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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
Pogo Producing Company
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
The consideration to be paid in the proposed merger consists of
$315,000,000 in cash and a currently indeterminable number of shares of
Pogo Producing Company common stock, par value $1 per share. The price
per share of Pogo common stock calculated in accordance with Rule
0-11(a)(4) was $28.0625 on January 10, 2001. Assuming this was the
price of Pogo common stock determined in accordance with the formula set
forth in the merger agreement, this stock price would result in
11,559,633 shares of Pogo common stock being issued as consideration in
the merger, resulting in a value of $324,392,201 to the equity component
of the consideration. The total consideration paid in the merger would
then be $639,392,201.
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(4) Proposed maximum aggregate value of transaction:
$639,392,201
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(5) Total fee paid:
$127,879
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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[POGO PRODUCING COMPANY LOGO]
PAUL G. VAN WAGENEN
CHAIRMAN, PRESIDENT &
CHIEF EXECUTIVE OFFICER
, 2001
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Dear Shareholders of Pogo Producing Company:
You are cordially invited to attend a special meeting of shareholders of
Pogo Producing Company ("Pogo"), which will be held in Pogo's principal offices,
5 Greenway Plaza, Suite 2700, Houston, Texas, 77046 on ,
, 2001 at 10:00 a.m., CST (Houston time). Pogo's offices are
accessible to the disabled.
At the meeting, you will be asked to consider and vote upon the merger of
NORIC Corporation, the parent company of North Central Oil Corporation, with and
into Pogo, with Pogo remaining as the surviving corporation. Before Pogo can
complete the merger, we must obtain the approval of our shareholders. We are
sending you this proxy statement to ask you to vote in favor of adoption of the
merger agreement. We may also consider and vote upon such other business as may
properly come before the meeting or any adjournment or postponement thereof.
In the merger, Pogo will acquire all of the shares of NORIC for
consideration of approximately $630 million, subject to adjustment, consisting
of 50% cash and 50% Pogo common stock. Outstanding Pogo common stock will remain
unchanged in the merger. When the merger is completed, former NORIC stockholders
will own between approximately 22% and 26% of Pogo's outstanding shares. Pogo
common stock, including the shares issued to stockholders of NORIC as a result
of the merger, will continue to be listed on the New York Stock Exchange and the
Pacific Exchange under the trading symbol "PPP."
The enclosed proxy statement gives you detailed information about the
merger, and includes the merger agreement as Annex A. You can get more
information from publicly available documents we have filed with the Securities
and Exchange Commission. We encourage you to read this entire document
carefully, including all of its annexes. WE ESPECIALLY ENCOURAGE YOU TO READ THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 17.
YOUR VOTE IS VERY IMPORTANT. We hope that you will attend the special
meeting in person. However, whether or not you plan to attend, please date, sign
and promptly mail the enclosed proxy in order to assure your representation at
the meeting and the presence of a quorum. A return envelope is provided, and no
postage need be affixed if mailed in the United States.
I enthusiastically support this transaction, and join with the other
members of our board of directors in recommending that you vote FOR adoption of
the merger agreement.
Sincerely,
/s/ Paul G. Van Wagenen
Paul G. Van Wagenen
Chairman of the Board
THIS PROXY STATEMENT IS DATED , 2001, AND IS BEING FIRST MAILED
TO STOCKHOLDERS ON OR ABOUT , 2001.
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[POGO PRODUCING COMPANY LOGO]
POGO PRODUCING COMPANY
P. O. BOX 2504
HOUSTON, TEXAS 77252-2504
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2001
---------------------
TO THE SHAREHOLDERS OF
POGO PRODUCING COMPANY:
Notice is hereby given that a Special Meeting of Shareholders of Pogo
Producing Company ("Pogo") will be held in Pogo's principal offices at 5
Greenway Plaza, Suite 2700, Houston, Texas 77046, on , ,
2001, at 10:00 a.m., CST (Houston time), for the following purposes:
1. To consider and vote upon a proposal to adopt the agreement and plan
of merger dated as of November 19, 2000, among Pogo Producing Company and
NORIC Corporation and the shareholders signatory thereto; and
2. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on , 2001 are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof. A list of shareholders entitled to vote at the meeting
will be available for inspection during normal business hours for ten days
before the meeting at Pogo's principal offices and at the time and place of the
meeting.
You are cordially invited to attend the meeting in person. Even if you plan
to attend the meeting, however, you are requested to sign, date and return the
accompanying proxy as soon as possible.
By Order of the Board of Directors,
/s/ Gerald Morton
GERALD A. MORTON
Corporate Secretary
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
SUMMARY HISTORICAL FINANCIAL INFORMATION.................... 6
Pogo Summary Historical Financial Information............. 6
North Central Oil Corporation Summary Historical Financial
Information............................................ 8
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION............................................... 10
SUPPLEMENTAL PRO FORMA CONSOLIDATED FINANCIAL INFORMATION... 15
POGO MARKET PRICE AND DIVIDEND INFORMATION.................. 16
RISK FACTORS................................................ 17
Risks Relating to the Merger.............................. 17
The Number of Shares of Pogo Common Stock to Be Issued in
the Merger Is Not Fixed and May Increase Within a Range
if Pogo's Stock Price Declines......................... 17
The Price of Pogo Common Shares May Decline as a Result of
the Merger............................................. 17
Pogo May Face Difficulties in Integrating the Operations
of North Central....................................... 17
Following the Merger, Pogo May be Considered Highly
Leveraged.............................................. 18
We Could Face a Substantial Tax Liability From the
Merger................................................. 18
Risks Relating to Pogo's Business Following the Merger.... 18
We Are Adversely Affected by Low Oil and Gas Prices....... 18
We Are Subject to Various Other Operating Risks........... 18
Operators of Our Properties That We Do Not Operate May Act
in Ways That Are Not in Our Best Interests............. 19
If Our Partners Have Liquidity and Cash Flow Problems, We
May Have Difficulty Financing and Developing Our
Projects............................................... 19
We May Not Be Able to Profitably Market and Sell All of
the Production From Our Concession in Thailand......... 19
We May Not Be Able to Replace Our Reserves or Generate
Cash Flow if We Are Unable to Raise the Funds Necessary
to Meet Our Substantial Capital Requirements........... 19
Our Gas Sales Agreement in Thailand Requires Us to Sell a
Portion of Our Thailand Production at a Reduced Price
if We Do Not Meet Our Minimum Delivery Requirements.... 20
Economic Conditions in Southeast Asia Can Hurt Our Cash
Flow................................................... 20
Maintaining Reserves and Revenues in the Future Depends on
Successful Exploration and Development................. 20
We Are Subject to Casualty Risks in Our Onshore and
Offshore Activities.................................... 20
You Should Not Place Undue Reliance on Our Reserve Data
Because They Are Estimates............................. 20
Hedging Transactions May Not Completely Mitigate Declines
in Oil and Gas Prices.................................. 20
We Have Substantial Capital Requirements.................. 21
We Face Significant Competition........................... 21
We Are Subject to Various Government Regulations and
Environmental Risks.................................... 21
We Are Subject to Various Legal Limitations............... 21
We Are Subject to Various Environmental Liabilities....... 22
Our Foreign Operations Subject Us to Additional Risks..... 22
We May Not Be Able to Obtain Sufficient Equipment and
Personnel to Conduct Our Operations.................... 22
Adoption of SFAS 133 May Have a Negative Impact On Us..... 23
FORWARD-LOOKING STATEMENTS.................................. 24
CERTAIN DEFINITIONS......................................... 24
THE SPECIAL MEETING......................................... 25
Time, Place and Purpose of the Special Meeting............ 25
Record Date; Outstanding Shares; Shares Entitled To Vote;
Quorum Requirement..................................... 25
Vote Necessary to Approve the Proposal.................... 25
Voting by Proxy........................................... 25
Revocability of Proxies................................... 26
Other Voting Matters...................................... 26
Other Business; Adjournments and Postponements............ 26
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THE MERGER................................................................................................... 27
Background of the Merger................................................................................... 27
Pogo's Reasons for the Merger.............................................................................. 27
Recommendation of Pogo's Board of Directors................................................................ 29
Opinion of Pogo's Financial Advisor........................................................................ 29
Financial and Production Forecasts......................................................................... 31
Comparable Company Trading Analysis........................................................................ 31
Comparable Transaction Analysis............................................................................ 32
Net Asset Value Analysis................................................................................... 33
Merrill Lynch Financial Advisor Fee........................................................................ 33
Other Relationships........................................................................................ 33
Interests of Pogo Directors and Executive Officers in the Merger........................................... 33
Dividend Policy............................................................................................ 33
Accounting Treatment of the Merger......................................................................... 34
Financing of the Merger.................................................................................... 34
Material United States Federal Income Tax Consequences of the Merger....................................... 34
Regulatory Filings and Approvals Required to Complete the Merger........................................... 34
Rights of Dissenting Stockholders.......................................................................... 35
THE MERGER AGREEMENT......................................................................................... 36
Merger Structure, Parties and Timing....................................................................... 36
Merger Consideration....................................................................................... 36
Representations and Warranties............................................................................. 37
Additional Agreements and Covenants........................................................................ 39
Stockholder Meetings and Voting............................................................................ 41
No Solicitation of Competing Transactions.................................................................. 41
Employee Matters........................................................................................... 41
Tax Matters................................................................................................ 41
Conditions to Closing...................................................................................... 42
Indemnification Provisions................................................................................. 43
Termination Provisions and Termination Fee................................................................. 44
Standstill and Voting Agreement............................................................................ 44
Registration Rights Agreement.............................................................................. 45
THE COMPANIES................................................................................................ 47
About Pogo Producing Company............................................................................... 47
About NORIC and North Central.............................................................................. 47
NORTH CENTRAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION........... 52
CONSOLIDATED FINANCIAL STATEMENTS OF NORTH CENTRAL
Report of Independent Public Accountants................................................................... 57
Consolidated Statements of Operations...................................................................... 58
Consolidated Balance Sheets................................................................................ 59
Consolidated Statements of Cash Flows...................................................................... 61
Consolidated Statements of Stockholders' Equity............................................................ 62
Notes to Consolidated Financial Statements................................................................. 63
DESCRIPTION OF CAPITAL STOCK................................................................................. 75
WHERE YOU CAN FIND MORE INFORMATION AND INCORPORATION OF DOCUMENTS BY REFERENCE.............................. 79
Annex A -- Agreement and Plan of Merger, dated as of November 19, 2000, among Pogo Producing Company, NORIC
Corporation, and the Shareholders Signatory Thereto, including form of Standstill and Voting
Agreement and Registration Rights Agreement
Annex B -- Opinion of Merrill Lynch dated November 18, 2000
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS POGO PROPOSING THE MERGER?
A: The merger is anticipated to increase Pogo's
total proved oil and gas reserves by 63%, increase Pogo's projected annual
2000 production by approximately 35%, complement Pogo's already attractive
reserve and production mix with North Central's quality North American
natural gas assets, and extend Pogo's current indicated reserve life.
Please read the more detailed description of our reasons for the merger on
pages 27 through 29.
Q: WHAT WILL HAPPEN IN THE MERGER?
A: In the merger, NORIC Corporation will be
merged with and into Pogo, and NORIC will cease to exist as a separate
company. NORIC stockholders will become new Pogo shareholders, and Pogo
shareholders will retain their Pogo shares. North Central will become a
wholly owned subsidiary of Pogo.
Q: WILL POGO'S MANAGEMENT, LOCATION OR SHARES
CHANGE?
A: No. Pogo will be the surviving corporation in the
merger and its management and corporate structure will remain unchanged. Pogo
will continue to be located in Houston, Texas and its shares will continue to
trade on the New York Stock Exchange and the Pacific Exchange under the
symbol "PPP."
Q: WHAT WILL NORIC STOCKHOLDERS RECEIVE IN THE
MERGER?
A: NORIC stockholders will receive approximately
$630 million, subject to adjustment, in a combination of 50% cash and 50%
shares of Pogo common stock in exchange for their NORIC stock. The stock
portion of the consideration is valued based on the market price of the Pogo
common stock over a 20-day trading period ending five days prior to the
closing date of the merger, subject to a minimum of approximately 11.6
million shares of Pogo common stock if the price per share exceeds $27.25 and
a maximum of approximately 14.2 million shares if the price per share is less
than $22.25. We encourage you to obtain current market price quotations for
Pogo common shares.
The Pogo common shares received in the merger by former NORIC stockholders
will be listed on the New York Stock Exchange and the Pacific Exchange under
the ticker symbol "PPP." The NORIC stockholders have agreed to restrictions
on the voting and trading of their shares, which are described on pages 44
through 45.
Q: WHAT WILL HAPPEN TO MY POGO COMMON SHARES
IN THE MERGER?
A: Nothing. Each outstanding Pogo common share
will remain outstanding and unchanged following the merger.
Q: WILL I CONTINUE TO RECEIVE DIVIDENDS ON MY POGO
COMMON SHARES AFTER THE MERGER?
A: We expect that Pogo's current dividend policy
will not change as a result of the merger.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the
information contained in this proxy statement, including the annexes, please
respond by completing, signing and dating your proxy card and returning it in
the enclosed postage-paid envelope as soon as possible so that your shares
may be represented at the special meeting. In order to assure that we obtain
your vote, please return your completed proxy card even if you currently plan
to attend the special meeting in person.
Q: HOW DO I VOTE MY SHARES IF MY SHARES ARE HELD
IN "STREET NAME"?
A: You should contact your broker. Your broker
can give you directions on how to direct him to vote your shares. Your broker
will not vote your shares unless the broker receives appropriate instructions
from you.
Q: WHAT IF I PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON?
A: To assure the presence of a quorum and to
assure that your votes are counted, we recommend that you send in your proxy
anyway. If you are a holder of record, you may still attend the meeting and
vote in person.
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Q: WHAT VOTE DOES THE BOARD OF DIRECTORS
RECOMMEND?
A: The board of directors unanimously recommends that you vote FOR adoption of
the merger agreement. The approval of the holders of a majority of the
outstanding shares of Pogo common stock is a necessary condition to the
completion of merger.
Q: CAN I DISSENT AND REQUIRE APPRAISAL OF MY
SHARES?
A: No. Pogo shareholders are not entitled to dissenters' rights or appraisal
rights in connection with the merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE DELIVERED MY
PROXY?
A: Yes. You can change your vote at any time
before your proxy is voted at the special meeting in any of the following
ways:
- You can revoke your proxy.
- You can submit a new proxy.
- If you are a holder of record, you can attend the special meeting and vote
in person.
If you choose the first or second method, you must submit your notice of
revocation or your new proxy to Pogo's corporate secretary before the
special meeting. If your shares are held in an account at a brokerage firm,
you must contact your brokerage firm to change your vote.
Q: WHEN DO YOU EXPECT THE MERGER TO BE
COMPLETED?
A: We plan to complete the merger as quickly as
possible once all the conditions to the merger, including obtaining
shareholder approval at the special meeting, are fulfilled. Fulfilling some
of these conditions is not entirely within Pogo's control. We expect to
complete the merger during the first quarter of 2001.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES?
A: No. Pogo shareholders will keep their current
stock certificates and their shares will remain unchanged.
Q: IF I HAVE MORE QUESTIONS ABOUT THE MERGER,
WHERE CAN I FIND ANSWERS?
A: If you have any questions about the merger or
how to submit your proxy, or if you need additional copies of this proxy
statement or the enclosed proxy card or voting instructions, you may contact:
Pogo Producing Company
Investor Relations
5 Greenway Plaza, Suite 2700
Houston, Texas 77046
Telephone: (713) 297-5000
Facsimile: (713) 297-5100
You can also find out more information about the merger in our filings with
the Securities and Exchange Commission. Please see pages 79 through 80.
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SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. You should
carefully read this entire document and the other documents to which this
document refers to fully understand the merger. See "Where You Can Find More
Information and Incorporation of Documents by Reference" on page 79.
POGO PRODUCING COMPANY
Pogo Producing Company explores for, acquires, develops and produces oil and
natural gas. Headquartered in Houston, Texas, Pogo owns various ownership
interests in 98 federal and state Gulf of Mexico lease blocks offshore from
Louisiana and Texas. Pogo also owns approximately 340,000 gross leasehold acres
in various oil and gas provinces onshore in the United States, including the
Permian Basin, South Texas, South Louisiana and the Texas Gulf Coast, and in
Canada; approximately 713,000 gross acres in the Gulf of Thailand; approximately
778,000 gross acres in Hungary; and approximately 193,000 gross acres in the
United Kingdom and Denmark sectors of the North Sea.
NORIC CORPORATION AND NORTH CENTRAL OIL CORPORATION
NORIC Corporation is the parent company of North Central Oil Corporation. North
Central Oil Corporation is an independent oil and gas exploration and production
company headquartered in Houston, Texas with properties concentrated in four
core areas: South Texas, the Rocky Mountains, South Louisiana and the Texas Gulf
Coast.
THE SPECIAL MEETING
The special meeting of shareholders will be held on , ,
2001, at 10:00 a.m., local time, at Pogo's principal offices at 5 Greenway
Plaza, Suite 2700, Houston, Texas. At the special meeting, you will be asked to
vote to adopt the merger agreement.
RECORD DATE; VOTE REQUIRED
You can vote at the special meeting if you owned Pogo common shares at the close
of business on , 2001. On that date, there were shares
outstanding and entitled to vote. You may cast one vote for each share you then
owned. Adoption of the merger agreement requires the affirmative vote of the
holders of a majority of Pogo's outstanding common shares.
THE BOARD OF DIRECTORS' RECOMMENDATION TO THE SHAREHOLDERS
Pogo's board of directors unanimously recommends that you vote FOR the proposal
to adopt the merger agreement.
OPINION OF POGO'S FINANCIAL ADVISOR (PAGE 29)
Merrill Lynch, Pogo's financial advisor, delivered a written opinion to the
board of directors as to the fairness to Pogo, from a financial point of view,
of the consideration to be paid by Pogo in the merger. We have attached this
opinion, dated November 18, 2000, as Annex B to this document. You should read
this opinion completely to understand the procedures followed, assumptions made,
matters considered and limitations of the review undertaken.
OVERVIEW OF THE MERGER AGREEMENT (PAGE 36)
The merger agreement is attached as Annex A to this document. Please read the
merger agreement carefully. The merger agreement is the legal document that
governs the merger.
We propose a merger transaction in which NORIC, the parent company of North
Central, will merge with and into Pogo, with Pogo remaining as the surviving
corporation. The separate corporate existence of NORIC will cease, and NORIC
stockholders will receive a combination of cash and Pogo common shares in
exchange for their NORIC shares.
NORIC Stockholders. NORIC stockholders will receive approximately $630 million,
subject to adjustment, in a combination of 50% cash and 50% Pogo common stock in
exchange for their stock in NORIC. The Pogo common stock portion of the
consideration is to be valued over a 20 trading day period ending five days
prior to the closing date of the merger agreement, subject to a minimum of
approximately 11.6 million shares of Pogo common stock if the per share price of
Pogo common stock exceeds $27.25 and a maximum of approximately 14.2 million
shares if the per share price of Pogo common stock is less than $22.25. After
the merger, former NORIC stockholders will own be-
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tween approximately 22% and 26% of the outstanding Pogo common shares.
Pogo Shareholders. Each Pogo common share will remain issued and outstanding as
one Pogo common share. Shareholders of Pogo prior to the merger will own between
approximately 74% and 78% of the outstanding Pogo common shares after the
merger.
Conditions to Completion of the Merger
(page 42)
The completion of the merger depends on a number of conditions being met or
waived. In addition to customary conditions relating to the correctness of each
company's representations and warranties made in, and compliance with other
obligations under, the merger agreement, these conditions include the following:
- Pogo shareholders and NORIC stockholders must have voted to adopt the merger
agreement at their special meetings,
- no legal action brought by a governmental authority seeking to restrain the
merger or materially alter the transactions contemplated by the merger
agreement may be pending or threatened against Pogo or NORIC,
- Pogo and NORIC must have received legal opinions to the effect that the merger
will qualify as a tax-free reorganization, and
- the parties must have executed the standstill and voting agreement and the
registration rights agreement. These two agreements are described on pages 44
to 45 and included as a part of Annex A.
Termination of the Merger Agreement (page 44)
The merger agreement may be terminated under limited circumstances, including
the following:
- if the merger has not been completed by June 1, 2001, unless the party seeking
termination has failed to perform its obligations under the merger agreement
and such failure was the cause of or resulted in the failure to complete the
merger by that date,
- if NORIC stockholders or Pogo shareholders do not approve the merger
agreement, or
- if any governmental entity has issued a final and nonappealable order, or has
taken any other final and nonappealable action, prohibiting the merger.
Termination Fees (page 44)
NORIC must pay Pogo a fee of $12.6 million if the merger agreement is terminated
due to the failure to obtain NORIC stockholder approval of the merger.
Similarly, Pogo must pay NORIC a fee of $12.6 million if the merger agreement is
terminated due to the failure to obtain Pogo shareholder adoption of the merger
agreement, including the share issuance.
"No Solicitation" Provisions (page 41)
Subject to limited exceptions, the merger agreement prohibits either party from
soliciting a different merger or other competing transaction with a third party.
FINANCING OF THE MERGER
We intend to fund the cash portion of the merger consideration using cash on
hand and by drawing on a new $500 million bank credit facility that we will
enter into in connection with the merger. The new bank credit facility will also
be used to refinance the estimated $120 million of North Central's outstanding
bank debt that we will assume at the closing of the merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the merger, the Pogo board of directors will continue to manage the
business of Pogo, which then will include the business of North Central. The
company will continue to be called Pogo Producing Company and will be
headquartered in Houston, Texas.
NO APPRAISAL RIGHTS
Under Delaware law, Pogo shareholders are not entitled to appraisal rights in
connection with the merger.
ACCOUNTING TREATMENT
The merger will be treated as a purchase for accounting and financial reporting
purposes.
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FEDERAL INCOME TAX CONSEQUENCES (PAGE 42)
Because Pogo common shares remain unchanged, the merger will not cause you to
recognize any gain or loss for U.S. federal income tax purposes.
REGULATORY APPROVALS
The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 was terminated on December 20, 2000. We are not aware of any other material
regulatory approvals that are necessary to complete the merger.
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SUMMARY HISTORICAL FINANCIAL INFORMATION
POGO SUMMARY HISTORICAL FINANCIAL INFORMATION
We have derived the summary historical financial information of Pogo set
forth below from the information included in Pogo's annual reports on Form 10-K,
except for the information for the nine months ended September 30, 1999 and
2000, which we derived from Pogo's unaudited quarterly reports on Form 10-Q
filed for the periods ended September 30, 1999 and 2000. We have prepared the
interim financial statements without audit and have included all adjustments of
a normal and recurring nature which are, in our opinion, necessary for the fair
presentation of interim results. However, they are not necessarily indicative of
results for the entire year. You should read this financial information in
conjunction with the information in those Form 10-K's and Form 10-Q's and in
conjunction with the other information incorporated by reference in this
document. See "Where You Can Find More Information and Incorporation of
Documents by Reference."
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SELECTED CONSOLIDATED FINANCIAL DATA OF POGO PRODUCING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(EXPRESSED IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues.................... $347,330 $190,012(a) $275,116(a) $202,803 $286,300 $203,977 $157,559
Lease operating expense........... 69,381 48,229 69,936 69,071 63,501 37,628 35,071
Pipeline operating expense and
natural gas purchases........... 10,122 3,505 6,481 2,142 -- -- --
General and administrative
expense......................... 26,567 20,686 29,865 26,356 21,412 18,028 16,400
Depreciation, depletion and
amortization expense............ 97,523 74,667 104,266 110,916 103,157 61,857 68,489
Operating income (loss)........... 121,494 37,025(a) 53,992(a) (57,220) 78,069 61,108 23,428
Interest charges.................. 25,460 27,414 35,874 24,682 21,886 13,203 11,167
Net income (loss)................. $ 57,160 $ 14,044 $ 22,134 $(43,098) $ 37,116 $ 32,760(b) $ 9,230
Earnings (loss) per share --
Basic........................... $ 1.42 $ 0.35(a) $ 0.55(a) $ (1.14) $ 1.11 $ 0.99(b) $ 0.28
Diluted......................... $ 1.30 $ 0.35(a) $ 0.55(a) $ (1.14) $ 1.06 $ 0.95(b) $ 0.28
Dividends per share............... $ 0.09 $ 0.09 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12
OTHER FINANCIAL DATA:
EBITDAX(c)........................ $241,260 $117,592 $168,834 $105,234 $201,387 $148,321 $106,088
Balance sheet data, at end of
period
Total assets.................... 997,316 905,399 948,193 862,396 676,617 479,242 338,177
Long-term debt.................. 365,000 365,000 375,000 434,947 348,179 246,230 166,249(d)
Trust preferred securities...... 144,856 144,804 144,751 -- -- -- --
Shareholders' equity............ 327,128 260,827 268,512 249,660 146,106 107,282 71,708
PRODUCTION AND RESERVES DATA:
Production per day
Crude oil, condensate and NGL
(barrels)..................... 27,615 16,851 18,112 18,197 18,851 14,141 13,784
Natural gas (Mcf's)............. 166,000 133,200 141,600 159,000 181,700 107,700 121,000
Production for the period in
equivalent MMcf's............... 90,882 63,962 91,351 97,894 107,611 70,472 74,337
Reserves, at period end
Crude oil, condensate and NGL
(MBbls)....................... N/A N/A 78,776 67,510 58,164 49,602 45,182
Natural gas (MMcf's)............ N/A N/A 374,698 440,169 401,488 360,944 328,061
Equivalent MMcf's............... N/A N/A 847,354 845,229 750,474 658,556 599,153
Standardized measure of discounted
future net cash flows relating
to proved oil and gas
reserves(e)..................... N/A N/A $868,683 $422,721 $349,465 $686,040 $377,145
</TABLE>
---------------
(a) Includes $36,597,000 or $0.59 per share related to the gain on the sale of
the Lopeno Field.
(b) Net income and earnings per share include an extraordinary loss on early
extinguishment of debt of $821,000 or $0.02 per share.
(c) EBITDAX represents income from continuing operations before provision for
income taxes, interest expense, depreciation, depletion and amortization,
and exploration costs. EBITDAX is presented as a measure of Pogo's debt
service ability, and not as an alternative to (i) operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of Pogo's operating performance, or (ii) cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) as a measure of liquidity. The EBITDAX measure
presented may not be comparable to similarly titled measures reported by
other companies.
(d) Debt includes $3,000,000 of current portion of long-term debt.
(e) The standardized measure of discounted future net cash flows from the
production of proved reserves is calculated in accordance with SEC
guidelines and does not purport to present the fair market value of Pogo's
oil and gas reserves.
7
<PAGE> 13
NORTH CENTRAL OIL CORPORATION SUMMARY HISTORICAL FINANCIAL INFORMATION
We have derived the summary historical financial information of North
Central and its subsidiaries, all non-public entities, set forth below as of
September 30, 1999 and 2000 and December 31, 1998 and 1999, for the nine months
ended September 30, 1999 and 2000, and for the three years in the period ended
December 31, 1999 from the consolidated financial statements of North Central
presented elsewhere in this document. Summary historical financial information
as of December 31, 1995, 1996 and 1997 and for the years ended December 31, 1995
and 1996 is unaudited and was derived from North Central's accounting records.
You should read this information in conjunction with the information in the
North Central management's discussion and analysis of financial condition and
results of operations and the audited consolidated financial statements of North
Central, which are presented elsewhere in this document. The interim financial
statements have been prepared by North Central without audit and have included
all adjustments of a normal and recurring nature that are, in the opinion of
North Central's management, necessary for the fair presentation of interim
results. However, they are not necessarily indicative of results for the entire
year.
We are presenting financial statements of North Central rather than
financial statements of NORIC, because NORIC has disposed of all the non-oil and
gas assets and operations formerly owned and conducted by NORIC and its other
subsidiaries. NORIC's assets now consist only of the stock of North Central,
which it owns directly and through two non-operating subsidiaries, and cash and
cash equivalents generated from the disposition of its non-oil and gas assets.
The cash and cash equivalents of NORIC are estimated to be approximately $15
million at the closing and are reflected in the unaudited pro forma condensed
consolidated financial statements presented elsewhere in this document.
8
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA OF NORTH CENTRAL OIL CORPORATION AND
SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(EXPRESSED IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues................................ $ 99,200 $ 58,700 $ 87,900 $ 58,200 $ 57,900 $ 51,400 $ 36,700
Lease operating expense....................... 19,100 15,500 21,500 16,400 17,700 14,400 12,300
General, administrative and other expense..... 25,000 5,400 12,200 6,400 5,300 5,200 4,200
Depreciation, depletion and amortization
expense..................................... 23,500 22,800 31,300 22,800 14,400 11,100 11,000
Operating income.............................. 27,000 11,300 16,000 800 10,300 15,300 4,400
Interest charges.............................. 7,400 7,000 9,300 4,600 2,800 2,800 2,500
Net income (loss)............................. $ 12,700 $ 2,800 $ 4,500 $ (2,400) $ 5,100 $ 8,400 $ 1,400
OTHER FINANCIAL DATA:
EBITDAX(a).................................... $ 55,100 $ 37,800 $ 54,200 $ 35,400 $ 34,900 $ 31,800 $ 20,200
Balance sheet data, at end of period
Total assets................................ 360,400 290,100 297,400 280,900 126,800 120,000 102,200
Long-term debt.............................. 134,000 126,000 120,000 123,000 35,600 28,300 31,100
Stockholders' equity........................ 126,200 111,800 113,500 109,000 65,200 60,100 51,700
PRODUCTION AND RESERVES DATA:
Production per day
Crude oil, condensate and NGL (barrels)..... 3,311 3,270 3,442 3,706 3,151 2,996 2,948
Natural gas (Mcf's)......................... 98,447 80,076 83,951 49,247 37,468 31,119 26,999
Production for the period in equivalent
MMcf's...................................... 32,400 27,200 38,200 26,100 20,600 18,000 16,300
Reserves, at period end
Crude oil, condensate and NGL (MBbls)....... N/A N/A 9,100 9,500 10,300 7,500 7,900
Natural gas (MMcf's)........................ N/A N/A 377,700 332,200 185,700 120,100 91,800
Equivalent MMcf's........................... N/A N/A 432,300 389,200 247,500 165,100 139,200
Standardized measure of discounted future net
cash flows relating to proved oil and gas
reserves(b)................................. N/A N/A $268,800 $200,100 $138,300 $200,100 $110,300
</TABLE>
---------------
(a) EBITDAX represents income from continuing operations before provision for
income taxes, interest expense, depreciation, depletion and amortization,
and exploration costs. EBITDAX is presented as a measure of North Central's
debt service ability, and not as an alternative to (i) operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of North Central's operating performance, or (ii) cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity. The EBITDAX
measure presented may not be comparable to similarly titled measures
reported by other companies.
(b) The standardized measure of discounted future net cash flows from the
production of proved reserves is calculated in accordance with SEC
guidelines and does not purport to present the fair market value of North
Central's oil and gas reserves.
9
<PAGE> 15
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements give effect to the merger of NORIC, the parent company of North
Central, with and into Pogo, with Pogo remaining as the surviving corporation.
Since NORIC has disposed of all of its non-oil and gas assets and operations
other than its investment in North Central and cash and cash equivalents
generated from the disposition of the non-oil and gas assets, the following
unaudited pro forma condensed consolidated financial statements are based on the
historical financial statements for North Central plus an adjustment for the
estimated $15,000,000 of cash and cash equivalents of NORIC that will be
acquired by Pogo in the merger. See Note (j) in the notes to unaudited pro forma
condensed consolidated financial statements.
The unaudited pro forma condensed consolidated statements of income present
the combined results of operations of Pogo and North Central as if the proposed
merger had occurred on January 1, 1999. The unaudited pro forma condensed
consolidated balance sheet presents the combined financial position of Pogo and
North Central (including NORIC cash and cash equivalents) as if the proposed
merger had occurred as of September 30, 2000.
The accompanying unaudited pro forma condensed consolidated financial
statements reflect the acquisition of NORIC by Pogo under the purchase method of
accounting. The final determination of the purchase price adjustments, including
the allocation of the purchase price to the assets acquired and liabilities
assumed based on their respective fair values, has not yet been made.
Accordingly, the purchase accounting adjustments made in connection with the
development of the unaudited pro forma condensed consolidated financial
statements are preliminary and have been made solely for purposes of developing
the pro forma financial information.
The unaudited pro forma condensed consolidated financial statements are
presented for illustration purposes only, and do not necessarily indicate the
operating results or financial position that would have occurred if the merger
had been completed as of September 30, 2000 or January 1, 1999. The unaudited
pro forma condensed consolidated financial statements are not necessarily
indicative of future operating results or of the financial position of the
combined enterprise.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of Pogo and North Central incorporated
by reference or included elsewhere in this proxy statement. The unaudited
condensed consolidated financial statements do not reflect any cost savings or
other synergies anticipated as a result of the merger, nor do they reflect any
future merger-related expenses.
10
<PAGE> 16
POGO PRODUCING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NORTH PRO FORMA PRO FORMA
POGO CENTRAL ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales.............................. $337,479 $98,600 $ (200)(a) $435,879
Pipeline sales and other....................... 9,865 300 10,165
Gains (losses) on sales........................ (14) -- (14)
-------- ------- -------- --------
Total.................................. 347,330 98,900 (200) 446,030
-------- ------- -------- --------
Operating Costs and Expenses:
Lease operating.................................. 69,381 19,100 88,481
Pipeline operating and natural gas purchases..... 10,122 -- 10,122
General and administrative....................... 26,567 25,000 (21,000)(b) 30,567
Exploration...................................... 8,481 1,000 9,481
Dry hole and impairment.......................... 13,762 3,600 17,362
(23,500)(c)
Depreciation, depletion and amortization......... 97,523 23,500 45,900(d) 143,423
-------- ------- -------- --------
Total.................................. 225,836 72,200 1,400 299,436
-------- ------- -------- --------
Operating Income (Loss).......................... 121,494 26,700 (1,600) 146,594
Interest:
Charges........................................ (25,460) (7,400) (14,200)(e) (47,060)
Income......................................... 1,253 300 1,553
Capitalized.................................... 15,160 -- 14,400(f) 29,560
Minority Interest................................ (7,468) -- (7,468)
Foreign Currency Transaction Loss................ (2,051) -- (2,051)
-------- ------- -------- --------
Income (Loss) Before Taxes....................... 102,928 19,600 (1,400) 121,128
Income Tax Benefit (Expense)..................... (45,768) (6,900) 490(g) (52,178)
-------- ------- -------- --------
Net Income (Loss)................................ $ 57,160 $12,700 $ (910) $ 68,950
======== ======= ======== ========
EARNINGS PER COMMON SHARE
Basic............................................ $ 1.42 $ 1.33(k)
Diluted.......................................... $ 1.30 $ 1.21(k)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
POTENTIAL COMMON SHARES OUTSTANDING:
Basic............................................ 40,359 11,560(k) 51,919
Diluted.......................................... 50,016 11,560(k) 61,576
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
11
<PAGE> 17
POGO PRODUCING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NORTH PRO FORMA PRO FORMA
POGO CENTRAL ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales.......................... $230,499 $88,000 $ 500(a) $318,999
Pipeline sales and other................... 7,159 500 7,659
Gains (losses) on sales.................... 37,458 (900) 36,558
-------- ------- --------- --------
Total.............................. 275,116 87,600 500 363,216
-------- ------- --------- --------
Operating Costs and Expenses:
Lease operating............................ 69,936 21,500 91,436
Pipeline operating and natural gas
purchases............................... 6,481 -- 6,481
General and administrative................. 29,865 12,200 (7,000)(b) 35,065
Exploration................................ 5,982 2,800 8,782
Dry hole and impairment.................... 4,594 4,100 8,694
(31,300)(c)
Depreciation, depletion and amortization... 104,266 31,300 72,600(d) 176,866
-------- ------- --------- --------
Total.............................. 221,124 71,900 34,300 327,324
-------- ------- --------- --------
Operating Income (Loss)...................... 53,992 15,700 (33,800) 35,892
Interest:
Charges.................................... (35,874) (9,300) (18,900)(e) (64,074)
Income..................................... 1,208 300 1,508
Capitalized................................ 17,733 -- 19,200(f) 36,933
Minority Interest............................ (5,914) -- (5,914)
Foreign Currency Transaction Gain............ 572 -- 572
-------- ------- --------- --------
Income (Loss) Before Taxes................... 31,717 6,700 (33,500) 4,917
Income Tax Benefit (Expense)................. (9,583) (2,200) 11,725(g) (58)
-------- ------- --------- --------
Net Income (Loss)............................ $ 22,134 $ 4,500 $ (21,775) $ 4,859
======== ======= ========= ========
EARNINGS (LOSS) PER COMMON SHARE
Basic........................................ $ 0.55 $ 0.09(k)
Diluted...................................... $ 0.55 $ 0.09(k)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
POTENTIAL COMMON SHARES OUTSTANDING:
Basic........................................ 40,178 11,560(k) 51,738
Diluted...................................... 40,390 11,560(k) 51,950
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
12
<PAGE> 18
POGO PRODUCING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
NORTH PRO FORMA PRO FORMA
POGO CENTRAL ADJUSTMENTS COMBINED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........... $ 68,292 $ 11,400 $ 15,000(j) $ 31,692
(63,000)(l)
Other current assets................ 110,405 23,800 134,205
----------- --------- ----------- -----------
Total current assets........ 178,697 35,200 (48,000) 165,897
----------- --------- ----------- -----------
PROPERTY AND EQUIPMENT (AT COST):
Oil and gas properties (successful
efforts 810,300(k)
method).......................... 1,864,711 421,700 (135,800)(m) 2,960,911
Pipelines and other fixed assets.... 20,735 5,500 26,235
----------- --------- ----------- -----------
1,885,446 427,200 674,500 2,987,146
Less -- Accumulated depreciation,
depletion, and amortization...... (1,107,110) (135,800) 135,800(m) (1,107,110)
----------- --------- ----------- -----------
778,336 291,400 810,300 1,880,036
----------- --------- ----------- -----------
OTHER ASSETS:
Deferred charges -- commodity
hedges........................... -- 30,100 (30,100)(h) --
Gas imbalance receivable............ -- 2,200 (2,200)(a) --
Other noncurrent assets............. 40,283 1,500 41,783
----------- --------- ----------- -----------
40,283 33,800 (32,300) 41,783
----------- --------- ----------- -----------
$ 997,316 $ 360,400 $ 730,000 $ 2,087,716
=========== ========= =========== ===========
CURRENT LIABILITIES................... $ 67,117 $ 36,400 $ 103,517
OTHER LIABILITIES:
$ (63,000)(l)
Long-term debt...................... 365,000 134,000 332,600(k) 768,600
Deferred federal income taxes....... 79,955 28,000 295,834(k) 403,789
Deferred compensation............... -- 32,000 (32,000)(b) --
Deferred income -- interest rate
hedges........................... -- 2,500 (2,500)(h) --
Other noncurrent liabilities........ 13,260 1,300 (600)(i) 13,960
----------- --------- ----------- -----------
525,332 234,200 530,334 1,289,866
----------- --------- ----------- -----------
MINORITY INTEREST..................... 144,856 -- -- 144,856
----------- --------- ----------- -----------
SHAREHOLDERS' EQUITY.................. 327,128 126,200 199,666(k) 652,994
----------- --------- ----------- -----------
$ 997,316 $ 360,400 $ 730,000 $ 2,087,716
=========== ========= =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
13
<PAGE> 19
POGO PRODUCING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
a. To conform North Central's method of accounting for natural gas production
imbalances to be consistent with Pogo's method. Pogo follows the cash
method of accounting for production imbalances whereby Pogo recognizes
revenues on production it has taken and delivered to its purchasers. North
Central has historically followed the entitlements method whereby North
Central recognized revenue for its share of production whether or not the
gas is actually taken by North Central's purchasers.
b. To eliminate the North Central deferred compensation liability and related
expense pursuant to the terms of the merger agreement. The merger agreement
requires that the obligation related to North Central's phantom share plan
be settled immediately prior to the merger.
c. To record the reversal of North Central's historical depreciation,
depletion and amortization expense.
d. To record depreciation, depletion and amortization expense based on the
estimated fair value of North Central's properties and equipment.
e. To record interest expense on acquisition debt to be funded using Pogo's
revolving bank credit agreement.
f. To record capitalized interest based on the fair value of the unproved oil
and gas properties acquired from North Central.
g. To record income tax effect on the pro forma adjustments based on the
applicable statutory income tax rates.
h. To reflect the elimination of North Central's deferred realized loss from
commodity hedging activities and deferred realized gain from interest rate
hedging activities in connection with the purchase price allocation in
accordance with the purchase method of accounting. See footnote (k).
i. To adjust North Central's accrued retirement obligation to estimated fair
value in accordance with the purchase method of accounting. See footnote
(k).
j. To reflect the estimated $15,000,000 in cash and cash equivalents of NORIC
that will be acquired in the merger. See footnote (k).
k. To record purchase accounting adjustments related to the estimated
allocation of the purchase price of the acquisition of NORIC, including
estimated merger costs, to assets acquired and liabilities assumed in
accordance with the purchase method of accounting.
l. To reduce Pogo cash and acquisition debt for the amount of Pogo cash on
hand used to satisfy a portion of the cash consideration in the merger. See
footnote (k).
m. To reverse historical North Central accumulated depreciation, depletion and
amortization in connection with the purchase price allocation in accordance
with the purchase method of accounting. See footnote (k).
The following is a calculation and allocation of the purchase price to the
assets acquired and liabilities assumed based on their estimated fair
values (expressed in thousands, except per share amounts).
<TABLE>
<S> <C>
Estimated number of shares of common stock to be issued..... 11,559,633
Pogo's common stock price (the average of the closing prices
for January 8-10, 2001)................................... $ 28.19
-----------
Estimated fair value of common stock to be issued........... $ 325,866
Add: Cash consideration to be paid to NORIC stockholders.... 315,000
Add: Pogo's estimated merger related costs.................. 17,600
-----------
Purchase Price.............................................. $ 658,466
===========
</TABLE>
14
<PAGE> 20
<TABLE>
<S> <C>
ALLOCATION OF PURCHASE PRICE:
NORIC cash and cash equivalents......................................................... $ 15,000
Other current assets.................................................................... 35,200
Properties and equipment................................................................ 1,101,700
Other noncurrent assets................................................................. 1,500
Current liabilities..................................................................... (36,400)
Long-term debt.......................................................................... (466,600)
Deferred income taxes................................................................... (323,834)
Other non-current liabilities........................................................... (700)
-------------
Shareholders' equity.................................................................... $ (325,866)
=============
</TABLE>
The purchase price adjustments, including allocation, are subject to
changes in:
- the number of actual shares issued. The minimum number of shares allowed
by the merger agreement (11,559,633 shares) have been assumed issued for
purposes of this pro forma presentation. If the maximum number of shares
allowed by the merger agreement (14,157,303 shares) were issued, the
resulting Basic and Diluted EPS amounts would be reduced to $1.26 and
$1.14, respectively for the nine months ended September 30, 2000. Basic
and Diluted EPS would each be unchanged for the year ended December 31,
1999;
- the final determination of the Pogo share price on the effective date;
- the final determination of the purchase price adjustment, if any, on the
effective date;
- the fair value of North Central's working capital and other assets and
liabilities on the effective date; and
- the actual merger costs incurred.
These items will not be known until after the effective date of the merger.
SUPPLEMENTAL PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Certain items related to the historical operations of North Central will be
non-recurring and should be considered in an evaluation of the proposed merger
and its affect on future operations of the combined company. The following
information discusses those items in detail and their financial impact on the
Income (Loss) Before Taxes of the pro forma results of the combined company.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
- Hedging Losses and Gains -- The historical financial
statements of North Central include hedging losses and
gains which will not have a continuing effect subsequent
to the merger. In contemplation of the sale of the
company, North Central's management made a decision to
terminate all commodity and interest rate hedging
contracts. Had the contracts not been in existence on
January 1, 1999, the assumed date of the merger for pro
forma purposes, Income (Loss) Before Taxes would have
increased (decreased) by:
Commodity hedges....................................... $15,500 $1,500
Interest rate hedges................................... $ (300) $ 300
- Cost Savings -- Pogo anticipates future administrative
cost savings from elimination of duplicative activities
and the combination of Pogo's and North Central's
workforces................................................ $ 2,000 $3,000
- Interest Savings -- The historical financial statements of
North Central include cash in excess of working capital
needs. Had this cash been used to reduce North Central's
debt, Income (Loss) before taxes would have increased..... $ 1,103 $1,470
</TABLE>
15
<PAGE> 21
POGO MARKET PRICE AND DIVIDEND INFORMATION
The following table shows the high and low sales prices for Pogo common
shares for the periods shown in the table. It also shows the per share cash
dividends declared in those periods by Pogo.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
CALENDAR YEAR HIGH LOW DECLARED
------------- ------ ------ ---------
<S> <C> <C> <C>
1998
First quarter............................................. $34 $26 1/2 $.03
Second quarter............................................ 34 11/16 21 1/2 .03
Third quarter............................................. 25 7/8 11 5/8 .03
Fourth quarter............................................ 17 1/8 9 13/16 .03
1999
First quarter............................................. $14 1/2 $ 8 15/16 $.03
Second quarter............................................ 21 3/8 11 15/16 .03
Third quarter............................................. 23 7/16 18 1/8 .03
Fourth quarter............................................ 21 15 5/8 .03
2000
First quarter............................................. $28 3/4 $18 3/8 $.03
Second quarter............................................ 29 3/4 21 1/8 .03
Third quarter............................................. 29 7/16 18 .03
Fourth quarter............................................ 33 3/16 22 1/2 .03
2001
First quarter (through January 10, 2001).................. $32 3/8 $27 1/4
</TABLE>
On November 17, 2000, the last full trading day before Pogo announced the
proposed merger, Pogo common shares closed at $24.9375 or 24 15/16 per share. On
January 10, 2001, the latest date available before we printed this document,
Pogo common shares closed at $28 1/8 per share. WE ENCOURAGE YOU TO OBTAIN
CURRENT MARKET PRICE QUOTATIONS FOR POGO COMMON SHARES.
Pogo will file applications with the New York Stock Exchange and the
Pacific Exchange to list the Pogo common shares that NORIC stockholders will
receive in the merger when they are free to trade.
Following completion of the merger, Pogo common shares will continue to
trade on the New York Stock Exchange and the Pacific Exchange under the symbol
"PPP."
16
<PAGE> 22
RISK FACTORS
In addition to the other information contained in this document and the
documents incorporated by reference, you should carefully consider the following
risk factors before you decide how to vote on the proposed transaction.
RISKS RELATING TO THE MERGER
THE NUMBER OF SHARES OF POGO COMMON STOCK TO BE ISSUED IN THE MERGER IS NOT
FIXED AND MAY INCREASE WITHIN A RANGE IF POGO'S STOCK PRICE DECLINES
The number of Pogo shares issuable to NORIC stockholders in the merger will
be calculated so as to yield a fixed dollar value. The actual number of shares
issued at the closing will depend on the market price of Pogo common stock
averaged over a 20 trading day period ending five days prior to the effective
date of the merger, subject to a maximum of approximately 14.2 million shares
and a minimum of approximately 11.6 million shares. The effect of providing that
at least 11.6 million shares will be issued is that, if the average market price
of Pogo shares exceeds $27.25 over that 20 day trading period, then the total
consideration paid for NORIC could have a value greater than $630 million on the
closing date. Neither party may terminate the merger agreement solely because of
a change in Pogo's share price. Variations in the market price of the stock may
be the result of:
- general market and economic conditions, including changes in the market
price of crude oil and natural gas,
- changes in the business or results of operations of Pogo,
- the prospects for the post-merger operations of Pogo, including the
operations of North Central,
- the timing of the merger,
- regulatory considerations, and
- other factors beyond the control of Pogo or NORIC.
We encourage you to obtain current market quotations for Pogo common
shares.
THE PRICE OF POGO COMMON SHARES MAY DECLINE AS A RESULT OF THE MERGER
Assuming the merger is approved by Pogo's shareholders and is completed,
the number of issued and outstanding Pogo common shares will increase by as much
as 35%. As a result of the issuance of this large number of additional shares,
the market price of Pogo common stock may experience additional volatility or
may decline regardless of the financial performance of Pogo. In addition,
beginning six months after the merger is effective, former NORIC stockholders
will have the right to sell shares of Pogo common stock they acquire in the
merger, subject to the terms of the Registration Rights Agreement described and
included elsewhere in this document. Those sales, or the anticipation that sales
may occur, could depress the market price of Pogo common stock.
POGO MAY FACE DIFFICULTIES IN INTEGRATING THE OPERATIONS OF NORTH CENTRAL
North Central and Pogo have previously operated separately. Pogo's
management team does not have experience with North Central's operations. Pogo
may not be able to integrate the operations of North Central without a loss of
key employees, agents, joint venturers, customers or suppliers, a loss of
revenues, an increase in operating or other costs or other difficulties. In
addition, Pogo may not be able to realize any of the operating efficiencies,
synergies or other benefits expected from the merger. Any costs or delays
incurred in connection with integrating the operations of North Central could
have an adverse effect on Pogo's business, results of operations or financial
condition. In addition, following the merger, the combined company may
experience the difficulties associated with being a larger entity, including
increased difficulties of coordination, difficulties relating to increased size
and scale, difficulties relating to access to capital markets to obtain
17
<PAGE> 23
permanent financing, and difficulties relating to Pogo's lack of recent
experience in exploring for oil and gas in the Rocky Mountain region.
FOLLOWING THE MERGER, POGO MAY BE CONSIDERED HIGHLY LEVERAGED
Assuming the merger had been completed on September 30, 2000, on a pro
forma basis our total debt and trust preferred securities would have been
$913,456,000 and shareholder's equity would have been $652,995,000. We believe
that our cash flow from operations, together with funds available under our bank
credit agreement and other additional sources of liquidity, including additional
debt and equity security offerings and the proceeds from asset sales, will be
adequate to meet our anticipated requirements for capital expenditures, interest
payments and scheduled principal payments. However, our ability to meet our debt
service obligations will be dependent upon our future performance. Our future
performance, in turn, will be subject to general economic conditions, including
volatile oil and natural gas commodity prices, and to financial, business and
other factors affecting our operations, many of which are beyond our control.
WE COULD FACE A SUBSTANTIAL TAX LIABILITY FROM THE MERGER
The merger agreement includes a condition that we receive an opinion of our
counsel that neither we nor NORIC will recognize taxable gain or loss as a
result of the merger. The opinion will rely upon representations that at least
40% of the total consideration paid for the NORIC shares will consist of our
common stock. However, this opinion of counsel will not be binding upon the
Internal Revenue Service or a court and either of them could reach a contrary
conclusion, resulting in a taxable gain to NORIC and a substantial tax liability
for us.
RISKS RELATING TO POGO'S BUSINESS FOLLOWING THE MERGER
WE ARE ADVERSELY AFFECTED BY LOW OIL AND GAS PRICES
Oil and natural gas market prices have historically been seasonal, cyclical
and volatile. They depend on many factors that we cannot control such as weather
and economic, political and regulatory conditions. The average prices we are
currently receiving for our production are near or at historic highs. A future
drop in oil and gas prices could have a serious adverse effect on our cash flow
and profitability. Sustained periods of low prices could have a serious adverse
effect on our operations and financial condition. This could also result in a
reduction in funds available under our bank credit agreement.
WE ARE SUBJECT TO VARIOUS OTHER OPERATING RISKS
Numerous risks affect our drilling activities, including the risk of
drilling non-productive wells or dry holes. The cost of drilling, completing and
operating wells and of installing production facilities and pipelines is often
uncertain. Also, our drilling operations could diminish or cease because of any
of the following:
- title problems,
- weather conditions,
- noncompliance with governmental requirements, or
- shortages or delays in the delivery or availability of equipment or
fabrication yards.
Moreover, effective marketing of our natural gas production depends on a number
of factors, such as the following:
- existing market supply of and demand for natural gas,
- the proximity of our reserves to pipelines,
- the available capacity of such pipelines, and
- government regulations.
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The marketing of oil and gas production similarly depends on the availability of
pipelines and other transportation, processing and refining facilities, and the
existence of adequate markets. As a result, even if hydrocarbons are discovered
in commercial quantities, a substantial period of time may elapse before
commercial production commences. If pipeline facilities in an area are
insufficient, we may have to wait for the construction or expansion of pipeline
capacity before we can market production from that area.
OPERATORS OF OUR PROPERTIES THAT WE DO NOT OPERATE MAY ACT IN WAYS THAT ARE NOT
IN OUR BEST INTERESTS
We do not operate a significant percentage of our oil and gas properties.
We have limited influence over operations on some of those properties. Our
limited influence on non-operated properties could result in the following:
- the operator may initiate exploration or development projects on a
different schedule than we prefer,
- the operator may propose to drill more wells or build more facilities on
a project than we have funds for, which may mean that we cannot
participate in those projects or share in a substantial share of the
revenues from those projects, and
- if the operator refuses to initiate an exploration or development
project, we may not be able to pursue the project.
Any of these events could significantly affect our anticipated exploration and
development activities and the economic value of those properties to us.
IF OUR PARTNERS HAVE LIQUIDITY AND CASH FLOW PROBLEMS, WE MAY HAVE DIFFICULTY
FINANCING AND DEVELOPING OUR PROJECTS
If oil and gas prices decline significantly, some of our partners,
particularly the smaller ones, may experience liquidity and cash flow problems.
These problems may lead to their attempting to delay or slow down the pace of
drilling or project development to a point that we believe is detrimental to the
project. In most cases, we have the ability to influence the pace of capital
expenditures and field development through our joint operating agreements. In
addition, some partners may be unwilling or unable to pay their share of the
costs of projects as they become due. At worst, a partner may declare bankruptcy
and refuse or be unable to pay its share of the costs of a project. We could
then be required to pay that partner's share of the project costs.
WE MAY NOT BE ABLE TO PROFITABLY MARKET AND SELL ALL OF THE PRODUCTION FROM OUR
CONCESSION IN THAILAND
We may not be able to successfully and profitably process, transport and
market all the oil and gas we find and produce on our concession in the Gulf of
Thailand. Currently, the only buyer for the natural gas we produce is the
Petroleum Authority of Thailand, which maintains a monopoly over gas
transmission and distribution in Thailand. Our current gas contract with the
Petroleum Authority limits us to delivering approximately 145 million cubic feet
of gas per day. Due to an abundance of natural gas under contract to the
Petroleum Authority, the Petroleum Authority has generally not taken
significantly more than its contractual minimum. In addition, because much of
the oil we produce from our Thailand concession is associated with natural gas,
limits on natural gas production could also limit our ability to produce oil
from our Thailand concession.
WE MAY NOT BE ABLE TO REPLACE OUR RESERVES OR GENERATE CASH FLOW IF WE ARE
UNABLE TO RAISE THE FUNDS NECESSARY TO MEET OUR SUBSTANTIAL CAPITAL REQUIREMENTS
We require substantial capital to replace our reserves and generate
sufficient cash flow to meet our financial obligations. If we cannot generate
sufficient cash flow from operations or raise funds externally in the amounts
and at the times needed, we may not be able to replace our reserves or meet our
financial obligations.
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OUR GAS SALES AGREEMENT IN THAILAND REQUIRES US TO SELL A PORTION OF OUR
THAILAND PRODUCTION AT A REDUCED PRICE IF WE DO NOT MEET OUR MINIMUM DELIVERY
REQUIREMENTS
We are currently receiving the full contract price on our current
production in Thailand. However, if we and our partners fail to deliver the
minimum quantities under the gas sales agreement, the Petroleum Authority has
the right to reduce the purchase price on an equivalent amount of subsequent
deliveries to 75% of the contract price.
ECONOMIC CONDITIONS IN SOUTHEAST ASIA CAN HURT OUR CASH FLOW
During 1997 and 1998, Southeast Asia in general, and the Kingdom of
Thailand in particular, experienced severe economic difficulties. These problems
included sharply reduced economic activity, illiquidity, highly volatile foreign
currency exchange rates and unstable stock markets. Although Southeast Asian
markets have recovered somewhat, they remain below their recent historic highs.
Economic difficulties in Thailand and the volatility of the Thai Baht,
Thailand's currency, against the U.S. dollar will continue to have a material
impact on our Thailand operations and the prices we receive for our oil and gas
production there.
MAINTAINING RESERVES AND REVENUES IN THE FUTURE DEPENDS ON SUCCESSFUL
EXPLORATION AND DEVELOPMENT
We must continually acquire or explore for and develop new oil and natural
gas reserves to replace those produced and sold. Our hydrocarbon reserves and
revenues will decline if we are not successful in our drilling, acquisition or
exploration activities. Although we have historically maintained our reserves
base primarily through successful exploration and development operations, we
cannot assure you that our future efforts will be similarly successful.
WE ARE SUBJECT TO CASUALTY RISKS IN OUR ONSHORE AND OFFSHORE ACTIVITIES
Our operations are subject to inherent casualty risks such as blowouts,
fires, explosions and marine hazards. If they occur, these events could result
in substantial financial losses due to personal injury, property damage,
environmental discharge or suspension of operations. Because we are a relatively
small oil and gas company, the impact on us of one of these events could be
significant. Although we purchase customary insurance, we are not fully insured
against all risks incident to our business.
