<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1999
REGISTRATION NO. 333-68679
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Amendment No. 1
to
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------------
SEAGULL ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-1764876
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
SEAGULL ENERGY CORPORATION
1001 FANNIN, SUITE 1700
HOUSTON, TEXAS 77002-6714
(713) 951-4700
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
WILLIAM L. TRANSIER
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
SEAGULL ENERGY CORPORATION
1001 FANNIN, SUITE 1700
HOUSTON, TEXAS 77002-6714
(713) 951-4700
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------------------
Copies to:
<TABLE>
<S> <C>
J. MARK METTS, ESQ. MICHAEL E. DILLARD, P.C.
VINSON & ELKINS L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1001 FANNIN, SUITE 2300 1700 PACIFIC AVENUE, SUITE 4100
HOUSTON, TEXAS 77002-6760 DALLAS, TEXAS 75201
(713) 758-2222 (214) 969-2800
</TABLE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
SUBJECT TO COMPLETION, DATED JANUARY 27, 1999
[LOGO] [LOGO]
PROPOSED MERGER - YOUR VOTE IS IMPORTANT
The Boards of Directors of Ocean Energy, Inc. and Seagull Energy
Corporation have agreed upon a merger of the two companies. This merger will
create the seventh largest United States independent oil and gas company based
on production and the tenth largest based on total proved reserves, in each case
based upon 1997 information. If we complete the merger, OEI will be merged into
Seagull.
OEI stockholders will receive one share of Seagull common stock in exchange
for each share of OEI common stock that they own, which will represent 61.5% of
the common stock of the combined company. Seagull shareholders will continue to
own their existing shares of Seagull common stock after the merger, which will
represent 38.5% of the common stock of the combined company.
In connection with the merger, Seagull will be renamed "Ocean Energy, Inc."
creating "New Ocean." The Seagull common stock trades on the New York Stock
Exchange under the symbol "SGO."
We cannot complete the merger unless the OEI stockholders and the Seagull
shareholders vote to approve the merger. Additionally, the Seagull shareholders
must also approve the election of directors to the New Ocean board of directors.
We have scheduled special meetings for the OEI stockholders and the Seagull
shareholders to vote on these matters.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your
special meeting, please take the time to vote by completing and mailing the
enclosed proxy card to us. If you date and mail your proxy card without
indicating how you want to vote, your proxy will be counted as a vote FOR the
matters considered at your meeting. If you do not return your card, or do not
instruct your broker how to vote any shares held for you in your broker's name,
the effect will be a vote against the merger.
The dates, times and places of the special meetings are as follows:
For OEI stockholders:
, 1999
, local time
For Seagull shareholders:
, 1999
, local time
FOR A DISCUSSION OF CERTAIN SIGNIFICANT MATTERS THAT SHOULD BE CONSIDERED
BEFORE VOTING ON THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 16.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAS APPROVED THE MERGER, THE SEAGULL COMMON STOCK TO BE ISSUED IN THE
MERGER OR THE FAIRNESS OR MERITS OF THE MERGER OR HAS DETERMINED WHETHER THE
INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This document is dated , 1999 and is first being mailed to
Seagull shareholders and OEI stockholders on or about , 1999.
"The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted."
<PAGE> 3
OCEAN ENERGY, INC.
1201 LOUISIANA, SUITE 1400
HOUSTON, TEXAS 77002
(713) 420-1000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1999
To the Stockholders of Ocean Energy, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Ocean
Energy, Inc., a Delaware corporation ("OEI"), will be held at , on
, 1999 at a.m., time, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated November 24, 1998, as amended, between Seagull Energy Corporation
("Seagull") and OEI pursuant to which OEI will be merged with and into Seagull;
and
2. To transact such other business incident to the conduct of the meeting
as may properly come before the OEI special meeting or any adjournments or
postponements thereof.
Only stockholders of record at the close of business on , 1999
are entitled to notice of and to vote at the OEI special meeting or at any
adjournments or postponements thereof. Adoption of the merger agreement by OEI
requires the affirmative vote of a majority of the outstanding shares of OEI
common stock and OEI Series A preferred stock, voting as a single class, with
each share of OEI common stock entitled to one vote and each share of OEI Series
A preferred stock entitled to votes per share. A list of stockholders
will be available for examination at the offices of OEI in Houston, Texas during
normal business hours by any holder of OEI common stock or OEI Series A
preferred stock for any purpose relevant to the OEI special meeting for a period
of 10 days prior to the OEI special meeting. Holders of OEI common stock are not
entitled to dissenters' appraisal rights under the Delaware General Corporation
Law in respect of the merger.
By Order of the Board of Directors,
Robert K. Reeves
Executive Vice President,
General Counsel and Secretary
Houston, Texas
, 1999
------------------------
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON, WE REQUEST THAT YOU SIGN AND RETURN THE ENCLOSED PROXY OR VOTING
INSTRUCTION CARD AND THUS ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE
SPECIAL MEETING IF YOU ARE UNABLE TO ATTEND. IF YOU DO ATTEND THE SPECIAL
MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON.
<PAGE> 4
SEAGULL ENERGY CORPORATION
1001 FANNIN, SUITE 1700
HOUSTON, TEXAS 77002
(713) 951-4700
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1999
To the Shareholders of Seagull Energy Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Seagull
Energy Corporation, a Texas corporation ("Seagull"), will be held at ,
on , 1999 at a.m., time, for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated November 24, 1998, as amended, between Seagull and Ocean
Energy, Inc. ("OEI") pursuant to which OEI will be merged with and into Seagull;
2. To consider and vote upon a proposal to elect, subject to consummation
of the merger, eight individuals designated by OEI and seven individuals
designated by Seagull to serve on the Board of Directors of Seagull upon the
effectiveness of the merger as follows: (i) five persons to serve as Class I
Directors with a term expiring at Seagull's 1999 Annual Meeting of Shareholders,
(ii) five persons to serve as Class II Directors with a term expiring at
Seagull's 2000 Annual Meeting of Shareholders, and (iii) five persons to serve
as Class III Directors with a term expiring at Seagull's 2001 Annual Meeting of
Shareholders; and
3. To transact such other business incident to the conduct of the meeting
as may properly come before the Seagull special meeting or any adjournments or
postponements thereof.
The election of the 15 individuals nominated to be directors will not be
effective if the merger is not completed. The merger will not occur unless
Seagull's shareholders approve the merger agreement and elect the 15 individuals
nominated to be directors of the combined company.
Only shareholders of record at the close of business on , 1999
are entitled to notice of and to vote at the Seagull special meeting or at any
adjournments or postponements thereof. A list of such shareholders will be
available for examination at the offices of Seagull in Houston, Texas during
normal business hours by any holder of Seagull common stock for any purpose
relevant to the Seagull special meeting for a period of 10 days prior to the
Seagull special meeting. Holders of Seagull common stock are not entitled to
dissenters' appraisal rights under the Texas Business Corporation Act in respect
of the merger.
By Order of the Board of Directors,
Sylvia Sanchez
Corporate Secretary
Houston, Texas
, 1999
------------------------
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON, WE REQUEST THAT YOU SIGN AND RETURN THE ENCLOSED PROXY OR VOTING
INSTRUCTION CARD AND THUS ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE
SPECIAL MEETING IF YOU ARE UNABLE TO ATTEND. IF YOU DO ATTEND THE SPECIAL
MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MERGER.............................. Q-1
SUMMARY............................... 1
The Companies....................... 1
The Merger.......................... 1
Reasons for the Merger.............. 1
Opinions of Financial Advisors...... 2
Risks Associated with the Merger.... 2
Our Recommendations to
Stockholders..................... 2
Board of Directors and Management of
New Ocean Following the Merger... 2
The Special Meetings................ 2
Record Date......................... 3
Votes Required...................... 3
Voting Agreements................... 3
Share Ownership of Management....... 3
Accounting Treatment................ 3
Regulatory Approvals................ 3
Conditions to the Merger............ 4
Termination of the Merger
Agreement........................ 4
Termination Fees.................... 4
Interests of Certain Persons in the
Merger that Differ From Your
Interests........................ 4
No Solicitation..................... 4
Amendments to Seagull's Articles of
Incorporation.................... 4
Material Differences in the Rights
of Stockholders.................. 5
Comparative Per Share Market Price
Information...................... 5
Market Price and Dividend
Information...................... 6
Summary Selected Historical
Consolidated Financial and
Operating Data................... 7
Summary Historical Oil and Gas
Reserve Information.............. 11
Summary Unaudited Pro Forma Combined
Financial and Operating Data..... 12
Summary Pro Forma Oil and Gas
Reserve Information.............. 13
Comparative Per Share Data.......... 14
Certain Oil and Gas Terms........... 15
RISK FACTORS.......................... 16
Risks Relating to the Merger.......... 16
Risks Relating to the Business of New
Ocean After the Merger.............. 16
THE SPECIAL MEETINGS.................. 21
Times and Places.................... 21
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Purpose of the Special Meetings..... 21
Voting and Record Dates............. 21
Proxies............................. 22
Voting Agreements................... 22
NEW OCEAN -- THE COMBINED COMPANY..... 24
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OPERATING DATA........ 26
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF NEW OCEAN... 30
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS....... 35
THE MERGER............................ 37
Consideration....................... 37
Amendments to Seagull's Articles of
Incorporation.................... 37
Ownership of New Ocean Following the
Merger........................... 37
Background of the Merger............ 38
Reasons for the Merger - OEI........ 41
Reasons for the Merger - Seagull.... 43
Opinions of OEI's Financial
Advisors......................... 44
Opinion of Lehman Brothers....... 44
Opinion of J.P. Morgan Securities
Inc............................ 49
Opinions of Seagull's Financial
Advisors......................... 53
Opinion of Merrill Lynch......... 53
Opinion of Warburg Dillon Read... 59
Accounting Treatment................ 66
Material U.S. Federal Income Tax
Consequences of the Merger....... 66
Board of Directors and Management of
New Ocean Following the Merger... 66
Governmental and Regulatory
Approvals........................ 67
Interests of Certain Persons in the
Merger........................... 68
Appraisal Rights.................... 71
CERTAIN TERMS OF THE MERGER
AGREEMENT........................... 72
Effective Time Of The Merger........ 72
Manner And Basis Of Converting
Shares........................... 72
Surrender And Exchange Of Stock
Certificates..................... 72
Representations And Warranties...... 72
Conduct Of Business Prior To The
Merger........................... 73
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Limitation on Discussing or
Negotiating Other Acquisition
Proposals........................ 73
Certain Additional Agreements....... 73
Conditions To The Merger............ 74
Termination Of The Merger
Agreement........................ 75
Termination Fees and Expenses....... 76
MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER.......... 77
Tax Consequences to OEI and
Seagull.......................... 78
Tax Consequences to Holders of OEI
Common Stock and OEI Series A
Preferred Stock.................. 78
COMPARISON OF STOCKHOLDER RIGHTS...... 78
Authorized Corporate Stock.......... 78
Directors........................... 79
Special Meetings of Stockholders.... 79
Notice for Annual Meetings; Certain
Proposals........................ 79
Charter Amendments.................. 79
Amendment to Bylaws................. 79
State Takeover Laws Applicable to
the Companies.................... 80
Inspection of Books and Records..... 80
Vote Required for Mergers and
Similar Fundamental Corporate
Transactions..................... 80
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Vote Required for Sales of All or
Substantially All of the
Corporate Assets................. 80
Rights Plan......................... 81
DESCRIPTION OF NEW OCEAN CAPITAL
STOCK............................... 82
New Ocean Preferred Stock........... 82
New Ocean Series A Preferred
Stock............................ 82
ELECTION OF DIRECTORS................. 85
EXPERTS............................... 87
LEGAL MATTERS......................... 88
STOCKHOLDER PROPOSALS................. 88
WHERE YOU CAN FIND MORE INFORMATION... 89
LIST OF ANNEXES
Annex A -- Agreement and Plan of Merger
Annex B -- Opinion of Lehman Brothers, Inc.
Annex C -- Opinion of J.P. Morgan Securities
Inc.
Annex D -- Opinion of Merrill, Lynch & Co.
Annex E -- Opinion of Warburg Dillon Read
LLC
</TABLE>
------------------
This document incorporates important business and financial information
about OEI and Seagull that is not included in or delivered with this document.
Stockholders may obtain this information from the appropriate company without
charge upon written or oral request to the following:
<TABLE>
<S> <C>
Ocean Energy, Inc. Seagull Energy Corporation
1201 Louisiana, Suite 1400 1001 Fannin, Suite 1700
Houston, Texas 77002 Houston, Texas 77002
Attn: Investor Relations Attn: Investor Relations
Tel: (713) 420-1000 Tel: (713) 951-4700
</TABLE>
If you would like to request documents from us, please do so by ,
1999 so that you may receive them before your special meeting. If you request
any incorporated documents, we will mail them to you by first class mail or
other equally prompt means as soon as practicable after we receive your request.
ii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: HOW WILL THE MERGER AFFECT OEI STOCKHOLDERS? WHAT WILL OEI STOCKHOLDERS
RECEIVE FOR THEIR SHARES?
A: If the merger is completed, OEI will merge into Seagull and OEI stockholders
will become shareholders of Seagull, which we refer to as New Ocean. Each
outstanding share of OEI common stock will be exchanged for one share of
Seagull common stock.
Q: WILL SEAGULL SHAREHOLDERS RECEIVE ANY SHARES IN THE MERGER?
A: No. Seagull shareholders will continue to hold the Seagull common stock they
own at the time of the merger.
Q: WHERE WILL MY SHARES TRADE AFTER THE MERGER?
A: We expect that the New Ocean common stock will trade on the New York Stock
Exchange under the symbol "OEI."
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the merger as soon as possible after receiving
stockholder approval and the necessary regulatory approvals.
Q: HOW DO I VOTE?
A: After reading this document, indicate on the enclosed proxy how you want to
vote, sign it and mail it in the enclosed return envelope as soon as
possible so that your shares will be represented at your special meeting. If
you sign and send in your proxy card and do not indicate how you want to
vote, your proxy will be counted as a vote in favor of the proposal
submitted at your special meeting. The failure to return your proxy card
will have the same effect as voting against the merger. You also may attend
your special meeting and vote your shares in person, rather than signing and
mailing your proxy card. In addition, you may revoke your proxy on or before
the day of your special meeting by following the instructions on page 22.
You then may either change your vote or attend your special meeting and vote
in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
THEM FOR ME?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares, following the
procedure provided by your broker.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If you are an OEI common stockholder, after the merger we will send you
written instructions to exchange your stock certificates for certificates
representing New Ocean common stock. If you are a Seagull shareholder, you
will keep your stock certificates.
Q: AM I ENTITLED TO APPRAISAL RIGHTS?
A: No. OEI and Seagull stockholders will not have any appraisal rights in
connection with the merger.
Q: IS THE MERGER TAXABLE?
A: OEI and Seagull each expect the merger to be tax free. We have received
opinions from our legal counsel that neither OEI, Seagull nor the OEI
stockholders will recognize any gain or loss for U.S. federal income tax
purposes in the merger. In addition, the merger will have no tax
consequences to Seagull shareholders. We describe the material federal
income tax consequences of the merger in more detail on page 77.
Q: HOW WILL THE OEI SERIES A PREFERRED STOCK BE AFFECTED BY THE MERGER?
A: Each share of OEI Series A preferred stock will automatically be converted
into one share of New Ocean preferred stock with equivalent terms. You will
not need to exchange your current stock certificate. It will be treated as a
certificate representing the same number of shares of New Ocean preferred
stock after the merger.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger please call the Investor
Relations department at OEI at (713) 420-1000 or Seagull at (713) 951-4700.
In addition, stockholders of either company may contact Georgeson & Company
Inc., our proxy solicitor, who may be called toll-free at 1-800-223-2064.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES?
A: Both of our companies file periodic reports with the SEC. You may read and
copy this information at the SEC's public reference facilities. Please call
the SEC at 1-800-SEC-0330 for information about these facilities. This
information is also available through the Internet at the Edgar database
maintained by the SEC at http://www.sec.gov and at the offices of the New
York Stock Exchange.
Q-1
<PAGE> 8
SUMMARY
This summary primarily highlights selected information from this document
and does not contain all of the information that is important to you. To
understand the merger fully and for a more complete description of the legal
terms of the merger, you should read carefully this entire document and the
other available information referred to in "Where You Can Find More Information"
(page 89). The merger agreement is included as Annex A to this document. It is
the legal document that governs the merger. We have included page references
parenthetically to direct you to a more complete description of the topics
presented in this summary.
THE COMPANIES
OCEAN ENERGY, INC.
1201 Louisiana, Suite 1400
Houston, Texas 77002
(713) 420-1000
OEI is an independent energy company engaged in the exploration,
development, acquisition and production of oil and gas.
OEI owns a diversified portfolio of domestic and international properties
organized into three primary operating units:
- Gulf of Mexico -- comprised of the continental shelf and deepwater areas
of the Gulf of Mexico;
- International -- comprised of the West African countries of Angola,
Equatorial Guinea and Cote d'Ivoire, the Middle Eastern country of Yemen
and the Asian Basin countries of Pakistan and Bangladesh; and
- North America Onshore -- including areas in Western Canada and the
Midcontinent and Rocky Mountain regions of the U.S.
For the first nine months of 1998, OEI had a net loss of $177 million, or
$1.76 per share. OEI generated earnings before interest, taxes, depreciation,
depletion, amortization, non-recurring merger costs and non-cash impairments of
$250.3 million for the nine months ended September 30, 1998. As of December 31,
1997, OEI had estimated proved reserves of approximately 137.6 million barrels
of oil, which represented 51% of total proved reserves, and 797.9 billion cubic
feet of natural gas, which represented 49% of total proved reserves, for a total
of 270.6 million barrels of oil equivalent.
SEAGULL ENERGY CORPORATION
1001 Fannin, Suite 1700
Houston, Texas 77002
(713) 951-4700
Seagull is an international oil and gas company engaged primarily in
exploration and development activities in the United States, Egypt, Cote
d'Ivoire, Indonesia and the Russian Republic of Tatarstan. Seagull also
transports and distributes natural gas, liquid products and petrochemicals.
Seagull's other operating segment, Alaska Transmission and Distribution,
involves the operation as one unit, referred to as ENSTAR Alaska, of natural gas
transmission and distribution systems which serve the greater Anchorage area.
For the first nine months of 1998, Seagull had a net loss of $86 million,
or $1.36 per share. Seagull generated earnings before interest, taxes,
depreciation, depletion, amortization, exploration charges and gains on sales of
assets of $159 million for the nine months ended September 30, 1998. As of
December 31, 1997, Seagull had estimated proved reserves of approximately 72.3
million barrels of oil, which represented 33% of total proved reserves, and
868.0 billion cubic feet of natural gas, which represented 67% of total proved
reserves, for a total of 217.0 million barrels of oil equivalent.
THE MERGER (SEE PAGE 37)
Pursuant to the merger agreement OEI will merge into Seagull. In connection
with the merger, Seagull will be renamed "Ocean Energy, Inc." This is the
company that we refer to as "New Ocean" or the combined company in this
document.
REASONS FOR THE MERGER (SEE PAGES 41-44)
The merger of OEI and Seagull will create one of the largest independent
oil and gas companies in the United States. We believe that the
1
<PAGE> 9
merger will result in many benefits to the combined company, including the
following:
- cost savings of at least $45 million through the consolidation of
duplicative offices and staff;
- New Ocean will be in a better position to make further acquisitions; and
- based upon the cost savings described above, the merger will increase
cash flow per share for OEI stockholders in 1999 and 2000 and for
Seagull shareholders in 2000 (break-even in 1999).
OPINIONS OF FINANCIAL ADVISORS
(SEE PAGES 44-66)
In deciding to approve the merger, we considered opinions from our
respective financial advisors as to the fairness to you of the exchange ratio
from a financial point of view.
OEI received separate written opinions from its financial advisors, Lehman
Brothers Inc. and J.P. Morgan Securities Inc., to the effect that as of the date
of such opinions, the exchange ratio in the merger is fair, from a financial
point of view, to the OEI stockholders.
Seagull received separate written opinions from its financial advisors,
Merrill Lynch & Co. and Warburg Dillon Read LLC, to the effect that as of the
date of such opinions, the exchange ratio is fair to the Seagull shareholders,
from a financial point of view.
The full texts of these opinions describe the basis and assumptions on
which they were rendered and are attached hereto as Annexes B, C, D and E. You
should read these opinions in their entirety.
RISKS ASSOCIATED WITH THE MERGER (SEE PAGE 16)
You should be aware of and carefully consider the risks relating to the
merger described under "Risk Factors". These risks include the possible
difficulties in combining two companies that have previously operated
independently.
OUR RECOMMENDATIONS TO STOCKHOLDERS
(SEE PAGES 41 AND 43)
TO OEI STOCKHOLDERS:
The OEI Board believes that the merger is advisable and in your best
interest and recommends that you vote for the proposal to adopt the merger
agreement.
TO SEAGULL SHAREHOLDERS:
The Seagull Board believes that the merger is advisable and in your best
interest and recommends that you vote for the proposals to:
- approve the merger agreement; and
- elect the 15 director nominees.
BOARD OF DIRECTORS AND MANAGEMENT OF NEW OCEAN FOLLOWING THE MERGER (SEE PAGE
66)
In connection with the merger, Seagull shareholders will be asked to elect
15 director nominees to serve on the New Ocean Board. Eight of the individuals
were designated by OEI and currently serve on the OEI Board. Seven of the
individuals were designated by Seagull and currently serve on the Seagull Board.
After the merger, the management of New Ocean will include the following
executive officers:
<TABLE>
<CAPTION>
POSITION WITH
NAME CURRENT POSITION NEW OCEAN
---- ---------------- -------------
<S> <C> <C>
James C. Flores President and Chairman of the
Chief Executive Board
Officer of OEI
James T. Hackett Chairman of the President and
Board, President Chief Executive
and Chief Officer
Executive
Officer of
Seagull
James L. Dunlap Vice Chairman of Vice Chairman
OEI
William L. Transier Executive Vice Executive Vice
President and President and
Chief Financial Chief Financial
Officer of Officer
Seagull
Robert K. Reeves Executive Vice Executive Vice
President, President and
General Counsel General Counsel
and Secretary of
OEI
</TABLE>
THE SPECIAL MEETINGS (SEE PAGE 21)
OEI. At the OEI special meeting, holders of OEI common stock and OEI
Series A preferred stock will be asked to adopt the merger agreement.
2
<PAGE> 10
SEAGULL. At the Seagull special meeting, holders of Seagull common stock
will be asked to:
- approve the merger agreement; and
- subject to the completion of the merger, elect the 15 director nominees
to serve on the New Ocean Board after the merger.
The election of the 15 director nominees will not be effective unless we
complete the merger, and the merger will not be completed unless all of the
director nominees are elected.
RECORD DATE (SEE PAGE 21)
OEI. You can vote at the meeting of OEI stockholders if you owned OEI
common stock or OEI Series A preferred stock at the close of business on
.
SEAGULL. You can vote at the meeting of Seagull shareholders if you owned
Seagull common stock at the close of business on .
VOTES REQUIRED (SEE PAGE 21)
OEI. Adoption of the merger agreement by OEI requires the affirmative vote
of a majority of the outstanding shares of OEI common stock and OEI Series A
preferred stock voting together as a single class. Each share of OEI common
stock will be entitled to one vote and each share of OEI Series A preferred
stock will be entitled to votes per share.
SEAGULL. Approval of the merger agreement by Seagull requires the
affirmative vote of two-thirds of the outstanding shares of Seagull common
stock. The 15 individuals receiving the most votes for director will be elected
to the New Ocean Board of Directors. Each share of Seagull common stock will be
entitled to one vote.
VOTING AGREEMENTS (SEE PAGE 22)
In connection with the signing of the merger agreement, certain directors,
executive officers and stockholders of OEI and Seagull entered into voting
agreements to vote all of their shares of common stock in favor of the merger
agreement and against competing business transactions. The total number of
shares of OEI common stock subject to these voting agreements represents
approximately 10.9% of the outstanding shares of OEI common stock and the total
number of shares of Seagull common stock subject to these voting agreements
represents approximately 9.5% of the outstanding shares of Seagull common stock.
SHARE OWNERSHIP OF MANAGEMENT
OEI. As of the record date for the OEI special meeting, the directors and
executive officers of OEI owned approximately % of the shares entitled to
vote at the OEI special meeting. Each of them has advised OEI that he plans to
vote all such shares in favor of adoption of the merger agreement.
Seagull. As of the record date for the Seagull special meeting, the
directors and executive officers of Seagull owned approximately % of the
shares entitled to vote at the Seagull special meeting. Each of them has advised
Seagull that he plans to vote all such shares in favor of approval of the merger
agreement and the election of directors.
ACCOUNTING TREATMENT (SEE PAGE 66)
The merger will be accounted for by New Ocean under the "purchase" method
of accounting. Because OEI stockholders will own a majority of the New Ocean
common stock, the merger will be treated for accounting purposes as an
acquisition by OEI of Seagull in a purchase business combination.
REGULATORY APPROVALS (SEE PAGE 67)
The merger requires the approval of the Alaska Public Utilities Commission,
which regulates Seagull's gas utility company in Anchorage, Alaska.
CONDITIONS TO THE MERGER (SEE PAGE 74)
We will complete the merger only if the conditions to the merger are
satisfied or in some cases waived, including the following:
- the adoption and approval of the merger agreement by the OEI
stockholders and the Seagull shareholders;
- the election of the 15 director nominees;
- the absence of any law or court order that prohibits the merger; and
- the receipt of necessary approvals from government authorities.
3
<PAGE> 11
Either of us may choose to complete the merger even though a condition has
not been satisfied if the law allows us to do so.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 75)
We can agree to terminate the merger agreement at any time, even after
stockholder approval. In addition, either of us can unilaterally terminate the
merger agreement in various circumstances, including the following:
- if the merger has not been completed by April 14, 1999, provided that
either of us may extend that date until August 30, 1999 if the delay is
because the approval of the Alaska Public Utilities Commission has not
been received;
- if the stockholders of either company fail to approve the proposals
described in this document; and
- if either of our Boards determines that the Board's fiduciary duties
require termination.
The merger agreement can be terminated in other circumstances which
are described on page .
TERMINATION FEES (SEE PAGE 76)
If the merger agreement is terminated by either party in specific
circumstances involving a business transaction with a third party, the party
entering into the other business transaction will be required to pay the other
party to the merger agreement a termination fee of $30 million and the expenses
of such other party up to $2.5 million.
INTERESTS OF CERTAIN PERSONS IN THE MERGER THAT DIFFER FROM YOUR INTERESTS (SEE
PAGE 68)
Some of our directors and officers have interests in the merger that differ
from, or are in addition to, your interests as stockholders of our companies.
These interests include:
- the designation of certain members of the OEI Board and the Seagull
Board to be elected to the Board of Directors of New Ocean;
- stock options and restricted stock that will vest or become
nonforfeitable upon completion of the merger;
- certain directors and officers of OEI and Seagull have entered into
amendments to their employment agreements that will become effective
upon completion of the merger; and
- certain officers of OEI and Seagull have entered into severance
arrangements with OEI and Seagull, respectively, providing for certain
benefits to such officers in the event of termination of employment
under certain circumstances after the merger.
NO SOLICITATION (SEE PAGE 73)
We have each agreed not to initiate or engage in any discussions with
another party regarding a business combination while the merger is pending.
AMENDMENTS TO SEAGULL'S ARTICLES OF INCORPORATION (SEE PAGE 37)
If the merger is completed, Seagull's Articles of Incorporation will
automatically be amended to (a) increase the number of authorized shares of
Seagull common stock from 100,000,000 to 450,000,000, (b) increase the number of
authorized shares of Seagull preferred stock from 5,000,000 to 50,000,000, (c)
change the name of Seagull to "Ocean Energy, Inc." and (d) expand the purpose
clause to allow Seagull to engage in any lawful business under Texas law.
MATERIAL DIFFERENCES IN THE RIGHTS OF
STOCKHOLDERS (SEE PAGE 78)
Seagull is a Texas corporation and OEI is a Delaware corporation. Upon
completion of the merger, your rights as shareholders of New Ocean will be
governed by Seagull's charter and bylaws, and Texas law. You should consider the
fact that Seagull's charter and bylaws and Texas law differs in some material
respects from OEI's charter and bylaws and Delaware law.
4
<PAGE> 12
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
OEI's and Seagull's common stock are each listed on the New York Stock
Exchange. On November 24, 1998, the last full trading day prior to public
announcement of the merger, OEI's common stock closed at $10.25 per share and
Seagull's common stock closed at $10.81 per share. On , 1999, OEI's
common stock closed at $ per share and Seagull's common stock closed at
$ per share. We urge you to obtain current market quotations before making
any decision with respect to the merger.
5
<PAGE> 13
MARKET PRICE AND DIVIDEND INFORMATION
Historical Market Prices of OEI and Seagull
The OEI common stock is traded on the New York Stock Exchange under the
symbol "OEI." The Seagull common stock is traded on the NYSE under the symbol
"SGO." The following table sets forth the high and low trading prices per share
of the OEI common stock and the Seagull common stock on the NYSE.
<TABLE>
<CAPTION>
OEI SEAGULL
COMMON STOCK(1) COMMON STOCK
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1997
First Quarter.............................................. $23.93 $16.24 $24.13 $17.88
Second Quarter............................................. 22.70 16.61 19.25 15.75
Third Quarter.............................................. 29.97 17.63 25.88 17.75
Fourth Quarter............................................. 30.16 19.77 27.63 19.06
1998
First Quarter.............................................. $24.57 $16.24 $20.94 $15.44
Second Quarter............................................. 25.88 15.94 19.44 13.94
Third Quarter.............................................. 20.44 7.88 17.69 7.63
Fourth Quarter............................................. 14.06 5.06 12.44 5.69
1999
First Quarter (through January 25)......................... $ 7.69 $ 5.63 $ 7.63 $ 5.81
</TABLE>
- ---------------
(1) Adjusted for a 2.34-for-one stock split of OEI common stock which occurred
in connection with the merger of OEI and United Meridian Corporation on March
27, 1998.
There is currently no public trading market for the shares of OEI Series A
preferred stock. OEI and Seagull do not expect that a public trading market for
the shares of New Ocean preferred stock will develop after the merger.
No History of Dividends and No Dividends Expected in the Foreseeable Future
Neither OEI nor Seagull is currently paying dividends on its common stock.
After the merger, New Ocean expects that it will retain all available earnings
generated by its operations for the development and growth of the business.
Therefore, New Ocean does not anticipate paying cash dividends on its common
stock in the foreseeable future.
New Ocean will be obligated to pay dividends on the New Ocean preferred
stock issued to the OEI Series A preferred stockholders in the merger subject to
its terms. The debt instruments of both OEI and Seagull and the terms of the OEI
Series A preferred stock limit their ability to pay dividends on their common
stock.
6
<PAGE> 14
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth summary selected historical consolidated
financial and operating data for OEI and Seagull as of and for each of the three
years ended December 31, 1997 and as of and for the nine months ended September
30, 1998 and 1997. OEI utilizes the full cost method of accounting for oil and
gas activities, Seagull utilizes the successful efforts method of accounting for
oil and gas activities. Therefore, the financial data may not be comparable.
Such data should be read in conjunction with the historical consolidated
financial statements of OEI and Seagull incorporated by reference in this
document.
OCEAN ENERGY, INC.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenues........................ $ 243,827 $ 395,834 $ 552,194 $ 384,419 $ 399,079
Production costs................ 82,937 98,396 124,394 87,772 118,045
General and administrative...... 21,070 27,366 30,218 20,326 31,061
Depreciation, depletion and
amortization.................. 101,116 147,643 248,423 174,036 217,719
Impairment of oil and gas
properties.................... -- -- -- -- 218,392
Interest expense................ 35,565 40,765 49,134 36,305 40,562
Merger costs(1)................. -- -- -- -- 39,000
Income (loss) before taxes and
extraordinary item............ 3,816 81,215 103,212 68,410 (265,351)
Income tax provision
(benefit)..................... (1,736) 26,215 40,992 27,899 (87,955)
Net income (loss) before
extraordinary item............ 5,552 55,000 62,220 40,511 (177,396)
Extraordinary item.............. -- -- (19,301) (19,301) --
Net income (loss)............... 5,552 55,000 42,919 21,210 (177,396)
Earnings (loss) per common share
before extraordinary item:
Basic......................... $ 0.06 $ 0.65 $ 0.67 $ 0.44 $ (1.76)
Diluted....................... 0.06 0.62 0.64 0.42 (1.76)
Earnings (loss) per common
share:
Basic......................... $ 0.06 $ 0.65 $ 0.46 $ 0.23 $ (1.76)
Diluted....................... 0.06 0.62 0.44 0.22 (1.76)
BALANCE SHEET DATA (AT END OF
PERIOD):
Oil and gas assets, net......... $ 574,076 $ 831,225 $1,423,837 $1,265,165 $1,662,502
Total assets.................... 724,460 1,121,241 1,642,995 1,514,950 2,002,281
Long-term debt.................. 416,491 440,974 672,298 726,582 1,203,340
Stockholders' equity............ 171,326 493,072 725,337 524,806 558,653
Table continued on following page
</TABLE>
7
<PAGE> 15
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDAX(2)...................... $ 140,497 $ 269,623 $ 400,769 $ 278,751 $ 250,322
Net cash provided by operating
activities.................... 105,313 209,313 339,675 227,003 150,036
Net cash used in investing
activities.................... (160,224) (428,007) (803,679) (554,304) (670,408)
Net cash provided by financing
activities.................... 56,316 265,597 414,992 288,810 523,232
Capital expenditures including
acquisitions.................. 236,679 441,709 834,358 620,258 668,071
OPERATING DATA:
Sales Volumes:
Oil (MBbls)................... 8,817 11,543 18,078 12,522 16,644
Gas (MMcf).................... 56,846 74,165 93,723 66,982 87,068
MBOE.......................... 18,291 23,904 33,699 23,686 31,155
BOEPD......................... 50,112 65,311 92,326 86,762 114,121
Average Prices (excluding
hedging activities):
Oil (per Bbl)................. $ 17.06 $ 21.42 $ 18.54 $ 18.87 $ 12.78
Gas (per Mcf)................. 1.54 2.30 2.30 2.18 1.92
Per BOE....................... 13.00 17.47 16.34 16.14 12.19
Production and operating costs
(per BOE)(3)............... 3.55 3.26 3.02 3.05 3.26
</TABLE>
- ---------------
(1) Reflects costs associated with the March 1998 merger between OEI and United
Meridian Corporation for the nine months ended September 30, 1998.
(2) Earnings before interest, taxes, depreciation, depletion, amortization,
non-recurring merger costs and non-cash impairments. EBITDAX is presented
because it is a widely accepted financial indicator of OEI's ability to
service and incur debt. EBITDAX is not intended to represent cash flow in
accordance with generally accepted accounting principles and does not
represent the measure of cash available for distribution.
(3) Excludes production and ad valorem taxes.
8
<PAGE> 16
SEAGULL ENERGY CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenues:
Oil and gas operations............. $ 308,510 $ 419,595 $ 453,648 $ 338,953 $ 256,415
Alaska transmission and
distribution.................... 97,770 97,616 95,719 63,455 62,538
---------- ---------- ---------- ---------- ----------
406,280 517,211 549,367 402,408 318,953
Operating costs...................... 182,531 189,894 209,146 152,143 146,210
Exploration, including dry holes and
impairments........................ 40,223 50,772 42,085 31,516 40,328
General and administrative........... 21,768 17,433 16,144 10,317 15,784
Depreciation, depletion and
amortization....................... 149,685 155,669 171,516 130,559 127,845
Impairment of long-lived assets...... 48,842 -- -- -- 77,827
Interest expense..................... 52,978 44,842 38,533 29,985 28,490
Merger costs(1)...................... -- 9,982 -- -- --
Interest and other (income)
expense............................ (90,791) (6,237) (14,257) (1,539) (2,027)
Income (loss) before taxes and
extraordinary item................. 1,044 54,856 86,200 49,427 (115,504)
Income tax provision (benefit)....... 2,782 25,895 37,070 26,350 (31,001)
Net income (loss) before
extraordinary item................. (1,738) 28,961 49,130 23,077 (84,503)
Extraordinary item................... -- -- -- -- (1,031)
Net income (loss).................... (1,738) 28,961 49,130 23,077 (85,534)
Earnings (loss) per common share
before extraordinary item:
Basic.............................. $ (0.03) $ 0.46 $ 0.78 $ 0.37 $ (1.34)
Diluted............................ (0.03) 0.46 0.77 0.36 (1.34)
Earnings (loss) per common share:
Basic.............................. $ (0.03) $ 0.46 $ 0.78 $ 0.37 $ (1.36)
Diluted............................ (0.03) 0.46 0.77 0.36 (1.36)
BALANCE SHEET DATA (AT END OF
PERIOD):
Property, plant and equipment, net... $1,130,178 $1,244,641 $1,144,834 $1,307,804 $1,235,836
Total assets......................... 1,359,125 1,515,063 1,411,066 1,548,277 1,441,463
Long-term debt....................... 557,107 573,455 469,017 604,783 622,314
Shareholders' equity................. 562,621 597,730 647,204 622,164 562,467
Table continued on following page
</TABLE>
9
<PAGE> 17
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDAX(2)........................... $ 207,864 $ 313,513 $ 326,010 $ 241,550 $ 158,961
Net cash provided by operating
activities......................... 117,727 258,439 262,749 175,933 96,142
Net cash used in investing
activities......................... (36,141) (307,325) (106,779) (211,794) (295,883)
Net cash provided by (used in)
financing activities............... (70,374) 42,334 (125,572) 36,360 167,971
Capital expenditures, including
acquisitions....................... 144,101 317,882 293,273 212,985 321,221
OPERATING DATA:
Sales Volumes:
Oil (MBbls)........................ 3,195 4,906 7,560 5,530 5,701
Gas (MMcf)......................... 139,675 143,315 130,315 101,086 84,012
MBOE............................... 26,475 28,792 29,279 22,377 19,703
BOEPD.............................. 72,534 78,667 80,216 81,967 72,172
Average Prices (excluding hedging
activities):
Oil (per Bbl)...................... $ 15.21 $ 18.52 $ 17.34 $ 17.40 $ 11.62
Gas (per Mcf)...................... 1.57 2.14 2.36 2.30 2.07
Per BOE............................ 10.14 13.82 15.00 14.68 12.19
Production costs (per BOE)........... 3.21 3.55 3.95 3.89 4.21
</TABLE>
- ---------------
(1) Reflects costs associated with the October 1996 merger between Seagull and
Global Natural Resources Inc.
(2) Earnings before interest, taxes, depreciation, depletion, amortization,
exploration expense, gains and losses on sales and retirements of assets,
non-cash impairments and non-recurring merger expenses. EBITDAX is presented
because it is a widely accepted financial indicator of Seagull's ability to
service and incur debt. EBITDAX is not intended to represent cash flow in
accordance with generally accepted accounting principles and does not
represent the measure of cash available for distribution.
10
<PAGE> 18
SUMMARY HISTORICAL OIL AND GAS RESERVE INFORMATION
The following tables set forth summary information with respect to OEI's
and Seagull's proved oil and gas reserves as of December 31, 1997.
<TABLE>
<CAPTION>
BARREL OF OIL
CRUDE OIL NATURAL GAS EQUIVALENTS
(MBBLS) (MMCF) (MBOE)
--------- ----------- -------------
<S> <C> <C> <C>
NET PROVED RESERVES
OEI:
Developed................................................. 87,358 584,647 184,799
Undeveloped............................................... 50,244 213,288 85,792
------- ------- -------
Total.................................................. 137,602 797,935 270,591
======= ======= =======
Seagull:
Developed................................................. 47,717 753,867 173,362
Undeveloped............................................... 24,568 114,124 43,588
------- ------- -------
Total.................................................. 72,285 867,991 216,950
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
RESERVE VALUATION INFORMATION
OEI:
Estimated Future Net Revenues (Before Income Taxes)(1).... $1,933,000
Present Value of Future Net Revenues (Before Income Taxes,
Discounted at 10%)(1).................................. 1,343,000
Standardized Measure of Discounted Future Net Cash
Flows(2)............................................... 1,220,000
Seagull:
Estimated Future Net Revenues (Before Income Taxes)(1).... $2,040,000
Present Value of Future Net Revenues (Before Income Taxes,
Discounted at 10%)(1).................................. 1,219,000
Standardized Measure of Discounted Future Net Cash
Flows(2)............................................... 932,000
</TABLE>
- ---------------
(1) In accordance with rules and regulations of the SEC, the pre-tax Estimated
Future Net Revenues and pre-tax Present Value of Future Net Revenues for OEI
have been increased by approximately $6.4 million and $6.1 million and the
pre-tax Estimated Future Net Revenues and pre-tax Present Value of Future
Net Revenues for Seagull have been decreased by approximately $2.1 million
and $2.0 million, in each case, representing the effect of hedging
transactions entered into as of December 31, 1997.
(2) The Standardized Measure of Discounted Future Net Cash Flows represents the
Present Value of Future Net Revenues after income taxes discounted at 10%.
11
<PAGE> 19
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL AND OPERATING DATA
The following table sets forth summary unaudited pro forma combined
financial and operating data which are presented to give effect to the merger
and to reflect New Ocean's operations utilizing the full cost method of
accounting for oil and gas activities. The merger will be accounted for as a
purchase business combination in accordance with generally accepted accounting
principles. The income statement data for the year ended December 31, 1997 and
the nine months ended September 30, 1998 and 1997 assume that the merger was
consummated as of January 1, 1997. The balance sheet data assume that the merger
was consummated on September 30, 1998. The unaudited pro forma combined
financial data are not necessarily indicative of the results of operations or
the financial position that would have occurred had the merger been consummated
at the beginning of the earliest period presented, nor are they necessarily
indicative of future results of operations or financial position. Additionally,
the unaudited pro forma combined revenue and expense data exclude the expected
cost savings through the consolidation of the corporate headquarters of the two
companies and the elimination of duplicate staff and expenses, which are
estimated to be at least $45 million. The unaudited pro forma combined financial
data should be read together with the historical consolidated financial
statements of OEI and Seagull, incorporated by reference in this document and
the unaudited pro forma condensed combined financial statements contained
elsewhere herein. For additional information, see "Where You Can Find More
Information" on page 89 and "Unaudited Pro Forma Condensed Combined Financial
Statements of New Ocean."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED -------------------------
DECEMBER 31, 1997 1997 1998
------------------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenues................................................ $1,099,797 $779,015 $ 726,703
Operating costs......................................... 329,945 235,083 263,812
General and administrative.............................. 46,362 30,643 46,845
Depreciation, depletion and amortization................ 380,315 280,016 312,184
Impairment of long-lived assets......................... -- -- 222,590
Interest expense........................................ 88,759 66,414 69,874
Merger costs(1)......................................... -- -- 39,000
Interest and other (income) expense..................... (5,995) (3,976) (2,622)
---------- -------- ----------
Income (loss) before income taxes and extraordinary
item.................................................. 260,411 170,835 (224,980)
Income tax provision (benefit).......................... 114,682 81,563 (79,828)
---------- -------- ----------
Net income (loss) before extraordinary item............. $ 145,729 $ 89,272 $ (145,152)
========== ======== ==========
Earnings (loss) per common share before extraordinary
item:
Basic................................................. $ 0.93 $ 0.58 $ (0.89)
Diluted............................................... 0.91 0.56 (0.89)
BALANCE SHEET DATA (AT END OF PERIOD):
Property, plant and equipment, net...................... $2,958,765
Total assets............................................ 3,495,782
Long-term debt.......................................... 1,823,156
Shareholders' equity.................................... 1,142,972
</TABLE>
Table continued on following page
12
<PAGE> 20
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED -------------------------
DECEMBER 31, 1997 1997 1998
------------------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDAX(2).............................................. $ 723,191 $515,476 $ 409,086
Capital expenditures, including acquisitions............ 1,127,631 833,243 989,292
OPERATING DATA:
Sales Volumes:
Oil (MBbls)........................................... 25,638 18,052 22,345
Gas (MMcf)............................................ 224,038 168,068 171,080
MBOE.................................................. 62,978 46,063 50,858
BOEPD................................................. 172,542 168,729 186,293
Average Prices (excluding hedging activities):
Oil (per Bbl)......................................... $ 18.19 $ 18.42 $ 12.48
Gas (per Mcf)......................................... 2.34 2.25 1.99
Per BOE............................................... 15.71 15.43 12.19
Production costs (per BOE).............................. 3.76 3.69 3.94
</TABLE>
- ---------------
(1) Reflects costs associated with the March 1998 merger between OEI and United
Meridian Corporation for the nine months ended September 30, 1998.
(2) Earnings before interest, taxes, depreciation, depletion, amortization,
non-recurring merger costs and non-cash impairments. EBITDAX is presented
because it is a widely accepted financial indicator of New Ocean's ability
to service and incur debt. EBITDAX is not intended to represent cash flow in
accordance with generally accepted accounting principles and does not
represent the measure of cash available for distribution.
SUMMARY PRO FORMA OIL AND GAS RESERVE INFORMATION
The following table sets forth pro forma summary information with respect
to OEI's and Seagull's combined proved oil and gas reserves as of December 31,
1997.
<TABLE>
<CAPTION>
BARREL OF OIL
CRUDE OIL NATURAL GAS EQUIVALENTS
(MBBLS) (MMCF) (MBOE)
--------- ----------- -------------
<S> <C> <C> <C>
NET PROVED RESERVES
Developed............................................... 135,075 1,338,514 358,161
Undeveloped............................................. 74,812 327,412 129,380
------- --------- -------
Total................................................. 209,887 1,665,926 487,541
======= ========= =======
</TABLE>
13
<PAGE> 21
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data for OEI
and Seagull and unaudited pro forma and combined per share data after giving
effect to the merger at the exchange ratio of one share of New Ocean common
stock for each share of OEI common stock. Earnings (Loss) Per Share is presented
for the nine months ended September 30, 1998 and 1997 and the year ended
December 31, 1997. Book Value Per Share is presented as of September 30, 1998
and 1997 and December 31, 1997. This data should be read together with the
selected historical consolidated financial data and the unaudited pro forma
condensed combined financial statements included in this document and the
separate historical consolidated financial statements of OEI and Seagull
incorporated by reference in this document. The unaudited pro forma condensed
combined financial data are not necessarily indicative of the operating results
or financial position that would have occurred had the merger been consummated
at the beginning of the earliest period presented and should not be construed as
indicative of future operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------
1997 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Historical -- OEI
Earnings (Loss) Per Share Before Extraordinary Item:
Basic.................................................. $ 0.67 $ 0.44 $(1.76)
Diluted................................................ 0.64 0.42 (1.76)
Earnings (Loss) Per Share:
Basic.................................................. 0.46 0.23 (1.76)
Diluted................................................ 0.44 0.22 (1.76)
Book Value Per Share...................................... 7.25 5.67 5.52
Historical -- Seagull
Earnings (Loss) Per Share Before Extraordinary Item:
Basic.................................................. $ 0.78 $ 0.37 $(1.34)
Diluted................................................ 0.77 0.36 (1.34)
Earnings (Loss) Per Share:
Basic.................................................. 0.78 0.37 (1.36)
Diluted................................................ 0.77 0.36 (1.36)
Book Value Per Share...................................... 10.27 9.85 8.87
Pro Forma Combined -- New Ocean
Earnings (Loss) Per Share Before Extraordinary Item:
Basic.................................................. $ 0.93 $ 0.58 $(0.89)
Diluted................................................ 0.91 0.56 (0.89)
Earnings (Loss) Per Share:
Basic.................................................. 0.81 0.45 (0.89)
Diluted................................................ 0.79 0.44 (0.89)
Book Value Per Share...................................... -- -- 6.95
</TABLE>
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CERTAIN OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and this document. Unless otherwise indicated in this
document, natural gas volumes are stated at the legal pressure base of the state
or area in which the reserves are located and at 60 degrees Fahrenheit.
"Bbl" means a barrel of 42 U.S. gallons of oil.
"Bcf" means billion cubic feet of natural gas.
"BOE" means barrels of oil equivalent, which is determined using the ratio
of six Mcf of natural gas to one Bbl of oil.
"BOEPD" means barrels of oil equivalent per day.
"Btu" or "British Thermal Unit" means the quantity of heat required to
raise the temperature of one pound of water by one degree Fahrenheit.
"MBbls" means thousands of barrels of oil.
"MBOE" means a thousand barrels of oil equivalent.
"Mcf" means thousand cubic feet of natural gas.
"Mcfe" means a thousand cubic feet equivalent, which is determined using
the ratio of one barrel of oil to six Mcf of natural gas.
"MMBbls" means millions of barrels of oil.
"MMBOE" means million barrels of oil equivalent.
"MMBtu" means one million British Thermal Units.
"MMcf" means million cubic feet of natural gas.
"Present Value of Future Net Revenues" or "Present Value of Proved
Reserves" means the present value of estimated future revenues to be generated
from the production of proved reserves calculated in accordance with SEC
guidelines, net of estimated production and future development costs, using
prices and costs as of the date of estimation without future escalation, without
giving effect to non-property related expenses such as general and
administrative expenses, debt service, future income tax expense and
depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.
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<PAGE> 23
RISK FACTORS
In deciding whether to approve the merger, you should consider the
following risks related to the merger and to your investment in the combined
company following the merger. You should consider carefully these risks along
with the other information in this document and the documents to which we have
referred you. See "Where You Can Find More Information" on page 89.
RISKS RELATING TO THE MERGER
WE MAY ENCOUNTER DIFFICULTIES INTEGRATING OUR COMPANIES
To be successful after the merger, we will need to combine and integrate
the operations of our separate companies into one company. Because of the size
and complexity of each of our companies, this will be a difficult process. It
will require substantial management attention and could detract attention away
from the day-to-day business of the combined company. We could encounter
difficulties in the integration process, such as the loss of key employees,
customers or suppliers.
If we cannot integrate our businesses successfully, we may fail to realize
the benefits we expect to realize from the merger, including any expected cost
savings.
OEI STOCKHOLDERS WILL RECEIVE A FIXED NUMBER OF SEAGULL SHARES, NOT A FIXED
VALUE
Each of your OEI shares will be converted in the merger into one share of
New Ocean common stock. There will be no adjustment to the exchange ratio based
on the value of those shares. Also, the market price of each companies' stock at
the effective time may be different than the market price when you vote on the
merger.
NEW OCEAN WILL HAVE HIGHER LEVERAGE THAN SEAGULL
Seagull's shareholders should consider that New Ocean will have higher
levels of debt and interest expense than Seagull on a stand-alone basis. The
following table compares debt, leverage and interest coverage statistics for
Seagull and New Ocean, based on September 30, 1998 information, giving pro forma
effect to the merger in the case of New Ocean:
<TABLE>
<CAPTION>
SEAGULL NEW OCEAN
------- ---------
<S> <C> <C>
Total debt................................... $629 million $1,831 million
Debt/capitalization ratio.................... 53% 62%
Ratio of EBITDAX to interest expense......... 5.6 5.9
</TABLE>
The increase in total indebtedness and leverage of the combined company
after the merger may have a negative impact on New Ocean's ability to realize
the expected benefits of the merger, including a possible downgrade in the
credit rating of the combined company. Standard & Poor's has announced that,
because of the higher leverage of the combined company and the current uncertain
commodity price environment, upon completion of the merger, it will reduce
Seagull's corporate credit and senior unsecured debt ratings from "BBB-" to
"BB+," with a stable outlook.
The increased debt level will also require the use of a substantial portion
of the New Ocean's operating cash flow to pay interest and principal on New
Ocean's debt instead of for other corporate purposes.
