, Parent shall so advise Investors as a
part of the written notice given under Section 3(a). In such event,
Investors' right to registration pursuant to this Section 3 shall be
conditioned upon Investors' participation in such underwriting and the
inclusion of Registrable Securities in the underwriting shall be
subject to the limitations provided herein. Parent (together with
Investors) shall enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by
Parent. Notwithstanding any other provision of this Section 3, if the
managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, Parent shall so
advise the holders of securities who have requested to include their
securities in such registration, and the number of shares to be
included in such registration shall be reduced by such minimum number
of shares as is necessary to comply with such limitation, as follows:
i. if the registration was initiated for the account of any
security holder or holders other than Investors (the "Initiating
Holders"), the number of shares reduced shall be (A) first, any
shares sought to be registered by Parent for its own account, (B)
second, if further reductions are required, any shares sought to
be registered by holders of securities other than the Initiating
Holders who have requested to include their securities in such
registration, pro rata based on the number of shares requested to
be included in such registration, and (C) third, if still further
reductions are required, any securities sought to be registered
by the Initiating Holders.
ii. if the registration was initiated by Parent for its own
account, the number of shares reduced shall be (A) first, any
shares sought to be registered by holders of securities who have
requested to include their securities in such registration, pro
rata based on the number of shares requested to be included in
such registration and (B) second, if further reductions are
required, shares sought to be registered by Parent for its own
account.
4. Black Out. In the event Parent determines, after a request for
registration has been received from an Investor and prior to the completion
of such registered offering, that it may be in possession of material
undisclosed information with respect to Parent or its securities, (i)
Parent shall notify Investors and request that Investors refrain from
selling any Registrable Securities, and Investors shall refrain from
selling any Registrable Securities, and (ii) Parent shall not be obligated
to file a registration statement or effect any registration, qualification
or compliance of Registrable Securities under Section 2 for a period of not
more than 120 days from the date of such notice (the "Black Out Period"). A
Black Out Period shall end upon the earlier to occur of (i) the full public
disclosure of the material information giving rise to such Black Out
Period, (ii) Parent notifying Investors in writing that the Black Out
Period is terminated and (iii) the 120th day after the date of Parent's
notice of the commencement of the Black Out Period. Notwithstanding the
foregoing, Parent shall not be entitled to declare a Black Out Period prior
to twelve months from the end of a previous Black Out Period if more than
180 days of the immediately preceding 365 days have been subject to a Black
Out Period, and Parent shall only exercise its rights under this Section 4
in good faith and shall not exercise such rights in an effort to frustrate
the Investors' ability to offer to sell and sell their Registrable
Securities.
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5. Expenses of Registration. All Registration Expenses incurred in
connection with a registration pursuant to Sections 2 and 3 shall be borne
by Parent. All Selling Expenses relating to the Registrable Securities
which are registered shall be borne by Investors.
6. Registration Procedures. In the case of each registration effected
by Parent pursuant to this Agreement, Parent will keep Investors advised in
writing, if Investors are participating in such registration, as to the
initiation of each registration and as to the completion thereof. At its
expense, Parent will:
a. prepare and file with the Commission a registration statement
with respect to such securities and use reasonable best efforts to
cause such registration statement to become and remain effective for
at least 60 days or until the distribution described in the
registration statement has been completed, whichever first occurs;
b. furnish to Investors, if Investors are participating in such
registration, such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other
documents as Investors may reasonably request, including
correspondence with the Commission and any exchanges on which
Registrable Securities are listed; and
c. notify Investors, if Investors are participating in such
registration, of any updates or amendments to the prospectus and
furnish to Investors any such updated and/or amended prospectuses.
7. Indemnification.
a. Parent will indemnify Investors with respect to any
registration, qualification or compliance which has been effected
pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter within the meaning of the
Securities Act (the "Underwriters"), against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any
litigation commenced or threatened arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to
any such registration, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any
violation by Parent of the Securities Act or any state securities law,
or any rule or regulation promulgated thereunder, applicable to Parent
in connection with any such registration, and Parent will reimburse
Investors and the Underwriters for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action; provided,
however, that Parent will not be liable in any such case to the extent
that any such expense, claim, loss, damage or liability arises out of
or is based on any untrue statement or omission, or alleged untrue
statement or omission, made in reliance upon and in conformity with
written information furnished to Parent by Investors specifically for
use therein.