YOU SHOULD NOT PLACE UNDUE RELIANCE ON OUR RESERVE DATA BECAUSE THEY ARE
ESTIMATES
No one can measure underground accumulations of oil and gas in an exact
way. Projecting future production rates and the timing of development
expenditures is also an uncertain process. Accuracy of reserve estimates depends
on the quality of available data and on economic, engineering and geological
interpretation and judgment. As a result, our reserve estimates often differ
from the quantities of oil and gas we ultimately recover. While North Central's
proved reserves were reviewed by Miller and Lents, Ltd., estimates of Miller and
Lents or other engineers might differ materially from those of our independent
reserve engineers, Ryder Scott Company Petroleum Engineers. Ryder Scott may make
material changes to Miller and Lents' estimates of North Central's proved
reserves and to our proved reserve estimates based on changes in oil and gas
prices; new technology; and the results of actual drilling, testing and
production. To estimate economically recoverable reserves, we also make various
assumptions regarding future oil and gas prices, production levels, and
operating and development costs that may prove incorrect. Any significant
variance from those assumptions could greatly affect our estimates of
economically recoverable reserves and future net revenues.
HEDGING TRANSACTIONS MAY NOT COMPLETELY MITIGATE DECLINES IN OIL AND GAS PRICES
We cannot predict future oil and gas prices with certainty. Accordingly, at
times, we enter into contracts to hedge against future market price changes on a
portion of our production. Historically, we have not entered into hedging
transactions exceeding 50 percent of our total oil and gas production on an
energy equivalent basis for any given period. As of December 31, 2000, we had
purchased options to sell 70 million cubic feet of natural gas production per
day for the period from April 2001 through December 2002. These contracts give
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us the right, but not the obligation, to sell natural gas at a sales price of
$4.25 per MMBtu for the period from April 2001 through March 2002 and $4.00 per
MMBtu for the period from April 2002 through December 2002. These contracts are
designed to guarantee us a minimum "floor" price for the contracted volumes of
production without limiting our participation in price increases during the
covered period. Pogo paid approximately $24 million in cash to enter into these
option contracts.
WE HAVE SUBSTANTIAL CAPITAL REQUIREMENTS
We anticipate substantial capital requirements. Our ongoing capital
requirements consist primarily of the following items:
- funding our 2001 capital and exploration budget,
- other allocations for acquisition, development, production, exploration
and abandonment of oil and gas reserves, and
- future dividend payments.
Our 2000 capital and exploration budget was established by our board of
directors at $200 million (excluding purchased reserves and interest
capitalized). Our 2001 capital and exploration budget has not yet been
established by our board of directors but we anticipate that it will be
substantially more than $200 million.
We plan to finance anticipated ongoing expenses and capital requirements
with funds generated from the following sources:
- available cash and cash investments,
- cash provided by operating activities,
- funds available under our new bank credit agreement entered into in
connection with the merger,
- our uncommitted bank line of credit and banker's acceptances,
- capital we believe we can raise through debt and equity offerings, and/or
- asset sales.
We believe the funds provided by these sources will be sufficient to meet our
2001 cash requirements, including expenses related to the merger and the cash
payments to NORIC stockholders. However, the uncertainties and risks associated
with future performance and revenues, as described in this section, will
ultimately determine our liquidity and ability to meet our anticipated capital
requirements.
WE FACE SIGNIFICANT COMPETITION
The oil and gas industry is highly competitive. We compete with major oil
companies, other independent oil and gas concerns and individual producers and
operators. Many of these competitors have much greater financial and other
resources than we do. Moreover, the oil and gas industry competes with other
industries in supplying the energy and fuel needs of industrial, commercial and
other consumers. Increased competition causing oversupply or depressed prices
could greatly affect our operations revenues.
WE ARE SUBJECT TO VARIOUS GOVERNMENT REGULATIONS AND ENVIRONMENTAL RISKS
WE ARE SUBJECT TO VARIOUS LEGAL LIMITATIONS
We and our subsidiaries are subject to various foreign and domestic laws
and regulations on taxation, exploration and development, and environmental and
safety matters in countries where we own or operate properties. Many laws and
regulations require drilling permits and govern the spacing of wells, the
prevention of waste, rates of production and other matters. These statutes and
regulations, and any others that are passed by the jurisdictions where we have
production could limit the total number of wells drilled or the total allowable
production from successful wells, which could limit revenues.
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WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL LIABILITIES
We could incur liability to governments or third parties for any unlawful
discharge of oil, gas or other pollutants into the air, soil or water, including
responsibility for remedial costs. We could potentially discharge oil or natural
gas into the environment in any of the following ways:
- from a well or drilling equipment at a drill site,
- leakage from storage tanks, pipelines or other gathering and
transportation facilities,
- damage to oil or natural gas wells resulting from accidents during normal
operations, and
- blowouts, cratering or explosions.
Environmental discharges may move through soil to water supplies or adjoining
properties, giving rise to additional liabilities. Some laws and regulations
could impose liability for failure to notify the proper authorities of a
discharge and other failures to comply with those laws. Environmental laws may
also affect our costs to acquire properties. We do not believe that our
environmental risks are materially different from those of comparable companies
in the oil and gas industry. However, we cannot assure you that environmental
laws will not, in the future, result in decreased production, substantially
increased operational costs or other adverse effects to our combined operations
and financial condition. Pollution and similar environmental risks generally are
not fully insurable.
OUR FOREIGN OPERATIONS SUBJECT US TO ADDITIONAL RISKS
Our ownership and operations in Thailand, Hungary, the North Sea, Canada,
and any other foreign areas where we may choose to do business, are subject to
the various risks inherent in foreign operations. These risks may include the
following:
- currency restrictions and exchange rate fluctuations,
- loss of revenue, property and equipment due to expropriation,
nationalization, war, insurrection and other political risks,
- risks of increases in taxes and governmental royalties, renegotiation of
contracts with governmental entities, and quasi-governmental agencies,
- changes in laws and policies governing operations of foreign-based
companies, or
- other uncertainties arising out of foreign government sovereignty, and
inability to fund foreign operations from the United States.
United States laws and policies on foreign trade, taxation and investment may
also adversely affect international operations. In addition, if a dispute arises
from foreign operations, foreign courts may have exclusive jurisdiction over the
dispute, or we may not be able to subject foreign persons to the jurisdiction of
United States courts. We seek to manage these risks by concentrating our
international operations in areas where we believe that the existing government
is stable and favorably disposed towards United States oil and gas companies.
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT EQUIPMENT AND PERSONNEL TO CONDUCT OUR
OPERATIONS
The recent increase in drilling activity throughout the world has increased
the demand for drilling rigs, drilling vessels, supply boats and personnel
experienced in the oil and gas industry in general, and the offshore oil and gas
industry in particular. Recently we have experienced difficulty and delays in
consistently obtaining certain services and equipment from vendors, obtaining
drilling rigs and other equipment at favorable rates, and scheduling equipment
fabrication at factories and fabrication yards. In addition, we have also noted
that the costs of such services, equipment and personnel have recently risen
significantly. No assurance can be given that such services, equipment and
personnel will be available in a timely manner, or that operational costs will
not increase significantly.
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ADOPTION OF SFAS 133 MAY HAVE A NEGATIVE IMPACT ON US
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). In June 1999, the FASB issued SFAS 137,
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133. In June 2000, the FASB issued SFAS
138, Accounting for Derivative Instruments and Hedging Activities, an amendment
of FASB Statement No. 133. SFAS 133, as amended, establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair market value.
The statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that we must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. We adopted SFAS 133 effective
January 1, 2001. Based on the nature of our derivative instruments currently
outstanding and the historical volatility of oil and gas commodity prices, we
expect that SFAS 133 could increase volatility in our earnings and other
comprehensive income in future periods.
We have hedged a portion of our forecasted production using purchased put
options. Under generally accepted accounting principles prior to adoption of
SFAS 133, changes in the intrinsic value of such options were recognized in
earnings when the hedged production occurred and the premium paid for the
options was amortized into earnings over the option period on a straight-line
basis. In contrast, SFAS 133 requires that changes in the fair value of the
option premium (the option's time value) be reported currently in earnings with
no offset. Based on existing implementation guidelines issued by the FASB staff,
we expect to record a non-cash after-tax charge to earnings of approximately $2
million as the cumulative effect of adopting SFAS 133 effective January 1, 2001.
The pre-tax cumulative effect represents the difference between the unamortized
premium paid for the options and the fair value of the options' time value as of
January 1, 2001.
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FORWARD-LOOKING STATEMENTS
The statements included or incorporated by reference in this proxy
statement include "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. If a statement is not a statement of
historical fact, then it is a forward-looking statement. You can identify a
forward-looking statement by our use of the words "anticipate," "estimate,"
"expect," "objective," "projection," "forecast," "goal," and similar
expressions. These forward-looking statements include our statements regarding
the timing of future events, the anticipated future operations of Pogo and its
subsidiaries and Pogo's anticipated future financial position and cash
requirements. Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we do not know whether our
expectations will prove correct. We disclose the important factors that could
cause Pogo's actual results to differ materially from our expectations in
cautionary statements made in this proxy statement and in other filings by Pogo
with the Securities and Exchange Commission. All subsequent written and oral
forward-looking statements attributable to Pogo or persons acting on our behalf
are expressly qualified in their entirety by these cautionary statements. Pogo's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of the risk factors set forth below and
other factors set forth in or incorporated by reference in this proxy statement.
These factors include:
- the cyclical nature of the oil and natural gas industries
- changes in oil and gas production, reserve estimates, and commodity
prices
- expenses, timing, and results of the merger
- uncertainties associated with the United States and worldwide economies
- current and potential governmental regulatory actions in countries where
Pogo owns an interest
- substantial competitor production increases resulting in oversupply and
declining prices
- Pogo's ability to implement cost reductions
- operating interruptions (including leaks, explosions, fires, mechanical
failure, unscheduled downtime, transportation interruptions, and spills
and releases and other environmental risks)
- fluctuations in foreign currency exchange rates in areas of the world
where Pogo owns an interest, particularly Southeast Asia, and
- covenant restrictions in Pogo's indebtedness.
Many of those factors are beyond Pogo's ability to control or predict. We
caution you not to put undue reliance on forward-looking statements or to
project any future results based on such statements or on present or prior
earnings levels.
CERTAIN DEFINITIONS
As used in this proxy statement, "Mcf" means thousand cubic feet, "MMBtu"
means million British thermal units, "MMcf" means million cubic feet, "Bcf"
means billion cubic feet, "Bbl" means barrel, and "MBbls" means thousand
barrels. "BOE" means barrel of oil equivalent, "Mcfe" means thousand cubic feet
of natural gas equivalent, "MMcfe" means million cubic feet of natural gas
equivalent and "Bcfe" means billion cubic feet of natural gas equivalent.
Natural gas equivalents and crude oil equivalents are determined using the ratio
of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids ("NGL"). References to "$" and "dollars" refer to United States dollars.
All estimates of reserves and production contained in this proxy statement,
unless otherwise noted, are reported on a "net" basis. Information regarding
acreage and numbers of wells is set forth on a gross basis, unless otherwise
noted.
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THE SPECIAL MEETING
The Pogo board of directors is using this document to solicit proxies from
Pogo shareholders for use at the Pogo special meeting of shareholders.
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING
, , 2001
10:00 a.m., CST
5 Greenway Plaza
Suite 2700
Houston, Texas
The purpose of the special meeting is to vote on the following items:
- A proposal to adopt the agreement and plan of merger dated as of November
19, 2000 among Pogo Producing Company and NORIC Corporation and the
shareholders signatory thereto.
- Any other matters that may properly come before the special meeting,
including the approval of any adjournment or postponement of the special
meeting.
RECORD DATE; OUTSTANDING SHARES; SHARES ENTITLED TO VOTE; QUORUM REQUIREMENT
As of the close of business on , 2001, which was the record
date for determining shareholders entitled to vote at the special meeting, Pogo
had outstanding and entitled to vote shares of common stock, par value
$1.00 per share. Pogo has no other class of stock outstanding which is entitled
to vote at the special meeting. Each share of common stock is entitled to one
vote with respect to the matter to be acted upon at the special meeting. The
presence, in person or by proxy, of the holders of a majority of the votes
represented by outstanding shares of common stock is necessary to constitute a
quorum at the special meeting.
VOTE NECESSARY TO APPROVE THE PROPOSAL
Approval of the proposal to adopt the merger agreement requires the
affirmative vote of the holders of a majority of Pogo's outstanding shares of
common stock.
The board of directors unanimously recommends that you vote FOR the
adoption of the merger agreement. Adoption of the merger agreement by Pogo's
shareholders is a condition to completion of the merger.
VOTING BY PROXY
You may vote your shares at the special meeting in person or by proxy. We
recommend that you vote by proxy even if you plan to attend the special meeting.
If you are a holder of record, you can always change your vote in person at the
special meeting.
You may vote by completing and mailing the enclosed proxy card. If you
properly submit your proxy to us in time to vote, one of the individuals named
as your proxy will vote your shares as you have directed. You may vote for or
against the proposal submitted at the special meeting or abstain from voting. If
you submit your proxy but do not make specific choices, your proxy will follow
your board of directors' recommendations and your shares will be voted for the
adoption of the merger agreement.
If you hold your shares through a broker or other custodian, please follow
the voting instructions for the voting form used by that firm.
REVOCABILITY OF PROXIES
Shareholders have the unconditional right to revoke their proxies at any
time prior to the voting of their proxies at the annual meeting by (i) filing a
written revocation with Pogo's corporate secretary at the address
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set forth on the attached Notice of Special Meeting of Shareholders, (ii) giving
a duly executed proxy bearing a later date, or (iii) attending the special
meeting and voting in person. Attendance by shareholders at the special meeting
will not, of itself, revoke their proxies.
OTHER VOTING MATTERS
Voting In Person. If you plan to attend the special meeting and wish to
vote in person, we will give you a ballot at the special meeting. However, if
your common shares are held in the name of a brokerage firm or trustee, you must
obtain from the firm or trustee a legal proxy to allow you to vote in person.
Proxy Solicitation. We will bear the costs of soliciting proxies in the
accompanying form. In addition to the solicitation of proxies by mail, proxies
may also be solicited by telephone, telegram or personal interview by officers
and regular employees of Pogo. We also expect to retain D. F. King & Co., Inc.,
a professional proxy soliciting firm, to assist in the solicitation of proxies.
We anticipate that the fees and expenses we will incur for such services will be
less than $30,000. Pogo will also reimburse brokers or other persons holding
stock in their names or in the names of their nominees for their reasonable
expenses in forwarding proxy materials to beneficial owners of stock.
OTHER BUSINESS; ADJOURNMENTS AND POSTPONEMENTS
We currently are not aware of any other business to be acted upon at the
special meeting. If, however, other matters are properly brought before the
special meeting, or any adjourned or postponed special meeting, your proxies
will have discretion to vote or act on those matters according to their best
judgment, including to adjourn the special meeting.
Adjournments or postponements of the special meeting 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 common shares
representing a majority of the votes present in person or by proxy at the
special meeting, whether or not a quorum exists, without further notice other
than by an announcement made at the special meeting.
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THE MERGER
BACKGROUND OF THE MERGER
From time to time, Pogo has reviewed strategic acquisition and merger
opportunities when it has appeared that the oil and gas properties for sale are
of high quality and that the acquisition makes good strategic and economic
sense. In late August 2000, Goldman, Sachs & Co., financial advisors to NORIC
and North Central, informed Pogo that the assets and/or stock of NORIC would be
offered for sale through a data room and competitive sealed bid process.
Representatives of Pogo requested that they be kept informed as to when a data
room would be opened. Shortly thereafter a confidentiality agreement was
provided to Pogo. The confidentiality agreement was executed on September 16,
2000, at which time a confidential information memorandum containing a general
description of NORIC and North Central and its properties was provided to Pogo.
On October 12, representatives of Pogo visited a data room that had been
established by NORIC containing information about North Central's assets and
operations and the disposition of NORIC's non-oil and gas assets. Following this
session, representatives of Pogo requested and obtained other information
regarding North Central and NORIC, including information through an electronic
data room. In addition, several supplemental due diligence sessions were held
which included representatives of Pogo, North Central and NORIC.
On October 24, Pogo received a draft form of merger agreement provided by
NORIC to prospective purchasers. On October 27, Pogo received a letter of
instructions from Goldman, Sachs & Co. concerning the procedures for submitting
proposals to NORIC by a November 10 deadline. On November 2, representatives of
Pogo participated in a telephone conference with representatives of NORIC
concerning NORIC's proposed form of merger agreement.
On November 3, members of Pogo's board of directors were provided with
detailed information regarding the business and operations of North Central,
together with financial and other information regarding a proposed business
combination prepared by Pogo's management with the assistance of Pogo's legal,
financial and accounting advisors. On November 9, Pogo's board of directors met
and unanimously approved the submission of a proposal to NORIC and the
parameters under which a proposal could be made. On November 10, Pogo submitted
a proposal. On November 12, representatives of NORIC contacted representatives
of Pogo to discuss Pogo's proposal. On November 13, Pogo submitted a revised
proposal. On November 13, NORIC's financial advisors requested that
representatives of Pogo meet with representatives of NORIC in New York to
attempt to reach agreement on a transaction.
On Wednesday, November 15, representatives of Pogo, including Paul G. Van
Wagenen, Pogo's Chairman and Chief Executive Officer, met with representatives
of NORIC, including some of NORIC's stockholders, and the parties made
significant progress toward narrowing issues between them. Over the next several
days, negotiations progressed and issues were addressed at an increasing level
of detail by representatives of the parties, assisted by their respective
financial, legal and accounting advisors. Following approval by the respective
boards of directors, the merger agreement was executed on November 19, 2000, and
announced on Monday, November 20, 2000.
POGO'S REASONS FOR THE MERGER
Pogo's board of directors believes the merger is fair to and in the best
interests of Pogo and its shareholders and has unanimously approved the merger
agreement and the transactions contemplated by the merger agreement.
The board of directors believes the acquisition of North Central presents
an excellent property fit with Pogo's existing operations. North Central has
relatively longer-lived North American reserves heavily weighted towards natural
gas (approximately 88% of reserves and 85% of estimated 2000 production) and a
reserve to annual production ratio estimated at approximately 12.4. Its asset
base is geographically concentrated, with approximately 91% of reserves and 87%
of estimated 2000 production from seven fields in
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two general geographic areas in the United States. North Central acts as
operator for a high percentage of its properties (representing approximately 65%
of current production). The merger presents an opportunity to improve Pogo's
asset balance by increasing the weighting of North American natural gas in its
production base and extending its average reserve life.
The board of directors also believes North Central's properties have
attractive exploration and development potential in attractive core areas:
- South Texas,
- Rocky Mountains,
- South Louisiana, and
- Upper Texas Gulf Coast.
Within these core areas, North Central has a large inventory of exploration
prospects, extensive undeveloped acreage and approximately 1,000 square miles of
3-dimensional seismic data.
The board of directors also believes North Central possesses substantial
operating expertise and a low cost structure with three-year average finding
costs of $0.67 per Mcfe and three-year average lease operating expenses of $0.64
per Mcfe. The board also considered potential cost savings that may result from
the combination of the two companies.
In connection with its approval of the merger, its determination that the
merger is fair to and in the best interest of Pogo and its recommendation that
shareholders vote for adoption of the merger agreement, Pogo's board of
directors consulted with members of management as well as its financial and
legal advisors and independent accountants. The board also considered the
following material information and factors in reaching its determination to
approve the merger, in connection with its conclusion that the merger is fair to
and in the best interest of Pogo's shareholders, and its recommendation that
shareholders vote for the adoption of the merger agreement:
- the reasons described above under "Pogo's Reasons for the Merger,"
- the combination of stock and cash consideration to be paid in the merger
and the fact that Pogo's shareholders would retain from approximately 74%
to 78% of the equity of the combined company,
- the analyses and presentation of Merrill Lynch on the financial aspects
of the proposed merger, and their written opinion, as more fully
described below under "Opinion of Pogo's Financial Advisor," to the
effect that, as of November 18, 2000, and based on and subject to the
various considerations in its opinion, the consideration to be paid by
Pogo in the merger was fair from a financial point of view to Pogo,
- the expected tax treatment of the merger for U.S. federal income tax
purposes,
- presentations by senior members of Pogo's management regarding the
strategic advantages and disadvantages of combining with NORIC, and the
results of management's operational and due diligence review,
- historical information concerning Pogo's and North Central's respective
businesses, financial performance and condition, operations, technology,
management and competitive position,
- Pogo management's view as to the financial condition, results of
operations and businesses of Pogo and North Central before and after
giving effect to the merger based on management's due diligence,
- the opportunities and alternatives available to Pogo if the merger were
not undertaken, including pursuing the acquisition of entities other than
North Central, and the benefits, risks, uncertainties and expense of that
strategy,
- the terms and conditions of the merger agreement, registration rights
agreement and standstill and voting agreement, including the purchase
price and purchase price adjustment, the limitations on the interim
business operations of each of Pogo and North Central, indemnification
provisions, the
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conditions to completion of the merger, the circumstances under which the
merger agreement could be terminated and the size and impact of
termination fees associated with a termination,
- the likelihood that the merger will be completed,
- the impact of the merger on Pogo's shareholders, customers and employees.
- the challenges of combining the businesses, assets and workforces of the
two companies and the opportunities of achieving, and the risks
associated with not achieving, the expected operating efficiencies,
growth and other benefits,
- the necessity to incur additional indebtedness to finance the cash
portion of the merger consideration and refinance a portion of North
Central's debt, and
- the other factors set forth under "Risk Factors" elsewhere in this proxy
statement.
This discussion of the information and factors considered by the board is
not intended to be exhaustive, but includes the material factors considered. The
board did not assign particular weight or rank to the factors it considered in
approving the merger. In considering the factors described above, individual
members of the board may have given different weight to different factors. The
board considered all these factors as a whole, and considered them to be
favorable to and in support of its determination.
RECOMMENDATION OF POGO'S BOARD OF DIRECTORS
The board of directors believes that the terms of the merger are fair to
and in the best interest of Pogo, and recommends that the shareholders vote FOR
the proposal to adopt the merger agreement.
OPINION OF POGO'S FINANCIAL ADVISOR
Pogo asked Merrill Lynch, in its role as financial advisor to Pogo, to
render an opinion to the Pogo board of directors as to the fairness, from a
financial point of view, to Pogo of the consideration to be paid by Pogo in the
merger. Pogo did not impose any restrictions or limitation upon Merrill Lynch
with respect to the investigations made or the procedure followed. Pogo and
NORIC determined the consideration in arm's length negotiations, in which
Merrill Lynch advised Pogo. On November 18, 2000, Merrill Lynch delivered to
Pogo's board of directors its written opinion to the effect that, as of that
date, based on and subject to the assumptions, limitations and qualifications
set forth in its written opinion, the consideration to be paid by Pogo pursuant
to the merger was fair to Pogo from a financial point of view.
The full text of the Merrill Lynch fairness opinion, which sets forth the
assumptions made, matters considered, and qualifications and limitations on the
review undertaken by Merrill Lynch, is attached as Annex B to this proxy
statement and is incorporated in this document by reference. The summary of the
Merrill Lynch fairness opinion set forth in this proxy statement is qualified in
its entirety by reference to the full text of the opinion. You are urged to read
the opinion in its entirety. The Merrill Lynch fairness opinion was provided to
the Pogo board for its information and is directed only to the fairness from a
financial point of view of the consideration to be paid by Pogo in the merger
and did not address the merits of the underlying decision by Pogo to engage in
the merger and did not constitute a recommendation to any Pogo shareholder as to
how they should vote on the merger or any matter related to the merger. Merrill
Lynch has not expressed any opinion as to the prices at which Pogo common stock
would actually trade following the announcement or consummation of the merger.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch fairness opinion. The preparation
of a fairness opinion is a complex and 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, therefore, the opinion is not readily susceptible to partial analysis or
summary description. In arriving at its opinion, Merrill Lynch did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Merrill Lynch believes that its
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<PAGE> 35
analyses must be considered as a whole and that selecting portions of its
analyses, without considering all of its analyses, would create an incomplete
view of the process underlying the Merrill Lynch fairness opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, NORIC or Pogo. Any estimates contained in the analyses performed by
Merrill Lynch are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by the
analyses. Additionally, estimates of the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which the businesses or
securities might actually be sold. Accordingly, the analyses and estimates are
inherently subject to substantial uncertainty.
In arriving at its opinion, Merrill Lynch, among other things:
(1) reviewed certain business and financial information relating to NORIC
that it deemed to be relevant,
(2) reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and
prospects of NORIC,
(3) conducted discussions with members of senior management and
representatives of NORIC and the Company concerning the matters
described in clauses 1 and 2 above, as well as their respective
businesses and prospects before and after giving effect to the merger,
(4) reviewed the valuation multiples for NORIC and compared them with
those of certain publicly traded companies that it deemed to be
relevant,
(5) reviewed the results of operations of NORIC and compared them with
those of certain publicly traded companies that it deemed to be
relevant,
(6) compared the proposed financial terms of the merger with the financial
terms of certain other transactions that it deemed to be relevant,
(7) participated in discussions and negotiations among representatives of
NORIC and Pogo and their financial and legal advisors,
(8) reviewed the potential pro forma impact of the merger on Pogo,
(9) reviewed a draft dated November 17, 2000 of the merger agreement, and
(10) reviewed such other financial studies and analyses and took into
account such other matters as it deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available, and did not
independently verify such information or undertake an independent evaluation or
appraisal of any of the assets or liabilities of NORIC, nor was it furnished
with any such evaluation or appraisal. In addition, it did not conduct any
physical inspection of the properties or facilities of NORIC. With respect to
the financial forecast information furnished to or discussed with them by
NORIC's or Pogo's management as to the expected future financial performance of
NORIC or Pogo, Merrill Lynch assumed that they were being reasonably prepared
and reflect the best currently available estimates and judgment of NORIC or
Pogo, as the case may be. Merrill Lynch made no independent investigation of any
legal matters and accounting advice given to such parties and their respective
boards of directors, including, without limitation, advice as to the accounting
and tax consequences of the merger. It also assumed that the final form of the
merger agreement will be substantially similar to the November 17 draft reviewed
by Merrill Lynch.
Merrill Lynch's opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated on, and on the information
made available to it as of November 18, 2000. Merrill Lynch assumed that in the
course of obtaining the necessary regulatory or other consents or approvals
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<PAGE> 36
(contractual or otherwise) for the merger, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed that
will have a material adverse effect on the contemplated benefits of the merger.
FINANCIAL AND PRODUCTION FORECASTS
Pogo provided Merrill Lynch with forecasted financial and reserve
performance for Pogo and North Central based upon a uniform commodity price
scenario. The oil price forecasts were based on the price per Bbl for West Texas
Intermediate crude, and the natural gas price forecasts were based on NYMEX
(Henry Hub, Louisiana delivery) natural gas prices per Million British Thermal
Units ("MMBTU"). Natural gas pricing assumed a standard heating value of one
MMBTU per one Mcf. Adjustments were made by Pogo to the crude oil and natural
gas price forecasts to reflect location and quality differentials. Additionally,
a substantial portion of the natural gas sales of North Central were assumed to
be hedged in years 2001, 2002, and 2003. The following table lists the
unadjusted crude oil and natural gas prices assumed by Merrill Lynch.
<TABLE>
<CAPTION>
YEAR OIL ($/BBL) GAS ($/MMBTU)
---- ----------- -----------------
UNHEDGED HEDGED
<S> <C> <C> <C>
2001................................................... $25.00 $3.50 $4.15
2002................................................... 25.00 3.50 4.00
2003................................................... 25.00 3.50 4.00
Thereafter............................................. 25.00 3.50 --
</TABLE>
COMPARABLE COMPANY TRADING ANALYSIS
Merrill Lynch reviewed and compared certain financial information, ratios
and public market multiples derived from the North Central projections to
corresponding financial information, ratios and public market multiples for the
following publicly traded exploration and production companies:
- Barrett Resources Corp.
- Cross Timbers Oil Co.
- Louis Dreyfus Natural Gas Corp.
- Mitchell Energy & Development Corp.
- Newfield Exploration Company
- Stone Energy Corp.
- Triton Energy Ltd.
- Vintage Petroleum Inc.
- Cabot Oil & Gas Corp.
- Houston Exploration Co.
- Swift Energy Co.
- Tom Brown Inc.
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The selected companies were chosen because they are publicly traded
companies with financial and operating characteristics that Merrill Lynch deemed
to be similar to those of North Central. Merrill Lynch calculated various
financial ratios for the selected companies that were then used to determine
appropriate multiple ranges for North Central. These ranges were then applied to
the financial measures of North Central to determine a relevant valuation range
for North Central. The ratios for the selected companies were based on publicly
available information, including estimates provided by Merrill Lynch analysts'
research and public sources. Merrill Lynch calculated the following financial
ratios:
- equity market value multiples of:
- 2000 estimated discretionary cash flow, and
- 2001 estimated discretionary cash flow; and
- enterprise value (defined as market value of common equity plus book
value of debt, preferred equity and minority interest less cash)
multiples of:
- 2000 estimated EBITDAX (earnings before interest, taxes,
depreciation, amortization, and exploration costs), and
- 2001 estimated EBITDAX.
The following table shows the mean of the results of these calculations for
the selected companies.
<TABLE>
<CAPTION>
FINANCIAL MEASURES MEAN
------------------ ----
<S> <C>
2000 discretionary cash flow (projected).................... 5.2x
2001 discretionary cash flow (projected).................... 5.0x
2000 EBITDAX (projected).................................... 6.2x
2001 EBITDAX (projected).................................... 6.2x
</TABLE>
None of the selected companies is identical to North Central. Accordingly,
an analysis of these results is not purely mathematical. Rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the selected companies and other factors that could
affect the public trading value of the comparable companies or company to which
they are being compared.
The implied enterprise and equity valuation ranges for North Central, as
determined by a comparable company trading analysis, are $700 million to $800
million and $575 million to $675 million, respectively.
COMPARABLE TRANSACTION ANALYSIS
Merrill Lynch also reviewed publicly available information relating to
comparable merger and acquisition transactions in respect of companies that are
primarily exploration and production companies. Merrill Lynch examined the value
of the common equity in each of the transactions as a multiple of
last-twelve-months discretionary cash flow and also examined multiples of the
consideration paid for the common equity and the value of the indebtedness
assumed in each of the transactions to, among other measures, the acquired
companies' EBITDAX, proved reserves measured in Mcf equivalent, daily production
measured in BOE per day and the value of future net cash flows from proved
reserves before taxes discounted at 10% as filed with the Securities Exchange
Commission using SEC-approved methodology ("Pre-Tax SEC-10").
The comparable corporate acquisition transactions in the exploration and
production industry that Merrill Lynch reviewed included a total of 19 U.S.
independent exploration and production company corporate acquisitions with
transaction values in excess of $100 million from January 1998 through December
1998, from January 1999 through December 1999 and from January 2000 through
October 2000.
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The following table sets forth the results of Merrill Lynch's analysis for
the corporate acquisition transactions in 1998, 1999 and 2000:
<TABLE>
<CAPTION>
1998 1999 2000
----------------- ----------------- -----------------
MEAN MEDIAN MEAN MEDIAN MEAN MEDIAN
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Equity market value multiples of
last-twelve-months discretionary
cash flow......................... 7.1x 5.6x 5.7x 5.7x 5.2x 5.2x
Enterprise value multiples of
last-twelve-months EBITDAX........ 9.0x 6.9x 8.1x 8.1x 8.9x 7.9x
Enterprise value per Mcfe of proved
reserves.......................... $ 1.05 $ 1.00 $ 0.96 $ 0.96 $ 1.75 $ 1.49
Enterprise value per BOE per day.... $26,333 $25,526 $17,099 $17,099 $35,627 $28,014
Enterprise value multiples of
Pre-Tax SEC-10.................... 1.5x 1.5x 1.7x 1.7x 1.5x 1.5x
</TABLE>
The implied enterprise and equity valuation ranges for North Central, as
determined by a comparable transaction analysis, are $725 million to $825
million and $600 million to $700 million, respectively.
NET ASSET VALUE ANALYSIS
Merrill Lynch also performed a net asset value calculation. Using a
discounted cash flow analysis, Merrill Lynch calculated the present value of the
pre-tax future cash flows that North Central could be expected to generate from
their existing base of proved reserves and risk-adjusted probable and possible
reserves after December 31, 2000 based on North Central projections. These
pre-tax cash flows were discounted at rates ranging from 10% to 12%. Merrill
Lynch estimated North Central's net asset value by adding (i) the risk-adjusted
discounted pre-tax cash flows generated by these proved, probable and possible
reserves as estimated by Pogo management plus (ii) an amount determined for
undeveloped acreage and seismic data.
The implied enterprise and equity valuation ranges for North Central, as
determined by a net asset value analysis, are $720 million to $795 million and
$600 million to $675 million, respectively.
MERRILL LYNCH FINANCIAL ADVISOR FEE
Pogo retained Merrill Lynch to provide Pogo with financial advisory
services and a financial fairness opinion in connection with the merger.
Pursuant to a letter agreement dated November 13, 2000 by which Pogo engaged the
services of Merrill Lynch, Pogo agreed to pay Merrill Lynch a fee of $50,000,
and an additional fee of $4.5 million if a transaction between NORIC and Pogo
was completed. Pogo has also agreed to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses, including reasonable fees and disbursements
of Merrill Lynch's legal counsel and costs related to the use of Merrill Lynch's
database. Pogo has also agreed to indemnify Merrill Lynch and related persons
for all liabilities and expenses in defending claims related to or arising out
of the engagement, including liabilities under federal securities laws, unless a
court finds Merrill Lynch to have acted in bad faith or with gross negligence.
Pogo's board of directors selected Merrill Lynch based on its
qualifications, expertise and reputation and its knowledge of the business and
affairs of Pogo. Merrill Lynch is an internationally recognized investment
banking and advisory firm that has substantial experience providing strategic
advisory services and is familiar with Pogo and its industry. Merrill Lynch was
not retained as an advisor or agent to the stockholders of Pogo or any other
person. As part of its investment banking business, Merrill Lynch is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
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OTHER RELATIONSHIPS
In the ordinary course of business, Merrill Lynch and its affiliates may
own or actively trade the securities of Pogo for their own accounts and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in Pogo securities. Merrill Lynch has performed investment banking and
other services for Pogo in the past and has been compensated for these services.
Merrill Lynch has provided and continues to provide services to NORIC
stockholders and entities affiliated with certain NORIC stockholders.
INTERESTS OF POGO DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
Pogo does not believe that any of its directors or executive officers have
interests in the merger that are different from the interests of Pogo's
shareholders generally.
DIVIDEND POLICY
Since the third quarter of 1994, Pogo has paid a quarterly dividend of
$0.03 per share on its common stock. The declaration and payment of future
dividends will depend upon, among other things, Pogo's future earnings and
financial condition, liquidity and capital requirements, the general economic
and regulatory climate and other factors deemed relevant by Pogo's board of
directors.
Our existing revolving credit facility, and the Indentures relating to our
8 3/4% Senior Subordinated Notes due 2007 (the "2007 Notes") and 10 3/8% Senior
Subordinated Notes due 2009 (the "2009 Notes"), prohibit dividends and other
distributions on shares of our capital stock (other than dividends or
distributions payable solely in shares of capital stock) if the aggregate amount
of all dividends, purchases, and redemptions exceeds an amount determined based
on our consolidated income plus the proceeds of the issuance of capital stock
from and after a specified date set forth in each respective agreement or, in
the case of the revolving credit facility, if net worth is negative. As of
September 30, 2000, $53,000,000 was available for dividends under this
limitation in the agreement currently having the most restrictive covenants. In
addition, the 6 1/2% Cumulative Quarterly Income Convertible Preferred
Securities, Series A (the "Trust Preferred Securities") issued by our
subsidiary, Pogo Trust I, prohibit us from paying dividends on our common stock
if dividends have not been paid on the Trust Preferred Securities.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger under the purchase method of accounting
for business combinations. See "Pro Forma Condensed Consolidated Financial
Statements."
FINANCING OF THE MERGER
We intend to fund the cash portion of the merger consideration using cash
on hand and by drawing on a new $500 million bank credit facility that we will
enter into in connection with the merger. The new bank credit facility will also
be used to refinance the estimated $120 million of North Central's outstanding
bank debt that we will assume at the closing of the merger. The new bank credit
facility will have substantially similar interest rate and other financial terms
as our existing bank credit facility.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Pogo's current shareholders will not recognize any gain or loss for U.S.
federal income tax purposes as a result of the merger.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
Under the Hart-Scott-Rodino Act, we were required to give information and
materials to the Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice and await the expiration or termination of a waiting
period. The waiting period under the Hart-Scott-Rodino Act was terminated on
December 20, 2000.
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<PAGE> 40
The Federal Trade Commission and the Antitrust Division of the Justice
Department frequently scrutinize the legality under the antitrust laws of
transactions like the merger. At any time before or after the completion of the
merger, the Federal Trade Commission or the Antitrust Division could challenge
the merger on antitrust grounds, and could seek to enjoin the completion of the
merger or the divestiture of substantial assets of NORIC, North Central or Pogo.
We do not believe the merger violates the antitrust laws, but we cannot predict
the results of such a challenge.
RIGHTS OF DISSENTING STOCKHOLDERS
NORIC Stockholders. NORIC stockholders will be entitled to appraisal
rights under the New York Business Corporation Law in connection with the
merger. Any NORIC stockholder who exercises and perfects dissenters' rights will
be paid the "fair value" (as determined by a court) of such stockholder's NORIC
stock in cash, and will not receive any shares of Pogo common stock in the
merger. The NORIC stockholders that are parties to the merger agreement own 92%
of NORIC and are contractually obligated to vote in favor of the merger (and
therefore may not dissent); therefore, no more than 8% of the NORIC shares are
eligible to exercise appraisal rights under New York law.
Pogo Shareholders. Pogo shareholders will not be entitled to appraisal
rights under the Delaware General Corporation Law or any other applicable law in
connection with the merger.
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<PAGE> 41
THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement, a
copy of which is attached as Annex A to this document and is incorporated in
this document by reference. This summary is qualified in its entirety by
reference to the merger agreement. You should read the entire merger agreement
because it, and not this summary, is the legal document that governs the merger.
MERGER STRUCTURE, PARTIES AND TIMING
Structure of the Merger. Under the merger agreement, NORIC Corporation,
which is the parent company of North Central Oil Corporation, will merge with
and into Pogo. Pogo will be the surviving corporation, the separate corporate
existence of NORIC Corporation will cease, and all of NORIC's stockholders will
become shareholders of Pogo.
Parties. The parties to the merger agreement are Pogo, NORIC, and certain
stockholders of NORIC. The NORIC stockholders that are parties to the merger
agreement collectively own approximately 92% of the issued and outstanding NORIC
shares, and have sufficient voting power under New York corporate law to approve
the merger agreement and cause NORIC to merge with Pogo. The merger agreement
requires the NORIC stockholders that are parties to the merger agreement to vote
in favor of the merger agreement at a NORIC stockholders' meeting.
Closing and Effective Time. The closing date of the merger will occur as
promptly as practicable after, and no later than the fifth business day
following, the date on which all conditions to the merger have been satisfied or
waived, unless another date is agreed upon. On the closing date, the parties
will file certificates of merger with the secretaries of state of the states of
New York and Delaware. The effective time of the merger will be the time the
certificates of merger are filed. The parties anticipate that the merger will be
completed shortly after the special meeting of Pogo shareholders, assuming that
the Pogo shareholders vote to adopt the merger agreement.
MERGER CONSIDERATION
NORIC stockholders will receive a total consideration valued at
approximately $630 million, subject to adjustment, in a combination of 50% cash
and 50% stock in exchange for their shares of NORIC common stock.
Merger Consideration. At the effective time of the merger, the outstanding
shares of NORIC common stock will be converted into the right to receive Pogo
common stock, cash or a combination of Pogo common stock and cash. Subject to
adjustment as described below under "Purchase Price Adjustment," the aggregate
merger consideration for the 87,886 outstanding shares of NORIC common stock
will be $315 million in cash and Pogo common stock valued at $315 million. The
valuation of the Pogo common stock for this purpose will be made on the basis of
the average of the high and low sales prices of the Pogo common stock on the New
York Stock Exchange regular way over each of the 20 consecutive trading days
ending five days prior to the date of the closing of the merger, subject to a
minimum of 11,559,645 shares if the average price for the Pogo common stock
exceeds $27.25 and a maximum of 14,157,292 shares if the average price of the
Pogo common stock is less than $22.25.
Each NORIC stockholder will be allocated 50% cash consideration and 50%
stock consideration on the basis just described, unless NORIC determines to
permit stockholders to make individual elections, subject to proration. To the
extent NORIC stockholders exercise and perfect their dissenters' rights the
amount of available cash consideration will be reduced by twice the amount
attributable to the dissenting shares and the amount of available stock
consideration will be increased by the same amount. Holders who exercise and
perfect dissenters' rights will be paid cash in an amount determined as
described in "Rights of Dissenting Stockholders" instead of the merger
consideration described under this caption.
Following the merger, former NORIC stockholders will own between
approximately 22% to 26% of Pogo's outstanding common stock.
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<PAGE> 42
Fractional Shares. Certificates for fractional Pogo common shares will not
be issued in the merger. NORIC stockholders that would otherwise receive
fractional shares will be entitled to receive a cash payment (without interest)
equal to the value of such fraction of a share, determined based on the closing
price of Pogo common stock at the effective time.
Purchase Price Adjustment. The merger consideration described above is
predicated on NORIC assumptions that NORIC's cash position at the effective time
will be $15,000,000 and that North Central's long-term debt will be
$135,000,000. Any variations from these assumptions will result in adjustments
to the merger consideration, with both the cash and stock portions adjusted on a
50/50 basis.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties by
Pogo, NORIC and the NORIC stockholders who are parties to the merger agreement.
Representations and Warranties by NORIC. The merger agreement contains
customary representations and warranties by NORIC as to:
- corporate organization, authority to enter into the merger agreement,
qualification and good standing
- capitalization and share ownership of NORIC
- existence, due organization and ownership of NORIC's subsidiaries
- corporate books and records of NORIC and its subsidiaries
- the absence of a breach or violation of charter documents, bylaws,
material agreements, licenses, permits, franchises or laws as a result of
the merger
- consents, approvals, authorizations, filings, or notifications required
to enter into the merger agreement or to complete the transactions
contemplated by the merger agreement
- the accuracy of financial information and financial statements and other
books and records of NORIC
- the absence of undisclosed liabilities of NORIC or any of its
subsidiaries
- the absence of adverse changes, events and conditions that would
constitute a "material adverse effect"
- the absence of litigation pending or threatened against NORIC
- compliance with laws
- the absence of undisclosed material contracts and the validity of
disclosed material contracts
- title to property
- intellectual property
- employee benefits and ERISA compliance
- compliance with environmental laws, the absence of pending or threatened
environmental claims, and the proper filing of environmental notices and
permits, such as those related to the disposal of hazardous waste
- to NORIC's knowledge, the accuracy of the information upon which the
independent oil and gas reserve reports concerning North Central's oil
and gas properties were based, but NORIC does not guarantee the accuracy
of the reserve and other estimates contained in the reports themselves
- hedging contracts to which NORIC or North Central is a party
- tax matters and the filing of tax returns and payment of taxes by NORIC
and North Central
- insurance policies maintained by NORIC
- that Goldman Sachs & Co. is NORIC's only investment banker or broker
entitled to a fee in connection with the merger
- the fact that NORIC has not taken any action that would prevent the
merger from qualifying as a tax-free reorganization under the Internal
Revenue Code
- production and pipeline imbalances and penalties
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- the condition of equipment
- the reasonable operation of North Central's oil and gas properties
- the proper plugging and abandonment of wells
- the absence of agreements to make payments that would constitute
"parachute payments" under the Internal Revenue Code
- the vote required of NORIC stockholders to approve the merger
- the absence of any operations in any NORIC subsidiaries other than in
North Central and its subsidiary
- the existence and ownership of seismic data that NORIC has the right to
use
- the value as of September 30, 2000 of any of North Central's suspense
funds, which are oil and gas royalty payments that are set aside when the
identity of the person to whom they should be paid is in doubt
- that North Central has not entered into any future sales contracts that
would require the payment of a refund to the other party
- that NORIC is not a holding company or an investment company under the
federal securities laws
- the fact that North Central is not transporting gas in interstate
commerce, and is therefore not subject to the jurisdiction of the Federal
Energy Regulatory Commission under the Natural Gas Act
Representations and Warranties by the NORIC Stockholders. The merger
agreement contains customary representations and warranties by the NORIC
stockholders who are parties to the merger agreement as to:
- their legal capacity to enter into the merger agreement, due execution of
the merger agreement and the binding nature of the merger agreement
- the fact that no NORIC stockholder has taken any action that would
prevent the merger from qualifying as a tax-free reorganization under the
Internal Revenue Code
- their ownership of sufficient voting power to approve the merger
agreement
- that less than 5% of all outstanding NORIC shares will dissent from the
merger
- that each of them is an "accredited investor" under the federal
securities laws and is not intending to distribute the unregistered NORIC
shares received in the merger
Representations and Warranties of Pogo. The merger agreement contains
customary representations and warranties by Pogo as to:
- corporate organization and authority to enter into the merger agreement
- organizational documents
- capitalization
- financial commitment to effect the transaction
- the absence of a breach or violation of charter documents, bylaws,
material agreements, licenses, permits, franchises or laws as a result of
the merger
- consents, approvals, authorizations, filings, or notifications required
to enter into the merger agreement or to complete the transactions
contemplated by the merger agreement
- the absence of litigation pending or threatened against Pogo
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- the fact that Pogo has not taken any action that would prevent the merger
from qualifying as a tax-free reorganization under the Internal Revenue
Code
- the accuracy of Pogo's financial statements and other filings with the
Securities Exchange Commission
- compliance with laws
- tax matters
- the validity of Pogo common stock to be issued to NORIC stockholders
- the absence of adverse changes, events or conditions that would
constitute "a purchaser material adverse effect"
- that Merrill Lynch is Pogo's only investment banker or broker entitled to
a fee in connection with the merger
- the vote required of Pogo shareholders to approve the merger
The representations and warranties contained in the merger agreement
survive the merger for a period of 12 months, except for NORIC's representations
with respect to tax matters, which survive until the expiration of the
applicable statutes of limitations.
Definition of Material Adverse Effect. Many of the representations and
warranties of NORIC and Pogo are qualified by reference to the definition of
"material adverse effect" with respect to NORIC or "purchaser material adverse
effect" with respect to Pogo.
A material adverse effect, when used in reference to NORIC, means any
change in or effect on NORIC or any subsidiary of NORIC that, individually or in
the aggregate with other changes in or effects on NORIC or any subsidiary of
NORIC, is materially adverse to the financial condition, business or results of
operations of NORIC and its subsidiaries, taken as a whole, or is materially
adverse to the financial condition, business or results of operations of North
Central, taken as a whole. This definition is deemed not to include changes or
effects arising out of changes in law or the interpretation of law, changes in
generally accepted accounting principles, or events or conditions generally
affecting the energy industry (including reclassification or recalculation of
reserves, unsuccessful drilling efforts or changes in the price of oil and gas)
or arising from changes in general business, economic or political conditions or
resulting from entering into the merger agreement.
A purchaser material adverse effect, when used in reference to Pogo, means
any change in or effect on Pogo, that, individually or in the aggregate with
other changes in or effects on Pogo, is materially adverse to the financial
condition, business or results of operations of Pogo and its subsidiaries, taken
as a whole. This definition is deemed not to include changes or effects arising
out of changes in law or the interpretation of law, changes in generally
accepted accounting principles, or events or conditions generally affecting the
energy industry (including reclassification or recalculation of reserves,
unsuccessful drilling efforts or changes in the price of oil and gas) or arising
from changes in general business, economic or political conditions or resulting
from entering into the merger agreement.
ADDITIONAL AGREEMENTS AND COVENANTS
Conduct of Business of NORIC and North Central prior to the Closing of the
Merger Agreement. NORIC has agreed that, for the period of time between the
execution of and the closing of the merger agreement, it will do the following:
- conduct its businesses in the ordinary course consistent with past
practice
- use commercially reasonable efforts to preserve intact its business
organization, relationships with employees, customers, and contract
holders
- not amend its constituent documents
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- not issue or sell any shares of stock or options to purchase NORIC stock
or sell any assets (other than oil and gas in the ordinary course of
business) above certain threshold amounts
- not declare or pay any dividends
- not split, combine, reclassify, issue, sell or purchase any shares of
capital stock
- not acquire any business, corporation, partnership, association or other
organization or division or any assets in value above certain threshold
amounts
- not incur any indebtedness or guarantee any indebtedness or issue, sell
or guarantee any debt securities except in the ordinary course of
business and below certain threshold amounts
- not make any capital expenditure above certain specified amounts
- not increase its employees' compensation
- not take any action with respect to accounting policies or procedures
that are not in accordance with generally accepted accounting principles
- not pay any claim other than in the ordinary course of business and as
reflected on its financial statements
- not permit the subsidiaries of NORIC other than North Central and its
subsidiary to engage in any active trade or business
NORIC has agreed that, for the period of time between the execution of and
the closing of the merger agreement, it will cause North Central to:
- operate its oil and gas properties in the ordinary course of business
- maintain its insurance policies
- preserve leases and easements related to its oil and gas properties
- not enter into any agreement granting any preferential right to purchase
any of its oil and gas properties
- not enter into any contracts that are not terminable without penalty in
90 days or less
- notify Pogo of any claim asserted against its oil and gas properties
- not relinquish its position as operator with respect to any of its oil
and gas properties
- maintain its equipment in accordance with reasonably prudent operating
practices
- pay its ad valorem, severance and production, property and sales taxes
with respect to its oil and gas properties
- not cancel material indebtedness or waive any material claims
- not initiate the unitization of any oil and gas property and to notify
Pogo upon receiving notice of unitization of any oil and gas property
Pogo's Conduct of Its Business Prior to the Closing of the Merger
Agreement. Pogo has agreed that, for the period of time between the execution
of and the closing of the merger agreement, it will do the following:
- Pogo and its subsidiaries will conduct their businesses in the ordinary
course consistent with past practice
- use commercially reasonable efforts to preserve intact its business
organization and relationships with employees, customers and contract
holders
- not amend its constituent documents
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- not issue or sell any shares of stock or options to purchase Pogo capital
stock except in the ordinary course of business consistent with past
practice
- not declare or pay any dividends except in the ordinary course of
business consistent with past practice
- not split, combine, reclassify, or purchase any shares of capital stock,
except as consideration for the exercise of stock options or to satisfy
matching contribution obligations under its 401(k) plan
- not acquire any business, corporation, partnership, association or other
organization or division or any assets in value above certain threshold
amounts
- not incur any indebtedness or guarantee any indebtedness or issue, sell
or guarantee any debt securities except in the ordinary course of
business and below certain threshold amounts
- not enter into any merger or other business combination with a third
party, except with a merger partner chosen by Pogo in response to an
unsolicited business combination proposal made to Pogo by a different
third party
STOCKHOLDER MEETINGS AND VOTING
- NORIC has agreed to hold a special meeting for the purpose of voting on
and approving the merger, and the NORIC stockholders who have signed the
merger agreement (who hold more than 92% of the outstanding NORIC stock)
have agreed to vote their shares in favor of approval of the merger, and
to cooperate with Pogo in the preparation and distribution of information
and materials in connection with the meeting in compliance with the
federal securities laws
- Pogo has agreed to hold the special meeting of its shareholders and to
prepare and file this proxy statement in connection with the special
meeting. Pogo has agreed that its board of directors shall recommend that
the shareholders vote in favor of approving the merger, unless the
board's fiduciary duties to the shareholders require a different
recommendation. Pogo has also agreed to solicit proxies to vote in favor
of the merger agreement from its shareholders
NO SOLICITATION OF COMPETING TRANSACTIONS
Pogo, NORIC and the NORIC stockholders have agreed not to solicit or
encourage a competing transaction or to negotiate, enter into, approve or
recommend any competing transaction, and to notify the other parties of any
proposal of a competing transaction by a third party, unless, with respect to
Pogo, the board of directors' fiduciary duties to the shareholders require
otherwise. A competing transaction is defined as a merger, consolidation, share
exchange or other combination, or a disposition of 25% or more of the assets of
a party and its subsidiaries, or a tender or exchange offer for 25% or more of
the voting securities of a party, or, with respect to Pogo, the solicitation of
proxies in opposition to approval of the merger agreement or the issuance of
shares in connection with the merger.
EMPLOYEE MATTERS
The merger agreement provides that employees of North Central who continue
as employees of Pogo may participate in Pogo's employee benefit plans on the
same basis as similarly situated employees of Pogo. Pogo has agreed, for two
years after the merger or until earlier termination of employment, to continue
to provide base salaries to former North Central employees at a rate not lower
than that in effect prior to the merger and for one year after the merger to
maintain North Central's severance plan in effect with no amendments or
modifications that adversely affect the rights of participants without their
consent. Pogo has also agreed to give employees of North Central who continue
employment with Pogo credit for their prior service with North Central for
purposes of eligibility, participation and vesting under Pogo's benefit plans.
TAX MATTERS
Tax Condition to Closing. It is a condition to the obligation of Pogo to
complete the merger that Pogo receive a written opinion of Baker Botts L.L.P.,
reasonably satisfactory to Pogo and dated as of the closing
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date, to the effect that the merger will be treated for federal income tax
purposes as a reorganization qualifying under Section 368(a) of the Internal
Revenue Code, and that neither Pogo nor NORIC will recognize gain or loss as a
result of the merger, in each case under the law in effect as of the closing
date of the merger. In addition, it is a condition of the obligation of NORIC to
complete the merger that the NORIC stockholders receive a written opinion of
Shearman & Sterling dated as of the closing date, addressed to NORIC and to the
NORIC stockholders, to the effect that the merger will be treated for federal
income tax purposes as a reorganization qualifying under Section 368(a) of the
Internal Revenue Code, and that no gain or loss will be recognized by the NORIC
stockholders who exchange their NORIC shares in the merger except with respect
to cash received in the merger. Such opinions will rely upon certain
representations of NORIC and Pogo, including a representation that at least 40%
of the total consideration delivered for the NORIC shares, valued at the time of
the merger, will consist of Pogo stock.
Under certain circumstances, if either counsel for Pogo or counsel for
NORIC and its stockholders is unable to render the requisite opinion, then NORIC
may elect to restructure the transaction as a taxable sale of the NORIC stock or
as a reverse subsidiary merger treated for U.S. federal income tax purposes as a
taxable sale by the NORIC stockholders of their NORIC stock. In the event NORIC
exercises this option, Pogo's obligation to close will be conditioned on the
receipt by Pogo of an opinion from its counsel that no gain or loss will be
recognized by Pogo or NORIC as a result of the merger. In addition, Pogo's
current shareholders would not recognize a gain or loss if the transaction was
carried out in this manner.
Payment of Taxes. The agreement contains various provisions allocating
responsibility for taxes of NORIC and its subsidiaries, including the following:
- The NORIC stockholders are responsible for all taxes of North Central for
periods ending on or before the date of the agreement and for all taxes
of NORIC and its other subsidiaries for periods ending immediately prior
to the effective time of the merger. Pogo will be responsible for all
other taxes.
- Pogo will pay the NORIC stockholders the amount of any tax benefit
received by Pogo as a result of a carryover of losses or other tax
attributes from NORIC and its subsidiaries to Pogo.
- The tax benefit from payments by North Central under its phantom share
and severance pay plans is allocated to the NORIC stockholders.
- Provisions as to payment of taxes, entitlement to refunds and control of
proceedings in any tax audit generally allocate responsibilities among
the parties in the same manner as responsibility for the underlying taxes
is allocated, as described above. NORIC stockholders are responsible for
the preparation and submission to Pogo for filing of tax returns relating
to NORIC and any NORIC subsidiaries for any taxable period that ends
before or includes the closing date.
CONDITIONS TO CLOSING
Conditions to Obligation of Either Party to Close the Merger. The
obligations of both Pogo and NORIC to close the merger are conditioned upon the
satisfaction or waiver of each of the following conditions:
- the expiration of the waiting period under the Hart-Scott-Rodino Act,
which took place on December 20, 2000
- the absence of any law or court order making the merger illegal or
prohibiting consummation of the merger
- the approval of the merger by the NORIC stockholders and the Pogo
shareholders
NORIC Conditions. NORIC's obligation to close the merger is conditioned
upon the satisfaction or waiver of each of the following conditions:
- Pogo's representations and warranties made as of the date of the
agreement shall be true and correct as of the closing date except to the
extent that their failure to be true and correct would not have a
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purchaser material adverse effect, and Pogo shall have complied in all
material respects with all of the covenants and agreements it made in the
merger agreement
- no legal action shall be pending or threatened by a governmental
authority against NORIC or Pogo seeking to restrain the merger or
materially and adversely affect the transactions contemplated by the
merger agreement so as to render it impossible or unlawful to consummate
those transactions
- the NORIC stockholders shall have received the tax opinion described
above
- Pogo shall have entered into the registration rights agreement and the
standstill and voting agreement
Pogo Conditions. Pogo's obligation to close the merger is conditioned upon
the satisfaction or waiver of each of the following conditions:
- NORIC's representations and warranties made as of the date of the
agreement shall be true and correct as of the closing date except to the
extent that their failure to be true and correct would not have a
material adverse effect, and NORIC shall have complied in all material
respects with all of the covenants and agreements it made in the merger
agreement
- no legal action shall be pending or threatened by a governmental
authority against NORIC or Pogo seeking to restrain the merger or
materially and adversely affect the transactions contemplated by the
merger agreement so as to render it impossible or unlawful to consummate
those transactions
- Pogo shall have received the tax opinion described above
- the NORIC stockholders shall have entered into the registration rights
agreement and the standstill and voting agreement
- a subsidiary of NORIC shall have terminated its credit agreement
- NORIC shall have terminated its service agreement with Goelet LLC
INDEMNIFICATION PROVISIONS
The merger agreement contains indemnification provisions in favor of Pogo
and the NORIC stockholders.