RISKS RELATING TO THE BUSINESS OF NEW OCEAN AFTER THE MERGER
RECENT ADVERSE MARKET CONDITIONS; LOSSES IN 1998
New Ocean's success will depend on the market prices of oil and gas, which
tend to fluctuate significantly and which have declined significantly in recent
months. Oil prices in particular have reached multi-year lows in some markets in
recent weeks and gas prices for the current winter season have been lower than
in recent winters. Because of these lower prices, both Seagull and OEI incurred
substantial net
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<PAGE> 24
losses for the nine months ended September 30, 1998, and both companies expect
to report losses for the fourth quarter of 1998 and the 1998 fiscal year.
Low oil and gas prices not only reduce revenues and profits, but also
reduce the quantities of reserves that are commercially recoverable and may
result in charges to earnings for impairment of the value of these assets. See
"-- Possible Writedowns in Carrying Values of Oil and Gas Properties." If the
current oil and gas pricing conditions worsen, New Ocean may not be able to
generate enough cash flow from operations to meet its obligations and make
planned capital expenditures.
NEW OCEAN WILL HAVE SUBSTANTIAL CAPITAL REQUIREMENTS
After the merger, New Ocean will have to make a substantial amount of
capital expenditures for the acquisition, exploration and development of oil and
gas reserves. Historically, our companies have paid for these expenditures with
cash from operating activities, proceeds from debt and equity financings and
asset sales.
If New Ocean's revenues or cash flows decrease, whether as a result of
lower oil and gas prices or for some other reason, we may not have the funds
available to replace our reserves or to maintain production at current levels.
If this occurs, it would result in a decrease in production over time. Other
sources of financing may not be available if New Ocean's cash flows from
operations are not sufficient to fund its capital expenditure requirements.
Where New Ocean is not the majority owner or operator of an oil and gas
project, it may have no control over the timing or amount of capital
expenditures associated with the particular project. If New Ocean cannot fund
its capital expenditures, its interests in some projects may be reduced or
forfeited.
POSSIBLE WRITEDOWNS IN CARRYING VALUES OF OIL AND GAS PROPERTIES
OEI and Seagull periodically review the carrying value of their oil and gas
properties under applicable accounting rules. These rules require a writedown of
the carrying value of oil and gas prices if the carrying value exceeds the
applicable estimated future net revenues.
The estimated future net revenues depend on current and expected commodity
prices and reserve estimates. As a result of the recent decline in oil and gas
prices, at June 30, 1998, OEI recognized a non-cash impairment in the amount of
$218.4 million pre-tax ($135.4 million after-tax). At September 30, 1998,
Seagull recognized a non-cash impairment in the amount of $78 million pre-tax
($61 million after-tax), including $4 million pretax relating to its pipeline
assets.
If commodity prices do not increase from current levels, it is likely that
OEI will have to write down the carrying value of some of its oil and gas
properties for the fourth quarter of 1998.
ESTIMATES OF NEW OCEAN'S OIL AND GAS RESERVES WILL LIKELY CHANGE AS A RESULT OF
LOWER OIL AND GAS PRICES
The historical proved oil and gas reserve information for Seagull and OEI
incorporated by reference in this document represents only estimates. These
estimates are based primarily on reports prepared by independent petroleum
engineers as of December 31, 1997. The estimates were calculated using oil and
gas prices as of December 31, 1997. The prices of oil and gas have decreased
substantially since the end of 1997. Those price decreases will likely have a
material effect on the reserve quantity and valuation estimates when calculated
as of December 31, 1998.
Petroleum engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact manner.
Estimates of economically recoverable oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
including the following:
- historical production from the area compared with production from other
producing areas;
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<PAGE> 25
- the assumed effects of regulations by governmental agencies;
- assumptions concerning future oil and gas prices; and
- assumptions concerning future operating costs, severance and excise
taxes, development costs and workover and remedial costs.
Because all reserve estimates are to some degree subjective, (a) the
quantities of oil and gas that are ultimately recovered, (b) the production and
operating costs incurred, (c) the amount and timing of future development
expenditures and (d) future oil and gas sales prices may differ materially from
those assumed in estimating reserves.
Furthermore, different reserve engineers may make different estimates of
reserves and cash flows based on the same available data. New Ocean's actual
production, revenues and expenditures with respect to reserves will likely vary
from estimates and the variances may be material.
The discounted future net cash flows incorporated by reference in this
document should not be considered as the current market value of the estimated
oil and gas reserves attributable to OEI's or Seagull's properties. As required
by the SEC, the estimated discounted future net cash flows from proved reserves
are generally based on prices and costs as of the date of the estimate, while
actual future prices and costs may be materially higher or lower. Actual future
net cash flows also will be affected by factors such as (a) the amount and
timing of actual production, (b) supply and demand for oil and gas, (c)
increases or decreases in consumption and (d) changes in governmental
regulations or taxation. In addition, the 10% discount factor, which is required
by the SEC to be used to calculate discounted future net cash flows for
reporting purposes, is not necessarily the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with
OEI, Seagull or the oil and gas industry in general.
RISKS OF FOREIGN OPERATIONS
New Ocean will conduct significant operations in foreign countries,
including Angola, Equatorial Guinea and Cote d'Ivoire in Western Africa and in
Yemen, Egypt, Pakistan, Indonesia, Bangladesh and the Russian Republic of
Tatarstan. The combined company may also operate in other countries in the
future. Operations in foreign countries, particularly in the oil and gas
business, are subject to political, economic and other uncertainties, including:
- the risk of war, revolution, border disputes, expropriation,
renegotiation or modification of existing contracts, import, export and
transportation regulations and tariffs;
- taxation policies, including royalty and tax increases and retroactive
tax claims;
- exchange controls, currency fluctuations and other uncertainties arising
out of foreign government sovereignty over New Ocean's international
operations;
- laws and policies of the United States affecting foreign trade, taxation
and investment; and
- the possibility of having to be subject to the exclusive jurisdiction of
foreign courts in connection with legal disputes and the possible
inability to subject foreign persons to the jurisdiction of courts in the
United States.
Nigeria and other African countries have occasionally asserted rights to
land, including oil and gas properties, through border disputes. If a country
claims superior rights to oil and gas leases or concessions granted to New Ocean
by another country, New Ocean's interests could be lost or decreased in value.
Certain regions of Africa and other regions of the world have a history of
political and economic instability. This instability could result in new
governments or the adoption of new policies that might assume a substantially
more hostile attitude toward foreign investment. In an extreme case, such a
change could result in termination of contract rights and expropriation of
foreign-owned assets. This could adversely affect New Ocean's interests.
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<PAGE> 26
ECONOMIC RISKS OF OIL AND GAS OPERATIONS
The oil and gas operations of New Ocean will be subject to the economic
risks typically associated with exploration, development and production
activities, including the necessity of significant expenditures to locate and
acquire producing properties and to drill exploratory wells.
In conducting exploration and development activities, (a) the presence of
unanticipated pressure or irregularities in formations, (b) miscalculations or
(c) accidents may cause New Ocean's exploration, development and production
activities to be unsuccessful. This could result in a total loss of New Ocean's
investment. In addition, the cost and timing of drilling, completing and
operating wells is often uncertain.
DRILLING RISKS
The nature of the oil and gas business involves certain operating hazards
such as (a) well blowouts, (b) cratering, (c) explosions, (d) uncontrollable
flows of oil, gas or well fluids, (e) fires, (f) formations with abnormal
pressures, (g) pollution, (h) releases of toxic gas and (i) other environmental
hazards and risks. Any of these operating hazards could result in substantial
losses to New Ocean.
In addition, New Ocean may be liable for environmental damages caused by
previous owners of property purchased by New Ocean or its predecessors. As a
result, substantial liabilities to third parties or governmental entities may be
incurred. The payment of these amounts could reduce or eliminate the funds
available for exploration, development or acquisitions, or result in a loss of
New Ocean's properties.
Additionally, some of New Ocean's oil and gas operations will be located in
an area that is subject to tropical weather disturbances. Some of these
disturbances can be severe enough to cause substantial damage to facilities and
possibly interrupt production. In accordance with customary industry practices,
each of OEI and Seagull maintains insurance against some, but not all, of such
risks and losses.
New Ocean will maintain similar insurance. The occurrence of an event that
is not fully covered by insurance could have a material adverse effect on the
financial position and results of operations of New Ocean.
ACQUISITION RISKS
New Ocean's strategic plan includes the acquisition of additional reserves,
including through subsequent business combination transactions. The combined
company may not be able to consummate future acquisitions on favorable terms.
Additionally, future acquisitions may not achieve favorable financial results.
Future acquisitions may involve the issuance of shares of New Ocean common
stock, which could have a dilutive effect on the shareholders of New Ocean.
Furthermore, acquisitions may require substantial financial expenditures that
will need to be financed through cash flow from operations or future debt and
equity offerings by the combined company. New Ocean may not be able to
consummate future business combinations using its equity as currency. In the
case of cash acquisitions, New Ocean may not be able to generate sufficient cash
flow from operations or obtain debt or equity financing sufficient to fund
future acquisitions of reserves.
COMPETITION RISKS
The exploration and production business is highly competitive. Although the
merger will result in a larger combined company, many of New Ocean's competitors
will still have substantially larger financial resources, staffs and facilities
than New Ocean.
RISKS RELATED TO GOVERNMENT REGULATIONS AFFECTING THE OIL AND GAS INDUSTRY
New Ocean's business will be subject to foreign, federal, state and local
laws and regulations relating to the exploration for, and the development,
production and transportation of, oil and gas, as well as environmental and
safety matters. Many of these laws and regulations have become stricter in
recent years.
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<PAGE> 27
These laws and regulations often impose greater liability on a larger number of
potentially responsible parties.
Under certain circumstances, the U.S. Minerals Management Service may
require the operations of New Ocean on federal leases to be suspended or
terminate. This could have a material adverse effect on New Ocean's financial
condition and operations. The requirements imposed by these laws and regulations
are frequently changed and subject to new interpretations. It is likely that the
costs of compliance could increase the cost of operating offshore drilling
equipment or significantly limit drilling activity.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document includes or incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act, Section 21E
of the Exchange Act and the Private Securities Litigation Reform Act of 1995
about OEI, Seagull and the combined company that are subject to risks and
uncertainties. All statements other than statements of historical fact included
in this document, including, without limitation, statements under "Summary" and
"Risk Factors" regarding the financial position, business strategy, production
and reserve growth, and other plans and objectives for the future operations of
OEI, Seagull or New Ocean are forward-looking statements.
Although we believe that in making such statements, our expectations are
based on reasonable assumptions, such statements may be influenced by factors
that could cause actual outcomes and results to be materially different from
those projected. Forward-looking statements are subject to risks and
uncertainties and include information concerning cost savings from the merger,
integration of the businesses of OEI and Seagull, general economic conditions
and possible or assumed future results of operations of OEI, Seagull or the
combined company, estimates of oil and gas production and reserves, drilling
plans, future cash flows, anticipated capital expenditures and management's
strategies, plans and objectives as set forth under "Summary -- Reasons for the
Merger," "New Ocean -- The Combined Company," "The Merger -- Background of the
Merger," "-- Reasons for the Merger -- OEI," "-- Reasons for the
Merger -- Seagull," "-- Opinions of OEI's Financial Advisors" and "-- Opinions
of Seagull's Financial Advisors."
When used in this document, the words "believes," "expects," "anticipates,"
"intends" or similar expressions are intended to identify such forward-looking
statements. The following important factors, in addition to those discussed
elsewhere in this document and in the documents which are incorporated by
reference, could affect the future results of the energy industry in general,
and OEI, Seagull and/or the combined company after the merger in particular, and
could cause those results to differ materially from those expressed in such
forward-looking statements:
- risks incident to the drilling and operation of oil and gas wells;
- future production and development costs;
- the effect of existing and future laws and regulatory actions;
- the political and economic climate in the foreign jurisdictions in which
OEI or Seagull conducts oil and gas operations;
- the effect of changes in commodity prices, hedging activities and
conditions in the capital markets;
- a significant delay in the expected closing of the merger; and
- competition from others in the energy industry.
For additional information with respect to these factors, see the
respective Annual Reports on Form 10-K for the year ended December 31, 1997 of
each of OEI and Seagull. See "Where You Can Find More Information." This
document describes other important factors that could cause actual results to
differ materially from expectations of OEI and Seagull, including under the
heading "Risk Factors." All written and oral forward-looking statements
attributable to OEI or Seagull or persons acting on behalf of OEI and Seagull
are expressly qualified in their entirety by such factors.
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<PAGE> 28
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is being sent in connection with the
solicitation of proxies from (1) the OEI common stockholders and the OEI Series
A preferred stockholders by the OEI Board for use at the OEI special meeting and
(2) the Seagull common shareholders by the Seagull Board for use at the Seagull
special meeting.
TIMES AND PLACES
The OEI special meeting will be held at time, on ,
1999, at .
The Seagull special meeting will be held at time, on ,
1999, at .
PURPOSE OF THE SPECIAL MEETINGS
OEI
The purpose of the OEI special meeting is to consider and vote upon the
proposal to adopt the merger agreement.
SEAGULL
The purpose of the Seagull special meeting is to consider and vote upon:
- a proposal to approve the merger agreement; and
- a proposal to elect the 15 director nominees.
VOTING AND RECORD DATES
Only holders of record of shares of OEI common stock, OEI Series A
preferred stock and Seagull common stock at the close of business on ,
1999 are entitled to notice of and to vote at the OEI special meeting and the
Seagull special meeting, respectively.
OEI
The presence, in person or by proxy, of the holders of a majority of the
voting power of the OEI common stock Series A preferred stock outstanding is
necessary to constitute a quorum at the OEI special meeting. Adoption of the
merger agreement requires the affirmative vote of a majority of the outstanding
shares of OEI common stock and OEI Series A preferred stock voting together as a
single class. Each share of OEI common stock will be entitled to one vote and
each share of OEI Series A preferred stock will be entitled to votes.
On , 1999, there were shares of OEI common stock
outstanding held by approximately holders of record and 50,000 shares of
OEI Series A preferred stock outstanding held by two holders of record.
SEAGULL
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Seagull common stock is necessary to constitute a quorum
at the Seagull special meeting. The affirmative vote of the holders of
two-thirds of the outstanding shares of Seagull common stock is required to
approve the merger agreement. The 15 individuals receiving the most votes for
director will be elected to the New Ocean Board. The 15 director nominees will
not be appointed to the New Ocean Board unless the merger is completed. The
merger will not be completed unless all of the 15 nominated directors are
elected.
On , 1999 there were shares of Seagull common stock
outstanding held by approximately holders of record.
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PROXIES
All shares of OEI common stock, OEI Series A preferred stock and Seagull
common stock represented by properly executed proxies received prior to or at
the OEI special meeting or the Seagull special meeting will be voted in
accordance with the instructions indicated on such proxies. Proxies that have
been revoked properly and on time will not be counted. If no instructions are
indicated on a properly executed returned proxy, that proxy will be voted FOR
adoption of the merger agreement in the case of the OEI special meeting and
voted FOR approval of the merger agreement and the election of directors to the
New Ocean Board of Directors in the case of the Seagull special meeting. A
properly executed proxy marked "ABSTAIN," although counted for purposes of
determining whether there is a quorum, will not be voted. Accordingly, a proxy
marked "ABSTAIN" will have the effect of a vote against the merger. In addition,
the failure to return a proxy will have the effect of a vote against the merger.
In accordance with NYSE rules, brokers and nominees who hold shares in
street name for customers are precluded from exercising their voting discretion
with respect to the approval or adoption of the merger agreement and the
election of directors to the New Ocean Board. Thus, absent specific instructions
from the beneficial owner of such shares, brokers and nominees will not be able
to vote such shares with respect to the approval or adoption of such proposals
(i.e., "broker non-votes"). Shares represented by "broker non-votes" will be
counted for purposes of determining whether there is a quorum at a special
meeting but will have the effect of a vote against the merger.
The OEI Board and the Seagull Board are not currently aware of any business
to be acted upon at their respective special meetings other than the matters
described herein. If, however, other matters are properly brought before either
special meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have discretion to vote or act on those matters
according to their judgment. Such adjournments or postponements may be for the
purpose of soliciting additional proxies. Proxies voted against the merger will
not be voted in favor of an adjournment or postponement of a special meeting for
the purpose of soliciting additional proxies.
Any proxy given pursuant to this solicitation may be revoked at any time
before such proxy is voted. Proxies that have been revoked properly and on time
will not be counted. Attendance at the OEI special meeting or the Seagull
special meeting will not in and of itself constitute a revocation of a proxy.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be shared equally by OEI and Seagull.
In addition to solicitation by mail, arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxy material to
beneficial owners and OEI or Seagull will, upon request, reimburse them for
their reasonable expenses in doing so. OEI and Seagull have each retained
Georgeson & Company, Inc. to aid in the solicitation of proxies and to verify
certain records related to the solicitation at a maximum fee of $24,000 plus
expenses. To the extent necessary in order to ensure sufficient representation
at the special meetings, OEI or Seagull may request the return of proxy cards by
telephone, telegram, or in person. The extent to which this will be necessary
depends entirely upon how promptly proxy cards are returned. You are urged to
send in your proxies without delay.
VOTING AGREEMENTS
In connection with the execution of the merger agreement, certain
directors, officers and stockholders of both OEI and Seagull entered into voting
agreements with Seagull and OEI, respectively. John B. Brock, James C. Flores
and the Flores Family Limited Partnership each entered into a voting agreement
with Seagull to vote all of the shares of OEI common stock owned or controlled
by them in favor of the merger agreement. In addition, they have each agreed (a)
not to transfer their shares of OEI common stock unless the transferee agrees to
be bound by the terms of the voting agreement, (b) not to grant a proxy with
respect to such shares and (c) not to solicit or vote in favor of any competing
transaction to the merger. The aggregate amount of shares of OEI common stock
subject to these voting agreements represents approximately 10.9% of the
outstanding OEI common stock.
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<PAGE> 30
Each of Barry J. Galt, James T. Hackett and The Prudential Insurance
Company of America entered into voting agreements with OEI to vote all of the
shares of Seagull common stock owned by them in favor of the merger agreement
and the election of the 15 director nominees to the New Ocean Board of
Directors. In addition, they have each agreed (a) not to transfer their shares
of Seagull common stock unless the transferee agrees to be bound by the terms of
the voting agreement, (b) not to grant a proxy with respect to such shares and
(c) not to solicit or vote in favor of any competing transaction to the merger.
The aggregate amount of shares of Seagull common stock subject to these voting
agreements represents approximately 9.5% of the outstanding Seagull common
stock.
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NEW OCEAN -- THE COMBINED COMPANY
The combination of OEI and Seagull will create the seventh largest United
States independent oil and gas company based on production and the tenth largest
based on total proved reserves, in each case based on 1997 information. On a pro
forma basis, New Ocean will have estimated proved reserves of approximately 490
million barrels of oil equivalent at year end 1998 and combined 1998 estimated
production of approximately 70 million barrels of oil equivalent. The larger
size and scale provided by the merger will allow New Ocean to capitalize on a
wider range of opportunities and to develop and operate larger exploration and
development projects than either OEI or Seagull would be able to do on a stand-
alone basis. This larger size will also allow New Ocean to operate more
competitively in the current low commodity price environment and to make
opportunistic acquisitions.
New Ocean's asset base will be comprised of complementary domestic assets,
primarily in the Gulf of Mexico region where the combined company will hold more
than 324 offshore lease blocks, including 62 deepwater blocks. Approximately 69%
of New Ocean's total proved reserves will be located in North America, with the
balance in several high-growth international areas. Combined, OEI and Seagull
will own interests in approximately 36 production sharing contracts covering
approximately 22 million gross acres, including blocks in Angola, Equatorial
Guinea, Cote d'Ivoire, Yemen, Egypt, Indonesia, the Russian Republic of
Tatarstan, Pakistan and Bangladesh. OEI and Seagull believe that the stable cash
flow generated from their North American onshore operations will enable New
Ocean to continue to fund and develop their combined portfolio of international
and deepwater Gulf of Mexico exploration and development projects.
OEI and Seagull are developing plans to integrate their operations
immediately after the merger to take full advantage of the benefits and
synergies the merger will create that would not have been available to either
company on a stand-alone basis. Those benefits include substantial cost savings,
a more geographically diversified reserve composition, a larger capital base,
greater financial strength and flexibility and an enhanced ability to make
further acquisitions.
Cost Savings and Operating Synergies. After the merger New Ocean will be
organized into three business units: Onshore North America, Gulf of Mexico and
International. OEI and Seagull believe that this organizational structure will
allow for substantial overhead cost savings through the consolidation of
duplicative corporate and field offices and staff. OEI and Seagull estimate that
they will realize over $45 million of general and administrative cost savings as
a result of the merger. Specifically, approximately $35 million will be achieved
through personnel reductions from over 1,800 combined employees to approximately
1,300. An additional $5 million will be realized from office consolidations and
the balance from reduced combined expenses for professional fees and other
expense items. The companies are implementing many of these cost cutting
measures in anticipation of the merger, with the balance to be implemented by
year end 1999. Therefore, management believes that the cost savings will be
achieved in 1999 (based on annualizing the monthly costs at year end 1999), even
though the full dollar amount will not be achieved for the full year. Based on
these cost savings, the merger is expected to increase cash flow per share to
OEI stockholders in 1999 and 2000 and to Seagull shareholders in 2000
(break-even in 1999).
New Ocean will aggressively work toward reducing total per barrel costs by
at least 20% by 2001 in order to achieve higher operating margins. In addition
to the more than $45 million of general and administrative cost savings, the
effort will involve focusing on production growth, reducing lease operating
expense and interest expense and ongoing asset portfolio rationalization aimed
at selling lower growth and/or higher cost properties. These operating synergies
are intended to better position New Ocean to operate more competitively in a low
commodity price environment and to achieve greater cash flow and reinvestment
benefits when commodity prices improve.
More Efficient Allocation of Capital. The combination will also allow New
Ocean the opportunity to focus on the best opportunities contained in the
combined exploration programs and rationalize the combined portfolio of
exploitation projects. As a result, New Ocean should be able to allocate capital
more efficiently in order to enhance its expected return on investment. New
Ocean, under its existing contractual
24
<PAGE> 32
obligations, will have flexibility relating to the timing of pursuing its high
impact exploration prospects, allowing it to better allocate resources to
respond to commodity cycles.
Reserve Composition. New Ocean's reserves are expected to be balanced
approximately 57% gas and 43% oil at year end 1998. Further, New Ocean's
reserves will be diversified geographically as follows:
<TABLE>
<CAPTION>
REGION PERCENTAGE
- ------ ----------
<S> <C>
Gulf of Mexico/Gulf Coast................................... 31%
Mid-South................................................... 21%
Rocky Mountain/Mid-Continent................................ 17%
Equatorial Guinea........................................... 8%
Cote d'Ivoire............................................... 8%
Egypt....................................................... 8%
Canada/Other................................................ 7%
</TABLE>
The balance between North American and international properties will lower the
overall risk profile of current production. The presence of this geographic
balance, in addition to the balance of oil and gas reserves, will further
diversify the revenue and cash flow sources for New Ocean.
Financial Strength and Flexibility. New Ocean's capitalization base should
enhance its access to capital to explore and exploit the prospects available to
the combined company. Pro forma for the merger, New Ocean would have had EBITDAX
of $409.1 million for the nine months ended September 30, 1998. In addition, pro
forma for the merger, New Ocean would have had a debt-to-market capitalization
ratio of approximately 46% and a long-term debt-to-book capitalization ratio of
approximately 61% as of September 30, 1998. New Ocean's increased size should
make available additional forms of cost effective financing to allow New Ocean
to manage interest expense and to pursue further growth opportunities.
In addition, New Ocean will have the flexibility to actively manage its
capital expenditure program based on realized cash flow, proceeds from asset
sales, credit availability and future commodity prices. The capital expenditure
budget for New Ocean is expected to be approximately $400 to $500 million in
1999, fully funded by expected combined operating cash flows and from the
disposition of at least $100 million of non-core domestic and international
assets.
Enhanced Ability to Make Further Acquisitions. The combination of OEI and
Seagull is expected to position New Ocean for further consolidation among
independent exploration and production companies. New Ocean's strategy in the
current commodity market will include actively pursuing acquisition
opportunities that enhance its reserve and production base and allow for further
cost savings and operating synergies. OEI and Seagull believe that New Ocean's
enhanced financial position and stature in the industry will allow it to pursue
acquisitions on a more effective basis than either of the companies could have
on an individual basis.
25
<PAGE> 33
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth selected historical consolidated financial
and operating data for OEI and Seagull as of and for each of the five years
ended December 31, 1997 and as of and for the nine months ended September 30,
1998 and 1997. OEI utilizes the full cost method of accounting for oil and gas
activities. Seagull utilizes the successful efforts method of accounting for oil
and gas activities. Therefore, the financial data may not be directly
comparable. Such data should be read together with the historical consolidated
financial statements of OEI and Seagull, incorporated by reference in this Joint
Proxy Statement/Prospectus.
OCEAN ENERGY, INC.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
-------- --------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenues................................ $128,730 $ 172,536 $243,827 $395,834 $552,194 $384,419 $ 399,079
Production costs........................ 49,740 67,262 82,937 98,396 124,394 87,772 118,045
General and administrative.............. 11,783 22,469 21,070 27,366 30,218 20,326 31,061
Depreciation, depletion and
amortization.......................... 51,184 91,603 101,116 147,643 248,423 174,036 217,719
Impairment of oil and gas properties.... -- 150,834 -- -- -- -- 218,392
Interest expense........................ 7,587 13,547 35,565 40,765 49,134 36,305 40,562
Merger costs(1)......................... -- -- -- -- -- -- 39,000
Loss on production payment repurchase
and refinancing....................... -- 16,681 -- -- -- -- --
Income (loss) before taxes and
extraordinary item.................... 10,710 (189,253) 3,816 81,215 103,212 68,410 (265,351)
Income tax provision (benefit).......... (812) (67,076) (1,736) 26,215 40,992 27,899 (87,955)
Net income (loss) before extraordinary
item.................................. 11,522 (122,177) 5,552 55,000 62,220 40,511 (177,396)
Extraordinary item...................... -- -- -- -- (19,301) (19,301) --
Net income (loss)....................... 11,522 (122,177) 5,552 55,000 42,919 21,210 (177,396)
Earnings (loss) per common share before
extraordinary item:
Basic................................. $ 0.23 $ (2.20) $ 0.06 $ 0.65 $ 0.67 $ 0.44 $ (1.76)
Diluted............................... 0.22 (2.20) 0.06 0.62 0.64 0.42 (1.76)
Earnings (loss) per common share:
Basic................................. $ 0.23 $ (2.20) $ 0.06 $ 0.65 $ 0.46 $ 0.23 $ (1.76)
Diluted............................... 0.22 (2.20) 0.06 0.62 0.44 0.22 (1.76)
</TABLE>
Table continued on following page
26
<PAGE> 34
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT END OF PERIOD):
Oil and gas assets, net.......... $ 363,219 $ 509,774 $ 574,076 $ 831,225 $1,423,837 $1,265,165 $1,662,502
Total assets..................... 441,984 627,692 724,460 1,121,241 1,642,995 1,514,950 2,002,281
Long-term debt................... 105,597 393,673 416,491 440,974 672,298 726,582 1,203,340
Deferred revenue on production
payments....................... 108,784 -- -- -- -- -- --
Stockholders' equity............. 153,343 126,628 171,326 493,072 725,337 524,806 558,653
OTHER FINANCIAL DATA:
EBITDAX(2)....................... $ 69,481 $ 66,731 $ 140,497 $ 269,623 $ 400,769 $ 278,751 $ 250,322
Net cash provided by (used in)
operating activities........... 146,235 (71,918) 105,313 209,313 339,675 227,003 150,036
Net cash used in investing
activities..................... (274,281) (226,723) (160,224) (428,007) (803,679) (554,304) (670,408)
Net cash provided by financing
activities..................... 126,941 310,340 56,316 265,597 414,992 288,810 523,232
Capital expenditures, including
acquisitions................... 308,988 385,740 236,679 441,709 834,358 620,258 668,071
OPERATING DATA:
Sales Volumes:
Oil (MBbls).................... 4,148 6,064 8,817 11,543 18,078 12,522 16,644
Gas (MMcf)..................... 33,312 46,903 56,846 74,165 93,723 66,982 87,068
MBOE........................... 9,700 13,881 18,291 23,904 33,699 23,686 31,155
BOEPD.......................... 26,575 38,030 50,112 65,311 92,326 86,762 114,121
Average Prices (excluding hedging
activities):
Oil (per Bbl).................. $ 14.32 $ 14.44 $ 17.06 $ 21.42 $ 18.54 $ 18.87 $ 12.78
Gas (per Mcf).................. 2.06 1.72 1.54 2.30 2.30 2.18 1.92
Per BOE........................ 13.20 12.14 13.00 17.47 16.34 16.14 12.19
Production and operating costs
(per BOE)(3)................... 3.95 3.85 3.55 3.26 3.02 3.05 3.26
</TABLE>
- ---------------
(1) Reflects costs associated with the March 1998 merger between OEI and United
Meridian Corporation for the nine months ended September 30, 1998.
(2) Earnings before interest, taxes, depreciation, depletion, amortization,
non-recurring merger costs and non-cash impairments. EBITDAX is presented
because it is a widely accepted financial indicator of OEI's ability to
service and incur debt. EBITDAX is not intended to represent cash flow in
accordance with generally accepted accounting principles and does not
represent the measure of cash available for distribution.
(3) Excludes production and ad valorem taxes.
27
<PAGE> 35
SEAGULL ENERGY CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenues:
Oil and gas operations....... $ 344,988 $ 361,981 $ 308,510 $ 419,595 $ 453,648 $ 338,953 $ 256,415
Alaska transmission and
distribution............... 107,244 105,598 97,770 97,616 95,719 63,455 62,538
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total........................ 452,232 467,579 406,280 517,211 549,367 402,408 318,953
Operating costs................ 214,342 206,500 182,531 189,894 209,146 152,143 146,210
Exploration, including dry
holes and impairment......... 21,811 43,813 40,223 50,772 42,085 31,516 40,328
General and administrative..... 19,330 12,803 21,768 17,433 16,144 10,317 15,784
Depreciation, depletion and
amortization................. 127,332 158,978 149,685 155,669 171,516 130,559 127,845
Impairment of long-lived
assets....................... -- -- 48,842 -- -- -- 77,827
Interest expense............... 36,854 51,674 52,978 44,842 38,533 29,985 28,490
Merger costs(1)................ -- -- -- 9,982 -- -- --
Interest and other (income)
expense...................... (11,734) (5,524) (90,791) (6,237) (14,257) (1,539) (2,027)
Income (loss) before taxes and
extraordinary item........... 44,297 (665) 1,044 54,856 86,200 49,427 (115,504)
Income tax provision
(benefit).................... 10,202 3,740 2,782 25,895 37,070 26,350 (31,001)
Net income (loss) before
extraordinary item........... 34,095 (4,405) (1,738) 28,961 49,130 23,077 (84,503)
Extraordinary item............. -- -- -- -- -- -- (1,031)
Net income (loss).............. 34,095 (4,405) (1,738) 28,961 49,130 23,077 (85,534)
Earnings (loss) per common
share before extraordinary
item:
Basic........................ $ 0.56 $ (0.07) $ (0.03) $ 0.46 $ 0.78 $ 0.37 $ (1.34)
Diluted...................... 0.56 (0.07) (0.03) 0.46 0.77 0.36 (1.34)
Earnings (loss) per common
share:
Basic........................ $ 0.56 $ (0.07) $ (0.03) $ 0.46 $ 0.78 $ 0.37 $ (1.36)
Diluted...................... 0.56 (0.07) (0.03) 0.46 0.77 0.36 (1.36)
BALANCE SHEET DATA
(AT END OF PERIOD):
Property, plant and equipment, net.. $1,004,299 $1,217,656 $1,130,178 $1,244,641 $1,144,834 $1,307,804 $1,235,836
Total assets................... 1,286,391 1,454,050 1,359,125 1,515,063 1,411,066 1,548,277 1,441,463
Long-term debt................. 459,787 622,080 557,107 573,455 469,017 604,783 622,314
Shareholders' equity........... 567,943 557,646 562,621 597,730 647,204 622,164 562,467
</TABLE>
Table continued on following page
28
<PAGE> 36
SEAGULL ENERGY CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDAX(2)..................... $ 225,112 $ 254,367 $ 207,864 $ 313,513 $ 326,010 $ 241,550 $ 158,961
Net cash provided by operating
activities................... 139,623 207,339 117,727 258,439 262,749 175,933 96,142
Net cash used in investing
activities................... (171,848) (388,807) (36,141) (307,325) (106,779) (211,794) (295,883)
Net cash provided by (used in)
financing activities......... 29,705 168,212 (70,374) 42,334 (125,572) 36,360 167,971
Capital expenditures, including
acquisitions................. 167,364 396,412 144,101 317,882 293,273 212,985 321,221
OPERATING DATA:
Sales Volumes:
Oil (MBbls).................. 2,334 2,966 3,195 4,906 7,560 5,530 5,701
Gas (MMcf)................... 112,875 143,032 139,675 143,315 130,315 101,086 84,012
MBOE......................... 21,146 26,806 26,475 28,792 29,279 22,377 19,703
BOEPD........................ 57,934 73,441 72,534 78,667 80,216 81,967 72,172
Average Prices (excluding
hedging activities):
Oil (per Bbl)................ $ 15.77 $ 14.35 $ 15.21 $ 18.52 $ 17.34 $ 17.40 $ 11.62
Gas (per Mcf)................ 2.02 1.85 1.57 2.14 2.36 2.30 2.07
BOE (per BOE)................ 12.56 11.46 10.14 13.82 15.00 14.68 12.19
Production costs (per BOE)... 3.46 3.38 3.21 3.55 3.95 3.89 4.21
</TABLE>
- ---------------
(1) Reflects costs associated with the October 1996 merger between Seagull and
Global Natural Resources Inc.
(2) Earnings before interest, taxes, depreciation, depletion, amortization,
exploration expense, gains and losses on sales and retirements of assets,
non-cash impairments and non-recurring merger expenses. EBITDAX is presented
because it is a widely accepted financial indicator of Seagull's ability to
service and incur debt. EBITDAX is not intended to represent cash flow in
accordance with generally accepted accounting principles and does not
represent the measure of cash available for distribution.
29
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS OF NEW OCEAN
The following tables set forth unaudited pro forma condensed combined
financial data which are presented to give effect to the merger and to reflect
New Ocean's operations utilizing the full cost method of accounting for oil and
gas activities. The income statement data assume that the merger was consummated
on January 1, 1997. The balance sheet data assume that the merger was
consummated on September 30, 1998. The unaudited pro forma combined financial
data are not necessarily indicative of the results of operations or the
financial position which would have occurred had the merger been consummated at
the beginning of the earliest period presented, nor are they necessarily
indicative of future results of operations or financial position. Additionally,
the unaudited pro forma condensed combined statements of income exclude the
expected cost savings through the consolidation of the corporate headquarters of
the two companies and the elimination of duplicate staff and expenses, which are
estimated to be at least $45 million, on an annualized basis. A significant
portion, but not all of the amount is expected to be realized in the year ended
December 31, 1999. The unaudited pro forma combined financial data should be
read in conjunction with the historical consolidated financial statements of OEI
and Seagull incorporated by reference in this Joint Proxy Statement/Prospectus.
See "Where You Can Find More Information."
30
<PAGE> 38
NEW OCEAN
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------
PRO FORMA
PRO FORMA SEAGULL
COMBINING ACQUISITIONS/ PRO FORMA
OEI SEAGULL ADJUSTMENTS DISPOSITIONS COMBINED
--------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas operations......... $ 399,079 $ 256,415 $ 8,671(H) $ 664,165
Alaska transmission and
distribution................ -- 62,538 62,538
--------- --------- ------- ---------
Total....................... 399,079 318,953 8,671 726,703
Operating costs.................. 118,045 146,210 $ (4,642)(A) 4,199(H) 263,812
Exploration, including dry holes
and impairments................ -- 40,328 (40,328)(B) --
General and administrative....... 31,061 15,784 46,845
Depreciation, depletion and
amortization................... 217,719 127,845 (121,395)(C) 4,046(H) 312,184
83,969(D)
Impairment of long-lived
assets......................... 218,392 77,827 (73,629)(E) 222,590
--------- --------- --------- ------- ---------
Operating profit (loss).......... (186,138) (89,041) 156,025 426 (118,728)
Interest expense................. 40,562 28,490 (1,855)(F) 2,677(H) 69,874
Merger costs..................... 39,000 -- 39,000
Interest and other (income)
expense........................ (349) (2,027) (246)(H) (2,622)
--------- --------- --------- ------- ---------
Income (loss) before taxes and
extraordinary item............. (265,351) (115,504) 157,880 (2,005) (224,980)
Income tax provision (benefit)... (87,955) (31,001) 39,860(G) (732)(H) (79,828)
--------- --------- --------- ------- ---------
Net income (loss) before
extraordinary item............. $(177,396) $ (84,503) $ 118,020 $(1,273) $(145,152)
========= ========= ========= ======= =========
Loss per common share before
extraordinary item:
Basic.......................... $ (1.76) $ (1.34) $ (0.89)
========= ========= =========
Diluted........................ $ (1.76) $ (1.34) $ (0.89)
========= ========= =========
Weighted average common shares
outstanding:
Basic.......................... 100,544 63,072 163,616
========= ========= =========
Diluted........................ 100,544 63,072 163,616
========= ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
31
<PAGE> 39
NEW OCEAN
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------------------------
PRO FORMA
PRO FORMA SEAGULL
COMBINING ACQUISITIONS/ PRO FORMA
OEI SEAGULL ADJUSTMENTS DISPOSITIONS COMBINED
-------- -------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas operations........... $384,419 $338,953 $(7,812)(H) $715,560
Alaska transmission and
distribution.................. -- 63,455 63,455
-------- -------- ------- --------
Total......................... 384,419 402,408 (7,812) 779,015
Operating costs.................... 87,772 152,143 $ (3,889)(A) (943)(H) 235,083
Exploration, including dry holes
and impairments.................. -- 31,516 (29,323)(B) (2,193)(H) --
General and administrative......... 20,326 10,317 30,643
Depreciation, depletion and
amortization..................... 174,036 130,559 (113,379)(C) (436)(H) 280,016
89,236(D)
-------- -------- --------- ------- --------
Operating profit (loss)............ 102,285 77,873 57,355 (4,240) 233,273
Interest expense................... 36,305 29,985 (2,351)(F) 2,475(H) 66,414
Interest and other (income)
expense.......................... (2,430) (1,539) (7)(H) (3,976)
-------- -------- --------- ------- --------
Income (loss) before taxes and
extraordinary item............... 68,410 49,427 59,706 (6,708) 170,835
Income tax provision (benefit)..... 27,899 26,350 31,908(G) (4,594)(H) 81,563
-------- -------- --------- ------- --------
Net income (loss) before
extraordinary item............... $ 40,511 $ 23,077 $ 27,798 $(2,114) $ 89,272
======== ======== ========= ======= ========
Earnings per common share before
extraordinary item:
Basic............................ $ 0.44 $ 0.37 $ 0.58
======== ======== ========
Diluted.......................... $ 0.42 $ 0.36 $ 0.56
======== ======== ========
Weighted average common shares
outstanding:
Basic............................ 92,211 62,986 155,197
======== ======== ========
Diluted.......................... 96,656 63,746 160,402
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
32
<PAGE> 40
NEW OCEAN
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------
PRO FORMA
PRO FORMA SEAGULL
COMBINING ACQUISITIONS/ PRO FORMA
OEI SEAGULL ADJUSTMENTS DISPOSITIONS COMBINED
-------- -------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas operations.......... $552,194 $453,648 $ (1,764)(H) $1,004,078
Alaska transmission and
distribution................. -- 95,719 95,719
-------- -------- -------- ----------
Total........................ 552,194 549,367 (1,764) 1,099,797
Operating costs................... 124,394 209,146 $ (5,185)(A) 1,590(H) 329,945
Exploration, including dry holes
and impairments................. -- 42,085 (39,892)(B) (2,193)(H) --
General and administrative........ 30,218 16,144 46,362
Depreciation, depletion and
amortization.................... 248,423 171,516 (160,555)(C) 1,950(H) 380,315
118,981(D)
-------- -------- --------- -------- ----------
Operating profit (loss)........... 149,159 110,476 86,651 (3,111) 343,175
Interest expense.................. 49,134 38,533 (2,912)(F) 4,004(H) 88,759
Interest and other (income)
expense......................... (3,187) (14,257) 11,449(H) (5,995)
-------- -------- --------- -------- ----------
Income (loss) before income taxes
and extraordinary item.......... 103,212 86,200 89,563 (18,564) 260,411
Income tax provision (benefit).... 40,992 37,070 38,513(G) (1,893)(H) 114,682
-------- -------- --------- -------- ----------
Net income (loss) before
extraordinary item.............. $ 62,220 $ 49,130 $ 51,050 $(16,671) $ 145,729
======== ======== ========= ======== ==========
Earnings per common share before
extraordinary item:
Basic........................... $ 0.67 $ 0.78 $ 0.93
======== ======== ==========
Diluted......................... $ 0.64 $ 0.77 $ 0.91
======== ======== ==========
Weighted average common shares
outstanding:
Basic........................... 93,315 63,022 156,337
======== ======== ==========
Diluted......................... 96,646 63,791 160,437
======== ======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
33
<PAGE> 41
NEW OCEAN
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------------------------------------
PRO FORMA
COMBINING PRO FORMA
OEI SEAGULL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets.......................... $ 167,120 $ 159,187 $ 326,307
Property, plant and equipment, at
cost.................................. 2,976,177 2,341,234 $(2,341,234)(I) 4,272,440
1,296,263(J)
Accumulated depreciation, depletion and
amortization.......................... 1,313,675 1,105,398 (1,105,398)(I) 1,313,675
---------- ---------- ----------- ----------
Property, plant and equipment, net...... 1,662,502 1,235,836 60,427 2,958,765
Other assets............................ 172,659 46,440 (8,389)(K) 210,710
---------- ---------- ----------- ----------
Total Assets.......................... $2,002,281 $1,441,463 $ 52,038 $3,495,782
========== ========== =========== ==========
Current liabilities..................... $ 211,191 $ 183,019 $ 30,000(L) $ 424,210
Long-term debt.......................... 1,203,340 622,314 (2,498)(M) 1,823,156
Deferred credits and other
liabilities........................... 29,097 73,663 2,684(N) 105,444
Shareholders' equity.................... 558,653 562,467 21,852(O) 1,142,972
---------- ---------- ----------- ----------
Total Liabilities and Shareholders'
Equity............................. $2,002,281 $1,441,463 $ 52,038 $3,495,782
========== ========== =========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
34
<PAGE> 42
NEW OCEAN
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(A) To record the pro forma decrease in Seagull operating costs as a result of
the capitalization of exploration and development overhead costs in
accordance with the full cost method of accounting for oil and gas
activities.
(B) To record the reversal of historical Seagull exploration expense in
accordance with the full cost method of accounting for oil and gas
activities.
(C) To record the reversal of historical Seagull depreciation, depletion and
amortization expense recorded in accordance with the successful efforts
method of accounting for oil and gas activities.
(D) To record pro forma depreciation, depletion and amortization expense (i)
in accordance with the full cost method of accounting for oil and gas
activities and (ii) on the preliminary purchase price allocation to
depreciable and depletable assets.
(E) To record the reversal of historical Seagull impairment of oil and gas
properties recorded in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." Full cost ceiling tests were
performed on a New Ocean basis resulting in no incremental impairment of
oil and gas properties for the periods presented.
(F) To adjust Seagull historical interest expense to reflect the revaluation
of debt using the purchase method of accounting, including the reversal of
amortization of historical debt issuance costs.
(G) To record income tax expense on the pro forma adjustments based on the
applicable statutory tax rate.
(H) To adjust Seagull historical results of operations for the sale of its
Canadian oil and gas subsidiary effective October 6, 1997 (including the
elimination of the gain on the sale) and for the purchase of the stock of
BRG Petroleum, Inc. ("BRG") and the assets of BRG's limited partnerships
and programs effective June 1, 1998, as if these transactions had occurred
on January 1, 1997.
(I) To reverse historical Seagull property and equipment balances and the
related accumulated depreciation, depletion and amortization recorded in
accordance with successful methods of accounting for oil and gas
activities.
(J) To record the preliminary pro forma allocation of the purchase price of
the acquisition of Seagull including estimated merger costs to property,
plant and equipment using the purchase method of accounting. Management
does not believe that the preliminary allocation of the purchase price
will differ materially from the final allocation. The following is a
calculation and allocation of purchase price to the acquired assets and
liabilities based on their relative fair values.
<TABLE>
<S> <C>
CALCULATION OF PURCHASE PRICE (IN THOUSANDS EXCEPT PER
SHARE):
Shares of common stock to be issued....................... 64,255
Price per share (average of OEI stock price three days
before and after merger announcement).................. $ 9.09
----------
Fair value of stock issued................................ $ 584,319
Add: Estimated merger costs............................... 30,000
----------
Purchase Price............................................ $ 614,319
==========
ALLOCATION OF PURCHASE PRICE (IN THOUSANDS):
Equity.................................................... $ 584,319
Working capital and other liabilities..................... 711,944
----------
Property, plant and equipment............................. $1,296,263
==========
</TABLE>
(K) To record the reversal of the capitalized debt issuance costs related to
Seagull's historical long-term debt.
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<PAGE> 43
(L) To record the liabilities associated with estimated merger costs.
(M) To record the estimated fair value of Seagull long-term debt using the
purchase method of accounting.
(N) To record the pro forma deferred income tax effects of the merger using
the purchase method of accounting.
(O) To record the pro forma adjustments to shareholders' equity using the
purchase method of accounting. The adjustment amount is calculated as
follows (in thousands):
<TABLE>
<S> <C>
Fair value of stock issued (calculated in Note (J) above)... $ 584,319
Less: Seagull historical shareholders' equity............... 562,467
----------
Adjustment to shareholders' equity.......................... $ 21,852
==========
</TABLE>
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<PAGE> 44
THE MERGER
CONSIDERATION
When the merger is completed, each share of OEI common stock issued and
outstanding immediately prior to the effective time will be automatically
converted into one share of New Ocean common stock. In addition, each
outstanding and unexercised option to purchase OEI common stock will be
converted into an option to purchase the same number of shares of New Ocean
common stock at the same exercise price.
AMENDMENTS TO SEAGULL'S ARTICLES OF INCORPORATION
The merger agreement provides that upon the effectiveness of the merger,
Seagull's Articles of Incorporation will be amended to:
- increase the number of authorized shares of Seagull common stock from
100,000,000 to 450,000,000;
- increase the number of authorized shares of Seagull preferred stock from
5,000,000 to 50,000,000;
- change the name of Seagull to "Ocean Energy, Inc." and
- expand the corporate purpose clause to allow Seagull to engage in any
lawful business under Texas law. These amendments will occur
automatically if the merger is completed. If the merger is not completed
the Articles of Incorporation will not be amended.
OWNERSHIP OF NEW OCEAN FOLLOWING THE MERGER
The shares of New Ocean common stock to be issued to holders of OEI common
stock in the merger will constitute approximately 61.5% of all of the issued and
outstanding New Ocean common stock after the merger. The existing shareholders
of Seagull will hold approximately 38.5% of all of the issued and outstanding
New Ocean common stock after the merger.
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<PAGE> 45
BACKGROUND OF THE MERGER
Prior to discussing a possible transaction with each other, the Boards of
Directors and officers of OEI and Seagull each analyzed the possibility of
entering into strategic merger and acquisition transactions with other companies
in the oil and gas exploration and production industry.
Seagull's Review of Possible Transactions. In May 1997, Seagull engaged
Warburg Dillon Read LLC to analyze potential candidates for strategic
combinations. The Warburg Dillon Read analysis covered a number of potential
candidates, including United Meridian Corporation, one of OEI's predecessor
companies. Based upon publicly available information, Warburg Dillon Read
addressed the pro forma financial impact of the possible combinations and
advantages and disadvantages of each combination.
Warburg Dillon Read first presented this analysis to the Seagull Board in
June 1997. The Warburg Dillon Read report did not contain a recommendation,
either positive or negative, for Seagull to merge with any of the candidates.
The Seagull Board reviewed Warburg Dillon Read's analysis and elected not to
pursue any of these strategic acquisitions at the time, but directed management
to continue to study the matter.
In December 1997, Seagull engaged Merrill Lynch & Co. and Warburg Dillon
Read to act as financial advisors with regard to strategic alternatives if
Seagull received an unsolicited acquisition proposal. As part of this
engagement, both firms reviewed for the Board possible strategic combinations,
including United Meridian Corporation and Ocean Energy, Inc., the two
predecessor companies of OEI.
At Seagull's request, Warburg Dillon Read updated its June 1997 analysis
and presented it to the Seagull Board in February 1998. After Mr. Hackett joined
Seagull in September 1998, Warburg Dillon Read gave an updated presentation to
Seagull's senior management. In October 1998, representatives of Merrill Lynch
met with Seagull's senior management to review possible strategic combinations,
including a combination with OEI.
OEI's Review of Possible Transactions. In March 1998, OEI was formed by the
merger of United Meridian Corporation and Ocean Energy, Inc. During 1998, OEI's
management consulted with representatives of Lehman Brothers Inc. from time to
time on an informal basis with respect to possible strategic combinations. In
September 1998, the OEI Board held a planning session and a regularly scheduled
board meeting. At this meeting, certain strategic alternatives were discussed,
including strategic combinations, a sale of private equity and a property
purchase transaction. The OEI Board directed OEI's management to continue to
study these alternatives. In September and October 1998, OEI's management
engaged in preliminary discussions with certain companies other than Seagull
regarding strategic combinations and conducted due diligence with respect to
these companies. Based upon the results of the initial diligence, OEI elected
not to pursue any of these strategic combinations or the property purchase
transaction. Additionally, because of OEI's subsequent decision to merge with
Seagull, OEI elected not to sell equity.
Seagull and OEI Begin Discussions With Each Other. On October 28, 1998, Mr.
Hackett joined Messrs. Brock and Flores on an airplane flight returning to
Houston from an industry conference. During the flight, Messrs. Hackett, Brock
and Flores discussed the consolidation trend in the oil and gas exploration and
production industry and each person's perception of the industry's future. The
parties did not discuss any specific transaction, but did agree to exchange
information in order to evaluate a possible combination of the two companies.
As a result, on October 30, 1998, Mr. Clarkson, the chief financial officer
of OEI, and Mr. Transier, the chief financial officer of Seagull, exchanged
publicly available information. On October 29, 1998, Merrill Lynch was contacted
by Seagull to evaluate the possible combination of Seagull and OEI.
On November 2, 1998, Messrs. Hackett and Flores met and discussed a wide
range of topics. It was during this meeting that Messrs. Hackett and Flores
first discussed possible specific terms of a strategic combination of the two
companies. Although no specific exchange ratio was discussed at this meeting, it
was acknowledged that a stock-for-stock transaction should be considered.
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<PAGE> 46
On November 3, 1998, OEI requested J.P. Morgan and Lehman Brothers to
evaluate a possible strategic combination with Seagull.
The Boards Review the Possible Merger on November 4. At a regular meeting
of the OEI Board held on November 4, 1998, the members of the Board of Directors
of OEI reviewed the results of recent strategic combination discussions with
third parties and also initially discussed a possible strategic combination with
Seagull. The OEI Board of Directors authorized senior management to continue
investigating a possible strategic combination with Seagull.
