<PAGE>
As filed with the Securities and Exchange Commission on April 18, 2000
Registration No. 333-
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
Pure Resources, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 1311 74-2952918
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification No.)
500 West Texas, Suite 200 Jack D. Hightower
Midland, Texas 79701 500 West Texas, Suite 200
(915) 498-8600 Midland, Texas 79701
(Address, including zip code, and telephone number, (915) 498-8600
including area code, of registrant's principal executive offices) (Name, address, including zip code, and telephone
number, including area code, of agent for service)
</TABLE>
------------------
Copies to:
Robert S. Baird Joe Dannenmaier
Vinson & Elkins L.L.P. Craig N. Adams
One American Center, Suite 2700 Jane E. Rast
Austin, Texas 78701 Thompson & Knight L.L.P.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
------------------
Approximate date of commencement of proposed sale to the public: Upon the
effective date of the Merger described in 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. [_]
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
Proposed Proposed
maximum maximum Amount of
Title of each class of securities Amount to be offering price aggregate registration
to be registered registered per share offering price fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share.......................... 17,750,309 (1) Not applicable $190,816,335(2) $50,376(3)
========================================================================================================
</TABLE>
(1) Based on the maximum number of shares of Pure Resources, Inc. Common Stock
that may be required to be issued in connection with the merger calculated
as the product of (a) 41,257,586, which is the sum of (i) the number of
shares of Titan Exploration, Inc.'s Common Stock outstanding as of April
17, 2000 and (ii) the number of shares of Titan Exploration, Inc. Common
Stock that
<PAGE>
could be issued prior to the consummation of the Merger pursuant to the
exercise of currently outstanding Titan Exploration Inc. options, and (b)
the exchange ratio for the Merger of .4302314 shares of Pure Resources,
Inc. Common Stock for each outstanding share of Titan Exploration, Inc.
Common Stock.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457, based on the market value of the Titan Exploration,
Inc. Common Stock to be exchanged in the merger, as the product of (a)
$4.625 (the average of the high and low sales prices for Titan Exploration,
Inc. Common Stock on the Nasdaq National Market on April 17, 2000) and (b)
41,257,586, which is the sum of (i) the number of shares of Titan
Exploration, Inc. Common Stock outstanding on April 17, 2000 and (ii) the
number of shares of Titan Exploration, Inc. Common Stock that could be
issued pursuant to outstanding stock options through the date the merger is
expected to be consummated.
(3) Pursuant to Rule 457(b) under the Securities Act of 1933, the registration
fee included with this Registration Statement has been offset by $39,511,
which is the fee previously paid by Titan Exploration, Inc. with the filing
of preliminary proxy materials on Schedule 14A (which contained the Proxy
Statement/Prospectus included herein) filed on January 12, 2000.
------------------
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
================================================================================
<PAGE>
[PRELIMINARY DRAFT DATED APRIL 18, 2000, SUBJECT TO COMPLETION]
TITAN EXPLORATION, INC.
500 West Texas, Suite 200
Midland, Texas 79701
April 19, 2000
PROPOSED MERGER - YOUR VOTE IS VERY IMPORTANT
To Titan Exploration, Inc. Stockholders:
On December 13, 1999, Titan Exploration, Inc. and Union Oil Company of
California entered into agreements providing for the creation of a new company,
Pure Resources, Inc., that will succeed by merger to all of the assets of Titan
and all of the oil and gas exploration and production assets of Union Oil in the
Permian Basin and San Juan Basin. We believe that the transaction will create
substantially greater value and earnings per share than Titan could achieve
alone.
In the merger, Titan stockholders will receive 0.4302314 shares of Pure
Resources' common stock for each share of Titan common stock that they own. As a
result, Titan's current stockholders will own approximately 34.6% of Pure
Resources, and Union Oil will own approximately 65.4%. Pure Resources' common
stock has been approved for listing on the New York Stock Exchange under the
symbol "PRS", subject to consummation of the merger.
Our stockholders will not recognize any gain or loss for U.S. federal
income tax purposes on the exchange of Titan common stock for Pure Resources
common stock, except for taxes on cash received by stockholders for fractional
shares.
The merger requires the approval of the stockholders of Titan. We have
scheduled a special meeting of stockholders on May 24, 2000 to vote on the
merger agreement and the transactions contemplated by it.
YOUR VOTE IS IMPORTANT. Regardless of the number of shares you own or
whether you plan to attend the special meeting, please sign and return the
enclosed proxy to ensure that your shares will be represented at the special
meeting if you are unable to attend. If you do attend the special meeting and
wish to vote in person, you may withdraw your proxy and vote in person. Voting
instructions are inside.
This document contains detailed information about the proposed merger. We
encourage you to read it.
Sincerely,
/s/ Jack D. Hightower
Jack D. Hightower
Chairman, President and Chief Executive Officer
This document constitutes a proxy statement of Titan for use at its special
meeting of Titan stockholders and a prospectus of Pure Resources covering the
shares of Pure Resources common stock to be issued in the merger.
Please see the section entitled "Risk Factors" beginning on page 11 for a
discussion of potential risks involved in the merger and related transactions.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this proxy statement/ prospectus. Any representation to
the contrary is a criminal offense.
- --------------------------------------------------------------------------------
This proxy statement/prospectus is dated April __, 2000 and is first being
mailed to stockholders on or about April 24, 2000.
The information in this preliminary proxy statement/prospectus is not
complete and may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange Commission becomes
effective. This preliminary proxy statement/prospectus is not an offer to sell
these securities nor a solicitation of an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
<PAGE>
TITAN EXPLORATION, INC.
500 West Texas, Suite 200
Midland, Texas 79701
________________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On May 24, 2000
________________________
To the Stockholders of
Titan Exploration, Inc.:
Titan Exploration, Inc. will hold a special meeting of stockholders on May
24, 2000, at 10:00 a.m. (Midland, Texas time) in the Midland Room, Tower Two,
Fasken Center, 550 West Texas, Midland, Texas for the following purposes:
1. To consider and vote upon a proposal to adopt and approve the
agreement and plan of merger dated as of December 13, 1999, as
amended, among Union Oil Company of California, Pure Resources, Inc.
(formerly named Titan Resources Holdings, Inc.), TRH, Inc. and Titan,
and the transactions contemplated by it; and
2. To transact any other business that may properly be presented at the
special meeting or any adjournments of the meeting.
Titan and Union Oil will not complete the merger unless Titan's
stockholders adopt and approve the merger agreement and the transactions
contemplated by it.
Only stockholders of record at the close of business on April 10, 2000 are
entitled to notice of and to vote at the meeting and any adjournments of the
meeting. A list of stockholders entitled to vote at the meeting will be
available for inspection during normal business hours for the ten days before
the meeting at the offices of Titan and at the meeting.
Please complete, date, sign and promptly return your proxy card so that
your shares may be voted in accordance with your wishes and so that the presence
of a quorum may be assured. Giving a proxy does not affect your right to vote in
person if you attend the meeting. You may revoke your proxy at any time before
it is exercised at the meeting.
By Order of the Board of Directors
Susan D. Rowland
Secretary
Midland, Texas
April 19, 2000
Your Vote is Important!
Please read the accompanying
Proxy Statement/Prospectus
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY........................................................................................... 1
The Companies................................................................................ 1
Pure Resources After the Transaction......................................................... 1
The Transaction.............................................................................. 1
Directors and Senior Management of Pure Resources following the Merger....................... 2
Voting....................................................................................... 2
Titan's Recommendation to its Stockholders................................................... 2
The Merger Agreement......................................................................... 3
Other Agreements Relating to the Merger...................................................... 5
Other Information............................................................................ 5
Summary Historical Financial and Other Data of Titan......................................... 6
Summary Historical Financial and Other Data of the Permian Basin Business Unit............... 7
Pure Resources Summary Unaudited Pro Forma Combined Financial and Other Data................. 8
Comparative Per Share Data................................................................... 10
RISK FACTORS...................................................................................... 11
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS........................................ 15
TITAN STOCKHOLDER MEETING AND PROXY SOLICITATION.................................................. 16
Time, Place and Date......................................................................... 16
Purpose...................................................................................... 16
Quorum....................................................................................... 16
Record Date.................................................................................. 16
Recommendation of the Board of Directors..................................................... 16
Votes Required............................................................................... 16
Voting Procedures and Proxies................................................................ 17
Solicitation of Proxies...................................................................... 17
Auditors..................................................................................... 17
THE MERGER........................................................................................ 18
Background of the Merger..................................................................... 18
Titan's Reasons for the Merger............................................................... 22
Opinion of Financial Advisor to Titan........................................................ 24
No Appraisal Rights.......................................................................... 34
Interests of Certain Persons in the Merger................................................... 34
THE MERGER AGREEMENT.............................................................................. 38
General...................................................................................... 38
Contribution of Permian Basin Business Unit.................................................. 38
Closing of the Merger; Effective Time of the Merger; Resulting Company....................... 39
Consideration to be Received in the Merger................................................... 39
Assumption of Titan Stock Options............................................................ 39
Exchange of Shares; Fractional Shares ....................................................... 39
Conditions to the Merger..................................................................... 40
Representations and Warranties............................................................... 41
Certain Covenants............................................................................ 41
Cross Indemnification........................................................................ 43
Tax Matters.................................................................................. 43
Other Acquisition Proposals.................................................................. 44
Termination.................................................................................. 44
Termination Fees............................................................................. 45
Merger Costs; Other Expenses................................................................. 45
Amendment; Extension and Waiver.............................................................. 45
Stock Exchange Listing....................................................................... 45
Ancillary Agreements......................................................................... 45
Stockholder Rights Plan...................................................................... 48
Pure Resources 1999 Incentive Plan........................................................... 48
MARKET PRICE DATA................................................................................. 51
PURE RESOURCES AFTER THE MERGER................................................................... 52
Overview..................................................................................... 52
Oil and Natural Gas Reserves................................................................. 53
Productive Wells and Acreage................................................................. 53
Drilling Activities.......................................................................... 54
Net Production, Unit Prices and Costs........................................................ 55
Hedging...................................................................................... 55
Pure Resources Financing..................................................................... 55
Acquisitions................................................................................. 56
Operating Risks.............................................................................. 56
Government Regulation........................................................................ 56
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF PURE RESOURCES............................... 57
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........................................ 60
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF TITAN........................................... 66
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
OF THE PERMIAN BASIN BUSINESS UNIT........................................................... 67
PERMIAN BASIN BUSINESS UNIT MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................. 69
General...................................................................................... 69
Impact of Commodity Prices................................................................... 69
Year 2000 Issues............................................................................. 69
Impact on Pure Resources of Ancillary Agreements and Severance Arrangements.................. 69
Material Liabilities......................................................................... 70
Basis of Presentation........................................................................ 70
Impairment of Property, Plant and Equipment.................................................. 71
Results of Operations........................................................................ 71
Liquidity and Capital Resources.............................................................. 73
Capital Expenditures......................................................................... 73
Other Matters................................................................................ 74
INFORMATION CONCERNING THE PERMIAN
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
BASIN BUSINESS UNIT............................................................................ 75
General........................................................................................ 75
Oil and Natural Gas Reserves................................................................... 75
Estimates of Oil and Gas Reserve Information................................................... 76
Productive Wells and Acreage................................................................... 77
Drilling Activities............................................................................ 77
Oil and Gas Price Volatility................................................................... 77
Net Production, Unit Prices and Costs.......................................................... 78
Oil and Gas Marketing and Major Customers...................................................... 78
Operating Risks................................................................................ 78
Competition.................................................................................... 78
Title to Properties............................................................................ 79
Governmental Regulation........................................................................ 79
Environmental Matters.......................................................................... 79
Abandonment Costs.............................................................................. 81
Employees...................................................................................... 81
Legal Proceedings.............................................................................. 81
Office Facilities.............................................................................. 81
MANAGEMENT OF PURE RESOURCES AFTER
THE MERGER..................................................................................... 82
Board of Directors and Executive Officers...................................................... 82
Compensation of Directors...................................................................... 84
Executive Compensation......................................................................... 85
Certain Relationships and Related Transactions................................................. 85
BENEFICIAL OWNERSHIP OF TITAN, PURE RESOURCES AND
PURE RESOURCES POST MERGER.................................................................... 86
DESCRIPTION OF PURE RESOURCES CAPITAL
STOCK.......................................................................................... 88
General........................................................................................ 88
Common Stock................................................................................... 88
Preferred Stock................................................................................ 88
Advance Notice Procedure for Stockholder Proposals; Calling of Meeting......................... 88
Special Meetings............................................................................... 89
Pure Resources is Not Subject to Delaware Anti-takeover Provisions............................. 89
Transfer Agent and Registrar................................................................... 89
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....................................................... 90
Material Federal Income Tax Consequences to the Titan Stockholders............................. 90
Limitation on Use of Titan's Net Operating Loss Carryforwards.................................. 91
COMPARISON OF STOCKHOLDER RIGHTS.................................................................... 92
General........................................................................................ 92
Board of Directors............................................................................. 92
Stockholder Action by Written Consent.......................................................... 92
Stockholder Rights Plan........................................................................ 92
Business Combination Statute................................................................... 93
Control by Majority Stockholder................................................................ 93
Authorized Capital............................................................................. 93
LEGAL MATTERS....................................................................................... 93
EXPERTS............................................................................................. 93
STOCKHOLDER PROPOSALS............................................................................... 94
WHERE YOU CAN FIND MORE INFORMATION................................................................. 95
COMMONLY USED OIL AND GAS TERMS..................................................................... 97
INDEX TO FINANCIAL STATEMENTS....................................................................... F-1
</TABLE>
This document incorporates important business and financial information
about Titan that is not included in or delivered with this document.
Stockholders may obtain this information from Titan without charge upon written
or oral request to Titan Exploration, Inc., 500 West Texas, Suite 200, Midland,
Texas 79701, telephone (915) 498-8600, attention William K. White, email:
[email protected].
If you would like to request documents from us, please do so by May 17,
2000 so that you may receive them before the special meeting. If you request any
incorporated documents, we will mail them to you by first class mail or other
equally prompt means as soon as practicable after we receive your request.
ii
<PAGE>
QUESTIONS AND ANSWERS
Q: What is proposed?
A: Titan and Union Oil propose to combine Titan with Union Oil's Permian and
San Juan Basins oil and gas exploration and production business and
properties. The resulting publicly traded company will be called Pure
Resources, Inc., which we refer to in this document as "Pure Resources." If
the Titan stockholders adopt and approve the merger agreement and the
transactions contemplated by it and other conditions are satisfied, current
stockholders of Titan will become stockholders of Pure Resources through
the merger of Pure Resources' wholly-owned subsidiary with Titan. See the
post-merger organizational chart on page 2.
Q: Why is Titan combining with the Permian Basin business unit of Union Oil?
A: The board of directors of Titan believes that the transaction described in
this document is in the best interest of Titan's stockholders. Pure
Resources should benefit from:
. increased financial strength and flexibility;
. an estimated $5 million in annual cost savings going forward;
. improved capital efficiencies;
. a larger, better diversified and more stable asset base; and
. greater human and technological resources.
See page 22 for a more complete discussion of the reasons for the merger.
See page 45 for information concerning the up-front transaction costs of
the merger and related transactions.
Q: What will I receive as a result of the merger?
A: You will be entitled to 0.4302314 shares of Pure Resources common stock for
each share of Titan common stock you own.
Q: What does the Titan board of directors recommend?
A: The board of directors of Titan recommends that Titan's stockholders vote
FOR adoption and approval of the merger agreement and the transactions
contemplated by it.
Q: What do I need to do now?
A: After carefully considering the enclosed information, please indicate how
you want to vote and sign and return your proxy card or voting instruction
card in the enclosed envelope as soon as possible. Your shares will then be
voted at the special meeting in accordance with your instructions.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No. You must instruct your broker how to vote your shares or else your
broker will not vote your shares.
Q: Should I send in my certificates now?
A: No. After the merger is approved, you will receive instructions on how to
exchange your stock certificates of Titan for stock certificates of Pure
Resources.
Q: When do you expect the combination, including the merger, to be completed?
A: We expect the combination to be completed on the day we receive stockholder
approval at the special meeting.
Q: Who can help answer additional questions that I may have?
A: Titan Exploration, Inc.,
Attention: William K. White
(915) 498-8600
Corporate Investor Communications, Inc.:
(800) 559-9284
iii
<PAGE>
SUMMARY
This summary highlights selected information in this document. To better
understand the merger and the related transactions and for a more complete
description of the legal terms, you should carefully read this entire document
and the documents to which we have referred you. See "Where You Can Find More
Information" on page 95. Unless the context suggests otherwise, the descriptions
of Pure Resources in this document refer to that company as if the transactions
contemplated by the merger agreement had already occurred. We have provided
definitions for some of the oil and gas industry terms used in this document
under "Commonly Used Oil and Gas Terms" on page 97 of this document.
The Companies
Titan Exploration, Inc.
Titan is an independent energy company that primarily engages in the
exploration, development, production and acquisition of oil and gas properties.
Titan's oil and gas properties are concentrated in the Permian Basin. Titan's
common stock trades on the Nasdaq Stock Market's National Market under the
symbol "TEXP." Titan's principal offices are located at 500 West Texas, Suite
200, Midland, Texas 79701.
Pure Resources, Inc.
Pure Resources is a wholly-owned subsidiary of Union Oil formed for this
transaction. TRH, Inc. is a wholly-owned subsidiary of Pure Resources that has
been formed to merge into Titan. Union Oil is a wholly-owned subsidiary of
Unocal Corporation ("Unocal").
As a result of this transaction, Pure Resources will acquire substantially
all of Union Oil's Permian Basin and San Juan Basin oil and gas properties and
will own Titan as a wholly-owned subsidiary. In this document we refer to the
business of Union Oil that Pure Resources will acquire in this transaction as
the Permian Basin business unit. After the merger, Pure Resources' principal
offices will be located at 500 West Texas, Suite 200, Midland, Texas 79701.
Pure Resources After the Transaction
Following the transaction, Pure Resources' strategy will be to grow its
reserves, production and net income per share by:
. identifying acquisition opportunities that provide significant
development and exploratory drilling potential,
. exploiting and developing its reserve base,
. pursuing exploration opportunities for oil and gas reserves,
. capitalizing on advanced technology to identify, explore and exploit
projects, and
. emphasizing a low overhead and operating cost structure.
We anticipate that the combined company's capital expenditure budget for
2000 will be approximately $80 million to $100 million.
The Transaction
Contribution of the Permian Basin business unit (see page 38)
Union Oil will contribute its Permian Basin business unit to a subsidiary
of Pure Resources in exchange for 32,708,067 shares of Pure Resources' common
stock and the assumption by the Pure Resources subsidiary of the associated
liabilities simultaneously with the merger.
The merger (see page 18)
Titan common stockholders will receive .4302314 of a share of Pure
Resources common stock for each share of Titan common stock they own. After the
merger, current holders of Titan common stock will own approximately 34.6% of
Pure Resources' stock,
1
<PAGE>
and Union Oil will own the remaining 65.4% of the stock.
Organization after the Merger
Immediately after the merger, the ownership structure of Pure Resources
will be as follows:
[GRAPH APPEARS HERE]
Directors and Senior Management of
Pure Resources following the Merger
The board of directors of Pure Resources will consist of eight directors,
five designated by Union Oil; two by Jack D. Hightower, Titan's Chairman of the
Board, President and Chief Executive Officer, who is currently Titan's largest
stockholder; and one who satisfies the outside director requirements of the New
York Stock Exchange and whom Union Oil and Mr. Hightower agree upon.
Following the merger, Mr. Hightower will be President, Chief Executive
Officer and Chairman of the Board of Pure Resources. Titan's executive staff
will continue in their current capacities with Pure Resources. Pure Resources
has selected the Permian Basin business unit's business manager and another
person with substantial industry experience to be additional officers after the
merger, and it may select additional members of Union Oil's staff in the Permian
Basin to augment Pure Resources' management team.
Voting
Vote required (see page 16)
The merger agreement requires its approval by holders of a majority of the
disinterested shares of Titan common stock actually voted at the special
meeting. For this purpose, disinterested shares includes all shares except those
held by Titan officers.
In addition to the disinterested vote requirement specified in the merger
agreement, Delaware law requires the affirmative vote of holders of a majority
of all outstanding shares of Titan common stock to approve the merger agreement.
Titan officer shares voted for the merger will be counted towards the number of
votes required for approval under Delaware law, a number which will not be
affected by the number of shares actually voted at the meeting.
As of March 31, 2000, the directors and executive officers of Titan and
their affiliates beneficially owned approximately 17.2% of the shares of Titan
common stock entitled to vote, and as of the same date the Titan officers alone
beneficially owned approximately 16.3% of the Titan common stock, in each case
not counting shares subject to options. Jack D. Hightower, who currently
beneficially owns approximately 11.1% of the outstanding Titan common stock, has
agreed with Union Oil to vote his shares in favor of the merger. In addition,
the other executive officers and directors of Titan have advised Titan that they
intend to vote in favor of the merger.
Appraisal rights (see page 34)
The holders of Titan common stock do not have any right to an appraisal of
their shares in connection with the merger.
Titan's Recommendation to its Stockholders
Titan's board of directors believes the merger is in your best interest and
recommends that you vote FOR the adoption and approval of the merger agreement
and the transactions contemplated by it.
2
<PAGE>
Opinion of financial advisor (see Annex A)
In deciding to approve the merger, the board of directors of Titan considered
the opinion of Petrie Parkman & Co., its financial advisor, that as of the date
of its opinion the exchange ratio was fair, from a financial point of view, to
Titan's stockholders.
This opinion is attached as Annex A to this document. We encourage you to read
carefully the opinion, as well as the description of the analysis and
assumptions on which the opinion was based found on page 24.
Interests of officers and directors in the merger (see page 34)
The officers and some of the directors of Titan have interests in the merger
that may be different from, or in addition to, yours. The Titan officers,
including those who are also directors, have agreements, stock options and other
benefit plans that provide them with such interests. The board of Titan was
aware of these interests and considered them in approving the merger.
These interests include:
. Jack D. Hightower, Chairman and Chief Executive Officer of Titan, has
entered into an employment agreement with Pure Resources, to be effective
after the merger, which provides that Mr. Hightower will be President and
Chief Executive Officer of Pure Resources and that he will be entitled to
significant benefits, as summarized on page 35 of this document, if his
employment is terminated following the merger.
. Pure Resources has agreed to enter into new severance arrangements with
each of the other officers of Titan following the merger.
. Mr. Hightower's employment agreement and the officer severance agreements
will entitle the officer to require Pure Resources to purchase his or her
Pure Resources common stock at a price that may be in excess of market
value if the specified events summarized on page 36 of this document occur.
. Pure Resources has granted to the officers of Titan, subject to forfeiture
if the merger does not occur, options to purchase an aggregate of2,385,000
shares of Pure Resources common stock (including 1,300,000 shares to Mr.
Hightower) at a fixed exercise price of $9.30 per share (equivalent to
$4.00 per Titan share), and options to purchase an additional 915,000
shares at a price based on 125% of the market price of the Titan common
stock immediately prior to consummation of the merger. Immediately after
the merger, assuming exercise of all of these options, the shares of Pure
Resources common stock underlying these options would represent
approximately 6.5 % Pure Resources' outstanding common stock.
. Union Oil has agreed with Mr. Hightower to permit him to designate two of
the eight members of the Pure Resources board of directors following the
merger, to let him approve three of the other five directors to be
nominated by Union Oil and to let him participate in choosing an eighth
director with Union Oil.
. Mr. Hightower will be entitled to registration rights following the merger
with respect to his shares of common stock.
. In addition to Mr. Hightower, all of the executive officers of Titan will
become executive officers of Pure Resources following the merger.
. Pursuant to existing agreements with Titan, each executive officer of Titan
will receive a cash payment upon closing of the merger. The approximate
amounts to be paid to each of Titan's named executive officers on closing
of the merger under these existing agreements are $1,200,000 to Mr.
Hightower, $975,000 to Mr. Staley, $1,087,000 to Mr. White, $907,000 to Mr.
Woodard, $910,000 to Mr. Colwell and $909,000 to Mr. Moore.
The Merger Agreement
The merger agreement has been filed with the SEC as an exhibit to the
registration statement of which this document is a part. We encourage you to
read the merger agreement because it is the legal document that governs the
merger. It contains information that may not be included elsewhere in this
document. See "Where You Can Find More Information" on page 95 to find out how
to get a copy of the merger agreement.
3
<PAGE>
Conditions to the merger (see page 40)
In order to complete the merger, a number of customary conditions must be
satisfied, including the following:
. the adoption and approval of the merger agreement and the transactions
contemplated by it by the Titan stockholders;
. the absence of any law or court order prohibiting the merger and the
expiration of applicable regulatory waiting periods;
. the approval of Pure Resources' common stock for listing on a national
securities exchange or its designation as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers;
. the continued accuracy of each company's representations and warranties,
subject to materiality thresholds, and the compliance by each company with
its agreements contained in the merger agreement;
. the receipt by Titan on the closing date of a legal opinion of Thompson &
Knight L.L.P. subject to customary qualifications and assumptions as to the
tax-free qualification of the merger to Titan's stockholders; and
. the receipt by Union Oil and Pure Resources on the closing date of
confirmation of a legal opinion to the effect that, subject to customary
qualifications and assumptions, Union Oil's contribution of assets and
assumption of liabilities by Pure Resources will not result in a taxable
gain or loss to either company.
Either Titan or Union Oil may choose to complete the merger even though a
condition to that company's obligation has not been satisfied, unless it is not
legally permissible to do so. Titan would be required to solicit a new
stockholder vote if Titan's waiver of a condition to its obligations resulted in
a material change in the offering of stock to Titan stockholders in the merger,
such as a material change in the tax consequences to Titan stockholders.
Termination of the merger agreement (see page 44)
Titan and Union Oil can agree to terminate the merger agreement without
completing the merger, even after stockholder approval has been granted. In
addition, either company can terminate the merger agreement on its own without
completing the merger if any of the following occurs:
. the merger is not completed by May 31, 2000, other than due to a breach of
the merger agreement by the party desiring to terminate;
. the stockholders of Titan fail to give the required approvals;
. a court or other governmental authority prohibits the merger;
. the board of directors of Titan determines that proceeding with the merger
would be inconsistent with its fiduciary obligations because of a superior
offer from a third party, after providing Union Oil prior notice and an
opportunity to make a proposal for changes to the terms of the merger
agreement and payment of a $7.5 million termination fee;
. the other party has breached the merger agreement or any of its
representations and warranties in the merger agreement, subject to
materiality thresholds, have become untrue; or
. the board of directors of Titan withdraws or materially changes its
recommendation of the merger to its stockholders, or does not recommend
that Titan stockholders not tender their shares into any third-party tender
or exchange offer for 30% or more of the combined power to vote for
directors.
Termination fee (see page 45)
If the merger agreement is terminated by Titan under specific circumstances
involving a proposed business transaction with a third party, Titan will be
required to pay Union Oil a termination fee of $7.5 million.
No solicitation
Titan and Union Oil have each agreed not to initiate any discussions with
another party regarding a business combination while the merger is pending or to
engage in any such discussions unless, in Titan's case,
4
<PAGE>
required by fiduciary obligations. Union Oil's obligations relate only to its
Permian Basin business unit.
Other Agreements Relating to the Merger
In addition to the merger agreement, the parties have entered into the
following significant agreements in connection with the merger:
. a business opportunities agreement that limits the type and geographic
scope of Pure Resources' permitted business activities after the merger for
as long as Union Oil is a significant stockholder and permits Union Oil to
continue to conduct business activities that may compete with Pure
Resources' business;
. a non-dilution agreement providing that, if Pure Resources issues
additional shares of its common stock after the merger, Union Oil will have
preemptive rights to acquire additional shares to maintain its ownership
percentage;
. a stockholder voting agreement between Union Oil and Mr. Hightower
providing that they will vote their shares of Pure Resources stock to elect
two designees of Mr. Hightower, up to five designees of Union Oil to Pure
Resources' eight-person Board of Directors following the merger and an
additional director agreed upon by Union Oil and Mr. Hightower;
. a registration rights agreement granting Union Oil "demand" and "piggyback"
Securities Act registration rights with respect to its shares of Pure
Resources common stock; and
. agreements providing employment, severance and other benefits to persons
who will be officers of Pure Resources, including those who are currently
officers of Titan.
See pages 34 through 37 and pages 45 through 48 for more information regarding
these agreements.
Other Information
Accounting treatment
The merger will be accounted for as a purchase of Titan by Pure Resources
under the "purchase" method of accounting.
Antitrust compliance related to the merger is complete
Federal antitrust laws apply to the merger. Unocal and Jack D. Hightower,
Titan's largest current stockholder, made the required filings with the
Department of Justice and the Federal Trade Commission. The applicable waiting
period has been terminated.
Per share market price information (see page 51)
Titan's common stock is listed on the Nasdaq Stock Market's National Market.
On December 13, 1999, the last full trading day on the Nasdaq prior to the
public announcement of the proposed merger, Titan common stock closed at $3.88
per share. On April 17, 2000, Titan common stock closed at $4.63 per share.
You should obtain current market quotations for Titan's common stock.
Federal income tax consequences (see page 90)
We have structured the merger so that you will not recognize any gain or loss
for federal income tax purposes as a result of the exchange of Titan common
stock for Pure Resources common stock in the merger, except as a result of
receiving cash instead of fractional shares.
Tax matters are complicated, and the tax consequences of the merger to you
will depend on the facts of your own situation. You should seek tax advice for a
full understanding of the particular tax consequences of the merger. See page 90
of this document for a summary of the material federal income tax consequences
of the merger.
Listing of Pure Resources' common stock
Pure Resources' common stock has been approved for listing on the New York
Stock Exchange, subject to consummation of the merger.
For definitions of oil and gas terms used in this document, see "Commonly Used
Oil and Gas Terms" on page 97.
5
<PAGE>
Summary Historical Financial and Other Data of Titan
The following selected historical consolidated financial and other data for
Titan is only a summary, and you should read it together with the historical
consolidated financial statements and related notes of Titan in the annual
reports and other information that Titan has filed with the SEC and incorporated
by reference. See "Where You Can Find More Information" on page 95.
<TABLE>
<CAPTION>
Period
March 31
(date Of
inception)
Year ended through
December 31, December 31,
--------------------------------------------------- -------------
1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- -------------
(dollars in thousands, except per share and units amounts)
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenues............................... $ 75,717 $ 72,876 $ 73,827 $ 23,824 $ 743
Net loss..................................... $ (8,274) $(47,217) $(33,467) $ (1,403) $ (1,531)
Net loss per share........................... $ (.22) $ (1.22) $ (0.99) $ (0.07) $ (0.11)
Net loss per share - assuming dilution....... $ (.22) $ (1.22) $ (0.99) $ (0.07) $ (0.11)
Cash dividends per share..................... $ -- $ -- $ -- $ -- $ --
Weighted average common shares outstanding... 38,038 38,808 33,942 19,605 14,066
EBITDAX(1)................................... $ 44,918 $ 31,617 $ 46,809 $ 12,923 $ (166)
Capital expenditures......................... $ 45,212 $ 63,235 $114,377 $150,119 $ 43,770
Production (MMcfe)........................... 36,822 41,683 33,385 10,071 425
Average sales price per unit (per Mcfe)...... $ 2.06 $ 1.75 $ 2.21 $ 2.37 $ 1.75
Balance Sheet Data (at period end):
Total assets................................. $268,798 $341,022 $352,583 $207,179 $ 57,487
Long-term obligations........................ $ 90,000 $144,200 $ 85,450 $ 6,500 $ 20,000
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------
(dollars in thousands)
<S> <C>
Proved Reserves:
Oil and Condensate (MBbls)................................ 31,830
Natural gas (MMcf)........................................ 244,705
MMcfe (6 Mcf per Bbl)..................................... 435,685
SEC 10% present value..................................... $ 412,694
Standardized measure of discounted future net cash flows.. $ 333,363
</TABLE>
____________
(1) EBITDAX as used herein is calculated by adding interest expense, income
taxes, depletion, depreciation and amortization, impairment of long-lived
assets, restructuring costs, amortization of stock option awards,
exploration and abandonment costs, and other noncash charges to net income
(loss). EBITDAX is not intended to represent cash flow or any other measure
of performance in accordance with generally accepted accounting principles,
or "GAAP." EBITDAX is included herein because management believes that some
investors find it to be a useful analytical tool. Other companies may
calculate EBITDAX differently, and we cannot assure you that such figures
are comparable with similarly-titled figures for such other companies.
6
<PAGE>
Summary Historical Financial and Other Data of the Permian Basin Business Unit
The following selected historical financial and other data for the Permian
Basin business unit is only a summary, and you should read it together with the
historical financial statements and related notes of the business unit included
in this document.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1999 1998 1997 1996 (1) 1995 (1)
--------- --------- --------- ---------- ----------
(dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenues............................. $114,126 $106,956 $138,248 $144,425 $124,861
Net earnings............................... $ 17,788 $ 5,042 $ 22,173 $ 32,725 $ 21,579
Net settlements with owners................ $ 39,290 $ 5,225 $ 41,406 $ 45,347 $ 8,058
EBITDAX(2)................................. $ 65,443 $ 50,971 $ 81,825 $ 90,035 $ 75,885
Capital expenditures....................... $ 19,427 $ 42,612 $ 23,295 $ 25,092 $ 56,156
Production (MMcfe)......................... 50,853 53,908 52,493 54,995 54,456
Average sales price per unit (per Mcfe).... $ 2.23 $ 1.96 $ 2.63 $ 2.62 $ 2.28
Balance Sheet Data (at period end):
Total assets............................... $294,690 $311,270 $307,826 $329,255 $341,543
Long-term obligations...................... $ -- $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------
Proved Reserves: (dollars in thousands)
<S> <C>
Oil and Condensate (MBbls)................................................... 39,982
Natural gas (MMcf)........................................................... 340,975
MMcfe (6 Mcf per Bbl)........................................................ 580,867
SEC 10% present value........................................................ $ 453,226
Standardized measure of discounted future net cash flows..................... $ 305,091
</TABLE>
________________________
(1) The operating data for 1995 and the balance sheet data for 1996 and 1995
are unaudited.
(2) EBITDAX as used herein is calculated by adding interest expense, income
taxes, depletion, depreciation and amortization, impairment of property,
plant and equipment, exploration expenses and dry hole costs, and other
noncash charges to net earnings. EBITDAX is not intended to represent cash
flow or any other measure of performance in accordance with GAAP. EBITDAX
is included herein because management believes that some investors find it
to be a useful analytical tool. Other companies may calculate EBITDAX
differently, and we cannot assure you that such figures are comparable with
similarly-titled figures for such other companies.
7
<PAGE>
Pure Resources Summary Unaudited Pro Forma Combined Financial and Other Data
We have prepared the following unaudited pro forma information for the
combined company to assist you in your analysis of the financial effects of the
merger. We have prepared the unaudited pro forma information as if the merger
had taken place on December 31, 1999 with respect to the balance sheet data and
as of January 1, 1999 with respect to statement of operations data. The
unaudited pro forma information also reflects the completed sales of selected
operating assets of Titan as if they were sold on January 1, 1999. You should
read this pro forma information together with the unaudited pro forma combined
financial statements and related notes beginning on page 57 of this document.
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------------
(dollars in
thousands, except
per share and
unit data)
Operating Data:
<S> <C>
Total revenues.......................................... $ 186,737
Net income (1).......................................... $ 17,221
Net income per share.................................... $ 0.34
Net income per share -- assuming dilution............... $ 0.33
Net settlements with owner.............................. $ 39,290
Weighted average common shares outstanding.............. 50,000
Production (MMcfe)...................................... 85,986
Average sales price per unit (per Mcfe)................. $ 2.16
EBITDAX(2).............................................. $ 109,084
Balance Sheet Data (at period end):
Total assets............................................ $ 548,481
Long-term debt.......................................... $ 101,610
Common stock subject to repurchase...................... $ 55,995
</TABLE>
______________________
(1) The unaudited pro forma combined statement of operations do not give any
effect to potential cost savings, including for production or general and
administrative costs, which Pure Resources believes will result from the
integration of the operations of the two companies. Management expects to
begin to realize such projected cost savings in the fourth quarter of 2000.
The full annual impact of such projected cost savings is expected to be
achieved in the fiscal year ended December 31, 2001, and is estimated to be
approximately $5 million annually beginning in 2001.
(2) EBITDAX as used herein is calculated by adding interest expense, income
taxes, depletion, depreciation and amortization, impairment of long-lived
assets, restructuring costs, amortization of deferred compensation,
exploration and abandonment costs, and other noncash charges to net income
(loss). EBITDAX is not intended to represent cash flow or any other measure
of performance in accordance with GAAP. EBITDAX is included herein because
management believes that some investors find it to be a useful analytical
tool. Other companies may calculate EBITDAX differently, and we cannot
assure you that such figures are comparable with similarly-titled figures
for such other companies.
8
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------
(dollars in thousands)
Pro Forma Proved Reserves (1):
<S> <C>
Oil and Condensate (MBbls)......................................... 71,812
Natural gas (MMcf)................................................. 585,680
MMcfe (6 Mcf per Bbl).............................................. 1,016,552
SEC 10% present value.............................................. $ 865,920
Standardized measure of discounted future net cash flows........... $ 638,454
</TABLE>
______________________
(1) Represents Pure Resources' pro forma proved reserves as of December 31,
1999, assuming consummation of the merger and Titan's completed dispositions
of selected operating assets.
9
<PAGE>
Comparative Per Share Data
The following table presents historical per share data for Titan,
historical equivalent per share data giving effect to Union Oil's contribution
of the Permian Basin business unit to Pure Resources in exchange for Pure
Resources' assumption of liabilities and issuance of stock, and pro forma per
share data giving effect to the merger and Titan's completed dispositions of
selected operating assets. You should read this table together with the
historical consolidated financial statements of Titan incorporated by reference
in this document, the historical financial statements of the Permian Basin
business unit included in this document and the pro forma financial statements
of Pure Resources included in this document. You should not rely on the pro
forma per share data as being necessarily indicative of future results or actual
results had the merger and Titan's dispositions of selected operating assets
occurred on the dates assumed.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
------------------
Titan Historical
<S> <C>
Book value................................................ $ 4.00
Cash dividends declared................................... --
Loss from continuing operations........................... (.22)
Permian Basin Business Unit Historical(1)
Book value................................................ $ 6.19
Cash dividends declared (2)............................... --
Income from continuing operations......................... .54
Titan Equivalent Pro Forma(3)
Book value................................................ $ 2.67
Cash dividends declared................................... --
Income from continuing operations......................... .15
Pure Resources Pro Forma(4)
Book value................................................ $ 6.20
Cash dividends declared (2)............................... --
Income from continuing operations......................... .34
</TABLE>
_______________________
(1) The historical per share data for the Permian Basin business unit give
effect to Union Oil's contribution of the Permian Basin business unit to
Pure Resources in exchange for the assumption of the related liabilities by
Pure Resources and Pure Resources' issuance of 32,709,067 shares of common
stock to Union Oil.
(2) The Permian Basin business unit had net settlements with its owner (Union
Oil) for 1999 of $39,290,000.
(3) Titan equivalent pro forma amounts have been calculated by multiplying Pure
Resources' pro forma per share information by the exchange ratio of
0.4302314 shares of Pure Resources common stock for each share of Titan
common stock. This information shows the pro forma book value and income
effects of the merger from the perspective of an owner of Titan common
stock.
(4) Pure Resources' pro forma data include the effect of the merger and Titan's
completed dispositions of selected operating assets, all on the basis
described in the notes to the pro forma combined financial statements
included elsewhere in this document.
10
<PAGE>
RISK FACTORS
In deciding whether to adopt and approve the merger agreement and the
transactions contemplated by it, you should consider the following risks related
to the combination of Titan and the Permian Basin business unit and to your
investment in Pure Resources following the merger. You should carefully consider
these risks along with the other information contained in this document and the
documents to which we have referred you.
We may not realize the benefits of integrating Titan with the Permian Basin
business unit.
To be successful after the merger, Pure Resources will need to combine and
integrate the operations of Titan with those of the Permian Basin business unit
in a manner that results in cost savings and other efficiencies. The integration
of operations following the merger will require the time of Pure Resources
management and other personnel, which may distract their attention from day-to-
day business, the development or acquisition of new properties and the pursuit
of other business opportunities. Pure Resources could encounter difficulties in
the integration process, such as the loss of key employees, customers or
suppliers. Unless management is successful in integrating the employees and
assets of Titan and the Permian Basin business unit in a cost-efficient manner
and retaining key personnel following the merger, Pure Resources will not be
able to realize the operating efficiencies and other benefits sought from the
combination. Although the parties expect that there will be annual operating
expense savings of approximately $5 million resulting from the combination of
Titan and the Permian Basin business unit, the combined company expects to incur
approximately $11.6 million of costs related to the merger, including $7.8
million payable under severance and retention bonus agreements.
Pure Resources will be controlled by Union Oil after the merger.
Titan is an independent company, with no single stockholder beneficially
owning more than 11.1% of its outstanding common stock as of March 31, 2000.
After the completion of the merger, Union Oil will own approximately 65.4% of
the outstanding Pure Resources common stock and is not prohibited from acquiring
more. By virtue of its stock ownership, Union Oil will have the power to control
the direction and policies of Pure Resources, the election of a majority of its
directors and the outcome of any matter requiring stockholder approval,
including adopting amendments to Pure Resources' certificate of incorporation
and approving mergers or sales of all or substantially all of Pure Resources'
assets. In addition, agreements entered into in connection with the merger
agreement will enable Union Oil to maintain its position of control. These
include:
. A non-dilution agreement, which provides that if Pure Resources issues
additional shares of common stock after the merger Union Oil will have
preemptive rights to acquire additional securities to maintain its
percentage ownership of Pure Resources, up to 65.4%. This agreement
could make it more difficult for Pure Resources to raise funds through
future offerings of capital stock or to close acquisitions using
equity for payment. Union Oil will be the only Pure Resources
stockholder with preemptive rights.
. A stockholders voting agreement which provides that Union Oil and Mr.
Hightower will vote their shares of Pure Resources to cause two
persons designated by Mr. Hightower and up to six persons designated
by Union Oil to be elected to Pure Resources' board of directors. This
agreement will give Union Oil the power to control the election of a
majority of the directors even if it owns as little as 35% of Pure
Resources' common stock.
Pure Resources has agreed to limit its business activities.
In order to minimize conflicts of interest between Union Oil and Pure
Resources and to permit Union Oil to continue to conduct its business without
undue risk of liability, the parties have entered into a business opportunities
agreement in which Pure Resources has agreed that it has no interest or
expectancy in business opportunities developed by Union Oil in accordance with
standards set forth in the business opportunities agreement. Pure Resources has
also agreed that, without the consent of Union Oil, it will not conduct any
business other than the oil and gas exploration, development and production
business and will not pursue any new business opportunities that are outside of
Kansas, Oklahoma, New Mexico, designated areas of southern and southeastern
Colorado and western Arkansas and onshore Texas other than portions of East
Texas. These restrictions may limit Pure Resources' ability to diversify its
operating base following the merger. Because of Pure Resources' geographic
concentration, any
11
<PAGE>
regional events that increase costs, reduce availability of equipment or
supplies, reduce demand or limit production may impact Pure Resources more than
if its operations were more geographically diversified.
The business opportunities agreement does not affirmatively restrict Union
Oil's business activities, including within the designated areas.
Potential conflicts of interest between Pure Resources and Union Oil may arise.
Conflicts of interest may arise between Pure Resources and Union Oil after
the merger. The interests of Union Oil under contractual arrangements between
Pure Resources and Union Oil described in this document, such as the
registration rights agreement, the non-dilution agreement and the parties'
agreements to indemnify each other with respect to specified matters, will
conflict with the interests of Pure Resources. Other conflicts may arise in the
future if Union Oil and Pure Resources enter into additional contractual
arrangements, which could include agreements relating to marketing of
production, financing, insurance or other matters. Because Union Oil is free to
engage in activities that may be competitive with Pure Resources, conflicts of
interest may arise in acquisitions of oil and gas properties or companies or
other transactions that Union Oil may pursue.
There are no contractual restrictions on Union Oil's ability to dispose of its
shares of Pure Resources common stock.
Although Union Oil has no current plans to dispose of its shares of Pure
Resources common stock, the market price of such shares could drop due to sales
of a large number of shares of Pure Resources capital stock or the perception
that they could occur.
Members of Titan's management, two of whom are directors, and one outside Titan
director may have interests in the merger that conflict with the interests of
other stockholders.
Some members of Titan's management and some directors of Titan have
interests in the merger that may be different from, or in addition to, the
interests of Titan's stockholders generally. The action of these persons may be
motivated in part by their particular interests in the merger. These interests
include the following:
. Under existing severance and retention bonus agreements of Titan, each
executive officer of Titan will receive upon closing of the merger a
cash payment equal to three times his or her annual base salary and
any bonuses or special incentive payments for the preceding twelve
months. The aggregate amount to be paid to all the covered Titan
officers will be approximately $7.8 million.
. Jack D. Hightower, Chairman, Chief Executive Officer and President of
Titan, has entered into an employment agreement with Pure Resources,
to be effective after the merger, which provides that Mr. Hightower
will be Chairman, Chief Executive Officer and President of Pure
Resources and that he will be entitled to the significant severance
and other benefits summarized on page 35 of this document if his
employment is terminated following the merger.
. Pure Resources has agreed to enter into new severance agreements with
each of the other current officers of Titan following the merger. The
agreements will be in a form and on terms approved by the Chief
Executive Officer and the Compensation Committee of the board of
directors of Pure Resources, which terms will be different from the
existing Titan severance and retention bonus agreements.
. Mr. Hightower's employment agreement and the officer severance
agreements will entitle the Titan officers to require Pure Resources
to purchase his or her Pure Resources common stock at a price that may
be in excess of market value if any of the events specified in the
applicable agreement occur. These events are summarized on page 36 of
this document and include termination for cause and a change of
control or Pure Resources or Unocal.
. Each outstanding and unexercised option to purchase a share of Titan
common stock issued under Titan's employee benefit plans will be
assumed by Pure Resources and converted, at the merger exchange ratio,
12
<PAGE>
into an option to purchase shares of Pure Resources common stock and
will, under existing stock option agreements, become fully vested and
immediately exercisable as a result of the merger.
. Mr. Hightower and the other members of management have been granted
options to purchase a total of 3,300,000 shares of Pure Resources
common stock, which options are subject to forfeiture if the merger
does not occur and/or such person does not become an employee of Pure
Resources.
. Mr. Hightower has the right to designate two of the eight members of
the Pure Resources board of directors following the merger, to approve
four of the other five directors to be nominated by Union Oil and to
participate with Union Oil in choosing an eighth director who
satisfies the outside director requirements of the New York Stock
Exchange.
. Mr. Hightower, George G. Staley and Herbert C. Williamson, III,
current members of the Titan board, will be appointed to the Pure
Resources board.
. Mr. Hightower will be entitled to registration rights with respect to
his shares of Pure Resources common stock.
. In addition to Mr. Hightower, all of the other executive officers of
Titan will become executive officers of Pure Resources following the
merger.
See "The Merger - Interests of Certain Persons in the Merger" on page 34
for more information regarding these matters.
Rights granted to Pure Resources officers in connection with the merger may
result in charges to Pure Resources' earnings.
Mr. Hightower's employment agreement and new Pure Resources officer
severance agreements will entitle the initial Pure Resources officers to require
Pure Resources to purchase his or her Pure Resources common stock at a price
that may be in excess of market value if specified events occur. On December 31,
1999, when the trading price of Titan common stock was $5.44 per share, the pro
forma "per share net asset value" of Pure Resources, calculated in accordance
with the agreements, adjusted to a Titan equivalent price, was estimated at
approximately $6.18. On a pro forma basis using a market price of $5.44 per
share, Pure Resources would incur a non-cash expense of approximately $6.8
million per year for three years to amortize the deferred compensation recorded
as a result of these arrangements. The amortization amounts will change
quarterly based on relative changes in the net asset value and market value of
Pure Resources shares. See Note 5 to "Unaudited Pro Forma Combined Financial
Statements of Pure Resources" on page 64.
In the merger, Titan stockholders will receive a fixed number of shares of Pure
Resources common stock, rather than a fixed value.
The exchange ratio is a fixed number and will not be adjusted in the event
of any increases or decreases in the market price of the Titan common stock. As
a result, if the value of Titan common stock increases prior to the merger,
Titan stockholders will still receive only .4302314 of a share of Pure Resources
common stock for each share of Titan common stock.
Relative to Titan, Pure Resources' asset mix will result in increased
sensitivity to changes in oil prices.
The Permian Basin business unit has relatively more oil production and
relatively less gas production than does Titan. Therefore, Pure Resources will
be relatively more sensitive to changes in oil prices and less sensitive to
changes in gas prices than Titan.
13
<PAGE>
Titan has relatively more higher risk properties than will Pure Resources.
Titan has relatively more exploratory oil and gas properties or other
properties with oil and gas reserves categorized as probable, possible or
speculative. These properties have more exploration or development potential,
and may involve higher risk, than more developed properties with proved
reserves. Following the merger, Titan's stockholders will have a smaller
percentage interest in this upside potential and its associated risks.
The size of Pure Resources' property inventory may expose it to increased
liabilities.
Pure Resources will have a significantly greater inventory of oil and gas
properties. This may make it more likely that Pure Resources will be exposed to
environmental claims or other liabilities associated with operations of oil and
gas properties or the marketing of oil and gas. Pure Resources will have an
ongoing obligation to indemnify Union Oil against any environmental claims on
its properties, including those arising prior to the merger and including claims
relating to properties acquired from Union Oil.
14
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Titan and Pure Resources have made forward-looking statements in this
document and in the documents referred to in 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. Among the factors that could cause actual results to differ materially
from expectations are:
. inherent uncertainties in interpreting engineering and reserve or
production data, such as those described under "Information Concerning
the Permian Basin Business Unit - Estimates of Oil and Gas Reserve
Information" on page 76;
. operating hazards, delays or cancellations of drilling operations for a
variety of reasons;
. competition;
. fluctuations and volatility in oil and gas prices;
. our ability to successfully integrate the business and operations of
acquired companies;
. government and environmental regulations;
. increases in our cost of borrowing or inability or unavailability of
capital resources to fund capital expenditures, dependence on key
personnel, changes in general economic conditions and/or in the markets
in which we compete or may, from time to time, compete; and
. other factors including but not limited to those set forth above in
"Risk Factors."
Statements and calculations concerning oil and gas reserves and their
present value also may be deemed to be forward-looking statements in that they
reflect the determination, based on estimates and assumptions, that oil and gas
reserves may be profitably exploited in the future. When used or referred to in
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
events or conditions "will" or "may" occur.
Except for their ongoing obligations to disclose material information as
required by the federal securities laws, Titan and Pure Resources do not have
any intention or obligation to update forward-looking statements after they
distribute this document.
15
<PAGE>
TITAN STOCKHOLDER MEETING AND PROXY SOLICITATION
Time, Place and Date
The special meeting of Titan stockholders will be held on May 24, 2000, at
10:00 a.m. (Midland, Texas time) in the Midland Room, Tower Two, Fasken Center,
550 West Texas, Midland, Texas.
Purpose
The purpose of the Titan special meeting is to consider and vote upon a
proposal to adopt and approve the merger agreement and the transactions
contemplated by it and any other business that may be presented at the meeting.
Quorum
The presence, in person or by proxy, of stockholders holding a majority of
the outstanding shares of common stock entitled to vote at the meeting will
constitute a quorum.
Record Date
Only stockholders of record at the close of business on April 10, 2000, as
shown in Titan's records, are entitled to vote, or to grant proxies to vote, at
the meeting.
Recommendation of the Board of Directors
The Titan board of directors believes that the merger is in your best
interest and recommends that you vote FOR adoption and approval of the merger
agreement and the transactions contemplated by it.
Votes Required
Under Delaware law, the affirmative vote of holders of a majority of the
issued and outstanding shares of Titan common stock is required to approve the
merger agreement and the transactions contemplated by it. The merger agreement
requires, in addition to the vote required by Delaware law, the approval by
holders of a majority of shares of Titan common stock actually voting for or
against the merger at the special meeting, other than officers of Titan.
Adoption and approval of the merger agreement and the transactions contemplated
by it will constitute approval of each aspect of the transactions contemplated
by the merger agreement. Approval of the merger by the holders of Titan common
stock is a condition to the consummation of the merger. Titan will appoint an
inspector of election to tabulate all votes and to certify the results of all
matters voted upon at the meeting. Titan anticipates that the inspector of
election will be a representative of Titan's transfer agent, First Union
National Bank, or an officer of Titan.
As of the record date, there were 40,189,843 shares of Titan common stock
outstanding.
If you hold your Titan 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.
"Broker nonvotes" are shares present at the meeting for which a broker or
nominee has no discretionary authority to vote on a particular matter and has
not received instructions from the beneficial owner as to how that owner wishes
the shares to be voted. Your broker may not vote your shares on the merger
absent instructions from you. Without your voting instructions, a broker nonvote
will occur on those proposals. Abstentions and broker nonvotes will have same
effect as votes cast against the merger for purposes of the Delaware law voting
requirement. However, the parties have agreed that abstentions and broker
nonvotes will have no effect on the additional voting requirement specified in
the merger agreement.
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Voting Procedures and Proxies
Voting by Holders of Common Stock; Revocation. Each share of Titan common
stock is entitled to one vote at the meeting. Using the enclosed proxy card,
you may authorize the voting of your shares of Titan common stock at the
meeting. Each proxy that is properly signed, dated and returned to Titan in time
for the meeting, and not revoked, will be voted in accordance with the
instructions contained in that proxy. If no instructions are given, properly
completed and returned proxies will be voted for approval and adoption of the
merger agreement and the transactions contemplated by it. A proxy may be revoked
at any time prior to its exercise by delivering a written notice of revocation
or a later dated proxy to the corporate secretary of Titan. In addition, you may
revoke your proxy and vote in person. Your presence without voting at the
meeting will not automatically revoke your proxy, and any revocation during the
meeting will not affect votes previously taken.
Validity. The inspectors of election will determine all questions as to the
validity, form, eligibility and acceptance of proxy cards. Their determination
will be final and binding. The board of directors of Titan has the right to
waive any irregularities or conditions as to the manner of voting. Titan may
accept your proxy by any form of communication permitted by Delaware law so long
as Titan is reasonably assured that the communication is authorized by you.
Other Business; Adjournments. Titan is not currently aware of any other
business to be acted upon at the meeting. If, however, other matters are
properly brought before the meeting, or any adjourned meeting, your proxies will
have discretion to vote or act on those matters according to their best
judgment, including to adjourn the meeting. Adjournments may be made for the
purpose of, among other things, soliciting additional proxies. Any adjournment
may be made from time to time by approval of the holders of shares representing
a majority of the votes present in person or by proxy at the meeting, without
further notice other than by an announcement made at the meeting.
Solicitation of Proxies
The accompanying proxy is being solicited on behalf of the board of directors
of Titan. Titan will bear the expenses of preparing, printing and mailing
proxies and the materials used in the solicitation unless the merger agreement
is terminated, in which case Union Oil will pay one-half of those expenses.
Titan has retained Corporate Investor Communications, Inc. to aid in
solicitation of proxies, for a fee of less than $10,000 and reimbursement of
out-of- pocket expenses. Directors, officers and employees of Titan, who will
not receive additional compensation for doing so, may also solicit proxies by
personal interview, telephone and telegram. Titan may arrange for brokerage
houses and other custodians, nominees and fiduciaries to forward proxy materials
to beneficial owners of Titan shares they hold, and will reimburse them for
reasonable expenses.
Auditors
KPMG LLP has served as the independent auditors of Titan since Titan
Exploration Inc.'s formation on September 30, 1996 and of Titan's predecessors
since they began operations in March 1995. Representatives of KPMG LLP plan to
attend the meeting and will be available to answer questions. The
representatives may make a statement at the meeting if they desire, although
Titan does not expect them to do so.
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THE MERGER
This section describes the proposed merger. While we believe that the
description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information that is
important to you. You should read this entire document and the other documents
we refer to carefully for a more complete understanding of the merger. In
addition, we incorporate important by reference business and financial
information about Titan into this document. You may obtain the information
incorporated by reference into this document without charge by following the
instructions in the section entitled "Where You Can Find More Information" on
page 95 of this document.
Background of the Merger
Since its inception, Titan has considered the possibility of entering into
strategic merger and acquisition transactions with other oil and gas exploration
and production companies and has always been interested in other companies'
Permian Basin assets. Titan regularly engages in discussions relating to
potential acquisitions of oil and gas properties.
In late fall 1998, Jack D. Hightower, Titan's Chairman and Chief Executive
Officer, and William K. White, Titan's Chief Financial Officer, met with Jack
Schanck, then a Union Oil Group Vice President and President of its Spirit
Energy 76 lower 48 business unit, based in Sugar Land, Texas. Mr. Hightower
wanted to introduce himself to Mr. Schanck and regarded the meeting as part of
his routine communications with owners and managers of Permian Basin assets. As
is his practice in those communications, Mr. Hightower inquired whether Union
Oil had any interest in selling any of its Permian Basin assets, particularly
its interest in the Dollarhide Field. Mr. Schanck indicated that Unocal might
consider selling some of those assets in the future. Mr. Schanck indicated
interest in continuing conversations and said that he would contact Mr.
Hightower in early 1999.
In March 1999, Mr. Hightower contacted Mr. Schanck's successor, John T.
Donohue, to again introduce himself as part of his routine communications with
owners and managers of Permian Basin assets and to review his conversation with
Mr. Schanck.
In early April 1999, Mr. Hightower contacted Mr. Donohue to ask if Union
Oil was interested in Titan's offshore properties. As one transaction
possibility, Mr. Hightower proposed a trade of some of Union Oil's assets
including Dollarhide Field in the Permian Basin for Titan's offshore properties.
Mr. Donohue said that Union Oil was not interested in the offshore properties.
Titan subsequently sold the offshore properties to Coastal Oil & Gas
Corporation. In the April call, Mr. Donohue indicated that Union Oil was
unlikely to sell its Permian Basin assets, but wanted to stay in touch.
On July 13, 1999, in Houston, Messrs. Hightower and White met with
representatives of Donaldson, Lufkin & Jenrette ("DLJ"), an investment bank that
Union Oil asked to contact Titan and later engaged for advice in this
transaction, and discussed the Permian Basin assets of Titan and Union Oil and
possible transactions between the two companies, including Titan's acquisition
of all or a part Union Oil's Permian Basin assets, Union Oil's acquisition of
all or part of Titan's assets, or a combination or joint venture of the
companies' Permian Basin assets. DLJ encouraged Titan to meet with Union Oil,
review one another's Permian Basin assets and determine whether any possible
transactions merited further discussion. Union Oil had asked DLJ to meet with
Titan because of Union Oil's interest in possible transactions with Titan.
On July 19, a DLJ representative told Mr. Hightower by phone that Timothy
H. Ling, Unocal's Chief Financial Officer and Executive Vice President, North
American Energy Operations, was interested in meeting with Mr. Hightower and
that the DLJ representative would arrange a meeting.
On August 10, in Sugar Land, Messrs. Hightower and White, with Dan P.
Colwell, Titan's Vice President, Land, met with Mr. Ling and Phil Ballard, Union
Oil's Manager, Business Development, and representatives of DLJ. Mr. Hightower
made a presentation regarding Titan's assets and addressed the possible
combination of Titan with the Permian Basin business unit. The parties engaged
in a very broad discussion to determine if they had a common interest in
proceeding further. They talked about their business goals in the Permian Basin,
the acquisition, development and exploration opportunities for the two companies
in the basin, plans for their assets in the basin and
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what each might do with the other's assets. In this meeting, the range of
possible transactions included Titan buying all or part of the Permian Basin
business unit for cash and/or stock, Titan selling all or part of its assets for
cash and/or stock, Titan and the Permian Basin business unit merging and Titan
and the Permian Basin business unit entering a joint venture. The parties
concluded the meeting considering how the two companies might proceed with more
in-depth reviews of one another's assets, with the full range of possible
transactions in mind. Titan's approach at this point was to proceed with
reciprocal reviews before narrowing the nature of the possible transaction.
On August 23, Union Oil signed a confidentiality agreement relating to
information about Titan.
On August 26, Messrs. Hightower and White met with Mr. Ballard and a DLJ
representative to continue discussions of a possible transaction. In this
meeting, Union Oil queried whether Titan would sell its assets --perhaps only
selected fields -- for cash, if Union Oil were more disposed to proceed with
that form of transaction than others in the range of transactions touched upon
in earlier contacts. Titan responded that a liquidation of assets for cash
presented tax obstacles for Titan, and Titan would prefer to consider a sale of
selected assets or a combination rather than a sale of all assets.
Following almost a month without significant contact between senior
executives, Mr. Hightower and Mr. Ling had phone conversations between September
21 and 23 in which they decided that Titan and Union Oil would continue
discussions of a combination between Titan and the Permian Basin business unit.
Mr. Ling indicated that Union Oil might consider a combination, but that pursuit
of a combination required a much greater level of involvement and due diligence
between the parties. The companies needed to determine whether they shared a
philosophy of growth and investment.
On September 24, in Houston, Mr. Hightower and Mr. Ling met to discuss
whether Titan and Union Oil shared a similar philosophy relative to the growth
and investment necessary to build a successful exploration and production
company. Each company believed that its Permian Basin assets have significant
undervalued potential and was unwilling to dispose of them for cash in the
current market. Union Oil was interested in Titan's Permian Basin focus and the
skill and entrepreneurship of its management. While Union Oil was unprepared to
sell its Permian Basin assets, it was concerned that the assets received less
attention within Union Oil than they merit, because of the company's many other
priorities.
On September 29, Mr. Hightower and Mr. Ling spoke by phone, agreeing that
it would make good sense to talk about a combination between Titan and the
Permian Basin business unit and scheduled a meeting in Los Angeles for October
1.
On October 1, in Los Angeles, Mr. Hightower met with Mr. Ling, Roger C.
Beach, Unocal's Chairman and Chief Executive Officer, and Charles R. Williamson,
Unocal's Executive Vice President, International Energy Operations. Mr.
Hightower presented what he believed would be the advantages of combining Titan
and the Permian Basin business unit, citing, among other items, the Permian
Basin focus of Titan's management team, Titan's smaller company efficiency and
entrepreneurship, the improved positioning of a combination for making
acquisitions in the basin and efficiencies resulting from economies of scale.
The executives again examined whether the two companies shared a philosophy of
how to grow an exploration and production company. Union Oil emphasized that it
would be interested in a combination only if Titan's management team remained in
place. The Union Oil executives also noted that their company's Permian Basin
assets had a significantly greater aggregate value, which would result in Union
Oil's having control in any combination. Mr. Hightower reflected that any
control would have to be fashioned to permit Titan's management sufficient
autonomy to preserve its entrepreneurial spirit and flexibility. At the Unocal
executives' request, Mr. Hightower also met with Joseph A. Householder, then
Unocal's Vice President, Corporate Development and Assistant Chief Financial
Officer.
On October 6, Mr. Ling called Mr. Hightower to say that the October 1
meeting had gone well and that Union Oil desired to continue discussions.
On October 11, Titan's board met by phone. Mr. Hightower reviewed his
preliminary discussions over the previous weeks with Union Oil and presented
management's initial analysis of the net asset value, exploration potential and
other business prospects of the Permian Basin business unit. Further, Mr.