Indemnification of Pogo. The NORIC stockholders, jointly and not
severally, agree to indemnify Pogo for losses arising out of:
- any breach of any representation, warranty, covenant or agreement made by
NORIC in the merger agreement
- any liability of NORIC or of any of the subsidiaries of NORIC other than
North Central and its subsidiary incurred or arising out of events which
took place prior to the effective time of the merger (but excluding
liabilities arising out of the operations of North Central)
Indemnification of the NORIC Stockholders and NORIC Officers, Directors and
Employees. Pogo agrees to indemnify the NORIC stockholders and the NORIC
officers, directors and employees for losses arising out of any breach of any
representation, warranty, covenant or agreement made by Pogo in the merger
agreement.
Limitations; Proration Among NORIC Stockholders. The indemnities described
above are limited to a maximum amount of $63,000,000, or approximately 10% of
the merger consideration. The indemnification of Pogo by the NORIC stockholders
is further limited to each stockholder's pro rata share of $63,000,000, based
upon the pro rata share of the merger consideration received by such stockholder
in the merger. Indemnification is only available if a claim for indemnity is
made during the twelve months following the effective time of the merger, or in
the case of indemnification for their tax liabilities, before the applicable
statutes of limitations expire.
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Deductible. The indemnification obligations are subject to a "deductible"
of $7,000,000, meaning that the NORIC stockholders, on the one hand, and Pogo,
on the other hand, must each absorb the first $7,000,000 of indemnified losses
before looking to the indemnifying party for relief. The indemnifying parties
will only indemnify the indemnified parties for losses in excess of $7,000,000.
Tax Indemnity. There is a separate indemnity for tax liabilities. The tax
indemnity is subject to the same deductible and maximum dollar amounts described
above.
Letter of Credit. The NORIC stockholders will furnish a letter of credit
in favor of Pogo at the closing to secure the payment of their indemnification
obligations. If any non-dissenting NORIC stockholders refuse to participate in
providing the letter of credit, 10% of the consideration to be received by those
NORIC stockholders will be placed into an escrow arrangement to secure their
indemnity obligations to Pogo. The letter of credit and the escrowed
consideration shall be the sole and exclusive remedy for any claims by Pogo for
indemnification.
TERMINATION PROVISIONS AND TERMINATION FEE
Termination by Both Parties or by Either Party. NORIC and Pogo may
terminate the merger agreement by mutual written consent. Either Pogo or NORIC
may terminate the merger agreement:
- if the other party has materially breached a representation, warranty,
covenant or agreement or if any representation or warranty made by the
other party has become untrue in any material respect, in either case
such that the condition to closing related to those matters would not be
satisfied. The party breaching or making an untrue representation and
warranty is entitled to notice of and an opportunity to cure any such
breaches or inaccuracies,
- if the NORIC stockholders do not vote to approve the merger agreement,
- if the Pogo stockholders do not vote to approve the merger agreement and
the related transactions at the special meeting,
- if the closing has not taken place by June 1, 2001 (except that a party
that has failed to fulfill any of its obligations under the agreement,
which failure resulted in the failure of the agreement to close by June
1, 2001, may not terminate the agreement under this provision), or
- if any governmental authority issues an order or takes an action
prohibiting the transactions contemplated by the agreement and such order
or action has become final and nonappealable.
Termination Fee. If Pogo or NORIC terminates the merger agreement because
the NORIC stockholders did not approve the merger agreement, NORIC shall pay
Pogo a termination fee of $12.6 million, or approximately 2% of the estimated
consideration to NORIC stockholders. If Pogo or NORIC terminates the agreement
because the Pogo shareholders did not vote to approve the merger agreement and
the related transactions at the special meeting, Pogo shall pay NORIC a
termination fee of $12.6 million, or approximately 2% of the estimated
consideration to NORIC stockholders.
Waiver. Either party may extend the time for performance of any obligation
of the other party, waive any breaches or inaccuracies in the representations
and warranties of the other party, or waive compliance with any agreement or
condition of the other party.
STANDSTILL AND VOTING AGREEMENT
The following is a summary of the material terms of the standstill and
voting agreement, the form of which is an exhibit to the merger agreement which
is included as Annex A to this document and is incorporated in this document by
reference. This summary is qualified in its entirety by reference to the
standstill and voting agreement. You should read the standstill and voting
agreement because it, and not this summary, is the legal document that governs
the matters discussed below.
General. The standstill and voting agreement will be executed at the
closing of the merger agreement. Execution of the standstill and voting
agreement is a condition to the closing of the merger agreement.
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Standstill Provisions. The standstill and voting agreement provides that
the former NORIC stockholders will not purchase or otherwise acquire any Pogo
shares except in the merger nor will they propose any merger, tender or exchange
offer, restructuring or other business combination or joint venture transaction
involving Pogo or propose to purchase any material portion of Pogo's assets. The
agreement also provides that the former NORIC shareholders will not solicit
proxies or participate in election contests with respect to the election of
directors, or join forces with any other party to a proxy solicitation or
election contest. The NORIC stockholders have agreed not to initiate stockholder
meetings, seek to amend Pogo's Restated Certificate of Incorporation or By-laws,
induce or encourage anyone to propose a change of control contest for Pogo, or
seek to affect or influence Pogo's board of directors or management or to remove
any director from Pogo's board.
Voting. The former NORIC stockholders have agreed that at all
shareholders' meetings, they will vote all their Pogo shares either in
accordance with the recommendation of the board of directors, or in equal
proportion to the votes cast by other Pogo shareholders. In order to facilitate
this process, the former NORIC stockholders have granted an irrevocable proxy to
one of their representatives to vote their shares in this manner at any Pogo
shareholders' meeting.
Disposition of Shares. The standstill and voting agreement also provides
that the former NORIC stockholders may not sell, give or transfer their shares
to any other person except pursuant to the procedures set forth in the
registration rights agreement discussed below or to a person who, following any
transfer, will own less than 5% of Pogo's voting securities, is not a member of
a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act,
and has not announced any accumulation of Pogo's voting securities for the
purpose of effecting a change of control of Pogo or for any of the other
purposes described above under "standstill provisions." Compliance with the
procedures set forth in the registration rights agreement includes a prohibition
on public resales, other than by means of an underwritten offering allowed under
the registration rights agreement, until the 181st day following the effective
time of the merger, and a requirement that any public resales during the twelve
months thereafter be limited to an aggregate of 1,000,000 shares during any
period of 90 consecutive days.
Term. The standstill and voting agreement will terminate when the former
NORIC stockholders and their affiliates and associates collectively own less
than 10% of Pogo's outstanding voting securities.
REGISTRATION RIGHTS AGREEMENT
The following is a summary of the material terms of the registration rights
agreement, the form of which is an exhibit to the merger agreement included as
Annex A to this document and incorporated in this document by reference. This
summary is qualified in its entirety by reference to the registration rights
agreement. You should read the registration rights agreement because it, and not
this summary, is the legal document that governs the matters discussed below.
Restrictions on Trading. The former NORIC stockholders may not sell their
Pogo common stock for six months from the effective date of the merger.
Registration of Shares. The registration rights agreement requires Pogo to
register for resale under the Securities Act of 1933, as amended, the shares of
Pogo common stock issued to stockholders of NORIC in the merger. Pogo must use
its reasonable best efforts to accomplish this registration no later than 181
days after the merger is effective. The registration statement may be used by
the former stockholders of NORIC:
- to sell the shares of Pogo common stock issued to them in the merger from
time to time, subject to a limitation of 1,000,000 shares during any
period of 90 consecutive days during the twelve-month period that begins
181 days after the merger is effective, and
- on request of at least 50% of the holders, to sell shares of Pogo common
stock issued to them in the merger in one underwritten public offering of
not less than 4,000,000 nor more than 7,000,000 shares.
Pogo must use its reasonable best efforts to keep this registration statement in
effect until two years following the effective time of the merger.
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"Piggyback Rights." In addition, the Registration Rights Agreement requires
Pogo to include, if the holders request, shares of Pogo common stock issued to
them in the merger in any registration statement it files to sell Pogo common
stock itself or for the account of other stockholders. If the shares requested
for inclusion exceed the maximum number which the managing underwriter considers
appropriate, the shares to be included are allocated first to Pogo and then to
the shareholders requesting registration.
Limitations on Sales Volume. The Registration Rights Agreement provides
that the holders who are parties to it are not permitted to sell, pursuant to
the registration statement or Rule 144, more than 1,000,000 shares of Pogo
common stock acquired in the merger during any period of 90 consecutive days
during the twelve-month period beginning 181 days following the effective time
of the merger. It also provides that each holder participating in an
underwritten offering must enter into a customary lock-up agreement under which
the holder agrees not to sell shares of Pogo common stock for a period up to 90
days after the closing of the relevant offering.
The registration rights agreement also contains customary provisions
relating to procedures for registration, blackout periods and indemnification.
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THE COMPANIES
ABOUT POGO PRODUCING COMPANY
Pogo is an independent oil and gas exploration and production company,
based in Houston, Texas. Incorporated in 1970, we have, in recent years,
established a record of increasing our proven hydrocarbon reserves, principally
through exploration, exploitation and development of our properties and the
selective acquisition of additional interests in producing properties in which
we already have an interest. Through a portfolio of domestic and international
properties, we concentrate our efforts on a mix of both offshore and onshore
opportunities which provide a balanced exposure to oil and natural gas
production. In recent years, we have concentrated our efforts in selected areas
where we believe that our expertise, competitive acreage position, or ability to
quickly take advantage of new opportunities offer the possibility of relatively
high rates of return. Domestically, we have an extensive Gulf of Mexico reserve
and acreage position and we are also active in the Permian Basin of southeast
New Mexico and west Texas and in other selected areas of Texas and Louisiana.
Through our subsidiary Thaipo Limited, we own an interest in the Block B8/32
Concession license in the Gulf of Thailand. Through other subsidiaries we also
own interests in Canada, Hungary and in the United Kingdom and Danish sectors of
the North Sea.
Pogo's business strategy is to maximize profitability and shareholder value
by:
- increasing hydrocarbon production levels, leading to increased revenues,
cash flow and earnings
- replacing and expanding our proven hydrocarbon reserves base
- maintaining appropriate levels of debt and interest, and controlling
overhead and operating costs, and
- expanding exploration and production activities into new and promising
geographic areas consistent with our expertise.
You should consider carefully the information under the caption "Risk
Factors." One or more of those risks could negatively impact our ability to
implement successfully our business strategy described above.
Pogo's principal executive offices are located at the following address:
Pogo Producing Company
5 Greenway Plaza, Suite 2700
Houston, Texas 77046
(713) 297-5000
Additional information concerning Pogo and its subsidiaries is included in
our reports and other documents incorporated by reference in this proxy
statement. See "Where you can Find More Information" and "Incorporation of
Certain Documents by Reference."
ABOUT NORIC AND NORTH CENTRAL
NORIC Corporation is the parent corporation of North Central Oil
Corporation. North Central is a privately held independent oil and gas company
headquartered in Houston, Texas. It was formed in 1955 to acquire the assets of
The North Central Texas Oil Company, Inc., which was a mineral and royalty
acquisition company established in 1919. The same group of private owners has
controlled North Central for 45 years.
NORIC Corporation, the parent of North Central, is a privately held New
York corporation. NORIC's primary asset is its direct and indirect ownership of
the stock of North Central. Its other assets are the stock of two non-operating
subsidiaries, and approximately $15 million at the closing in cash and cash
equivalents which were derived from the sale of the assets of subsidiaries that
were not in the energy business, which sales took place prior to the execution
of the merger agreement.
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North Central employs 77 people, 52 in its Houston office, and 25 field
personnel employed by North Central's wholly owned subsidiary, NCO Services,
Inc.
North Central has a geographically focused asset base with its oil and gas
properties located in four core areas as follows: Rocky Mountains, South Texas,
the Upper Texas Gulf Coast and South Louisiana. In addition, 3% of its proved
reserves consist of royalty and mineral interests located in some of the premier
producing fields in the United States.
Rocky Mountains. As of June 30, 2000, 36% of North Central's proved
reserves are in its Rocky Mountains core area, and it owns a working interest in
over 61,000 gross acres (7,000 net acres). North Central's primary field in this
area is the Madden Field which is located in Freemont and Natrona Counties,
Wyoming. North Central participated in the field discovery well in 1968. The
Madden Field has 72 gross wells at June 30, 2000, producing 225 MMcf per day of
gas. Madden produces natural gas from five intervals which range in depth from
5,000 feet to 25,500 feet. North Central owns an approximate 12.5% non-operated
working interest in this field.
Natural gas production (approximately 120 MMcf per day gross) from the
Madison formation (below 23,500 feet) contains approximately 32% hydrogen
sulfide and carbon dioxide. This gas is processed in a plant (the "Lost Cabin
Gas Plant") which removes these inert gases from the gas produced. During 1999
and 2000, a fourth and fifth Madison well were drilled. As a result of this
drilling activity, the Lost Cabin Gas Plant is currently being expanded. Upon
completion in mid-2002, the plant's inlet capacity will be increased to 313 MMcf
per day.
Since January 1, 1997, North Central has drilled 40 gross wells (5 net
wells) in its Rocky Mountains core area, of which 98% have been successfully
completed.
South Texas. North Central's South Texas core area is located in Webb and
Zapata Counties, Texas. As of June 30, 2000, 41% of its total proved reserves
are in South Texas. Its two largest fields in this core area are the Hundido
Field, acquired in 1998, and the Los Mogotes Field, acquired in 1999. North
Central owns a working interest in 318 gross wells (172 net wells) of which 188
gross wells are operated by North Central. North Central's gross operated
production in South Texas is in excess of 100 MMcf per day. North Central has
working interests in approximately 68,000 gross acres (37,000 net acres) and has
access to over 400 square miles of three dimensional seismic data. Since January
1, 1997, North Central has drilled 62 gross wells (30 net wells) in its South
Texas core area of which 76% have been successfully completed.
Upper Texas Gulf Coast. North Central's Upper Texas Gulf Coast ("UTGC")
core area consists of two primary fields; Manvel Field, Brazoria County, Texas
and Seven Oaks Field, Polk County, Texas. North Central owns a working interest
in approximately 11,000 gross acres (5,000 net acres). As of June 30, 2000, 4%
of North Central's proved reserves are in its UTGC core area. North Central owns
a working interest in 49 gross wells (39 net wells) and operates approximately
70% (gross) of these wells. Since January 1, 1997, North Central has drilled 6
gross/net wells in its UTGC core area, all of which have been successfully
completed.
South Louisiana. North Central's South Louisiana core area consists of
three primary fields: South Pass Block 24, Myette Point and Main Pass Block 10.
As of June 30, 2000, approximately 16% of its proved reserves are in the South
Louisiana core area. North Central has a working interest in 104 gross wells (20
net wells) of which 51 gross wells are operated by North Central. North Central
owns a working interest in approximately 28,000 gross acres (9,000 net acres).
Since January 1, 1997, North Central has drilled 16 gross wells (5 net wells) in
this core area of which 63% have been successfully completed.
Exploration and Production Data
In the following data, "gross" refers to the total acres or wells in which
North Central has an interest and "net" refers to gross acres or wells
multiplied by the percentage working interest owned by North Central.
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Acreage
North Central owns interests in developed and undeveloped oil and gas
acreage in four core areas within the United States. These ownership interests
generally take the form of "working interests" in oil and gas leases which have
varying terms and conditions. The following table shows North Central's interest
in developed and undeveloped oil and gas acreage under lease as of June 30,
2000:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE(a) ACREAGE(b)
----------------- ---------------
GROSS NET GROSS NET
------- ------- ------ ------
<S> <C> <C> <C> <C>
Core Areas:
Rocky Mountains................................ 27,484 3,261 33,619 3,988
South Texas.................................... 56,268 27,837 11,685 9,059
Upper Texas Gulf Coast......................... 9,907 3,163 1,503 1,503
South Louisiana................................ 19,757 4,781 8,054 4,011
------- ------- ------ ------
Total North Central.................... 113,416 39,042 54,861 18,561
======= ======= ====== ======
</TABLE>
---------------
(a) "Developed acreage" consists of lease acres spaced or assignable to
production (including acreage held by production) on which wells have been
drilled or completed to a point that would permit production of commercial
quantities of oil or natural gas.
(b) "Undeveloped acreage" consists of lease acres on which there is currently
no commercial production of oil or natural gas. Approximately 27% of the
total net undeveloped acreage is under leases that have terms expiring in
2001 (unless otherwise extended). Approximately 16% of the total net
undeveloped acreage is under leases that have terms expiring in 2002
(unless otherwise extended).
In addition, North Central owns over 110,000 net acres of royalty and
mineral interests.
Productive Wells and Drilling Activity
North Central holds working interests in approximately 555 gross wells as
of June 30, 2000, of which approximately 50% are operated by North Central. For
the six months ended June 30, 2000, North Central produced 21.4 Bcfe of which
82% was natural gas and it had 532 Bcfe of proved reserves of which 88% was
natural gas.
The following table shows North Central's interest in productive oil and
natural gas wells as of June 30, 2000. For purposes of this table "productive
wells" are defined as wells producing hydrocarbons and wells "capable of
production" (e.g., natural gas wells waiting for pipeline connections or
necessary governmental certification to commence deliveries and oil wells
waiting to be connected to currently installed production facilities).
<TABLE>
<CAPTION>
GROSS WELLS NET WELLS
----------- ---------
<S> <C> <C>
Core Areas:
Rocky Mountains........................................... 84 8.8
South Texas............................................... 318 171.7
South Louisiana........................................... 104 19.6
Upper Texas Gulf Coast.................................... 49 38.7
--- -----
Total............................................. 555 238.8
=== =====
</TABLE>
49
<PAGE> 55
The following table shows the number of gross and net exploratory and
development wells in which North Central has participated, the number of gross
and net wells successfully completed and the success rate percentage during the
periods indicated. A well is considered successful upon the installation of
permanent equipment for the production of hydrocarbons or when electric logs run
to evaluate such wells indicate the presence of commercially producible
hydrocarbons and North Central currently intends to complete such wells.
<TABLE>
<CAPTION>
WELLS DRILLED SUCCESSFUL SUCCESS RATE(%)
-------------- ------------ ----------------
GROSS NET GROSS NET GROSS NET
------ ----- ----- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
1997
Exploratory.............................. 5 1.4 1 0.2 20 14
Development.............................. 27 5.6 23 5.1 85 91
-- ---- -- ---- -- --
Total.................................... 32 7.0 24 5.3 75 76
== ==== == ==== == ==
1998
Exploratory.............................. 7 2.8 4 1.4 57 50
Development.............................. 30 12.1 27 11.1 90 92
-- ---- -- ---- -- --
Total.................................... 37 14.9 31 12.5 84 84
== ==== == ==== == ==
1999
Exploratory.............................. 3 1.9 2 1.2 67 63
Development.............................. 30 11.1 27 9.0 90 81
-- ---- -- ---- -- --
Total.................................... 33 13.0 29 10.2 88 78
== ==== == ==== == ==
Jan-June 2000
Exploratory.............................. 4 2.5 2 0.7 50 28
Development.............................. 18 7.4 15 6.3 83 85
-- ---- -- ---- -- --
Total.................................... 22 9.9 17 7.0 77 71
== ==== == ==== == ==
</TABLE>
Per Unit Sales Price and Production Costs
The following table shows the average per unit sales price by product and
per unit production costs during the periods indicated. For discussion of North
Central's production, average sales prices received and production costs see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 2000 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C> <C>
Average unit sales price:
Oil (Bbl).................................... $26.30 $17.01 $12.57 $19.43
Gas (Mcf).................................... $ 2.50 $ 2.17 $ 2.23 $ 2.54
Net equivalent thousand cubic feet of gas
(a).......................................... $ 2.84 $ 2.30 $ 2.19 $ 2.77
Average unit production cost: (a)
Net equivalent thousand cubic feet of gas.... $ 0.54 $ 0.55 $ 0.62 $ 0.86
</TABLE>
---------------
(a) Bbls of oil, Mcf of gas and production costs were converted to common units
of measure (net equivalent thousand cubic feet of gas) on the basis of
relative energy content (1 Bbl equals 6 Mcf). Production costs include
lifting costs, lease operating cost and severance, ad valorem and other
production taxes.
Reserves
North Central has a geographically focused reserve base, with approximately
20 fields in four core areas. Of its proved reserves, 90% are located in seven
fields, of which five are operated by North Central. North Central's strategy
has been to maximize profit margins and increase reserves by (1) cost
efficiency, including the use of technology in a cost-efficient manner; (2)
increasing the percentage of North Central operated properties; and (3) other
operational efficiencies such as building a critical mass in core producing
areas and rationalizing its portfolio of producing properties.
50
<PAGE> 56
The following table sets forth information as to North Central's net total
proved and proved developed reserves as of June 30, 2000 and December 31, 1999,
1998 and 1997, and the present value as of such dates of the estimated future
net revenues from the production and sale of those reserves discounted at 10% in
accordance with criteria prescribed by the Securities and Exchange Commission.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF ------------------------------
JUNE 30, 2000 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C> <C>
Total proved reserves:
Oil, condensate, and natural gas
liquids(MBbls).............................. 11,000 9,100 9,500 10,300
======== ======== ======== ========
Natural gas(MMcf).............................. 467,000 377,700 332,200 185,700
======== ======== ======== ========
Present value of estimated future net revenues,
before income taxes (in thousands).......... $866,300 $323,100 $225,500 $175,400
======== ======== ======== ========
Total proved developed reserves:
Oil, condensate, and natural gas liquids
(MBbls)..................................... 10,000 8,400 9,000 9,300
======== ======== ======== ========
Natural gas (MMcf)............................. 373,900 311,400 270,500 162,400
======== ======== ======== ========
Present value of estimated future net revenues,
before income taxes (in thousands).......... $719,900 $295,100 $198,500 $154,800
======== ======== ======== ========
</TABLE>
North Central's proved oil and gas reserves are located principally in the
United States with an immaterial amount located in Canada. The quantities in the
preceding table are based upon North Central's estimates as reviewed by its
independent petroleum engineers, Miller and Lents, Ltd.
In computing future revenues from gas reserves, prices in effect at June
30, 2000 and December 31, 1999, 1998 and 1997 were used, including current
market prices and contract prices. In accordance with Commission guidelines, the
gas prices that were used make no allowances for seasonal variations in gas
prices. In computing future revenues of gas sold, current market prices for the
area were held constant to depletion of the reserves. In computing future
revenues from crude oil and natural gas liquids, prices in effect at June 30,
2000 and December 31, 1999, 1998 and 1997 were used and were held constant to
depletion of the reserves. The future revenues are adjusted to reflect North
Central's net revenue interest in these reserves, as well as any ad valorem and
other severance taxes, but do not include any provisions for corporate income
taxes.
Operating costs include costs directly applicable to the leases or wells.
Development costs are based on authorizations for expenditure for the proposed
work or actual costs for similar projects. The estimated net cost of abandonment
after salvage was considered where such costs are significant.
No deduction was made for indirect costs such as general and administrative
and overhead expenses, loan repayments, interest expenses and exploration and
development prepayments. Accumulated gas production imbalances, if any, have
been taken into account.
The future prices received by North Central for the sales of its production
may be higher or lower than the prices used in calculating the estimates of
future net revenues and the present value thereof as set forth herein, and the
operating costs and other costs relating to such production may also increase or
decrease from existing levels; however, such possible changes in prices and
costs were, in accordance with rules adopted by the Commission, omitted from
consideration in arriving at such estimates.
There are numerous uncertainties in estimating the quantity of proved
reserves and in projecting the future rates of production and timing of
development expenditures. Oil and gas reserve engineering must be recognized as
a subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact way, and estimates of other engineers might
differ materially from those presented. The accuracy of any reserve estimate is
a function of the quality of available data and of engineering and geological
interpretation and judgment. Results of drilling, testing and production
subsequent to the date of the estimate may justify revision of such estimate,
which revisions may be material. Accordingly, reserve estimates are often
different from the quantities of oil and gas that are ultimately recovered.
51
<PAGE> 57
NORTH CENTRAL MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
FINANCIAL AND OPERATING RESULTS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net income increased 354% from $2,800,000 for the nine months ended
September 30, 1999 to $12,700,000 for the nine months ended September 30, 2000.
The increase in net income was due to increased oil and gas sales partially
offset by higher production costs, depreciation, depletion and amortization
(DD&A), deferred compensation and other expense and federal income taxes.
Oil and gas sales increased 67% from $58,900,000 for the nine months ended
September 30, 1999 to $98,600,000 for the nine months ended September 30, 2000.
The increase in oil and gas sales was due to a 23% increase in gas production
volumes, a 32% increase in the average gas price and an 81% increase in the
average oil price. The following table summarizes oil and gas sales, related
volumes and average prices for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Gas Sales.................................................. $73,700,000 $45,300,000
Gas Production (Mcf)....................................... 27,000,000 21,900,000
Average Price per Mcf...................................... $ 2.73 $ 2.07
Oil Sales.................................................. $24,900,000 $13,600,000
Oil Production (Bbls)...................................... 900,000 900,000
Average Price per Bbl...................................... $ 27.47 $ 15.19
</TABLE>
Gas sales for the nine months ended September 30, 2000 increased 63% as
compared to the same period of 1999 due to the increases in production volumes
and average per-unit prices. The increase in gas production volumes was
primarily due to the acquisition of Los Mogotes field in April 1999 and
successful exploration and development drilling at Hundido, Madden, Los Mogotes
and Taylor Point fields. These increases were partially offset by a reduction in
gas volumes sold from Hereford Ranch due to the shrinkage caused by the
processing of liquids and normal depletion for this field. The following table
summarizes production volumes sold for the fields discussed above:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
GAS PRODUCTION BY FIELD (MCF) 2000 1999
----------------------------- --------- ---------
<S> <C> <C>
Los Mogotes................................................. 5,800,000 2,200,000
Hundido..................................................... 6,100,000 5,000,000
Madden...................................................... 5,000,000 4,200,000
Taylor Point................................................ 3,200,000 2,600,000
Hereford Ranch.............................................. 2,900,000 4,300,000
</TABLE>
Oil sales for the nine months ended September 30, 2000 increased 83% due to
the increase in the average sales price per-barrel.
Production costs (production expenses plus production taxes) increased 24%
from $15,200,000 for the nine months ended September 30, 1999 to $18,800,000 for
the nine months ended September 30, 2000. The increase was primarily due to
higher production taxes resulting from the increase in oil and gas prices and
volumes discussed earlier. Additionally, production costs increased due to the
inclusion of a full nine months of operating expenses for the Los Mogotes field
in the current period versus only five months of operating expenses for this
field in the nine months ended September 30, 1999.
On a per unit basis, production costs increased 4% from $0.56 per Mcfe for
the nine months ended September 30, 1999 to $0.58 per Mcfe for the nine months
ended September 30, 2000. The increase on a per
52
<PAGE> 58
unit basis was due to the cost increases discussed above which were almost
completely offset by the increase in production volumes.
DD&A increased 3% from $22,800,000 for the nine months ended September 30,
1999 to $23,500,000 for the nine months ended September 30, 2000. The increase
in DD&A was due to costs and reserves recorded in connection with the Los
Mogotes acquisition and the increased natural gas production volumes discussed
earlier. More significantly, on a per-unit basis, the composite DD&A rate has
decreased from $0.84 per Mcfe for the nine months ended September 30, 1999 to
$0.72 per Mcfe for the nine months ended September 30, 2000. The decrease in the
composite DD&A rate was primarily the result of additions to costs and reserves
at a rate lower than the previous composite DD&A rate including the favorable
impact from the Los Mogotes acquisition.
General and administrative expenses increased 14% from $2,900,000 for the
nine months ended September 30, 1999 to $3,300,000 for the nine months ended
September 30, 2000. The increase was primarily due to an increase in incentive
compensation. Despite the increase in total expenses, general and administrative
expenses on a per-unit basis have decreased from $.11 per Mcfe for the nine
months ended September 30, 1999 to $.10 per Mcfe for the nine months ended
September 30, 2000, due to the increases in production volumes discussed
earlier.
Deferred compensation and other expense which primarily consists of the
accrual of deferred compensation under North Central's phantom share plan
increased from $2,500,000 for the nine months ended September 30, 1999 to
$21,700,000 for the nine months ended September 30, 2000. Due to the pending
merger of NORIC with Pogo Producing Company, the estimated stock valuation used
to compute the phantom share liability has been adjusted to equal the merger
consideration.
The provision for federal income taxes increased from $1,500,000 for the
nine months ended September 30, 1999 to $6,900,000 for the nine months ended
September 30, 2000 due to the $15,300,000 increase in pre-tax financial
statement income. Federal income taxes are provided at the statutory rate,
reduced for the effects of statutory depletion in excess of tax basis allowed
for federal income tax reporting purposes.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
North Central reported net income of $4,500,000 for 1999, compared to a net
loss of $2,400,000 in 1998 and net income of $5,100,000 in 1997. The increase in
net income for 1999 as compared to 1998 was due to increased oil and gas sales
offset by higher DD&A expense, interest expense and deferred compensation and
other expense. As compared to 1997, net income for the current year has
decreased primarily due to higher DD&A, interest and deferred compensation and
other expenses offset by higher oil and gas sales.
OIL AND GAS SALES
Oil and gas sales increased 54% from $57,000,000 for the years ended
December 31, 1998 and 1997 to $88,000,000 for the year ended December 31, 1999.
The increase in oil and gas sales was due to increases of 70% and 123% in
equivalent gas production volumes (6 Mcf of gas to 1 barrel of oil) over 1998
and 1997 levels, respectively. The 1999 increase over 1997 was partially offset
by a 15% decrease in the average price that North Central received for its
natural gas production volumes and a 12% decrease in the average price that
North Central received for its crude oil production. The following table
summarizes oil and gas sales, related volumes and average prices for the periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Gas Sales..................................... $66,600,000 $40,000,000 $34,700,000
Gas Production (Mcf).......................... 30,600,000 18,000,000 13,700,000
Average Price per Mcf......................... $ 2.17 $ 2.23 $ 2.54
Oil Sales..................................... $21,400,000 $17,000,000 $22,300,000
Oil Production (Bbls)......................... 1,260,000 1,350,000 1,150,000
Average Price per Bbl......................... $ 17.01 $ 12.57 $ 19.43
</TABLE>
53
<PAGE> 59
Gas sales for the year ended December 31, 1999 increased 67% as compared to
1998 due to the increase in production volumes. The increase in gas production
volumes was primarily due to the acquisition of Hundido and Mujeres Creek fields
in November 1998 and the acquisition of Los Mogotes field in April 1999 (the
producing property acquisitions), the expansion of the Madden gas plant capacity
in July 1999 allowing for increased flow rates, and the increased ownership
interest at Madden field from the reorganization of affiliated entities in May
1998. Gas sales for the year ended December 31, 1999 increased 92% as compared
to 1997 due to the increase in production volumes resulting from the producing
property acquisitions which was partially offset by the decrease in the average
price received for natural gas production. The following table summarizes
production volumes from fields discussed above:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
GAS PRODUCTION BY FIELD (MCF): 1999 1998 1997
------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Madden.............................................. 6,000,000 4,100,000 2,100,000
Hundido and Mujeres Creek........................... 8,000,000 1,200,000 --
Los Mogotes......................................... 3,500,000 -- --
</TABLE>
Oil sales for the year ended December 31, 1999 increased 26% as compared to
1998 due to a 35% increase in the average sales price per barrel. Oil sales for
the year ended December 31, 1999 decreased 4% as compared to 1997 due to a 12%
decrease in the average sales price per barrel partially offset by a 10%
increase in oil volumes sold. The increase in oil volumes sold was primarily due
to successful developmental drilling at Taylor Point.
COSTS AND EXPENSES
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1999 TO 1999 TO
1999 1998 1998 1997 1997
----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Production expenses....... $14,400,000 $11,900,000 21% $13,200,000 9%
Production and other
taxes................... $ 7,100,000 $ 4,500,000 58% $ 4,500,000 58%
Depreciation, depletion
and amortization........ $31,300,000 $22,800,000 37% $14,400,000 117%
Exploration costs......... $ 6,900,000 $11,800,000 (42%) $10,200,000 (32%)
General and
administrative.......... $ 4,800,000 $ 4,900,000 (2%) $ 4,000,000 20%
Interest expense.......... $ 9,300,000 $ 4,600,000 102% $ 2,800,000 232%
Deferred compensation and
other expense........... $ 7,400,000 $ 1,500,000 393% $ 1,300,000 469%
Income tax expense
(benefit)............... $ 2,800,000 $ (800,000) N/A $ 2,400,000 17%
</TABLE>
PRODUCTION EXPENSES
The increase in production expenses for 1999 as compared to 1998 and 1997
was due to the producing property acquisitions discussed earlier. Due to the
increases in production volumes during the three-year period, production
expenses on a per-unit basis have decreased from $0.65 per Mcfe in 1997 down to
$0.46 per Mcfe for 1998 and down to $0.38 per Mcfe for 1999.
PRODUCTION AND OTHER TAXES
Production and other taxes increased for 1999, compared with 1998 and 1997,
due to increased oil and gas sales. Production and other taxes on a per-unit
basis for 1999, 1998 and 1997 were $0.17, $0.16 and $0.22 per Mcfe,
respectively. Per-unit production and other taxes in 1997 were higher than in
1998 or 1999 due to the higher prices received for oil and gas during 1997 as
compared to the other years.
54
<PAGE> 60
DEPRECIATION, DEPLETION AND AMORTIZATION
DD&A increased for 1999 as compared to 1998 and 1997 due to the expense
recorded for costs incurred for the reorganization of affiliated entities and
the acquisition of the minority interests by NORIC, the parent company of North
Central, in May 1998, and production increases resulting from the producing
property acquisitions. The composite DD&A rate on a per-unit basis for 1999,
1998 and 1997 was $0.82, $0.87 and $0.70 per Mcfe, respectively. The increase in
the per-unit composite DD&A rate was caused by the recording of the purchase
cost attributable to NORIC's acquisition of the minority interests. The
increased basis in oil and gas properties recorded for this transaction
increased the per-unit composite DD&A rate by $0.12 and $0.15 in 1999 and 1998,
respectively.
EXPLORATION COSTS
Exploration costs decreased for 1999 as compared to 1998 and 1997 due to
successful exploratory drilling which resulted in lower dry hole costs and
charges related to surrendered and expired leases. The decrease was also
affected by lower geological and geophysical expense incurred in 1999 as
compared to the levels incurred in 1998 and 1997 when North Central was building
an inventory of exploration drilling opportunities. In 1999, North Central
focused on exploiting the development opportunities on its producing property
acquisitions.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased slightly for 1999 as compared
to 1998 due to an increase in the amount of overhead reimbursements received by
North Central in 1999. The slight decrease in general and administrative
expenses and the increase in production volumes have lowered per-unit general
and administrative expense from $0.19 Mcfe in 1998 to $0.13 per Mcfe in 1999.
General and administrative expenses increased for 1999 as compared to 1997 due
to increased staff levels and decreased overhead reimbursements from the
affiliates involved in the May 1998 reorganization. Despite this increase,
general and administrative expenses decreased from $0.20 per Mcfe in 1997 to
$0.13 per Mcfe in 1999 as a result of the increase in production volumes.
INTEREST EXPENSE
Interest expense increased in 1999 as compared to both 1998 and 1997
primarily due to increased debt levels incurred to finance the Madden gas plant
expansion and producing property acquisitions.
DEFERRED COMPENSATION AND OTHER EXPENSE
Deferred compensation and other expense primarily consists of the accrual
of deferred compensation under North Central's phantom share plan. The increased
expense for 1999 as compared to both 1998 and 1997 is due to the increase in the
estimated fair value of North Central's common stock. The accrual is adjusted
based on the number of phantom shares granted and North Central's estimated
stock valuation.
INCOME TAX EXPENSE (BENEFIT)
North Central's income tax expense for 1999 and 1997 resulted from pre-tax
income from North Central's operations. The income tax benefit for 1998 resulted
from the pre-tax loss from North Central's operations. Federal income tax
expense (benefit) was provided at the statutory rate, which was reduced for the
effects of statutory depletion in excess of tax basis allowed for federal income
tax reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
North Central's primary sources of liquidity are the cash provided by
operating activities, sales of non-core properties and debt financing. North
Central's cash needs are primarily the acquisition, exploration and development
of oil and gas properties. North Central generally finances its exploration and
development
55
<PAGE> 61
using internally generated cash flow and uses debt financing for property
acquisitions. However, in 1998, North Central issued equity for oil and gas
properties and other assets and liabilities.
Excluding the net cash used to unwind North Central's hedge positions
discussed below, cash provided by operating activities increased $28,900,000 to
$62,600,000 for the nine months ended September 30, 2000. The increase in
operating cash flow was due to increased oil and gas sales as a result of higher
product prices and production volumes sold. The increases in product prices and
volumes sold are also responsible for the $7,800,000 increase in accounts
receivable and the $7,100,000 increase in royalties and revenue payable.
During the quarter ended September 30, 2000, North Central terminated all
of its commodity hedges for production after December 2000, all of its basis
hedges for periods after September 2000, and all of its interest rate hedges for
periods after July 2000. The amounts paid to unwind the commodity and basis
hedges totaled $30,100,000. North Central received $2,600,000 when unwinding its
interest rate hedges. These amounts paid and received are recorded in the
financial statements as deferred charges and deferred income, respectively. The
deferred income was amortized down to $2,500,000 as of September 30, 2000.
North Central has entered into a revolving credit agreement which provides
for a $175,000,000 revolving credit facility. The amount that may be borrowed
under the credit agreement may not exceed a borrowing base. Generally, the
borrowing base is determined semi-annually by the lenders in accordance with the
credit agreement, based on the lenders' usual and customary criteria for oil and
gas transactions. As of December 8, 2000, there was $124,500,000 outstanding
under the credit agreement and the borrowing base established by the lenders was
$175,000,000.
In November 2000, NORIC's board of directors approved a definitive merger
agreement whereby NORIC would be acquired by Pogo. The transaction is
conditioned upon, among other things, the approval of the stockholders of both
companies and customary regulatory approvals. NORIC and Pogo currently
anticipate that the transaction can be completed in the first quarter of 2001.
In connection with the closing of the merger, the credit agreement will be
terminated and Pogo will refinance North Central's long-term debt under its
credit facility. In addition, the merger will result in immediate vesting of
phantom shares granted under North Central's phantom share plan. The merger
agreement provides that amounts payable under the phantom share plan shall be
paid by North Central immediately prior to the closing of the merger. North
Central had accrued $31,900,000 of this liability at September 30, 2000.
North Central's expenditures for the acquisition, exploration and
development of oil and gas properties totaled $43,300,000 for the nine months
ended September 30, 2000 as compared to $41,700,000 for the comparable period in
1999. In 2000, all capital expenditures were for exploration and development,
whereas the 1999 expenditures included $24,600,000 for acquisitions and
$17,100,000 for exploration and development. Investing cash flows in 1999 were
also supplemented by $4,800,000 in proceeds from the sale of non-core
properties.
56
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders,
North Central Oil Corporation:
We have audited the accompanying consolidated balance sheets of North Central
Oil Corporation (a Delaware corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of North
Central's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
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 estimates
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 North Central Oil Corporation
and subsidiaries 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 accounting principles generally accepted in
the United States.
As described in Note 2 of the Notes to the Consolidated Financial Statements,
North Central restated its December 31, 1999 and 1998 financial statements to
include the purchase cost attributable to the acquisition of the minority
interests by NORIC.
ARTHUR ANDERSEN LLP
Houston, Texas
December 8, 2000
57
<PAGE> 63
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- ---------------------------
2000 1999 1999 1998 1997
------- ------- ------- ------- -------
(EXPRESSED IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Oil and gas sales.......................... $98,600 $58,900 $88,000 $57,000 $57,000
Interest and other income.................. 600 600 800 700 700
Gain (loss) on sale of assets.............. -- (800) (900) 500 200
------- ------- ------- ------- -------
Total revenue...................... 99,200 58,700 87,900 58,200 57,900
------- ------- ------- ------- -------
COSTS AND EXPENSES:
Production expenses........................ 12,200 10,600 14,400 11,900 13,200
Production and other taxes................. 6,900 4,900 7,100 4,500 4,500
Depreciation, depletion and amortization... 23,500 22,800 31,300 22,800 14,400
Exploration costs.......................... 4,600 3,700 6,900 11,800 10,200
General and administrative expenses........ 3,300 2,900 4,800 4,900 4,000
Interest expense........................... 7,400 7,000 9,300 4,600 2,800
Deferred compensation and other expense.... 21,700 2,500 7,400 1,500 1,300
------- ------- ------- ------- -------
Total costs and expenses........... 79,600 54,400 81,200 62,000 50,400
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES.... 19,600 4,300 6,700 (3,800) 7,500
FEDERAL INCOME TAX PROVISION (BENEFIT)....... 6,900 1,500 2,200 (1,400) 2,400
------- ------- ------- ------- -------
NET INCOME (LOSS)............................ $12,700 $ 2,800 $ 4,500 $(2,400) $ 5,100
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
58
<PAGE> 64
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
2000 1999 1998
------------- --------- --------
(EXPRESSED IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 11,400 $ 6,300 $ 4,900
Accounts receivable..................................... 19,100 11,000 12,300
Federal income taxes receivable -- NORIC................ 3,700 -- --
Federal income taxes receivable......................... -- -- 500
Prepaid expenses and other current assets............... 1,000 900 2,000
--------- --------- --------
Total current assets............................ 35,200 18,200 19,700
--------- --------- --------
PROPERTY AND EQUIPMENT (AT COST):
Oil and gas properties (successful-efforts method)...... 421,700 383,300 340,000
Other fixed assets...................................... 5,500 5,300 5,100
--------- --------- --------
427,200 388,600 345,100
Less accumulated depreciation, depletion, and
amortization......................................... (135,800) (112,500) (87,600)
--------- --------- --------
Property and equipment, net............................. 291,400 276,100 257,500
--------- --------- --------
OTHER ASSETS:
Deferred charges -- commodity hedges.................... 30,100 -- --
Gas imbalance receivable................................ 2,200 2,000 2,500
Other noncurrent assets................................. 1,500 1,100 1,200
--------- --------- --------
33,800 3,100 3,700
--------- --------- --------
TOTAL ASSETS.............................................. $ 360,400 $ 297,400 $280,900
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
59
<PAGE> 65
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
2000 1999 1998
------------- -------- --------
(EXPRESSED IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities................. $ 21,800 $ 16,000 $ 13,500
Royalties and revenue payable............................ 14,600 7,500 3,200
Federal income taxes payable -- NORIC.................... -- 1,100 --
-------- -------- --------
Total current liabilities........................ 36,400 24,600 16,700
-------- -------- --------
OTHER LIABILITIES:
Long-term debt........................................... 134,000 120,000 123,000
Deferred federal income taxes payable.................... 28,000 26,900 26,800
Deferred compensation.................................... 32,000 11,000 4,000
Deferred income -- interest rate hedges.................. 2,500 -- --
Other noncurrent liabilities............................. 1,300 1,400 1,400
-------- -------- --------
197,800 159,300 155,200
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 9):
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 750,000 shares authorized,
184,937 shares issued................................. 200 200 200
Additional paid-in capital............................... 48,100 48,100 48,100
Retained earnings........................................ 100,500 87,800 83,300
-------- -------- --------
148,800 136,100 131,600
Less 121,009 shares treasury stock, at cost.............. (22,600) (22,600) (22,600)
-------- -------- --------
126,200 113,500 109,000
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $360,400 $297,400 $280,900
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
60
<PAGE> 66
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
-------------------- --------------------------------
2000 1999 1999 1998 1997
-------- --------- --------- --------- --------
(EXPRESSED IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ 12,700 $ 2,800 $ 4,500 $ (2,400) $ 5,100
-------- --------- --------- --------- --------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
(Gain) loss on sale of assets................ -- 800 900 (500) (200)
Depreciation, depletion and amortization..... 23,500 22,800 31,300 22,800 14,400
Exploration costs............................ 4,600 3,700 6,900 11,800 10,200
Deferred federal income tax provision
(benefit)................................. 1,100 -- 100 (1,300) 1,100
Deferred compensation and other expense...... 21,300 2,200 7,000 1,500 1,300
Changes in other assets and liabilities:
Accounts receivable....................... (7,800) (700) (2,400) (900) 1,500
Federal income taxes receivable/payable... (4,800) 1,200 1,600 (100) (500)
Prepaid expenses and other current
assets.................................. (300) -- 200 (800) 200
Deferred charges -- commodity hedges...... (30,100) -- -- -- --
Gas imbalance receivable.................. (200) 400 500 800 (100)
Accounts payable and accrued
liabilities............................. 5,800 (2,600) 2,500 6,200 (3,300)
Royalties and revenue payable............. 7,100 3,100 4,300 (2,100) (5,200)
Deferred compensation..................... (300) -- -- -- --
Deferred income -- interest rate hedges... 2,500 -- -- -- --
Other noncurrent liabilities.............. (100) -- -- -- (100)
-------- --------- --------- --------- --------
Total adjustments................................ 22,300 30,900 52,900 37,400 19,300
-------- --------- --------- --------- --------
Net cash provided by operating
activities.............................. 35,000 33,700 57,400 35,000 24,400
-------- --------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets................. 400 4,800 4,900 3,500 500
Acquisition, exploration and development of oil
and gas properties............................. (43,300) (41,700) (57,700) (120,500) (39,600)
Advances to operators............................ -- -- 200 (100) --
Net change in other fixed and noncurrent
assets......................................... (1,000) (400) (400) (500) (800)
-------- --------- --------- --------- --------
Net cash used by investing activities..... (43,900) (37,300) (53,000) (117,600) (39,900)
-------- --------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt..................... 34,000 139,000 139,000 167,600 19,500
Repayment of long-term debt...................... (20,000) (136,000) (142,000) (82,500) (11,500)
Proceeds from issuance of stock.................. -- -- -- 200 --
-------- --------- --------- --------- --------
Net cash provided (used) by financing
activities.............................. 14,000 3,000 (3,000) 85,300 8,000
-------- --------- --------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 5,100 (600) 1,400 2,700 (7,500)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD........................................... 6,300 4,900 4,900 2,200 9,700
-------- --------- --------- --------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE
PERIOD........................................... $ 11,400 $ 4,300 $ 6,300 $ 4,900 $ 2,200
======== ========= ========= ========= ========
Supplemental cash flow disclosure:
Interest paid.................................... $ 6,300 $ 6,100 $ 9,700 $ 4,700 $ 2,400
======== ========= ========= ========= ========
Income taxes paid................................ $ 10,600 $ 1,000 $ 1,000 $ -- $ 1,700
======== ========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
61
<PAGE> 67
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TREASURY STOCK,
COMMON STOCK ADDITIONAL AT COST
---------------- PAID-IN RETAINED -----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
------- ------ ---------- -------- ------- -------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996....... 179,267 $200 $ 1,900 $ 80,600 121,009 $22,600
Net income......................... -- -- -- 5,100 -- --
------- ---- ------- -------- ------- -------
BALANCE AT DECEMBER 31, 1997....... 179,267 200 1,900 85,700 121,009 22,600
Stock issued in connection with
reorganization of affiliated
entities (See Note 3)............ 5,670 -- 19,200 -- -- --
Acquisition of minority interest by
NORIC (See Note 3)............... -- -- 27,000 -- -- --
Net income (loss).................. -- -- -- (2,400) -- --
------- ---- ------- -------- ------- -------
BALANCE AT DECEMBER 31, 1998....... 184,937 200 48,100 83,300 121,009 22,600
Net income......................... -- -- -- 4,500 -- --
------- ---- ------- -------- ------- -------
BALANCE AT DECEMBER 31, 1999....... 184,937 200 48,100 87,800 121,009 22,600
Net income (unaudited)............. -- -- -- 12,700 -- --
------- ---- ------- -------- ------- -------
BALANCE AT SEPTEMBER 30, 2000
(UNAUDITED)...................... 184,937 $200 $48,100 $100,500 121,009 $22,600
======= ==== ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
62
<PAGE> 68
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
North Central Oil Corporation, together with its wholly-owned subsidiaries
("North Central"), is a privately held independent oil and gas company
incorporated under the laws of the state of Delaware in 1955. North Central is
wholly-owned directly and indirectly by a single entity, NORIC Corporation
("NORIC"). North Central is in the business of acquiring, exploring, developing
and producing oil and gas reserves. In addition, North Central is the manager of
certain joint venture programs and affiliated entities (collectively, the
"Affiliates").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of North
Central, its wholly-owned subsidiaries and its proportionate share of the
assets, liabilities, revenue and expenses of the Affiliates. These financial
statements have been prepared in accordance with generally accepted accounting
principles and all significant intercompany accounts and transactions have been
eliminated. Additionally, certain reclassifications have been made to conform
the prior year data to the current format.
RESTATEMENT
As discussed in Note 3, effective May 1, 1998, NORIC acquired the minority
interests in North Central. North Central's financial statements for 1998 and
1999 were originally issued without including the purchase cost attributable to
the acquisition of the minority interests by NORIC. The accompanying financial
statements for 1998 and 1999 have been restated to record the purchase cost
attributable to the acquisition of the minority interests in North Central's
separate financial statements. This restatement resulted in a reduction of net
income before federal income taxes of $4,700,000 and $5,600,000 and a reduction
of net income of $3,100,000 and $3,700,000 for the years ended December 31, 1999
and 1998, respectively.
CASH AND CASH EQUIVALENTS
Cash in excess of North Central's daily requirements is generally invested
in short-term, highly liquid investments with maturities of three months or
less. Such investments are carried at cost, which approximates market, and are
considered to be cash equivalents.
PROPERTY AND EQUIPMENT
Oil and gas properties are accounted for on the successful-efforts method
whereby costs, including lease acquisition costs, lease and well equipment and
intangible drilling costs associated with exploration efforts which result in
the discovery of proved reserves and costs associated with development efforts,
whether or not successful, are capitalized. If an exploratory well is determined
to be dry, the capitalized exploratory costs are charged to expense. All other
exploratory costs are charged to expense as incurred.
Capitalized costs of oil and gas properties are amortized on a
property-by-property basis using the unit-of-production method based on units of
proved reserves. In the event that the net capitalized costs of an oil and gas
property were to exceed its undiscounted future net cash flows, the carrying
value of such property would be reduced to its fair value through a charge to
current operations.
Costs of acquiring unevaluated oil and gas properties to be explored by
North Central are capitalized and subsequently are transferred to producing oil
and gas properties when a lease or other mineral interest becomes productive or
are charged to expense at such time as the lease or other mineral interest is
surrendered or determined to be unproductive.
63
<PAGE> 69
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
When assets are sold, the difference between the proceeds and the net book
value is credited or charged to income as gain or loss.
GAS IMBALANCES
Gas imbalances result when joint owners of an oil and gas property take
more or less production from the property than they are entitled to based on
their ownership percentages in the property. North Central accounts for its
share of such imbalances under the entitlements method whereby it records
revenue for its share of production whether or not the gas is actually taken.
Differences between the amounts taken and the amounts to which North Central is
entitled are reflected as gas imbalance receivables or payables.
STOCK-BASED COMPENSATION
North Central measures the liability for its phantom share incentive
compensation plan based on the change in the fair value of phantom shares
granted over their respective grant price and recognizes compensation expense in
the period in which the changes in value occur. The amounts accrued for this
plan are reported as deferred compensation in the accompanying financial
statements.
INCOME TAXES
Deferred federal income taxes are provided under the liability method on
differences between the reported amount of an asset or liability in the
financial statements and its tax reporting basis. Such differences arise
primarily from the deduction for tax purposes of certain oil and gas exploration
and development costs which are capitalized for financial reporting purposes.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, if any, at the date of the
consolidated financial statements and reported amounts of revenue, costs and
expenses during the reporting period.
BASIS FOR PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of
September 30, 2000 and for the nine months ended September 30, 2000 and 1999
have been prepared in accordance with generally accepted accounting principles
for interim financial information, including all adjustments of a normal and
recurring nature which are, in the opinion of North Central's management,
necessary for the fair presentation of interim results. All information and
notes required for complete financial statements are not included. However,
except for information disclosed herein, there have been no material changes to
the information discussed in the audited financial statements of North Central
for the year ended December 31, 1999. The results of operations presented are
not necessarily indicative of the results for the full year.
3. REORGANIZATION OF AFFILIATED ENTITIES
Effective May 1, 1998, North Central merged several affiliated entities
into North Central, exchanged stock in North Central for assets, and NORIC
acquired the minority interests in North Central. These transactions were
consummated simultaneously as part of a tax-free reorganization in accordance
with Internal Revenue Code Section 351. The following discusses each of the
transactions separately and the impact on the financial statements.
64
<PAGE> 70
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MERGER OF AFFILIATED ENTITIES
The shareholders of several affiliated entities exchanged 100% of their
common stock for common stock of NORIC. The assets and liabilities of these
affiliated entities were then contributed to North Central in exchange for
shares of North Central's common stock. These transactions represented a
reorganization of entities under common control and were accounted for similar
to a pooling-of-interests effective as of the closing date. The financial
reporting basis of the assets and liabilities that were combined with North
Central's accounts as of May 1, 1998 are as follows:
<TABLE>
<CAPTION>
ACCOUNT AMOUNT
------- ----------
<S> <C>
Total current assets.................................... $ 800,000
Net oil and gas properties, at cost, successful-efforts
method of accounting.................................. 6,600,000
Other noncurrent assets................................. 500,000
----------
Total assets.................................. $7,900,000
==========
Accounts payable and accrued liabilities -- current..... $ 300,000
Other noncurrent liabilities............................ 600,000
Deferred federal income taxes........................... 1,200,000
----------
Total liabilities............................. $2,100,000
==========
Net book value.......................................... $5,800,000
==========
</TABLE>
North Central issued 2,050 shares of its $1.00 par value common stock to
the affiliated entities in connection with these mergers and recorded additional
paid-in-capital for the excess of the net book value of the assets acquired over
the par value of the common stock issued.
EXCHANGE OF COMMON STOCK FOR ASSETS
NORIC acquired certain oil and gas assets and liabilities from a Subchapter
S corporation owned by one of North Central's stockholders in exchange for stock
in NORIC. This transaction represented a purchase where the assets and
liabilities acquired were recorded at their fair market values. NORIC then
contributed the acquired assets and liabilities to North Central in exchange for
shares of North Central's common stock. The financial reporting basis of the
assets and liabilities contributed to North Central as of May 1, 1998 are as
follows:
<TABLE>
<CAPTION>
ACCOUNT AMOUNT
------- -----------
<S> <C>
Total current assets................................... $ 900,000
Net oil and gas properties............................. 16,000,000
Other noncurrent assets................................ 900,000
-----------
Total assets................................. $17,800,000
===========
Accounts payable and accrued liabilities -- current.... $ 700,000
Other noncurrent liabilities........................... 1,000,000
Deferred federal income taxes.......................... 2,700,000
-----------
Total liabilities............................ $ 4,400,000
===========
Fair market value of net assets acquired............... $13,400,000
===========
</TABLE>
65
<PAGE> 71
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
North Central issued 3,620 shares of its $1.00 par value common stock to
NORIC for the net assets listed above and recorded additional paid-in-capital
for the excess of the fair market value of the net assets acquired over the par
value of the common stock issued.
ACQUISITION OF MINORITY INTERESTS
NORIC exchanged 10,499 shares of its common stock for 10,499 shares of
common stock of North Central owned by the minority interests. This transaction
represented a purchase where the assets and liabilities acquired were recorded
at their fair market value. The accompanying financial statements for 1998 and
1999 have been restated to record the purchase cost attributable to this
acquisition in North Central's separate financial statements. The fair market
value in excess of the net book value for the assets and liabilities acquired
from the minority interests as of May 1, 1998 is as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Oil and gas properties................................. $40,900,000
-----------
Total assets................................. $40,900,000
===========
Deferred federal income taxes.......................... $13,900,000
-----------
Total liabilities............................ $13,900,000
===========
Net fair market value in excess of book
value...................................... $27,000,000
===========
</TABLE>
4. TRANSACTIONS WITH RELATED PARTIES
In the ordinary course of business, North Central incurs receivable and
payable balances resulting from the payment of costs and expenses and collection
of revenue on behalf of the Affiliates.
North Central is reimbursed for certain costs incurred in managing its
Affiliates. For the years ended December 31, 1999, 1998 and 1997, general and
administrative expenses have been reduced by reimbursements of $30,000, $200,000
and $500,000, respectively.
North Central retains the services of a law firm of which certain directors
and former stockholders of North Central are partners. During the years ended
December 31, 1999, 1998 and 1997, North Central recorded $100,000, $200,000 and
$100,000, respectively, for legal services performed by such firm.
5. FINANCIAL INSTRUMENTS
HEDGES (YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997)
North Central enters into various oil and gas hedging contracts with major
financial institutions and purchasers of oil and gas products in managing its
exposure to product price volatility. Under such contracts, North Central
receives or makes payments based on the differential between fixed and variable
prices for crude oil and natural gas, which amounts are recorded as oil and gas
sales. North Central also utilizes financial instruments to sell a portion of
its natural gas production at New York Mercantile Exchange prices less a basis
differential rather than the local area index prices. Amounts received or paid
under such hedging and financial instrument contracts reduced oil and gas sales
by $1,500,000 in 1999, reduced oil and gas sales by $1,200,000 in 1997 and
increased oil and gas sales by $1,500,000 in 1998. The contracts in place as of
December 31, 1999, 1998 and 1997, had market values of $6,700,000, $3,500,000
and $300,000, respectively.