At a regular meeting of the Seagull Board on November 4, 1998, the Seagull
Board discussed possible mergers with OEI and several other parties. The Seagull
Board reviewed the state of the oil and gas industry in general, as well as the
opportunities available to Seagull on a stand-alone basis. The Seagull Board
directed Seagull's management to work with OEI and with one other party to
determine whether a merger with either party was viable.
Seagull and OEI Continue Preliminary Negotiations. On November 5 and 6,
1998, Messrs. Hackett and Flores met to discuss the possible benefits and
challenges associated with a merger and the integration of the two companies and
their management teams. They agreed to continue due diligence activities with
respect to each other.
On November 9, 1998, Seagull and OEI signed a confidentiality agreement. On
the same day, Mr. Clarkson and Mr. Transier discussed due diligence matters and
organizational, financial and structural issues related to the proposed merger.
Also during the week of November 9, Seagull and its other potential merger
candidate met to exchange information with each other.
From November 10 through 16, 1998, Messrs. Hackett and Flores and/or their
respective financial advisors, counsel, accountants and representatives held
various meetings and phone conversations to discuss organizational, financial
and structural issues with respect to a possible merger, the relative strengths
of the two companies, the synergies of a combined entity and various due
diligence matters.
On November 16, 1998, the Seagull Board held a special meeting to discuss
whether to continue to pursue either of the two mergers that Seagull was
considering. Representatives of Merrill Lynch attended the board meeting and
gave a brief presentation with respect to the two transactions. The Seagull
Board directed management to continue to pursue a merger with OEI, and to
discontinue discussions with the other party.
Negotiation of the Merger Agreement. On November 17, 1998, Seagull and OEI
met with their lawyers and financial advisors to negotiate the terms of the
merger agreement. At the meeting, the parties agreed that the transaction would
be structured as a stock-for-stock merger, although the exchange ratio had not
yet been established. The parties also agreed that the merger agreement would
contain customary representations and covenants, and that the representations
would not survive after the effective time. The parties discussed the
circumstances under which a break-up fee would be paid if the merger agreement
were terminated and discussed many of the other details of the proposed
transaction.
At the November 17 meeting, the parties also discussed whether the approval
of the Alaska Public Utilities Commission would be needed for the merger, and
whether this depended upon whether Seagull or OEI survived the merger. Later
that day and on the following day, lawyers for Seagull and OEI discussed this
issue with Alaska counsel and concluded that it was advantageous for Seagull to
survive the merger, but that the approval of the Alaska Public Utilities
Commission would likely be required.
On November 18, 1998, Seagull delivered to OEI and its counsel a
preliminary draft of a merger agreement prepared by Seagull's counsel. This
draft reflected the discussions that the parties had at the November 17 meeting.
During the period of November 18 through 24, 1998, representatives of the
two companies, including their respective financial advisors, counsel and
accountants, held several due diligence meetings covering properties and
prospects, engineering, financial, legal, tax and accounting matters and held
numerous additional meetings to complete their respective factual
investigations, to resolve open issues and to finalize
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<PAGE> 47
the documentation relating to the merger. During the negotiation of the merger
agreement, no new substantive issues were raised, but the specific wording of
the merger agreement was finalized.
November 20 Board Meetings. Beginning on November 20, Seagull and OEI sent
updated and more specific materials to their Boards regarding the proposed
merger, including copies of the draft merger agreement and financial analyses.
On November 22, 1998, the OEI Board held a special meeting with OEI's
management, counsel and financial advisors. At this meeting, the OEI Board
received presentations regarding due diligence results, the terms of the merger
agreement and a financial overview of the combined company.
On the same day, the Seagull Board also held a special meeting with
Seagull's management, counsel and financial advisors. At this meeting, the
Seagull Board received presentations regarding due diligence results, the terms
of the merger agreement and a financial overview of the combined company.
Finalizing Engagement Letters. On November 24, 1998, OEI entered into
engagement letters with Lehman Brothers and J.P. Morgan to formalize its
arrangement with these firms in their capacity as financial advisors in
evaluating the merger.
On November 24, 1998, Seagull amended its engagement letters with Merrill
Lynch and Warburg Dillon Read to document the arrangement with respect to
compensation for serving as financial advisor in connection with the merger.
OEI Board Meeting to Approve the Merger. On November 24, 1998, the OEI
Board of Directors continued the special meeting that had begun on November 20.
To prepare for this meeting, directors were provided due diligence materials
prepared by counsel and a report prepared by Lehman Brothers and J.P. Morgan
addressing, among other things, the relative contributions of the two companies,
various valuation analyses, the strategic rationale for the proposed combination
of Seagull and OEI, projected financial and operating data for Seagull and OEI,
the operating and financial effects of the proposed combination and financial
and credit considerations.
At the OEI Board meeting, senior management and counsel gave a detailed
presentation of the terms and structure of the proposed merger and related
transactions, and both Lehman Brothers and J.P. Morgan made a presentation
regarding the proposed merger. The financial advisor presentations included,
among other things, a summary of the terms and structure of the merger, the
results of the due diligence investigations, an expected timetable for
completion of the merger and considerations supporting Lehman Brothers' and J.P.
Morgan's opinions to the OEI Board of Directors as summarized under "-- Opinions
of OEI's Financial Advisors."
At the same time that the OEI Board was meeting, the Seagull Board was
holding a special meeting at a different location in Houston. During the
meetings, Mr. Hackett and Mr. Flores left the meetings briefly so that they
could discuss the exchange ratio and the amount of the termination fees by
telephone. It was agreed during that telephone conversation that the exchange
ratio should be one share of Seagull common stock for each share of OEI common
stock.
Also at this meeting, each of Lehman Brothers and J.P. Morgan delivered its
oral opinion to the OEI Board to the effect that as of such date and based upon
and subject to certain matters stated therein, the exchange ratio offered to
OEI's common stockholders in the merger is fair to such stockholders from a
financial point of view. After such presentations and a discussion and
consideration of the factors described under "-- Reasons for the Merger -- OEI,"
the OEI Board of Directors approved the merger. OEI's financial advisors later
confirmed their opinions in writing as of November 24, 1998.
Seagull Board Meeting to Approve the Merger. On November 24, 1998, the
Seagull Board held a special meeting to consider the merger. To prepare for this
meeting, directors were provided due diligence materials prepared by Seagull and
a financial analysis of the combined company prepared by Seagull's management,
Merrill Lynch and Warburg Dillon Read. At this meeting, senior management and
counsel presented a detailed discussion of the terms and structure of the
proposed merger and related transactions, including the exchange ratio discussed
by Mr. Hackett and Mr. Flores by telephone during the meeting,
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<PAGE> 48
and both Merrill Lynch and Warburg Dillon Read made a presentation regarding the
proposed merger. The presentations included the considerations supporting
Merrill Lynch's and Warburg Dillon Read's opinions to the Seagull Board as
summarized under "-- Opinions of Seagull's Financial Advisors."
In addition, each of Merrill Lynch and Warburg Dillon Read delivered its
oral opinion to the Seagull Board of Directors to the effect that as of such
date and based upon and subject to certain matters stated therein, the exchange
ratio offered to OEI's stockholders was fair to Seagull's shareholders, from a
financial point of view. After such presentations and a discussion and
consideration of the factors described under "-- Reasons for the
Merger -- Seagull," the Seagull Board of Directors approved the merger.
Seagull's financial advisors later confirmed their opinions in writing as of
November 24, 1998.
Signing the Voting Agreements. Immediately prior to the execution of the
merger agreement, Mr. Brock, Mr. Flores and the Flores Family Limited
Partnership each entered into a Voting Agreement with Seagull. Under these
Voting Agreements, each of these stockholders agreed to vote in favor of the
merger.
At the same time, Mr. Galt, Mr. Hackett and The Prudential Insurance
Company of America entered into a Voting Agreement with OEI. Under these Voting
Agreements, each of these stockholders agreed to vote in favor of the merger.
Signing the Merger Agreement. Following the November 24 special meetings of
the OEI and Seagull Boards of Directors, Seagull and OEI signed the merger
agreement. On November 25, 1998, the parties issued a press release announcing
that they had entered into the merger agreement.
REASONS FOR THE MERGER -- OEI
At its November 24 meeting, the OEI Board approved the merger. All of the
directors that were present at the meeting voted in favor of the merger.
The OEI Board believes that the merger agreement and the terms of the
merger are fair to, and in the best interests of, OEI and the OEI stockholders.
Therefore, the OEI Board recommends that the stockholders of OEI vote FOR
adoption of the merger agreement and the transactions contemplated thereby.
In reaching its recommendation, the OEI Board of Directors consulted with
OEI's management, as well as its financial and legal advisors, and considered
the following material factors:
- the opportunity to realize $45 million in annual cost savings through the
merger, including through the consolidation of the corporate headquarters
of the two companies and the elimination of duplicative staff and
expenses;
- the merger will be accretive on a cash flow basis to the OEI stockholders
in 1999 and 2000, taking into account such cost savings;
- the merger would increase the percentage of OEI's gas reserves from
approximately 50% of total oil and gas reserves to approximately 57% for
the combined company;
- that the combined company will have an advantageous balance of domestic
and international reserves, with approximately 69% of New Ocean's proved
reserves located in North America and the remaining 31% located
internationally;
- that after the merger New Ocean will have an improved balance sheet and
greater financial flexibility and access to capital than OEI had on a
stand alone basis, which OEI management believes will result in improved
liquidity and lower cost of funding than OEI had on a stand alone basis;
- the continued involvement of key members of OEI management in the
management of the combined company, including James C. Flores as Chairman
of the Board, James L. Dunlap as Vice Chairman and Robert K. Reeves as
Executive Vice President and General Counsel;
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<PAGE> 49
- that OEI would designate the majority of the members of the New Ocean
Board of Directors;
- the combined entity would be among the ten largest independent oil and
gas companies based on production and proved reserves, with a larger
capital base and greater financial strength than OEI, which OEI
management believes will provide benefits including the potential for
growth opportunities through additional strategic acquisitions and the
potential for improved market valuations comparable to other large
independents;
- the structure of the merger, which would permit the holders of OEI common
stock to exchange all of their shares for shares of New Ocean common
stock in a tax-free transaction for federal income tax purposes;
- that the merger would be structured as a purchase transaction for
accounting purposes, which would give the combined company more
flexibility to dispose of non-core assets. By comparison, a pooling
transaction would restrict the combined company's flexibility in this
regard;
- the opinions of Lehman Brothers and J. P. Morgan to the OEI Board to the
effect that as of such date and based upon and subject to certain matters
stated therein, from a financial point of view the exchange ratio to be
offered to OEI stockholders in the merger was fair to such stockholders.
A copy of the opinions are included as Annex B and C hereto and should be
read carefully and in their entirety.
In reaching the decision to recommend the merger to its stockholders, the
OEI Board also considered a number of additional factors, including:
- its discussions with OEI's management concerning the results of OEI's
investigation of Seagull;
- the strategic, operational and financial opportunities available to OEI
in the normal course of its business compared to those that might be
available following the merger;
- the historical and current market prices of OEI common stock and Seagull
common stock; and
- the proposed structure of the transaction and the other terms of the
merger agreement and related agreements.
The OEI Board of Directors also considered certain risks and potential
disadvantages associated with the merger, including:
- the risk that the operations of the two companies may not be successfully
integrated;
- the risk that anticipated cost savings may not be realized to the degree
anticipated;
- the risk that the business combination might not be completed as a result
of a failure to satisfy the conditions to the merger agreement; and
- other matters described under "Risk Factors."
In the judgment of the OEI Board, the potential benefits of the merger
outweigh these considerations. The foregoing discussion of the information and
factors that were given weight by the OEI Board of Directors is not intended to
be exhaustive, but it is believed to include all material factors considered by
the OEI Board.
In view of the variety of factors considered in connection with its
evaluation of the proposed merger and the terms of the merger agreement, the OEI
Board did not believe it was practicable to quantify or assign relative weights
to the factors considered in reaching its conclusion. In addition, individual
OEI directors may have given different weights to different factors.
In considering the recommendation of the OEI Board with respect to the
merger, the merger agreement and the transactions contemplated thereby, OEI
stockholders should be aware that certain officers and directors of OEI have
certain interests in the proposed merger that are different from and in addition
to the interests of OEI stockholders generally. The OEI Board was aware of these
interests and
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<PAGE> 50
considered them in approving the merger and merger agreement. Please refer to
"The Merger -- Interests of Certain Persons in the Merger" for more information
about these interests.
REASONS FOR THE MERGER -- SEAGULL
At its November 24 meeting, the Seagull Board unanimously approved the
merger agreement and recommended that the Seagull shareholders approve the
merger agreement. The Seagull Board of Directors believes that the merger
agreement and the terms of the merger are fair to, and in the best interests of,
Seagull and the Seagull shareholders. Therefore, the Seagull Board recommends
that Seagull's shareholders vote FOR approval of the merger agreement.
In reaching its recommendation, the Seagull Board consulted with Seagull's
management, as well as its financial and legal advisors, and considered the
following material factors:
- the combined entity would be among the ten largest independent oil and
gas companies based on production and proved reserves, with a larger
capital base than Seagull, which Seagull management believes will provide
benefits including the potential for growth opportunities through
additional strategic acquisitions and the potential for improved market
valuations comparable to other large independents;
- that the combined company will have an advantageous balance of domestic
and international reserves, with approximately 69% of New Ocean's proved
reserves located in North America and the remaining 31% located
internationally;
- that the combined company will have a more balanced mix of oil and gas
reserves than Seagull, with a reserve mix of 57% gas and 43% oil;
- the opportunity to realize $45 million in annual cost savings through the
merger, including through the consolidation of the corporate headquarters
of the two companies and the elimination of duplicative staff and
expenses;
- the fact that the merger will have a neutral effect on cash flow to the
Seagull shareholders in 1999 and would increase cash flow in 2000, taking
into account the expected cost savings;
- the continued involvement of key members of Seagull management in the
management of the combined company, including James T. Hackett as
President and Chief Executive Officer and William L. Transier as
Executive Vice President and Chief Financial Officer;
- that Seagull would designate seven of the fifteen members of the New
Ocean Board of Directors;
- that the Seagull Board had determined that a strategic combination
resulting in a larger company was necessary for Seagull to compete
effectively in the current conditions facing the oil and gas industry,
and that, having reviewed the merits of other potential business
combinations, the Seagull Board believed that a merger with OEI was the
most attractive alternative available to Seagull for achieving its
strategic objectives;
- the structure of the merger, which will be a tax-free transaction for
federal income tax purposes;
- that the merger would be structured as a purchase transaction for
accounting purposes, which would give the combined company more
flexibility to dispose of non-core assets. By comparison, a pooling
transaction would restrict the combined company's flexibility in this
regard;
- the opinions of Merrill Lynch and Warburg Dillon Read to the Seagull
Board of Directors to the effect that as of the date of the opinions and
based upon and subject to certain matters stated therein, the exchange
ratio was fair to the Seagull shareholders from a financial point of
view. A copy of the opinions are included as Annex D and E hereto and
should be read carefully and in their entirety.
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<PAGE> 51
In reaching its decision to recommend the merger to its shareholders, the
Seagull Board also considered a number of additional factors, including:
- its discussions with Seagull's management concerning the results of
Seagull's investigation of OEI;
- the strategic, operational and financial opportunities available to
Seagull in the normal course of its business compared to those that might
be available following the merger;
- the possibility of alternative strategic transactions with other merger
partners;
- the historical and current market prices of Seagull common stock and OEI
common stock; and
- the proposed structure of the transaction and the other terms of the
merger agreement and related agreements.
The Seagull Board of Directors also considered certain risks and potential
disadvantages associated with the merger, including:
- the increased levels of debt and interest costs that the combined company
would have compared to Seagull on a stand-alone basis;
- the risk that the operations of the two companies may not be successfully
integrated;
- the fact that OEI would designate a majority of the directors of the
combined company;
- the risk that expected cost savings may not be realized to the degree
anticipated;
- the risk that the business combination might not be completed as a result
of a failure to satisfy the conditions to the merger agreement; and
- other matters described under "Risk Factors."
In the judgment of the Seagull Board of Directors, the potential benefits of the
merger outweigh these considerations. The foregoing discussion of the
information and factors that were given weight by the Seagull Board is not
intended to be exhaustive, but it is believed to include all material factors
considered by the Seagull Board.
In view of the variety of factors considered in connection with its
evaluation of the proposed merger and the terms of the merger agreement, the
Seagull Board of Directors did not deem it practicable to quantify or assign
relative weights to the factors considered in reaching its conclusion. In
addition, individual Seagull directors may have given different weights to
different factors.
In considering the recommendation of the Seagull Board of Directors with
respect to the merger, the merger agreement and the transactions contemplated
thereby, Seagull shareholders should be aware that certain officers and
directors of Seagull have certain interests in the proposed merger that are
different from and in addition to the interests of Seagull shareholders
generally. The Seagull Board of Directors was aware of these interests and
considered them in approving the merger and merger agreement. Please refer to
"The Merger -- Interests of Certain Persons in the Merger" for more information
about these interests.
OPINIONS OF OEI'S FINANCIAL ADVISORS
OPINION OF LEHMAN BROTHERS
Lehman Brothers acted as OEI's financial advisor in connection with the
merger. OEI instructed Lehman Brothers, in its role as a financial advisor, to
evaluate the fairness, from a financial perspective, of the exchange ratio
offered to the OEI stockholders in the merger. On November 24, 1998, Lehman
Brothers delivered its oral and written opinion to the OEI Board, to the effect
that, as of such date and based upon and subject to certain matters stated
therein, from a financial point of view, the exchange ratio offered to OEI's
stockholders in the merger was fair to such stockholders.
THE FULL TEXT OF THE LEHMAN BROTHERS' FAIRNESS OPINION, WHICH SETS FORTH
THE ASSUMPTIONS MADE, FACTORS CONSIDERED AND LIMITATIONS UPON THE REVIEW
UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS
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<PAGE> 52
OPINION, IS INCLUDED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS, AND IS
INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF THE MATERIAL
PROVISIONS OF LEHMAN BROTHERS' FAIRNESS OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH OPINION. OEI STOCKHOLDERS ARE URGED TO READ THE LEHMAN
BROTHERS OPINION IN ITS ENTIRETY.
No limitations were imposed by OEI on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. Lehman Brothers was not requested to and did not make any
recommendation to the OEI Board as to the form or amount of the consideration to
be received by OEI's stockholders in the merger, which was determined through
arm's-length negotiations between the parties. In arriving at its opinion,
Lehman Brothers did not ascribe a specific range of values to OEI or Seagull but
made its determination as to the fairness of the exchange ratio to be offered to
OEI's stockholders in the merger on the basis of the financial and comparative
analyses described below. Lehman Brothers' opinion is for the use and benefit of
the OEI Board and was rendered to the OEI Board in connection with its
consideration of the merger. Lehman Brothers' opinion does not constitute a
recommendation to any stockholder of OEI as to how such stockholders should vote
with respect to the merger. Lehman Brothers was not requested to opine as to,
and its opinion does not address, OEI's underlying business decision to proceed
with or effect the merger. In addition, Lehman Brothers expressed no opinion as
to the prices at which shares of New Ocean common stock actually will trade
following consummation of the merger. Lehman Brothers' opinion should not be
viewed as providing any assurance that the market value of the shares of New
Ocean common stock to be held by stockholders of OEI after the merger will be
greater than the market value of the OEI common stock at any time prior to
announcement or consummation of the merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed the
following:
- the merger agreement and the specific terms of the merger, including the
provisions therein relating to corporate governance and management of New
Ocean following the merger;
- such publicly available information concerning OEI and Seagull that
Lehman Brothers believed to be relevant to its analysis, including,
without limitation, each of the periodic reports and proxy statements
filed by OEI and Seagull since January 1, 1998, including the audited and
unaudited financial statements included in such reports and statements;
- financial and operating information with respect to the respective
businesses, operations and prospects of OEI and Seagull furnished to
Lehman Brothers by OEI and Seagull, including financial projections based
on the respective business plans of OEI and Seagull and, in particular,
(a) certain estimates of proved and non-proved reserves, (b) projected
annual production of such reserves in certain domestic and international
areas and (c) the amounts and timing of the cost savings and operating
synergies expected to result from a combination of the businesses of OEI
and Seagull;
- a trading history of the OEI common stock from March 31, 1998 to the
present and a comparison of that trading history with those of other
companies that it deemed relevant, including Seagull;
- a trading history of the Seagull common stock from March 31, 1998 to the
present and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant, including OEI;
- a comparison of the historical financial results and present financial
condition of OEI with those of other companies that Lehman Brothers
deemed relevant;
- a comparison of the historical financial results and present financial
condition of Seagull with those of other companies that Lehman Brothers
deemed relevant;
- the potential pro forma impact of the merger on OEI, including the cost
savings and operating synergies expected by the managements of OEI and
Seagull to result from a combination of the businesses of OEI and
Seagull;
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- a comparison of the financial terms of the merger with the financial
terms of certain other transactions that Lehman Brothers deemed relevant;
and
- the relative contributions on a pro forma basis of OEI and Seagull to the
financial condition and results of operations of New Ocean.
In addition, Lehman Brothers had discussions with the senior managements of
OEI and Seagull concerning their respective businesses, operations, financial
conditions, assets, reserves, production profiles, exploration programs and
prospects and the cost savings, operating synergies and strategic benefits
expected by the managements of OEI and Seagull to result from a combination of
the businesses of OEI and Seagull. Lehman Brothers also undertook such other
studies, analyses and investigations as it deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information. Lehman Brothers also relied upon the assurances of managements
of OEI and Seagull that they are not aware of any facts or circumstances that
would make such information inaccurate or misleading. Upon the advice of OEI and
Seagull, Lehman Brothers assumed that the financial projections for OEI, Seagull
and New Ocean, including the cost savings and operating synergies expected to
result from a combination of the businesses of OEI and Seagull, had been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the managements of OEI and Seagull, as to the future financial
performance of OEI, Seagull and New Ocean, and that each of OEI and Seagull on a
stand alone basis would perform, and New Ocean will perform, substantially in
accordance with such projections. In arriving at its opinion, Lehman Brothers
did not conduct a physical inspection of the properties and facilities of OEI or
Seagull and did not make or obtain from third parties any evaluations or
appraisals of the assets or liabilities of OEI or Seagull. Upon the advice of
OEI and its legal and accounting advisors, Lehman Brothers assumed that the
merger will qualify as a tax-free reorganization for U.S. federal income tax
purposes. Lehman Brothers' opinion necessarily is based upon market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of its opinion.
In connection with rendering its opinion, Lehman Brothers performed certain
financial, comparative and other analyses as described below. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial and comparative analysis and the application
of those methods to the particular circumstances. As a result fairness opinions
are not readily susceptible to summary description. Furthermore, in arriving at
its opinion, Lehman Brothers 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, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and of the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying its opinion. In performing its analyses, Lehman
Brothers made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of OEI or Seagull. Any estimates contained in the analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
Valuation Analyses
Net Asset Value Analysis. Lehman Brothers estimated, at a range of
discount rates, the present value of the future pretax cash flows that OEI could
be expected to generate from OEI's proved, probable and possible reserves as of
October 1, 1998 based on reserve, production and production cost estimates
provided by OEI management. Lehman Brothers added to such estimated values for
proved, probable and possible reserves assessments of the value of certain other
assets and liabilities of OEI, including other
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land and acreage, seismic inventory, net operating loss carryforwards, working
capital and the market value of debt under two oil and gas price scenarios.
These assessments were made by Lehman Brothers based on information provided by
OEI's management and on various industry benchmarks and assumptions provided by
and discussed with Seagull management.
Lehman Brothers estimated the present value of the future pretax cash flows
that Seagull could be expected to generate from proved, probable and possible
reserves as of October 1, 1998 based on reserve, production and production cost
estimates and a range of discount rates, provided by Seagull management and
discussed with OEI management. Lehman Brothers added to such estimated values
for proved, probable and possible reserves assessments of the value of certain
other assets and liabilities of Seagull, including Seagull's ENSTAR Alaska
business unit, other land and acreage, seismic inventory, net operating loss
carryforwards, working capital and the market value of debt under the pricing
scenarios. These assessments were made by Lehman Brothers based on information
provided by Seagull's management and on various industry benchmarks and
assumptions provided by and discussed with OEI management.
The Net Asset Value Analysis resulted in implied exchange ratio ranges of
0.79 to 0.99 and 1.01 to 1.17, depending upon the oil and gas price assumptions
used.
Going Concern Analysis. Lehman Brothers prepared pretax cash flow models
for both OEI and Seagull utilizing information and projections provided by both
companies. With respect to the pretax cash flow of OEI, Lehman Brothers used
discount rates of 10% to 14% and terminal value EBITDE multiples of 6.0 to 7.0.
With respect to the pretax cash flow of Seagull, Lehman Brothers used discount
rates of 10% to 14% and terminal value EBITDE multiples of 4.5 to 5.5. The
discount rates for both companies were based on Lehman Brothers' review of the
financial terms of similar transactions involving U.S. and international
exploration and production companies. The terminal value multiples were selected
based on the current trading multiples of similar publicly traded companies to
OEI and Seagull and the multiples from recent acquisitions of similar assets and
companies.
This methodology yielded valuation ranges for OEI and Seagull that implied
an exchange ratio range of 0.89 to 1.01.
Comparable Acquisition Analysis. With respect to OEI and Seagull, Lehman
Brothers reviewed certain publicly available information on selected domestic
U.S. and international exploration and production company transactions which
were announced from July of 1996 to October of 1998 including, but not limited
to, Kerr-McGee/Oryx, Atlantic Richfield/Union Texas, OEI/United Meridian, Sonat
Inc./Zilkha Energy Company, Pioneer Natural Resources Company/Chauvco Resources
Ltd., Burlington Resources Inc./Louisiana Land and Exploration Company, Parker &
Parsley Petroleum Company/Mesa, Inc. and Seagull/Global Natural Resources. For
each transaction, Lehman Brothers calculated an enterprise transaction value
multiple based on different statistics of the target company, including: (1)
EBITDE during the latest twelve month period prior to announcement of the
transaction, (2) proved oil and gas reserves and (3) after-tax SEC Value. The
enterprise transaction value multiples were applied to OEI's and Seagull's data
points for each of the three above-mentioned statistics and adjusted for the
market value of total debt less cash and cash equivalents to calculate an
implied range of equity value. In addition, Lehman Brothers calculated for each
transaction an equity transaction value multiple based on the target company's
discretionary cash flow during the latest twelve month period prior to
announcement of the transaction. The multiples were applied to both OEI's and
Seagull's 1998 estimated discretionary cash flow to again calculate an implied
range of equity value.
The comparable acquisition analysis resulted in an implied exchange ratio
range of 0.97 to 1.03. However, because the market conditions, rationale and
circumstances surrounding each of the transactions analyzed were specific to
each transaction and because of the inherent differences between the businesses,
operations and prospects of OEI and Seagull and the companies involved in the
comparable transactions analyzed, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis. Accordingly, Lehman Brothers also made qualitative judgments
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concerning differences between the characteristics of these transactions and the
merger that would affect the equity values of OEI and Seagull and such other
companies.
Comparable Company Trading Analysis. With respect to OEI, Lehman Brothers
reviewed the public stock market trading multiples for selected
large-capitalization domestic U.S. and international independent exploration and
production companies, including, but not limited to, Anadarko Petroleum
Corporation, Apache Corporation, Burlington Resources Inc., Enron Oil & Gas
Company, Kerr-McGee, pro forma for its merger with Oryx Energy Company, Noble
Affiliates, Pioneer Natural Resources Company, Pennzoil Company, pro forma for
the spin-off of its motor oil and refined products marketing operations, Union
Pacific Resources and Vastar. Using publicly available information, Lehman
Brothers calculated and analyzed the common equity market value multiples of
certain projected financial criteria based upon published analyst estimates,
such as net income and discretionary cash flow. Lehman Brothers also calculated
and analyzed the adjusted capitalization multiples of certain historical and
projected financial criteria based upon published analyst estimates, such as
EBITDE and proved reserves of oil and gas equivalent barrels. The adjusted
capitalization of each company was obtained by adding long-term debt to the sum
of the market value of its common equity, the value of its preferred stock
(based upon its market value if publicly traded and its liquidation value if
not) and the book value of any minority interest minus the cash balance.
With respect to Seagull, Lehman Brothers reviewed the public stock market
trading multiples for selected large-capitalization and mid-capitalization
domestic U.S. and international independent exploration and production
companies, including those companies mentioned above in connection with the OEI
analysis, as well as Barrett Resources, Belco Oil & Gas, Devon Energy, EEX,
Louis Dreyfus, Mitchell Energy, Newfield Exploration, Nuevo Energy, Pogo
Producing, Santa Fe Energy and Vintage Petroleum. Using publicly available
information, Lehman Brothers calculated and analyzed the common equity market
value multiples of certain projected financial criteria, such as net income and
discretionary cash flow. Lehman Brothers also calculated and analyzed the
adjusted capitalization multiples of certain historical and projected financial
criteria based upon published analyst estimates, such as EBITDE and proved
reserves of oil and gas equivalent barrels. The adjusted capitalization of each
company was obtained by adding long-term debt to the sum of the market value of
its common equity, the value of its preferred stock (based upon its market value
if publicly traded and its liquidation value if not) and the book value of any
minority interest minus the cash balance.
This methodology yielded an implied exchange ratio range of 1.02 to 1.07.
However, because of the inherent differences between the businesses, operations
and prospects of OEI and Seagull and the companies included in the comparable
company groups, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis.
Accordingly, Lehman Brothers also made qualitative judgments concerning
differences between the financial and operating characteristics of OEI and
Seagull and companies in the comparable company groups that would affect the
public trading values of OEI and Seagull and such comparable companies.
Historical Common Stock Trading Analysis. Lehman Brothers reviewed the
daily historical closing prices of the OEI and Seagull common stock for the
period from March 31, 1998 to November 20, 1998. Lehman Brothers analyzed the
ratio of the November 20, 1998 closing share price for OEI to the corresponding
closing share price of Seagull. In addition, Lehman Brothers reviewed the ratio
of the closing share prices for OEI and Seagull based on 10, 20, 30, 60 and 90
trading day averages, respectively, as of November 20, 1998. Based on the 30 and
60 day average closing share prices of the OEI and Seagull common stock, this
analysis implied an exchange ratio range of 0.97 to 1.01.
Contribution Analysis
Lehman Brothers analyzed the relative EBITDE and discretionary cash flow
contributions of OEI and Seagull to New Ocean based on projected financial data
provided by OEI and Seagull and assuming no cost savings or synergies for the
years 1998 to 2000. The analysis indicated that OEI will contribute
approximately 60.6% to 63.4% of New Ocean's annual EBITDE and 62.6% to 63.1% of
New Ocean's
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annual discretionary cash flow for the years 1998 to 2000. Lehman Brothers also
analyzed the relative contributions of OEI and Seagull to New Ocean's estimated
proved reserves of oil and gas equivalent barrels as of December 31, 1998 and to
New Ocean's estimated total 1998 oil and gas production. The analysis indicated
that OEI will contribute approximately 59.8% to New Ocean's estimated proved
reserves of oil and gas equivalent barrels as of December 31, 1998 and 61.6% to
New Ocean's estimated total 1998 oil and gas production. OEI stockholders will
receive approximately 61.5% of New Ocean's equity.
Pro Forma Merger Consequences Analysis
Lehman Brothers prepared a pro forma merger model which incorporates OEI's
and Seagull's financial projections based on certain assumptions and
merger-related adjustments for the years 1998 through 2000. The model also
incorporates the companies' estimates of future cost savings and synergies
resulting from the merger. Lehman Brothers then compared the earnings and
discretionary cash flow of OEI on a standalone basis to the earnings and
discretionary cash flow attributable to OEI's respective interests in pro forma
New Ocean. The analysis indicated that the merger will be accretive to OEI's
discretionary cash flow per share in 1999 and roughly neutral to OEI's
discretionary cash flow per share in 2000.
Lehman Brothers is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. The OEI
Board selected Lehman Brothers because of its expertise, reputation and
familiarity with OEI in particular and the oil and gas industry in general and
because its investment banking professionals have substantial experience in
transactions comparable to the merger.
Pursuant to the terms of an engagement letter agreement, dated November 18,
1998, between Lehman Brothers and OEI, OEI paid Lehman Brothers a fee of
$500,000 upon delivery of its opinion and has agreed to pay an additional fee of
$4,500,000 upon the successful completion of the merger. In addition, if the
merger agreement is terminated under circumstances pursuant to which a
termination fee is paid to OEI, OEI has agreed to pay Lehman Brothers a fee of
$2,500,000 for its services. OEI has also agreed to reimburse Lehman Brothers
for its reasonable expenses incurred in connection with its engagement, and to
indemnify Lehman Brothers and certain related persons against certain
liabilities in connection with its engagement. Lehman Brothers has previously
rendered financial advisory and investment banking services to OEI, for which it
has received customary compensation. These include advising OEI in connection
with its merger in March 1998 with United Meridian Corporation, co-lead managing
OEI's common stock offering in November 1997, co-managing OEI's high-yield debt
offering in June 1997 and co-managing OEI's debt offering in July 1998. Lehman
Brothers also has performed various investment banking services for Seagull in
the past and has received customary fees for such services.
In the ordinary course of its business, Lehman Brothers actively trades in
the debt and equity securities of OEI and Seagull for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
OPINION OF J.P. MORGAN SECURITIES INC.
Pursuant to an engagement letter dated November 20, 1998, OEI retained J.P.
Morgan as its financial advisor and to deliver a fairness opinion in connection
with the proposed merger.
At the meeting of the Board of Directors of OEI on November 24, 1998, J.P.
Morgan rendered its oral opinion to the Board of Directors of OEI that, as of
such date, the consideration to be received by OEI's stockholders in the
proposed merger was fair from a financial point of view to such stockholders.
J.P. Morgan has confirmed its November 24, 1998 oral opinion by delivering its
written opinion to the OEI Board, dated November 24, 1998, to the same effect.
No limitations were imposed by OEI's Board upon J.P. Morgan with respect to the
investigations made or procedures followed by it in rendering its opinions.
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THE FULL TEXT OF THE WRITTEN OPINION OF J.P. MORGAN DATED NOVEMBER 24,
1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. OEI'S STOCKHOLDERS
ARE URGED TO READ THE OPINION IN ITS ENTIRETY. J.P. MORGAN'S WRITTEN OPINION IS
ADDRESSED TO THE BOARD OF DIRECTORS OF OEI, IS DIRECTED ONLY TO THE
CONSIDERATION TO BE RECEIVED IN THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF OEI AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE OEI SPECIAL MEETING. THE SUMMARY OF THE MATERIAL PROVISIONS OF THE
OPINION OF J.P. MORGAN SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, J.P. Morgan reviewed, among other things:
- the merger agreement;
- the audited financial statements of OEI and Seagull for the fiscal year
ended December 31, 1997, and the unaudited financial statements of OEI
and Seagull for the period ended September 30, 1998;
- current and historical market prices of OEI's and Seagull's common stock;
- certain publicly available information concerning the business of OEI and
Seagull and of certain other companies engaged in businesses comparable
to those of OEI and Seagull, and the reported market prices for certain
other companies' securities deemed comparable;
- publicly available terms of certain transactions involving companies
comparable to OEI and Seagull and the consideration received for such
companies;
- the terms of other business combinations deemed relevant by J.P. Morgan;
- certain internal financial analyses and forecasts prepared by OEI and
Seagull and their respective managements, including (a) certain estimates
of proved and non-proved oil and natural gas reserves, (b) projected
annual production volumes of such reserves in certain domestic and
international areas, and (c) the amount and timing of cost savings
expected to result from the merger; and
- certain agreements with respect to outstanding indebtedness or
obligations of OEI and Seagull.
J.P. Morgan also held discussions with certain members of the management of
OEI and Seagull with respect to certain aspects of the merger, the past and
current business operations of OEI and Seagull, the financial condition and
future prospects and operations of OEI and Seagull, and certain other matters
believed necessary or appropriate to J.P. Morgan's inquiry. In addition, J.P.
Morgan reviewed such other financial studies and analyses and considered such
other information as it deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by OEI and Seagull or otherwise reviewed by J.P. Morgan.
J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
In relying on financial analyses and forecasts provided to J.P. Morgan, J.P.
Morgan has assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management as
to the expected future results of operations and financial condition of OEI and
Seagull to which such analyses or forecasts relate. With the consent of OEI,
J.P. Morgan has also assumed that the merger will be tax-free for U.S. federal
income tax purposes, and that the other transactions contemplated by the merger
agreement will be consummated as described in the merger agreement.
The projections furnished to J.P. Morgan for OEI and Seagull were prepared
by the respective managements of each company. Neither OEI nor Seagull publicly
discloses internal management
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projections of the type provided to J.P. Morgan in connection with J.P. Morgan's
analysis of the merger, and such projections were not prepared with a view
toward public disclosure. These projections were based on numerous variables and
assumptions that are inherently uncertain and may be beyond the control of
management, including, without limitation, factors related to general economic
and competitive conditions and prevailing interest rates. Accordingly, actual
results could vary significantly from those set forth in such projections.
J.P. Morgan's opinion was based on economic, market and other conditions as
in effect and information made available to J.P. Morgan as of the date of its
opinion. Subsequent developments may affect the J.P. Morgan opinion, and J.P.
Morgan does not have any obligation to update, revise, or reaffirm such opinion.
J.P. Morgan expressed no opinion as to the price at which OEI's or Seagull's
common stock will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
Historical Contribution Analysis. J.P. Morgan reviewed and analyzed the
relative historical contribution of both OEI and Seagull to a combined pro forma
entity. The following financial performance measures were reviewed: market
capitalizations on November 20, 1998 and the average for the 30 day period prior
to November 20, 1998; earnings before interest, tax, depreciation, depletion,
amortization, exploration and other non-cash expenses ("EBITDAX"); and after-tax
operating cash flow (i.e. net income plus depreciation, depletion and
amortization plus (minus) other non-cash expenses (income) ("CF")). In addition
to these financial performance measures, J.P. Morgan also analyzed relative oil
and gas reserves, production and SEC-10 values, which is a standardized measure
of discounted future net cash flows relating to proved oil and gas reserves, as
of December 31, 1997. J.P. Morgan observed that the relative contribution by OEI
to a combined pro forma entity in the most recent full year would have been
between 56% and 61% depending on the measure used. This fact and the other
matters described hereunder contributed to J.P. Morgan's conclusion that 61.5%
was a fair measure of OEI's contribution to New Ocean.
Sharing of Future Benefits of the Merger. J.P. Morgan noted that because
OEI's stockholders' continuing ownership position in New Ocean would be
approximately 61.5%, such stockholders' share of the value created through the
merger (i.e., synergies plus potential for stock price to CF ("P/CF") multiple
expansion) would be approximately 1.6 times that of Seagull's shareholders.
Forecast Contribution Analysis. J.P. Morgan reviewed and analyzed the
forecast EBITDAX and after-tax operating cash flows for 1998, 1999 and 2000 for
both OEI and Seagull. J.P. Morgan also reviewed and analyzed the projected
production volumes for 1998 for both OEI and Seagull. J.P. Morgan observed that
OEI was forecast to contribute between approximately 60% and 63% of the future
EBITDAX and after-tax operating cash flow and approximately 61.8% of the
production volumes of a combined entity. This, in addition to the share of OEI's
stockholders in the benefit of the future synergies, estimated at $45 million
per year by both companies' management, being approximately 1.6 times that of
Seagull's shareholders, reinforced J.P. Morgan's belief that 61.5% was a fair
measure of OEI's contribution to New Ocean.
Public Trading Multiples. Using publicly available information, J.P.
Morgan performed an analysis comparing OEI's and Seagull's current firm value to
EBITDAX multiples ("FV/EBITDAX") and P/CF multiples to those of selected
publicly traded companies engaged in businesses which J.P. Morgan judged to be
analogous to New Ocean. The companies selected by J.P. Morgan were Anadarko
Petroleum, Apache Corporation, Enron Oil & Gas, Noble Affiliates, Pioneer
Natural Resources, Santa Fe Energy, Union Pacific Resources, and Vastar
Resources (as used in "-- Opinion of J.P. Morgan Securities, Inc.," the
"Comparable Companies"). This analysis implied a relative contribution from OEI
to New Ocean of between 60.5% and 61.1%. Such analysis indicated that OEI was
trading at a 28% discount to the median 1999 prospective P/CF multiple of the
Comparable Companies. J.P. Morgan's analysis indicated that if New Ocean were to
be valued at prospective P/CF multiples comparable to the median prospective
P/CF
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multiples of Comparable Companies, there would be significant enhancement of
value to the stockholders of OEI. J.P. Morgan pointed out that there could be no
assurance that this value would be realized.
Selected Transaction Analysis. Using publicly available information, J.P.
Morgan examined publicly available terms of certain transactions involving
companies comparable to OEI and Seagull and the consideration received for such
companies. J.P. Morgan's analysis reinforced J.P. Morgan's belief that 61.5% was
a fair measure of OEI's contribution to New Ocean.
Net Asset Value Analysis. J.P. Morgan conducted a discounted cash flow
analysis of the proved, probable, and possible reserves for the purpose of
determining the fully diluted equity value per share for OEI's and Seagull's
common stock. J.P. Morgan calculated the unlevered free cash flow that OEI and
Seagull are expected to generate during fiscal years 1999 through 2014 based
upon financial and engineering projections prepared by the management of OEI
through the years ended 2014 and upon management projections adjusted by J.P.
Morgan to reflect more moderate growth in revenues and lower operating margins
during the 16-year period. The unlevered free cash flows of OEI were then
discounted to present values using a range of discount rates from 9% to 11%,
which were chosen by J.P. Morgan based upon an analysis of the weighted average
cost of capital of OEI. The unlevered free cash flows of Seagull were then
discounted to present values using a range of discount rates from 8% to 10%,
which were chosen by J.P. Morgan based upon an analysis of the weighted average
cost of capital of Seagull. The present value of the unlevered free cash flows
and the range of terminal asset values of OEI and Seagull were then adjusted for
OEI's and Seagull's other assets and liabilities including working capital and
estimated 1998 fiscal year-end excess cash and total debt and in the case of
Seagull its ENSTAR Alaska business unit. The net asset value analysis resulted
in an implied contribution to New Ocean by OEI of between 61.4% and 63.6%.
Going Concern Analysis. J.P. Morgan conducted a discounted cash flow
analysis for OEI and Seagull utilizing calculated unlevered free cash flows
based upon information and financial projections prepared by the management of
both companies. J.P. Morgan used terminal value FV/EBITDAX multiples of between
6.0x to 6.8x and 5.0x to 6.0x for OEI and Seagull, respectively, based upon
selected trading multiples of similar publicly traded companies for each
company. J.P. Morgan discounted the OEI and Seagull unlevered free cash flows
and terminal values to present values using 9% to 11% and 8% to 10%,
respectively.
The going concern analysis resulted in an implied contribution to New Ocean
by OEI of between 59.6% and 61.5%.
New Ocean Pro Forma Merger Analysis. J.P. Morgan analyzed the then-current
pro forma New Ocean cash flow per share forecasts for 1999 and 2000 based on
internal financial projections prepared by OEI and Seagull and their respective
managements. The analysis showed, assuming synergies of $45 million per year, on
an equivalent share basis, that the merger would be accretive to cash flow in
1999 and 2000 to OEI's stockholders.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set forth
above and their analyses must be considered as a whole and that selecting
portions thereof, without considering all of its analyses, could create an
incomplete view of the processes underlying its analyses and opinion. J.P.
Morgan based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which J.P.
Morgan based its analyses are set forth above under the description of each such
analysis. J.P. Morgan's analyses are not necessarily indicative of actual values
or actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, J.P. Morgan's analyses are not and do not
purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
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As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. J.P. Morgan was selected to advise OEI and to
deliver a fairness opinion with respect to the merger on the basis of such
experience and its familiarity with OEI.
For services rendered in connection with the merger and the delivery of its
opinion, OEI has agreed to pay J.P. Morgan a fee of $5,000,000, of which
$4,500,000 will be payable upon closing of the merger. In addition, if the
merger agreement is terminated under circumstances pursuant to which a
termination fee is paid to OEI, OEI has agreed to pay J.P. Morgan a fee of
$3,000,000 for its services, less the amount paid to J.P. Morgan upon delivery
of its opinion to OEI. OEI has also agreed to reimburse J.P. Morgan for its
expenses incurred in connection with its services, including the fees and
disbursements of counsel, and will indemnify J.P. Morgan against certain
liabilities.
J.P. Morgan and its affiliates maintain banking and other business
relationships with OEI and Seagull, for which it receives customary fees. In the
ordinary course of their businesses, affiliates of J.P. Morgan may actively
trade the debt and equity securities of OEI or Seagull for their own accounts or
for the accounts of customers and, accordingly, they may at any time hold long
or short positions in such securities.
OPINIONS OF SEAGULL'S FINANCIAL ADVISORS
OPINION OF MERRILL LYNCH
Seagull retained Merrill Lynch to act as its financial co-advisor in
connection with the merger. On November 24, 1998, Merrill Lynch rendered its
oral opinion to the Seagull Board, later confirmed in writing in the Merrill
Lynch Fairness Opinion letter, that, as of such date and based upon and subject
to the factors and assumptions set forth therein, the exchange ratio was fair
from a financial point of view to holders of Seagull common stock.
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 D HERETO AND IS
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE MATERIAL PROVISIONS OF THE
MERRILL LYNCH FAIRNESS OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. SHAREHOLDERS OF SEAGULL ARE URGED TO READ SUCH OPINION IN ITS
ENTIRETY. THE MERRILL LYNCH FAIRNESS OPINION WAS PROVIDED TO THE SEAGULL BOARD
FOR ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT
OF VIEW OF THE EXCHANGE RATIO TO HOLDERS OF SEAGULL COMMON STOCK AND DOES NOT
ADDRESS THE MERITS OF THE UNDERLYING DECISION BY SEAGULL TO ENGAGE IN THE MERGER
AND DOES NOT CONSTITUTE A RECOMMENDATION TO SEAGULL'S SHAREHOLDERS AS TO HOW
SUCH SHAREHOLDERS SHOULD VOTE ON THE APPROVAL OF THE MERGER OR ANY MATTER
RELATED THERETO.
Merrill Lynch has consented to the use of Annex D containing the Merrill
Lynch Fairness Opinion, in this Joint Proxy Statement/Prospectus, and to the
references to Merrill Lynch under the headings "Summary" and "The Merger" in
this Joint Proxy Statement/Prospectus.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch Fairness Opinion or the
presentation made by Merrill Lynch to the Seagull Board. 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, such 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 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.
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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, OEI or Seagull. 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 such
analyses. Additionally, estimates of the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which such businesses
or securities might actually be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. In addition, the requirement
for the delivery of the Merrill Lynch Fairness Opinion was among several factors
taken into consideration by the Seagull Board in making its determination to
approve the merger agreement. Consequently, the Merrill Lynch analyses described
below should not be viewed as determinative of the decision of the Seagull Board
or Seagull's management with respect to the fairness of the exchange ratio.
In arriving at its opinion, Merrill Lynch, among other things:
- reviewed certain publicly available business and financial information
relating to each of Seagull and OEI that Merrill Lynch deemed to be
relevant;
- reviewed certain historical reserve reports as of December 31, 1997
prepared by Seagull's independent petroleum engineers ("Seagull's
Petroleum Engineers") and certain updated reserve reports estimated as
of December 31, 1998 prepared by Seagull ("Seagull Reserve Reports");
- reviewed certain reserve reports as of December 31, 1997 prepared by
OEI's independent petroleum engineers ("OEI's Petroleum Engineers" and
together with Seagull's Petroleum Engineers, the "Petroleum
Engineers") and certain updated reserve reports as of October 1, 1998
and certain other projected reserve information prepared by OEI (the
"OEI Reserve Reports" and together with Seagull Reserve Reports, the
"Reserve Reports");
- reviewed certain information, including financial forecasts of
earnings, cash flow, assets, liabilities and prospects of OEI and
Seagull, furnished to Merrill Lynch by OEI and Seagull, respectively,
and considered certain additional financial forecasts relating to OEI
prepared by Merrill Lynch with the cooperation of management of
Seagull;
- conducted discussions with members of senior management of OEI and
Seagull concerning their respective businesses and prospects before
and after giving effect to the merger;
- reviewed the historical market prices and valuation multiples for the
OEI common stock and Seagull common stock and compared them with those
of certain publicly traded companies that Merrill Lynch deemed to be
relevant;
- reviewed the results of operations of OEI and Seagull and compared
them with those of certain publicly traded companies that Merrill
Lynch deemed to be relevant;
- compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be
relevant;
- reviewed the potential pro forma impact of the merger;
- reviewed a draft of the merger agreement dated November 24, 1998; and
- reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's 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
Merrill Lynch or publicly available or discussed with or reviewed by or for
Merrill Lynch, and Merrill Lynch did not assume any responsibility for
independently verifying such information, did not undertake an independent
evaluation or appraisal of any
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of the assets or liabilities of OEI or Seagull, and was not furnished with any
such evaluation or appraisal other than the Reserve Reports. In addition,
Merrill Lynch did not conduct any physical inspection of the properties or
facilities of OEI or Seagull. With respect to the financial forecast information
furnished to or discussed with Merrill Lynch by OEI or Seagull, Merrill Lynch
assumed that they were reasonably prepared and reflected the best currently
available estimates and judgments of the management of OEI or Seagull as to the
expected future financial performance of OEI or Seagull, as the case may be. In
addition, Merrill Lynch assumed that the Reserve Reports were reasonably
prepared and reflect the best currently available estimates and judgments of OEI
and Seagull and their respective Petroleum Engineers as to their respective
reserves, their future hydrocarbon production volume and associated costs.
Merrill Lynch further assumed that the merger will be accounted for as a
purchase under generally accepted accounting principles and that the merger will
qualify as a tax-free reorganization for U.S. federal income tax purposes.
Further, Merrill Lynch assumed that Seagull will adopt full-cost accounting
principles with respect to its oil and gas operations and that any write-downs
associated therewith have been reasonably prepared and reflect the best
currently available estimates and judgment of the management of Seagull.
The Merrill Lynch Fairness Opinion is necessarily based upon market,
economic and other conditions as they exist and can be evaluated on the date
hereof. Merrill Lynch was not asked to consider, and the Merrill Lynch Fairness
Opinion does not in any manner address, the price at which the New Ocean common
stock will actually trade following consummation of the merger. Seagull did not
impose any limitations on the scope of Merrill Lynch's analyses.
The following is a brief summary of the material analyses performed by
Merrill Lynch in connection with its preparation of the Merrill Lynch Fairness
Opinion.
FINANCIAL AND RESERVE FORECASTS
OEI and Seagull provided Merrill Lynch with their respective forecasted
financial and reserve performance based upon a uniform energy price scenario.
The oil price forecasts were based on the price per Bbl for WTI crude and the
gas price forecasts were based on Henry Hub gas prices per Mcf. Adjustments were
made by both Seagull and OEI to the oil and gas price forecasts to reflect
location and quality differentials. The unadjusted oil prices per Bbl for the
years 1999 to 2002 were assumed to be $15.00, $16.00, $17.00, and $18.00,
respectively, and were assumed to remain at $18.00 thereafter. The unadjusted
gas prices per Mcf for the years 1999 to 2002 were assumed to be $2.25, $2.35,
$2.45, and $2.50, respectively, and were assumed to remain at $2.50 thereafter.
Production forecasts and associated production costs were supplied by OEI and
Seagull for proved, probable and possible reserves. Operating expenses and
maintenance capital expenditures necessary to lift and produce the proved,
probable and possible reserves estimated in the Reserve Reports were assumed to
increase at a rate of 3% per annum through 2002. Certain adjustments were made
to the assumptions underlying the OEI and Seagull financial forecasts to make
such assumptions more comparable. U.S. Federal and State composite tax rates of
38.0% were assumed.