Hightower, recommended that
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the board approve the engagement of Petrie Parkman to act as Titan's financial
advisor. The board approved proceeding with discussions and negotiations with
Union Oil and the engagement of Petrie Parkman.
On October 11, Titan signed a confidentiality agreement relating to
information about Union Oil.
On October 12, in Midland, Texas, Messrs. Householder and Ballard, with
Gary Dupriest, Vice President of the Permian Basin business unit, met with Mr.
Hightower and other members of Titan's management and counsel. Mr. Dupriest made
a presentation regarding the Permian Basin business unit's assets in more detail
than previously provided to Titan. With Titan's counsel present, the parties
discussed the process of due diligence, other organizational matters and a
proposed structure for the transaction. At this point, the parties contemplated
a transaction in which Titan would acquire the business unit's assets in
exchange for Titan common stock.
On October 18, Titan engaged Petrie Parkman as its financial advisor.
On October 26, Titan and Union Oil agreed to procedures regarding their
jointly approaching a seller that had proposed to auction a group of producing
assets to industry participants. Early in the new year, Titan, Union Oil and a
third company submitted a joint bid for the assets, but the seller accepted
another party's bid.
During the month of October, there were numerous phone calls and meetings
to address due diligence among Mr. Hightower, other members of Titan's
management, representatives of Petrie Parkman and Messrs. Householder and
Ballard and other Union Oil employees. On October 22, Mr. Hightower spoke twice
to Mr. Ling. In the course of these calls and meetings, Mr. Hightower and the
Unocal representatives discussed the relative valuation of Titan and the Permian
Basin business unit, reviewing proved reserves, probable, possible and
exploratory opportunities and acquisition opportunities. From these
communications, the parties came to believe that they were within a range of
relative valuation that would permit them to proceed with discussions.
In the latter part of October, in meetings with Petrie Parkman and Titan's
counsel, Titan's management developed a set of proposed terms to be reviewed and
considered by Titan's board, and then, if acceptable to the board, to be
discussed with Union Oil. The proposed terms contemplated that Titan would
acquire the Permian Basin business unit's assets in exchange for a controlling
amount of Titan common stock. The terms included transfer restrictions with
respect to Titan common stock that would be issued to Union Oil; a voting
agreement between Mr. Hightower and Union Oil relating to board representation;
a standstill by Union Oil in which it would agree not to increase its percentage
ownership in Titan after the transaction; registration rights for Union Oil;
corporate governance provisions; employment and severance arrangements;
management stock options; and a right by Mr. Hightower to require the repurchase
of his stock or to compel an auction of the company. Thus, the following
ancillary agreements had their origin in these proposed terms: the stockholder
voting agreement, the registration rights agreement and the agreements providing
employment, severance and other benefits to the officers of Pure. The proposed
terms contemplated that the combination would be considered a "change of
control" of Titan in accordance with the provisions of the Titan Stock Plan
dated September 30, 1996, the Titan 1996 Incentive Plan adopted October 1, 1996
and the Severance and Retention Bonus Agreements approved by a unanimous vote of
disinterested directors at a Titan board meeting on June 10, 1999. As a
consequence of a change of control under these agreements, the vesting of
outstanding stock options would accelerate and officers would receive cash
payments.
On October 31, Titan's board met by phone. Titan's counsel participated in
the meeting and reviewed the duties of directors. Petrie Parkman addressed the
status of its review of the Permian Basin business unit and Titan. Mr. Hightower
updated the board as to the discussions of the potential transaction and
described the terms to be considered for presentation to Union Oil for
discussion. The board approved proceeding with negotiations with Union Oil on
the basis of the proposed terms.
On November 1 and 2, in Los Angeles, Messrs. Hightower and White, with
Susan D. Rowland, Titan's Vice President, Administration and Corporate
Secretary, met with Messrs. Ling, Householder and Ballard to present for
discussion the preliminary terms approved by Titan's board. Union Oil introduced
the basic concept of a business opportunities agreement, the ancillary agreement
that would limit the type and geographic scope of Titan's permitted business
activities and permit Union Oil to conduct competing business activities. In the
days following the meeting in Los Angeles, the parties exchanged communications,
including Union Oil's outline of a proposal for a non-dilution agreement, the
ancillary agreement providing that, if Titan issued additional shares of its
common stock after
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the transaction, Union Oil would have preemptive rights to acquire additional
shares to maintain its ownership percentage.
On November 9 and 10 in Los Angeles, Messrs. Hightower and White and Ms.
Rowland, with counsel to Titan, met again with Messrs. Ling, Householder and
Ballard, with internal Union Oil counsel, to negotiate the terms of the
potential combination of Titan and the Permian Basin business unit. Union Oil
refused to agree to transfer restrictions and a standstill or an auction
provision. Union Oil emphasized the significant value of the assets that it was
contributing to the combination and made clear that it would not make that
contribution if it did not control the combined entity. The parties progressed
in their discussions of a business opportunities agreement and a non-dilution
agreement. With respect to the business opportunities agreement, Union Oil
emphasized that a critical aspect of its interest in combining with Titan was
the geographic focus of Titan and its management and that an agreement would
preserve that focus. Union Oil was also concerned that its board designees and
the company itself, as a controlling shareholder of the combined entity, could
face unintended liability to the entity's other shareholders with respect to
Union Oil's worldwide operations. Union Oil asserted that a business
opportunities agreement presented a practical solution to this concern and was
unwilling to proceed in discussions unless such an agreement was part of them.
The parties addressed the need to retain Titan's management in the combined
entity through employment and severance arrangements. On November 10, Mr.
Hightower spoke by phone with Mr. Beach about the combination of Titan and the
Permian Basin business unit and the progress of Titan's discussions with Union
Oil's negotiation team. Mr. Hightower expressed optimism about reaching an
agreement.
Throughout the month of November there were numerous communications between
Mr. Hightower and Messrs. Ling, Householder and Ballard to discuss various
aspects of the potential transaction. In the course of these communications,
Union Oil proposed that the structure of the transaction be revised from Titan's
acquisition of the Permian Basin business unit to the form of the merger
contemplated in this proxy statement. Union Oil and Titan also discussed a
break-up fee, corporate governance issues, management compensation and
management and employee benefits and severance, including Mr. Hightower's
employment agreement and the terms under which he and other officers would be
entitled to require the combined company to purchase their shares of stock in
the company. Mr. Hightower and Messrs. Ling and Householder, in the course of
these conversations, discussed the relative valuation of Titan and the business
unit, reviewing proved reserves, probable and possible opportunities,
acquisition opportunities, and narrowed discussion of the exchange ratio. During
the month each company and its financial advisors also conducted engineering,
environmental, financial and accounting due diligence relating to the assets.
On November 22 and 23, counsel for Titan distributed to Union Oil and its
counsel drafts of a merger agreement, a business opportunities agreement, a non-
dilution agreement and a stockholder voting agreement.
On November 26, Titan's board met by phone to discuss the status of the
potential transaction. Mr. Hightower updated the board on the status of the
negotiations, noting that the parties had reached agreement on the basic outline
of the transaction, including a preliminary working understanding as to the
exchange ratio. Counsel to Titan and Petrie Parkman participated. Among the
other points in the basic outline, the board considered the proposed business
opportunities agreement. The Board considered Union Oil's reasons for the
agreement and its position that a combination was not possible without such an
agreement. The Board noted that the limitations of the agreement were aligned
with Titan's existing geographic focus. The board directed management to proceed
with negotiations.
On December 1 and 2, in Houston, and on December 5 and 6, in Dallas, Mr.
Hightower and other members of Titan's management, with counsel, met with Mr.
Ballard and counsel to Union Oil, to negotiate drafts of the merger agreement
and related agreements that had been prepared by Titan's counsel. The matters
negotiated included the scope of the assets to be contributed and the
liabilities to be assumed, representations and warranties, covenants, the scope
of post-closing indemnification, the fiduciary out provisions and related break-
up fees, the geographic area in which the new company would operate under the
business opportunities agreement, the date after which operations of the
business unit would be for the account of Pure Resources, and management and
employee benefits and severance, including Mr. Hightower's employment agreement
and the terms under which he and other officers would be entitled to require the
combined company to purchase their shares of stock in the company. Union Oil had
also proposed that the new company enter into a marketing agreement with Unocal
Energy Trading. Titan rejected this proposal. The parties also addressed
remaining engineering, accounting and environmental due diligence. In the days
following the meeting in Dallas, the parties continued to negotiate final terms
of the merger agreement and related agreements and clarified due diligence
issues in numerous phone calls.
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On December 8, Unocal's board authorized its management to finalize the
combination and sign the merger agreement.
On December 13, in Midland, Titan's board met. Mr. Hightower, with Titan's
counsel, reviewed the terms of the merger agreement and each of the related
agreements. In addition, Mr. Hightower reviewed the matters related to the
merger in which Mr. Hightower and other members of management had interests that
may be said to be different from or in addition to the interests of Titan's
stockholders. Petrie Parkman delivered its opinion that, as of the date of such
opinion the exchange ratio contemplated by the merger agreement was fair from a
financial point of view to Titan's stockholders. After discussion and
consideration, the Titan board, including Mr. Hightower and Mr. Staley,
unanimously approved the merger agreement and related agreements, and the merger
and other transactions the documents contemplate. In light of the interests of
two of the four directors, Mr. Hightower and Mr. Staley, in the merger, the
board required that the merger be approved by a majority of shares of Titan
common stock actually voted for or against the merger at the special meeting,
other than shares held by officers of Titan. As of December 13, 1999, Mr.
Hightower, Mr. Staley and other officers of the Company, held approximately
17.1% of the Titan common stock.
In the evening of December 13, 1999, following approval of Titan's board,
Titan and Union Oil signed the merger agreement and the related agreements and
issued a joint press release announcing the agreement to merge.
In early 2000, during the course of its application for listing on the New
York Stock Exchange, the exchange informed Pure Resources that the exchange
would require Pure Resources to have an additional outside director prior to
listing. On April 10, 2000, Pure Resources, Union Oil and Mr. Hightower amended
and restated the stockholder voting agreement to contemplate an eighth Pure
Resources director, who would satisfy the outside director requirements of the
exchange. The references to the stockholder voting agreement in this document
are to the agreement as so amended and restated.
On April 14, 2000, the parties to the merger agreement signed an amendment
to the merger agreement to correct the dates recited in the agreement for the
Titan and Union Oil confidentiality agreements, clarify the vote required for
the merger and correct an exhibit to the agreement. The references to the merger
agreement in this document are to the agreement as so amended.
As of April 17, 2000, Pure Resources' board of directors adopted the Pure
Resources Equity Plan for Outside Directors to be effective upon consummation of
the merger in order to provide that part or all of the annual $30,000 fee to be
paid to Pure Resources' outside directors after the merger would be paid in Pure
Resources common stock at market prices rather than cash. Union Oil, as sole
stockholder of Pure Resources, approved the plan as of the same day. The parties
to the merger agreement had originally contemplated that after the merger the
Pure Resources outside director fee would be paid all in cash. In early April
2000 the parties agreed to put the plan in place to provide for partial stock
compensation to the outside directors. The parties believed that the plan would
encourage greater involvement and higher performance by the outside directors by
providing them with a more direct interest in the company's attainment of its
financial and performance goals. The Titan board of directors did not consider
this post-merger outside director compensation issue of Pure Resources, in its
determination of fairness of the merger or otherwise.
Titan's Reasons for the Merger
At its December 13, 1999 meeting, the Titan board of directors determined
the merger to be advisable and unanimously approved the merger agreement and the
related transactions. All the directors were present at the meeting and voted in
favor of the merger.
The Titan board believes that the merger agreement and the terms of the
merger are fair to and in the best interests of Titan and the Titan
stockholders. Therefore, the Titan board recommends that the stockholders of
Titan vote FOR approval and adoption of the merger agreement and the
transactions contemplated by it.
In reaching its recommendation, the Titan board consulted with Titan's
management, as well as its financial and legal advisors, and considered the
following material factors:
. The board considered the estimated proved reserves, exploratory and
development prospects and long-term debt that Pure Resources would
have on a pro forma basis.
. By combining complementary operations in the Permian Basin, many
duplicative administrative and operating functions can be eliminated,
so that Titan stockholders will have the opportunity to benefit from a
larger asset base without the incremental general and administrative
costs.
. Pure Resources' concentration in the Permian Basin will position it
for making acquisitions in any future consolidation of assets in the
basin. The limitations on Pure Resources' geographic scope of
operations under an ancillary agreement with Union Oil do not apply to
operations in the Permian Basin.
. Pure Resources will benefit from Titan's senior management's
experience in the Permian and San Juan Basins and onshore Gulf Coast
of Texas. This team's experience will be augmented by that of other
officers and operating personnel from Union Oil or elsewhere. Further,
a larger enterprise may be better able to attract and retain
management, operating and technical personnel.
. Titan has relatively low levels of debt, and the Permian Basin
business unit has no debt. The new company will start with a strong
balance sheet and should have greater access to capital than Titan,
lower costs of capital, increased flexibility in capital allocation
and increased ability to withstand fluctuations in commodity prices.
. Pure Resources' greater discretionary cash flow will enhance its
ability to grow reserves through exploration and development using
internally generated funds and will position the new company to
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pursue more aggressively large, high impact transactions without
excessive risk to the new company's balance sheet.
. The merger will create a larger, more competitive company that will
have advantages of scale in acquisitions, exploration, development,
production, engineering and technology. Pure Resources will be better
equipped to meet the challenges of the increasingly competitive oil
and gas industry.
. The merger permits Titan stockholders to continue to own an interest
in Pure Resources and to benefit from its enhanced prospects.
. The increases in the size of Pure Resources' operations, cash flow and
SEC 10% present value may result in improvements in the trading
characteristics of the new company's stock.
. The Union Oil properties have attractive similarities to Titan's
properties. They present a high level of operational control, a
concentration of reserves and a long life nature.
. The board received an opinion of Petrie Parkman that as of the date of
the board meeting the exchange ratio, subject to the assumptions and
limitations set forth in the opinion, was fair from a financial point
of view to Titan's stockholders. A copy of the opinion is included as
Annex A and should be read carefully.
In reaching the decision to recommend the merger to its stockholders, the
Titan board also considered a number of additional factors, including:
. its discussions with Titan's management concerning the results of
Titan's investigation of the Permian Basin business unit assets;
. the price and market history of Titan common stock;
. the strategic, operational and financial opportunities available to
Titan in the normal course of its business compared to those that
might be available following the merger; and
. the proposed structure of the transaction and the other terms of the
merger agreement and related agreements.
The Titan board also considered some risks and potential disadvantages
associated with the merger, including:
. the risk that the operations of the two companies may not be
successfully integrated;
. the risk that anticipated cost savings may not be realized to the
degree anticipated;
. the risk that the merger might not be completed as a result of a
failure to satisfy the conditions to the merger agreement;
. Pure Resources would be controlled by Union Oil after the merger;
. Pure Resources would agree to limit its business activities after the
merger, limiting its ability to diversify its assets base, and because
of geographic concentration, exposing it to greater impact from
regional events that increase costs, reduce availability of equipment
or supplies, reduce demand or limit production more than if operations
were more geographically diversified; and
. other matters described under "Risk Factors."
In the judgment of the Titan board, the potential benefits of the merger
outweigh these considerations. The foregoing discussion of the information and
factors that were given weight by the Titan board is not intended to be
exhaustive, but it is believed to include all material factors considered by the
Titan board.
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In view of the variety of factors considered in connection with its
evaluation of the proposed merger and the terms of the merger agreement, the
Titan board did not believe it was practicable to quantify or assign relative
weights to the factors considered in reaching its conclusion. In addition,
individual Titan directors may have given different weights to different
factors.
In considering the recommendation of the Titan board with respect to the
merger, you should be aware that some officers and directors of Titan have
interests in the merger that may be different from, or in addition to, the
interests of Titan stockholders generally. The Titan board was aware of these
interests and considered them in approving the merger and merger agreement.
Please refer to "The Merger - Interests of Certain Persons in the Merger" for
more information about these interests.
Opinion of Financial Advisor to Titan
Titan engaged Petrie Parkman as its financial advisor in October 1999 to
provide advisory and investment banking services in connection with possible
transactions involving Titan and various assets and subsidiaries of Union Oil.
On December 13, 1999, Petrie Parkman rendered to the Titan board its oral
opinion that, as of that date and based upon and subject to the matters set
forth in its opinion, the merger exchange ratio was fair from a financial point
of view to the holders of Titan common stock. The opinion was subsequently
confirmed in writing. Titan did not impose any limitations upon Petrie Parkman
with respect to the investigations made or procedures followed by Petrie Parkman
in rendering its opinion.
Under the terms of the engagement letter between Petrie Parkman and Titan
dated as of October 18, 1999, Titan (i) paid Petrie Parkman a financial advisory
fee of $100,000, and (ii) has agreed to pay Petrie Parkman an additional fee of
$1,150,000 upon successful completion of the merger. Whether or not a
transaction is consummated, Titan has also agreed to reimburse Petrie Parkman
for its out-of-pocket expenses related to this assignment, including fees and
expenses of counsel, and to indemnify Petrie Parkman and related persons against
liabilities relating to or arising out of its engagement, including liabilities
under federal securities laws.
Attached to this document as Annex A and incorporated in this document by
reference is the full text of Petrie Parkman's opinion dated December 13, 1999,
which contains a description of the assumptions made, the matters considered by
Petrie Parkman and the limits of its review. Petrie Parkman has consented to the
use of its opinion in this document. Titan stockholders are encouraged to read
the opinion carefully and in its entirety. Petrie Parkman's opinion was provided
to the Titan board for its information and addresses only the fairness from a
financial point of view of the exchange ratio to the holders of Titan common
stock. Petrie Parkman's opinion does not address the merits of the underlying
decision by Titan to engage in the merger and does not constitute a
recommendation to any holder of Titan common stock as to how that holder should
vote at the Titan special meeting. Petrie Parkman's opinion and its presentation
to the Titan board on December 13, 1999 were among many factors taken into
consideration by the Titan board in making its determination to approve and
recommend the merger as contemplated in the merger agreement.
In arriving at its opinion, Petrie Parkman, among other things:
. reviewed publicly available business and financial information relating
to Titan, including (a) its Annual Report on Form 10-K and related
audited financial statements for the fiscal year ended December 31, 1998,
and (b) the unaudited financial statements for the fiscal quarters ended
March 31, 1998, June 30, 1998, September 30, 1998, March 31, 1999, June
30, 1999, and September 30, 1999;
. reviewed estimates of Titan's reserves, including (a) estimates of proved
oil and gas reserves prepared by Williamson Petroleum Consultants, Inc.
as of December 31, 1998, (b) preliminary estimates of proved oil and gas
reserves prepared by the management and staff of Titan as of January 1,
2000, and (c) preliminary estimates of additional oil and gas reserves
(reserves not classified as proved) prepared by the management and staff
of Titan as of January 1, 2000;
. reviewed business and financial information relating to the Permian Basin
business unit, including (a) a draft, dated December 8, 1999, of the
unaudited financial statements for the fiscal years ended
24
<PAGE>
December 31, 1996, 1997 and 1998, and (b) a draft, dated December 8,
1999, of the unaudited financial statements for the nine months ended
September 30, 1998 and 1999;
. reviewed estimates of the Permian Basin business unit's reserves,
including (a) preliminary estimates of proved oil and gas reserves
prepared by the managements and staffs of Titan and the Permian Basin
business unit as of January 1, 2000, and (b) preliminary estimates of
additional oil and gas reserves (reserves not classified as proved)
prepared by the managements and staffs of Titan and the Permian Basin
business unit as of January 1, 2000;
. analyzed selected historical and projected financial and operating data
of Titan and the Permian Basin business unit following the merger
prepared by the management of Titan;
. discussed the current and projected operations and prospects of Titan and
the Permian Basin business unit, including estimates of potential cost
savings and other potential synergies expected to result from the merger,
with the managements and operating staffs of Titan and the Permian Basin
business unit, respectively;
. reviewed the historical trading history of the Titan common stock;
. compared recent stock market capitalization indicators for Titan with the
recent stock market capitalization indicators for selected publicly
traded companies;
. compared the financial terms of the merger with the financial terms of
selected transactions that Petrie Parkman deemed to be relevant;
. reviewed a draft, dated December 10, 1999, of the merger agreement; and
. reviewed other financial studies and analyses and performed other
investigations and took into account other matters as Petrie Parkman had
deemed necessary or appropriate.
In preparing its opinion, Petrie Parkman assumed and relied upon, without
assuming any responsibility for independently verifying, the accuracy and
completeness of any information supplied or otherwise made available to Petrie
Parkman, discussed with Petrie Parkman, or reviewed by or for Petrie Parkman by
Titan and the Permian Basin business unit. Petrie Parkman further relied upon
the assurances of the managements of Titan and the Permian Basin business unit
that they were unaware of any facts that would make the information provided to
Petrie Parkman incomplete or misleading in any material respect. With respect to
projected financial and operating data and estimates of potential cost savings
and other potential synergies expected to result from the merger, Petrie Parkman
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgment of the managements of Titan and the
Permian Basin business unit, as the case may be, relating to the future
financial and operational performance of Titan and the Permian Basin business
unit. With respect to the estimates of oil and gas reserves, Petrie Parkman
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Titan and the
Permian Basin business unit and Titan's engineering consultants relating to the
oil and gas properties of Titan and the Permian Basin business unit,
respectively. Petrie Parkman did not make an independent evaluation or appraisal
of the assets or liabilities of Titan or the Permian Basin business unit, nor
was Petrie Parkman furnished with an evaluation or appraisal. In addition,
Petrie Parkman did not assume any obligation to conduct, nor did Petrie Parkman
conduct, any physical inspection of the properties or facilities of Titan or the
Permian Basin business unit.
In developing its opinion, Petrie Parkman relied upon Titan as to various
legal, tax, and accounting aspects of the transactions contemplated by the
merger agreement. Consistent with the merger agreement, Petrie Parkman assumed
that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and/or as part of a transaction under Section 351 of the
Code. Petrie Parkman assumed that the merger agreement executed and delivered by
the parties contained identical financial and economic terms and otherwise was
substantially similar to the draft merger agreement reviewed by Petrie Parkman.
Petrie Parkman further assumed that the merger will be consummated on the terms
and conditions contemplated in the merger agreement.
25
<PAGE>
Petrie Parkman was not asked to consider, and its opinion does not address,
the prices at which the Titan common stock or the Pure Resources common stock
will actually trade following the announcement or consummation of the merger.
Furthermore, Petrie Parkman has not solicited, nor was it requested to solicit,
offers from other parties to acquire all or any part of Titan. Petrie Parkman
also was not asked to consider, and its opinion does not address, the fairness
of the process which resulted in the merger agreement.
Petrie Parkman's opinion was rendered on the basis of conditions in the
securities markets and the oil and gas markets prevailing as of the date of its
opinion and the condition and prospects, financial and otherwise, of Titan and
the Permian Basin business unit as they had been represented to Petrie Parkman
as of the date of its opinion or as they were reflected in the materials and
discussions described above.
The following is a summary of the material financial analyses performed by
Petrie Parkman in connection with the preparation of its opinion dated December
13, 1999, and presented to the Titan board. In the following summary, as defined
by Petrie Parkman, equity reference value means the reference value of the
company's common stock, and enterprise reference value means the equity
reference value plus short-term debt, long-term debt, and adjusted for net
working capital.
Discounted Cash Flow Analysis - Titan. Petrie Parkman conducted a discounted
cash flow analysis for the purpose of determining the equity reference value
range per share of Titan common stock. Petrie Parkman calculated the net present
value of estimates of future after-tax cash flows for Titan's oil and gas
reserve assets based on the proved and additional reserve estimates referred to
above and for its non-reserve assets utilizing information provided by Titan.
Petrie Parkman evaluated four scenarios in which the variables were oil and
gas prices. The four pricing scenarios, which were Pricing Case I, Pricing Case
II, Pricing Case III, and the Strip Pricing Case, were based on benchmarks for
spot sales of West Texas Intermediate crude oil and for spot sales of Henry Hub
gas. The Strip Pricing Case was based upon the publicly available average of oil
and gas futures contract prices quoted on the New York Mercantile Exchange.
Petrie Parkman applied appropriate quality and transportation adjustments to
these benchmarks. Benchmark oil prices for Pricing Cases I, II and III were
projected to be $16.00, $18.00 and $20.00 per barrel, respectively, for 2000 and
were escalated annually following 2000 at the rate of 3.0%. Benchmark oil prices
for the Strip Pricing Case were projected to be $22.53, $19.05, $18.43, $17.95,
and $17.83 for the years 2000, 2001, 2002, 2003, and 2004, respectively, and
were escalated annually following 2004 at the rate of 3.0%. Benchmark gas prices
for Pricing Cases I, II and III were projected to be $2.10, $2.30 and $2.50 per
million British thermal units, which we will refer to as"MMBtu," respectively,
for 2000 and were escalated annually following 2000 at the rate of 3.0%.
Benchmark gas prices for the Strip Pricing Case were projected to be $2.40,
$2.51, $2.53 for the years 2000, 2001, and 2002, respectively, and were
escalated annually following 2002 at the rate of 3.0%. Operating and capital
costs were escalated at 3.0% per year.
Applying discount rates of 10.0% to 12.5%, 12.5% to 15.0%, 15.0% to 17.5% and
30.0% to 40.0% to the after-tax cash flow estimates related to the proved
developed producing, proved developed non-producing, proved undeveloped,
probable and possible reserve categories, respectively, and assuming a carry-
over of Titan's existing tax positions, the discounted cash flow analysis
indicated enterprise reference value ranges of $211.6 million to $257.3 million
for Pricing Case I, $246.2 million to $298.6 million for Pricing Case II, $281.5
million to $340.6 million for Pricing Case III, and $243.3 million to $292.3
million for the Strip Pricing Case. After deducting long-term debt and short-
term debt from the enterprise reference value ranges and dividing by the diluted
number of shares of Titan common stock outstanding, the equity reference value
ranges per share of Titan common stock were $3.01 to $4.15 for Pricing Case I,
$3.87 to $5.18 for Pricing Case II, $4.75 to $6.22 for Pricing Case III, and
$3.80 to $5.02 for the Strip Pricing Case. Petrie Parkman noted that the actual
price of Titan common stock on December 10, 1999, the last full trading day on
the Nasdaq prior to the rendering of Petrie Parkman's opinion, was $3.88 per
share.
Comparable Transactions Analysis - Titan. Petrie Parkman reviewed selected
publicly available information on 22 oil and gas property acquisition
transactions involving primarily Permian Basin assets that took place between
January 1997 and December 1999. Petrie Parkman calculated purchase price
multiples of equivalent reserves for the acquired assets in each transaction.
The highest, average and lowest multiples of equivalent proved reserves for the
Permian Basin transactions were $9.84, $5.01 and $2.64 per BOE, respectively.
Based upon its judgment as to the similarity of the Titan assets to the selected
property acquisition transactions, Petrie Parkman determined that, with
26
<PAGE>
respect to Titan, the appropriate benchmark multiples for equivalent proved
reserves were in the range of $3.75 to $4.50 per BOE. Petrie Parkman applied the
benchmark multiples to Titan's corresponding proved reserve figures to yield
asset reference value ranges for Titan's reserves. Following adjustments for
Titan's non-reserve assets, Petrie Parkman determined an enterprise reference
value range of $310.0 million to $371.4 million. After deducting long-term debt
and short-term debt from the enterprise reference value range and adding net
working capital to the enterprise reference value range and dividing by the
diluted number of shares of Titan common stock outstanding, the resulting equity
reference value range per share of Titan common stock was $5.36 to $6.89. Petrie
Parkman noted that the actual price of Titan common stock on December 10, 1999,
the last full trading day on the Nasdaq prior to the rendering of Petrie
Parkman's opinion, was $3.88 per share.
In addition, Petrie Parkman reviewed selected publicly available information
on the following 25 company acquisition transactions and offers for control
involving companies in the oil and gas exploration and production industry that
took place between January 1997 and December 1999:
<TABLE>
<CAPTION>
Acquiror or Bidder For Control Target Date of Announcement
- ------------------------------ ------ --------------------
<S> <C> <C>
Calpine Corporation Sheridan Energy August 25, 1999
St. Mary Land & Exploration Company King Ranch Energy, Inc. June 27, 1999
Devon Energy Corporation Pennzenergy May 20, 1999
Snyder Oil Corporation Santa Fe Energy Resources, Inc. January 14, 1999
Chevron Corp. Rutherford-Moran Oil Corp. December 23, 1998
Seagull Energy Corp. Ocean Energy, Inc. November 25, 1998
Kerr-McGee Corp. Oryx Energy Company October 15, 1998
Pogo Producing Company Arch Petroleum Inc. May 29, 1998
Lomak Petroleum, Inc. Domain Energy Corp. May 12, 1998
Atlantic Richfield Company Union Texas Petroleum Holdings, Inc. May 4, 1998
Seneca Resources Corp. HarCor Energy, Inc. March 31, 1998
Ocean Energy, Inc. United Meridian Corp. December 23, 1997
Sonat, Inc. Zilkha Energy Company November 24, 1997
Chesapeake Energy Corp. Hugoton Energy Corp. November 13, 1997
Belco Oil & Gas Corp. Coda Energy, Inc. November 3, 1997
Titan Offshore Energy Development Corp. September 9, 1997
Texaco Inc. Monterey Resources, Inc. August 18, 1997
Burlington Resources Inc. Louisiana Land & Exploration Company July 17, 1997
The Meridian Resource Corporation Cairn Energy USA, Inc. July 8, 1997
Louis Dreyfus Natural Gas Corp. American Exploration Company June 24, 1997
Forcenergy Inc Convest Energy Corporation June 20, 1997
Monterey Resources, Inc. McFarland Energy, Inc. June 17, 1997
The Columbia Gas System Inc. Alamco, Inc. May 27, 1997
Mesa Inc. Parker & Parsley Petroleum Company April 7, 1997
Texas Pacific Group Belden & Blake Corp. March 31, 1997
</TABLE>
Using publicly available information, Petrie Parkman calculated for the
target company in each transaction purchase price of equity multiples of
discretionary cash flow and total investment multiples of EBITDAX, with total
investment defined by Petrie Parkman for the purposes of this analysis as
purchase price of equity plus net obligations assumed. Petrie Parkman also
calculated the implied purchase price of reserves, which Petrie Parkman defined
for the purposes of this analysis as total investment less undeveloped acreage
value and other assets at book value, multiples of equivalent proved reserves
for the target company in each transaction. The highest, average and lowest
implied multiples in these transactions were as follows:
<TABLE>
<CAPTION>
Implied Multiples in Recent Transactions
----------------------------------------
Highest Average Lowest
------- ------- ------
<S> <C> <C> <C>
Discretionary Cash Flow 20.0x 7.2x 1.9x
EBITDAX 23.6x 8.3x 2.5x
Equivalent Proved Reserves ($/BOE) $23.07 $8.04 $3.50
</TABLE>
27
<PAGE>
Based upon Petrie Parkman's view of the comparability of Titan to the Target
companies in the selected company acquisition transactions and offers for
control, Petrie Parkman determined that, with respect to Titan, the appropriate
benchmark multiples for discretionary cash flow, EBITDAX and equivalent proved
reserves, were in the ranges of 4.5 to 6.0x, 6.5 to 8.5x and $4.75 to $5.25 per
BOE, respectively. Petrie Parkman applied these benchmark multiples to Titan's
historical discretionary cash flow, EBITDAX and equivalent proved reserves.
Petrie Parkman also performed a premium analysis, which compared the offer
price per target company share with the target company's share price for the
periods of one day, 30 days and 60 days prior to public announcement of the
offer. The highest, average and lowest premiums, which Petrie Parkman defined
for the purposes of this analysis as excess of offer price over target company's
price stated as a percentage above the target company's share price, for these
periods were as follows:
<TABLE>
<CAPTION>
Implied Premiums in Recent Transactions
---------------------------------------
Highest Average Lowest
------- ------- ------
<S> <C> <C> <C>
One Day Prior 75.0% 18.8% -9.8%
30 Days Prior 75.0% 27.2% -7.5%
60 Days Prior 60.0% 18.3% -55.2%
</TABLE>
Based upon Petrie Parkman's view of the comparability of Titan to the Target
companies in the selected company acquisition transactions and offers for
control, Petrie Parkman determined that, with respect to Titan, the appropriate
benchmarks for premium to target company's price one day prior, 30 days prior,
and 60 days prior were in the ranges of 15% to 25%, 15% to 25%, and 20% to 30%,
respectively. Petrie Parkman applied these premium benchmarks to the
corresponding stock prices of Titan.
Petrie Parkman determined from the enterprise reference value ranges implied
by these multiples a composite enterprise reference value range of $275.0
million to $325.0 million. After deducting long-term debt and short-term debt
from the composite enterprise reference value range and adding working capital
to the composite enterprise reference value range and dividing by the diluted
number of shares of Titan common stock outstanding, the resulting composite
equity reference value range per share of Titan common stock was $4.49 to $5.74.
Petrie Parkman noted that the actual price of Titan common stock on December 10,
1999, the last full trading day on the Nasdaq prior to the rendering of Petrie
Parkman's opinion, was $3.88 per share.
Capital Market Comparison - Titan. Using publicly available information,
Petrie Parkman calculated market capitalization multiples of historical and
projected discretionary cash flow for selected publicly traded companies with
operating and financial characteristics comparable to Titan. Petrie Parkman also
calculated enterprise value multiples of historical and projected EBITDAX,
historical operating cash flow, and proved reserves for those companies.
Multiples of projected discretionary cash flow and EBITDAX were based upon
projected discretionary cash flow and EBITDAX published by equity research
analysts. Petrie Parkman defined market capitalization for purposes of this
analysis as market value of common equity. Petrie Parkman obtained the
enterprise value of each company by adding the sum of its long-term and short-
term debt to the sum of the market value of its common equity, the market value
of its preferred stock and the book value of its minority interest in other
companies and subtracting net working capital. For purposes of determining
enterprise value, Petrie Parkman used the liquidation or book value, rather than
market value, of each company's preferred stock if the preferred stock is not
publicly traded.
Petrie Parkman determined that the following companies, defined as the
"Comparable Companies," were relevant to an evaluation of Titan based upon
Petrie Parkman's view of the comparability to Titan of these companies'
operating and financial characteristics:
. Barrett Resources . Pioneer Natural Resources
. Belco Oil & Gas . Range Resources Corporation
. Chesapeake Energy . Swift Energy Company
. Cross Timbers Oil Company . Tom Brown, Inc.
. Louis Dreyfus Natural Gas Company . Unit Corporation
. Magnum Hunter Resources
Based upon its judgment, Petrie Parkman determined that, with respect to
Titan, the appropriate benchmark market capitalization multiples for latest
twelve months through September 30, 1999 ("LTM") discretionary cash
28
<PAGE>
flow, 1999 estimated and 2000 estimated discretionary cash flow were in the
range of 6.0 to 7.0x, 3.5 to 4.5x and 2.5 to 3.5x, respectively, and that the
appropriate benchmarks for enterprise valuation multiples for LTM EBITDAX, 1999
estimated and 2000 estimated EBITDAX, LTM operating cash flow, and proved
reserves were in the ranges of 7.5 to 8.5x, 6.5 to 7.5x, 5.0 to 6.0x, 5.5 to
6.5x, and $5.00 to $6.00, respectively. Petrie Parkman applied these benchmark
multiples to Titan's LTM, 1999 estimated and 2000 estimated discretionary cash
flow, and LTM, 1999 estimated, and 2000 estimated EBITDAX, LTM operating cash
flow, and proved reserves. From the enterprise reference value ranges implied by
these multiples, Petrie Parkman determined a composite enterprise reference
value range under this method of $250.0 million to $300.0 million. After
deducting long-term debt and short-term debt from the composite enterprise
reference value range and adding net working capital to the composite enterprise
reference value range and dividing by the diluted number of shares of Titan
common stock outstanding, the composite equity reference value range per share
of Titan common stock was $3.87 to $5.11. Petrie Parkman noted that the actual
price of Titan common stock on December 10, 1999, the last full trading day on
the Nasdaq prior to the rendering of Petrie Parkman's opinion, was $3.88 per
share.
Going Concern Analysis - Titan. Petrie Parkman projected the potential
financial performance of Titan without giving effect to the merger for the five
year period beginning on January 1, 2000 using Pricing Cases I, II, III and the
Strip Case. Petrie Parkman prepared these projections utilizing information and
projections prepared or provided by Titan management and additional assumptions
based upon discussions with Titan management regarding potential future
operating and financial performance. For each pricing case, Petrie Parkman
evaluated two scenarios, a "Debt Repayment Case" and a "Capital Reinvestment
Case" in which the principal variable was the utilization of cash flow in excess
of budgeted capital expenditures. In the Debt Repayment Case, excess cash flow
was assumed to be used to repay existing indebtedness or invested in short-term
marketable securities. In the Capital Reinvestment Case, excess cash flow was
assumed to be used for reserve additions at a finding and development cost of
$4.75 per BOE, subject to an annual limitation of $50 million. Petrie Parkman
calculated a range of terminal equity values by applying terminal multiples of
4.0x, 5.0x and 6.0x to projected 2004 discretionary cash flow and applied after-
tax discount rates of 15.0% to 17.5% to terminal equity values. Throughout its
analysis, Petrie Parkman utilized Titan's existing tax position.
From the range of equity reference values implied by this analysis, Petrie
Parkman determined a composite equity reference value range per share of Titan
common stock outstanding of $3.50 to $4.25 for the Debt Repayment Case and $4.50
to $5.50 for the Capital Reinvestment Case.
Implied Reference Value Ranges - Titan. The following is a summary of Titan's
implied reference ranges of enterprise and equity values derived from Petrie
Parkman's discounted cash flow analysis, comparable transaction analysis,
capital market comparison, and going concern analysis.
<TABLE>
<CAPTION>
Enterprise Reference Equity Reference Equity Reference
Value Range Value Range Value
Method of Analysis ($millions) ($millions) Range ($/Sh.)
- ------------------------- -------------------- ---------------- -----------------
<S> <C> <C> <C>
Discounted Cash Flow
Case I $211.6 - 257.3 $121.0 - 166.7 $3.01 - 4.15
Case II $246.2 - 298.6 $155.6 - 208.0 $3.87 - 5.18
Case III $281.5 - 340.6 $190.9 - 250.0 $4.75 - 6.22
Strip Pricing $243.3 - 292.3 $152.7 - 201.7 $3.80 - 5.02
Comparable Transactions Analysis
Property Transaction Analysis $310.0 - 371.4 $215.5 - 276.9 $5.36 - 6.89
Company Transaction Analysis $275.0 - 325.0 $180.4 - 230.4 $4.49 - 5.74
Capital Market Comparison $250.0 - 300.0 $155.4 - 205.4 $3.87 - 5.11
Going Concern Analysis
Debt Repayment Case $235.2 - 265.3 $140.6 - 170.8 $3.50 - 4.25
Capital Reinvestment Case $275.4 - 315.5 $180.8 - 221.0 $4.50 - 5.50
</TABLE>
29
<PAGE>
Discounted Cash Flow Analysis - The Permian Basin Business Unit. Petrie
Parkman conducted a discounted cash flow analysis for the purpose of determining
the equity reference value range of the Permian Basin business unit. Petrie
Parkman calculated the net present value of estimates of future after-tax cash
flows for the Permian Basin business unit oil and gas reserve assets based on
the proved and additional reserve estimates referred to above and for its non-
reserve assets utilizing information provided by Titan and Union Oil.
Petrie Parkman evaluated the same four pricing scenarios and used the same
operating and capital cost escalation assumptions that were used in the Titan
Discounted Cash Flow Analysis.
Applying discount rates of 10.0% to 12.5%, 12.5% to 15.0%, 15.0% to 17.5% and
30.0% to 40.0% to the after-tax cash flow estimates related to the proved
developed producing, proved developed non-producing, proved undeveloped,
probable and possible reserve categories, respectively, and assuming a carry-
over of the Permian Basin business unit's existing tax positions, the discounted
cash flow analysis indicated enterprise and equity reference value ranges of
$247.1 million to $284.9 million for Pricing Case I, $298.0 million to $342.2
million for Pricing Case II, $348.9 million to $400.9 million for Pricing Case
III, and $306.1 million to $348.2 million for the Strip Pricing Case.
Comparable Transactions Analysis - The Permian Basin Business Unit. Petrie
Parkman reviewed selected publicly available information on 32 oil and gas
property acquisition transactions involving primarily Permian Basin and San Juan
Basin assets that took place between January 1997 and December 1999. Petrie
Parkman calculated purchase price multiples of equivalent proved reserves for
the acquired assets in each transaction. The highest, average and lowest
multiples of equivalent proved reserves for the Permian Basin and San Juan Basin
transactions were $9.84, $4.66 and $2.07 per BOE, respectively. Based upon its
judgment as to the similarity of the Permian business unit assets to the
selected property acquisition transactions, Petrie Parkman determined that, with
respect to the Permian Basin business unit, the appropriate benchmark multiples
for equivalent proved reserves for Union Oil's Permian Basin and San Juan Basin
assets were in the ranges of $3.75 to $4.50 per BOE. Petrie Parkman applied the
benchmarks to the Permian Basin business unit corresponding proved reserves to
yield asset reference value ranges for the Permian Basin business unit's
reserves. Following adjustments for the Permian Basin business unit's non-
reserve assets, Petrie Parkman determined an enterprise reference value range of
$371.2 million to $447.3 million. After adding net working capital to the
enterprise reference value range, the resulting equity reference value range of
the Permian Basin business unit was $372.8 million to $448.9 million.
In addition, Petrie Parkman reviewed the same selected publicly available
information on the 25 company acquisition transactions and offers for control
involving companies in the oil and gas exploration and production industry that
were used in the Titan Company Acquisition Analysis.
Using publicly available information, Petrie Parkman calculated purchase
price of equity multiples of discretionary cash flow and total investment
multiples of EBITDAX for the target company in each transaction. Petrie Parkman
also calculated implied purchase price of reserves multiples of equivalent
proved reserves and standardized measure of discounted future net cash flows
("SEC Value") for the target company in each transaction. The highest, average
and lowest implied multiples in these transactions were as follows:
<TABLE>
<CAPTION>
Implied Multiples in Recent Transactions
----------------------------------------
Highest Average Lowest
------- ------- ------
<S> <C> <C> <C>
Discretionary Cash Flow 20.0x 7.2x 1.9x
EBITDAX 23.6x 8.3x 2.5x
Equivalent Proved Reserves ($/BOE) $23.07 $8.04 $3.50
SEC Value 6.4x 1.7x 0.6x
</TABLE>
Based upon Petrie Parkman's view of the comparability of the Permian Basin
business unit to the Target companies in the selected company acquisition
transactions and offers for control, Petrie Parkman determined that, with
respect to the Permian Basin business unit, the appropriate benchmark multiples
for discretionary cash flow, EBITDAX, equivalent proved reserves, and SEC Value
were in the ranges of 4.5 to 6.0x, 6.5 to 8.5x, $4.75 to $5.25 per BOE, and 1.6
to 2.1x, respectively. Petrie Parkman applied these benchmark multiples to the
Permian Basin business unit's historical discretionary cash flow, EBITDAX,
equivalent proved reserves, and SEC Value. Petrie Parkman determined from the
enterprise reference value ranges implied by these multiples a composite
enterprise reference value range of $350.0 million to $450.0 million. After
adding net working capital to the composite enterprise
30
<PAGE>
reference value range, the resulting composite equity reference value range of
the Permian Basin business unit was $351.6 million to $451.6 million.
Capital Market Comparison - The Permian Basin Business Unit. Using publicly
available information, Petrie Parkman calculated market capitalization multiples
of historical and projected discretionary cash flow for selected publicly traded
companies with operating and financial characteristics comparable to the Permian
Basin business unit. Petrie Parkman also calculated enterprise value multiples
of historical and projected EBITDAX, historical operating cash flow, proved
reserves, and SEC Value for those companies. Multiples of projected
discretionary cash flow and EBITDAX were based upon projected discretionary cash
flow and EBITDAX published by equity research analysts. Petrie Parkman obtained
the enterprise value of each company by adding the sum of its long-term and
short-term debt to the sum of the market value of its common equity, the market
value of its preferred stock and the book value of its minority interest in
other companies and subtracting net working capital. For purposes of determining
enterprise value, Petrie Parkman used the liquidation or book value, rather than
market value, of each company's preferred stock if the preferred stock is not
publicly traded.
Petrie Parkman determined that the Comparable Companies were relevant to an
evaluation of the Permian Basin business unit based upon Petrie Parkman's view
of the comparability to the Permian Basin business unit of these companies'
operating and financial characteristics.
Based upon its judgment, Petrie Parkman determined that, with respect to the
Permian Basin business unit, the appropriate benchmark market capitalization
multiples for LTM discretionary cash flow, 1999 estimated and 2000 estimated
discretionary cash flow were in the range of 6.0 to 7.0x, 3.5 to 4.5x and 2.5 to
3.5x, respectively, and that the appropriate benchmarks for enterprise valuation
multiples for LTM EBITDAX, 1999 estimated and 2000 estimated EBITDAX, LTM
operating cash flow, proved reserves, and SEC Value were in the ranges of 7.5 to
8.5x, 6.5 to 7.5x, 5.0 to 6.0x, 5.5 to 6.5x, $5.00 to $6.00 per BOE, and 1.6 to
2.1x, respectively. Petrie Parkman applied these benchmark multiples to the
Permian Basin business unit's LTM, 1999 estimated and 2000 estimated
discretionary cash flow, and LTM, 1999 estimated, and 2000 estimated EBITDAX,
LTM operating cash flow, proved reserves, and SEC Value. From the enterprise
reference value ranges implied by these multiples, Petrie Parkman determined a
composite enterprise reference value range under this method of $350.0 million
to $450.0 million. After adding net working capital to the composite enterprise
reference value range, the composite equity reference value range of the Permian
Basin business unit was $351.6 million to $451.6 million.
Going Concern Analysis - The Permian Basin Business Unit. Petrie Parkman
projected the potential financial performance of the Permian Basin business unit
without giving effect to the merger for the five year period beginning on
January 1, 2000 using Pricing Cases I, II, III and the Strip Case. Petrie
Parkman prepared these projections utilizing selected information and
projections prepared or provided by Titan management and additional assumptions
based upon discussions with Titan management regarding potential future
operating and financial performance. For each pricing case, Petrie Parkman
evaluated two scenarios, a "Debt Repayment Case" and a "Capital Reinvestment
Case" in which the principle variable was the utilization of excess cash flow.
In the Debt Repayment Case, excess cash flow was assumed to be used to paydown
debt or invested in short-term marketable securities. In the Capital
Reinvestment Case, excess cash flow was assumed to be used for reserve additions
at a finding and development cost of $4.75 per BOE, subject to an annual
limitation of $50 million. Petrie Parkman calculated a range of terminal equity
values by applying terminal multiples of 4.0x, 5.0x and 6.0x to projected 2004
discretionary cash flow and applied discount rates of 15.0% to 17.5% to terminal
equity values. Throughout its analysis, Petrie Parkman utilized the Permian
Basin business unit's existing tax position.
From the range of equity reference values implied by this analysis, Petrie
Parkman determined a composite equity reference value range for the Permian
Basin business unit of $290 million to $320 million for the Debt Repayment Case
and $350 million to $400 million for the Capital Reinvestment Case.
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Implied Reference Value Ranges - The Permian Basin Business Unit. The
following is a summary of the Permian Basin business unit's implied reference
ranges of enterprise and equity values derived from Petrie Parkman's discounted
cash flow analysis, comparable transaction analysis, capital market comparison
and going concern analysis.
<TABLE>
<CAPTION>
Enterprise Reference Equity Reference
Value Range Value Range
Method of Analysis ($millions) ($millions)
- ------------------------------- ------------------- --------------------
Discounted Cash Flow
<S> <C> <C>
Case I $247.1 - 284.9 $247.1 - 284.9
Case II $298.0 - 342.2 $298.0 - 342.2
Case III $348.9 - 400.9 $348.9 - 400.9
Strip Pricing $306.1 - 348.2 $306.1 - 348.2
Comparable Transactions Analysis
Property Transaction Analysis $371.2 - 447.3 $372.8 - 448.9
Company Transaction Analysis $350.0 - 450.0 $351.6 - 451.6
Capital Market Comparison $350.0 - 450.0 $351.6 - 451.6
Going Concern Analysis
Debt Repayment Case $288.4 - 318.4 $290.0 - 320.0
Capital Reinvestment Case $348.4 - 398.4 $350.0 - 400.0
</TABLE>
Reference Value Analyses Summary. The following is a summary of the Reference
Value Analyses for both Titan and the Permian Basin business unit.
<TABLE>
<CAPTION>
Permian Basin
Titan Business Unit Contribution Summary
Enterprise Reference Equity Reference -----------------------------------
Value Range Value Range Permian Basin
Methodology ($ millions) ($ millions) Titan % Business Unit%
- ------------------------ ----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Discounted Cash Flow
Case I $121.0 - 166.7 $247.1 - 284.9 32.9% - 36.9% 67.1% - 63.1%
Case II $155.6 - 208.0 $298.0 - 342.2 34.3% - 37.8% 65.7% - 62.2%
Case III $190.9 - 250.0 $348.9 - 400.9 35.4% - 38.4% 64.6% - 61.6%
Strip Pricing $152.7 - 201.7 $306.1 - 348.2 33.3% - 36.7% 66.7% - 63.3%
Comparable Transactions
Analysis
Property Transaction $215.5 - 276.9 $372.8 - 448.9 36.6% - 38.1% 63.4% - 61.9%
Analysis
Company Transaction $180.4 - 230.4 $351.6 - 451.6 33.9% - 33.8% 66.1% - 66.2%
Analysis
Capital Market Comparison $155.4 - 205.4 $351.6 - 451.6 30.7% - 31.3% 69.3% - 68.7%
Going Concern Analysis
Debt Repayment Case $140.6 - 170.8 $290.0 - 320.0 32.7% - 34.8% 67.3% - 65.2%
Capital Reinvestment $180.8 - 221.0 $350.0 - 400.0 34.1% - 35.6% 65.9% - 64.4%
Case
</TABLE>
The merger agreement provides that the Permian Basin business unit will not
have any net working capital when acquired by Pure Resources. This adjustment
does not have a material impact on Petrie Parkman's analysis nor does it change
Petrie Parkman's opinion.
Contribution Analysis. Petrie Parkman analyzed some projected operational and
financial effects of the merger for the two-year period beginning January 1,
1999. Petrie Parkman calculated relative contributions to the combined company
of reserves, production, EBITDAX, discretionary cash flow, and net income by
Titan and the Permian Basin
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business unit. The analysis was based on historical financial data, Titan
estimates and projections based on Titan management estimates as adjusted to
reflect the assumptions underlying the Going Concern Analysis Debt Repayment
Case for both Titan and the Permian Basin business unit. The following table
sets forth the contribution Titan would be expected to make to the operational
and financial results of the combined entity.
<TABLE>
<CAPTION>
Titan Contribution
------------------------
<S> <C> <C>
1999 2000
Measure (estimated) (estimated)
- ------- ---------- ----------
12/31 Proved Reserves 44% N/A
Production 42% 38%
EBITDAX 42% 33%
Discretionary Cash Flow 41% 34%
Net Income N/A 23%
</TABLE>
Pro Forma Merger Analysis. Petrie Parkman analyzed pro forma financial
effects of the merger as of January 1, 2000 with operating projections based
upon Titan management estimates as adjusted to reflect the assumptions
underlying the Going Concern Analysis Debt Repayment Case using the Strip
Pricing Case for both Titan and the Permian Basin business unit. In its
analysis, Petrie Parkman used the exchange ratio, made assumptions about cost
savings based on discussions with Titan management, and made assumptions about
depreciation, depletion, and amortization expenses. This analysis indicated that
the merger would be accretive to projected 2000 Titan earnings per share and
accretive to projected 2000 discretionary cash flow. The analysis also indicated
that the merger would result in a lower total debt to total book capitalization
ratio than projected for Titan on a stand-alone basis as of December 31, 2000.
The analysis also indicated that the merger would result in improved debt
coverage, specifically projected 2000 EBITDAX to interest expense ratio and
total debt to discretionary cash flow ratio, than for Titan on a stand-alone
basis.
The description set forth above constitutes a summary of the analyses
employed and factors considered by Petrie Parkman in rendering its opinion to
the Titan board. Petrie Parkman believes that its analyses must be considered as
a whole and that selecting portions of its analyses, without considering all
analyses and factors, could create an incomplete view of the process underlying
its opinion. The preparation of a fairness opinion is a complex, analytical
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and is not necessarily susceptible to partial analysis
or summary description. In arriving at its opinion, Petrie Parkman did not
attribute any particular weight to any analysis considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis. Any estimates resulting from the analyses are not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth in this document. In addition, analyses based on forecasts of
future results are not necessarily indicative of future results, which may be
significantly more or less favorable than suggested by these analyses. Estimates
of reference values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies may actually be sold. Because the
estimates are inherently subject to uncertainty and based upon numerous factors
or events beyond the control of the parties and Petrie Parkman, Petrie Parkman
cannot assure you that the estimates will prove to be accurate.
No company used in the analysis of other publicly traded companies nor any
transaction used in the analyses of comparable transactions summarized above is
identical to Titan, the Permian Basin business unit or the merger. Accordingly,
these analyses must take into account differences in the financial and operating
characteristics of the selected publicly traded companies and differences in the
structure and timing of the selected transactions and other factors that would
affect the public trading values and acquisition values of the companies
considered.
Petrie Parkman, as part of its investment banking business, is continually
engaged in the evaluation of energy-related businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Titan selected Petrie Parkman as
its financial advisor because it is a nationally recognized investment banking
firm that has substantial experience in transactions similar to the merger.
Petrie Parkman has in the past provided financial advisory services to Titan,
including acting as an underwriter in a secondary offering of Titan common stock
in June 1999 and assisting Titan in the sale of its Gulf of Mexico properties in
May 1999, and has received customary fees for these services. In the ordinary
course of business, Petrie Parkman or its affiliates may
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<PAGE>
trade in the debt or equity securities of Titan or Unocal Corporation or Union
Oil for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
No Appraisal Rights
Holders of Titan common stock do not have dissenters' appraisal rights under
Delaware law in connection with the merger.
Interests of Certain Persons in the Merger
In considering the recommendation of the Titan board of directors with
respect to the merger agreement, you should be aware that some members of the
management of Titan and some members of the Titan board of directors, including
those who are also officers of Titan, have interests in the merger that may be
different from, or in addition to, the interests of the other stockholders of
Titan generally.
Severance and Retention Bonus Agreements. Each of nine current executive
officers of Titan is a party to a Severance and Retention Bonus Agreement dated
June 10, 1999 with a Titan subsidiary, which we refer to here as severance
agreements. These agreements were approved by a unanimous vote of disinterested
directors at a Titan board meeting on June 10, 1999. In the following
discussion, we refer to the employees listed in the previous sentence
collectively as the covered employees and to Messrs. Hightower, Staley, White,
Woodard, Colwell and Moore collectively as the Titan named executive officers.
The covered employees are eligible to receive severance benefits in the event of
a qualifying termination of their employment on or within one year following a
"change in control" of Titan, as that term is defined in the severance
agreements.
A covered employee who incurs a qualifying termination of employment will be
entitled to receive a cash lump sum severance payment equal to three times his
or her annual base salary and any bonuses or special incentive payments for the
preceding twelve months plus other specified benefits. In the event the covered
employee does not receive a payment upon a qualifying termination and the
covered employee remains employed by Titan, any successor of Titan or any of
their affiliates one year after the change in control, then the covered employee
will be entitled to receive a cash lump sum retention bonus payment equal to
three times his or her annual base salary, plus other specified benefits.
The merger will be considered a "change of control" of Titan under each of
the severance agreements. If the closing had occurred on December 1, 1999 and if
each of the covered employees had incurred a qualifying termination of
employment immediately following that date, the approximate amount of the cash
severance payment, including any gross-up payment required by the severance
agreement to offset fully the effect of any federal excise tax imposed on the
payment, payable to the covered employees would have been approximately $7.8
million in the aggregate. The approximate amounts payable to each of the Titan
named executive officers would have been $1,200,000 to Mr. Hightower, $975,000
to Mr. Staley, $1,087,000 to Mr. White, $907,000 to Mr. Woodard, $910,000 to Mr.
Colwell and $909,000 to Mr. Moore. Titan's board of directors has determined
that these amounts are to be paid to the covered employees upon closing of the
merger if they enter into an agreement with Titan to apply a portion of the
payments to any outstanding amounts they owe Titan and to execute a general
release. The covered employees will receive the payments under the severance
agreements regardless of whether or not they continue with Pure Resources.
Employee Stock Options. Subject to consummation of the merger, under a new
incentive plan of Pure Resources, described under "The Merger Agreement - Pure
Resources 1999 Incentive Plan" on page 48, Jack D. Hightower has been granted,
subject to the closing of the merger, options to purchase 1,300,000 shares of
Pure Resources common stock at an exercise price of $9.30 per share and 500,000
shares of Pure Resources common stock at an exercise price per share equal to
1.25 times the average of the closing prices for a share of Titan common stock
for the ten trading days prior to the closing of the merger, divided by
0.4302314. These grants and grants that have been made to some other current
Titan employees under the new incentive plan as provided in the merger agreement
are described under "The Merger Agreement - Pure Resources 1999 Incentive Plans.
Pure Resources will also assume the employee stock option plans and
arrangements of Titan. Each outstanding and unexercised option to purchase a
share of Titan common stock issued under Titan's employee option plans will be
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<PAGE>
converted into an option to purchase 0.4302314 shares of Pure Resources common
stock at an exercise price equal to the exercise price immediately prior to the
merger divided by 0.4302314, rounded to the nearest cent. Each assumed option
will have the same terms and conditions that were applicable to the Titan stock
options, except that, under existing stock option agreements, each will become
fully vested on closing of the merger. As of April 14, 2000, options to purchase
an aggregate of 1,067,743 shares of Titan common stock were outstanding.
Employment Agreement. In connection with the merger, Pure Resources has
entered into an employment agreement with Jack D. Hightower, with effectiveness
conditioned on the merger, with a term of three years, with a rollover provision
so that the term at all times is no less than two years. After the merger, Mr.
Hightower will receive an annual salary of $480,000, plus business expenses and
other specified benefits, for serving as Chief Executive Officer of Pure
Resources. Mr. Hightower will also receive an annual bonus that will be at least
$240,000, with the exact amount to be determined by the Compensation Committee
of the Pure Resources board of directors. The employment also provides for the
purchase by Pure Resources of life and disability insurance for Mr. Hightower.
Pure Resources' employment agreement with Mr. Hightower will also include
provisions regarding severance and retention that will provide that if he is
terminated other than for cause or resigns as Chief Executive Officer of Pure
Resources for good reason, Mr. Hightower's outstanding options will vest, he
will receive three times the total of his annual salary plus his average annual
bonus for the last three years, but not less than $240,000, with a gross-up
payment to offset fully the effect of any federal excise tax imposed on the
severance payment, and Pure Resources will take action to prevent automatic
termination of his options as a result of the termination. In the event Mr.
Hightower resigns his employment with Pure Resources other than for good reason,
his non-vested options will expire without vesting and he will be entitled to a
severance benefit equal to his total annual salary plus an amount, but not less
than $240,000, equal to the average of prior three years' bonuses, with a gross-
up payment to offset fully the effect of any federal excise tax imposed on the
severance payment.
A termination for good reason under the Mr. Hightower's employment agreement
means:
. Pure Resources' failure to comply with any material provision of the
employment agreement which has not been cured within 60 working days
after notice of the noncompliance has been given by him to Pure
Resources;
. a material change in the nature or scope of his duties from those engaged
in by him immediately prior to the date of the employment agreement;
. a reduction in his annual base salary from that provided to him in the
employment agreement;
. a material diminution in his eligibility to participate in or in the
benefits provided him under any bonus, stock option or other incentive
compensation plans or employee welfare and pension benefit plans, such as
medical, dental, life insurance, retirement and long-term disability
plans, from that provided him on the date of the employment agreement;
. any required relocation outside of Texas, including any required business
travel in excess of the greater of 90 days per year or the level of
business travel of the employee for the year prior to the date of the
employment agreement;
. failure by him and Pure Resources, or its successor, to reach an
agreement on or prior to a change of control of Unocal Corporation, which
is Union Oil's parent, or Pure Resources as to the terms of his
employment following the change of control, which terms are acceptable to
him in his sole discretion; or
. Union Oil's becoming the beneficial owner of 85% or more of Pure
Resources' common stock or voting securities.
New Severance Agreements. In the merger agreement, Pure Resources also agreed
to enter into a new severance agreement with each executive officer of Titan who
is to become an officer of Pure Resources upon consummation of the merger. The
agreements will be in a form and on terms approved by the Chief Executive
Officer and the Compensation Committee of the board of directors of Pure
Resources. The agreements will provide
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<PAGE>
that upon the occurrence of specified events to be determined by the board, the
executive officers will receive a cash severance payment equal to the officer's
annual salary and bonus multiplied by one, or by two in the case of Mr. Staley.
Management Rights to Require Pure Resources to Purchase Stock. Mr.
Hightower's employment agreement includes provisions under which Pure Resources
grants Mr. Hightower a right that will permit him to require Pure Resources, at
any time during the 90 days after the occurrence of any of the triggering events
specified in the agreement, to purchase all or a portion of his shares of Pure
Resources common stock that were either received in the merger in exchange for
Titan stock held by him on December 1, 1999 or were purchased through stock
option exercises. If Mr. Hightower either does not exercise the right in a
situation other than in connection with a change of control of Pure Resources or
Union Oil, or exercises the right with respect to only a portion of the shares,
he can not later cause Pure Resources to purchase additional shares after
another triggering event. Events that will trigger the rights include:
. termination of his employment by Pure Resources without cause, as defined
in the employment agreement;
. termination of his employment for any reason at any time on or after the
third anniversary of the closing of the merger;
. a change of control, as defined in the agreement, of Pure Resources;
. a change of control, as defined in the agreement, of Unocal;
. his death or disability;
. his resignation from Pure Resources for good reason, as defined in the
agreement; or
. Union Oil's becoming the beneficial owner of 85% or more of Pure
Resources' voting securities.
The price at which Pure Resources will be required to purchase the applicable
shares of Pure Resources common stock from Mr. Hightower will be a "per share
net asset value" which generally means (a) 110% of the net equity value, as
defined, in the proved reserves of Pure Resources, less (b) the funded debt of
Pure Resources.
The merger agreement also provides that the new severance agreements to be
entered into by Pure Resources with the other Titan officers and one other
person who is to become a Pure Resources officer, which are described above
under " - Interests of Certain Persons in the Merger - New Severance
Arrangements," will include rights similar to those of Mr. Hightower to require
Pure Resources to purchase the officer's common stock. On December 31, 1999,
when the trading price of Titan common stock was $5.44 per share, the pro forma
"per share net asset value" of Pure Resources, calculated in accordance with the
employment agreement and adjusted to a Titan equivalent price, was estimated at
approximately $6.18. On a pro forma basis using a market price of $5.44 per
share, Pure Resources would incur a non-cash expense of approximately $6.8
million per year for three years to amortize the deferred compensation recorded
as a result of these arrangements. The amortization amounts will change
quarterly based on relative changes in the net asset value and market value of
Pure Resources shares. See Note 5 to "Unaudited Pro Forma Combined Financial
Statements of Pure Resources" on page 64. See "Beneficial Ownership of Titan,
Pure Resources and Pure Resources Post Merger" on page 86 for information
concerning the number of shares of Pure Resources common stock that the officers
of Titan will beneficially own after the merger.