b. Investors will, if Registrable Securities are included in a
registration being effected, indemnify Parent and each of its
Affiliates and the Underwriters, if any, of Parent's securities
covered by such a registration against all expenses, claims, losses,
damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation commenced or
threatened arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration, or
based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading, or any violation by Investors of the Securities
Act or any state securities law, or any rule or regulation promulgated
thereunder, applicable in connection with
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any such registration, and Investors will reimburse Parent, such
Affiliates and the Underwriters for any legal and any other expenses
reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the
extent that such untrue statement or omission, or alleged untrue
statement or omission, is made in such registration statement,
prospectus, offering circular or other document incident to any such
registration in reliance upon and in conformity with written
information furnished to Parent by Investors specifically for use
therein. Notwithstanding the foregoing, the liability of Investors
under this subsection (b) shall be limited in an amount equal to the
public offering price of the Shares sold by Investors, unless such
liability arises out of or is based on willful misconduct by
Investors.
c. Each party entitled to indemnification under this Section 7
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and the Indemnifying Party shall have the
option to assume the defense of any such claim or any litigation
resulting therefrom; provided, however, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld); and provided, further, that the
Indemnified Party may participate in such defense at such party's own
expense. The failure of an Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement unless the failure to give such
notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. The Indemnifying Party shall not assume such
defense for matters as to which there is a conflict of interest or
separate and different defenses. In the event of a conflict of
interest or separate or different defenses, as determined in the
reasonable opinion of counsel to the Indemnified Party, the
Indemnifying Party will pay the reasonable legal fees and expenses of
one counsel to the Indemnified Party. No claim may be settled without
the consent of the Indemnifying Party (which consent shall not be
unreasonably withheld). No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
d. If the indemnification provided for in Section 7.a. or 7.b. is
unavailable to or insufficient to hold harmless an indemnified party
under Section 7.a. or 7.b. in respect of any expenses, claims, losses,
damages or liabilities (or actions in respect thereof), then each
indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such expenses, claims, losses,
damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the
other hand in connection with the statements or omissions which
resulted in such expenses, claims, losses, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations.
8. Information from Investors. Investors shall furnish to Parent such
information regarding Registrable Securities being included in any
registration and the distribution proposed by Investors as Parent may
request in writing and as shall be required in connection with any
registration referred to in this Agreement.
9. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time
permit the sale of Registrable Securities to the public without
registration, Parent agrees to use its best efforts to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144 (or any successor or similar rule)
promulgated by the Securities and Exchange Commission under the
Securities Act;
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b. file with the Commission in a timely manner all reports and
other documents required of Parent under the Securities Act and the
Exchange Act; and
c. so long as Investors own any Registrable Securities, promptly
furnish to Investors upon request (i) a statement by Parent as to its
compliance with the reporting requirements of Rule 144 (or any
successor or similar rule), the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of Parent,
and such other publicly filed reports and documents of Parent, and
(iii) such other information in the possession of Parent as Investors
may reasonably request in availing themselves of any rule or
regulation of the Commission allowing Investors to sell any Shares
without registration.
10. Amendment. Any provision of this Agreement may be amended or the
observance thereof may be waived (either generally or in particular
instance and either retroactively or prospectively) only with the written
consent of each of the parties hereto.
11. Lockup. Investors agree that they will not, prior to the date
which is nine months from the Closing Date (as defined in the Merger
Agreement) (the "Lockup Date"), directly or indirectly sell, offer to sell,
grant any option for the sale of, or otherwise dispose of any Shares other
than pursuant to an underwritten registered offering made pursuant hereto
or to a Permitted Transferee (as defined in the Principal Shareholders
Agreement of even date among the Company and the Investors). From and after
the Lockup Date, Investors shall not dispose of Shares in amounts exceeding
1,000,000 Shares per calendar quarter, except pursuant to a registration
statement or to a Permitted Transferee.
12. Termination. This Agreement shall terminate at such time as
Investors can sell all of their remaining Registrable Securities within a
single three-month period pursuant to Rule 144 under the Securities Act (or
any successor or similar rule).
13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. PARENT AND INVESTORS
EACH HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND OF THE
UNITED STATES OF AMERICA, IN EITHER CASE LOCATED IN DALLAS COUNTY, TEXAS
(THE "TEXAS COURTS") FOR ANY LITIGATION ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES NOT TO
COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS), WAIVES ANY
OBJECTION TO THE LAYING OF VENUE OF ANY SUCH LITIGATION IN THE TEXAS COURTS
AND AGREES NOT TO PLEAD OR CLAIM IN ANY TEXAS COURT THAT SUCH LITIGATION
BROUGHT THEREIN HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
14. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon the successors
and assigns of the parties hereto.