CONTRIBUTION ANALYSIS
Using the aforementioned forecasts for both OEI ("OEI projections") and
Seagull ("Seagull projections") for the years 1998 through 2000, Merrill Lynch
compared the relative projected levels of discretionary cash flow for each
company during this period as well as the relative level of estimated proved
reserves as of December 31, 1998 and estimated production levels for the year
ending December 31, 1999. Relative levels of discretionary cash flow, estimated
proved reserves and estimated production were then used to develop implied
equity market value contributions. Merrill Lynch estimated that Seagull's
implied equity market value contribution to the combined company would be 39.0%,
41.1% and 38.8% based on projected discretionary cash flow in 1998, 1999 and
2000, respectively, 34.6% based on projected production in 1999 and 40.8% based
on estimated proved reserves at December 31, 1998.
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SEAGULL COMPARABLE COMPANY TRADING ANALYSIS
Merrill Lynch reviewed and compared certain financial information, ratios
and public market multiples to corresponding financial information, ratios and
public market multiples for the following 11 publicly traded corporations in the
oil and gas exploration, development and production industry collectively, the
"Seagull Selected Companies":
<TABLE>
<S> <C>
- - Barrett Resources - Nuevo Energy
- - Cross Timbers - Pogo Producing
- - Devon Energy - Santa Fe Energy
- - EEX Corporation - Triton Energy
- - Forcenergy - Vintage Petroleum, Inc.
- - Newfield Exploration
</TABLE>
The Seagull Selected Companies were chosen because they are publicly traded
companies with financial and operating characteristics which Merrill Lynch
deemed to be similar to those of Seagull. Merrill Lynch calculated various
financial ratios for the Seagull Selected Companies and compared them to those
calculated for Seagull. The ratios for the Seagull Selected Companies were based
on publicly available information, including estimates provided by Merrill Lynch
research and the Institutional Brokers Estimate System ("IBES"). Merrill Lynch
calculated the following financial ratios:
- equity market value multiples of:
- 1998 estimated discretionary cash flow ("DCF") and
- 1999 estimated DCF; and
- enterprise value (defined as market value of common and preferred equity
plus book value of debt less cash) multiples of:
- 1998 estimated earnings before interest, taxes, depreciation,
amortization and exploration expense ("EBITDE"),
- 1999 estimated EBITDE,
- proved reserves as of December 31, 1997 and
- the value of future net cash flows from proved reserves before taxes
discounted at 10% as filed with the Securities Exchange Commission
("Pre-Tax SEC-10") at December 31, 1997.
For the Seagull Selected Companies, the highest, lowest and mean equity
market value multiples of 1998 estimated DCF were 8.2x, 1.0x and 5.9x and of
1999 estimated DCF were 7.8x, 0.7x and 4.8x. The highest, lowest and mean
enterprise value multiples of 1998 estimated EBITDE were 15.3x, 4.6x and 7.9x
and of 1999 estimated EBITDE were 8.1x, 3.6x and 5.8x. The high, low and mean
enterprise value per Mcfe of proved reserves were $2.32, $0.38 and $1.13 and the
high, low and mean enterprise value multiples of Pre-Tax SEC-10 were 1.90x,
0.68x and 1.30x. Such analysis indicated that, with respect to Seagull, the
relevant equity enterprise value multiples for 1998 estimated DCF range from
5.0x to 6.5x and from 4.0x to 5.5x for 1999 estimated DCF. Further, such
analysis indicated that, with respect to Seagull, the relevant enterprise value
multiples of 1998 estimated EBITDE range from 6.0x to 7.5x, enterprise value
multiples of 1999 estimated EBITDE range from 5.0x to 6.5x, and enterprise value
per Mcfe of proved reserves range from $1.00 to $1.10. In addition, such
analysis indicated that, with respect to Seagull, the relevant enterprise value
multiples for 1997 Pre-Tax SEC-10 range from 1.10x to 1.25x. Using the foregoing
multiple ranges, Merrill Lynch determined a range of implied composite
enterprise values, which were adjusted for existing debt and working capital to
arrive at a range of implied equity market values. The implied range of equity
market values was used to derive the range of implied exchange ratios set forth
below under "-- Valuation Comparison."
None of the Seagull Selected Companies are identical to Seagull.
Accordingly, an analysis of the results of the foregoing is not purely
mathematical. Rather, it involves complex considerations and
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judgments concerning differences in financial and operating characteristics of
the Seagull Selected Companies and other factors that could affect the public
trading value of the comparable companies or company to which they are being
compared.
SEAGULL NET ASSET VALUE/DISCOUNTED CASH FLOW ANALYSIS
Using a discounted cash flow analysis, Merrill Lynch calculated the present
value of the after-tax future cash flows that Seagull could be expected to
generate after January 1, 1999 based on the Seagull projections. The after-tax
cash flows were discounted at rates ranging from 8% to 10% for proved reserves
in the United States, from 9% to 11% for proved reserves in Egypt and Cote
d'Ivoire, from 20% to 30% for proved reserves in Russia and from 10% to 15% for
proved reserves in Indonesia. The after-tax cash flows were discounted at rates
ranging from 10% to 13% for unproved reserves in the United States and from
10.5% to 13.5% for unproved reserves in Egypt and Cote d'Ivoire. U.S. and
international probable and international possible reserves were assigned risk
factors which were then applied to unrisked after tax cash flows. The risk
factors for probable reserves were 70% in the United States and 15% in Egypt and
Cote d'Ivoire. Possible reserves were assigned a risk factor of 10% in Egypt and
Cote d'Ivoire. Possible ("Exploratory") reserves in the U.S. were statistically
risked by Seagull using probability of success ("P(s)") risk factors ranging
from 25% to 35%.
Merrill Lynch estimated Seagull's enterprise value by adding (1) the
risk-adjusted discounted after-tax cash flows generated by Seagull's proved,
probable and possible reserves as estimated by Seagull management plus (2)
Seagull's Alaskan gas utility operations ("ENSTAR") asset, which was valued by
summing the present value of a 5-year forecast of projected free cash flows
discounted at 8% to 10% and a terminal value based on a multiple of projected
earnings before interest, taxes, depreciation and amortization ("EBITDA") of
6.5x to 7.5x also discounted at 8% to 10%. From this analysis, Merrill Lynch
determined a range of implied enterprise values for Seagull, which were adjusted
for existing debt and working capital to arrive at a range of implied equity
market values. The implied range of equity market values was used to derive the
range of implied exchange ratios set forth under "-- Valuation Comparison."
OEI COMPARABLE COMPANY TRADING ANALYSIS
Merrill Lynch reviewed and compared certain financial information, ratios
and public market multiples to corresponding financial information, ratios and
public market multiples for the following nine publicly traded corporations in
the oil and gas exploration, development and production industry (collectively,
the "OEI Selected Companies"):
<TABLE>
<S> <C>
- - Anadarko Petroleum - Pioneer Natural Resources
- - Apache Corporation - Union Pacific Resources
- - Burlington Resources - Unocal Corporation
- - Enron Oil & Gas - Vastar Resources
- - Noble Affiliates
</TABLE>
The OEI Selected Companies were chosen because they are publicly traded
companies with financial and operating characteristics which Merrill Lynch
deemed to be similar to those of OEI. Merrill Lynch calculated various financial
ratios for the OEI Selected Companies and compared them to those calculated for
OEI. The ratios for the OEI Selected Companies were based on publicly available
information, including estimates provided by Merrill Lynch research and IBES.
Merrill Lynch calculated the following financial ratios:
- equity market value multiples of:
- 1998 estimated DCF and
- 1999 estimated DCF; and
- enterprise value multiples of:
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- 1998 estimated EBITDE,
- 1999 estimated EBITDE,
- proved reserves as of December 31, 1997; and
- Pre-Tax SEC-10 at December 31, 1997.
For the OEI Selected Companies, the highest, lowest and mean equity market
value multiples of 1998 estimated DCF were 19.7x, 3.6x and 7.2x and of 1999
estimated DCF were 16.6x, 3.8x and 6.3x. The highest, lowest and mean enterprise
value multiples of 1998 estimated EBITDE were 18.7x, 5.1x and 8.2x and of 1999
estimated EBITDE were 14.5x, 4.8x and 7.4x. The high, low and mean enterprise
value per Mcfe of proved reserves were $1.62, $0.77 and $1.08 and the high, low
and mean enterprise value multiples of Pre-Tax SEC-10 were 2.09x, 0.97x and
1.39x. Such analysis indicated that, with respect to OEI, the relevant equity
market value multiples for 1998 estimated DCF range from 4.0x to 6.0x, and from
4.0x to 5.5x for 1999 estimated DCF. Further, such analysis indicated that, with
respect to OEI, the relevant enterprise value multiples for 1998 estimated
EBITDE range from 6.5x to 7.5x, 1999 estimated EBITDE range from 5.5x to 7.0x
and enterprise value per Mcfe of proved reserves range from $1.10 to $1.40. In
addition, such analysis indicated that, with respect to OEI, the relevant
enterprise value multiples for 1997 Pre-Tax SEC-10 range from 1.20x to 1.60x.
Using the foregoing multiple ranges, Merrill Lynch determined a range of implied
composite enterprise values, which were adjusted for existing debt and working
capital to arrive at a range of implied equity market values. The implied range
of equity market values was used to derive the range of implied exchange ratios
set forth below under "-- Valuation Comparison."
None of the OEI Selected Companies is identical to OEI. Accordingly, an
analysis of the results of the foregoing is not purely mathematical. Rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the OEI Selected Companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
OEI NET ASSET VALUE/DISCOUNTED CASH FLOW ANALYSIS
Using a discounted cash flow analysis, Merrill Lynch calculated the present
value of the after-tax future cash flows that OEI could be expected to generate
after January 1, 1999 based on OEI projections. The after-tax cash flows were
discounted at rates ranging from 8% to 10% for proved reserves in the United
States and 9% to 11% for proved reserves in Canada and other international
regions. The after-tax cash flows from unproved reserves were discounted at
rates ranging from 10% to 13% for Gulf of Mexico and Rocky Mountain unproved
reserves and from 10.5% to 13.5% for unproved reserves in Canada and other
international regions. Unproved reserves were adjusted for probability, or
risked, using weighted average P(s) factors of 16%, 20%, 23%, and 28% for
reserves in the Gulf of Mexico, Rocky Mountains, Canada and other international
regions, respectively.
Merrill Lynch estimated OEI's enterprise value by adding the risk-adjusted
discounted after-tax cash flows generated by OEI's proved and unproved reserves
as estimated by OEI management. From this analysis Merrill Lynch determined a
range of implied enterprise values for OEI, which were adjusted for existing
debt and working capital to arrive at a range of implied equity market values.
The implied range of equity market values was used to derive the range of
implied exchange ratios set forth under "-- Valuation Comparison."
COMMON STOCK TRADING ANALYSIS
Using closing stock prices for Seagull and OEI at November 20, 1998, as
well as average closing stock prices for both companies for the periods 10, 20,
30, 60, 90, 120 and 180 days prior to November 20, 1998, Merrill Lynch derived
equity market valuations for Seagull and OEI based on each of these average
stock prices. The relative levels of such equity market valuations were then
used to derive implied exchange ratios, which ranged from 0.753 to 1.171.
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VALUATION COMPARISON
Using the equity market values derived through the Seagull Comparable
Company Trading Analysis and the Seagull Net Asset Value/Discounted Cash Flow
Analysis, the OEI Comparable Company Trading Analysis and the OEI Net Asset
Value/Discounted Cash Flow Analysis, and the Contribution Analysis and the
Common Stock Trading Analysis, Merrill Lynch derived ranges of implied exchange
ratios of 0.891 to 1.116 shares of Seagull common stock for each share of OEI
common stock on a Contribution Analysis basis, 0.829 to 1.014 on a Comparable
Company Trading Analysis basis, and 0.783 to 1.121 on a Net Asset
Value/Discounted Cash Flow Analysis basis.
MERGER CONSEQUENCES
For both Seagull's projections and OEI's projections, Merrill Lynch
analyzed the respective contributions of each of Seagull and OEI to the
estimated DCF of the combined company giving effect to the merger on a pro forma
basis for the years 1999, 2000, and 2001 and analyzed the increase or decrease
in discretionary cash flow per current Seagull share resulting from the merger.
The foregoing analysis indicated that the merger would decrease estimated DCF
per current Seagull share by 1.7% in 1999 and increase DCF per current Seagull
share by 4.1% and 11.9% in 2000 and 2001, respectively.
MERRILL LYNCH FINANCIAL ADVISOR FEE
Pursuant to an engagement letter dated December 5, 1997, Seagull retained
Merrill Lynch to act as its financial advisor with regard to strategic
alternatives in the event of an unsolicited acquisition proposal. On November
23, 1998, Seagull amended the December 5, 1997 letter to engage Merrill Lynch to
act as its financial advisor in connection with the merger. Pursuant to the
engagement letter amendment, Seagull has agreed to pay Merrill Lynch a fee of
$5,000,000 for services rendered in connection with the merger. Of this amount,
a $150,000 retainer was paid pursuant to the engagement letter dated December 5,
1997 and the balance, or $4,850,000, is contingent upon the consummation of the
merger. In addition, if the merger agreement is terminated under circumstances
pursuant to which a termination fee is paid to Seagull, Seagull has agreed to
pay Merrill Lynch a fee of $3,000,000 for its services, less the amount of the
retainer. Seagull also has agreed to reimburse Merrill Lynch for the expenses
reasonably incurred by it entering into and performing services by it in
connection with its engagement (including reasonable counsel fees) and to
indemnify Merrill Lynch and its officers, directors, employees, agents and
controlling persons against certain expenses, losses, claims, damages or
liabilities in connection with its services performed in connection with its
engagement.
Seagull retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Merrill Lynch has in the past
provided financial advisory and/or financing services to Seagull and OEI, and
may continue to do so and has received, and may receive, fees for the rendering
of such services. In the ordinary course of its business, Merrill Lynch and its
affiliates may actively trade the debt and equity securities of Seagull and OEI
(and anticipate trading after the merger in the securities of New Ocean) for
their own accounts and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
OPINION OF WARBURG DILLON READ
On December 5, 1997, Seagull retained Warburg Dillon Read to act as its
financial advisor with regard to strategic alternatives in the event of an
unsolicited acquisition proposal. On November 23, 1998, Seagull amended the
December 5, 1997 letter to engage Warburg Dillon Read to act as its financial
advisor in connection with the merger. In the past, Warburg Dillon Read had
provided general financial advisory and financing services for Seagull from time
to time.
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On November 24, 1998, Warburg Dillon Read rendered its oral opinion, which
was confirmed by its written opinion dated November 24, 1998, to the Seagull
Board to the effect that, based upon and subject to certain matters stated
therein, as of the date of such opinion, the exchange ratio is fair to Seagull
shareholders from a financial point of view.
THE FULL TEXT OF WARBURG DILLON READ'S OPINION DATED NOVEMBER 24, 1998,
WHICH SETS FORTH A DESCRIPTION OF THE ASSUMPTIONS MADE, GENERAL PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED HERETO AS ANNEX E. WARBURG DILLON READ'S OPINION IS DIRECTED ONLY TO
THE FAIRNESS TO SEAGULL SHAREHOLDERS, FROM A FINANCIAL POINT OF VIEW, OF THE
EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SEAGULL
SHAREHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER AGREEMENT.
SEAGULL SHAREHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY,
ESPECIALLY WITH REGARD TO THE ASSUMPTIONS MADE AND MATTERS CONSIDERED BY WARBURG
DILLON READ. THE SUMMARY OF THE OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
Warburg Dillon Read has consented to the use of Annex E, containing its
opinion dated November 24, 1998, in this Joint Proxy Statement/Prospectus and to
the references to Warburg Dillon Read under the headings "Summary" and "The
Merger" in this Joint Proxy Statement/Prospectus.
In arriving at its opinion, Warburg Dillon Read, among other things
- reviewed the merger agreement;
- reviewed certain publicly available business and historical financial
information relating to Seagull and OEI;
- reviewed and performed analyses based on certain financial information
and other data provided to it by Seagull that is not publicly
available relating to the business and prospects of Seagull that was
prepared by the management of Seagull, including financial projections
based on Seagull's business plan and, in particular;
(a) certain estimates of the proved, probable and possible reserves,
(b) projected annual production of such reserves and
(c) exploration successes and related production in certain domestic
and international areas;
- reviewed certain financial information and other data provided to it
by OEI that is not publicly available relating to the business and
prospects of OEI that was prepared by the management of OEI, including
financial projections based on OEI's business plan (certain of which
were prepared by the management of OEI and certain of which were
prepared by Warburg Dillon Read in cooperation with the management of
Seagull) and, in particular;
(a) certain estimates of the proved, probable and possible reserves,
(b) projected annual production of such reserves and
(c) exploration successes and related production in certain domestic
and international areas;
- considered estimates, prepared by the respective managements of
Seagull and OEI and not publicly available, of the amounts and timing
of the synergies expected to result from the merger;
- considered the pro forma financial effects of the merger on Seagull
and OEI;
- reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business it believes to
be generally comparable to those of Seagull and OEI;
- compared the financial terms of the merger with the financial terms of
certain other selected transactions that it deemed to be relevant;
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- reviewed the historical market prices and trading volumes of the
Seagull common stock and OEI common stock;
- conducted discussions with selected members of the senior managements
and technical staffs of Seagull and OEI;
- considered the relative reserve replacement and finding cost
statistics for Seagull and OEI; and
- conducted such other financial studies, analyses and investigations,
and considered such other information, as it deemed necessary or
appropriate.
With respect to items (a) and (b) in the third and fourth bullet points above,
the estimates of future reserves and related production were based on Seagull's
and OEI's independent petroleum engineers' reports dated December 31, 1997 which
were updated by Seagull and OEI, respectively, to adjust such reports for
historical production and estimated future production which was or will be the
result of Seagull's and OEI's historical and estimated future development,
exploitation and exploration activities (collectively, the "Reserve Reports").
In connection with its review, Warburg Dillon Read has not independently
verified any of the foregoing information and has relied on its being complete
and accurate in all material respects. In addition, Warburg Dillon Read has not
made any evaluation or appraisal of any of the assets or liabilities (contingent
or otherwise) of Seagull or OEI, nor has Warburg Dillon Read been furnished with
any such evaluation or appraisal other than the Reserve Reports.
With respect to the financial projections and amounts and timing of
synergies expected to result from the merger referred to above, Warburg Dillon
Read has assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of Seagull's and OEI's
management as to the future financial performance of each company. Warburg
Dillon Read has further assumed that the merger will be accounted for as a
purchase under generally accepted accounting principles and that the merger will
qualify as a tax-free reorganization for U.S. federal income tax purposes.
Further, Warburg Dillon Read has assumed that Seagull will adopt full-cost
accounting principles with respect to its oil and gas operations and that any
write-downs associated therewith have been reasonably prepared and reflect the
best currently available estimates and judgment of the management of Seagull.
Warburg Dillon Read's opinion is based on economic, monetary and market
conditions existing on the date of its opinion.
Warburg Dillon Read was not authorized by Seagull or the Seagull Board to
solicit, nor did it solicit, third party indications of interest for the
acquisition of all or any part of Seagull. In addition, Warburg Dillon Read was
not asked to consider, and its opinion does not in any manner address, the price
at which shares of New Ocean common stock will actually trade following the
consummation of the merger. Seagull did not impose any other limitations on the
scope of Warburg Dillon Read's analyses.
In arriving at its opinion and as to the significance and relevance of each
analysis and factor, Warburg Dillon Read did not assign any particular weight to
any analysis or factor considered by it, but rather made qualitative judgements
based on its experience in rendering such opinions and on the existing economic,
monetary and market conditions as of the date of its opinion. Accordingly,
Warburg Dillon Read believes that its analyses must be considered as a whole and
that selecting portions of its analyses and the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and its opinion. In its analyses,
Warburg Dillon Read made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond Seagull's or OEI's control. Any estimates contained in Warburg
Dillon Read's analyses are not necessarily indicative of actual values or
predictive of the future results or values, which may be significantly more or
less favorable than as set forth therein. In addition, analyses relating to the
value of a business or securities do not purport to be appraisals or to reflect
the actual prices at which businesses or securities might be sold.
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<PAGE> 69
The following paragraphs summarize the material quantitative analyses
performed by Warburg Dillon Read in arriving at the opinion dated November 24,
1998 presented to the Seagull Board:
HISTORICAL STOCK TRADING AND IMPLIED EXCHANGE RATIO ANALYSES
Warburg Dillon Read reviewed the daily historical closing prices of OEI and
Seagull common stock during the period from January 1, 1998 to November 20,
1998. During this period, the low closing share price for OEI of $8.875 occurred
on both August 31, 1998 and November 19, 1998, and the high closing share price
for OEI was $25.563 on April 1, 1998. During this period, the low closing share
price for Seagull was $8.813 on September 2, 1998, and the high closing share
price for Seagull was $20.625 on January 1, 1998. Warburg Dillon Read also
reviewed the ratio of the closing share price of OEI to the closing share price
of Seagull during the period from January 1, 1998 to November 20, 1998. Warburg
Dillon Read focused on the relationship between Seagull's and OEI's closing
share prices over various time periods subsequent to the closing date for the
merger between OEI and the United Meridian Corporation on March 27, 1998. Based
on average implied exchange ratios pertaining to various segments of time from
March 27, 1998 to November 20, 1998, the high average implied exchange ratio was
1.149, and the low average implied exchange ratio was 0.781 compared to the
merger exchange ratio of 1.000.
Relative Net Asset Valuation Analysis. Under this method, Warburg Dillon
Read calculated the present value of the future cash flows that (1) Seagull
expects to generate from its total proved, probable, possible and exploratory
reserves in each of its domestic operating regions and in its primary
international regions such as Egypt, Cote d'Ivoire, Russia and Indonesia, and
that (2) OEI expects to generate from its total proved, probable and possible
and exploratory reserves in each of its domestic operating regions and in its
primary international regions such as Canada, Cote d'Ivoire and Equatorial
Guinea. The present value calculations for Seagull and OEI were performed as of
January 1, 1999 and incorporated the price forecast, set forth herein. The
present value of the future cash flows for Seagull and OEI were analyzed over a
range of pre-tax discount rates from 10% to 35%, depending upon the specific
reserve classification and geographic region. The specific reserve
classifications are as follows: proved developed producing, proved developed
non-producing, proved undeveloped, probable, possible and exploratory.
Since tax bases were not available by specific reserve classification nor
geographic region, an estimate of the tax impact was factored into the pre-tax
discount rates used. Warburg Dillon Read also performed a Relative Net Asset
Valuation on a company consolidated basis using after-tax discount rates from
10% to 12%. After comparing these results to the results obtained using higher
pre-tax discount rates, Warburg Dillon Read determined that it had made
appropriate adjustments to the pre-tax discount rates.
The Relative Net Asset Valuation Analysis also included certain assessments
of the valuations of certain miscellaneous assets, the most significant being
Seagull's Alaskan gas transmission and distribution business, ENSTAR. The
summation of the present value of each company's proved, probable, possible and
exploratory reserves and each company's miscellaneous assets (including net
working capital, cash and cash equivalents and ENSTAR), less each company's (1)
total debt and preferred stock and (2) estimates of certain other long-term
liabilities, each as of January 1, 1999, represented each respective company's
aggregate net asset value. The net asset value per share for each company was
then determined on a diluted basis as of January 1, 1999.
The natural gas price forecast was based on NYMEX (Henry Hub, Louisiana
delivery) price forecasts from which adjustments were made by each respective
company to reflect the value differential related to (1) the transportation
charges associated with location of the gas reserves relative to the Henry Hub,
Louisiana delivery point, (2) the volumetric heating value relative to the Btu
quote per the NYMEX price quotation and (3) such other adjustments required to
reflect the price received at the wellhead for any given property, well or
field. The NYMEX price quotation is stated in heating value equivalents of 1,000
British Thermal Units per one cubic foot of gas delivered to the Henry Hub. The
NYMEX natural gas price is quoted in $/MMBtu.
The oil price forecast was also based on NYMEX (Cushing, Oklahoma delivery)
price forecasts from which adjustments were also made by each respective company
to reflect the value differential related to
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<PAGE> 70
(1) the transportation charges associated with location of the oil reserves
relative to the Cushing, Oklahoma delivery point and (2) such other adjustments
required to reflect the price received at the wellhead for any given property,
well or field.
The NYMEX based oil and natural gas price forecast is shown in the table
below. This forecast was mutually determined by the managements of both Seagull
and OEI. In addition, the lease operating expenses and capital expenditures were
escalated on an annual basis at 3% annually until the price assumed for oil and
natural gas reached the assumed cap of $18.00 and $2.50, respectively.
Subsequent to reaching the cap, the lease operating expenses and capital
expenditures were held constant.
<TABLE>
<CAPTION>
YEAR OIL ($/BBL) GAS ($/MMBTU)
---- ----------- -------------
<S> <C> <C>
1999...................................................... $15.00 $2.25
2000...................................................... 16.00 2.35
2001...................................................... 17.00 2.45
2002...................................................... 18.00 2.50
Thereafter................................................ 18.00 2.50
</TABLE>
The implied exchange ratio based on the results of the Relative Net Asset
Valuation Analysis, after incorporating the assumptions referred to above,
ranged from 0.902 to 1.061.
In connection with and for use in its analyses, each of Seagull and OEI
furnished Warburg Dillon Read with a business plan for the remainder of 1998
through 2001. Seagull prepared a revised business plan using assumptions that
were more comparable to those used by OEI, and Warburg Dillon Read, with the
assistance of Seagull's management, analyzed the OEI business plan using revised
assumptions that were more comparable to those used by Seagull. In preparing the
Relative Comparable Company Trading Analysis, the Contribution Analysis and the
Pro Forma Merger Consequences Analysis discussed below, Warburg Dillon Read made
the following three comparisons: (1) OEI's business plan to Seagull's business
plan (2) OEI's business plan (revised assumptions) to Seagull's business plan
and (3) OEI's business plan to Seagull's revised business plan. These various
comparisons are referred to as Scenario 1, Scenario 2 and Scenario 3,
respectively.
RELATIVE COMPARABLE COMPANY TRADING ANALYSIS
Warburg Dillon Read calculated implied equity values per share for OEI and
Seagull and the resultant implied exchange ratios based on an analysis of the
following publicly traded companies (as used in "-- Opinion of Warburg Dillon
Read" collectively, the "Comparable Companies"):
<TABLE>
<S> <C>
Anadarko Petroleum Corporation Noble Affiliates, Inc.
Apache Corporation Pioneer Natural Resources Company
Burlington Resources Inc. Pogo Producing Company
Devon Energy Corporation Santa Fe Energy Resources, Inc.
Enron Oil & Gas Company Union Pacific Resources Group
Kerr-McGee Corporation Inc.
Newfield Exploration Company Vastar Resources, Inc.
</TABLE>
None of the Comparable Companies is identical to Seagull or OEI. Accordingly, a
comparison of the Comparable Companies to Seagull and OEI is not purely
mathematical. Rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Comparable Companies and other factors that could affect the public trading
values of the Comparable Companies.
Warburg Dillon Read calculated the net market capitalization of the
Comparable Companies as a multiple of each such company's earnings before
interest, taxes, depreciation, depletion, amortization, and exploration expense
("EBITDAX") for (1) the latest twelve months ("LTM") ended September 30, 1998 or
the date of such company's available 10-K or 10-Q, (2) estimated 1998 EBITDAX
and
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(3) estimated 1999 EBITDAX. For this purpose, Warburg Dillon Read defined "Net
Market Capitalization" as market value of the relevant company's common equity
plus total debt, plus liquidation value of preferred stock and book value of
minority interest, less cash and cash equivalents. The average multiples yielded
by such calculations for the Comparable Companies were 7.0x for LTM EBITDAX,
8.2x for estimated 1998 EBITDAX, and 6.1x for estimated 1999 EBITDAX. Warburg
Dillon Read then calculated the implied Net Market Capitalization and the
implied equity value per share for OEI based on the following multiple ranges:
6.0x to 7.0x for LTM EBITDAX, 6.5x to 7.5x for estimated 1998 EBITDAX and 5.5x
to 6.5x for estimated 1999 EBITDAX, and calculated the implied Net Market
Capitalization and the implied equity value per share for Seagull based on the
following multiple ranges: 5.5x to 6.5x for LTM EBITDAX, 6.0x to 7.0x for
estimated 1998 EBITDAX, and 5.0x to 6.0x for estimated 1999 EBITDAX. These
implied equity values per share for OEI and Seagull resulted in the following
implied exchange ratio ranges: 0.875 to 1.098 for Scenario 1, 0.875 to 1.098 for
Scenario 2, and 0.875 to 1.126 for Scenario 3.
Warburg Dillon Read also calculated the adjusted Net Market Capitalization
and implied equity value per share of OEI and Seagull based on the Comparable
Companies as a multiple of each such company's 1997 fiscal year-end pre-tax SEC
10 value and proved reserves as of each company's respective fiscal year-end on
an Mcf equivalent ("Mcfe") (6:1) basis. The average multiples yielded by such
calculations for the Comparable Companies were 1.33x 1997 fiscal year-end
pre-tax SEC 10 value and $1.22 per Mcfe. Warburg Dillon Read then calculated the
implied Net Market Capitalization and the implied equity value per share for OEI
based on a multiple range of 1.35x to 1.60x 1997 fiscal year-end pre-tax SEC 10
value and $1.25 to $1.40 per Mcfe of 1997 fiscal year-end proved reserves, and
calculated the implied Net Market Capitalization and the implied equity value
per share for Seagull based on a multiple range of 1.00x to 1.25x 1997 fiscal
year-end pre-tax SEC 10 value and $0.95 to $1.10 per Mcfe of 1997 fiscal year-
end proved reserves. These implied equity values per share for OEI and Seagull
resulted in the following implied exchange ratio ranges: 0.460 to 0.522 based on
1997 year-end pre-tax SEC 10 values and 0.550 to 0.582 based on 1997 fiscal
year-end proved reserves.
Warburg Dillon Read also calculated the implied equity value per share of
OEI and Seagull based on the Comparable Companies as a multiple of each such
company's cash flow from operations ("CFFO"). Warburg Dillon Read defined "CFFO"
as net income plus depreciation, depletion, amortization, deferred taxes,
exploration expenses and other adjustment items which we deemed appropriate, but
before effects of changes in working capital. The average multiples yielded by
such calculations for the Comparable Companies were 5.3x LTM CFFO, 6.0x
estimated 1998 CFFO and 4.9x estimated 1999 CFFO. Warburg Dillon Read then
calculated the implied equity values per share for OEI and Seagull based on the
following multiple ranges: 4.0x to 5.5x for LTM CFFO, 4.5x to 6.0x for estimated
1998 CFFO and 4.0x to 5.5x for estimated 1999 CFFO. These implied equity values
per share for OEI and Seagull resulted in the following implied exchange ratio
ranges: 0.882 to 1.091 for Scenario 1, 0.872 to 1.091 for Scenario 2, and 0.935
to 1.091 for Scenario 3.
CONTRIBUTION ANALYSIS
Warburg Dillon Read analyzed the relative contribution of LTM CFFO from
each of OEI and Seagull, which resulted in an implied exchange ratio of 1.09,
and estimated 1998 through estimated 2001 CFFO, under Scenario 1, Scenario 2,
and Scenario 3. The Scenario 1 comparison resulted in an implied exchange ratio
range of 0.76 to 0.96, the Scenario 2 comparison resulted in an implied exchange
ratio range of 0.87 to 1.10 and the Scenario 3 comparison resulted in an implied
exchange ratio range of 0.90 to 0.96. In addition, Warburg Dillon Read analyzed
the Contribution Analysis based on each company's estimate of its total reserves
at year-end 1998 and 1998 total production. These statistics resulted in implied
exchange ratios of 0.89 and 0.99, respectively.
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TRANSACTION MULTIPLES FOR SELECTED ACQUISITIONS
Warburg Dillon Read reviewed publicly available information about the
following transactions that involved transactions of selected oil and gas
exploration and production companies and were announced between January 1995 and
November 1998:
YPF SA/Maxus Energy Corporation
Enserch Exploration, Inc./Dalen Corporation
Barrett Resources Corporation/Plains Petroleum
Company
Joint Energy Development (JEDI)/Coda
Energy, Inc.
Apache Corporation/Phoenix Resource
Companies, Inc.
Samedan Oil (Noble Affiliates, Inc.)/Energy
Development Corporation
Seagull Energy Corporation/Global Natural
Resources, Inc.
Lomak Petroleum, Inc./Cometra Energy, L.P.
Mesa, Inc./Greenhill Petroleum Corporation
Texas Pacific Group/Belden & Blake Corporation
Mesa, Inc./Parker & Parsley Petroleum Company
Eastern Group, Inc. (Statoil)/Blazer Energy
Corporation (Ashland, Inc.)
Union Pacific Resources Group Inc./Pennzoil
Company
Louis Dreyfus Natural Gas Corporation/American
Exploration Company
Meridian Resource Corporation/Cairn Energy
USA, Inc.
Burlington Resources Inc./Louisiana Land &
Exploration Company
Texaco Inc./Monterey Resources, Inc.
Belco Oil & Gas Corporation/Coda
Energy, Inc. (JEDI)
Chesapeake Energy Corporation/Hugoton Energy
Corporation
Sonat, Inc./Zilkha Energy Company
Ocean Energy, Inc./United Meridian Corporation
Atlantic Richfield Company (ARCO)/Union
Texas Petroleum Holdings, Inc.
Lomak Petroleum, Inc./Domain Energy
Corporation
Kerr-McGee Corporation/Oryx Energy Company
None of the aforementioned transactions is identical to the proposed merger.
Accordingly, a comparison of such transactions to the merger is not purely
mathematical. Rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the subject
companies and the terms of the respective transactions.
Warburg Dillon Read calculated the equity transaction value as a multiple
of LTM CFFO and arrived at an average multiple of 7.8x compared to the implied
multiple for OEI of 3.9x based on the terms of the merger and the closing share
price of Seagull as of November 20, 1998. Warburg Dillon Read also calculated
the total transaction value as a multiple of LTM EBITDAX, total proved reserves
on an Mcfe basis and pre-tax SEC 10 value for each of the transactions above.
The average multiples were 8.2x LTM EBITDAX, $1.28 Mcfe, and 1.15x pre-tax SEC
10 value compared to implied transaction multiples of 6.9x LTM EBITDAX, $1.58
per Mcfe, and 1.91x pre-tax SEC 10 value, for OEI based on the terms of the
merger and on the closing share price of Seagull as of November 20, 1998. For
purposes of this analysis, Warburg Dillon Read has defined "transaction value"
as equity transaction value plus total debt, plus liquidation value of preferred
stock and book value of minority interest, less cash and cash equivalents.
PRO FORMA MERGER CONSEQUENCES ANALYSIS
Warburg Dillon Read analyzed certain pro forma effects that could result
from the merger. In connection with such analyses, Warburg Dillon Read reviewed
the projections provided by the management of Seagull with respect to the future
financial performance of Seagull under Scenario 1, Scenario 2 and Scenario 3 for
the years 1998 through 2001. Similarly Warburg Dillon Read reviewed the
projections provided by the management of OEI with respect to the future
financial performance of OEI under Scenario 1, Scenario 2 and Scenario 3 for the
years 1998 through 2001. Based upon these projections and certain cost savings
and synergies that Seagull's management expects to result from the merger and
assuming purchase accounting treatment, Warburg Dillon Read examined the impact
of the merger on diluted earnings per share ("EPS") and diluted CFFO per share
to Seagull's shareholders. Due
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to negative or minimal projected diluted EPS in certain years for Seagull and
OEI, Warburg Dillon Read focused on the diluted CFFO per share analysis. Under
Scenario 1 this analysis indicated that the merger would be accretive to
Seagull's CFFO per share by 3.5% in 1998, and dilutive by 2.5% in 1999, 3.7% in
2000, and 10.0% in 2001. Under Scenario 2 this analysis indicated that the
merger would be accretive to Seagull's CFFO per share by 3.5% in 1998, dilutive
by 3.1% in 1999, and accretive by 3.9% in 2000 and 11.6% in 2001. Under Scenario
3 this analysis indicated that the Merger would be accretive to Seagull's CFFO
per share by 1.3% in 1998, 1.1% in 1999 and 3.7% in 2000, and dilutive by 0.8%
in 2001.
Warburg Dillon Read is an internationally recognized investment banking
firm which, as a part of its investment banking business, regularly is engaged
in the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The Seagull Board selected
Warburg Dillon Read on the basis of its experience and independence. In the
past, Warburg Dillon Read has provided investment banking services to Seagull
and has received customary compensation for the rendering of such services. In
the ordinary course of business, Warburg Dillon Read may trade the equity
securities of Seagull and OEI for its own account and the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to the engagement letter amendment, dated as of November 23, 1998,
between Seagull and Warburg Dillon Read, Seagull has agreed to pay Warburg
Dillon Read a fee of $5,000,000 for services rendered in connection with the
merger. Of this amount, a $150,000 retainer was paid pursuant to the engagement
letter dated December 5, 1997 and the balance, or $4,850,000, is contingent upon
the consummation of the merger. In addition, if the merger agreement is
terminated under circumstances pursuant to which a termination fee is paid to
Seagull, Seagull has agreed to pay Warburg Dillon Read a fee of $3,000,000 for
its services, less the amount of the retainer. Seagull also has agreed to
reimburse Warburg Dillon Read for the expenses reasonably incurred by it
entering into and performing services by it in connection with its engagement
(including reasonable counsel fees) and to indemnify Warburg Dillon Read and its
officers, directors, employees, agents and controlling persons against certain
expenses, losses, claims, damages or liabilities in connection with its services
performed in connection with its engagement.
ACCOUNTING TREATMENT
New Ocean intends to account for the merger as a purchase under generally
accepted accounting principles. Even though Seagull will be the surviving
corporation in the merger, because OEI stockholders will own a majority of the
outstanding common stock of New Ocean, the accounting treatment of the merger
will reflect OEI acquiring Seagull in a purchase business combination. Under
this method of accounting, New Ocean's historical results for periods prior to
the merger will be the same as OEI's historical results. On the date of the
merger, New Ocean will record the assets acquired and liabilities assumed from
OEI based upon their historical costs and the assets and liabilities of Seagull
will be recorded at their estimated fair market values.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
OEI has received an opinion of its tax counsel, Akin, Gump, Strauss, Hauer
& Feld L.L.P., that the merger will constitute a reorganization under Section
368(a) of the Code and that no gain or loss will be recognized by the OEI
stockholders upon receipt of New Ocean common stock or preferred stock in
exchange for shares of OEI common stock or OEI Series A preferred stock. Seagull
has received an opinion of its tax counsel, Vinson & Elkins L.L.P., that the
merger will constitute a reorganization under Section 368(a) of the Code. See
"Material U.S. Federal Income Tax Consequences of the Merger."
BOARD OF DIRECTORS AND MANAGEMENT OF NEW OCEAN FOLLOWING THE MERGER
Immediately after the merger, the New Ocean Board will have 15 members and
will be divided into three classes -- Class I, Class II and Class III. The
classes will have the respective terms set forth in
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Seagull's bylaws. Eight individuals designated by OEI and seven individuals
designated by Seagull will be elected to the New Ocean Board by the Seagull
shareholders at the Seagull special meeting. The designees are as follows:
<TABLE>
<CAPTION>
OEI DESIGNEES SEAGULL DESIGNEES
------------- -----------------
<S> <C>
James C. Flores James T. Hackett
John B. Brock Barry J. Galt
James L. Dunlap J. Evans Attwell
Thomas D. Clark, Jr. Milton Carroll
Robert L. Howard Peter J. Fluor
Elvis L. Mason Dee S. Osborne
Charles F. Mitchell, M.D. R.A. Walker
David K. Newbigging
</TABLE>
Each of the OEI designees currently serves on the OEI Board and each of the
Seagull designees currently serves on the Seagull Board.
The composition of the committees of the New Ocean Board after the merger
will be designated prior to the merger. After the merger, the members of the
committees of the New Ocean Board will be designated as follows:
<TABLE>
<CAPTION>
MAJORITY OF
COMMITTEE CHAIRMAN MEMBERS
- --------- -------- -----------
<S> <C> <C>
Executive Committee.................... Seagull designee Seagull designees
Audit Committee........................ Seagull designee Seagull designees
Compensation Committee................. OEI designee OEI designees
Nominating Committee................... OEI designee OEI designees
</TABLE>
After the merger, the management of New Ocean will include the following
executive officers:
<TABLE>
<CAPTION>
POSITION WITH
NAME CURRENT POSITION NEW OCEAN
---- ---------------- -------------
<S> <C> <C>
James C. Flores.......... President and Chief Chairman of the Board
Executive Officer of OEI
James T. Hackett......... Chairman of the Board, President and Chief
President and Chief Executive Officer
Executive Officer of
Seagull
James L. Dunlap.......... Vice Chairman of OEI Vice Chairman
William L. Transier...... Executive Vice President Executive Vice President
and Chief Financial and Chief Financial
Officer of Seagull Officer
Robert K. Reeves......... Executive Vice President, Executive Vice President
General Counsel and and General Counsel
Secretary of OEI
</TABLE>
If at any time prior to the effective time any director nominee is unable
to serve as a director at the effective time, the respective Board that
designated such individual will designate another individual to serve in his
place. However, if James C. Flores is unable to serve as Chairman of the New
Ocean Board, James T. Hackett will serve as Chairman of the New Ocean Board
after the merger. Furthermore, if James T. Hackett is unable to serve as
President and Chief Executive Officer, James C. Flores will serve as President
and Chief Executive Officer after the merger.
GOVERNMENTAL AND REGULATORY APPROVALS
HSR Act. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the
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merger required the companies to make anti-trust filings with the FTC and the
Antitrust Division and the expiration or termination of the required waiting
periods.
OEI and Seagull made these filings on December 8, 1998 and the statutory
waiting period was terminated on December 29, 1998.
At any time before or after the consummation of the merger and
notwithstanding the expiration or of the HSR Act waiting period, any federal or
state antitrust authorities could take action under the antitrust laws as they
deem necessary or desirable in the public interest. Such action could include
seeking to enjoin the consummation of the merger or seeking divestiture of all
or part of the assets of OEI or Seagull. Private parties may also seek to take
legal action under the antitrust laws, if circumstances permit.
Alaska Public Utilities Commission. Through its wholly-owned subsidiary,
Alaska Pipeline Company ("APC"), and its ENSTAR Natural Gas Division ("ENSTAR"),
Seagull owns and operates a natural gas pipeline system and retail gas
distribution utility in Southcentral Alaska. APC and ENSTAR each holds a
certificate of public convenience and necessity issued by the Alaska Public
Utilities Commission ("APUC"), which regulates their activities. On December 14,
1998, Seagull applied to the APUC for approval of the merger, which will require
a change in ENSTAR's certificate to reflect the name change from Seagull Energy
Corporation to Ocean Energy, Inc. The merger may also be deemed by the APUC to
involve a change in control of both APC and ENSTAR, which requires further APUC
approval. Public notice of the application has been given by the APUC for 30
days to permit public comment. The APUC staff will analyze the application and
make a report to the commissioners of the APUC with its recommendation. If the
APUC staff recommends approval and no third party objects to the application,
approval is expected in mid-February 1999.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Boards with respect to the merger,
stockholders of OEI and Seagull should be aware that certain officers and
directors of OEI and Seagull have the following interests in the merger that are
separate from and in addition to the interests of stockholders of OEI and
shareholders of Seagull generally. The Boards were aware of these interests and
took them into account in approving the merger agreement and the transactions
contemplated thereby.
Composition of New Ocean Board
The merger agreement provides that after the merger the New Ocean Board
will consist of 15 members; eight individuals designated by OEI and seven
individuals designated by Seagull. These individuals will be elected by the
Seagull shareholders at the Seagull special meeting. Each of the OEI designees
currently serves on the OEI Board and each of the Seagull nominees currently
serves on the Seagull Board. See "Election of Directors."
Employment Agreements and Severance Agreements of OEI
Each of James C. Flores and John B. Brock entered into amendments to their
employment agreements with OEI, which were originally entered into on March 27,
1998 in connection with the merger between United Meridian Corporation and OEI,
to be effective upon the completion of the merger. Pursuant to the amendment,
Mr. Flores will serve as Chairman of the Board of New Ocean after the merger.
Mr. Flores will continue to be entitled to receive the same salary, bonus and
benefits as he is currently entitled to under his current employment agreement
with OEI. Pursuant to the amendment of Mr. Brock's employment agreement, Mr.
Brock will retire as an employee of OEI upon completion of the merger. Upon the
termination of Mr. Brock's employment, Mr. Brock will be entitled to receive a
lump sum payment equal to three times his then current base compensation and
bonus, the continuation of health benefits for three years and certain other
benefits and payments.
Twelve additional officers of OEI are parties to employment agreements with
OEI which provide that each officer will have certain severance benefits vest
upon the consummation of the merger. Generally, in
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the event any of these officers are terminated for any reason other than
misconduct or disability after the effective time of the merger, or such officer
elects to resign within 90 days of the effective time of the merger, the officer
will be entitled to a severance payment equal to the sum of his annual base
salary plus the average annual bonus paid during the most recent two years
multiplied by the number of whole and partial years remaining in term of the
employment agreement, which in each case is no more than three years. In
addition, the officers will be entitled to certain health, disability and
accident insurance benefits during the remaining term of the employment
agreement.
Seven officers of OEI are parties to severance protection agreements with
OEI providing for certain benefits to each person in the event a "change of
control" of OEI occurs during the three-year period after the execution of such
agreement. The merger will constitute a "change of control" under these
agreements. Pursuant to the severance agreements, if any such officer's
employment is terminated within 24 months following the merger (a) by OEI for
cause or disability, (b) by reason of such executive's death or (c) by such
executive officer other than for good reason, such officer will be entitled to
receive a single lump sum cash payment in an amount equal to all amounts of
compensation, any unreimbursed expenses and any vacation pay that have been
earned or accrued through the date of such termination but have not been paid as
of such date. If such person's employment is terminated within 24 months
following the merger or, in certain cases, within six months prior to the merger
for any reason other than as set forth in the prior sentence, each such
executive will be entitled to receive a single lump sum cash payment in an
amount equal to three times the sum of (a) such executive's annual base salary
in effect as of the date of the merger or, if greater, any time thereafter and
(b) the maximum bonus such officer would be entitled to receive under OEI's
annual incentive plan. Such officer will also be entitled to receive certain
benefits for a period of 24 months following such executive's termination of
employment or as long as such plan or benefits allow. The severance agreements
also provide that if any payments to one of the executives will be subject to
any excise tax under Section 4999 of the Code, a "gross-up" payment will be made
to place such executive in the same net after-tax position as would have been
the case if no excise tax had been payable.
OEI anticipates that the aggregate amount to be received by officers under
the severance agreements and the employment agreements as a result of the merger
will be approximately $10.0 million.
Employment Agreements and Severance Agreements of Seagull
Barry J. Galt entered into an employment and consulting agreement with
Seagull effective August 24, 1998. This agreement replaced the employment
agreement Mr. Galt entered into with Seagull in December 1983. The agreement
terminates on May 31, 2002, subject to earlier termination in certain
circumstances. Under the agreement, Mr. Galt is to serve as Chairman of the
Seagull Board of Directors through December 31, 1998 and as Vice Chairman of the
Seagull Board of Directors from January 1, 1999 through Seagull's 1999 Annual
Meeting of Shareholders. The agreement also provides for his continuation as a
Seagull employee through May 31, 1999, and for his retention as a Seagull
consultant from June 1, 1999 through May 31, 2002. Further, the agreement
provides for Mr. Galt to serve his current term as a Seagull director, with any
subsequent nominations to be considered in the same manner as other directors.
Mr. Galt was paid a $1,800,000 signing bonus at the time of execution and
will continue to receive his base salary of $590,000 per year through May 31,
1999. He will receive a full year bonus of not less than $295,000 under the
Seagull Executive Incentive Plan for 1998 and a partial year bonus of $122,917
for 1999. Mr. Galt will also receive a consulting fee of $425,000 per year from
June 1, 1999 through May 31, 2002. The agreement grants Mr. Galt a nonqualified
stock option covering 100,000 shares of Seagull common stock as of August 24,
1998 and a nonqualified stock option covering 50,000 shares of Seagull common
stock as of January 1, 1999. Both of these options and Mr. Galt's other
outstanding stock options will become fully exercisable on May 31, 1999. Subject
to applicable expiration dates, Mr. Galt's options will continue to be
exercisable until May 31, 2004. Mr. Galt's outstanding stock options will become
fully exercisable earlier than May 31, 1999 in the event that Mr. Galt's
employment is terminated by reason of his death or disability, by Seagull
without cause, or by Mr. Galt as a result of Seagull's breach of the agreement,
or as provided under the terms of the applicable Seagull stock plans.
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Mr. Galt's agreement provides for a loan to Mr. Galt of $1,409,040, which
matures May 31, 2002. This loan is recourse, is secured by 192,000 shares of
Seagull common stock, and bears simple interest of 6.5% per year, payable at
maturity. The agreement also provides for the establishment of a rabbi trust in
connection with the Seagull Executive Supplemental Retirement Plan (the "ESRP")
to be funded with a Seagull contribution equal to the present value of Mr.
Galt's benefit under the ESRP (approximately $2,705,118) prior to May 31, 1999
and a payment of $400,000 to Mr. Galt on January 1, 1999. In addition, office
space, secretarial support and parking will be provided to Mr. Galt through May
31, 2004 and Mr. Galt will continue to receive existing personal and
business-related benefits during the term of the agreement.
Mr. Galt's agreement includes noncompetition provisions which apply while
Mr. Galt is with Seagull and following the termination of Mr. Galt's employment
or consultancy other than by Seagull without cause or by Mr. Galt by reason of
Seagull's breach of the agreement.
Mr. Galt has entered into an amendment to the agreement to become effective
upon completion of the merger. Pursuant to the amendment, Mr. Galt will cease to
serve as Vice Chairman of the Seagull Board of Directors after the merger.
James T. Hackett entered into a three-year employment agreement with
Seagull effective September 16, 1998. The term of Mr. Hackett's employment
agreement will be extended automatically for an additional year on each
anniversary of the employment agreement, unless terminated prior to such renewal
by either Mr. Hackett or Seagull. Consequently, the remaining term of Mr.
Hackett's employment agreement will always range from two to three years.
However, if Seagull terminates Mr. Hackett's employment because of gross
negligence or willful misconduct in the performance of his duties, a felony or
misdemeanor conviction involving moral turpitude or because of Mr. Hackett's
breach of his employment agreement, the employment agreement will terminate.
Similarly, if Mr. Hackett voluntarily terminates his employment for reasons
other than Seagull's breach of the agreement, his failure to be re-elected to
the positions specified in the employment agreement (including as a director),
the assignment of duties materially inconsistent with his position, or the
relocation of the principal place of his employment by more than 50 miles, the
employment agreement will terminate.