Board of Directors. Jack D. Hightower, George G. Staley and Herbert C.
Williamson, III, current members of the Titan board, will be appointed to the
Pure Resources board. For information about the benefits to be received by Pure
Resources directors, see "Management of Pure Resources after the Merger -
Compensation of Directors" on page 84. Mr. Hightower has entered into a
stockholders voting agreement with Union Oil in which Union Oil has agreed to
vote its shares of Pure Resources common stock to elect two persons designated
Mr. Hightower. See "The Merger Agreement - Ancillary Agreements - Stockholders
Voting Agreement" on page 46 for a discussion of the stockholders voting
agreement.
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<PAGE>
Indemnification of Titan Officers and Directors. Pure Resources has agreed to
cause Titan to maintain all rights to indemnification with respect to matters
occurring through the closing of the merger in favor of the directors and
officers of Titan and its subsidiaries in accordance with the charter documents
and bylaws and any indemnification agreement and to the fullest extent permitted
under applicable law. The merger agreement also contemplates that Titan will
procure director and officer liability insurance for these persons prior to the
merger.
Registration Rights Agreement. In the merger agreement, Pure Resources has
agreed to deliver to Jack D. Hightower on or prior to the closing a registration
rights agreement providing Mr. Hightower with the right to require Pure
Resources on two separate occasions to register Pure Resources shares held by
him under applicable securities laws, provided that the shares to be registered
have an estimated aggregate offering price to the public of at least
$10,000,000, or $20,000,000 on the first occasion. The registration rights
agreement will also provide Mr. Hightower with piggyback registration rights
that will give him the right to include his shares of Pure Resources common
stock in registrations initiated by Pure Resources or any other holder of Pure
Resources common stock.
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THE MERGER AGREEMENT
This section describes various material provisions of the merger agreement,
as amended. Because the description of the merger agreement contained in this
document is a summary, it does not contain all the information that is in the
merger agreement. The merger agreement has been filed with the SEC as an
exhibit to the registration statement of which this document is a part. We
encourage you to read carefully the entire copy of the merger agreement, which
we are incorporating by reference, before you decide how to vote. See "Where You
Can Find More Information" on page 95 to find out how to get a copy of the
merger agreement.
General
In the merger, TRH, Inc., a newly formed, wholly-owned Delaware subsidiary
of Pure Resources, will merge into Titan, with Titan continuing in existence as
a wholly-owned subsidiary of Pure Resources and each issued and outstanding
share of Titan common stock being converted into Pure Resources common stock as
described below.
Simultaneously with the merger, Union Oil will contribute and convey to
Pure Resources or a subsidiary of Pure Resources substantially all of the
properties and other assets and operations relating to Union Oil's Permian and
San Juan Basins oil and gas exploration and production business, in exchange for
32,708,067 shares of Pure Resources common stock and the assumption by Pure
Resources of substantially all of the liabilities relating to or associated with
the contributed assets, which we refer to in this document as the Permian Basin
business unit, or the business unit.
Contribution of Permian Basin Business Unit
The assets that Union Oil will contribute and convey to a subsidiary of
Pure Resources simultaneously with the closing of the merger are those
associated with the business and operations of Union Oil and its subsidiaries
relating to the exploration for and development and production of oil and gas
onshore in the Permian Basin and the San Juan Basin, including some gas plants
and gathering and transmission lines. The transfer to Pure Resources will
exclude some assets that relate to Union Oil's business in these areas. These
excluded assets include Union Oil's capital stock in Tom Brown, Inc. and Matador
Petroleum Corporation, and all assets or properties of those corporations, all
assets of Unocal Pipeline Company and a marketing arrangement with another Union
Oil business division.
The merger agreement generally provides that the operations of the Permian
Basin business unit for periods prior to January 1, 2000 will be for the account
of Union Oil and that operations on or after January 1, 2000 will be for the
account of Pure Resources. Union Oil will contribute to Pure Resources any cash
necessary to provide Pure Resources with the economic benefits and burdens of
the Permian Basin business unit for the period between January 1, 2000 and the
closing of the merger, plus the amount of legal suspense at the closing. Other
than that cash and proceeds, if any, with respect to the exercise of
preferential purchase rights, no cash will be contributed.
At the closing Pure Resources will also assume all of the liabilities
related to the Permian Basin business unit, excluding only the following:
. any liabilities required by generally accepted accounting principles to
be disclosed in the Permian Basin business unit's financial statements
as of September 30, 1999 that were not disclosed in those financial
statements;
. any liability for trade payables arising out of the ownership and
operation of the Permian Basin business unit prior to January 1, 2000;
. any liability relating to payment of or failure to pay any royalty,
overriding royalty, compensatory royalty, working interests or net
profits interests prior to the closing date, other than liabilities
relating to legal suspense amounts for royalties included in the
business unit;
. any liability for some employee matters for which Union Oil will
indemnify Pure Resources under the merger agreement;
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. liabilities for taxes of Pure Resources or Union Oil, to the extent
relating to the Permian Basin business unit, for periods prior to
January 1, 2000;
. liabilities in respect of three pending litigation matters; and
. liabilities related to the excluded assets which will not be
transferred to Pure Resources by Union Oil.
Closing of the Merger; Effective Time of the Merger; Resulting Company
Closing of the Merger. The parties expect that the closing of the merger
will take place on the date of the special meeting if all conditions to closing
have been satisfied or waived on that date. In any event, unless Titan and Union
Oil agree otherwise, the closing of the merger will occur on or prior to the
fifth business day after the date on which all closing conditions have been
satisfied or waived.
Effective Time of the Merger. Immediately following the closing, the
parties will file a certificate of merger with the Delaware Secretary of State.
Unless Titan and Union Oil agree otherwise, the merger will become effective at
the time the certificate is duly filed with the Delaware Secretary of State.
Resulting Company. Titan will become a wholly-owned subsidiary of Pure
Resources as a result of the merger. The initial directors and senior executive
officers of Pure Resources following the merger will be as described in
"Management of Pure Resources after the Merger" on page 82. The certificate of
incorporation and other governing instruments of Pure Resources will differ in
some respects from those of Titan prior to the merger. See "Comparison of
Stockholder Rights" on page 92.
Consideration to be Received in the Merger
In the merger, without any action on the part of the Titan stockholders,
each issued and outstanding share of Titan common stock, including the
accompanying preferred stock purchase right under Titan's rights plan, will
convert into 0.4302314 shares of Pure Resources common stock.
Assumption of Titan Stock Options
Upon completion of the merger Pure Resources will assume each outstanding
and unexercised option to purchase a share of Titan common stock issued under
Titan's employee benefit plans. Each of these options will convert into an
option to purchase 0.4302314 shares of Pure Resources common stock at an
exercise price equal to the exercise price immediately prior to the merger
divided by 0.4302314, rounded to the nearest cent. Each assumed option will have
the same terms and conditions that were applicable to the Titan stock options,
except that, under existing stock option agreements, each will become fully
vested on closing of the merger. As of April 11, 2000, options to purchase an
aggregate of 1,067,743 shares of Titan common stock were outstanding.
Exchange of Shares; Fractional Shares
Exchange Agent. Pure Resources will appoint an exchange agent to effect
the exchange of certificates representing shares of Titan common stock for
certificates representing shares of Pure Resources common stock and cash to be
paid instead of fractional shares. Pure Resources will deposit with the exchange
agent, for the benefit of holders of Titan common stock, certificates
representing Pure Resources common stock for conversion of shares as described
above under "--Consideration to be Received in the Merger."
Exchange of Shares. Promptly after the merger, the exchange agent will
mail to each holder of certificates representing Titan common stock a letter of
transmittal and instructions explaining how to surrender those certificates to
the exchange agent.
Titan stockholders who surrender to the exchange agent their stock
certificates, together with properly completed and signed letters of transmittal
and any other documents required by the instructions to the letter of
transmittal, will receive Pure Resources common stock certificates representing
the number of shares that they are entitled to in accordance with the exchange
ratio, with checks representing the amount of cash being paid instead of
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<PAGE>
fractional shares. Holders of unexchanged Titan stock certificates will not
receive any dividends or other distributions made by Pure Resources after the
merger until their stock certificates are surrendered. Upon surrender, however,
subject to applicable laws, those holders will receive all dividends and
distributions, if any, made on the related shares of Pure Resources common stock
after the merger, less the amount of any withholding taxes, together with a
check representing the amount of cash for fractional shares of Pure Resources
common stock, in each case without interest. None of Pure Resources, the
exchange agent or any other person will be liable to any former holder of Titan
common stock for any amount delivered in good faith to a public official under
applicable abandoned property, escheat or similar laws.
You should not return your Titan stock certificates with the enclosed proxy
card, and you should not forward your stock certificate to the exchange agent
except with a signed letter of transmittal and any other documents that may be
required by the exchange agent. We will provide you with letters of transmittal
and accompanying instructions following the merger for use in exchanging your
stock certificates.
Fractional Shares. Pure Resources will not issue any fractional shares in
the merger. Instead of fractional shares, holders of Titan common stock will
receive in cash an amount determined by multiplying the amount of the fractional
part of a share of Pure Resources common stock to which the holder is entitled
by the closing trading price of a share of Pure Resources common stock on the
first full trading day after the closing date of the merger. Pure Resources will
not pay interest in connection with the exchange of fractional shares.
Conditions to the Merger
Mutual Closing Conditions. The obligations of Titan, on the one hand, and
Union Oil and Pure Resources, on the other, to effect the merger are subject to
a number of conditions, including the following, unless waived:
. approval of the merger agreement by the Titan stockholders;
. expiration or early termination of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976;
. absence of any proceeding pending or threatened to restrain, prohibit
or obtain damages or other relief in connection with the merger
agreement and the consummation of the actions it contemplates;
. effectiveness of the registration statement of which this document is a
part and the SEC's not issuing a stop order suspending effectiveness;
. approval of the shares of Pure Resources common stock to be issued in
the merger for listing on a national securities exchange or for
designation as a national market system security on an interdealer
quotation system of the National Association of Securities Dealers
American;
. accuracy as of the closing of the representations and warranties made
by the other party to the extent specified in the merger agreement,
subject to materiality thresholds of $20 million in aggregate value
with respect to Titan and $35 million in aggregate value with respect
to the Permian Basin business unit;
. performance in all material respects by the other party of the
obligations required to be performed by it at or prior to closing; and
. receipt of a comfort letter from the other party's independent
accountants regarding the other party's financial information in this
document.
Additional Condition to Titan's Obligations. The obligation of Titan to
effect the merger is further subject to Titan's receipt of a written opinion of
Thompson & Knight L.L.P. that the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and/or a transfer of property to Pure Resources by the
Titan stockholders governed by Section 351 of the Internal Revenue Code and no
taxable gain or loss will be recognized by Titan's stockholders on the exchange
of their common stock for Pure Resources common stock, except for cash paid
instead of fractional shares.
40
<PAGE>
Additional Condition to Union Oil's and Pure Resources' Obligations. The
obligation of Union Oil and Pure Resources to effect the merger is further
subject to receipt of a reasonably satisfactory written opinion to the effect
that the transfer of the Permian Basin business unit by Union Oil to Pure
Resources and the assumption of the related liabilities by Pure Resources will
not result in a taxable gain or loss to Union Oil or Pure Resources.
Representations and Warranties
The merger agreement contains customary representations and warranties made
by Union Oil, Pure Resources and TRH, Inc., on the one hand, and by Titan on the
other hand. The material representations and warranties relate to:
. due organization and good standing;
. capital structure;
. corporate authorization to enter into the contemplated transaction;
. governmental approvals required in connection with the contemplated
transaction;
. financial statements;
. absence of material changes, including changes which would have a
material adverse effect, since September 30, 1999;
. absence of undisclosed material liabilities;
. tax matters;
. compliance with laws and court orders;
. litigation;
. employee matters;
. environmental matters;
. title to assets;
. status and operation of oil and gas properties;
. absence of brokers in connection with the merger; and
. hedging.
The representations and warranties will not survive the closing of the
merger.
Certain Covenants
Interim Operations of Titan, Union Oil and Pure Resources. Each of Titan
and Union Oil has agreed to restrict the activities of it and its subsidiaries
until either the effective time or the termination of the merger agreement.
Titan and its subsidiaries and, to the extent related to the Permian Basin
business unit, Union Oil and its subsidiaries must conduct their business in the
ordinary course consistent with past practice and to use their reasonable best
efforts to preserve their properties and to preserve intact their business
organizations and relationships with third parties. In addition, Titan has
agreed not to conduct any business prior to the merger that would be prohibited
following the merger under the business opportunities agreement described below
in "-Ancillary Documents - Business Opportunities Agreement."
41
<PAGE>
The companies have also agreed to some specific restrictions prior to
closing which are subject to exceptions described in the merger agreement. The
following table summarizes the material restrictions:
<TABLE>
<CAPTION>
Union Oil (to the
extent applicable to
its Permian Basin
Restriction Titan Business Unit)
---------------------------------------------------------------------------------------------
<S> <C> <C>
amending its organizational documents o
---------------------------------------------------------------------------------------------
issuing or disposing of equity securities, options or other
securities convertible into or exercisable for equity
securities, except to a limited extent to employees or
directors and except upon exercise of outstanding
employee stock options o
---------------------------------------------------------------------------------------------
splitting, combining or reclassifying its capital stock or
entering into any merger, liquidation or other significant
transaction o
---------------------------------------------------------------------------------------------
creating, incurring, guaranteeing or assuming indebtedness
over specified amounts or mortgaging or pledging its
assets or creating specified types of liens on its assets o *
---------------------------------------------------------------------------------------------
redeeming or repurchasing its capital stock o
---------------------------------------------------------------------------------------------
amending the terms of any outstanding stock options o
---------------------------------------------------------------------------------------------
making capital expenditures over specified amounts o *
---------------------------------------------------------------------------------------------
increasing employee compensation or benefits o
---------------------------------------------------------------------------------------------
disposing of or (in Titan's case only) acquiring material
assets, other than in the ordinary course of business o *
---------------------------------------------------------------------------------------------
changing its accounting policies, except for changes
required by GAAP o *
---------------------------------------------------------------------------------------------
entering into or amending any contract, subject to
ordinary course exceptions o *
---------------------------------------------------------------------------------------------
entering into any hedging, swap fixed sale or purchase
having a term of more than 90 days or other derivative
contract o
---------------------------------------------------------------------------------------------
taking any other action that would make any representation
or warranty by it inaccurate in any material respect o *
---------------------------------------------------------------------------------------------
</TABLE>
In addition, Pure Resources has agreed not to take any action or allow any
Pure Resources subsidiary to take any action other than as required by law or
the merger agreement.
Agreements as to Dividends. The merger agreement contains an agreement by
Pure Resources that for three years following the merger it will not pay any
dividend on the outstanding shares of Pure Resources common stock in cash or
property, other than capital stock, in excess of $5,000,000 per year unless
approved by a majority of the members of the board of directors of Pure
Resources who are not affiliates of Union Oil. Titan has never paid any cash
dividends on its common stock, and Titan's credit facility currently prohibits
the payment of dividends in excess of $5 million per fiscal year.
42
<PAGE>
Cross Indemnification
Pure Resources has agreed to indemnify Union Oil and its affiliates, other
than Pure Resources and its subsidiaries, and representatives for (a) all
liabilities assumed by Pure Resources in connection with the contribution of the
Permian Basin business unit, including all liabilities relating to the
environmental condition of the Permian Basin business unit, and (b) all
liabilities directly or indirectly related to Titan or its subsidiaries, in all
cases whether or not the liabilities are due to the fault of the Union Oil
indemnified parties. Pure Resources will assume all of the liabilities related
to the Permian Basin business unit, excluding only those liabilities summarized
under "The Merger Agreement -- Contribution of the Permian Basin Business Unit."
Union Oil has agreed to indemnify Pure Resources, its subsidiaries and
representatives for all liabilities arising out of or associated with the
affairs or operations of Union Oil and any of its subsidiaries that were not
assumed by Pure Resources, including liabilities:
. required by GAAP to be disclosed in Union Oil's financial statements
that were not disclosed;
. for trade payables arising out of the ownership and operation prior to
January 1, 2000 of the assets of Union Oil transferred to Pure
Resources;
. relating to payment of or failure to pay royalties prior to the closing
of the merger;
. for taxes relating to periods prior to January 1, 2000; and
. for identified legal proceedings.
Pure Resources and Union Oil will not have to indemnify a party if the
indemnified party has received insurance payments for the liability and the
payment has not been offset through a matching deductible or premium adjustment.
Tax Matters
Union Oil has agreed to pay and be responsible for all ad valorem and
similar taxes on the Permian Basin business unit, as well as severance or other
taxes imposed upon any of its assets, including production, apportioned to the
period ending on December 31, 1999. Pure Resources has agreed to pay and be
responsible for all such taxes apportioned to the period beginning January 1,
2000.
Union Oil and Titan have agreed to use their reasonable efforts to cause
the merger to qualify as a "reorganization" under Section 368(a) of the Internal
Revenue Code and as a transfer of property to Pure Resources by the stockholders
of Titan governed by Section 351 of the Internal Revenue Code and to cause Union
Oil's contribution of the Permian Basin business unit to qualify for treatment
under Section 351(a) of the Internal Revenue Code. Union Oil and Pure Resources
have also agreed not to take any action that would cause the transactions not to
qualify for the intended tax treatment.
If the transfer of the Permian Basin business unit to Pure Resources does
not qualify under Section 351(a) of the Internal Revenue Code as a result of a
final determination applicable to Union Oil's federal income tax return for the
year of the merger, Pure Resources has agreed it will amend its prior year tax
returns to the extent allowed by law to take into account the larger deductions
resulting from an adjusted, or "stepped-up," tax basis of the Permian Basin
business unit.
Pure Resources has agreed to pay Union Oil an amount equal to the realized
actual cash reduction in taxes resulting from any stepped-up tax basis. At Pure
Resources' option, Pure Resources may make such payments in either cash or Pure
Resources common stock, with the number of shares to be determined by dividing
the amount of the payment by the average of the closing trading prices for the
Pure Resources common stock for the twenty trading days previous to the date of
payment. The parties have agreed to treat all such payments as adjustments to
the purchase price for federal income tax purposes. The parties believe that the
possibility of any such payment is remote.
43
<PAGE>
Other Acquisition Proposals
Titan has agreed that it and its subsidiaries and their officers,
directors, employees and advisers will not take action to solicit or encourage
an offer for an alternative acquisition transaction involving Titan of a nature
defined in the merger agreement. Restricted actions include engaging in
discussions or negotiations with any potential bidder, or providing information
relating to Titan or its subsidiaries or affording access to their properties,
books or records to a potential bidder. The merger agreement permits these
actions in response to an unsolicited bona fide offer so long as prior to doing
so: (1) the Titan board determines in good faith, after receiving advice from
Petrie Parkman & Co., that the other offer represents a financially superior
transaction and (2) the Titan board determines in its good faith judgment that
it is necessary to do so to comply with its fiduciary duty to stockholders,
after receiving the advice of outside legal counsel.
Titan must keep Union Oil informed of the identity of any potential bidder
and the terms and status of any offer or other solicitation or contact that
might lead to an acquisition proposal.
Union Oil has agreed that neither it nor any of its representatives will
solicit, initiate or knowingly encourage any offer or proposal for a merger or
business combination of Pure Resources or the acquisition of the Permian Basin
business unit or any substantial equity interest in Pure Resources.
Termination
Prior to the merger, the merger agreement may be terminated:
. by mutual written consent of Titan and Union Oil;
. by either Titan or Union Oil if:
(1) the merger is not consummated by May 31, 2000, so long as
failure to close is not due to a material breach of the merger
agreement by the party seeking to terminate;
(2) there is a legal prohibition to closing the merger; or
(3) the Titan stockholders fail to approve the merger;
. by Titan if:
(1) the Titan board determines that proceeding with the merger would
be inconsistent with its fiduciary obligations due to a superior
proposal (in which case it would be required to pay to Union Oil
a termination fee as described below); or
(2) Union Oil or Pure Resources breaches any of its agreements in
the merger agreement or if any representation or warranty of
Union Oil becomes untrue, subject to materiality exceptions,
where the conditions to the merger agreement would not be
satisfied, and the breach is not cured within 30 days;
. by Union Oil if:
(1) Titan breaches any of its agreements in the merger agreement or if
any representation or warranty of Titan becomes untrue, subject to
materiality exceptions, where the conditions to the merger
agreement would not be satisfied, and the breach is not cured
within 30 days; or
(2) the Titan board withdraws, modifies or changes its approval or
recommendation of the merger, or does not recommend that the Titan
stockholders not tender their shares in a qualifying third-party
tender offer or exchange offer for Titan capital stock.
44
<PAGE>
Termination Fees
Termination Fees Payable by Titan. Titan has agreed to pay Union Oil a cash
termination fee of $7.5 million in any of the following circumstances:
. Union Oil terminates the merger agreement because the Titan board has
withdrawn, modified or changed its approval or recommendation of the
merger or has failed to recommend that the Titan stockholders not
tender their shares in a qualifying tender offer or exchange offer for
Titan capital stock;
. Titan terminates the merger agreement because of a superior acquisition
proposal; or
. Union Oil terminates the merger agreement as a result of Titan's breach
of any of its agreements or representations in the merger agreement and
within six months Titan consummates or enters into an agreement for an
acquisition proposal or any person or group acquires more than 50% of
the Titan voting capital stock.
Merger Costs; 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 the
reasonable out-of-pocket expenses incurred by Union Oil and its subsidiaries in
connection with the merger, other than financial advisory fees, shall be deemed
to have been incurred by Pure Resources unless the merger agreement is
terminated. In the event the merger agreement is terminated, Titan will pay
one-half of all expenses relating to this proxy statement/prospectus and the
related registration statement and all SEC and other regulatory filing fees
incurred in connection with those matters or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, except that each party will pay its own legal
expenses, and in any event Union Oil and Titan will pay the fees and expenses of
their own financial advisors. Titan paid the $45,000 Hart-Scott-Rodino filing
fee on behalf of Jack D. Hightower. The combined company expects to incur
approximately $11.6 million of nonrecurring business combination costs related
to the merger, including approximately $7.8 million payable under severance and
retention bonus agreements, and otherwise primarily related to Titan's
investment banking expenses, legal and accounting fees, financial printing
expenses and other related charges.
Amendment; Extension and Waiver
Amendment. Subject to the next sentence, the parties may amend the merger
agreement at any time with the consent of the Titan board and the Union Oil
board. If the merger agreement has been approved by the Titan stockholders,
then it can be amended subsequently without obtaining any further stockholder
approval only to the extent permitted by law.
Extension and Waiver. At any time prior to the completion of the merger,
each of Titan and Union Oil may, to the extent permitted by law, grant the other
party additional time to perform its obligations under the merger agreement or
waive compliance with any agreements or conditions for the benefit of the
waiving party.
Stock Exchange Listing
Titan and Union Oil have agreed in the merger agreement to use their
reasonable best efforts to cause the shares of Pure Resources common stock to be
issued in the merger to be approved for listing on a national securities
exchange or for designation as a national market system security on an
interdealer quotation system of the National Association of Securities Dealers
American prior to the merger. Pure Resources' common stock has been approved
for listing on the New York Stock Exchange, subject to consummation of the
merger.
Ancillary Agreements
Other agreements were either executed at the time of the execution of the
merger agreement and made effective as of and conditioned upon the closing of
the merger, or will be executed in connection with the closing of the merger.
This section describes the material provisions of the ancillary documents that
have not been described in "The Merger - Interests of Certain Persons in the
Merger."
45
<PAGE>
Stockholders Voting Agreement. Pure Resources, Union Oil and Jack D.
Hightower have entered into a stockholders voting agreement, effective as of and
conditioned upon the closing of the merger, in which Union Oil and Mr. Hightower
have agreed to vote their shares of Pure Resources capital stock to cause two
persons designated by Mr. Hightower, up to five persons designated by Union Oil,
and one person agreed upon by Union Oil and Mr. Hightower to be elected to Pure
Resources' board of directors. Under the agreement, Hightower will vote to
elect to the Pure Resources board (a) five designees of Union Oil, if Union Oil
owns greater than 50% of Pure Resources' common stock; (b) four designees of
Union Oil, if Union Oil owns greater than 35% but not more than 50% of Pure
Resources' common stock; or (c) two designees of Union Oil, if Union Oil owns
greater than 10% but not more than 35%.
Union Oil will have the right to approve the nomination of the directors
designated by Mr. Hightower, other than Mr. Hightower himself, which approval
may not be unreasonably withheld. No more than two of the persons designated
by Union Oil under the agreement may be affiliates of Union Oil. In the event
that Union Oil is entitled to designate three or more persons under the
agreement, one of the Union Oil affiliates designated must be approved by Mr.
Hightower, and any non-Union Oil affiliate designated must be approved by Mr.
Hightower. In each case Mr. Hightower's approval may not be unreasonably
withheld. The merger agreement contemplates that initially the board will
consist of seven directors, but the stockholders voting agreement provides that
if Union Oil and Mr. Hightower choose an eighth director prior to the merger,
the board will initially consist of eight directors.
The stockholders voting agreement will terminate if Union Oil and its
affiliates beneficially own less than 10% of the outstanding common stock of
Pure Resources or Mr. Hightower ceases to be the Chief Executive Officer of Pure
Resources.
Non-Dilution Agreement. Pure Resources and Union Oil entered into a non-
dilution agreement, effective as of and conditioned upon the closing of the
merger, that provides Union Oil with the right to maintain its percentage
ownership of Pure Resources. If Pure Resources issues capital stock, other than
common stock issued under board-approved incentive plans, for cash or credit,
Union Oil will have the right to purchase or subscribe for the number or amount
of such capital stock equal to its ownership percentage of Pure Resources, up to
65.4%, at the same price at which the capital stock is being issued. Pure
Resources must provide Union Oil with notice of an issuance subject to this
preemptive right at least 10 days prior to the issuance and, if Union Oil elects
to exercise the right, it must do so in such a way as not to delay pricing and
closing of the issuance. The preemptive right given by Pure Resources will
terminate if unexercised within 10 days after receipt of the notice of the
issuance of the capital stock.
If Pure Resources issues any capital stock in exchange for property other
than cash or credit, Union Oil will have the right to purchase from Pure
Resources the additional number of shares of capital stock necessary to enable
Union Oil to maintain its ownership percentage in Pure Resources, up to 65.4%.
Pure Resources must give Union Oil written notice of the issuance not later than
20 days prior to such issuance, and Union Oil will have 30 days from the date of
the issuance to elect to exercise its rights by giving written notice to Pure
Resources. The cash price per share to be paid by Union Oil for the additional
shares of capital stock will be the market trading price per share of Pure
Resources common stock at the time of the issuance or in the case of other
capital stock, as determined in good faith by the Pure Resources board of
directors.
Shares of Pure Resources common stock issued to Union Oil under the non-
dilution agreement will be entitled to the benefit of the Registration Rights
Agreement described below under "- Ancillary Agreements - Registration Rights
Agreement." Pure Resources also has agreed that if shares are issued because of
the non-dilution agreement, Pure Resources will cause those shares to be listed
for trading or quotation on any securities exchanges or quotation systems on
which the securities of that class are then listed for trading or quotation.
Business Opportunities Agreement. In a business opportunities agreement
among Union Oil, Pure Resources, Titan and TRH, Inc., effective as of and
conditioned upon the closing of the merger, Pure Resources and Titan have agreed
that following consummation of the merger, except with the consent of Union Oil,
which it may withhold in its sole discretion, Pure Resources and its
subsidiaries will not engage in any business other than the E&P Business, as
defined in the business opportunities agreement, and will not pursue any
business opportunity that involves any direct or indirect ownership interest in
any properties located outside of a designated area that includes all of Kansas,
New Mexico and Oklahoma, portions of southern and southeastern Colorado and
western Arkansas and onshore Texas, except for areas of East Texas. For
purposes of the agreement, "E&P Business" means generally the oil and gas
46
<PAGE>
exploration, exploitation, development and production business, and it does not
include the oilfield service business. In the business opportunities agreement,
Pure Resources and Titan have agreed that effective upon the merger, they will
have no interest or expectancy in any business opportunity that does not consist
exclusively of the E&P Business within the designated areas. The provisions
described in this paragraph will terminate when Union Oil no longer owns at
least 35% of the ordinary voting power for the election of Pure Resources
directors.
Pure Resources and Titan also have agreed in the business opportunities
agreement that Union Oil, its affiliates, its board designees under the
stockholders voting agreement described above in " - Ancillary Agreements -
Stockholders Voting Agreement" and companies in which Union Oil has an interest,
which participate with Union Oil or of which a board designee is a director,
officer or employee shall not be restricted by the relationship between Union
Oil and Pure Resources or otherwise from engaging in any business even though it
is in competition with the business or activities of Pure Resources or its
subsidiaries, so long as their actions do not conflict with specified standards
of conduct, which are summarized below. The business opportunities agreement
does not affirmatively restrict Union Oil's business activities, including
within the designated areas.
The parties also have agreed in the business opportunities agreement that,
as long as the activities of Union Oil, its affiliates or board designees or
other related companies are conducted in accordance with the specified
standards, which are summarized in the next paragraph:
. Union Oil, its affiliates or board designees or other related companies
will not have to offer Pure Resources or any of its subsidiaries any
business opportunity;
. Pure Resources and Titan will have no interest or expectancy in any
business opportunity pursued by Union Oil, its affiliates and board
designees and related companies; and
. Pure Resources and Titan have waived any claim that any business
opportunity pursued by Union Oil, its affiliates or board designees or
any related company constitutes a corporate opportunity of Pure
Resources or any of its subsidiaries that should have been presented to
Pure Resources.
The standards specified in the business opportunities agreement generally
provide that Union Oil, its affiliates and board designees and related companies
must conduct their businesses through the use of their own personnel and assets
and not with the use of any personnel or assets of Pure Resources. The business
opportunities agreement will not allow a board designee of Union Oil to usurp a
corporate opportunity solely for his or her personal benefit, as opposed to
pursuing, for the benefit of Union Oil, an affiliate or Union Oil or any related
company, an opportunity in accordance with the specified standards.
Registration Rights Agreement. Pure Resources entered into a registration
rights agreement with Union Oil, effective as of and conditioned upon the
closing of the merger. The registration rights agreement provides that at any
time and from time to time after 120 days following the closing date of the
merger, but no more than one time in a twelve month period, Union Oil will have
the right to require Pure Resources to effect a Securities Act registration of
all or a portion of the Pure Resources common stock owned by Union Oil. If
Union Oil demands registration of less than all of the Pure Resources shares it
owns, the portion must be at least (a) 4,300,000 shares, as adjusted for any
stock dividends, splits or otherwise, or (b) shares having an estimated
aggregate offering price to the public of at least $50 million, whichever is
lower. The registration rights agreement also provides Union Oil with piggyback
registration rights, which give Union Oil the right to include shares of Pure
Resources common stock held by it in registrations initiated by Pure Resources
or by any other holder of Pure Resources' common stock.
The registration rights agreement provides for customary indemnities by
Pure Resources in favor of persons including shares in a registration covered by
the registration rights agreement, and by such persons in favor of Pure
Resources, with respect to information to be included in the relevant
registration statement. Pure Resources will bear the reasonable costs of
registering and offering for sale any Pure Resources common stock offered in a
registration covered by the registration rights agreement, including costs and
expenses of Union Oil's counsel not to exceed $50,000 per registration. Union
Oil will pay all applicable underwriting discounts and commissions.
47
<PAGE>
Voting Agreement. In connection with the merger agreement, Jack D.
Hightower and Union Oil entered into a voting agreement in which Mr. Hightower
agreed to support the merger. Among other things, Mr. Hightower agreed that
until the merger or the termination of the merger agreement:
. he will maintain his ownership of Titan stock;
. he will not initiate, solicit or encourage any other offer or proposal
for a merger or business combination of Titan, any substantial equity
interest in Titan or a substantial portion of Titan's assets, or
discuss or negotiate competing transactions;
. he will vote his Titan stock in favor of approval of the merger;
. he will vote his Titan stock against any combination proposal or other
matter that may interfere or be inconsistent with the merger, unless
Union Oil requests that he not vote; and
. if requested by Union Oil, he will not attend and will not vote his
Titan stock at any annual or special meeting of stockholders at which a
competing transaction is being considered.
Other Agreements. Other employment agreements and severance agreements to
be entered into in connection with the merger are described under "The Merger -
Interests of Certain Persons in the Merger" on page 34.
Stockholder Rights Plan
Under Titan's Rights Agreement dated as of June 10, 1999, as amended,
between Titan and First Union National Bank, as Rights Agent, Titan has issued
one right to purchase its Series A Junior Participating Preferred Stock for
every outstanding share of Titan's common stock. The merger will not cause a
triggering event to occur under the rights agreement and the agreement will
cease to have effect once the merger is complete. Pure Resources does not have a
rights agreement and has no present intention to adopt a stockholder rights
plan. However, the Pure Resources board could do so without stockholder approval
at any future time.
Pure Resources 1999 Incentive Plan
In connection with the merger agreement, Pure Resources' board of directors
adopted, and Union Oil as sole stockholder of Pure Resources approved, the Pure
Resources 1999 Incentive Plan. The plan provides that Pure Resources may grant
awards of Pure Resources common stock under the Pure Resources 1999 Incentive
Plan. The awards under the Pure Resources 1999 Incentive Plan include:
. stock options that do not qualify as incentive stock options under
Section 422 of the Internal Revenue Code;
. stock appreciation rights, or "SARs";
. cash awards;
. stock awards; and
. performance awards.
These awards, other than cash awards, may be settled in shares of restricted or
unrestricted common stock of Pure Resources.
The number of shares of Pure Resources common stock that may be subject to
outstanding awards under the Pure Resources 1999 Incentive Plan at any one time
is equal to twelve percent of the total number of outstanding shares of Pure
Resources common stock, treating as outstanding all shares of Pure Resources
common stock issuable within 60 days upon conversion or exchange of outstanding,
publicly traded convertible or exchangeable securities of Pure Resources, minus
the total number of shares of Pure Resources common stock subject to outstanding
awards
48
<PAGE>
under any other stock-based plan for employees or directors of Pure Resources.
Upon consummation of the merger, the number of shares authorized under the Pure
Resources 1999 Incentive Plan will be 6,055,125. The number of shares authorized
under the Pure Resources 1999 Incentive Plan and the number of shares subject to
an award under the Pure Resources 1999 Incentive Plan will be adjusted for stock
splits, stock dividends, recapitalizations, mergers, and other changes affecting
the capital stock of Pure Resources.
The board of directors of Pure Resources or any committee designated by it
will administer the Pure Resources 1999 Incentive Plan. After the merger, Pure
Resources intends to have its Compensation Committee administer the plan. The
Compensation Committee will have broad discretion to administer the Pure
Resources 1999 Incentive Plan, interpret its provisions and adopt policies for
implementing the Pure Resources 1999 Incentive Plan.
49
<PAGE>
In connection with the merger agreement, the board of directors of Pure
Resources granted stock options to purchase Pure Resources common stock to the
current executive officers of Titan, and to other persons who will be executive
officers of Pure Resources, under the Pure Resources 1999 Incentive Plan,
subject to forfeiture if the merger does not occur and/or such person does not
become an employee of Pure Resources. The options granted are described in the
following table:
<TABLE>
<CAPTION>
Number of Exercise
Shares of Pure Resources Price
Common Stock Per Expiration
Name Underlying Options Share Date
- ------------------------------------- ------------------------ -------- ----------
<S> <C> <C> <C>
Jack D. Hightower 1,300,000 (1) $ 9.30 12/13/2009
500,000 (1) (2) 12/13/2009
George G. Staley 200,000 (1) $ 9.30 12/13/2009
100,000 (1) (2) 12/13/2009
William K. White 135,000 (3) $ 9.30 12/13/2009
40,000 (3) (2) 12/13/2009
Rodney L. Woodard 125,000 (3) $ 9.30 12/13/2009
40,000 (3) (2) 12/13/2009
Dan P. Colwell 125,000 (3) $ 9.30 12/13/2009
40,000 (3) (2) 12/13/2009
Thomas H. Moore 125,000 (3) $ 9.30 12/13/2009
40,000 (3) (2) 12/13/2009
Total Current Titan Executive Officer 2,385,000 (4) $ 9.30 12/13/2009
Group 915,000 (4) (2) 12/13/2009
Total Non-Titan Group 125,000 (3) $ 9.30 12/13/2009
75,000 (3) (2) 12/13/2009
</TABLE>
____________________
(1) Options become exercisable with respect to one-third of the shares covered
thereby on the first anniversary of grant, one-third on the second
anniversary of grant and the balance on the third anniversary of grant.
(2) The exercise price for these premium options shall be an amount equal to
1.25 times the average of the closing prices for a share of Titan common
stock for each of the ten trading days prior to the closing of the merger,
divided by .4302314 (which is the exchange ratio).
(3) Options become exercisable with respect to one-fourth of the shares covered
thereby on the first anniversary of grant, one-fourth on the second
anniversary of grant, one-fourth on the third anniversary of grant and the
balance on the fourth anniversary of grant.
(4) All options other than those of Mr. Hightower and Mr. Staley vest one-
fourth per year.
50
<PAGE>
MARKET PRICE DATA
Titan's common stock is listed on the Nasdaq National Market under the
symbol "TEXP." The following table sets forth, for the periods indicated, the
high and low reported sales price per share for Titan's common stock.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended December 31, 1998
First Quarter.................................................. $ 9 5/8 $ 6 11/16
Second Quarter................................................. 9 1/2 7 1/2
Third Quarter.................................................. 9 1/8 5 1/2
Fourth Quarter................................................. 8 15/16 5 3/8
Fiscal Year Ended December 31, 1999
First Quarter.................................................. $ 7 3/16 $ 4 3/8
Second Quarter................................................. 5 15/16 4 5/16
Third Quarter.................................................. 6 1/16 4 5/8
Fourth Quarter................................................. 5 7/16 3
Fiscal Year Ended December 31, 2000
First Quarter.................................................. $ 5 1/4 $ 3 1/4
Second Quarter (through April 17, 2000)........................ $ 5 1/4 $ 4 1/2
</TABLE>
On December 13, 1999, the trading day before the public announcement of the
signing of the merger agreement, the last reported sales price on the Nasdaq
National Market of Titan common stock was $3.88 per share. On April 17, 2000,
the most recent practicable date prior to the printing of this document, the
last reported sales price of Titan common stock was $4.63 per share. As of
April 17, 2000, there were 149 holders of record and approximately 3,000
beneficial owners of record of Titan's common stock. Titan has never paid any
cash dividends on its common stock, and Titan's credit facility currently
prohibits the payment of dividends in excess of $5 million per fiscal year.
No market information is available for the common stock of Pure Resources
since there is no established trading market for it. Pure Resources' common
stock has been approved for listing on the New York Stock Exchange under the
symbol "PRS", subject to consummation of the merger. Pure Resources has never
paid dividends on its common stock.
After the merger, Pure Resources intends to retain its cash to support the
growth of its business. Any future cash dividends would depend on future
earnings, capital requirements and Pure Resources' financial condition and other
factors deemed relevant by Pure Resources' board of directors. In addition, in
the merger agreement Pure Resources has agreed that for a period of three years
following the merger, it will not pay any dividend in cash or property other
than capital stock in excess of $5 million per year on Pure Resources common
stock unless approved by a majority of the board of directors of Pure Resources
who are not affiliates of Union Oil.
51
<PAGE>
PURE RESOURCES AFTER THE MERGER
The following section provides information on the business and properties
of Pure Resources on a pro forma basis giving effect to the contribution of the
Permian Basin business unit by Union Oil to Pure Resources, the assumption of
the related liabilities by Pure Resources and the consummation of the merger, as
well as the disposition by Titan of selected operating assets in 1999. The
historical information of Titan included in this section includes any amounts
attributable to the disposed assets. You should read the following discussion
together with the information relating to the Permian Basin business unit and
Titan included or incorporated by reference in this document.
Overview
Pure Resources will be an independent energy company engaged in the
acquisition, exploitation, development and exploration of oil and gas properties
located in the Permian Basin of West Texas and southeastern New Mexico, the San
Juan Basin of northwestern New Mexico, the Brenham Dome area of south central
Texas and the central Gulf Coast region of Texas.
Following the merger, Pure Resources' strategy will be to grow its
reserves, production and net income per share by:
. identifying acquisition opportunities that provide significant
development and exploratory drilling potential,
. exploiting and developing its reserve base,
. pursuing exploration opportunities for oil and gas reserves,
. capitalizing on advanced technology to identify, explore and exploit
projects, and
. emphasizing a low overhead and operating cost structure.
Pure Resources anticipates that the combined company's capital expenditure
budget for 2000 will be approximately $80 million to $100 million. Titan's and
the Permian Basin business unit's individual capital expenditure budgets for
2000 were each in the $50 million range. The combination of the two companies
may result in Pure Resources' not spending the total of each company's
individual budget during 2000.
As of December 31, 1999, on a pro forma basis, Pure Resources had proved
reserves of approximately 71.8 MMBbls of oil and condensate and 585.7 Bcf of
gas, or an aggregate of 1,016.6 Bcfe, with an SEC 10% present value of $865.9
million. On a pro forma basis, Pure Resources' properties had an average
reserve life of approximately 11.8 years and, of Pure Resources' proved
reserves, 58% were natural gas and 81% were classified as proved developed.
As of December 31, 1999, on a pro forma basis, Pure Resources operated over
2,100 gross productive wells (over 1,700 net productive wells), which
represented over 76% of its total proved SEC 10% present value as of such date.
Pure Resources' emphasis on acting as operator of properties in which it has an
interest enables it to manage expenses, capital allocation and other aspects of
development and exploration.
Pure Resources' proved oil and gas properties are located in more than 100
fields/areas in the Permian Basin, San Juan Basin and Brenham Dome area.
Approximately 82% of Pure Resources' SEC 10% present value of total proved
reserves is concentrated in 23 Permian Basin fields/areas and the San Juan
Basin. The Permian Basin is characterized by complex geology with numerous
known producing horizons and provides significant opportunities to increase
reserves, production and ultimate recoveries through development, exploratory
and horizontal drilling, recompletions, secondary and tertiary recovery methods
and use of 3-D seismic and other advanced technologies.
Following the merger, Pure Resources' executive offices will be located at
500 West Texas, Suite 200, Midland, Texas 79701, and its telephone number will
be (915) 498-8600.
52
<PAGE>
Oil and Natural Gas Reserves
The following table summarizes the estimates of Titan's and the Permian
Basin business unit's historical, and Pure Resources' pro forma net proved oil
and gas reserves and Pure Resources' pro forma discounted present values of
these reserves, as of December 31, 1999. The proved oil and gas reserve
information represents only estimates. The estimates of Titan's reserves are
based primarily on reports prepared by an independent petroleum engineer as of
December 31, 1999. The estimates of the Permian Basin business units reserves
are based on reports as of December 31, 1999 prepared internally by petroleum
engineers employed by Union Oil. The estimates were calculated using oil and gas
prices as of December 31, 1999. See "Information Concerning Permian Basin
Business Unit -- Estimates of Oil and Gas Reserve Information" on page 76 for
more information regarding these kinds of estimates. The SEC 10% present value
and standardized measures of discounted future net cash flows shown in the table
are not intended to represent the current market value of the estimated oil and
gas reserves owned.
<TABLE>
<CAPTION>
Proved Reserve Data as of December 31, 1999
------------------------------------------------------------------------------
Historical Pure Resources Pro Forma
----------------- -----------------------------------------------------------
Permian
Basin 10% 10%
Business Pure Present Present Standardized
Primary Operating Areas Titan Unit Resources % Value Value % Measure
- ------------------------- ------- -------- --------- ----- --------- ------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Equivalent MMcfe:
Permian Basin............ 415,827 424,914 840,741 82.7% $ 746,416 86.2%
San Juan Basin........... -- 155,953 155,953 15.3% 94,847 11.0%
South Texas.............. 19,858 -- 19,858 2.0% 24,657 2.8%
------- -------- --------- ----- --------- -------
Total................. 435,685 580,867 1,016,552 100.0% $ 865,920 100.0% $ 638,454
======= ======== ========= ===== ========= ======= ============
Oil - MBbls:
Permian Basin............ 31,052 39,474 70,526 98.2%
San Juan Basin........... -- 508 508 .7%
South Texas.............. 778 -- 778 1.1%
------- -------- --------- -----
Total................. 31,830 39,982 71,812 100.0%
======= ======== ========= =====
Gas - MMcf:
Permian Basin............ 229,515 188,070 417,585 71.3%
San Juan Basin........... -- 152,905 152,905 26.1%
South Texas.............. 15,190 -- 15,190 2.6%
------- -------- --------- -----
Total................. 244,705 340,975 585,680 100.0%
======= ======== ========= =====
</TABLE>
Productive Wells and Acreage
Productive Wells
The following table sets forth, for Titan and the Permian Basin business
unit historically and for Pure Resources on a pro forma basis, productive wells
as of December 31, 1999:
<TABLE>
<CAPTION>
Permian Basin Pure Resources
Historical Titan Business Unit Pro Forma
----------------- --------------- -----------------
GROSS NET GROSS NET GROSS NET
----- --- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Oil................................... 2,001 692 1,066 713 3,067 1,405
Gas................................... 673 260 476 305 1,149 565
----- --- ----- ----- ----- -----
Total Productive Wells................ 2,674 952 1,542 1,018 4,216 1,970
===== === ===== ===== ===== =====
</TABLE>
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections to commence
deliveries and oil wells awaiting connection to production facilities. Wells
that are completed in more than one producing horizon are counted as one well.
53
<PAGE>
Acreage Data
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional
interests owned in gross acres expressed as whole numbers and fractions thereof.
The following table sets forth the approximate developed and undeveloped acreage
in which Titan or the Permian Basin business unit historically, or Pure
Resources on a pro forma basis, held a leasehold mineral or other interest as of
December 31, 1999.
<TABLE>
<CAPTION>
Developed Acres Undeveloped Acres Total Acres
------------------- ------------------- ---------------------
Gross Net Gross Net Gross Net
------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Historical Titan................ 206,000 76,000 727,000 424,000 933,000 500,000
Permian Basin business
unit......................... 129,000 122,000 176,000 166,000 305,000 288,000
Pure Resources
Pro Forma.................... 335,000 198,000 903,000 590,000 1,238,000 788,000
</TABLE>
Drilling Activities
The following table sets forth, for Titan and the Permian Basin business
unit historically and for Pure Resources on a pro forma basis, drilling activity
on their respective properties for 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
Gross Net Gross Net Gross Net
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
- -----------------
Titan Historical:
Productive................. 10.0 3.9 8.0 3.6 2.0 1.0
Nonproductive.............. 9.0 4.5 3.0 2.5 2.0 1.8
---- ---- ---- ---- ---- ----
Total.................. 19.0 8.4 11.0 6.1 4.0 2.8
==== ==== ==== ==== ==== ====
Permian Basin business unit:
Productive................. 1.0 1.0 3.0 1.0 1.0 1.0
Nonproductive.............. 2.0 2.0 -- -- -- --
---- ---- ---- ---- ---- ----
Total.................. 3.0 3.0 3.0 1.0 1.0 1.0
==== ==== ==== ==== ==== ====
Pure Resources Pro Forma:
- ------------------------
Productive................. 11.0 4.9 8.0 2.6 3.0 2.0
Nonproductive.............. 11.0 6.5 3.0 2.5 2.0 1.8
---- ---- ---- ---- ---- ----
Total.................. 22.0 11.4 11.0 5.1 5.0 3.8
==== ==== ==== ==== ==== ====
Development Wells:
- -----------------
Titan Historical:
Productive................. 16.0 12.0 22.0 18.8 48.0 17.2
Nonproductive.............. -- -- 4.0 3.7 6.0 4.5
---- ---- ---- ---- ---- ----
Total.................. 16.0 12.0 26.0 22.5 54.0 21.7
==== ==== ==== ==== ==== ====
Permian Basin business unit:
Productive................. 27.0 14.5 37.0 18.0 17.0 15.0
Nonproductive.............. -- -- 1.0 1.0 -- --
---- ---- ---- ---- ---- ----
Total.................. 27.0 14.5 38.0 19.0 17.0 15.0
---- ---- ==== ==== ==== ====
Pure Resources Pro Forma:
Productive................. 43.0 26.5 55.0 34.2 65.0 32.2
Nonproductive.............. -- -- 3.0 3.0 6.0 4.5
---- ---- ---- ---- ---- ----
Total.................. 43.0 26.5 58.0 37.2 71.0 36.7
==== ==== ==== ==== ==== ====
</TABLE>
54
<PAGE>
Net Production, Unit Prices and Costs
The following table presents selected information with respect to oil and
gas production, prices and costs attributable to all oil and gas property
interests owned by Titan and the Permian Basin business unit historically and
Pure Resources on a pro forma basis.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------
Permian Pure
Historical Basin Resources
Titan Business Unit Pro Forma
---------- ------------- ----------
<S> <C> <C> <C>
Production:
Oil and condensate (MBbls)........................... 2,272 3,659 5,855
Gas (MMcf)........................................... 23,190 28,899 50,856
Total (MMcfe)..................................... 36,822 50,853 85,986
Average sales price per unit (a):
Oil and condensate (per Bbl)......................... $ 16.22 $ 17.66 $ 17.17
Gas (per Mcf)........................................ $ 1.68 $ 1.68 $ 1.68
Total (per Mcfe).................................. $ 2.06 $ 2.23 $ 2.16
Expenses per Mcfe:
Production costs, excluding production and other taxes.. $ 0.51 $ 0.63 $ 0.57
Production and other taxes.............................. $ 0.17 $ 0.17 $ 0.17
General and administrative costs........................ $ 0.21 $ 0.15 $ 0.17
Depletion, depreciation and amortization expenses....... $ 0.52 $ 0.66 $ 0.57
</TABLE>
____________
(a) Reflects results of hedging activities, if any.
Hedging
Pure Resources' use of hedging contracts to reduce its sensitivity to oil
and gas price volatility will be subject to a number of risks. If Pure Resources
does not produce reserves at the rates it estimates due to inaccuracies in the
reserve estimation process, operational difficulties or regulatory limitations,
Pure Resources would be required to satisfy obligations it may have under fixed
price sales and hedging contracts on potentially unfavorable terms without the
ability to hedge that risk through sales of comparable quantities of its own
production. The terms under which Pure Resources will enter into fixed price
sales and hedging contracts will be based on assumptions and estimates of
numerous factors, including transportation costs to delivery points. Substantial
variations between the assumptions and estimates Pure Resources will use and
actual results Pure Resources will experience could adversely affect Pure
Resources' anticipated profit margins and its ability to manage the risks
associated with fluctuations in oil and gas prices. Additionally, fixed price
sales and hedging contracts limit the benefits Pure Resources will realize if
actual prices rise above the contract prices. Hedging contracts are also subject
to the risk that the counter-party may not be able or willing to perform its
obligations. Pure Resources will not assume any hedging contracts in the merger
from Union Oil or the Permian Basin business unit. Pure Resources may enter into
hedging arrangements with Enron Capital & Trade Resources Corp., an affiliate of
Enron Corp., which directly or through affiliates holds 8.5% of Titan's common
stock, but will only do so if Enron Capital offers terms which are equivalent to
or better than those offered by unaffiliated third parties. Following the
merger, Enron Corp. directly or through its affiliates will hold less than five
percent of Pure Resources' outstanding common stock.
Pure Resources Financing
Titan currently has a $250 million secured revolving credit line subject to
a borrowing base. The borrowing base is subject to redetermination annually each
April by the lenders based on certain proved oil and gas reserves and other
assets of Titan. At the April 1999 redetermination, Titan's borrowing based
decreased from $200 million to $175 million as a result of property sales and
declining commodity prices. At December 31, 1999, the outstanding
55
<PAGE>
principal balance was $89 million, the available capacity was approximately $86
million and the weighted average interest rate was 6.54%. Pure Resources has
begun the process of obtaining a new credit facility to replace the Titan credit
facility. Although no specific terms of the new credit facility are known, Pure
Resources will seek to obtain a $400 to $500 million credit facility.
Acquisitions
Pure Resources' strategic plan includes the acquisition of additional
reserves, including through subsequent business combination transactions. Pure
Resources may not be able to consummate future acquisitions on favorable terms.
Additionally, future acquisitions may not achieve favorable financial results.
Acquisitions may require substantial financial expenditures that will need
to be financed through cash flow from operations or future debt and equity
offerings by Pure Resources. Pure Resources may not be able to acquire companies
or oil and gas properties using its equity as currency. In the case of cash
acquisitions, Pure Resources may not be able to generate sufficient cash flow
from operations or obtain debt or equity financing sufficient to fund future
acquisitions or reserves.
Although Pure Resources' management will review and analyze the properties
that it will acquire, such reviews are subject to uncertainties. The acquisition
of producing properties will involve an assessment of several factors, including
recoverable reserves, future oil and gas prices, operating costs, potential
environmental and other liabilities and other factors beyond Pure Resources'
control. These assessments are necessarily inexact, and it is generally not
possible to review in detail every individual property involved in an
acquisition. However, even a detailed review of all properties may not reveal
all existing structural and environmental problems. Pure Resources will
generally assume preclosing liabilities, including environmental liabilities,
and will generally acquire interests in oil and gas properties on an "as is"
basis. In addition, volatile oil and gas prices will make it difficult for Pure
Resources to accurately estimate the value of producing properties for
acquisition and may cause disruption in the market for oil and gas producing
properties. Price volatility also makes it difficult to budget for and project
the return on acquisitions and development and exploration projects. Pure
Resources will not be able to assure that its acquisitions will achieve desired
profitability objectives.
Operating Risks
The nature of the oil and gas business involves operating hazards such as
well blowouts, cratering, explosions, uncontrollable flows of oil, gas or well
fluids, fires, formations with abnormal pressures, pollution, releases of toxic
gas and other environmental hazards and risks. Any of these operating hazards
could result in substantial losses to Pure Resources.
In addition, Pure Resources may be liable for environmental damages caused
by previous owners of property purchased by Pure Resources or its predecessors.
As a result, substantial liabilities to third parties or governmental entities
may be incurred. The payment of these amounts could reduce or eliminate the
funds available for exploration, development or acquisitions. These reductions
in funds could result in a loss of Pure Resources' properties.
In accordance with customary industry practices, Pure Resources will
maintain insurance against some, but not all, of such risks and losses. The
occurrence of an event that is not fully covered by insurance could have a
material adverse effect on the financial position and results of operations of
Pure Resources.
Government Regulation
Pure Resources' business will be subject to foreign, federal, state and
local laws and regulations relating to the exploration for, and the development,
production and transportation of, oil and gas, as well as environmental and
safety matters. Many of these laws and regulations have become stricter in
recent years. These laws and regulations often impose greater liability on a
larger number of potentially responsible parties.
56
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
PURE RESOURCES
The unaudited pro forma combined financial statements have been prepared to
assist in the analysis of the financial effects of the proposed merger of a
wholly-owned subsidiary of Pure Resources with and into Titan and the related
transactions. Under the terms of the merger agreement, Union Oil will contribute
the assets and liabilities of its Permian Basin business unit, which is an
operating unit of Union Oil, to a newly-formed subsidiary, Pure Resources, in
exchange for common stock of Pure Resources. Pure Resources' wholly-owned
subsidiary, TRH, Inc., will merge with and into Titan with Titan stockholders
receiving approximately 34.6% of Pure Resources' common stock in exchange for
the outstanding Titan shares. Consequently, Pure Resources will account for the
transaction as a purchase of Titan. The unaudited pro forma combined financial
statements have been prepared as if the merger had taken place on December 31,
1999, with respect to the unaudited combined balance sheet and as of January 1,
1999, with respect to the unaudited pro forma combined statement of operations.
The unaudited pro forma combined statement of operations also reflect the sales
of selected operating assets of Titan as if they were sold on January 1, 1999.
The unaudited pro forma financial statements and related notes are
presented for illustrative purposes only. If the merger had occurred in the
past, Pure Resources' financial position or operating results might have been
different from those presented in the unaudited pro forma information. The
unaudited pro forma information should not be relied upon as an indication of
the financial position or operating results that Pure Resources would have
achieved if the merger and the asset sales had taken place at the dates
specified. You should also not rely on the unaudited pro forma information as an
indication of the future results that Pure Resources will achieve after the
merger. In addition, future results may vary significantly from the results
reflected in the accompanying unaudited pro forma combined financial statements
because of normal production declines, changes in product prices, future
acquisitions and divestitures and other factors.
The following unaudited pro forma combined financial statements and related
notes should be read in conjunction with the financial statements and related
notes of the Permian Basin business unit included in this document and the
consolidated financial statements of Titan incorporated by reference in this
document.
57
<PAGE>
Pure Resources
Unaudited Pro Forma Combined Balance Sheet
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pure
Permian Resources
Basin Pro Forma
business unit Titan Adjustments Combined
------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ -- $ 1,310 $ 1,310
Accounts receivable:
Oil and gas.......................................... -- 10,365 10,365
Other................................................ -- 252 252
Inventories.............................................. -- 732 732
Prepaid expenses and other current assets................... -- 549 549
------------- --------- ----------
Total current assets.............................. -- 13,208 13,208
------------- --------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts
method of accounting:
Proved properties.................................... 827,340 345,349 (153,265) (b) 1,019,424
Unproved properties.................................. 3,841 13,438 10,000 (b) 27,279
Accumulated depletion, depreciation and amortization..... (539,371) (128,686) 128,686 (b) (539,371)
------------- --------- ----------
291,810 230,101 507,332
------------- --------- ----------
Other property and equipment, net........................... -- 4,188 (8) (b) 4,180
Deferred income taxes....................................... -- 20,612 8,397 (b) --
(29,009) (c)
Deferred compensation (Note 5).............................. -- -- 20,466 (d) 20,466
Other assets................................................ 2,880 689 (274) (b) 3,295
------------- --------- ----------
$ 294,690 $ 268,798 $ 548,481
============= ========= ==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities:
Trade................................................ $ -- $ 7,858 $ 7,858
Accrued interest..................................... -- 959 959
Other................................................ -- 8,303 8,303
------------- --------- ----------
Total current liabilities......................... -- 17,120 17,120
------------- --------- ----------
Long-term debt.............................................. -- 90,000 11,610 (b) 101,610
Other liabilities........................................... 18,355 827 19,182
Deferred income taxes....................................... 73,711 -- (29,009) (c) 44,702
Common Stock subject to repurchase (Note 5)................. -- -- 55,995 (d) 55,995
Equity:
Preferred Stock.......................................... -- -- --
Common Stock............................................. -- 440 327 (a) 500
(267) (b)
Additional paid-in capital............................... -- 285,265 202,297 (a) 318,101
(133,932) (b)
(35,529) (d)
Treasury stock, at cost.................................. -- (25,764) 25,764 (b) --
Notes receivable -- officers and employees............... -- (8,729) (8,729)
Accumulated deficit...................................... -- (90,361) 90,361 (b) --
Owner's net investment................................... 202,624 -- (202,624) (a) --
------------- --------- ----------
Total equity...................................... 202,624 160,851 309,872
------------- --------- ----------
$ 294,690 $ 268,798 $ 548,481
============= ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements
58
<PAGE>
Pure Resources
Unaudited Pro Forma Combined Statement of Operations
Year ended December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Permian Pure
Basin Resources
business Assets Pro Forma
unit Titan Sold Adjustments Combined
-------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Gas sales.............................................. $ 48,633 $ 38,866 $ (2,156) $ 85,343
Oil sales.............................................. 64,613 36,851 (950) 100,514
Other operating revenues............................... 880 -- -- 880
-------- -------- -------- ---------
Total revenues..................................... 114,126 75,717 (3,106) 186,737
-------- -------- -------- ---------
Expenses:
Oil and gas production (Note 6)........................ 32,268 18,643 (1,566) 49,345
Production and other taxes............................. 8,579 6,116 (59) 14,636
General and administrative (Note 6).................... 7,836 7,771 (745) 14,862
Amortization of deferred compensation (Note 5)......... -- 5,049 -- 1,773 (d) 6,822
Exploration and abandonment............................ 5,232 11,049 (383) 15,898
Depletion, depreciation and amortization............... 33,393 19,222 (1,570) (2,103) (e) 48,942
Impairment of long-lived assets........................ 345 31,783 (25,900) 6,228
-------- -------- -------- ---------
Total expenses..................................... 87,653 99,633 (30,223) 156,733
-------- -------- -------- ---------
Operating income (loss)............................ 26,473 (23,916) 27,117 30,004
-------- -------- -------- ---------
Other income (expense):
Equity in net loss of affiliates....................... -- (182) 115 (67)
Interest income........................................ -- 102 -- 102
Interest expense....................................... -- (7,320) -- 1,344 (f) (5,976)
Gain (loss) on sale of assets.......................... -- 1,344 -- 1,344
Other.................................................. -- 1,629 (541) 1,088
-------- -------- -------- ---------
Income (loss) before income taxes.................. 26,473 (28,343) 26,691 26,495
Income tax (expense) benefit.............................. (8,685) 20,069 -- (20,658) (g) (9,274)
-------- -------- -------- ---------
Net income (loss).................................. $ 17,788 $ (8,274) $ 26,691 $ 17,221
======== ======== ======== =========
Net income (loss) per share........................ $ (.22) $ .34
======== =========
Net income (loss) per share - assuming dilution.... $ (.22) $ .33
======== =========
Weighted average common shares outstanding................ 38,038 50,000
======== =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements
59
<PAGE>
PURE RESOURCES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 1999
Note 1. Basis of Presentation
The unaudited pro forma combined financial statements have been prepared to
reflect the proposed merger of TRH, Inc., a wholly owned subsidiary of Pure
Resources, with and into Titan, with Pure Resources (a wholly-owned subsidiary
of Union Oil prior to the transaction) resulting as the parent of Titan, all as
provided in the agreement and plan of merger described elsewhere herein. Under
the terms of the merger agreement, Union Oil will contribute the assets and
liabilities of its Permian Basin business unit to a newly-formed subsidiary,
Pure Resources, in exchange for common stock of Pure Resources. Pure Resources'
wholly-owned subsidiary, TRH, Inc., will merge with and into Titan with Titan
stockholders receiving 34.6% of Pure Resources' common stock in exchange for the
outstanding Titan shares. Consequently, Pure Resources will account for the
transaction as a purchase of Titan. The unaudited pro forma combined financial
statements have been prepared as if the merger had taken place on December 31,
1999 with respect to the unaudited combined balance sheet and as of January 1,
1999 with respect to the unaudited pro forma combined statement of operations.
The unaudited pro forma combined statement of operations also reflect the sales
of selected operating assets of Titan as if they were sold on January 1, 1999.
Following is a description of the individual columns included in these
unaudited pro forma combined financial statements:
Permian Basin business unit. Represents the balance sheet as of December
31, 1999 and results of operations for the year ended December 31, 1999 of
substantially all of Union Oil's Permian Basin and San Juan Basin oil and gas
properties which, taken together, is the predecessor of Pure Resources.
Titan. Represents the consolidated balance sheet as of December 31, 1999
and the consolidated results of operations for the year ended December 31, 1999
of Titan.