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15. Notices and Dates. Any notice required to be given hereunder
shall be sufficient if in writing, and sent by facsimile transmission or by
courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
if to Parent, to:
Devon Energy Corporation
20 North Broadway
Suite 1500
Oklahoma City, OK 73102
Attention: J. Larry Nichols
Facsimile: (405) 552-8171
and
Duke R. Ligon
Facsimile: (405) 552-4550
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Attention: Scott J. Davis
if to Investors, to:
George P. Mitchell
Cynthia Woods Mitchell
c/o J. Todd Mitchell
600 Travis Street
Suite 3600
Houston, TX 77002
Facsimile: (713) 221-3406
with a copy to:
Bracewell & Patterson LLP
711 Louisiana, 27th Floor
South Tower Pennzoil Place
Houston, TX 77002
Attention: Edgar J. Marston III
Facsimile: (713) 221-1188
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered, if
delivered personally, by messenger or by courier, or upon confirmation of
receipt if sent by facsimile.
16. Counterparts; Facsimiles. This Agreement may be executed in
several counterparts (by facsimile or original signature), each of which
shall be deemed to be an original, but all of which together shall be
deemed to be one and the same instrument. A signature transmitted by
facsimile shall be treated for all purposes by the parties hereto as an
original and shall be binding upon the party transmitting such signature
without limitation.
17. Further Assurances. The parties hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments or
documents as any other party may reasonably request from time to time in
order to carry out the intent and purposes of this Agreement and the
consummation of the
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transactions contemplated thereby. Neither Parent nor Investors shall
voluntarily undertake any course of action inconsistent with satisfaction
of the requirements applicable to them set forth in this Agreement, and
each shall promptly do all such acts and take all such measures as may be
appropriate to enable them to perform as early as practicable the
obligations herein and therein required to be performed by them.
18. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
19. Interpretation. When a reference is made in this Agreement to
Sections, such references shall be to a Section to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words
"without limitation." Use of any gender herein to refer to any person shall
be deemed to comprehend masculine, feminine, and neuter unless the context
clearly requires otherwise.
20. Mutual Drafting. This Agreement is the joint product of Investors
and Parent, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of Investors and Parent and their
respective legal counsel and advisers and any rule of construction that a
document shall be interpreted or construed against the drafting party shall
not be applicable.
IN WITNESS WHEREOF, the undersigned have executed this Investor Rights
Agreement as of the date set forth above.
DEVON ENERGY CORPORATION
By:
/s/ J. LARRY NICHOLS
----------------------------------
J. Larry Nichols
Chairman, President and Chief
Executive Officer
/s/ GEORGE P. MITCHELL
------------------------------------
George P. Mitchell
/s/ CYNTHIA WOODS MITCHELL
------------------------------------
Cynthia Woods Mitchell
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[GOLDMAN, SACHS & CO. LETTERHEAD]
ANNEX D
PERSONAL AND CONFIDENTIAL
August 13, 2001
Board of Directors
Mitchell Energy & Development Corp.