66
<PAGE> 72
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The production volumes and fixed prices received for 1999, 1998 and 1997
under North Central's various oil and gas swap contracts are summarized in the
table below:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Gas:
Production sold, MMBtu........................ 17,200,000 8,400,000 4,700,000
Average gas price per unit.................... $ 2.27 $ 2.38 $ 2.42
Oil:
Production sold, barrels...................... -- -- 400,000
Average price per unit........................ $ -- $ -- $ 21.04
</TABLE>
In addition to the amounts shown in the above table, at December 31, 1999
North Central had fixed price swap contracts for January 2000 through December
2003 production covering 38,100,000 MMBtu's of gas at per unit prices averaging
$2.29. During the quarter ended September 2000, the fixed price swap contracts
for January 2001 through December 2003 were terminated at a cost of $30,100,000.
Also at December 31, 1999, North Central had basis swaps covering production of
18,300,000 MMBtu's and 12,800,000 MMBtu's in 2000 and 2001, respectively. During
the quarter ended September 2000, the basis contracts for September 2000 through
December 2001 were terminated for proceeds of $49,000.
North Central has also entered into interest rate swap contracts in order
to mitigate the impact of changes in interest rates on its long-term debt. The
notional principal amounts outstanding under such contracts totaled $81,300,000,
$58,000,000 and $17,600,000 at December 31, 1999, 1998 and 1997, respectively.
Amounts received or paid are recorded as interest expense and increased such
expense in 1999, 1998 and 1997 by $300,000, $200,000 and $200,000, respectively.
Interest rate swap contracts in place as of December 31, 1999, 1998 and
1997, with market values of $3,100,000, $(1,400,000) and $(600,000),
respectively, are detailed below. The swap contract that was set to expire in
July 1999 was terminated by mutual agreement effective July 7, 1998. In August
2000, all remaining contracts were terminated resulting in the receipt of
$2,600,000.
<TABLE>
<CAPTION>
FIXED AMOUNT OUTSTANDING AT DECEMBER 31,
RATE ---------------------------------------
NOTIONAL PRINCIPAL PAID TERM 1999 1998 1997
------------------ ----- ---- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$6,600,000................... 6.640% July 1997-July 1999 $ -- $ -- $ 6,600,000
$11,000,000.................. 7.080% July 1997-July 2002 11,000,000 11,000,000 11,000,000
$5,800,000 to $11,300,000.... 5.880% July 1998-July 2003 11,300,000 8,000,000 --
$8,000,000................... 6.220% July 1998-July 2003 8,000,000 8,000,000 --
$10,000,000.................. 4.710% November 1998-October 2001 10,000,000 10,000,000 --
$7,000,000 to $23,000,000.... 5.350% November 1998-July 2003 7,000,000 7,000,000 --
$14,000,000 to $23,000,000... 5.245% November 1998-July 2003 14,000,000 14,000,000 --
$20,000,000.................. 5.720% April 1999-July 2004 20,000,000 -- --
----------- ----------- -----------
$81,300,000 $58,000,000 $17,600,000
=========== =========== ===========
</TABLE>
As North Central has terminated its commodity hedges and interest rate
swaps as discussed above, North Central does not anticipate that the adoption of
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" will have a material impact on its financial
statements.
67
<PAGE> 73
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HEDGES (NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999, UNAUDITED)
Amounts received or paid under hedging and financial instrument contracts
decreased oil and gas sales by $15,500,000 for the nine months ended September
30, 2000 and increased oil and gas sales by $100,000 for the nine months ended
September 30, 1999.
The production volumes and fixed prices received for the nine months ended
September 30, 2000 and September 30, 1999 under North Central's various oil and
gas swap contracts are summarized in the table below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Gas:
Production sold, MMBtu............................ 13,300,000 13,600,000
Average price per unit............................ $ 2.27 $ 2.24
</TABLE>
In addition to the amounts shown in the above table, North Central has
fixed price swap contracts for October 2000 through December 2000 production
covering 4,500,000 MMBtu's of gas at per unit prices averaging $2.27. The
contracts in place at September 30, 2000 had market values totaling
$(8,300,000).
As discussed above, North Central terminated its fixed price swap contracts
for January 2001 to December 2003 and its basis contracts for September 2000
through December 2001 resulting in North Central recording deferred charges of
$30,100,000 as of September 30, 2000. These deferred charges will be amortized
over the remaining terms of the original contracts.
The notional principal amounts outstanding under interest rate swap
contracts during the nine months ended September 30, 2000 totaled approximately
$80,000,000 at an effective interest rate of 7% through July 2003 declining to
$20,000,000 at an effective interest rate of 6.5% from July 2003 to July 2004.
Amounts received or paid are recorded as interest expense, which decreased such
expense by $300,000 for the nine months ended September 30, 2000 and increased
such expense by $400,000 for the nine months ended September 30, 1999. North
Central has deferred income (resulting from the termination of its interest rate
swap contracts as discussed above) of $2,500,000 remaining as of September 30,
2000. This deferred income will be amortized over the remaining terms of the
original swap contracts.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject North Central to
concentrations of credit risk consist primarily of cash and short-term
investments, accounts receivable and financial instruments used in hedging
activities. North Central generally places its cash and short-term investments
with a single high-quality financial institution and enters into hedging
contracts with high-quality financial institutions and major purchasers of oil
and gas products. North Central does not believe that there are significant
risks of nonperformance by any of these counterparties.
Since North Central's joint interest partners and purchasers of North
Central's oil and gas production are concentrated within the energy industry,
credit risk exists with respect to accounts receivable. North Central controls
its credit risk through credit approvals, credit limits and monitoring
procedures. Additionally, North Central requires letters of credit and advance
payments, if deemed necessary.
The largest purchaser of North Central's oil and gas production (Enron
Capital and Trade Resources Corporation in 1999 and 1998 and Penn Union Energy
Services, L.L.C. in 1997) accounted for $28,200,000, $20,500,000 and $14,100,000
of total oil and gas sales for the years ended December 31, 1999, 1998 and 1997,
respectively. The second largest purchaser of North Central's oil and gas
production (NGC Oil Trading and Transportation, Inc. in 1999 and 1998 and Enron
Capital and Trade Resources Corporation in 1997) accounted for $15,600,000,
$11,700,000 and $9,400,000 of total oil and gas sales for the years ended
68
<PAGE> 74
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1999, 1998 and 1997, respectively. North Central's third largest
purchaser (Conoco Inc.) of oil and gas production accounted for $13,600,000 of
total oil and gas sales in 1999.
6. FEDERAL INCOME TAXES
As a result of the reorganization of affiliated entities, North Central
became a member of a consolidated tax group with NORIC for federal income tax
reporting purposes effective May 1, 1998. This required North Central to file a
final income tax return for the four months ended April 30, 1998 resulting in a
tax refund of $200,000 received in 1999.
North Central generated a tax net operating loss of $2,500,000 and a
percentage depletion carryforward of $300,000 for the period from May 1, 1998 to
December 31, 1998. This tax loss and depletion carryforward were utilized in
1999 to offset federal taxable income generated in the current year. The
carryforwards utilized in 1999 were recognized in the financial statements as a
reduction of the deferred income tax provision for 1998 and a corresponding
increase in the deferred income tax provision in 1999.
Also in 1999, North Central filed amended federal income tax returns for
the 1995 and 1996 tax years. The amendments were filed claiming additional
allowable depletion deductions which resulted in a $300,000 tax refund received
in 1999.
At December 31, 1999, North Central had alternative minimum tax credits of
$1,200,000 from prior years whose utilization is governed by the separate return
limitation year rules of the Internal Revenue Code. These credits have been
recognized in the financial statements through a reduction in the deferred
income tax liability in 1999. Upon the utilization of these tax credits, North
Central will increase its deferred income tax liability by corresponding
amounts.
The difference between the effective rate of the provision for income taxes
and the amount which would be determined by applying the statutory federal
income tax rate to income before the provision for income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Federal income taxes computed at statutory
rate.......................................... $2,400,000 $(1,300,000) $2,500,000
Increases (decreases) resulting from -
Statutory depletion in excess of tax basis.... (200,000) (100,000) (200,000)
Other......................................... -- -- 100,000
---------- ----------- ----------
Provision for federal income taxes.............. $2,200,000 $(1,400,000) $2,400,000
========== =========== ==========
</TABLE>
The components of the provision for federal income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Current provision (benefit)..................... $2,100,000 $ (100,000) $1,300,000
Deferred provision.............................. 100,000 (1,300,000) 1,100,000
---------- ----------- ----------
Provision for federal income taxes.............. $2,200,000 $(1,400,000) $2,400,000
========== =========== ==========
</TABLE>
7. LONG -- TERM DEBT
At December 31, 1999 and 1998, long-term debt consisted of borrowings of
$120,000,000 and $123,000,000, respectively, under North Central's revolving
credit facility. The carrying amounts for long-term debt approximate the fair
value of such debt.
In April 1999, North Central amended and restated its $140,000,000 credit
facility increasing the available line of credit up to $175,000,000 and
increasing the maximum margin charged over the Eurodollar
69
<PAGE> 75
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rate from 1.25% to 1.50%. North Central used initial borrowings under the new
facility to retire the amounts previously outstanding under its prior facility
and finance the acquisition of producing oil and gas properties.
North Central's $175,000,000 credit facility provides for revolving
balances (subject to the borrowing base limitation) through November 2003, the
maturity date, or to a later date if extended. As of December 31, 1999, North
Central's borrowing base is $165,000,000. Pursuant to the credit agreement,
borrowings are made using various interest rate options which include the
Eurodollar rate plus a margin ranging from .875% to 1.50% or the current prime
rate. At December 31, 1999 and 1998, advances totaling $120,000,000 and
$123,000,000, respectively, were outstanding under the then existing credit
facility with an interest rate of 7.8% in 1999 and various interest rates
averaging 6.6% in 1998. Subsequent to December 31, 1999, North Central increased
the amount of outstanding debt under its facility to $124,500,000.
The credit agreements discussed above contain various covenants that, among
other things, set minimum net worth and interest coverage requirements, and
limit the amount of additional indebtedness that can be incurred and the amount
of annual dividends that can be paid. The agreements also provide for a
semiannual borrowing base redetermination and the payment of various bank fees,
including quarterly commitment fees.
The amount of available borrowing under the credit facility is reduced by
the issuance of any letters of credit. At December 31, 1999, North Central had
established one irrevocable standby letter of credit in the amount of $1,400,000
as security for the payment of certain abandonment costs. No amounts have been
drawn under this letter of credit.
8. EMPLOYEE BENEFIT PLANS
North Central sponsors a number of employee benefit and compensation plans,
of which the principal ones are discussed below. The other plans do not have a
significant impact on the financial statements, either individually or in the
aggregate.
MONEY PURCHASE PENSION PLAN
North Central's pension plan is a defined contribution plan covering
substantially all of its employees and the employees of its subsidiaries who
have completed 60 days of service. North Central contributes seven percent of
each covered employee's base salary to the plan, which amounts are funded on a
current basis and invested at the direction of the employee in one or more
mutual funds. Contributions vest to the employee over a five-year period of
service. Contributions made by North Central and charged to expense in 1999,
1998 and 1997 were $300,000, $300,000 and $200,000, respectively.
401(k) PLAN
North Central has a voluntary 401(k) savings plan covering substantially
all of its employees and the employees of its subsidiaries who have completed 60
days of service. The plan allows eligible employees to make contributions of up
to six percent of their salary before federal income taxes. North Central
matches such contributions and both North Central and employee contributions are
invested at the direction of the employee in one or more mutual funds. The
employee vests in North Central's contributions over a five-year period of
service. Contributions made by North Central and charged to expense in 1999,
1998 and 1997 were $300,000, $200,000 and $200,000, respectively.
OTHER POSTRETIREMENT PLANS
North Central sponsors unfunded postretirement benefit plans for all
employees who retired prior to 1996. Such plans provide medical and life
insurance benefits for retired employees on a contributory basis. The accrued
postretirement benefit cost included in other noncurrent liabilities in North
Central's balance sheet at December 31, 1999 and 1998 was $1,215,000 and
$1,255,000, respectively. Net periodic postretirement
70
<PAGE> 76
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
benefit cost for the years ended December 31, 1999, 1998 and 1997 was $6,000,
$29,000 and $36,000, respectively.
PHANTOM SHARE PLAN
Effective January 1, 1996, North Central instituted a phantom share plan to
provide incentive compensation to certain officers and employees of North
Central. Under this plan, the participants are entitled to receive the increase
in value of granted phantom shares during vesting periods that run through
December 31, 2001 to December 31, 2003. North Central has granted approximately
6,800 phantom shares as of December 31, 1999, resulting in a liability for
future compensation of $11,000,000. See Note 11 regarding subsequent event.
9. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
North Central leases office space pursuant to a lease agreement that was
set to terminate on December 31, 2000. In June 2000, North Central renewed its
office lease agreement and extended the primary term of the lease until December
31, 2001, with an option to extend the term of the lease for an additional year.
In August 2000, North Central leased additional space for a primary term of 11
months. Future noncancelable payments under the office lease are $400,000 for
each of the years 2000 and 2001. Rent expense for the years ended December 31,
1999, 1998 and 1997 was $300,000 each year.
North Central leases compressors used in its oil and gas production
operations. The terms of the leasing agreements provide for seven-year base
terms, extension of the base term and purchase options available at the end of
the leases. Future minimum rental payments are $1,000,000 each year for 2000
through 2002, $900,000 for 2003 and $600,000 for 2004. Amounts charged to
expense for the years ended December 31, 1999, 1998 and 1997 were $1,000,000,
$600,000 and $300,000, respectively.
LITIGATION
There are various lawsuits and claims against North Central, none of which,
in the opinion of management, will individually or in the aggregate have a
material adverse effect on North Central's financial position or results of
operations.
10. SUPPLEMENTARY INFORMATION ON OIL AND GAS OPERATIONS
The following supplementary information on North Central's oil and gas
operations is presented in accordance with Statement of Financial Accounting
Standards No. 69, "Disclosures About Oil and Gas Producing Activities."
CAPITALIZED COSTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Proved properties......................... $ 375,300,000 $329,400,000 $188,600,000
Unevaluated properties.................... 8,000,000 10,600,000 7,600,000
------------- ------------ ------------
Total capitalized costs................... 383,300,000 340,000,000 196,200,000
Less accumulated depreciation, depletion
and amortization........................ (108,600,000) (84,300,000) (84,700,000)
------------- ------------ ------------
Net capitalized costs..................... $ 274,700,000 $255,700,000 $111,500,000
============= ============ ============
</TABLE>
71
<PAGE> 77
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COSTS INCURRED IN PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Acquisitions --
Proved properties.......................... $25,700,000 $ 95,000,000 $ 9,100,000
Minority interests......................... -- 40,900,000 --
Unevaluated properties..................... 700,000 5,000,000 3,200,000
Exploration costs............................ 8,900,000 10,000,000 9,700,000
Development costs............................ 22,400,000 33,200,000 19,800,000
----------- ------------ -----------
$57,700,000 $184,100,000 $41,800,000
=========== ============ ===========
</TABLE>
The amount shown for costs incurred related to the acquisition of the
minority interests includes $13,900,000 recorded for deferred federal income
taxes payable.
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue from oil and gas producing
activities.................................. $88,000,000 $57,000,000 $57,000,000
----------- ----------- -----------
Production costs.............................. 21,000,000 16,300,000 17,500,000
Exploration costs............................. 6,900,000 11,800,000 10,200,000
Depreciation, depletion and amortization...... 30,600,000 22,000,000 13,700,000
----------- ----------- -----------
58,500,000 50,100,000 41,400,000
----------- ----------- -----------
Income from producing activities before
federal income taxes........................ 29,500,000 6,900,000 15,600,000
Federal income tax provision.................. 9,700,000 2,500,000 5,000,000
----------- ----------- -----------
Results of oil and gas producing activities... $19,800,000 $ 4,400,000 $10,600,000
=========== =========== ===========
</TABLE>
PER UNIT SALES PRICE AND COSTS (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Average unit sales price:
Oil (Bbl)................................................ $17.01 $12.57 $19.43
====== ====== ======
Gas (Mcf)................................................ $ 2.17 $ 2.23 $ 2.54
====== ====== ======
Net equivalent, thousand cubic feet of gas (6:1)......... $ 2.30 $ 2.19 $ 2.77
====== ====== ======
Average unit production cost:
Net equivalent, thousand cubic feet of gas (6:1)......... $ .55 $ .62 $ .86
====== ====== ======
</TABLE>
72
<PAGE> 78
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESERVE QUANTITY INFORMATION (UNAUDITED)
North Central's proved oil and gas reserves are located principally in the
United States with an immaterial amount located in Canada. The quantities in the
following table are based upon North Central's estimates as reviewed by
independent petroleum engineers. Such estimates are inherently imprecise and may
be subject to substantial revisions.
<TABLE>
<CAPTION>
OIL (BBL) GAS (MCF)
------------------------------------ ---------------------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------------------------ ---------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves at
beginning of year....... 9,500,000 10,300,000 7,500,000 332,200,000 185,700,000 120,100,000
Revisions of previous
estimates............... 900,000 400,000 1,000,000 (4,900,000) (4,600,000) 27,700,000
Extensions, discoveries
and other additions..... 100,000 200,000 2,600,000 39,100,000 10,800,000 42,500,000
Production................ (1,300,000) (1,400,000) (1,200,000) (30,600,000) (18,000,000) (13,700,000)
Purchases of reserves
in-place................ -- 300,000 400,000 42,900,000 161,100,000 9,100,000
Sales of reserves
in-place................ (100,000) (300,000) -- (1,000,000) (2,800,000) --
---------- ---------- ---------- ----------- ----------- -----------
Proved reserves at end of
year.................... 9,100,000 9,500,000 10,300,000 377,700,000 332,200,000 185,700,000
========== ========== ========== =========== =========== ===========
Proved developed
reserves --
Beginning of year....... 9,000,000 9,300,000 6,800,000 270,500,000 162,400,000 116,400,000
========== ========== ========== =========== =========== ===========
End of year............. 8,400,000 9,000,000 9,300,000 311,400,000 270,500,000 162,400,000
========== ========== ========== =========== =========== ===========
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE CASH FLOWS RELATING TO PROVED OIL AND
GAS RESERVES (UNAUDITED)
The following presentation of the standardized measure of discounted future
net cash flows is not intended to be a measure of the fair market value of North
Central's oil and gas properties nor an estimate of the present value of actual
future cash flows to be obtained as a result of their development and
production. Instead, it is intended to provide a somewhat better means for
comparing the value of North Central's proved reserves at a given time with
those of other oil and gas producing companies than is provided by a simple
comparison of raw proved reserve quantities.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
-------------- ------------------------ -------------
<S> <C> <C> <C>
Future cash inflows.............. $1,016,500,000 $ 747,400,000 $ 548,700,000
Less future production costs..... (321,700,000) (264,100,000) (183,700,000)
Less future development costs.... (66,700,000) (44,800,000) (34,100,000)
-------------- ------------- -------------
Future net cash flows before
income tax..................... 628,100,000 438,500,000 330,900,000
Future income taxes.............. (158,300,000) (98,000,000) (90,100,000)
-------------- ------------- -------------
Future net cash flows............ 469,800,000 340,500,000 240,800,000
10% discount factor.............. (201,000,000) (140,400,000) (102,500,000)
-------------- ------------- -------------
Standardized measure of
discounted future net cash
flows.......................... $ 268,800,000 $ 200,100,000 $ 138,300,000
============== ============= =============
</TABLE>
73
<PAGE> 79
NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal sources of changes in the standardized measure of discounted
future net cash flows are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Standardized measure -- beginning of
year.................................... $200,100,000 $138,300,000 $ 200,100,000
Sales, net of production costs............ (67,000,000) (40,700,000) (39,500,000)
Net change in prices, net of production
costs................................... 74,900,000 (25,700,000) (147,800,000)
Extensions, discoveries and other
additions, net of future production and
development costs....................... 21,100,000 15,100,000 50,000,000
Changes in estimated future development
costs................................... 3,100,000 (7,100,000) (8,600,000)
Revisions of quantity estimates........... 100,000 (1,300,000) 26,000,000
Accretion of discount..................... 22,500,000 17,500,000 27,300,000
Net change in income taxes................ (28,900,000) 11,600,000 35,600,000
Purchases of reserves in-place............ 43,400,000 93,400,000 13,300,000
Sales of reserves in-place................ (700,000) (5,600,000) --
Changes in production rates (timing) and
other................................... 200,000 4,600,000 (18,100,000)
------------ ------------ -------------
Standardized measure -- end of year....... $268,800,000 $200,100,000 $ 138,300,000
============ ============ =============
</TABLE>
11. SUBSEQUENT EVENT
In July 2000, the board of directors of NORIC adopted a resolution
authorizing North Central's management to obtain an offer for the disposition of
NORIC. In November 2000, NORIC's board of directors approved a definitive merger
agreement whereby NORIC would be acquired by Pogo Producing Company. The
transaction is conditioned upon, among other things, the approval of the
stockholders of both companies and customary regulatory approvals.
The merger will result in immediate vesting of phantom shares granted under
North Central's phantom share plan (see Note 8). Based on the value of the
merger consideration, North Central's liability for future compensation under
the phantom share plan would be approximately $45,000,000. The merger agreement
provides that amounts payable under the phantom share plan shall be paid by
North Central immediately prior to the closing of the merger. North Central had
accrued $11,000,000 of this liability at December 31, 1999 and $31,900,000 at
September 30, 2000.
74
<PAGE> 80
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Pogo's authorized capital stock consists of:
- 100,000,000 shares of common stock, par value $1.00 per share, of which
40,521,081 shares were issued and outstanding as of September 30, 2000,
and
- 2,000,000 shares of preferred stock, par value $1.00 per share, of which
no shares are issued or outstanding (1,000,000 shares of preferred stock,
par value $1.00 per share, are reserved for issuance pursuant to the
Shareholder Rights Plan discussed below.)
We have summarized selected aspects of Pogo's capital stock below. The
summary is not complete. For a complete description, you should refer to Pogo's
Restated Certificate of Incorporation and Bylaws, which Pogo has filed with the
SEC and which are available upon request.
COMMON STOCK
The holders of common stock are entitled to any dividends declared from
time to time in the discretion of Pogo's board of directors out of funds legally
available for that purpose, subject to any preferential rights of any
outstanding shares of Pogo's preferred stock. Holders of common stock are
entitled to share ratably in Pogo's net assets upon liquidation after the
liquidator pays or provides for all liabilities and any preferential liquidation
rights of any preferred stock then outstanding. The rights of holders of common
stock are subject to the rights of holders of any preferred stock that may be
issued in the future. The holders of common stock have no preemptive rights to
purchase additional shares of Pogo's capital stock. Shares of common stock are
not subject to any redemption or sinking fund provisions and are not convertible
into any other securities. All of Pogo's outstanding shares of common stock are
validly issued, fully paid and non-assessable.
The holders of shares of common stock are entitled to one vote for each
share held on all matters submitted to a vote of holders of common stock. Pogo's
common stock does not have cumulative voting rights. This means that the holders
of a majority of the shares of common stock outstanding can elect all the
directors standing for election at any given time if they choose to do so. If
that happens, the holders of the remaining shares will not be able to elect any
directors.
PREFERRED STOCK
Pogo's board of directors is empowered, without approval of the
shareholders, to cause shares of preferred stock to be issued in one or more
series, with the number of shares of each series and the rights, preferences and
limitations of each series to be determined by it. Among the specific matters
that may be determined by Pogo's board of directors are:
- the description and number of shares to constitute each series,
- the annual dividend rate,
- whether the dividends will be cumulative,
- the time and price of redemption and the liquidation preference
applicable to the series,
- whether the series will be subject to the operation of a "sinking" or
"purchase" fund and, if so, the terms and provisions of that fund,
- whether the shares of that series will be convertible into shares of any
other class or classes and the terms and provisions of those conversion
rights, and
- any voting powers of the shares of that series.
75
<PAGE> 81
Pogo's board of directors may change the designation, rights, preferences,
descriptions and terms of, and the number of shares in, any series if no shares
have been issued before that time.
The issuance of one or more series of our preferred stock could adversely
affect the voting power of the holders of Pogo's common stock and could have the
effect of discouraging or making more difficult any attempt by a person or group
to obtain control of Pogo.
Pogo's board of directors has reserved for issuance under Pogo's
stockholder rights plan described below a total of 1,000,000 shares of Pogo's
Series A preferred stock. Pogo has not issued any shares of Series A preferred
stock as of the date of this proxy statement.
LISTINGS
Pogo's common stock is traded on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol "PPP."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Computershare
Investor Services of Dallas, Texas.
SHAREHOLDER RIGHTS PLAN
Pogo has a shareholder rights plan under which one preferred share purchase
right is attached to each outstanding share of Pogo's common stock. Those rights
become exercisable under specified circumstances, including any person or group
(an "acquiring person") becoming the beneficial owner of 20% or more of Pogo's
outstanding common stock, subject to specified exceptions. Each right entitles
the registered holder to purchase from Pogo one one-hundredth of a share of
Series A preferred stock at an exercise price of $80, subject to adjustment
under specified circumstances. If events specified in the stockholder rights
plan occur, each holder of rights other than the acquiring person can exercise
their rights. When a holder exercises a right, the holder will be entitled to
receive common stock valued at twice the exercise price of the right. In some
cases, the holder will receive cash, property or other securities instead of
common stock. Pogo may redeem the rights for $0.01 per right at any time prior
to the tenth day after a person or group becomes an acquiring person. The
stockholder rights plan and the rights expire in April 2004. The shareholder
rights plan will be amended by our board of directors prior to the Closing to
permit the NORIC shareholders, collectively as a group, to acquire and own the
shares they receive as part of the merger.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
As permitted by the Delaware corporations statute, Pogo has included in its
Restated Certificate of Incorporation a provision that, to the fullest extent
permitted by that statute, Pogo's directors will not be liable for monetary
damages for breach of their fiduciary duty of care to Pogo and its stockholders.
The Restated Certificate of Incorporation provides that directors of a company
will not be personally liable for monetary damages for breach of their fiduciary
duties as directors, except for liability:
- for any breach of their duty of loyalty to Pogo or its stockholders,
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
- under Section 174 of the Delaware corporations statute regarding unlawful
payments of dividends or unlawful stock repurchases or redemptions, or
- for any transaction from which the director derived an improper personal
benefit.
This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
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<PAGE> 82
Pogo's Bylaws also require Pogo to indemnify its directors, officers,
employees or other agents to the fullest extent permitted by the Delaware
corporations statute, and to advance expenses to its officers and directors as
incurred. In addition, Pogo has in place employment agreements with some of its
officers providing coverage that is substantially identical to the
indemnification provisions in its Bylaws.
ANTI-TAKEOVER PROVISIONS
The provisions of Pogo's Restated Certificate of Incorporation summarized
in the succeeding paragraphs may have an anti-takeover effect. Those provisions
may delay, defer or prevent a tender offer or takeover attempt that shareholders
might consider in their best interest, including those attempts that might
result in a premium over the market price for the shares of common stock held by
shareholders.
Before Pogo can take any of the following actions, holders of at least 80%
of Pogo's outstanding shares of common stock must vote in favor of that action:
- a merger or similar reorganization of Pogo or other specified
transactions involving Pogo if the other party to that transaction
already beneficially owns 5% or more of Pogo's outstanding common stock
and Pogo's board of directors has not approved the transaction prior to
the time at which the other party becomes a 5% beneficial owner,
- an amendment to Pogo's Restated Certificate of Incorporation to alter or
change the provision establishing a "classified" board of directors,
elected approximately one-third annually, and
- an amendment to the foregoing and other specified provisions of the
Restated Certificate of Incorporation.
Pogo's board of directors is divided into three classes having staggered
terms, with one-third of the directors being elected annually for a term of
three years. Pogo's capital stock has noncumulative voting rights, meaning that
the holders of more than 50% of the voting power of the shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
If that happens, the holders of the remaining less-than-50% of the voting power
of the shares voting for the election of directors will not be able to elect any
directors.
Pogo's board of directors may establish by resolution one or more
additional series of preferred stock having the number of shares, designation,
relative voting rights, dividend rates, liquidation and other rights,
preferences and limitations as may be fixed by the board of directors without
any further stockholder approval. Those rights, preferences, privileges and
limitations could impede or discourage attempts to acquire control of Pogo. See
"-- Shareholder Rights Plan."
Pogo's Restated Certificate of Incorporation and Bylaws further provide
that:
- shareholders may act only at an annual or special meeting of shareholders
and may not act by written consent, and
- special meetings of shareholders cannot be called by the shareholders.
Pogo's Bylaws establish advance notice procedures for the nomination, other
than by or at the direction of the board of directors or a committee of the
board, of candidates for election as directors and for matters to be brought
before an annual meeting of Pogo's shareholders. These procedures require a
shareholder to give timely notice of any nomination for the election of a
director in writing to Pogo's corporate secretary prior to the meeting at which
directors are to be elected. Also, at an annual meeting, and subject to any
other applicable requirements, the only business that may be conducted is
generally business that is brought by or at the direction of Pogo's board of
directors or by or at the direction of a shareholder who has given Pogo's
corporate secretary timely written notice of that stockholder's intention to
bring that business before the meeting. For a notice to be timely, Pogo must
receive the notice at its principal executive offices not less than 80 days nor
more than 110 days prior to the meeting. However, if Pogo provides fewer than 90
days' notice or prior public disclosure of the meeting date, then the
shareholder's notice will only be considered timely if
77
<PAGE> 83
Pogo receives the notice at its principal executive offices not later than the
10th day following the day on which Pogo mails the notice or makes the public
disclosure about the meeting date. The notice must contain the information
specified in the Bylaws.
Pogo is a Delaware corporation and is subject to Section 203 of the
Delaware corporations statute. In general, Section 203 prevents an "interested
stockholder" from engaging in a merger or other "business combination," as
defined in the statute, with a Delaware corporation for three years following
the date the person became an interested stockholder unless one of the following
circumstances exists:
- before the person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination, upon consummation of the transaction that resulted
in the interested stockholder's becoming an interested stockholder, the
interested stockholder owns at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced; however,
the 85% calculation excludes stock held by directors who are also
officers of the corporation and by employee stock plans that do not
provide employees with the rights to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer
- upon consummation of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced; however, the 85%
calculation excludes stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer, and
- following the transaction in which the person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder.
An "interested stockholder" is defined generally as a person owning 15% or more
of a corporation's outstanding voting stock. Section 203 also provides that
there are some other circumstances in which the restrictions described above do
not apply. The foregoing summary of Section 203 is not complete. For a complete
description, you should refer to Section 203.
78
<PAGE> 84
WHERE YOU CAN FIND MORE INFORMATION AND
INCORPORATION OF DOCUMENTS BY REFERENCE
Pogo files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information that Pogo files with the SEC
at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C.
20549 and in New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public on the SEC's web site at:
http://www.sec.gov. Reports, proxy statements and other information concerning
Pogo can also be inspected at the New York Stock Exchange.
Statements contained in this proxy statement concerning the provisions of
any documents are summaries of those documents, and we refer you to the document
filed with the SEC for additional information.
The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered part of this proxy statement, except for
any information superseded by information contained directly in this proxy
statement or in later filed documents incorporated by reference in this proxy
statement.
This proxy statement incorporates by reference the documents set forth
below that Pogo has previously filed with the SEC. These documents contain
important business and financial information about Pogo that is not included in
or delivered with this proxy statement.
<TABLE>
<CAPTION>
POGO COMMISSION FILINGS PERIOD
----------------------- ------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended December 31, 1999
Quarterly Reports on Form 10-Q Quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000
Current Reports on Form 8-K Filed on February 2, 2000,
November 20, 2000 (two reports),
November 21, 2000 and November 27, 2000
</TABLE>
We also incorporate by reference additional documents that may be filed
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 between the date of this proxy statement and the date of the Pogo
special meeting. These include periodic reports, such as Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as
proxy statements.
You can request a free copy of the above filings or any filings
subsequently incorporated by reference into this proxy statement by writing or
calling:
Pogo Producing Company
5 Greenway Plaza, Suite 2700
Houston, TX 77046
Attn: Investor Relations
Telephone: (713) 297-5000
Fax: (713) 297-5100
We will forward the documents you request by first-class U.S. Mail or other
equally prompt means within one business day of your request. In order to ensure
timely delivery, you should make your request by , 2001. The
exhibits to these documents will generally not be made available unless they are
specifically incorporated by reference in this proxy statement.
Pogo has not authorized anyone to give any information or make any
representation about the merger or about the respective companies that differs
from or adds to the information in this proxy statement or in the documents that
Pogo files publicly with the SEC. Therefore, you should not rely upon any
information that
79
<PAGE> 85
differs from or is in addition to the information contained in this proxy
statement or in the documents that Pogo files publicly with the SEC.
If you live in a jurisdiction where it is unlawful to ask for proxies
regarding the securities offered by this proxy statement, or if you are a person
to whom it is unlawful to direct those activities, the offer presented by this
proxy statement is not extended to you.
The information contained in this proxy statement speaks only as of the
date on the cover, unless the information specifically indicates that another
date applies.
80
<PAGE> 86
ANNEX A
<PAGE> 87
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
POGO PRODUCING COMPANY
AND
NORIC CORPORATION
AND THE
SHAREHOLDERS SIGNATORY HERETO
Dated as of November 19, 2000
<PAGE> 88
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms....................................... 1
ARTICLE II
THE MERGER
SECTION 2.01. The Merger.................................................. 13
SECTION 2.02. Effective Time; Closing..................................... 13
SECTION 2.03. Effect of the Merger........................................ 13
SECTION 2.04. Certificate of Incorporation; Bylaws........................ 14
SECTION 2.05. Directors and Officers...................................... 14
SECTION 2.06. Purchaser's Stock Unchanged................................. 14
ARTICLE III
TREATMENT OF COMMON STOCK
SECTION 3.01. Treatment of Common Stock................................... 14
SECTION 3.02. Cancellation of Treasury Shares............................. 18
SECTION 3.03. Exchange Agent; Exchange Procedures......................... 18
SECTION 3.04. Transfer Books.............................................. 19
SECTION 3.05. No Fractional Share Certificates............................ 19
SECTION 3.06. Lost, Stolen or Destroyed Certificates...................... 20
SECTION 3.07. Termination of Exchange Fund................................ 20
SECTION 3.08. Certain Adjustments......................................... 20
SECTION 3.09. Restricted Securities....................................... 20
SECTION 3.10. Taking of Necessary Action; Further Action.................. 21
SECTION 3.11. Dissenters' Rights.......................................... 21
SECTION 3.12. Purchaser Price Adjustment.................................. 21
SECTION 3.13. Escrow...................................................... 22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Organization, Authority and Qualification of the Company.... 23
SECTION 4.02. Capital Stock of the Company; Ownership of the Shares....... 23
SECTION 4.03. Company Subsidiaries........................................ 24
SECTION 4.04. Corporate Books and Records................................. 25
SECTION 4.05. No Conflict................................................. 25
SECTION 4.06. Governmental Consents and Approvals......................... 25
SECTION 4.07. Financial Information, Books and Records.................... 26
SECTION 4.08. No Undisclosed Liabilities.................................. 26
</TABLE>
(ii)
<PAGE> 89
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 4.09. Absence of Certain Changes, Events and Conditions........... 26
SECTION 4.10. Litigation.................................................. 27
SECTION 4.11. Compliance with Laws........................................ 27
SECTION 4.12. Material Contracts.......................................... 27
SECTION 4.13. Title to Property........................................... 29
SECTION 4.14. Intellectual Property....................................... 30
SECTION 4.15. Employee Benefit Matters.................................... 31
SECTION 4.16. Environmental Matters....................................... 32
SECTION 4.17. Reserve Reports............................................. 33
SECTION 4.18. Hedging..................................................... 33
SECTION 4.19. Taxes....................................................... 33
SECTION 4.20. Insurance................................................... 34
SECTION 4.21. Brokers..................................................... 34
SECTION 4.22. Tax Treatment............................................... 34
SECTION 4.23. Production and Pipeline Imbalances.......................... 34
SECTION 4.24. Equipment................................................... 35
SECTION 4.25. Operation of the Properties................................. 35
SECTION 4.26. Plugging and Abandonment.................................... 35
SECTION 4.27. No Parachute Payments....................................... 35
SECTION 4.28. Vote Required............................................... 35
SECTION 4.29. Voting Power of Significant Stockholders; Dissenting
Shares...................................................... 36
SECTION 4.30. Non-Energy Company Activity................................. 36
SECTION 4.31. Seismic Data................................................ 36
SECTION 4.32. Suspense Funds.............................................. 36
SECTION 4.33. Future Sales Contracts...................................... 36
SECTION 4.34. Holding Company; Investment Company......................... 36
SECTION 4.35. Federal Regulations......................................... 37
SECTION 4.36. Securities Act.............................................. 37
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. Organization and Authority of the Purchaser................. 37
SECTION 5.02. Certificate of Incorporation and Bylaws..................... 38
SECTION 5.03. Capitalization.............................................. 38
SECTION 5.04. Financing................................................... 38
SECTION 5.05. No Conflict................................................. 38
SECTION 5.06. Governmental Consents and Approvals......................... 39
SECTION 5.07. Litigation.................................................. 39
SECTION 5.08. Tax Treatment............................................... 39
SECTION 5.09. SEC Filings; Financial Statements........................... 39
SECTION 5.10. Compliance With Laws........................................ 40
SECTION 5.11. Taxes....................................................... 40
SECTION 5.12. Authorization and Issuance of Purchaser Common Stock........ 40
SECTION 5.13. Absence of Purchaser Material Adverse Effect................ 41
SECTION 5.14. Brokers..................................................... 41
</TABLE>
iii
<PAGE> 90
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.15. Vote Required............................................... 41
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Conduct of Business Prior to the Closing.................... 41
SECTION 6.02. Access to Information....................................... 46
SECTION 6.03. Confidentiality............................................. 46
SECTION 6.04. Company Stockholders' Meeting and Voting.................... 46
SECTION 6.05. Purchaser Stockholders' Meeting............................. 47
SECTION 6.06. Regulatory and Other Authorizations; Notices and Consents... 47
SECTION 6.07. Notice of Certain Matters................................... 48
SECTION 6.08. Non-Accredited Investor Advisor............................. 48
SECTION 6.09. No Solicitation of Transactions............................. 48
SECTION 6.10. Registration................................................ 49
SECTION 6.11. Directors' and Officers' Indemnification and Insurance...... 50
SECTION 6.12. Plan of Reorganization...................................... 50
SECTION 6.13. Other Shareholders.......................................... 51
SECTION 6.14. Phantom Stock Plan and Severance Payments................... 51
SECTION 6.15. No Trading.................................................. 51
SECTION 6.16. Standstill and Voting Agreement............................. 52
ARTICLE VII
EMPLOYEE MATTERS
SECTION 7.01. Compensation and Benefits; Service Recognition.............. 52
ARTICLE VIII
TAX MATTERS
SECTION 8.01. Indemnity................................................... 53
SECTION 8.02. Tax Returns and Payments.................................... 54
SECTION 8.03. Refunds/Tax Benefits........................................ 54
SECTION 8.04. Contests.................................................... 56
SECTION 8.05. Cooperation and Exchange of Information..................... 56
SECTION 8.06. Conveyance Taxes............................................ 57
SECTION 8.07. Miscellaneous............................................... 57
ARTICLE IX
CONDITIONS TO CLOSING
SECTION 9.01. Conditions to the Obligations of Each Party................. 58
SECTION 9.02. Conditions to the Obligations of the Company................ 58
SECTION 9.03. Conditions to the Obligations of the Purchaser.............. 59
</TABLE>
iv
<PAGE> 91
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Indemnification of the Purchaser............................ 61
SECTION 10.02. Indemnification of the Shareholders......................... 61
SECTION 10.03. Notice and Defense of Third Party Claims.................... 61
SECTION 10.04. Limitations................................................. 62
SECTION 10.05. Tax Matters................................................. 63
SECTION 10.06. Tax Benefits; Insurance Proceeds............................ 63
SECTION 10.07. Escrow Funds and Shares..................................... 63
SECTION 10.08. Security; Limited Recourse.................................. 63
SECTION 10.09. Exclusive Remedies.......................................... 64
ARTICLE XI
TERMINATION AND WAIVER
SECTION 11.01. Termination................................................. 65
SECTION 11.02. Effect of Termination....................................... 66
SECTION 11.03. Waiver...................................................... 66
ARTICLE XII
SHAREHOLDER REPRESENTATIVE
SECTION 12.01. Designation................................................. 66
SECTION 12.02. Authority................................................... 66
SECTION 12.03. Reliance by Third Parties on the Shareholder
Representative's Authority.................................. 67
SECTION 12.04. Exculpation and Indemnification............................. 67
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.01. Survival of Representations and Warranties.................. 68
SECTION 13.02. Expenses.................................................... 68
SECTION 13.03. Notices..................................................... 68
SECTION 13.04. Public Announcements........................................ 69
SECTION 13.05. Headings.................................................... 69
SECTION 13.06. Severability................................................ 69
SECTION 13.07. Entire Agreement............................................ 70
SECTION 13.08. Assignment.................................................. 70
SECTION 13.09. Amendment................................................... 70
SECTION 13.10. Governing Law; Forum........................................ 70
SECTION 13.11. Counterparts................................................ 70
SECTION 13.12. Specific Performance........................................ 71
</TABLE>
v
<PAGE> 92
Page
----
Exhibits
6.13 -- Form of Joinder Agreement
9.02(d) -- Form of Registration Rights Agreement
9.02(e) -- Form of Standstill and Voting Agreement
vi
<PAGE> 93
AGREEMENT AND PLAN OF MERGER, dated as of November 19, 2000, among
POGO PRODUCING COMPANY, a Delaware corporation (the "Purchaser"), NORIC
---------
CORPORATION, a New York corporation (the "Company"), and the shareholders of the
-------
Company signatory hereto, constituting holders of two-thirds of the issued and
outstanding shares of the Company (the "Significant Shareholders") and any other
------------------------
shareholder of the Company that agrees to become a party to this Agreement
pursuant to the provisions hereof (each shareholder of the Company that is or
becomes a party to this Agreement, including the Significant Shareholders, is
referred to herein as a "Shareholder", and collectively, the "Shareholders").
----------- ------------
W I T N E S S E T H:
WHEREAS, the Purchaser and the Company believe that the acquisition of
the Company by the Purchaser and the merger of the Company with and into the
Purchaser (the "Merger") in accordance with the New York Business Corporation
------
Law (the "BCL") and the Delaware General Corporation Law (the "DGCL") in the
--- ----
manner provided by, and subject to the terms and conditions of, this Agreement,
is desirable and in the best interests of their respective corporations and
shareholders;
WHEREAS, the Boards of Directors of the Purchaser and the Company have
each approved the Merger, upon the terms and subject to the conditions set forth
herein; and
WHEREAS, the Significant Shareholders have determined to vote their
shares in favor of the adoption of this Agreement and in favor of the
transactions contemplated hereby at a special meeting of the Company's
shareholders to be held pursuant to BCL Section 903; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a tax-free reorganization within the meaning of section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
----
parties intend, by executing this Agreement, to adopt a plan of reorganization
within the meaning of section 368(a) of the Code;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings:
"Action" means any claim, action, suit, arbitration, inquiry,
------
proceeding or investigation by or before any Governmental Authority.
"Adjustment" has the meaning specified in Section 8.03(c).
----------
"Adjustment Amount" has the meaning specified in Section 3.12(c).
-----------------
<PAGE> 94
"Affiliate" means, with respect to any specified Person, any other
---------
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" or "this Agreement" means this Agreement, dated as of the
--------- --------------
date hereof, among the Company, the Purchaser and the Significant
Shareholders (including the Exhibits hereto and the Disclosure Schedule)
and all amendments hereto made in accordance with the provisions of Section
13.09 and as supplemented by all Joinder Agreements executed pursuant to
Section 6.13.
"Associate" has the meaning specified in Rule 12b-2 promulgated under
---------
the Exchange Act.
"Average Parent Share Price" has the meaning specified in Section
--------------------------
3.01(a).
"BCL" has the meaning specified in the recitals to this Agreement.
---
"Business Day" means any day that is not a Saturday, a Sunday or other
------------
day on which banks are required or authorized by law to be closed in The
City of New York.
"Cash Election" has the meaning specified in Section 3.01(c).
-------------
"Cash Election Number" has the meaning specified in Section 3.01(b).
--------------------
"Cash Election Shares" has the meaning specified in Section 3.01(d).
--------------------
"Cash Fraction" has the meaning specified in Section 3.01(d).
-------------
"Certificate" or "Certificates" has the meaning specified in Section
----------- ------------
3.02(b).
"Closing" has the meaning specified in Section 2.02.
-------
"Closing Date" has the meaning specified in Section 2.02.
------------
"Code" has the meaning specified in the recitals to this Agreement.
----
"Common Conversion Number" has the meaning specified in Section
------------------------
3.01(a).
"Company" has the meaning specified in the preamble to this Agreement.
-------
"Company Certificates" has the meaning specified in Section 3.01(g).
--------------------
"Company Common Stock" has the meaning specified in Section 3.01(a).
--------------------
"Company Long-Term Debt" means long-term indebtedness for borrowed
----------------------
money and the current portion of long-term indebtedness for borrowed money of
the Company and the Company Subsidiaries as of the Effective Time.
"Company Stockholder Vote" has the meaning specified in Section 4.28.
------------------------
2
<PAGE> 95
"Company Stockholders' Meeting" has the meaning specified in Section
-----------------------------
6.04(a).
"Company Subsidiary" means any and all corporations, partnerships,
------------------
joint ventures, associations, limited liability companies and other
entities controlled by the Company, directly or indirectly through one or
more intermediaries.
"Company's Indemnified Persons" has the meaning specified in Section
-----------------------------
10.02.
"Competing Transaction" has the meaning specified in Section 6.09(b).
---------------------
"Contest" has the meaning specified in Section 8.04(b).
-------
"Control" (including the terms "controlled by" and "under common
------- ------------- ------------
control with"), with respect to the relationship between or among two or
------------
more Persons, means the possession, directly or indirectly, or as trustee
or executor, of the power to direct or cause the direction of the affairs
or management of a Person, whether through the ownership of voting
securities, as trustee or executor, by contract or otherwise, including,
without limitation, the ownership, directly or indirectly, of securities
having the power to elect a majority of the board of directors or similar
body governing the affairs of such Person.
"Defensible Title" has the meanings specified in Section 4.13(b)-(e).
----------------
"Disclosure Schedule" means the Disclosure Schedule attached hereto,
-------------------
dated as of the date hereof, and forming a part of this Agreement.
"Dissenting Shares" has the meaning specified in Section 3.11(a).
-----------------
"Easements" means all easements, rights-of-way, licenses, permits,
---------
servitudes, surface leases, and similar assets, rights and interests in any
way appertaining, belonging, affixed, incidental or applicable to, or used
in connection with, the ownership of the Leases, the Wells, Fee Mineral
Interests or Other Real Property or the Operations of the Company or any
Company Subsidiary, including, without limitation, those described in
Section 4.13(c) of the Disclosure Schedule.
"Effective Time" has the meaning specified in Section 2.02.
--------------
"Election Deadline" has the meaning specified in Section 3.01(k).
-----------------
"Encumbrance" means any security interest, pledge, mortgage, lien
-----------
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any
kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of
ownership.
"Environmental Laws" means the Comprehensive Environmental Response,
------------------
Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq.; the Resource
-- ---
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq.; the Federal
Water Pollution Control Act,
3
<PAGE> 96
33 U.S.C. (S) 1251 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et seq.;
-- --- -- ---
the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1471 et seq.; the
-- ---
Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 through 2629; the Oil
Pollution Act, 33 U.S.C. (S) 2701 et seq.; the Emergency Planning and
-- ---
Community Right-to-Know Act, 42 U.S.C. (S) 11001 et seq.; the Safe Drinking
-- ---
Water Act, 42 U.S.C. (S)(S) 300f through 300j; the Occupational Safety and
Health Act of 1970; and any similar Law in effect on the date of this
Agreement relating to pollution or protection of the environment, health,
safety or natural resources, and arising from the use, handling,
transportation, storage, disposal, release or discharge of Hazardous
Materials.
"Equipment" means all equipment, fixtures, physical facilities, tank
---------
batteries, surface and subsurface machinery, inventory, spare parts,
supplies, tools, and other tangible personal property owned or leased by
the Company or any Company Subsidiary and other personal property of any
kind on or associated with the Operations of the Company or any Company
Subsidiary on the date hereof, including, without limitation, casing,
tubing, tubular goods, rods, pumping units and engines, Christmas trees,
derricks, platforms, separators, compressors, gun barrels, gathering lines
and systems, pipelines, flow lines, tanks, wellheads, production units,
platforms, related plants, gas and extraction plants, valves, meters,
heaters, dehydrators, and communications systems and equipment, which are
located on or connected with the Leases, the Easements or the Operations of
the Company or any Company Subsidiary.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Escrow Agent" has the meaning specified in Section 3.13.
------------
"Escrow Agreement" has the meaning specified in Section 3.13.
----------------
"Escrow Consideration" has the meaning specified in Section 3.13.
--------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"Exchange Agent" has the meaning specified in Section 3.03(a).
--------------
"Exchange Fund" has the meaning specified in Section 3.03(a).
-------------
"Fee Mineral Interests" means all of the record and beneficial right,
---------------------
title and interest of the Company and any Company Subsidiary in and to the
oil, gas and other minerals in and under the land described in Section
4.13(d) of the Disclosure Schedule.
"FERC" has the meaning specified in Section 4.35.
----
"Financial Statements" has the meaning specified in Section 4.07(a).
--------------------
"Form of Election" has the meaning specified in Section 3.01(c).
----------------
4
<PAGE> 97
"Governmental Authority" means any United States federal, state, local
----------------------
or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or
arbitral body.
"Governmental Order" means any order, writ, judgment, injunction,
------------------
decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Hazardous Materials" means (a) petroleum and petroleum products, by-
-------------------
products or breakdown products, radioactive materials, including, without
limitation, naturally occurring radioactive materials, asbestos-containing
materials and polychlorinated biphenyls, and (b) other chemicals, materials
or substances defined or regulated as toxic or hazardous or as pollutants,
contaminants or waste under any applicable Environmental Law.
"Hedges" has the meaning specified in Section 4.18(b).
------
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended, and the rules and regulations promulgated thereunder.
"Hydrocarbons" means crude oil, natural gas, casinghead gas,
------------
condensate, sulphur, natural gas liquids, plant products and other liquid
or gaseous hydrocarbons produced in association therewith, including,
without limitation, coalbed gas and carbon dioxide, and all other minerals
of every kind and character which may be covered by or included in the
Property.
"Indebtedness" means, with respect to any Person, (a) all indebtedness
------------
of such Person, whether or not contingent, for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services (other than trade payables), (c) all obligations of such Person
evidenced by notes, bonds, debentures, repurchase and reverse repurchase
agreements or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement, in the event of
default, are limited to repossession or sale of such property), (e) all
obligations of such Person as lessee under leases that have been or should
be, in accordance with U.S. GAAP, recorded as capital leases, (f) all
obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, and (g) all Indebtedness of others
referred to in clauses (a) through (f) above guaranteed by such Person.
"Indemnified Person" has the meaning specified in Section 10.03.
------------------
"Indemnifying Person" has the meaning specified in Section 10.03.
-------------------
"Intellectual Property" has the meaning specified in Section 4.14.
---------------------
"Interim Financial Statements" has the meaning specified in Section
----------------------------
4.07(a).
"IRS" means the Internal Revenue Service of the United States.
---
5
<PAGE> 98
"Joinder Agreement" has the meaning specified in Section 6.13(a).
-----------------
"June 30 Balance Sheet" has the meaning specified in Section 4.07(a).
---------------------
"Knowledge", with respect to the Company, means such facts,
---------
information and matters that are actually known by any Senior Officer.
"Law" means any federal, state, local or foreign law, statute,
---
ordinance, regulation, rule, code, decree, other requirement or rule of
law.
"Leases" means fee mineral interests other than Fee Mineral Interests
------
as that term is defined herein, oil, gas and mineral leasehold interests
and other leasehold interests, subleases, mineral servitudes, licenses,
concessions, working interests, farmout or farmin rights, royalties,
overriding royalties or other non-working or carried interests, operating
rights or other rights and interests described or referred to in Section
4.13(b) of the Disclosure Schedule (other than Permitted Encumbrances),
including, without limitation, all right, title, and interest of the
Company and any Company Subsidiary in all pooled or unitized areas in which
the Leases are included, to the extent that such rights and interests arise
from and are associated with the Leases or Wells, and all right, title and
interest owned by the Company and any Company Subsidiary in, under or
derived from all or any presently existing unitization, pooling, operating,
communitization or other agreements, whether voluntary or involuntary, or
formed under orders, regulations, rules or declaration or other official
acts of any Governmental Authority.
"Liabilities" means any and all debts, liabilities and obligations,
-----------
whether accrued or fixed, absolute or contingent, matured or unmatured, or
determined or determinable, including, without limitation, those arising
under any Law, Action or Governmental Order, and those arising under any
contract or agreement.
"Loss" means any and all Liabilities, losses, damages, claims, costs
----
and expenses, interest, awards, judgments and penalties (including, without
limitation, reasonable attorneys' fees and expenses) actually suffered or
incurred by a Person.
"Loss Ceiling" has the meaning specified in Section 10.04(e).
------------
"Material Adverse Effect" means any change in or effect on the Company
-----------------------
or any Company Subsidiary that, individually or in the aggregate with any
other changes in or effects on the Company or any Company Subsidiary, is
materially adverse to the financial condition, business or results of
operations of the Company and the Company Subsidiaries, taken as a whole or
is materially adverse to the financial condition, business or results of
operations of North Central, taken as a whole; provided, however, that
-------- -------
"Material Adverse Effect" shall not be deemed to include any changes or
effects arising out of (a) changes in Law or interpretations thereof by
Governmental Authorities, (b) changes in U.S. GAAP or in the generally
applicable interpretation thereof, (c) events or conditions generally
affecting the energy industry (including, without limitation, any
reclassification or recalculation of reserves in the ordinary course of
business, unsuccessful drilling efforts or changes in the price of
6
<PAGE> 99
Hydrocarbons) or arising from changes in general business, economic or
political conditions or (d) changes resulting from entering into this
Agreement.
"Material Contracts" has the meaning specified in Section 4.12(a).
------------------
"Maximum Amount" has the meaning specified in Section 10.04(b).
--------------
"Merger" has the meaning specified in the recitals to this Agreement.
------
"Merger Consideration" has the meaning specified in Section 3.03(b).
--------------------
"Merger S-4" has the meaning specified in Section 6.10.
----------
"Mixed Election" has the meaning specified in Section 3.01(c).
--------------
"NCOC" means North Central Oil Corporation, a Delaware corporation.
----
"Net Revenue Interest" means an overall interest in Hydrocarbons
--------------------
produced from or attributable to the Leases and Wells, after deducting all
lessors' royalties, overriding royalties, production payments, net profit
interests, reversionary interests, and other interests or burdens on or
that are measured by or are payable out of the production of Hydrocarbons
produced therefrom or the proceeds realized from the sale or other
disposition thereof.
"NGA" has the meaning specified in Section 4.35.
---
"Non-Election" has the meaning specified in Section 3.01(c).
------------
"Non-Election Fraction" has the meaning specified in Section 3.01(g).
---------------------
"Non-Election Shares" has the meaning specified in Section 3.01(d).
-------------------
"Non-Energy Company Subsidiaries" means any Company Subsidiaries other
-------------------------------
than North Central.
"North Central" means NCOC and its subsidiary, NCO Services, Inc., a
-------------
subsidiary of the Company.
"NORIC Cash" means the cash and cash equivalents held by the Company
----------
and the Non-Energy Company Subsidiaries as of the Effective Time.
"Operations" means all oil and gas exploration and all operations
----------
related thereto, including, without limitation, (a) the acquisition,
purchase, sale, development, operation, maintenance and abandonment of oil,
gas and mineral leases and related interests, (b) the drilling, reworking,
production, purchase, sale, transportation, storage, processing, treating,
manufacture and disposal of, or for, oil, gas, natural gas liquids, and
other hydrocarbon gases and liquids, and associated by-products and wastes,
and (c) the acquisition, construction, installation, maintenance and
operation of related
7
<PAGE> 100
plants, platforms, pipelines, gathering lines, compressors, facilities,
storage facilities and equipment.
"Other Real Property" means the real property described and identified
-------------------
in Section 4.13(e) of the Disclosure Schedule.
"Paying Agent" has the meaning specified in Section 3.01(i).
------------
"Per Share Cash Amount" has the meaning specified in Section 3.01(a).