Assets Sold. Represents the reversal of the operations of the assets sold
("Assets Sold") by Titan during the year ended December 31, 1999 as if such
sales had taken place on January 1, 1999. The Assets Sold are primarily
comprised of two dispositions: (a) the $71.3 million sale for cash of Titan's
Gulf of Mexico properties in May 1999 and (b) the $5.4 million sale for cash of
Titan's Gulf Coast properties in April 1999. See Titan's Form 10-K for the year
ended December 31, 1999 for additional details regarding the Assets Sold. See
"Where You Can Find More Information" on page 95.
Note 2. Pro Forma Entries
(a) To record the effects of the capitalization of Pure Resources by the
Permian Basin business unit assets and liabilities being contributed
to Pure Resources. Pure Resources will issue 32,709,067 shares of $.01
par value common stock to Union Oil.
(b) To record the effect of Pure Resources' issuing a total of 17,290,933
shares of $.01 par value common stock to the stockholders of Titan at
an exchange ratio of .4302314 shares of Pure Resources common stock
for each outstanding share of Titan common stock. Additionally, the
purchase price reflects the issuance by Pure Resources of 459,377
options to purchase Pure Resources common stock, which were valued at
their estimated fair value using the Black-Scholes option pricing
model (the weighted average estimated fair value price was $3.39), in
exchange for the outstanding options of Titan. The share price for
Pure Resources common stock issued was $8.86 per share. The Pure
Resources share price was derived from taking the average of the Titan
common stock closing price, adjusted for the exchange ratio, on the
announcement date of the proposed merger and the closing price one day
prior and subsequent to the announcement date. Shares and options
subject to marketability restrictions (1,859,970 shares and 33,141
options) were valued at a discounted share price (80% of market). This
transaction has been treated as a purchase of Titan by Pure Resources.
60
<PAGE>
PURE RESOURCES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS - continued
December 31, 1999
The preliminary purchase price (actual purchase price is not expected to
differ materially from the preliminary purchase price) has been calculated
as follows (in thousands):
Pure Resources common stock $149,947
Pure Resources stock options 1,559
Estimated costs of Titan severance agreements 7,800
Estimated acquisition costs 3,810
--------
Purchase price $163,116
========
The following is the breakdown of the preliminary purchase price allocation
(actual purchase price allocation is not expected to differ materially from
the preliminary purchase price) and the related adjustments to the
historical amounts of Titan (in thousands):
<TABLE>
<CAPTION>
Purchase
Historical Price
Amounts Adjustments Allocation
---------- ----------- ----------
<S> <C> <C> <C>
Current assets, excluding cash and cash equivalents $ 11,898 $ 11,898
Proved oil and gas properties, net 216,663 (24,579) (i) 192,084
Unproved oil and gas properties 13,438 10,000 (ii) 23,438
Other property, plant and equipment 4,188 (8) (iii) 4,180
Deferred tax asset 20,612 8,397 (iv) 29,009
Other assets 689 (274) (iii) 415
Current liabilities (17,120) (17,120)
Long-term debt (90,000) (11,610) (v) (101,610)
Other liabilities (827) (827)
Common stock (440) 267 (vi) (173)
Additional paid-in-capital (285,265) 133,932 (vi) (151,333)
Treasury stock 25,764 (25,764) (vii) -
Notes receivable - officers and employees 8,729 8,729
Accumulated deficit 90,361 (90,361) (viii) -
---------- ----------
Cash $ (1,310) $ (1,310)
========== ==========
</TABLE>
____________________
(i) To adjust proved oil and gas properties, net of
accumulated depletion, to fair value based on reserve
studies less the excess of fair value over the allocated
purchase price.
(ii) To adjust unproved oil and gas properties to fair value
based on management's estimate of market values.
(iii) To adjust various other assets to fair value.
(iv) To adjust deferred taxes as a result to the purchase price
allocation.
(v) Record the estimated transaction costs ($3.8 million) and
costs for amounts payable under Titan's existing severance
and retention bonus agreements ($7.8 million); for
additional details and terms see Note 5.
(vi) To adjust the for the value of the Pure Resources common
stock and options issued in the Merger.
(vii) To eliminate the Titan treasury stock in accordance with
the terms of the Merger.
(viii) To eliminate Titan's historical accumulated deficit.
(c) To properly classify the deferred income taxes.
61
<PAGE>
PURE RESOURCES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS - continued
December 31, 1999
(d) To record deferred compensation and common stock subject to rights to
require a purchase in connection with agreements between Pure
Resources and the officers of Pure Resources specified in the merger
agreement which allow the officers to require Pure Resources to
purchase their shares of common stock for an amount determined by
reference to a calculated net asset value. The officers will have the
right to require Pure Resources to purchase the shares after three
years upon termination or earlier under other specified circumstances.
The associated deferred compensation is amortized over a three-year
period. See Note 5 for additional information.
(e) To adjust depletion and depreciation expense to reflect the allocated
purchase price of Titan's property and equipment.
(f) To adjust interest expense for (a) the application of the net sales
proceeds from the Assets Sold to reduce Titan's long-term debt and (b)
the incurrence of long-term debt to fund the payments of the severance
agreements and transaction costs. The net sales proceeds were $74.0
million and the weighted average interest rate was 7.00%, which
reduced interest expense approximately $2.2 million. The payments to
fund the severance agreements and transaction costs of approximately
$11.6 million increased interest expense by $.8 million.
(g) To adjust income tax expense.
Note 3. Income Taxes
Pure Resources accounts for income taxes as provided in Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes."
Note 4. Supplemental Oil and Gas Reserve Information
The following unaudited pro forma combined supplemental information
regarding the oil and gas activities of Pure Resources is presented pursuant to
the disclosure requirements promulgated by the Securities and Exchange
Commission and Statement of Financial Accounting Standards No. 69, "Disclosures
About Oil and Gas Producing Activities". The pro forma combined reserve
information is presented as if the merger and Assets Sold had occurred on
January 1, 1999.
Management emphasizes that reserve estimates are inherently imprecise and
subject to revision and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available; such changes could
be significant.
62
<PAGE>
PURE RESOURCES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS - continued
December 31, 1999
Quantities of oil and gas reserves
Set forth below is a pro forma summary of the changes in the net quantities
of oil and condensate and natural gas reserves for the year ended December 31,
1999.
Oil and Natural
Condensate Gas
(MBbls) (MMcf)
---------- -------
Total Proved Reserves:
Balance, January 1, 1999 60,504 630,516
Revisions of previous estimates 14,960 (36,272)
Purchase of minerals-in-place 1,056 8,285
Sales of minerals-in-place (2) (28)
Extensions and discoveries 1,149 34,035
Production (5,855) (50,856)
---------- -------
Balance, December 31, 1999 71,812 585,680
========== =======
Proved Developed Reserves:
January 1, 1999 49,387 492,884
December 31, 1999 60,599 458,852
Standardized measure of discounted future net cash flows
The pro forma combined standardized measure of discounted future net cash
flows is computed by applying year-end prices of oil and gas (with consideration
of price changes only to the extent provided by contractual arrangements) to the
estimated future production of oil and gas reserves less estimated future
expenditures (based on year-end costs) to be incurred in developing the
reserves. Future income taxes are calculated by comparing discounted future cash
flows to the tax basis of oil and gas properties, plus available carryforwards
and credits, and applying the current tax rate to the difference.
December 31,
1999
--------------
(in thousands)
Future:
Cash inflows $ 2,763,862
Production costs (1,102,075)
Development costs (a) (121,142)
Future income taxes (427,364)
--------------
Future net cash flows 1,113,281
10% annual discount for estimated timing of cash flows (474,827)
--------------
Standardized measure of discounted net cash flows $ 638,454
=============
_______________
(a) Includes dismantlement and abandonment costs of $34.9 million.
63
<PAGE>
PURE RESOURCES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS-continued
December 31, 1999
Changes relating to the standardized measure of discounted future net cash flows
The principal sources of the change in the pro forma combined
standardized measure of discounted future net cash flows for the year ended
December 31, 1999 are as follows (in thousands):
Standardized measure, beginning of year $ 352,302
Extensions and discoveries less related costs 40,908
Changes in estimated future development costs (20,114)
Revisions of previous quantity estimates 47,042
Net change in income taxes (176,211)
Net change in prices and production costs 425,203
Sales, net of production costs (121,876)
Accretion of discount 36,235
Purchases of minerals-in-place 18,103
Sales of minerals-in-place (13)
Other 36,875
---------
Standardized measure, end of year $ 638,454
=========
Note 5. Employment and Severance Agreements
New Pure Resources Employment and Severance Agreements
Under circumstances specified in the new employment and/or severance
agreements (these agreements are unrelated to the current Titan severance
agreements) agreed to or to be entered into between Pure Resources and its
officers, each covered officer will have the right to require Pure Resources to
purchase shares currently held or subsequently obtained by the exercise of any
option held by the officer to Pure Resources at a calculated "net asset value"
per share (as defined in each officer's employment agreement). The circumstances
under which the employee may exercise this right include the termination of the
officer's employment for any reason after three years following the merger, the
termination of the officer without cause, a change in control of either Pure
Resources or Union Oil and other events specified in the agreements. The net
asset value per share is calculated by reference to each common share's pro rata
amount of the present value of proved reserves at 10%, as defined, times 110%,
less funded debt, as defined. The amount reflected in the accompanying pro forma
combined balance sheet as common stock subject to repurchase reflects the
estimated net asset value, as defined, for each officer's shares and unexercised
option shares (including options issued by Pure Resources) less the amount of
proceeds that would be received upon exercise of the related options. Deferred
compensation related to such shares and options is calculated as the difference
between the estimated net asset value ($6.18 per share) of the relevant number
of Pure Resources shares and the market value ($5.44 per share) of Titan shares
held by each covered officer in the case of share held or the exercise price of
shares subject to option. This arrangement will be treated as a variable plan
under Accounting Principles Board Option No. 25 "Accounting for Stock Based
Compensation." Consequently, the total compensation for both shares held and
shares subject to option will be measured at the end of each quarter as the
calculated amount of net asset value and the market price of Pure Resources
shares change. The total amount determined will be amortized as compensation
expense over a three-year period with any changes after three years being
expensed in the period of determination.
Each new employment and/or severance agreement (these agreements are
unrelated to the current Titan severance agreements) will also obligate Pure
Resources to make a severance payment ranging from one to three times the
officer's salary, including an average bonus, upon the occurrence of specified
events such as termination without cause or upon change in control. The
aggregate severance amounts potentially payable under these agreements total
$4.5 million based on the expected initial salaries of the affected officers.
64
<PAGE>
PURE RESOURCES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS-continued
December 31, 1999
Titan Severance Agreements
Each of nine current executive officers of Titan is a party to a severance
and retention bonus agreement dated June 10, 1999. The covered employees are
eligible to receive severance benefits in the event of a qualifying termination
of their employment on or within one year following a "change in control" of
Titan, as that term is defined in the severance agreements.
Upon a termination event as defined in the severance agreements, each
officer will be entitled to receive, among other benefits, (a) three times such
officer's base salary plus bonus received in the preceding 12 month period, (b)
continuation of life insurance, long-term disability coverage and accidental
death and disability coverage for an eighteen month period, (c) payment of all
medical and dental insurance premiums until the officer obtains other employment
and (d) reimbursement of all reasonable legal fees and other expenses incurred
in seeking to obtain or enforce any right or benefit provided by the severance
agreements. If the payments under the severance agreement and other benefit
plans from a termination event cause the officer to be subject to federal excise
tax, the officer will receive a grossed-up amount to fully offset the effect of
any imposed federal excise tax. The actual contingent obligation might be
reduced by amounts potentially payable under (b), (c) and (d) above if the
covered officers were not terminated as a result of a triggering event.
The officers subject to these Titan severance agreements will become
officers of Pure Resources. These officers will receive the payments under these
severance agreements, which at December 31, 1999 are estimated to be
approximately $7.8 million, as disclosed in Note 2 (b) (v).
Note 6. Cost Savings.
The unaudited pro forma combined statements of operations do not give any
effect to potential cost savings, including for production or general and
administrative costs, which Pure Resources believes will result from the
integration of the operations of the two companies. Management expects to begin
to realize such projected cost savings in the fourth quarter of 2000. The full
annual impact of such projected cost savings is expected to be achieved in the
fiscal year ended December 31, 2001, and is estimated to be approximately $5
million annually beginning in 2001.
65
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF TITAN
The following selected consolidated historical data should be read together
with Titan's historical financial statements and related notes contained in the
annual reports and other information that Titan has filed with the SEC and
incorporated by reference. See "Where You Can Find More Information" on page 95.
The historical results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
Period
March 31, 1995
(date of inception)
Year Ended December 31, through
-------------------------------------------------- December 31,
1999 1998 1997(a) 1996 (a) 1995(a)
-------- -------- -------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Total revenues................................ $ 75,717 $ 72,876 $ 73,827 $ 23,824 $ 743
-------- -------- --------- --------- --------
Expenses:
Oil and gas production....................... 18,643 27,078 16,298 7,312 265
Production and other taxes................... 6,116 5,725 5,548 1,887 39
General and administrative................... 7,771 9,163 5,372 2,270 1,546
Amortization of stock option awards.......... 5,049 5,055 5,053 1,839 576
Exploration and abandonment.................. 11,049 17,596 3,055 184 490
Depletion, depreciation and amortization..... 19,222 27,090 19,972 5,789 299
Impairment of long-lived assets.............. 31,783 25,666 68,997 -- --
Restructuring costs.......................... -- 625 -- -- --
Interest..................................... 7,320 8,648 1,524 2,965 97
Other........................................ (2,893) (1,172) (258) (503) (1,038)
-------- -------- --------- --------- --------
Total expenses.............................. 104,060 125,474 125,561 21,743 2,274
-------- -------- --------- --------- --------
Income (loss) before income taxes............ (28,343) (52,598) (51,734) 2,081 (1,531)
Income tax (expense) benefit................. 20,069 5,381 18,267 (3,484) --
-------- -------- --------- --------- --------
Net loss...................................... $ (8,274) $(47,217) (33,467) $ (1,403) $ (1,531)
======== ======== ========= ========= ========
Operating and Other Data:
Net cash provided by (used in):
Operating activities......................... $ 33,426 $ 18,448 $ 46,563 $ 7,710 $ (1,805)
Investing activities......................... 28,858 (58,413) (114,302) (144,998) (47,522)
Financing activities......................... (61,584) 38,972 63,052 137,365 55,540
EBITDAX (b)................................... 44,918 31,617 46,809 12,923 (166)
Capital expenditures.......................... 45,212 63,235 114,377 150,119 43,770
Consolidated Balance Sheet Data (at period end):
Cash and cash equivalents..................... $ 1,310 $ 610 $ 1,603 $ 6,290 $ 6,213
Working capital (deficit) (c)................. (3,912) 105,697 28 8,124 11,946
Oil and gas assets, net....................... 230,101 209,177 271,920 190,062 42,861
Total assets.................................. 268,798 341,022 352,583 207,179 57,487
Total debt.................................... 90,000 144,200 85,450 6,500 20,000
Stockholders' equity and predecessor capital.. 160,851 171,354 232,421 187,186 34,585
</TABLE>
____________________________
(a) Certain reclassifications have been made to the 1998, 1997, 1996 and 1995
amounts to conform to the 1999 presentation.
(b) EBITDAX as used herein is calculated by adding interest expense, income
taxes, depletion, depreciation and amortization, impairment of long-lived
assets, restructuring costs, amortization of stock option awards,
exploration and abandonment costs, and other noncash charges to net income
(loss). EBITDAX is not intended to represent cash flow or any other measure
of performance in accordance with GAAP. EBITDAX is included herein because
management believes that some investors find it to be a useful analytical
tool. Other companies may calculate EBITDAX differently, and we cannot
assure you that such figures are comparable with similarly-titled figures
for such other companies.
(c) The December 31, 1998 amount includes $109.5 million of assets held for
sale.
66
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
OF THE PERMIAN BASIN BUSINESS UNIT
The following tables set forth selected historical financial data and
historical reserve and operating data of the Permian Basin business unit of
Union Oil. The historical data should be read together with the historical
financial statements and related notes of the Permian Basin business unit of
Union Oil included in this document. The historical results are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------------------------
1999 1998 1997 1996 (a) 1995 (a)
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues..................................... $114,126 $106,956 $138,248 $144,425 $124,861
-------- -------- -------- -------- --------
Expenses:
Production and operating expense................. 32,268 39,430 36,538 32,634 30,955
Property and other operating taxes............... 8,579 8,881 11,621 11,380 12,685
General and administrative....................... 7,836 7,674 8,264 10,376 5,336
Exploration expense and dry hole costs........... 5,232 3,623 1,358 905 1,133
Depletion, depreciation and amortization......... 33,393 33,139 37,552 40,763 42,172
Impairment of property, plant and................ 345 7,387 9,562 -- --
equipment...................................... -------- -------- -------- -------- --------
Total expenses................................. 87,653 100,134 104,895 96,058 92,281
-------- -------- -------- -------- --------
Operating income................................. 26,473 6,822 33,353 48,367 32,580
Income taxes expense............................. (8,685) (1,780) (11,180) (15,642) (11,001)
-------- -------- -------- -------- --------
Net earnings........................................ $ 17,788 $ 5,042 $ 22,173 $ 32,725 $ 21,579
======== ======== ======== ======== ========
Operating and Other Data:
Net cash provided by (used in):
Operating activities (b)......................... $ 58,403 $ 47,117 $ 63,388 $ 70,067 $ 62,639
Investing activities............................. (19,113) (41,892) (21,982) (24,719) (54,581)
Financing activities............................. (39,290) (5,225) (41,106) (45,347) (8,058)
Net settlements with owners (b).................... 39,290 5,225 41,106 45,347 8,058
EBITDAX (c)........................................ 65,443 50,971 81,825 90,035 75,885
Capital expenditures............................... 19,427 42,612 23,295 25,092 56,156
Balance Sheet Data (at period end):
Cash and cash equivalents.......................... $ -- $ -- $ -- $ -- $ --
Total assets....................................... 294,690 311,270 307,826 329,255 341,543
Long-term obligations.............................. -- -- -- -- --
Owner's net investment............................. 202,624 224,126 224,309 243,542 256,164
</TABLE>
_____________________
(a) The statement of operations data and operating and other data for 1995 and
the balance sheet data for 1996 and 1995 are unaudited.
(b) The effect of certain working capital changes are included in net
settlements with owners.
(c) EBITDAX as used herein is calculated by adding interest expense, income
taxes, depletion, depreciation and amortization, impairment of property,
plant and equipment, exploration expense and dry hole costs, and other
noncash charges to net earnings. EBITDAX is not intended to represent cash
flow or any other measure of performance in accordance with GAAP. EBITDAX is
included herein because management believes that some investors find it to
be a useful analytical tool. Other companies may calculate EBITDAX
differently, and we cannot assure you that such figures are comparable with
similarly-titled figures for such other companies.
67
<PAGE>
Selected Reserve and Production Data of the Permian Basin Business Unit
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
(unaudited)
<S>........................................................... <C> <C> <C>
Estimated Proved Reserves (at December 31)(a):
Oil (MBbls).............................................. 39,982 38,538 42,944
Gas (MMcf)............................................... 340,975 329,227 320,961
Natural gas equivalents (MMcfe).......................... 580,867 560,455 578,625
Percent natural gas........................................... 59% 59% 55%
Percent proved developed...................................... 93% 95% 94%
Product prices (at December 31):
Oil (per Bbl)............................................ $ 24.08 $ 10.38 $ 17.16
Natural gas (per Mcf).................................... $ 1.93 $ 1.73 $ 2.10
Future net cash flows (before income taxes) (at December 31):
Undiscounted............................................. $825,892 $328,074 $594,114
Discounted............................................... $453,226 $190,067 $331,871
Average Reserve Life (years)(b)............................... 11.4 10.4 11.0
Reserve additions (MMcfe):
Acquisitions............................................. 1,485 2,569 1,263
Extensions and discoveries............................... 32,062 21,942 16,629
Improved recovery (c).................................... -- 24,778 11,892
Revisions................................................ 37,758 (12,505) (19,629)
-------- -------- --------
Total additions.......................................... 71,305 36,784 10,155
======== ======== ========
Costs incurred:
Acquisitions............................................. $ 764 $ 2,471 $ 2,954
Exploration and development costs........................ 21,775 43,091 21,071
-------- -------- --------
Total costs incurred..................................... $ 22,539 $ 45,562 $ 24,025
======== ======== ========
Three-year average all sources unit finding cost (per Mcfe)(d) .78
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Production:
Oil and condensate (MBbls)............................... 3,659 3,991 4,021
Gas (MMcf)............................................... 28,899 29,962 28,367
Total (MMcfe).......................................... 50,853 53,908 52,493
Average Sales Price Per Unit:
Oil and condensate (per Bbl)............................. $ 17.66 $ 13.18 $ 18.69
Gas (per Mcf)............................................ 1.68 1.78 2.21
Total (per Mcfe)....................................... 2.23 1.96 2.63
Expenses Per Mcfe:
Production costs, excluding production and other taxes... $ 0.63 $ 0.73 $ 0.70
Production and other taxes............................... 0.17 0.16 0.22
General and administrative............................... 0.15 0.14 0.16
Depreciation, depletion and amortization................. 0.66 0.61 0.72
</TABLE>
________________
(a) The reserve and present value data at December 31, 1999, 1998 and 1997 for
the Permian Basin business unit has been prepared by Union Oil. See the
discussion under "Information Concerning the Permian Basin Business Unit -
Estimates of Oil and Gas Information" for more information about how
estimates of reserves and cash flows are determined.
(b) Average reserve life is calculated by dividing total reserves by our actual
production for the period.
(c) The improved recovery additions resulted from the application of proven
secondary and tertiary techniques including waterflooding and the injection
of miscible CO2.
(d) Finding cost is calculated by dividing total three years costs incurred by
total three years reserve additions.
68
<PAGE>
PERMIAN BASIN BUSINESS UNIT
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Permian Basin business unit operates as a business unit of Union Oil
Company of California ("Union Oil"). The following discussion and analysis of
the financial condition and results of operations of the Permian Basin business
unit should be read in conjunction with the historical financial information
provided in the financial statements and the accompanying notes and operating
summary. The Permian Basin business unit is engaged in the exploration,
development and production of oil and gas in the Permian Basin of West Texas and
the San Juan Basin of New Mexico.
The Permian Basin business unit uses the successful efforts method of
accounting for its oil and gas producing activities. Costs to acquire mineral
interests in oil and gas properties, to drill and equip exploratory wells that
result in proved reserves, and to drill and equip development wells are
capitalized. Costs to drill exploratory wells that do not result in proved
reserves and geological and geophysical costs are expensed. Costs of significant
nonproducing properties, wells in the process of being drilled and significant
development projects are excluded from depletion until such time as the related
project is developed and proved reserves are established or impairment is
determined.
Impact of Commodity Prices
During 1999 and 1998, the spot price of West Texas intermediate crude oil
(the "West Texas Crude Oil Price") ranged from $12.09 to $25.60 per barrel and
from $15.75 to $12.09 per barrel, respectively. The significant changes in
prices were thought to be caused primarily by changes in crude oil inventories
created in part, by extreme changes in temperatures in the United States and
Europe, the apparent unwillingness of Organization of Petroleum Exporting
Countries ("OPEC") to abide by crude oil production quotas and changes in demand
for crude oil in the Asian markets.
A return of low prices for crude oil, natural gas or other commodities sold
by the Permian Basin business unit could have a material adverse effect on the
Permian Basin business unit's results of operations, on the quantities of crude
oil and natural gas that can be economically produced from its fields, and on
the quantities and economic values of its proved reserves and potential
resources. Such adverse pricing scenarios could result in write-downs of the
carrying values of the Permian Basin business unit's properties and materially
adversely affect the Permian Basin business unit's financial condition, as well
as its results of operations.
Year 2000 Issues
Union Oil's Permian Basin business unit has initially incurred no
significant problems related to the Year 2000 issue. However, Union Oil has not
yet fully utilized all functions and processes of its systems and accordingly
cannot be sure that all its systems will be free of Year 2000 issues. Also,
Union Oil has no assurance that its "critical business partners," or
governmental agencies or other key third parties have not incurred Year 2000
issues that may affect Union Oil.
Impact on Pure Resources of Ancillary Agreements and Severance Arrangements
Under the business opportunities agreement between Pure Resources and Union
Oil, Pure Resources has agreed to limit its business activities. In reviewing
and approving the merger, the Titan Board noted that the limitations of the
agreement were aligned with Titan's existing geographic focus. The agreement's
restrictions may limit Pure Resources' ability to diversify its operating base
following the merger. Because of Pure Resources' geographic concentration, any
regional events that increase costs, reduce availability of equipment or
supplies, reduce demand or limit production may impact Pure Resources more than
if its operations were more geographically diversified.
69
<PAGE>
The aggregate amount to be paid to all the covered Titan officers under
existing severance and retention bonus agreements of Titan will be approximately
$7.8 million. Pure Resources does not believe that these payments will
materially impact the liquidity of the combined company.
Mr. Hightower's employment agreement and new Pure Resources officer
severance agreements will entitle each of the initial Pure Resources officers to
require Pure Resources to purchase his or her Pure Resources common stock at a
price that may be in excess of market value in the event of a change of control
of Pure Resources or Unocal and in some circumstances following termination of
employment. On December 31, 1999, when the trading rice of Titan common stock
was $5.44 per share, the pro forma "per share net asset value" of Pure
Resources, calculated in accordance with the agreements, adjusted to a Titan
equivalent price, was estimated at approximately $6.81. On a pro forma basis
using a market price of $5.44 per share, Pure Resources would incur a non-cash
expense of approximately $6.8 million per year for three years to amortize the
deferred compensation recorded as a result of these arrangements. The
amortization amounts will change quarterly based on relative changes in the net
asset value and market value of the Pure Resources shares.
Material Liabilities
All of the liabilities of the Permian Basin business unit will be assumed
by Pure Resources after the merger, with certain limited exceptions described
under "The Merger Agreement -- Contribution of Permian Basin Business Unit" on
page 38. You should review the Unaudited Pro Forma Combined Financial Statements
of Pure Resources included in this document for information on the expected
impact on Pure Resources of severance and other costs to be incurred by Pure
Resources as a result of the merger and the ancillary agreements described under
"The Merger - Interests of Certain Persons in the Merger" and "The Merger
Agreement- Ancillary Agreements." Also refer to the financial statements of the
Permian Basin business unit and related notes included in this document for
additional information regarding the liabilities of the Permian Basin business
unit, including a deferred tax liability and accrued abandonment, restoration
and environmental liabilities.
The Permian Basin business unit's reserves for environmental remediation
obligations totaled $342,000 and $500,000 as of December 31, 1999 and 1998,
respectively.
Basis of Presentation
The accompanying financial statements are presented as a carve-out from the
financial statements of Union Oil and reflect the activity related to its
Permian Basin business unit during the periods presented. The functions listed
below are managed centrally and support several business units. The costs were
allocated based on each business unit's share of total revenues and are
considered reasonable by management.
General and Administrative Costs
General and administrative costs include charges related to activities such
as accounting, legal, human resources, marketing, planning and public relations.
General and administrative costs allocated from the financial statements of
Union Oil to the Permian Basin business unit were $7.8 million, $7.7 million and
$8.3 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Indirect Production Costs
Indirect production costs include charges for procurement and logistics,
reservoir engineering, production engineering, workover, drilling, loss control,
and health, environment and safety. Indirect production costs allocated from the
financial statements of Union Oil to the Permian Basin business unit were $2.4
million, $3.6 million and $2.4 million for the years ended December 31, 1999,
1998 and 1997, respectively.
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Indirect Exploration Costs
Indirect exploration costs include charges for the chief geologist's
department, the chief geophysicist's department, and the land department.
Exploration costs allocated from Union Oil were $2.1 million, $1.6 million and
$800,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Impairment of Property, Plant and Equipment
The Permian Basin business unit's long-lived assets are reviewed for
impairment quarterly for events or changes in circumstances that indicate that
the carrying amount of an asset may not be recoverable in accordance with FASB
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. Long-lived assets are reviewed for potential
impairments at the lowest level for which there are identifiable cash flows that
are largely independent of other groups of assets.
The review is done by determining if the historical cost of proved
properties less the applicable accumulated depreciation, depletion and
amortization and abandonment is less than the estimated expected undiscounted
future cash flows. The expected future cash flows are estimated based on
management's plans to continue to produce and develop proved and associated
risk-adjusted probable reserves. Expected future cash flow from the sale of
production of reserves is calculated based on estimated future prices.
Management estimates prices based upon market related information including
published futures prices. In years where market information is not available,
prices are escalated for inflation. The estimated future level of production is
based on assumptions surrounding future levels of prices and costs, field
decline rates, market demand and supply, and the economic and regulatory
climates.
When the carrying value exceeds such cash flows, an impairment loss is
recognized for the difference between the estimated fair market value and the
carrying value of the assets. The fair market value is defined as the amount at
which the asset could be sold to a willing third party, or, if unavailable, the
expected future cash flows discounted at 10%.
Results of Operations
Years ended 1999 as compared to 1998
The Permian Basin business unit's revenues from the sale of crude oil and
natural gas were $64.6 million and $48.6 million in 1999 and $52.6 million and
$53.2 million in 1998, respectively. Compared to 1998, the Permian Basin
business unit's average crude oil sales prices increased $4.48 per Bbl, or 34%.
Partially offsetting these factors were decreased natural gas sales prices and
decreased natural gas and crude oil production.
The Permian Basin business unit's production and operating expense
excluding property and other operating taxes was $32.3 million ($.63 per Mcfe)
and $39.4 million ($.73 per Mcfe) in 1999 and 1998, respectively. Special well
repairs were down by $3.7 million with fewer budgeted projects in the first half
of 1999 due to decreased commodity prices. Production expenses were also down
$1.9 million due to decreased carbon dioxide injection for secondary recoveries
in the Permian Basin. Finally, allocated indirect production costs were down
$1.2 million due to decreased drilling in 1999. Drilling activity was cut back
in 1999 due to the forecasted continuation of low commodity prices at the end of
1998.
Property and other operating taxes were $8.6 million ($.17 per Mcfe) and
$8.9 million ($.16 per Mcfe) in 1999 and 1998, respectively. Property taxes
decreased by $0.8 million due to a decrease in the assessed value of the
properties caused by significantly lower commodity prices in the previous year.
Partially offsetting this negative factor was increased production taxes of $0.5
million due to increased commodity prices in 1999.
General and administrative expenses were $7.8 million ($.15 per Mcfe) and
$7.7 million ($.14 per Mcfe) in 1999 and 1998, respectively. General and
administration support remained relatively constant between 1998 and 1999.
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Depletion, depreciation, and amortization expense (DD&A) was $33.4 million
($.66 per Mcfe) and $33.1 million ($.61 per Mcfe) in 1999 and 1998,
respectively. DD&A increased due to production increases on fields with high UOP
rates that were offset primarily with decreased production from properties with
overriding royalty interests.
The Permian Basin business unit recognized an impairment of $0.3 million
and $7.4 million in 1999 and 1998, respectively. The 1999 impairment resulted
from lower reserves in the cash flow calculation for the Elsinore field in Pecos
County, Texas. The 1998 impairment resulted from reserve revisions and decreased
cash flows related to severely decreased commodity prices.
The Permian Basin business unit's exploration expense was $3.1 million and
$2.9 million in 1999 and 1998, respectively. The allocation of indirect
exploration costs increased by $600,000 with additional staffing to support
geological and geophysical data purchases in 1998 and 1999. Purchases of
geological and geophysical data were $1.0 million and $1.4 million in 1999 and
1998, respectively, decreasing by $400,000.
Dry hole expense was $2.1 million and $700,000 in 1999 and 1998,
respectively. Two unsuccessful exploratory wells were written off to dry hole
expense in 1999 for $1.1 million and $0.9 million.
Income tax expense was $8.7 million and $1.8 million in 1999 and 1998,
respectively. Income taxes increased due to higher earnings in 1999. The
effective tax rate was 33% and 26% in 1999 and 1998, respectively. The increase
in effective tax rate was caused by proportionately larger tax credits related
to the San Juan Basin operations in 1998.
Years ended 1998 as compared to 1997
The Permian Basin business unit's revenues from the sale of crude oil and
natural gas were $52.6 million and $53.2 million in 1998 and $75.2 million and
$62.7 million in 1997, respectively. Compared to 1997, the Permian Basin
business unit's average crude oil sales prices decreased $5.51 per Bbl, or 29%
and average natural gas sales prices decreased $.43 per Mcf, or 19%. Oil
production also decreased slightly. Partially offsetting these negative factors
was increased natural gas production.
The Permian Basin business unit's production and operating expense
excluding property and other operating taxes was $39.4 million ($.73 per Mcfe)
and $36.5 million ($.70 per Mcfe) in 1998 and 1997, respectively. Indirect
production costs increased due to increased drilling activity in 1998.
Production and operating expense also increased in 1998 due to increased special
well repairs.
Property and other operating taxes were $8.9 million ($.16 per Mcfe) and
$11.6 million ($.22 per Mcfe) in 1998 and 1997, respectively. Production taxes
decreased by $2.3 million due to significantly depressed commodity prices in
1998. Property taxes were also slightly down due to a small decrease in
assessed value of properties in 1998.
General and administrative expenses were $7.7 million ($.14 per Mcfe) and
$8.3 million ($.16 per Mcfe) in 1998 and 1997, respectively. Allocated general
and administrative costs decreased in 1998. Costs were higher in 1997 due to
higher moving and other costs related to a reorganization in 1997.
Depletion, depreciation, and amortization expense (DD&A) was $33.1 million
($.61 per Mcfe) and $37.6 million ($.72 per Mcfe) in 1998 and 1997,
respectively. In the fourth quarter of 1997, the Permian Basin business unit
recorded an impairment of $9.6 million, which acted to reduce the DD&A rate
going forward. Furthermore, decreased finding costs and decreased production on
fields with higher units of production (UOP) rates caused decreased DD&A in
1998. Production decreases on fields with high UOP rates were offset primarily
with increased production from properties with overriding royalty interests.
The Permian Basin business unit recognized an impairment of $7.4 million
and $9.6 million in 1998 and 1997, respectively. The 1998 impairment resulted
from reserve revisions and decreased cash flows related to severely decreased
commodity prices. The 1997 impairment resulted from higher estimated production
expenses causing decreased cash flows and reserve revisions for the North Cowden
field in Ector County, Texas.
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The Permian Basin business unit's exploration expense was $2.9 million and
$800,000 in 1998 and 1997, respectively. The increase in exploration expense was
due to the purchase of $1.4 million of additional geological and geophysical
data in 1998 as well as an increased allocation of indirect exploration costs of
$700,000 to support the increased geological and geophysical purchases.
Income tax expense was $1.8 million and $11.2 million in 1998 and 1997,
respectively. Income taxes decreased due to lower earnings in 1998. The
effective tax rate was 26% and 33% in 1998 and 1997, respectively. The decrease
in effective tax rate was caused by proportionately larger tax credits related
to the San Juan Basin operations in 1998.
Liquidity and Capital Resources
The Permian Basin business unit's primary source of capital has been its
cash flow from operations. The Permian Basin business unit's other source of
capital, if needed, would be infusion of funds from its parent, Union Oil. All
financing activities are performed at the corporate level for Union Oil and its
business units, and Union Oil provides cash management services through a
centralized treasury system. The Permian Basin business unit maintains no cash
balances and no interest is charged or received on the cash balances transferred
or received from Union Oil. The Permian Basin business unit's net cash
settlements with Union Oil are included in the owner's net investment on the
balance sheet and are shown as settlements with owner in the financing
activities on the statements of cash flows. The net settlements with Union Oil
were $39.3 million, $5.2 million, and $41.4 million in 1999, 1998, and 1997,
respectively.
Net Cash Provided by Operating Activities
Cash flow from operating activities, excluding certain working capital
changes, for the Permian Basin business unit was $58.4 million in 1999, $47.1
million in 1998 and $63.4 million in 1997.
Year ended 1999 as compared to 1998. The 1999 increase in net cash provided by
operating activities, excluding certain working capital changes, was primarily
due to increased average crude oil and natural gas sales prices. The increase
was also due to decreased special well repair expenditures, secondary recovery
expenditures, property tax expenditures, and geological and geophysical
expenditures. These positive factors were partially offset by increased
production taxes.
Year ended 1998 as compared to 1997. The 1998 decrease in net cash provided by
operating activities, excluding certain working capital changes, was primarily
due to lower average crude oil and natural gas sales prices, increased special
well repairs expenditures and increased geological and geophysical expenditures.
These negative factors were partially offset by lower production taxes, lower
income tax payments and increased natural gas production.
Capital Expenditures
Capital expenditures were $19.4 million, $42.6 million and $23.3 million
for the years ended December 31, 1999, 1998 and 1997, respectively. Capital
expenditures increased significantly in 1998 because of an increase in budgeted
developmental projects. Developmental projects were reduced in the fourth
quarter of 1998 and in 1999 due to significant declines of commodity prices in
1998.
The Permian Basin business unit estimated $50 million of capital
expenditures for 2000. The source of funding will be the business unit's cash
flow from operations. The Permian Basin business unit's other source of capital,
if needed, would be funded from Union Oil, its owner.
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Costs Incurred
The Permian Basin business unit requires capital primarily for the
exploration, development, and acquisition of oil and gas properties as well as
for general working capital needs. The following table sets forth costs
incurred by the Permian Basin business unit in its exploration, development, and
acquisition activities.
<TABLE>
<CAPTION>
In thousands of dollars 1999 1998 1997
- -------------------------------------------------------
<S> <C> <C> <C>
Property acquisition:
Proved $ 676 $ 1,254 $ 112
Unproved 88 1,217 2,842
Exploration 4,519 6,592 1,694
Development 17,256 36,499 19,377
------- ------- -------
Total costs incurred $22,539 $45,562 $24,025
======= ======= =======
</TABLE>
Other Matters
Disclosure about Market Risk
The Permian Basin business unit holds no derivative instruments related to
interest rate exposure risks as Union Oil retains all the debt and related
interest charges.
The Permian Basin business unit is a producer of various hydrocarbon
commodities such as crude oil and condensate, natural gas and associated
petroleum-based products and is subject to the associated price risks. Unocal
Energy Trading, another business unit of Union Oil, buys a majority of the
Permian Basin business unit's sales of crude oil and natural gas at spot prices
at the beginning of each month.
Union Oil (not the Permian Basin business unit) mitigates its exposure to
fluctuations in crude oil and natural gas prices through Unocal Energy Trading.
Unocal Energy Trading uses hydrocarbon derivative financial instruments, such as
futures contracts, swaps, and options with maturities of 24 months or less to
mitigate overall exposure to price changes. Hedging and trading gains and losses
incurred by Union Oil are not allocated to the Permian Basin business unit and
are not reflected in the Permian Basin business unit's presented results.
Therefore, the Permian Basin business unit's associated price risks are not
mitigated.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. It establishes conditions
under which a derivative may be designated as a hedge, and establishes standards
for reporting changes in the fair value of a derivative. SFAS No. 133 is
required to be implemented for the first quarter of the fiscal year ended 2000.
Early adoption is permitted. Recently, the FASB deferred the implementation
requirements of SFAS No. 133 for one year. SFAS No. 133 is not expected to
affect materially the Permian Basin business unit's reporting since the Permian
Basin business unit does not hedge its own production. Unocal Energy Trading,
another business unit of Union Oil, hedges all production for the entire parent
company.
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INFORMATION CONCERNING THE PERMIAN BASIN BUSINESS UNIT
General
The Permian Basin business unit is engaged in the production and sale of
natural gas, natural gas liquids, crude oil and condensate. Its properties are
located in the Permian Basin of West Texas and the San Juan Basin of New Mexico
and Colorado.
As of December 31, 1999, the Permian Basin business unit had proved
reserves of approximately 40.0 MMBbls of oil and condensate and 341.0 Bcf of
natural gas, or an aggregate of 580.9 Bcfe, with an SEC 10% present value of
$453.2 million. As of December 31, 1999, the business unit's properties had an
average reserve life of approximately 11.4 years and, of the business unit's
proved reserves, 59% were natural gas and 93% were classified as proved
developed.
As of December 31, 1999, the business unit operated 1,288 gross productive
wells (989 net productive wells), which represented over 76% of its total proved
SEC 10% present value. The business unit's emphasis on controlling the
operation of its properties enables it to better manage expenses, capital
allocation and other aspects of development and exploration.
The business unit's proved oil and gas properties are located in more than
40 fields/areas in the Permian Basin and the San Juan Basin. Approximately 88%
of the business unit's SEC 10% present value of total proved reserves is
concentrated in 11 Permian Basin fields/areas and the San Juan Basin. The
Permian Basin is characterized by complex geology with numerous known producing
horizons and provides significant opportunities to increase reserves, production
and ultimate recoveries through development, exploratory and horizontal
drilling, recompletions, secondary and tertiary recovery methods, and use of 3-D
seismic and other advanced technologies.
Oil and Natural Gas Reserves
The following table summarizes the estimates of the Permian Basin business
unit's historical net proved reserves as of December 31, 1999 and 1998, and the
present values attributable to these reserves at such dates. The reserve and
present value data of the business unit were prepared by Union Oil.
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
(dollars in thousands)
Estimated proved reserves:
Oil and Condensate (MBbls).................................. 39,982 38,538
Gas (MMcf).................................................. 340,975 329,227
MMcfe (6 Mcf per Bbl)....................................... 580,867 560,455
Proved developed reserves as a percentage of proved reserves..... 93% 95%
SEC 10% present value............................................ $453,226 $190,067
Standardized measure of discounted future net cash flows......... $305,091 $144,467
</TABLE>
In accordance with applicable SEC requirements, estimates of the business
unit's proved reserves and future net revenues are made using sales prices and
costs estimated to be in effect as of the date of such reserve estimates that
are held constant throughout the life of the properties, except to the extent a
contract specifically provides for escalation. The average realized prices for
the business unit's reserves as of December 31, 1999 were $24.08 per Bbl of oil
and $1.93 per Mcf of natural gas, compared to average realized prices for the
business unit's reserves as of December 31, 1998 of $10.38 per Bbl of oil and
$1.73 per Mcf of natural gas.
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Estimates of Oil and Gas Reserve Information
The proved oil and gas reserve information in this document represents only
estimates. The estimates of the Permian Basin business unit's reserves are
based on reports as of December 31, 1999 prepared internally by petroleum
engineers employed by Union Oil. The estimates were calculated using oil and
gas prices as of December 31, 1999.
Petroleum engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact manner.
Estimates of economically recoverable oil and gas reserves and of future net
cash flow necessarily depend upon a number of variable factors and assumptions,
including the following:
. historical production from the area compared with production from other
producing areas;
. the assumed effects of regulations by governmental agencies;
. assumptions concerning future oil and gas prices; and
. assumptions concerning future operating costs, severance, ad valorem and
excise taxes, development costs and workover and remedial costs.
Because all reserve estimates are to some degree subjective, each of the
following items may differ materially from those assumed in estimating reserves:
. the quantities of oil and gas that are ultimately recovered;
. the production and operating costs incurred;
. the amount and timing of future development expenditures; and
. future oil and gas sales prices.
Furthermore, different reserve engineers may make different estimates of
reserves and cash flows based on the same available data. The Permian Basin
business unit's actual production, revenues and expenditures with respect to
reserves will likely be different from estimates and the difference may be
material.
The discounted future net cash flows incorporated by reference in this
document should not be considered as the current market value of the estimated
oil and gas reserves attributable to the Permian Basin business unit's
properties. As required by the SEC, the estimated discounted future net cash
flows from proved reserves are generally based on prices and costs as of the
date of the estimate, while actual future prices and costs may be materially
higher or lower. Actual future net cash flows also will be affected by factors
such as:
. the amount and timing of actual production;
. supply and demand of oil and gas;
. increases or decreases in consumption; and
. changes in governmental regulations or taxation.
In addition, the 10% discount factor, which is required by the SEC to be
used to calculate discounted future net cash flows for reporting purposes, is
not necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the Permian Basin business
unit or the oil and gas industry in general.
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Productive Wells and Acreage
Productive Wells
Information regarding the productive wells of the business unit is set
forth in "Pure Resources After the Merger - Productive Wells and Acreage -
Productive Wells" on page 53.
Acreage Data
Information regarding the acreage data of the business unit is set forth in
"Pure Resources After the Merger - Productive Wells and Acreage - Acreage Data"
on page 54.
Drilling Activities
Information regarding the business unit's drilling activity on its
properties for 1999, 1998 and 1997 is set forth in "Pure Resources After the
Merger -- Drilling Activities" on page 54. At December 31, 1999, the Permian
Basin business unit was in the process of drilling 4.0 gross (2.3 net) wells
that are not reflected in the table.
Oil and Gas Price Volatility
The Permian Basin business unit's revenues, operating results and future
rate of growth will depend upon the prices it receives for its oil and gas.
Historically, the markets for oil and gas have been volatile and may continue to
be volatile in the future. Various factors that are beyond our control will
affect prices of oil and gas, such as:
. the worldwide and domestic supplies of oil and gas,
. the ability of the members of the Organization of Petroleum Exporting
Countries ("OPEC") to agree to and maintain oil price and production
controls,
. political instability or armed conflict in oil-producing regions,
. the price and level of foreign imports,
. the level of consumer demand,
. the price and availability of alternative fuels,
. the availability of pipeline capacity,
. weather conditions,
. domestic and foreign governmental regulations and taxes, and
. the overall economic environment.
The Permian Basin business unit is unable to predict the long-term effects
of these and other conditions on the prices of oil and gas. Lower oil and gas
prices may reduce the amount of oil and gas the Permian Basin business unit will
be able to produce economically, which may adversely affect the Permian Basin
business unit's revenues and operating income. Lower oil and gas prices may also
require a reduction in the carrying value of the Permian Basin business unit's
oil and gas properties. Currently, the Permian Basin business unit anticipates
making substantially all of its sales of oil and gas in the spot market or under
contracts based on spot market prices and not under long-term fixed price
contracts.
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Net Production, Unit Prices and Costs
Information regarding oil and gas production, prices and costs attributable
to all oil and gas property interests owned by the business unit for 1999, 1998
and 1997 is included under "Selected Historical Financial and Other Data of the
Permian Basin Business Unit" on page 67.
Oil and Gas Marketing and Major Customers
The revenues generated by the business unit's operations are highly
dependent upon the prices of, and demand for, oil and gas. The price received by
the business unit for its oil and gas production depends on numerous factors
beyond the business unit's control, including seasonality, the United States and
world economy, foreign imports, political and economic conditions in other oil
and gas producing countries, the actions of OPEC and domestic government
regulation, legislation and policies. Decreases in the prices of oil and natural
gas could decrease the value of the business unit's proved reserves and reduce
the business unit's revenues, profitability and cash flow. Although the business
unit is not currently experiencing any significant involuntary curtailment of
its oil or gas production, market, economic and regulatory factors may in the
future harm the business unit's ability to sell its oil or gas production.
In 1999, 1998 and 1997, sales to Unocal Energy Trading, another business
unit of Union Oil, accounted for approximately 82%, 76% and 72% of total oil and
natural gas revenues, respectively. Pure Resources has not agreed to enter into
any agreements with Unocal Energy Trading following the merger. Pure Resources
at regular intervals will arrange for the sale its oil and gas production in a
bidding process in the commodity markets and will sell its production to the
party or parties offering the best terms. Pure Resources does not anticipate
retaining Unocal Energy Trading as its primary customer, and, given the nature
of the commodity market, cannot determine who will be purchasing its production.
Due to the availability of other markets and pipeline connections, Union Oil,
however, does not believe that the loss of any single crude oil or gas customer
would have a material adverse effect on the Permian Basin business unit's
results of operations.
Operating Risks
The nature of the oil and gas business involves operating hazards such as
well blowouts, cratering, explosions, uncontrollable flows of oil, gas or well
fluids, fires, formations with abnormal pressures, pollution, releases of toxic
gas and other environmental hazards and risks. Any of these operating hazards
could result in substantial losses to the Permian Basin business unit.
In addition, the Permian Basin business unit may be liable for
environmental damages caused by previous owners of property purchased by the
Permian Basin business unit or its predecessors. As a result, substantial
liabilities to third parties or governmental entities may be incurred. The
payment of these amounts could reduce or eliminate the funds available for
exploration, development or acquisitions. These reductions in funds could result
in a loss of the Permian Basin business unit's properties.
Competition
The oil and gas industry is highly competitive. The business unit
encounters competition from other oil and gas companies in all areas of its
operations, including the acquisition of producing properties. The business
unit's competitors include major integrated oil and gas companies and numerous
independent oil and gas companies, individuals and drilling and income programs.
Many of its competitors are large, well established companies with substantially
larger operating staffs and greater capital resources than the business unit.
Such companies may be able to pay more for productive oil and gas properties and
exploratory prospects and to define, evaluate, bid for and purchase a greater
number of properties and prospects than the business unit's financial or human
resources permit. The business unit's ability to acquire additional properties
and to discover reserves in the future will be dependent upon its ability to
evaluate and select suitable properties and to consummate transactions in a
highly competitive environment.
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<PAGE>
Title to Properties
Union Oil believes that it has satisfactory title to all of the business
unit's producing properties in accordance with standards generally accepted in
the oil and gas industry. The business unit's properties are subject to
customary royalty interests, liens incident to operating agreements, liens for
current taxes and other burdens which Union Oil believes do not materially
interfere with the use of or affect the value of such properties. The business
unit has leaseholds in force for portions of its net acreage by virtue of
production on that acreage in paying quantities. The remaining acreage will
initially be held by lease rentals and similar provisions and require production
in paying quantities prior to expiration of various time periods to avoid lease
termination.
Governmental Regulation
Extensive rules and regulations govern the business unit's oil and gas
exploration, production and related operations. The business unit's failure to
comply with these rules and regulations can result in substantial penalties. The
regulatory burden of the oil and gas industry increases the business unit's cost
of doing business and affects its profitability. Although Union Oil believes
the business unit is in substantial compliance with all applicable laws and
regulations, because such rules and regulations are frequently amended or
reinterpreted, it is unable to predict the future cost or impact of complying
with such laws. Significant expenditures may be required to comply with
governmental laws and regulations and may have a material adverse effect on the
business unit's financial condition and results of operations. The cost of
compliance with regulations in 1999 was minimal. Union Oil anticipates no
material changes in 2000.
Such regulation requires permits for drilling operations, drilling bonds
and reports concerning operations and imposes other requirements relating to the
exploration and production of oil and gas. Such state and federal agencies have
statutes or regulations addressing conservation matters, including provisions
for the unitization or pooling of oil and gas properties, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells.
The Federal Energy Regulatory Commission, or "FERC," regulates interstate
natural gas transportation rates and service conditions, which affect the
marketing of gas produced by the business unit, as well as the revenues received
by the business unit for sales of such production. FERC has eliminated or
substantially reduced the interstate pipelines' traditional role as wholesalers
of natural gas, and has substantially increased competition and volatility in
natural gas markets. The price the business unit receives from the sale of oil
and natural gas liquids is affected by, among other things, the cost of
transporting products to market. Some of FERC's regulations impact this cost.
Union Oil is not able to predict with certainty the effect, if any, of these
regulations on the business unit's operations. However, the regulations may
increase transportation costs or reduce wellhead prices for oil and natural gas
liquids.
Environmental Matters
Extensive and changing federal, state and local laws and regulations
relating to environmental protection including the generation, storage,
handling, emission, transportation and discharge of materials into the
environment, and their relation to safety and health govern the business unit's
operations and properties. The recent trend in environmental legislation and
regulation generally is moving toward stricter standards, and this trend will
likely continue. These laws and regulations may require the acquisition of a
permit or other authorization before construction or drilling commences and for
some other activities; limit or prohibit construction, drilling and other
activities on some lands lying within wilderness and other protected areas; and
impose substantial liabilities for pollution resulting from the business unit's
operations. The permits required for various operations of the business unit are
subject to revocation, modification and renewal by issuing authorities.
Governmental authorities have the power to enforce compliance with their
regulations, and violators are subject to fines or injunction, or both. In the
opinion of management, the business unit is in substantial compliance with
current applicable environmental laws and regulations, and the business unit has
no material commitments for capital expenditures to comply with existing
environmental requirements. Nevertheless, changes in existing environmental laws
and regulations or in interpretations thereof could have a significant material
impact on the business unit, as well as the oil and gas industry in general. The
Comprehensive Environmental Response, Compensation, and Liability Act, or
"CERCLA," and
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<PAGE>
comparable state statutes impose strict, joint and several liability on owners
and operators of sites and on persons who disposed of or arranged for the
disposal of "hazardous substances" found at such sites. It is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment. Resource Conservation and Recovery Act, or "RCRA," and
comparable state statutes govern the disposal of "solid waste" and "hazardous
waste" and authorize the imposition of substantial fines and penalties for
noncompliance. Although CERCLA currently excludes petroleum from its definition
of "hazardous substance," state laws affecting the business unit's operations
impose clean-up liability relating to petroleum and petroleum related products.
In addition, although RCRA classifies some oil field wastes as "nonhazardous,"
such exploration and production wastes could be reclassified as hazardous wastes
thereby making such wastes subject to more stringent handling and disposal
requirements.
Federal regulations require some owners or operators of facilities that
store or otherwise handle oil, such as the business unit, to prepare and
implement spill prevention, control countermeasure and response plans relating
to the possible discharge of oil into surface waters. The Oil Pollution Act of
1990, as amended, or "OPA", contains numerous requirements relating to the
prevention of and response to oil spills into waters of the United States. For
onshore facilities that may affect waters of the United States, the OPA requires
an operator to demonstrate $10 million in financial responsibility. In addition,
the OPA currently requires persons responsible for "offshore facilities" to
establish $150 million in financial responsibility to cover environmental
cleanup and restoration costs likely to be incurred in connection with an oil
spill in the waters of the United States. On September 10, 1996, Congress passed
legislation that would lower the financial responsibility requirement under OPA
to $35 million, subject to an increase of $150 million if a formal risk
assessment indicates the increase is warranted. The impact of any legislation is
not expected to be any more burdensome to the business unit than it will be to
other similarly situated companies involved in oil and gas exploration and
production.
The Federal Water Pollution Control Act, or "FWPCA," imposes restrictions
and strict controls regarding the discharge of produced waters and other oil and
gas wastes into navigable waters. Permits must be obtained to discharge
pollutants into state and federal waters. The FWPCA and analogous state laws
provide for civil, criminal and administrative penalties for any unauthorized
discharges of oil and other hazardous substances in reportable quantities and,
along with the OPA, may impose substantial potential liability for the costs of
removal, remediation and damages. State water discharge regulations and the
federal National Pollutant Discharge Elimination System, or "NPDES," permits
prohibit or are expected to prohibit within the next year the discharge of
produced water and sand, and some other substances related to the oil and gas
industry, into coastal waters. Although the costs to comply with zero discharge
mandates under federal or state law may be significant, the entire industry will
experience similar costs and Union Oil believes that these costs will not have a
material adverse impact on the business unit's financial conditions and
operations. Some oil and gas exploration and production facilities are required
to obtain permits for their storm water discharges. The business unit may incur
costs in connection with treatment of wastewater or developing storm water
pollution prevention plans.
Regulations are currently being developed under federal and state laws
concerning oil pollution prevention and other matters that may impose additional
regulatory burdens on the business unit. In addition, the Clean Water Act and
analogous state laws require permits to be obtained to authorize discharge into
surface waters or to construct facilities in wetland areas. With respect to
some of its operations, the business unit is required to maintain such permits
or meet general permit requirements. The Environmental Protection Agency, or
"EPA", recently adopted regulations concerning discharges of storm water runoff.
This program requires covered facilities to obtain individual permits,
participate in a group or seek coverage under an EPA general permit. Union Oil
believes that it will be able to obtain, or be included under, such permits,
where necessary, and to make minor modifications to existing facilities and
operations that would not have a material effect on the business unit.
The implementation of new, or the modification of existing, laws or
regulations could have a material adverse effect on the business unit. The
discharge of oil, gas or other pollutants into the air, soil or water may give
rise to significant liabilities on the part of the business unit to the
government and third parties and may require the business unit to incur
substantial costs of remediation. We cannot assure you that existing
environmental laws or regulations, as currently interpreted or reinterpreted in
the future, or future laws or regulations will not materially adversely affect
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the business unit's results of operations and financial condition or that
material indemnity claims will not arise against the business unit with respect
to properties acquired by the business unit.
The business unit has acquired leasehold interests in numerous properties
that for many years have produced oil and gas. Although the previous owners of
these interests may have used operating and disposal practices that were
standard in the industry at the time, hydrocarbons or other wastes may have been
disposed of or released on or under the properties. In addition, some of the
business unit's properties are operated by third parties over whom the business
unit has no control. Notwithstanding the business unit's lack of control over
properties operated by others, the failure of the operator to comply with
applicable environmental regulations may, in some circumstances, materially
adversely impact the business unit.
Abandonment Costs
The business unit is responsible for payment of plugging and abandonment
costs on the oil and gas properties pro rata to its working interest. The
business unit establishes reserves, exclusive of salvage value, to provide for
the eventual abandonment of its properties. Union Oil estimates the net
abandonment of the Permian Basin business unit's properties to be approximately
$29.5 million as of December 31, 1999, which is accrued over the life of the
properties. In addition, abandonment costs and their timing may change due to
many factors including actual production results, inflation rates and changes in
environmental laws and regulations.
Employees
As of December 31, 1999, Union Oil had 182 full-time equivalent employees
associated with the Permian Basin business unit, none of whom is represented by
a labor union. Pure Resources anticipates that the merger may bring economies
of scale that would permit reduction in the aggregate workforce of Pure
Resources and Titan. Both companies are now evaluating and attempting to
project the employment needs of the combined company, but have not yet
determined the extent of any overall reduction in force.
Legal Proceedings
There is currently no material litigation relating to the business unit
that Pure Resources will assume.
Office Facilities
The Permian Basin business unit, through Union Oil, leases approximately
53,500 square feet of office space in Midland, Texas. The lease expires on
September 3, 2007, with the exception of approximately 10,000 square feet which
expires on November 30, 2001.
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MANAGEMENT OF PURE RESOURCES AFTER THE MERGER
Board of Directors and Executive Officers
The number of directors of Pure Resources will be fixed from time to time by
resolution of the Pure Resources board. The Pure Resources board is currently
set at two members. Upon completion of the merger, the board is expected to be
set at eight members. The Pure Resources board will elect executive officers of
Pure Resources annually to serve in their respective capacities until their
successors are duly elected and qualified or until their earlier resignation or
removal. In the stockholders voting agreement, discussed above under "The Merger
Agreement - Ancillary Agreements - Stockholders Voting Agreement," Union Oil and
Mr. Hightower have agreed to vote their shares of Pure Resources capital stock
for two board designees of Mr. Hightower and up to five designees of Union Oil.
The stockholders voting agreement acknowledges that as provided in the merger
agreement, Union Oil has agreed to cause the directors of Pure Resources at the
effective time of the merger to consist of Darrell Chessum, Timothy H. Ling,
Herbert C. Williamson, III (a current Titan director), Graydon H. Laughbaum, Jr.
and H D Maxwell as designees of Union Oil, and Jack D. Hightower and George G.
Staley as designees of Mr. Hightower, until the next annual meeting of
stockholders and until their respective successors are duly qualified and
elected. The stockholders voting agreement also provides that if Union Oil and
Mr. Hightower agree on an eighth director prior to the merger, that person will
also become a director at the effective time of the merger.
The following individuals will initially serve as directors and executive
officers of Pure Resources upon consummation of the merger:
Name Age Position
---- --- --------
Persons who are currently officers and/or directors of Titan
Jack D. Hightower.......... 51 President, Chief Executive Officer and
Chairman of the Board
George G. Staley........... 64 Executive Vice President -- Exploration and
Director
M. J. "Jack" Rathbone IV... 47 Executive Vice President -- Operations
Rodney L. Woodard.......... 43 Vice President -- Reserves and Evaluation
Thomas H. Moore............ 54 Vice President -- Business Development
Dan P. Colwell............. 55 Vice President -- Acquisitions,
Divestitures and Land
William K. White........... 57 Vice President -- Finance and Chief
Financial Officer
John L. Benfatti........... 53 Vice President -- Accounting and Controller
Susan D. Rowland........... 39 Vice President -- Administration and
Corporate Secretary
Darin G. Holderness........ 36 Assistant Controller
Herbert C. Williamson, III. 51 Director
Persons who are not currently officers and/or directors of Titan
Gary Dupriest.............. 42 Vice President --Production
Darrell Chessum............ 50 Director
Graydon H. Laughbaum, Jr... 60 Director
Timothy H. Ling............ 42 Director
H D Maxwell................ 68 Director
Set forth below is a description of the backgrounds of each individual to
serve as an executive officer and director of Pure Resources upon completion of
the merger, other than an eighth director who may be agreed upon by Union Oil
and Mr. Hightower.
Persons who are currently officers and/or directors of Titan
Jack D. Hightower has served as President, Chief Executive Officer and
Chairman of the Board of Directors of Titan since formation of Titan's
predecessor in March 1995. Prior to forming Titan, from 1986 to January 1996,
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Mr. Hightower served as Chairman of the Board and Chief Executive Officer of
United Oil Services, Inc., an oil field service company serving customers in the
Permian Basin. From 1978 to 1995, Mr. Hightower served as Chairman of the Board
and President of Amber Energy, Inc., a company formed to identify oil and gas
exploration prospects. From 1991 to 1994, Mr. Hightower served as Chairman of
the Board, Chief Executive Officer and President of Enertex, Inc., which served
as the operator of record for several oil and gas properties involving Mr.
Hightower and other nonoperators, including Selma International Investment
Limited. Since 1990, Mr. Hightower has served on the Board of Directors of
Chase Bank of Texas, N.A., Midland.
George G. Staley has served as Executive Vice President, Exploration and
Director of Titan since its formation. From 1975 until 1995, Mr. Staley served
as President and Chief Executive Officer of Staley Gas Co., Inc. and Staley
Operating Co., which are oil and gas exploration and operating companies.
M. J. "Jack" Rathbone IV has served as Executive Vice President, Operations
of Titan since December 1999. Mr. Rathbone served as President of Mobil
Producing Texas and New Mexico and as a director of Mobil Exploration &
Producing U.S., Inc. from September 1995 until December 1999. From 1991 until
September 1995, he served as Planning and Production Manager for Mobil
Exploration Norway, Inc. From 1988 to 1990, he served as Operations Manager for
Mobil Oil in California. From 1985 to 1988, Mr. Rathbone served in headquarters
strategic planning and operations positions with responsibility for Mobil Oil's
operations in Europe, Africa and the Middle East. Prior to 1985, he served in
numerous engineering, planning and operations positions in Mobil Oil's
international and domestic operations. Mr. Rathbone joined Mobil Oil as a
Petroleum Engineer in 1977.
Rodney L. Woodard has served as Vice President, Engineering for Titan since
its formation. From 1985 to 1995, Mr. Woodard served as Vice President of Selma
International Investment Limited.
Thomas H. Moore has served as Vice President, Business Development of Titan
since its formation. From 1992 to 1995, Mr. Moore served as Managing Partner of
Magnum Energy Corporation, L.L.C. From 1991 until 1992, Mr. Moore served as
Executive Vice President -- Exploration and Production, Chief Operating Officer
and Director of Clayton Williams Energy, Inc. From 1985 to 1991, Mr. Moore
served as President, Chief Operating Officer and Director of Clayton W.