2001 Timberloch Place
The Woodlands, Texas 77380
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Class A Common Stock, par value
$0.10 per share (the "Shares"), of Mitchell Energy & Development Corp., a Texas
corporation (the "Company"), of the Merger Consideration (as defined below) to
be received for the Shares pursuant to the Agreement and Plan of Merger, dated
as of August 13, 2001 ("the Agreement"), by and among Devon Energy Corporation,
a Delaware corporation ("Parent"), Devon NewCo Corporation, a wholly owned
subsidiary of Parent ("Merger Sub"), and the Company. Pursuant to the Agreement,
Merger Sub will be merged with the Company ("Merger") and each Share (other than
Excluded Company Shares, as defined in the Agreement) will be converted into the
right to receive $31.00 in cash (the "Cash Consideration") and 0.585 of a share
of Common Stock, par value $0.10 per share ("Parent Common Stock"), of Parent
(the "Common Stock Consideration"; together with the Cash Consideration, the
"Merger Consideration").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as a co-managing
underwriter with respect to a public offering of 5,175,000 Shares in May 2001
and having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. We also
have provided from time to time (and may provide in the future) investment
banking services to Parent. Goldman, Sachs & Co. provides a full range of
financial advisory and securities services and, in the normal course of its
trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of the Company or Parent for its
own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the year ended December 31, 2000 and for the four fiscal years ended
January 31, 2000 and of Parent for the five years ended December 31, 2000;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
the Company and Parent, including a draft Report on Form 10-Q of Parent for the
six-month period ended June 30, 2001; certain other communications from the
Company and Parent to their respective stockholders; certain reports of the
Company with respect to the estimated oil and gas reserves of the Company (the
"Company Appraisals"); certain reports of Parent with respect to the estimated
oil and gas reserves of Parent (the "Parent Appraisals"; together with the
Company Appraisals, the "Appraisals"); and certain internal financial analyses
and forecasts for the Company and Parent prepared by their respective
managements, including certain cost savings and operating synergies projected by
the managements of the Company and Parent to result from the transaction
contemplated by the Agreement. We also have held discussions with members of the
senior management of the Company and Parent regarding their assessment of the
strategic rationale for, and the potential benefits of, the transaction
contemplated by the Agreement and the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, we have reviewed the reported price and
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trading activity for the Shares and the Parent Common Stock, compared certain
financial and stock market information for the Company and Parent with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the oil and gas industry specifically and other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial,
accounting and other information discussed with or reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
In that regard, we have assumed with your consent that the internal financial
forecasts prepared by management of the Company and Parent have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the Company and Parent. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or Parent or any of their subsidiaries and, except for the Appraisals referred
to in the third paragraph of this opinion, we have not been furnished with any
such evaluation or appraisal. Our advisory services and the opinion expressed
herein are provided for the information and assistance of the Board of Directors
of the Company in connection with its consideration of the transaction
contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the Merger
Consideration to be received by the holders of Shares pursuant to the Agreement
is fair from a financial point of view to such holders.
Very truly yours,
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ANNEX E
[J.P. MORGAN SECURITIES, INC. LETTERHEAD]
September 7, 2001
The Board of Directors
Mitchell Energy & Development Corp.
2001 Timberloch Place
The Woodlands, Texas 77387-4000
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Class A common stock, par value $0.10 per share (the
"Company Common Stock"), of Mitchell Energy & Development Corp. (the "Company")
of the consideration to be received by such holders in the proposed merger (the
"Merger") of the Company with a wholly-owned subsidiary ("Merger Subsidiary") of
Devon Energy Corporation (the "Merger Partner"). Pursuant to the Agreement and
Plan of Merger dated August 13, 2001 (the "Agreement") among the Company, the
Merger Partner and Merger Subsidiary, the Company will become a wholly-owned
subsidiary of the Merger Partner, and each outstanding share of Company Common
Stock, other than shares of Company Common Stock owned by the Company, the
Merger Partner or any of their respective direct or indirect subsidiaries, and
other than dissenting shares, will be converted into the right to receive
consideration equal to $31.00 per share in cash and 0.585 shares of the Merger
Partner's common stock, par value $0.10 per share (the "Merger Partner Common
Stock").
In arriving at our opinion, we have (i) reviewed the Agreement, the Principal
Shareholders Agreement Containing a Voting Agreement and an Irrevocable Proxy by
and among the Merger Partner, George P. Mitchell and Cynthia Woods Mitchell
dated August 13, 2001 (the "Principal Shareholders Agreement"), (ii) reviewed
the Pre-Acquisition Agreement between the Merger Partner and Anderson
Exploration Ltd. ("Anderson") dated as of August 31, 2001 (the "Acquisition
Agreement"); (iii) reviewed certain publicly available business and financial
information concerning the Company, the Merger Partner, and Anderson and the
industries in which they operate; (iv) compared the proposed financial terms of
the Merger and Devon's acquisition of Anderson (the "Acquisition") with the
publicly available financial terms of certain transactions involving companies
we deemed relevant and the consideration received for such companies; (v)
compared the financial and operating performance of the Company, the Merger
Partner, and Anderson with publicly available information concerning certain
other companies we deemed relevant and reviewed the current and historical
market prices of the Company Common Stock, the Merger Partner Common Stock, and
Anderson's common stock and certain publicly traded securities of such other
companies; (vi) reviewed certain internal financial analyses and forecasts
prepared by the managements of the Company and the Merger Partner relating to
their respective businesses, and certain financial analyses and forecasts
prepared and provided by the management of the Merger Partner relating to
Anderson's business; (vii) reviewed certain internal financial analyses and
forecasts prepared by each of LaRoche Petroleum Consultants, Ryder Scott Company
Petroleum Consultants and Paddock Lindstrom & Associates (collectively, the
"Engineering Consultants") relating to the oil, gas and natural gas liquids
reserves of the Merger Partner as of December 31, 2000 (the "Reserve Reports")
and (viii) performed such other financial studies and analyses and considered
such other information as we deemed appropriate for the purposes of this
opinion.