The employment agreement provides for Mr. Hackett to serve as Seagull's
President and Chief Executive Officer and a member of Seagull's Board of
Directors beginning September 16, 1998 and as Chairman of Seagull's Board of
Directors beginning January 1, 1999. Mr. Hackett was paid a $580,000 signing
bonus, which was credited to Mr. Hackett's account under the Seagull
Supplemental Benefit Plan. Mr. Hackett will receive a base salary of $500,000
per year. In lieu of base salary for the period from September 16, 1998 through
December 31, 1999, Mr. Hackett was granted a nonqualified stock option covering
200,000 shares of Seagull common stock as of September 16, 1998. This option was
fully exercisable as of the date of grant. Mr. Hackett's annual salary is
subject to review and may be increased by the Seagull Compensation Committee on
an annual basis. The employment agreement also provides for a stock option grant
covering 191,996 shares of Seagull common stock as of September 16, 1998,
restricted stock grants covering 58,004 shares of Seagull common stock as of
September 16, 1998 and 241,996 shares of Seagull common stock as of January 1,
1999, and subsequent grants of stock options subject to certain shareholder
approvals and restricted stock covering 100,000 shares of Seagull common stock
on each anniversary of his employment agreement. Mr. Hackett's stock options
will become exercisable in 25% increments on the anniversaries of the date of
grant. The restricted stock grants, other than 25,000 shares covered by the
September 16, 1998 grant that will become nonforfeitable on December 31, 1998,
will become nonforfeitable in 33% increments on the anniversaries of the date of
grant or as provided under the terms of the applicable Seagull stock plans. The
employment agreement also provides Mr. Hackett certain employee benefits lost
during the initial period that he will not receive his base salary. The
employment agreement also covers various club memberships and other personal and
business-related expenses.
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The employment agreement includes noncompetition provisions which apply
while Mr. Hackett is employed by Seagull and for two years following a
termination of Mr. Hackett's employment by reason of disability or, in the event
of a voluntary termination by Mr. Hackett prior to September 16, 2000.
Mr. Hackett has entered into an amendment to his employment agreement
effective upon completion of the merger. Pursuant to the amendment, Mr. Hackett
will cease to serve as Chairman of the Seagull Board of Directors after the
merger and the noncompetition provisions in his employment agreement will apply
only to a voluntary termination by Mr. Hackett prior to the earlier of September
16, 2000 or eighteen months after completion of the merger.
Eight Seagull officers are parties to severance agreements with Seagull,
which provide for certain severance benefits in the event their employment is
involuntarily terminated within two years following a change of control, which
will be deemed to occur upon completion of the merger. The severance agreements
generally provide for the payment of 2.99 times the sum of annual salary and
targeted incentive bonus at the time of the change of control or involuntary
termination, whichever is greater. The severance agreements also provide for the
payment of the remaining portion of the prior year's incentive bonuses and, if
the involuntary termination occurs after an incentive bonus is earned but before
it is paid, targeted incentive bonus, the continuation of health and insurance
benefit coverage at active employee cost for up to thirty-six months, and
placement services up to a maximum cost of $6,000, or an equivalent cash
payment. Additionally, the severance agreements provide that if any payments to
an executive by Seagull would be subject to any excise tax imposed by section
4999 of the Code, a "gross-up" payment will be made to place such executive in
the same net after-tax position as would have been the case if no excise tax had
been imposed. Seagull anticipates that the aggregate amount received by these
officers under these severance agreements as a result of the merger will be
approximately $14.7 million.
Option and Benefit Plans
The merger constitutes a change in control for purposes of all of the stock
option plans and other benefit plans of OEI and Seagull. As a result, stock
options, restricted stock, and other benefits under such plans automatically
become fully vested. Certain officers and directors of OEI and Seagull hold
stock options and will be entitled to certain other benefits upon consummation
of the merger.
Directors' and Officers' Indemnification and Insurance
The merger agreement provides that, for six years after the effective time,
New Ocean will indemnify the present and former officers and directors of OEI
from liabilities arising out of actions or omissions in their capacity as such
prior to the effective time of the merger, to the full extent permitted under
Texas law or New Ocean's Articles of Incorporation, bylaws and OEI's written
indemnification agreements in effect at the date of the merger agreement. In
addition, New Ocean will maintain OEI's directors' and officers' insurance
coverage for six years after the effective time but only to the extent related
to actions or omissions prior to the effective time.
APPRAISAL RIGHTS
OEI is a Delaware corporation, and Seagull is a Texas corporation. Under
both Delaware law and Texas law, the common stockholders of OEI and the
shareholders of Seagull are not entitled to appraisal rights with respect to the
merger.
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CERTAIN TERMS OF THE MERGER AGREEMENT
The following description of the merger agreement describes the material
terms of the merger agreement. The full text of the merger agreement is attached
hereto as Annex A and is incorporated herein by reference. We encourage you to
read the entire merger agreement.
EFFECTIVE TIME OF THE MERGER
The merger agreement provides that the closing of the merger will take
place as soon as practicable after the satisfaction or waiver of the conditions
to the merger. At the closing we will file the necessary documents with public
officials to complete the merger. We expect that, if all conditions to the
merger have been satisfied or waived, the effective time will occur on the date
of the special meetings or as soon thereafter as practicable.
MANNER AND BASIS OF CONVERTING SHARES
As of the effective time of the merger, each issued and outstanding share
of OEI common stock will be converted into one share of New Ocean common stock.
All OEI common stock, when converted into New Ocean common stock, will be
cancelled.
Each issued and outstanding share of Seagull common stock will not be
affected by the merger and will represent one share of New Ocean common stock
after the merger.
SURRENDER AND EXCHANGE OF STOCK CERTIFICATES
Prior to the merger, New Ocean will deposit with , the exchange
agent, certificates representing the New Ocean common stock to be issued to the
OEI stockholders. The exchange agent will exchange the New Ocean common stock
for surrendered OEI common stock certificates.
Within five business days after the effective time of the merger the
exchange agent will send to each holder of OEI common stock certificates a
letter of transmittal and instructions for use in effecting the exchange of
their OEI common stock certificates for certificates representing the New Ocean
common stock. The exchange agent will also make arrangements for holders of OEI
common stock certificates to obtain a letter of transmittal and instructions and
to deliver such letter of transmittal and their OEI common stock certificates in
exchange for the New Ocean common stock in person after the merger.
Any shares of New Ocean common stock that remain unclaimed one year after
the effective time will be returned to New Ocean, upon demand, and any holder of
OEI common stock who has not exchanged his OEI common stock certificates prior
to that time may thereafter look only to New Ocean, as general creditors
thereof, to exchange such OEI common stock certificates or to pay amounts to
which such holders are entitled pursuant to the merger agreement.
If your OEI common stock certificate has been lost, stolen or destroyed,
you may make an affidavit of that fact and, if required by New Ocean, post a
bond in such reasonable amount as New Ocean may direct as indemnity against any
claim that may be made against it with respect to such OEI common stock
certificate. Upon receipt of the affidavit and bond, if any, the exchange agent
will issue in exchange for such lost, stolen or destroyed OEI common stock
certificate the requisite number of shares of New Ocean common stock and, if
applicable, cash and unpaid dividends and other distributions on such shares of
New Ocean common stock.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
OEI and Seagull relating to various aspects of the respective businesses and
financial statements of the parties and other matters. The representations and
warranties expire at the effective time of the merger.
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CONDUCT OF BUSINESS PRIOR TO THE MERGER
Each of OEI and Seagull has agreed that, prior to the merger, unless
contemplated by the merger agreement or consented to by the other, it will and
will cause its subsidiaries to operate its business in the ordinary course
consistent with past practices and use all reasonable efforts to preserve intact
its business organizations and relationships with third parties and to keep
available the services of its respective key employees.
The merger agreement places specific restrictions on the ability of OEI and
Seagull and their subsidiaries to: (a) amend their charters or bylaws; (b)
declare or pay any dividends on common stock; (c) acquire any of its outstanding
stock or any ownership interest of any of its subsidiaries; (d) merge or
consolidate with another entity; (e) make a material acquisition, enter into a
new line of business or commence business in a new country; (f) dispose of
material assets or properties; (g) issue securities or amend the terms of any of
its outstanding securities; (h) incur indebtedness outside the ordinary course
of business; (i) settle litigation outside the ordinary course of business; (j)
enter into hedging transactions outside its ordinary course of business; and (k)
increase the compensation of executive officers or former employees.
LIMITATION ON DISCUSSING OR NEGOTIATING OTHER ACQUISITION PROPOSALS
The merger agreement provides that until it is terminated, OEI and Seagull
will not directly or indirectly, solicit, initiate or encourage any Acquisition
Proposal, or engage in negotiations with, or give any nonpublic information to
any person that has made or may be considering making, an Acquisition Proposal.
The term "Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination directly or
indirectly involving OEI or Seagull or any of their respective subsidiaries or
the acquisition of a substantial equity interest in, or a substantial portion of
the assets of, any such party, other than the transactions contemplated by the
merger agreement.
However, each of OEI and Seagull and their respective Boards are permitted
under the merger agreement to the extent required to comply with their fiduciary
duties under applicable law, to furnish information to, or enter into
negotiations with, any party that has indicated its willingness to make an
unsolicited bona fide proposal relating to an Acquisition Proposal if the board
of either OEI or Seagull determines in good faith that the third party has the
good faith intent to proceed with negotiations and the financial capability to
consummate such Acquisition Proposal.
Each company has agreed that contemporaneously with furnishing information
relating to, or entering into discussions or negotiations with a third party
regarding an Acquisition Proposal that it will provide written notice to the
other party to such effect. OEI or Seagull, as the case may be, will use all
reasonable efforts to keep the other party informed of the status and terms of
any such negotiations or discussions.
CERTAIN ADDITIONAL AGREEMENTS
EMPLOYEE BENEFIT MATTERS
Seagull and OEI will evaluate their personnel needs and consider continuing
the employment of certain employees of Seagull, OEI and their subsidiaries on a
case-by-case basis. Prior to the merger, Seagull and OEI will cause each of
their stock option plans and severance agreements that contain change of control
provisions and Seagull will cause its management stability plan to be amended to
provide that the consummation of the merger will constitute a change of control
for purposes thereunder. Prior to the merger, Seagull and OEI will also cause
each of their respective benefit plans that is an employee pension benefit plan
within the meaning of Section 3(2) of ERISA, other than Seagull's executive
supplemental retirement plan and OEI's executive supplemental retirement plan,
to be amended to provide that all participants shall have a 100% vested and
nonforfeitable interest in their accrued benefits thereunder as of the merger.
New Ocean will initially provide to any employees of Seagull, OEI and their
subsidiaries who are employed by New Ocean after the merger the same base salary
or wages provided to such employees prior to the merger. After the merger, New
Ocean may make such changes in base salary or wages as
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determined by management of New Ocean after the merger. New Ocean will take all
actions necessary or appropriate to permit the retained employees to continue to
participate after the merger in the employee benefit plans or arrangements in
which such retained employees were participating immediately prior to the
merger. New Ocean may terminate or discontinue its employee benefit plans or
arrangements after the merger in certain circumstances.
In addition, New Ocean will assume the obligations of OEI under OEI's
benefit plans. The terms of each such benefit plan will continue to apply in
accordance with their terms. At the effective time, each outstanding award,
including restricted stock, phantom stock, stock equivalents and stock units,
under any employee incentive or benefit plans, programs or arrangements and
non-employee director plans presently maintained by OEI which provide for grants
of equity-based awards will be amended or converted into a similar instrument of
New Ocean, in each case with such adjustments to the terms of such OEI awards as
are appropriate to preserve the value inherent in such OEI awards with no
detrimental effects on the holders thereof. The other terms of each OEI award,
and the plans or agreements under which they were issued, will continue to apply
in accordance with their terms. At the effective time, automatically and without
any action by any person, each outstanding employee or director stock option of
OEI and each outstanding employee or director stock option of Seagull will
become immediately exercisable and each share of restricted stock of OEI and
Seagull shall become nonforfeitable.
CONDITIONS TO THE MERGER
CONDITIONS TO THE OBLIGATION OF EACH PARTY
The obligations of each party to complete the merger are subject to the
following conditions:
- the requisite approval by the OEI and Seagull stockholders;
- the absence of any, statute, injunction, order, judgment or other legal
restraint prohibiting, enjoining or restricting the completion of the
merger;
- the absence of any stop order regarding the registration statement
relating to the merger or any proceeding for such purpose pending before
or threatened by the Securities and Exchange Commission;
- the receipt of such permits, authorizations, consents, or approvals
required to consummate the transactions contemplated by the merger
agreement;
- approval for listing of the New Ocean common stock to be issued in the
merger by the NYSE, subject to official notice of issuance; and
- the receipt of any consent or approval required from the Alaska Public
Utilities Commission.
CONDITIONS TO THE OBLIGATIONS OF SEAGULL
The obligation of Seagull to complete the merger is also subject to the
following additional conditions:
- compliance by OEI with its obligations under the merger agreement and
the representations and warranties of OEI contained in the merger
agreement being true and correct both as of the date of the merger
agreement and as of the effective time;
- all proceedings taken by OEI under the merger agreement and all
documents, instruments and certificates delivered by OEI under the
merger agreement being reasonably satisfactory in form and substance to
Seagull and its counsel; and
- the absence of any change in the financial condition, business,
operations or prospects of OEI and its subsidiaries that as a whole,
would be reasonably likely to have a material adverse effect on OEI,
other than any such change affecting both Seagull and OEI in a
substantially similar manner.
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CONDITIONS TO THE OBLIGATIONS OF OEI
The obligation of OEI to complete the merger is also subject to the
following additional conditions:
- compliance by Seagull with its obligations under the merger agreement
and the representations and warranties of Seagull contained in the
merger agreement being true and correct both as of the date of the
merger agreement and as of the effective time;
- all proceedings taken by Seagull under the merger agreement and all
documents, instruments and certificates delivered by Seagull under the
merger agreement being reasonably satisfactory in form and substance to
OEI and its counsel; and
- the absence of any change in the financial condition, business,
operations or prospects of Seagull and its subsidiaries, that taken as a
whole, would be reasonably likely to have a material adverse effect on
Seagull, other than any such change affecting both Seagull and OEI in a
substantially similar manner.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective
time, whether before or after approval by the stockholders of OEI or Seagull:
(a) by mutual written consent of Seagull and OEI; or
(b) by either OEI or Seagull if:
- the merger has not occurred by April 14, 1999; however, either party
may extend this date until August 30, 1999 if all the conditions to
the merger are satisfied or capable of being satisfied by such date
other than obtaining the consent of the Alaska Public Utilities
Commission and the party extending the date believes there is a
reasonable probability that such consent will be obtained by the
extended date;
- the other party is in material breach of the merger agreement and
such breach is not cured in all material respects within 20 business
days after notice of such breach;
- any law, rule or regulation makes consummation of the merger illegal
or if any final and nonappealable judgment, injunction, order or
decree of a court or other governmental authority of competent
jurisdiction restrains or prohibits the consummation of the merger;
- the OEI or Seagull stockholders fail to approve the merger and the
election of directors at a duly held meeting of stockholders;
- the Board of Directors of the other party withdraws, modifies or
changes its recommendation of the merger agreement or the merger in
a manner adverse to such party or the Board recommends any
Acquisition Proposal to its stockholders or resolves to do any of
the foregoing;
- a tender offer or exchange offer for 50% or more outstanding shares
of capital stock of the other party is commenced, and the Board of
Directors of the other party does not recommend that its
stockholders not tender their shares into such tender or exchange
offer;
- if the other party accepts a Superior Proposal (as hereinafter
defined) and pays the applicable termination fee to such party;
The term "Superior Proposal" means an unsolicited bona fide proposal made
by a third party relating to an Acquisition Proposal on terms that the
applicable Board of Directors determines it cannot reject in favor of the
merger, based on applicable fiduciary duties and the advice of its outside
counsel.
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TERMINATION FEES AND EXPENSES
The merger agreement provides that, except as provided below, all expenses
incurred by the parties will be borne by the party that has incurred such
expenses. If the merger agreement is terminated for any reason, Seagull and OEI
will share equally the expenses relating to this document and all regulatory
filing fees.
The merger agreement provides for the payment by either party to the other
of a termination fee of $30 million, plus expenses up to $2.5 million, if the
merger agreement is terminated in the following circumstances:
Payment of a Termination Fee by OEI. OEI will pay Seagull a termination fee
if the merger agreement is terminated:
- by Seagull because the OEI Board (a) withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner adverse
to Seagull, (b) recommends any Acquisition Proposal to the OEI
stockholders or (c) does not recommend that the OEI stockholders do not
tender or exchange their shares pursuant to a tender offer or exchange
offer for 50% or more of the outstanding OEI common stock;
- by OEI or Seagull, if OEI accepts a Superior Proposal; or
- by Seagull in the event of a material breach of the merger agreement by
OEI.
If the merger agreement is terminated because OEI has accepted a Superior
Proposal, OEI will be obligated to pay Seagull the termination fee without any
further requirements or pre-conditions to the payment obligation. If, however,
the merger agreement is terminated in the manner set forth in either the first
or third bullet points above, OEI will only be obligated to pay Seagull the
termination fee if within nine months after such termination (A) OEI consummates
a transaction that would constitute an Acquisition Proposal, (B) OEI enters into
a definitive agreement providing for an Acquisition Proposal that has been
approved by the OEI Board, or (C) any person or "group" acquires beneficial
ownership or the right to acquire beneficial ownership of 50% or more of the OEI
common stock and OEI has taken any action for the benefit of such person
facilitating the acquisition by such person or group of such beneficial
ownership.
OEI will not be obligated to pay Seagull a termination fee under any
circumstance if the Seagull Board withdraws, modifies or changes its
recommendation of the merger agreement or the merger or if the Seagull
shareholders fail to approve the merger agreement and the merger.
Payment of a Termination Fee by Seagull. Seagull will pay OEI a termination
fee if the merger agreement is terminated:
- by OEI because the Seagull Board (a) withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner adverse
to OEI, (b) recommends any Acquisition Proposal to the Seagull
shareholders or (c) does not recommend that the Seagull shareholders do
not tender or exchange their shares pursuant to a tender offer or
exchange offer for 50% or more of the outstanding Seagull common stock;
- by OEI or Seagull, if Seagull accepts a Superior Proposal; or
- by OEI in the event of a material breach of the merger agreement by
Seagull.
If the merger agreement is terminated because Seagull has accepted a
Superior Proposal, Seagull will be obligated to pay OEI the termination fee
without any further requirements or pre-conditions to the payment obligation.
If, however, the merger agreement is terminated in the manner set forth in
either of the first or third bullet points above, Seagull will only be obligated
to pay OEI the termination fee if within nine months after such termination (A)
Seagull consummates a transaction that would constitute an Acquisition Proposal,
(B) Seagull enters into a definitive agreement providing for an Acquisition
Proposal that has been approved by the Seagull Board, or (C) any person or
"group" acquires beneficial
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ownership or the right to acquire beneficial ownership of 50% or more of the
Seagull common stock and Seagull has taken any action for the benefit of such
person facilitating the acquisition by such person or group of such beneficial
ownership.
Seagull will not be obligated to pay OEI a termination fee under any
circumstance if the OEI Board withdraws, modifies or changes its recommendation
of the merger agreement or the merger or if the OEI stockholders fail to approve
the merger agreement and the merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following sets forth the opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. as to the material U.S. federal income tax consequences of the merger,
including the tax consequences of the receipt of New Ocean common stock by a
holder of OEI common stock and the receipt of New Ocean preferred stock by a
holder of OEI Series A preferred stock pursuant to the merger. This opinion only
applies to U.S. Holders (as defined below) who hold shares of OEI common stock
or OEI Series A preferred stock as capital assets and does not deal with special
classes of investors, such as insurance companies, tax-exempt organizations,
financial institutions, dealers in securities, foreign persons, persons who
acquired shares of OEI common stock pursuant to an exercise of employee stock
options or rights or otherwise as compensation, persons that hold shares of OEI
common stock or OEI Series A preferred stock as part of a position in a
"straddle" or as part of a "hedging" or "conversion" transaction for U.S.
federal income tax purposes, and persons with a "functional currency" other than
the U.S. dollar. Furthermore, the following discussion addresses only certain
U.S. federal income tax matters and does not consider any state, local or
foreign tax consequences of the merger.
A "U.S. Holder" means a holder of shares of OEI common stock or OEI Series
A preferred stock who is (i) a citizen or resident of the United States, (ii) a
corporation or partnership created in or organized under the laws of the United
States or any state thereof (including the District of Columbia), (iii) an
estate the income of which is subject to U.S. federal income tax regardless of
its source, or (iv) a trust if (x) a U.S. court can exercise primary supervision
over the administration of such trust, and one or more U.S. persons have the
authority to control all of the substantial decisions of such trust or (y) such
trust was in existence on August 20, 1996 and properly elects to continue to be
treated as a United States person.
This opinion is based on current law. Future legislative, judicial or
administrative changes or interpretations, which may be retroactive, could alter
or modify the statements set forth herein. OEI has received an opinion of its
tax counsel, Akin, Gump, Strauss, Hauer & Feld, L.L.P., dated as of the date
hereof, that the merger will constitute a reorganization under Section 368(a) of
the Code and that no gain or loss will be recognized by the stockholders of OEI
upon the receipt of New Ocean common stock in exchange for OEI common stock
pursuant to the merger. In addition, Seagull has received an opinion of its tax
counsel, Vinson & Elkins L.L.P., that the merger will constitute a
reorganization under Section 368(a) of the Code.
In rendering these opinions, Akin, Gump, Strauss, Hauer & Feld, L.L.P. and
Vinson & Elkins L.L.P. have assumed that the merger will be consummated as
contemplated by this Joint Proxy Statement/ Prospectus. Each firm has received
customary representations of facts from OEI and Seagull upon which they have
relied.
Neither OEI nor Seagull will request any ruling from the IRS as to the U.S.
federal income tax consequences of the merger. Opinions of counsel are not
binding on the IRS or the courts, and the IRS and the courts are not precluded
from taking contrary positions.
EACH HOLDER OF SHARES OF OEI COMMON STOCK IS URGED TO CONSULT HIS, HER OR
ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
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<PAGE> 85
TAX CONSEQUENCES TO OEI AND SEAGULL
OEI and Seagull will not recognize gain or loss as a result of the merger.
Seagull's aggregate adjusted tax basis in the assets received from OEI will be
the same as OEI's aggregate adjusted tax basis in its assets. The holding period
of the assets received by Seagull pursuant to the merger will include the
periods for which OEI held its assets. Further, Seagull will not recognize gain
as a result of the issuance of shares of New Ocean common stock or preferred
stock to the stockholders of OEI.
TAX CONSEQUENCES TO HOLDERS OF OEI COMMON STOCK AND OEI SERIES A PREFERRED STOCK
A U.S. Holder of OEI common stock or OEI Series A preferred stock will not
recognize gain or loss on the exchange of such OEI common stock or OEI Series A
preferred stock for New Ocean common stock or New Ocean preferred stock pursuant
to the merger. Such holder's aggregate adjusted tax basis in the shares of New
Ocean common stock or New Ocean preferred stock received in the merger will
equal such holder's adjusted tax basis in the shares of OEI common stock or OEI
Series A preferred stock surrendered in exchange therefor. The holding period of
the shares of New Ocean common stock or New Ocean preferred stock received by
each holder of OEI common stock or OEI Series A preferred stock in the merger
will include the holding period of the OEI common stock or OEI Series A
preferred stock surrendered in exchange therefor.
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the merger, OEI common stockholders will become holders of
New Ocean common stock. The rights of OEI stockholders are currently governed by
the OEI charter and bylaws and the laws of Delaware. Following the merger, the
rights of all former holders of OEI common stock will be governed by the Seagull
charter and bylaws and Texas law. The following is a summary comparison of the
material differences between the rights of holders of OEI common stock and
holders of Seagull common stock under the respective charter and bylaws of the
companies and under Delaware and Texas law. For information on how to obtain
copies of the charters and bylaws of the companies, see "Where You Can Find More
Information."
<TABLE>
<CAPTION>
OEI SEAGULL
--- -------
<S> <C>
- ---------------------------------------------------------------------------------------------
AUTHORIZED CORPORATE STOCK:
- ---------------------------------------------------------------------------------------------
- 250,000,000 shares of common stock - 100,000,000 shares of common stock, to be
increased to 450,000,000 shares in
- 10,000,000 shares of preferred stock, connection with the merger
issuable in one or more series as
designated by the OEI Board and of which - 5,000,000 shares of preferred stock, to
50,000 shares are issued as OEI Series A be increased to 50,000,000 shares in
preferred stock connection with the merger, issuable in one
or more series as designated by the Seagull
Board, and of which 50,000 shares will be
New Ocean Series C preferred stock issued
in the merger in exchange for the OEI
Series A preferred stock
- ---------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE> 86
<TABLE>
<CAPTION>
OEI SEAGULL
--- -------
<S> <C>
- ---------------------------------------------------------------------------------------------
NUMBER AND TERM OF DIRECTORS
- ---------------------------------------------------------------------------------------------
- Currently 12 directors elected in 3 - Currently 12 directors elected in 3
classes with staggered 3-year terms classes with staggered 3-year terms, which
will increase to 15 directors upon
completion of the merger
- ---------------------------------------------------------------------------------------------
REMOVAL OF DIRECTORS
- ---------------------------------------------------------------------------------------------
- Can only be for cause and requires the - Can only be for cause and requires the
affirmative vote of 66 2/3% of combined majority vote of shares entitled to vote
voting power of outstanding shares of at elections of directors
voting stock
- ---------------------------------------------------------------------------------------------
SPECIAL MEETINGS OF STOCKHOLDERS:
- ---------------------------------------------------------------------------------------------
- Cannot be called by stockholders - Can be called by holders of at least 10%
of shares entitled to vote
- ---------------------------------------------------------------------------------------------
NOTICE FOR ANNUAL MEETINGS; CERTAIN
PROPOSALS:
- ---------------------------------------------------------------------------------------------
- Business to be brought before an annual - Business to be brought before an annual
meeting by a stockholder requires written meeting by a shareholder requires written
notice to the corporate secretary notice to the corporate secretary
delivered not less than 80 days prior to delivered 90 days prior to the
the annual meeting, unless OEI provides anniversary of the preceding annual
less than 90 days notice of the meeting meeting
- ---------------------------------------------------------------------------------------------
CHARTER AMENDMENTS:
- ---------------------------------------------------------------------------------------------
- Generally requires board approval and - Generally requires board approval and the
the affirmative vote of the holders of a affirmative vote of the holders of
majority of the outstanding stock two-thirds of the outstanding shares
entitled to vote (and, in some entitled to vote (and, in some
circumstances, a similar vote of each circumstances, a similar vote of each
affected class) affected class)
- Some types of amendments described in
OEI's charter require a 75% voting
threshold
- ---------------------------------------------------------------------------------------------
AMENDMENT TO BYLAWS:
- ---------------------------------------------------------------------------------------------
- May be made by the board of directors - May be made by the board of directors or
without consent or vote of the by the shareholders with the affirmative
stockholders or by the stockholders with vote of holders of a majority of the
the affirmative vote of holders of at outstanding shares of Seagull common
least two-thirds of the outstanding stock entitled to vote thereon, except
shares entitled to vote that amendments relating to the powers,
number, term of office, vacancy and
removals of the members of the board or
the provisions authorizing amendments to
the bylaws require the vote of the
holders of at least two-thirds of the
shares entitled to vote thereon.
- ---------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE> 87
<TABLE>
<CAPTION>
OEI SEAGULL
--- -------
<S> <C>
- ---------------------------------------------------------------------------------------------
STATE TAKEOVER LAWS APPLICABLE TO THE
COMPANIES:
- ---------------------------------------------------------------------------------------------
Section 203 of the DGCL: Article 13 of the TBCA:
Generally prohibits significant business Generally similar to the Delaware statute,
transactions (including mergers) with a except that:
holder of 15% or more of a company's stock
for three years after the stockholder - the restrictions apply to 20%
crosses the 15% threshold, unless: shareholders rather than Delaware's 15%
threshold; and
- the board approves either the
transaction in question or the - the Texas statute does not have
acquisition of shares by the Delaware's 85% unaffiliated tender offer
stockholder, or exception.
- when the stockholder crosses the 15%
threshold, it acquires at least 85% of
the outstanding shares not held by
affiliates (such as pursuant to a tender
offer); or
- the transaction is approved by
two-thirds of the company's stockholders
other than the stockholder in question
- ---------------------------------------------------------------------------------------------
INSPECTION OF BOOKS AND RECORDS:
- ---------------------------------------------------------------------------------------------
- Any stockholder may examine the list of - Only 5% shareholders and shareholders who
stockholders and, upon written demand, have held their shares for six months
may inspect any other corporate books and have the right to examine the corporate
records for valid purposes books and records and share transfer
records.
- ---------------------------------------------------------------------------------------------
VOTE REQUIRED FOR MERGERS AND SIMILAR
FUNDAMENTAL CORPORATE TRANSACTIONS:
- ---------------------------------------------------------------------------------------------
- Affirmative vote of the holders of the - Affirmative vote of the holders of at
majority of the shares in each class least two- thirds of the shares entitled to
entitled to vote vote (including by separate class if
required)
- ---------------------------------------------------------------------------------------------
VOTE REQUIRED FOR SALES OF ALL OR
SUBSTANTIALLY ALL OF THE CORPORATE
ASSETS:
- ---------------------------------------------------------------------------------------------
- Requires approval by the holders of a - If not in the "usual and regular course
majority of the corporation's outstanding of business," requires affirmative vote of
stock the holders of at least two-thirds of the
shares entitled to vote (including by
- The legal meaning of "all or separate class if required)
substantially all" is not certain - Shareholder approval is not required if
the sale is in the "usual and regular
course of business," which under the
statute is satisfied if the corporation
continues to engage in a business after
the transaction or purchases a business
with the sale proceeds
- ---------------------------------------------------------------------------------------------
</TABLE>
80
<PAGE> 88
RIGHTS PLAN
OEI has a rights agreement pursuant to which preferred stock purchase
rights are attached to each outstanding share of OEI common stock that entitle
the registered holder to purchase from OEI, one one-hundredth of a share of OEI
junior preferred stock at a purchase price of $240, subject to adjustment. Each
outstanding share of OEI common stock has one right attached to it.
The rights will separate from the OEI common stock upon the earlier of (a)
10 days following a public announcement that a person or group of affiliated or
associated persons (an "OEI Acquiring Person"), has acquired or obtained the
right to acquire beneficial ownership of 15% or more of the outstanding shares
of OEI common stock, or (b) 10 business days, or such later date as may be
determined by action of the OEI Board of Directors in certain circumstances,
following the commencement of, or the announcement of an intention to make, a
tender offer or exchange offer that would result in a person or group
beneficially owing 15% or more of such outstanding shares of OEI common stock.
In the event that OEI is acquired in a merger or other business combination
transaction or 50% or more of OEI's consolidated assets or earning power is
sold, each right holder will have the right to receive upon payment of the
exercise price the number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the right. In the event that any person or group of affiliated
or associated persons becomes an OEI Acquiring Person, each holder of a right
will have the right to receive upon payment of the exercise price a number of
shares of OEI common stock or, under certain circumstances, cash, other equity
securities or property of OEI, having a market value of two times the exercise
price of the right. This right is not extended to the rights beneficially owned
by an OEI Acquiring Person or any transferee, and those rights become void.
Prior to the earlier of 5:00 p.m., Houston, Texas time on the tenth day
after the person or group has become an OEI Acquiring Person, or the expiration
of the rights, OEI may redeem the rights at a price of $0.001 per right, after
which the right to exercise the rights will immediately terminate and the only
right of the holders of rights will be to receive the redemption price.
Pursuant to the OEI rights agreement, the rights are not applicable to the
merger and the other transactions contemplated by the merger agreement.
Seagull has a rights plan which has substantially the same effect as the
OEI rights plan, except that the exercise price is different and the threshold
upon which the rights will separate from the Seagull common stock is the
acquisition or right to acquire 10% or more of the outstanding Seagull common
stock, rather than 15%. The Seagull rights are not applicable to the merger or
the transactions contemplated thereby.
81
<PAGE> 89
DESCRIPTION OF NEW OCEAN CAPITAL STOCK
The New Ocean Articles of Incorporation, which will be Seagull's Articles
of Incorporation as currently in effect with the exception of the amendments
described in this document, will provide that the authorized capital stock of
New Ocean will consist of 450,000,000 shares of common stock and 50,000,000
shares of preferred stock, par value $1.00 per share.
NEW OCEAN PREFERRED STOCK
GENERAL
The Board of Directors will have the authority, subject to the rights of
the holders of New Ocean Series C preferred stock, to provide for the issuance
of up to 50,000,000 shares of New Ocean preferred stock in one or more series
and to determine the voting powers, designations, rights and preferences of such
preferred stock. At present, 500,000 shares of Seagull preferred stock are
designated as Series B Junior Participating Seagull preferred stock in
connection with Seagull's shareholder rights plan although no such shares of
Seagull are currently issued and outstanding. No other shares of Seagull
preferred stock have been designated or are outstanding.
NEW OCEAN SERIES A PREFERRED STOCK
EFFECTS OF THE MERGER
Each share of the OEI Series A preferred stock issued and outstanding
immediately prior to the effective time of the merger will be converted
automatically into one share of New Ocean Series C preferred stock. The New
Ocean Series C preferred stock will have substantially equivalent rights,
preferences and limitations as the OEI Series A preferred stock and will be
convertible into New Ocean common stock.
No certificates representing New Ocean Series C preferred stock will be
issued to holders of OEI Series A preferred stock unless requested by such
holders. Instead, certificates that represented shares of OEI Series A preferred
stock will be deemed to represent an equal number of shares of New Ocean Series
C preferred stock after the merger.
RANK
The New Ocean Series C preferred stock will rank senior to the New Ocean
common stock, with respect to dividend distributions and distributions upon the
voluntary or involuntary liquidation, dissolution or winding up of New Ocean.
DIVIDENDS
Holders of each share of New Ocean Series C preferred stock will be
entitled to receive cumulative dividends at the rate of $65.00 per annum,
payable semi-annually in cash. The first payment is due April 1, 1999. No
dividends may be paid on any New Ocean common stock or any other New Ocean
equity security that ranks below the New Ocean Series C preferred stock unless
all cumulated and unpaid dividends have been paid on the New Ocean Series C
preferred stock.
LIQUIDATION PREFERENCE
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of New Ocean, holders of the New Ocean Series C preferred stock will
be entitled to receive a liquidating distribution of $1,000 per share, plus any
accrued and unpaid dividends. This liquidating distribution will be made before
any distributions are made on the New Ocean common stock or any other New Ocean
equity securities that rank below the New Ocean Series C preferred stock. If the
assets of New Ocean are insufficient to pay such a liquidating distribution on
the New Ocean Series C preferred stock and any other class of capital stock
ranking on a parity with the New Ocean Series C preferred stock in full, the
holders of the
82
<PAGE> 90
New Ocean Series C preferred stock and the other parity securities will share
ratably in any such distribution of New Ocean in proportion to the full
liquidation preference to which they are entitled.
CONVERSION RIGHTS
The New Ocean Series C preferred stock will be convertible into shares of
New Ocean common stock at the option of the holder, at any time or from time to
time. In addition, the New Ocean Series C preferred stock will automatically
convert into shares of New Ocean common stock if, for any 20 consecutive trading
days, the closing price of New Ocean common stock equals or exceeds the Forced
Conversion Price (defined below). The New Ocean Series C preferred stock will be
converted into the number of shares of New Ocean common stock determined by
dividing: (i) the sum of (A) $1,000.00 plus (B) all accrued and unpaid dividends
by (ii) the Conversion Price in effect on the date of conversion.
The "Conversion Price" will initially be $15.00 and will be subject to
adjustment upon the occurrence of certain events, including the issuance of
additional New Ocean common stock or options, rights or warrants to acquire New
Ocean common stock for less than a pre-determined price, the issuance of New
Ocean common stock as a dividend or distribution and a subdivision or
combination of New Ocean common stock. Prior to November 10, 2001, the "Forced
Conversion Price" will be 175% of the Conversion Price. After November 10, 2001,
the Forced Conversion Price will be 150% of the Conversion Price.
In the case of any reclassification or change of outstanding shares of New
Ocean common stock, any merger or consolidation with any other entity that
results in the reclassification or cancellation of outstanding shares of New
Ocean common stock or any sale of all or substantially all of the assets of New
Ocean, the New Ocean Series C preferred stock will be convertible into the kind
and amount of securities, cash and other property which the holder of New Ocean
Series C preferred stock would have been entitled to receive had the holder
converted their shares into New Ocean common stock immediately prior to the
occurrence of such event.
OPTIONAL REDEMPTION
New Ocean will have the option, but will not be required, to redeem shares
of the New Ocean Series A preferred stock for cash. The price of such redemption
will be equal to the sum of (i) the product of (A) the number of shares of New
Ocean common stock into which one share of New Ocean Series C preferred stock is
then convertible and (B) the Forced Conversion Price and (2) all accrued and
unpaid dividends on such shares of New Ocean Series C preferred stock.
MANDATORY REDEMPTION
On November 10, 2018 and on each anniversary thereafter until the New Ocean
Series C preferred stock is fully retired, if (i) the shares of New Ocean Series
C preferred stock have not been converted or redeemed previously and (ii) the
closing price of New Ocean common stock is less than the Conversion Price for a
period of 30 consecutive trading days during the preceding year, then the holder
may redeem for cash the lesser of (y) 20% of the shares of New Ocean Series C
preferred stock owned by the holder or (z) the number of shares equal to the
amount resulting from dividing the holder's pro rata share of Available Cash
(defined below) by the redemption price per share. The redemption price per
share is $1,000.00, plus all accrued and unpaid dividends. New Ocean will not be
required to redeem any New Ocean Series C preferred stock if the redemption
would result in a default under any agreement or obligation by which New Ocean
is bound.
The term "Available Cash" means the lesser of (i) the amount of cash
legally available for the redemption of stock by New Ocean or (ii) the amount of
cash, available for the redemption of stock by New Ocean without materially
disrupting the normal course of business of New Ocean, as determined in good
faith by the New Ocean Board of Directors.
83
<PAGE> 91
VOTING RIGHTS
The holders of the New Ocean Series C preferred stock will be entitled to
vote on all matters on which New Ocean common stock holders are entitled to
vote. Each holder of New Ocean Series C preferred stock will be entitled to a
number of votes equal to the number of shares of New Ocean common stock into
which their New Ocean Series C preferred stock is convertible as of the record
date for such vote. Whenever the holders are entitled to vote as a class, each
holder will be entitled to the number of votes equal to the number of shares of
New Ocean common stock into which the New Ocean Series C preferred stock is
convertible as of the record date for such vote.
If any New Ocean Series A preferred stock are outstanding, New Ocean may
not create a new class or series of stock having a dividend or liquidation
preference senior to the New Ocean Series C preferred stock or amend, alter or
repeal its Articles of Incorporation in a manner that will adversely affect the
rights of the New Ocean Series C preferred stockholders without the consent of
two-thirds of the shares of the New Ocean Series C preferred stock then
outstanding voting as a class.
84
<PAGE> 92
ELECTION OF DIRECTORS
Fifteen directors are to be elected to the New Ocean Board of Directors at
the special meeting, subject to consummation of the merger. Seagull's bylaws
provide for a classified Board of Directors. The Seagull Board of Directors is
divided into Classes I, II and III, the terms of which are currently scheduled
to expire respectively on the dates of Seagull's Annual Meeting of Shareholders
in 1999, 2000, and 2001, respectively. Pursuant to the terms of the merger
agreement, at the effective time, the size of the New Ocean's Board of Directors
will be increased from Seagull's current number of 12 directors to 15 directors
for New Ocean, and eight individuals designated by OEI and seven individuals
designated by Seagull will, subject to consummation of the merger, be elected to
serve on the New Ocean Board of Directors. Each of the current directors of
Seagull not continuing on the New Ocean Board of Directors will resign upon
effectiveness of the merger.
The terms of the directors elected at the Seagull special meeting will
expire at the Seagull annual meeting of shareholders in the year indicated above
and until their respective successors shall have been elected and qualified.
Each of the individuals designated by OEI currently serves as a director of OEI
and each of the individuals designated by Seagull currently serves as a director
of Seagull.
The TBCA and Seagull's bylaws require the size of each class to be nearly
as equal as possible. As set forth below, five individuals have been nominated
to serve in each class of directors, and as a result, after the merger, each of
the classes of New Ocean's Board of Directors will contain five members.
The 15 individuals receiving the most votes for director at the Seagull
special meeting will be elected to the New Ocean Board. Accordingly, under Texas
law and Seagull's Articles of Incorporation and bylaws, abstentions and broker
non-votes will have no effect on the election of directors. Shareholders may not
cumulate their votes in the election of directors.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted FOR the election of the nominees to the New Ocean
Board of Directors listed in the table below. Although the Seagull Board does
not contemplate that any of the nominees will be unable to serve, if such a
situation arises prior to the Seagull special meeting, the persons named in the
enclosed proxy will vote for the election of such other person(s) as may be
designated by OEI or Seagull, as the case may be, in accordance with the terms
of the merger agreement.
NOMINEES
The following table sets forth information regarding the names, ages,
principal occupations and directorships in other companies held by the nominees
for director:
<TABLE>
<CAPTION>
NOMINEES AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
- -------- --- --------------------------------------
<S> <C> <C>
CLASS I NOMINEES
Milton Carroll.............. 48 Chairman of the Board, President and Chief Executive
Officer, Instrument Products, Inc.; Director, Blue
Cross Blue Shield of Texas, Houston Industries, Inc.
and Texas Eastern Products Pipeline Co. Director of
Seagull since 1997.
Thomas D. Clark, Jr......... 57 Ourso Distinguished Professor of Business and Dean of
College of Business Administration at Louisiana State
University. Director of OEI since 1997.
Peter J. Fluor.............. 51 President and Chief Executive Officer, Texas Crude
Energy, Inc. (independent oil and gas company);
Director, Fluor Corporation. Director of Seagull
since 1980.
Robert L. Howard............ 62 Retired Vice President of Domestic Operations,
Exploration and Production, Shell Oil Company;
Director, Southwestern Energy Company, McDermott
International Inc. and J. Ray McDermott, S.A.
Director of OEI since 1998.
</TABLE>
85
<PAGE> 93
<TABLE>
<CAPTION>
NOMINEES AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
- -------- --- --------------------------------------
<S> <C> <C>
Charles F. Mitchell,
M.D. ..................... 50 Otolaryngologist and facial plastic surgeon. Director
of OEI since 1995.
CLASS II NOMINEES
J. Evans Attwell............ 67 Attorney, Vinson & Elkins L.L.P.; Director, American
General Corporation and Dain Rauscher Corporation.
Director of Seagull since 1974.
Barry J. Galt............... 64 Vice Chairman of Seagull; Director, Standard Insurance
Company, Trinity Industries, Inc. and Halter Marine
Group, Inc. Director of Seagull since 1983.
Elvis L. Mason.............. 65 Chairman and Chief Executive Officer, Safeguard
Business Systems, Inc.; Director, San Jacinto Holdings,
Inc. Director of OEI since 1998.
David K. Newbigging......... 64 Chairman, Friends' Provident Life; Director, Merrill
Lynch & Co., Inc. and PACCAR Inc. Director of OEI since
1998.
Dee S. Osborne.............. 68 President, Crest Investment Company (investments);
Director, EOTT Energy Corp. (the general partner of
EOTT Energy Partners, L.P.). Director of Seagull
since 1983.
CLASS III NOMINEES
John B. Brock............... 66 Chairman of the Board of OEI; Director, Southwest Bank
of Texas, Southwest Bankcorporation of Texas Inc.
Director of OEI since 1998.
James L. Dunlap............. 61 Vice Chairman of OEI; Director, Massachusetts Mutual
Life Insurance Company. Director of OEI since 1998.
James C. Flores............. 39 President and Chief Executive Officer of OEI. Director
of OEI since 1992.
James T. Hackett............ 44 Chairman of the Board, President and Chief Executive
Officer of Seagull. Director of Seagull since 1998.
R. A. Walker................ 41 Senior Managing Director, Prudential Capital Group;
Director, YPF/Maxus Energy and Coca-Cola Bottling Group
(Southwest). Director of Seagull since 1996.
</TABLE>
Each of the nominees named above has been engaged in the principal
occupation set forth opposite his name for the past five years except as
follows:
Mr. Clark was employed with Florida State University until 1995 in a
variety of positions including Professor and Chairman of the Department of
Information and Management Sciences and Director of the Center for Information
Systems Research.
Mr. Mason has served as Chairman of the Board of Directors and Chief
Executive Officer of San Jacinto Holdings, Inc. since December 1991 and Managing
Partner of Mason Best Company, L.P., a merchant banking firm, since August 1984.
He has served as Chief Executive Officer of Safeguard Business Systems Inc.
since August 1997 and from December 1992 to October 1996.
Mr. Newbigging served as Chairman of Faupel Trading Group P.L.C., Equitas
Holdings Limited, Equitas Reinsurance Limited and Equitas Limited.
Mr. Brock served as Chairman of the Board of United Meridian Corporation
("UMC") from 1995 to March 1998 at which time UMC was merged into OEI. From 1989
to 1998 Mr. Brock held a variety of positions with UMC, including as Chief
Executive Officer of UMC from May 1995 to March 1998.
Mr. Dunlap served as President and Chief Operating Officer of UMC from
October 1996 to March 1998. Prior to that time Mr. Dunlap spent 33 years with
Texaco, Inc., most recently as Senior Vice President.
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<PAGE> 94
Mr. Flores has served in various capacities with OEI for the past five
years and has served as President and Chief Executive Officer since July 1995.
Mr. Hackett served as President of the Energy Services division of Duke
Energy from June 1997 through September 1998, following the merger of Duke Power
Company and PanEnergy Corporation. From January 1996 until the merger, Mr.
Hackett served as PanEnergy's Executive Vice President. Prior to his employment
with PanEnergy, Mr. Hackett was employed by NGC Corporation from June 1990
through December 1995. He served as a Senior Vice President of NGC and the
President of its Trident Division from March 1995 through December 1995, an
Executive Vice President of NGC from January 1994 through March 1995 and a
Senior Vice President of NGC from June 1990 through December 1993. Mr. Hackett
also served as a director of NGC from January 1993 through March 1995.
THE SEAGULL BOARD RECOMMENDS THAT SEAGULL SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE ABOVE-NAMED NOMINEES. ELECTION OF ALL 15 OF THE ABOVE
NAMED NOMINEES IS A CONDITION TO THE MERGER.
EXPERTS
The audited financial statements of OEI incorporated by reference in this
Joint Proxy Statement/ Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and have been incorporated herein in reliance upon the authority of
said firm as experts in giving said report.
The audited financial statements of Seagull incorporated by reference in
this Joint Proxy Statement/ Prospectus have been audited by KPMG LLP,
independent public accountants, as indicated in their report with respect
thereto, and have been incorporated herein in reliance upon the authority of
said firm as experts in giving said report.
Certain information with respect to the oil and gas reserves associated
with a portion of Seagull's oil and gas properties derived from the report of
DeGolyer and McNaughton, independent consulting petroleum engineers, has been
included and incorporated by reference herein upon the authority of said firm as
experts with respect to the matters covered by such report and in giving such
report.
Certain information with respect to the oil and gas reserves associated
with a portion of Seagull's oil and gas properties derived from the report of
Netherland, Sewell & Associates, Inc., independent consulting petroleum
engineers, has been included and incorporated by reference herein upon the
authority of said firm as experts with respect to the matters covered by such
report and in giving such report.
Certain information with respect to the oil and gas reserves associated
with a portion of Seagull's oil and gas properties derived from the report of
Ryder Scott Company, independent consulting petroleum engineers, has been
included and incorporated by reference herein upon the authority of said firm as
experts with respect to the matters covered by such report and in giving such
report.
Certain information with respect to the oil and gas reserves associated
with a portion of OEI's oil and gas properties derived from the report of
Netherland, Sewell & Associates, Inc., independent petroleum engineers, has been
included and incorporated by reference herein in reliance upon such firm as
experts with respect to the matters contained therein.
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<PAGE> 95
LEGAL MATTERS
The validity of the Seagull common stock offered hereby will be passed upon
by Vinson & Elkins L.L.P. In addition, Akin, Gump, Strauss, Hauer & Feld, L.L.P.
and Vinson & Elkins L.L.P. have delivered opinions to OEI and Seagull,
respectively, as to certain tax matters. Mr. J. Evans Attwell, an attorney with
Vinson & Elkins L.L.P., is a director of Seagull and has been nominated to serve
on the New Ocean Board of Directors.
STOCKHOLDER PROPOSALS
SEAGULL
Pursuant to various rules promulgated by the Securities and Exchange
Commission, any proposals of holders of Seagull common stock intended to be
presented to the annual meeting of shareholders of Seagull to be held in 1999
must have been received by Seagull, addressed to Sylvia Sanchez, Corporate
Secretary, 1001 Fannin, Suite 1700, Houston, Texas 77002, no later than December
1, 1998, to be included in Seagull's proxy statement and form of proxy relating
to that meeting.
In addition to the Securities and Exchange Commission rules described in
the preceding paragraph, Seagull's bylaws provide that for business to be
properly brought before Seagull's annual meeting by a shareholder, the
shareholder must have given timely notice in writing of the business to be
brought before the meeting. To be timely, a shareholder's notice must be
delivered to or mailed and received at Seagull's principal executive offices,
1001 Fannin, Suite 1700, Houston, Texas 77002, on or before February 12, 1999. A
shareholder's notice to the Secretary must contain certain information specified
in Seagull's bylaws.
Nominations of persons for election to Seagull's Board of Directors may be
made by a shareholder at a meeting of shareholders only pursuant to timely
notice in writing to the Secretary of Seagull. To be timely, a shareholder's
notice shall be delivered to or mailed and received at Seagull's principal
executive offices, 1001 Fannin, Suite 1700, Houston, Texas 77002 (i) with
respect to an election to be held at the annual meeting of shareholders of
Seagull, on or before February 12, 1999, and (ii) with respect to an election to
be held at a special meeting of shareholders of Seagull for the election of
directors, not later than the close of business on the 10th day following the
date on which notice of the date of the meeting was mailed or public disclosure
of the date of the meeting was made, whichever first occurs. Such shareholder's
notice to the Secretary, must contain certain information specified in Seagull's
bylaws.
OEI
If the merger is not completed before OEI's annual meeting of stockholders,
any proposal of a stockholder intended to be presented at the 1999 annual
meeting of stockholders of OEI must have been received at OEI's principal
executive offices no later than November 27, 1998, if the proposal is to be
considered for inclusion in OEI's proxy statement relating to such meeting. In
addition, OEI has adopted bylaw provisions which require that nominations of
persons for election to the board of directors and the proposal of business by
stockholders at an annual meeting of stockholders must fulfill certain
requirements which include the requirement that notice of such nominations or
proposals must be delivered to the Secretary of OEI not less than 80 days prior
to the annual meeting of stockholders; provided, however, that in the event that
less than 90 days' notice or prior public disclosure of the date of the meeting
is given or made to the stockholders of OEI, notice by the stockholder of the
nomination or proposal to be timely must be so received not later than the close
of business on the tenth day following the date on which such notice of the date
of the annual meeting of stockholders was mailed or such public disclosure made.
88
<PAGE> 96
WHERE YOU CAN FIND MORE INFORMATION
OEI and Seagull file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-8330 for further information on the public reference room.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
Seagull filed a Registration Statement on Form S-4 to register with the SEC
the Seagull common and preferred stock that Seagull will issue to the OEI
stockholders in the merger. This document is part of that Registration Statement
and constitutes a prospectus of Seagull in addition to being a proxy statement
for Seagull and OEI for their special meetings. As allowed by SEC rules, this
document does not contain all of the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
The SEC allows Seagull and OEI to "incorporate by reference" information
into this document, which means that Seagull and OEI can disclose important
information to you by referring to another document filed separately with the
SEC. The information incorporated by reference is deemed to be part of this
document, except for any information superseded by information in this document.
This document incorporates by reference the documents set forth below.