Williams, Jr. Inc.
Dan P. Colwell has served as Vice President, Land of Titan since its
formation. From 1993 to 1995, Mr. Colwell served as Vice President of Land for
Enertex, Inc. Mr. Colwell was employed by ARCO as Director of Business
Development from 1991 to 1993 and Area Land Manager from 1987 to 1991.
William K. White has served as Vice President, Finance and Chief Financial
Officer of Titan since September 1996. From 1994 to September 1996, Mr. White
was Senior Vice President of the Energy Investment Group of Trust Company of The
West. From 1991 to 1994, Mr. White was President of the Odessa Associates, a
private firm engaged in the practice of providing financial consulting services
to the oil and gas industry.
John L. Benfatti has served as Vice President, Accounting and Controller of
Titan since its formation. From 1980 to 1995, Mr. Benfatti served as Controller
and Treasurer of Staley Gas Co., Inc.
Susan D. Rowland has served as Vice President, Administration and Corporate
Secretary of Titan since its formation. From 1986 to 1996, Ms. Rowland served as
a corporate officer and administrative manager of a number of companies,
including Amber Energy, Inc., Enertex, Inc., Haley Properties, Inc. and United
Oil Services, Inc.
Darin G. Holderness has served as Assistant Controller since January 1998.
From January 1996 to December 1997, Mr. Holderness served as Manager of
Financial Reporting for Aquila Gas Pipeline Corporation. From May 1986 to
December 1995, Mr. Holderness served as a senior manager and in other staff
positions with KPMG LLP.
Herbert C. Williamson, III has served as a director of Titan since August
1999. Mr. Williamson, since April 1999 to the present, has served as chief
financial officer and since August 1998 to present as director of Merlon
Petroleum Company, a private oil and gas company involved in exploration and
production in Egypt. Mr. Williamson served as Executive Vice President, Chief
Financial Officer and director of Seven Seas Petroleum Inc., a publicly
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traded oil and gas exploration company, from September 1997 to April 1999. From
1995 through September 1997, he served as Director in the Investment Banking
Department of Credit Suisse First Boston. Mr. Williamson served as Vice Chairman
and Executive Vice President of Parker & Parsley Petroleum Company, a publicly
traded oil and gas exploration company (now Pioneer Natural Resources Company)
from 1985 through 1995.
Persons who are not currently officers and/or directors of Titan
Gary Dupriest will serve as Vice President, Production. Since March 1999 he
has served as Vice President of the Permian Basin business unit, and he is
currently serving as Vice President of Pure Resources. From 1997 to February
1999, he was Union Oil's asset manager for the Permian Basin/Rocky Mountain
region. From 1996 to 1997, he was the business unit's exploitation manager. From
1994 to 1996, Mr. Dupriest was Union Oil's South Permian asset manager. He has
been employed by Union Oil since 1980.
Darrell Chessum will serve as a director of Pure Resources. Mr. Chessum has
served as Treasurer of Unocal Corporation since 1990.
Graydon H. Laughbaum, Jr. will serve as a director of Pure Resources. Since
July 1, 1999, he has served an advisor to Unocal Corporation on global energy
issues. From August 1, 1997 until January 1, 1999, Mr. Laughbaum was Senior Vice
President of New Ventures for Unocal Corporation. Prior to his appointment as
Senior Vice President, he served as Corporate Vice President of Worldwide
Exploration, Vice President for New Ventures in East Asia and Latin America and
Vice President of Operations in the Energy Resources Division of Unocal
Corporation from 1993 to 1997. Prior to 1993, he served in several management
positions with Unocal Corporation. Mr. Laughbaum joined Union Oil as a
Geological Engineer in 1964.
Timothy H. Ling will serve as a director of Pure Resources. He was named
Executive Vice President, North America Energy Operations of Unocal Corporation
in March 1999 and has served as its Chief Financial Officer since October 1997.
Prior to joining Unocal Corporation, he had been an employee of McKinsey &
Company since 1989 and a partner of the firm since 1994.
H D Maxwell will serve as a director of Pure Resources. Prior to retiring in
1993, he served as Chairman of Union Oil Company of Great Britain from 1992.
Prior to 1992, he served in several management positions with Unocal
Corporation. From 1988 to 1992, Mr. Maxwell was the President of Union Oil's
North American Oil and Gas Division. He served as Vice President of Union Oil's
Western Region from 1987 to 1988 and as Vice President of the Central Region
from 1985 to 1987. He served as Vice President of the MEA Region from 1983 to
1985. During the period from 1976 to 1983, he was the President and Managing
Director of Union Oil Company of Great Britain. Mr. Maxwell joined Union Oil in
1960 as a Reservoir Engineer.
The Pure Resources board of directors will establish a compensation committee
and an audit committee. The compensation committee will act on behalf of the
board of directors with respect to the compensation of directors and executive
officers, and administer some of the company's employee benefit plans. The audit
committee will review the scope and results of the audit and other services
performed by Pure Resources' independent accountants and report to the board of
directors with respect to those matters.
Compensation of Directors
Pure Resources will pay each director who is not an employee of Pure
Resources or Unocal or any Unocal subsidiary (an "outside director") an annual
fee of $30,000 and will also reimburse each director for travel, lodging and
related expenses they may incur in attending Pure Resources board and committee
meetings. Of the persons expected to be directors following the merger, H D
Maxwell, Graydon H. Laughbaum, Jr. and the eighth director to be selected by
Union Oil and Mr. Hightower will be entitled to receive outside director
compensation.
The annual fee paid to outside directors will be paid in the manner provided
in the Pure Resources Equity Plan for Outside Directors. Under the plan, the fee
will generally be paid 40% in cash and 60% in Pure Resources common stock at
market prices, but an outside director may elect to substitute Pure Resources
common stock for some or all of his cash fee. An outside director may also elect
to defer payment of some or all of his cash or stock fee, in which case
fictional interest
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and/or dividend credits will be credited to a deferred compensation account. The
aggregate number of shares of Pure Resources common stock that may be issued
under the plan to all the outside directors over the life of the plan is
200,000, subject to adjustment for events such as stock splits and subsequent
amendment. The plan will be administered by a committee appointed by the Pure
Resources board and composed solely of three or more directors who are not
outside directors.
Executive Compensation
As provided in the merger agreement, Pure Resources has entered into or
agreed to enter into various agreements with, or for the benefit of, those who
will be executive officers of Pure Resources after the merger, including an
employment agreement with Jack D. Hightower and new severance agreements. For
information regarding these matters, see the discussions under "The Merger
Agreement - Interests of Certain Persons in the Merger - Employment Agreement",
" - New Severance Agreements", " - Management Rights to Require Pure Resources
to Purchase Stock" and " - Indemnification of Titan Officers and Directors"
beginning on page 34 of this document. Pure Resources has also adopted its 1999
Incentive Plan and granted, subject to forfeiture if consummation of the merger
does not occur and/or those persons' do not become officers of Pure Resources,
options to the persons who will be its executive officers following the merger.
For information regarding the Pure Resources 1999 Incentive Plan and the option
grants, see "The Merger Agreement - Pure Resources 1999 Incentive Plan" on page
48. Subject to these arrangements, compensation of executive officers of Pure
Resources will be determined by the compensation committee of the Pure Resources
board based on recommendations of senior management and such factors as the
committee deems relevant. All executive compensation information for executive
officers of Titan who will become executive officers of Pure Resources has been
incorporated by reference into this document.
Certain Relationships and Related Transactions
Pure Resources and Titan have entered into various agreements with Union Oil
in connection with the merger, as described under "The Merger Agreement" in this
document. In addition, Pure Resources has entered or will enter into various
agreements with the persons identified in the merger agreement to be officers of
Pure Resources after the merger, as described under "The Merger - Interests of
Certain Persons in the Merger" on page 34 and "The Merger Agreement - Pure
Resources 1999 Incentive Plan" on page 48.
Information concerning relationships between Titan and some of its officers
and directors is included in Titan's Annual Report on Form 10-K for the year
ended December 31, 1999, which has been filed with the SEC and incorporated by
reference in this document.
After the merger, Pure Resources may from time to time enter into marketing
and other arrangements with Union Oil, including its Unocal Energy Trading
business unit. Pure Resources expects that any such arrangements will be on
terms no less favorable than could be obtained from an unaffiliated third party.
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BENEFICIAL OWNERSHIP OF TITAN,
PURE RESOURCES AND
PURE RESOURCES POST MERGER
Union Oil currently owns all of the issued and outstanding shares of common
stock of Pure Resources. The following table sets forth information as of
March 31, 2000 with respect to the beneficial ownership of Titan common stock
and Pure Resources common stock after giving effect to the merger, as the case
may be, of the (1) directors and named executive officers of Titan, (2)
executive officers and directors of Titan as a group, and (3) holders of 5% or
more of such securities.
<TABLE>
<CAPTION>
Shares Of Titan Shares Of Pure Resources
Common Stock Common Stock to be
Beneficially Owned Beneficially Owned After
Prior to the Merger the Merger
Name Of Beneficial Owner Number Percent Number Percent
- ------------------------ --------- -------- ---------- --------
<S> <C> <C> <C> <C>
Current Directors and Named Executive Officers of Titan
(1):
Jack D. Hightower (2)................................. 4,458,393 11.1% 1,950,338 3.9%
George G. Staley (3).................................. 1,073,380 2.7% 481,436 *
William K. White (4).................................. 55,985 * 95,214 *
Thomas H. Moore (5)................................... 322,824 * 145,480 *
Rodney L. Woodard (6)................................. 282,061 * 127,911 *
Dan P. Colwell (7).................................... 264,596 * 120,328 *
William J. Vaughn, Jr. (8)............................ 345,041 * -- *
Herbert C. Williamson III............................. -- * -- *
Current Executive Officers and Directors of Titan as a 6,968,092 17.3% 3,018,460 6.0%
Group (12 persons) (9)...............................
Holders of 5% or More Not Named Above:
Union Oil Company of California..................... -- -- 32,709,067 65.4%
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
Enron Corp. and Joint Energy Development
Investment Limited Partnership (10)................ 3,423,194 8.5% 1,472,766 2.9%
1400 Smith Street
Houston, Texas 77002
State Street Research & Management Company (11) 4,058,423 10.1% 1,746,061 3.5%
One Financial Center, 30th Floor
Boston, Massachusetts 02111
Schroder Investment Management North America
Inc. (12)............................................ 2,049,800 5.1% 881,888 1.8%
787 Seventh Avenue, 34th Floor
New York, New York 10019
Charles M. Royce (13)................................. 2,458,970 6.1% 1,057,810 2.1%
1414 Plaza of the Americas
New York, New York 10019
Wellington Management Company, LLP (14)...............
75 State Street 3,633,900 9.0% 1,563,418 3.1%
Boston, Massachusetts 02109
</TABLE>
___________
* Less than 1%.
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(1) The business address of each director and executive officer of Titan is c/o
Titan Exploration, Inc., 500 West Texas, Suite 200, Midland, Texas 79701.
(2) With respect to Titan shares, includes (a) 4,423,182 shares held by Mr.
Hightower, (b) 133,016 shares held by Mr. Hightower's children and (c) 2,195
shares subject to stock options that are exercisable within 60 days.
(3) With respect to Titan shares, includes (a) 1,071,696 shares held by Mr.
Staley and (b) 1,684 shares subject to stock options that are exercisable
within 60 days.
(4) With respect to Titan shares, includes (a) 3,000 shares held by Mr. White,
(b) 51,602 shares subject to stock options that are exercisable within 60
days, and (c) 1,383 shares held indirectly through a 401(k) plan.
(5) Includes (a) 321,403 shares held by Mr. Moore and (b) 1,421 shares subject
to stock options that are exercisable within 60 days.
(6) With respect to Titan shares, includes (a) 267,237 shares held by Mr.
Woodard, (b) 1,421 shares subject to stock options that are exercisable
within 60 days, and (c) 13,403 shares held indirectly through a 401(k) plan.
(7) With respect to Titan shares, includes (a) 263,175 shares held by Mr.
Colwell and (b) 1,421 shares subject to stock options that are exercisable
within 60 days.
(8) With respect to Titan shares, includes (a) 5,500 shares held by Mr. Vaughn,
(b) 299,287 shares held in trust for Mr. Vaughn and his spouse, and (c)
40,254 shares held by affiliates of Mr. Vaughn.
(9) With respect to Titan shares, includes 67,226 shares that officers and
directors as a group have the right to acquire within 60 days through the
exercise of options granted under the 1996 incentive plan.
(10)Based upon information reported in a Schedule 13G dated January 20, 1997
filed by Enron Corp. and Joint Energy Development Investments Limited
Partnership ("JEDI") with the SEC. The general partner of JEDI is Enron
Capital Management Limited Partnership, whose general partner is Enron
Capital Corp., an indirect wholly-owned subsidiary of Enron Corp.
(11)Based upon information reported in a Form 13G dated February 7, 2000 filed
by State Street Research & Management Company ("State Street"), State Street
has sole voting power with respect to 3,822,323 of such shares and has sole
dispositive power with respect to all 4,058,423 shares. According to the
report, State Street is a registered investment advisor and the reported
shares are in fact owned by its clients. No clients of State Street are
identified on the report as beneficially owning more than 5% of Titan's
common stock. In the report State Street disclaims beneficial ownership of
the shares.
(12)Based upon information reported in a Schedule 13G dated February 3, 2000
filed by Schroder Investment Management North America Inc. ("Shroder"),
Shroder is a registered investment and has sole voting power with respect
to 1,988,000 of such shares and has sole dispositive power with respect to
all 2,049,800 shares.
(13)Based upon information reported in a Form 13G dated February 9, 2000 filed
by Royce & Associates, Inc. ("R&A"), Royce Management Company ("RMC") and
Charles M. Royce. According to the report, R&A has sole voting and
dispositive power with respect to 2,409,700 of such shares and RMC has sole
voting and dispositive power with respect to 49,000 of such shares.
According to the report, Mr. Royce may be deemed to beneficially own these
shares.
(14)Based upon information reported in a Form 13G dated February 11, 2000 filed
by Wellington Management Company ("WMC"), WMC has shared voting power with
respect to 2,911,100 of such shares and has shared dispositive power with
respect to all 3,633,900 shares. According to the report, WMC is a
registered investment advisor, the reported shares are owned of record by
its clients and no such client is known to WMC to beneficially own more than
5% of Titan's common stock.
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DESCRIPTION OF PURE RESOURCES CAPITAL STOCK
General
At the time of the merger, the authorized capital stock of Pure Resources
will consist of:
. 200,000,000 shares of Pure Resources common stock, par value $.01 per
share, and
. 10,000,000 shares of Pure Resources preferred stock, par value $.01
per share.
There are presently 1,000 shares of Pure Resources common stock, par value
$.01 per share, issued and outstanding, all of which are owned by Union Oil.
After the completion of the contribution and assumption of the Permian Basin
business unit, there will be issued and outstanding 32,709,067 shares of Pure
Resources common stock, all of which will be owned by Union Oil. Upon
consummation of the merger, there will be issued and outstanding approximately
50,000,000 shares of Pure Resources common stock, based on the number of shares
of Titan common stock outstanding on January 1, 2000. No shares of preferred
stock are issued or outstanding. See "Comparison of Stockholder Rights" for
information concerning differences between the capital stock of Pure Resources
and the capital stock of Titan.
Common Stock
Holders of Pure Resources common stock will be entitled to receive
dividends out of legally available funds when and if declared by the Pure
Resources board and will be entitled to cast one vote for each share held of
record on all matters submitted to a vote of stockholders. They will not be
entitled to cumulative voting rights for the election of directors. The shares
of Pure Resources common stock have no preemptive, conversion or other rights to
subscribe for or purchase any securities of Pure Resources except as may be
provided by contract, including the non-dilution agreement described in this
document on page 46. Upon liquidation or dissolution of Pure Resources, the
holders of shares of Pure Resources common stock are entitled to share ratably
in any of Pure Resources' assets that remain after payment or provision for
payment to creditors and holders of preferred stock. All outstanding shares of
Pure Resources common stock are fully paid and nonassessable, and the shares of
Pure Resources common stock issued in the merger and in exchange for Union Oil's
contribution will be fully paid and nonassessable.
Preferred Stock
The Pure Resources preferred stock may be issued in one or more series. The
Pure Resources board may establish attributes of any series, including the
designation and number of shares in the series, cumulative or noncumulative
dividend rates, voting rights, redemptions, conversion or preference rights, and
any other rights and qualifications, preferences and limitations or restriction
or shares of a series. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of Pure Resources without
any vote or action by the stockholders and may adversely affect the voting and
other rights of the holders of shares of Pure Resources common stock. The
specific terms of a particular series of preferred stock will be described in a
certificate of designation relating to that series.
Advance Notice Procedure for Stockholder Proposals; Calling of Meeting
Pure Resources' bylaws establish an advance notice procedure for the
nomination of candidates for election as directors as well as for stockholder
proposals to be considered at annual meetings of stockholders. As more
particularly specified in the bylaws, notice of intent to nominate a director
must be delivered to or mailed and received at Pure Resources' principal
executive offices as follows:
. With respect to an election to be held at the annual meeting of
stockholders, the notice must be given not less than 90 days in
advance of such meeting and must contain specified information
concerning the stockholder who intends to make the nomination and the
person to be nominated.
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. With respect to an election to be held at a special meeting of
stockholders for the election of directors, the notice must be given
not later than the close of business on the seventh day following the
day on which notice of such meeting is first given to stockholders and
must contain specified information concerning the stockholder who
intends to make the nomination and the person to be nominated.
Notice of a stockholder's intent to raise business at an annual meeting
must be delivered to or mailed and received by Pure Resources' corporate
secretary at its principal executive offices not less than 60 days nor more than
120 days prior to the meeting. These procedures may operate to limit the ability
of stockholders to bring business before a stockholders' meeting, including with
respect to the nomination of directors or considering any transaction that could
result in a change of control.
Special Meetings
Except as otherwise required by law and subject to the rights of the
holders of any class or series of stock having a dividend or liquidation
preference over the common stock, special meetings of the stockholders for any
purpose or purposes may be called only by the chairman of the board, a majority
of the entire board of directors or a majority of the votes entitled to be cast
by the stockholders entitled to vote at such a meeting. Only business that is
specified in the notice of the special meeting of the stockholders will be
conducted at the meeting.
Pure Resources is Not Subject to Delaware Anti-takeover Provisions
As permitted by Delaware law, Pure Resources has elected not to be governed
by Section 203 of the Delaware General Corporation Law. Section 203 provides
that, if a person acquires 15% or more of the stock of a Delaware corporation
without the approval of the board of directors of that corporation, thereby
becoming an "interested stockholder," that person may not engage in specified
types of transactions with the corporation for a period of three years unless
one of the following three exceptions applies:
. the board of directors approved the acquisition of stock or the
transaction prior to the time that the person became an interested
stockholder,
. the person became an interested stockholder and an 85% owner of the
voting stock of the corporation in the transaction, excluding voting
stock owned by directors who are also officers and specified types of
employee stock plans, or
. the transaction is approved by the board of directors and by the
affirmative vote of two-thirds of the outstanding voting stock that is
not owned by the interested stockholder.
Transfer Agent and Registrar
The transfer agent and registrar of Pure Resources' common stock will be
First Union National Bank.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Material Federal Income Tax Consequences to the Titan Stockholders
The following discussion summarizes the material United States federal
income tax consequences of the merger to Titan stockholders who are United
States citizens or resident individuals and who hold Titan common stock as a
capital asset and will hold Pure Resources common stock as a capital asset. The
following discussion may not apply to other categories of stockholders,
including corporate and foreign stockholders and tax-exempt entities. This
discussion does not address any aspect of state, local or foreign taxation. This
discussion is based on legislation, regulations, administrative rulings and
court decisions, which may be repealed, revoked, or modified, possibly with
retroactive effect.
Thompson & Knight L.L.P., counsel for Titan, has delivered an opinion to
the effect that the description of the federal income tax consequences to the
Titan stockholders set forth below correctly sets forth the material federal
income tax consequences of the merger for such stockholders. This opinion is
based upon, among other things, representation letters provided by Titan, Pure
Resources and Union Oil to counsel. The representation letters contain customary
statements relating to planned dispositions of shares of Pure Resources stock by
Titan stockholders and Union Oil, plans on the part of Pure Resources to
undertake or cause Titan to undertake transactions outside of the ordinary
course of business, and other technical requirements under the Internal Revenue
Code of 1986, as amended.
Based upon such representation letters, it is the opinion of Thompson &
Knight L.L.P. that:
(a) The merger will be treated for federal income tax purposes as a
reorganization described in Section 368(a) of the Code and/or a transfer of
property to Pure Resources by the Titan stockholders governed by Section 351 of
the Code; and
(b) The exchange in the merger of Titan common stock for Pure Resources
common stock will not give rise to gain or loss to the Titan stockholders with
respect to such exchange, except to the extent of any cash received instead of
fractional shares of Pure Resources common stock.
Titan's obligation to consummate the merger depends on Titan's receipt of
written confirmation, dated the closing date, of the opinion contained in this
paragraph.
The foregoing opinion is not binding on the Internal Revenue Service. None
of Titan, Pure Resources or Union Oil will request a ruling from the IRS with
regard to the tax consequences of the merger.
The obligation of Union Oil and Pure Resources to consummate the merger
depends on their receipt of written confirmation from Union Oil's legal counsel
on the closing date that the transfer of the Permian Basin business unit by
Union Oil to Pure Resources and the assumption of the related liabilities by
Pure Resources will not result in a taxable gain or loss to Union Oil or Pure
Resources.
Because the merger will qualify as a reorganization under Section 368(a) of
the Code and/or a transfer of property to Pure Resources by the Titan
stockholders governed by Section 351 of the Code as discussed above, in the
opinion of Thompson & Knight L.L.P., the following are the material United
States federal income tax consequences of the merger to the Titan stockholders:
(a) The Titan stockholders will recognize no gain or loss by surrendering
their Titan common stock in the merger solely for Pure Resources common stock,
except for cash received instead of a fractional share interest in Pure
Resources common stock.
(b) The tax basis of Pure Resources common stock the Titan stockholders
receive in the merger, including the tax basis of any fractional share interest
in Pure Resources common stock, will be the same as the tax basis of the shares
of Titan common stock surrendered in the merger.
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(c) The Titan stockholders' holding period of the shares of Pure Resources
common stock received in the merger, including the holding period of any
fractional share interest in Pure Resources common stock, will include the
holding period of the Titan common stock surrendered in the merger.
(d) If a Titan stockholder receives cash instead of a fractional share
interest in Pure Resources common stock, the Titan stockholder will be treated
as receiving the cash for the fractional share interest. Accordingly, the Titan
stockholder will recognize gain or loss equal to the difference between the
amount of cash received and a portion of the tax basis in the Titan common stock
allocable to the fractional share interest. The gain or loss will be a capital
gain or loss.
Even if the merger qualifies as a reorganization, a recipient of Pure
Resources common stock will recognize gain at the time of the merger if the
shares of Pure Resources common stock were received, other than solely in
exchange for Titan common stock. A Titan stockholder also will recognize gain
if the stockholder is treated as directly or indirectly receiving consideration
other than Pure Resources common stock. All or a portion of these gains may be
taxable as ordinary income.
Because this is a summary, it may not address all aspects of federal income
taxation that may be relevant to you in light of your particular circumstances
and income tax situation. We strongly urge you to consult your own tax advisor
to determine the particular tax consequences of the merger to you, including the
application of state, local and foreign tax laws and possible future changes in
federal tax laws.
Limitation on Use of Titan's Net Operating Loss Carryforwards
The ability of a corporation that undergoes an "ownership change" to use
its pre-merger net operating loss carryforwards for both regular and alternative
minimum tax purposes is limited in each future year to a percentage, currently
about 5.84%, of the fair market value of the corporation's stock immediately
before the ownership change. In general, there is an "ownership change" if, over
a three-year period, one or more stockholders who hold 5% or more of the stock
of the corporation increase their percentage ownership of the corporation by
more than fifty percentage points.
If taxable income in any year after the ownership change exceeds the
relevant percentage of the fair market value of the corporation's stock
immediately before the ownership change, the excess income may not be offset by
pre-merger net operating losses. If taxable income in any year after the
ownership change is less than the relevant percentage of the fair market value
of the corporation's stock immediately before the ownership change, the
limitation for future years is correspondingly increased. In some circumstances,
the limitation may cause net operating losses to be carried forward until they
expire unused. Where an ownership change occurs during a taxable year, a
corporation with net operating losses must allocate its net operating loss for
the year between the pre-change period and the post-change period. The above-
described limitation does not apply to the use of net operating losses that
arise after the ownership change, although such limitation applies anew each
time there is an ownership change.
As of December 31, 1999, Titan had estimated net operating losses of
approximately $51.6 million. Pure Resources believes that an ownership change
of Titan will occur as a result of the merger. Accordingly, Titan's ability to
use its pre-merger net operating losses in future years may be limited. The
actual effect, if any, of this limitation will depend on Titan's taxable income
in future years. Thompson & Knight L.L.P. is not rendering an opinion regarding
whether an ownership change will occur as a result of the merger or the effect
of any such ownership change on Titan's ability to use its net operating losses.
In addition, Pure Resources' ability to use Titan's pre-merger net
operating losses to offset gains on the sale of Pure Resources' assets may be
limited. This limitation applies only to the extent that the assets received
from Union Oil at the closing of the merger have built-in gain as of such date.
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COMPARISON OF STOCKHOLDER RIGHTS
If the merger is consummated, the stockholders of Titan will become
stockholders of Pure Resources. The rights of current Titan stockholders
following the merger will be governed by the Pure Resources certificate of
incorporation and the Pure Resources bylaws rather than the provisions of the
certificate of incorporation and bylaws of Titan. The following is a discussion
of the material differences between the rights of stockholders of Titan and the
rights of stockholders of Pure Resources.
The following discussion is not intended to be complete and is qualified in
its entirety by reference to Delaware law, the Titan certificate and bylaws and
the Pure Resources certificate and bylaws. For information on how to obtain
copies of the certificates of incorporation and bylaws of the companies, see
"Where You Can Find More Information" on page 95.
General
Titan and Pure Resources are both incorporated in Delaware and,
accordingly, the rights of the stockholders of both Pure Resources and Titan are
governed by and subject to the provisions of Delaware law. In addition, the Pure
Resources certificate of incorporation and bylaws are substantially similar to
those of Titan, except as noted below.
Board of Directors
The certificate of incorporation of Titan provides that the number of
directors of Titan shall not be less than four nor more than nine as fixed from
time to time by or under the terms of the bylaws of Titan. The Pure Resources
certificate of incorporation provides that the number of directors shall be
fixed from time to time by or under the terms of the bylaws of Pure Resources.
It is expected that the Pure Resources board will consist of eight members after
the merger.
The certificate of incorporation of Titan provides for cumulative voting in
the election of directors. Cumulative voting allows a stockholder to cast all
of his or her votes in the election of company directors, which are determined
by multiplying the number of his shares by the number of director positions
being filled, for just one director. Cumulative voting can be used to insure a
minority stockholder that he will have a seat on a company's board of directors.
The certificate of incorporation of Pure Resources does not provide for
cumulative voting.
Stockholder Action by Written Consent
Delaware law provides that, unless otherwise provided in the articles or
certificate of incorporation, any action that may be taken at any meeting of
stockholders may be taken without a meeting, prior notice or a vote, if written
consents setting forth the action taken are signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to take such action if the action were taken at a meeting. The certificate of
incorporation of Titan does not contain any provision with respect to action
taken by written consent of stockholders without a meeting. Therefore, Titan
stockholders may act by less than unanimous written consent. In contrast, the
Pure Resources certificate of incorporation permits action to be taken by
written consent only with the written consent of the holders of record of all of
the outstanding shares of capital stock of Pure Resources.
Stockholder Rights Plan
Under Titan's Rights Agreement dated as of June 10, 1999 between Titan and
First Union National Bank, as Rights Agent, Titan has issued one right to
purchase its Series A Junior Participating Preferred Stock for every outstanding
share of Titan's common stock. The Rights Agreement remains in effect, and no
triggering event has occurred. The merger will not cause a triggering event to
occur under the agreement, and the agreement will cease to have effect once the
merger is complete. Pure Resources does not have a Rights Agreement and has no
present intention to adopt a stockholder rights plan. However, the Pure
Resources Board of Directors could do so without stockholder approval at any
future time.
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Business Combination Statute
A Delaware corporation may elect not to be governed by Section 203 of the
Delaware General Corporation Law, which is described under "Description of Pure
Resources Capital Stock" on page 88. Unlike Titan, Pure Resources has elected
not to be governed by Section 203.
Control by Majority Stockholder
Titan is an independent company, with no single stockholder beneficially
owning more than 11.1% of its outstanding common stock as of March 31, 2000.
After the completion of the merger, Union Oil will own approximately 65.4% of
the outstanding Pure Resources common stock and is not prohibited from acquiring
more. See "Risk Factors - Pure Resources will be controlled by Union Oil after
the merger" for a discussion of Union Oil's control of Titan after the merger.
Union Oil will have preemptive rights entitling it to maintain its 65.4%
ownership of Pure Resources stock after the merger.
Authorized Capital
Titan has 70,000,000 authorized shares of stock, consisting of (1)
60,000,000 shares of Titan common stock and (2) 10,000,000 shares of preferred
stock having a par value of $0.01 per share. As of January 1, 2000, there were
40,189,843 shares of Titan common stock outstanding. There are no shares of
preferred stock outstanding.
Pure Resources has the authority to issue 210,000,000 shares of capital
stock, 200,000,000 of which are Pure Resources common stock and 10,000,000 are
preferred stock, par value $0.01 per share. After the completion of the
contribution and assumption of the Permian Basin business unit, there will be
issued and outstanding 32,709,067 shares of Pure Resources common stock, all of
which will be owned by Union Oil. Upon consummation of the merger, there will
be issued and outstanding approximately 50,000,000 shares of Pure Resources
common stock, based on the number of shares of Titan common stock outstanding on
January 1, 2000. Pure Resources has no shares of its preferred stock
outstanding as of the date hereof.
LEGAL MATTERS
The validity of the Pure Resources common stock to be issued to Titan
stockholders in the merger will be passed upon by Vinson & Elkins L.L.P. It is
a condition to the completion of the merger that Union Oil receive an opinion
from Thompson & Knight L.L.P. with respect to the tax treatment of the merger.
See "The Merger Agreement - Conditions to the Merger" and "The Merger - Material
United States Federal Income Tax Consequences of the Merger."
EXPERTS
The consolidated financial statements of Titan as of December 31, 1999 and
1998 and for each of the years in the three-year period ended December 31, 1999,
have been incorporated by reference herein in reliance upon the reports of KPMG
LLP, independent certified public accountants, incorporated by reference in this
document, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements of the Permian Basin business unit as of December
31, 1999 and 1998 and for each of the years in the three-year period ended
December 31, 1999 have been included herein in reliance upon the reports of
PricewaterhouseCoopers LLP, independent certified public accountants, included
in this document, and upon the authority of said firm as experts in accounting
and auditing.
Some information included in the financial statements of the Permian Basin
business unit has been included herein upon the reliance of the abandonment
study of Twatchman Snyder & Byrd, Inc., independent consultants, referred to in
such financial statements, and upon the authority of said firm as experts in
abandonment estimates.
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Some of the estimates of oil and gas reserves included and incorporated by
reference herein were based upon engineering evaluations prepared by Williamson
Petroleum Consultants, Inc., independent engineers. Of Titan's total SEC 10%
present value, Williamson evaluated properties representing 78%, 77% and 90% of
Titan's SEC 10% prevent value for the years ended December 31, 1999, 1998 and
1997, respectively. These estimates are included or incorporated herein in
reliance on the authority of such firm as experts in such matters.
The information in this document concerning estimates of proved oil and gas
reserves attributable to the Permian Basin business unit has been prepared by
Union Oil's petroleum engineering staff and certified by Gary Dupriest, Vice
President of Pure Resources, Inc., and has been included by reference herein in
reliance upon the authority of Mr. Dupriest as an expert in the field of
petroleum engineering.
STOCKHOLDER PROPOSALS
Titan will hold an annual meeting in the year 2000 only if the merger has
not already been completed. If such meeting is held, shareholders' proposals
will be eligible for consideration for inclusion in the proxy statement for the
2000 annual meeting pursuant to Rule 14a-8 under the Securities and Exchange Act
of 1934, as amended, if such proposals are received by Titan before the close of
business on June 15, 2000. Notices of shareholders' proposals submitted outside
the processes of Rule 14a-8 will be considered timely, pursuant to the advance
notice requirement set forth in Titan's bylaws, if such notices are filed with
the secretary of Titan not less than 60 nor more than 120 days prior to the
meeting in the manner specified in the bylaws.
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WHERE YOU CAN FIND MORE INFORMATION
Titan files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information Titan files at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Titan's
SEC filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov".
Pure Resources filed a registration statement on Form S-4 to register with
the SEC the Pure Resources common stock to be issued to Titan stockholders in
the merger. This document is a part of that registration statement and
constitutes a prospectus of Pure Resources in addition to being a proxy
statement of Titan for the Titan meeting. As allowed by SEC rules, this document
does not contain all the information you can find in the registration statement
or the exhibits to the registration statement.
The SEC allows Titan to "incorporate by reference" information into this
document, which means that Titan disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in, or incorporated by reference in, this
document. This document incorporates by reference the documents set forth below
that Titan has previously filed with the SEC. These documents contain important
information about Titan and its finances.
1. Annual Report on Form 10-K for the Year ended December 31, 1999 (File
No. 000-21843), as amended by Amendment No. 1 to Form 10-K filed April
12, 2000.
Titan has filed its certificate of incorporation and bylaws with the SEC as
follows:
. Certificate of Incorporation of Titan - filed as Exhibit 3.1 to
Titan's Registration Statement on Form S-1, Registration No. 333-
14029.
. Certificate of Amendment of Certificate of Incorporation of Titan -
filed as Exhibit 3.1.1 to Titan's Registration Statement on Form S-1,
Registration No. 333-14029.
. Bylaws of Titan - filed as Exhibit 3.2 to Titan's Registration
Statement on Form S-1, Registration No. 333-14029.
. Amendment to the Bylaws of Titan - filed as Exhibit 3 to Titan's
Current Report on Form 8-K filed on June 11, 1999 (date of event June
10, 1999).
We are also incorporating by reference additional documents that we file
with the SEC between the date of this document and the date of the merger.
Titan has supplied all information contained or incorporated by reference
in this document relating to Titan, and Union Oil has supplied all such
information relating to the Permian Basin business unit and Pure Resources.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them by contacting Titan
directly, or the SEC. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this document. Stockholders may obtain documents
incorporated by reference in this document by requesting them in writing, by e-
mail or by telephone from the appropriate party at the following address:
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Titan Exploration, Inc.
500 West Texas, Suite 200
Midland, Texas 79701
Attention: William K. White
(915) 498-8600
E-mail: [email protected]
You should rely only on the information contained or incorporated by
reference in this document. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated April 19, 2000. You should not assume that the information
contained in this document is accurate as of any date other than such date, and
neither the mailing of this document to stockholders nor the issuance of Pure
Resources common stock in the merger shall create any implication to the
contrary.
By Order of the Board of Directors
Susan D. Rowland, Secretary
April 19, 2000
Midland, Texas
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COMMONLY USED OIL AND GAS TERMS
"Bbl" or "barrel" means a U.S. 42 gallon barrel.
"Bcf" means billion cubic feet.
"Bcfe" means billion equivalent cubic feet of gas, calculated by converting
oil to equivalent Mcf at a ratio of 6 Mcf to 1 Bbl of oil.
"BOE" means equivalent barrels of oil, calculated at a ratio of 6 Mcf to 1
Bbl of oil.
"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"Exploratory well" means a well drilled to find and produce oil or gas in
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
"Gross," when used with respect to acres or wells, refers to the total
acres or wells in which the company has a working interest.
"Horizontal drilling" means a drilling technique that permits the operator
to contact and intersect a larger portion of the producing horizon than
conventional vertical drilling techniques and can result in both increased
production rates and greater ultimate recoveries of hydrocarbons.
"MBbls" means thousand barrels.
"Mcf" means thousand cubic feet.
"Mcfe" means thousand equivalent cubic feet of gas, calculated by
converting oil to equivalent Mcf at a ratio of 6 Mcf to 1 Bbl of oil.
"MMBbls" means million barrels.
"MMcf" means million cubic feet.
"MMcfe" means million equivalent cubic feet, calculated by converting oil
to equivalent Mcf at a ratio of 6 Mcf to 1 Bbl of oil.
"Net," when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by the
company.
"Net production" means production that is owned by the company less
royalties and production due others.
"Oil" means crude oil or condensate.
"Operator" means the individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.
"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
"Proved reserves" means the estimated quantities of crude oil, natural gas
and natural gas liquids which 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.
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Prices include consideration of changes in existing prices provided only by
contractual arrangements, but not on escalations based upon future conditions.
(i) 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.
(ii) Reserves which 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.
(iii) 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 natural gas liquids, 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 natural gas liquids that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids that may be recovered from oil shales, coal, gilsonite
and other such sources.
"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously completed.
"Reserves" means proved reserves.
"Reservoir" means a porous and permeable underground formation containing a
natural accumulation of producible oils and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
"3-D seismic" means seismic data that are acquired and processed to yield a
three-dimensional picture of the subsurface.
"SEC 10% present value" means the pretax present value of estimated future
revenues to be generated from the production of proved reserves calculated in
accordance with SEC guidelines, net of estimated production and future
development costs, using prices and costs as of the date of estimation without
future escalation, without giving effect to non-property related expenses such
as general and administrative expenses, debt service and depreciation, depletion
and amortization, and discounted using an annual discount rate of 10%.
"Standardized measure of discounted future net cash flows" is the SEC 10%
present value defined above, less applicable income taxes.
"Tertiary recovery" means enhanced recovery methods for the production of
oil or gas. Enhanced recovery of crude oil requires a means for displacing oil
from the reservoir rock, modifying the properties of the fluids in the reservoir
and/or the reservoir rock to cause movement of oil in an efficient manner, and
providing the energy and drive mechanism to force its flow to a production well.
The company injects chemicals or energy as required for
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displacement and for the control of flow rate and flow pattern in the reservoir,
and a fluid drive is provided to force the oil toward a production well.
"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.
"Workover" means operations on a producing well to restore or increase
production.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements of Union Oil's Permian Basin Business Unit: Page
----
<S> <C>
Report of Independent Accountants F-2
Balance Sheets at December 31, 1999 and 1998 F-3
Statements of Earnings for the years ended December 31, 1999, 1998 and 1997 F-4
Statements of Owner's Net Investment for the years ended December 31, 1999, 1998 and 1997 F-5
Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-6
Notes to Financial Statements F-7
Supplemental Information on Oil and Gas Exploration and Production Activities (unaudited) F-14
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Union Oil Company of California:
We have audited the accompanying balance sheet of Union Oil's Permian Basin
business unit as of December 31, 1999 and 1998, and the related statements of
earnings, cash flows, and owner's net investment for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the management of Union Oil Company of California. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimated
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Union Oil's Permian Basin
business unit as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Houston, Texas
March 10, 2000
F-2
<PAGE>
Union Oil's Permian Basin Business Unit
Balance Sheets
In Thousands of Dollars
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Property, plant and equipment, net (on the basis of successful efforts $291,810 $306,730
accounting)
Receivables for under-delivered gas 2,880 4,540
-------- --------
Total assets $294,690 $311,270
======== ========
Liabilities and Owner's Net Investment
Deferred income taxes $ 73,711 $ 71,637
Accrued abandonment, restoration and environmental liabilities 11,613 9,817
Liabilities for over-delivered gas 6,742 5,690
-------- --------
Total liabilities 92,066 87,144
Commitments and contingencies (Note 7) - -
Owner's net investment 202,624 224,126
-------- --------
Total liabilities and owner's net investment $294,690 $311,270
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
Union Oil's Permian Basin Business Unit
Statements of Earnings
In Thousands of Dollars
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Crude oil sales $ 64,613 $ 52,609 $ 75,162
Natural gas sales 48,633 53,186 62,671
Other revenues 880 1,161 415
-------- -------- --------
Total revenues 114,126 106,956 138,248
Costs and expenses:
Depreciation, depletion and amortization 33,393 33,139 37,552
Production and operating expense 32,268 39,430 36,538
General and administrative expense 7,836 7,674 8,264
Impairment of property, plant and equipment 345 7,387 9,562
Property and other operating taxes 8,579 8,881 11,621
Exploration expense 3,112 2,949 829
Dry hole costs 2,120 674 529
-------- -------- --------
Total costs and expenses 87,653 100,134 104,895
Earnings before income taxes 26,473 6,822 33,353
Income taxes 8,685 1,780 11,180
-------- -------- --------
Net earnings $ 17,788 $ 5,042 $ 22,173
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
Union Oil's Permian Basin Business Unit
Statements of Owner's Net Investment
In Thousands of Dollars
Owner's net investment at December 31, 1996 $243,542
Net earnings for the year ended December 31, 1997 22,173
Settlements with owner, net (41,406)
--------
Owner's net investment at December 31, 1997 224,309
Net earnings for the year ended December 31, 1998 5,042
Settlements with owner, net (5,225)
--------
Owner's net investment at December 31, 1998 224,126
Net earnings for the year ended December 31, 1999 17,788
Settlements with owner, net (39,290)
--------
Owner's net investment at December 31, 1999 $202,624
========
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
Union Oil's Permian Basin Business Unit
Statements of Cash Flows
In Thousands of Dollars
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 17,788 $ 5,042 $ 22,173
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation, depletion and amortization 33,393 33,139 37,552
Impairment of property, plant and equipment 345 7,387 9,562
Deferred income taxes 2,074 1,626 (5,487)
Dry hole costs 2,120 674 529
Loss (gain) on sales of property, plant and equipment 63 (106) (58)
Changes in assets and liabilities:
Accrued abandonment, restoration and environmental liabilities (464) (252) (157)
Receivables for under-delivered gas 1,660 (48) (803)
Liabilities for over-delivered gas 1,052 (188) 262
Other 372 (157) (185)
-------- -------- --------
Net cash provided by operating activities, excluding certain working 58,403 47,117 63,388
capital changes -------- -------- --------
Investing activities:
Proceeds from sales of property, plant and equipment 314 720 1,313
Capital expenditures (includes dry hole costs) (19,427) (42,612) (23,295)
-------- -------- --------
Net cash used in investing activities (19,113) (41,892) (21,982)
-------- -------- --------
Financing activities:
Settlements with owner, net (39,290) (5,225) (41,406)
-------- -------- --------
Net cash used in financing activities (39,290) (5,225) (41,406)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents - - -
Cash and cash equivalents at beginning of period - - -
-------- -------- --------
Cash and cash equivalents at end of period $ - $ - $ -
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
Union Oil's Permian Basin Business Unit
Notes to Financial Statements
In Thousands of Dollars
================================================================================
Note 1 - Business Operations and Basis of Presentation
The Permian Basin business unit ("Permian Basin business unit") operates as a
business unit of Union Oil Company of California ("Union Oil"). The Permian
Basin business unit is engaged in the exploration, development and production of
oil and natural gas in the Permian Basin of the western portion of the state of
Texas and San Juan Basin areas of New Mexico and Colorado.
On December 13, 1999, Union Oil entered into an Agreement and Plan of Merger
with Titan Exploration, Inc. to merge Union Oil's newly created wholly-owned
subsidiary, Pure Resources, Inc., with Titan. Simultaneously with the merger,
Union Oil will contribute its Permian Basin business unit properties to Pure
Resources, Inc. in exchange for the assumption of related liabilities and for
32,708,067 shares of Pure Resources, Inc. common stock, approximately 65.4%
ownership. The remaining 34.6% ownership will be acquired by current holders of
Titan common stock by exchanging each share of Titan common stock they own for
.4302314 of a share of Pure Resources, Inc. common stock.
The accompanying financial statements are presented as a carve-out from the
financial statements of Union Oil and reflect the activity related to its
Permian Basin business unit during the periods presented. General and
administrative expenses in the statement of earnings represent allocations of
Union Oil's corporate overhead costs. Results of operations excluding these
overhead costs were $34,309, $14,496 and $41,617 for the years ended December
31, 1999, 1998 and 1997, respectively. In addition, production and other
operating expenses in the statement of earnings includes allocations of Union
Oil's indirect production costs of $2,374, $3,625, and $2,359 for the years
ended December 31, 1999, 1998, and 1997, respectively. Exploration expenses in
the statement of earnings include allocations of Union Oil's indirect
exploration costs of $2,062, $1,525, and $829 as of December 31, 1999, 1998, and
1997, respectively. These costs were allocated based on each business unit's
share of total revenues from Union Oil. Management believes that such
allocations are reasonable and that actual costs would not have been materially
different if the Permian Basin business unit would have operated as an
unaffiliated company.
Union Oil provides cash management services to the Permian Basin business unit
through a centralized treasury system with the associated transactions recorded
via the intercompany accounts. The Permian Basin business unit does not maintain
cash balances, and no interest is charged or received. The Permian Basin
business unit's net cash settlement with Union Oil and amounts for allocated
costs from Union Oil are included in the owner's net investment on the balance
sheet.
As a result of cash management services referred to in the paragraph above,
Union Oil does not allocate specific working capital components to the Permian
Basin business unit. Cash flow from operations does not include the effect of
changes in certain working capital accounts. The amounts are included in
settlements with owners, net.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates - The financial statements are prepared in conformity with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosures of contingent assets and
liabilities. Although management believes these estimates are reasonable, actual
results could differ from those estimates.
Impairment of Assets - The Permian Basin business unit's long-lived assets are
reviewed for impairment quarterly for events or changes in circumstances that
indicate that the carrying amount of an asset may not be recoverable in
accordance with FASB 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. Long-lived assets are reviewed for
potential impairments at the lowest level for which there are identifiable cash
flows that are largely independent of other groups of assets.
The review is done by determining if the historical cost of proved properties
less the applicable accumulated depreciation, depletion and amortization and
abandonment is less than the estimated undiscounted future cash flows. The
expected future cash flows are estimated based on management's plans to continue
to produce and develop proved
F-7
<PAGE>
Union Oil's Permian Basin Business Unit
Notes to Financial Statements
In Thousands of Dollars
================================================================================
and associated risk-adjusted probable reserves. Expected future cash flow from
the sale of production of reserves is calculated based on management's best
estimate of future oil and gas prices using market-based information. The
estimated future level of production is based on assumptions surrounding future
levels of prices and costs, field decline rates, market demand and supply, and
the economic and regulatory climates.
When the carrying value exceeds such cash flows, an impairment loss is
recognized for the difference between the estimated fair market value and the
carrying value of the assets. The fair market value is defined as the amount at
which the asset could be sold to a willing third party or, if unavailable, the
expected future cash flows discounted at 10%.
Oil and Gas Exploration and Development Costs - The Permian Basin business unit
follows the successful-efforts method of accounting for its oil and gas
activities.
Acquisition costs of exploratory acreage are capitalized. Full amortization of
such costs related to the portion of unproved properties is provided over the
shorter of the exploratory period or the lease holding period. Costs of
successful leases are transferred to proved properties. Exploratory drilling
costs are initially capitalized. If exploratory wells are determined to be
commercially unsuccessful, the related costs are expensed. If, after one year
from the completion of drilling, a determination that proved reserves have been
found cannot be made, the exploratory well is assumed to be impaired, and its
costs are charged to dry hole expense. The cost of exploratory wells that find
oil and gas reserves in an area requiring a major capital expenditure to begin
production remain capitalized if sufficient reserves were found to justify the
wells completion if required capital expenditures were made and drilling of the
additional exploratory wells is under way or firmly planned for the near future.
Geological and geophysical costs for exploration and leasehold rentals for
unproved properties are expensed.
Development costs of proved properties, including unsuccessful development
wells, are capitalized.
Depreciation, Depletion and Amortization - Depreciation, depletion and
amortization related to proved oil and gas properties and estimated future
abandonment and removal costs for producing facilities are calculated at
unit-of-production rates based upon estimated proved developed reserves.
Depreciation of other properties is generally on a straight-line method using
various rates based on estimated useful lives.
Maintenance and Repairs - Expenditures for maintenance and repairs are expensed.
In general, improvements are charged to the respective property accounts.
Retirement and Disposal of Properties - Upon retirement of facilities
depreciated on an individual basis, remaining book values are charged to
depreciation expense. For facilities depreciated on a group basis, remaining
book values are charged to accumulated depreciation. Gains or losses on sales of
properties are included in current earnings.
Income Taxes - The Permian Basin business unit uses the liability method for
reporting income taxes, under which current and deferred tax liabilities and
assets are recorded in accordance with enacted tax laws and rates. Under this
method, the amounts of deferred tax liabilities and assets at the end of each
period are determined using the tax rate in effect when taxes are actually paid
or recovered. Future tax benefits are recognized to the extent that realization
of such benefits is more likely than not.
Deferred income taxes are provided for the estimated income tax effect of
temporary differences between financial and tax bases in assets and liabilities.
Deferred tax assets are also provided for certain tax credit carryforwards. A
valuation allowance to reduce deferred tax assets is established when deemed
appropriate.
Environmental Expenditures - Expenditures that relate to existing conditions
caused by past operations are expensed.
Liabilities related to environmental assessments and future remediation costs
are recorded when such liabilities are probable and the amounts can be
reasonably estimated. The Permian Basin business unit considers a site to
present a probable liability when an investigation has identified environmental
remediation requirements for which the Permian
F-8
<PAGE>
Union Oil's Permian Basin Business Unit
Notes to Financial Statements
In Thousands of Dollars
================================================================================
Basin business unit is responsible. The timing of accruing for remediation costs
generally coincides with the Permian Basin business unit's completion of
investigation or feasibility work and its recommendation of a remedy or
commitment to an appropriate plan of action.
Environmental liabilities are not discounted or reduced by possible recoveries
from third parties.
Revenue Recognition - Revenues from the sale of crude oil and natural gas
liquids produced are generally recognized upon the passage of title, net of
royalties and net profits interests. Revenues from natural gas production are
generally recorded using the entitlement method, net of royalties and net
profits interests.
Note 3 - Accrued Abandonment, Restoration and Environmental Liabilities
At December 31, 1999 and 1998, the Permian Basin business unit accrued $11,271
and $9,317, respectively, for the estimated future costs to abandon and remove
wells and production facilities. In accordance with the accounting policy, the
amounts were charged to depreciation, depletion and amortization expense. The
total amount charged to operations for abandonment are predominantly accrued on
a unit-of-production basis and are estimated to be approximately $29,537 and
$34,911 at December 31, 1999 and 1998, respectively. This estimate is based on
abandonment cost studies performed in conjunction with third parties.
The Permian Basin business unit's reserve for environmental remediation
obligations totaled $342 and $500 as of December 31, 1999 and 1998,
respectively.
Note 4 - Impairment of Property, Plant and Equipment
The Permian Basin business unit evaluates the impairment of its oil and gas
properties on a quarterly basis for events or changes in circumstances that
indicate an asset's carrying amount may not be recoverable.
The Permian Basin business unit recorded pre-tax charges of $345, $7,387 and
$9,562 for the years ended December 31, 1999, 1998 and 1997, respectively. The
1998 impairments resulted from reserve revisions and decreased cash flows
related to severely decreased commodity prices. The 1997 impairment resulted
from higher estimated production expenses causing decreased cash flows and
reserve revisions for the North Cowden field in Ector County, Texas.
Note 5 - Income Taxes
The Permian Basin business unit's results of operations are included in the
consolidated federal and state income tax returns of Union Oil. Income taxes are
computed on a separate-return basis using the liability method as prescribed in
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Any resulting current tax liability or refund is settled with
Union Oil through Union Oil's investment in the Permian Basin business unit. A
valuation allowance to reduce deferred tax assets is established when deemed
appropriate.
F-9
<PAGE>
Union Oil's Permian Basin Business Unit
Notes to Financial Statements
In Thousands of Dollars
================================================================================
The components of the income tax provision were as follows:
1999 1998 1997
================================================================================
Current:
Federal $ 5,857 $ 65 $ 14,937
State 753 89 1,730
----------- ----------- -----------
Total 6,610 154 16,667
----------- ----------- -----------
Deferred:
Federal 1,875 1,469 (4,958)
State 200 157 (529)
----------- ----------- -----------
Total 2,075 1,626 (5,487)
----------- ----------- -----------
Total income taxes $ 8,685 $ 1,780 $ 11,180
=========== =========== ===========
The following table is a reconciliation of income taxes at the federal statutory
income tax rate to income taxes as reported on the statement of earnings:
1999 1998 1997
================================================================================
Federal statutory rate 35% 35% 35%
Provision for income taxes on book
income at statutory rate $ 9,266 $ 2,388 $ 11,673
State income tax (net of federal
effect) 619 160 781
Tax credit (1,200) (768) (1,274)
----------- ----------- -----------
Total income taxes $ 8,685 $ 1,780 $ 11,180
=========== =========== ===========
The significant components of deferred income tax assets and liabilities
included in the balance sheet at December 31, 1999 and 1998 were as follows:
1999 1998
================================================================================
Deferred tax assets (liabilities)
Depreciation, depletion and
amortization $ (77,916) $ (75,112)
Future abandonment costs 4,205 3,475
-------------- -------------
Total deferred income taxes $ (73,711) $ (71,637)
============== =============
F-10
<PAGE>
Union Oil's Permian Basin Business Unit
Notes to Financial Statements
In Thousands of Dollars
================================================================================
Note 6 - Lease Rental Obligations
Future minimum rental payments for operating leases having initial or remaining
noncancellable lease terms in excess of one year for office space, storage
charges and leased office equipment are as follows at December 31, 1999:
================================================================================
2000 $ 555
2001 514
2002 402
2003 405
2004 399
Balance 1,040
-------------
Total minimum lease rental payments $ 3,315
=============
Net operating lease rental expense was as follows:
1999 1998 1997
================================================================================
Fixed rentals $ 566 $ 505 $ 485
============= =========== ===========
Total rental expense $ 566 $ 505 $ 485
============= =========== ===========
Note 7 - Commitments and Contingencies
The Permian Basin business unit is subject to contingent liabilities with
respect to existing or potential claims, lawsuits and other proceedings,
including those involving environmental, tax and other matters, certain of which
are discussed more specifically below. The Permian Basin business unit accrues
liabilities when it is probable that future costs will be incurred and such
costs can be reasonably estimated. Such accruals are based on developments to
date, the Permian Basin business unit's estimates of the outcomes of these
matters and its experience in contesting, litigating and settling other matters.
As the scope of the liabilities becomes better defined, there will be changes in
the estimates of future costs, which management believes will not have a
material effect on the Permian Basin business unit's results of operations and
financial condition or liquidity.
Environmental matters - The Permian Basin business unit is subject to loss
contingencies pursuant to federal, state and local environmental laws and
regulations. These include existing and possible future obligations to
investigate the effects of the release or disposal of certain petroleum,
chemical and mineral substances at various sites; to remediate or restore these
sites; to compensate others for damage to property and natural resources, for
remediation and restoration costs and for personal injuries; and to pay civil
penalties and, in some cases, criminal penalties and punitive damages. These
obligations relate to sites owned by the Permian Basin business unit or others
and are associated with past and present operations.
Liabilities are accrued when it is probable that future costs will be incurred
and such costs can be reasonably estimated. However, in many cases,
investigations are not yet at a stage where the Permian Basin business unit is
able to determine whether it is liable or, even if liability is determined to be
probable, to quantify the liability or estimate a range of possible exposure. In
such cases, the amounts of the Permian Basin business unit's liabilities are
indeterminate due to the potentially large number of claimants for any given
site or exposure, the unknown magnitude of possible contamination, the imprecise
and conflicting engineering evaluations and estimates of proper clean-up methods
and costs, the unknown timing and extent of the corrective actions that may be
required, the uncertainty attendant to the possible award of punitive damages,
the recent judicial recognition of new causes of action, or other reasons.
F-11
<PAGE>
Union Oil's Permian Basin Business Unit
Notes to Financial Statements
In Thousands of Dollars
================================================================================
As discussed in Note 3, the Permian Basin business unit had accrued $342 and
$500 at December 31, 1999 and 1998, respectively, for estimated future
environmental assessment and remediation costs at various sites where
liabilities for such cost are probable.
Other matters - The Permian Basin business unit also has certain other
contingent liabilities with respect to litigation, claims and contractual
agreements arising in the ordinary course of business. The Permian Basin
business unit's results of operations for a given reporting period, on the basis
of management's best assessment of the ultimate amount and timing of these
events, such expenses, or judgments, are not expected to have a material adverse
effect on the Permian Basin business unit's financial condition or liquidity.
Note 8 - Related Party Transactions
The Permian Basin business unit has entered into transactions with Unocal Energy
Trading Inc. ("Trading"), another business unit of Union Oil, for the majority
of its sales of crude oil and natural gas. The majority of the products of the
Permian Basin business unit are sold to Trading in the ordinary course of
business at prices based on spot prices at the beginning of each month. For the
years ended December 31, 1999, 1998 and 1997, sales to Trading were $93,359,
$81,735 and $99,485, respectively.
Note 9 - Employee Benefits Expenses
The employees of the Permian Basin business unit are included in various
employee benefits plans of Union Oil. These plans include the Union Oil
Retirement Plan, employee and retiree medical, dental and life insurance plan,
401(k) and other such benefits. For purposes of these carved-out financial
statements, the Permian Basin business unit is considered a participant in
multi-employer benefit plans.
The Permian Basin business unit's allocated share of employees benefit expenses
is $2,267, $2,355 and $2,074 for the years ending December 31, 1999, 1998 and
1997, respectively. No charges have been made to the Permian Basin business unit
by Union Oil for the qualified Union Oil Retirement as the plan is in an
overfunded position for the periods stated above. Union Oil retains all
liabilities associated with these plans.
F-12
<PAGE>
Union Oil's Permian Basin Business Unit
Notes to Financial Statements
In Thousands of Dollars
================================================================================
Note 10 - Properties and Capital Leases
Investments in owned and capitalized leased properties at December 31, 1999 and
1998 are shown below.
<TABLE>
<CAPTION>
Depreciation,
Depletion and
Oil and gas properties: Historical Cost Amortization Net
====================================================================================================================================
At December 31, 1999
<S> <C> <C> <C>
Land $ 75,574 $ (52,304) $ 23,270
Wells, related equipment and
facilities (1) 748,760 (487,067) 261,693
Uncompleted wells, related
equipment and facilities (2) 6,847 - 6,847
---------------- -------------- -------------
Total oil and gas properties $ 831,181 $ (539,371) $ 291,810
================ ============== =============
====================================================================================================================================
At December 31, 1998
Land $ 75,420 $ (50,419) $ 25,001
Wells, related equipment and
facilities (1) 730,231 (458,436) 271,795
Uncompleted wells, related 9,934 - 9,934
equipment and facilities (2)
---------------- -------------- -------------
Total oil and gas properties $ 815,585 $ (508,855) $ 306,730
================ ============== =============
</TABLE>
________________________
(1) Wells, related equipment and facilities include costs associated with
successful exploratory wells, successful and unsuccessful development
wells, and other development costs of proved properties.
(2) Uncompleted wells, related equipment and facilities include exploratory and
development wells in the process of being drilled, as well as other
development costs of proved properties that are in the process of being
installed/completed.
F-13
<PAGE>
Union Oil's Permian Basin Business Unit
Supplemental Information on Oil and Gas Exploration and Production Activities
(unaudited)
- --------------------------------------------------------------------------------
Oil and Gas Reserve Data
Estimates of physical quantities of oil and gas reserves, which are located in
the western portion of the State of Texas and San Juan Basin areas of New Mexico
and Colorado, were determined by the Permian Basin business unit engineers for
the years 1999, 1998 and 1997. As defined by the Securities and Exchange
Commission, proved oil and gas reserves are the estimated quantities of crude
oil and condensate and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Accordingly,
these estimates do not include probable or possible reserves. Estimated oil and
gas reserves are based on available reservoir data and are subject to future
revision. Proven reserve quantities exclude royalty interests owned by others.
Crude Oil and
Condensate Natural Gas
Estimated Proved Reserves (MBBls) (MMcf)
=============================================================================
At December 31, 1996 47,211 340,425
Revisions of estimates (2,313) (5,751)
Improved recovery 1,816 996
Discoveries and extensions 236 15,213
Purchases of minerals-in-place 107 621
Sales of minerals-in-place (92) (2,176)
Production (4,021) (28,367)
=============================================================================
At December 31, 1997 42,944 320,961
Revisions of estimates (4,567) 14,897
Improved recovery 3,383 4,480
Discoveries and extensions 399 19,548
Purchases of minerals-in-place 405 139
Sales of minerals-in-place (35) (836)
Production (3,991) (29,962)
=============================================================================
At December 31, 1998 38,538 329,227
Revisions of estimates 4,049 13,464
Improved recovery - -
Discoveries and extensions 962 26,290
Purchases of minerals-in-place 94 921
Sales of minerals-in-place (2) (28)
Production (3,659) (28,899)
=============================================================================
At December 31, 1999 39,982 340,975
=============================================================================
Proved Developed Reserves
=============================================================================
December 31, 1996 44,976 314,177
December 31, 1997 41,633 297,357
December 31, 1998 36,763 310,775
December 31, 1999 38,225 308,944
F-14
<PAGE>
Union Oil's Permian Basin Business Unit
Supplemental Information on Oil and Gas Exploration and Production Activities
(unaudited)
- --------------------------------------------------------------------------------
Costs Incurred
Costs incurred in oil and gas property acquisition, exploration and development
activities, both capitalized and charged to expense, are shown below. Data for
the Permian Basin business unit's capitalized costs related to oil and gas
exploration and production activities are presented in Note 10.
In thousands of dollars 1999 1998 1997
================================================================================
Property acquisition:
Proved $ 676 $ 1,254 $ 112
Unproved 88 1,217 2,842
Exploration 4,519 6,592 1,694
Development 17,256 36,499 19,377
---------- ---------- ---------
Total costs incurred $ 22,539 $ 45,562 $ 24,025
========== ========== =========
Present Value of Future Net Cash Flow
The present value of future net cash flows from proved oil and gas reserves for
the years 1999, 1998 and 1997 are presented below. Revenues are based on
estimated production of proved reserves from existing and planned facilities and
on prices of oil and gas at year end. Development and production costs related
to future production are based on year end cost levels and assume continuation
of existing economic conditions. Income tax expense is computed by applying the
appropriate year end statutory tax rates to pre-tax future cash flows less
recovery of the tax basis of proved properties, and reduced by applicable tax
credits.
The Permian Basin business unit cautions readers that the data on the present
value of future net cash flow of oil and gas reserves are based on many
subjective judgments and assumptions. Different, but equally valid, assumptions
and judgments could lead to significantly different results. Additionally,
estimates of physical quantities of oil and gas reserves, future rates of
production and related prices and costs for such production are subject to
extensive revisions and a high degree of variability as a result of economic and
political changes. Any subsequent price changes will alter the results and the
indicated present value of oil and gas reserves. It is the opinion of the
Permian Basin business unit that this data can be highly misleading and may not
be indicative of the value of underground oil and gas reserves.