---------------------
"Permitted Encumbrances" means such of the following as to which no
----------------------
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced: (a) liens for taxes, assessments and governmental
charges or levies not yet due and payable; (b) Encumbrances imposed by Law,
such as materialmen's, mechanics', carriers', workmen's and repairmen's
liens and other similar liens arising in the ordinary course of business;
(c) pledges or deposits to secure obligations under workers' compensation
laws or similar legislation or to secure public or statutory obligations;
(d) minor survey exceptions, reciprocal easement agreements and other
customary encumbrances on title to real property that do not, individually
or in the aggregate, materially adversely affect the value, operation or
use of property subject thereto for its current and anticipated purposes;
(e) lessor's royalties, overriding royalties, nonparticipating royalties,
net profits interests, carried interests, production payments, reversionary
interests, and other burdens, if the net cumulative effect of such burdens
does not operate to reduce the Net Revenue Interest of the Company or the
Company Subsidiary, as applicable, in any Property to an amount less than
the Net Revenue Interest for such Property set forth on Section 4.13(b) of
the Disclosure Schedule, and does not obligate the Company or the Company
Subsidiary, as applicable, to bear costs and expenses relating to the
maintenance, development, and operation of any Property in a proportion
greater or less than the Working Interest of the Company or the Company
Subsidiary, as applicable, for such Property as set forth on Section
4.13(b) of the Disclosure Schedule (unless the actual Net Revenue Interest
for such Property is greater or less than the Net Revenue Interest set
forth on Section 4.13(b) of the Disclosure Schedule in the same proportion
as such costs and expenses required to be borne is greater or less than
such Working Interest); (f) easements, rights-of-way, servitudes, permits,
licenses, surface leases, and other rights in respect of surface
operations, pipelines, grazing, logging, canals, ditches, reservoirs or the
like; conditions, covenants or other restrictions, and easements for
streets, alleys, highways, pipelines, telephone lines, power lines,
railways, and other easements and rights-of-way on, over, or in respect of
any Property which will not materially interfere with the operation or use
of any of the affected Properties; (g) farmout and farmin agreements,
participation agreements, joint operating agreements, division orders,
pooling agreements, unitization orders or agreements, and Hydrocarbons
sales agreements entered into in the ordinary course of business to the
extent that such orders and agreements do not operate to reduce the Net
Revenue Interest of the Company or the Company Subsidiary, as applicable,
in any Property to an amount greater or less than the Net Revenue Interest
for such Property set forth on Section 4.13(b) of the Disclosure Schedule,
and do not obligate the Company or the Company Subsidiary to bear costs and
expenses relating to
8
<PAGE> 101
the maintenance, development, and operation of any Property in a proportion
greater or less than the Working Interest of the Company or the Company
Subsidiary, as applicable, for such Property as set forth on Section
4.13(b) of the Disclosure Schedule (unless the actual Net Revenue Interest
for such Property is greater or less than the Net Revenue Interest set
forth on Section 4.13(b) of the Disclosure Schedule in the same proportion
as such costs and expenses required to be borne is greater or less than
such Working Interest); (h) calls on production, in effect as of the date
hereof, which entitle the Company or the Company Subsidiary, as the case
may be, to receive a current market price for such production; (i) all
liens, contracts, agreements, instruments, obligations, defects, and
irregularities affecting the Properties that, individually, or in the
aggregate, are not such as to materially and adversely interfere with the
operation or use, if any, of Properties, do not prevent the Company or the
Company Subsidiary, as applicable, from receiving the proceeds of
production from any of the Properties, do not reduce the Net Revenue
Interest of the Company or the Company Subsidiary, as applicable, for such
Property below that set forth on Section 4.13(b) of the Disclosure
Schedule, and do not obligate the Company or the Company Subsidiary to bear
costs and expenses relating to the maintenance, development, and operation
of any Properties in an amount greater than the Working Interest of the
Company or the Company Subsidiary, as applicable, for such Property as set
forth on Section 4.13(b) of the Disclosure Schedule (unless the actual Net
Revenue Interest for such Property is greater than the Net Revenue Interest
set forth on Section 4.13(b) of the Disclosure Schedule in the same
proportion as any increase in such Working Interest); (j) any liens created
by Law or reserved in oil, gas, and/or mineral leases for royalty, bonus,
or rental, or securing compliance with the terms of such leases; (k) all
agreements, instruments, documents, liens, Actions and other matters
described or referred to in the Disclosure Schedule or which are waived by
Purchaser; (l) traditional rights of reassignment requiring notice and/or
the reassignment of a leasehold interest to the holders of such
reassignment rights prior to surrendering or releasing such leasehold
interest or operating right; (m) rights reserved to or vested in any
Governmental Authority to control or regulate any Property in any manner,
and (n) any defect, irregularity, deficiencies in title, or other matter
that a reasonable and prudent operator, experienced and knowledgeable in
the domestic oil and gas business, would not consider a material impairment
of the Company's or the Company Subsidiary's title in such Property.
"Person" means any individual, partnership, corporation, limited
------
liability company, trust, incorporated or unincorporated organization or
other legal entity of any kind.
"Phantom Share Plan" means the North Central Oil Corporation Phantom
------------------
Share Plan (amended and restated, effective as of May 1, 1997), as amended.
"Plans" has the meaning specified in Section 4.15(a).
-----
"Prior Period Tax Decrease" has the meaning specified in Section
-------------------------
8.03(c).
"Prior Period Tax Increase" has the meaning specified in Section
-------------------------
8.03(c).
9
<PAGE> 102
"Private Placement" has the meaning specified in Section 6.10.
-----------------
"Pro Rata Share" has the meaning specified in Section 10.04(c).
--------------
"Property" or "Properties" mean the Leases, Wells, Easements,
-------- ----------
Equipment, Other Real Property and Fee Mineral Interests.
"Proxy Statement" has the meaning specified in Section 6.05(a).
---------------
"Purchaser" has the meaning specified in the preamble to this
---------
Agreement.
"Purchaser Certificates" has the meaning specified in Section 3.03(a).
----------------------
"Purchaser Common Stock" has the meaning specified in Section 3.01(a).
----------------------
"Purchaser Material Adverse Effect" means any change in or effect on
---------------------------------
the Purchaser that, individually or in the aggregate with any other changes
in or effects on the Purchaser, is materially adverse to the financial
condition, business or results of operations of the Purchaser and its
subsidiaries, taken as a whole; provided, however, that "Purchaser Material
-------- -------
Adverse Effect" shall not be deemed to include any changes or effects
arising out of (a) changes in Law or interpretations thereof by
Governmental Authorities, (b) changes in U.S. GAAP or in the generally
applicable interpretation thereof, (c) events or conditions generally
affecting the energy industry (including, without limitation, any
reclassification or recalculation of reserves in the ordinary course of
business, unsuccessful drilling efforts or changes in the price of
Hydrocarbons) or arising from changes in general business, economic or
political conditions or (d) changes resulting from entering into this
Agreement.
"Purchaser Preferred Stock" has the meaning specified in Section 5.03.
-------------------------
"Purchaser SEC Reports" has the meaning specified in Section 5.09(a).
---------------------
"Purchaser Stock Issuance" has the meaning specified in Section
------------------------
6.05(a).
"Purchaser Stockholders' Meeting" has the meaning specified in Section
-------------------------------
6.05(a).
"Purchaser Tax Periods" has the meaning specified in Section 8.01(a).
---------------------
"Purchaser Tax Returns" has the meaning specified in Section 5.11.
---------------------
"Purchaser's Indemnified Persons" has the meaning specified in Section
-------------------------------
10.01.
"Registration Rights Agreement" has the meaning specified in Section
-----------------------------
9.02(d).
"Representatives" has the meaning specified in Section 6.02.
---------------
"Reserve Report" has the meaning specified in Section 4.17(a).
--------------
10
<PAGE> 103
"Retention Bonus Plan" means the Retention Bonus Agreements entered
--------------------
into by and between certain employees of North Central.
"Rights Agreement" has the meaning specified in Section 3.01(m).
----------------
"SEC" means the United States Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Security" has the meaning specified in Section 10.08(a).
--------
"Seismic Data" has the meaning specified in Section 4.31.
------------
"Senior Officers" means Michael Becci, B.W. Beckham IV, William E.
---------------
Deupree, Robert Kiley, Mark Rosenbaum, James A. Winne III, Randall K.
Sadler, Michael Weissman, Doug Cohen, Tom Antoshak and Gary M. DeGrange.
"Severance Agreements" means the individual Change in Control
--------------------
Severance Payment Agreements dated June 1, 2000 and letter agreements dated
November 10, 1998 entered into by and between North Central and certain of
its officers.
"Severance Plan" means the Severance Pay Plan for Employees of North
--------------
Central, as amended.
"Shareholder Representative" has the meaning specified in Section
--------------------------
12.01.
"Shareholder Tax Periods" has the meaning specified in Section
-----------------------
8.01(a).
"Shareholders" has the meaning specified in the preamble to this
------------
Agreement.
"Shareholders' List" has the meaning specified in Section 4.02(b).
------------------
"Shares" has the meaning specified in Section 3.01(a).
------
"Significant Shareholders" means the persons specified in the
------------------------
Preamble.
"Standstill and Voting Agreement" has the meaning specified in Section
-------------------------------
9.02(e).
"Stock Election" has the meaning specified in Section 3.01(c).
--------------
"Stock Election Number" has the meaning specified in Section 3.01(b).
---------------------
"Stock Election Shares" has the meaning specified in Section 3.01(d).
---------------------
"Stock Fraction" has the meaning specified in Section 3.01(e).
--------------
"Stock Representative" has the meaning specified in Section 3.01(c).
--------------------
11
<PAGE> 104
"Surviving Corporation" has the meaning specified in Section 2.01.
---------------------
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
--- -----
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value-added, or gains taxes; license, registration and documentation fees;
and customs duties, tariffs, and similar charges.
"Tax Asset" has the meaning specified in Section 8.03(b).
---------
"Tax Authority" means the IRS and any other domestic or foreign
-------------
Governmental Authority responsible for the administration of Taxes.
"Tax Returns" has the meaning specified in Section 4.19.
-----------
"Third Party Provisions" has the meaning specified in Section 13.08.
----------------------
"Transmittal Letter" means the letter of transmittal pursuant to which
------------------
holders of Company Common Stock shall (a) transfer their shares of Company
Common Stock to the Exchange Agent after the Effective Time, (b) confirm
that they have appointed a "Purchaser's Representative," as such term is
used in Regulation D promulgated under the Securities Act, if applicable,
or affirm that they are "Accredited Investors," as defined in Regulation D
and (c) acknowledge their investment intent with respect to shares of
Purchaser Common Stock and other matters arising under Regulation D.
"Unpaid Company Transaction Fees" means the fees and expenses incurred
-------------------------------
by the Company and the Company Subsidiaries for investment banking, legal,
engineering and other professional services not accrued on the consolidated
balance sheet of North Central dated September 30, 2000 or the consolidated
balance sheet of the Company dated June 30, 2000 included in the Interim
Financial Statements, in connection with the Merger and this Agreement,
which have not been paid in full prior to the Effective Time.
"Unpaid Severance, Retention and Phantom Share Costs" means an amount
---------------------------------------------------
equal to the sum of all amounts payable or which may become payable,
arising out of, related to or in connection with the Merger under the
Phantom Share Plan, the Severance Plan, the Severance Agreements and the
Retention Bonus Plan, which have not been paid in full prior to the
Effective Time.
"U.S. GAAP" means United States generally accepted accounting
---------
principles and practices as in effect from time to time and applied
consistently throughout the periods involved.
12
<PAGE> 105
"Wells" means those oil, condensate or natural gas wells (whether
-----
producing, not producing, abandoned or temporarily abandoned), water source
wells, and water and other types of injection or disposal wells and systems
located on the Leases, including, without limitation, the wells described
and identified in Section 4.13(b) of the Disclosure Schedule.
"Working Interests" means that share of all of the costs, expenses,
-----------------
burdens and obligations of any type or nature attributable to the Company's
or the Company Subsidiaries', as applicable, interest in any Lease or Well.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms of this Agreement and
----------
subject to the conditions set forth in Article IX, and in accordance with the
BCL and the DGCL, at the Effective Time, the Company shall be merged with and
into the Purchaser. As a result of the Merger, the separate corporate existence
of the Company shall cease and the Purchaser shall continue as the surviving
corporation (sometimes referred to herein as the "Surviving Corporation").
---------------------
SECTION 2.02. Effective Time; Closing. As promptly as practicable and
-----------------------
in no event later than the fifth Business Day or such other day as may be agreed
in writing by each of the parties hereto (such date being the "Closing Date")
------------
following the satisfaction or, if permissible, waiver of the conditions set
forth in Article IX, the parties hereto shall cause the Merger to be consummated
(a) by filing a certificate of merger with the New York Secretary of State in
such form as required by, and executed in accordance with, the relevant
provisions of the BCL and (b) a certificate of merger with Delaware Secretary of
State in such form as required by, and executed in accordance with, the relevant
provisions of the DGCL. The "Effective Time" of the Merger, as that term is used
--------------
in this Agreement, shall mean the date on which the certificates of merger are
filed with the New York Secretary of State and the Delaware Secretary of State
with respect to the Merger (or such later time as may be agreed in writing by
each of the parties hereto and specified in the certificates of merger).
Immediately prior to the filing of the certificates of merger, the closing (the
"Closing") will be held at the offices of Shearman & Sterling, 599 Lexington
-------
Avenue, New York, NY 10022 (or such other place as the parties may agree) to
confirm the satisfaction or waiver of the conditions set forth in Article IX.
SECTION 2.03. Effect of the Merger. At the Effective Time, the effect
--------------------
of the Merger shall be as provided in the applicable provisions of the BCL and
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and the Purchaser shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions, disabilities
and duties of each of the Company and the Purchaser shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the Surviving
Corporation.
13
<PAGE> 106
SECTION 2.04. Certificate of Incorporation; Bylaws. At the Effective
------------------------------------
Time, the Restated Certificate of Incorporation of the Purchaser, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by Law and such Certificate of Incorporation. At the Effective Time, the Bylaws
of the Purchaser, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation until thereafter amended as provided by
Law, the Certificate of Incorporation of the Surviving Corporation and such
Bylaws.
SECTION 2.05. Directors and Officers. (a) The directors of the
----------------------
Purchaser immediately prior to the Effective Time shall continue as the
directors of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation until
their respective successors are duly elected or appointed and qualified.
(b) The officers of the Purchaser immediately prior to the Effective
Time shall continue as the officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
SECTION 2.06. Purchaser's Stock Unchanged. Each share of Purchaser
---------------------------
Common Stock and each share of each other class of stock of Purchaser
outstanding immediately prior to the Effective Time shall be unchanged by virtue
of the Merger and remain outstanding. Each share of Purchaser Common Stock held
in the Purchaser's treasury immediately prior to the Effective Time shall be
unchanged by virtue of the Merger and shall remain a share held in the
Purchaser's treasury.
ARTICLE III
TREATMENT OF COMMON STOCK
SECTION 3.01. Treatment of Common Stock. At the Effective Time:
-------------------------
(a) Subject to Section 3.12, each share of voting and non-voting
common stock (the "Shares"), par value $0.01 per share of the Company
------
("Company Common Stock"), issued and outstanding immediately prior to the
--------------------
Effective Time, other than those shares of Company Common Stock to be
cancelled pursuant to Section 3.02, shall forthwith cease to exist and
shall be converted into the right to receive: (i) a number of validly
issued, fully paid and nonassessable shares of common stock of the
Purchaser, par value $1.00 per share ("Purchaser Common Stock"), equal to:
----------------------
(x) if the Average Parent Share Price is less than $22.25, 161.087; (y) if
the Average Parent Share Price is at least $22.25, but less than $27.25,
the result obtained by dividing $3,584.19 by the Average Parent Share Price
and rounding the result to the nearest one-thousandth of a Parent Share;
and (z) if the Average Parent Share Price is equal to or greater than
$27.25, 131.530 Parent Shares (such number, the "Common Conversion
-----------------
Number"), or (ii) $3,584.19 in cash, without interest (the "Per Share Cash
------ --------------
Amount"), or (iii) a combination of shares of Purchaser Common Stock and
------
cash, determined in accordance with Sections 3.01(d), 3.01(e), 3.01(f) and
3.01(g). The "Average Parent Share Price"
--------------------------
14
<PAGE> 107
means the average, over the 20 consecutive trading days ending on the
trading day which is five days prior to the Closing Date, of the mean
between the high and low sales prices per share of Purchaser Common Stock
on the New York Stock Exchange, regular way on each such date. Those
certificates previously evidencing Shares shall be exchanged for (i)
certificates evidencing whole shares of Purchaser Common Stock issued in
consideration therefor, (ii) the Per Share Cash Amount multiplied by the
number of shares previously evidenced by the canceled certificate or (iii)
a combination of clauses (i) and (ii), in each case in accordance with the
allocation procedures of this Section 3.01 and upon the surrender of the
certificates in accordance with the provisions of Section 3.03, without
interest.
(b) The aggregate number of shares of Company Common Stock that will
be converted into the right to receive Purchaser Common Stock in the Merger
will be 43,943 (such amount being equal to 50% of the shares of Company
Common Stock issued and outstanding immediately prior to the Effective
Time) (the "Stock Election Number"). The aggregate number of shares of
---------------------
Company Common Stock that will be converted into the right to receive cash
in the Merger will be 43,943 (such amount being equal to 50% of the shares
of Company Common Stock issued and outstanding immediately prior to the
Effective Time) (the "Cash Election Number"). In the event that there are
--------------------
Dissenting Shares and the holders of such Dissenting Shares do not, prior
to the Effective Time, withdraw notice of election to dissent, vote in
favor of the Merger or otherwise lose their rights to appraisal, the Cash
Election Number shall be reduced by an amount equal to twice the number of
Dissenting Shares and the Stock Election Number shall be increased by the
same amount, provided, however that in no such event shall the Cash
-------- -------
Election Number be reduced by more than 8,789.
(c) Subject to the allocation and election procedures set forth in
this Section 3.01, each record holder, immediately prior to the Effective
Time, of Shares will be entitled (i) to elect to receive cash for all of
the Shares (a "Cash Election"), (ii) to elect to receive shares of
-------------
Purchaser Common Stock for all of the Shares (a "Stock Election"), (iii) to
--------------
elect to receive shares of Purchaser Common Stock for part of the holder's
Shares and cash for the remaining part of the holder's Shares (a "Mixed
-----
Election"), or (iv) to indicate that the record holder has no preference as
--------
to the receipt of cash or Purchaser Common Stock for the shares (a "Non-
---
Election"). All elections shall be made on a form designed for that purpose
--------
(a "Form of Election"). A holder of record of Shares who holds Shares as
----------------
trustee, nominee, or in another representative capacity (a "Stock
-----
Representative"), may submit multiple Forms of Election, provided that the
-------------- --------
Stock Representative certifies that each Form of Election covers all the
Shares held by the Stock Representative for a particular beneficial owner.
(d) If the aggregate number of Shares covered by Cash Elections (the "Cash
----
Election Shares") exceeds the Cash Election Number, all Shares covered by
---------------
Stock Elections (the "Stock Election Shares") and all Shares covered by
---------------------
Non-Elections (the "Non-Election Shares") shall be converted into the right
-------------------
to receive shares of Purchaser Common Stock, and the Cash Election Shares
shall be converted into the right to receive shares of Purchaser Common
Stock and cash in the following manner: each Cash Election Share shall be
converted into the right to receive (i) cash equal to the
15
<PAGE> 108
product of (A) the Per Share Cash Amount and (B) a fraction (the "Cash
----
Fraction") the numerator of which shall be the Cash Election Number and the
--------
denominator of which shall be the total number of Cash Election Shares, and
(ii) a number of shares of Purchaser Common Stock equal to the product of
(A) the Common Conversion Number and (B) a fraction equal to one minus the
Cash Fraction.
(e) If the aggregate number of Stock Election Shares exceeds the
Stock Election Number, all Cash Election Shares and all Non-Election Shares
shall be converted into the right to receive cash, and the Stock Election
Shares shall be converted into the right to receive shares of Purchaser
Common Stock and cash in the following manner: each Stock Election Share
shall be converted into the right to receive (i) a number of shares of
Purchaser Common Stock equal to the product of (A) the Common Conversion
Number and (B) a fraction (the "Stock Fraction") the numerator of which
--------------
shall be the Stock Election Number and the denominator of which shall be
the total number of Stock Election Shares and (ii) cash equal to the
product of (A) the Per Share Cash Amount and (B) a fraction equal to one
minus the Stock Fraction.
(f) With respect to each holder of Company Common Stock who makes a
Mixed Election, the Shares the holder elects to be converted into the right
to receive cash shall be treated as Cash Election Shares for purposes of
this Section 3.01 and the shares the holder elects to be converted into the
right to receive shares of Purchaser Common Stock shall be treated as Stock
Election Shares for purposes of this Section 3.01.
(g) In the event that neither Section 3.01(d) nor Section 3.01(e)
above is applicable, all Cash Election Shares shall be converted into the
right to receive cash, all Stock Election Shares shall be converted into
the right to receive shares of Purchaser Common Stock, and the Non-Election
Shares, if any, shall be converted into the right to receive shares of
Purchaser Common Stock and cash in the following manner: each Non-Election
Share shall be converted into the right to receive (i) a number of shares
of Purchaser Common Stock equal to the product of (A) the Common Conversion
Number and (B) a fraction (the "Non-Election Fraction"), the numerator of
---------------------
which shall be the excess of the Stock Election Number over the total
number of Stock Election Shares and the denominator of which shall be the
excess of (x) 87,886 over (y) the sum of the total number of Stock Election
Shares and the total number of Cash Election Shares, (ii) an amount in
cash, without interest, equal to the product of the Per Share Cash Amount
and (iii) a fraction equal to one minus the Non-Election Fraction.
(h) If either (i) the tax opinion of Shearman & Sterling referred to
in Section 9.02(c) cannot be rendered (as reasonably determined by Shearman
& Sterling and concurred in by Baker Botts L.L.P.) or (ii) the tax opinion
of Baker Botts L.L.P. referred to in Section 9.03(c) cannot be rendered (as
reasonably determined by Baker Botts, L.L.P. and concurred in by Shearman &
Sterling), in either case as a result of the Merger potentially failing to
satisfy continuity of interest requirements under applicable federal income
tax principles relating to reorganizations under section 368(a) of the
Code, then the Company shall have the right at its sole discretion to elect
to restructure the transaction as a taxable sale of Company Common Stock
(or, at the Company's
16
<PAGE> 109
option, as a reverse subsidiary merger treated for federal income tax
purposes as a taxable sale of Company Common Stock). The parties confirm
their understanding that, under the Law as in effect on the date hereof,
the continuity of interest requirement, under applicable federal income tax
principles, shall be considered to be satisfied if at least 40% in value of
the sum of the Merger Consideration plus any other amount treated for
federal income tax purposes as consideration provided by the Purchaser or a
related party for the Shares constitutes shares of Purchaser Common Stock,
valued in accordance with the relevant federal income tax principles. In
the event that the Company elects the option to restructure the transaction
as a taxable sale of Company Common Stock (or as a taxable reverse
subsidiary merger) pursuant to this Subsection, the provisions of this
Agreement shall be applied to the transaction as if that transaction were
the Merger, except where the provision refers to section 368 of the Code or
clearly contemplates that the Merger will qualify as a tax-free
reorganization within the meaning of section 368.
(i) To be effective, a Form of Election must be properly completed,
signed and submitted to the Purchaser's transfer agent and registrar, as
paying agent (the "Paying Agent"), and accompanied by certificates
------------
representing shares of Company Common Stock (the "Company Certificates") as
--------------------
to which the election is being made. The Purchaser shall have the
discretion, which it may delegate in whole or in part to the Paying Agent,
to determine whether Forms of Election have been properly completed, signed
and submitted or revoked and to disregard immaterial defects in Forms of
Election. The decision of the Purchaser (or the Paying Agent) in these
matters shall be conclusive and binding. Neither the Purchaser nor the
Paying Agent shall be under any obligation to notify any person of any
defect in a Form of Election submitted to the Paying Agent. The Paying
Agent shall also make all computations contemplated by this Section
3.01(i), and all these computations shall be conclusive and binding on the
holders of shares of Company Common Stock.
(j) For the purposes of this Agreement, a holder of shares of Company
Common Stock who does not submit a Form of Election that is received by the
Paying Agent prior to the Election Deadline shall be deemed to have made a
Non-Election. If the Purchaser or the Paying Agent shall determine that any
purported Cash Election or Stock Election was not properly made, the shares
subject to improperly made Cash Election or Stock Election shall be treated
as Non-Election Shares.
(k) Each of the Purchaser and the Company shall use its best efforts
to cause copies of the Form of Election to be mailed to the record holders
of Company Common Stock not less than 20 days prior to the Effective Time.
A Form of Election must be received by the Paying Agent by 5:00 p.m., New
York City time, on the Business Day that is immediately prior to the
Effective Time (the "Election Deadline"), in order to be effective. All
-----------------
elections may be revoked until the Election Deadline in writing by the
record holders submitting Forms of Election.
(l) Notwithstanding any other provision of this Section 3.01 or in
any Form of Election to the contrary, unless the Company shall provide a
written notice to the Purchaser and to each holder of Shares stating that
the Board of Directors of the
17
<PAGE> 110
Company has determined to permit holders of Shares to make individual
elections, each and every holder of Shares shall automatically be deemed to
have submitted a Mixed Election indicating that such holder elects to
receive shares of Purchaser Common Stock for 50% of such holder's Shares
and cash for 50% of such holder's Shares.
(m) Each share of Purchaser Common Stock issued to holders of Company
Common Stock pursuant to the Merger will be issued with an associated Right
(as defined in the Rights Agreement dated as of April 26, 1994 between the
Purchaser and Harris Trust Company of New York, as Rights Agent (the
"Rights Agreement")). Purchaser shall supplement the Rights Agreement to
----------------
provide that no Shareholder will be an "Acquiring Person" (as defined in
the Rights Agreement) by virtue of acquiring Purchaser Common Stock in the
Merger unless or until it or any of its "Affiliates" or "Associates" (as
defined in the Rights Agreement) shall purchase or otherwise become the
"Beneficial Owner" (as defined in the Rights Agreement) of additional
Shares of Purchaser Common Stock or any other Person or Persons who is (or
collectively are) the Beneficial Owners of shares of Purchaser Common Stock
shall become an Affiliate or Associate of such Shareholder unless, in
either such case, such Shareholder, together with all Affiliates or
Associates of such Shareholder, is not then the Beneficial Owner of 20% or
more of the Purchaser Common Stock then outstanding.
SECTION 3.02. Cancellation of Treasury Shares. Each share of Company
-------------------------------
Common Stock held in the Company treasury immediately prior to the Effective
Time, by virtue of the Merger and without any action on the part of the holder
thereof, shall cease to be outstanding, shall be cancelled and retired without
payment of any consideration therefor and shall cease to exist.
SECTION 3.03 Exchange Agent; Exchange Procedures. (a) Subject to
-----------------------------------
the terms and conditions of this Agreement, at or prior to the Effective Time,
the Purchaser shall appoint an exchange agent that is reasonably acceptable to
the Company (the "Exchange Agent"), to effect the exchange of Shares for shares
--------------
of Purchaser Common Stock and cash in accordance with the provisions of this
Article III. As soon as reasonably practicable following the Effective Time, the
Purchaser shall deposit, or cause to be deposited, with the Exchange Agent, for
exchange in accordance with this Article III, certificates representing shares
of Purchaser Common Stock (the "Purchaser Certificates"), and cash in amounts
----------------------
sufficient to allow the Exchange Agent to make all deliveries of the Purchaser
Certificates and cash in exchange for the Company Certificates in connection
with the Merger, as contemplated by this Article III, and any cash payable in
respect of fractional shares in accordance with Section 3.05 (the "Exchange
--------
Fund").
----
(b) The Purchaser shall instruct the Exchange Agent to mail to each
record holder of shares of Company Common Stock as soon as reasonably
practicable after the Effective Time, (i) a Transmittal Letter (which shall
specify that delivery shall be effected, and risk of loss and title to shares of
Company Common Stock shall pass, only upon the delivery of a Company Certificate
or Company Certificates representing those shares to the Exchange Agent, and
which letter shall otherwise be in the form and have the other provisions as the
Purchaser shall reasonably specify, which form shall be reasonably acceptable to
the Company) and (ii) instructions for use in effecting the surrender of the
Company Certificates for
18
<PAGE> 111
(x) Purchaser Certificates to which the holder of shares of Company Common Stock
is entitled pursuant to Section 3.01(a), (y) the cash to which the holder of
shares of Company Common Stock is entitled pursuant to Section 3.01(a), and (z)
cash in lieu of fractional shares, if any (the shares of Purchaser Common Stock
and cash described in clauses (x), (y) and (z) above being referred to
collectively as the "Merger Consideration"). Commencing immediately after the
--------------------
Effective Time, upon the surrender to the Exchange Agent of a Company
Certificate, together with a duly executed and completed letter of transmittal
and all other documents and other materials reasonably required by the Exchange
Agent to be delivered in connection therewith, the holder thereof shall be
entitled to receive the Merger Consideration into which the shares of Company
Common Stock which immediately prior to the Effective Time were represented by
the Company Certificate so surrendered shall have been converted in accordance
with the provisions of Section 3.01, together with a cash payment in lieu of
fractional shares, if any, in accordance with Section 3.05. No interest will be
paid or will accrue on the cash payable, if any, upon surrender of the Company
Certificate. Unless and until any Company Certificate is so surrendered, no
dividends or other distributions, if any, payable to the holders of record of
shares of Purchaser Common Stock, as of any date subsequent to the Effective
Time, shall be paid to the holder of the Company Certificate in respect thereof.
Upon the surrender of any Company Certificate, the record holder of the
Purchaser Certificate or Purchaser Certificates representing shares of Purchaser
Common Stock issued in exchange therefor, if any, shall be entitled to receive,
(i) at the time of surrender, the amount of any dividends or other distributions
in respect of shares of Purchaser Common Stock having a record date after the
Effective Time and a payment date prior to the surrender date, and (ii) at the
appropriate payment date, the amount of dividends or other distributions in
respect of shares of Purchaser Common Stock having a record date after the
Effective Time and a payment date subsequent to the date of surrender. No
interest shall be payable in respect of the payment of dividends or
distributions pursuant to the immediately preceding sentence.
(c) The Purchaser or the Exchange Agent shall be entitled to deduct
and withhold from the Merger Consideration, and from any dividends or other
distributions which the holder is entitled to receive pursuant to Section
3.03(b), such amounts that the Purchaser or the Exchange Agent are required to
deduct or withhold therefrom under the Code and/or any applicable provision of
state, local or foreign law.
SECTION 3.04. Transfer Books. All shares of Purchaser Common Stock
--------------
issued upon the surrender for exchange of shares of Company Common Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
SECTION 3.05. No Fractional Share Certificates. No fraction of a
--------------------------------
share of Purchaser Common Stock shall be issued, but in lieu thereof, each
Shareholder who would otherwise be entitled to a fraction of a share of
Purchaser Common Stock shall, upon surrender of the shares of Company Common
Stock to the Exchange Agent, be paid an amount in cash by the Exchange Agent
(without interest) equal to the value of such fraction of a share based upon the
closing price of Purchaser Common Stock at the Effective Time. Promptly after
the determination of the aggregate amount of cash to be paid to holders of
fractional interests, the Exchange Agent shall send by mail, postage prepaid, to
each such holder a check payable to such holder for the amount of cash payable
in lieu of such holder's fractional interests.
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<PAGE> 112
SECTION 3.06. Lost, Stolen or Destroyed Certificates. In the event
--------------------------------------
any Company Certificates shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Company
Certificates, upon the making of an affidavit, which shall be accompanied by an
indemnity bond or other security or indemnity acceptable to the Purchaser, of
that fact by the holder thereof, such shares of Purchaser Common Stock and any
dividends or other distributions with respect to Purchaser Common Stock to which
such holder is entitled.
SECTION 3.07. Termination of Exchange Fund. Any portion of the
----------------------------
Exchange Fund which remains undistributed one year after the Effective Time
shall be delivered to the Purchaser upon demand, and each holder of shares of
Company Common Stock who has not theretofore surrendered the holder's Company
Certificates in accordance with the provisions of this Article III shall
thereafter look only to the Purchaser for satisfaction of the holder's Merger
Consideration and any dividends or distributions payable in accordance with
Section 3.03(b). Notwithstanding the foregoing, none of the Purchaser, the
Company or the Exchange Agent shall be liable to any former holder of shares of
Company Common Stock for any shares or amounts properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
SECTION 3.08. Certain Adjustments. If, in the period between the
-------------------
date of this Agreement and the Effective Time, the outstanding shares of
Purchaser Common Stock shall be changed into a different number of shares or
other securities by reason of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible into
Purchaser Common Stock), reorganization, recapitalization or other like change
with respect to Purchaser Common Stock, the Common Conversion Number and the
Cash Election Number and the form of securities issuable in the Merger shall be
appropriately adjusted to provide to the holders of shares of Company Common
Stock the same economic effect as contemplated by this Agreement prior to such
event.
SECTION 3.09. Restricted Securities. The parties acknowledge that
---------------------
the shares of Purchaser Common Stock to be issued pursuant to this Article III
and pursuant to Section 8.07 shall not have been registered and shall be
characterized as "restricted securities" under federal securities laws, and,
under such laws, such shares may be resold without registration under the
Securities Act only in certain limited circumstances. Each certificate
evidencing shares of Purchaser Common Stock to be issued pursuant to this
Article III shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SHARES MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN
OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO
20
<PAGE> 113
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
SECTION 3.10. Taking of Necessary Action; Further Action. The
------------------------------------------
parties hereto shall take all such reasonable and lawful action as may be
necessary or appropriate in order to effectuate the Merger, and the transactions
contemplated hereby, as promptly as possible.
SECTION 3.11. Dissenters' Rights. (a) Notwithstanding any provision
------------------
of this Agreement to the contrary, shares of Company Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
Persons who shall have not voted in favor of the Merger or consented thereto in
writing and who shall have demanded properly in writing payment of the fair
market value of such shares of Company Common Stock in accordance with the BCL
(collectively, the "Dissenting Shares") shall not be converted into or represent
-----------------
the right to receive shares of Purchaser Common Stock or cash as provided in
this Agreement. Such Persons shall be entitled to receive payment from the
Surviving Corporation of the fair market value of such shares of Company Common
Stock held by them in accordance with the provisions of the BCL, except that all
Dissenting Shares held by Shareholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares under the BCL shall thereupon be deemed to have been converted into and
to have become exchangeable for, as of the Effective Time, the right to receive
Purchaser Common Stock and/or cash as provided herein, upon surrender in the
manner provided in Section 3.01, of the certificate or certificates that
formerly evidenced such shares of Company Common Stock.
(b) The Company shall give to the Purchaser (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands, and
any other instruments served pursuant to the BCL and received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for payment of fair market value under the BCL. The Company shall not,
except with the prior written consent of the Purchaser, make any payment with
respect to any such demands, or offer to settle, or settle, any such demands.
Any amount payable to any Person exercising dissenters' rights shall be paid
solely by the Surviving Corporation out of its own funds.
SECTION 3.12. Purchase Price Adjustment. (a) The Per Share Cash
-------------------------
Amount and the Common Conversion Number will be adjusted on the Closing Date as
described below.
(b) The Company shall provide to the Purchaser three business days
before the Closing Date a Closing Statement stating, as of the Closing Date: (i)
the Company Long-Term Debt, (ii) the Unpaid Company Transaction Fees, (iii) the
Unpaid Severance, Retention and Phantom Share Costs, (iv) the NORIC Cash and (v)
Company dividends paid since September 30, 2000, accompanied by reasonable
detail as to the computation thereof.
(c) The Closing Statement shall also state an amount (the "Adjustment
----------
Amount") equal to
------
(i) NORIC Cash, minus $84,665,000; minus,
----- -----
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<PAGE> 114
(ii) Company Long-Term Debt minus $135,000,000; minus
----- -----
(iii) Unpaid Company Transaction Fees minus $12,000,000; minus
----- -----
(iv) Unpaid Severance, Retention and Phantom Share Costs minus
-----
$57,165,000; minus
-----
(v) Company dividends paid since September 30, 2000 minus $500,000.
-----
(d) If the Adjustment Amount is greater than zero, then the Per
Share Cash Amount and the Common Conversion Number will be increased as follows:
(i) The Per Share Cash Amount will be increased by an amount in cash
equal to 50% of the Adjustment Amount, divided by 87,886; and
(ii) the Common Conversion Number will be increased by an amount
equal to the product of: (A) a fraction, the numerator of which is 50% of
the Adjustment Amount and the denominator of which is the Average Parent
Share Price, multiplied by (B) a fraction, the numerator of which is 1 and
the denominator of which is 87,886.
(e) If the Adjustment Amount is less than zero, then the Per Share
Cash Amount and the Common Conversion Number will be decreased as follows:
(i) the Per Share Cash Amount will be decreased by an amount in cash
equal to 50% of the absolute value of the Adjustment Amount divided by
87,886; and
(ii) the Common Conversion Number will be decreased by an amount
equal to the product of: (A) a fraction, the numerator of which is 50% of
the absolute value of the Adjustment Amount and the denominator of which is
the Average Parent Share Price, multiplied by (B) a fraction, the numerator
of which is one and the denominator of which is 87,886.
SECTION 3.13. Escrow. Upon the Closing, if less than all the
------
Shareholders of the Company shall have then executed Joinder Agreements, the
Company and the Purchaser shall enter into an escrow agreement with a bank
selected by the Purchaser with the approval of the Company (the "Escrow Agent")
------------
in form and substance reasonably satisfactory to the Purchaser and the Company
(the "Escrow Agreement"). Notwithstanding any other provision of this Agreement,
----------------
10% of the shares of Purchaser Common Stock and/or cash to be delivered at the
Closing to each holder of Shares that does not, prior to the Closing, execute
and deliver to the Company a Joinder Agreement (as defined in Section 6.13(a)
below), shall be delivered to the Escrow Agent to be held by the Escrow Agent in
accordance with the terms of the Escrow Agreement (the "Escrow Consideration").
--------------------
The Escrow Consideration will secure, and will be applied to the extent
necessary to satisfy, the rights of the Purchaser's Indemnified Persons to
receive indemnification for certain matters described in Section 10.01 and
Section 8.01. The Escrow Agreement will provide that the Escrow Consideration
will be applied to pay indemnification to the Purchaser on the same basis as the
security described in Section 10.08 can be applied to such indemnification
rights.
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<PAGE> 115
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and (with respect to the representations concerning each
Shareholder contained in Section 4.01(b), 4.22, 4.29 and 4.36 only) each
Shareholder hereby represent and warrant to the Purchaser that, except as
disclosed in the Disclosure Schedule:
SECTION 4.01. Organization, Authority and Qualification of the
------------------------------------------------
Company. (a) The Company is a corporation duly organized, validly existing and
- -------
in good standing under the laws of the State of New York and has all necessary
power and authority to own, operate or lease the properties and assets now
owned, operated or leased by it and to carry on its business as it is currently
conducted, except where the failure to have such power and authority would not
have a Material Adverse Effect. The Company has all necessary power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The Company is duly
licensed or qualified as a foreign corporation to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business makes such licensing or qualification necessary,
except for such failures to be so licensed or qualified and in good standing
that would not have a Material Adverse Effect. True and correct copies of the
Certificate of Incorporation and Bylaws of the Company, each as in effect on the
date hereof, have been made available by the Company to the Purchaser. The
execution and delivery of this Agreement by the Company, the performance by the
Company of its obligations hereunder and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all requisite
action on the part of the Company.
(b) Each Shareholder has full legal capacity and authority to enter
into this Agreement and to carry out such person's obligations hereunder. This
Agreement has been duly executed and delivered by the Company and each
Shareholder, and (assuming due authorization, execution and delivery by the
Purchaser) this Agreement constitutes a legal, valid and binding obligation of
the Company and each Shareholder enforceable against the Company and each
Shareholder in accordance with its terms.
SECTION 4.02. Capital Stock of the Company; Ownership of the Shares.
-----------------------------------------------------
(a) The authorized capital stock of the Company consists of 200,000 shares of
Company Common Stock, of which 165,000 shares are voting Company Common Stock
and 35,000 shares are non-voting Company Common Stock. As of the date hereof
there are, and as of the Effective Date there will be, (i) 76,197 shares of
voting Company Common Stock and (ii) 11,689 shares of non-voting Company Common
Stock issued and outstanding, all of which are duly authorized, validly issued,
fully paid and nonassessable. No shares of Company Common Stock are held in the
treasury of the Company. None of the issued and outstanding shares of Company
Common Stock were issued in violation of any preemptive rights. Except as set
forth in Section 4.02(a) of the Disclosure Schedule, there are no (i) options,
warrants, convertible securities or other rights, agreements, arrangements or
commitments of any character relating to the capital stock of the Company or
obligating the Shareholders or the Company to issue or sell any shares of
capital stock of, or any other interest in, the Company and (ii) outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or to provide funds to, or make any
investment (in the form of a
23
<PAGE> 116
loan, capital contribution or otherwise) in, any other Person. To the Knowledge
of the Company, Section 4.02(a) of the Disclosure Schedule sets forth all voting
trusts, stockholder agreements, proxies or other agreements in effect with
respect to the voting or transfer of any of the Company Common Stock, except
those contemplated or required by this Agreement.
(b) Section 4.02(b) of the Disclosure Schedule sets forth a list (the
"Shareholders' List") prepared by the Company that accurately reflects the name
-------------------
of each Shareholder and the number of shares of Company Common Stock held of
record by each Shareholder (and is based upon the stock register of the Company)
as of the date hereof.
SECTION 4.03. Company Subsidiaries. (a) Section 4.03(a) of the
--------------------
Disclosure Schedule sets forth a list, true and complete in all material
respects, of all Company Subsidiaries, listing for each Company Subsidiary its
name, type of entity, the jurisdiction and date of its incorporation or
organization, its authorized capital stock, partnership capital or equivalent,
the number and type of its issued and outstanding shares of capital stock,
partnership interests or similar ownership interests and the current ownership
of such shares, partnership interests or similar ownership interests.
(b) Other than the Company Subsidiaries, there are no other
corporations, partnerships, joint ventures, associations or other entities in
which the Company owns, of record or beneficially, any direct or indirect equity
or other interest, or any right (contingent or otherwise) to acquire the same.
There are no partnerships or joint venture agreements or other business entities
in which the Company or any Company Subsidiary owns any equity interest. The
agreement referenced in Section 4.03(b), Item 1 of the Disclosure Schedule does
not create any obligations or Liabilities on behalf of the Company or any
Company Subsidiary.
(c) Each Company Subsidiary that is a corporation: (i) is a
corporation duly organized and validly existing under the laws of its
jurisdiction of incorporation, (ii) has all necessary power and authority to
own, operate or lease the properties and assets owned, operated or leased by
such Company Subsidiary and to carry on its business as it is currently
conducted by such Company Subsidiary and (iii) is duly licensed or qualified as
a foreign corporation to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary, except for such
failures to be so licensed or qualified and in good standing that would not have
a Material Adverse Effect. Each Company Subsidiary that is not a corporation:
(i) is duly organized and validly existing under the laws of its jurisdiction of
organization, (ii) has all necessary power and authority to own, operate or
lease the properties and assets owned, operated or leased by such Company
Subsidiary and to carry on its business as it is currently conducted by such
Company Subsidiary and (iii) is duly licensed or qualified to do business and is
in good standing in each jurisdiction in which the properties owned or leased by
it or the operation of its business makes such licensing or qualification
necessary, except for such failures to be so licensed or qualified and in good
standing that would not have a Material Adverse Effect.
(d) All the outstanding shares of capital stock of each Company
Subsidiary are validly issued, fully paid and nonassessable and are owned by the
Company, whether directly or indirectly, free and clear of all Encumbrances.
24
<PAGE> 117
(e) There are no options, warrants, convertible securities or other
rights, agreements, arrangements or commitments of any character, relating to
the capital stock of any Company Subsidiary or obligating the Company or any
Company Subsidiary to issue or sell any shares of capital stock of, or any other
interest in, any Company Subsidiary.
(f) There are no voting trusts, stockholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any shares of capital stock of, or any other interests in, any
Company Subsidiary.
(g) True and complete copies of the charter and by-laws (or similar
organizational documents), of each Company Subsidiary have been made available
by the Company to the Purchaser and are in full force and effect.
SECTION 4.04. Corporate Books and Records. In all material respects,
---------------------------
the minute books of the Company and the Company Subsidiaries contain accurate
records of all meetings and accurately reflect all other actions taken by the
shareholders, Boards of Directors and all committees of the Boards of Directors
of the Company and the Company Subsidiaries. Complete and accurate copies of all
such minute books of the Company and each Company Subsidiary have been made
available by the Company to the Purchaser.
SECTION 4.05. No Conflict. Assuming that all consents, approvals,
-----------
authorizations and other actions described in Section 4.06 have been obtained
and all filings, approvals and notifications listed in Section 4.06 of the
Disclosure Schedule have been made or obtained, the execution, delivery and
performance of this Agreement by the Company do not and will not (a) violate or
conflict with any provision of the Certificate of Incorporation or Bylaws or
similar organizational documents of the Company or any Company Subsidiary, (b)
violate or conflict with any Law or Governmental Order applicable to the
Company, any Company Subsidiary or any of their respective assets and
properties, or (c) conflict with, result in any breach of or constitute a
default (or an event which, with the giving of notice or lapse of time, or both,
would become a default) under, require any consent under, or give to others any
rights of termination, amendment or cancellation of, or result in the creation
of any Encumbrance on any assets or properties of the Company or any Company
Subsidiary pursuant to any Material Contract or any other material license,
permit, franchise or other instrument or arrangement to which the Company or any
Company Subsidiary is a party or by which any of the Company Common Stock or any
of such assets or properties is bound or affected, except any such conflicts,
violations, breaches, defaults or other occurrences which would not have a
Material Adverse Effect.
SECTION 4.06. Governmental Consents and Approvals. The execution,
-----------------------------------
delivery and performance of this Agreement by the Company do not and will not
require any consent, approval, authorization or other order of, action by,
filing with or notification to, any Governmental Authority, except (a) the pre-
merger notification requirements of the HSR Act, (b) the filing and recordation
of appropriate merger documents as required by the BCL and the DGCL, (c) any
other consent, approval, authorization, filing or notice the failure of which to
make or obtain would have a Material Adverse Effect or prevent or materially
delay the consummation of the Merger and (d) any consent, approval,
authorization, filing or notice required as a result of the identity of the
Purchaser.
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<PAGE> 118
SECTION 4.07. Financial Information, Books and Records. (a) True
----------------------------------------
and complete copies of (i) the audited consolidated balance sheets of the
Company for each of the two fiscal years ended as of December 31, 1998 and
December 31, 1999, and the related audited consolidated statements of operations
and cash flows of the Company, (ii) the audited consolidated balance sheet of
Rhode Island Corporation for the fiscal year ended December 31, 1997 and the
related audited consolidated statements of operations and cash flows of Rhode
Island Corporation, together with all related notes and schedules thereto, and
(iii) the audited consolidated balance sheets of NCOC for each of the three
fiscal years ended as of December 31, 1997, December 31, 1998 and December 31,
1999 and the related audited consolidated statements of operations and cash
flows of NCOC; in each case together with all related notes and schedules
thereto, accompanied by the reports thereon of Arthur Andersen LLP (collectively
referred to herein as the "Financial Statements") and (iv) the unaudited
--------------------
consolidated balance sheet of (A) the Company as of June 30, 2000, and the
related consolidated statement of operations, together with all related notes
and schedules thereto (the "June 30 Balance Sheet") and (B) NCOC as of September
---------------------
30, 2000, and the related consolidated statement of operations, together with
all related notes and schedules thereto (collectively referred to herein as the
"Interim Financial Statements"), have been made available by the Company to the
----------------------------
Purchaser. The Financial Statements and the Interim Financial Statements
(including the related notes and schedules thereto) (x) were prepared in
accordance with the books of account and other financial records of the Company,
NCOC and Rhode Island Corporation, as applicable, (y) present fairly, in all
material respects, the consolidated financial condition of the Company and the
Company Subsidiaries and NCOC, as applicable, as of the dates thereof or for the
periods covered thereby, subject, in the case of unaudited financial statements,
to normal year-end adjustments, and (z) have been prepared in accordance with
U.S. GAAP applied on a basis consistent with the past practices of the Company,
except as noted in the opinion of Arthur Andersen LLP for financial statements
of Rhode Island Corporation.
(b) The books of account and other financial records of the Company
and the Company Subsidiaries (i) are in all material respects complete and
correct, and do not contain or reflect any material inaccuracies or
discrepancies and (ii) have been maintained in accordance with good business and
accounting practices and in accordance with U.S. GAAP.
SECTION 4.08. No Undisclosed Liabilities. Except as would not
--------------------------
reasonably be expected to have a Material Adverse Effect, to the Knowledge of
the Company, there are no Liabilities of the Company or any Company Subsidiary
other than Liabilities (a) reflected or reserved against on the balance sheets
included in the Interim Financial Statements or (b) incurred since the dates of
such balance sheets in the ordinary course of the business, consistent with past
practice, of the Company and the Company Subsidiaries.
SECTION 4.09. Absence of Certain Changes, Events and Conditions.
-------------------------------------------------
Since September 30, 2000, the business of the Company and the Company
Subsidiaries has been conducted in all material respects in the ordinary course,
consistent with past practice, and, since such date, there has not been (a) any
Material Adverse Effect, (b) any material change by the Company or any Company
Subsidiary in its accounting methods, principles or practices, or (c) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation,
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pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, except in the ordinary course of business consistent with
past practice.
SECTION 4.10. Litigation. As of the date hereof, there is no Action
----------
pending or, to the Knowledge of the Company, threatened against the Company, any
Company Subsidiary or any Property of the Company or any Company Subsidiary,
before any Governmental Authority. There are no outstanding Governmental Orders
against the Company or any Company Subsidiary or any Property of the Company or
any Company Subsidiary that would reasonably be expected to have a Material
Adverse Effect.
SECTION 4.11. Compliance with Laws. Each of the Company and the
--------------------
Company Subsidiaries has conducted and continues to conduct its business in
compliance with all Laws (other than Environmental Laws which are governed
solely by Section 4.16) and Governmental Orders applicable to the Company or any
Company Subsidiary, except for violations or failures so to comply, if any, that
are not reasonably expected to have a Material Adverse Effect.
SECTION 4.12. Material Contracts. (a) As of the date hereof,
Section 4.12(a) of the Disclosure Schedule lists each of the following contracts
and agreements (whether oral or written) of the Company and the Company
Subsidiaries (collectively, the "Material Contracts"):
------------------
(i) any agreement (other than an oil and gas lease) for capital
expenditures or the acquisition or construction of fixed assets which
requires aggregate future payments in excess of $1,500,000;
(ii) any gas, crude oil or liquids sales agreement, gas, crude oil or
liquids purchase agreement, or gas, crude oil or liquids marketing
agreement, under which the Company or any Company Subsidiary is a seller,
that cannot be terminated by the Company or the Company Subsidiary, as the
case may be, without penalty upon not more than ninety (90) calendar days'
notice;
(iii) any agreement for, or that contemplates, the sale of any Working
Interests in any Property, or the sale of any other asset (other than sales
of oil and gas production in the ordinary course of business), which
involves any payment to the Company or the Company Subsidiaries in excess
of $500,000;
(iv) any agreement that constitutes a lease (other than an oil and
gas lease) under which the Company or any Company Subsidiary is the lessor
or lessee of real or personal property, that (A) cannot be terminated by
the Company or the Company Subsidiary, as the case may be, without penalty
upon not more than ninety (90) calendar days' notice and (B) involves an
annual base rental in excess of $250,000;
(v) any agreement for the future acquisition of Seismic Data that
requires aggregate future payments in excess of $1,000,000;
(vi) any Hydrocarbon or financial hedge, swap, exchange or similar
agreement;
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<PAGE> 120
(vii) all contracts and agreements relating to Indebtedness of the
Company or any Company Subsidiary in excess of $500,000, other than
Permitted Encumbrances;
(viii) all material contracts and agreements with any Governmental
Authority (other than oil and gas leases and any unitization agreement or
operating agreement listed in Section 4.12(a)(xi) of the Disclosure
Schedule) to which the Company or any Company Subsidiary is a party;
(ix) all non-competition agreements or other contracts and
agreements that limit or purport to limit the ability of the Company or any
Company Subsidiary to compete in any line of business or with any Person or
in any geographic area or during any period of time;
(x) all contracts and agreements between or among the Company or
any Company Subsidiary and the Shareholders or any Affiliate of the
Shareholders;
(xi) all contracts or agreements establishing any joint ventures or
partnerships and all unit agreements and operating agreements applicable to
the Properties;
(xii) all employment agreements;
(xiii) all collective bargaining agreements with labor unions covering
the employees of the Company or the Company Subsidiaries;
(xiv) all profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other material plan or
arrangement for the benefit of current or former directors, officers and
employees;
(xv) all contracts with independent contractors or consultants (or
similar arrangements) to which the Company or any Company Subsidiary is a
party and which are not cancelable without penalty or further payment and
without more than ninety (90) days' notice;
(xvi) all approved authorizations for expenditure requiring the
expenditure by the Company or any Company Subsidiary of more than $500,000,
as of November 10, 2000; and
(xvii) all other contracts and agreements the absence of which would
reasonably be expected to have a Material Adverse Effect.
(b) Each of the Material Contracts listed on Section 4.12(a) of the
Disclosure Schedule is a valid agreement, arrangement or commitment of the
Company or a Company Subsidiary party thereto, enforceable in all material
respects in accordance with its terms, and neither the Company nor any such
Company Subsidiary nor, to the Knowledge of the Company, any other party to
such Material Contract is in violation, breach or default of any material
provision thereof (including the occurrence of any event that, with notice,
lapse of time or both, would constitute a default).
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SECTION 4.13. Title to Property. (a) Except as to those matters set
-----------------
forth in Section 4.13 of the Disclosure Schedule, the Company or a Company
Subsidiary, as the case may be, has Defensible Title to the Property, free and
clear of Encumbrances, other than Permitted Encumbrances.
(b) Section 4.13(b) of the Disclosure Schedule sets forth a brief
description of all Leases and Wells. With respect to any Lease or Well,
"Defensible Title" shall mean such record and beneficial right, title and
----------------
interest in and to such Lease or Well that:
(i) entitles the Company or the Company Subsidiary, as applicable,
to receive a Net Revenue Interest in such Well that is equal to or greater
than the Net Revenue Interest set forth in Section 4.13(b) of the
Disclosure Schedule therefor, without reduction, suspension or diminution
throughout the duration of the estate constituting such Property, except as
shown in Section 4.13(b) of the Disclosure Schedule, and except for changes
or adjustments that result from the establishment of units, changes in
existing units (or the participating areas therein), whether voluntary or
by order of the appropriate regulatory agency having jurisdiction, or the
entry into of pooling or unitization agreements after the date hereof or
that result from or are incidental to Operations conducted as permitted or
required by Section 6.01;
(ii) obligates or subjects the Company or the Company Subsidiary, as
applicable, to bear a Working Interest in each Well that is no greater than
the record title or operating rights interest set forth in Section 4.13(b)
of the Disclosure Schedule therefor, without increase throughout the
duration of the estate constituting such Property, except as shown in
Section 4.13(b) of the Disclosure Schedule and except for any changes or
adjustments that are caused by contribution requirements provided for under
provisions contained in any operating agreement listed in Section 4.12 of
the Disclosure Schedule, that result from the establishment of units,
changes in existing units (or the participating areas therein), or the
entry into of pooling or unitization agreements, whether voluntary or by
order of the appropriate regulatory agency having jurisdiction, after the
date hereof or that result from or are incidental to Operations conducted
as permitted or required by Section 6.01; and
(iii) the Leases are valid and enforceable and grant the rights
purported to be granted thereby and all rights necessary thereunder for the
current Operations of the Company or the Company Subsidiary, as applicable.
(c) Section 4.13(c) of the Disclosure Schedule contains a
description of the Easements. With respect to Easements and related Equipment,
Defensible Title shall mean record or beneficial right, title and interest in
the applicable Easement sufficient to enable the Company or any Company
Subsidiary to conduct its Operations as currently conducted with respect
thereto, without material interference by any other Person, and, to the
Knowledge of the Company or the Company Subsidiary, as applicable, all material
Easements are valid and enforceable and grant the rights purported to be granted
thereby and all rights necessary for the current Operations of such business
without material interference by any other Person.
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<PAGE> 122
(d) Section 4.13(d) of the Disclosure Schedule sets forth a brief
description of each parcel of real property comprising the Fee Mineral
Interests. With respect to Fee Mineral Interests, Defensible Title means all the
record and beneficial right, title and interest in and to each such parcel of
land, respectively, that was conveyed or granted to the Company or any Company
Subsidiary, or their respective predecessors-in-title in and to the lands
described in Section 4.13(d) of the Disclosure Schedule, or in the instrument of
conveyance referred to and described by volume or book and page in Section
4.13(d) of the Disclosure Schedule, as each instrument of conveyance is recorded
in the county or parish where the land is located.
(e) Section 4.13(e) of the Disclosure Schedule sets forth a brief
description of each parcel of Other Real Property. With respect to Other Real
Property, Defensible Title shall mean the right of quiet enjoyment of all such
real property, whether leased or fee, for the term of any applicable agreement
relating thereto, and all such interests in Other Real Property are valid and
enforceable and grant the rights purported to be granted thereby and all rights
necessary thereunder for the current Operations of such business without
material interference.
(f) To the Knowledge of the Company, no material portion of the royalties,
rentals, and other payments due under the Leases are past due. All material
Leases are in full force and effect. To the Knowledge of the Company, neither
the Company nor any Company Subsidiary has ever been notified of a material
breach or default by the Company or any Company Subsidiary under any material
Lease, which claim of breach or default has not been resolved. To the Knowledge
of the Company, no event has occurred or failed to occur which constitutes, or
which, with the giving of notice or the passage of time or both, would
constitute a default, violation, or breach under any such Lease.
(g) As used in this Section 4.13 only, Knowledge of the Company means the
actual knowledge of the Senior Officers based upon North Central's periodical
attendance of operators' meetings, conduct of joint audits under operating
agreements and conduct of periodic field tours of its Properties.