SEAGULL SEC FILINGS:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
filed March 25, 1998
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
filed May 13, 1998
3. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed
August 6, 1998
4. Quarterly Report on Form 10-Q for the quarter ended September 30, 1998,
filed November 16, 1998, as amended by Amendment No. 1 to Quarterly
Report on Form 10-Q/A filed January 27, 1999.
5. Current Report on Form 8-K filed June 4, 1998
6. Current Report on Form 8-K filed December 1, 1998
7. The description of the Seagull Common Stock contained in the
Registration Statement on Form 8-A declared effective by the Commission
on January 30, 1981, together with the amendments on Form 8 filed with
the Commission on January 29, 1981, January 30, 1981 and October 28,
1991
8. The description of Seagull's Series B Junior Participating Preferred
Stock and related rights contained in the Registration Statement on Form
8-A/A Amendment No. 1 filed with the Commission on December 17, 1997
9. The information set forth under the headings "Election of Directors" and
"Executive Compensation" of the Definitive Proxy Statement for the
Annual Meeting of Shareholders held on May 13, 1998 filed under cover of
Schedule 14A with the Commission
OEI SEC FILINGS:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
filed February 20, 1998
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
filed May 15, 1998
3. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed
August 14, 1998
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<PAGE> 97
4. Quarterly Report on Form 10-Q for the quarter ended September 30, 1998,
filed November 16, 1998, as amended by Amendment No. 1 to Quarterly
Report on Form 10-Q/A filed January 27, 1999.
5. Current Report on Form 8-K filed March 3, 1998
6. Current Report on Form 8-K filed March 31, 1998
7. Current Report on Form 8-K filed May 6, 1998
8. Current Report on Form 8-K filed May 29, 1998
9. Current Report on Form 8-K filed November 25, 1998
Seagull and OEI are also incorporating by reference additional documents
that they file with the Securities and Exchange Commission between the date of
this document and the date of the special meetings.
If you are a stockholder of Seagull or OEI, we may have sent you some of
the documents listed above, but you can obtain any of them from us or the
Securities and Exchange Commission. Documents listed above are available from us
without charge, excluding all exhibits unless the exhibits have specifically
been incorporated by reference in this document. Stockholders may obtain
documents listed above by requesting them in writing from the appropriate
company at the following address:
<TABLE>
<S> <C>
Seagull Energy Corporation Ocean Energy, Inc.
1001 Fannin, Suite 1700 1201 Louisiana, Suite 1400
Houston, Texas 77002 Houston, Texas 77002
Attn: Investor Relations Attn: Investor Relations
</TABLE>
If you would like to request documents from us, please do so by ,
1999 so that you may receive them before the special meetings. You should rely
only on the information contained in this document to vote on the proposals
submitted by the Seagull and OEI Boards. We have not authorized anyone to
provide you with information that is different from what is contained in this
document. This document is dated , 1999. You should not assume that
the information contained in this document is accurate as of any date other than
such date, and neither the mailing of this document to shareholders of Seagull
and stockholders of OEI nor the issuance of New Ocean common stock or New Ocean
preferred stock in the merger shall create any implication to the contrary.
OEI has provided all of the information contained in this document with
respect to OEI and Seagull has provided all of the information contained in this
document with respect to Seagull.
YOU ARE URGED TO SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE
ENCLOSED PREPAID ENVELOPE. PROMPT RETURN OF YOUR PROXY MAY SAVE SEAGULL AND OEI
ADDITIONAL SOLICITATION EXPENSE.
WE ENCOURAGE ALL STOCKHOLDERS OF SEAGULL AND OEI TO ATTEND THE SPECIAL
MEETINGS ON , 1999.
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<PAGE> 98
ANNEX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
SEAGULL ENERGY CORPORATION
AND
OCEAN ENERGY, INC.
DATED AS OF NOVEMBER 24, 1998
As Modified by Amendment No. 1 to Agreement
and Plan of Merger dated as of December 9, 1998
<PAGE> 99
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<S> <C> <C>
Section 1.1 The Merger.................................................. A-1
Section 1.2 Effective Time of the Merger................................ A-1
Section 1.3 Tax Treatment............................................... A-1
Section 1.4 Accounting Treatment........................................ A-1
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Articles of Incorporation................................... A-2
Section 2.2 Bylaws...................................................... A-2
Section 2.3 Directors and Officers...................................... A-2
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Conversion of Capital Stock................................. A-2
Section 3.2 Surrender and Payment....................................... A-4
Section 3.3 Stock Options............................................... A-5
Section 3.4 No Fractional Shares........................................ A-6
Section 3.5 Closing..................................................... A-6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF OEI
Section 4.1 Organization and Qualification.............................. A-6
Section 4.2 Capitalization.............................................. A-7
Section 4.3 Authority................................................... A-8
Section 4.4 Consents and Approvals; No Violation........................ A-8
Section 4.5 OEI SEC Reports............................................. A-9
Section 4.6 Financial Statements........................................ A-9
Section 4.7 Absence of Undisclosed Liabilities.......................... A-9
Section 4.8 Absence of Certain Changes.................................. A-10
Section 4.9 Taxes....................................................... A-10
Section 4.10 Litigation.................................................. A-11
Section 4.11 Employee Benefit Plans; ERISA............................... A-11
Section 4.12 Environmental Liability..................................... A-12
Section 4.13 Compliance with Applicable Laws............................. A-13
Section 4.14 Insurance................................................... A-13
Section 4.15 Labor Matters; Employees.................................... A-14
Section 4.16 Reserve Reports............................................. A-14
Section 4.17 Permits..................................................... A-15
Section 4.18 Material Contracts.......................................... A-15
Section 4.19 Required Stockholder Vote or Consent........................ A-16
Section 4.20 Proxy Statement/Prospectus; Registration Statement.......... A-16
Section 4.21 Intellectual Property....................................... A-16
Section 4.22 Hedging..................................................... A-16
Section 4.23 Brokers..................................................... A-17
Section 4.24 Tax-Free Reorganization..................................... A-17
Section 4.25 Fairness Opinion............................................ A-17
Section 4.26 Year 2000 Issues............................................ A-17
Section 4.27 Takeover Laws............................................... A-17
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF SEAGULL
Section 5.1 Organization and Qualification.............................. A-18
Section 5.2 Capitalization.............................................. A-18
Section 5.3 Authority................................................... A-19
Section 5.4 Consents and Approvals; No Violation........................ A-19
Section 5.5 Seagull Financial Statements................................ A-20
Section 5.6 Absence of Undisclosed Liabilities.......................... A-20
Section 5.7 Absence of Certain Changes.................................. A-21
Section 5.8 Seagull SEC Reports......................................... A-21
Section 5.9 Taxes....................................................... A-21
Section 5.10 Litigation.................................................. A-22
Section 5.11 Employee Benefit Plans; ERISA............................... A-22
Section 5.12 Environmental Liability..................................... A-23
Section 5.13 Compliance with Applicable Laws............................. A-24
Section 5.14 Insurance................................................... A-24
Section 5.15 Labor Matters............................................... A-24
Section 5.16 Reserve Reports............................................. A-25
Section 5.17 Material Contracts.......................................... A-25
Section 5.18 Permits..................................................... A-26
Section 5.19 Required Stockholder Vote or Consent........................ A-26
Section 5.20 Proxy Statement/Prospectus; Registration Statement.......... A-26
Section 5.21 Intellectual Property....................................... A-27
Section 5.22 Hedging..................................................... A-27
Section 5.23 Brokers..................................................... A-27
Section 5.24 Tax Matters................................................. A-27
Section 5.25 Fairness Opinion............................................ A-28
Section 5.26 Year 2000 Issues............................................ A-28
Section 5.27 Regulation as a Utility..................................... A-28
Section 5.28 Takeover Laws............................................... A-28
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by OEI Pending the Merger............... A-28
Section 6.2 Conduct of Business by Seagull Pending the Merger........... A-30
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information...................................... A-32
Section 7.2 Acquisition Proposals....................................... A-32
Section 7.3 Directors' and Officers' Indemnification and Insurance...... A-34
Section 7.4 Further Assurances.......................................... A-34
Section 7.5 Expenses.................................................... A-35
Section 7.6 Cooperation................................................. A-36
Section 7.7 Publicity................................................... A-36
Section 7.8 Additional Actions.......................................... A-36
Section 7.9 Filings..................................................... A-36
Section 7.10 Consents.................................................... A-36
Section 7.11 Employee Matters; Benefit Plans............................. A-36
Section 7.12 Board, Committees and Executive Officers.................... A-37
Section 7.13 Stockholders Meetings....................................... A-39
Preparation of the Proxy Statement/Prospectus and
Section 7.14 Registration Statement...................................... A-39
</TABLE>
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<TABLE>
<S> <C> <C>
Section 7.15 Stock Exchange Listing...................................... A-40
Section 7.16 Notice of Certain Events.................................... A-40
Section 7.17 Site Inspections............................................ A-41
Section 7.18 Affiliate Agreements; Tax Treatment......................... A-41
Section 7.19 Stockholder Litigation...................................... A-41
Section 7.20 Indenture Matters........................................... A-41
Section 7.21 Credit Facility............................................. A-41
Section 7.22 Seagull Rights Plan......................................... A-41
Section 7.23 Registration Rights Agreements.............................. A-41
Section 7.24 Employment Agreements and Severance Agreements.............. A-42
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 Conditions to the Obligation of Each Party.................. A-42
Section 8.2 Conditions to the Obligations of Seagull.................... A-42
Section 8.3 Conditions to the Obligations of OEI........................ A-43
ARTICLE IX
SURVIVAL
Section 9.1 Survival of Representations and Warranties.................. A-43
Section 9.2 Survival of Covenants and Agreements........................ A-43
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination................................................. A-44
Section 10.2 Effect of Termination....................................... A-45
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices..................................................... A-45
Section 11.2 Separability................................................ A-46
Section 11.3 Assignment.................................................. A-46
Section 11.4 Interpretation.............................................. A-46
Section 11.5 Counterparts................................................ A-46
Section 11.6 Entire Agreement............................................ A-46
Section 11.7 Governing Law............................................... A-46
Section 11.8 Attorneys' Fees............................................. A-46
Section 11.9 No Third Party Beneficiaries................................ A-47
Section 11.10 Disclosure Schedules........................................ A-47
Section 11.11 Amendments and Supplements.................................. A-47
Section 11.12 Extensions, Waivers, Etc.................................... A-47
</TABLE>
iii
<PAGE> 102
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated as of November
24, 1998, by and between Seagull Energy Corporation, a Texas corporation
("Seagull"), and Ocean Energy, Inc., a Delaware corporation ("OEI").
WHEREAS, the respective Boards of Directors of Seagull and OEI deem it
advisable and in the best interests of their respective stockholders that OEI
merge with and into Seagull (the "Merger") upon the terms and subject to the
conditions set forth herein, and such Boards of Directors have approved the
Merger; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
(i) Seagull has entered into voting agreements with each of John B. Brock, James
C. Flores and the Flores Family Limited Partnership under which such parties
have among other things agreed to support the Merger upon the terms and
conditions set forth therein and (ii) OEI has entered into voting agreements
with each of The Prudential Insurance Company of America, Barry J. Galt and
James T. Hackett under which such parties have among other things agreed to
support the Merger upon the terms and conditions set forth therein
(collectively, the "Voting Agreements"); and
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.2 hereof) OEI shall merge
with and into Seagull and the separate corporate existence of OEI shall
thereupon cease and Seagull shall be the surviving corporation in the Merger
(sometimes referred to herein as the "Surviving Corporation"). The Merger shall
have the effects set forth in Article 5.06 of the Texas Business Corporation Act
(the "TBCA") and Section 259 of the of the Delaware General Corporation Law (the
"DGCL"), including, without limitation, the Surviving Corporation's succession
to and assumption of all rights and obligations of OEI.
Section 1.2 Effective Time of the Merger. The Merger shall become
effective (the "Effective Time") upon the later of (i) the filing of properly
executed Articles of Merger relating to the Merger with the Secretary of State
of the State of Texas in accordance with the TBCA, and the issuance by the
Secretary of State of the State of Texas of a certificate of merger with respect
thereto, (ii) the filing of a properly executed Certificate of Merger relating
to the Merger with the Secretary of State of the State of Delaware in accordance
with the DGCL, or (iii) at such later time as the parties shall agree and set
forth in such Articles of Merger and Certificate of Merger. The filing of the
Articles of Merger and the Certificate of Merger referred to above shall be made
as soon as practicable on the Closing Date set forth in Section 3.5.
Section 1.3 Tax Treatment. It is intended that the Merger shall constitute
a reorganization under section 368(a) of the Code.
Section 1.4 Accounting Treatment. It is intended that the Merger shall be
accounted for as a purchase transaction for financial accounting purposes.
A-1
<PAGE> 103
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Articles of Incorporation. The articles of incorporation of
Seagull in effect immediately prior to the Effective Time shall be the articles
of incorporation of the Surviving Corporation at and after the Effective Time
until thereafter amended in accordance with the terms thereof and the TBCA,
provided that, as of the Effective Time, such articles of incorporation shall be
amended as follows:
(a) Article ONE of such articles of incorporation shall be amended to
read in its entirety as follows:
"The name of the corporation is Ocean Energy, Inc."
(b) Article THREE of such articles of incorporation shall be amended
to read in its entirety as follows:
The purpose for which the corporation is organized is to transact
any and all lawful business for which corporations may be incorporated
under the Texas Business Corporation Act.
(c) The first paragraph of Article FOUR of such articles of
incorporation shall be amended to read in its entirety as follows:
The total number of shares of stock that the corporation shall have
authority to issue is 500,000,000 shares, divided into 50,000,000 shares
of Preferred Stock of the par value of $1.00 per share, and 450,000,000
shares of Common Stock of the par value of $.10 per share. Each share of
Common Stock shall be entitled to one vote.
Section 2.2 Bylaws. The bylaws of Seagull as in effect immediately prior
to the Effective Time shall be the bylaws of the Surviving Corporation at and
after the Effective Time, and thereafter may be amended in accordance with their
terms and as provided by the articles of incorporation of the Surviving
Corporation and the TBCA.
Section 2.3 Directors and Officers. At and after the Effective Time, the
directors and officers of the Surviving Corporation shall be as set forth in
Section 7.12, until their respective successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's articles of incorporation and
bylaws.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
capital stock described below:
(a) Each share of the common stock, par value $.01 per share, of OEI,
including the associated preferred stock purchase rights (the "OEI Common
Stock") issued and outstanding immediately prior to the Effective Time
shall be converted into one share (the "Common Stock Exchange Ratio") of
common stock, par value $0.10 per share, of Seagull, including the
associated preferred share purchase rights (the "Seagull Common Stock").
All such OEI Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and the holder of a certificate ("Common Stock Certificate")
that, immediately prior to the Effective Time, represented outstanding
shares of OEI Common Stock shall cease to have any rights with respect
thereto, except the right to receive, upon the surrender of such Common
Stock Certificate, the Seagull Common Stock (the "Common Stock Merger
Consideration") to which such holder is entitled pursuant to this Section
3.1(a), without interest. Until surrendered as contemplated by this Section
3.1, each Common Stock Certificate shall be deemed at any time after the
Effective Time to
A-2
<PAGE> 104
represent only the right to receive upon such surrender the Common Stock Merger
Consideration as contemplated by this Section 3.1. Notwithstanding the
foregoing, if between the date of this Agreement and the Effective Time the
outstanding shares of Seagull Common Stock or OEI Common Stock shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Common Stock Exchange Ratio shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
(b) Each share of the Series A Convertible Preferred Stock, par value
$.01 per share, of OEI (the "OEI Preferred Stock") issued and outstanding
immediately prior to the Effective Time shall be converted automatically
into one share of preferred stock, par value $1.00 per share, of Seagull,
having substantially equivalent rights, preferences and limitations as the
OEI Preferred Stock but convertible into Seagull Common Stock instead of
OEI Common Stock in the manner contemplated by the terms of the OEI
Preferred Stock (the "Seagull Preferred Stock"). No certificates
representing Seagull Preferred Stock shall be issued to holders of OEI
Preferred Stock by virtue of consummation of the Merger unless requested by
such holders. Instead, following the Merger, certificates that prior to the
Effective Time represented shares of OEI Preferred Stock shall be deemed
for all purposes to represent an equal number of shares of Seagull
Preferred Stock. From and after the Effective Time, the stock transfer
books of OEI shall be closed and no transfer of any such shares of OEI
Preferred Stock shall thereafter be made, but when certificates that
formerly represented shares of OEI Preferred Stock are duly presented to
Seagull or its transfer agent for exchange or transfer, Seagull will cause
to be issued in respect thereof certificates representing an equal number
of shares of Seagull Preferred Stock.
(c) Each share of Seagull Common Stock issued and outstanding
immediately prior to the Effective Time shall not be affected by the
Merger.
(d) No dividends or other distributions declared or made after the
Effective Time with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Common Stock Certificate with respect to
the Common Stock Merger Consideration represented thereby until the holder
of record of such Common Stock Certificate shall surrender such Common
Stock Certificate in accordance with Section 3.2. Subject to the effect of
applicable laws (including, without limitation, escheat and abandoned
property laws), following surrender of any such Common Stock Certificate
there shall be paid to the record holder of the certificate or certificates
representing the Common Stock Merger Consideration issued in exchange
therefor, without interest, (i) the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such Common Stock Merger Consideration, and (ii) if the
payment date for any dividend or distribution payable with respect to such
Common Stock Merger Consideration has not occurred prior to the surrender
of such Common Stock Certificate, at the appropriate payment date therefor,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to the surrender of such Common Stock Certificate
and a payment date subsequent to the surrender of such Common Stock
Certificate.
(e) All Seagull Common Stock issued upon the surrender of Common Stock
Certificates in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such Common
Stock Certificates and the OEI Common Stock formerly represented thereby,
and from and after the Effective Time there shall be no further
registration of transfers effected on the stock transfer books of the
Surviving Corporation of shares of OEI Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Common Stock Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this
Article III.
A-3
<PAGE> 105
Section 3.2 Surrender and Payment.
(a) Prior to the Effective Time, Seagull shall appoint an agent
reasonably acceptable to OEI (the "Exchange Agent") for the purpose of
exchanging Common Stock Certificates formerly representing OEI Common
Stock. At or prior to the Effective Time, Seagull shall deposit with the
Exchange Agent for the benefit of the holders of OEI Common Stock, for
exchange in accordance with this Section 3.2 through the Exchange Agent,
(i) as of the Effective Time, certificates representing the Common Stock
Merger Consideration to be issued pursuant to Section 3.1(a) and (ii) from
time to time as necessary, cash to be paid in lieu of fractional shares
pursuant to Section 3.4 (such certificates for the Common Stock Merger
Consideration and such cash being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions,
deliver the Common Stock Merger Consideration and cash in exchange for
surrendered Common Stock Certificates formerly representing OEI Common
Stock pursuant to Section 3.1 out of the Exchange Fund. Except as
contemplated by Section 3.2(f), the Exchange Fund shall not be used for any
other purpose.
(b) Promptly after the Effective Time, but in any event not later than
five business days thereafter, Seagull will send, or will cause the
Exchange Agent to send, to each holder of a Common Stock Certificate or
Certificates that immediately prior to the Effective Time represented
outstanding OEI Common Stock a letter of transmittal and instructions for
use in effecting the exchange of such Common Stock Certificates for
certificates representing the Common Stock Merger Consideration and, if
applicable, cash in lieu of fractional shares. Provision also shall be made
for holders of Common Stock Certificates to procure in person immediately
after the Effective Time a letter of transmittal and instructions and to
deliver in person immediately after the Effective Time such letter of
transmittal and Common Stock Certificates in exchange for the Common Stock
Merger Consideration and, if applicable, cash.
(c) After the Effective Time, Common Stock Certificates shall
represent the right, upon surrender thereof to the Exchange Agent, together
with a duly executed and properly completed letter of transmittal relating
thereto, to receive in exchange therefor that number of whole shares of
Seagull Common Stock, and, if applicable, cash that such holder has the
right to receive pursuant to Sections 3.1 and 3.4 after giving effect to
any required tax withholding, and the Common Stock Certificate or
Certificates so surrendered shall be canceled. No interest will be paid or
will accrue on any cash amount payable upon the surrender of any such
Common Stock Certificates. Until so surrendered, each such Common Stock
Certificate shall, after the Effective Time, represent for all purposes
only the right to receive, upon such surrender, Seagull Common Stock and,
if applicable, cash as contemplated by this Article III.
(d) If any shares of Seagull Common Stock are to be issued and/or cash
to be paid to a Person other than the registered holder of the Common Stock
Certificate or Certificates surrendered in exchange therefor, it shall be a
condition to such issuance that the Common Stock Certificate or
Certificates so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the Person requesting such issuance shall
pay to the Exchange Agent any transfer or other taxes required as a result
of such issuance to a Person other than the registered holder or establish
to the satisfaction of the Exchange Agent that such tax has been paid or is
not applicable. For purposes of this Agreement, "Person" means an
individual, a corporation, a limited liability company, a partnership, an
association, a trust or any other entity or organization, including a
governmental or political subdivision or any agency or instrumentality
thereof.
(e) After the Effective Time, the stock transfer books of OEI shall be
closed and there shall be no further registration of transfers of OEI
Common Stock outstanding prior to the Effective Time. If, at or after the
Effective Time, Common Stock Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged as provided for, and in
accordance with the procedures set forth, in this Article III.
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(f) Any Common Stock Merger Consideration and any cash in the Exchange
Fund that remain unclaimed by the holders of OEI Common Stock one year
after the Effective Time shall be returned to Seagull, upon demand, and any
such holder who has not exchanged such holder's Common Stock Certificates
in accordance with this Section 3.2 prior to that time shall thereafter
look only to Seagull, as general creditors thereof, to exchange such Common
Stock Certificates or to pay amounts to which they are entitled pursuant to
Section 3.1. If outstanding Common Stock Certificates are not surrendered
prior to six years after the Effective Time (or, in any particular case,
prior to such earlier date on which any Common Stock Merger Consideration
issuable in respect of such Common Stock Certificates or the dividends and
other distributions, if any, described below would otherwise escheat to or
become the property of any governmental unit or agency), the Common Stock
Merger Consideration issuable in respect of such Common Stock Certificates,
and the amount of dividends and other distributions, if any, which have
become payable and which thereafter become payable on the Common Stock
Merger Consideration evidenced by such Common Stock Certificates as
provided herein shall, to the extent permitted by applicable law, become
the property of Seagull, free and clear of all claims or interest of any
Person previously entitled thereto. Notwithstanding the foregoing, none of
Seagull, OEI or the Surviving Corporation shall be liable to any holder of
Common Stock Certificates for any amount paid, or Common Stock Merger
Consideration, cash or dividends delivered, to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(g) If any Common Stock Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person
claiming such Common Stock Certificate to be lost, stolen or destroyed and,
if required by the Surviving Corporation, the posting by such Person of a
bond in such reasonable amount as Seagull may direct as indemnity against
any claim that may be made against it with respect to such Common Stock
Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Common Stock Certificate the Common Stock Merger
Consideration and, if applicable, cash and unpaid dividends and other
distributions on any Common Stock Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
Section 3.3 Stock Options.
(a) At the Effective Time, automatically and without any action on the
part of the holder thereof, each outstanding employee or director stock
option of OEI outstanding at the Effective Time (the "OEI Stock Options")
shall be assumed by Seagull and become an option to purchase that number of
shares of Seagull Common Stock obtained by multiplying the number of shares
of OEI Common Stock issuable upon the exercise of such option by the Common
Stock Exchange Ratio at an exercise price per share equal to the per share
exercise price of such option divided by the Common Stock Exchange Ratio
and otherwise upon the same terms and conditions as such outstanding
options to purchase OEI Common Stock; provided, however, that in the case
of any option to which Section 421 of the Code applies by reason of the
qualifications under Section 422 or 423 of such Code, the exercise price,
the number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall comply with Section 424(a) of
the Code.
(b) At the Effective Time, automatically and without any action by any
person, each outstanding OEI Stock Option and each outstanding employee or
director stock option of Seagull outstanding at the Effective Time shall
become immediately exercisable and each share of restricted stock of OEI
and Seagull shall become nonforfeitable.
(c) Seagull shall take all corporate actions necessary to reserve for
issuance a sufficient number of shares of Seagull Common Stock for delivery
upon exercise of OEI Stock Options assumed by Seagull pursuant to Section
3.3(a) above.
(d) As promptly as practicable after the Effective Time, Seagull shall
file a Registration Statement on Form S-8, as the case may be (or any
successor or other appropriate forms) with respect to the shares of Seagull
Common Stock subject to OEI Stock Options and shall use all reasonable
efforts to maintain the effectiveness of such registration statement or
registration
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statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
(e) Each of the OEI stock option plans providing for the issuance or
grant of options in respect to the stock of OEI shall be assumed as of the
Effective Time by Seagull with such amendments thereto as may be required
to reflect the Merger, including, without limitation, the substitution of
Seagull Common Stock for OEI Common Stock thereunder.
Section 3.4 No Fractional Shares. No fractional shares of Seagull Common
Stock shall be issued in the Merger and fractional share interests shall not
entitle the owner thereof to vote or to any rights of a stockholder of Seagull.
All holders of fractional shares of Seagull Common Stock shall be entitled to
receive, in lieu thereof, an amount in cash determined by multiplying the
fraction of a share of Seagull Common Stock to which such holder would otherwise
have been entitled by the closing sales price of Seagull Common Stock as
reported under "NYSE Composite Transaction Reports" in The Wall Street Journal
on the trading day prior to the Effective Time.
Section 3.5 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at a location mutually acceptable to
OEI and Seagull, at 10:00 a.m., local time, on the day (the "Closing Date") on
which all of the conditions set forth in Article VIII hereof are satisfied or
waived (but not earlier than February 20, 1999), or at such other date and time
as Seagull and OEI shall otherwise agree.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF OEI
OEI represents and warrants to Seagull as follows:
Section 4.1 Organization and Qualification.
(a) OEI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, is duly qualified to do
business as a foreign corporation and is in good standing in the
jurisdictions set forth in Section 4.1(a) of the disclosure letter
delivered to Seagull contemporaneously with the execution hereof (the "OEI
Disclosure Schedule"), which include each jurisdiction in which the
character of OEI's properties or the nature of its business makes such
qualification necessary, except in jurisdictions, if any, where the failure
to be so qualified would not result in an OEI Material Adverse Effect (as
defined below). OEI has all requisite corporate or other power and
authority to own, use or lease its properties and to carry on its business
as it is now being conducted. OEI has made available to Seagull a complete
and correct copy of its certificate of incorporation and bylaws, each as
amended to date, and OEI's certificate of incorporation and bylaws as so
delivered are in full force and effect. OEI is not in default in any
respect in the performance, observation or fulfillment of any provision of
its certificate of incorporation or bylaws.
(b) Section 4.1(b) of the OEI Disclosure Schedule lists the name and
jurisdiction of organization of each Subsidiary of OEI and the
jurisdictions in which each such Subsidiary is qualified or holds licenses
to do business as a foreign corporation or other organization as of the
date hereof. Each of OEI's Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business as a foreign corporation
and is in good standing in the jurisdictions listed in Section 4.1(b) of
the OEI Disclosure Schedule, which includes each jurisdiction in which the
character of such Subsidiary's properties or the nature of its business
makes such qualification necessary, except in jurisdictions, if any, where
the failure to be so qualified would not result in an OEI Material Adverse
Effect. Each of OEI's Subsidiaries has the requisite corporate or other
power and authority to own, use or lease its properties and to carry on its
business as it is now being conducted and as it is now proposed to be
conducted. OEI has made available to Seagull a complete and correct copy of
the certificate of incorporation and bylaws (or similar organizational
documents) of each of OEI's Subsidiaries, each as
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amended to date, and the certificate of incorporation and bylaws (or similar
organizational documents) as so delivered are in full force and effect. No
Subsidiary of OEI is in default in any respect in the performance, observation
or fulfillment of any provision of its articles of incorporation or bylaws (or
similar organizational documents). Other than OEI's Subsidiaries, OEI does not
beneficially own or control, directly or indirectly, 5% or more of any class of
equity or similar securities of any corporation or other organization, whether
incorporated or unincorporated.
(c) For purposes of this Agreement, (i) a "OEI Material Adverse
Effect" shall mean any event, circumstance, condition, development or
occurrence causing, resulting in or having (or with the passage of time
likely to cause, result in or have) a material adverse effect on the
financial condition, business, assets, properties, prospects or results of
operations of OEI and its Subsidiaries taken as a whole; provided, that
such term shall not include effects that are not applicable primarily to
OEI resulting from market conditions generally in the oil and gas industry;
and (ii) "Subsidiary" shall mean, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated,
of which (x) at least a majority of the securities or other interests
having by their terms voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly beneficially
owned or controlled by such party or by any one or more of its
subsidiaries, or by such party and one or more of its subsidiaries, or (y)
such party or any Subsidiary of such party is a general partner of a
partnership or a manager of a limited liability company.
Section 4.2 Capitalization.
(a) The authorized capital stock of OEI consists of 250,000,000 shares
of OEI Common Stock and 10,000,000 shares of preferred stock, par value
$.01 per share, of which 50,000 shares have been designated and issued as
the OEI Preferred Stock and of which 2,000,000 shares have been designated
as Series A Junior Participating Preferred Stock. As of the date of this
Agreement, (i) 101,767,418 shares of OEI Common Stock were issued and
outstanding, (ii) 50,000 shares of OEI Preferred Stock were issued and
outstanding, and (iii) stock options to acquire 12,791,083 shares of OEI
Common Stock were outstanding under all stock option plans and agreements
of OEI or its Subsidiaries. All of the outstanding shares of OEI Common
Stock and OEI Preferred Stock are validly issued, fully paid and
nonassessable, and free of preemptive rights. Except as set forth above, in
the Rights Agreement dated as of December 22, 1997 between OEI and Harris
Trust and Savings Bank, as amended (the "OEI Rights Plan"), and pursuant to
the OEI Preferred Stock, there are no outstanding subscriptions, options,
rights, warrants, convertible securities, stock appreciation rights,
phantom equity, or other agreements or commitments obligating OEI to issue,
transfer, sell, redeem, repurchase or otherwise acquire any shares of its
capital stock of any class. Except for any amendments filed with the OEI
SEC Reports (as defined below), the OEI Rights Plan has not been amended
except to provide that the OEI Rights Plan is inapplicable to the execution
and delivery of this Agreement and the transactions contemplated hereby and
any other agreement executed and delivered in connection herewith. No
"Distribution Date" has occurred within the meaning of the OEI Rights Plan,
and the consummation of the transactions contemplated hereby will not
result in the occurrence of a Distribution Date. OEI has taken all action
required to render the OEI Rights Plan (and the "Rights" thereunder)
inapplicable to this Agreement and the transactions contemplated hereby,
including any other agreement executed and delivered in connection
herewith, including, without limitation, the Voting Agreements (the
"Ancillary Agreements").
(b) Except as set forth on Section 4.2(b) of the OEI Disclosure
Schedule, OEI is, directly or indirectly, the record and beneficial owner
of all of the outstanding shares of capital stock of each OEI Subsidiary,
there are no irrevocable proxies with respect to any such shares, and no
equity securities of any OEI Subsidiary are or may become required to be
issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable or exercisable for, shares of any
capital stock of any OEI Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which OEI or any OEI
Subsidiary is or may be bound to issue additional shares of capital stock
of
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any OEI Subsidiary or securities convertible into or exchangeable or exercisable
for any such shares. Except as set forth on Section 4.2(b) of the OEI Disclosure
Schedule, all of such shares so owned by OEI are validly issued, fully paid and
nonassessable and are owned by it free and clear of all liens, mortgages,
pledges, security interests, encumbrances, claims or charges of any kind
(collectively, "Liens").
Section 4.3 Authority. OEI has full corporate power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which OEI is
or will be a party and, subject to obtaining the OEI Stockholders' Approval as
contemplated by Section 7.13, to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of this Agreement and the
Ancillary Agreements to which OEI is or will be a party and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by OEI's Board of Directors (with at least two-thirds of the members
of the Board of Directors of OEI voting in favor thereof), and no other
corporate proceedings on the part of OEI are necessary to authorize this
Agreement and the Ancillary Agreements to which OEI is or will be a party or to
consummate the transactions contemplated hereby or thereby, other than OEI
Stockholders' Approval as contemplated by Section 7.13 hereof. This Agreement
has been, and the Ancillary Agreements to which OEI is or will be a party are,
or upon execution will be, duly and validly executed and delivered by OEI and,
assuming the due authorization, execution and delivery hereof and thereof by the
other parties hereto and thereto, constitutes, or upon execution will
constitute, valid and binding obligations of OEI enforceable against OEI in
accordance with their respective terms, except as such enforceability may be
subject to the effects of bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting the rights of creditors and of general
principles of equity (the "Enforceability Exception").
Section 4.4 Consents and Approvals; No Violation. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and the performance by OEI of its obligations hereunder will not:
(a) subject to the obtaining of any requisite approvals of OEI's
stockholders as contemplated by Section 7.13 hereof, conflict with any
provision of OEI's certificate of incorporation or bylaws or the
certificates of incorporation or bylaws (or other similar organizational
documents) of any of its Subsidiaries;
(b) subject to the obtaining of any requisite approvals of OEI's
stockholders as contemplated by Section 7.13 hereof, require any consent,
waiver, approval, order, authorization or permit of, or registration,
filing with or notification to, (i) any governmental or regulatory
authority or agency (a "Governmental Authority"), except for applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act, state laws relating to takeovers, if
applicable, state securities or blue sky laws, laws, rules or regulations
administered by the Alaska Public Utilities Commission ("APUC"), except as
set forth in Section 4.4(b) of the OEI Disclosure Schedule and except for
approvals that are ministerial in nature and are customarily obtained from
Governmental Authorities after the Effective Time in connection with
transactions of the same nature as are contemplated hereby ("Customary
Post-Closing Consents") or (ii) except as set forth in Section 4.4(b) of
the OEI Disclosure Schedule, any third party other than a Governmental
Authority, other than such non-Governmental Authority third party consents,
waivers, approvals, orders, authorizations and permits that would not (i)
result in an OEI Material Adverse Effect, (ii) materially impair the
ability of OEI or any of its Subsidiaries, as the case may be, to perform
its obligations under this Agreement or any Ancillary Agreement or (iii)
prevent the consummation of any of the transactions contemplated by this
Agreement;
(c) except as set forth in Section 4.4(c) of the OEI Disclosure
Schedule, result in any violation of or the breach of or constitute a
default (with notice or lapse of time or both) under, or give rise to any
right of termination, cancellation or acceleration or guaranteed payments
or a loss of a material benefit under, any of the terms, conditions or
provisions of any note, lease, mortgage, license,
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agreement or other instrument or obligation to which OEI or any of its
Subsidiaries is a party or by which OEI or any of its Subsidiaries or any of
their respective properties or assets may be bound, except for such violations,
breaches, defaults, or rights of termination, cancellation or acceleration, or
losses as to which requisite waivers or consents have been obtained or which,
individually or in the aggregate, would not (i) result in an OEI Material
Adverse Effect, (ii) materially impair the ability of OEI or any of its
Subsidiaries to perform its obligations under this Agreement or any Ancillary
Agreement or (iii) prevent the consummation of any of the transactions
contemplated by this Agreement;
(d) violate the provisions of any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to OEI or any Subsidiary of
OEI;
(e) result in the creation of any Lien upon any shares of capital
stock or material properties or assets of OEI or any of its Subsidiaries
under any agreement or instrument to which OEI or any of its Subsidiaries
is a party or by which OEI or any of its Subsidiaries or any of their
properties or assets is bound; or
(f) except as set forth in Section 4.4(f) of the OEI Disclosure
Schedule, result in any holder of any securities of OEI being entitled to
appraisal, dissenters' or similar rights.
Section 4.5 OEI SEC Reports. OEI has filed with the Securities and
Exchange Commission (the "SEC"), and has heretofore made available to Seagull
true and complete copies of, each form, registration statement, report,
schedule, proxy or information statement and other document (including exhibits
and amendments thereto), including without limitation its Annual Reports to
Stockholders incorporated by reference in certain of such reports, required to
be filed by it or its predecessors with the SEC since December 31, 1994 under
the Securities Act or the Exchange Act (collectively, the "OEI SEC Reports"). As
of the respective dates such OEI SEC Reports were filed or, if any such OEI SEC
Reports were amended, as of the date such amendment was filed, each of the OEI
SEC Reports, including without limitation any financial statements or schedules
included therein, (a) complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
the applicable rules and regulations promulgated thereunder, and (b) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 4.6 Financial Statements. Each of the audited consolidated
financial statements and unaudited consolidated interim financial statements of
OEI (including any related notes and schedules) included (or incorporated by
reference) in its Annual Reports on Form 10-K for each of the three fiscal years
ended December 31, 1995, 1996 and 1997, in its Current Report on Form 8-K filed
with the SEC on March 27, 1998 and its Quarterly Report on Form 10-Q for its
fiscal quarter ended September 30, 1998 (collectively, the "Financial
Statements") have been prepared from, and are in accordance with, the books and
records of OEI and its consolidated Subsidiaries, comply in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis (except as may be indicated in the notes thereto and subject,
in the case of quarterly financial statements, to normal and recurring year-end
adjustments) and fairly present, in conformity with GAAP applied on a consistent
basis (except as may be indicated in the notes thereto), the consolidated
financial position of OEI and its Subsidiaries as of the date thereof and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of OEI and its Subsidiaries for the periods presented therein
(subject to normal year-end adjustments and the absence of financial footnotes
in the case of any unaudited interim financial statements).
Section 4.7 Absence of Undisclosed Liabilities. Except (a) as specifically
disclosed in the OEI SEC Reports and (b) for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
since December 31, 1997, neither OEI nor any of its Subsidiaries has incurred
any liabilities or obligations of any nature (contingent or otherwise) that
would have an OEI Material Adverse
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Effect or would be required by GAAP to be reflected on a consolidated balance
sheet of OEI and its Subsidiaries or the notes thereto which is not so
reflected.
Section 4.8 Absence of Certain Changes. Except as disclosed in the OEI SEC
Reports, as set forth in Section 4.8 of the OEI Disclosure Schedule or as
contemplated by this Agreement, since December 31, 1997 (a) OEI and its
Subsidiaries have conducted their business in all material respects in the
ordinary course consistent with past practices, (b) there has not been any
change or development, or combination of changes or developments that,
individually or in the aggregate, would have an OEI Material Adverse Effect, (c)
there has not been any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of OEI, or any
repurchase, redemption or other acquisition by OEI or any of its Subsidiaries of
any outstanding shares of capital stock or other securities of, or other
ownership interests in, OEI or any of its Subsidiaries, (d) there has not been
any amendment of any term of any outstanding security of OEI or any of its
Subsidiaries, and (e) there has not been any change in any method of accounting
or accounting practice by OEI or any of its Subsidiaries, except for any such
change required by reason of a concurrent change in generally accepted
accounting principles or to conform a Subsidiary's accounting policies and
practices to those of OEI.
Section 4.9 Taxes. Except as otherwise disclosed in Section 4.9 of the OEI
Disclosure Schedule and for matters that would have no adverse effect on OEI:
(a) OEI and each of its Subsidiaries have timely filed (or have had
timely filed on their behalf) or will file or cause to be timely filed, all
material Tax Returns (as defined below) required by applicable law to be
filed by any of them prior to or as of the Closing Date. All such Tax
Returns and amendments thereto are or will be true, complete and correct in
all material respects.
(b) OEI and each of its Subsidiaries have paid (or have had paid on
their behalf), or where payment is not yet due, have established (or have
had established on their behalf and for their sole benefit and recourse),
or will establish or cause to be established on or before the Closing Date,
an adequate accrual for the payment of all material Taxes (as defined
below) due with respect to any period ending prior to or as of the Closing
Date.
(c) No Audit (as defined below) by a Tax Authority (as defined below)
is pending or threatened with respect to any Tax Returns filed by, or Taxes
due from, OEI or any Subsidiary. No issue has been raised by any Tax
Authority in any Audit of OEI or any of its Subsidiaries that if raised
with respect to any other period not so audited could be expected to result
in a material proposed deficiency for any period not so audited. No
material deficiency or adjustment for any Taxes has been threatened,
proposed, asserted or assessed against OEI or any of its Subsidiaries.
There are no liens for Taxes upon the assets of OEI or any of its
Subsidiaries, except liens for current Taxes not yet delinquent.
(d) Neither OEI nor any of its Subsidiaries has given or been
requested to give any waiver of statutes of limitations relating to the
payment of Taxes or have executed powers of attorney with respect to Tax
matters, which will be outstanding as of the Closing Date.
(e) Prior to the date hereof, OEI and its Subsidiaries have disclosed,
and provided or made available true and complete copies to Seagull of, all
material Tax sharing, Tax indemnity, or similar agreements to which OEI or
any of its Subsidiaries are a party to, is bound by, or has any obligation
or liability for Taxes.
(f) As used in this Agreement, (i) "Audit" shall mean any audit,
assessment of Taxes, other examination by any Tax Authority, proceeding or
appeal of such proceeding relating to Taxes; (ii) "Taxes" shall mean all
Federal, state, local and foreign taxes, and other assessments of a similar
nature (whether imposed directly or through withholding), including any
interest, additions to tax, or penalties applicable thereto; (iii) "Tax
Authority" shall mean the Internal Revenue Service and any other domestic
or foreign Governmental Authority responsible for the administration of any
Taxes; and (iv) "Tax Returns" shall mean all Federal, state, local and
foreign tax returns, declarations,
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statements, reports, schedules, forms and information returns and any amended
Tax Return relating to Taxes.
Section 4.10 Litigation. Except as disclosed in the OEI SEC Reports or
Section 4.10 of the OEI Disclosure Schedule and for matters that would not have
an OEI Material Adverse Effect, there is no suit, claim, action, proceeding or
investigation pending or, to OEI's knowledge, threatened against or directly
affecting OEI, any Subsidiaries of OEI or any of the directors or officers of
OEI or any of its Subsidiaries in their capacity as such, nor is there any
reasonable basis therefor that could reasonably be expected to have an OEI
Material Adverse Effect, if adversely determined. Neither OEI nor any of its
Subsidiaries, nor any officer, director or employee of OEI or any of its
Subsidiaries, has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any other Governmental Authority from
engaging in or continuing any conduct or practice in connection with the
business, assets or properties of OEI or such Subsidiary nor, to the knowledge
of OEI, is OEI, any Subsidiary or any officer, director or employee of OEI or
its Subsidiaries under investigation by any Governmental Authority. Except as
disclosed in the OEI SEC Reports or Section 4.10 of the OEI Disclosure Schedule,
there is not in existence any order, judgment or decree of any court or other
tribunal or other agency enjoining or requiring OEI or any of its Subsidiaries
to take any action of any kind with respect to its business, assets or
properties. Notwithstanding the foregoing, no representation or warranty in this
Section 4.10 is made with respect to Environmental Laws, which are covered
exclusively by the provisions set forth in Section 4.12.
Section 4.11 Employee Benefit Plans; ERISA.
(a) Section 4.11(a) of the OEI Disclosure Schedule contains a true and
complete list of the employee benefit plans or arrangements of any type
(including but not limited to plans described in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
sponsored, maintained or contributed to by OEI or any trade or business,
whether or not incorporated, which together with OEI would be deemed a
"single employer" within the meaning of Section 414(b), (c) or (m) of the
Code or section 4001(b)(1) of ERISA (an "OEI ERISA Affiliate") within six
years prior to the Effective Time ("OEI Benefit Plans").
(b) With respect to each OEI Benefit Plan: (i) if intended to qualify
under section 401(a) or 401(k) of the Code, such plan satisfies the
requirements of such sections, has received a favorable determination
letter from the Internal Revenue Service with respect to its qualification,
and its related trust has been determined to be exempt from tax under
section 501(a) of the Code and, to the knowledge of OEI, nothing has
occurred since the date of such letter to adversely affect such
qualification or exemption; (ii) each such plan has been administered in
substantial compliance with its terms and applicable law, except for any
noncompliance with respect to any such plan that could not reasonably be
expected to result in an OEI Material Adverse Effect; (iii) neither OEI nor
any OEI ERISA Affiliate has engaged in, and OEI and each OEI ERISA
Affiliate do not have any knowledge of any person that has engaged in, any
transaction or acted or failed to act in any manner that would subject OEI
or any OEI ERISA Affiliate to any liability for a breach of fiduciary duty
under ERISA that could reasonably be expected to result in an OEI Material
Adverse Effect; (iv) no disputes are pending or, to the knowledge of OEI or
any OEI ERISA Affiliate, threatened; (v) neither OEI nor any OEI ERISA
Affiliate has engaged in, and OEI and each OEI ERISA Affiliate do not have
any knowledge of any person that has engaged in, any transaction in
violation of Section 406(a) or (b) of ERISA or Section 4975 of the Code for
which no exemption exists under Section 408 of ERISA or Section 4975(c) of
the Code or Section 4975(d) of the Code that could reasonably be expected
to result in an OEI Material Adverse Effect; (vi) there have been no
"reportable events" within the meaning of Section 4043 of ERISA for which
the 30 day notice requirement of ERISA has not been waived by the Pension
Benefit Guaranty Corporation (the "PBGC"); (vii) all contributions due have
been made on a timely basis (within, where applicable, the time limit
established under section 302 of ERISA or Code section 412); (viii) no
notice of intent to terminate such plan has been given under section 4041
of ERISA and no proceeding has
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been instituted under section 4042 of ERISA to terminate such plan; and (ix)
except for defined benefit plans (if applicable), such plan may be terminated on
a prospective basis without any continuing liability for benefits other than
benefits accrued to the date of such termination. All contributions made or
required to be made under any OEI Benefit Plan meet the requirements for
deductibility under the Code, and all contributions which are required and which
have not been made have been properly recorded on the books of OEI or an OEI
ERISA Affiliate.
(c) No OEI Benefit Plan is a "multiemployer plan" (as defined in
section 4001(a)(3) of ERISA) or a "multiple employer plan" (within the
meaning of section 413(c) of the Code). No event has occurred with respect
to OEI or an OEI ERISA Affiliate in connection with which OEI could be
subject to any liability, lien or encumbrance with respect to any OEI
Benefit Plan or any employee benefit plan described in section 3(3) of
ERISA maintained, sponsored or contributed to by an OEI ERISA Affiliate
under ERISA or the Code.
(d) Except as set forth in Section 4.11(d) of the OEI Disclosure
Schedule, no employees of OEI or any of its Subsidiaries are covered by any
severance plan or similar arrangement.
Section 4.12 Environmental Liability. Except as set forth in Section 4.12
of the OEI Disclosure Schedule:
(a) The businesses of OEI and its Subsidiaries have been and are
operated in material compliance with all federal, state and local
environmental protection, health and safety or similar laws, statutes,
ordinances, restrictions, licenses, rules, regulations, permit conditions
and legal requirements, including without limitation the Federal Clean
Water Act, Safe Drinking Water Act, Resource Conservation & Recovery Act,
Clean Air Act, Outer Continental Shelf Lands Act, Comprehensive
Environmental Response, Compensation and Liability Act, and Emergency
Planning and Community Right to Know Act, each as amended and currently in
effect (together, "Environmental Laws").
(b) Neither OEI nor any of its Subsidiaries has caused or allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum, petroleum products or any substance regulated under any
Environmental Law ("Hazardous Substances") at any of its properties or
facilities, except in material compliance with all Environmental Laws, and,
to OEI's knowledge, no generation, manufacture, processing, distribution,
use, treatment, handling, storage, discharge, release, disposal, transport
or handling of any Hazardous Substances has occurred at any property or
facility owned, leased or operated by OEI or any of its Subsidiaries except
in material compliance with all Environmental Laws.
(c) Neither OEI nor any of its Subsidiaries has received any written
notice from any Governmental Authority or third party or, to the knowledge
of OEI, any other communication alleging or concerning any material
violation by OEI or any of its Subsidiaries of, or responsibility or
liability of OEI or any of its Subsidiaries under, any Environmental Law.
There are no pending, or to the knowledge of OEI, threatened, claims,
suits, actions, proceedings or investigations with respect to the
businesses or operations of OEI or any of its Subsidiaries alleging or
concerning any material violation of or responsibility or liability under
any Environmental Law that, if adversely determined, could reasonably be
expected to have an OEI Material Adverse Effect, nor does OEI have any
knowledge of any fact or condition that could give rise to such a claim,
suit, action, proceeding or investigation.
(d) OEI and its Subsidiaries are in possession of all material
approvals, permits, licenses, registrations and similar type authorizations
from all Governmental Authorities under all Environmental Laws with respect
to the operation of the businesses of OEI and its Subsidiaries; there are
no pending or, to the knowledge of OEI, threatened, actions, proceedings or
investigations seeking to modify, revoke or deny renewal of any of such
approvals, permits, licenses, registrations and authorizations; and OEI
does not have knowledge of any fact or condition that is reasonably likely
to
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give rise to any action, proceeding or investigation to modify, revoke or deny
renewal of any of such approvals, permits, licenses, registrations and
authorizations.
(e) Without in any way limiting the generality of the foregoing, (i)
to the knowledge of OEI, all off-site locations where OEI or any of its
Subsidiaries has transported, released, discharged, stored, disposed or
arranged for the disposal of pollutants, contaminants, hazardous wastes or
toxic substances are licensed disposal sites as required by law, (ii) to
OEI's knowledge, all underground storage tanks, and the operating status,
capacity and contents of such tanks, located on any property owned, leased
or operated by OEI or any of its Subsidiaries are identified in Section
4.12 of the OEI Disclosure Schedule and (iii) no polychlorinated biphenyls
("PCBs") or PCB-containing items are used or stored at any property owned,
leased or operated by OEI or any of its Subsidiaries except in compliance
with Environmental Laws.
(f) There has been no discharge, release or disposal at any of the
properties owned or operated by OEI, its Subsidiaries, or a predecessor in
interest, or to the knowledge of OEI, at any disposal or treatment facility
which received Hazardous Substances generated by OEI, its Subsidiaries, or
any predecessor in interest which could reasonably be expected to result in
liabilities that have an OEI Material Adverse Effect.
(g) To OEI's knowledge, no pending claims have been asserted or
threatened to be asserted against OEI or its Subsidiaries for any personal
injury (including wrongful death) or property damage (real or personal)
arising out of exposure to Hazardous Substances used, handled, generated,
transported or disposed by OEI or its Subsidiaries at property owned or
operated by OEI or its Subsidiaries, except as could not reasonably be
expected to result in liabilities that have an OEI Material Adverse Effect.
Section 4.13 Compliance with Applicable Laws. OEI and each of its
Subsidiaries hold all material approvals, licenses, permits, registrations and
similar type authorizations necessary for the lawful conduct of its respective
businesses, as now conducted, and such businesses are not being, and neither OEI
nor any of its Subsidiaries has received any notice from any Governmental
Authority or person that any such business has been or is being conducted in
violation of any law, ordinance or regulation, including without limitation any
law, ordinance or regulation relating to occupational health and safety, except
for possible violations which either individually or in the aggregate have not
resulted and would not result in an OEI Material Adverse Effect; provided,
however, notwithstanding the foregoing, no representation or warranty in this
Section 4.13 is made with respect to Environmental Laws, which are covered
exclusively by the provisions set forth in Section 4.12.