In thousands of dollars 1999 1998 1997
===============================================================================
Revenues $ 1,560,792 $ 918,143 $ 1,374,458
Production costs (677,415) (540,009) (699,008)
Development Costs (a) (57,485) (50,060) (81,336)
Income tax expense (276,675) (89,847) (197,285)
----------- ---------- -----------
Future net cash flows 549,217 238,227 396,829
10% annual discount (244,126) (93,760) (171,553)
----------- ---------- -----------
Present value of future net
cash flows $ 305,091 $ 144,467 $ 225,276
=========== ========== ===========
__________________
(a) Includes dismantlement and abandonment costs of $34,932, $32,288 and
$36,069 for the years ended December 31, 1999, 1998 and 1997, respectively.
F-15
<PAGE>
Union Oil's Permian Basin Business Unit
Supplemental Information on Oil and Gas Exploration and Production Activities
(unaudited)
================================================================================
Changes in Present Values of Future Net Cash Flows
<TABLE>
<CAPTION>
In thousands of dollars 1999 1998 1997
====================================================================================================================================
<S> <C> <C> <C>
Present value at the beginning of year $ 144,467 $ 225,276 $ 493,076
Discoveries and extensions, net of estimated future costs 31,312 19,476 24,893
Purchases of proved reserves 1,196 81 698
Sales of proved reserves (13) (1,190) (2,956)
Revisions to prior estimates:
Prices net of estimated changes in production costs 257,885 (99,788) (308,420)
Future development costs (14,321) (26,201) (30,722)
Quantity estimates 32,698 (5,347) (11,790)
Production schedules and other (6,020) (33,539) (51,501)
Accretion of discount 15,452 27,251 58,281
Development costs related to beginning of year reserves 17,256 36,499 19,377
Sales of oil and gas, net of production costs of $40,847 in (72,399) (57,484) (89,674)
1999, $48,311 in 1998 and $48,159 in 1997
Net of changes in income taxes (102,422) 59,433 124,014
------------- -------------- ------------
Present value at the end of year $ 305,091 $ 144,467 $ 225,276
============= ============== ============
</TABLE>
Capitalized Cost
In thousands of dollars 1999 1998
================================================================================
Oil and gas operations:
Proved oil and gas properties $ 827,340 $ 809,526
Unproved oil and gas properties 3,841 6,059
--------- ---------
Total oil and gas properties 831,181 815,585
--------- ---------
Accumulated depreciation, depletion and
amortization (539,371) (508,855)
---------- ---------
Net capitalized costs for oil and gas
properties $ 291,810 $ 306,730
========== =========
F-16
<PAGE>
ANNEX A
-------
PETRIE PARKMAN & Co.
7450 Texas Commerce Tower
Houston, Texas 77002
713/650-3383 . Fax: 713/650-8461
December 13, 1999
The Board of Directors
Titan Exploration, Inc.
500 W. Texas, Suite 500
Midland, Texas 79701
Members of the Board:
Union Oil Company of California, a California corporation ("Union Oil"),
Pure Energy Resources, Inc., a newly-formed Delaware corporation and wholly-
owned subsidiary of Union Oil (the "Company"), TRH, Inc., a newly-formed
Delaware corporation and wholly-owned subsidiary of the Company ("Sub"), and
Titan Exploration, Inc., a Delaware corporation ("Titan"), propose to enter into
an agreement and plan of merger, dated as of December 13, 1999 (the "Merger
Agreement"), which provides for, among other things, the merger (the "Merger")
of Sub with and into Titan, as a result of which Titan will become a wholly-
owned subsidiary of the Company. Upon consummation of the Merger, each share of
common stock, par value $0.01 per share (the "Titan Common Stock"), of Titan
issued and outstanding immediately prior thereto (other than Titan Common Stock
held by Titan as treasury stock) will be converted into the right to receive
0.4302 shares (the "Exchange Ratio") of common stock, par value $0.01 per share
(the "Company Common Stock"), of the Company.
You have requested our opinion as to whether the Exchange Ratio is fair from
a financial point of view to the holders of Titan Common Stock.
In arriving at our opinion, we have, among other things:
1. reviewed certain publicly available business and financial information
relating to Titan, including (a) the Annual Report on Form 10-K and
related audited financial statements for the fiscal year ended
December 31, 1998, and (b) the unaudited financial statements for the
fiscal quarters ended March 31, 1998, June 30, 1998, September 30,
1998, March 31, 1999, June 30, 1999, and September 30, 1999;
2. reviewed certain estimates of Titan's reserves, including (a)
estimates of proved oil and gas reserves prepared by Williamson
Petroleum Consultants, Inc. as of December 31, 1998, (b) preliminary
estimates of proved oil and gas reserves prepared by the management
and staff of Titan as of January 1, 2000, and (c) preliminary
estimates of additional oil and gas reserves prepared by the
management and staff of Titan as of January 1, 2000;
3. reviewed certain business and financial information relating to the
Company, including (a) a draft dated December 8, 1999 of the unaudited
financial statements
<PAGE>
for the fiscal years ended December 31, 1996, December 31, 1997, and
December 31, 1998, and (b) a draft dated December 8, 1999 of the
unaudited financial statements for the nine months ended September 30,
1998 and September 30, 1999;
4. reviewed certain estimates of the Company's reserves, including (a)
preliminary estimates of proved oil and gas reserves prepared by the
managements and staffs of Titan and Union Oil as of January 1, 2000,
and (b) preliminary estimates of additional oil and gas reserves
prepared by the managements and staffs of Titan and Union Oil as of
January 1, 2000;
5. analyzed certain historical and projected financial and operating data
of Titan and the Company following the Merger prepared by the
management of Titan;
6. discussed the current and projected operations and prospects of Titan
and the Company, including estimates of potential cost savings and
other potential synergies expected to result from the merger, with the
managements and operating staffs of Titan and Union Oil, respectively;
7. reviewed the historical trading history of the Titan Common Stock;
8. compared recent stock market capitalization indicators for Titan with
the recent stock market capitalization indicators for certain other
publicly traded companies;
9. compared the financial terms of the Merger with the financial terms of
certain other transactions that we deemed to be relevant;
10. reviewed a draft dated December 10, 1999 of the Merger Agreement; and
11. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
have deemed necessary or appropriate.
In preparing our opinion, we have assumed and relied upon, without assuming
any responsibility for independently verifying, the accuracy and completeness of
any information supplied or otherwise made available to us, discussed with us or
reviewed by or for us by Titan and Union Oil. We have further relied upon the
assurances of the management of Titan and Union Oil that they are unaware of any
facts that would make the information provided to us incomplete or misleading in
any material respect. With respect to projected financial and operating data and
estimates of potential cost savings and other potential synergies expected to
result from the Merger, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgment of the
management of Titan and Union Oil, as the case may be, relating to the future
financial and operational performance of Titan and the Company. With respect to
the estimates of oil and gas reserves, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of Titan and Union Oil or Titan's engineering
consultants relating to the oil and gas properties of Titan and Union Oil. We
have not made an independent
<PAGE>
evaluation or appraisal of the assets or liabilities of Titan or the Company,
nor have we been furnished with such an evaluation or appraisal. In addition, we
have not assumed any obligation to conduct, nor have we conducted, any physical
inspection of the properties or facilities of Titan or the Company.
In developing our opinion, we have relied upon Titan as to certain legal,
tax, and accounting aspects of the transactions contemplated by the Merger
Agreement. Consistent with the Merger Agreement, we have assumed that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and as part of a transaction under Section 351 of the
Code. We have assumed that the Merger Agreement executed and delivered by the
parties will contain identical financial and economic terms and otherwise be
substantially similar to the draft Merger Agreement reviewed by us. We have
further assumed that the Merger will be consummated on the terms and conditions
contemplated in the Merger Agreement.
We have not been asked to consider, and this opinion does not address, the
prices at which the Titan Common Stock or the Company Common Stock will actually
trade following the announcement or consummation of the Merger. Furthermore, we
have not solicited, nor have we been requested to solicit, offers from other
parties to acquire all or any part of Titan.
Our opinion is rendered on the basis of conditions in the securities
markets and the oil and gas markets prevailing as of the date hereof and the
condition and prospects, financial and otherwise, of Titan and the Company as
they have been represented to us as of the date hereof or as they were reflected
in the materials and discussions described above.
This opinion is for the use and benefit of the Board of Directors of Titan.
Our opinion does not address the merits of the underlying decision by Titan to
engage in the Merger and does not constitute a recommendation to any stockholder
as to how such stockholder should vote on the Merger. As you are aware, we have
acted as financial advisor to Titan and we will receive a fee from Titan, a
portion of which is contingent upon the consummation of the Merger. We have
also, in the past, provided financial advisory services to Titan and have
received customary fees for such services. In the ordinary course of business,
we or our affiliates may trade in the debt or equity securities of Titan or
Union Oil for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
holders of Titan Common Stock.
Very truly yours,
/s/ Jon C. Hughes
PETRIE PARKMAN & CO., INC.
<PAGE>
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 102(b) of the Delaware General Corporation Law ("DGCL") allows
a corporation to include in its certificate of incorporation a provision to
eliminate or limit the personal liability of a director to the registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except in cases where the director breached his or her duty of loyalty to the
registrant or its stockholders, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of a law, willfully or negligently
authorized the unlawful payment of a dividend or approved an illegal stock
repurchase (as provided in Section 174 of the DGCL) or obtained an improper
personal benefit. The registrant's certificate of incorporation, as amended,
contains provisions that eliminate directors' personal liability, in certain
circumstances, as set forth below.
The registrant's certificate of incorporation, as amended, provides,
that a director will not be personally liable to the registrant or its
stockholders for monetary damages for breach of duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.
The registrant's certificate of incorporation, as amended, provides
that each person who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the registrant, or serves, in any capacity,
any corporation, partnership or other entity in which the registrant has a
partnership or other interest, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the registrant to the fullest extent authorized
by the DGCL, as the same exists or may hereafter be amended (but, in case of any
such amendment, only to the extent that such amendment permits the registrant to
provide broader indemnification rights than said law permitted the registrant to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators.
Pursuant to the registrant's certificate of incorporation, as amended,
it shall indemnify and hold harmless in such manner any person designated by the
Board of Directors, or any authorized committee thereof, as a person subject to
this indemnification provision, and who was or is made a party or is threatened
to be made a party to a proceeding by reason of the fact that he, she or a
person of whom he or she is the legal representative, is or was serving at the
request of the Board of Directors of the registrant as a director, officer,
employee or agent of another corporation or a partnership, joint venture, trust
or other enterprise whether such request is made before or after the acts taken
or allegedly taken or events occurring or allegedly occurring which give rise to
such proceeding.
The registrant has a duty to indemnify any person seeking
indemnification pursuant to the registrant's certificate of incorporation in
connection with a proceeding (or part thereof) initiated by that person only if
the proceeding (or part thereof) was authorized by the Board of Directors of the
registrant.
II-1
<PAGE>
The registrant may, by action of its Board of Directors, provide
indemnification to employees or agents of the registrant with the same scope and
effect as the foregoing indemnification of directors and officers.
The registrant may maintain insurance, at its expense, to protect itself
and any director officer, employee or agent of the registrant or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the registrant would have the
power to indemnify such person against such expense, liability or loss under the
DGCL.
Item 21. Exhibits and Financial Statement Schedules.
The following exhibits are filed as part of this Registration
Statement:
Number Exhibit
------ -------
2.1 -- Agreement and Plan of Merger, dated as of December 13, 1999, by
and among Union Oil Company of California, Pure Resources, Inc.
(formerly named Titan Resources Holdings, Inc.), TRH, Inc. and
Titan Exploration, Inc. (filed as Exhibit 2.1 to Titan
Exploration, Inc.'s Current Report on Form 8-K as filed on
December 23, 1999, and incorporated herein by reference).
2.2* -- Amendment No. 1 to Merger Agreement, dated as of April 14, 2000,
by and among Union Oil Company of California, Pure Resources,
Inc. (formerly named Titan Resources Holdings, Inc.), TRH, Inc.
and Titan Exploration, Inc.
3.1* -- Certificate of Incorporation of Pure Resources, Inc. (formerly
named Titan Resources Holdings, Inc.).
3.2* -- Certificates of Amendment of Certificate of Incorporation of Pure
Resources, Inc. (formerly named Titan Resources Holdings, Inc.).
3.3* -- Bylaws of Pure Resources, Inc. (formerly named Titan Resources
Holdings, Inc.).
5.1* -- Opinion of Vinson & Elkins L.L.P.
8.1* -- Opinion of Thompson & Knight L.L.P.
II-2
<PAGE>
Number Exhibit
------ -------
10.1* -- Registration Rights Agreement, dated December 13, 1999, by and
between Pure Resources, Inc. (formerly named Titan Resources
Holdings, Inc.) and Union Oil Company of California.
10.2 -- Employment Agreement, dated December 13, 1999, by and between
Pure Resources, Inc. (formerly named Titan Resources Holdings,
Inc.) and Jack Hightower (filed as Exhibit 10.19 to Titan
Exploration, Inc.'s Annual Report on Form 10-K, as amended, as
filed on April 12, 2000, and incorporated herein by reference).
10.3* -- Pure Resources, Inc. (formerly named Titan Resources Holdings,
Inc.) 1999 Incentive Plan.
10.4* -- Voting Agreement dated December 13, 1999 between Union Oil
Company of California and Jack D. Hightower.
10.5 -- Amended and Restated Stockholders Voting Agreement dated April
10, 2000 by and among Pure Resources, Inc. (formerly named Titan
Resources Holdings, Inc.), Union Oil Company of California and
Jack D. Hightower (filed as Exhibit 10.20 to Titan Exploration,
Inc.'s Annual Report on Form 10-K, as amended, as filed on April
12, 2000, and incorporated herein by reference).
10.6 -- Non-Dilution Agreement dated December 13, 1999 by and between
Pure Resources, Inc. (formerly named Titan Resources Holdings,
Inc.) and Union Oil Company of California (filed as Exhibit 10.21
to Titan Exploration, Inc.'s Annual Report on Form 10-K, as
amended, as filed on April 12, 2000, and incorporated herein by
reference).
10.7 -- Business Opportunities Agreement, dated as of December 13, 1999,
by and among Union Oil Company of California, Pure Resources,
Inc. (formerly named Titan Resources Holdings, Inc.), TRH, Inc.
and Titan Exploration, Inc. (filed as Exhibit 10.20 to Titan
Exploration, Inc.'s Form 10-K, as amended, as filed on April 12,
2000, and incorporated herein by reference).
10.8* -- Form of executive letter agreement to be entered into between
Titan and each of its executive officers prior to the merger.
II-3
<PAGE>
Number Exhibit
------ -------
10.9* -- Pure Resources, Inc. Equity Plan for Outside Directors.
10.10* -- Form of Registration Rights Agreement by and between Jack D.
Hightower and Pure Resources, Inc.
21.1* -- Subsidiaries of the registrant.
23.1* -- Consent of KPMG LLP, independent auditors.
23.2* -- Consent of PricewaterhouseCoopers LLP, independent auditors.
23.3 -- Consent of Vinson & Elkins L.L.P. (contained in its opinion filed
as Exhibit 5.1).
23.4 -- Consent of Thompson & Knight L.L.P. (contained in its opinion
filed as Exhibit 8.1).
23.5* -- Consent of Williamson Petroleum Consultants, Inc., independent
petroleum engineers.
23.6* -- Consent of Gary Dupriest, Vice President of Pure Resources.
23.7* -- Consent of Twatchman Synder & Byrd, Inc., independent
consultants.
24.1* -- Power of attorney (included on the signature page of this
Registration Statement).
99.1* -- Form of Proxy of Titan Exploration, Inc. (relating to the Special
Meeting of the stockholders of Titan Exploration, Inc. described
in the Proxy Statement/Prospectus forming a part of this
Registration Statement).
II-4
<PAGE>
99.2* -- Consent of Jack D. Hightower to be named as about to become a
director of Pure Resources, Inc.
99.3* -- Consent of Graydon H. Laughbaum, Jr. to be named as about to
become a director of Pure Resources, Inc.
99.4* -- Consent of H D Maxwell to be named as about to become director a
of Pure Resources, Inc.
99.5* -- Consent of George G. Staley to be named as about to become a
director of Pure Resources, Inc.
99.6* -- Consent of Herbert C. Williamson, III to be named as about to
become a director of Pure Resources, Inc.
99.7* -- Consent of Petrie Parkman & Co.
- --------------
* Filed herewith.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) 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.
(b) (1) The undersigned registrant undertakes 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.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the
Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining
any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating
to the securities offered
II-5
<PAGE>
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of Form S-4, 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.
(e) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-6
<PAGE>
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 Sugarland, State of
Texas, on the 17th day of April, 2000.
Pure Resources, Inc.
By:/s/ Timothy H. Ling
-------------------
Timothy H. Ling
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below constitutes and appoints Barry Hoffman and Phillip Ballard, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign on
his behalf individually and in each capacity stated below any amendment,
including post-effective amendments, to this Registration Statement, and to file
the same, with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents and either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Timothy H. Ling President and Director April 17, 2000
- ------------------- (Principal Executive Officer)
Timothy H. Ling
/s/ Darrell Chessum Vice President, Treasurer April 17, 2000
- ------------------- and Director
Darrell Chessum (Principal Financial and
Accounting Officer)
II-7
<PAGE>
Exhibit 2.2
AMENDMENT NO. 1 TO MERGER AGREEMENT
This Amendment No. 1 to Merger Agreement (the "Amendment") is made and
effective as of this 14th day of April 2000.
WHEREAS, the parties hereto are all of the parties to the Agreement and
Plan of Merger, dated as of December 13, 1999, among Union Oil Company of
California, Titan Resources Holdings, Inc. (now named Pure Resources, Inc.),
TRH, Inc. and Titan Exploration, Inc. (the "Merger Agreement"); and
WHEREAS, in accordance with Section 10.3 of the Merger Agreement, the
parties hereto wish to amend the Merger Agreement on the terms set forth herein;
NOW THEREFORE, in consideration of the respective agreements contained
herein, the parties hereto agree as follows (capitalized terms used but not
defined herein have the meaning set forth in the Merger Agreement):
Section 1. Amendments.
(a) For purposes of clarifying Sections 2.2(f) and 2.3(d) of the
Merger Agreement, Exhibit A to the Merger Agreement shall be deemed to
include the gas plants in the Dollarhide, Massey, Sacrock and Coyonosa
Fields, so that such plants shall be considered Assets and not Excluded
Assets.
(b) The reference to "the Confidentiality Agreement dated October 4,
1999 between Union Oil and Titan" at the end of Section 6.1(a) of the
Merger Agreement is amended to refer to "the Confidentiality Agreement
dated October 11, 1999 between Union Oil and Titan".
(c) The reference to "the Confidentiality Agreement dated October 4,
1999 between Union Oil and Titan" at the end of Section 6.1(b) of the
Merger Agreement is amended to refer to "the Confidentiality Agreement
dated August 23, 1999 between Union Oil and Titan".
(d) The second sentence of Section 6.4(a) of the Merger Agreement is
amended to read in its entirety as follows:
The stockholder vote required for the adoption and approval of this
Agreement and the Transactions contemplated hereby shall be (i) the
affirmative vote of the holders of a majority of the outstanding
shares of Titan Common Stock, and (ii) the affirmative vote of a
majority of the shares of Titan Common Stock, other than shares held
by officers of Titan, who are present at the Special Meeting in person
or by proxy and vote for or against adoption and approval of this
Agreement and the transactions contemplated hereby.
<PAGE>
(e) Exhibit A of Exhibit 6.17(a) to the Merger Agreement is amended to
read in its entirety as set forth on Annex A hereto.
Section 2. Remainder of Agreement Not Affected. Except set forth in
Section 1 hereof, the terms and provisions of the Merger Agreement remain in
full force and effect.
Section 3. Authority. Each party represents that such party has full
corporate power and authority to enter into this Amendment, and that this
Amendment constitutes a legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms.
Section 4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 5. Governing Law. This Amendment shall be governed by Delaware
law, without regard to the conflicts of laws principles thereof.
<PAGE>
The parties have caused this Amendment to be duly executed individually or
by their authorized representatives on the day and year first above written.
UNION OIL COMPANY OF CALIFORNIA
By: /s/ Timothy H. Ling
----------------------------
PURE RESOURCES, INC.
By: /s/ Phillip Ballard
----------------------------
TRH, INC.
By: /s/ Phillip Ballard
----------------------------
TITAN EXPLORATION, INC.
By: /s/ Jack D. Hightower
----------------------------
<PAGE>
Annex A
See attached replacement Exhibit A.
<PAGE>
EXHIBIT A
---------
GENERAL RELEASE AGREEMENT
-------------------------
1. GENERAL RELEASE OF CLAIMS UNDER AGE DISCRIMINATION IN EMPLOYMENT ACT. In
consideration of the Severance or Retention Bonus Payment ("Payment") to be made
to me under the Officer Severance and Retention Bonus Agreement (the
"Agreement"), I hereby release, acquit, and forever discharge (i) Titan
Resources I, Inc. and any parent, subsidiary, affiliated entity, successors or
assigns (the "Company"), and (ii) the stockholders, officers, directors,
employees, agents, representatives, and fiduciaries of the Company (collectively
the "Released Parties"), from any and all claims, liabilities, demands, and
causes of action of whatever kind or character, whether vicarious, derivative,
or direct, that I now have or claim against them arising under the Age
Discrimination in Employment Act. This General Release does not waive rights or
claims that may arise after the date this General Release is executed. Further
in consideration of the Payment to be made to me under the Agreement, I
acknowledge and agree that the Released Parties may recover from me any loss,
including attorney's fees and costs of defending against any claim brought by
me, they may incur arising out of my breach of this General Release.
I understand that I may revoke my acceptance of paragraph 1 of this General
Release by so notifying the Company within seven days of the date I execute this
General Release. I further understand that if I do not timely revoke my
acceptance of paragraph 1, paragraph 1 of this General Release is final and
binding, and I agree not to challenge its enforceability. If I do challenge its
enforceability, I agree initially to tender to the Company the Payment made
under the Agreement, and invite the Company to retain such money and agree with
me to cancel this General Release. In the event the Company accepts my offer,
the Company shall retain such money and paragraph 1 of this General Release will
be void. In the event the Company does not accept my offer, the Company shall
place such money in an escrow account pending the resolution of any dispute as
to whether paragraph 1 of this General Release shall be set aside and/or
otherwise rendered unenforceable.
2. GENERAL RELEASE OF CLAIMS OTHER THAN UNDER AGE DISCRIMINATION IN EMPLOYMENT
ACT. In consideration of the Payment to be made to me under the Agreement, I
hereby release, acquit, and forever discharge (i) the Company, and (ii) the
Released Parties, from any and all claims, liabilities, demands, and causes of
action of whatever kind or character, whether vicarious, derivative, or direct,
that I now have or claim against them connected in any way to the Agreement or
any claim for benefits under the Agreement (other than as described in Paragraph
3 below), or my employment, continuation of employment, or, if applicable,
termination of employment with any of the Released Parties, or with any other
act, conduct, or omission of any of the Released Parties, including but not
limited to claims arising under any federal, state, or local laws relating to
the employment relationship, other than claims, liabilities, demands, and causes
of action under the Age Discrimination in Employment Act. This General Release
does not waive rights or claims that may arise after the date this General
Release is executed. Further in consideration of the Payment to be made to me
under the Agreement, I acknowledge and agree that the Released Parties may
recover from me any loss, including attorney's fees and costs of defending
against any claim brought by me, they may incur arising out of my breach of this
General Release.
3. NO RELEASE OF COMPANY'S OBLIGATION TO MAKE TAX GROSS-UP PAYMENT UNDER THE
AGREEMENT. Any provision of this General Release or the Letter Agreement
between the Company and myself dated of even date herewith to the contrary
notwithstanding, my execution of this General Release does not constitute a
release of the
<PAGE>
Company's obligation under the Agreement to make additional payments to me if it
shall be determined that I am subject to additional excise tax under Section
4999 of the Internal Revenue Code of 1986, as amended, as a result of any
payments made or benefits provided to me pursuant to the Agreement or otherwise
in connection with a Change of Control (as defined in the Agreement).
I understand that I may not revoke my acceptance of paragraph 2 of this
General Release and that it is binding upon me whether or not I revoke my
acceptance of paragraph 1 of this General Release.
I have read and fully understand all of the provisions of this General
Release. I acknowledge that none of the Released Parties has made any promise
or representation to me in consideration for my agreement to execute this
General Release that is not set out in this General Release, and that in
executing this General Release I am not relying on any such promise or
representation but instead am relying solely on my own judgment. I further
acknowledge that my execution of this General Release is knowing and voluntary,
that I have had a reasonable time to consider its terms, and that I have been
advised to consult with an attorney about this General Release.
Date signed:________________________ _______________________________________
Signature of Employee
Date signed:________________________ _______________________________________
Witness
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TITAN RESOURCES HOLDINGS, INC.
FIRST: The name of the corporation is Titan Resources Holdings, Inc.
(the "Corporation").
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, County of Newcastle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purpose to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 210,000,000 shares, consisting
solely of 10,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and 200,000,000 shares of Common Stock, par value $.01 per
share (the "Common Stock").
The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, of the classes of stock of the Corporation:
(a) Preferred Stock.
---------------
Shares of Preferred Stock may be issued from time to time in one or more
series as from time to time may be determined by the Board of Directors of the
Corporation. Each series shall be distinctly designated. The Board of
Directors of the Corporation is hereby expressly granted authority to fix, by
resolution or resolutions adopted prior to the issuance of any shares of each
particular series of Preferred Stock, the designation, powers, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, if any, of such series,
including, but without limiting the generality of the foregoing, the following:
(i) the designation of, and the number of shares of Preferred Stock which
shall constitute, the series, which number may be increased (except as
otherwise fixed by the Board of Directors, and in any event not above the
total number of authorized shares of the class) or decreased (but not below
the number of shares thereof then outstanding) from time to time by action
of the Board of Directors;
(ii) the rate and times at which (or the method of determination thereof),
and the terms and conditions upon which, dividends, if any, on shares of
the series shall be paid, the nature of any preferences or the relative
rights of priority of such dividends to the
<PAGE>
dividends payable on any other class or classes of stock of the Corporation
or on any other series of Preferred Stock, and a statement whether such
dividends shall be cumulative;
(iii) whether shares of the series shall be convertible into or
exchangeable for shares of capital stock or other securities or property of
the Corporation or of any other corporation or entity, and, if so, the
terms and conditions of such conversion or exchange, including any
provisions for the adjustment of the conversion or exchange rate in such
events as the Board of Directors shall determine;
(iv) whether shares of the series shall be redeemable, and, if so, the
terms and conditions of such redemption, including the date or dates upon
or after which they shall be redeemable, and the amount and type of
consideration payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(v) the rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution
or sale of assets, dissolution or winding-up of the Corporation;
(vi) whether shares of the series shall have a sinking fund or purchase
account for the redemption or purchase of shares of the series, and, if so,
the terms, conditions and amount of such sinking fund or purchase account;
(vii) whether shares of the series shall have voting rights in addition to
the voting rights provided by law, which may, without limiting the
generality of the foregoing, include (A) the right to more or less than one
vote per share on any or all matters voted upon by the Corporation's
stockholders and (B) the right to vote, as a series by itself or together
with other series of Preferred Stock or together with all series of
Preferred Stock as a class or with the Common Stock as a class, upon such
matters, under such circumstances and upon such conditions as the Board of
Directors may fix, including, without limitation, the right, voting as a
series by itself or together with other series of Preferred Stock or
together with all series of Preferred Stock as a class, to elect one or
more directors of the Corporation in the event there shall have been a
default in the payment of dividends on any one or more series of Preferred
Stock or under such other circumstances and upon such conditions as the
Board of Directors may determine; and
(viii) any other powers, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions,
of shares of that series.
The relative powers, preferences and rights of each series of Preferred Stock in
relation to the powers, preferences and rights of each other series of Preferred
Stock shall, in each case, be as fixed from time to time by the Board of
Directors in the resolution or resolutions adopted pursuant to the authority
granted in this subsection (a), and the consent, by class or series vote or
otherwise, of the holders of Preferred Stock or such of the series of the
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Corporation of any other series of Preferred Stock, whether
the powers, preferences
-2-
<PAGE>
and rights of such other series shall be fixed by the Board of Directors as
senior to, or on a parity with, the powers, preferences and rights of such
outstanding series, or any of them; provided, however, that the Board of
Directors may provide in such resolution or resolutions adopted with respect to
any series of Preferred Stock that the consent of the holders of a majority (or
such greater proportion as shall be therein fixed) of the outstanding shares of
such series voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
(b) Common Stock.
------------
(i) Dividends. After the requirements with respect to preferential
---------
dividends on Preferred Stock, if any, shall have been met and after the
Corporation shall have complied with all the requirements, if any, with
respect to the setting aside of sums as sinking funds or redemption or
purchase accounts and subject further to any other conditions which may be
fixed in accordance with the provisions of this Certificate of
Incorporation, then, but not otherwise, the holders of Common Stock shall
be entitled to receive such dividends, if any, as may be declared from time
to time by the Board of Directors on the Common Stock, which dividends
shall be paid out of assets legally available for the payment of dividends
and shall be distributed among the holders of shares of the Common Stock
pro rata in accordance with the number of shares of such stock held by each
such holder.
(ii) Liquidation. After distribution in full of the preferential amount,
-----------
if any, to be distributed to the holders of Preferred Stock in the event of
voluntary or involuntary liquidation, distribution or sale of assets,
dissolution or winding-up of the Corporation, the holders of the Common
Stock shall be entitled to receive all the remaining assets of the
Corporation, tangible and intangible, of whatever kind available for
distribution to stockholders, which assets shall be distributed pro rata in
accordance with the number of shares of such stock held by each such
holder.
(iii) Voting. Each holder of Common Stock shall have one vote in respect
------
of each share of Common Stock held by such holder on each matter voted upon
by the stockholders.
FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) Management. The business and affairs of the Corporation shall be
----------
managed by or under the direction of the Board of Directors.
(b) Number of Directors. Subject to the rights of the holders of any
-------------------
series of Preferred Stock to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be as fixed from
time to time by or pursuant to the Bylaws of the Corporation. Each director,
other than a director who may be elected by the holders of any series of
Preferred Stock under specified circumstances, shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
Election of directors need not be by written ballot unless the Bylaws of the
Corporation so provide.
-3-
<PAGE>
(c) Bylaws. In furtherance and not in limitation of the powers conferred
------
by law, the Board of Directors is expressly authorized to adopt, alter, amend
and repeal the Bylaws of the Corporation, subject to the power of the
stockholders of the Corporation to adopt, alter, amend and repeal the Bylaws.
(d) Action Taken by Stockholders Without a Meeting. Any action required
----------------------------------------------
or permitted to be taken at any annual or special meeting of the stockholders of
the Corporation may be taken without a meeting, without prior notice and without
a vote, but only if a consent or consents in writing, setting forth the action
so taken, shall be signed by the holder or holders of record of all the
outstanding shares of capital stock of the Corporation then entitled to vote
thereon.
SIXTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise arrangement and the said reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
SEVENTH: (a) Elimination of Certain Liability of Directors. To the
---------------------------------------------
fullest extent permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of duty as a director. Without limiting the foregoing in any
respect, a director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this provision
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
-4-
<PAGE>
(b) Indemnification and Insurance.
-----------------------------
(i) Right to Indemnification. (A) Each person who was or is made a party
------------------------
or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director
or officer of the Corporation, or serves, in any capacity, any corporation,
partnership or other entity in which the Corporation has a partnership or
other interest, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators, and (B) the Corporation shall indemnify and
hold harmless in such manner any person designated by the Board of
Directors, or any authorized committee thereof, as a person subject to this
indemnification provision, and who was or is made a party or is threatened
to be made a party to a proceeding by reason of the fact that he, she or a
person of whom he or she is the legal representative, is or was serving at
the request of the Board of Directors of the Corporation as a director,
officer, employee or agent of another corporation or a partnership, joint
venture, trust or other enterprise whether such request is made before or
after the acts taken or allegedly taken or events occurring or allegedly
occurring which give rise to such proceeding; provided, however, that,
except as provided in subsection (b)(ii) of this Section, the Corporation
shall indemnify any such person seeking indemnification pursuant to this
subsection in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification
conferred herein shall be a contract right based upon an offer from the
Corporation which shall be deemed to have been made to a person subject to
subsection (b)(i)(A) on the date hereof and to a person subject to
subsection (b)(i)(B) on the date designated by the Board of Directors,
shall be deemed to be accepted by such person's service or continued
service as a director or officer of the Corporation for any period after
the offer is made and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its
final disposition; provided, however, that if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as the director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay
-5-
<PAGE>
all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees or agents of the Corporation with the
same scope and effect as the foregoing indemnification of directors and
officers.
(ii) Right of Claimant to Bring Suit. If a claim under Section (b)(i) of
-------------------------------
this Article is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify
the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement
of such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable
standard of conduct.
(iii) Nonexclusivity of Rights. The right to indemnification and the
------------------------
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(iv) Insurance. The Corporation may maintain insurance, at its expense, to
---------
protect itself and any director officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or
not the corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law.
(v) Severability. If any subsection of this Section (b) shall be deemed
------------
to be invalid or ineffective in any proceedings, the remaining subsections
hereof shall not be affected and shall remain in full force and effect.
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation, provided, that the
affirmative vote of the holders of record of outstanding shares
-6-
<PAGE>
representing at least eighty percent (80%) of the voting power of all of the
shares of capital stock of the Corporation then entitled to vote generally in
the election of directors, voting together as a single class, shall be required
to amend, alter, change or repeal any provisions of, or to adopt any provision
or provisions inconsistent with, this Article EIGHTH or Article FIFTH or Article
FOURTH, paragraph (b)(iii) of this Certificate of Incorporation.
NINTH: In accordance with Section 203 of the Delaware General
Corporation Law, the Corporation hereby elects not to be governed by Section 203
of the Delaware General Corporation Law as in effect on the date hereof or any
successor statute.
TENTH: The name of the incorporator of the Corporation is D. Thomas
Keltner, and the mailing address of such incorporator is 1700 Pacific Avenue,
Suite 3300, Dallas, Texas 75201.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, does hereby make and file this
Certificate of Incorporation, hereby declaring and certifying that the facts
herein stated are true, and accordingly has hereunto set the incorporator's hand
this 13th day of December, 1999.
/s/ D. Thomas Keltner
---------------------
D. Thomas Keltner
-8-
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TITAN RESOURCES HOLDINGS, INC.
Titan Resources Holdings, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"DGCL"), hereby certifies as follows:
FIRST: That the Board of Directors of the Corporation, by a unanimous
-----
written consent in lieu of special meeting, adopted resolutions approving this
amendment to the Certificate of Incorporation of the Corporation.
SECOND: That the sole stockholder of the Corporation, by written consent
------
in lieu of a special meeting, consented to this amendment.
THIRD: That this amendment was duly adopted in accordance with the
-----
applicable provisions of Section 242 of the DGCL.
FOURTH: That ARTICLE FIRST of the Certificate of Incorporation of the
------
Corporation is hereby amended to read in its entirety as follows:
"FIRST: The name of the corporation is Pure Energy Resources, Inc.
(the "Corporation")."
Signature Page Appears on the Next Page
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed on behalf of the
Corporation by its Vice President on this 14th day of December, 1999.
TITAN RESOURCES HOLDINGS, INC.
By: /s/ Phillip Ballard
-----------------------
Phillip Ballard
Vice President
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
PURE ENERGY RESOURCES, INC.
a Delaware Corporation
I, Barry A.L. Hoffman, the duly qualified and acting Vice President of Pure
Energy Resources, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DO HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation by the unanimous written
consent of its members, filed with the minutes of the Board:
RESOLVED, that the Certificate of Incorporation of Pure Energy
Resources, Inc. filed in the office of the Secretary of State of
Delaware on December 15th, 1999, be amended by changing the First
Article thereof so that, as amended and corrected, said Article shall
be read as follows:
"RESOLVED, that the name of the corporation is Pure Resources, Inc."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware. Further, that this Amendment to the Certificate of
Incorporation shall be effective as of the date it is filed with the Secretary
of State of the state of Delaware.
IN WITNESS WHEREOF, said Pure Energy Resources, Inc., a corporation duly
incorporated under the laws of the state of Delaware, has caused this
certificate to be signed by Barry A.L. Hoffman, its Vice President, this 3rd day
of March, 2000.
PURE RESOURCES, INC.,
a Delaware corporation
By: /s/ BARRY A.L. HOFFMAN
------------------------------
Its: Vice President
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
PURE RESOURCES, INC.
Effective December 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - OFFICES...................................................................... 1
Section 1. Registered Office.................................................... 1
Section 2. Other Offices........................................................ 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.................................................... 1
Section 1. Place of Meeting..................................................... 1
Section 2. Annual Meetings...................................................... 1
Section 3. Special Meetings..................................................... 2
Section 4. Notice of Meetings................................................... 2
Section 5. Quorum............................................................... 2
Section 6. Adjournments......................................................... 2
Section 7. Order of Business.................................................... 2
Section 8. List of Stockholders................................................. 3
Section 9. Voting............................................................... 3
Section 10. Inspectors of Election............................................... 4
ARTICLE III - BOARD OF DIRECTORS......................................................... 4
Section 1. General Powers....................................................... 4
Section 2. Number, Qualification and Election................................... 4
Section 3. Notification of Nominations.......................................... 5
Section 4. Quorum and Manner of Acting.......................................... 5
Section 5. Place of Meeting..................................................... 5
Section 6. Regular Meetings..................................................... 5
Section 7. Special Meetings..................................................... 5
Section 8. Notice of Meetings................................................... 5
Section 9. Rules and Regulations................................................ 6
Section 10. Participation in Meeting by Means of Communication Equipment......... 6
Section 11. Action Without Meeting............................................... 6
Section 12. Resignations......................................................... 6
Section 13. Removal of Directors................................................. 6
Section 14. Vacancies............................................................ 6
Section 15. Compensation......................................................... 6
Section 16. Advisory Directors................................................... 7
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES.............................................. 7
Section 1. Executive Committee.................................................. 7
Section 2. Other Committees..................................................... 8
Section 3. Procedure; Meetings; Quorum.......................................... 8
ARTICLE V - OFFICERS..................................................................... 8
Section 1. Number; Term of Office............................................... 8
Section 2. Removal.............................................................. 9
Section 3. Resignation.......................................................... 9
Section 4. Vacancies............................................................ 9
Section 5. The Chief Executive Officer.......................................... 9
Section 6. The President........................................................ 9
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 7. Chairman of the Board..................................................... 9
Section 8. Vice Presidents........................................................... 9
Section 9. Treasurer................................................................. 9
Section 10. Secretary................................................................. 9
Section 11. Controller................................................................ 10
Section 12. Assistant Treasurers, Secretaries and Controllers......................... 10
ARTICLE VI - CAPITAL STOCK.................................................................... 10
Section 1. Certificates for Shares................................................... 10
Section 2. Transfer of Shares........................................................ 10
Section 3. Address of Stockholders................................................... 10
Section 4. Lost, Destroyed and Mutilated Certificates................................ 10
Section 5. Regulations............................................................... 11
Section 6. Fixing Date for Determination of Stockholders of Record................... 11
ARTICLE VII - SEAL............................................................................ 11
ARTICLE VIII - FISCAL YEAR.................................................................... 11
ARTICLE IX - WAIVER OF NOTICE................................................................. 11
ARTICLE X - AMENDMENTS........................................................................ 12
ARTICLE XI - MISCELLANEOUS.................................................................... 12
Section 1. Execution of Documents.................................................... 12
Section 2. Deposits.................................................................. 12
Section 3. Checks.................................................................... 12
Section 4. Proxies in Respect of Stock or Other Securities of Other Corporations..... 12
</TABLE>
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<PAGE>
BYLAWS
OF
PURE RESOURCES, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Pure Resources,
Inc. (hereinafter, the "Corporation") in the State of Delaware shall be at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, 19801 and the registered agent in charge thereof shall be The
Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have an office or
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders of the
Corporation shall be held at the office of the Corporation or at such other
places, within or without the State of Delaware, as may from time to time be
fixed by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the President.
Section 2. Annual Meetings. Annual meetings of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before such meetings shall be held during each
calendar year on a date and at such hour as may be fixed by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President. Failure to designate a time for the annual meeting or to hold the
annual meeting at the designated time shall not work a dissolution of the
Corporation.
In order for business to be properly brought before the meeting by a
stockholder, the business must be legally proper and written notice thereof must
have been filed with the Secretary of the Corporation not less than 60 nor more
than 120 days prior to the meeting. Each such notice shall set forth: (a) the
name and address of the stockholder who intends to make the proposal as the same
appears in the Corporation's records; (b) the class and number of shares of
stock of the Corporation that are beneficially owned, directly or indirectly, by
such stockholder; and (c) a clear and concise statement of the proposal and the
stockholder's reasons for supporting it.
The filing of a stockholder notice as required above shall not, in and of
itself, constitute the making of the proposal described therein.
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<PAGE>
If the chairman of the meeting determines that any proposed business has
not been properly brought before the meeting, he shall declare such business out
of order; and such business shall not be conducted at the meeting.
Section 3. Special Meetings. Except as otherwise required by law and
subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, special
meetings of the stockholders for any purpose or purposes may be called only by
(i) the Chairman of the Board, (ii) a majority of the entire Board of Directors,
or (iii) a majority of the votes entitled to be cast by the stockholders
entitled to vote at such a meeting. Only such business as is specified in the
notice of any special meeting of the stockholders shall come before such
meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by mail, not less than 10 nor
more than 60 days before the date of the meeting to each stockholder of record
entitled to notice of the meeting. If mailed, such notice shall be deemed given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. Each such notice shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called. Notice of
any meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy without protesting, prior to
or at the commencement of the meeting, the lack of proper notice to such
stockholder, or who shall waive notice thereof as provided in Article X of these
Bylaws. Notice of adjournment of a meeting of stockholders need not be given if
the time and place to which it is adjourned are announced at such meeting,
unless the adjournment is for more than 30 days or, after adjournment, a new
record date is fixed for the adjourned meeting.
Section 5. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, the holders of a majority of
the votes entitled to be cast by the stockholders entitled to vote, which if any
vote is to be taken by classes shall mean the holders of a majority of the votes
entitled to be cast by the stockholders of each such class, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at any meeting of the stockholders.
Section 6. Adjournments. In the absence of a quorum, the holders of a
majority of the votes present in person or represented by proxy, may adjourn the
meeting from time to time. At any such adjourned meeting at which a quorum may
be present, any business may be transacted which might have been transacted at
the meeting as originally called.
Section 7. Order of Business. At each meeting of the stockholders, the
Chairman of the Board, or, in the absence of the Chairman of the Board or the
President, shall act as chairman. The order of business at each such meeting
shall be as determined by the chairman of the meeting. The chairman of the
meeting shall have the right and authority to prescribe such rules, regulations
and procedures and to do all such acts and things as are necessary or desirable
for the proper conduct of the meeting, including, without limitation, the
establishment of procedures for the maintenance of order and safety, limitations
on the time allotted to questions or comments on the affairs of the Corporation,
restrictions on entry to such meeting after the time prescribed for the
commencement thereof, and the opening and closing of the voting polls. The
chairman of the meeting shall announce at each such meeting the date and time of
the opening and the closing of the voting polls for each matter upon which the
stockholders will vote at such meeting.
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<PAGE>
Section 8. List of Stockholders. It shall be the duty of the Secretary or
other officer of the Corporation who has charge of the stock ledger to prepare
and make, at least 10 days before each meeting of the stockholders, a complete
list of the stockholders entitled to vote thereat, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in such stockholder's name. Such list shall be produced and kept
available at the times and places required by law.
Section 9. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, each stockholder of record of
any class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation shall be entitled at each
meeting of stockholders to such number of votes for each share of such stock as
may be fixed in the Certificate of Incorporation or in the resolution or
resolutions adopted by the Board of Directors providing for the issuance of such
stock, and each stockholder of record of Common Stock shall be entitled at each
meeting of stockholders to one vote for each share of such stock, in each case,
registered in such stockholder's name on the books of the Corporation:
(a) on the date fixed pursuant to Section 6 of Article VII of these
Bylaws as the record date for the determination of stockholders entitled to
notice of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the date on which notice of
such meeting is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize not in excess of three persons to act for such stockholder by a proxy
signed by such stockholder or such stockholder's attorney-in-fact. Any such
proxy shall be delivered to the secretary of such meeting at or prior to the
time designated for holding such meeting but, in any event, not later than the
time designated in the order of business for so delivering such proxies. No such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period.
At each meeting of the stockholders, all corporate actions, other than the
election of directors, to be taken by vote of the stockholders (except as
otherwise required by law and except as otherwise provided in the Certificate of
Incorporation) shall be authorized by a majority of the votes cast by the
stockholders entitled to vote thereon, present in person or represented by
proxy. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of the directors. Where a separate vote by a class or classes is
required, the affirmative vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class.
Unless required by law or determined by the chairman of the meeting to be
advisable, the vote on any matter, including the election of directors, need not
be by written ballot. In the case of a vote by written ballot, each ballot shall
be signed by the stockholder voting, or by such stockholder's proxy, and shall
state the number of shares voted.
Section 10. Inspectors of Election. Either the Board of Directors or, in
the absence of an appointment of inspectors by the Board, the Chairman of the
Board, the Chief Executive Officer or the President shall, in advance of each
meeting of the stockholders, appoint one or more inspectors to act at such
meeting and make a written report thereof. In connection with any such
appointment, one or more persons may, in the discretion of the body or person
making such appointment, be designated as alternate
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inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at any meeting of stockholders, the chairman of such
meeting shall appoint one or more inspectors to act at such meeting. Each such
inspector shall perform such duties as are required by law and as shall be
specified by the Board, the Chairman of the Board, the Chief Executive Officer,
the President or the chairman of the meeting. Each such inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability. Inspectors need not be stockholders. No
director or nominee for the office of director shall be appointed such an
inspector.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation of the
Corporation directed or required to be exercised or done by the stockholders.
Section 2. Number, Qualification and Election. Except as otherwise
provided in any resolution or resolutions adopted by the Board of Directors
pursuant to the provisions of Article FOURTH of the Certificate of Incorporation
of the Corporation relating to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation, the number of directors of the Corporation shall be fixed from time
to time by resolution adopted by vote of a majority of the entire Board of
Directors.
Each director, other than those who may be elected by the holders of shares
of any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation pursuant to the terms of any resolution or
resolutions providing for the issuance of such stock adopted by the Board, shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
Each director shall be at least 21 years of age. Directors need not be
stockholders of the Corporation.
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation, at each
annual meeting of the stockholders, all directors of the Corporation shall be
elected.
In any election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election, shall
be deemed elected.
Section 3. Notification of Nominations. Subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote for the election of directors. Any stockholder entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if written notice of such stockholder's intent to make such
nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation not later than (i) with
respect to an election to be held at an
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annual meeting of stockholders, 90 days in advance of such meeting, and (ii)
with respect to an election to be held at a special meeting of stockholders for
the election of directors, the close of business on the seventh day following
the date on which notice of such meeting is first given to stockholders. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed by
such stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
Corporation if so elected. The chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedure.
Section 4. Quorum and Manner of Acting. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation or these Bylaws, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business at any meeting of the Board, and, except as so provided,
the vote of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the Board. In the absence of a quorum, a majority
of the directors present may adjourn the meeting to another time and place. At
any adjourned meeting at which a quorum is present, any business that might have
been transacted at the meeting as originally called may be transacted.
Section 5. Place of Meeting. The Board of Directors may hold its meetings
at such place or places within or without the State of Delaware as the Board may
from time to time determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board shall from time to time by
resolution determine. If any day fixed for a regular meeting shall be a legal
holiday under the laws of the place where the meeting is to be held, the meeting
that would otherwise be held on that day shall be held at the same hour on the
next succeeding business day.
Section 7. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board or the President or
by a majority of the directors.
Section 8. Notice of Meetings. Notice of regular meetings of the Board of
Directors or of any adjourned meeting thereof need not be given. Notice of each
special meeting of the Board shall be mailed or transmitted by delivery service
to each director, addressed to such director at such director's residence or
usual place of business, at least two days before the day on which the meeting
is to be held or shall be sent to such director at such place by telegraph or
facsimile telecommunication or be given personally or by telephone, not later
than the day before the meeting is to be held, but notice need not be given to
any director who shall, either before or after the meeting, submit a signed
waiver of such notice or who shall attend such meeting without protesting, prior
to or at its commencement, the lack of notice to such director. Every such
notice shall state the time and place but need not state the purpose of the
meeting.
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Section 9. Rules and Regulations. The Board of Directors may adopt such
rules and regulations not inconsistent with the provisions of law, the
Certificate of Incorporation of the Corporation or these Bylaws for the conduct
of its meetings and management of the affairs of the Corporation as the Board
may deem proper.
Section 10. Participation in Meeting by Means of Communication Equipment.
Any one or more members of the Board of Directors or any committee thereof may
participate in any meeting of the Board or of any such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
Section 11. Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may be
taken without a meeting if all of the members of the Board or of any such
committee consent thereto in writing and the writing or writings are filed with
the minutes of proceedings of the Board or of such committee.
Section 12. Resignations. Any director of the Corporation may at any time
resign by giving written notice to the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein
or, if the time be not specified, upon receipt thereof; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 13. Removal of Directors. Any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors, except that if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against that director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board.
Section 14. Vacancies. Subject to the rights of the holders of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation, any vacancies on the Board of Directors and any newly created
directorship resulting from an increase in the authorized number of directors,
may be filled by election at an annual or special meeting of stockholders called
for that purpose or by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the entire Board, and the directors so
chosen shall hold office until the next annual meeting of stockholders and until
their successors are duly elected and shall qualify, unless sooner displaced.
Section 15. Compensation. Each director who shall not at the time also be
a salaried officer or employee of the Corporation or any of its subsidiaries
(hereinafter referred to as an "outside director"), in consideration of such
person serving as a director, shall be entitled to receive from the Corporation
such amount per annum and such fees for attendance at meetings of the Board of
Directors or of committees of the Board, or both, as the Board shall from time
to time determine. In addition, each director, whether or not an outside
director, shall be entitled to receive from the Corporation reimbursement for
the reasonable expenses incurred by such person in connection with the
performance of such person's duties as a director. Nothing contained in this
Section 15 shall preclude any director from serving the Corporation or any of
its subsidiaries in any other capacity and receiving proper compensation
therefor.
Section 16. Advisory Directors. The Board of Directors may appoint one or
more advisory directors as it shall from time to time determine. Each advisory
director appointed shall hold office at the
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pleasure of the Board of Directors. An advisory director shall be entitled, but
shall have no obligation, to attend and be present at the meetings of the Board
of Directors, although a meeting of the Board of Directors may be held without
notice to any advisory director and no advisory director shall be considered in
determining whether a quorum of the Board of Directors is present. An advisory
director shall advise and counsel the Board of Directors on the business and
operations of the Corporation as requested by the Board of Directors; however,
an advisory director shall not be entitled to vote on any matter presented to
the Board of Directors. An advisory director, in consideration of such person
serving as an advisory director, shall be entitled to receive from the
Corporation such fees for attendance at meetings of the Board of Directors as
the Board shall from time to time determine. In addition, an advisory director
shall be entitled to receive from the Corporation reimbursement for the
reasonable expenses incurred by such person in connection with the performance
of such person's duties as an advisory director.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive Committee. The Board of Directors may, by resolution
adopted by a majority of the entire Board, designate annually three or more of
its members to constitute members or alternate members of an Executive
Committee, which Committee shall have and may exercise, between meetings of the
Board, all the powers and authority of the Board in the management of the
business affairs of the Corporation, including, if such Committee is so
empowered and authorized by resolution adopted by a majority of the entire
Board, the power and authority to declare a dividend and to authorize the
issuance of stock, and may authorize the seal of the Corporation to be affixed
to all papers that may require it, except that the Executive Committee shall not
have such power or authority in reference to:
(a) amending the Certificate of Incorporation of the Corporation;
(b) adopting an agreement of merger or consolidation involving the
Corporation;
(c) recommending to the stockholders the sale, lease or exchange of
all or substantially all of the property and assets of the Corporation;
(d) recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) adopting, amending or repealing any Bylaw;
(f) filling vacancies on the Board or on any committee of the
Board, including the Executive Committee; or
(g) amending or repealing any resolution of the Board which by its
terms may be amended or repealed only by the Board.
The Board shall have power at any time to change the membership of the Executive
Committee, to fill all vacancies in it and to discharge it, either with or
without cause.
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Section 2. Other Committees. The Board of Directors may, by resolution
adopted by a majority of the entire Board, designate from among its members one
or more other committees, each of which shall, except as otherwise prescribed by
law, have such authority of the Board as may be specified in the resolution of
the Board designating such committee. A majority of all the members of such
committee may determine its action and fix the time and place of its meetings,
unless the Board shall otherwise provide. The Board shall have power at any time
to change the membership of, to fill all vacancies in and to discharge any such
committee, either with or without cause.
Section 3. Procedure; Meetings; Quorum. Regular meetings of the Executive
Committee or any other committee of the Board of Directors, of which no notice
shall be necessary, may be held at such times and places as shall be fixed by
resolution adopted by a majority of the members thereof. Special meetings of the
Executive Committee or any other committee of the Board shall be called at the
request of any member thereof. Notice of each special meeting of the Executive
Committee or any other committee of the Board shall be sent by mail, delivery
service, facsimile telecommunication, telegraph or telephone, or be delivered
personally to each member thereof not later than the day before the day on which
the meeting is to be held, but notice need not be given to any member who shall,
either before or after the meeting, submit a signed waiver of such notice or who
shall attend such meeting without protesting, prior to or at its commencement,
the lack of such notice to such member. Any special meeting of the Executive
Committee or any other committee of the Board shall be a legal meeting without
any notice thereof having been given, if all the members thereof shall be
present thereat. Notice of any adjourned meeting of any committee of the Board
need not be given. The Executive Committee or any other committee of the Board
may adopt such rules and regulations not inconsistent with the provisions of
law, the Certificate of Incorporation of the Corporation or these Bylaws for the
conduct of its meetings as the Executive Committee or any other committee of the
Board may deem proper. A majority of the Executive Committee or any other
committee of the Board shall constitute a quorum for the transaction of business
at any meeting, and the vote of a majority of the members thereof present at any
meeting at which a quorum is present shall be the act of such committee. The
Executive Committee or any other committee of the Board of Directors shall keep
written minutes of its proceedings and shall report on such proceedings to the
Board.
ARTICLE V
OFFICERS
Section 1. Number; Term of Office. The officers of the Corporation shall
be a Chairman of the Board, a Chief Executive Officer, a President, one or more
Vice Presidents, a Treasurer, a Secretary, a Controller, and such other officers
or agents with such titles and such duties as the Board of Directors may from
time to time determine, each to have such authority, functions or duties as in
these Bylaws provided or as the Board may from time to time determine, and each
to hold office for such term as may be prescribed by the Board and until such
person's successor shall have been chosen and shall qualify, or until such
person's death or resignation, or until such person's removal in the manner
hereinafter provided. The Chairman of the Board shall be elected from among the
directors. One person may hold the offices and perform the duties of any two or
more of said officers; provided, however, that no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument is required by law, the Certificate of Incorporation of the
Corporation or these Bylaws to be executed, acknowledged or verified by two or
more officers. The Board may from time to time authorize any officer to appoint
and
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remove any such other officers and agents and to prescribe their powers and
duties. The Board may require any officer or agent to give security for the
faithful performance of such person's duties.
Section 2. Removal. Any officer may be removed, either with or without
cause, by the Board of Directors at any meeting thereof called for that purpose,
or, except in the case of any officer elected by the Board, by any committee or
superior officer upon whom such power may be conferred by the Board.
Section 3. Resignation. Any officer may resign at any time by giving
notice to the Board of Directors, the Chief Executive Officer, the President or
the Secretary of the Corporation. Any such resignation shall take effect at the
date of receipt of such notice or at any later date specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term in the manner prescribed in these Bylaws for election to such
office.
Section 5. The Chief Executive Officer. The Board shall designate either
the Chairman of the Board or the President to be the Chief Executive Officer of
the Corporation. The Chief Executive Officer shall have the general control and
management of the business and affairs of the Corporation, subject to the
direction and control of the Board of Directors. The Chief Executive Officer
shall see that all orders and resolutions of the Board of Directors are carried
into effect, and shall exercise or perform such other powers and duties as may
from time to time be assigned to the Chief Executive Officer by the Board or the
Executive Committee. The Chief Executive Officer may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board or any committee thereof empowered to authorize the
same.
Section 6. The President. The President shall exercise or perform such
powers and duties as may from time to time be assigned to the President by the
Chief Executive Officer or the Board of Directors. The President may sign and
execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments authorized by the Chief Executive Officer, the Board or any
committee thereof empowered to authorize the same.
Section 7. Chairman of the Board. The Chairman of the Board shall, if
present, preside at meetings of the stockholders, meetings of the Board and
meetings of the Executive Committee. The Chairman of the Board shall counsel
with and advise the President and perform such other duties as the Chief
Executive Officer or the Board or the Executive Committee may from time to time
determine.
Section 8. Vice Presidents. Each Vice President shall have such powers
and duties as shall be prescribed by the Chief Executive Officer, the Chairman
of the Board or the Board of Directors. Any Vice President may sign and execute
in the name of the Corporation deeds, mortgages, bonds, contracts or other
instruments authorized by the Board or any committee thereof empowered to
authorize the same.
Section 9. Treasurer. The Treasurer shall perform all duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to the Treasurer by Chief Executive Officer, the Chairman of the Board
or the Board of Directors.
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Section 10. Secretary. It shall be the duty of the Secretary to act as
secretary at all meetings of the Board of Directors, of the Executive Committee
and of the stockholders and to record the proceedings of such meetings in a book
or books to be kept for that purpose; the Secretary shall see that all notices
required to be given by the Corporation are duly given and served; the Secretary
shall be custodian of the seal of the Corporation and shall affix the seal or
cause it to be affixed to all certificates of stock of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized in accordance with the
provisions of these Bylaws. The Secretary shall have charge of the stock ledger
and also of the other books, records and papers of the Corporation and shall see
that the reports, statements and other documents required by law are properly
kept and filed; and the Secretary shall in general perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to such person by the Chief Executive Officer, the Chairman of
the Board or the Board of Directors.
Section 11. Controller. The Controller shall perform all of the duties
incident to the office of the Controller and such other duties as from time to
time may be assigned to such person by the Chief Executive Officer, the Chairman
of the Board or the Board of Directors.
Section 12. Assistant Treasurers, Secretaries and Controllers. The
Assistant Treasurers, the Assistant Secretaries and the Assistant Controllers
shall perform such duties as shall be assigned to them by the Treasurer,
Secretary or Controller, respectively, or by the Chief Executive Officer, the
Chairman of the Board or the Board of Directors.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates for Shares. Certificates representing shares of
stock of each class of the Corporation, whenever authorized by the Board of
Directors, shall be in such form as shall be approved by the Board. The
certificates representing shares of stock of each class shall be signed by, or
in the name of, the Corporation by the Chairman of the Board, the Chief
Executive Officer or the President or a Vice President and by the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation, and sealed with the seal of the Corporation, which may be by a
facsimile thereof. Any or all such signatures may be facsimiles if countersigned
by a transfer agent or registrar. Although any officer, transfer agent or
registrar whose manual or facsimile signature is affixed to such a certificate
ceases to be such officer, transfer agent or registrar before such certificate
has been issued, it may nevertheless be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were still such at the
date of its issue.
The stock ledger and blank share certificates shall be kept by the
Secretary or by a transfer agent or by a registrar or by any other officer or
agent designated by the Board.
Section 2. Transfer of Shares. Transfer of shares of stock of each class
of the Corporation shall be made only on the books of the Corporation by the
holder thereof, or by such holder's attorney thereunto authorized by a power of
attorney duly executed and filed with the Secretary of the Corporation or a
transfer agent for such stock, if any, and on surrender of the certificate or
certificates for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. The person in whose
name shares stand on the books of the Corporation shall be deemed the
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owner thereof for all purposes as regards the Corporation; provided, however,
that whenever any transfer of shares shall be made for collateral security and
not absolutely, and written notice thereof shall be given to the Secretary or to
such transfer agent, such fact shall be stated in the entry of the transfer. No
transfer of shares shall be valid as against the Corporation, its stockholders
and creditors for any purpose, except to render the transferee liable for the
debts of the Corporation to the extent provided by law, until it shall have been
entered in the stock records of the Corporation by an entry showing from and to
whom transferred.
Section 3. Address of Stockholders. Each stockholder shall designate to
the Secretary or transfer agent of the Corporation an address at which notices
of meetings and all other corporate notices may be served or mailed to such
person, and, if any stockholder shall fail to designate such address, corporate
notices may be served upon such person by mail directed to such person at such
person's post office address, if any, as the same appears on the share record
books of the Corporation or at such person's last known post office address.
Section 4. Lost, Destroyed and Mutilated Certificates. The holder of any
share of stock of the Corporation shall immediately notify the Corporation of
any loss, theft, destruction or mutilation of the certificate therefor; the
Corporation may issue to such holder a new certificate or certificates for
shares, upon the surrender of the mutilated certificate or, in the case of loss,
theft or destruction of the certificate, upon satisfactory proof of such loss,
theft or destruction; the Board of Directors, or a committee designated thereby,
or the transfer agents and registrars for the stock, may, in their discretion,
require the owner of the lost, stolen or destroyed certificate, or such person's
legal representative, to give the Corporation a bond in such sum and with such
surety or sureties as they may direct to indemnify the Corporation and said
transfer agents and registrars against any claim that may be made on account of
the alleged loss, theft or destruction of any such certificate or the issuance
of such new certificate.
Section 5. Regulations. The Board of Directors may make such additional
rules and regulations as it may deem expedient concerning the issue and transfer
of certificates representing shares of stock of each class of the Corporation
and may make such rules and take such action as it may deem expedient concerning
the issue of certificates in lieu of certificates claimed to have been lost,
destroyed, stolen or mutilated.
Section 6. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to any
other action. A determination of stockholders entitled to notice of or to vote
at a meeting of the stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
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ARTICLE VII
SEAL
The Board of Directors shall provide a corporate seal, which shall be in
the form of a circle and shall bear the full name of the Corporation and the
words and figures "Corporate Seal 1999 Delaware", or such other words or figures
as the Board of Directors may approve and adopt. The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE IX
WAIVER OF NOTICE
Whenever any notice whatsoever is required to be given by these Bylaws, by
the Certificate of Incorporation of the Corporation or by law, the person
entitled thereto may, either before or after the meeting or other matter in
respect of which such notice is to be given, waive such notice in writing, which
writing shall be filed with or entered upon the records of the meeting or the
records kept with respect to such other matter, as the case may be, and in such
event such notice need not be given to such person and such waiver shall be
deemed equivalent to such notice.
ARTICLE X
AMENDMENTS
Any Bylaw (including this Article X) may be adopted, repealed, altered or
amended at any meeting of the Board of Directors by the affirmative vote of at
least a majority of the entire Board of Directors, provided that such proposed
action in respect thereof shall be stated in the notice of such meeting. The
stockholders of the Corporation shall have the power to adopt, repeal, alter or
amend any provision of these Bylaws only to the extent and in the manner
provided in the Certificate of Incorporation of the Corporation.