SECTION 2.14. Intellectual Property. The Company and the Company
---------------------
Subsidiaries own or license, or otherwise have the right to use, all patent,
patent rights, trademarks, trademark rights, trade names, trade name rights,
service marks, service mark rights, copyrights, technology, know-how, processes
and other proprietary intellectual property rights and computer programs
("Intellectual Property") currently used in the conduct of the business of the
---------------------
Company and the Company Subsidiaries, except where the failure to so own or
otherwise have the right to use such Intellectual Property would not have a
Material Adverse Effect. No Person has notified either the Company or any
Company Subsidiary that their use of the Intellectual Property infringes on the
rights of any Person, subject to such claims and infringements as do not give
rise to any liability on the part of the Company and the Company Subsidiaries
that could have a Material Adverse Effect, and, to the Company's Knowledge, no
Person is infringing on any right of the Company or any Company Subsidiary with
respect to any such Intellectual Property. No claims are pending or, to the
Company's Knowledge, threatened that the Company or any Company Subsidiary is
infringing or otherwise adversely affecting the rights of any Person with regard
to any Intellectual Property that would give rise to a Material Adverse Effect.
30
<PAGE> 123
SECTION 4.15. Employee Benefit Matters. (a) With respect to each employee
------------------------
benefit plan, program, arrangement and contract (including, without limitation,
any "employee benefit plan," as defined in section 3(3) of ERISA), maintained or
contributed to by the Company or any Company Subsidiary (the "Plans"), the
-----
Company has made available to the Purchaser a true and correct copy of (i) the
most recent annual report (Form 5500) filed with the IRS for each Plan, (ii) a
complete copy of each such Plan, (iii) each trust agreement relating to each
such Plan, (iv) the most recent summary plan description for each Plan for which
a summary plan description is required, and (v) the most recent determination
letter, if any, issued by the IRS with respect to any Plan qualified under
section 401(a) of the Code. Neither the Company nor any Company Subsidiary
maintains any plan subject to Title IV of ERISA, and neither the Company nor any
Company Subsidiary has any actual or contingent liability under ERISA.
(b) With respect to the Plans, no event has occurred and, to the Knowledge
of the Company, there exists no condition or set of circumstances in connection
with which the Company or any Company Subsidiary could be subject to any
liability under the terms of such Plans, ERISA, the Code or any other applicable
Law that would have a Material Adverse Effect. Each of the Plans has been
operated and administered in all material respects in accordance with applicable
Laws and administrative or governmental rules and regulations, including, but
not limited to, ERISA and the Code, except where a violation of any such law,
rule or regulation would not have a Material Adverse Effect. Each Plan intended
to be "qualified" within the meaning of section 401(a) of the Code has received
a favorable determination letter as to such qualification from the IRS, and no
event has occurred, either by reason of any action or failure to act, which
would cause the loss of any such qualification, except where such loss of
qualification would not have a Material Adverse Effect.
(c) There is no labor dispute, strike or work stoppage against the Company
or any Company Subsidiary, pending or threatened in writing, which may interfere
with the respective business activities of the Company or any Company
Subsidiary. As of the date of this Agreement, to the Knowledge of the Company,
neither the Company nor any Company Subsidiary, nor their representatives or
employees, has committed any unfair labor practices in connection with the
operation of the respective businesses of the Company or any Company Subsidiary,
and there is no charge or complaint against the Company by the National Labor
Relations Board or any comparable state agency pending or, to the knowledge of
the Company, threatened, except where such unfair labor practice, charge or
complaint would not have a Material Adverse Effect.
(d) The Company has made available to the Purchaser (i) copies of all
employment agreements with officers of the Company or any Company Subsidiary;
(ii) copies of all severance agreements, programs and policies of the Company or
any Company Subsidiary with or relating to its employees; and (iii) copies of
all plans, programs, agreements and other arrangements of the Company or any
Company Subsidiary with or relating to its employees which contain change of
control provisions.
(e) Except as listed in Schedule 4.15(e) or as may be required by Law, no
Plan provides retiree medical or retiree life insurance benefits to any Person.
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<PAGE> 124
(f) Section 4.15(f) of the Disclosure Schedule sets forth, as of the
date of this Agreement, the number of outstanding phantom shares under the
Phantom Share Plan by date of grant and the Initial Value (as defined in the
Phantom Share Plan) applicable to each date of grant. In addition, Section
4.15(f) of the Disclosure Schedule sets forth the methodology determined by the
board of directors of NCOC for computing the amount to be paid for Phantom
Shares, pursuant to the terms of the Phantom Share Plan. Section 4.15(f) of the
Disclosure Schedule also sets forth, for each eligible employee under the
Severance Pay Plan, the annual base salary of each such employee, the number of
years or partial years of Continuous Service (as such terms are defined in such
Plan), the service anniversary date for purposes of determining Continuous
Service and the lump sum severance payment under Section 5 of such Plan that
would be payable to such employee assuming a termination as of October 31, 2000,
and the aggregate of such payments for all eligible employees. Section 4.15(f)
of the Disclosure Schedule sets forth, in the aggregate, amounts due under all
Severance Agreements other than amounts due under the Severance Pay Plan and
Severance Agreements, for any director, officer, employee or consultant of the
Company and any Company Subsidiary including, without limitation, severance
payments to Messrs. Winne, Becci, Deupree and Beckham. Except for amounts
payable pursuant to the Severance Pay Plan and the Severance Agreements as set
forth on Section 4.15(f) of the Disclosure Schedule, neither the Company nor any
Company Subsidiary has agreed to pay any amounts relating to termination of
employment with the Company or any Company Subsidiary, other than accrued salary
and vacation, and two weeks' pay to employees terminated on less than two weeks'
notice. Schedule 4.15(f) of the Disclosure Schedule sets forth individually and
on a collective basis for all eligible employees (assuming all such eligible
employees remain with the Company through the Closing Date) for each employee
eligible to receive payments under the Retention Bonus Plans dated June 1, 2000,
the Retention Bonus payable to each such eligible employee.
SECTION 4.16. Environmental Matters. Except as disclosed in Section
4.16 of the Disclosure Schedule or as would not reasonably be expected to have a
Material Adverse Effect:
(a) the Company and the Company Subsidiaries are in compliance with
all applicable Environmental Laws and the Properties have been operated by
the Company and the Company Subsidiaries in compliance with all applicable
Environmental Laws;
(b) there are no existing, pending or, to the Company's Knowledge,
threatened actions, suits, investigations, inquiries, proceedings or clean-
up obligations by any Governmental Authority relating to any Environmental
Laws with respect to the Properties; and
(c) all notices, permits or similar authorizations, if any, required
to be obtained or filed in connection with the operation of the Properties
by the Company or the Company Subsidiaries, including, without limitation,
treatment, storage, disposal or release of Hazardous Materials or solid
waste into the environment, have been duly obtained or filed.
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<PAGE> 125
SECTION 4.17. Reserve Reports. (a) The Company has delivered to the
---------------
Purchaser a copy of the oil and gas reserve report for the Company prepared by
NCOC and reviewed by Miller & Lents, Ltd. as of June 30, 2000 (the "Reserve
-------
Report"). Neither the Company nor any Company Subsidiary has Knowledge of any
------
facts that would make the factual information provided by the Company and the
Company Subsidiaries to Miller & Lents, Ltd., and on which the Reserve Report
was based, inaccurate in any material respect at the time provided. The
estimates of proved reserves provided by NCOC to Miller & Lents in connection
with their review of the Reserve Report are in accordance with definitions
contained in Rule 4-10(a) of Regulation S-X promulgated by the SEC. The
estimates of probable and possible reserves provided by NCOC to Miller & Lents
in connection with their review of the Reserve Report are in accordance with the
definitions of the Society of Petroleum Engineers, Inc.
(b) OTHER THAN AS EXPRESSLY SET FORTH ABOVE IN THIS SECTION 4.17, THE
COMPANY MAKES NO REPRESENTATION OR WARRANTY, AND HEREBY DISCLAIMS ANY
REPRESENTATION OR WARRANTY, THAT THE RESERVE ESTIMATES, COST AND CASH FLOW
ESTIMATES, PRICE ESTIMATES OR PRODUCTION OR FLOW RATE ESTIMATES CONTAINED IN THE
RESERVE REPORT, OR IN ANY SUPPLEMENT THERETO OR UPDATE THEREOF, ARE IN ANY WAY
COMPLETE, ACCURATE OR NOT MISLEADING, THE SAME BEING PREDICTIONS AS TO FUTURE
EVENTS WHICH ARE INHERENTLY SUBJECT TO INCOMPLETENESS OR INACCURACY.
SECTION 4.18. Hedging. (a) The Company and the Company Subsidiaries do
-------
not have any outstanding obligations for the delivery of Hydrocarbons
attributable to any of the Properties of the Company or any Company Subsidiary
in the future on account of prepayment, advance payment, take-or-pay or similar
obligations without then or thereafter being entitled to receive full value
therefor.
(b) Section 4.18(b) of the Disclosure Schedule sets forth all futures,
hedge, swap, collar, put, call, floor, cap, option or other contracts that are
intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in interest rates, basis risk or the price of commodities
("Hedges"), including Hydrocarbons or securities, to which the Company or any
------
Company Subsidiary is bound as of the date hereof. Such Hedges are in full force
and effect on the date of this Agreement.
(c) Since September 30, 2000, no prepayments, payments or other amounts
have been paid with respect to any Hedges, other than monthly settlement
payments in the ordinary course on the Hedges shown in Section 4.18(b) of the
Disclosure Schedules.
SECTION 4.19. Taxes. Except as set forth in Section 4.19 of the
-----
Disclosure Schedule, and except for matters that would not have a Material
Adverse Effect, (a) the Company and each of the Company Subsidiaries have timely
filed all returns and reports required to be filed by them with respect to Taxes
("Tax Returns") prior to the date of this Agreement, taking into account any
-----------
extension of time to file granted to or obtained on behalf of the Company and
the Company Subsidiaries, (b) all Taxes shown to be payable on such Tax Returns
or reports have been paid or will be paid, (c) all such Tax Returns are true,
correct, and
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<PAGE> 126
complete, (d) the liabilities and reserves for Taxes reflected in the June 30
Balance Sheet are adequate to cover all Taxes for all periods ending at or prior
to the date thereof and, in the case of Taxes attributable to the activities or
assets of North Central, there is no liability for Taxes for any period or
portion of a period beginning after such date other than Taxes arising in the
ordinary course of business, (e) neither the Company nor any of the Company
Subsidiaries has waived or agreed to an extension of the statute of limitations
with respect to assessment of any Tax (other than waivers or agreements which
are no longer in effect), (f) neither the Company nor any of the Company
Subsidiaries has filed a consent to the application of Section 341 of the Code,
(g) there are no stock elimination transactions, within the meaning of Treas.
Reg. (S) 1.1502-13(1)(3), as to which either the Company or any of the Company
Subsidiaries will be required to recognize income as a result of the Merger, and
(h) as of the date of this Agreement, no deficiency for any material amount of
Tax has been asserted or assessed by a taxing authority against the Company or
any of the Company Subsidiaries. Except as set forth in Section 4.19 of the
Disclosure Schedule, and except for matters that would not have a Material
Adverse Effect, all ad valorem, property, production, severance and similar
taxes and assessments based on or measured by the ownership of property or the
production of Hydrocarbons or the receipt of proceeds therefrom assessed against
the Properties have been properly paid. Neither the Company nor any of the
Company Subsidiaries has paid any estimated Taxes or other Taxes for a Tax
period or portion thereof that is included in the Shareholder Tax Periods, as
defined in Section 8.01(a), in excess of amounts which the Company or Company
Subsidiary has determined in good faith are due for such Tax period or portion
thereof.
SECTION 4.20. Insurance. The Company has all insurance policies that it
---------
believes are required in connection with the operation of the business of the
Company and the Company Subsidiaries. The Company has made available to the
Purchaser true and correct summaries of each of the insurance policies relating
to the Company or the Company Subsidiaries that are currently in effect. With
respect to each such insurance policy, none of the Company, any Company
Subsidiary or, to the Knowledge of the Company, any other party to the policy is
in breach or default thereunder (including with respect to the payment of
premiums or the giving of notice) and the Company does not know of any
occurrence of any event which, with notice or the lapse of time or both, would
constitute such a breach or default or permit termination, modification or
acceleration under the policy, except for such breaches or defaults as would not
result in a Material Adverse Effect.
SECTION 4.21. Brokers. Except for Goldman, Sachs & Co., no broker, finder
-------
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of the Shareholders or the Company.
SECTION 4.22. Tax Treatment. Neither the Company nor the Shareholders has
-------------
or have knowingly taken or failed to take any action that would prevent the
Merger from qualifying as a tax-free reorganization within the meaning of
section 368(a) of the Code.
SECTION 4.23. Production and Pipeline Imbalances. Section 4.23 of the
----------------------------------
Disclosure Schedule sets forth all Company and Company Subsidiary pipeline and
production imbalances and penalties as of September 30, 2000 with respect to the
Properties.
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<PAGE> 127
SECTION 4.24. Equipment. All Wells and Equipment constituting a part
---------
of the Properties (a) are, in the aggregate, in a state of repair so as to be
adequate in all material respects for reasonable prudent operations in the areas
in which they are operated, and (b) are adequate, together with all related
Properties, to comply in all material respects with the requirements of all
applicable contracts, including sales contracts. Subject to the Permitted
Encumbrances, the Company or the Company Subsidiaries have defensible title to
the Equipment owned by the Company or the Company Subsidiaries and constituting
a part of the Properties.
SECTION 4.25. Operation of the Properties. Since September 30, 2000
---------------------------
through the date hereof, North Central:
(a) has caused the Properties to be maintained and operated in a
reasonable manner and in substantially the same manner as such Properties
were maintained and operated prior to September 30, 2000;
(b) has not sold, assigned, transferred, farmed out, conveyed,
encumbered, mortgaged, or otherwise disposed of any of the Properties with
a value in excess of $500,000, except for the sale of Hydrocarbons in the
ordinary course of business;
(c) has not, to the extent related to the Properties, made any major
change in the character of North Central's business or operations or
otherwise conducted North Central's business and operations other than in
the ordinary course of business;
(d) except as would not have a Material Adverse Effect, has not
permitted any Leases or rights with respect to the Properties to expire, or
waived any material rights with respect to the Properties;
(e) has not entered into any agreement or made any commitment (other
than this Agreement) to take any of the actions referred to in clauses (a)
through (d) above; and
(f) to the Company's Knowledge, there have been no material casualty
losses (above or below the surface of the ground) which affected any of the
Properties.
SECTION 4.26. Plugging and Abandonment. There are no Wells on the
------------------------
Properties that have been permanently plugged and abandoned by North Central
that were not plugged and abandoned in accordance in all material respects with
the applicable requirements of the Leases and applicable Laws. To the Knowledge
of the Company, there are no Wells on the Properties that the Company or the
Company Subsidiaries are currently required by Law or contract to plug and
abandon.
SECTION 4.27. No Parachute Payments. Neither the Company nor any
---------------------
Company Subsidiary is a party to an agreement that provides for the payment of
any amount that would constitute a "parachute payment" within the meaning of
Section 280G of the Code.
SECTION 4.28. Vote Required. The affirmative vote of (a) the holders
-------------
of two-thirds of the voting power of all the outstanding Company Common Stock,
voting together as a
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single class, (b) the holders of two-thirds of the voting power of the voting
Company Common Stock, voting separately as a single class and (c) the holders of
two-thirds of the voting power of the non-voting Company Common Stock, voting
separately as a single class, in each case to adopt this Agreement and to
approve the transactions contemplated hereby (the "Company Stockholder Vote") is
------------------------
the only vote of the holders of any class or series of Company capital stock
necessary to approve or adopt this Agreement or the transactions contemplated
hereby.
SECTION 4.29. Voting Power of Significant Stockholders; Dissenting
----------------------------------------------------
Shares. (a) The Significant Shareholders hold (i) two-thirds of the voting
- ------
power of the outstanding Company Common Stock, (ii) two-thirds of the voting
power of the outstanding voting Company Common Stock and (iii) two-thirds of the
voting power of the outstanding non-voting Company Common Stock, and therefore
hold sufficient voting power to approve the Merger.
(b) Immediately prior to the Effective Time, less than 5% of all the
outstanding shares of Company Common Stock will be Dissenting Shares.
SECTION 4.30. Non-Energy Company Activity. Substantially all cash
---------------------------
and cash equivalent investments held by the Company and its Non-Energy Company
Subsidiaries are held in interest-bearing bank accounts at the Boston Safe
Deposit & Trust Company. Since October 12, 2000, the sole activity of the
Company and its Non-Energy Company Subsidiaries has been to manage its cash and
cash equivalent investments, and to pay its expenses as they come due in the
ordinary course and consistent with past practices.
SECTION 4.31. Seismic Data. Section 4.31(a) of the Disclosure
------------
Schedule sets forth all material seismic data held by the Company or any Company
Subsidiary with respect to its Properties (the "Seismic Data"). Except as
------------
provided in Section 4.31 of the Disclosure Schedule, the Company or the relevant
Company Subsidiary owns or has the right to use without any limitations or
restrictions adversely affecting the use of the same in the ordinary conduct of
its business, the Seismic Data. The execution of this Agreement (a) has not
altered or impaired, nor will alter or impair, any such rights, and (b) has not
breached, or will not breach, any agreements pertaining to such Seismic Data.
Section 4.31(b) of the Disclosure Schedule sets forth the Seismic Data which is
subject to restrictions on transfer and change of control provisions, including,
without limitation, consents to assign and the payment of transfer fee.
SECTION 4.32. Suspense Funds. Section 4.32 of the Disclosure
--------------
Schedule sets forth all suspense funds held by the Company or the Company
Subsidiaries for the account of a third party or an Affiliate that are
associated with the Properties as of September 30, 2000.
SECTION 4.33. Future Sales Contracts. The Company or the Company
----------------------
Subsidiaries have not collected any proceeds from the sale of Hydrocarbons from
the Properties which are subject to a later refund.
SECTION 4.34. Holding Company; Investment Company. Seller is not a
-----------------------------------
"holding company," or a "subsidiary company" of a "holding company," or an
affiliate of a "holding company" or of a "subsidiary company" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended. Seller is
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not an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
SECTION 4.35. Federal Regulations. Any gas gathering system
-------------------
constituting a part of the Properties has as its primary function the provision
of natural gas gathering services, as the term "gathering" is interpreted under
Section 1(b) of the Natural Gas Act (the "NGA"). None of the Properties have
---
been or are certificated by the Federal Energy Regulatory Commission (the
"FERC") under Section 7(c) of the NGA or are now subject to FERC jurisdiction
----
under the NGA. None of the Properties have been or are providing service
pursuant to Section 311 of the NGA.
SECTION 4.36. Securities Act. (a) Each of the Significant
--------------
Shareholders is an "accredited investor" as defined in Rule 501 promulgated
under the Securities Act.
(b) Each Shareholder is acquiring the Shares of Purchaser Common
Stock to be issued to such Shareholder for such Shareholder's own account and
not with a view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act. Each Shareholder acknowledges that the Shares
of Purchaser Common Stock have not been registered and that such Shares of
Purchaser Common Stock may not be transferred or sold under the Securities Act
and that such Shares of Purchaser Common Stock may not be transferred or sold
unless they are registered under the Securities Act or an exemption is
available.
(c) Each Shareholder understands that the Shares of Purchaser Common
Stock issuable in the Merger have not been registered under the Securities Act
or any applicable state securities laws and that such Shares may not be resold
unless they are registered under the Securities Act or an exemption is
available.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as
follows:
SECTION 5.01. Organization and Authority of the Purchaser. The
-------------------------------------------
Purchaser is a corporation duly organized, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation, and has all necessary
power and authority to own, operate or lease the properties and assets now
owned, operated or leased by it and to carry on its business as it is currently
conducted, except where the failure to have such power and authority would not
have a Purchaser Material Adverse Effect. The Purchaser has all necessary
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Purchaser, the performance
by the Purchaser of its obligations hereunder and the consummation by the
Purchaser of the transactions contemplated hereby have been duly authorized by
all requisite corporate action on the part of the Purchaser and no other
corporate proceedings on the part of the Purchaser are necessary to authorize
this Agreement or the consummation of the transactions contemplated hereby
(other than, with respect to the Merger, the approval of the holders of a
majority of the issued and outstanding common stock of the
37
<PAGE> 130
Purchaser, and the filing and recording of appropriate merger documents as
required by the BCL and the DGCL). This Agreement has been duly executed and
delivered by the Purchaser, and (assuming due authorization, execution and
delivery by the Company) this Agreement constitutes a legal, valid and binding
obligation of the Purchaser enforceable against the Purchaser in accordance with
its terms.
SECTION 5.02. Certificate of Incorporation and Bylaws. The Purchaser
---------------------------------------
has filed with the SEC complete and correct copies of the Restated Certificate
of Incorporation and the Bylaws, each as amended to date, of the Purchaser. Such
Restated Certificate of Incorporation and Bylaws are in full force and effect.
SECTION 5.03. Capitalization. The authorized capital stock of the
--------------
Purchaser consists of (a) 100,000,000 shares of Purchaser Common Stock and (b)
2,000,000 shares of preferred stock, par value $1.00 per share ("Purchaser
---------
Preferred Stock"). As of September 30, 2000, (i) 40,521,081 shares of Purchaser
---------------
Common Stock were issued and outstanding, (ii) zero shares of Purchaser
Preferred Stock were issued and outstanding, (iii) 15,575 shares of Purchaser
Common Stock were held in the treasury of the Purchaser and (iv) 4,551,966
shares of Purchaser Common Stock were reserved for future issuance pursuant to
incentive plans (primarily in the form of stock options). In addition,
100,000,000 Preferred Stock Purchase Rights related to Purchaser's Shareholder
Rights Plan were authorized; $115,000,000 in aggregate principal amount of
5 1/2% Convertible Subordinated Notes due 2006 were outstanding which are
convertible into Purchaser Common Stock at the rate of 23.7051 shares per $1,000
in principal amount of such notes; and $150,000,000 in aggregate principal
amount of 6 1/2% Cumulative Quarterly Income Convertible Securities of Pogo
Trust I, which are convertible into Purchaser Common Stock at the rate of 2.1053
shares per $50 in principal amount of such convertible securities, were
outstanding.
SECTION 5.04. Financing. The Purchaser has, or has commitments from
---------
responsible financial institutions to enable it to borrow, sufficient funds to
permit the Purchaser to acquire all the outstanding shares of Company Common
Stock in the Merger. The Purchaser has delivered to the Company a true and
correct copy of a commitment letter relating to such commitment.
SECTION 5.05. No Conflict. Assuming compliance with the notification
-----------
requirements of the HSR Act and the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred to
in Section 5.06, except as may result from any facts or circumstances relating
solely to the Company, the execution, delivery and performance of this Agreement
by the Purchaser do not and will not (a) violate, conflict with or result in the
breach of any provision of the Restated Certificate of Incorporation or Bylaws
of the Purchaser, (b) conflict with or violate any Law or Governmental Order
applicable to the Purchaser or by which any property or asset of the Purchaser
is bound or (c) conflict with, result in any breach of or constitute a default
(or an event which, with the giving of notice or lapse of time, or both, would
become a default) under, require any consent under, or give to others any rights
of termination, amendment or cancellation of, or result in the creation of any
Encumbrance on any of the assets or properties of the Purchaser pursuant to, any
note, bond, mortgage or indenture, contract, agreement, lease, sublease,
license, permit, franchise or other instrument or obligation to which the
Purchaser is a party or by which any of
38
<PAGE> 131
such assets or properties are bound or affected, except for any such conflicts,
breaches, defaults or other occurrences which would not be reasonably expected
to have a Purchaser Material Adverse Effect, prevent or delay the consummation
of the Merger or otherwise prevent the Purchaser from performing its obligations
under this Agreement.
SECTION 5.06. Governmental Consents and Approvals. The execution,
-----------------------------------
delivery and performance of this Agreement by the Purchaser do not and will not
require any consent, approval, authorization or other order of, action by,
filing with, or notification to, any Governmental Authority on the part of the
Purchaser, except (a) as described in a writing given to the Company by the
Purchaser on the date of this Agreement, (b) the pre-merger notification
requirements of the HSR Act and the Investment Canada Act, (c) the filing and
recordation of appropriate merger documents as required by the BCL and the DGCL
and (d) the filing with the SEC under Section 14(a) of the Securities Exchange
Act of proxy material relating to the meeting of its stockholders to approve the
Merger, the filing of such registration statements and other documents as may be
required to comply with Section 6.10, such other reports and information under
the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby, and such filings, authorizations, orders and
approvals as may be required under state securities laws and the rules of the
New York Stock Exchange and (e) the filing of Form D under Regulation D under
the Securities Act and (f) any other consent, approval, authorization, filing or
notice the failure to make or obtain which would not reasonably be expected to
have a Purchaser Material Adverse Effect or prevent or materially delay the
consummation of the Merger.
SECTION 5.07. Litigation. Except as disclosed in a writing given to
----------
the Company by the Purchaser on the date of this Agreement, there is no Action
pending or, to the knowledge of the Purchaser, threatened against the Purchaser
or any properties or assets of the Purchaser, before any Governmental Authority,
(a) which seeks to delay or prevent the consummation of, or which would be
likely to materially adversely affect the Purchaser's ability to consummate, the
transactions contemplated by this Agreement, or (b) which would be reasonably
likely to have a Purchaser Material Adverse Effect.
SECTION 5.08. Tax Treatment. The Purchaser has not knowingly taken
-------------
or failed to take any action which would prevent the Merger from qualifying as a
tax-free reorganization within the meaning of section 368(a) of the Code.
SECTION 5.09. SEC Filings; Financial Statements. (a) The Purchaser
---------------------------------
has filed all forms, reports and documents required to be filed by it with the
SEC since January 1, 1998 through the date of this Agreement (collectively, the
"Purchaser SEC Reports"). As of the respective dates they were filed, (i) the
---------------------
Purchaser SEC Reports were prepared in all material respects in accordance with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) none of the Purchaser SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(b) The audited consolidated financial statements and unaudited
financial statements of the Purchaser included in the Purchaser's Annual Report
on Form 10-K for the
39
<PAGE> 132
12 months ended December 31, 1999 and the Purchaser's Quarterly Report on Form
10-Q for the quarterly periods ended March 31, 2000, June 30, 2000 and September
30, 2000 have been prepared in accordance with U.S. GAAP applied on a consistent
basis (except, in the case of the unaudited financial statements, for the
omission of information as permitted by Form 10-Q promulgated by the SEC), and
fairly present, in all material respects, the financial position of the
Purchaser and its consolidated subsidiaries as of the dates thereof and the
results of their operations and changes in financial position for the periods
then ended (subject, in the case of any unaudited interim financial statements,
to normal audit adjustments).
(c) The Purchaser has heretofore made available to the Company
complete and correct copies of (i) all agreements, documents and other
instruments not yet filed by the Purchaser with the SEC but that are currently
in effect and that the Purchaser expects to file with the SEC after the date of
this Agreement, and (ii) all material amendments and modifications that have not
been filed by the Purchaser with the SEC to all agreements, documents and other
instruments that previously had been filed with the SEC and are currently in
effect.
(d) Neither the Purchaser nor any subsidiary of the Purchaser has any
Liabilities of a nature or character required to be disclosed in a Purchaser SEC
Report or included in the financial statements of the Company included in the
Purchaser SEC Reports, except for liabilities and obligations (i) reflected or
disclosed on the consolidated balance sheet of the Purchaser and the
consolidated subsidiaries of the Purchaser as at December 31, 1999, including
any notes thereto, (ii) reflected or disclosed in any Purchaser SEC Report filed
since December 31, 1999 and prior to the date of this Agreement, or (iii)
incurred since December 31, 1999 in the ordinary course of business consistent
with past practice which have not had, and would not reasonably be expected to
have, a Purchaser Material Adverse Effect.
SECTION 5.10. Compliance With Laws. Each of the Purchaser and its
--------------------
subsidiaries has conducted and continues to conduct its business in compliance
with all Laws and Governmental Orders applicable to the Purchaser or any of its
subsidiaries, except for violations or failures so to comply, if any, that are
not reasonably expected to have a Purchaser Material Adverse Effect.
SECTION 5.11. Taxes. Except for matters that would not have a
-----
Purchaser Material Adverse Effect, (a) the Purchaser and its subsidiaries have
timely filed all returns and reports required to be filed by them with respect
to Taxes ("Purchaser Tax Returns") prior to the date of this Agreement, taking
---------------------
into account any extension of time to file granted to or obtained on behalf of
the Purchaser and its subsidiaries, (b) all Taxes shown to be payable on such
Tax Returns or reports have been paid or will be paid, (c) all such Tax Returns
are true, correct, and complete in all material respects, (d) the liabilities
and reserves for Taxes reflected in the balance sheet dated September 30, 2000
contained in the Purchaser SEC Reports are adequate to cover all Taxes for all
periods ending at or prior to the date thereof and there is no liability for
Taxes for any period or portion of a period beginning after such date other than
Taxes arising in the ordinary course of business.
SECTION 5.12. Authorization and Issuance of Purchaser Common Stock.
----------------------------------------------------
The authorization, issuance and delivery of Purchaser Common Stock pursuant to
this Agreement
40
<PAGE> 133
have been duly authorized by all requisite corporate action on the part of the
Purchaser, and when issued and delivered in accordance with this Agreement, the
Purchaser Common Stock will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
free of any Encumbrances created by the Purchaser and not subject to preemptive
or similar rights created by statute, the Purchaser's Restated Certificate of
Incorporation or Bylaws or any agreement to which the Purchaser is a party or by
which the Purchaser is bound.
SECTION 5.13. Absence of Purchaser Material Adverse Effect. Since
--------------------------------------------
September 30, 2000, except as disclosed in the Purchaser SEC Reports, there has
not been any Purchaser Material Adverse Effect.
SECTION 5.14. Brokers. No broker, finder or investment banker (other
-------
than Merrill Lynch & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the other transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the Purchaser.
SECTION 5.15. Vote Required. The affirmative vote of the holders of
-------------
a majority of the voting power of the outstanding shares of Purchaser Common
Stock to adopt this Agreement, to approve the issuance of shares of Purchaser
Common Stock and the other transactions contemplated hereby, is the only vote of
the holders of any class of shares of Purchaser capital stock necessary to
approve or adopt this Agreement or the transactions contemplated hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Conduct of Business Prior to the Closing. (a) The
----------------------------------------
Company covenants and agrees that, between the date of this Agreement and the
time of the Closing, except as set forth in Section 6.01(a) of the Disclosure
Schedule or as contemplated by any other provision of this Agreement, unless the
Purchaser shall otherwise consent in writing (which consent shall not be
unreasonably withheld):
(i) the businesses of the Company and the Company Subsidiaries
shall be conducted only in, and the Company and the Company Subsidiaries
shall not take any action except in, the ordinary course of business and in
a manner consistent with past practice;
(ii) the Company shall use its commercially reasonable efforts to
preserve substantially intact its business organization, to keep available
the services of the current employees of the Company and the Company
Subsidiaries and to preserve the current relationships of the Company and
the Company Subsidiaries with customers, contract holders and other Persons
with whom the Company or any Company Subsidiary has significant business
relations; and
(iii) the Company shall cause North Central to take the following
actions:
41
<PAGE> 134
(A) Continue to operate (or cause to be operated) the Properties only
in the ordinary course of business, as a reasonably prudent operator, in
accordance with all applicable Laws;
(B) Maintain in full force and effect all policies of insurance
covering the Properties now maintained by the Company or any Company
Subsidiary through the Closing Date;
(C) Use its reasonable best efforts to preserve in full force and
effect all of the material Leases, Easements, and other contracts which
relate to or constitute a part of the Properties and to perform all
obligations of the Company and any Company Subsidiary in or under such
material Leases, Easements, and other contracts;
(D) Not to enter into any agreement or arrangement granting any
preferential right to purchase any of the Properties or requiring the
consent of any Person to the transactions contemplated hereunder;
(E) Not to enter into any contracts or other agreements relating to
the Properties that are not terminable on notice of ninety (90) days or
less without penalty;
(F) Promptly notify the Purchaser of any asserted or threatened claim
or Action involving or affecting the Properties of which the Company or any
Company Subsidiary receives notice or of which the Company has Knowledge;
(G) Not to relinquish voluntarily its position as operator with
respect to any of the Properties;
(H) Maintain all Equipment and personal property included in the
Properties in accordance with reasonably prudent operating practices and
procedures;
(I) Pay all ad valorem, severance and production, property and sales
Taxes and assessments with respect to the Properties which become due and
payable prior to the Closing Date;
(J) Not to cancel any material indebtedness or waive any material
claims or rights against any third party or Affiliate; and
(K) Not to initiate any utilization with respect to any Property and
to notify the Purchaser promptly upon receiving notice of any utilization
of any Property.
(b) By way of amplification and not limitation, except as contemplated by
this Agreement, as reflected in Section 6.01(b) of the Disclosure Schedule or as
required by Law, neither the Company nor any Company Subsidiary shall, between
the date of this Agreement and the Closing, directly or indirectly do, or
propose to do, any of the following,
42
<PAGE> 135
without the prior written consent of the Purchaser (which consent shall not
be unreasonably withheld):
(i) amend or otherwise change its Restated Certificate of
Incorporation or Bylaws or equivalent organizational documents;
(ii) issue, sell, pledge, dispose of, grant, encumber, farmout,
lease or authorize the issuance, sale, pledge, disposition, grant, farmout,
lease or Encumbrance of (A) any shares of capital stock of the Company or
any Company Subsidiary of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without
limitation, any phantom interest) of the Company or any Company Subsidiary,
or (B) any assets of the Company or any Company Subsidiary having a value
in excess of $100,000 individually or $300,000 in the aggregate, except
sales of Hydrocarbons in the ordinary course of business and in a manner
consistent with past practice;
(iii) declare, set aside, make or pay any dividend or other
distribution payable in cash, stock, property or otherwise, with respect to
any of its capital stock;
(iv) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(v) (A) acquire or dispose of (including, without limitation, by
merger, consolidation or acquisition or disposition of stock or assets) any
interest in any corporation, partnership, other business organization or
any division thereof or any assets, other than in the ordinary course of
business, consistent with past practice, and any other acquisitions for
consideration which are not, in the aggregate, in excess of $5,000,000; (B)
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any Person (other than the Company or a
wholly owned Company Subsidiary), except for indebtedness incurred in the
ordinary course of business, consistent with past practice, in amounts not
in excess of $10,000,000 in the aggregate, net of any repayments made after
the date of this Agreement and except for amounts necessary to pay the
Company's obligations under Article VII of this Agreement; (C) make any
loans or advances to any Persons (other than loans or advances by the
Company and/or the Non-Energy Company Subsidiaries to North Central, or
between NCOC and its subsidiary), except loans or advances not in excess of
$100,000 in the aggregate to employees in the ordinary course of business,
consistent with past practice; (D) make or obligate itself to make any
capital expenditure in excess of the amounts specified in North Central's
2000 fiscal year budget or 2001 fiscal year budget proposed by North
Central and approved by the Purchaser; provided, however, if no budget is
-------- -------
proposed and approved, the limit will be $5,000,000 in the aggregate per
month, other than pursuant to any commitment as of the date hereof; or (E)
enter into or amend any contract, agreement, commitment or arrangement
that, if fully performed, would not be permitted under this subsection (v);
43
<PAGE> 136
(vi) increase the compensation payable or to become payable to its
officers or employees, issue, or reprice the initial value of, any shares
under the Phantom Stock Plan, or grant any severance or termination pay to,
or enter into any employment or severance agreement with, any director,
officer or other employee of the Company or any Company Subsidiary, or
establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any director, officer or employee; provided, however, no
-------- -------
provision of this Section 6.01(b)(vi) shall restrict or prohibit the
payment of bonuses to officers and employees not to exceed $850,000 in the
aggregate;
(vii) take any action with respect to accounting policies or
procedures, except in accordance with GAAP;
(viii) pay, discharge or satisfy any material claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business and consistent with past practice, of
liabilities reflected or reserved against in the consolidated balance sheet
of the Company and the Company Subsidiaries as at June 30, 2000 or the
consolidated balance sheet of North Central as at September 30, 2000, or
subsequently incurred in the ordinary course of business and consistent
with past practice or in accordance with the provisions of this Section
6.01; or
(ix) permit the Company or any Non-Energy Company Subsidiary to
engage in any active trade or business or to take any action other than to
lend or contribute to North Central their available cash balances as
provided in Section 6.14 and to pay their normal general and administrative
expenses, in the ordinary course and consistent with past practices, as
they become due.
(c) The Purchaser covenants and agrees that, between the date of
this Agreement and the time of the Closing, except as disclosed in a writing
given to the Company by the Purchaser on the date of this Agreement or as
contemplated by any other provision of this Agreement, unless the Company shall
otherwise consent in writing (which consent shall not be unreasonably withheld):
(i) the businesses of the Purchaser and its subsidiaries shall be
conducted only in, and the Purchaser and its subsidiaries shall not take
any action except in, the ordinary course of business and in a manner
consistent with past practice; and
(ii) the Purchaser shall use its commercially reasonable efforts to
preserve substantially intact its business organization, to keep available
the services of the current employees of the Purchaser and its subsidiaries
and to preserve the current relationships of the Purchaser and its
subsidiaries with customers, contract holders and other Persons with whom
the Purchaser or any of its subsidiaries has significant business
relations.
44
<PAGE> 137
(d) By way of amplification and not limitation, except as
contemplated by this Agreement, except as disclosed in a writing given to the
Company by the Purchaser on the date of this Agreement or as required by Law,
the Purchaser shall not, between the date of this Agreement and the Closing,
directly or indirectly, do, or propose to do, any of the following, without the
prior written consent of the Company (which consent shall not be unreasonably
withheld):
(i) amend or otherwise change its Restated Certificate of
Incorporation or Bylaws or equivalent organizational documents;
(ii) issue, sell, pledge, dispose of, grant, encumber or authorize
the issuance, sale, pledge, disposition, grant or Encumbrance of (A) any
shares of capital stock of the Purchaser of any class, except upon
conversion of convertible securities outstanding on the date hereof, upon
any issuance of stock upon the exercise of rights outstanding under the
Rights Agreement, and upon exercise of employee or director stock options
or other compensatory rights outstanding on the date hereof or hereafter
issued or granted in the ordinary course of business consistent with past
practice, or (B) any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom
interest) of the Purchaser or any of its subsidiaries except any such
issuance, sale or other disposition by a subsidiary of the Purchaser to the
Purchaser or another subsidiary of the Purchaser, options or restricted
stock or other compensatory rights issued or granted in the ordinary course
of business consistent with past practice;
(iii) declare, set aside, make or pay any dividend or other
distribution payable in cash, stock, property or otherwise, with respect to
any of its capital stock, except in the ordinary course of business in a
manner consistent with past practice;
(iv) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock except
for Purchaser Common Stock acquired as consideration for the exercise of
employee or director stock options or to satisfy tax withholding
obligations with respect thereto and for Purchaser Common Stock acquired to
satisfy matching contribution obligations under Purchaser's 401(k) plan;
(v) (A) acquire or dispose of or permit any subsidiary of the
Purchaser to acquire or dispose of (including, without limitation, by
merger, consolidation or acquisition or disposition of stock or assets) any
interest in any corporation, partnership, other business organization or
any division thereof or any assets, other than in the ordinary course of
business, consistent with past practice, and any other acquisitions for
consideration which are not, in the aggregate, in excess of $75,000,000 or
any other dispositions for consideration which are not, in the aggregate,
in excess of $50,000,000, and except for transactions between the Purchaser
and one or more subsidiaries of the Purchaser or between subsidiaries of
the Purchaser; (B) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person (other
than the Purchaser or its wholly owned subsidiaries), except for
indebtedness
45
<PAGE> 138
incurred in the ordinary course of business, consistent with past practice,
in amounts not in excess of $50,000,000 in the aggregate, net of any
repayments made after the date of this Agreement; or (C) enter into or
amend any contract, agreement, commitment or arrangement that, if fully
performed, would not be permitted under this subsection (v); or
(vi) enter into a merger, consolidation, share exchange or other
business combination transaction with any other Person, provided, however,
-------- -------
in the event that the Purchaser becomes the subject of an unsolicited
tender offer or exchange offer, or any third party publicly announces a
Competing Transaction (as defined in Section 6.09) which was not solicited
by the Purchaser, the Purchaser may enter into a merger, consolidation,
share exchange or other business combination transaction, with a Person
other than the Person who made such tender offer or exchange offer or made
such public announcement of a Competing Transaction.
SECTION 6.02. Access to Information. Except as required pursuant to
---------------------
any confidentiality agreement or similar agreement or arrangement to which the
Company or any Company Subsidiary is a party or pursuant to applicable Law, from
the date hereof until the Closing, upon reasonable notice, the Company shall,
and shall cause each of the Company Subsidiaries and each of the Company's and
the Company Subsidiaries' officers, directors, employees, agents,
representatives, accountants and counsel to: (a) afford the officers, employees
and authorized agents, accountants, counsel and representatives of the Purchaser
(collectively, "Representatives") reasonable access, during normal business
---------------
hours, to the offices, properties, oil and gas fields, other facilities, books
and records of the Company and each Company Subsidiary and to those officers,
directors, employees, agents, accountants and counsel of the Company and of each
Company Subsidiary who have any knowledge relating to the Company, any Company
Subsidiary or the business and (b) furnish to the Representatives such
additional financial and operating data and other information regarding the
assets, properties and goodwill of the Company and the Company Subsidiaries as
the Purchaser may from time to time reasonably request.
SECTION 6.03. Confidentiality. The parties shall comply with, and
---------------
shall cause their respective Representatives to comply with, all of their
respective obligations under the Confidentiality Agreements dated September 16,
2000 and November 16, 2000, between the Company and the Purchaser.
SECTION 6.04. Company Stockholders' Meeting and Voting. (a) As soon
----------------------------------------
as practicable after the date hereof, the Company shall call and hold a special
meeting of its stockholders (the "Company Stockholders' Meeting") for the
-----------------------------
purpose of voting upon the approval of the Merger.
(b) The Shareholders agree to vote their shares in all classes of
the Company Common Stock in favor of the approval of the Merger at the Company
Special Meeting. Any solicitation of votes or consents from any holder of
Company Common Stock who is not an accredited investor shall be made only in
conjunction with a purchaser representative as contemplated by Regulation D.
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<PAGE> 139
(c) From the date hereof until the earlier of the Effective Time
and the termination of this Agreement, the Shareholders agree not to sell or
otherwise transfer any of their shares of Company Common Stock to any Person
other than a Person that (i) agrees with the Purchaser in writing to vote in
favor of the approval of the Merger at the Company Special Meeting and to be
bound by the provisions of Section 6.04(c) and (ii) (A) upon the closing of such
transfer, will, assuming the conversion of all such shares of Company Common
Stock into shares of Purchaser Common Stock, own less than 5% of the Voting
Securities (as defined in the Standstill and Voting Agreement) of the Purchaser,
(B) is not a member of a "group" (as defined in Section 13(d)(3) of the Exchange
Act) or an Affiliate or an Associate of a member of such a "group" with respect
to the Purchaser and (C) has not publicly announced that he, she or it is
accumulating Voting Securities for any of the purposes set forth in Section 2.1
of the Standstill and Voting Agreement.
(d) The Company and the Purchaser shall cooperate in preparing
solicitation and/or information materials in connection with such meeting so as
to comply with applicable Law, including Regulation D under the Securities Act,
and the Company will include in such materials all information the Purchaser
reasonably deems necessary regarding the Purchaser in order to effect such
compliance.
SECTION 6.05. Purchaser Stockholders' Meeting. (a) The Purchaser
-------------------------------
shall call and hold a special meeting of its stockholders (the "Purchaser
---------
Stockholders' Meeting") as promptly as practicable for the purpose of voting
---------------------
upon (i) the approval and (ii) the adoption of this Agreement, the Merger and
the approval of the issuance of shares of Purchaser Common Stock pursuant to the
terms of the Merger (the "Purchaser Stock Issuance"). The Purchaser shall
------------------------
prepare and file with the SEC a proxy statement (together with any amendments
thereof or supplements thereto, the "Proxy Statement") relating to the Purchaser
---------------
Stockholders' Meeting. The Proxy Statement shall include the recommendation of
the Board of Directors of the Purchaser to vote in favor of (i) the approval and
adoption of this Agreement and the Merger and (ii) the Purchaser Stock Issuance;
provided, however, that the Board of Directors of the Purchaser may, at any time
-------- -------
prior to the Purchaser Stockholders' Meeting, withdraw, modify or change its
recommendation to the extent the Board of Directors of the Purchaser determines
in good faith after consultation with independent legal counsel (who may be the
Purchaser's regular outside counsel) that such action is required by reason of
the fiduciary duties of the Board of Directors of the Purchaser to the
Purchaser's stockholders under applicable Law.
(b) Subject to the proviso to the last sentence of Section 6.05(a),
the Purchaser shall use its reasonable best efforts to solicit from its
stockholders proxies in favor of the approval of the Merger and the Purchaser
Stock Issuance and shall take all other actions necessary or advisable to secure
the vote or consent of its stockholders required by the DGCL and the rules of
the New York Stock Exchange.
SECTION 6.06. Regulatory and Other Authorizations; Notices and
------------------------------------------------
Consents. (a) Upon the terms and subject to the conditions hereof, each of the
--------
parties hereto shall (i) use its commercially reasonable efforts to take, or
cause to be taken, all appropriate action and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the Merger and the other transactions contemplated
by this Agreement, (ii) use its commercially reasonable efforts to obtain from
Governmental
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Authorities any consents, licenses, permits, waivers, approvals, authorizations
or orders required to be obtained or made by the Purchaser or the Company or any
of their subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement and (iii) make all necessary
filings, and thereafter make any other required submissions with respect to this
Agreement, the Merger and the other transactions contemplated by this Agreement
required under the HSR Act and any other applicable Law. The parties hereto
shall cooperate with each other in connection with the making of all such
filings.
(b) The Purchaser and the Company shall file promptly (but in no
more than ten (10) Business Days from the date hereof) notifications under the
HSR Act and shall respond as promptly as practicable to all inquiries or
requests received from the Federal Trade Commission or the Antitrust Division of
the Department of Justice for additional information or documentation and shall
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other Governmental Authority in connection with
antitrust matters. The parties shall cooperate with each other in connection
with the making of all such filings or responses, including providing copies of
all such documents to the other party and its advisors prior to filing or
responding.
SECTION 6.07. Notice of Certain Matters. The Purchaser shall give
-------------------------
prompt notice to the Company, and the Company shall give prompt notice to the
Purchaser, of (a) the occurrence, or non-occurrence, of any event the occurrence
or non-occurrence of which would be likely to cause (i) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (ii) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied, and (b) any failure of the Purchaser or the Company, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder.
SECTION 6.08. Non-Accredited Investor Advisor. Prior to the Company
-------------------------------
Stockholders Meeting, the Company shall engage a qualified person or persons to
serve as a representative to advise those Shareholders who are not accredited
investors (as defined in Section 501(a) of Regulation D promulgated under the
Securities Act) on their rights in connection with and the risks associated with
their investment in shares of Purchaser Common Stock, and the transactions
contemplated hereby.
SECTION 6.09. No Solicitation of Transactions. (a) The Company, each
-------------------------------
Shareholder and the Purchaser each agree that, for a period of time from the
date hereof until the date of termination of this Agreement in accordance with
the provisions of Section 11.01 hereof, such party will not, directly or
indirectly, through any officer, director, employee, representative or agent or
otherwise, (i) solicit, initiate or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, any Competing
Transaction (as defined below) or (ii) agree to, enter into, accept, approve or
recommend any Competing Transaction, or enter into or conduct any negotiations
in respect thereof. Unless precluded by a confidentiality agreement in
connection with an unsolicited proposal, the Company or any Shareholder, on the
one hand, will notify the Purchaser, on the other hand, or the Purchaser, on the
one hand, shall notify the Company, on the other hand, of any proposal of a
Competing Transaction or any request for information in connection with any
Competing Transaction or
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<PAGE> 141
for access to the properties, books or records of the Company or the Purchaser
by any person or entity that informs the Company or the Purchaser that it is
considering making, or has made, any proposal of a Competing Transaction. Such
notice shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact. Nothing contained in this Agreement shall prohibit
the Board of Directors of the Purchaser from furnishing information to, or
entering into discussions or negotiations with, any Person in connection with an
unsolicited proposal by such Person to acquire the Purchaser pursuant to any
Competing Transaction, if, and only to the extent that, (i) the Board of
Directors of Purchaser, after consultation with independent legal counsel (who
may be such party's regularly engaged independent legal counsel), determines in
good faith that the failure to take such action would cause the Board of
Directors to breach its fiduciary duties to its stockholders imposed by
applicable Law and (ii) prior to furnishing such information to, or entering
into discussions or negotiations with, such Person, such party uses its
reasonable best efforts to obtain from such Person an executed confidentiality
agreement on customary terms. In addition, in circumstances in which Purchaser's
Board of Directors has received a bona fide unsolicited proposal with respect to
a Competing Transaction which the Purchaser's Board of Directors has determined
in good faith, after consultation with its financial advisors, creates a
substantial risk that the Merger will not be consummated, and Purchaser's Board
of Directors determines in good faith that taking such action is an appropriate
response to such proposal and is required by its fiduciary duties under
applicable law, Purchaser may solicit or initiate discussions with a Person
other than the Person who made such unsolicited proposal, and enter into
discussions or negotiations with such other Person.
(b) A "Competing Transaction" means any of the following involving
---------------------
the Purchaser or the Company, as the case may be (other than the Merger and the
other transactions contemplated by this Agreement): (i) a merger, consolidation,
share exchange, business combination or other similar transaction; (ii) any
sale, lease, exchange, transfer or other disposition of 25% or more of the
assets of such party and its subsidiaries, taken as a whole; (iii) a tender
offer or exchange offer for 25% or more of the outstanding voting securities of
such party; or (iv) in the case of the Purchaser, any solicitation in opposition
to approval of the Merger or the issuance of shares of Purchaser Common Stock
pursuant to the Merger.
SECTION 6.10. Registration. If the Purchaser so elects by giving
------------
written notice to the Company, or in the event that the issuance of Purchaser
Common Stock in the Merger is determined not to be exempt from registration
under the Securities Act (a "Private Placement") in the reasonable judgment of
-----------------
the Company or the Purchaser in reliance upon the advice of counsel, (a) the
Purchaser as promptly as practicable will prepare and file with the SEC a
Registration Statement on Form S-4 (the "Merger S-4") with respect to the Merger
----------
and use reasonable best efforts to cause the Merger S-4 to become effective, (b)
the Company will cooperate with the Purchaser in the preparation of the Merger
S-4 and use its reasonable best efforts to assist and facilitate such filing and
declaration of effectiveness, and (c) the parties hereto shall cooperate with
each other and use commercially reasonable efforts to cause the consummation of
the Merger notwithstanding the inability or failure to achieve a Private
Placement, including negotiating expeditiously and in good faith with respect to
any and all amendments to this Agreement necessary or appropriate to permit
consummation of the Merger.
49
<PAGE> 142
SECTION 6.11. Directors' and Officers' Indemnification and Insurance.
------------------------------------------------------
(a) The indemnification provisions of the Restated Certificate of Incorporation
and Bylaws of the Surviving Corporation and each subsidiary thereof shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who, at or prior to the Effective Time, were directors, officers,
employees, fiduciaries or agents of the Company, unless such modification shall
be required by Law.
(b) In the event the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other Person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any Person, then, and in each such case, proper provision shall be made so
that the successors and assigns of the Surviving Corporation, or at its option,
the Purchaser, shall assume the obligations set forth in this Section 6.11.
(c) For a period of six years after the Effective Time, the
Purchaser shall maintain in effect the current directors' and officers'
liability insurance policies maintained by the Company or any Company Subsidiary
(provided that the Purchaser may substitute therefor policies of at least the
--------
same coverage containing terms and conditions which are no less advantageous)
with respect to claims arising from facts or events that occurred prior to the
Effective Time.
SECTION 6.12. Plan of Reorganization. (a) This Agreement is intended
----------------------
to constitute a "plan of reorganization" within the meaning of section 1.368-
2(g) of the income tax regulations promulgated under the Code. From and after
the date of this Agreement and until the Effective Time, each party hereto shall
use its reasonable best efforts to cause the Merger to qualify, and no party
hereto will knowingly take any action, cause any action to be taken, fail to
take any action or cause any action to fail to be taken which action or failure
to act could prevent the Merger from qualifying, as a reorganization under the
provisions of section 368(a) of the Code. Following the Effective Time, neither
the Purchaser nor any of its affiliates shall knowingly take any action, cause
any action to be taken, fail to take any action or cause any action to fail to
be taken, which action or failure to act could cause the Merger to fail to
qualify as a reorganization under section 368(a) of the Code.
(b) As of the date hereof, the Company does not know of any reason
(i) why it would not be able to deliver to Baker Botts, L.L.P. or Shearman &
Sterling, at the date of the legal opinions referred to below, certificates
substantially in compliance with IRS published advance ruling guidelines, with
customary exceptions and modifications thereto, to enable such firms to deliver
the legal opinions contemplated by Sections 9.02(c) and 9.03(c), or (ii) why
Baker Botts, L.L.P. or Shearman & Sterling would not be able to deliver the
opinions required by Sections 9.02(c) and 9.03(c).
(c) As of the date hereof, the Purchaser does not know of any
reason (i) why it would not be able to deliver to Baker Botts, L.L.P. or
Shearman & Sterling, at the date of the legal opinions referred to below,
certificates substantially in compliance with IRS published advance ruling
guidelines, with customary exceptions and modifications thereto, to enable such
firms to deliver the legal opinions contemplated by Sections 9.02(c) and
9.03(c), or (ii) why
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<PAGE> 143
Baker Botts, L.L.P. or Shearman & Sterling would not be able to deliver the
opinions required by Sections 9.02(c) and 9.03(c).
SECTION 6.13. Other Shareholders. (a) Subject to the terms and
------------------
conditions hereof, until the Closing Date, the Company shall use its
commercially reasonable efforts to cause all holders of Shares that are not
parties hereto to become parties to this Agreement prior to the Closing, and to
agree to be bound by all provisions hereof applicable to the Shareholders,
including the obligation to indemnify the Purchaser's Indemnified Persons
pursuant to Article X, by executing and delivering to the Company an irrevocable
consent to be bound by the provisions of, and to become a party to, this
Agreement, in the form attached hereto as Exhibit 6.13 (a "Joinder Agreement").
-----------------
By executing and delivering to the Company a completed Joinder Agreement, a
holder of Shares shall be deemed to be a "Shareholder" party hereto, and shall
be bound by all covenants, agreements, representations and warranties made by
the Shareholders hereunder, as if such holder was an original party hereto. Each
holder of Shares that is not a party hereto and that desires to exchange all of
such holder's Shares upon the terms and conditions set forth herein will be
entitled to become a party to this Agreement prior to the Closing by complying
with the provisions of this Section 6.13 and will not be subject to any escrow
requirements under this Agreement.
(b) Notwithstanding any other provision of this Agreement, 10% of
the shares of Purchaser Common Stock and/or cash to be delivered at the Closing
to each holder of Shares that does not, prior to the Closing, execute and
deliver to the Company a Joinder Agreement, shall be delivered to the Escrow
Agent as provided in Section 3.13.
SECTION 6.14. Phantom Stock Plan and Severance Payments. The parties
-----------------------------------------
acknowledge that the Merger will constitute a Change of Control, as that term is
defined in the Phantom Share Plan, as amended, in the Severance Pay Plan, the
Severance Agreement, and in the Retention Bonus Plan instituted by North Central
(collectively, the "Phantom Stock and Severance Plans"). The board of directors
---------------------------------
of NCOC has determined that Section 4.15(f) of the Disclosure Schedule sets
forth the correct methodology for computing the amount to be paid for Phantom
Shares pursuant to the terms of the Phantom Share Plan. Except with respect to
payments under the Severance Pay Plan and Severance Agreement to employees of
North Central designated by Purchaser in writing at least five days prior to the
closing, all payments required by a Change of Control under the terms of the
Phantom Stock and Severance Plans shall be made by North Central immediately
prior to the Effective Time. In order to fund such payments, the Company and/or
one or more of the Non-Energy Company Subsidiaries shall lend or contribute the
required funds to North Central prior to the time that North Central is required
to make such payments or North Central will borrow such funds pursuant to the
NCOC revolving credit facility.
SECTION 6.15. No Trading. Each Shareholder covenants and agrees
----------
that, after the date hereof and prior to the Effective Time, neither such
Shareholder nor any Affiliate or Associate of such Shareholder will buy or sell
any Shares of Purchaser Common Stock, including any short sale, or any option,
warrant on or other derivative security with respect to Purchaser Common Stock.
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<PAGE> 144
SECTION 6.16. Standstill and Voting Agreement. As of the Effective
-------------------------------
Time, each of the Shareholders (or the Shareholders' Representative on behalf of
the Shareholders) shall execute and deliver to the Purchaser the Standstill and
Voting Agreement.
ARTICLE VII
EMPLOYEE MATTERS
SECTION 7.01. Compensation and Benefits; Service Recognition. (a)
----------------------------------------------
Effective upon the Effective Time, employees of North Central who continue as
employees of North Central following the Merger shall be afforded the right to
participate in employee welfare, pension and savings plans on the same basis as
similarly situated employees of Purchaser; provided, however, that changes may
-------- -------
be made to such employee benefit plans to the extent necessary to comply with
applicable Law.