Section 4.14 Insurance. Section 4.14 of the OEI Disclosure Schedule lists
each of the insurance policies relating to OEI or its Subsidiaries which are
currently in effect. OEI has made available to Seagull a true, complete and
correct copy of each such policy or the binder therefor. With respect to each
such insurance policy or binder none of OEI, any of its Subsidiaries or any
other party to the policy is in breach or default thereunder (including with
respect to the payment of premiums or the giving of notices), and OEI does not
know of any occurrence or 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 which, individually or in the aggregate, would not result in an OEI
Material Adverse Effect. Section 4.14 of the OEI Disclosure Schedule describes
any self-insurance arrangements affecting OEI or its Subsidiaries. The insurance
policies listed in Section 4.14 of the OEI Disclosure Schedule include all
policies which are required in connection with the operation of the businesses
of OEI and its Subsidiaries as currently conducted by applicable laws and all
agreements relating to OEI and its Subsidiaries. All premiums and other payments
relating to the officer's and director's liability insurance policy of United
Meridian Corporation as currently in effect (the "UMC D&O Policy") have been
paid for coverage through March 27, 2003.
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Section 4.15 Labor Matters; Employees.
(a) Except as set forth in Section 4.15 of the OEI Disclosure
Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to the knowledge of OEI, threatened against or
affecting OEI or any of its Subsidiaries and, during the past five years,
there has not been any such action, (ii) none of OEI or any of its
Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to
with any labor organization or employee association applicable to employees
of OEI or any of its Subsidiaries, (iii) none of the employees of OEI or
any of its Subsidiaries are represented by any labor organization and none
of OEI or any of its Subsidiaries have any knowledge of any current union
organizing activities among the employees of OEI or any of its Subsidiaries
nor does any question concerning representation exist concerning such
employees, (iv) OEI and its Subsidiaries have each at all times been in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of
work and occupational safety and health, and are not engaged in any unfair
labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance or regulation, (v) there is no unfair labor
practice charge or complaint against any of OEI or any of its Subsidiaries
pending or, to the knowledge of OEI, threatened before the National Labor
Relations Board or any similar state or foreign agency, (vi) there is no
grievance or arbitration proceeding arising out of any collective
bargaining agreement or other grievance procedure relating to OEI or any of
its Subsidiaries, (vii) neither the Occupational Safety and Health
Administration nor any corresponding state agency has threatened to file
any citation, and there are no pending citations, relating to OEI or any of
its Subsidiaries, and (viii) there is no employee or governmental claim or
investigation, including any charges to the Equal Employment Opportunity
Commission or state employment practice agency, investigations regarding
Fair Labor Standards Act compliance, audits by the Office of Federal
Contractor Compliance Programs, sexual harassment complaints or demand
letters or threatened claims.
(b) Since the enactment of the Worker Adjustment and Retraining
Notification Act of 1988 ("WARN Act"), none of OEI or any of its
Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of any of OEI or
any of its Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN
Act) affecting any site of employment or facility of OEI or any of its
Subsidiaries, nor has OEI or any of its Subsidiaries been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law, in each
case that could reasonably be expected to have an OEI Material Adverse
Effect.
Section 4.16 Reserve Reports.
(a) All information (including, without limitation, the statement of
the percentage of reserves from the oil and gas wells and other interests
evaluated therein to which OEI or its Subsidiaries are entitled and the
percentage of the costs and expenses related to such wells or interests to
be borne by OEI or its Subsidiaries) supplied to each of Netherland, Sewell
& Associates, Inc., Ryder Scott Company Petroleum Engineers and McDaniel &
Associates Consultants, Ltd. by or on behalf of OEI and its Subsidiaries
that was material to each such firm's estimates of proved oil and gas
reserves attributable to the Oil and Gas Interests (as hereinafter defined)
of OEI and its Subsidiaries in connection with the preparation of the
proved oil and gas reserve reports concerning the Oil and Gas Interests of
OEI and its Subsidiaries as of December 31, 1997 and prepared by such
engineering firms (collectively, the "OEI Reserve Report") was (at the time
supplied or as modified or amended prior to the issuance of the OEI Reserve
Report) true and correct in all material respects and OEI has no knowledge
of any material errors in such information that existed at the time of such
issuance. For purposes of this Agreement "Oil and Gas Interests" means
direct and indirect interests in and rights with respect to oil, gas,
mineral, and related properties and assets of any kind and nature, direct
or
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indirect, including working, leasehold and mineral interests and operating
rights and royalties, overriding royalties, production payments, net profit
interests and other nonworking interests and nonoperating interests; all
interests in rights with respect to oil, condensate, gas, casinghead gas and
other liquid or gaseous hydrocarbons (collectively, "Hydrocarbons") and other
minerals or revenues therefrom, all contracts in connection therewith and claims
and rights thereto (including all oil and gas leases, operating agreements,
unitization and pooling agreements and orders, division orders, transfer orders,
mineral deeds, royalty deeds, oil and gas sales, exchange and processing
contracts and agreements, and in each case, interests thereunder), surface
interests, fee interests, reversionary interests, reservations, and concessions;
all easements, rights of way, licenses, permits, leases, and other interests
associated with, appurtenant to, or necessary for the operation of any of the
foregoing; and all interests in equipment and machinery (including wells, well
equipment and machinery), oil and gas production, gathering, transmission,
treating, processing, and storage facilities (including tanks, tank batteries,
pipelines, and gathering systems), pumps, water plants, electric plants,
gasoline and gas processing plants, refineries, and other tangible personal
property and fixtures associated with, appurtenant to, or necessary for the
operation of any of the foregoing. Except for changes generally affecting the
oil and gas industry (including changes in commodity prices), there has been no
change in respect of the matters addressed in the OEI Reserve Report that would
have an OEI Material Adverse Effect.
(b) Set forth in Section 4.16(b) of the OEI Disclosure Schedule is a
list of all material Oil and Gas Interests that were included in the OEI
Reserve Report that have been disposed of prior to the date of this
Agreement.
Section 4.17 Permits. Immediately prior to the Effective Time and except
for Customary Post-Closing Consents, OEI and its Subsidiaries hold all of the
permits, licenses, certificates, consents, approvals, entitlements, plans,
surveys, relocation plans, environmental impact reports and other authorizations
of Governmental Authorities ("Permits") required or necessary to construct, own,
operate, use and/or maintain its properties and conduct its operations as
presently conducted, except for such Permits, the lack of which, individually or
in the aggregate, would not have an OEI Material Adverse Effect; provided,
however, that notwithstanding the foregoing, no representation or warranty in
this Section 4.17 is made with respect to Permits issued pursuant to
Environmental Laws, which are covered exclusively by the provisions set forth in
Section 4.12.
Section 4.18 Material Contracts.
(a) Set forth in Section 4.18(a) of the OEI Disclosure Schedule is a
list of each contract, lease, indenture, agreement, arrangement or
understanding to which OEI or any of its Subsidiaries is subject that is of
a type that would be required to be included as an exhibit to a Form S-1
Registration Statement pursuant to the rules and regulations of the SEC if
such a registration statement was filed by OEI (collectively, the "OEI
Material Contracts").
(b) Except as set forth in Section 4.18(a) or 4.18(b) of the OEI
Disclosure Schedule, the Oil and Gas Interests of OEI and its Subsidiaries
are not subject to (i) any instrument or agreement evidencing or related to
indebtedness for borrowed money, whether directly or indirectly, or (ii)
any agreement not entered into in the ordinary course of business in which
the amount involved is in excess of $500,000. With respect to the Oil and
Gas Interests of OEI and its Subsidiaries, (A) all OEI Material Contracts
are in full force and effect and are the valid and legally binding
obligations of the parties thereto and are enforceable in accordance with
their respective terms; (B) OEI is not in material breach or default with
respect to, and to the knowledge of OEI, no other party to any OEI Material
Contract is in material breach or default with respect to, its obligations
thereunder, including with respect to payments or otherwise; (C) no party
to any OEI Material Contract has given notice of any action to terminate,
cancel, rescind or procure a judicial reformation thereof; and (D) no OEI
Material Contract contains any provision that prevents OEI or any of its
Subsidiaries from owning, managing and operating the Oil and Gas Interests
of OEI and its Subsidiaries in accordance with historical practices.
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(c) As of the date of this Agreement, except as set forth in Section
4.18(c) of the OEI Disclosure Schedule, with respect to authorizations for
expenditure executed on or after January 1, 1998, (i) there are no material
outstanding calls for payments that are due or that OEI or its Subsidiaries
are committed to make that have not been made; (ii) there are no material
operations with respect to which OEI or its Subsidiaries have become a
non-consenting party; and (iii) there are no commitments for the material
expenditure of funds for drilling or other capital projects other than
projects with respect to which the operator is not required under the
applicable operating agreement to seek consent.
(d) Except as set forth in Section 4.18(d) of the OEI Disclosure
Schedule, (i) there are no provisions applicable to the Oil and Gas
Interests of OEI and its Subsidiaries which increase the royalty percentage
of the lessor thereunder; and (ii) none of the Oil and Gas Interests of OEI
and its Subsidiaries are limited by terms fixed by a certain number of
years (other than primary terms under oil and gas leases).
Section 4.19 Required Stockholder Vote or Consent. The only vote of the
holders of any class or series of OEI's capital stock that will be necessary to
consummate the Merger and the other transactions contemplated by this Agreement
is the approval and adoption of this Agreement by the holders of a majority of
the votes entitled to be cast by holders of the OEI Common Stock and the OEI
Preferred Stock, voting together as a single class, with each share of OEI
Common Stock being entitled to one vote per share and each share of OEI
Preferred Stock being entitled to a number of votes per share equal to the
number of shares of OEI Common Stock into which such share of OEI Preferred
Stock is then convertible (the "OEI Stockholders' Approval").
Section 4.20 Proxy Statement/Prospectus; Registration Statement. None of
the information to be supplied by OEI for inclusion in (a) the joint proxy
statement relating to the OEI Special Meeting and the Seagull Special Meeting
(in each case, as defined below) (also constituting the prospectus in respect of
Seagull Common Stock into which shares of OEI Common Stock will be converted)
(the "Proxy Statement/Prospectus"), to be filed by OEI and Seagull with the SEC,
and any amendments or supplements thereto, or (b) the Registration Statement on
Form S-4 (the "Registration Statement") to be filed by Seagull with the SEC in
connection with the Merger, and any amendments or supplements thereto, will, at
the respective times such documents are filed, and, in the case of the Proxy
Statement/ Prospectus, at the time the Proxy Statement/Prospectus or any
amendment or supplement thereto is first mailed to stockholders of OEI, at the
time such stockholders vote on approval and adoption of this Agreement and at
the Effective Time, and, in the case of the Registration Statement, when it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be made therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
Section 4.21 Intellectual Property. OEI or its Subsidiaries own, or are
licensed or otherwise have the right to use, all patents, patent rights,
trademarks, 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 OEI and its Subsidiaries,
except where the failure to so own or otherwise have the right to use such
intellectual property would not, individually or in the aggregate, have an OEI
Material Adverse Effect. No person has notified either OEI or any of its
Subsidiaries that their use of the Intellectual Property infringes on the rights
of any person, subject to such claims and infringements as do not, individually
or in the aggregate, give rise to any liability on the part of OEI and its
Subsidiaries that could have an OEI Material Adverse Effect, and, to OEI's
knowledge, no person is infringing on any right of OEI or any of its
Subsidiaries with respect to any such Intellectual Property. No claims are
pending or, to OEI's knowledge, threatened that OEI or any of its Subsidiaries
is infringing or otherwise adversely affecting the rights of any person with
regard to any Intellectual Property.
Section 4.22 Hedging. Section 4.22 of the OEI Disclosure Schedule sets
forth for the periods shown obligations of OEI and each of its Subsidiaries for
the delivery of Hydrocarbons attributable to any
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of the properties of OEI or any of its Subsidiaries in the future on account of
prepayment, advance payment, take-or-pay or similar obligations without then or
thereafter being entitled to receive full value therefor. Except as set forth in
Section 4.22 of the OEI Disclosure Schedule, as of the date of this Agreement,
neither OEI nor any of its Subsidiaries is bound by 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 the
price of commodities, including Hydrocarbons, or securities.
Section 4.23 Brokers. No broker, finder or investment banker (other than
Lehman Brothers Inc. and J. P. Morgan & Co., the fees and expenses of which will
be paid by OEI) is entitled to any brokerage, finder's fee or other fee or
commission payable by OEI or any of its Subsidiaries in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of OEI or any of its Subsidiaries. True and correct copies of all
agreements and engagement letters currently in effect with Lehman Brothers Inc.
and J. P. Morgan & Co. (the "OEI Engagement Letters") have been provided to
Seagull.
Section 4.24 Tax-Free Reorganization. Neither OEI nor, to the knowledge of
OEI, any of its affiliates has taken or agreed to take any action that would
prevent the Merger from constituting a reorganization within the meaning of
section 368(a) of the Code. Without limiting the generality of the foregoing:
(a) Prior to and in connection with the Merger, (i) none of the OEI
Common Stock or OEI Preferred Stock will be redeemed, (ii) no extraordinary
distribution will be made with respect to OEI Common Stock or OEI Preferred
Stock, and (iii) none of the OEI Common Stock or OEI Preferred Stock will
be acquired by any person related (as defined in Treas. Reg.
sec. 1.368-1(e)(3) without regard to sec. 1.368-1(e)(3)(i)(A)) to OEI.
(b) No assets of OEI have been sold, transferred or otherwise disposed
of which would prevent Seagull from continuing the historic business of OEI
or from using a significant portion of OEI's historic business assets in a
business following the Merger, and OEI intends to continue its historic
business or use a significant portion of its historic business assets in a
business.
(c) OEI and the stockholders of OEI will each pay their respective
expenses, if any, incurred in connection with the Merger.
(d) There is no intercorporate indebtedness existing between OEI and
Seagull that was issued, acquired, or will be settled at a discount.
(e) OEI is not an investment company as defined in section
368(a(2)(F)(iii) and (iv) of the Code.
(f) OEI is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
(g) The liabilities of OEI were incurred by OEI in the ordinary course
of its business.
Section 4.25 Fairness Opinion. The Board of Directors of OEI has received
written opinions from Lehman Brothers Inc. and J. P. Morgan & Co. to the effect
that, as of the date of such opinions, the Common Stock Exchange Ratio is fair
from a financial point of view to the holders of OEI Common Stock. True and
complete copies of such opinions have been given to Seagull.
Section 4.26 Year 2000 Issues. The disclosures set forth in the OEI SEC
Reports concerning potential computer hardware and software problems associated
with the Year 2000 are true and correct in all material respects.
Section 4.27 Takeover Laws. OEI and the Board of Directors of OEI have
each taken all action required to be taken by it in order to exempt this
Agreement, and the transactions contemplated hereby from, and this Agreement and
the transactions contemplated hereby are exempt from, the requirements of any
"moratorium," "control share," "fair price," "affiliate transaction," "business
combination" or other
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antitakeover laws and regulations of any state, including, without limitation,
the State of Delaware, and including, without limitation, Section 203 of the
DGCL.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SEAGULL
Seagull represents and warrants to OEI as follows:
Section 5.1 Organization and Qualification.
(a) Seagull is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, is duly qualified to do
business as a foreign corporation and is in good standing in the
jurisdictions set forth in Section 5.1(a) of the disclosure letter
delivered to OEI contemporaneously with the execution hereof (the "Seagull
Disclosure Schedule"), which include each jurisdiction in which the
character of Seagull's properties or the nature of its business makes such
qualification necessary, except in jurisdictions, if any, where the failure
to be so qualified would not result in a Seagull Material Adverse Effect
(as defined below). Seagull has all requisite corporate or other power and
authority to own, use or lease its properties and to carry on its business
as it is now being conducted. Seagull has made available to OEI a complete
and correct copy of its articles of incorporation and bylaws, each as
amended to date, and Seagull's articles of incorporation and bylaws as so
delivered are in full force and effect. Seagull is not in default in any
respect in the performance, observation or fulfillment of any provision of
its articles of incorporation or bylaws.
(b) Section 5.1(b) of the Seagull Disclosure Schedule lists the name
and jurisdiction of organization of each Subsidiary of Seagull and the
jurisdictions in which each such Subsidiary is qualified or holds licenses
to do business as a foreign corporation or other organization as of the
date hereof. Each of Seagull's Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business as a
foreign corporation and is in good standing in the jurisdictions set forth
in Section 5.1(b) of the Seagull Disclosure Schedule, which includes each
jurisdiction in which the character of such Subsidiary's properties or the
nature of its business makes such qualification necessary, except in
jurisdictions, if any, where the failure to be so qualified would not
result in a Seagull Material Adverse Effect. Each of Seagull's Subsidiaries
has all requisite corporate or other power and authority to own, use or
lease its properties and to carry on its business as it is now being
conducted and as it is now proposed to be conducted. Seagull has made
available to OEI a complete and correct copy of the certificate of
incorporation and bylaws (or similar organizational documents) of each of
Seagull's Subsidiaries, each as amended to date, and the certificate of
incorporation and bylaws (or similar charter documents) as so delivered are
in full force and effect. No Subsidiary of Seagull is in default in any
respect in the performance, observation or fulfillment of any provision of
its certificate of incorporation or bylaws (or similar organizational
documents). Other than Seagull's Subsidiaries, Seagull does not
beneficially own or control, directly or indirectly, 5% or more of any
class of equity or similar securities of any corporation or other
organization, whether incorporated or unincorporated.
(c) For purposes of this Agreement, a "Seagull Material Adverse
Effect" shall mean any event, circumstance, condition, development or
occurrence causing, resulting in or having (or with the passage of time
likely to cause, result in or have) a material adverse effect on the
financial condition, business, assets, properties, prospects or results of
operations of Seagull and its Subsidiaries, taken as a whole; provided,
that such term shall not include effects that are not applicable primarily
to Seagull resulting from market conditions generally in the oil and gas
industry.
Section 5.2 Capitalization.
(a) The authorized capital stock of Seagull consists of 100,000,000
shares of Seagull Common Stock, and 5,000,000 shares of preferred stock of
Seagull, par value $1.00 per share, of which 500,000 shares have been
designated as Series B Junior Participating Preferred Stock. As of the date
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of this Agreement, Seagull has (i) 63,448,037 shares of Seagull Common Stock
issued and outstanding, (ii) no shares of preferred stock outstanding and (iii)
outstanding stock options to acquire 5,575,118 shares of Seagull Common Stock
under all stock option plans and agreements of Seagull. All such shares have
been validly issued, fully paid and nonassessable, and free of preemptive
rights. Except as set forth above, and other than this Agreement and other than
the Preferred Stock Purchase Rights set forth in the Amended and Restated Rights
Agreement dated as of December 12, 1997, by and between Seagull and BankBoston,
N.A., as Rights Agent (as amended, the "Seagull Rights Plan"), there are no
outstanding subscriptions, options, rights, warrants, convertible securities,
stock appreciation rights, phantom equity, or other agreements or commitments
obligating Seagull to issue, transfer, sell, redeem, repurchase or otherwise
acquire any shares of its capital stock of any class. Except for any amendments
filed with the Seagull SEC Reports (as defined below), the Seagull Rights Plan
has not been amended, and no amendment thereof is proposed. No "Distribution
Date" has occurred within the meaning of the Seagull Rights Plan, and the
consummation of the transactions contemplated hereby will not result in the
occurrence of a Distribution Date. Seagull has taken all action required to
render the Seagull Rights Plan (and the "Rights" thereunder) inapplicable to
this Agreement and the transactions contemplated hereby, including any Ancillary
Agreements.
(b) Except as set forth in Section 5.1(b) of the Seagull Disclosure
Schedule, Seagull is, directly or indirectly, the record and beneficial
owner of all of the outstanding shares of capital stock of each Seagull
Subsidiary, there are no irrevocable proxies with respect to any such
shares, and no equity securities of any Seagull Subsidiary are or may
become required to be issued by reason of any options, warrants, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into or exchangeable or exercisable
for, shares of any capital stock of any Seagull Subsidiary, and there are
no contracts, commitments, understandings or arrangements by which Seagull
or any Seagull Subsidiary is or may be bound to issue additional shares of
capital stock of any Seagull Subsidiary or securities convertible into or
exchangeable or exercisable for any such shares. All of such shares so
owned by Seagull are validly issued, fully paid and nonassessable and are
owned by it free and clear of all Liens.
Section 5.3 Authority. Seagull has full corporate power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which it is
or will be a party and, subject to obtaining the Seagull Stockholders' Approval
as contemplated by Section 7.13, to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance of this Agreement
and the Ancillary Agreements to which it is or will be a party and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the Board of Directors of Seagull (with at least
two-thirds of the members of the Board of Directors of Seagull voting in favor
thereof), and no other corporate proceedings on the part of Seagull are
necessary to authorize this Agreement or the Ancillary Agreements to which any
of them are or will be a party or to consummate the transactions contemplated
hereby or thereby, other than obtaining the Seagull Stockholders' Approval as
contemplated by Section 7.13 hereof. This Agreement has been, and the Ancillary
Agreements to which Seagull is or will be a party are, or upon execution will
be, duly and validly executed and delivered by Seagull and, assuming the due
authorization, execution and delivery hereof and thereof by the other parties
hereto and thereto, constitutes or upon execution will constitute, valid and
binding obligations of Seagull enforceable against Seagull in accordance with
their respective terms, except for the Enforceability Exception.
Section 5.4 Consents and Approvals; No Violation. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and the performance by Seagull of its obligations hereunder will not:
(a) subject to the obtaining the Seagull Stockholders' Approval as
contemplated by Section 7.13 hereof, conflict with any provision of the
articles of incorporation or bylaws of Seagull or the certificates of
incorporation or bylaws (or other similar organizational documents) of any
of its Subsidiaries;
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(b) subject to obtaining the Seagull Stockholders' Approval as
contemplated by Section 7.13 hereof, require any consent, waiver, approval,
order, authorization or permit of, or registration, filing with or
notification to, (i) any Governmental Authority, except for applicable
requirements of the HSR Act, the Securities Act, the Exchange Act, state
laws relating to takeovers, if applicable, state securities or blue sky
laws, laws, rules or regulations administered by the APUC and Customary
Post-Closing Consents or (ii) except as set forth in Section 5.4(b) of the
Seagull Disclosure Schedule, any third party other than a Governmental
Authority, other than such non-Governmental Authority third party consents,
waivers, approvals, orders, authorizations and permits that would not (i)
result in a Seagull Material Adverse Effect, (ii) materially impair the
ability of Seagull or any of its Subsidiaries to perform its obligations
under this Agreement or any Ancillary Agreement or (iii) prevent the
consummation of any of the transactions contemplated by this Agreement;
(c) except as set forth in Section 5.4(c) of the Seagull Disclosure
Schedule, result in any violation of or the breach of or constitute a
default (with notice or lapse of time or both) under, or give rise to any
right of termination, cancellation or acceleration or guaranteed payments
or a loss of a material benefit under, any of the terms, conditions or
provisions of any note, lease, mortgage, license, agreement or other
instrument or obligation to which Seagull or any of its Subsidiaries is a
party or by which Seagull or any of its Subsidiaries or any of their
respective properties or assets may be bound, except for such violations,
breaches, defaults, or rights of termination, cancellation or acceleration,
or losses as to which requisite waivers or consents have been obtained or
which, individually or in the aggregate, would not (i) result in a Seagull
Material Adverse Effect, (ii) materially impair the ability of Seagull or
any of its Subsidiaries to perform its obligations under this Agreement or
any Ancillary Agreement or (iii) prevent the consummation of any of the
transactions contemplated by this Agreement;
(d) violate the provisions of any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to Seagull or any Subsidiary
of Seagull;
(e) result in the creation of any Lien upon any material properties or
assets or on any shares of capital stock of Seagull or its Subsidiaries
under any agreement or instrument to which Seagull or any of its
Subsidiaries is a party or by which Seagull or any of its Subsidiaries or
any of their properties or assets is bound; or
(f) result in any holder of any securities of Seagull being entitled
to appraisal, dissenters' or similar rights.
Section 5.5 Seagull Financial Statements. Each of the audited consolidated
financial statements and unaudited consolidated interim financial statements of
Seagull (including any related notes and schedules) included (or incorporated by
reference) in its Annual Reports on Form 10-K for each of the three fiscal years
ended December 31, 1995, 1996 and 1997 and its Quarterly Report on Form 10-Q for
its fiscal quarter ended September 30, 1998 (collectively, the "Financial
Statements") have been prepared from, and are in accordance with, the books and
records of Seagull and its consolidated Subsidiaries, comply in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis (except as may be indicated
in the notes thereto and subject, in the case of quarterly financial statements,
to normal and recurring year-end adjustments) and fairly present, in conformity
with GAAP applied on a consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of Seagull and its Subsidiaries as
of the date thereof and the consolidated results of operations and cash flows
(and changes in financial position, if any) of Seagull and its Subsidiaries for
the periods presented therein (subject to normal year-end adjustments and the
absence of financial footnotes in the case of any unaudited interim financial
statements).
Section 5.6 Absence of Undisclosed Liabilities. Except (a) as specifically
disclosed in the Seagull SEC Reports and (b) for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
since December 31, 1997, neither Seagull nor any of its Subsidiaries has
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incurred any liabilities or obligations of any nature (contingent or otherwise)
that would have a Seagull Material Adverse Effect or would be required by GAAP
to be reflected on a consolidated balance sheet of Seagull and its Subsidiaries
or the notes thereto which is not so reflected.
Section 5.7 Absence of Certain Changes. Except as contemplated by this
Agreement, as set forth in Section 5.7 of the Seagull Disclosure Schedule or
disclosed in the Seagull SEC Reports, since December 31, 1997 (a) Seagull and
its Subsidiaries have conducted their business in all material respects in the
ordinary course consistent with past practices, (b) there has not been any
change or development, or combination of changes or developments that,
individually or in the aggregate, would have a Seagull Material Adverse Effect,
(c) there has not been any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of Seagull or
any repurchase, redemption or other acquisition by Seagull or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, Seagull or any of its Subsidiaries, (d) there
has not been any amendment of any term of any outstanding security of Seagull,
and (e) there has not been any change in any method of accounting or accounting
practice by Seagull, except for any such change required by reason of a
concurrent change in GAAP or to conform a such accounting policies and practices
to those of Seagull.
Section 5.8 Seagull SEC Reports. Seagull has filed with the SEC, and has
heretofore made available to OEI true and complete copies of, each form,
registration statement, report, schedule, proxy or information statement and
other document (including exhibits and amendments thereto), including without
limitation its Annual Reports to Shareholders incorporated by reference in
certain of such reports, required to be filed with the SEC since December 31,
1994 under the Securities Act or the Exchange Act (collectively, the "Seagull
SEC Reports"). As of the respective dates such Seagull SEC Reports were filed
or, if any such Seagull SEC Reports were amended, as of the date such amendment
was filed, each of the Seagull SEC Reports, including without limitation any
finan cial statements or schedules included therein, (a) complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and the applicable rules and regulations
promulgated thereunder, and (b) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
Section 5.9 Taxes. Except as otherwise disclosed in Section 5.9 of the
Seagull Disclosure Schedule and for matters that would have no adverse effect on
Seagull:
(a) Seagull and each of its Subsidiaries have timely filed (or have
had timely filed on their behalf) or will file or cause to be timely filed,
all material Tax Returns required by applicable law to be filed by any of
them prior to or as of the Closing Date. All such Tax Returns and
amendments thereto are or will be true, complete and correct in all
material respects.
(b) Seagull and each of its Subsidiaries have paid (or have had paid
on their behalf), or where payment is not yet due, have established (or
have had established on their behalf and for their sole benefit and
recourse), or will establish or cause to be established on or before the
Closing Date, an adequate accrual for the payment of all material Taxes due
with respect to any period ending prior to or as of the Closing Date.
(c) No Audit by a Tax Authority is pending or threatened with respect
to any Tax Returns filed by, or Taxes due from, Seagull or any Subsidiary.
No issue has been raised by any Tax Authority in any Audit of Seagull or
any of its Subsidiaries that if raised with respect to any other period not
so audited could be expected to result in a material proposed deficiency
for any period not so audited. No material deficiency or adjustment for any
Taxes has been threatened, proposed, asserted or assessed against Seagull
or any of its Subsidiaries. There are no liens for Taxes upon the assets of
Seagull or any of its Subsidiaries, except liens for current Taxes not yet
delinquent.
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(d) Neither Seagull nor any of its Subsidiaries has given or been
requested to give any waiver of statutes of limitations relating to the
payment of Taxes or have executed powers of attorney with respect to Tax
matters, which will be outstanding as of the Closing Date.
(e) Prior to the date hereof, Seagull and its Subsidiaries have
disclosed, and provided or made available true and complete copies to OEI
of, all material Tax sharing, Tax indemnity, or similar agreements to which
Seagull or any of its Subsidiaries is a party to, is bound by, or has any
obligation or liability for Taxes.
Section 5.10 Litigation. Except as disclosed in the Seagull SEC Reports or
Section 5.10 of the Seagull Disclosure Schedule and for matters that would not
have a Seagull Material Adverse Effect, there is no suit, claim, action,
proceeding or investigation pending or, to Seagull's knowledge, threatened
against or directly affecting Seagull, any Subsidiaries of Seagull or any of the
directors or officers of Seagull or any of its Subsidiaries in their capacity as
such, nor is there any reasonable basis therefor that could reasonably be
expected to have a Seagull Material Adverse Effect, if adversely determined.
Neither Seagull nor any of its Subsidiaries, nor any officer, director or
employee of Seagull or any of its Subsidiaries, has been permanently or
temporarily enjoined by any order, judgment or decree of any court or any other
Governmental Authority from engaging in or continuing any conduct or practice in
connection with the business, assets or properties of Seagull or such
Subsidiary, nor, to the knowledge of Seagull, is Seagull, any Subsidiary or any
officer, director or employee of Seagull or its Subsidiaries under investigation
by any Governmental Authority. Except as disclosed in the Seagull SEC Reports or
Section 5.10 of the Seagull Disclosure Schedule, there is not in existence any
order, judgment or decree of any court or other tribunal or other agency
enjoining or requiring Seagull or any of its Subsidiaries to take any action of
any kind with respect to its business, assets or properties. Notwithstanding the
foregoing, no representation or warranty in this Section 5.10 is made with
respect to Environmental Laws, which are covered exclusively by the provisions
set forth in Section 5.12.
Section 5.11 Employee Benefit Plans; ERISA.
(a) Section 5.11(a) of the Seagull Disclosure Schedule contains a true
and complete list of the employee benefit plans or arrangements of any type
(including but not limited to plans described in section 3(3) of ERISA),
sponsored, maintained or contributed to by Seagull or any trade or
business, whether or not incorporated, which together with Seagull would be
deemed a "single employer" within the meaning of Section 414(b), (c) or (m)
of the Code or section 4001(b)(1) of ERISA (a "Seagull ERISA Affiliate")
within six years prior to the Effective Time ("Seagull Benefit Plans").
(b) With respect to each Seagull Benefit Plan: (i) if intended to
qualify under section 401(a) or 401(k) of the Code, such plan satisfies the
requirements of such sections, has received a favorable determination
letter from the Internal Revenue Service with respect to its qualification,
and its related trust has been determined to be exempt from tax under
section 501(a) of the Code and, to the knowledge of Seagull, nothing has
occurred since the date of such letter to adversely affect such
qualification or exemption; (ii) each such plan has been administered in
substantial compliance with its terms and applicable law, except for any
noncompliance with respect to any such plan that could not reasonably be
expected to result in a Seagull Material Adverse Effect; (iii) neither
Seagull nor any Seagull ERISA Affiliate has engaged in, and Seagull and
each Seagull ERISA Affiliate do not have any knowledge of any person that
has engaged in, any transaction or acted or failed to act in any manner
that would subject Seagull or any Seagull ERISA Affiliate to any liability
for a breach of fiduciary duty under ERISA that could reasonably be
expected to result in a Seagull Material Adverse Effect; (iv) no disputes
are pending, or, to the knowledge of Seagull or any Seagull ERISA
Affiliate, threatened; (v) neither Seagull nor any Seagull ERISA Affiliate
has engaged in, and Seagull and each Seagull ERISA Affiliate do not have
any knowledge of any person that has engaged in, any transaction in
violation of Section 406(a) or (b) of ERISA or Section 4975 of the Code for
which no exemption exists under Section 408 of ERISA or Section 4975(c) of
the Code or Section 4975(d) of the Code that could reasonably be expected
to result in a Seagull Material Adverse Effect; (vi) there have been no
"reportable events" within the meaning of Section 4043 of ERISA for which
the 30 day
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notice requirement of ERISA has not been waived by the PBGC; (vii) all
contributions due have been made on a timely basis (within, where applicable,
the time limit established under section 302 of ERISA or Code section 412);
(viii) no notice of intent to terminate such plan has been given under Section
4041 of ERISA and no proceeding has been instituted under section 4042 of ERISA
to terminate such plan; and (ix) except for defined benefit plans (if
applicable), such plan may be terminated on a prospective basis without any
continuing liability for benefits other than benefits accrued to the date of
such termination. All contributions made or required to be made under any
Seagull Benefit Plan meet the requirements for deductibility under the Code, and
all contributions which are required and which have not been made have been
properly recorded on the books of Seagull or a Seagull ERISA Affiliate.
(c) No Seagull Benefit Plan is a "multiemployer plan" (as defined in
section 4001(a)(3) of ERISA) or a "multiple employer plan" (within the
meaning of section 413(c) of the Code). No event has occurred with respect
to Seagull or a Seagull ERISA Affiliate in connection with which Seagull
could be subject to any liability, lien or encumbrance with respect to any
Seagull Benefit Plan or any employee benefit plan described in Section 3(3)
of ERISA maintained, sponsored or contributed to by a Seagull ERISA
Affiliate under ERISA or the Code.
(d) Except as set forth in Section 5.11(d) of the Seagull Disclosure
Schedule, no employees of Seagull or any of its Subsidiaries are covered by
any severance plan or similar arrangement.
Section 5.12 Environmental Liability. Except as set forth in Section 5.12
of the Seagull Disclosure Schedule:
(a) The businesses of Seagull and its Subsidiaries have been and are
operated in material compliance with all Environmental Laws.
(b) Neither Seagull nor any of its Subsidiaries has caused or allowed
the generation, treatment, manufacture, processing, distribution, use,
storage, discharge, release, disposal, transport or handling of any
Hazardous Substances at any of its properties or facilities except in
material compliance with all Environmental Laws, and, to Seagull's
knowledge, no generation, manufacture, processing, distribution, use,
treatment, handling, storage, discharge, release, disposal, transport or
handling of any Hazardous Substances has occurred at any property or
facility owned, leased or operated by Seagull or any of its Subsidiaries
except in material compliance with all Environmental Laws.
(c) Neither Seagull nor any of its Subsidiaries has received any
written notice from any Governmental Authority or third party or, to the
knowledge of Seagull, any other communication alleging or concerning any
material violation by Seagull or any of its Subsidiaries of, or
responsibility or liability of Seagull or any of its Subsidiaries under,
any Environmental Law. There are no pending, or to the knowledge of
Seagull, threatened, claims, suits, actions, proceedings or investigations
with respect to the businesses or operations of Seagull or any of its
Subsidiaries alleging or concerning any material violation of or
responsibility or liability under any Environmental Law that, if adversely
determined, could reasonably be expected to have a Seagull Material Adverse
Effect, nor does Seagull have any knowledge of any fact or condition that
could give rise to such a claim, suit, action, proceeding or investigation.
(d) Seagull and its Subsidiaries are in possession of all material
approvals, permits, licenses, registrations and similar type authorizations
from all Governmental Authorities under all Environmental Laws with respect
to the operation of the businesses of Seagull and its Subsidiaries; there
are no pending or, to the knowledge of Seagull, threatened, actions,
proceedings or investigations seeking to modify, revoke or deny renewal of
any of such approvals, permits, licenses registrations and authorizations;
and Seagull does not have knowledge of any fact or condition that is
reasonably likely to give rise to any action, proceeding or investigation
to modify, revoke or deny renewal of any of such approvals, permits,
licenses, registrations and authorizations.
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(e) Without in any way limiting the generality of the foregoing, (i)
to the knowledge of Seagull, all off-site locations where Seagull or any of
its Subsidiaries has transported, released, discharged, stored, disposed or
arranged for the disposal of pollutants, contaminants, hazardous wastes or
toxic substances are licensed disposal sites as required by law, (ii) to
Seagull's knowledge, all underground storage tanks, and the operating
status, capacity and contents of such tanks, located on any property owned,
leased or operated by Seagull or any of its Subsidiaries are identified in
Section 5.12 of the Seagull Disclosure Schedule and (iii) no PCBs or
PCB-containing items are used or stored at any property owned, leased or
operated by Seagull or any of its Subsidiaries except in compliance with
Environmental Laws.
(f) There has been no discharge, release or disposal at any of the
properties owned or operated by Seagull, its Subsidiaries, or a predecessor
in interest, or to the knowledge of Seagull, at any disposal or treatment
facility which received Hazardous Substances generated by Seagull, its
Subsidiaries, or any predecessor in interest which could reasonably be
expected to result in liabilities that have a Seagull Material Adverse
Effect.
(g) To Seagull's knowledge, no pending claims have been asserted or
threatened to be asserted against Seagull or its Subsidiaries for any
personal injury (including wrongful death) or property damage (real or
personal) arising out of exposure to Hazardous Substances used, handled,
generated, transported or disposed by Seagull or its Subsidiaries at
property owned or operated by Seagull or its Subsidiaries, except as could
not reasonably be expected to result in liabilities that have a Seagull
Material Adverse Effect.
Section 5.13 Compliance with Applicable Laws. Seagull and each of its
Subsidiaries hold all material approvals, licenses, permits, registrations and
similar type authorizations necessary for the lawful conduct of its respective
businesses, as now conducted, and such businesses are not being, and neither
Seagull nor any of its Subsidiaries has received any notice from any
Governmental Authority or person that any such business has been or is being,
conducted in violation of any law, ordinance or regulation, including without
limitation any law, ordinance or regulation relating to occupational health and
safety, except for possible violations which either individually or in the
aggregate have not resulted and would not result in a Seagull Material Adverse
Effect; provided, however, notwithstanding the foregoing, no representation or
warranty in this Section 5.13 is made with respect to Environmental Laws, which
are covered exclusively by the provisions set forth in Section 5.12.
Section 5.14 Insurance. Section 5.14 of the Seagull Disclosure Schedule
lists each of the insurance policies relating to Seagull or its Subsidiaries
which are currently in effect. Seagull has made available to OEI a true,
complete and correct copy of each such policy or the binder therefor. With
respect to each such insurance policy or binder none of Seagull, any of its
Subsidiaries or any other party to the policy is in breach or default thereunder
(including with respect to the payment of premiums or the giving of notices),
and Seagull does not know of any occurrence or 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 which, individually or in the aggregate, would not result
in a Seagull Material Adverse Effect. Section 5.14 of the Seagull Disclosure
Schedule describes any self-insurance arrangements affecting Seagull or its
Subsidiaries. The insurance policies listed in Section 5.14 of the Seagull
Disclosure Schedule include all policies which are required in connection with
the operation of the businesses of Seagull and its Subsidiaries as currently
conducted by applicable laws and all agreements relating to Seagull and its
Subsidiaries.
Section 5.15 Labor Matters; Employees.
(a) Except as set forth in Section 5.15(a) of the Seagull Disclosure
Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to the knowledge of Seagull, threatened
against or affecting Seagull or any of its Subsidiaries and, during the
past five years, there has not been any such action, (ii) none of Seagull
or any of its Subsidiaries is a party to or bound by any collective
bargaining or similar agreement with any labor organization, or work rules
or practices agreed to with any labor organization or employee association
applicable to employees of
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Seagull or any of its Subsidiaries, (iii) none of the employees of Seagull or
any of its Subsidiaries are represented by any labor organization and none of
Seagull or any of its Subsidiaries have any knowledge of any current union
organizing activities among the employees of Seagull or any of its Subsidiaries
nor does any question concerning representation exist concerning such employees,
(iv) Seagull and its Subsidiaries have each at all times been in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work and
occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, ordinance or regulation, (v) there is no unfair labor practice charge or
complaint against any of Seagull or any of its Subsidiaries pending or, to the
knowledge of Seagull, threatened before the National Labor Relations Board or
any similar state or foreign agency, (vi) there is no grievance or arbitration
proceeding arising out of any collective bargaining agreement or other grievance
procedure relating to Seagull or any of its Subsidiaries, (vii) neither the
Occupational Safety and Health Administration nor any corresponding state agency
has threatened to file any citation, and there are no pending citations,
relating to Seagull or any of its Subsidiaries, and (viii) there is no employee
or governmental claim or investigation, including any charges to the Equal
Employment Opportunity Commission or state employment practice agency,
investigations regarding Fair Labor Standards Act compliance, audits by the
Office of Federal Contractor Compliance Programs, sexual harassment complaints
or demand letters or threatened claims.
(b) Except as set forth in Section 5.15(b) of the Seagull Disclosure
Schedule, since the enactment of the WARN Act, none of Seagull or any of
its Subsidiaries has effectuated (i) a "plant closing" (as defined in the
WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of any of Seagull
or any of its Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN
Act) affecting any site of employment or facility of Seagull or any of its
Subsidiaries, nor has Seagull or any of its Subsidiaries been affected by
any transaction or engaged in layoffs or employment terminations sufficient
in number to trigger application of any similar state or local law, in each
case that could reasonably be expected to have a Seagull Material Adverse
Effect.
Section 5.16 Reserve Reports.
(a) All information (including, without limitation, the statement of
the percentage of reserves from the oil and gas wells and other interests
evaluated therein to which Seagull or its Subsidiaries are entitled and the
percentage of the costs and expenses related to such wells or interests to
be borne by Seagull or its Subsidiaries) supplied to DeGolyer and
McNaughton, Netherland, Sewell & Associates, Inc. and Ryder Scott Company
Petroleum Engineers by or on behalf of Seagull and its Subsidiaries that
was material to such firms' estimates of proved oil and gas reserves
attributable to the Oil and Gas Interests of Seagull and its Subsidiaries
in connection with the preparation of the proved oil and gas reserve
reports concerning the Oil and Gas Interests of Seagull and its
Subsidiaries as of December 31, 1997 by such engineering firms
(collectively, the "Seagull Reserve Report") was (at the time supplied or
as modified or amended prior to the issuance of the Seagull Reserve Report)
true and correct in all material respects and Seagull has no knowledge of
any material errors in such information that existed at the time of such
issuance. Except for changes (including changes in commodity prices)
generally affecting the oil and gas industry, there has been no change in
respect of the matters addressed in the Seagull Reserve Report that would
have a Seagull Material Adverse Effect.
(b) Set forth in Section 5.16(b) of the Seagull Disclosure Schedule is
a list of all material Oil and Gas Interests that were included in the
Seagull Reserve Report that have been disposed of prior to the date of this
Agreement.
Section 5.17 Material Contracts.
(a) Set forth in Section 5.17(a) of the Seagull Disclosure Schedule is
a list of each contract, lease, indenture, agreement, arrangement or
understanding to which Seagull or any of its Subsidiaries
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is subject that is of a type that would be required to be included as an exhibit
to a Form S-1 Registration Statement pursuant to the rules and regulations of
the SEC if such a registration statement was filed by Seagull (the "Seagull
Material Contracts").
(b) Except as set forth in Section 5.17(a) or 5.17(b) of the Seagull
Disclosure Schedule, the Oil and Gas Interests of Seagull and its
Subsidiaries are not subject to (i) any instrument or agreement evidencing
or related to indebtedness for borrowed money, whether directly or
indirectly, or (ii) any agreement not entered into in the ordinary course
of business in which the amount involved is in excess of $500,000. With
respect to the Oil and Gas Interests of Seagull and its Subsidiaries, (A)
all Seagull Material Contracts are in full force and effect and are the
valid and legally binding obligations of the parties thereto and are
enforceable in accordance with their respective terms; (B) Seagull is not
in material breach or default with respect to, and to the knowledge of
Seagull, no other party to any Seagull Material Contract is in material
breach or default with respect to, its obligations thereunder, including
with respect to payments or otherwise; (C) no party to any Seagull Material
Contract has given notice of any action to terminate, cancel, rescind or
procure a judicial reformation thereof; and (D) no Seagull Material
Contract contains any provision that prevents Seagull or any of its
Subsidiaries from owning, managing and operating the Oil and Gas Interests
of Seagull and its Subsidiaries in accordance with historical practices.
(c) As of the date of this Agreement, except as set forth in Section
5.17(c) of the Seagull Disclosure Schedule, with respect to authorizations
for expenditure executed on or after January 1, 1996, (i) there are no
material outstanding calls for payments that are due or which Seagull or
its Subsidiaries are committed to make that have not been made; (ii) there
are no material operations with respect to which Seagull or its
Subsidiaries have become a non-consenting party; and (iii) there are no
commitments for the material expenditure of funds for drilling or other
capital projects other than projects with respect to which the operator is
not required under the applicable operating agreement to seek consent.
(d) Except as set forth in Section 5.17(d) of the Seagull Disclosure
Schedule, (i)) there are no provisions applicable to the Oil and Gas
Interests of Seagull and its Subsidiaries which increase the royalty
percentage of the lessor thereunder; and (ii) none of the Oil and Gas
Interests of Seagull and its Subsidiaries are limited by terms fixed by a
certain number of years (other than primary terms under oil and gas
leases).
Section 5.18 Permits. Immediately prior to the Effective Time and except
for Customary Post-Closing Consents, Seagull or its Subsidiaries will hold all
of the Permits required or necessary to construct, run, operate, use and/or
maintain their properties and conduct their operations as presently conducted,
except for such Permits, the lack of which, individually or in the aggregate,
would not have a Seagull Material Adverse Effect; provided, however, that
notwithstanding the foregoing, no representation or warranty in this Section
5.18 is made with respect to Permits issued pursuant to Environmental Laws,
which are covered exclusively by the provisions set forth in Section 5.12.
Section 5.19 Required Stockholder Vote or Consent. The only vote of the
holders of any class or series of Seagull's capital stock that will be necessary
to consummate the Merger and the other transactions contemplated by this
Agreement are (a) the approval of this Agreement by the holders of two-thirds of
the outstanding shares of Seagull Common Stock, and (b) the election of the
directors contemplated by Section 7.12 by the holders of a plurality of shares
of Seagull Common Stock represented in person or by proxy and voting with
respect thereto (collectively, the "Seagull Stockholders' Approval").
Section 5.20 Proxy Statement/Prospectus; Registration Statement. None of
the information to be supplied by Seagull for inclusion in (a) the Proxy
Statement/Prospectus to be filed by OEI and Seagull with the SEC, and any
amendments or supplements thereto, or (b) the Registration Statement to be filed
by Seagull with the SEC in connection with the Merger, and any amendments or
supplements thereto, will, at the respective times such documents are filed,
and, in the case of the Proxy Statement/Prospectus, at the time the Proxy
Statement/Prospectus or any amendment or supplement thereto is first mailed to
stockholders of OEI and Seagull, at the time such stockholders vote on approval
and adoption of this
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Agreement and at the Effective Time, and, in the case of the Registration
Statement, when it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be made therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
Section 5.21 Intellectual Property. Seagull or its Subsidiaries own, or
are licensed or other wise have the right to use, all Intellectual Property
currently used in the conduct of the business of Seagull and its Subsidiaries,
except where the failure to so own or otherwise have the right to use such
intellectual property would not, individually or in the aggregate, have a
Seagull Material Adverse Effect. No person has notified either Seagull or any of
its Subsidiaries that their use of the Intellectual Property infringes on the
rights of any person, subject to such claims and infringements as do not,
individually or in the aggregate, give rise to any liability on the part of
Seagull and its Subsidiaries that could have a Seagull Material Adverse Effect,
and, to Seagull's knowledge, no person is infringing on any right of Seagull or
any of its Subsidiaries with respect to any such Intellectual Property. No
claims are pending or, to Seagull's knowledge, threatened that Seagull or any of
its Subsidiaries is infringing or otherwise adversely affecting the rights of
any person with regard to any Intellectual Property.
Section 5.22 Hedging. Section 5.22 of the Seagull Disclosure Schedule sets
forth for the periods shown obligations of Seagull and each of its Subsidiaries
for the delivery of Hydrocarbons attributable to any of the properties of
Seagull or any of its Subsidiaries in the future on account of prepayment,
advance payment, take-or-pay or similar obligations without then or thereafter
being entitled to receive full value therefor. Except as set forth in Section
5.22 of the Seagull Disclosure Schedule, as of the date of this Agreement,
neither Seagull nor any of its Subsidiaries is bound by 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 the
price of commodities, including Hydrocarbons or securities.
Section 5.23 Brokers. No broker, finder or investment banker (other than
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Warburg Dillon Read LLC,
the fees and expenses of which will be paid by Seagull) is entitled to any
brokerage, finder's fee or other fee or commission payable by Seagull or any of
its Subsidiaries in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of Seagull or any of its
Subsidiaries. True and correct copies of all agreements and engagement letters
currently in effect with Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Warburg Dillon Read LLC (the "Seagull Engagement Letters") have been provided to
OEI.
Section 5.24 Tax Matters. Neither Seagull nor, to the knowledge of
Seagull, any of its affiliates has taken or agreed to take any action that would
prevent the Merger from constituting a reorganization within the meaning of
section 368(a) of the Code. Without limiting the generality of the foregoing:
(a) In connection with the Merger, none of OEI Common Stock or OEI
Preferred Stock will be acquired by Seagull or a person related (as defined
in Treas. Reg. ss. 1.368-1(e)(3)) to Seagull for consideration other than
Seagull Common Stock or Seagull Preferred Stock, respectively, except for
any cash received in lieu of fractional share interests in Seagull Common
Stock pursuant to Section 3.4 of this Agreement.
(b) Following the Merger, the Surviving Corporation will continue the
historic business of OEI or use a significant portion of its assets in a
business, within the meaning of Treas. Reg. ss. 1.368-1(d).
(c) There is no intercorporate indebtedness existing between OEI and
Seagull that was issued, acquired, or will be settled at a discount.
(d) Seagull will pay its own expenses incurred in connection with or
as part of the Merger or related transactions. Seagull has not paid and
will not pay, directly or indirectly, any expenses (including transfer
taxes) incurred by any holder of OEI Common Stock or OEI Preferred Stock in
connection with or as part of the Merger or any related transactions.
Seagull has not agreed to
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assume, nor will it directly or indirectly assume, any expense or other
liability, whether fixed or contingent, of any holder of OEI Common Stock or OEI
Preferred Stock.
(e) Seagull is not an "investment company" within the meaning of
section 368(a)(2)(F) of the Code.
(f) Seagull has no plan or intention to sell or otherwise dispose of
any of the assets of OEI except for dispositions made in the ordinary
course of business or transfers or successive transfers to one or more
corporations controlled (within the meaning of section 368(c) of the Code)
in each case by the transferor corporation, or to reacquire any of the
Seagull Common Stock or Seagull Preferred Stock issued in the Merger.
Section 5.25 Fairness Opinion. The Board of Directors of Seagull has
received written opinions from Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Warburg Dillon Read LLC to the effect that, as of the date of
such opinions, the Common Stock Exchange Ratio is fair to the holders of Seagull
Common Stock from a financial point of view. A true and complete copy of such
opinions has been given to OEI.
Section 5.26 Year 2000 Issues. The disclosures set forth in the Seagull
SEC Reports concerning potential computer hardware and software problems
associated with the Year 2000 are true and correct in all material respects.
Section 5.27 Regulation as a Utility. Seagull is regulated as a public
utility by the APUC and in no other state and is considered a "public utility
company" under the Public Utility Holding Company Act of 1935, as amended ("1935
Act"). Alaska Pipeline Company, a wholly owned subsidiary of Seagull ("APC"), is
an interstate pipeline regulated together with ENSTAR Natural Gas Company, a
division of Seagull, by the APUC on a combined basis. Except as set forth in the
preceding sentences of this Section 5.27 and except that certain gathering
assets of Seagull are regulated by the Texas Railroad Commission, neither
Seagull nor any "subsidiary company" or "affiliate" (as each such term is
defined in the 1935 Act) of Seagull is subject to regulation as a public utility
or public service company (or similar designation) by the Federal Energy
Regulatory Commission or any municipality, locality, state in the United States
or any foreign country.