ARTICLE XI
MISCELLANEOUS
Section 1. Execution of Documents. The Board of Directors or any
committee thereof shall designate the officers, employees and agents of the
Corporation who shall have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, notes, checks, drafts and other orders for the
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payment of money and other documents for and in the name of the Corporation and
may authorize such officers, employees and agents to delegate such power
(including authority to redelegate) by written instrument to other officers,
employees or agents of the Corporation. Such delegation may be by resolution or
otherwise and the authority granted shall be general or confined to specific
matters, all as the Board or any such committee may determine. In the absence of
such designation referred to in the first sentence of this Section 1, the
officers of the Corporation shall have such power so referred to, to the extent
incident to the normal performance of their duties.
Section 2. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation or
otherwise as the Board of Directors or any committee thereof or any officer of
the Corporation to whom power in that respect shall have been delegated by the
Board or any such committee shall select.
Section 3. Checks. All checks, drafts and other orders for the payment of
money out of the funds of the Corporation, and all notes or other evidence of
indebtedness of the Corporation, shall be signed on behalf of the Corporation in
such manner as shall from time to time be determined by resolution of the Board
of Directors or of any committee thereof.
Section 4. Proxies in Respect of Stock or Other Securities of Other
Corporations. The Board of Directors or any committee thereof shall designate
the officers of the Corporation who shall have authority from time to time to
appoint an agent or agents of the Corporation to exercise in the name and on
behalf of the Corporation the powers and rights that the Corporation may have as
the holder of stock or other securities in any other corporation, and to vote or
consent in respect of such stock or securities; such designated officers may
instruct the person or persons so appointed as to the manner of exercising such
powers and rights; and such designated officers may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise its said powers and rights.
-13-
<PAGE>
EXHIBIT 5.1
April 10, 2000
Pure Resources, Inc.
c/o Unocal Corporation
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
Re: Pure Resources, Inc. (the "Company") - Registration Statement on
Form S-4, (the "Registration Statement"), under the Securities Act
of 1933, as amended (the "Act")
Ladies and Gentlemen:
We have acted as counsel to the Company in connection with the preparation
of the Company's Registration Statement filed by the Company with the Securities
and Exchange Commission pursuant to the Act, which Registration Statement
relates to certain shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), which may be issued in accordance with the Agreement and
Plan of Merger (as amended to date, the "Merger Agreement") dated as of December
13, 1999, among the Company, Union Oil Company of California, TRH, Inc. ("TRH")
and Titan Exploration, Inc. ("Titan"), whereby TRH, a wholly owned subsidiary of
the Company, will merge with and into Titan by means of the merger described
therein (the "Merger"). In such connection, we are passing on certain legal
matters in connection with the foregoing issuance of Common Stock by the
Company. At your request, this opinion is being furnished to you for filing as
an exhibit to the Registration Statement.
In connection with rendering this opinion, we have examined certain
corporate records of the Company, including its Certificate of Incorporation,
its Bylaws, and certain resolutions of the Board of Directors of the Company.
We have also examined the Registration Statement, together with the exhibits
thereto, and such certificates of officers of the Company, instruments, records,
and other documents as we have deemed necessary or appropriate for the purposes
of this opinion. As to factual matters, we have relied on certificates of
certain public officials and officers of the Company. We have reviewed such
questions of law as we have considered necessary or appropriate for the purposes
of this opinion.
Based upon the foregoing examination and review, we are of the opinion that
when the conditions to the Merger set forth in the Merger Agreement have been
satisfied (including that the
<PAGE>
Pure Resources, Inc.
page 2
April 10, 2000
Registration Statement has become effective under the Act) and the Merger has
been effected in accordance therewith, the shares of Common Stock issued in
exchange for shares of common stock of Titan pursuant to the Merger Agreement
will be validly issued, fully paid and non-assessable shares of Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the Proxy Statement/Prospectus forming a part of the Registration
Statement. In giving this consent, however, we do not hereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 and the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
VINSON & ELKINS L.L.P.
<PAGE>
Exhibit 8.1
[Thompson & Knight Letterhead]
(214) 969-1468
E-Mail: [email protected]
----------------
April 7, 2000
Titan Exploration, Inc.
500 West Texas, Suite 500
Midland, Texas 79701
Re: Tax Summary in Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Titan Exploration, Inc. ("Titan") in connection
with (a) the Merger, as defined in that certain Agreement and Plan of Merger
dated December 13, 1999 (the "Agreement"), among Union Oil Company of California
("Union Oil"), Pure Resources, Inc. ("Pure Resources") TRH, Inc. ("Sub") and
Titan, and (b) the preparation and filing of the proxy statement/prospectus
forming a part of the registration statement on Form S-4 (collectively, the
"Registration Statement"), filed with the Securities and Exchange Commission
(the "Commission"). In particular, we have prepared the discussion in the
Registration Statement under the heading "Material Federal Income Tax
Consequences" (the "Tax Summary"). Except as otherwise provided, capitalized
terms shall have the same meaning as set forth in the Agreement.
In our capacity as stated above, we have been asked to render our opinion
with respect to the material United States federal income tax consequences of
the Merger that generally apply to Titan shareholders who are U.S. citizens or
resident individuals and who hold Titan common stock as a capital asset. As the
basis for our opinion, which is described below, we have examined the Agreement
and the Registration Statement and have conducted such factual and legal
research as we have deemed appropriate. In rendering the opinion described
below, we have assumed the validity and accuracy of the documents and corporate
records that we have examined, and the facts and representations concerning the
Merger that have come to our attention during our engagement. Also, we have
assumed that the Merger will be consummated in the manner described in the
Agreement and the Registration Statement. In addition, we have assumed, with
your consent, that the representations contained in the letters of
representation from Titan dated March 10, 2000, and from Union Oil, Pure
Resources and Sub dated March 10, 2000, are true, correct and complete and will
continue to be true, correct and complete as of the Effective Time of the
Merger.
Based upon the foregoing, and subject to the assumptions and qualifications
set forth in the Tax Summary, in our opinion, the Merger will be treated as a
reorganization described in Section 368(a) of the Code and/or a transfer of
property to Pure Resources by the Titan shareholders governed by Section 351 of
the Code. Accordingly, for U.S. federal income tax purposes:
<PAGE>
Titan Exploration, Inc.
April 7, 2000
Page 2
(a) The Titan shareholders will recognize no gain or loss by surrendering
their Titan common stock in the Merger solely for Pure Resources common stock
(except for cash received instead of a fractional share interest in Pure
Resources common stock).
(b) The tax basis of Pure Resources common stock that the Titan
shareholders receive in the Merger (including the tax basis of any fractional
share interest in Pure Resources common stock) will be the same as the tax basis
of the shares of Titan common stock surrendered in the Merger.
(c) The Titan shareholders' holding period of the shares of Pure
Resources common stock received in the Merger (including the holding period of
any fractional share interest in Pure Resources common stock) will include the
holding period of the Titan common stock surrendered in the Merger.
(d) If a Titan shareholder receives cash instead of a fractional share
interest in Pure Resources common stock, the Titan shareholder will be treated
as receiving the cash for the fractional share interest. Accordingly, the Titan
shareholder will recognize gain or loss equal to the difference between the
amount of cash received and a portion of the tax basis in the Titan common stock
allocable to the fractional share interest. The gain or loss will be a capital
gain or loss.
The foregoing are the material United States federal income tax
consequences of the Merger. Our opinion, however, does not address United States
federal income tax consequences which may vary with, or are contingent upon, a
shareholder's individual circumstances. Also, our opinion does not address any
non-income tax or any foreign, state or local tax consequences of the Merger.
This opinion represents and is based upon our best judgment regarding the
application of United States federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. It is possible that contrary positions may be taken by the
Internal Revenue Service and that a court may agree with such contrary
positions. Furthermore, no assurance can be given that future legislation,
judicial or administrative changes, either on a prospective or retroactive
basis, would not adversely affect the accuracy of the conclusions reached in the
Tax Summary. This opinion is expressed as of the date hereof, and we are under
no obligation to supplement or revise our opinion to reflect any changes in
applicable law or in any information, document, covenant, statement,
representation or assumption referenced herein which becomes untrue or
incorrect.
This opinion is furnished to you solely for use in connection with the
Merger, as described in the Agreement and the Registration Statement, and it is
not to be used, circulated, quoted or otherwise referred to for any other
purpose without our express written consent. In accordance with Item 601(b)(23)
of Regulation S-K under the Securities Act, we hereby consent to the filing of
this
<PAGE>
Titan Exploration, Inc.
April 7, 2000
Page 3
opinion with the Commission as an exhibit to the Registration Statement and the
use of our name in the Tax Summary. In giving this consent, we do not thereby
admit that we are within the category of persons whose consent is required under
Section 7 of the Securities Act, as amended, or the rules and regulations of the
Commission promulgated thereunder.
Very truly yours,
THOMPSON & KNIGHT L.L.P.
By: /s/ R. David Wheat
-------------------------------
R. David Wheat, Partner
<PAGE>
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is dated as of December 13, 1999 by
and between Titan Resources Holdings, Inc., a Delaware corporation (together
with its successors and assigns, the "Company"), and Union Oil Company of
California, a California corporation ("Union Oil").
1. Background. The Company has agreed to issue to Union Oil certain
----------
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), pursuant to the transactions contemplated by (i) the Agreement and Plan
of Merger dated as of the date hereof among Union Oil, the Company, TRH, Inc.,
and Titan Exploration Inc., a Delaware corporation (as it may be amended, the
"Merger Agreement") and (ii) the Non-Dilution Agreement dated as of the date
hereof between the Company and Union Oil (as it may be amended, the "Non-
Dilution Agreement").
2. Registration under Securities Act, etc.
--------------------------------------
2.1 Registration on Request.
-----------------------
(a) Concurrently with or from time to time after the Initial
Registration Date, upon the written request of any Holder of
Registrable Securities (a "Requesting Holder"), requesting that the
Company effect the registration under the Securities Act of all or a
portion of such Requesting Holder's Registrable Securities and
specifying the intended method of disposition thereof and whether or
not such requested registration is to be an underwritten offering,
subject to the limitations set forth in subsection (e) of this Section
2.1, the Company will use its best efforts to effect the registration
under the Securities Act of the Registrable Securities which the
Company has been so requested to register by the Requesting Holder
(which request shall specify the intended method of disposition of
such Registrable Securities), to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities so to be registered (a
"Demand Registration").
(b) Registration of Other Securities. Whenever the Company shall
--------------------------------
effect a Demand Registration pursuant to this Section 2.1 in
connection with an underwritten offering, no securities other than
Registrable Securities shall be included among the securities covered
by such registration unless (i) the managing underwriter of such
offering shall have advised the Requesting Holder in writing that the
inclusion of such other securities would not adversely affect such
offering or (ii) the Requesting Holder shall have consented in writing
to the inclusion of such other securities.
-1-
<PAGE>
(c) Registration Statement Form. A Demand Registration under
---------------------------
this Section 2.1 shall be on such appropriate registration form of the
Commission (i) as shall be selected by the Company and as shall be
reasonably acceptable to the Requesting Holder, and (ii) as shall
permit the disposition of such Registrable Securities in accordance
with the intended method or methods of disposition specified in the
request for such registration. The Company agrees to include in any
such registration statement all information which the Requesting
Holder shall reasonably request.
(d) Expenses. The Company will pay all Registration Expenses in
--------
connection with any Demand Registration requested pursuant to this
Section 2.1. Selling Expenses in connection with this Section 2.1
shall be incurred by the Requesting Holder.
(e) Limitations on Requested Registrations. The Company's
--------------------------------------
obligation to take or continue any action to effect a Demand
Registration under this Section 2.1 shall be subject to the following:
(i) The Company shall not be required to effect a Demand
Registration pursuant to this Section 2.1 unless the Requesting
Holder has requested the registration of at least the lesser of
(i) 4,300,000 Registrable Securities, adjusted for any increase
or decrease in the number of issued shares of the Common Stock
resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or
any other increase or decrease in the number of issued shares of
Common Stock effected without consideration by the Company or
(ii) $50 million in Fair Market Value of Registrable Securities.
(ii) The Company shall not be required to effect a Demand
Registration pursuant to this Section 2.1 more than one time in
any twelve (12) month period.
(f) Selection of Underwriters. If a Demand Registration pursuant
-------------------------
to this Section 2.1 involves an underwritten offering, the underwriter
or underwriters thereof shall be selected by the Company, with the
reasonable approval of the Requesting Holder.
2.2 Incidental Registration.
-----------------------
(a) Right to Include Registrable Securities. If the Company at
---------------------------------------
any time proposes to register any of its securities under the
Securities Act (other than (i) in connection with a registration of
any employee benefit, retirement or similar plan, or (ii) with respect
to a transaction governed by Rule 145 under the Securities Act, or
-2-
<PAGE>
(iii) pursuant to Section 2.1), whether or not for sale for its own
account, it will each such time give prompt written notice to the
Holders of its intention to do so and of the Holders' rights under
this Section 2.2. Upon the written request of the any Holder made
within thirty (30) days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be
disposed of and the intended method of disposition thereof), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities that the Company has been
so requested to register, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities so to be registered, provided
--------
that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election,
give written notice of such determination to the Holders participating
in such registration and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration
Expenses in connection therewith), without prejudice, however, to the
rights of the Holders to request that such registration be effected as
a Demand Registration under Section 2.1, and (ii) in the case of a
determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the
delay in registering such other securities. No registration effected
under this Section 2.2 shall be deemed to have been effected pursuant
to Section 2.1 or shall relieve the Company of its obligation to
effect any registration upon request under Section 2.1. The Company
will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this
Section 2.2 and any Selling Expenses shall be incurred by the
participating Holders.
(b) Priority in Incidental Registrations.
------------------------------------
(i) If (A) a registration pursuant to this Section 2.2
involves an underwritten offering of the securities so being
registered for sale for the account of a stockholder (other than
the Holders) exercising a demand registration right pursuant to
another registration rights agreement to be distributed (on a
firm commitment basis) by or through one or more underwriters of
recognized standing under underwriting terms appropriate for such
a transaction, and (B) the managing underwriter of such
underwritten offering informs the Company and the Holders in
writing of its belief that the number of securities requested to
be included in such registration exceeds the number that can be
sold in (or during the time of) such offering, then the Company
will include in such registration, to the extent of the number
that the Company is so advised can be sold in (or during the time
of) such
-3-
<PAGE>
offering: first, such securities proposed by the stockholder
exercising the demand registration right to be sold for its
account; second, such securities requested to be included
pursuant to incidental registration rights in such registration
by the holder or holders, as the case may be, including the
Holders, pro rata on the basis of the number of such securities
so proposed to be sold by all such security holders and so
requested to be included; and third, such securities proposed by
the Company to be sold for its own account
(ii) If (A) a registration pursuant to this Section 2.2
involves an underwritten offering of the securities so being
registered for sale for the account of the Company, to be
distributed (on a firm commitment basis) by or through one or
more underwriters of recognized standing under underwriting terms
appropriate for such a transaction, and (B) the managing
underwriter of such underwritten offering shall inform the
Company and the Holders in writing of its belief that the number
of securities requested to be included in such registration
exceeds the number that can be sold in (or during the time of)
such offering, then the Company will include in such
registration, to the extent of the number that the Company is so
advised can be sold in (or during the time of) such offering,
securities proposed by the Company to be sold for its own
account, and, such securities requested to be included pursuant
to incidental registration rights in such registration by the
holder or holders, as the case may be, including the Holders, pro
rata on the basis of the number of such securities so proposed to
be sold by all such security holders and so requested to be
included.
2.3 Registration Procedures. If and whenever the Company is
-----------------------
required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in
Sections 2.1 and 2.2, the Company will as expeditiously as possible:
(a) prepare and (as soon thereafter as possible or in any
event no later than sixty (60) days after the end of the period
within which requests for registration may be given to the
Company) file with the Commission the requisite registration
statement to effect such registration and thereafter use its best
efforts to cause such registration statement to become effective,
provided that the Company may discontinue any registration of its
securities that are not Registrable Securities (and, under the
circumstances specified in Section 2.2(a), its securities that
are Registrable Securities) at any time prior to the effective
date of the registration statement relating thereto;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition
of all
-4-
<PAGE>
securities covered by such registration statement until such time
as all of such securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement;
(c) furnish to the Holders such number of conformed copies
of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such
number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as the Holders may
reasonably request;
(d) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky
laws of such jurisdictions as the Holders shall reasonably
request, to keep such registration or qualification in effect for
so long as such registration statement remains in effect, and
take any other action that may be reasonably necessary or
advisable to enable the Holders to consummate the disposition in
such jurisdictions of the securities owned by it, except that the
Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of
this subdivision (d) be obligated to be so qualified or to
consent to general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable
Securities covered by such registration statement to be
registered with or approved by such other governmental agencies
or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable
Securities;
(f) furnish to the Holders a signed counterpart, addressed
to such seller (and underwriters, if any) of:
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement),
reasonably satisfactory in form and substance to such
seller, and
(ii) a "comfort" letter, dated the effective date of
such registration statement (and, if such registration
includes an underwritten public offering, dated the date of
the closing under the underwriting agreement), signed by the
independent public accountants who have certified the
Company's financial statements included in such registration
statement,
-5-
<PAGE>
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and,
in the case of the accountants' letter, with respect to events
subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of
the accountants' letter, such other financial matters, and, in
the case of the legal opinion, such other legal matters, as such
seller may reasonably request;
(g) notify the Holders, at any time when a prospectus
relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they
were made, and at the request of the Holders promptly prepare and
furnish to the Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of
such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under
which they were made;
(h) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of
such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act,
and will furnish to the Holders at least five (5) business days
prior to the filing thereof a copy of any amendment or supplement
to such registration statement or prospectus and shall not file
any thereof to which the Holders shall have reasonably objected
on the grounds that such amendment or supplement does not comply
in all material respects with the requirements of the Securities
Act or of the rules or regulations thereunder;
(i) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such
registration statement from and after a date not later than the
effective date of such registration statement;
(j) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange
or automated quotation system on which any of the Registrable
Securities is then listed; and
-6-
<PAGE>
(k) enter into such agreements and take such other actions
as the Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require the Holders participating in a registration to furnish
the Company such information regarding such Holder and the distribution of such
securities as the Company may from time to time reasonably request in writing.
Each Holder agrees that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (g) of this Section
2.3, the Holder will forthwith discontinue its disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until the Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (g) of this Section 2.3 and, if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in the Holder's
possession of the prospectus relating to such Registrable Securities current at
the time of receipt of such notice.
2.4 Underwritten Offerings.
----------------------
(a) Requested Underwritten Offerings. If requested by the
--------------------------------
underwriters for any underwritten offering by a Holder pursuant
to a Demand Registration requested under Section 2.1, the Company
will enter into an underwriting agreement with such underwriters
for such offering, such agreement to be reasonably satisfactory
in substance and form to the Holder and the underwriters and to
contain such representations and warranties by the Company and
such other terms as are generally prevailing in agreements of
this type, including, without limitation, indemnities to the
effect and to the extent provided in Section 2.6. The Holder
shall be a party to such underwriting agreement and may, at its
option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be
made to and for the benefit of the Holder and that any or all of
the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the
obligations of the Holders. The Holders shall not be required to
make any representations or warranties to or agreements with the
Company or the underwriters other than representations,
warranties or agreements regarding the Holders, its Registrable
Securities and its intended method of distribution and any other
representation required by law.
(b) Incidental Underwritten Offerings. If the Company at
---------------------------------
any time proposes to register any of its securities under the
Securities Act whether or not for sale for its own account as
contemplated by Section 2.2 and such securities are to be
distributed by or through one or more underwriters, the Company
will, if requested by the Holders as provided in Section 2.2 and
subject to the provisions of Section
-7-
<PAGE>
2.2(b), arrange for such underwriters to include all the
Registrable Securities to be offered and sold by the Holders
among the securities to be distributed by such underwriters. The
participating Holders shall be a party to the underwriting
agreement between the Company and such underwriters and may, at
its option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be
made to and for the benefit of the participating Holders and that
any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions
precedent to the obligations of the Holders. The Holders shall
not be required to make any representations or warranties to or
agreements with the Company or the underwriters other than
representations, warranties or agreements regarding the Holders,
its Registrable Securities and its intended method of
distribution and any other representation required by law.
2.5 Preparation; Reasonable Investigation. In connection with
-------------------------------------
the preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Company will give the
Holders, and their counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give it such access
to its books and records and such opportunities to discuss the
business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be
necessary, in the opinion of the Holders' counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
2.6 Indemnification.
---------------
(a) Indemnification by the Company. In the event of any
------------------------------
registration of any securities of the Company under the
Securities Act, the Company will, and hereby does, in the case of
any registration statement filed pursuant to Section 2.1 or 2.2,
indemnify and hold harmless the Holders, its directors and
officers, each other Person who participates in the offering or
sale of such securities and each other Person, if any, who
controls any Holder within the meaning of the Securities Act
against any losses, claims, damages or liabilities, joint or
several, to which the Holders or any such director or officer or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any registration statement under which such
securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse the
Holders and each such director,
-8-
<PAGE>
officer, and controlling person for any legal or any other
expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability,
action or proceeding; provided that the Company shall not be
--------
liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by a
Holder specifically stating that it is for use in the preparation
thereof and, provided further that the Company shall not be
--------
liable to any Person who participates as an underwriter, in the
offering or sale of Registrable Securities or any other Person,
if any, who controls such underwriter within the meaning of the
Securities Act, in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure
to send or give a copy of the final prospectus, as the same may
be then supplemented or amended, to the Person asserting an
untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the
sale of Registrable Securities to such Person if such statement
or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any Holder or any such
director, officer, underwriter or controlling person and shall
survive the transfer of such securities by such Holder.
(b) Indemnification by the Holders. The Company may
------------------------------
require, as a condition to including any Registrable Securities
in any registration statement filed pursuant to Section 2.6, that
the Company shall have received an undertaking satisfactory to it
from each participating Holder, to indemnify and hold harmless
(in the same manner and to the same extent as set forth in
subdivision (a) of this Section 2.7) the Company, each director
of the Company, each officer of the Company and each other
Person, if any, who controls the Company within the meaning of
the Securities Act, with respect to any statement or alleged
statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the
Company through an instrument duly executed by the Holder
specifically stating that it is for use in the preparation of
such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such
indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the
transfer of such securities by any Holder.
-9-
<PAGE>
(c) Notices of Claims, etc. Promptly after receipt by an
----------------------
indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding
subdivisions of this Section 2.6, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding
subdivisions of this Section 2.7, except to the extent that the
indemnifying party is actually prejudiced by such failure to give
notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs
of investigation. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any
judgment or enter into any settlement that 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) Other Indemnification. Indemnification similar to that
---------------------
specified in the preceding subdivisions of this Section 2.6 (with
appropriate modifications) shall be given by the Company and the
Holders with respect to any required registration or other
qualification of securities under any Federal or state law or
regulation of any governmental authority other than the
Securities Act.
(e) Indemnification Payments. The indemnification required
------------------------
by this Section 2.6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense,
as and when bills are received or expense, loss, damage or
liability is incurred.
2.7 Adjustments Affecting Registrable Securities. The Company
--------------------------------------------
will not effect or permit to occur any combination or subdivision of
Registrable Securities which would adversely affect the ability of the
Holders of Registrable Securities to include such Registrable
Securities in any registration of its securities contemplated by this
Section 2 or the marketability of such Registrable Securities under
any such registration.
3. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
-10-
<PAGE>
Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
Company: As defined in the introductory paragraph of this
-------
Agreement. For purposes of this Agreement, all references to the
Company shall be deemed to include any successor entity or
transferee.
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
Reference to a particular section of the Exchange Act shall
include a reference to the comparable section, if any, of any
other similar federal statute.
Fair Market Value: With respect to a calculation of the value of
-----------------
Registrable Securities, the product of the number of such
Registrable Securities and the average of the closing price of
the Common Stock on all domestic securities exchanges on which
such security may on the date of calculation be listed, or, if
there have been no sales on any such exchange on the day of
request, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on such day
such security is not so listed, the average of the representative
bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, on such day, or, if on any day such security is
not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-
counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization.
Holder: Union Oil and any Person to which Union Oil transfers
------
Registrable Securities.
Initial Registration Date: The date that is 120 days after the
-------------------------
date on which the Effective Time of the Merger (each as defined
in the Merger Agreement) occurs.
Person: A corporation, an association, a partnership, a business,
------
an individual, a governmental or political subdivision thereof or
a governmental agency.
Registrable Securities: Any of the Company's Common Stock issued
----------------------
to Union Oil pursuant to or in connection with the Merger
Agreement or the Non-Dilution Agreement, and any securities
issued to issuable with respect to any such Common Stock by way
of distribution or in connection with any reorganization,
recapitalization, merger, consolidation or otherwise. As to any
particular Registrable Securities, once issued such securities
shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have
-11-
<PAGE>
become effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public
pursuant to Rule 144 or Rule 144A (or any successor provision)
under the Securities Act, (c) with respect to any Holder, the
Registrable Securities held by such Holder represent less than 2%
of the then issued and outstanding shares of Common Stock, such
Holder is not an "affiliate" of the Company, and such shares may
be sold freely by such Holder without restriction under Rule
144(k) (or any successor provision) without restriction, or (d)
they shall have ceased to be outstanding.
Registration Expenses: All expenses incident to the Company's
---------------------
performance of or compliance with Section 2.1 or 2.2, including,
without limitation, all salaries of Company personnel or general
overhead expenses of the Company, auditing fees, premiums or
other expenses relating to liability insurance required by
underwriters of the Company, or other expenses for the
preparation of financial statements, all registration, filing and
National Association of Securities Dealers fees, all fees and
expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the
Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, the fees and
disbursements of not more than one special counsel to the holders
of such Registrable Securities not to exceed $50,000 per
registration, premiums and other costs of policies of insurance
against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers or
sellers of securities, but excluding Selling Expenses.
Securities Act: The Securities Act of 1933, or any similar
--------------
federal statute, and the rules and regulations of the Commission
thereunder, all as of the same shall be in effect from time to
time. References to a particular section of the Securities Act
shall include a reference to the comparable section, if any, of
any other similar federal statute.
Selling Expenses: underwriting discounts and commissions and
----------------
stock transfer taxes relating to securities registered by the
Holders.
Union Oil: As defined in the introductory paragraph of this
---------
Agreement.
4. Rule 144 and Rule 144A: The Company will file the reports
----------------------
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the Commission thereunder (or, if the Company
is not required to file such reports, will, upon the request of any holder of
Registrable Securities, make publicly available other information) and will take
such further action as the Holders may reasonably request, all to the extent
required from time
-12-
<PAGE>
to time to enable the Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such rule may be amended
from time to time or (b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder, the Company will deliver to such
holder a written statement as to whether it has complied with such requirements.
After any sale of Registrable Securities pursuant to this Section 4, the Company
will, to the extent allowed by law, cause any restrictive legends to be removed
and any transfer restrictions to be rescinded with respect to such Registrable
Securities. In order to permit the Holders to sell the same, if it so desires,
pursuant to Rule 144A promulgated by the Commission (or any successor to such
rule), the Company will comply with all rules and regulations of the Commission
applicable in connection with use of Rule 144A (or any successor thereto).
Prospective transferees of Registrable Securities that are Qualified
Institutional Buyers (as defined in Rule 144A) which would be purchasing such
Registrable Securities in reliance upon Rule 144A may request from the Company
information regarding the business, operations and assets of the Company. Within
five business days of any such request, the Company shall deliver to any such
prospective transferee copies of annual audited and quarterly unaudited
financial statements of the Company and such other information as may be
required to be supplied by the Company for it to comply with Rule 144A.
5. Amendments and Waivers. This Agreement may be amended and the
----------------------
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Holders of
a majority of the Registrable Securities. The Holders of any Registrable
Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 5, whether or not such Registrable Securities shall
have been marked to indicate such consent.
6. Nominees for Beneficial Holders. In the event that any
-------------------------------
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of this Agreement. If the beneficial
owner of any Registrable Securities so elects, the Company may require
assurances reasonably satisfactory to it of such owner's beneficial ownership of
such Registrable Securities.
7. Notices. All communications provided for hereunder shall be sent
-------
by first-class mail and (a) if addressed to Union Oil, at One Sugar Creek Place,
14141 Southwest Freeway, Sugar Land, Texas 77478, Attention: Mr. Phil Ballard,
(b) if addressed to any other Holder, to the address specified by such Holder
upon its receipt of Registrable Securities, or (c) if addressed to the Company,
at 500 West Texas, Suite 200, Midland, Texas 79701 or at such other address, or
to the attention of such other officer, as the Company shall have furnished to
the Holders at the time outstanding; provided, however, that any such
communication to the Company may also, at the option of any Holder, be either
delivered to the Company at its address set forth above or to any officer of the
Company.
-13-
<PAGE>
8. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement that are for the benefit
of any Holder shall also be for the benefit of and enforceable by any subsequent
holder of any Registrable Securities, subject to the provisions respecting the
minimum numbers or percentages of shares of Registrable Securities required in
order to be entitled to certain rights, or take certain actions, contained
herein.
9. Effectiveness; Termination. This Agreement shall become effective
--------------------------
only upon consummation of the transactions contemplated by the Merger Agreement,
and shall terminate if the Merger Agreement is terminated in accordance with its
terms. After this Agreement becomes effective, this Agreement shall terminate
when no Registrable Securities remain outstanding.
10. Descriptive Headings. The descriptive headings of the several
--------------------
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
11. Specific Performance. The parties hereto recognize and agree that
--------------------
money damages may be insufficient to compensate the Holders for breaches by the
Company of the terms hereof and, consequently, that the equitable remedy of
specific performance of the terms hereof will be available in the event of any
such breach.
12. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
-------------
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
13. Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
COMPANY:
TITAN RESOURCES HOLDINGS, INC.
By: /s/ Phillip Ballard
-------------------------------
Phillip Ballard
Vice President
UNION OIL COMPANY OF CALIFORNIA
By: /s/ Timothy H. Ling
-------------------------------
Timothy H. Ling
Executive Vice President, North
American Energy Operations and
Chief Financial Officer
-15-
<PAGE>
Exhibit 10.3
1999 INCENTIVE PLAN
of
PURE RESOURCES, INC.
1. Plan. This 1999 Incentive Plan of Pure Resources, Inc. (the
"Plan") was adopted by the Board of Directors of Pure Resources, Inc. (formerly
Titan Resources Holdings, Inc.), a Delaware corporation (the "Company"), to
reward certain officers and other key employees of the Company and its
subsidiaries by enabling them to acquire shares of Common Stock, par value $.01
per share, of the Company and/or to be compensated for individual performance.
2. Objectives. The Plan is designed to attract and retain officers
and other key employees of the Company and its Subsidiaries (as hereinafter
defined), to encourage a sense of proprietorship of such persons and to
stimulate the active interest of such persons in the development and financial
success of the Company and its Subsidiaries. These objectives are to be
accomplished by making Awards (as hereinafter defined) under the Plan, thereby
providing Participants (as hereinafter defined) with a proprietary interest in
the growth and performance of the Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall
have the following respective meanings:
(a) "Authorized Officer" means the Chairman of the Board or
the Chief Executive Officer of the Company (or any other senior officer of
the Company to whom either of them shall delegate the authority to execute
any Award Agreement).
(b) "Award" means the grant of any Option, SAR, Stock Award,
Cash Award or Performance Award, whether granted singly, in combination or
in tandem, to a Participant pursuant to such applicable terms, conditions
and limitations as the Committee may establish in order to fulfill the
objectives of the Plan.
(c) "Award Agreement" means a written agreement between the
Company and a Participant setting forth the terms, conditions and
limitations applicable to an Award.
(d) "Board" means the Board of Directors of the Company.
(e) "Cash Award" means an award denominated in cash.
(g) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(h) "Committee" means the committee designated by the Board
pursuant to Paragraph 6(a) to administer the Plan.
<PAGE>
(i) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
(j) "Common Stock Equivalents" means (without duplication
with any other Common Stock or Common Stock Equivalents) rights, warrants,
options, convertible securities, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into,
directly or indirectly, Common Stock or securities convertible or
exchangeable into Common Stock, whether at the time the number of shares of
Common Stock Equivalents are determined or within sixty days of that date
and that are traded or are of the same class as securities that are traded
on a national securities exchange or quoted on the NASDAQ National Market
System, NASDAQ, or National Quotation Bureau Incorporated. The number of
shares of Common Stock Equivalents outstanding shall equal the number of
shares of Common Stock plus the number of shares of Common Stock issuable
upon exercise, conversion or exchange of all other Common Stock
Equivalents.
(k) "Company" means Pure Resources, Inc. (formerly Titan
Resources Holdings, Inc.), a Delaware corporation.
(l) "Dividend Equivalents" means, with respect to shares of
Restricted Stock that are to be issued at the end of the Restriction
Period, an amount equal to all dividends and other distributions (or the
economic equivalent thereof) that are payable to stockholders of record
during the Restriction Period on a like number of shares of Common Stock.
(m) "Effective Date" has the meaning set forth in Paragraph
24 hereof.
(n) "Employee" means an employee of the Company or any of its
Subsidiaries, and may include an individual who is expected to become an
employee of the Company or one of its Subsidiaries; provided, however, that
an Award made under the Plan to an individual who is expected to become an
employee shall be forfeited in the event that the individual does not
become an employee of the Company or one of its Subsidiaries within the
six-month period following the date on which the Award is granted.
(o) "Exchange Act" means the Securities Exchange Act of 1934.
(p) "Fair Market Value" of a share of Common Stock means, as
of a particular date, (i) if shares of Common Stock are listed on a
national securities exchange, the closing sales price per share of Common
Stock on the consolidated transaction reporting system for the principal
national securities exchange on which shares of Common Stock are listed on
that date, or, if there shall have been no such sale so reported on that
date, on the last preceding date on which such a sale was so reported, (ii)
if shares of Common Stock are not so listed but are quoted on the NASDAQ
National Market System, the closing sales price per share of Common Stock
reported by the NASDAQ National Market System on that date, or, if there
shall have been no such sale so reported on that date, on the last
preceding date
-2-
<PAGE>
on which such a sale was so reported, (iii) if the Common Stock is not so
listed or quoted, the average of the closing bid and asked price on that
date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported by
the NASDAQ National Market System, or, if not reported by the NASDAQ
National Market System, by the National Quotation Bureau Incorporated or
(iv) if shares of Common Stock are not publicly traded, the most recent
value determined by an independent appraiser appointed by the Company for
such purpose.
(q) "Fundamental Change" has the meaning set forth in
Paragraph 13.
(r) "NASDAQ" means the National Association of Securities
Dealers, Inc. Automated Quotations, Inc.
(s) "Option" means a right to purchase a specified number of
shares of Common Stock at a specified price. All Options granted pursuant
to the Plan shall be nonqualified stock options that are not intended to
comply with the requirements set forth in Section 422 of the Code.
(t) "Participant" means an Employee to whom an Award has been
made under the Plan.
(u) "Performance Award" means an Award representing a
contingent right to receive a specified amount of cash or shares of Common
Stock upon the attainment of one or more Performance Goals.
(v) "Performance Goal" means a standard established by the
Committee to determine in whole or in part whether a Performance Award
shall be earned.
(w) "Restricted Stock" means Common Stock that is
nontransferable or subject to a substantial risk of forfeiture until
specific conditions are satisfied.
(x) "Restriction Period" means a period of time beginning as
of the date upon which Restricted Stock is transferred to a Participant
pursuant to the Plan and ending as of the date upon which the Common Stock
subject to such Award is no longer nontransferable or subject to a
substantial risk of forfeiture.
(y) "SAR" means a right to receive a payment, in cash or
Common Stock, equal to the excess of the Fair Market Value or other
specified valuation of a specified number of shares of Common Stock on the
date the right is exercised over a specified strike price, in each case, as
determined by the Committee.
(z) "Stock Award" means an Award in the form of shares of
Common Stock or units denominated in shares of Common Stock.
-3-
<PAGE>
(aa) "Subsidiary" means (i) in the case of a corporation, any
corporation in which the Company directly or indirectly owns shares
representing more than 50% of the combined voting power of the shares of
all classes or series of capital stock of such corporation which have the
right to vote generally on matters submitted to a vote of the stockholders
of such corporation and (ii) in the case of a partnership or other business
entity not organized as a corporation, any such business entity of which
the Company directly or indirectly owns more than 50% of the voting,
capital or profits interests (whether in the form of partnership interests,
membership interests or otherwise).
4. Eligibility. Employees who hold positions of responsibility and
whose performance, in the judgment of the Committee, can have a significant
effect on the success of the Company and its Subsidiaries are eligible to
receive Awards under the Plan.
5. Common Stock Available for Awards.
(a) Maximum Number of Shares. Subject to the provisions of
Paragraph 14 hereof, there shall be available for Awards under the Plan
granted wholly or partly in Common Stock (including rights or options that
may be exercised for or settled in Common Stock) an aggregate number of
shares of Common Stock equal to (a) twelve percent of the total number of
shares of Common Stock Equivalents outstanding from time to time minus (b)
the total number of shares of Common Stock subject to outstanding awards
on the date of calculation under any other stock-based plan for employees
of the Company and its Subsidiaries.
(b) Determination of Available Shares. The Committee may from
time to time adopt and observe such procedures concerning the counting of
shares against the Plan maximum as it may deem appropriate.
(c) Restoration of Unused and Surrendered Shares. The number
of shares of Common Stock that are subject to Awards under the Plan, that
are forfeited or terminated, expire unexercised, are settled in cash in
lieu of Common Stock or in a manner such that all or some of the shares
covered by an Award are not issued to a Participant or are exchanged for
Awards that do not involve Common Stock, shall again immediately become
available for Awards hereunder.
(d) Description of Shares. The shares to be delivered under
the Plan shall be made available from (a) authorized but unissued shares of
Common Stock, (b) Common Stock held in the treasury of the Company, or (c)
previously issued shares of Common Stock reacquired by the Company,
including shares purchased on the open market, in each situation as the
Board or the Committee may determine from time to time at its sole option.
(e) Registration and Listing of Shares. The Board and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction
-4-
<PAGE>
reporting systems to ensure that shares of Common Stock are available for
issuance pursuant to Awards.
6. Administration.
(a) Committee. The Plan shall be administered by the
Compensation Committee or such other committee of the Board designated by
the Board to administer the Plan; provided, however, that the Committee
shall be constituted in a manner that satisfies the requirements of Rule
16b-3 under Section 16(b) of the Exchange Act, which Committee shall
administer the Plan with respect to all Employees who are subject to
Section 16 of the Exchange Act in a manner that satisfies the requirements
of Rule 16b-3 under Section 16(b) of the Exchange Act. The number of
persons that shall constitute the Committee shall be determined from time
to time by a majority of all the members of the Board. The members of the
Committee shall serve at the pleasure of the Board, which shall have the
power, at any time and from time to time, to remove members from or add
members to the Committee. Removal from the Committee may be with or without
cause. Any individual serving as a member of the Committee shall have the
right to resign from membership in the Committee by written notice to the
Board. The Board, and not the remaining members of the Committee, shall
have the power and authority to fill vacancies on the Committee, however
caused.
(b) Meetings and Actions of Committee. The Board shall
designate which of the Committee members shall be the chairman of the
Committee. If the Board fails to designate a Committee chairman, the
members of the Committee shall elect one of the Committee members as
chairman, who shall act as chairman until he ceases to be a member of the
Committee or until the Board or the Committee elects a new chairman. The
Committee shall hold its meetings at those times and places as the chairman
of the Committee may determine. At all meetings of the Committee, a quorum
for the transaction of business shall be required, and a quorum shall be
deemed present if at least a majority of the members of the Committee are
present. At any meeting of the Committee, each member shall have one vote.
All decisions and determinations of the Committee shall be made by the
majority vote or majority decision of all of its members present at a
meeting at which a quorum is present; provided, however, that any decision
or determination reduced to writing and signed by all of the members of the
Committee shall be as fully effective as if it had been made at a meeting
that was duly called and held. The Committee may make any rules and
regulations as it may deem advisable for the conduct of its business that
are not inconsistent with the provisions of the Plan, the Certificate of
Incorporation, the by-laws of the Company, Rule 16b-3 under Section 16 of
the Exchange Act so long as it is applicable.
(c) Powers of Committee. Subject to the provisions hereof,
the Committee shall have full and exclusive power and authority to
administer the Plan and to take all actions that are specifically
contemplated hereby or are necessary or appropriate in connection with the
administration hereof. The Committee shall also have full and exclusive
power to interpret the Plan and to adopt such rules, regulations and
guidelines for carrying
-5-
<PAGE>
out the Plan as it may deem necessary or proper, all of which powers shall
be exercised in the best interests of the Company and in keeping with the
objectives of the Plan. The Committee may, in its discretion, provide for
the extension of the exercisability of an Award, accelerate the vesting or
exercisability of an Award, eliminate or make less restrictive any
restrictions contained in an Award, waive any restrictions or other
provision of the Plan or an Award or otherwise amend or modify an Award in
any manner that is either (i) not adverse to the Participant to whom such
Award was granted or (ii) consented to by such Participant. The Committee
may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Award in the manner and to the extent
the Committee deems necessary or desirable to further the Plan purposes.
Any decision of the Committee in the interpretation and administration of
the Plan shall lie within its sole and absolute discretion and shall be
final, conclusive and binding on all parties concerned.
(d) Delegation of Authority. The Committee may delegate to the
Chief Executive Officer and to other senior officers of the Company its
duties under the Plan pursuant to such conditions or limitations as the
Committee may establish.
(e) Liability. No member of the Committee or officer of the Company
to whom the Committee has delegated authority in accordance with the
provisions of Subparagraph (d) above shall be liable for anything done by
him or her, by any member of the Committee or by any officer of the Company
in connection with the performance of any duties under the Plan, except for
his or her own willful fraud or as expressly provided by statute.
7. Awards. The Committee shall determine the type or types of
Awards to be made under the Plan and shall designate from time to time the
Employees who are to be the recipients of such Awards. Each Award may be
embodied in an Award Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole discretion and
shall be signed by the Participant to whom the Award is made and by an
Authorized Officer for and on behalf of the Company. Awards may consist of
those listed in this Paragraph 7 and may be granted singly, in combination or in
tandem. Awards may also be made in combination or in tandem with, in
replacement of, or as alternatives to, grants or rights under the Plan or any
other employee plan of the Company or any of its Subsidiaries, including the
plan of any acquired entity. The terms and provisions of the respective Award
Agreements need not be identical. An Award may provide for the grant or
issuance of additional, replacement or alternative Awards upon the occurrence of
specified events, including the exercise of the original Award granted to a
Participant. All or part of an Award may be subject to conditions established by
the Committee, which may include, but are not limited to, continuous service
with the Company and its Subsidiaries, achievement of specific business
objectives, increases in specified indices, attainment of specified growth rates
and other comparable measurements of performance. Unless otherwise specified in
the Plan, upon the termination of employment of a Participant, any unexercised,
deferred, unvested or unpaid Awards shall be treated as set forth in the
applicable Award Agreement.
(a) Options.
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(i) An Award may be in the form of an Option. The price at
which shares of Common Stock may be purchased upon the exercise of an
Option shall be not less than the greater of (i) 25 percent of the
Fair Market Value of the Common Stock on the date of grant or (ii)
its par value.
(ii) The term of each Option shall be as specified by the
Committee; provided, however, that unless otherwise designated by the
Committee, no Option shall be exercisable later than 10 years from
the effective date of the Option's grant.
(iii) Each Award Agreement embodying an Option shall set forth
the extent to which the Participant shall have the right to exercise
the Option following the Participant's termination of employment with
the Company or a Subsidiary. Such provisions shall be determined in
the sole discretion of the Committee, need not be uniform among all
Options granted under the Plan and may reflect distinctions based on
the reasons for termination of employment. In the event that a
Participant's Award Agreement embodying an Option does not set forth
such termination provisions, the following termination provisions
shall apply with respect to such Option:
(A) Death or Disability. If the employment of a
Participant shall terminate by reason of death or permanent and
total disability (within the meaning of Section 22(e)(3) of the
Code), outstanding Options held by the Participant may be
exercised, to the extent then vested, no more than one year
from the date of such termination of employment, unless the
Options, by their terms, expire earlier.
(B) Other Termination. If the employment or service of
a Participant shall terminate for a reason other than the
reasons set forth in subparagraph (A) above, whether on a
voluntary or involuntary basis, outstanding Options held by the
Participant may be exercised, to the extent then vested, no
more than three months from the date of such termination of
employment, unless the Options, by their terms, expire earlier.
(C) Termination for Cause. Notwithstanding
subparagraphs (A) and (B) above, if the employment of a
Participant shall be terminated by reason of such Participant's
fraud against the Company or a Subsidiary or conviction of a
felony, all outstanding Options held by the Participant shall
immediately be forfeited to the Company and no additional
exercise period shall be allowed, regardless of the vested
status of the Options.
Subject to the foregoing provisions, the terms, conditions and limitations
applicable to any Options awarded pursuant to the Plan, including the term
of any Options and the date or dates upon which they become exercisable,
shall be determined by the Committee.
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(b) Stock Appreciation Right. An Award may be in the form of an
SAR. The terms, conditions and limitations applicable to any SARs awarded
pursuant to the Plan, including the term of any SARs and the date or dates
upon which they become exercisable, shall be determined by the Committee.
(c) Stock Award. An Award may be in the form of a Stock Award. The
terms, conditions and limitations applicable to any Stock Awards granted
pursuant to the Plan shall be determined by the Committee.
(d) Cash Award. An Award may be in the form of a Cash Award. The
terms, conditions and limitations applicable to any Cash Awards granted
pursuant to the Plan shall be determined by the Committee.
(e) Performance Award. Without limiting the type or number of
Awards that may be made under the other provisions of the Plan, an Award
may be in the form of a Performance Award. A Performance Award shall be
paid, vested or otherwise deliverable solely on account of the attainment
of one or more pre-established, objective Performance Goals established by
the Committee.
8. Payment of Awards.
(a) General. Payment of Awards may be made in the form of cash or
Common Stock, or a combination thereof, and may include such restrictions
as the Committee shall determine, including, in the case of Common Stock,
restrictions on transfer and forfeiture provisions. If payment of an Award
is made in the form of Restricted Stock, the Award Agreement relating to
such shares shall specify whether they are to be issued at the beginning or
end of the Restriction Period. In the event that shares of Restricted
Stock are to be issued at the beginning of the Restriction Period, the
certificates evidencing such shares (to the extent that such shares are so
evidenced) shall contain appropriate legends and restrictions that describe
the terms and conditions of the restrictions applicable thereto. In the
event that shares of Restricted Stock are to be issued at the end of the
Restriction Period, the right to receive such shares shall be evidenced by
book entry registration or in such other manner as the Committee may
determine.
(b) Deferral. With the approval of the Committee, payments in
respect of Awards may be deferred, either in the form of installments or a
future lump-sum payment. The Committee may permit selected Participants to
elect to defer payments of some or all types of Awards in accordance with
procedures established by the Committee. Any deferred payment of an Award,
whether elected by the Participant or specified by the Award Agreement or
by the Committee, may be forfeited if and to the extent that the Award
Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend
Equivalents may be extended to and made part of any Award consisting of
shares of Common Stock or units
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denominated in shares of Common Stock, subject to such terms, conditions
and restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred
cash payments and Dividend Equivalents for Awards consisting of shares of
Common Stock or units denominated in shares of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another
Award or Awards of the same or different type.
9. Stock Option Exercise.
(a) Subject to the terms and conditions of the Plan, Options shall
be exercised by the delivery of a written notice of exercise to the
Company, setting forth the number of shares of Common Stock with respect to
which the Option is to be exercised, accompanied by full payment for such
shares.
(b) The price at which shares of Common Stock may be purchased
under an Option shall be paid in full at the time of exercise (i) in cash
or (ii) if elected by the Participant, the Participant may purchase such
shares by means of tendering Common Stock or surrendering another Award,
including Restricted Stock, valued at Fair Market Value on the date of
exercise, or any combination thereof. The Committee shall determine
acceptable methods for Participants to tender Common Stock or other Awards.
The Committee may provide for procedures to permit the exercise or purchase
of such Awards by use of the proceeds to be received from the sale of
Common Stock issuable pursuant to an Award. Unless otherwise provided in
the applicable Award Agreement, in the event shares of Restricted Stock are
tendered as consideration for the exercise of an Option, a number of the
shares issued upon the exercise of the Option, equal to the number of
shares of Restricted Stock used as consideration therefor, shall be subject
to the same restrictions as the Restricted Stock so submitted as well as
any additional restrictions that may be imposed by the Committee.
(c) Payment of the exercise price of an Option may also be made, in
the discretion of the Committee, by delivery to the Company or its
designated agent of an executed irrevocable option exercise form together
with irrevocable instructions to a broker-dealer to sell or margin a
sufficient portion of the shares with respect to which the Option is
exercised and deliver the sale or margin loan proceeds directly to the
Company to pay the exercise price and any required withholding taxes.
(d) The Committee, in its sole and absolute discretion, may approve
the extension of a loan to a Participant by the Company to assist the
Participant in paying the exercise price of an Option and/or any tax
required by law to be withheld upon exercise of an Option; provided,
however, that a Participant shall be required to pay in cash the par value
of Common Stock received upon exercise of an Option. Any such loan shall
be made upon
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such terms and conditions (including interest rate, security and terms of
repayment) as may be determined by the Committee in its discretion and
applicable law.
(e) As soon as reasonably practicable after receipt of written
notification of exercise of an Option and full payment of the exercise
price and any required withholding taxes, the Company shall deliver to the
Participant, in the Participant's name, a stock certificate or certificates
in an appropriate amount based upon the number of shares of Common Stock
purchased under the Option.
10. Tax Withholding. The Company shall have the right to deduct
applicable taxes from any Award payment and withhold, at the time of delivery or
vesting of cash or shares of Common Stock under the Plan, an appropriate amount
of cash or number of shares of Common Stock or a combination thereof for payment
of taxes required by law or to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for withholding of such taxes.
The Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the Award
with respect to which withholding is required. If shares of Common Stock are
used to satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made. The Committee may
provide for loans, on either a short-term or demand basis, from the Company to a
Participant to permit the payment of taxes required by law.
11. Amendment, Modification, Suspension or Termination. The Board
may amend, modify, suspend or terminate the Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that no amendment or alteration that would adversely affect the
rights of any Participant under any Award previously granted to such Participant
shall be made without the consent of such Participant.
12. Assignability. Except as otherwise provided in a Participant's
Award Agreement, no Award granted under the Plan may be sold, transferred,
pledged, exchanged, hypothecated or otherwise disposed of, other than by will or
pursuant to the applicable laws of descent and distribution. Further, no Award
shall be subject to execution, attachment or similar process. Any attempted
sale, transfer, pledge, exchange, hypothecation or other disposition of an Award
not specifically permitted by the Plan or the Award Agreement shall be null and
void and without effect. Except as otherwise provided in an Award Agreement,
Awards granted to a Participant under the Plan shall be exercisable during his
or her lifetime only by such Participant or, in the event of the Participant's
legal incapacity, by his or her guardian or legal representative.
13. Fundamental Change. Except as otherwise provided in an Award
Agreement, if (i) the Company enters into any merger, consolidation or
recapitalization pursuant to which the persons serving as directors of the
Company immediately before such transaction cease to constitute at least 40% of
the members of the board of directors of the surviving entity (whether the
Company or another entity) following consummation of such transaction, (ii) the
Company sells, leases or exchanges or agrees to sell, lease or exchange all or
substantially all of its assets to any other person or entity, or (iii) the
Company is to be dissolved and liquidated (each such event is referred to herein
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as a "Fundamental Change"), then immediately before the consummation of the
Fundamental Change --
(a) any portion of an Option which has not then vested shall become
vested and the Company, at its discretion, shall either (i) provide to the
Participant at least 30 days' notice of such pending Fundamental Change so
as to permit the Participant to exercise the Option before consummation of
such Fundamental Change, in which case the Company need not make provision
for an Award to survive the consummation of such Fundamental Change, or
(ii) make or cause to be made lawful and adequate provision whereby, upon
the due exercise of the Option after the effective date of such Fundamental
Change, the Participant shall be entitled to purchase upon exercise of the
Option, the number and class of shares or other securities or property to
which the Participant would have been entitled pursuant to the terms of the
Fundamental Change if, immediately before consummation of such Fundamental
Change, the Participant had been the holder of record of the number of
shares of Common Stock which could be purchased upon exercise of the Option
immediately before such Fundamental Change;
(b) the restriction period of any Restricted Stock shall
immediately be accelerated and the restrictions shall expire; and
(c) the target payout opportunity attainable under any Performance
Awards will be deemed to have been fully earned for all performance periods
upon the occurrence of the Fundamental Change and the Participant will be
paid a pro rata portion of all associated targeted payout opportunities
(based on the number of complete and partial calendar months elapsed as of
the occurrence of the Fundamental Change) in cash within ten days following
the Fundamental Change or in Common Stock effective as of the date of the
Fundamental Change, for cash and stock-based Performance Awards,
respectively.
This Paragraph shall not impose on a Participant the obligation to exercise any
Award immediately before or upon the Fundamental Change, and, except as provided
in subparagraph (a)(i) above, a Participant shall not forfeit the right to
exercise an Award during the remainder of the original term of the Award because
of a Fundamental Change. Notwithstanding any provision of this Plan to the
contrary, a "Fundamental Change" shall not include the merger of TRH, Inc. with
into Titan Exploration, Inc. pursuant to the terms of the Agreement and Plan of
Merger dated as of December 13, 1999, by and among Union Oil Company of
California, the Company, TRH, Inc., and Titan Exploration, Inc.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any
manner the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock (whether or not such issue is prior to,
on a parity with or
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<PAGE>
junior to the Common Stock) or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding of any kind, whether or
not of a character similar to that of the acts or proceedings enumerated
above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split, then (i) the number of shares of Common
Stock reserved under the Plan, (ii) the number of shares of Common Stock
covered by outstanding Awards in the form of Common Stock or units
denominated in Common Stock, (iii) the exercise or other price in respect
of such Awards and (iv) the appropriate Fair Market Value and other price
determinations for such Awards shall each be proportionately adjusted by
the Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or entity,
the adoption by the Company of any plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or
property (other than normal cash dividends or dividends payable in Common
Stock), the Board shall make appropriate adjustments to (i) the number of
shares of Common Stock covered by Awards in the form of Common Stock or
units denominated in Common Stock, (ii) the exercise or other price in
respect of such Awards and (iii) the appropriate Fair Market Value and
other price determinations for such Awards to give effect to such
transaction shall each be proportionately adjusted by the Board to reflect
such transaction; provided that such adjustments shall only be such as are
necessary to maintain the proportionate interest of the holders of the
Awards and preserve, without exceeding, the value of such Awards. In the
event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Board shall be
authorized to issue or assume Awards by means of substitution of new
Awards, as appropriate, for previously issued Awards or to assume
previously issued Awards as part of such adjustment.
15. Restrictions. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. Certificates evidencing shares of
Common Stock delivered under the Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.
16. Unfunded Plan. Insofar as it provides for Awards of cash,
Common Stock or rights thereto, the Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under the Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be
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required to segregate any assets that may at any time be represented by cash,
Common Stock or rights thereto, nor shall the Plan be construed as providing for
such segregation, nor shall the Company, the Board or the Committee be deemed to
be a trustee of any cash, Common Stock or rights thereto to be granted under the
Plan. Any liability or obligation of the Company to any Participant with respect
to an Award of cash, Common Stock or rights thereto under the Plan shall be
based solely upon any contractual obligations that may be created by the Plan
and any Award Agreement, and no such liability or obligation of the Company
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company nor the Board nor the Committee shall be
required to give any security or bond for the performance of any obligation that
may be created by the Plan.
17. No Fractional Shares. No fractional shares of Common Stock
shall be issued pursuant to any Award granted under the Plan, and no payment or
other adjustment shall be made in respect of any such fractional share.
18. Binding Effect. The obligation of the Company under the Plan
shall be binding upon any successor corporation or organization resulting from
the merger, consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to all or substantially all of
the assets and business of the Company. The terms and conditions of the Plan
shall be binding upon each Participant and his or her heirs, legatees,
distributees and legal representatives.
19. Risk of Participation. Nothing contained in the Plan shall be
construed either as a guarantee by the Company or its Subsidiaries, or their
respective stockholders, directors, officers or employees, or the value of any
assets of the Plan or as an agreement by the Company or its Subsidiaries, or
their respective stockholders, directors, officers or employees, to indemnify
anyone for any losses, damages, costs or expenses resulting from participation
in the Plan.
20. No Guarantee of Tax Consequences. No person connected with the
Plan in any capacity, including, but not limited to, the Company and its
Subsidiaries and their respective directors, officers, agents and employees,
makes any representation, commitment or guarantee that any tax treatment,
including, but not limited to, federal, state and local income, estate and gift
tax treatment, will be applicable with respect to any Awards or payments
thereunder made to or for the benefit of a Participant under the Plan or that
such tax treatment will apply to or be available to a Participant on account of
participation in the Plan.
21. Continued Employment. Nothing contained in the Plan or in any
Award Agreement shall confer upon any Participant the right to continue in the
employ of the Company, or interfere in any way with the rights of the Company to
terminate his or her employment at any time, with or without cause.
22. Miscellaneous. Headings are given to the articles and sections
of the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction of the Plan or
any provisions hereof. The use of the
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masculine gender shall also include within its meaning the feminine. Wherever
the context of the Plan dictates, the use of the singular shall also include
within its meaning the plural, and vice versa.
23. Governing Law. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
24. Effectiveness. The Plan shall be effective as of December 13,
1999, the date of its adoption by the Board, provided (i) it is duly approved by
the holders of at least a majority of the shares of Common Stock in accordance
with applicable law within twelve months after the date of adoption of the Plan
by the Board and (ii) the transactions contemplated by the Agreement and Plan of
Merger dated as of December 13, 1999, by and among Union Oil Company of
California, the Company, TRH, Inc., and Titan Exploration, Inc. are consummated.
If the Plan is not so approved or such transactions are not so consummated, the
Plan shall terminate and any Awards granted hereunder shall be null and void.
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IN WITNESS WHEREOF, this Plan has been executed to be effective as of the
13th day of December, 1999.
PURE RESOURCES, INC.
By: /s/ Barry Hoffman
---------------------------
Name: Barry A. L. Hoffman
Title: Vice President
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EXHIBIT 10.4
VOTING AGREEMENT
VOTING AGREEMENT ("Agreement") dated as of December 13, 1999 between
Union Oil Company of California, a California corporation ("Union Oil"), and
Jack D. Hightower (the "Stockholder").
W I T N E S S E T H:
WHEREAS, as of the date hereof, the Stockholder beneficially owns an
aggregate of 4,389,690 shares of Common Stock, par value $.01 per share ("Titan
Common Stock"), of Titan Exploration, Inc., a Delaware corporation ( "Titan")
(such shares of Titan Common Stock and any shares of Titan Common Stock acquired
by the Stockholder after the date hereof, the "Shares");
WHEREAS, Union Oil is prepared to enter into an Agreement and Plan of
Merger among Titan Resources Holdings, Inc., a Delaware corporation and wholly
owned subsidiary of Union Oil ("Resources"), TRH, Inc., a Delaware corporation
and wholly owned subsidiary of Resources ("Sub"), and Titan (as amended from
time to time, the "Merger Agreement") providing for the merger of Titan with Sub
(the "Merger"), as a result of which Titan will become a wholly owned subsidiary
of Resources;
WHEREAS, in order to encourage Union Oil, Resources and Sub to enter
into the Merger Agreement with Titan, the Stockholder is willing to enter into
certain arrangements with respect to the Shares;
NOW, THEREFORE, in consideration of the premises set forth above, the
mutual promises set forth below, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Stockholder's Support of the Merger. From the date hereof until the
earliest to occur of (i) the termination of the Merger Agreement, and (ii) the
consummation of the Merger:
(a) The Stockholder agrees that it will maintain beneficial
ownership of the Shares and will not, directly or indirectly, (i) sell,
transfer, pledge or otherwise dispose of any Shares to any person other
than Union Oil or its designee unless such person shall have agreed in
writing to be bound by the terms of this Agreement, or (ii) grant a proxy
with respect to any Shares to any person other than Union Oil or its
designee, or grant an option
<PAGE>
with respect to any of the foregoing, or enter into any other agreement or
arrangement with respect to any of the foregoing.
(b) The Stockholder will not initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any
other action to facilitate, any inquiries or the making of any proposal
relating to, or that may reasonably be expected to lead to, any merger,
consolidation, share exchange, business combination or similar transaction
involving Titan or any of its subsidiaries or the acquisition in any
manner, directly or indirectly, of a material equity interest in any voting
securities of, or a substantial portion of the assets of, Titan or any of
its Subsidiaries, other than the transactions contemplated by this
Agreement or the Merger Agreement (a "Competing Transaction"), or enter
into discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain a Competing Transaction, or agree to, or
endorse, any Competing Transaction, or authorize or permit any investment
banker, financial advisor, attorney, accountant or other representative
retained by the Stockholder to take any such action. The Stockholder shall
promptly notify Union Oil of all relevant terms of any such inquiries or
proposals received by the Stockholder or by any such investment banker,
financial advisor, attorney, accountant or other representative relating to
any of such matters and if such inquiry or proposal is in writing, the
Stockholder shall deliver or cause to be delivered to Union Oil a copy of
such inquiry or proposal.
(c) The Stockholder agrees that it will vote all Shares (i) in favor
of approval of the Merger Agreement and any other matters that are
conditions to consummation of the Merger and (ii) subject to the provisions
of paragraph (d) below, against any combination proposal or other matter
that may interfere or be inconsistent with the Merger (including without
limitation a Competing Transaction).
(d) The Stockholder agrees that, if requested by Union Oil, the
Stockholder will not attend and the Stockholder will not vote the Shares at
any annual or special meeting of stockholders at which a Competing
Transaction is being considered, or execute any written consent of
stockholders relating directly or indirectly to a Competing Transaction,
during such period.
(e) The Stockholder acknowledges that the terms of this Agreement
will be required to be described, and this Agreement will be required to be
filed, in certain securities law filings relating to the Merger.
(f) To the extent inconsistent with the provisions of this Section 1,
the Stockholder hereby revokes any and all proxies with respect to the
Shares or any other voting securities of Titan held by the Stockholder.
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Notwithstanding anything to the contrary set forth herein, this Agreement
shall not restrict the Stockholder from acting in accordance with his fiduciary
duties as an officer or director of Titan.
In addition, this Agreement shall not be effective with respect to such
number of Shares, if any, as shall be necessary so that none of the entry into
this Agreement or the existence of this Agreement or the rights of Union Oil
hereunder would cause Union Oil or any of its Affiliates to be deemed to be an
"Acquiring Person" within the meaning of the Rights Agreement dated as of June
10, 1999 between Titan and First Union National Bank, as such Rights Agreement
shall be amended from time to time.
2. Miscellaneous
(a) The Stockholder, on the one hand, and Union Oil, on the other,
acknowledge and agree that irreparable damage would occur if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any
state thereof having jurisdiction, in addition to any other stockholder to
which they may be entitled at law or equity.
(b) Descriptive headings are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement.