[JP MORGAN SECURITIES LETTERHEAD FOOTER]
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[J.P. MORGAN SECURITIES, INC. LETTERHEAD]
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 necessary or appropriate to our inquiry. We
also held discussions with certain members of the management of the Merger
Partner with respect to certain aspects of the Acquisition, and the past and
current business operations of Anderson, the financial condition and future
prospects and operations of Anderson, the effects of the Acquisition on the
financial condition and future prospects of the Merger Partner, and certain
other matters we believed necessary or appropriate to our inquiry. As you know,
we have relied solely upon these discussions and other materials, including
financial forecasts, furnished to us by the Merger Partner in connection with
our review of Anderson, and we did not receive any financial forecasts or other
non-public information from Anderson.
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, the Engineering Consultants 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 (other than the Reserve Reports) been provided to us. 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, the Merger
Partner, and Anderson 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 and the parties to the Principal Shareholders Agreement shall
perform their obligations thereunder necessary for the Merger to be so effected.
We have also assumed that the Acquisition and the other transactions
contemplated by the Acquisition Agreement will be consummated as described in
the Acquisition Agreement. We have further assumed that all material
governmental, regulatory or other consents and approvals necessary for the
consummation of the Merger and the Acquisition will be obtained without any
adverse effect on the Company, the Merger Partner, or Anderson or on the
contemplated benefits of the Merger or the Acquisition.
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
consideration to be received by the holders 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.
We note that although we worked for the Company from August 1999 through April
2000, that engagement did not result in the consummation of a transaction. Since
that time, 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. 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 Company's shareholders in an amount in
excess of that contemplated in the Merger.
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[J.P. MORGAN SECURITIES, INC. LETTERHEAD]
We have acted as financial advisor to the Company with respect to the proposed
Merger and will receive a fee from the Company for our services. We will also
receive an additional fee if the proposed Merger is consummated. Please be
advised that we and our affiliates have, from time to time, provided various
investment banking and commercial banking services to each of the Company,
George P. Mitchell and the Merger Partner, for which we have received customary
compensation. In May 2001, we acted as lead manager for a secondary offering of
shares of Company Common Stock of George P. Mitchell. In addition, one of our
affiliates has a commitment under the Company's revolving credit facility, and a
commitment under the Merger Partner's revolving credit facility that currently
has not been drawn upon; that affiliate is also the documentation agent with
regard to this facility and was selected to be one of the Merger Partner's
commercial paper dealers. In the ordinary course of our businesses, we and our
affiliates may actively trade the debt and equity securities of the Company, the
Merger Partner or Anderson 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.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the 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. This opinion does not
constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote with respect to the Merger or any other matter. 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,
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ANNEX F
[UBS WARBURG LETTERHEAD]
August 13, 2001
The Board of Directors
Devon Energy Corporation
20 North Broadway, Suite 1500
Oklahoma City, Oklahoma 73102-8260
Dear Members of the Board:
We understand that Devon Energy Corporation, a Delaware corporation
("Devon" or the "Company"), is considering a transaction whereby a wholly owned
subsidiary of the Company will merge (the "Transaction") with Mitchell Energy &
Development Corp., a Texas corporation ("Mitchell" or the "Target"). Pursuant to
the terms of a draft Agreement and Plan of Merger (the "Merger Agreement"), each
issued and outstanding share of Class A Common Stock ("Mitchell Common Stock"),
par value $.10 per share, of Mitchell, other than Excluded Company Shares (as
defined in the Merger Agreement), will be converted through a merger into the
right to receive $31.00 in cash and 0.585 shares of Common Stock, par value $.01
per share, of Devon ("Devon Common Stock") (the "Merger Consideration"). The
terms and conditions of the Transaction are more fully set forth in the Merger
Agreement.
You have requested our opinion as to the fairness to the Company from a
financial point of view of the Merger Consideration to be paid by the Company in
the Transaction.