(b) For the period of time that the terms and conditions of the
Severance Plan and Severance Agreements are in full force and effect, the
Purchaser shall maintain, and cause its subsidiaries to maintain, welfare plans
which in the aggregate will provide a level of benefits for former employees
covered by such severance arrangements that are at least as favorable to
participants as those in effect immediately prior to the Effective Time;
provided, however, that changes may be made to such employee benefit plans to
-------- -------
the extent necessary to comply with applicable Law.
(c) For the purposes of the welfare benefits described in Sections
7.01(b) of this Agreement, the Purchaser shall provide, or cause its
subsidiaries to provide, such welfare benefits at a cost to employees or former
employees in a ratio at least as favorable to participants as the ratio of
employee contributions to employer contributions in effect immediately prior to
the Effective Time.
(d) For a period of two years following the Effective Time or until
an earlier termination of employment, the Purchaser shall ensure, and cause its
subsidiaries to ensure, that each individual employed by the Company or any of
the Company Subsidiaries as of the Effective Time shall continue to be paid
after the Effective Time a base salary at no lower a rate than in effect
immediately before the Effective Time.
(e) The Purchaser shall maintain, and cause its subsidiaries to
maintain, the Severance Plan in effect as of the Effective Time for a period of
one year after the Effective Time; provided, however, that, if the Purchaser
-------- -------
desires to amend or modify such plan, no such amendment or modification may
adversely impair the rights of any participant under the plan without his
consent.
(f) Anything above to the contrary notwithstanding, as of the
Effective Time, in the event that a "Change of Control," as defined in the
following described agreements and plans, occurs and a payment is due to any
employee or participant, the Company agrees to make such payments, or to cause
North Central to make such payments to the employee or participant, on the
effective date of Change of Control or the Effective Time, whichever is earlier,
and to the extent such payments are not made by the Company or North Central,
the Purchaser agrees to assume and honor the following arrangements and payments
thereunder for
52
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employees of the Company or the Company Subsidiary relating to a Change in
Control in accordance with the terms of the relevant plans or agreements as they
existed immediately prior to the Effective Time: (i) the Severance Plan, as
amended, (ii) the Severance Agreements dated as of June 1, 2000 with Messrs.
Winne, Becci, Deupree and Beckham and (iii) the Retention Bonus Plan dated June
1, 2000, as revised. If the Purchaser desires to amend such plans, agreements or
letters after the Effective Time, no such amendment shall be made if it
adversely impairs the rights of any affected employee, unless the employee's
consent is obtained.
(g) To the extent service is relevant for purposes of eligibility,
participation or vesting under any employee benefit plan, program or arrangement
established or maintained by the Purchaser or its subsidiaries for the benefit
of employees of the Purchaser or its subsidiaries, the employees of the Company
shall be credited for service accrued prior to the Effective Time with the
Company or the Company Subsidiaries.
(h) The current and former employees of the Company and the Company
Subsidiaries are intended third party beneficiaries of this Article VII, and may
enforce its provisions in the same manner as if they were signatories to this
Agreement.
ARTICLE VIII
TAX MATTERS
SECTION 8.01. Indemnity. (a) The Shareholders agree to indemnify
---------
the Purchaser against all Taxes of the Company and the Company Subsidiaries, or
of any member of any affiliated group with which the Company or any Company
Subsidiary files or has previously filed a consolidated or combined income tax
return, with respect to any period or portion thereof (i) insofar as such Taxes
are attributable to North Central, that ends on or before the date of this
Agreement, and (ii) insofar as such Taxes are attributable to the Company and
the Non-Energy Company Subsidiaries, that ends immediately prior to the
Effective Time (collectively, the "Shareholder Tax Periods"). The Purchaser
-----------------------
agrees to indemnify the Shareholders against all Taxes for periods or portions
thereof (collectively, the "Purchaser Tax Periods") which are not included in
---------------------
the Shareholder Tax Periods. Estimated Taxes paid on or before the end of a
Shareholder Tax Period shall be treated as a payment of Taxes with respect to
such period.
(b) With respect to any Tax that is payable with respect to a taxable
period that is included in both the Shareholder Tax Periods and the Purchaser
Tax Periods, the portion of any such Tax allocable to the Shareholder Tax
Periods shall be deemed to equal: (i) in the case of Taxes that are based upon
or related to income or receipts, the amount which would be payable if the
taxable year ended with the last date included in the Shareholder Tax Periods;
and (ii) in the case of Taxes imposed on a periodic basis and measured by the
level of any item, the amount of such Taxes for the entire period multiplied by
a fraction the numerator of which is the number of calendar days in the period
ending with the last date included in the Shareholder Tax Periods and the
denominator of which is the number of calendar days in the entire period.
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<PAGE> 146
SECTION 8.02. Tax Returns and Payments. (a) From the date of this
------------------------
Agreement through and after the Closing Date, the Shareholders shall prepare and
submit to the Purchaser for filing or otherwise furnish to the appropriate party
(or cause to be prepared and submitted or so furnished) in a timely manner all
Tax Returns relating to the Company or the Company Subsidiaries for any taxable
period that ends before or includes the Closing Date. With respect to any such
Tax Return, as to which an amount of Tax is allocable to the Purchaser, the
Shareholders shall provide the Purchaser with a copy of such completed Tax
Return and a statement (with which the Shareholders will make available
supporting schedules and information) certifying the amount of Tax shown on such
Tax Return that is allocable to the Purchaser at least 20 days prior to the due
date (including any extension thereof) for the filing of such Tax Return, and
the Purchaser shall have the right to review such Return and statement prior to
the filing of such Tax Return. The Shareholders and the Purchaser agree to
consult and to attempt in good faith to resolve any issues arising from the
Purchaser's review of such Tax Return and statement.
(b) The Shareholders shall pay or cause to be paid, when due and
payable, all Taxes which accrue with respect to the Company and the Company
Subsidiaries for the Shareholder Tax Periods, and taking into account the last
sentence of Section 8.01(a). Payments by the Shareholders of any amounts due
hereunder in respect of Taxes shall be made (i) at least three Business Days
before the due date of the applicable estimated or final Tax Return required to
be prepared by the Shareholders and filed by the Purchaser, and (ii) within 10
Business Days following either an agreement between the Shareholders and the
Purchaser that an indemnity amount is payable, or a "determination" as defined
in section 1313(a) of the Code.
SECTION 8.03. Refunds/Tax Benefits. (a) Except as indicated in
--------------------
the last sentence of this Section 8.03(a), any refunds (including interest to
the extent actually received) received by the Purchaser, the Company or any
Company Subsidiary of Taxes relating to and attributable to events arising in
any period or portion thereof which is included in the Shareholder Tax Periods
shall be for the account of the Shareholders, and the Purchaser shall pay over
to the Shareholders any such refund for the account of the Shareholders, within
five Business Days of receipt. The Purchaser shall, if the Shareholders so
request and at the Shareholders' expense, file (or cause to be filed) a claim
for any refunds or equivalent amounts to which the Shareholders are entitled
hereunder (including, without limitation, any refunds arising from payments
described in the second succeeding sentence). The Purchaser shall permit the
Shareholders to control (at the Shareholders' expense) the prosecution of any
such refund claimed. In addition, any refund or other Tax benefit arising from
the payment by North Central on or prior to the Closing Date of amounts
described in Section 6.14 shall be for the account of the Shareholders,
regardless of the Tax period to which such refund or other Tax benefit relates.
If any refund which the Purchaser has paid over to the Shareholders pursuant to
this Section 8.03 is subsequently adjusted, whether on audit or otherwise, a
payment in the amount of such adjustment will be made by the Shareholders to the
Purchaser or by the Purchaser to the Shareholders, as appropriate, so as to put
the parties as nearly as possible in the same position as if the original
payment by the Purchaser to the Sellers had been in the amount of the refund as
finally determined.
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<PAGE> 147
(b) The Purchaser agrees to pay to the Shareholders the benefit
received by the Company or any Company Subsidiary from the use in any Tax period
or portion thereof which is included in the Purchaser Tax Periods of a
carryforward of a Tax Asset arising in a Tax period or portion thereof which is
included in the Shareholder Tax Periods. Such benefit shall be considered to
equal the excess of (i) the amount of Taxes that would have been payable by the
Company or the Company Subsidiary in the absence of such carryforward over (ii)
the amount of Taxes actually payable by the Company or the Company Subsidiary.
Payment of such amount shall be made within five Business Days of filing the
applicable Tax Returns for the period to which the Tax Asset is carried forward.
If, subsequent to any such payment by the Purchaser to the Shareholders, there
shall be a "determination" (as defined in section 1313 of the Code) resulting
from an audit which results in a reduction of the Tax Asset so carried forward,
the Shareholders shall promptly repay to the Purchaser any amount that would not
have been payable to the Shareholders pursuant to the preceding sentence had the
amount of the benefit been calculated taking into account such determination,
together with any amount equal to any interest and penalties payable by the
Purchaser as a result of such determination. For this purpose, "Tax Asset" means
---------
any net operating loss, net capital loss, investment tax credit, foreign tax
credit or charitable deduction or any other similar tax attribute (including
deductions or credits relating to alternative minimum taxes) which is
apportioned under applicable Treasury Regulations or allocable under applicable
state or local income or franchise Tax law to the Company or any Company
Subsidiary.
(c) If an audit adjustment, claim for refund or amended return
("Adjustment") after the date hereof shall both increase a Tax liability which
----------
is allocated to the Shareholders (or reduce losses or credits otherwise
available) for a Tax period or portion thereof which is included in the
Shareholder Tax Periods (a "Prior Period Tax Increase") and decrease a Tax
-------------------------
liability of the Purchaser, the Company or any Company Subsidiary for a Tax
period or portion thereof which is included in the Purchaser Tax Periods, then,
when and to the extent that the Purchaser, the Company or any Company Subsidiary
derives a benefit from such decrease (through a reduction of Taxes, refund of
Taxes paid or credit against Taxes due), the Prior Period Tax Increase shall not
be indemnifiable by the Shareholders pursuant to Section 8.01 to the extent of
such refund, reduction or credit. Similarly, if an Adjustment shall both
decrease a Tax liability which is allocated to the Shareholders for a Tax period
or portion thereof which is included in the Shareholder Tax Periods and increase
the Tax liability of the Purchaser, the Company or any Company Subsidiary (or
reduce losses or credits otherwise available) for a Tax period or portion
thereof which is included in the Purchaser Tax Periods (a "Prior Period Tax
----------------
Decrease"), then, to the extent of such increase, the Purchaser shall not be
--------
required to pay over the Prior Period Tax Decrease to the Shareholders.
(d) Any estimated Taxes paid during a Tax period or portion thereof
which is included in the Shareholder Tax Periods that result in the total Taxes
paid by the Company or the Company Subsidiaries (including estimated Taxes paid
with respect to Tax periods or portions thereof which are included in the
Shareholder Tax Periods) to exceed the Taxes due and payable with respect to
such Tax periods or portions thereof shall be for the account of the
Shareholders. The Shareholders shall provide the Purchaser with a statement
(with which the Shareholders will make available supporting schedules and
information) certifying the amount of any such excess, and the Purchaser shall
pay over to the Shareholders any such excess within five Business Days of the
Shareholders providing such statement to the Purchaser.
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<PAGE> 148
(e) Any Tax benefits attributable to the Retention Bonus Plan paid to
North Central employees shall be for the account of the Purchaser.
SECTION 8.04. Contests. (a) After the Closing, the Purchaser shall
--------
promptly notify the Shareholders in writing of the commencement of any Tax audit
or administrative or judicial proceeding or of any demand or claim on the
Purchaser, the Company or any Company Subsidiary which, if determined adversely
to the taxpayer or after the lapse of time, is likely to give rise to grounds
for indemnification by the Shareholders. Such notice shall contain factual
information (to the extent known to the Purchaser) describing the asserted Tax
liability in reasonable detail and shall include copies of any notice or other
document received from any Tax Authority in respect of any such asserted Tax
liability. If the Purchaser fails to give the Shareholders prompt notice of an
asserted Tax liability, then (i) if the Shareholders are precluded by the
failure to give prompt notice from contesting the asserted Tax liability in both
the administrative and judicial forums, the Shareholders shall not have any
obligation to indemnify for any loss arising out of such asserted Tax liability,
and (ii) if the Shareholders are not so precluded from contesting, but such
failure to give prompt notice results in a detriment to the Shareholders, any
amount which the Shareholders are otherwise required to pay the Purchaser with
respect to such liability shall be reduced by the amount of such detriment.
(b) Except as indicated in the last sentence of this Section 8.04(b),
the Shareholders may elect to direct, through counsel of their own choosing and
at their own expense, any audit, claim for refund and administrative or judicial
proceeding involving any asserted liability with respect to which indemnity may
be sought from the Shareholders (any such audit, claim for refund or proceeding
relating to an asserted Tax liability are referred to herein collectively as a
"Contest"). If the Shareholders elect to direct the Contest of an asserted Tax
-------
liability, they shall, within 30 calendar days of receipt of the notice of
asserted Tax liability, notify the Purchaser of their intent to do so, and the
Purchaser shall cooperate and shall cause the Company and the Company
Subsidiaries to cooperate, at the Shareholders' expense, in each phase of such
Contest. If the Shareholders elect not to direct the Contest, fail to notify the
Purchaser of their election as herein provided or contest their indemnification
obligation, the Purchaser may pay, compromise or contest, at its own expense,
such asserted liability. However, in such case, the Purchaser may not settle or
compromise any asserted liability over the objection of the Shareholders;
provided, however, that consent to settlement or compromise shall not be
-------- -------
unreasonably withheld. In any event, both the Purchaser and the Shareholders may
participate, at their own expense, in the Contest. If a Contest includes both an
asserted liability with respect to which an indemnity may be sought from the
Shareholders and an asserted liability for which no such indemnity may be
sought, the foregoing provisions of this Section 8.04(b) shall apply only to
such portion of the Contest as involves the asserted liability with respect to
which an indemnity may be sought from the Shareholders.
SECTION 8.05. Cooperation and Exchange of Information. The
---------------------------------------
Shareholders and the Purchaser will provide each other with such cooperation and
information as either of them reasonably may request of the other in filing any
Tax Return, amended return or claim for refund, determining a liability for
Taxes or a right to a refund of Taxes or participating in or conducting any
audit or other proceeding in respect of Taxes. Such cooperation and information
shall include providing copies of relevant Tax Returns or portions thereof,
together with accompanying schedules and related records (whether in
computerized or written form),
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work papers and documents relating to rulings or other determinations by Tax
authorities. Each party shall make its employees available on a mutually
convenient basis to provide explanations of any documents or information
provided hereunder. Each party will retain all returns, schedules and work
papers and all material records or other documents relating to Tax matters of
the Company and the Company Subsidiaries for its taxable period first ending
after the last date which is included in the Shareholder Tax Periods and for all
prior taxable periods until the later of (i) the expiration of the statute of
limitations of the taxable periods to which such returns and other documents
relate, including extensions, or (ii) six years following the due date (without
extension) for such returns. Any information obtained hereunder shall be kept
confidential, except as may be otherwise necessary in connection with the filing
of returns or claims for refund or in conducting an audit or other proceeding.
SECTION 8.06. Conveyance Taxes. Liability for all sales, transfer,
----------------
stamp, real property transfer or gains and similar Taxes incurred as a result of
the sale of Shares contemplated hereby shall be borne 50% by the Purchaser and
50% by the Shareholders.
SECTION 8.07. Miscellaneous. (a) The Shareholders and the
-------------
Purchaser agree to treat all payments made under the indemnity provisions of
this Agreement or Section 3.12, and for any misrepresentations or breach of
warranties or covenants, as adjustments to the Merger Consideration for Tax
purposes. If, in the reasonable opinion of either counsel to the Purchaser or
counsel to the Shareholders, the making by the Purchaser of any such payment or
a specified portion thereof or any payment or a specified portion thereof, by
the Purchaser pursuant to this Article VIII in cash would jeopardize the
qualification of the Merger as a tax-free reorganization within the meaning of
section 368(a) of the Code, then the Purchaser (if Purchaser's counsel so
concludes) or the Shareholders (if the Shareholders' counsel so concludes) may
elect that such payment or portion thereof be made in Purchaser Common Stock
having a value equal to the amount of such payment or portion thereof. For this
purpose, the value of the Purchaser Common Stock shall be determined in the same
manner as the Average Parent Share Price, except that the last trading day used
for this purpose shall be the trading day which is five days prior to the date
of the payment. For this purpose, the Average Parent Share Price shall be not
less than $22.25 nor greater than $27.25.
(b) Payments by the Shareholders hereunder shall be limited to the
amount of any liability or damage that remains after deducting therefrom (i) any
tax benefit realizable by the Purchaser, the Company or any Company Subsidiary
by reason of the deductibility of such liability or damage (determined by
multiplying such deductible amount by the then applicable highest effective
corporate income tax rate), and any deferred tax benefit attributable to such
liability or damage (determined on the same basis but present valued to the
extent obtained through depreciation or amortization deductions), and (ii) any
indemnity, contribution or other similar payment recoverable by the Purchaser
from any third party with respect thereto.
(c) The Shareholders shall cause any tax-sharing agreements or
arrangements with the Company Subsidiaries to be terminated as of the date of
this Agreement.
(d) Any breach of the representations and warranties contained in
Section 4.19 shall be a ground for indemnification by the Shareholders of the
Purchaser, subject to Section 10.04(d) and other applicable provisions of this
Agreement.
57
<PAGE> 150
(e) Any breach of the representations and warranties contained in
Section 5.11 shall be a ground for indemnification by the Purchaser of the
Shareholders.
(f) Notwithstanding any provision of this Agreement to the contrary,
the obligations of the Shareholders and the Purchaser to indemnify and hold
harmless each other pursuant to this Article VIII or the representations and
warranties contained in Section 4.19 or Section 5.11 shall terminate at the
close of business on the expiration of the applicable statute of limitations
with respect to the Tax liabilities in question (giving effect to any waiver,
mitigation or extension thereof).
(g) It is intended that all Tax benefits and refunds attributable to
the payments by North Central on or prior to the Closing Date which are
described in Section 6.14 of this Agreement shall be for the account of the
Shareholders, and this Article VIII and all other provisions of this Agreement
shall be construed accordingly.
(h) Prior to the Effective Time, each of the Shareholders will
provide the Purchaser a certification of non-foreign status, in the manner
prescribed by Treas. Reg. (S) 1445-2(b)(2).
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 9.01. Conditions to the Obligations of Each Party. The
-------------------------------------------
obligations of the Company and the Purchaser to consummate the Merger are
subject to the satisfaction or waiver (where permissible), at or prior to the
Closing, of each of the following conditions:
(a) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated;
(b) no Governmental Authority or court of competent jurisdiction
located or having jurisdiction in the United States shall have enacted,
issued, promulgated, enforced or entered any Law or Governmental Order
which is then in effect making the consummation of the Merger illegal or
otherwise prohibiting the consummation of the Merger;
(c) this Agreement and the Merger shall have been approved and
adopted by the requisite affirmative vote of the Shareholders in accordance
with the rules of the BCL; and
(d) this Agreement, the Merger and the Purchaser Stock Issuance shall
have been approved and adopted by the requisite affirmative vote of the
stockholders of the Purchaser in accordance with the DGCL, the rules of the
New York Stock Exchange and the Purchaser's charter.
SECTION 9.02. Conditions to the Obligations of the Company. The
--------------------------------------------
obligations of the Company to consummate the Merger shall be subject to the
satisfaction or waiver (where permissible), at or prior to the Closing, of each
of the following conditions:
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<PAGE> 151
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of the Purchaser contained in this Agreement
shall have been true and correct when made and shall be true and correct as
of the Closing Date, with the same force and effect as if made on the
Closing Date, other than such representations and warranties as are made as
of another date, which shall be true and correct as of such date, except to
the extent that the failures to be so true and correct would not,
individually or in the aggregate, have a Purchaser Material Adverse Effect;
(ii) the covenants and agreements contained in this Agreement to be
complied with by the Purchaser on or before the Closing shall have been
complied with in all material respects; and (iii) the Company shall have
received a certificate from the Purchaser to such effect signed by a duly
authorized officer thereof;
(b) No Proceeding or Litigation. No Action shall have been
---------------------------
commenced or threatened by any Governmental Authority against either the
Company or the Purchaser seeking to restrain or materially and adversely
alter the transactions contemplated by this Agreement which do, or would
reasonably be expected to, render it impossible or unlawful to consummate
such transactions;
(c) Reorganization Opinion. The Shareholders shall have received
----------------------
from Shearman & Sterling a written opinion, reasonably satisfactory to the
Shareholders and dated as of the Closing Date, addressed to the Company and
the Shareholders, that the Merger will be treated for federal income tax
purposes as a reorganization qualifying under section 368(a) of the Code
and no gain or loss will be recognized by the Shareholders who exchange
their Company Common Stock in the Merger except with respect to cash
received in the Merger;
(d) Registration Rights Agreement. The Purchaser shall have
-----------------------------
executed and delivered to the Shareholder Representative, on behalf of the
Shareholders, a registration rights agreement substantially in the form of
Exhibit 9.02(d) hereto (the "Registration Rights Agreement"); and
-----------------------------
(e) Standstill and Voting Agreement. The Purchaser shall have
-------------------------------
executed and delivered to the Shareholder Representative, on behalf of the
Shareholders, a standstill and voting agreement substantially in the form
of Exhibit 9.02(e) hereto (the "Standstill and Voting Agreement").
-------------------------------
SECTION 9.03. Conditions to the Obligations of the Purchaser. The
----------------------------------------------
obligations of the Purchaser to consummate the Merger shall be subject to the
satisfaction or waiver (where permissible), at or prior to the Closing, of each
of the following conditions:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of the Company contained in this Agreement
shall have been true and correct when made and shall be true and correct as
of the Closing Date, with the same force and effect as if made on the
Closing Date, other than such representations and warranties as are made as
of another date, which shall be true and correct as of such date, except to
the extent that the failures to be so true and correct would not,
individually or in the aggregate, have a Material Adverse Effect; (ii) the
covenants and agreements contained
59
<PAGE> 152
in this Agreement to be complied with by the Company and the Company
Subsidiaries on or before the Closing shall have been complied with except
to the extent that any failure to perform in the aggregate does not or
would not reasonably be expected to have a Material Adverse Effect; and
(iii) the Purchaser shall have received a certificate from the Company and
the Company Subsidiaries to such effect signed by a duly authorized officer
thereof;
(b) No Proceeding or Litigation. No Action shall have been
---------------------------
commenced or threatened by any Governmental Authority against either the
Company or the Purchaser seeking to restrain or materially and adversely
alter the transactions contemplated by this Agreement which do, or would
reasonably be expected to, render it impossible or unlawful to consummate
such transactions; and
(c) Reorganization Opinion. Except as otherwise provided in
----------------------
Section 9.03(c), the Purchaser shall have received from Baker Botts, L.L.P.
a written opinion, reasonably satisfactory to the Purchaser and dated as of
the Closing Date, addressed to the Purchaser that the Merger will be
treated for federal income tax purposes as a reorganization qualifying
under section 368(a) of the Code and no gain or loss will be recognized by
the Purchaser or the Company as a result of the Merger. If the Company has
elected to restructure the transaction as a taxable sale of Company Common
Stock (or as a taxable reverse subsidiary merger) pursuant to Section
3.01(h), the Purchaser shall have received from Baker Botts, L.L.P. a
written opinion, reasonably satisfactory to the Purchaser and dated as of
the Closing Date, addressed to the Purchaser that no gain or loss will be
recognized by the Purchaser or the Company as a result of the transaction.
(d) Standstill and Voting Agreement. Each of the Shareholders (or
-------------------------------
the Shareholder Representative on behalf of the Shareholders) shall have
executed and delivered to the Purchaser, on behalf of the Shareholders, the
Standstill and Voting Agreement.
(e) Registration Rights Agreement. Each of the Shareholders (or the
-----------------------------
Shareholder Representative on behalf of the Shareholders) shall have
executed and delivered to the Purchaser, on behalf of the Shareholders, the
Registration Rights Agreement.
(f) Credit Agreement. The Company shall have delivered to the
----------------
Purchaser evidence of the termination of the Credit Agreement dated as of
July 1, 1999 between Morgan Guaranty Trust Company of New York and Rhode
Island Corporation and the release of all security and collateral pledged
by the Company or any Company Subsidiary in connection therewith.
(g) Service Agreement. The Company shall have delivered to the
-----------------
Purchaser evidence of termination of the service agreement between Goelet,
LLC, the Company and Company Subsidiaries without further liability to the
Company and the Company Subsidiaries.
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<PAGE> 153
ARTICLE VIII
INDEMNIFICATION
SECTION 10.01. Indemnification of the Purchaser. Each Shareholder
--------------------------------
agrees jointly and not severally, subject to the other terms and conditions of
this Agreement (including the limitations contained in Section 10.04) and
without gross-up for Taxes, to defend, indemnify and hold harmless the Purchaser
and each of the Purchaser's subsidiaries, Affiliates, officers, directors,
employees, agents and their successors and assigns (the Purchaser and all such
other Persons are collectively referred to as the "Purchaser's Indemnified
-----------------------
Persons"), from and against each and every Loss paid, imposed on or incurred by
-------
the Purchaser's Indemnified Persons relating to, resulting from or arising out
of: (a) any breach of any representation, warranty, covenant or agreement made
by the Company in this Agreement or (b) any Liability of the Company or any Non-
Energy Company Subsidiary, incurred or arising out of events which occurred
prior to the Effective Time (but excluding any Liability directly relating to,
arising out of or resulting from the operations of North Central, for which
North Central has liability). The Purchaser's Indemnified Persons shall also be
entitled to recourse against the Escrow Consideration for any indemnifiable loss
on the same pro rata basis as would have been applied if the Persons on whose
behalf the shares and cash have been placed into escrow had executed Joinder
Agreements pursuant to Section 6.13. A Purchaser's Indemnified Person shall give
the Shareholders written notice of any matter which such Purchaser's Indemnified
Person has determined has given or could give rise to a right of indemnification
hereunder within sixty (60) days of such determination, supported by reasonable
documentation setting forth the nature of the circumstances entitling the
Purchaser's Indemnified Person to indemnity hereunder (including, but not
limited to, references to the provisions hereof upon which the Purchaser's
Indemnified Person is relying in making such claim).
SECTION 10.02. Indemnification of the Shareholders. The Purchaser
-----------------------------------
agrees, subject to the other terms and conditions of this Agreement and without
gross-up for Taxes, to defend, indemnify and hold harmless the former directors,
officers, employees and agents of the Company, the Company Subsidiaries, the
Shareholders and their respective successors, assigns, heirs and legal and
personal representatives (the Shareholders and such other Persons are
collectively referred to as the "Company's Indemnified Persons") from and
-----------------------------
against, and shall reimburse the Company's Indemnified Persons for, each and
every Loss paid, imposed on or incurred by the Company's Indemnified Persons,
directly or indirectly, relating to, resulting from or arising out of any breach
of any representation, warranty, covenant or agreement made by the Purchaser in
this Agreement. A Company's Indemnified Person shall give the Purchaser prompt
written notice of any matter which such Shareholders' Representative has
determined has given or could give rise to a right of indemnification hereunder
within sixty (60) days of such determination, supported by reasonable
documentation setting forth the nature of the circumstances entitling the
Company's Indemnified Person to indemnity hereunder (including, but not limited
to, references to the provisions hereof upon which the Company's Indemnified
Person is relying in making such claim).
SECTION 10.03. Notice and Defense of Third Party Claims. If any
----------------------------------------
claim or proceeding shall be brought or asserted under this Article X against an
indemnified party or any successor thereto (each, an "Indemnified Person") in
------------------
respect of which indemnity may be sought
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<PAGE> 154
under this Article X from an indemnifying Person or any successor thereto (each,
an "Indemnifying Person"), the Indemnified Person shall give prompt written
-------------------
notice of such claim or proceeding to the Indemnifying Person in accordance with
Section 10.01 or 10.02, as applicable, who shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Person and the payment of all expenses; provided that any delay or failure so to
--------
notify the Indemnifying Person shall relieve the Indemnifying Person of its
obligations hereunder only to the extent, if at all, that it is materially
prejudiced by reason of such delay or failure. The Indemnified Person shall
have the right to employ separate counsel in any of the foregoing claims or
proceedings and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of the Indemnified Person unless the
Indemnified Person shall in good faith determine that there exist actual or
potential conflicts of interest which make representation by the same counsel
inappropriate. The Indemnified Person's right to participate in the defense or
response to any claim or proceeding should not be deemed to limit or otherwise
modify its obligations under this Article X. In the event that the Indemnifying
Person, within fifteen (15) days after notice of such claim or proceeding, fails
to assume the defense thereof, the Indemnified Person shall have the right to
undertake the defense, compromise or settlement of such claim or proceeding,
subject to the right of the Indemnifying Person to assume the defense of such
claim or proceeding with counsel reasonably satisfactory to the Indemnified
Person at any time prior to the settlement, compromise or final determination
thereof. Anything in this Article X to the contrary notwithstanding, the
Indemnifying Person shall not, without the Indemnified Person's prior written
consent, settle or compromise any claim or proceeding or consent to the entry of
any judgment with respect to any claim or proceeding. In the event the
Indemnifying Party exercises the right to undertake any such defense against any
claim hereunder, the Indemnified Person shall cooperate with the Indemnifying
Person in such defense and make available to the Indemnifying Person all
witnesses, pertinent records, materials and information in the Indemnified
Person's possession or reasonably available to the Indemnified Person or under
the Indemnified Person's control relating thereto as is reasonably requested by
the Indemnifying Person.
SECTION 10.04. Limitations. (a) An Indemnified Person shall not be
-----------
entitled to indemnification under Article VIII and this Article X unless notice
of a claim for indemnity shall have been given within the applicable survival
period under Sections 8.07(d) and 13.01.
(b) The Shareholders' aggregate obligation to indemnify the Purchaser
and hold it harmless under Article VIII and Section 10.01 shall in no event
exceed $63,000,000 (the "Maximum Amount"). At such time, if any, as an aggregate
--------------
amount equal to the Maximum Amount has been paid to the Purchaser by the
Shareholders under this Section 10.04, no Shareholder shall thereafter have any
further liability under Article VIII and Article X.
(c) Each Shareholder's obligation to indemnify the Purchaser and hold
it harmless under Section 10.01 (and Article VIII with respect to Tax matters)
shall in no event exceed a percentage of the Maximum Amount equal to the
percentage of the total aggregate Merger Consideration received by such
Shareholder ("Pro Rata Share"). Each Shareholder's obligation to pay any
--------------
indemnifiable Loss pursuant to Section 10.01 (and Article VIII with respect to
Tax matters) shall be limited to such Shareholder's Pro Rata Share of such Loss.
At such time, if any, as any Shareholder shall have paid to the Purchaser an
amount equal to such
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<PAGE> 155
Shareholder's Pro Rata Share of the Maximum Amount under Section 10.01 (and
Article VIII with respect to Tax matters), such Shareholder shall have no
further liability under such Section 10.01 (and Article VIII with respect to Tax
matters).
(d) No claim may be made against any Shareholder for indemnification
pursuant to Section 10.01 or Article VIII with respect to any individual item of
Loss, unless the aggregate dollar amount of all claims against the Shareholders
for indemnification shall exceed $7,000,000, in which case the Shareholders
shall be liable for claims for indemnification only in excess of such aggregate
amount. Any adjustment to any Tax benefit attributable to a payment pursuant to
Section 6.14 shall not be subject to this Section 10.04(d).
(e) Notwithstanding anything herein to the contrary, (i) in no event
shall the aggregate liability of the Purchaser hereunder exceed $63,000,000 (the
"Loss Ceiling") and (ii) the Purchaser shall have no further obligations under
------------
this Article X at the time when the Purchaser has paid indemnification hereunder
in amounts equal in the aggregate to the Loss Ceiling.
(f) No claim may be made against the Purchaser for indemnification
pursuant to Section 10.02 or Article VIII with respect to any individual item of
Loss, unless the aggregate dollar amount of all claims for indemnification shall
exceed $7,000,000, in which case the Purchaser shall be liable for claims for
indemnification only in excess of such aggregate amount. Any adjustment to any
Tax benefit attributable to a payment pursuant to Section 6.14 shall not be
subject to this Section 10.04(f).
SECTION 10.05. Tax Matters. Anything in this Article X to the
-----------
contrary notwithstanding, the rights and obligations of the parties with respect
to indemnification for any and all Tax matters (including those contained in
Section 4.19 and Section 5.12) shall be governed by Article VIII; provided that
--------
the limitations, manner of payment and procedures shall be governed by this
Article X.
SECTION 10.06. Tax Benefits; Insurance Proceeds. Any
--------------------------------
indemnification payment required to be made pursuant to this Agreement shall be
reduced by (a) any net Tax benefits derived or to be derived by the Indemnified
Person or any of its Affiliates with respect to the item giving rise to the
indemnification payment, and (b) any insurance proceeds received by the
Indemnified Person or any of its Affiliates with respect to the item giving rise
to the indemnification payment.
SECTION 10.07. Escrow Funds and Shares. The shares of Purchaser
-----------------------
Common Stock and cash placed in escrow pursuant to Section 3.13 shall be applied
to satisfy the indemnification rights of the Purchaser's Indemnified Persons
pursuant to Article VIII and Article X on the same pro rata basis as would have
been applied if the Persons on whose behalf the shares and cash have been placed
into escrow had executed Joinder Agreements pursuant to Section 6.13 and
otherwise in accordance with the terms of the Escrow Agreement.
SECTION 10.08. Security; Limited Recourse. (a) The Shareholders
--------------------------
will arrange for the issuance, on the Closing Date, of an irrevocable letter of
credit in an amount equal to the Maximum Amount minus the amount of the Escrow
-----
Consideration, issued by a
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<PAGE> 156
bank or other financial institution having a rating of at least "A+" from
Standards & Poor's selected by the Shareholders, in favor of the Purchaser (the
"Security"). The Security shall be in form and substance reasonably satisfactory
--------
to the Company and the Purchaser. In the event that the issuer of the Security
is downgraded below "A+", the Shareholders will replace the Security with a new
irrevocable letter of credit issued by a financial institution having a rating
of at least "A+." For purposes of this Section 10.08(a), the amount of the
Escrow Consideration will be deemed to be the sum of (x) the amount of cash
placed into escrow, plus (y) the product of the number of shares of Purchaser
----
Common Stock placed into escrow multiplied by the Average Parent Share Price.
(b) The Security will be drawable in an amount necessary to satisfy
the indemnification obligations of the Shareholders under Article VIII and
Article X (i) upon the written request of the Shareholder Representative or (ii)
upon the presentation to the issuer of the Security of the final non-appealable
decision of an arbitrator or the final non-appealable judgment of a court having
jurisdiction over the matters relating to the indemnification obligations of the
Shareholders, in which instance the Security shall be drawable in the amount of
such final non-appealable judgment.
(c) The Security and the Escrow Consideration, if any, shall be the
sole and exclusive remedy for any claims, demands, actions or causes of action
by any of the Purchaser's Indemnified Persons under Article VIII and Article X
of this Agreement, and the Purchaser's Indemnified Persons shall make claims
under this Agreement only against the Security and the Escrow Consideration.
SECTION 10.09. Exclusive Remedies. (a) The Purchaser, the Company
------------------
and the Shareholders acknowledge and agree that (i) following the Closing, the
indemnification provisions of Article VIII and this Article X shall be the sole
and exclusive remedy of each party for any breach by the other party of the
representations and warranties in this Agreement and for any failure by the
other party to perform and comply with any covenants and agreements that, by
their terms, were to have been performed or complied with by such party prior to
the Closing. In furtherance of the foregoing, each party hereby waives, to the
fullest extent permitted under applicable law, any and all other rights, claims
and causes of action it may have, from and after the Closing, against the other
party hereto or its officers, directors, employees, agents, representatives and
Affiliates relating thereto.
(b) Except as set forth in this Agreement, the parties hereto are not
making any representation, warranty, covenant or agreement with respect to the
matters contained herein. Notwithstanding anything to the contrary contained in
this Agreement, no breach of any representation, warranty, covenant or agreement
contained herein shall give rise to any right on the part of any party hereto,
after the consummation of the transactions contemplated by this Agreement, to
rescind this Agreement or any of the transactions contemplated hereby.
(c) Notwithstanding anything to the contrary contained in this
Agreement, no party hereto shall have any liability under any provision of this
Agreement for, and in no event shall the amount specified in Section 10.04(d) be
applied to, any indirect, consequential or punitive damages or claims for loss
of business or loss of profits.
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ARTICLE XI
TERMINATION AND WAIVER
SECTION 11.01. Termination. This Agreement may be terminated at any
-----------
time prior to the Closing:
(a) by the Purchaser upon a material breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in
this Agreement or if any representation or warranty of the Company shall
have become untrue in any material respects, in either case such that the
conditions set forth in Section 9.03 would not be satisfied; provided,
--------
however, that, if such breach is curable by the Company, through the
-------
exercise of its reasonable best efforts and for so long as the Company
continues to exercise such reasonable best efforts after written notice
thereof from the Purchaser to the Company, the Purchaser may not terminate
this Agreement under this Section 11.01(a);
(b) by the Company upon a material breach of any representation,
warranty, covenant or agreement on the part of the Purchaser set forth in
this Agreement, or if any representation or warranty of the Purchaser shall
have become untrue in any material respect, in either case such that the
conditions set forth in Section 9.02 would not be satisfied; provided,
--------
however, that, if such breach is curable by the Purchaser through the
-------
exercise of its reasonable best efforts and the Purchaser continues to
exercise such reasonable best efforts after written notice thereof from the
Company to the Purchaser, the Company may not terminate this Agreement
under this Section 11.01(b);
(c) by the Purchaser or the Company if this Agreement shall fail to
receive the requisite affirmative vote for approval at the Company
Shareholders' Meeting;
(d) by the Company or the Purchaser if this Agreement and the
issuance of shares of Purchaser Common Stock pursuant to the terms of the
Merger shall fail to receive the requisite affirmative vote for approval at
the Purchaser Stockholders' Meeting;
(e) by either the Company or the Purchaser if the Closing shall not
have occurred by June 1, 2001; provided, however, that the right to
-------- -------
terminate this Agreement under this Section 11.01(e) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
shall have been the cause of, or shall have resulted in, the failure of the
Closing to occur on or prior to such date;
(f) by either the Purchaser or the Company in the event that any
Governmental Authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and nonappealable; or
(g) by the mutual written consent of the Company and the Purchaser.
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SECTION 11.02. Effect of Termination. In the event of termination of
---------------------
this Agreement as provided in Section 11.01, this Agreement shall forthwith
become void and there shall be no liability on the part of either party hereto
except (a) as set forth in Sections 6.03 and 13.02, (b) that nothing herein
shall relieve either party from liability for any willful breach of this
Agreement, (c) that upon the termination of this Agreement by the Company or the
Purchaser pursuant to Section 11.01(d), the Purchaser shall pay the Company a
fee of $12,600,000 and (d) that, upon termination of this Agreement by the
Company or the Purchaser pursuant to Section 11.01(c), the Company shall pay the
Purchaser a fee of $12,600,000.
SECTION 11.03. Waiver. Either party to this Agreement may (a) extend
------
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the agreements or conditions
of the other party contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
ARTICLE XII
SHAREHOLDER REPRESENTATIVE
SECTION 12.01. Designation. Subject to the terms and conditions of
-----------
this Article XII, Goelet, LLC is designated as the representative of the
Shareholders (the "Shareholder Representative") by each Shareholder to serve,
--------------------------
and the Purchaser hereby acknowledges that the Shareholder Representative shall
serve, as the sole representative of the Shareholders from and after the
Effective Time with respect to the matters set forth in this Agreement, such
service to be without compensation except for the reimbursement of out-of-pocket
expenses and indemnification specifically provided herein. The Shareholder
Representative has accepted such designation as of the date hereof.
Notwithstanding anything to the contrary contained in this Agreement, the
Shareholder Representative shall have no duties or responsibilities except those
expressly set forth herein, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities on behalf of any
Shareholder shall otherwise exist against the Shareholder Representative.
SECTION 12.02. Authority. Each of the Shareholders, by executing this
---------
Agreement, will and hereby does, effective as of the Effective Time, irrevocably
appoint the Shareholder Representative as the agent, proxy and attorney-in-fact
for such Shareholder for all purposes of this Agreement, including full power
and authority on such Shareholder's behalf (a) to execute and deliver to the
Purchaser the Registration Rights Agreement and the Standstill and Voting
Agreement, (b) to take all actions which the Shareholder Representative
considers reasonably necessary or desirable in connection with the defense,
pursuit or settlement of any determinations relating to any claims for
indemnification pursuant to Article X, including to sue, defend, negotiate,
settle and compromise any such claims for indemnification made by or against,
and other disputes with, the Purchaser or the Purchaser Indemnified Persons
pursuant
66
<PAGE> 159
to this Agreement or any of the agreements or transactions contemplated hereby;
(c) to engage and employ agents and representatives (including accountants,
legal counsel and other professionals) and to incur such other expenses as the
Shareholder Representative shall deem necessary or prudent in connection with
the administration of the foregoing; (d) to accept and receive notices to the
Shareholders pursuant to this Agreement; and (e) to take all other actions and
exercise all other rights which the Shareholder Representative (in his sole
discretion) considers necessary or appropriate in connection with this
Agreement. Each of the Shareholders, by executing this Agreement, agrees that
such agency and proxy are coupled with an interest, and are therefore
irrevocable without the consent of the Shareholder Representative and shall
survive the death, incapacity, bankruptcy, dissolution or liquidation of any
Shareholder. All decisions and acts by the Shareholder Representative shall be
binding upon all of the Shareholders, and no Shareholder shall have the right to
object, dissent, protest or otherwise contest the same.
SECTION 12.03. Reliance by Third Parties on the Shareholder
--------------------------------------------
Representative's Authority. The Shareholder Representative is authorized to act
--------------------------
on the Shareholders' behalf and, notwithstanding any dispute or disagreement
among the Shareholders and the other parties hereto, shall be entitled to rely
on any and all action taken by the Shareholder Representative without any
liability to, or obligation to inquire of, any of the Shareholders even if such
party shall be aware of any actual or potential dispute or disagreement among
the Shareholders. Each of the other parties hereto is expressly authorized to
rely on the genuineness of the signature of the Shareholder Representative and,
upon receipt of any writing which reasonably appears to have been signed by the
Shareholder Representative, the other parties hereto may act upon the same
without any further duty of inquiry as to the genuineness of the writing.
SECTION 12.04. Exculpation and Indemnification. Neither the
-------------------------------
Shareholder Representative nor any agent employed by him shall be liable to any
Shareholder relating to the performance of his duties under this Agreement for
any errors in judgment, negligence, oversight, breach of duty or otherwise,
except to the extent it is finally determined in a court of competent
jurisdiction by clear and convincing evidence that the actions taken or not
taken by the Shareholder Representative constituted fraud or were taken or not
taken in bad faith. The Shareholder Representative shall be indemnified and held
harmless by the Shareholders against all Losses paid or incurred in connection
with any action, suit, proceeding or claim to which the Shareholder
Representative is made a party by reason of the fact that he was acting as the
Shareholder Representative pursuant to this Agreement; provided, however, that
-------- -------
the Shareholder Representative shall not be entitled to indemnification
hereunder to the extent it is finally determined in a court of competent
jurisdiction that the actions taken or not taken by the Shareholder
Representative constituted fraud or were taken or not taken in bad faith. The
Shareholder Representative shall be protected in acting upon any notice,
statement or certificate believed by him to be genuine and to have been
furnished by the appropriate person and in acting or refusing to act in good
faith on any matter.
67
<PAGE> 160
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.01. Survival of Representations and Warranties. (a) The
------------------------------------------
representations, warranties and agreements in this Agreement and in any
certificate delivered pursuant hereto shall survive the Effective Time for a
period of 12 months, provided, however, that Section 4.19 shall survive until
-------- -------
the close of business on the applicable statute of limitations with respect to
the Tax Liabilities in question (giving effect to any waiver, mitigation or
extension thereof).
(b) The Purchaser acknowledges and agrees (and, upon the occurrence
of the Closing, shall be deemed to have acknowledged and agreed as of the
Closing Date) that it (i) has made its own inquiry and investigation into, and,
based thereon, has formed an independent judgment concerning, the Company and
the Company Subsidiaries, (ii) has been furnished with or given adequate access
to such information about the Company and the Company Subsidiaries as it has
requested and (iii) except as provided for pursuant to this Agreement, will not
assert any claim against any of the Company's or any Company Subsidiaries'
directors, officers, employees, agents, stockholders, affiliates, consultants,
investment bankers or representatives, or hold any such Person liable for any
inaccuracies, misstatements or omissions with respect to information furnished
by the Company, any Company Subsidiary or any such Person concerning the Company
and the Company Subsidiaries.
SECTION 13.02. Expenses. All costs and expenses, including, without
--------
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, whether or not the Closing shall have occurred.
SECTION 13.03. Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
13.03):
(a) if to the Company:
NORIC Corporation
c/o Goelet LLC
425 Park Avenue
New York, NY 10022
Telecopy: (212) 588-9499
Attention: Robert Kiley
68
<PAGE> 161
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telecopy: (212) 848-7179
Attention: Whitney D. Pidot, Esq.
(b) if to the Purchaser:
Pogo Producing Company
5 Greenway Plaza, Suite 2700
P.O. Box 2504
Houston, Texas 77252-2504
Telecopy: (713) 297-4970
Attention: Gerald A. Morton, Vice President-Law and
Corporate Secretary
with a copy to:
Baker Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002
Telecopy: (713) 229-1522
Attention: Stephen A. Massad
(c) If to any Shareholder, at the address specified below such
person's name on the signature pages to this Agreement or in the relevant
Joinder Agreement.
SECTION 13.04. Public Announcements. No party to this Agreement shall
--------------------
make, or cause to be made, any press release or public announcement in respect
of this Agreement or the transactions contemplated hereby, or otherwise
communicate with any news media without the prior consent of the other party,
unless required by law or stock exchange rule, and the parties shall cooperate
as to the timing and contents of any such press release or public announcement.
SECTION 13.05. Headings. The descriptive headings contained in this
--------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 13.06. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as
69
<PAGE> 162
possible in a mutually acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the fullest
extent possible.
SECTION 13.07. Entire Agreement. This Agreement constitutes the
----------------
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
SECTION 13.08. Assignment. Neither this Agreement nor any of the
----------
rights, interests or obligations hereunder shall be assigned by operation of law
or otherwise without the prior written consent of the parties hereto, which
consent may be granted or withheld in the sole discretion of the parties.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Notwithstanding anything contained in this Agreement to the
contrary, except for the provisions of Articles III, VII, VIII and X
(collectively, the "Third Party Provisions"), nothing in this Agreement, express
----------------------
or implied, is intended to confer on any Person other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. The Third Party Provisions may
be enforced by the beneficiaries thereof.
SECTION 13.09. Amendment. This Agreement may not be amended or
---------
modified except (a) by an instrument in writing signed by each of, or on behalf
of each of, the parties or (b) by a waiver in accordance with Section 11.03.
SECTION 13.10. Governing Law; Forum. Except to the extent that the
--------------------
laws of the State of Delaware are applicable to the internal affairs of the
Purchaser or mandatorily applicable to the Merger, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
applicable to contracts executed in and to be performed in that State. Any
dispute or controversy arising under or in connection with this Agreement that
cannot be mutually resolved by the parties hereto shall be settled exclusively
by arbitration in New York, New York, United States of America, before one
arbitrator of exemplary qualifications and stature, who shall be selected
jointly by the Purchaser and the Company or (after the Effective Time) the
Shareholder Representative, or, if the Purchaser and the Company or (after the
Effective Time) the Shareholder Representative, cannot agree on the selection of
the arbitrator, shall be selected by the American Arbitration Association from
its Large and Complex Cases Panel; provided that any arbitrator selected by the
--------
American Arbitration Association shall not, without the consent of the parties
hereto, be affiliated with the Purchaser, the Company, the Shareholders or any
of their respective affiliates. Judgment may be entered on the arbitrator's
award in any court having jurisdiction. The arbitrator's award shall be issued
in writing.
SECTION 13.11. Counterparts. This Agreement may be executed and
------------
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original, but all of which taken
together shall constitute one and the same agreement.
70
<PAGE> 163
SECTION 13.12. Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
[The Remainder of This Page is Intentionally Left Blank]
71
<PAGE> 164
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed by their respective officers thereunto duly authorized
and each Significant Shareholder has executed this Agreement, in each case as of
the date first written above.
POGO PRODUCING COMPANY
By: /s/ Paul G. Van Wagenen
_________________________________________
Name: Paul G. Van Wagenen
Title: Chairman, President and Chief
Executive Officer
<PAGE> 165
NORIC CORPORATION
By: /s/ Robert W. Kiley
_____________________________________
Name: Robert W. Kiley
Title: President and Chief Operating Officer
By: /s/ Mark Rosenbaum
_____________________________________
Name: Mark Rosenbaum
Title: Chief Financial Officer and Treasurer
<PAGE> 166
SIGNIFICANT SHAREHOLDERS:
TRUSTEES OF THE TRUST U/W TRUSTEES OF THE TRUST U/W
ROBERT WALTON GOELET F/B/O ROBERT WALTON GOELET F/B/O
BEATRICE G. MANICE ROBERT G. GOELET
/s/ Robert G. Goelet /s/ Robert G. Goelet
_______________________________ _________________________________
Robert G. Goelet, as Trustee Robert G. Goelet, as Trustee
/s/ Philip Goelet /s/ Alexandra C. Goelet
_______________________________ _________________________________
Philip Goelet, as Trustee Alexandra C. Goelet, as Trustee
/s/ Edmond de La Haye Jousselin /s/ Philip Goelet
_______________________________ _________________________________
Edmond de La Haye Jousselin, Philip Goelet, as Trustee
as Trustee
/s/ Edmond de La Haye Jousselin
_______________________________ _________________________________
John H. Manice, as Trustee Edmond de La Haye Jousselin,
as Trustee
_______________________________
Pamela Manice, as Trustee
TRUSTEES OF THE TRUST U/W
ROBERT WALTON GOELET F/B/O
JOHN GOELET
/s/ Robert G. Goelet
_______________________________
Robert G. Goelet, as Trustee
/s/ Christopher Goelet
_______________________________
Christopher Goelet, as Trustee
/s/ Philip Goelet
_______________________________
Philip Goelet, as Trustee
/s/ Edmond de La Haye Jousselin
_______________________________
Edmond de La Haye Jousselin,
as Trustee
_______________________________
Robert S. Rich, as Trustee
<PAGE> 167
TRUSTEES OF THE TRUST U/A TRUSTEES OF THE TRUST U/A
DATED August 26, 1930 F/B/O DATED August 26, 1930 F/B/O
BEATRICE G. MANICE ROBERT G. GOELET
/s/ Robert G. Goelet /s/ Alexandra C. Goelet
_______________________________ _______________________________
Robert G. Goelet, as Trustee Alexandra C. Goelet, as Trustee
/s/ Philip Goelet /s/ Philip Goelet
_______________________________ _______________________________
Philip Goelet, as Trustee Philip Goelet, as Trustee
/s/ Edmond de La Haye Jousselin /s/ Edmond de La Haye Jousselin
_______________________________ _______________________________
Edmond de La Haye Jousselin, Edmond de La Haye Jousselin,
as Trustee as Trustee
_______________________________
John H. Manice, as Trustee
_______________________________
Pamela Manice, as Trustee
TRUSTEES OF THE TRUST U/A
DATED December 18, 1931
F/B/O JOHN GOELET
/s/ Robert G. Goelet
_______________________________
Robert G. Goelet, as Trustee
/s/ Christopher Goelet
_______________________________
Christopher Goelet, as Trustee
/s/ Philip Goelet
_______________________________
Philip Goelet, as Trustee
/s/ Edmond de La Haye Jousselin
_______________________________
Edmond de La Haye Jousselin,
as Trustee
_______________________________
Robert S. Rich, as Trustee
<PAGE> 168
TRUSTEES OF THE TRUST U/A TRUSTEES OF THE TRUST U/A
DATED JULY 27, 1935 F/B/O DATED JULY 27, 1935 F/B/O
BEATRICE G. MANICE ROBERT G. GOELET
/s/ Robert G. Goelet /s/ Alexandra C. Goelet
_______________________________ ________________________________
Robert G. Goelet, as Trustee Alexandra C. Goelet, as Trustee
/s/ Philip Goelet /s/ Philip Goelet
_______________________________ ________________________________
Philip Goelet, as Trustee Philip Goelet, as Trustee
/s/ Edmond de La Haye Jousselin /s/ Edmond de La Haye Jousselin
_______________________________ ________________________________
Edmond de La Haye Jousselin, Edmond de La Haye Jousselin,
as Trustee as Trustee
_____________________________
John H. Manice, as Trustee
_____________________________
Pamela Manice, as Trustee
TRUSTEES OF
TRUSTEES OF THE TRUST U/A TRUSTEES OF THE TRUST U/A
DATED JULY 27, 1935 F/B/O DATED JULY 27, 1935 F/B/O
FRANCIS GOELET JOHN GOELET
/s/ Robert G. Goelet /s/ Robert G. Goelet
_____________________________ ________________________________
Robert G. Goelet, as Trustee Robert G. Goelet, as Trustee
/s/ Philip Goelet /s/ Christopher Goelet
_____________________________ ________________________________
Philip Goelet, as Trustee Christopher Goelet, as Trustee
/s/ Edmond de La Haye Jousselin /s/ Philip Goelet
_____________________________ ________________________________
Edmond de La Haye Jousselin, Philip Goelet, as Trustee
as Trustee
/s/ Edmond de La Haye Jousselin
________________________________
Edmond de La Haye Jousselin,
as Trustee
________________________________
Robert S. Rich, as Trustee
<PAGE> 169
/s/ Robert G. Goelet
________________________________
Name: Robert G. Goelet
/s/ Philip Goelet
________________________________
Name: Philip Goelet
/s/ Christopher Goelet
________________________________
Name: Christopher Goelet
/s/ Gilbert Kerlin
________________________________
Name: Gilbert Kerlin
WINDWARD OIL & GAS CORPORATION
By: /s/ Gilbert Kerlin
____________________________
Name: Gilbert Kerlin
Title: President
<PAGE> 170
EXHIBIT 6.13
------------
FORM OF JOINDER AGREEMENT
The undersigned, being the registered and beneficial owner of the
shares of NORIC Corporation described below, hereby irrevocably agrees to be
bound by the terms and conditions of, and to become a party to, the attached
Agreement and Plan of Merger, dated as of November 19, 2000, between NORIC
Corporation and Pogo Producing Company and the other parties named therein (the
"Agreement") as a Shareholder thereunder, as if the undersigned had been an
original party to such Agreement as of the date thereof.
Name:________________________________________
Signature:___________________________________
Address:_____________________________________
_____________________________________
_____________________________________
Facsimile No.:_______________________________
No. and Class of Shares:_____________________
__________________________
Dated the ____ day of __________, ____.
_______________________________
Signature
<PAGE> 171
EXHIBIT 9.02(d)
FORM OF REGISTRATION RIGHTS AGREEMENT
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of
__________, 2000 (the "Merger Agreement"), among the Company, NORIC Corporation,
----------------
a New York Corporation ("NORIC") and the Shareholders (as defined in the Merger
-----
Agreement), the parties have agreed that NORIC would be acquired by the Company
through the merger of NORIC with and into the Company on the terms set forth
therein (the "Merger");
------
WHEREAS, pursuant to the Merger Agreement, upon consummation of the
Merger, the Shareholders will receive in exchange for their shares of common
stock of NORIC, shares of common stock, par value $1.00 per share, of the
Company ("Common Stock") which have been issued pursuant to one or more
------------
exemptions from registration under the Securities Act of 1933, as amended (the
"Securities Act"); and
--------------
WHEREAS, the Shareholders and the Company desire to set forth herein
their agreement with respect to the registration rights, and certain other
related covenants, applicable to the shares of Common Stock to be issued by the
Company to the Shareholders upon consummation of the Merger;
NOW, THEREFORE, in consideration of the premises and the mutual
obligations, covenants and agreements herein contained, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms used herein and not defined have
-----------
the meanings assigned to such terms in the Merger Agreement. For purposes of
this Agreement, the following terms shall have the meanings set forth below:
"Commission" means the United States Securities and Exchange
----------
Commission or any other similar or successor agency of the United States
government administering the Securities Act and the Exchange Act.
<PAGE> 172
"Effective Time" has the meaning specified in the Merger Agreement.
--------------
"Offering" means the registration of the Company's securities under
--------
the Securities Act for sale to the public.
"Prospectus" means the prospectus included in any Registration
----------
Statement, together with and including any amendment or supplement to such
prospectus, covering the Offering of any portion of the Registrable Securities
covered by a Registration Statement, and all material incorporated by reference
in such Prospectus.
"Public Offering" shall mean the offer of shares of Common Stock or
---------------
securities convertible into or exchangeable for Common Stock on a broadly
distributed basis, pursuant to a firm-commitment or best-efforts underwriting or
purchase arrangement.
"Registering Shareholder" shall mean any Shareholder that has
-----------------------
registered any Registrable Securities under any Registration Statement.