(c) All notices, consents, requests, instructions, approvals and
other communications provided for herein shall be validly given, made or
served, if in writing and delivered personally, by telecopy or sent by
registered mail, postage prepaid:
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If to Union Oil:
Union Oil Company of California
One Sugar Creek Place
14141 Southwest Freeway
Sugar Land, Texas 77478
Attention: Mr. Phil Ballard
Facsimile No.: (281) 287-5170
with a copy to:
Union Oil Company of California
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
Attention: (1) General Counsel, and
(2) Vice President, Corporate Development
Fax No: (310) 726-7819
If to the Stockholder:
Titan Resources Holdings, Inc.
500 West Texas
Suite 200
Midland, Texas 79701
Attention: Jack D. Hightower
Fax: (915) 687-3863
or to such other address or telecopy number as any party may, from time to
time, designate in a written notice given in a like manner. Notice given by
telecopy shall be deemed delivered on the day the sender receives telecopy
confirmation that such notice was received at the telecopy number of the
addressee. Notice given by mail as set out above shall be deemed delivered
three days after the date the same is postmarked.
(d) From and after the termination of this Agreement, the covenants
of the parties set forth herein shall be of no further force or effect and
the parties shall be under no further obligation with respect thereto.
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(e) Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(i) Merger. "Merger" shall mean the transaction referred to in
the second whereas clause of this Agreement, or any amendment to or
modification that does not adversely affect the economic value of the
Merger to the Stockholder pursuant to the transaction set forth in the
Merger Agreement.
(ii) Person. A "person" shall mean any individual, firm,
corporation, partnership, trust, limited liability company or other
entity.
(f) Due Authorization; No Conflicts. The Stockholder hereby
represents and warrants to Union Oil as follows: the Stockholder has full
power and authority to enter into this Agreement. Neither the execution or
delivery of this Agreement nor the consummation of the transactions
contemplated herein will (a) conflict with or result in a breach, default
or violation of any agreement, proxy, document, instrument, judgment,
decree, order, governmental permit, certificate, license, law, statute,
rule or regulation to which the Stockholder is a party or to which it is
subject, (b) result in the creation of any lien, charge or other
encumbrance on any Shares or (c) require the Stockholder to obtain the
consent of any private non-governmental third party. No consent, action,
approval or authorization of, or registration, declaration or filing with,
any governmental department, commission, agency or other instrumentality or
any other person or entity is required to authorize, or is otherwise
required in connection with, the execution and delivery of this Agreement
or the Stockholder's performance of the terms of this Agreement or the
validity or enforceability of this Agreement.
(g) Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs,
personal representatives, successors and assigns, but, except as
contemplated pursuant to paragraph 1(a), shall not be assignable by any
party hereto without the prior written consent of the other parties hereto.
(h) Waiver. No party may waive any of the terms or conditions of this
Agreement except by a duly signed writing referring to the specific
provision to be waived.
(i) Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
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<PAGE>
(j) Entire Agreement. This Agreement constitutes the entire
agreement, and supersedes all other and prior agreements and
understandings, both written and oral, among the parties hereto.
(k) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the Stockholder and Union Oil have each caused this
Agreement to be duly executed as of the day and year first above written.
UNION OIL COMPANY OF CALIFORNIA
By: /s/ Timothy H. Ling
-----------------------------
Timothy H. Ling
Executive Vice President, North
American Energy Operations and Chief
Financial Officer
JACK D. HIGHTOWER
/s/ Jack D. Hightower
--------------------------------
Jack D. Hightower
President and Chief Executive Officer
7
<PAGE>
Exhibit 10.8
Titan Resources I, Inc.
[Address]
[Date]
[Executive Officer of Titan]
Dear ________:
You ("Officer") and Titan Resources I, Inc. ("Resources") are parties to
that certain Officer Severance and Retention Bonus Agreement (the "Severance
Agreement") dated June 10, 1999, which provides you with certain compensation
and benefit arrangements upon a "Change of Control" (as defined in the Severance
Agreement) of Resources' parent, Titan Exploration, Inc. ("Titan").
As you know, Titan has signed an Agreement and Plan of Merger (the "Merger
Agreement") dated December 13, 1999 with Union Oil Company of California, Titan
Resources Holdings, Inc. (the "Company") and TRH, Inc., pursuant to which Titan
will become a wholly-owned subsidiary of the Company. The transactions
contemplated in the Merger Agreement (the "Merger") will constitute a "Change of
Control" under the Severance Agreement. You are willing to enter into this
letter agreement in order to resolve any uncertainties and ensure that you
receive the Severance Payment (as defined below) at the closing of the Merger.
In consideration the promises, covenants and obligations contained herein,
notwithstanding anything to the contrary in the Severance Agreement, Officer and
Resources agree as follows:
1. Severance Payment and Release. On the closing date of the Merger, if
it occurs:
(a) Officer shall execute and deliver to Resources the General Release
("General Release") attached hereto as Exhibit A; and
(b) Resources shall pay to Officer $___________ (the "Severance Payment"),
which shall constitute the "Payment" as that term is used in the General
Release. Notwithstanding the foregoing, in the event Officer has any
outstanding indebtedness (the "Indebtedness") to Resources or Titan on the
closing date of the Merger, the Severance Payment shall be paid as follows:
(i) to Officer, upon execution of the General Release, to pay any
federal income and excise taxes and any related payroll tax
obligations of Officer as a result of the Payment;
(ii) to Titan, to the extent necessary, to repay the Indebtedness;
and
<PAGE>
[Executive]
[Date]
Page 2
(iii) after the repayment of the Indebtedness referred to in clause
(ii) above, the remaining portion of the Severance Payment, if
any, will be paid to Officer.
2. No Consummation of Merger. If the stockholders of Titan approve the
Merger Agreement and the Merger is consummated, a "Change of Control" under the
Severance Agreement will occur. Officer agrees that in the event the Merger
does not occur, neither the execution of the Merger Agreement nor the approval
of the Merger Agreement by the Titan stockholders shall constitute a "Change of
Control" under the Severance Agreement or otherwise entitle the Officer to any
other benefit thereunder.
3. Entire Agreement/Severability. This letter agreement and the
Severance Agreement constitute the entire agreement between the parties with
respect to the subject matter hereto and may not be modified or amended in any
way except as agreed in writing by both parties. In the event that any of the
provisions contained in this letter agreement shall be determined to be invalid,
illegal or unenforceable in any respect, the remaining portions of this letter
agreement shall continue in full force and effect.
4. Binding Agreement; Assignment. This letter agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, heirs and permitted assigns. Neither this letter agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by either
of the parties hereto without the prior written consent of the other party.
5. Third Party Rights. Except for Titan, which the parties expressly
agree is a third party beneficiary with respect to this letter agreement,
nothing in this letter agreement, express or implied, is intended to or shall
confer upon any person other than the parties hereto, and their respective
successors and permitted assigns, any rights, benefits, or remedies of any
nature whatsoever under or by reason of this letter agreement.
Please confirm your agreement with the foregoing by signing and returning
one copy of this letter agreement to the undersigned, whereupon this letter
agreement shall become a binding agreement between you and Resources.
Very truly yours,
TITAN RESOURCES I, INC.
By:_____________________________________
<PAGE>
[Executive]
[Date]
Page 3
Accepted and agreed as of
the date first written above:
______________________________________
[Executive]
<PAGE>
EXHIBIT A
---------
GENERAL RELEASE AGREEMENT
-------------------------
1. GENERAL RELEASE OF CLAIMS UNDER AGE DISCRIMINATION IN EMPLOYMENT ACT. In
consideration of the Severance or Retention Bonus Payment ("Payment") to be made
to me under the Officer Severance and Retention Bonus Agreement (the
"Agreement"), I hereby release, acquit, and forever discharge (i) Titan
Resources I, Inc. and any parent, subsidiary, affiliated entity, successors or
assigns (the "Company"), and (ii) the stockholders, officers, directors,
employees, agents, representatives, and fiduciaries of the Company (collectively
the "Released Parties"), from any and all claims, liabilities, demands, and
causes of action of whatever kind or character, whether vicarious, derivative,
or direct, that I now have or claim against them arising under the Age
Discrimination in Employment Act. This General Release does not waive rights or
claims that may arise after the date this General Release is executed. Further
in consideration of the Payment to be made to me under the Agreement, I
acknowledge and agree that the Released Parties may recover from me any loss,
including attorney's fees and costs of defending against any claim brought by
me, they may incur arising out of my breach of this General Release.
I understand that I may revoke my acceptance of paragraph 1 of this
General Release by so notifying the Company within seven days of the date I
execute this General Release. I further understand that if I do not timely
revoke my acceptance of paragraph 1, paragraph 1 of this General Release is
final and binding, and I agree not to challenge its enforceability. If I do
challenge its enforceability, I agree initially to tender to the Company the
Payment made under the Agreement, and invite the Company to retain such money
and agree with me to cancel this General Release. In the event the Company
accepts my offer, the Company shall retain such money and paragraph 1 of this
General Release will be void. In the event the Company does not accept my
offer, the Company shall place such money in an escrow account pending the
resolution of any dispute as to whether paragraph 1 of this General Release
shall be set aside and/or otherwise rendered unenforceable.
2. GENERAL RELEASE OF CLAIMS OTHER THAN UNDER AGE DISCRIMINATION IN EMPLOYMENT
ACT. In consideration of the Payment to be made to me under the Agreement, I
hereby release, acquit, and forever discharge (i) the Company, and (ii) the
Released Parties, from any and all claims, liabilities, demands, and causes of
action of whatever kind or character, whether vicarious, derivative, or direct,
that I now have or claim against them connected in any way to the Agreement or
any claim for benefits under the Agreement (other than as described in Paragraph
3 below), or my employment, continuation of employment, or, if applicable,
termination of employment with any of the Released Parties, or with any other
act, conduct, or omission of any of the Released Parties, including but not
limited to claims arising under any federal, state, or local laws relating to
the employment relationship, other than claims, liabilities, demands, and causes
of action under the Age Discrimination in Employment Act. This General Release
does not waive rights or claims that may arise after the date this General
Release is executed. Further in consideration of the Payment to be made to me
under the Agreement, I acknowledge and agree that the Released Parties may
recover from me any loss, including attorney's fees and costs of defending
against any claim brought by me, they may incur arising out of my breach of this
General Release.
3. NO RELEASE OF COMPANY'S OBLIGATION TO MAKE TAX GROSS-UP PAYMENT UNDER THE
AGREEMENT. Any provision of this General Release or the Letter Agreement
between
<PAGE>
the Company and myself dated of even date herewith to the contrary
notwithstanding, my execution of this General Release does not constitute a
release of the Company's obligation under the Agreement to make additional
payments to me if it shall be determined that I am subject to additional excise
tax under Section 4999 of the Internal Revenue Code of 1986, as amended, as a
result of any payments made or benefits provided to me pursuant to the Agreement
or otherwise in connection with a Change of Control (as defined in the
Agreement).
I understand that I may not revoke my acceptance of paragraph 2 of this
General Release and that it is binding upon me whether or not I revoke my
acceptance of paragraph 1 of this General Release.
I have read and fully understand all of the provisions of this General
Release. I acknowledge that none of the Released Parties has made any promise
or representation to me in consideration for my agreement to execute this
General Release that is not set out in this General Release, and that in
executing this General Release I am not relying on any such promise or
representation but instead am relying solely on my own judgment. I further
acknowledge that my execution of this General Release is knowing and voluntary,
that I have had a reasonable time to consider its terms, and that I have been
advised to consult with an attorney about this General Release.
Date signed:________________________ _______________________________________
Signature of Employee
Date signed:________________________ _______________________________________
Witness
<PAGE>
EXHIBIT 10.9
PURE RESOURCES, INC.
EQUITY PLAN FOR
OUTSIDE DIRECTORS
Section 1. Establishment and Purpose. Pure Resources, Inc., a Delaware
-------------------------
corporation (the "Company"), hereby establishes this Pure Resources, Inc. Equity
Plan for Outside Directors (the "Plan"). The purpose of the Plan is to
encourage the highest level of director performance by providing outside
directors of the Company with a more direct interest in the Company's attainment
of its financial goals.
Section 2. Certain Definitions. For purposes of the Plan, the
-------------------
following terms shall have the indicated meanings:
(a) "Annual Retainer" shall have the meaning specified in Section 5(a)
hereof.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Cash Compensation" shall have the meaning specified in Section 5(a)
hereof.
(d) "Cash Unit" means the entry in a Deferred Compensation Account of a
fictional deferred compensation unit equal to One Dollar to be used solely for
accounting purposes under this Plan.
(e) "Common Stock" means the Common Stock, par value $.01 per share, of the
Company, or any stock or other securities of the Company hereafter issued or
issuable in substitution or exchange for the Common Stock.
(f) "Committee" means the committee appointed by the Board of Directors to
administer the Plan pursuant to Section 3.
(g) "Deferred Compensation Account" shall have the meaning specified in
Section 6(d) hereof.
(h) "Director Compensation" shall have the meaning specified in Section 6
hereof.
(i) "Fair Market Value" of a share of Common Stock means, as of a
particular Trading Date, (i) if shares of Common Stock are listed on a national
securities exchange, the average of the high and low sales prices of Common
Stock on the consolidated transaction reporting system for the principal
national securities exchange on which shares of Common Stock are listed on that
date, or, if there shall have been no such sale so reported on that date, on the
last preceding date on which such a sale was so reported, (ii) if shares of
Common Stock are not so listed but are quoted on the NASDAQ National Market
System, the average of the high and low sales prices of Common Stock reported by
the NASDAQ National Market System on that date, or, if there shall have been no
such sale so reported on that date, on the last preceding date on which such a
sale was so reported, (iii) if the Common Stock is not so listed or quoted, the
average of the high and low sales prices on that date, or, if there are no
quotations available for such date, on the last preceding date on which such
quotations shall be available, as reported by the NASDAQ National Market System,
or, if not
<PAGE>
reported by the NASDAQ National Market System, by the National Quotation Bureau
Incorporated or (iv) if shares of Common Stock are not publicly traded, the
value determined by an independent appraiser appointed by the Company for such
purpose.
(j) "Interest Equivalent" means the entry in a Deferred Compensation
Account of an interest credit with respect to a Cash Unit, the interest factor
initially being equal to 6.34% per year. Without notice to an Outside Director
or any other person, the Interest Equivalent shall automatically be increased or
decreased, as the case may be, on the first day of each Plan Year, such that the
Interest Equivalent shall then be equal to Company's average cost of funds for
the twelve month period ending on September 30 of such year.
(k) "Outside Director" means an individual duly elected or chosen as a
director of the Company who is not also an officer or employee of the Company or
any of its affiliates.
(l) "Plan Quarter" means each of the following three-month periods during a
Plan Year: (i) the period commencing on the first day of the Plan Year and
ending on and including the day prior to the day which is three months after the
first day of the Plan Year, (ii) the period commencing three months after the
first day of the Plan Year and ending on and including the day prior to the day
which is six months after the first day of the Plan Year, (iii) the period
commencing six months after the first day of the Plan Year and ending on and
including the day prior to the day which is nine months after the first day of
the Plan Year, and (iv) the period commencing nine months after the first day of
the Plan Year and ending on and including the day prior to the next following
Plan Year.
(m) "Plan Year" means each 12-month period commencing on the date of the
annual meeting of the shareholders of the Company and ending on and including
the day prior to the next following annual meeting of the shareholders of the
Company, except that the first Plan Year hereunder shall commence on the date of
consummation of the merger of TRH, Inc. with into Titan Exploration, Inc.
pursuant to the terms of the Agreement and Plan of Merger dated as of December
13, 1999, by and among Union Oil Company of California, the Company, TRH, Inc.,
and Titan Exploration, Inc. and end on and include the day prior to the 2001
annual meeting of the shareholders of the Company.
(n) "Required Share Amount" means an amount of money constituting 60% of an
Outside Director's Annual Retainer earned by such Outside Director for his
services as a director of the Company for a Plan Year, which amount is payable
in whole shares of Common Stock pursuant to Section 5(c) hereof.
(o) "Share Award" means an issuance of shares of Common Stock to an Outside
Director pursuant to the provisions of the Plan.
(p) "Stock Compensation" means the compensation earned by an Outside
Director for his services as a director of the Company which is payable in whole
shares Common Stock pursuant to Section 5(c).
-2-
<PAGE>
(q) "Stock Unit" means the entry in a Deferred Compensation Account of a
fictional deferred compensation unit equal to one share of Common Stock to be
used solely for accounting purposes under this Plan.
(r) "Term of Office" means the term of office as a director of the Company
for which the Outside Director has been elected pursuant to and in accordance
with the provisions of the certificate of incorporation and bylaws of the
Company.
(s) "Trading Day" means any day on which the stock exchange or stock market
referred to in Section 2(e) hereof is open for trading on a regular basis.
(t) "Voluntary Share Amount" means the amount of Cash Compensation earned
by an Outside Director for a Plan Year which the Outside Director elects to
apply to the purchase of shares of Common Stock pursuant to Section 5(b) hereof.
Section 3. Plan Administration. The Committee shall be responsible for
-------------------
the administration of the Plan. The Committee shall be appointed by and serve
at the pleasure of the Board of Directors and shall be composed solely of at
least three members of the Board of Directors who are not Outside Directors.
The Committee shall have total and exclusive responsibility to control, operate,
manage and administer the Plan in accordance with its terms. The Committee
shall have all the authority that may be necessary or helpful to enable it to
discharge its responsibilities with respect to the Plan. Without limiting the
foregoing, the Committee is authorized to interpret the Plan, prescribe, amend,
and rescind rules and regulations relating to the Plan, provide for conditions
and assurances deemed necessary or advisable to protect the interests of the
Company in connection with the operation of the Plan, and make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the Plan. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan. The
determinations, interpretations, and other actions of the Board of Directors and
the Committee pursuant to the provisions of the Plan shall be binding and
conclusive for all purposes and on all persons.
Section 4. Stock Subject to the Plan.
-------------------------
(a) Number of Shares. Two hundred thousand (200,000) shares of Common
----------------
Stock are authorized for issuance under the Plan in accordance with the
provisions of the Plan. Shares of Common Stock that are issued pursuant to the
Plan shall be applied to reduce the maximum number of shares of Common Stock
remaining available for use under the Plan. The Company shall at all times
during the term of the Plan retain as authorized and unissued Common Stock at
least the number of shares from time to time required under the provisions of
the Plan or otherwise assure itself of its ability to perform its obligations
hereunder. Shares of Common Stock issued pursuant to the Plan may be shares of
original issuance or treasury shares or a combination of the foregoing, as the
Board of Directors, in its discretion, shall from time to time determine.
(b) Adjustments Upon Changes in Common Stock. In the event the Company
----------------------------------------
shall effect a split of the Common Stock or a dividend payable in Common Stock,
or in the event the outstanding
-3-
<PAGE>
Common Stock shall be combined into a smaller number of shares, then the maximum
number of shares of Common Stock that may be issued under the Plan shall be
proportionately adjusted by the Board of Directors. In the event of a
reclassification of the Common Stock not covered by the foregoing, or in the
event of a liquidation or reorganization (including a merger, consolidation, or
sale of assets) of the Company, the Board of Directors shall make such
adjustments, if any, as it may deem appropriate in the number and kind of shares
that are authorized for issuance or are issuable pursuant to the Plan to give
effect to such transaction.
Section 5. Share Awards Applicable to Retainer.
-----------------------------------
(a) Retainer; Required Share Amount. The amount of the retainer to be paid
-------------------------------
to each Outside Director for each Plan Year (the "Annual Retainer") shall be
determined by the Board of Directors from time to time; 40% of the Annual
Retainer shall be the cash component of the retainer, payable as cash
compensation (the "Cash Compensation"), and the other 60% of the Annual Retainer
shall be the equity component of the retainer, payable in whole shares of Common
Stock as the Required Share Amount. The Cash Compensation for each Plan Year
shall be payable in installments as of the last day of each Plan Quarter in
arrears. An Outside Director who has served in such capacity for less than an
entire Plan Quarter shall have his Cash Compensation for such Plan Quarter pro-
rated based on his number of days of service as an Outside Director during such
Plan Quarter. The Required Share Amount for each Plan Year shall be payable in
installments as of the last day of each Plan Quarter in arrears. An Outside
Director who has served in such capacity for less than the entire Plan Quarter
shall have his Required Share Amount for such Plan Quarter pro-rated based on
his number of days of service as an Outside Director during such Plan Quarter.
(b) Voluntary Share Amount. For any Plan Year, an Outside Director may
----------------------
elect to have up to 100% of his Cash Compensation earned for such Plan Year
applied to the purchase of shares of Common Stock pursuant to the provisions of
Section 5(c) hereof. An Outside Director must notify the Company in writing of
such election prior to the first day of the Plan Year for which the election is
made (or prior to such later date as may be approved by the Committee);
provided, however, that a newly elected Outside Director who was not serving as
a director of the Company immediately prior to the time of his election to the
Board of Directors may make such an election prior to the commencement of such
Outside Director's initial Term of Office with respect to Cash Compensation
earned by him in the balance of the Plan Year of his initial election to the
Board of Directors. Unless otherwise determined by the Committee, a separate
election must be made for each Plan Year. An election made pursuant to this
Section 5(b) for a Plan Year shall be irrevocable from and after the first day
of such Plan Year; provided, however, that an election made pursuant to this
Section 5(b) during a Plan Year for the remaining portion of such Plan Year
shall be irrevocable from and after the date the election is made. Such
elections shall be on a form prescribed for this purpose by the Committee.
(c) Issuance of Shares. As soon as practicable following the end of each
------------------
Plan Quarter, the Company shall issue to (or with respect to) each Outside
Director, effective as of the last day of such Plan Quarter:
-4-
<PAGE>
(i) a Share Award equal to a number of whole shares of Common Stock
determined by dividing (x) the Required Share Amount earned by such Outside
Director for such Plan Quarter by (y) the Fair Market Value of the Common
Stock on the last Trading Day of such Plan Quarter or, if such Outside
Director did not serve as an Outside Director during the entire Plan
Quarter, for that portion of the Plan Quarter during which he served in
that capacity,
and
(ii) a Share Award equal to a number of whole shares of Common Stock
determined by dividing (x) such Outside Director's Voluntary Share Amount,
if any, for such Plan Quarter by (y) the Fair Market Value of the Common
Stock on the last Trading Day of such Plan Quarter or, if such Outside
Director did not serve as an Outside Director during the entire Plan
Quarter, for that portion of the Plan Quarter during which he served in
that capacity.
In the event of the death of an Outside Director during a Plan Quarter, the
Share Award with respect to such Outside Director shall be issued to the
beneficiary of such Outside Director or, if no beneficiary has been designated
by the Outside Director, to the Outside Director's estate. No fractional shares
of Common Stock shall be issued by the Company pursuant to this subsection 5(c);
cash shall be paid in lieu of factional shares (which amount shall be Cash
Compensation for purposes of the Plan).
Section 6. Deferral of Director Compensation. Outside Directors shall
---------------------------------
have the right to defer the receipt of their Stock Compensation and/or Cash
Compensation (hereinafter "Director Compensation") in accordance with the
following provisions of this Section 6.
(a) Election to Defer. An Outside Director may elect to defer the receipt
-----------------
of all or a portion of his Cash Compensation and/or Stock Compensation for a
Plan Year in accordance with the provisions of this Section 6 by filing a
written election to defer with the Committee. Such election shall be made on a
form or forms prescribed for this purpose by the Committee. Such election must
include the following: (i) the whole percentage of Cash Compensation and/or
Stock Compensation to be deferred; (ii) an irrevocable election of a method of
payment as provided in Section 6(f) hereof; and (iii) a designation of
beneficiary as provided in Section 6(g) hereof. Except as provided in Section
6(c) hereof, a deferral election shall apply only to Director Compensation to be
earned in the Plan Year next following the Plan Year in which the election is
made. An election to defer made under this Section 6 shall be irrevocable. For
purposes of this Section 6, the term "Participant" means an Outside Director who
has elected to defer the receipt of his Director Compensation in accordance with
the provisions of this Section 6.
(b) Amount of Deferral. The amount of Director Compensation to be deferred
------------------
in any Plan Year shall be designated by the Outside Director as a percentage of
Cash Compensation and/or Stock Compensation in integral multiples of 5%, but
shall not be less than 10%.
(c) Time of Election. Except as otherwise determined by the Committee, an
----------------
election to defer Director Compensation hereunder must be received by the
Committee prior to the
-5-
<PAGE>
commencement of the Plan Year in which the Director Compensation is earned;
provided, however, that a newly elected Outside Director who was not serving as
a director of the Company immediately prior to the time of his election to the
Board of Directors may make a deferral election prior to the commencement of
such Outside Director's initial Term of Office with respect to Director
Compensation earned by him in the balance of the Plan Year of his initial
election to the Board of Directors. Unless otherwise determined by the
Committee, a separate deferral election must be made for each Plan Year. A
deferral election by an Outside Director with respect to Director Compensation
in a given year will not preclude a different action by the Outside Director
with respect to Director Compensation in subsequent years.
(d) Deferred Compensation Accounts. Director Compensation deferred by a
------------------------------
Participant pursuant to this Section 6 shall be credited to an account
("Deferred Compensation Account") established by the Company for such
Participant. Cash Units in an amount equal to the deferred Cash Compensation
shall be credited to the Participant's Deferred Compensation Account at the time
the deferred Cash Compensation would otherwise have been paid had no election to
defer been made. Stock Units in an amount equal to the deferred Stock
Compensation shall be credited to the Participant's Deferred Compensation
Account at the time the deferred Stock Compensation would otherwise have been
paid had no election to defer been made. The amounts credited to a
Participant's Deferred Compensation Account in accordance with this Section 6(d)
and the account adjustments made pursuant to Section 6(e) shall represent the
total amount of the Company's liability to the Participant for the payment of
deferred compensation under this Section 6.
(e) Account Adjustments.
-------------------
(i) As additional deferred compensation for Participants with Cash
Units credited to their Deferred Compensation Accounts, the Company shall
credit a Participant's Deferred Compensation Account on a quarterly basis
with the Interest Equivalent.
(ii) If a cash dividend is paid on Common Stock, on the date said
dividend is paid each Deferred Compensation Account which is then credited
with Stock Units shall be further credited with the number of Stock Units
equal to the amount of said dividend per share of Common Stock multiplied
by the number of Stock Units then credited to such Deferred Compensation
Account, with the product thereof divided by the Fair Market Value of the
Common Stock on the date such dividend is paid. If the Company effects a
split of its shares of common stock or pays a dividend in the form of
shares of Common Stock, or if the outstanding shares of Common Stock are
combined into a smaller number of shares, the number of Stock Units then
credited to each Deferred Compensation Account shall be increased or
decreased to reflect proportionately the increase or decrease in the number
of outstanding shares of Common Stock resulting from such split, dividend
or combination. In the event of a reclassification of shares of Common
Stock not covered by the foregoing, or in the event of a liquidation,
separation or reorganization (including, without limitation, a merger,
consolidation or sale of assets) involving the Company, the Board of
Directors of the Company shall make such adjustments, if any, to each
Deferred Compensation Account then credited with Stock Units as such Board
of Directors in its absolute discretion may deem appropriate.
-6-
<PAGE>
(f) Payment of Deferred Compensation. All payments of a Participant's
--------------------------------
Deferred Compensation Account shall be made at, or shall commence on, the first
day of the calendar year selected by the Participant in accordance with the
provisions of Section 6(a) hereof and this Section 6(f). The date on which
payment will commence must be designated by the Outside Director. The Outside
Director may elect to defer the receipt of his Director Compensation to: (a)
the first day of any calendar year that is at least one year after the calendar
year in which the Director Compensation is earned; or (b) the first day of the
calendar year following (i) the calendar year in which he retires as a director
of the Company; (ii) the calendar year in which his membership on the Board of
Directors terminates; or (iii) the calendar year of his death. The benefit
commencement date may not be later than the third calendar year following the
attainment of mandatory retirement age for directors of the Company. Upon the
death of a Participant prior to the final payment of all amounts credited to his
Deferred Compensation Account, the balance of the Deferred Compensation Account
shall be paid in accordance with the provisions of Section 6(g) hereof
commencing on the first day of the calendar year following the year of death. A
Participant shall have the option of selecting either a single payment schedule
or a series of annual installments (not exceeding ten), provided such election
is irrevocable and made at the date of deferral. A Participant shall receive in
cash all Cash Units credited to his Deferred Compensation Account. When Stock
Units credited to a Deferred Compensation Account maintained by the Company for
a Participant become distributable, such Stock Units shall be canceled and the
Company shall deliver to such Participant a stock certificate evidencing the
Participant's ownership of one share of Common Stock for each Stock Unit so
canceled. If the amount credited to a Deferred Compensation Account is paid in
installments over a period of years, the provisions of Sections 6(e) shall
continue to apply to the amount credited to such account from time to time.
(g) Designation of Beneficiary. Each Participant shall name a beneficiary
--------------------------
to receive any payments due him at the time of his death, with the right to
change such beneficiary at any time. In case of a failure to designate a
beneficiary or the death of the designated beneficiary without a designated
successor, then to the surviving spouse of a deceased Participant, or, if there
is no surviving spouse, the children of the Participant in equal shares (the
share of any child who predeceases the Participant to go in equal shares to the
issue of such deceased child), or if there is no surviving spouse, children, or
issue of such children, the estate of the Participant. No designation of
beneficiary shall be valid unless in writing signed by the Participant, dated
and filed with the Committee. Upon the Participant's death, any balance in his
Deferred Compensation Account shall be payable to the Participant's beneficiary
under the method elected by the Participant or in such other method as the
Committee may determine in its sole discretion.
(h) Source of Payments. The Cash and Stock Units credited and the Deferred
------------------
Compensation Accounts maintained under this Plan are fictional devices used
solely for the accounting purposes of this Plan to determine an amount of money
to be paid and a number of shares of Common Stock to be delivered by the Company
to a Participant (or designated beneficiary) pursuant to this Plan, and shall
not be deemed or construed to create a trust fund or security interest of any
kind for or to grant a property interest of any kind to any Participant,
designated beneficiary or estate. Nothing contained in the Plan and no action
taken pursuant to the Plan shall create or be construed to create a trust of any
kind in favor of a Participant or any other person or a fiduciary relationship
between the Company and a Participant. Title to the beneficial
-7-
<PAGE>
ownership of any assets, whether cash or investments, that the Company may
designate to pay the amounts credited to Deferred Compensation Accounts shall at
all times remain in the Company, and Participants shall have no property
interest whatsoever in any specific assets of the Company. A Participant's
interest in his Deferred Compensation Account shall be limited to the right to
receive payments pursuant to the terms of the Plan, and such right shall be no
greater than the right of any other unsecured general creditor of the Company.
Section 7. Plan Amendment, Modification, and Termination. The Board of
---------------------------------------------
Directors may at any time suspend, terminate, amend, or modify the Plan;
provided, however, that no amendment or modification of the Plan shall become
effective without the approval of such amendment or modification by the
stockholders of the Company if the Company, on the advice of counsel, determines
that stockholder approval is necessary or desirable. No suspension,
termination, amendment, or modification of the Plan shall in any manner
adversely affect any Share Award theretofore made under the Plan without the
consent of the recipient of such award.
Section 8. Plan Effectiveness. The Plan shall become effective on the
------------------
date of consummation of the merger of TRH, Inc. with into the Titan Exploration,
Inc. pursuant to the terms of the Agreement and Plan of Merger dated as of
December 13, 1999, by and among Union Oil Company of California, the Company,
TRH, Inc., and Titan Exploration, Inc., provided the Plan is approved by Union
Oil Company of California, the sole shareholder of the Company, prior to such
date. If the Plan is not so approved, the Plan shall terminate and all actions
hereunder shall be null and void.
Section 9. General Provisions.
------------------
(a) No Continuing Right as Director. Neither the adoption or operation of
-------------------------------
the Plan, nor the Plan itself or any document describing or relating to the
Plan, or any part hereof, shall confer upon any Outside Director any right to
continue as a director of the Company or any affiliate of the Company.
(b) Nonalienation of Benefits. No Outside Director shall have the right to
-------------------------
sell, assign, transfer, or otherwise convey or encumber in whole or in part the
right to receive any award or payment under the Plan, except in accordance with
the express provisions hereof.
(c) Binding Effect. The obligations of the Company under the Plan shall be
--------------
binding upon any successor corporation or organization resulting from the
merger, consolidation, or other reorganization of the Company, or upon any
successor corporation or organization succeeding to all or substantially all of
the assets and business of the Company. The terms and conditions of the Plan
shall be binding upon each Outside Director and any other recipient of shares of
Common Stock hereunder and each such person's heirs, legatees, distributees, and
legal representatives.
(d) Severability. If any provision of the Plan or any agreement hereunder
------------
is held to be illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining provisions of the Plan or such agreement, as the
case may be, but such provision shall be fully severable and the Plan or such
agreement, as the case may be, shall be construed and enforced as if the illegal
or invalid provision had never been included herein or therein.
-8-
<PAGE>
(e) Expenses. All expenses incident to the administration, protection, or
--------
termination of the Plan, including, but not limited to, legal and accounting
fees, shall be paid by the Company.
(f) Notices. Whenever any notice is required or permitted under the Plan
-------
or any agreement hereunder, such notice must be in writing and personally
delivered or sent by mail. Any notice required or permitted to be delivered
hereunder or under an agreement shall be deemed to be delivered on the date on
which it is personally delivered, or on the third business day after it is
deposited in the United States mail, certified or registered, postage prepaid,
addressed to the person who is to receive it at the address that such person has
theretofore specified by written notice delivered in accordance herewith. The
Company or an Outside Director may change, at any time and from time to time, by
written notice to the other, the address that it or he had theretofore specified
for receiving notices. Until such address is changed in accordance herewith,
notices hereunder or under an agreement shall be delivered or sent (i) to the
Outside Director at his address as set forth in the records of the Company or
(ii) to the Company at the principal executive offices of the Company clearly
marked "Attention: President".
(g) No Restriction of Corporate Action. Nothing contained in the Plan
----------------------------------
shall be construed to prevent the Company or any affiliate thereof from taking
any corporate action that is deemed by the Company or such affiliate to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Share Award made or to be made under the Plan.
No Outside Director or other person shall have any claim against the Company or
any affiliate thereof as a result of such action.
(h) Governing Law. The provisions of the Plan shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
(i) Miscellaneous. Headings are given to the sections and subsections of
-------------
the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction of the Plan or
any provisions hereof. The use of the masculine gender shall also include
within its meaning the feminine. Wherever the context of the Plan dictates, the
use of the singular shall also include within its meaning the plural, and vice
versa.
IN WITNESS WHEREOF, this Plan has been executed as of this 17th day of
April, 2000, to be effective as provided in Section 8.
PURE RESOURCES, INC.
By /s/ Phillip Ballard
---------------------------------
Name: Phillip Ballard
-------------------------
Title: Vice President
------------------------
-9-
<PAGE>
EXHIBIT 10.10
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), made and entered
into as of May __, 2000, by and between Pure Resources, Inc., a Delaware
corporation (the "Company"), and Jack Hightower, an individual residing in
Midland, Texas ("Owner").
1. Background. On the date hereof, the Company is consummating a
----------
merger transaction (the "Merger") pursuant to which shares of common stock of
Titan Exploration, Inc. ("Titan Common Stock") have been converted into the
right to receive shares of the Company's common stock, par value $.01 per share
(the "Company Common Stock"). Immediately prior to the Merger, the Owner was
the holder of ______ shares of Titan Common Stock. Upon consummation of the
Merger, the Owner now will be the holder of _________ shares of the Company
Common Stock. Immediately prior to the Merger, the Owner had demand and piggy-
back registration rights covering all of this shares of Titan Common Stock,
pursuant to a Registration Rights Agreement dated as of September 30, 1996.
Although the issuance of shares of the Company Common Stock pursuant to the
Merger has been registered pursuant to the Company's Registration Statement on
Form S-4, the Owner's sale of his Company Common Stock is restricted pursuant to
the provisions of Rule 144 and Rule 145 promulgated under the Securities Act.
The parties hereto desire to enter into this Agreement in order to grant to the
Owner registration rights with respect to the Company Common Stock.
2. Registration under Securities Act, etc.
--------------------------------------
2.1. Registration on Request.
-----------------------
(a) Concurrently with or from time to time after the date hereof, upon the
written request of one or more holders of Registrable Securities, requesting
that the Company effect the registration under the Securities Act of all or a
portion of such holders' Registrable Securities and specifying the intended
method of disposition thereof and whether or not such requested registration is
to be an underwritten offering, the parties hereto agree as follows:
(i) The Company will promptly give written notice of such requested
registration to all other holders of Registrable Securities, if any;
(ii) Promptly after providing the notice required by clause (i) of
this Section 2.1(a), and subject to the limitations set forth in subsection
(e) of this Section 2.1, the Company will use its best efforts to effect
the registration under the Securities Act of:
(A) the Registrable Securities which the Company has been so
requested to register by such holders, and
(B) all other Registrable Securities which the Company has been
requested to register by the holders thereof by written request given
to the Company within 30 days after the giving of such written notice
by the Company (which request
<PAGE>
shall specify the intended method of disposition of such Registrable
Securities), all to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the
Registrable Securities so to be registered.
(b) Registration of Other Securities. Whenever the Company shall effect a
--------------------------------
registration pursuant to this Section 2.1 in connection with an underwritten
offering by one or more holders of Registrable Securities, no securities other
than Registrable Securities shall be included among the securities covered by
such registration unless (i) the managing underwriter of such offering shall
have advised each holder of Registrable Securities to be covered by such
registration in writing that the inclusion of such other securities would not
adversely affect such offering or (ii) the holders of all Registrable Securities
to be covered by such registration shall have consented in writing to the
inclusion of such other securities.
(c) Registration Statement Form. Registrations under this Section 2.1
---------------------------
shall be on such appropriate registration form of the Commission (i) as shall be
selected by the Company and as shall be reasonably acceptable to the Requisite
Holders, and (ii) as shall permit the disposition of such Registrable Securities
in accordance with the intended method or methods of disposition specified in
their request for such registration. The Company agrees to include in any such
registration statement all information which holders of Registrable Securities
being registered shall reasonably request.
(d) Expenses. The Company will pay all Registration Expenses in
--------
connection with any registration requested pursuant to this Section 2.1. Any
Selling Expenses in connection with any registration requested under this
Section 2.1 shall be allocated among all Persons on whose behalf securities of
the Company are included in such registration, on the basis of the respective
amounts of the securities then being registered on their behalf.
(e) Limitations on Requested Registrations. The Company's obligation to
--------------------------------------
take or continue any action to effect a requested registration under this
Section 2.1 shall be subject to the following:
(i) The Company shall not be required to effect more than two
registrations requested pursuant to this section 2.1; provided that, a
registration requested pursuant to this Section 2.1 shall not be deemed to
have been effected (A) unless a registration statement with respect thereto
has been declared effective for a period of at least 90 days, (B) if after
a registration statement has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement
of the Commission or other governmental agency or court for any reason, or
(C) if the conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration
are not satisfied, other than as a result of the voluntary termination of
such offering by the Requisite Holders;
2
<PAGE>
(ii) The Company shall not be required to effect a registration
pursuant to this Section 2.1 unless such registration has been requested by
the holders of Registrable Securities which have an estimated aggregate
offering price to the public of at least (A) $20,000,000, in the case of
the first registration effected pursuant to this Section 2.1, and (B)
$10,000,000 otherwise; and
(iii) The Company shall not be required to effect a registration
pursuant to this Section 2.1 during the 180 day period after a registration
statement shall have been filed and declared effective under the Securities
Act with respect to an underwritten public offering of any class of the
Company's equity securities (which shall exclude a registration of
securities with respect to an employee benefit, retirement or similar
plan).
(f) Selection of Underwriters. If a requested registration pursuant
-------------------------
to this Section 2.1 involves an underwritten offering, the underwriter or
underwriters thereof shall be selected by the Company with the approval of the
Requisite Holders.
(g) Priority in Requested Registrations. If a requested
-----------------------------------
registration pursuant to this Section 2.1 involves an underwritten offering, and
the managing underwriter shall advise the Company in writing (with a copy to
each holder of Registrable Securities requesting registration) that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering within a price range
acceptable to the Requisite Holders, the Company will include in such
registration to the extent of the number which the Company is so advised can be
sold in such offering, Registrable Securities requested to be included in such
registration, pro rata among the holders thereof requesting such registration on
the basis of the percentage of the Registrable Securities of the Company held by
the holders of Registrable Securities which have requested that such Securities
be included. In connection with any registration as to which the provisions of
this clause (g) apply, no securities other than Registrable Securities shall be
covered by such registration.
2.2. Incidental Registration.
-----------------------
(a) Right to Include Registrable Securities. If the Company at any
---------------------------------------
time proposes to register any of its securities under the Securities Act (other
than (i) in connection with a registration of any employee benefit, retirement
or similar plan, or (ii) with respect to a Rule 145 transaction, or (iii)
pursuant to Section 2.1), whether or not for sale for its own account, it will
each such time give prompt written notice to all holders of Registrable
Securities of its intention to do so and of such holders' rights under this
Section 2.2. Upon the written request of any such holder made within 30 days
after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such holder and the
intended method of disposition thereof), the Company will use its best efforts
to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the holders
thereof, to the extent requisite to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Securities so to
be registered, provided that if, at any time after giving written notice
--------
3
<PAGE>
of its intention to register any securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay registration
of such securities, the Company may, at its election, give written notice of
such determination to each holder of Registrable Securities and, thereupon, (i)
in the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of any holder
or holders of Registrable Securities entitled to do so to request that such
registration be effected as a registration under Section 2.1, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this Section
2.2 shall be deemed to have been effected pursuant to Section 2.1 or shall
relieve the Company of its obligation to effect any registration upon request
under Section 2.1. The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to this
Section 2.2 and any Selling Expenses shall be allocated among all Persons on
whose behalf securities of the Company are included in such registration, on the
basis of the respective amounts of the securities then being registered on their
behalf. Notwithstanding the other provisions of this Agreement, (x) no holder of
Registrable Securities, other than Owner, shall have any rights under this
section if such holder holds fewer than 1,000,000 shares of Common Stock that
are Registrable Securities (adjusted for any increase or decrease in the number
of issued shares of Common Stock from a stock split, reverse stock split, stock
dividend, combination or reclassification of the common stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without consideration by the Company), such holder is not an "affiliate" of the
Company, and such shares may be sold freely by such Holder without restriction
under Rule 144(k) (or any successor provisions) without restriction and (y)
Owner shall have no such rights if he holds less than 250,000 shares of Common
Stock that are Registrable Securities (adjusted for any increase or decrease in
the number of issued shares of Common Stock from a stock split, reverse stock
split, stock dividend, combination or reclassification of the common stock, or
any other increase or decrease in the number of issued shares of Common Stock
effected without consideration by the Company), he is not an affiliate of the
Company, and his Registrable Securities may be sold freely under Rule 144(k) (or
any successor provisions) without restriction.
(b) Priority in Incidental Registrations.
------------------------------------
(i) If (A) a registration pursuant to this Section 2.2 involves an
underwritten offering of the securities so being registered for sale for
the account of a stockholder (other than the holders of Registrable
Securities) exercising a demand registration right pursuant to another
registration rights agreement to be distributed (on a firm commitment
basis) by or through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, and (B) the managing
underwriter of such underwritten offering informs the Company and the
holders of Registrable Securities in writing of its belief that the number
of securities requested to be included in such registration exceeds the
number that can be sold in (or during the time of) such offering, then the
Company will include in such registration, to the extent of the number that
the Company is so advised can be sold in (or during the time of) such
offering: first, such securities proposed by the stockholder exercising
the demand registration right to be sold for its account; second, such
securities requested to be included pursuant to incidental registration
rights in such
4
<PAGE>
registration by the holder or holders, as the case may be, including the
holders of Registrable Securities, pro rata on the basis of the number of
such securities so proposed to be sold by all such security holders and so
requested to be included; and third, such securities proposed by the
Company to be sold for its own account
(ii) If (A) a registration pursuant to this Section 2.2 involves an
underwritten offering of the securities so being registered for sale for
the account of the Company, to be distributed (on a firm commitment basis)
by or through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, and (B) the managing
underwriter of such underwritten offering shall inform the Company and the
holders of Registrable Securities in writing of its belief that the number
of securities requested to be included in such registration exceeds the
number that can be sold in (or during the time of) such offering, then the
Company will include in such registration, to the extent of the number that
the Company is so advised can be sold in (or during the time of) such
offering, securities proposed by the Company to be sold for its own
account, and, such securities requested to be included pursuant to
incidental registration rights in such registration by the holder or
holders, as the case may be, including the holders of Registrable
Securities, pro rata on the basis of the number of such securities so
proposed to be sold by all such security holders and so requested to be
included.
2.3. Registration Procedures. If and whenever the Company is
-----------------------
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2.1 and 2.2, the
Company will as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event no
later than 60 days after the end of the period within which requests for
registration may be given to the Company) file with the Commission the
requisite registration statement to effect such registration and thereafter
use its best efforts to cause such registration statement to become
effective, provided that the Company may discontinue any registration of
--------
its securities which are not Registrable Securities (and, under the
circumstances specified in Section 2.2(a), its securities which are
Registrable Securities) at any time prior to the effective date of the
registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such
5
<PAGE>
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, as such seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as each
seller thereof shall reasonably request, to keep such registration or
qualification in effect for so long as such registration statement remains
in effect, and take any other action which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller (and underwriters, if any) of:
(A) an opinion of counsel for the Company, dated the effective
date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), reasonably satisfactory in
form and substance to such seller, and
(B) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters, and, in the case of the
legal opinion, such other legal matters, as such seller may reasonably
request;
6
<PAGE>
(vii) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were
made, and at the request of any such seller promptly prepare and furnish to
such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they
were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act, and will furnish to each
such seller at least five business days prior to the filing thereof a copy
of any amendment or supplement to such registration statement or prospectus
and shall not file any thereof to which any such seller shall have
reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the requirements of the Securities
Act or of the rules or regulations thereunder;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(x) use its best efforts to list all Registrable Securities covered
by such registration statement on any securities exchange on which any of
the Registrable Securities is then listed; and
(xi) enter into such agreements and take such other actions as the
Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
7
<PAGE>
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in the subdivision (vii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4 Underwritten Offerings.
----------------------
(a) Requested Underwritten Offerings. If requested by the
--------------------------------
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2.1, the Company will enter
into an underwriting agreement with such underwriters for such offering, such
agreement to be satisfactory in substance and form to each such holder and the
underwriters and to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements of this type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 2.7. The holders of Registrable Securities to be distributed
by such underwriters shall be parties to such underwriting agreement and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's Registrable Securities and such holder's intended method
of distribution and any other representation required by law.
(b) Incidental Underwritten Offerings. If the Company at any time
---------------------------------
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Section 2.2 and subject to the
provisions of Section 2.2(b), arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such holder among the
securities to be distributed by such underwriters. The holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any
such holder of Registrable Securities shall
8
<PAGE>
not be required to made any representations or warranties to or agreements with
the Company or the underwriters other than representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation required
by law.
2.5. Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, and their counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holders' counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
2.6. Additional Rights of Owners. If any registration statement
---------------------------
prepared under this Agreement refers to Owner by name or otherwise as the holder
of any securities of the Company, then Owner shall have the right to require (x)
the insertion therein of language, in form and substance satisfactory to Owner,
to the effect that the holding by Owner of such securities does not necessarily
make Owner a "controlling person" of the Company within the meaning of the
Securities Act and is not to be construed as a recommendation by Owner of the
investment quality of the Company's debt or equity securities covered thereby
and that such holding does not imply that Owner will assist in meeting any
future financial requirements of the Company, or (y) in the event that such
reference to Owner by name or otherwise is not required by the Securities Act or
any rules and regulations promulgated thereunder, the deletion of the reference
to Owner.
2.7. Indemnification.
---------------
(a) Indemnification by the Company. In the event of any registration
------------------------------
of any securities of the Company under the Securities Act, the Company will, and
hereby does, in the case of any registration statement filed pursuant to Section
2.1 or 2.2, indemnify and hold harmless the seller of any Registrable Securities
covered by such registration statement, its directors and officers, each other
Person who participates in the offering or sale of such securities and each
other Person, if any, who controls such seller within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which such seller or any such director or officer or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements
9
<PAGE>
therein not misleading, and the Company will reimburse such seller and each such
director, officer, and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided that the Company
--------
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such seller specifically
stating that it is for use in the preparation thereof and, provided further that
--------
the Company shall not be liable to any Person who participates as an
underwriter, in the offering or sale of Registrable Securities or any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director, officer,
underwriter or controlling person and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. The Company may require, as a
------------------------------
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 2.3, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 2.7) the Company, each director of the
Company, each officer of the Company and each other Person, if any, who controls
the Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling Person and shall survive the transfer of such securities
by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
--------
as provided herein
10
<PAGE>
shall not relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 2.7, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
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) Other Indemnification. Indemnification similar to that specified
---------------------
in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
------------------------
Section 2.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
2.8. Adjustments Affecting Registrable Securities. The Company will
--------------------------------------------
not effect or permit to occur any combination or subdivision of Registrable
Securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in any
registration of its securities contemplated by this Section 2, or the
marketability of such Registrable Securities under any such registration.
3. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Commission: The Securities and Exchange Commission or any other
----------
Federal agency at the time administering the Securities Act.
Company: As defined in the introductory paragraph of this Agreement.
-------
For purposes of this Agreement, all references to the Company shall be
deemed to include any successor entity or transferee.
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be
11
<PAGE>
in effect at the time. Reference to a particular section of the
Securities Exchange Act of 1934 shall include a reference to the
comparable section, if any, of any such similar Federal statute.
Majority Holders: At any time, the holder or holders of more than 50%
----------------
(by number of shares) of all Registrable Securities then outstanding.
Person: A corporation, an association, a partnership, a business, an
------
individual, a governmental or political subdivision thereof or a
governmental agency.
Registrable Securities: any Company Common Stock owned by Owner that
----------------------
Owner has acquired from the Company in the Merger or pursuant to
exercise of stock options and rights under benefit plans or otherwise,
and any securities issued or issuable with respect to any such Company
Common Stock by way of distribution or in connection with any
reorganization, recapitalization, merger, consolidation or otherwise.
As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such
registration statement, (b) they shall have been distributed to the
public pursuant to Rule 144 or Rule 144A (or any successor provision)
under the Securities Act, (c) they shall have been otherwise
transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company
and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state
law then in force, or (d) they shall have ceased to be outstanding.
Registration Expenses: All expenses incident to the Company's
---------------------
performance of or compliance with Section 2.1, including, without
limitation, all registration, filing and National Association of
Securities Dealers fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and
compliance, the fees and disbursements incurred by the holders of
Registrable Securities to be registered (including the fees and
disbursements of not more than one special counsel to the holders of
such Registrable Securities), premiums and other costs of policies of
insurance against liabilities arising out of the public offering of
the Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers or sellers
of securities, but excluding Selling Expenses, if any, provided that,
in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel
or general overhead expenses of the Company, auditing fees, premiums
or other expenses relating to liability insurance required by
12
<PAGE>
underwriters of the Company or other expenses for the preparation of
financial statements or other data normally prepared by the Company in
the ordinary course of its business or which the Company would have
incurred in any event.
Requisite Holders: With respect to any registration of Registrable
-----------------
Securities pursuant to Section 2.1, any holder or holders of more than
50% (by number of shares) of the Registrable Securities to be so
registered.
Securities Act: The Securities Act of 1933, or any similar Federal
--------------
statute, and the rules and regulations of the Commission thereunder,
all as of the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933 shall include a
reference to the comparable section, if any, of any such similar
Federal Statute.
Selling Expenses: underwriting discounts and commissions and stock
----------------
transfer taxes relating to securities registered by the Company.
4. Rule 144 and Rule 144A: If the Company shall have filed a
----------------------
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the Commission thereunder (or, if the Company is not required to file
such reports, will, upon the request of any holder of Registrable Securities,
make publicly available other information) and will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements. After any sale of Registrable
Securities pursuant to this Section 4, the Company will, to the extent allowed
by law, cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to such Registrable Securities. In
order to permit the holders of Registrable Securities to sell the same, if they
so desire, pursuant to Rule 144A promulgated by the Commission (or any successor
to such rule), the Company will comply with all rules and regulations of the
Commission applicable in connection with use of Rule 144A (or any successor
thereto). Prospective transferees of Registrable Securities that are Qualified
Institutional Buyers (as defined in Rule 144A) which would be purchasing such
Registrable Securities in reliance upon Rule 144A may request from the Company
information regarding the business, operations and assets of the Company.
Within five business days of any such request, the Company shall deliver to any
such prospective transferee copies of annual audited and quarterly unaudited
financial statements of the Company and such other information as may be
required to be supplied by the Company for it to comply with Rule 144A.
13
<PAGE>
5. Amendments and Waivers. This Agreement may be amended and the
----------------------
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Majority
Holders; provided, however, that no amendment to this Agreement that would
adversely affect the rights of a party hereto may be made without the prior
written consent of such party, with the exception that temporary waivers and
suspensions of the rights of all of the Owners pursuant to customary terms at
the request of the managing underwriter in connection with any underwritten
offering of the Company's securities, may be authorized by consent of the
Majority Holders. Each holder of any Registrable Securities at the time or
thereafter outstanding shall be bound by any consent authorized by this Section
5, whether or not such Registrable Securities shall have been marked to indicate
such consent.
6. Nominees for Beneficial Owners. In the event that any
------------------------------
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
7. Notices. All communications provided for hereunder shall be sent
-------
by first-class mail and (a) if addressed to a party other than the Company,
addressed to such party at the address set forth opposite such parties name on
the execution page hereof, or (b) if addressed to the Company, at 500 West
Texas, Suite 500, Midland, Texas 79701 or at such other address, or to the
attention of such other officer, as the Company shall have furnished to each
holder of Registrable Securities at the time outstanding; provided, however,
-------
that any such communication to the Company may also, at the option of any of the
parties hereunder, be either delivered to the Company at its address set forth
above or to any officer of the Company.
8. Assignment. Subject to the following sentence, this Agreement
----------
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns. In addition, and
whether or not any express assignment shall have been made, the provisions of
this Agreement which are for the benefit of the parties hereto other than the
Company shall also be for the benefit of and enforceable by (subject to the
provisions respecting the minimum numbers or percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein) any subsequent holder of any Registrable
Securities, and only such a subsequent holder, who owns at least 1,000,000
shares of Common Stock that are Registrable Securities (adjusted for any
increase or decrease in the number of issued shares of Common Stock from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the common stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without consideration by the Company) and who is
(a) a direct assign or successor of Owner or (b) the direct assign or successor
of (i) a member of Owner's immediate family, (ii) Owner's estate, (iii) a trust
or private foundation created by Owner, (iv) a partnership or
14
<PAGE>
limited liability company, of which a substantial part of the equity is owned by
members of Owner's family or trusts for the benefit of his family, or (v) is
otherwise an affiliate of Owner.
9. Termination. This Agreement shall terminate when no Registrable
-----------
Securities remain outstanding.
10. Descriptive Headings. The descriptive headings of the several
--------------------
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
11. Specific Performance. The parties hereto recognize and agree
--------------------
that money damages may be insufficient to compensate the holders of any
Registrable Securities for breaches by the Company of the terms hereof and,
consequently, that the equitable remedy of specific performance of the terms
hereof will be available in the event of any such breach.
12. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Texas.
13. Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
COMPANY:
PURE RESOURCES, INC.
By:____________________________
Name:__________________________
Title:_________________________
OWNER:
Address:__________________________ _______________________________
JACK HIGHTOWER
<PAGE>
Exhibit 21.1
List of Subsidiaries
1. TRH, Inc., a Delaware corporation.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of
Titan Exploration, Inc.
We consent to the use of our audit reports incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
KPMG LLP
Midland, Texas
April 17, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this registration statement on Form S-4 filed by
Pure Resources, Inc. and this merger proxy statement filed by Titan Exploration,
Inc. of our report dated March 10, 2000, relating to the financial statements of
Union Oil's Permian Basin business unit, which appears in such registration
statement and merger proxy statement. We also consent to the reference to us
under the heading "Experts" in such registration statement and merger proxy
statement.
PricewaterhouseCoopers LLP
Houston, Texas
April 17, 2000
<PAGE>
EXHIBIT 23.5
CONSENT OF WILLIAMSON PETROLEUM CONSULTANTS, INC.
We consent to all references to our firm, including any references to our
firm as experts, in the Registration Statement on Form S-4 of Pure Resources,
Inc., which includes the Proxy Statement/Prospectus relating to the proposed
merger of Titan Exploration, Inc. with and into TRH, Inc.
WILLIAMSON PETROLEUM CONSULTANTS, INC.
Midland, Texas
April ___, 2000
<PAGE>
Exhibit 23.6
CONSENT OF RESERVE ENGINEER
The Board of Directors of
Pure Resources, Inc.
I hereby consent to the use of my name in the Proxy/Statement Prospectus
included in this Registration Statement on Form S-4, including under the heading
"Experts" in the Proxy Statement/Prospectus.
/s/ Gary Dupriest
- ----------------------------
Gary Dupriest
Vice President - Pure Resources, Inc.
April 17, 2000
<PAGE>
Exhibit 23.7
CONSENT OF INDEPENDENT ENGINEERS
The Board of Directors of Pure Resources, Inc.
We consent to the use of our decommissioning estimates incorporated herein
by reference and to the reference to our firm under the heading "Experts" in the
Proxy Statement/Prospectus.
Twachtman Snyder & Byrd, Inc.
/s/ Robert C. Byrd
Robert C. Byrd
Vice President
Houston, Texas
April 17, 2000
<PAGE>
EXHIBIT 99.1
TITAN EXPLORATION, INC.
500 West Texas, Suite 200
Midland, Texas 79701
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack D. Hightower and William K. White and
each of them, as the undersigned's attorneys and proxies, each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote, as
directed on the reverse side hereof, all the shares of common stock of Titan
Exploration, Inc. (the "Company") held of record by the undersigned on April 10,
2000, on all matters that may properly come before the special meeting of
shareholders to be held in the Midland Room, Tower Two, Fasken Center, 550 West
Texas, Midland, Texas on May 24, 2000, beginning at 10:00 a.m. central standard
time, or any adjournment thereof, including upon matters set forth in the Notice
of Special Meeting dated April 19, 2000, and the related proxy
statement/prospectus, copies of which have been received by the undersigned.
Attendance of the undersigned at the meeting or any adjourned session of the
meeting will not be deemed to revoke this proxy unless the undersigned
affirmatively indicates the intention of the undersigned to vote the shares
represented by this proxy in person before the exercise of this proxy.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS
TITAN EXPLORATION, INC.
May 24, 2000
[X] Please mark your votes as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
(1) To adopt and approve the agreement and plan of merger dated as of December
13, 1999, as amended, among Union Oil Company of California, Pure
Resources, Inc., TRH, Inc. and the Company, and the transactions
contemplated by it.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The shares represented by this proxy will be voted as specified above, but,
if no specification is made, they will be voted for item 1. The shares
represented by this proxy will be voted at the discretion of the proxies on any
other matter that may properly come before the meeting.
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and confirms all that said proxy or his substitutes may do by
virtue hereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
PLEASE CHECK THIS BOX IF YOU INTEND [ ]
TO BE PRESENT AT THE MEETING.
Signature:____________________________
Printed Name:_____________________________ Dated:________, 2000
Signature if held jointly:________________________
Printed Name:_____________________________ Dated:________, 2000
Note: Please sign exactly as your name appears above. Joint owners should each
sign.
<PAGE>
EXHIBIT 99.2
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Section 230.438 of Regulation C promulgated under the
Securities Act of 1933, as amended, the undersigned hereby consents to his being
named in the Proxy Statement-Prospectus, which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of TRH, Inc. with and into
Titan Exploration, Inc., as a person who is expected to become a director of
Pure Resources, Inc. upon the consummation of such merger. As of the effective
time of the Registration Statement, the undersigned will not be a member of the
Board of Directors of Pure Resources, Inc. and will not be required to sign the
Registration Statement.
April 11, 2000 /s/ Jack D. Hightower
---------------------
Jack D. Hightower
<PAGE>
EXHIBIT 99.3
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Section 230.438 of Regulation C promulgated under the
Securities Act of 1933, as amended, the undersigned hereby consents to his being
named in the Proxy Statement-Prospectus, which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of TRH, Inc. with and into
Titan Exploration, Inc., as a person who is expected to become a director of
Pure Resources, Inc. upon the consummation of such merger. As of the effective
time of the Registration Statement, the undersigned will not be a member of the
Board of Directors of Pure Resources, Inc. and will not be required to sign the
Registration Statement.
April 11, 2000 /s/ Graydon H. Laughbaum,
--------------------------
Graydon H. Laughbaum, Jr.
<PAGE>
EXHIBIT 99.4
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Section 230.438 of Regulation C promulgated under the
Securities Act of 1933, as amended, the undersigned hereby consents to his being
named in the Proxy Statement-Prospectus, which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of TRH, Inc. with and into
Titan Exploration, Inc., as a person who is expected to become a director of
Pure Resources, Inc. upon the consummation of such merger. As of the effective
time of the Registration Statement, the undersigned will not be a member of the
Board of Directors of Pure Resources, Inc. and will not be required to sign the
Registration Statement.
April 11, 2000 /s/ H D Maxwell
---------------
H D Maxwell
<PAGE>
EXHIBIT 99.5
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Section 230.438 of Regulation C promulgated under the
Securities Act of 1933, as amended, the undersigned hereby consents to his being
named in the Proxy Statement-Prospectus, which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of TRH, Inc. with and into
Titan Exploration, Inc., as a person who is expected to become a director of
Pure Resources, Inc. upon the consummation of such merger. As of the effective
time of the Registration Statement, the undersigned will not be a member of the
Board of Directors of Pure Resources, Inc. and will not be required to sign the
Registration Statement.
April 11, 2000 /s/ George G. Staley
--------------------
George G. Staley
<PAGE>
EXHIBIT 99.6
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Section 230.438 of Regulation C promulgated under the
Securities Act of 1933, as amended, the undersigned hereby consents to his being
named in the Proxy Statement-Prospectus, which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of TRH, Inc. with and into
Titan Exploration, Inc., as a person who is expected to become a director of
Pure Resources, Inc. upon the consummation of such merger. As of the effective
time of the Registration Statement, the undersigned will not be a member of the
Board of Directors of Pure Resources, Inc. and will not be required to sign the
Registration Statement.
April 11, 2000 /s/ Herbert C. Williamson, III
------------------------------
Herbert C. Williamson, III
<PAGE>
EXHIBIT 99.7
CONSENT OF PETRIE PARKMAN & CO., INC.
We hereby consent to the use of our opinion letter dated December 13, 1999
to the Board of Directors of Titan Exploration, Inc., which is included as Annex
A to the Proxy Statement/Prospectus forming a part of this Registration
Statement, and to references to our firm and such opinion letter in such Proxy
Statement/Prospectus under the captions entitled "Summary - Titan's
Recommendation to its Stockholders - Opinion of financial advisor,"
"The Merger -Background of the Merger," "The Merger - Titan's Reasons for the
Merger" and "The Merger - Opinion of Financial Advisor to Titan". In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of Securities Act of 1933, as amended, and
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder (the "Securities Act"), and we do not thereby admit that we are
experts with respect to any part of the Registration Statement under the meaning
of the term "expert" as used in the Securities Act.
PETRIE PARKMAN & CO., INC.
By: /s/ Jon Hughes
----------------------------
Name: Jon Hughes
--------------------------
Title: Principal
-------------------------
Houston, Texas
April 11, 2000