UBS Warburg LLC ("UBS Warburg") will receive fees upon the issuance of this
opinion. UBS Warburg and its predecessors have provided, and may in the future
provide, investment banking services to the Company, and received, and may in
the future receive, compensation for the rendering of such services. In the
ordinary course of business, UBS Warburg, its successors and affiliates may
trade securities of the Company or Mitchell for their own accounts and,
accordingly, may at any time hold a long or short position in such securities.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote with respect to the Transaction.
At your direction, we have not been asked to, nor do we, offer any opinion as to
the material terms of the Merger Agreement or the form of the Transaction. We
express no opinion as to what the value of Mitchell Common Stock or Devon Common
Stock will be at the time of the merger or the prices at which either will trade
at any time in the future. In rendering this opinion, we have assumed, with your
consent, that the final form of the Merger Agreement will not differ in any
material respect from the draft that we have examined, and that the Company and
the Target will comply with all the material terms of the Merger Agreement.
In arriving at our opinion, we have, among other things (i) reviewed the
August 13, 2001 draft of the Merger Agreement, (ii) reviewed certain publicly
available business and historical financial information relating to Devon and
Mitchell, (iii) reviewed certain information and other data provided to us by
Devon that is not publicly available relating to the business and prospects of
Devon that was prepared by the management of the Company, including operating
estimates and financial forecasts, (iv) reviewed certain information and other
data provided to us by Devon and Mitchell that is not publicly available
relating to the business and prospects of Mitchell that was prepared by the
management of Devon and Mitchell, including operating estimates and financial
forecasts, (v) considered estimates, prepared by the management of the Company
and not publicly available, of the amounts and timing of the synergies expected
to result from the Transaction, (vi) considered the pro forma financial effects
of the Transaction on the Company, (vii) reviewed publicly available financial
and stock market data with respect to certain other companies in lines of
business we believe to be generally comparable to those of Devon and Mitchell,
(viii) compared the financial terms of the Transaction with the financial terms
of certain other
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selected transactions that we deemed to be relevant, (ix) reviewed the
historical market prices and trading volumes of both Devon and Mitchell Common
Stock, (x) conducted discussions regarding Devon and Mitchell with selected
members of the senior management of the Company, (xi) conducted discussions
regarding Mitchell with selected members of the senior management of Mitchell,
and (xii) conducted such other financial studies, analyses and investigations,
and considered such other information, as we deemed necessary or appropriate.
In connection with our review, and at your direction, we have not assumed
any responsibility for independent verification for any of the information
reviewed by us for the purpose of this opinion and have, at your direction,
relied on its being complete and accurate in all material respects. In addition,
at your direction, we have not made any independent evaluation or appraisal of
any of the assets or liabilities (contingent or otherwise) of Mitchell, nor have
we been furnished with any such evaluation or appraisal. With respect to the
projected operating and financial information, estimates, pro forma effects and
calculations of synergies referred to above, we have assumed, at your direction,
that they have been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of each company as to the
future performance of their respective companies. Moreover, we have assumed that
all governmental, regulatory and other consents and approvals necessary for the
consummation of the Transaction will be obtained without any adverse effect on
the Company or Target. Our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as the
date hereof, the Merger Consideration to be paid by the Company in the
Transaction is fair, from a financial point of view, to the Company.
Very truly yours,
UBS WARBURG LLC
By: By:
--------------------------- ---------------------------------
J. Richard Leaman III James Brennan
Managing Director Managing Director
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ANNEX G
ARTICLES 5.11, 5.12 AND 5.13
OF THE
TEXAS BUSINESS CORPORATION ACT
(DISSENTERS' RIGHTS OF APPRAISAL)
ARTICLE 5.11. Rights of Dissenting Shareholders in the Event of Certain
Corporate Actions
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and
the shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation if
special authorization of the shareholders is required by this Act and the
shareholders hold shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation
system) or designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any
consideration that is different than the consideration (other than cash in
lieu of fractional shares that the shareholder would otherwise be entitled
to receive) to be provided to any other holder of shares of the same class
or series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a
class or series, shares of which are:
(i) listed, or authorized for listing upon official notice
of issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
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(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
ARTICLE 5.12. Procedure for Dissent by Shareholders as to Said Corporate
Actions
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a copy
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty
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(60) days after that date from the shareholder that the shareholder agrees
to accept that amount and, in the case of shares represented by
certificates, upon the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporation action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of shares upon such investigation as to them may
seem proper. The appraisers shall also afford a reasonable opportunity to the
parties interested to submit to them pertinent evidence as to the value of the
shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date such judgment, to the shareholders entitled to payment. The
judgment shall be payable to the holders of uncertificated shares immediately
but to the holders of shares represented by certificates only upon, and
simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
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E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ARTICLE 5.13. Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefore shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
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[DEVON ENERGY CORPORATION]
237
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except to the extent indicated below, there is no charter provision, bylaw,
contract, arrangement or statute under which any director or officer of Devon is
insured or indemnified in any manner against any liability that he or she may
incur in his or her capacity as such.