"Registrable Securities" means the Shares issued to the Shareholders
----------------------
pursuant to the Merger and any other securities issued by the Company to the
Shareholders at any time after the closing of the Merger in respect of the
Shares (and in respect of the Common Stock generally) by means of exchange,
reclassification, dividend, distribution, split up, combination, subdivision,
recapitalization, merger, spin-off, reorganization or otherwise; provided,
--------
however, that as to any Registrable Securities, such securities shall cease to
-------
constitute the same for purposes of this Agreement if and when (i) a
registration statement with respect to the sale of such securities shall have
been declared effective by the Commission and such securities shall have been
sold pursuant thereto in accordance with the intended plan and method of
distribution therefor set forth in the Prospectus forming part of such
registration statement; (ii) such securities shall have been sold in compliance
with Rule 144 under the Securities Act; (iii) such securities may be resold
pursuant to Rule 144(k) under the Securities Act (or any successor provision) or
all of such Shareholder's Registrable Securities may be resold in a single
ninety (90) day period under Rule 144(e)(1)(i) of the Securities Act and do not
require qualification under any state securities or "blue sky" law then in
effect, or the use of an applicable exemption therefrom and, in each case, the
Company has notified the transfer agent for the Common Stock that any
restrictive legend on such Shares may be removed in connection with a transfer
thereof; or (iv) such securities cease to be issued and outstanding for any
reason.
"Registration Statement" means any registration statement filed by the
----------------------
Company with the Commission covering Registrable Securities, including the
Prospectus, amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such Registration
Statement.
2
<PAGE> 173
"Shares" means the shares of Common Stock issued by the Company to the
------
Shareholders upon consummation of the Merger, any shares of stock or other
securities into which or for which such shares of Common Stock may be changed,
converted or exchanged after the Effective Time, and any other shares or
securities issued to the Shareholders after the Effective Time in respect of
such shares of Common Stock (or such shares of stock or other securities into
which or for which such shares are so changed, converted or exchanged) upon any
reclassification, stock combination, stock subdivision, stock dividend, share
exchange, merger, consolidation or similar transaction. The number of shares of
Common Stock issued by the Company to each Shareholder upon consummation of the
Merger is set forth on Schedule A annexed hereto.
"Shareholder Representative" has the meaning set forth in Section 6.2
--------------------------
hereof.
ARTICLE II
REGISTRATION RIGHTS
2.1 Registration; Public Offering. (a) The Company shall prepare
-----------------------------
and file, not later than 150 days after the Effective Time, a "shelf"
Registration Statement on Form S-3 (or other appropriate form) for an offering
to be made on a continuous basis pursuant to Rule 415 promulgated under the
Securities Act of such number of Registrable Securities then owned by the
Shareholders. The Company shall use its reasonable best efforts to cause the
Registration Statement to be declared effective no later than on the 181st
calendar day following the Effective Time. The Company will use its reasonable
best efforts to keep the Registration Statement continuously effective and
usable for the resale of the Registrable Securities under the Securities Act
until the earlier of (i) two (2) years from the Effective Time, (ii) the first
date upon which all the Registrable Securities covered by such shelf
Registration Statement have been sold pursuant to such shelf Registration
Statement or (iii) the first date upon which all the Registrable Securities
cease to be outstanding for any reason.
(b) If during the period from the 181st day following the Effective
Time through the second anniversary of the Effective Time, the Shareholder
Representative, upon the request of the Shareholders holding at least 50% of the
Registrable Securities, shall request the Company in writing (a "Demand") to
------
permit the use of the shelf Registration Statement for a Public Offering of a
specified number of Registrable Securities, the Company shall, subject to the
provisions of Section 3.1(b), use its reasonable best efforts to take such
action as may be necessary to enable the requesting shareholders to effect a
Public Offering of the Registrable Securities requested to be included in the
Public Offering; provided that the number of Registrable Securities requested to
--------
be distributed pursuant to such Demand shall not be less than 4,000,000 and
shall not exceed 7,000,000 and provided further that the number of shares of
-------- -------
Registrable Securities each Shareholder will be entitled to have included in
such Public Offering pursuant to this Section 2.1 shall be allocated among all
Shareholders requesting to participate in such Public Offering in proportion (as
nearly as practicable) to the amount of Registrable Securities owned by each
requesting Shareholder at the time of the Public
3
<PAGE> 174
Offering. Except as provided in Section 2.1(b), the manner of distribution for
Registrable Securities included in the shelf Registration Statement shall not
include a Public Offering.
(c) In connection with any Demand under Section 2.1(b), the
Shareholder Representative shall enter into an underwriting agreement and other
ancillary agreements (such as a custody agreement) in customary form with the
underwriter or underwriters. The Shareholder Representative will select the lead
underwriter for such offering from the list of institutions set forth on
Schedule B hereto or their successors and the Company shall select the co-
manager for such offering from the institutions on such list or their
successors. No Shareholders shall 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 Shareholder, the
Registrable Securities of such Shareholder and such Shareholder's intended
method of distribution and any other representations required by law or
reasonably required by the underwriter. If any Shareholder of Registrable
Securities disapproves the terms of the underwriting, such Shareholder may elect
to withdraw all its Registrable Securities by written notice to the Company, the
managing underwriter and the Shareholder Representative.
(d) In the event that, pursuant to Section 6.10 of the Merger
Agreement, the issuance of Purchaser Common Stock in the Merger is registered
under the Securities Act on Form S-4, the registration otherwise required by
this Section 2.1 may be accomplished by providing for the resales required to be
registered pursuant to this Section 2.1 in the prospectus included in the
Form S-4. In such event, (a) such prospectus may not be used for resales until
the 181st calendar day following the Effective Time and the use thereof for
resales thereafter shall otherwise be subject to the same terms and conditions
provided for herein, (b) no public resales may be made pursuant to Rule 145(d)
under the Securities Act, or otherwise (other than pursuant to a Public Offering
in which Shareholders participate under Section 2.4) until the 181st calendar
day following the Effective Time, and (c) any public resales pursuant to Rule
145(d) or otherwise during the twelve month period specified in Section 2.6
(other than pursuant to a Public Offering requested pursuant Section 2.1 or in
which Shareholders participate under Section 2.4) shall be subject to the volume
limitations specified in Section 2.6.
2.2 Limit on Demand. The Company shall not be required to permit the
---------------
use of the shelf Registration Statement to effect any Public Offering pursuant
to Section 2.1 after one Demand requested by the Shareholders pursuant to
Section 2.1 shall have been effected.
2.3 Effective Distribution. A Public Offering requested pursuant to
----------------------
Section 2.1 shall not be deemed to be effected (a) if such Public Offering is
interfered with for any reason by any stop order, injunction or other order or
requirement of the Commission or any other governmental authority, or as a
result of the initiation of any proceeding for such a stop order by the
Commission through no fault of the Shareholders or the Shareholder
Representative and the result of such interference is to prevent the
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Shareholders from disposing of such Registrable Securities proposed to be sold
in accordance with the intended methods of disposition, or (b) if the conditions
to closing specified in the purchase agreement or underwriting agreement entered
into in connection with any underwritten offering shall not be satisfied or
waived with the consent of the Shareholder Representative, other than as a
result of any breach by the Shareholder Representative or any underwriter of its
obligations thereunder or hereunder.
2.4 "Piggy-Back" Rights. If the Company proposes to register any
-------------------
shares of Common Stock for itself or any of its stockholders (the "Existing
--------
Holders") under the Securities Act on a Registration Statement on Form S-1, Form
-------
S-2 or Form S-3 (or an equivalent general registration form then in effect) for
purposes of a Public Offering of such shares, the Company shall give written
notice of such proposal at least ten (10) business days before the anticipated
filing date, which notice shall include the intended method of distribution of
such shares, to the Shareholder Representative. Such notice shall specify at a
minimum the number of shares of Common Stock proposed to be registered, the
proposed filing date of such Registration Statement, any proposed means of
distribution of such shares and the proposed managing underwriter, if any.
Subject to Section 2.6, upon the written request of any Shareholder given within
five business days after the receipt of any such written notice by facsimile
confirmed by mail (which request shall specify the Registrable Securities
intended to be disposed of by such Shareholder), the Company will use its
commercially reasonable efforts to include in such Public Offering the
Registrable Securities referred to in the Shareholder's request; provided,
--------
however, that any participation in such Public Offering by any Shareholder shall
-------
be on substantially the same terms as the Company's (or its other stockholders')
participation therein; and provided further that the amount of Registrable
-------- -------
Securities to be included in any such Public Offering shall not exceed the
maximum number which the managing underwriter of such Public Offering considers
in its reasonable commercial judgment to be appropriate based on market
conditions and other relevant factors (the "Maximum Number"). The Shareholders
--------------
shall have the right to withdraw a request to include Registrable Securities in
any Public Offering pursuant to this Section 2.4 by giving written notice to the
Company of its election to withdraw such request at least two (2) business days
prior to the proposed effective date of such Registration Statement. In
connection with any exercise of rights under this Section 2.4, the registration
under the Securities Act of the Registrable Securities to be included therein
may be by means of the shelf Registration Statement filed pursuant to Section
2.1, rather than a separate registration statement filed to register the shares
to be sold for the account of the Company or any Existing Holders, so long as
the rights of the Shareholders to participate in the Public Offering being
effected under Section 2.4 are not thereby prejudiced or impaired in any
material respect.
2.5 Allocation of Securities Included in a Public Offering. If the
------------------------------------------------------
lead managing underwriter for any Public Offering to be effected pursuant to
Section 2.4 of this Agreement shall advise the Shareholder Representative in
writing that the number of shares of Common Stock sought to be included in such
Public Offering (including those sought to be offered by the Company and those
sought to be offered by the Shareholders)
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<PAGE> 176
is more than the Maximum Number, the shares of Common Stock to be included in
such Public Offering shall be allocated pursuant to the following procedures:
first, the Company shall be entitled to include all of the securities that it
has proposed to include, and then, to the extent that any other securities may
be included without exceeding the Maximum Number, the number of Registrable
Securities that will be included in such Registration Statement shall be
allocated among all Shareholders requesting such registration in proportion (as
nearly as practicable) to the amount of Registrable Securities owned by each
requesting Shareholder at the time of filing the Registration Statement.
2.6 Sale Restrictions. Other than pursuant to a Public Offering
-----------------
requested pursuant to Section 2.1 or in which Shareholders participate under
Section 2.4, during the twelve (12) month period starting on the 181st day
following the Effective Time, the Shareholders shall not be permitted to sell,
pursuant to the shelf Registration Statement or pursuant to Rule 144, in the
aggregate, more than 1,000,000 Shares during any period of 90 consecutive days
of such twelve month period (the "90 Day Restriction Periods"). Each
--------------------------
Shareholder will be entitled to sell on any given day a number of shares equal
to the number of shares which such Shareholder has notified the Shareholder
Representative such Shareholder desires to sell, provided however, that if
-------- -------
Shareholders desire to sell more shares than is permitted by the limitation
described above, then each Shareholder desiring to sell Shares that day will
have the number of shares they may sell reduced pro rata based on the number of
shares they requested to sell.
2.7 Lock-Up Agreement. It shall be a condition to each Shareholder's
-----------------
participation in any Public Offering pursuant to Section 2.1(b) or Section 2.4,
that such Shareholder agrees to execute and deliver to the underwriter or
underwriters for such offering a customary lock-up agreement in form and
substance reasonably satisfactory to the underwriter, providing for a lock-up of
the Registrable Securities of each such Shareholder for a period of up to 90
days after the closing of the relevant offering.
ARTICLE III
OBLIGATIONS OF THE COMPANY
3.1 (a) The Company shall (i) prepare and file with the Commission
such amendments and supplements to such Registration Statement and the
Prospectus used in connection therewith as may be reasonably necessary to make
and to keep such Registration Statement effective and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities proposed to be registered pursuant to such Registration
Statement for the period specified in that Section 2.1; and (ii) take all such
other action either necessary or desirable to permit the shares of Registrable
Securities held by the Shareholders to be registered and disposed of in
accordance with the method of disposition described herein.
(b) Notwithstanding anything to the contrary contained herein, the
Company may, upon written notice to the Shareholders whose Registrable
Securities are included in the shelf Registration Statement filed pursuant to
Section 2.1, suspend such
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<PAGE> 177
Shareholders' use of any prospectus which is a part of the shelf Registration
Statement if, in the reasonable judgment of counsel to the Company, the Company
possesses material nonpublic information, including information concerning it or
its business or affairs or information concerning the pursuit of a merger,
disposition or similar transaction, and the Company determines in good faith
that disclosure would have a material adverse effect on the Company and its
subsidiaries taken as a whole or would materially adversely affect the ability
to consummate such merger, disposition or similar transaction; provided that
--------
the Company may not suspend any such sales for more than an aggregate of sixty
(60) consecutive days or for an aggregate of one hundred twenty (120) days (a
"Blackout Period") in any period of twelve (12) consecutive months. Upon the
---------------
termination of the condition described above, the Company shall give prompt
notice to the Shareholders whose Registrable Securities are included in the
shelf Registration Statement, and shall promptly terminate any suspension of
sales it has put into effect and shall take such other actions to permit
registered sales of Registrable Securities as contemplated by this Agreement.
(c) In connection with any Registration Statement, the following
provisions shall apply:
(1) The Company shall furnish to the Shareholder Representative,
prior to the filing thereof with the Commission, a copy of any Registration
Statement, and each amendment thereof and each amendment or supplement, if
any, to the Prospectus included therein and shall afford the Shareholder
Representative, the managing underwriters, and their respective counsel, if
any, a reasonable opportunity within a reasonable time period to review and
comment on copies of all such documents (including a reasonable opportunity
to review copies of any documents to be incorporated by reference therein
and all exhibits thereto) proposed to be filed.
(2) The Company shall take such action as may be necessary so that:
(i) any Registration Statement and any amendment thereto and any Prospectus
forming part thereof and any amendment or supplement thereto (and each
report or other document incorporated therein by reference) complies in all
material respects with the Securities Act and the Exchange Act and the
respective rules and regulations thereunder, (ii) any Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (iii) any Prospectus forming part of any
Registration Statement, and any amendment or supplement to such Prospectus,
does not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(3) (A) The Company shall advise the Shareholders and the Shareholder
Representative and, if requested by the Shareholders and the Shareholder
Representative, confirm such advice in writing:
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<PAGE> 178
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information related thereto.
(B) The Company shall advise the Shareholders and the Shareholder
Representative and, if requested by any Shareholder or the Shareholder
Representative, confirm such advice in writing of:
(i) the issuance by the Commission of any stop order suspending
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(ii) the receipt by the Company of any notification with respect
to the suspension of the qualification of the securities included
therein for sale in any jurisdiction or the initiation of any
proceeding for such purpose; and
(iii) the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of
such date, the Registration Statement and the Prospectus do not
contain an untrue statement of a material fact and do not omit to
state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading
(which advice shall be accompanied by an instruction to suspend the
use of the Prospectus relating to such Registrable Securities until
the requisite changes have been made).
(4) The Company shall use its reasonable best efforts to prevent the
issuance, and if issued to obtain the withdrawal, of any order suspending
the effectiveness of the Registration Statement relating to such
Registrable Securities at the earliest possible time.
(5) The Company shall furnish to the Shareholders and the Shareholder
Representative with respect to the Registration Statement relating to such
Registrable Securities, without charge, such number of copies of such
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and all reports, other documents and
exhibits (including those incorporated by reference) as the Shareholders
and the Shareholder Representative shall reasonably request.
8
<PAGE> 179
(6) The Company shall furnish to the Shareholders and the Shareholder
Representative such number of copies of any Prospectus (including any
preliminary Prospectus and any amended or supplemented Prospectus) relating
to such Registrable Securities, in conformity with the requirements of the
Securities Act, as the Shareholders and the Shareholder Representative may
reasonably request in order to effect the offering and sale of the shares
of such Registrable Securities to be offered and sold, but only while the
Company shall be required under the provisions hereof to cause the
Registration Statement to remain effective, and the Company consents
(except during a Blackout Period or event contemplated by Section 3.1(b))
to the use of the Prospectus or any amendment or supplement thereto by the
Shareholders in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement
thereto.
(7) To the extent necessary in connection with any offering of
Registrable Securities pursuant to any Registration Statement, the Company
shall use its commercially reasonable efforts to register or qualify the
Registrable Securities covered by such Registration Statement under the
securities or blue sky laws of such states as the Shareholder
Representative shall reasonably request, maintain any such registration or
qualification current until the earlier of the sale of the Registrable
Securities so registered or ninety (90) calendar days subsequent to the
effective date of the Registration Statement, and do any and all other acts
and things either reasonably necessary or advisable to enable any
Shareholder to consummate the public sale or other disposition of the
Registrable Securities in jurisdictions where such Shareholder desires to
effect such sales or other disposition; provided that the Company shall not
--------
be required to take any action that would subject it to the general
jurisdiction of the courts of any jurisdiction in which it is not so
subject or to qualify as a foreign corporation in any jurisdiction where
the Company is not so qualified.
(8) In connection with any offering of Registrable Securities
registered pursuant to this Agreement, the Company shall (x) furnish the
Shareholders, at the Company's expense, on a timely basis with certificates
free of any restrictive legends representing ownership of the Registrable
Securities being sold in such denominations and registered in such names as
the Shareholders shall request and (y) instruct the transfer agent and
registrar of the Registrable Securities to release any stop transfer orders
with respect to the Registrable Securities.
(9) Upon the occurrence of any event contemplated by Section
3.1(c)(3)(B)(iii) above, the Company shall promptly prepare a post-
effective amendment to any Registration Statement or an amendment or
supplement to the related Prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Registrable Securities
included therein, the Prospectus will not include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If the Company
9
<PAGE> 180
notifies the Shareholders and the Shareholder Representative of the
occurrence of any Blackout Period or any event contemplated by Section
3.1(b) above, the Shareholders shall suspend the use of the Prospectus, for
a period not to exceed sixty (60) calendar days in accordance with Section
3.1(b), until the requisite changes to the Prospectus have been made.
(10) The Company shall make generally available to its security
holders or otherwise provide in accordance with Section 11(a) of the
Securities Act as soon as practicable after the effective date of the
applicable Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act.
(11) The Company shall, if requested, promptly include or incorporate
in a Prospectus supplement or post-effective amendment to a Registration
Statement, such information as the managing underwriters administering an
underwritten offering of the Registrable Securities registered thereunder
reasonably request to be included therein and to which the Company does not
reasonably object and shall make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after they
are notified of the matters to be included or incorporated in such
Prospectus supplement or post-effective amendment.
(12) If requested in connection with a Public Offering pursuant to a
Demand under Section 2.1(b), the Company shall enter into an underwriting
agreement with a nationally recognized investment banking firm or firms
selected as provided in Section 2.1(c) containing representations,
warranties, indemnities and agreements then customarily included by an
issuer in underwriting agreements with respect to secondary underwritten
distributions, and in connection therewith, if an underwriting agreement is
entered into, cause the same to contain indemnification provisions and
procedures substantially identical to those set forth in Article V (or such
other provisions and procedures acceptable to the managing underwriters, if
any) with respect to all parties to be indemnified pursuant to Article V
and take all such other actions as are reasonably requested by the managing
underwriters for such underwritten offering in order to expedite or
facilitate the registration or the disposition of such Registrable
Securities.
(13) In the event the Shareholder Representative proposes to conduct
an underwritten Public Offering pursuant to Section 2.1, then the Company
shall: (i) make reasonably available for inspection by the Shareholder
Representative and its counsel, any underwriter participating in any
distribution pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by the Shareholder Representative or any
such underwriter, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries as
shall be reasonably necessary to enable them to conduct a "reasonable"
investigation for purposes of Section 11(a) of the Securities Act; (ii)
cause the Company's officers, directors and employees to make reasonably
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<PAGE> 181
available for inspection all relevant information reasonably requested by
the Shareholder Representative or any such underwriter, attorney,
accountant or agent in connection with any such Registration Statement, in
each case, as is customary for similar due diligence examinations; provided
--------
that any information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such information shall be
kept confidential by the Shareholder Representative, such underwriter, or
any such, attorney, accountant or agent, unless such disclosure is made in
connection with a court proceeding or required by law, or such information
becomes available to the public generally or through a third party without
an accompanying obligation of confidentiality; (iii) obtain opinions of
counsel to the Company and updates thereof which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, addressed to the Shareholder Representative and the
underwriters, if any, covering such matters as are customarily covered in
opinions requested in underwritten offerings and such other matters as may
be reasonably requested by the Shareholder Representative and underwriters
(it being agreed that the matters to be covered by such opinion or written
statement by such counsel delivered in connection with such opinions shall
include in customary form, without limitation, as of the date of the
opinion and as of the effective date of the Registration Statement or most
recent post-effective amendment thereto, as the case may be, "negative
assurance" statements to the effect that nothing has come to the attention
of such counsel that leads them to believe such Registration Statement and
the Prospectus included therein, as then amended or supplemented, including
the documents incorporated by reference therein, contain an untrue
statement of a material fact or omit to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading); (iv) obtain "cold comfort" letters and updates thereof
from the independent public accountants of the Company (and, if necessary,
any other independent public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the Registration
Statement), addressed to the Shareholder Representative and the
underwriters, if any, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with primary
underwritten offerings; and (v) deliver such documents and certificates as
may be reasonably requested by the Shareholder Representative and the
managing underwriters, if any, and with any customary conditions contained
in the underwriting agreement or other agreement entered into by the
Company. The foregoing actions set forth in clauses (iii), (iv) and (v) of
this Section 3.01(c)(13) shall be performed at each closing under any
underwritten offering to the extent required thereunder.
(14) The Company will ensure that the Registrable Securities are
admitted for listing on the New York Stock Exchange or other stock exchange
or trading system on which the Shares primarily trade on or prior to the
181/st/ day after the Effective Time.
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<PAGE> 182
(15) The Company shall use its reasonable best efforts to take all
other steps reasonably necessary to effect the registration, offering and
sale of the Registrable Securities covered by a Registration Statement
contemplated hereby and enter into any other customary agreements and take
such other actions, including participation of senior management in
"roadshows" as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities in any underwritten offering
contemplated hereby, and the Company shall secure the participation of its
senior management for such purposes.
(d) With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of the
Registrable Securities to the public without registration, the Company agrees
to:
(1) Make and keep public information available, as those terms are
understood and defined in and interpreted under Rule 144, at all times;
(2) During the term of this Agreement, furnish to the Shareholders
and the Shareholder Representative upon request: (i) a written statement by
the Company as to its compliance with the reporting requirements of Rule
144 or (ii) a copy of the most recent annual or quarterly report of the
Company.
ARTICLE IV
EXPENSES
4.1 Expenses Payable by the Company. Except as provided in Section
-------------------------------
4.2 below, all fees and expenses incident to the registration and sale of
Registrable Securities shall be borne by the Company whether or not a
Registration Statement is filed or becomes effective, including, without
limitation, (i) all registration, qualification and filing fees (including,
without limitation, (A) fees with respect to filings required to be made with
the New York Stock Exchange and (B) fees and expenses of compliance with state
securities or blue sky laws (including, without limitation, fees and
disbursements of counsel for the Company or the underwriters, or both, in
connection with blue sky qualifications of the Registrable Securities)), (ii)
messenger and delivery expenses, word processing, duplicating and printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities in a form eligible for deposit with The Depository Trust
Company, printing preliminary Prospectuses, Prospectuses, Prospectus
supplements, including those delivered to or for the account of the Shareholders
and the Shareholder Representative as provided in this Agreement, (iii) fees and
disbursements of counsel for the Company, (iv) fees and disbursements of all
independent certified public accountants for the Company (including, without
limitation, the expenses of any "comfort letters" required by or incident to
such performance), (v) Securities Act liability insurance, if the Company so
desires such insurance, (vi) all out-of-pocket expenses of the Company
(including, without limitation, expenses incurred by the Company, its officers,
directors, employees and agents performing legal or accounting duties or
preparing or participating in "roadshow" presentations or of any public
relations, investor relations or other consultants or advisors retained by the
Company in connection with any
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roadshow, including travel and lodging expenses of such roadshows), and (vii)
the fees and expenses incurred in connection with the quotation or listing of
shares of Common Stock on any securities exchange or automated securities
quotation system.
4.2 Expenses Payable by the Shareholders. Each Shareholder shall pay
------------------------------------
all underwriting discounts and commissions or broker's commissions incurred in
connection with the sale or other disposition of Registrable Securities for or
on behalf of such Shareholder's account as well as the fees and expenses of the
Shareholder's counsel, the Shareholder Representative and the Shareholder
Representative's counsel.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification by the Company. The Company shall indemnify and
------------------------------
hold harmless each of the Registering Shareholders and their respective
directors, trustees, officers, employees, agents, affiliates, successors and
assigns (each, a "Shareholder Indemnitee," and collectively, the "Shareholder
---------------------- -----------
Indemnitees") from and against any and all losses, claims, damages, liabilities,
-----------
debts, obligations, monetary damages, judgements, fines, fees, penalties,
interest obligations, deficiencies, and expenses, interest, court costs,
reasonable costs of investigators, reasonable fees and expenses of attorneys,
accountants, financial advisors, engineers and other expenses, and other
expenses of litigation ("Losses") incurred or suffered in connection with, and
------
any amount paid in settlement of, any action, suit or proceeding or any claim
asserted to which any Shareholder Indemnitee may become subject under the
Securities Act, the Exchange Act or other federal or state securities law or
regulation, at common law or otherwise, insofar as such Losses arise out of,
result from or are based upon (a) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or (b)
any violation by the Company of the Securities Act or the Exchange Act, or other
federal or state securities law applicable to the Company and relating to any
action or inaction required of the Company in connection with such registration.
In addition, the Company will reimburse any Shareholder Indemnitee for any
reasonable investigation, legal or other expenses incurred by such Shareholder
Indemnitee in connection with investigating or defending any such Loss.
Notwithstanding anything herein to the contrary, the Company will not be liable
with respect to the portion of any such Loss that (i) arises out of, results
from or is based upon any alleged untrue statement or alleged omission made in
such Registration Statement, preliminary Prospectus, Prospectus, or amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by the Shareholder Indemnitee specifically for use
therein or (ii) attributable to a Registering Shareholder's (A) use of a
Prospectus after being notified by the Company to suspend use thereof pursuant
to Section 3.1(b) or Section 3.1(c)(3)(B)(iii) above or (B) failure to deliver a
final Prospectus to the Person asserting any losses, claims, damages and
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any preliminary
13
<PAGE> 184
prospectus, or caused by 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, if such material misstatement or omission or alleged
material misstatement or omission was cured in an amended or supplemented
Prospectus prepared by the Company and delivered to the Registering Shareholder
at or prior to the time written confirmation of sale to such Person was required
to be made. The foregoing indemnity will remain in full force and effect
regardless of any investigation made by or on behalf of the Registering
Shareholder, and will survive the transfer of such securities by the Registering
Shareholder.
5.2 Indemnification by Registering Shareholders. If a Registering
-------------------------------------------
Shareholder sells Registrable Securities under a Prospectus that is part of a
Registration Statement, such Registering Shareholder will, severally and not
jointly, indemnify and hold harmless the Company, any underwriter participating
in the distribution and their respective directors and officers who signed such
Registration Statement and each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act)
(each, a "Controlling Person") under the same circumstances as the foregoing
------------------
indemnity from the Company to the Registering Shareholders but only to the
extent that such Losses arise out of or are based upon any untrue or allegedly
untrue statement of a material fact or omission or alleged omission of a
material fact that was made in the Prospectus, the Registration Statement, or
any amendment or supplement thereto, in reliance upon and in conformity with
written information relating to a Registering Shareholder furnished to the
Company by such Registering Shareholder expressly for use therein. In no event
will the aggregate liability of a Registering Shareholder exceed the amount of
the net proceeds received by the Registering Shareholder upon the sale of the
Registrable Securities giving rise to such indemnification obligation. Such
indemnity will remain in full force and effect regardless of any investigation
made by or on behalf of the Company or such officer, director, employee or
Controlling Person, and will survive the transfer of such securities by the
Registering Shareholder.
5.3 Contribution. If the indemnification provided for in Sections
------------
5.1 or 5.2 is unavailable to an indemnified party or is insufficient to hold
such indemnified party harmless for any Losses in respect of which any such
Section would otherwise apply by its terms (other than by reason of exceptions
provided therein), then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses. Such contribution
will be in such proportion as is appropriate to reflect the relative fault of
the indemnifying party, on the one hand, and such indemnified party, on the
other hand, in connection with the actions, statements or omissions that
resulted in such Losses, as well as any other relevant equitable considerations.
The relative fault of such indemnifying party, on the one hand, and indemnified
party, on the other hand, will be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been taken or made by, or relates to information
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<PAGE> 185
supplied by, such indemnifying party or indemnified party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent any such action, statement or omission. The amount paid or payable by a
party as a result of any such Losses will be deemed to include any
investigation, legal or other fees or expenses incurred by such party in
connection with any investigation or proceeding, to the extent such party would
have been indemnified for such expenses if the indemnification provided for in
Sections 5.1 or 5.2 was available to such party. In no event will the aggregate
liability of a Registering Shareholder exceed the amount of the net proceeds
received by the Registering Shareholder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
5.4 Conduct of Indemnification Proceedings. Any Person entitled to
--------------------------------------
indemnification hereunder will (a) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification, and (b) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that the failure to give such
--------
notice shall not relieve an indemnifying party of liability except to the extent
it has been prejudiced as a result. Any Person entitled to indemnification
hereunder will have the right to employ separate counsel and to participate in
(but not control) the defense of such claim, but the fees and expenses of such
counsel will be at the expense of such Person and not of the indemnifying party
unless (x) the indemnifying party has agreed to pay such fees or expenses, (y)
the indemnifying party has failed to assume the defense of such claim and employ
counsel reasonably satisfactory to such Person within a reasonable period of
time pursuant to this Agreement, or (z) a conflict of interest exists between
such Person and the indemnifying party with respect to such claims that would
make such separate representation required under applicable ethical rules. In
the case of clause (z) above if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party will not have the right to assume the
defense of such claim on behalf of such Person. If such defense is not assumed
by the indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent will not
be unreasonably withheld). No indemnified party will be required to consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term the giving of a release, by all claimants or plaintiffs, to
such indemnified party from all liability with respect to such claim or
litigation. Any indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel (other than required local counsel) for all parties
indemnified by such indemnifying party with respect to such claim.
5.5 Underwriting Agreement Controls. In the event of any conflict
-------------------------------
between the indemnification and contribution terms as herein set forth and as
set forth in any underwriting agreement entered pursuant hereto, the
underwriting agreement shall control.
15
<PAGE> 186
ARTICLE VI
OTHER AGREEMENTS
6.1 Rule 144. The Company shall file, on a timely basis, all reports
--------
required to be filed by it under the Securities Act and the Exchange Act, and
will take such further action and provide such documents as the Shareholders may
reasonably request, all to the extent required from time to time to enable the
Shareholders to sell Registrable Securities without registration under the
Securities Act within the limitation of the conditions provided by (i) Rule 144
under the Securities Act, as such rule may be amended from time to time, or (ii)
any similar rule or regulation hereafter adopted by the Commission. Upon the
request of a Shareholder, the Company will deliver to the Shareholder a
statement verifying that it has complied with such information and requirements.
6.2 Shareholder Representative. (a) The Shareholders agree to
--------------------------
appoint one Person to act as their representative, attorney in fact and proxy
with respect to certain matters specified in this Agreement (the "Shareholder
-----------
Representative"). The parties have designated Goelet LLC as the initial
--------------
Shareholder Representative. The Shareholder Representative may resign at any
time, and a Shareholder Representative may be removed at any time by the vote of
Shareholders who collectively own more than 50% of the Registrable Securities at
such time (the "Majority Holders"). In the event of the death, resignation or
----------------
removal of the Shareholder Representative, a new Shareholder Representative
shall be appointed by a vote of Majority Holders, such appointment to become
effective upon the written acceptance thereof by the new Shareholder
Representative. Any failure by the Majority Holders to appoint a new
Shareholder Representative upon the death, resignation or removal of the
Shareholder Representative shall not have the effect of releasing the
Shareholders from any liability under this Agreement.
(b) The Shareholder Representative shall have such powers and
authority as are necessary to carry out the functions assigned to the
Shareholder Representative under this Agreement; provided, however, that the
-------- -------
Shareholder Representative will have no obligation to act on behalf of the
Shareholders, except as expressly provided herein. The Shareholder
Representative will at all times be entitled to rely on any directions received
from the Majority Holders. The Shareholder Representative shall, at the expense
of the Shareholders, be entitled to engage such counsel, experts and other
agents and consultants as they shall deem necessary in connection with
exercising their powers and performing their function hereunder and (in the
absence of bad faith on the part of the Shareholder Representative) shall be
entitled to conclusively rely on the opinions and advice of such Persons.
(c) The Shareholder Representative shall not be entitled to any fee,
commission or other compensation for the performance of its services hereunder,
but shall be entitled to the reimbursement by the Shareholders of all his, her
or its fees and expenses incurred as the Shareholder Representative pursuant to
Section 4.2 hereof. In connection with this Agreement, and any instrument,
agreement or document relating
16
<PAGE> 187
hereto or thereto, and in exercising or failing to exercise all or any of the
powers conferred upon the Shareholder Representative hereunder, the Shareholder
Representative shall incur no responsibility whatsoever to any Shareholder by
reason of any error in judgment or other act or omission performed or omitted
hereunder or any such other agreement, instrument or document, excepting only
responsibility for any act or failure to act which represents willful
misconduct. Each Shareholder shall indemnify, pro rata based upon such holder's
percentage interest, the Shareholder Representative against all losses, damages,
liabilities, claims, obligations, costs and expenses, including reasonable
attorneys', accountants' and other experts' or consultant's fees and the amount
of any judgment against the Shareholder Representative, of any nature
whatsoever, arising out of or in connection with any claim, investigation,
challenge, action or proceeding or in connection with any appeal thereof,
relating to the acts or omissions of the Shareholder Representative hereunder.
The foregoing indemnification shall not apply in the event of any action or
proceeding which finally adjudicates the liability of the Shareholder
Representative hereunder for his or her gross negligence or willful misconduct.
In the event of any indemnification hereunder, upon written notice from
Shareholder Representative to the Shareholders as to the existence of a
deficiency toward the payment of any such indemnification amount, each such
holder shall promptly deliver to the Shareholder Representative full payment of
his or her ratable share of the amount of such deficiency, in accordance with
such Shareholder's percentage interest. In no event shall the Company be
responsible for any reimbursement or indemnification of the Shareholder
Representative.
(d) All of the indemnities, immunities and powers granted to the
Shareholder Representative under this Agreement shall survive the termination of
this Agreement.
(e) Notwithstanding anything herein to the contrary, each Shareholder
hereby acknowledges that the Company shall not have any responsibility or
obligation whatsoever to any such Shareholder or to any other party with respect
to or arising out of any actions taken or any inaction by the Shareholder
Representative.
(f) The Company shall have the right to rely conclusively upon all
instructions, requests, consents, elections and other actions taken or omitted
to be taken by the Shareholder Representative pursuant to this Agreement and any
instrument, agreement or document relating hereto, all of which actions or
omissions shall be legally binding upon all the Shareholders.
ARTICLE VII
MISCELLANEOUS
7.1 Amendments; Waivers. This Agreement may not be amended, changed,
-------------------
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the Company and the
Shareholder Representative; provided, however, that the Shareholder
-------- -------
Representative shall not amend, modify or supplement this Agreement in a manner
that is detrimental to the
17
<PAGE> 188
Shareholders without first obtaining the written consent of the Majority Holders
to such amendment, modification or supplement; provided further, however, that
-------- ------- -------
any amendment, modification or supplement made by the Stockholder Representative
with such consent shall bind all Shareholders.
7.2 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to its subject matter, and
supersedes and replaces all prior agreements and understandings of the parties
in connection with such subject matter.
7.3 Notices. All notices and other communications hereunder shall be
-------
given in writing and delivered personally, by registered or certified mail
(postage prepaid, return receipt requested), by overnight courier (postage
prepaid), facsimile transmission or similar means, to the party to receive such
notices or communications at the address set forth below (or such other address
as shall from time to time be designated by such party to the other parties in
accordance with this Section 6.3):
If to the Shareholder Representative or any Shareholder:
Goelet LLC
425 Park Avenue
New York, NY 10022
Telecopy: (212) 588-9499
Attention: Robert Kiley
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telecopy: (212) 848-7179
Attention: Whitney D. Pidot, Esq.
If to the Company:
Pogo Producing Company
5 Greenway Plaza, Suite 2700
P.O. Box 2504
Houston, Texas 77252-2504
Telecopy: (713) 297-4970
Attention: Gerald A. Morton, Vice President-Law
and Corporate Secretary
18
<PAGE> 189
with a copy to:
Baker Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002
Telecopy: (713) 229-1522
Attention: Stephen A. Massad
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the signed acknowledgment of receipt of the person to
whom such notice or communication shall have been personally delivered, the
acknowledgment of receipt returned to the sender by the applicable postal
authorities, the confirmation of delivery rendered by the applicable overnight
courier service, or the confirmation of a successful facsimile transmission of
such notice or communication. A copy of any notice or other communication given
by any party to any other party hereto, with reference to this Agreement, shall
be given at the same time to the other parties to this Agreement.
7.4 GOVERNING LAW. THE PARTIES HERETO AGREE THAT THIS AGREEMENT, AND
-------------
THE RESPECTIVE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
7.5 Transfer or Assignment of Registration Rights. The registration
---------------------------------------------
rights set forth in this Agreement shall be transferable or assignable by the
Shareholders, in whole or in part and from time to time, but only in connection
with a transfer or assignment of Registrable Securities under circumstances in
which such securities remain Registrable Securities in the hands of the
transferee; provided that each transferee agrees in writing to be subject to all
--------
the terms and conditions of this Agreement; provided, however, that no such
-------- -------
assignment of registration rights shall be made of such rights associated with a
transfer of fewer than 150,000 shares of Common Stock to any one Person
(appropriately adjusted for any stock splits, stock dividends, subdivisions,
combinations or the like) unless such assignment relates to all the Registrable
Securities then owned by the transferor; and provided, further, that in
-------- -------
connection with any such assignment, the transferee shall be required to enter
into the Standstill and Voting Agreement dated as of the date hereof among the
Company and the Shareholders.
7.6 Severability. Whenever possible, each provision or portion of
------------
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law. If any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such
19
<PAGE> 190
invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
7.7 No Waiver. The failure of any party hereto to exercise any
---------
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
7.8 No Third Party Beneficiaries. This Agreement is not intended to
----------------------------
be for the benefit of, and shall not be enforceable by, any Person (whether or
not listed on Schedule A hereto) who or which is not a party hereto. Any Person
(whether or not listed on Schedule A hereto) who or which is not a party hereto
shall not be entitled to any benefit hereunder except, in the case of any Person
listed on Schedule A hereto, such Person shall be entitled to become a party
hereto by executing a counterpart to this Agreement. If any Person listed on
Schedule A hereto executes a counterpart to this Agreement, such Person shall
thereafter be deemed to have agreed to be bound by the provisions hereof, as if
such Person was an original party hereto and such Person shall thereafter be
entitled to any benefit accorded to the Shareholders hereunder.
7.9 Headings. The Section headings in this Agreement are for
--------
convenience of reference only and are not intended to be a part of this
Agreement or to affect the meaning or interpretation of this Agreement.
7.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one agreement.
[The remainder of this page has been intentionally left blank.]
20
<PAGE> 191
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first set forth above.
POGO PRODUCING COMPANY
By:_____________________
Name:
Title:
SIGNING SHAREHOLDERS:
--------------------
By:_____________________
Name:
Title:
By:_____________________
Name:
Title:
By:_____________________
Name:
Title:
21
<PAGE> 192
[COUNTERPART SIGNATURE PAGE TO THE
REGISTRATION RIGHTS AGREEMENT DATED__________, 2000]
THE UNDERSIGNED SHAREHOLDER, listed on Schedule A to the Registration
Rights Agreement dated as of __________, 2000 between Pogo Producing Company,
[LIST SIGNING STOCKHOLDERS] (the "Registration Rights Agreement"), a copy of
-----------------------------
which is attached hereto, hereby agrees to become a party to the attached
Registration Rights Agreement and be bound by the provisions thereof as if the
undersigned was an original party thereto.
IN WITNESS THEREOF, the undersigned has executed this counterpart to
the Registration Rights Agreement on this ____ day of _______________, ____.
________________________________
Name:
22
<PAGE> 193
SCHEDULE B
Goldman Sachs & Co.
Merrill Lynch & Co.
CS First Boston
Salomon Smith Barney
Morgan Stanley & Co.
23
<PAGE> 194
Exhibit 9.02(e)
FORM OF
STANDSTILL AND VOTING AGREEMENT
THIS STANDSTILL AND VOTING AGREEMENT is dated as of _____, 2001 (this
"Agreement") between Pogo Producing Company, a Delaware corporation (the
"Company"), and the Shareholders (as defined below) who are signatories hereto.
WHEREAS, in connection with that certain Merger Agreement among the
Company, NORIC Corporation, a New York corporation ("NORIC") and the
Shareholders of NORIC named therein (the "Merger Agreement"), the parties have
agreed that NORIC would be acquired by the Company through the Merger of NORIC
with and into the Company on the terms set forth therein (the "Merger"),
WHEREAS, pursuant to the Merger Agreement, upon consummation of the
Merger, the Shareholders will receive in exchange for their shares of common
stock of NORIC, the number of shares of common stock, par value $1.00 per share,
of the Company ("Common Stock"), as is set forth opposite each Shareholders'
name on Exhibit A (the "Shares") and
WHEREAS, the Shareholders and the Company desire to set forth herein
their agreement with respect to the restrictions on acquisitions of additional
Common Stock, restriction on voting, and certain other covenants applicable to
the Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
obligations, covenants and agreements herein contained, the parties hereto agree
as follows:
Section 1. Definitions.
-----------
1.1 Certain Defined Terms. For purposes of this Agreement, the following
---------------------
terms shall have the following meanings (all terms defined in this Section 1.1
or in other provisions of this Agreement in the singular to have the same
meanings when used in the plural and vice versa):
---- -----
"Affiliate" shall mean any corporation, partnership or other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with any Shareholder, and shall include
any Person acting on behalf of any Shareholder or affiliates of either of them,
as the case may be. For purposes of the preceding sentence, "control"
(including the terms "controlling," "controlled by" and "under common control
with") means possession, directly or indirectly, of the power to direct or cause
direction of management and policies of a Person through ownership of equity, by
contract, pursuant to a voting trust or otherwise.
"Company" shall have the meaning set forth in the recitals.
"Associate" shall have the meaning assigned to such term in Rule 12b-2
under the Exchange Act, as in effect on the date hereof.
<PAGE> 195
"beneficial owner" or "beneficially owned" or "beneficial ownership"
shall have the meaning assigned to such terms in Rule 13d-3 under the Exchange
Act, as in effect on the date hereof.
"Common Stock" shall have the meaning set forth in the recitals.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Person" shall mean any association, corporation, company, group or
partnership or other entity or individual.
"Matter" shall mean any item that comes before the holders of Voting
Securities at a regular, annual, or special meeting of holders of Voting
Securities, or that comes before them by written consent, whether for majority,
plurality, unanimous or other vote, and whether or not duly announced by notice
or agenda. "Matter" shall include, but not be limited to: the election of
directors, the calling, postponement, or adjournment of meetings; the sale of
the Company's stock or assets; any merger, consolidation, dissolution,
liquidation or business combination of the Company; the adoption of amendments
to the Company's charter or bylaws; any change in the authorized capital
structure of the Company or of the classes or series of shares authorized or of
the rights, privileges and preferences thereof; the issuance of debt securities
of the Company; the adoption of any employee benefit or incentive plan, the
selection or approval of independent public accountants, or the execution of a
loan or line of credit agreement by the Company.
"Shareholder Representative" shall have the meaning set forth in the
Registration Rights Agreement.
"Shareholders" shall mean those certain stockholders of the Company
who are parties to this Agreement, the Merger Agreement or the Registration
Rights Agreement (each a "Shareholder" and collectively the "Shareholders").
"Registration Rights Agreement" shall mean that certain Registration
Rights Agreement dated as of the date hereof between the Company and the
Shareholders.
"Voting Securities" shall mean Common Stock and any other securities
of the Company or any of its successors entitled to vote generally in the
election of directors, and securities exercisable for and convertible into such
securities, in each case now or hereafter outstanding.
Section 2. Agreements of the Shareholders.
-------------------------------
2.1 Standstill Agreement. Each of the Shareholders agrees that, so long
--------------------
as this Agreement remains in effect, neither he, she nor it, nor any of his, her
or its Affiliates or Associates shall, directly or indirectly:
(a) (i) in any manner acquire or offer to acquire, directly or
indirectly, by purchase or otherwise, beneficial ownership of any Voting
Securities, or (ii) propose to enter into, directly or indirectly, any
merger, tender or exchange offer, restructuring or
2
<PAGE> 196
business combination or joint venture transaction involving the Company or
any of its subsidiaries or the assets of the Company or any of its
subsidiaries, or (iii) propose to purchase, directly or indirectly, a
material portion of the assets of the Company or any of its subsidiaries;
(b) "solicit," or participate in the "solicitation" of, "proxies" (as
such terms are defined or used in Rule 14a-1 under the Exchange Act) in
opposition to the recommendation of the majority of the Board of Directors
of the Company or become a participant in an election contest with respect
to the election of directors of the Company or otherwise influence or
affect the vote of any stockholder;
(c) form, join or participate in a partnership, limited partnership,
syndicate or other "group" (as defined in Section 13(d)(3) of the Exchange
Act) or enter into any contract, arrangement, understanding or relationship
or otherwise act in concert with any other person for the purpose of
acquiring, holding, voting or disposing of Voting Securities;
(d) seek to appoint, elect or remove any member of the Board of
Directors of the Company or seek to affect or influence the Company's
management, Board of Directors, business or affairs or make any public
statements proposing or suggesting any change in the Board of Directors or
management of the Company or its business or affairs or any action taken by
the Board of Directors or management of the Company;
(e) initiate or propose to the holders of Voting Securities, or
otherwise solicit their approval of, any proposal, resolution or Matter to
be voted on by the holders of Voting Securities;
(f) ask the Company to, or seek to cause the Company (or its
directors) to, call a special meeting of stockholders to amend the
Company's charter or bylaws or any other governing documents;
(g) initiate, induce or attempt to induce or encourage another Person
to propose a tender or exchange offer or change of control of the Company;
(h) make any public statements (or statements that must be publicly
disclosed) inconsistent with the provisions of this Agreement; or
(i) disclose any intention, plan or arrangement to take any of the
actions enumerated in clauses (a) through (h) above or participate in, aid
or abet or otherwise induce or attempt to induce or encourage any person to
take any of the actions enumerated in clauses (a) through (h) above or take
any other action inconsistent with the foregoing.
2.2 Voting. With respect to all Matters, the Shareholders will vote all
------
Voting Securities either (1) in accordance with the recommendation of the Board
of Directors or (2) in equal proportion to the votes cast by stockholders of the
Company who are not parties to this Agreement.
3
<PAGE> 197
2.3 Irrevocable Proxy and Power of Attorney. To facilitate the operation
---------------------------------------
of this Agreement, each Shareholder hereby grants to the Shareholder
Representative an irrevocable proxy and power of attorney to vote all such
Shareholder's Shares on all Matters in accordance with Section 2.2 hereof. Such
proxy shall be durable and shall continue in force until terminated in writing
by the Shareholder Representative by notice to the Company and the Shareholders,
and such proxy shall be deemed coupled with an interest. Termination of the
proxy with respect to some or all Shares will not affect any proxy respecting
any other Shares and will not terminate this Agreement. The Shareholder
Representative's exercise of his proxy will extinguish any prior proxy granted
by any Shareholder. The foregoing proxy and power of attorney is intended to be
a durable power of attorney and shall survive, and shall not be affected by, the
subsequent death, incompentency, disability, incapacity, bankruptcy or
termination of any Shareholder and shall bind each Shareholder's heirs, personal
representatives, executors, administrators and assigns.
2.4 Disposition of Shares. Until the date which is two years following
---------------------
the Closing Date of the Merger Agreement, no Shareholder will sell, transfer,
give, donate, bequeath or otherwise dispose of Shares except:
2.4.1 Pursuant to the procedures set forth in the Registration Rights
Agreement, including without limitation that no public resales may be made
(other than pursuant to a Public Offering (as defined in the Registration Rights
Agreement) in which shareholders participate under Section 2.4 of the
Registration Rights Agreement) until the 181st day following the Effective Time
(as defined in the Registration Rights Agreement) and that any public resales
during the twelve-month period specified in Section 2.6 of the Registration
Rights Agreement shall be subject to the volume limitations specified in such
Section 2.6; or
2.4.2 To a Person who (1) upon closing of such transfer will own less
than 5% of the Voting Securities and (2) is not a member of a "group" (within
the meaning of Section 13(d)(3) of the Exchange Act) or an Affiliate or an
Associate of a member of such a "group" and (3) has not publicly announced that
he, she or it is accumulating Voting Securities for any of the purposes set
forth in Section 2.1 hereof, provided that as a condition to such transfer, the
Company shall be provided such documentation as it may reasonably request,
including an opinion of counsel, to the effect that such transfer does not
require registration under the Securities Act of 1933 or any applicable state
securities law.
2.5 Addition of New Shareholders. Additional Persons may be added as
----------------------------
parties to this Agreement, and will be deemed to have agreed to the provisions
hereof, upon execution and delivery to the Company of a copy of this Standstill
and Voting Agreement executed by such Persons and by delivery to the Company
supplemental forms of Exhibit A, containing as to such Persons the information
---------
required by Exhibit A (namely, name, address for notice, and number of Shares
owned) for attachment to this Agreement. Upon such delivery such persons shall
be "Shareholders" for all purposes hereof, and the Common Stock identified on
Exhibit A by such Stockholders shall be "Shares" for all purposes hereof, until
terminated as provided herein.
4
<PAGE> 198
Section 3. Term of Agreement. This Agreement shall continue in full
------------------
force and effect until the Shareholders and their Affiliates and Associates
collectively beneficially own less than 10% of the Voting Securities.
Section 4. General.
--------
4.1 Remedies. Each of the parties hereto acknowledge and agree that the
--------
Company would be irreparably damaged if any of the provisions of this Agreement
are not performed by the other parties hereto in accordance with their specific
terms or are otherwise breached, and that money damages alone would not be
easily calculable and would not be a sufficient remedy for any breach of this
Agreement. Accordingly, the Company shall be entitled, without the requirement
of posting a bond or other security, to equitable relief, including injunctive
relief and specific performance, in the event of any breach of the provisions of
this Agreement by the other parties hereto, in addition to all other remedies
available at law or in equity.
4.2 Amendments; Waivers. This Agreement may not be amended, changed,
-------------------
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the Company and the
Shareholders.
4.3 Notices. All notices and other communications hereunder shall be
-------
given in writing and delivered personally, by registered or certified mail
(postage prepaid, return receipt requested), by overnight courier (postage
prepaid), facsimile transmission or similar means, to the party to receive such
notices or communications at the address set forth below (or such other address
as shall from time to time be designated by such party to the other parties by
like notice):
If to the Company: Pogo Producing Company
5 Greenway Plaza, Suite 2700
P.O. Box 2504
Houston, Texas 77252-2504
Telecopy: (713) 297-4970
Attention: Gerald A. Morton, Vice President-Law
and Corporate Secretary
If to a Shareholder: To the Shareholder Representative
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the signed acknowledgement of receipt of the person to
whom such notice or communication shall have been personally delivered, the
acknowledgement of receipt returned to the sender by the applicable postal
authorities, the confirmation of delivery rendered by the applicable overnight
courier service, or the confirmation of a successful facsimile transmission of
such notice or communication. A copy of any notice or other communication given
by any party to any other party hereto, with reference to this Agreement, shall
be given at the same time to the other parties to this Agreement.
4.4 GOVERNING LAW. THE PARTIES TO AGREE THAT THIS AGREEMENT, AND THE
-------------
RESPECTIVE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES
5
<PAGE> 199
HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE.
4.5 Severability. Whenever possible, each provision or portion of any
------------
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law. If any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
4.6 No Waiver. The failure of any party hereto to exercise any right,
---------
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its rights to exercise any such or other right, power or remedy or to demand
such compliance.
4.7 No Third Party Beneficiaries. This Agreement is not intended to be
----------------------------
for the benefit of, and shall not be enforceable by, any Person (whether or not
listed on Exhibit A hereto) who or which is not a party hereto. Any Person
(whether or not listed on Exhibit A hereto) who or which is not a party hereto
shall not be entitled to any benefit hereunder except, in the case of any Person
listed on Schedule A hereto, such Person shall be entitled to become a party
hereto by executing a counterpart of this Agreement.
4.8 Headings. The Section headings in this Agreement are for convenience
--------
of reference only and are not intended to be a part of this Agreement or to
affect the meaning or interpretation of this Agreement.
4.9 Warranty of Authority. Each Stockholder represents, covenants and
---------------------
warrants that it, he or she is the record and beneficial owner of the Shares and
has the authority and power to execute this Agreement and that it, he or she is
bound by the terms and conditions hereof.
4.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one agreement.
4.11 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto pertaining to its subject matter, and supersedes and
replaces all prior agreements conversations, negotiations, writings or
understandings of the parties in connection with such subject matter.
[The remainder of this page has been intentionally left blank.]
6
<PAGE> 200
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed all as of the day and year first above written.
POGO PRODUCING COMPANY
By:______________________
Name:
Title:
SIGNING SHAREHOLDERS:
By:______________________
Name:
Title:
By:______________________
Name:
Title:
By:______________________
Name:
Title:
7
<PAGE> 201
EXHIBIT A
TO THE STAND STILL AND VOTING AGREEMENT
BETWEEN POGO PRODUCING COMPANY
AND THE SHAREHOLDERS
Number of Shares of Common Stock
of Pogo Producing Company,
par value $1.00 per share,
Name of Shareholder beneficially owned by such shareholder
------------------- --------------------------------------
8
<PAGE> 202
[COUNTERPART SIGNATURE PAGE TO THE
STANDSTILL AND VOTING AGREEMENT DATED _________, 2001]
THE UNDERSIGNED SHAREHOLDER, listed on Schedule A to the Standstill
Agreement dated as of __________, 2000 between Pogo Producing Company, and [LIST
SIGNING STOCKHOLDERS] (the "Standstill Agreement"), a copy of which is attached
hereto, hereby agrees to become a party to the attached Standstill and Voting
Agreement and be bound by the provisions thereof as if the undersigned was an
original party thereto.
IN WITNESS THEREOF, the undersigned has executed this counterpart to
the Standstill and Voting Agreement on this _____ day of ____________, _______.
_____________________
Name:
9
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ANNEX B
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Investment Banking
Corporate and
Institutional
Client Group
One Houston Center
1221 McKinney
Suite 2700
[MERRILL LYNCH LOGO] Houston, Texas 77010
November 18, 2000
Board of Directors
Pogo Producing Company
5 Greenway Plaza, Suite 2700
P.O. Box 2504
Houston, TX 77046
Members of the Board of Directors:
NORIC Corporation (the "Company") and Pogo Producing Company (the
"Acquiror") propose to enter into an Agreement and Plan of Merger, substantially
in the form of the draft dated November 17, 2000 (the "Agreement") pursuant to
which the Company will be merged with the Acquiror (the "Merger"). In the
Merger, the Acquiror will become responsible for approximately $120 million of
the Company's and its subsidiaries' outstanding debt, and the shareholders of
the Company will receive approximately $630 million (the "Consideration") which
will consist of approximately $315 million of cash and a number of shares of
Acquiror common stock having a value of approximately $315 million (within the
collar range contemplated by the Agreement). The terms and conditions of the
Merger are more fully set forth in the Agreement.
You have asked us whether, in our opinion, the Consideration to be paid by
the Acquiror pursuant to the Merger is fair from a financial point of view to
the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed certain business and financial information relating to the
Company that we deemed to be relevant;
2. Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
the Company;
3. Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters
described in clauses 1 and 2 above, as well as their respective
businesses and prospects before and after giving effect to the Merger;
4. Reviewed the valuation multiples for the Company and compared them with
those of certain publicly traded companies that we deemed to be
relevant;
5. Reviewed the results of operations of the Company and compared them with
those of certain publicly traded companies that we deemed to be
relevant;
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[MERRILL LYNCH LOGO]
6. Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions which we deemed to be relevant;
7. Participated in discussions and negotiations among representatives of
the Company and the Acquiror and their financial and legal advisors;
8. Reviewed the potential pro forma impact of the Merger on the Acquiror;
9. Reviewed a draft dated November 17, 2000 of the Agreement; and
10. Reviewed such other financial studies and analyses and took into account
such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the Company. With respect
to the financial forecast information furnished to or discussed with us by the
Company or the Acquiror, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the Company's
or the Acquiror's management as to the expected future financial performance of
the Company or the Acquiror, as the case may be. We have made no independent
investigation of any legal matters and accounting advice given to such parties
and their respective boards of directors, including, without limitation, advice
as to the accounting and tax consequences of the Merger. We have also assumed
that the final form of the Agreement will be substantially similar to the
November 17 draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
We are acting as financial advisor to the Acquiror in connection with the
Merger and will receive a fee from the Acquiror for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Acquiror has agreed to indemnify us for certain liabilities arising out of
our engagement. We have, in the past, provided financial advisory and financing
services to the Acquiror and may continue to do so and have received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the securities of the Acquiror for
our own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does
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[MERRILL LYNCH LOGO]
not address the merits of the underlying decision by the Acquiror to engage in
the Merger and does not constitute a recommendation to any shareholder of the
Acquiror as to how such shareholder should vote on the proposed Merger or any
matter related thereto. We are not expressing any opinion herein as to the
prices at which the common shares of the Acquiror will trade following the
announcement or consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be paid by the Acquiror pursuant to
the Merger is fair from a financial point of view to the Acquiror.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