Article VIII of Devon's restated certificate of incorporation, as amended,
contains a provision, permitted by Section 102(b)(7) of the Delaware General
Corporation Law, limiting the personal monetary liability of directors for
breach of fiduciary duty as a director. This provision and Delaware law provide
that the provision does not eliminate or limit liability:
- for any breach of the director's duty of loyalty to Devon or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for unlawful payments of dividends or unlawful stock repurchases or
redemptions, as provided in Section 174 of the Delaware General
Corporation Law; or
- for any transaction from which the director derived an improper benefit.
Section 145 of the Delaware General Corporation Law permits indemnification
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with actions, suits
or proceedings in which a director, officer, employee or agent is a party by
reason of the fact that he or she is or was such a director, officer, employee
or agent, if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. However, in connection with actions by
or in the right of the corporation, such indemnification is not permitted if
such person has been adjudged liable to the corporation unless the court
determines that, under all of the circumstances, such person is nonetheless
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper. Article X of Devon's restated certificate of incorporation, as amended,
provides for such indemnification.
Section 145 of the Delaware General Corporation Law also permits a
corporation to purchase and maintain insurance on behalf of its directors and
officers against any liability that may be asserted against, or incurred by,
such persons in their capacities as directors or officers of the corporation
whether or not the corporation would have the power to indemnify such persons
against such liabilities under the provisions of such sections. Devon has
purchased such insurance.
Section 145 of the Delaware General Corporation Law further provides that
the statutory provision is not exclusive of any other right to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or independent directors, or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office.
Article XIII of Devon's bylaws contains provisions regarding
indemnification that parallel those described above.
The amended and restated merger agreement, dated as of May 19, 1999,
between Devon and PennzEnergy Company provides that for seven years after the
effective time of the merger contemplated by that agreement, Devon will
indemnify and hold harmless each person who was a director or officer of Devon
or PennzEnergy prior to the effective time of that merger from their acts or
omissions in those capacities occurring prior to the effective time of that
merger to the fullest extent permitted by applicable law.
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The merger agreement, dated as of May 25, 2000, as amended, between Devon
and Santa Fe Snyder Corporation provides that for six years after the effective
time of the merger contemplated by that agreement, Devon will indemnify and hold
harmless each person who was a director or officer of Santa Fe Snyder prior to
the effective time of that merger from their acts or omissions in those
capacities occurring prior to the effective time of that merger to the fullest
extent permitted by applicable law.
The agreement and plan of merger, dated as of August 13, 2001, by and among
Devon, Devon NewCo Corporation and Mitchell Energy & Development Corp. provides
that for six years after the effective time of the merger contemplated by that
agreement, Devon will cause the surviving corporation of the merger to indemnify
and hold harmless to the fullest extent permitted under applicable law each
person who was a director or officer of Mitchell prior to the effective time of
that merger.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See Index to Exhibits which is incorporated by reference in this item.
(b) Financial Statement Schedule
Not applicable.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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(4) That, for the purpose 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 securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Oklahoma City, state of
Oklahoma, on September 13, 2001.
DEVON ENERGY CORPORATION
By: /s/ J. LARRY NICHOLS
----------------------------------
J. Larry Nichols
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ J. LARRY NICHOLS Chairman, President and September 13, 2001
- ----------------------------------------------------- Chief Executive
J. Larry Nichols Officer
* Senior Vice President -- September 13, 2001
- ----------------------------------------------------- Finance
William T. Vaughn
/s/ DANNY J. HEATLY Vice President -- September 13, 2001
- ----------------------------------------------------- Accounting
Danny J. Heatly
* Director September 13, 2001
- -----------------------------------------------------
Thomas F. Ferguson
* Director September 13, 2001
- -----------------------------------------------------
David M. Gavrin
* Director September 13, 2001
- -----------------------------------------------------
Michael E. Gellert
* Director September 13, 2001
- -----------------------------------------------------
John A. Hill
* Director September 13, 2001
- -----------------------------------------------------
William J. Johnson
* Director September 13, 2001
- -----------------------------------------------------
Michael M. Kanovsky
</Table>
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<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Director September 13, 2001
- -----------------------------------------------------
Robert A. Mosbacher, Jr.
* Director September 13, 2001
- -----------------------------------------------------
Robert B. Weaver
</Table>
- ---------------
*An asterisk denotes execution by J. Larry Nichols or Danny J. Heatly, as
attorney-in-fact.
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INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 -- Agreement and Plan of Merger, dated as of August 13,
2001, by and among Registrant, Devon NewCo Corporation
and Mitchell Energy & Development Corp. (attached as
Annex A to the Joint Proxy Statement/Prospectus contained
in this Registration Statement)
2.2 -- Pre-Acquisition Agreement, dated as of August 31, 2001,
between the Registrant and Anderson Exploration Ltd.
3.1 -- Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3 to Registrant's
Form 8-K filed on August 18, 1999)
3.2 -- Amended and Restated By-laws of Registrant (incorporated
by reference to Exhibit 3.2 to Registrant's definitive
proxy statement for a special meeting of shareholders
filed on July 21, 2000)
4.1 -- Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to Registrant's Form 8-K filed
on August 18, 1999)
4.2 -- Rights Agreement, dated as of August 17, 1999, by and
between Registrant and BankBoston, N.A. (incorporated by
reference to Exhibit 4.2 to Registrant's Form 8-K filed
on August 18, 1999)
4.3 -- Amendment to Rights Agreement, dated as of May 25, 2000,
by and between Registrant and Fleet National Bank, f/k/a
BankBoston, N.A. (incorporated by reference to Exhibit
4.2 to Registrant's definitive proxy statement for a
special meeting of shareholders filed on July 21, 2000)
4.4 -- Description of Capital Stock of Registrant (incorporated
by reference to Exhibit 4.9 to Registrant's Form 8-K
filed on August 18, 1999)
*5.1 -- Opinion of Mayer, Brown & Platt regarding the legality of
the shares of Registrant common stock to be registered
under this Registration Statement
*8.1 -- Opinion of Mayer, Brown & Platt regarding the United
States federal income tax consequences of the merger to
Devon Stockholders
*8.2 -- Opinion of Vinson & Elkins L.L.P. regarding the United
States federal income tax consequences of the merger to
Mitchell Stockholders
10.1 -- Principal Shareholders Agreement Containing a Voting
Agreement and an Irrevocable Proxy, dated as of August
13, 2001, by and among Registrant, George P. Mitchell and
Cynthia Woods Mitchell (attached as Annex B to the Joint
Proxy Statement/Prospectus contained in this Registration
Statement)
10.2 -- Investor Rights Agreement, dated as of August 13, 2001,
by and among Registrant, George P. Mitchell and Cynthia
Woods Mitchell (attached as Annex C to the Joint Proxy
Statement/Prospectus contained in this Registration
Statement)
*21.1 -- List of Significant Subsidiaries of Registrant
23.1 -- Consent of Mayer, Brown & Platt (contained in its
opinions in Exhibits 5.1 and 8.1)
23.2 -- Consent of Vinson & Elkins L.L.P. (contained in its
opinion in Exhibit 8.2)
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Deloitte & Touche LLP
23.5 -- Consent of KPMG LLP (as to certain financial information
of the Registrant)
23.6 -- Consent of PricewaterhouseCoopers LLP
23.7 -- Consent of KPMG LLP (as to certain financial information
of Anderson Exploration Ltd.)
23.8 -- Consent of AMH Group, Ltd.
</Table>
243
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
23.9 -- Consent of LaRoche Petroleum Consultants, Ltd.
23.10 -- Consent of Paddock Lindstrom & Associates, Ltd.
23.11 -- Consent of Ryder Scott Company, L.P.
23.12 -- Consent of Gilbert Laustsen Jung Associates Ltd.
23.13 -- Consent of Goldman, Sachs & Co.
23.14 -- Consent of J.P. Morgan Securities Inc.
23.15 -- Consent of UBS Warburg LLC
*24.1 -- Powers of Attorney of Registrant's Directors
*99.1 -- Form of Proxy Card for holders of Registrant's common
stock
*99.2 -- Form of Proxy Card for holders of Northstar Energy
Corporation's exchangeable shares
*99.3 -- Form of Proxy Card for holders of Mitchell common stock
*99.4 -- Consent of Nominee (J. Todd Mitchell)
</Table>
- ---------------
*Included with the original filing of this registration statement on August 30,
2001.