Section 5.28 Takeover Laws. Seagull and the Board of Directors of Seagull
have each taken all action required to be taken by it in order to exempt this
Agreement, and the transactions contemplated hereby from, and this Agreement and
the transactions contemplated hereby are exempt from, the requirements of any
"moratorium," "control share," "fair price," "affiliate transaction," "business
combination" or other antitakeover laws and regulations of any state, including,
without limitation, the State of Texas, and including, without limitation,
Article Thirteen of the TBCA.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by OEI Pending the Merger. From the date
hereof until the Effective Time, unless Seagull shall otherwise agree in
writing, or except as set forth in the OEI Disclosure Schedule or as otherwise
contemplated by this Agreement, OEI and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use all
reasonable efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and key employees, subject to the terms of this Agreement.
Except as set forth in the OEI Disclosure Schedule or as otherwise provided in
this Agreement, and without limiting the generality of the foregoing, from the
date hereof until the Effective Time, without the written consent of Seagull,
which consent shall not be unreasonably withheld:
(a) Neither OEI nor its Subsidiaries will adopt or propose any change
to its certificate of incorporation or bylaws (or similar organizational
documents);
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(b) OEI will not, and will not permit any of its Subsidiaries to (i)
declare, set aside or pay any dividend or other distribution with respect
to any shares of capital stock of OEI or its Subsidiaries (except for
normal quarterly dividends on the OEI Preferred Stock and intercompany
dividends from direct or indirect wholly owned subsidiaries) or (ii)
repurchase, redeem or otherwise acquire any outstanding shares of capital
stock or other securities of, or other ownership interests in, OEI or any
of its Subsidiaries, other than intercompany acquisitions of stock;
(c) OEI will not, and will not permit any of its Subsidiaries to,
merge or consolidate with any other person or acquire assets of any other
person for aggregate consideration in excess of $10 million, or enter a new
line of business or commence business operations in any country in which
OEI is not operating as of the date of this Agreement except for countries
listed on Section 6.1(c) of the OEI Disclosure Schedule;
(d) Except as set forth in Section 6.1(d) of the OEI Disclosure
Schedule, OEI will not, and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise surrender, relinquish or dispose of any
assets or properties (other than among OEI and its direct and indirect
wholly owned Subsidiaries) with an aggregate fair market value exceeding
$10 million (other than sales of hydrocarbons in the ordinary course of
business);
(e) OEI will not settle any material Audit, make or change any
material Tax election or file any material amended Tax Return;
(f) Except as otherwise permitted by this Agreement, OEI will not
issue any securities (whether through the issuance or granting of options,
warrants, rights or otherwise and except pursuant to existing obligations
disclosed in the OEI SEC Reports or the OEI Disclosure Schedule), enter
into any amendment of any term of any outstanding security of OEI or of any
of its Subsidiaries, incur any indebtedness except trade debt in the
ordinary course of business and debt pursuant to existing credit facilities
or arrangements (except as set forth in Section 6.1(f) of the OEI
Disclosure Schedule), fail to make any required contribution to any OEI
Benefit Plan, increase compensation, bonus (except as set forth in Section
6.1(f) of the OEI Disclosure Schedule) or other benefits payable to, or
modify or amend any employment agreements or severance agreements with, any
executive officer or former employee or enter into any settlement or
consent with respect to any pending litigation other than settlements in
the ordinary course of business;
(g) OEI will not change any method of accounting or accounting
practice by OEI or any of its Subsidiaries, except for any such change
required by GAAP;
(h) OEI will not take any action that would give rise to a claim under
the WARN Act or any similar state law or regulation because of a "plant
closing" or "mass layoff" (each as defined in the WARN Act);
(i) OEI will not amend or otherwise change the terms of the OEI
Engagement Letters, except to the extent that any such amendment or change
would result in terms more favorable to OEI;
(j) Except as set forth in Section 6.1(j) of the OEI Disclosure
Schedule, neither OEI nor any of its Subsidiaries will become bound or
obligated to participate in any operation, or consent to participate in any
operation, with respect to any Oil and Gas Interests that will individually
cost in excess of $3.5 million unless the operation is a currently existing
obligation of OEI or any of its Subsidiaries or necessary to extend,
preserve or maintain an Oil and Gas Interest;
(k) Neither OEI nor any of its Subsidiaries will (i) enter into any
futures, hedge, swap, collar, put, call, floor, cap, option or other
contracts that are intended to benefit from or reduce or eliminate the risk
of fluctuations in the price of commodities, including Hydrocarbons, or
securities, other than in the ordinary course of business in accordance
with OEI's current policies or (ii) enter into any fixed price commodity
sales agreements with a duration of more than three months;
(l) OEI will not, and will not permit any of its Subsidiaries to (i)
take, or agree or commit to take, any action that would make any
representation and warranty of OEI hereunder inaccurate in any
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respect at, or as of any time prior to, the Effective Time or (ii) omit, or
agree or commit to omit, to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time;
(m) Neither OEI nor any of its Subsidiaries shall (A) adopt, amend
(other than amendments that reduce the amounts payable by OEI or any
Subsidiary, or amendments required by law to preserve the qualified status
of an OEI Benefit Plan) or assume an obligation to contribute to any
employee benefit plan or arrangement of any type or collective bargaining
agreement or enter into any employment, severance or similar contract with
any person (including, without limitation, contracts with management of OEI
or any Subsidiaries that might require that payments be made upon the
consummation of the transactions contemplated hereby) or amend any such
existing contracts to increase any amounts payable thereunder or benefits
provided thereunder, (B) engage in any transaction (either acting alone or
in conjunction with any OEI Benefit Plan or trust created thereunder) in
connection with which OEI or any Subsidiary could be subjected (directly or
indirectly) to either a civil penalty assessed pursuant to subsections (c),
(i) or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter 43
of Subtitle D of the Code, (C) terminate any OEI Benefit Plan in a manner,
or take any other action with respect to any OEI Benefit Plan, that could
result in the liability of OEI or any Subsidiary to any person, (D) take
any action that could adversely affect the qualification of any OEI Benefit
Plan or its compliance with the applicable requirements of ERISA, (E) fail
to make full payment when due of all amounts which, under the provisions of
any OEI Benefit Plan, any agreement relating thereto or applicable law, OEI
or any Subsidiary are required to pay as contributions thereto or (F) fail
to file, on a timely basis, all reports and forms required by federal
regulations with respect to any OEI Benefit Plan;
(n) Neither OEI nor any of its Subsidiaries will enter into any
commitment or agreement to license or purchase seismic data that will cost
in excess of $300,000, other than pursuant to agreements or commitments
existing on the date of this Agreement;
(o) OEI will not make any election under any of its stock option plans
to pay cash in exchange for terminating awards under such plans; and
(p) OEI will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
Section 6.2 Conduct of Business by Seagull Pending the Merger. From the
date hereof until the Effective Time, unless OEI shall otherwise agree in
writing, or except as set forth in the Seagull Disclosure Schedule or as
otherwise contemplated by this Agreement, Seagull shall conduct, and shall cause
its Subsidiaries to conduct, its business in the ordinary course consistent with
past practice and shall use, and shall cause its each of its Subsidiaries to
use, all reasonable efforts to preserve intact its business organizations and
relationships with third parties and to keep available the services of its key
employees, subject to the terms of this Agreement. Except as set forth in the
Seagull Disclosure Schedule or as otherwise provided in this Agreement, and
without limiting the generality of the foregoing, from the date hereof until the
Effective Time, without the written consent of OEI, which consent shall not be
unreasonably withheld:
(a) Seagull will not, and will not permit its Subsidiaries to, adopt
or propose any change to its articles of incorporation or bylaws (or
similar organizational documents), except to the extent required to
establish as a series of its preferred stock the Seagull Preferred Stock to
be issued in the Merger;
(b) Seagull will not, and will not permit any of its Subsidiaries to
(i) declare, set aside or pay any dividend or other distribution with
respect to any shares of capital stock of Seagull or (ii) repurchase,
redeem or otherwise acquire any outstanding shares of capital stock or
other securities of, or other ownership interests in, Seagull or any of its
Subsidiaries, other than intercompany acquisitions of stock;
(c) Seagull will not, and will not permit any of its Subsidiaries to,
merge or consolidate with any other person or acquire assets of any other
person for aggregate consideration in excess of $10 million,
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or enter a new line of business or commence business operations in any country
in which Seagull is not operating as of the date of this Agreement;
(d) Except as set forth in Section 6.2(d) of the Seagull Disclosure
Schedule, Seagull will not and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise surrender, relinquish or dispose of any
assets or properties (other than among Seagull and its direct and indirect
wholly owned Subsidiaries) with an aggregate fair market value exceeding
$10 million (other than sales of hydrocarbons in the ordinary course of
business);
(e) Seagull will not settle any material Audit, make or change any
material Tax election or file any material amended Tax Return;
(f) Except as otherwise permitted by this Agreement, Seagull will not
issue any securities (whether through the issuance or granting of options,
warrants, rights or otherwise and except pursuant to existing obligations
disclosed in the Seagull SEC Reports or the Seagull Disclosure Schedule),
enter into any amendment of any term of any outstanding security of Seagull
or of any of its Subsidiaries, incur any indebtedness except trade debt in
the ordinary course of business and debt pursuant to existing credit
facilities or arrangements, fail to make any required contribution to any
Seagull Benefit Plan, increase compensation, bonus (except as set forth in
Section 6.2(f) of the Seagull Disclosure Schedule) or other benefits
payable to, or modify or amend any employment agreements or severance
agreements with, any executive officer or former employee or enter into any
settlement or consent with respect to any pending litigation other than
settlements in the ordinary course of business;
(g) Seagull will not change any method of accounting or accounting
practice by Seagull or any of its Subsidiaries, except for any such change
required by GAAP; provided, however, that OEI acknowledges that, in
connection with the transactions contemplated by this Agreement, Seagull
intends to adopt the full cost method of accounting for its oil and gas
activities;
(h) Seagull will not take any action that would give rise to a claim
under the WARN Act or any similar state law or regulation because of a
"plant closing" or "mass layoff" (each as defined in the WARN Act);
(i) Seagull will not amend or otherwise change the terms of the
Seagull Engagement Letters, except to the extent that any such amendment or
change would result in terms more favorable to Seagull;
(j) Neither Seagull nor any of its Subsidiaries will become bound or
obligated to participate in any operation, or consent to participate in any
operation, with respect to any Oil and Gas Interest that will individually
cost in excess of $3.5 million unless the operation is a currently existing
obligation of Seagull or any of its Subsidiaries or necessary to extend,
preserve or maintain an Oil and Gas Interest;
(k) Neither Seagull nor any of its Subsidiaries will (i) enter into
any futures, hedge, swap, collar, put, call, floor, cap, option or other
contracts that are intended to benefit from or reduce or eliminate the risk
of fluctuations in the price of commodities, including Hydrocarbons or
securities, other than in the ordinary course of business in accordance
with Seagull's current policies or (ii) enter into any fixed price
commodity sales agreements with a duration of more than three months;
(l) Seagull will not, and will not permit any of its Subsidiaries to
(i) take, or agree or commit to take, any action that would make any
representation and warranty of Seagull hereunder inaccurate in any respect
at, or as of any time prior to, the Effective Time or (ii) omit, or agree
or commit to omit, to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time;
(m) Neither Seagull nor any of its Subsidiaries shall (A) adopt, amend
(other than amendments that reduce the amounts payable by Seagull or any
Subsidiary, or amendments required by law to
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preserve the qualified status of a Seagull Benefit Plan) or assume an obligation
to contribute to any employee benefit plan or arrangement of any type or
collective bargaining agreement or enter into any employment, severance or
similar contract with any person (including, without limitation, contracts with
management of Seagull or any Subsidiaries that might require that payments be
made upon consummation of the transactions contemplated hereby) or amend any
such existing contracts to increase any amounts payable thereunder or benefits
provided thereunder, (B) engage in any transaction (either acting alone or in
conjunction with any Seagull Benefit Plan or trust created thereunder) in
connection with which Seagull or any Subsidiary could be subjected (directly or
indirectly) to either a civil penalty assessed pursuant to subsections (c), (i)
or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of
Subtitle D of the Code, (C) terminate any Seagull Benefit Plan in a manner, or
take any other action with respect to any Seagull Benefit Plan, that could
result in the liability of Seagull or any Subsidiary to any person, (D) take any
action that could adversely affect the qualification of any Seagull Benefit Plan
or its compliance with the applicable requirements or ERISA, (E) fail to make
full payment when due of all amounts which, under the provisions of any Seagull
Benefit Plan, any agreement relating thereto or applicable law, Seagull or any
Subsidiary are required to pay as contributions thereto or (F) fail to file, on
a timely basis, all reports and forms required by federal regulations with
respect to any Seagull Benefit Plan;
(n) Neither Seagull nor any of its Subsidiaries will enter into any
commitment or agreement to license or purchase seismic data that will cost
in excess of $300,000, other than pursuant to agreements or commitments
existing on the date of this Agreement;
(o) Seagull will not make any election under any of its stock option
plans to pay cash in exchange for terminating awards under such plans; and
(p) Seagull will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information. The parties shall each afford to the
other and to the other's financial advisors, legal counsel, accountants,
consultants, financing sources, and other authorized representatives access
during normal business hours throughout the period prior to the Effective Time
to all of its books, records, properties, contracts, leases, plants and
personnel and, during such period, each shall furnish promptly to the other (a)
a copy of each report, schedule and other document filed or received by it
pursuant to the requirements of federal or state securities laws, and (b) all
other information as such other party reasonably may request, provided that no
investigation pursuant to this Section 7.1 shall affect any representations or
warranties made herein or the conditions to the obligations of the respective
parties to consummate the Merger. Each party shall hold in confidence all
nonpublic information until such time as such information is otherwise publicly
available and, if this Agreement is terminated, each party will deliver to the
other all documents, work papers and other materials (including copies) obtained
by such party or on its behalf from the other party as a result of this
Agreement or in connection herewith, whether so obtained before or after the
execution hereof. Notwithstanding the foregoing, the Confidentiality Agreement
dated November 9, 1998 between Seagull and OEI (the "Confidentiality Agreement")
shall survive the execution and delivery of this Agreement.
Section 7.2 Acquisition Proposals.
(a) From the date of this Agreement until the termination hereof,
Seagull and its Subsidiaries will not, and will cause their respective
officers, directors, employees or other agents not to, directly or
indirectly, (i) take any action to solicit, initiate or encourage any
Seagull Acquisition Proposal (as hereinafter defined) or (ii) engage in
negotiations with, or disclose any nonpublic information relating to
Seagull or its Subsidiaries, respectively, or afford access to their
respective properties, books or records to any person that may be
considering making, or has made, a Seagull Acquisition Proposal.
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Nothing contained in this Section 7.2(a) shall prohibit Seagull and its Board of
Directors from (i) taking and disclosing a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated by the
SEC under the Exchange Act, or (ii) furnishing information, including without
limitation nonpublic information to, or entering into negotiations with, any
person or entity that has indicated its willingness to make an unsolicited bona
fide proposal to acquire Seagull pursuant to a merger, consolidation, share
exchange, purchase of a substantial portion of the assets, business combination
or other similar transaction, if, and only to the extent that, (A) such
unsolicited bona fide proposal relating to a Seagull Acquisition Proposal is
made by a third party that the Board of Directors of Seagull determines in good
faith that the third party has the good faith intent to proceed with
negotiations to consider, and financial capability to consummate, such Seagull
Acquisition Proposal, (B) the Board of Directors of Seagull, after duly
considering the written advice of outside legal counsel to Seagull, determines
in good faith that such action is required for the Board of Directors of Seagull
to comply with its fiduciary duties to stockholders imposed by applicable law,
(C) contemporaneously with furnishing such information to, or entering into
discussions or negotiations with, such person or entity Seagull provides written
notice to OEI to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity and (D) Seagull
uses all reasonable efforts to keep OEI informed in all material respects of the
status and terms of any such negotiations or discussions (including without
limitation the identity of the person or entity with whom such negotiations or
discussions are being held) and provides OEI copies of such written proposals
and any amendments or revisions thereto or correspondence related thereto;
provided, that OEI agrees to execute a confidentiality agreement, in form
reasonably acceptable to it, with respect to any such information delivered to
OEI pursuant to this clause (D), which confidentiality agreement shall be
subject to OEI's disclosure obligations arising under applicable law or
securities exchange regulations. The term "Seagull Acquisition Proposal" as used
herein means any offer or proposal for, or any indication of interest in, a
merger or other business combination directly or indirectly involving Seagull or
any Seagull Subsidiary or the acquisition of a substantial equity interest in,
or a substantial portion of the assets of, any such party, other than the
transactions contemplated by this Agreement.
(b) From the date of this Agreement until the termination hereof, OEI
and its Subsidiaries will not, and will cause their respective officers,
directors, employees or other agents not to, directly or indirectly, (i)
take any action to solicit, initiate or encourage any OEI Acquisition
Proposal (as hereinafter defined) or (ii) engage in negotiations with, or
disclose any nonpublic information relating to OEI or its Subsidiaries,
respectively, or afford access to their respective properties, books or
records to any person that may be considering making, or has made, an OEI
Acquisition Proposal. Nothing contained in this Section 7.2(b) shall
prohibit OEI and its Board of Directors from (i) taking and disclosing a
position with respect to a tender offer by a third party pursuant to Rules
14d-9 and 14e-2(a) promulgated by the SEC under the Exchange Act, or (ii)
furnishing information, including without limitation nonpublic information
to, or entering into negotiations with, any person or entity that has
indicated its willingness to make an unsolicited bona fide proposal to
acquire OEI pursuant to a merger, consolidation, share exchange, purchase
of a substantial portion of the assets, business combination or other
similar transaction, if, and only to the extent that, (A) such unsolicited
bona fide proposal relating to an OEI Acquisition Proposal is made by a
third party that the Board of Directors of OEI determines in good faith
that the third party has the good faith intent to proceed with negotiations
to consider, and financial capability to consummate, such OEI Acquisition
Proposal, (B) the Board of Directors of OEI, after duly considering the
written advice of outside legal counsel to OEI, determines in good faith
that such action is required for the Board of Directors of OEI to comply
with its fiduciary duties to stockholders imposed by applicable law, (C)
contemporaneously with furnishing such information to, or entering into
discussions or negotiations with, such person or entity OEI provides
written notice to Seagull to the effect that it is furnishing information
to, or entering into discussions or negotiations with, such person or
entity and (D) OEI uses all reasonable efforts to keep Seagull informed in
all material respects of the status and terms of any such negotiations or
discussions (including without limitation the identity of the person or
entity with
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whom such negotiations or discussions are being held) and provides Seagull
copies of such written proposals and any amendments or revisions thereto or
correspondence related thereto; provided, that Seagull agrees to execute a
confidentiality agreement, in form reasonably acceptable to it, with respect to
any such information delivered to Seagull pursuant to this clause (D), which
confidentiality agreement shall be subject to Seagull's disclosure obligations
arising under applicable law or securities exchange regulations. The term "OEI
Acquisition Proposal" as used herein means any offer or proposal for, or any
indication of interest in, a merger or other business combination directly or
indirectly involving OEI or any OEI Subsidiary or the acquisition of a
substantial equity interest in, or a substantial portion of the assets of, any
such party, other than the transactions contemplated by this Agreement.
Section 7.3 Directors' and Officers' Indemnification and Insurance.
(a) For six years after the Effective Time, Seagull shall indemnify,
defend and hold harmless each person who is now, or has been at any time
prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of OEI and its Subsidiaries or an employee of OEI or
any of its Subsidiaries who acts as a fiduciary under any of the OEI
Benefit Plans (each an "Indemnified Party") against all losses, claims,
damages, liabilities, fees and expenses (including reasonable fees and
disbursements of counsel and judgments, fines, losses, claims, liabilities
and amounts paid in settlement (provided that any such settlement is
effected with the prior written consent of Seagull, which will not be
unreasonably withheld)) arising in whole or in part out of actions or
omissions in their capacity as such occurring at or prior to the Effective
Time to the full extent permitted under Texas law or Seagull's articles of
incorporation and bylaws and OEI's written indemnification agreements in
effect at the date hereof, including provisions therein relating to the
advancement of expenses incurred in the defense of any action or suit;
provided, that in the event any claim or claims are asserted or made within
such six-year period, all rights to indemnification in respect of any such
claim or claims shall continue until disposition of any and all such
claims; and provided, further, that any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under Texas law, Seagull's articles of incorporation or
bylaws or such agreements, as the case may be, shall be made by independent
counsel mutually acceptable to Seagull and the Indemnified Party; and
provided, further, that nothing herein shall impair any rights or
obligations of any Indemnified Party. In the event that any claim or claims
are brought against any Indemnified Party (whether arising before or after
the Effective Time), such Indemnified Party may select counsel for the
defense of such claim, which counsel shall be reasonably acceptable to OEI
(if selected prior to the Effective Time) and Seagull (if selected after
the Effective Time).
(b) Seagull shall maintain OEI's existing officers' and directors'
liability insurance policy ("D&O Insurance") for a period of not less than
six years after the Effective Time, but only to the extent related to
actions or omissions prior to the Effective Time; provided, that Seagull
may substitute therefor policies of substantially similar coverage and
amounts containing terms no less advantageous to such former directors or
officers; provided further, that the aggregate amount of premiums to be
paid with respect to the maintenance of such D&O Insurance for such six
year period shall not exceed $2,500,000. Additionally, Seagull shall
maintain the UMC D&O Policy as currently in effect until March 27, 2003.
Section 7.4 Further Assurances. Each party hereto agrees to use all
reasonable efforts to obtain all consents and approvals and to do all other
things necessary for the consummation of the transactions contemplated by this
Agreement. The parties agree to take such further action to deliver or cause to
be delivered to each other at the Closing and at such other times thereafter as
shall be reasonably agreed by such additional agreements or instruments as any
of them may reasonably request for the purpose of carrying out this Agreement
and agreements and transactions contemplated hereby and thereby. The parties
shall afford each other access to all information, documents, records and
personnel who may be necessary for any party to comply with laws or regulations
(including without limitation the filing and payment of taxes and handling tax
audits), to fulfill its obligations with respect to indemnification hereunder or
to defend itself against suits or claims of others. Seagull and OEI shall duly
preserve all files,
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records or any similar items of Seagull or OEI received or obtained as a result
of the Merger with the same care and for the same period of time as it would
preserve its own similar assets.
Section 7.5 Expenses.
(a) Except as provided in paragraph (c) and Section 7.17, all Expenses
(as defined below) incurred by the parties hereto shall be borne solely and
entirely by the party that has incurred such Expenses; provided, however,
that if this Agreement is terminated for any reason, then the allocable
share of Seagull and OEI for all Expenses (including any fees and expenses
of accountants, experts, and consultants, but excluding the fees and
expenses of legal counsel and investment bankers) related to preparing,
printing, filing and mailing the Registration Statement, the Proxy
Statement/Prospectus and all SEC and other regulatory filing fees incurred
in connection with the Registration Statement, Proxy Statement/Prospectus
and HSR, shall be allocated one-half each.
(b) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including, without limitation, all reasonable fees
and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on
its behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Registration Statement, the Proxy
Statement/Prospectus, the solicitation of stockholder approvals, requisite
HSR filings and all other matters related to the consummation of the
transactions contemplated hereby.
(c) OEI agrees that, if (i) Seagull terminates this Agreement pursuant
to Section 10.1(g) or (ii) OEI or Seagull terminates this Agreement
pursuant to Section 10.1(h) or (iii) Seagull terminates this Agreement
pursuant to Section 10.1(d) or Seagull terminates this Agreement pursuant
to Section 10.1(b) at a time that an OEI Breach (as defined in Section
10.01(d)) exists and in each case described in clauses (i) and (iii) within
nine months after the termination of this Agreement (A) a transaction is
consummated, which transaction, if offered or proposed, would constitute an
OEI Acquisition Proposal, (B) a definitive agreement (the execution and
delivery of which has been authorized by the boards of directors, or
comparable bodies, that would if consummated constitute an OEI Acquisition
Proposal) for such a transaction is entered into or (C) (X) any person
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under Section 13(d)
of the Exchange Act and the rules and regulations promulgated hereunder),
shall have been formed that beneficially owns, or has the right to acquire
beneficial ownership of, outstanding shares of capital stock of OEI then
representing 50% or more of the combined power to vote generally for the
election of directors and (Y) the Board of Directors of OEI has taken any
action, including without limitation the redemption of the Rights under the
OEI Rights Plan, or the amendment, termination or similar action with
respect to the OEI Rights Plan for the benefit of such person, that
facilitates the acquisition by such person or group of such beneficial
ownership, then upon the first to occur of any such case OEI shall pay to
Seagull a Termination Fee of $30 million, plus the reasonably documented
Expenses of Seagull up to $2.5 million. In no event shall any such
Termination Fee be payable in the event that the Seagull Board of Directors
withdraws, modifies or changes its recommendation of this Agreement or the
Merger or the stockholders of Seagull fail to give the Seagull
Stockholders' Approval when the proposals contemplated thereby are properly
submitted to a vote at the Seagull Special Meeting or any postponement or
adjournment thereof.
(d) Seagull agrees that, if (i) OEI terminates this Agreement pursuant
to Section 10.1(i) or (ii) Seagull or OEI terminates this Agreement
pursuant to Section 10.1(j) or (iii) OEI terminates this Agreement pursuant
to Section 10.1(c) or OEI terminates this Agreement pursuant to Section
10.1(b) at a time that a Seagull Breach (as defined in Section 10.01(c))
exists and in each case described in clauses (i) and (iii) within nine
months after the termination of this Agreement (A) a transaction is
consummated, which transaction, if offered or proposed, would constitute a
Seagull Acquisition Proposal, (B) a definitive agreement (the execution and
delivery of which has been authorized by the boards of directors, or
comparable bodies, that would if consummated
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constitute a Seagull Acquisition Proposal) for such a transaction is entered
into or (C) (X) any person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of, or any "group" (as such term is defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated hereunder), shall have been formed that beneficially owns, or has
the right to acquire beneficial ownership of, outstanding shares of capital
stock of Seagull then representing 50% or more of the combined power to vote
generally for the election of directors and (Y) the Board of Directors of
Seagull has taken any action, including without limitation the redemption of the
Rights under the Seagull Rights Plan, or the amendment, termination or similar
action with respect to the Seagull Rights Plan for the benefit of such person,
that facilitates the acquisition by such person or group of such beneficial
ownership, then upon the first to occur of any such case Seagull shall pay to
OEI a Termination Fee of $30 million, plus the reasonably documented Expenses of
OEI up to $2.5 million. In no event shall any such Termination Fee be payable in
the event that the OEI Board of Directors withdraws, modifies or changes its
recommendation of this Agreement or the Merger or the stockholders of OEI fail
to give the OEI Stockholders' Approval when the proposals contemplated thereby
are properly submitted to a vote at the OEI Special Meeting or any postponement
or adjournment thereof.
Section 7.6 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of the parties hereto shall
confer on a regular and frequent basis with one or more representatives of the
other parties to report operational matters of materiality and the general
status of ongoing operations and shall promptly provide the other party or its
counsel with copies of all filings made by such party with any Governmental
Authority in connection with this Agreement and the transactions contemplated
hereby.
Section 7.7 Publicity. Neither OEI, Seagull nor any of their respective
affiliates shall issue or cause the publication of any press release or other
announcement with respect to the Merger, this Agreement or the other
transactions contemplated hereby without the prior consultation of the other
party, except as may be required by law or by any listing agreement with a
national securities exchange and will use reasonable efforts to provide copies
of such release or other announcement to the other party hereto, and give due
consideration to such comments as such other party may have, prior to such
release.
Section 7.8 Additional Actions. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, to consummate and make
effective the Merger and the other transactions contemplated by this Agreement,
subject, however, to the appropriate vote of stockholders of OEI and Seagull
required so to vote.
Section 7.9 Filings. Each party hereto shall make all filings required to
be made by such party in connection herewith or desirable to achieve the
purposes contemplated hereby, and shall cooperate as needed with respect to any
such filing by any other party hereto.
Section 7.10 Consents. Each of Seagull and OEI shall use all reasonable
efforts to obtain all consents necessary or advisable in connection with its
obligations hereunder.
Section 7.11 Employee Matters; Benefit Plans. Seagull and OEI will
evaluate their personnel needs and consider continuing the employment of certain
employees of Seagull, OEI and its Subsidiaries on a case-by-case basis. Prior to
the Effective Time, Seagull shall cause (a) each Seagull stock option plan and
each Seagull severance agreement that contains a change of control provision and
Seagull's Management Stability Plan to be amended to provide that the
consummation of the transaction contemplated by this Agreement shall constitute
a change of control for purposes thereunder and (b) each other Seagull Benefit
Plan that is an employee pension benefit plan within the meaning of Section 3(2)
of ERISA (other than Seagull's Executive Supplemental Retirement Plan) to be
amended to provide that all participants shall have a 100% vested and
nonforfeitable interest in their accrued benefits thereunder as of the Effective
Time. Prior to the Effective Time, OEI shall cause (a) each OEI stock option
plan and each OEI
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severance agreement that contains a change of control provision to be amended to
provide that the consummation of the transaction contemplated by this Agreement
shall constitute a change of control for purposes thereunder and (b) each other
OEI Benefit Plan that is an employee pension benefit plan within the meaning of
Section 3(2) of ERISA (other than OEI's Executive Supplemental Retirement Plan)
to be amended to provide that all participants shall have a 100% vested and
nonforfeitable interest in their accrued benefits thereunder as of the Effective
Time. After the Effective Time, Seagull will initially provide to any employees
of Seagull, OEI and its Subsidiaries who are employed by Seagull as of the
Effective Time (the "Retained Employees") the same base salary or wages provided
to such employees prior to the Effective Time, subject to such changes in base
salary or wages as shall be determined by Seagull after the Effective Time.
Seagull shall take all actions necessary or appropriate to permit the Retained
Employees to continue to participate from and after the Effective Time in the
employee benefit plans or arrangements in which such Retained Employees were
participating immediately prior to the Effective Time. Notwithstanding the
foregoing, Seagull may permit any such employee benefit plan or arrangement to
be terminated or discontinued on or after the Effective Time, provided that
Seagull shall (a) take all actions necessary or appropriate to permit the
Retained Employees participating in such employee benefit plan or arrangement to
immediately thereafter participate in employee benefit plans or arrangements
comparable to those maintained with respect to the remainder of the Retained
Employees (other than Seagull's Alaska division) (the "Replacement Plans"), (b)
with respect to a Replacement Plan that is a group health plan (i) credit such
Retained Employees, for the year during which participation in the Replacement
Plan begins, with any deductibles and copayments already incurred during such
year under the terminated or discontinued group health plan and (ii) waive any
preexisting condition limitations applicable to the Retained Employees (and
their eligible dependents) under the Replacement Plan to the extent that a
Retained Employee's (or dependent's) condition would not have operated as a
preexisting condition under the terminated or discontinued group health plan,
and (c)(1) cause each Replacement Plan that is an employee pension benefit plan
(as such term is defined in Section 3(2) of ERISA) intended to be qualified
under Section 401 of the Code to be amended to provide that the Retained
Employees shall receive credit for participation and vesting purposes under such
plan for their period of employment with Seagull, OEI, its Subsidiaries and
their predecessors to the extent such predecessor employment was recognized by
Seagull, OEI and its Subsidiaries and (2) credit the Retained Employees under
each other Replacement Plan that is not described in the preceding clause for
their period of employment with Seagull, OEI, its Subsidiaries and their
predecessors to the extent such predecessor employment was recognized by
Seagull, OEI or its Subsidiaries. At the Effective Time, Seagull shall assume
the obligations of OEI under the OEI Benefit Plans. The terms of each such OEI
Benefit Plan shall continue to apply in accordance with their terms. At the
Effective Time, each outstanding award (including restricted stock, phantom
stock, stock equivalents and stock units) ("OEI Award") under any employee
incentive or benefit plans, programs or arrangements and non-employee director
plans presently maintained by OEI which provide for grants of equity-based
awards shall be amended or converted into a similar instrument of Seagull, in
each case with such adjustments to the terms of such OEI Awards as are
appropriate to preserve the value inherent in such OEI Awards with no
detrimental effects on the holders thereof. The other terms of each OEI Award,
and the plans or agreements under which they were issued, shall continued to
apply in accordance with their terms.
Section 7.12 Board, Committees and Executive Officers.
(a) Seagull shall take such action as shall be required to cause the
Board of Directors of Seagull immediately after the Effective Time to have
15 members that are divided into three classes, Class I, Class II and Class
III, which classes shall have the respective terms set forth in Seagull's
Bylaws. Prior to the mailing to stockholders of the Proxy
Statement/Prospectus, (i) the Board of Directors of Seagull shall select
from among the current members of the Board of Directors of Seagull seven
(7) individuals (the "Seagull Director Nominees") for nomination as
directors of Seagull, which nominees shall include James T. Hackett and
Barry J. Galt, and (ii) the Board of Directors of OEI shall select from
among the current members of the Board of Directors of OEI eight (8)
individuals (the "OEI Director Nominees") for nomination as directors of
Seagull, which nominees shall include John B. Brock, James C. Flores and
James L. Dunlap. The OEI Director Nominees and the Seagull
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Director Nominees shall be nominated to stand for election as directors of
Seagull at the Seagull Special Meeting by at least two-thirds of the Board of
Directors of Seagull. If an individual so selected and nominated consents to
serve as a director, Seagull shall use all reasonable efforts to cause such
individual to be elected to its Board of Directors by the Seagull stockholders
at the Seagull Special Meeting, effective as of the Effective Time, for a term
expiring at Seagull's next annual meeting of stockholders following the
Effective Time at which the term of the class to which such director belongs
expires, subject to being renominated as a director at the discretion of
Seagull's Board of Directors. Each class shall consist of an equal, or as near
as equal as possible, number of directors (as provided in Seagull's articles of
incorporation and the TBCA) and the specific designation of OEI Director
Nominees and Seagull Director Nominees to a particular class shall be determined
by OEI and Seagull prior to the mailing to stockholders of the Proxy
Statement/Prospectus; provided, however, that (i) James T. Hackett shall be
designated by the Board of Directors of Seagull as a Class III Director and
shall serve as President and Chief Executive Officer as of the Effective Time
until the earlier of his resignation or removal or until his successor is duly
elected and qualified in accordance with the bylaws of Seagull in effect
subsequent to the Effective Time and (ii) James C. Flores shall be designated by
the Board of Directors of OEI as a Class III Director and shall serve as
Chairman of the Board as of the Effective Time until the earlier of his
resignation or removal or until his successor is duly elected and qualified in
accordance with the bylaws of Seagull in effect subsequent to the Effective
Time. If at any time prior to the Effective Time, any OEI Director Nominee or
Seagull Director Nominee shall be unable to serve as a director at the Effective
Time, the respective Board of Directors that designated such individual as
provided herein shall designate another individual to serve in such individual's
place; provided that in the event James C. Flores is unable to serve as Chairman
of the Board, James T. Hackett shall serve as Chairman of the Board as of the
Effective Time until his successor is duly elected and qualified in accordance
with the bylaws of Seagull in effect subsequent to the Effective Time; provided,
further, in the event James T. Hackett is unable to serve as President and Chief
Executive Officer, James C. Flores shall serve as President and Chief Executive
Officer of the Company as of the Effective Time until his successor is duly
elected and qualified in accordance with the bylaws of Seagull in effect
subsequent to the Effective Time.
(b) The composition of the committees of the Board of Directors of
Seagull immediately subsequent to the Effective Time (including the
respective chairmen thereof) shall be as designated prior to the Effective
Time in the manner set forth below until the earlier of the resignation or
removal of any individual so designated or until their respective
successors are duly elected and qualified, as the case may be, it being
agreed that if at any time prior to the Effective Time any director nominee
designated as a member of a committee shall be unable to serve as a member
of a committee (including as a chairman of any committee) at the Effective
Time, the respective Board of Directors that designated such individual as
provided herein shall designate another individual to serve in such
individual's place. After the Effective Time, (i) a majority of the members
of the Executive Committee of the Seagull Board of Directors shall be
Seagull Director Nominees and the chairman of such committee shall be a
Seagull Director Nominee, (ii) a majority of the members of the Audit
Committee of the Seagull Board of Directors shall be Seagull Director
Nominees and the chairman of such committee shall be a Seagull Director
Nominee, (iii) a majority of the members of the Compensation Committee of
the Seagull Board of Directors shall be OEI Director Nominees and the
chairman of such committee shall be an OEI Director Nominee, and (iv) a
majority of the members of the Nominating Committee of the Seagull Board of
Directors shall be OEI Director Nominees and the chairman of such committee
shall be an OEI Director Nominee.
(c) Subsequent to the Effective Time, those individuals set forth on
Exhibit 7.12(c) hereto shall be executive officers of Seagull having the
titles and positions set forth opposite their respective names on such
Exhibit until the earlier of the resignation or removal of any such
individual or until their respective successors are duly elected and
qualified, as the case may be. Prior to the Effective Time, Seagull and OEI
may mutually agree to designate additional individuals to serve as
executive officers of Seagull subsequent to the Effective Time. Subject to
Section 7.12(a), if any executive officer set
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forth on Exhibit 7.12(c) or designated in accordance with this Section 7.12(c)
ceases to be a full-time employee of either Seagull or OEI (or otherwise
declines to serve in such designated capacity) at or before the Effective Time,
Seagull and OEI will agree upon another person to serve in such person's stead
or agree to leave such office vacant through the Effective Time.
Section 7.13 Stockholders Meetings.
(a) OEI shall, as promptly as reasonably practicable after the date
hereof (i) take all steps reasonably necessary to call, give notice of,
convene and hold a special meeting of its stockholders (the "OEI Special
Meeting") for the purpose of securing the OEI Stockholders' Approval, (ii)
distribute to its stockholders the Proxy Statement/Prospectus in accordance
with applicable federal and state law and with its certificate of
incorporation and bylaws, which Proxy Statement/ Prospectus shall contain
the recommendation of the Board of Directors of OEI that its stockholders
approve and adopt this Agreement and the transactions contemplated hereby,
(iii) use all reasonable efforts to solicit from its stockholders proxies
in favor of the approval and adoption of the this Agreement and the
transactions contemplated hereby and to secure the OEI Stockholders'
Approval, and (iv) cooperate and consult with Seagull with respect to each
of the foregoing matters; provided, that nothing contained in this Section
7.13(a) shall prohibit the OEI Board of Directors from failing to make or
from withdrawing or modifying its recommendation to the OEI stockholders
hereunder if the Board of Directors of OEI, after consultation with and
based upon the written advice of independent legal counsel, determines in
good faith that such action is necessary for such Board of Directors to
comply with its fiduciary duties to its stockholders under applicable law.
(b) Seagull shall, as promptly as reasonably practicable after the
date hereof (i) take all steps reasonably necessary to call, give notice
of, convene and hold a special meeting of its stockholders (the "Seagull
Special Meeting") for the purpose of securing the Seagull Stockholders'
Approval, (ii) distribute to its stockholders the Proxy
Statement/Prospectus in accordance with applicable federal and state law
and its articles of incorporation and bylaws, which Proxy
Statement/Prospectus shall contain the recommendation of the Seagull Board
of Directors that its stockholders approve this Agreement and the election
of directors described in Section 7.12 and (iii) use all reasonable efforts
to solicit from its stockholders proxies in favor of approval of this
Agreement and the election of directors described in Section 7.12 and to
secure the Seagull Stockholders' Approval, and (iv) cooperate and consult
with OEI with respect to each of the foregoing matters; provided, that
nothing contained in this Section 7.13(b) shall prohibit the Seagull Board
of Directors from failing to make or from withdrawing or modifying its
recommendation to the Seagull stockholders hereunder if the Board of
Directors of Seagull, after consultation with and based upon the written
advice of independent legal counsel, determines in good faith that such
action is necessary for such Board of Directors to comply with its
fiduciary duties to its stockholders under applicable law.
(c) The Seagull Special Meeting and the OEI Special Meeting shall be
held on the same day unless otherwise agreed by Seagull and OEI.
Section 7.14 Preparation of the Proxy Statement/Prospectus and
Registration Statement.
(a) Seagull and OEI shall promptly prepare and file with the SEC a
preliminary version of the Proxy Statement/Prospectus and will use all
reasonable efforts to respond to the comments of the SEC in connection
therewith and to furnish all information required to prepare the definitive
Proxy Statement/Prospectus. At any time from (and including) the initial
filing with the SEC of the Proxy Statement/Prospectus, Seagull shall file
with the SEC the Registration Statement containing the Proxy
Statement/Prospectus so long as Seagull shall have provided to OEI a copy
of the Registration Statement containing the Proxy Statement/Prospectus at
least ten days prior to any filing thereof and any supplement or amendment
at least two days prior to any filing thereof. Subject to the foregoing
sentence, the date that the Registration Statement is filed with the SEC
shall be determined jointly by Seagull and OEI. Each of Seagull and OEI
shall use all reasonable efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable
after such filing.
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Seagull shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or filing a general consent to
service of process in any jurisdiction) required to be taken under any
applicable state securities laws in connection with the issuance of Seagull
Common Stock in the Merger and OEI shall furnish all information concerning OEI
and the holders of shares of OEI capital stock as may be reasonably requested in
connection with any such action. Promptly after the effectiveness of the
Registration Statement, each of Seagull and OEI shall cause the Proxy Statement/
Prospectus to be mailed to its respective stockholders, and if necessary, after
the definitive Proxy Statement/Prospectus shall have been mailed, promptly
circulate amended, supplemented or supplemental proxy materials and, if required
in connection therewith, resolicit proxies. Seagull shall advise OEI and OEI
shall advise Seagull, as applicable, promptly after it receives notice thereof,
of the time when the Registration Statement shall become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Seagull Common Stock for offering or sale
in any jurisdiction, or any request by the SEC for amendment of the Proxy
Statement/Prospectus or the Registration Statement or comments thereon and
responses thereto or requests by the SEC for additional information.
(b) Following receipt by KPMG Peat Marwick LLP, Seagull's independent
auditors, of an appropriate request from OEI pursuant to SAS No. 72,
Seagull shall use all reasonable efforts to cause to be delivered to OEI a
letter of KPMG Peat Marwick LLP, dated a date within two business days
before the effective date of the Registration Statement, and addressed to
OEI, in form and substance reasonably satisfactory to OEI and customary in
scope and substance for "cold comfort" letters delivered by independent
public accountants in connection with registration statements and proxy
statements similar to the Proxy Statement/Prospectus.
(c) Following receipt by Arthur Andersen LLP, OEI's independent
auditors, of an appropriate request from Seagull pursuant to SAS No. 72,
OEI shall use all reasonable efforts to cause to be delivered to Seagull a
letter of Arthur Andersen LLP, dated a date within two business days before
the effective date of the Registration Statement, and addressed to Seagull,
in form and substance satisfactory to Seagull and customary in scope and
substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the Proxy Statement/Prospectus.
Section 7.15 Stock Exchange Listing. Seagull shall use all reasonable
efforts to cause the Seagull Common Stock to be issued in the Merger to be
approved for listing on the New York Stock Exchange (the "NYSE") prior to the
Effective Time, in each case, subject to official notice of issuance and shall
use all reasonable efforts (with OEI's cooperation) to assume OEI's NYSE ticker
symbol.
Section 7.16 Notice of Certain Events. Each party to this Agreement shall
promptly as reasonably practicable notify the other parties hereto of:
(i) any notice or other communication from any Person alleging that
the consent of such Person (or other Person) is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge, threatened against, relating to
or involving or otherwise affecting it or any of its Subsidiaries which, if
pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Sections 4.10, 4.12, 5.10 or 5.12 or which
relate to the consummation of the transactions contemplated by this
Agreement;
(iv) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received by it or any of its Subsidiaries subsequent to the date of this
Agreement, under any material agreement; and
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(v) any OEI Material Adverse Effect or Seagull Material Adverse Effect
or the occurrence of any event which is reasonably likely to result in an
OEI Material Adverse Effect or a Seagull Material Adverse Effect, as the
case may be.
Section 7.17 Site Inspections. Subject to compliance with applicable law
(including applicable Environmental Laws), from the date hereof until the
Effective Time, each of the parties hereto may undertake (at that party's sole
cost and expense) an environmental assessment or assessments (an "Assessment")
of any other party's operations, business and/or properties that are the subject
of this Agreement. An Assessment may include, but not be limited to, a review of
permits, files and records, as well as visual and physical inspections and
testing. Before conducting an Assessment, the party intending to conduct such
Assessment (the "Inspecting Party") shall confer with the party whose
operations, business or property is the subject of such Assessment (the
"Inspected Party") regarding the nature, scope and scheduling of such
Assessment, and shall comply with such conditions as the Inspected Party may
reasonably impose to avoid interference with the Inspected Party's operations or
business. The Inspected Party shall cooperate in good faith with the Inspecting
Party's effort to conduct an Assessment.
Section 7.18 Affiliate Agreements; Tax Treatment.
(a) OEI shall identify in a letter to Seagull all persons who are, on
the date hereof, "affiliates" of OEI, as such term is used in Rule 145
under the Securities Act. OEI shall use all reasonable efforts to cause its
respective affiliates to deliver to Seagull not later than 10 days prior to
the date of the OEI Special Meeting, a written agreement substantially in
the form attached hereto as Exhibit 7.18, and shall use all reasonable
efforts to cause persons who become "affiliates" after such date but prior
to the Closing Date to execute and deliver agreements at least 5 days prior
to the Closing Date.
(b) Each party hereto shall use all reasonable efforts to cause the
Merger to qualify, and shall not take, and shall use all reasonable efforts
to prevent any subsidiary of such party from taking, any actions which
could prevent the Merger from qualifying, as a reorganization under the
provisions of Section 368(a) of the Code.
Section 7.19 Stockholder Litigation. Each of Seagull and OEI shall give
the other the reasonable opportunity to participate in the defense of any
litigation against Seagull or OEI, as applicable, and its directors relating to
the transactions contemplated by this Agreement.
Section 7.20 Indenture Matters. Seagull and OEI shall, and shall cause
their respective Subsidiaries to, take all actions that are necessary or
appropriate (as mutually agreed by Seagull and OEI) in order for Seagull, OEI
and certain of their Subsidiaries, as applicable, to assume, guarantee or modify
as appropriate the agreements governing the outstanding publicly held debt
securities of OEI, Seagull and APC referred to in the OEI SEC Reports and the
Seagull SEC Reports in order to avoid defaults thereunder.
Section 7.21 Credit Facility. Seagull and OEI shall use all reasonable
efforts, and shall cooperate, to obtain as promptly as practicable commitments
from financing sources to refinance the existing bank credit facilities of OEI,
Seagull and their respective Subsidiaries (excluding, in the case of OEI, Havre
Pipeline Company L.L.C.).
Section 7.22 Seagull Rights Plan. On or prior to the termination date of
the Seagull Rights Plan, Seagull shall take all actions as shall be necessary to
extend the term of the Seagull Rights Plan for a period of ten years or to adopt
a new stockholders' right plan with such terms and conditions as are reasonably
acceptable to OEI.
Section 7.23 Registration Rights Agreements. The Registration Rights
Agreement dated as of August 11, 1996, as amended, among OEI, James C. Flores
and the Flores Family Limited Partnership and the Registration Rights Agreement
dated as of August 11, 1996, as amended, among OEI, William W. Rucks, IV and the
Rucks Family Limited Partnership, shall be assumed by Seagull as of the
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Effective Time and shall apply to the Seagull Common Stock to be substituted for
the OEI Common Stock to which such agreements apply.
Section 7.24 Employment Agreements and Severance Agreements. Seagull shall
assume the obligations under the employment agreements and severance agreements
to which OEI is a party or is otherwise subject, to the extent such agreements
are listed on Section 4.11 of the OEI Disclosure Schedule.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 Conditions to the Obligation of Each Party. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(a) The OEI Stockholders' Approval and the Seagull Stockholders'
Approval shall have been obtained.
(b) No action, suit or proceeding instituted by any Governmental
Authority shall be pending and no statute, rule or regulation and no
injunction, order, decree or judgment of any court or Governmental
Authority of competent jurisdiction shall be in effect, in each case which
would prohibit, restrain, enjoin or restrict the consummation of the
Merger.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall be in
effect and no proceeding for such purpose shall be pending before or
threatened by the SEC.
(d) Each of OEI and Seagull shall have obtained such permits,
authorizations, consents, or approvals required to consummate the
transactions contemplated hereby.
(e) The shares of Seagull Common Stock to be issued in the Merger
shall have been approved for listing on the NYSE, subject to official
notice of issuance.
(f) Any consent or approval required with respect to the transactions
contemplated by this Agreement from the APUC shall have been obtained on
terms reasonably satisfactory to Seagull and OEI.
(g) Any applicable waiting period under the HSR Act shall have expired
or been terminated.
Section 8.2 Conditions to the Obligations of Seagull. The obligation of
Seagull to effect the Merger is subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) OEI shall have performed in all material respects its obligations
under this Agreement required to be performed by it at or prior to the
Effective Time and the representations and warranties of OEI contained in
this Agreement, to the extent qualified with respect to materiality shall
be true and correct in all respects, and to the extent not so qualified
shall be true and correct in all material respects, in each case as of the
date of this Agreement and at and as of the Effective Time as if made at
and as of such time, except as expressly contemplated by the OEI Disclosure
Letter or this Agreement and except that the accuracy of representations
and warranties that by their terms speak as of the date of this Agreement
or some other date will be determined as of such date, and Seagull shall
have received a certificate of the Chief Executive Officer and Chief
Financial Officer of OEI as to the satisfaction of this condition.
(b) All proceedings to be taken by OEI in connection with the
transactions contemplated by this Agreement and all documents, instruments
and certificates to be delivered by OEI in connection with the transactions
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to Seagull and its counsel.
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(c) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business,
operations or prospects of OEI and its Subsidiaries, taken as a whole, that
would constitute an OEI Material Adverse Effect, other than any such change
that affects both Seagull and OEI in a substantially similar manner.
(d) Seagull shall have received an opinion from Vinson & Elkins L.L.P.
prior to the effectiveness of the Registration Statement to the effect that
(i) the Merger will constitute a reorganization under section 368(a) of the
Code, (ii) Seagull and OEI will each be a party to that reorganization, and
(iii) no gain or loss will be recognized by Seagull or OEI by reason of the
Merger.
Section 8.3 Conditions to the Obligations of OEI. The obligation of OEI to
effect the Merger is subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) Seagull shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior
to the Effective Time and the representations and warranties of Seagull
contained in this Agreement, to the extent qualified with respect to
materiality shall be true and correct in all respects, and to the extent
not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and at and as of the Effective
Time as if made at and as of such time, except as expressly contemplated by
the Seagull Disclosure Letter or this Agreement and except that the
accuracy of representations and warranties that by their terms speak as of
the date of this Agreement or some other date will be determined as of such
date, and OEI shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Seagull as to the satisfaction of
this condition.
(b) All proceedings to be taken by Seagull in connection with the
transactions contemplated by this Agreement and all documents, instruments
and certificates to be delivered by Seagull in connection with the
transactions contemplated by this Agreement shall be reasonably
satisfactory in form and substance to OEI and its counsel.
(c) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business,
operations or prospects of Seagull and its Subsidiaries, taken as a whole,
that would constitute a Seagull Material Adverse Effect, other than any
such change that affects both Seagull and OEI in a substantially similar
manner.
(d) OEI shall have received an opinion from Akin, Gump, Strauss, Hauer
& Feld, L.L.P. prior to the effectiveness of the Registration Statement to
the effect that (i) the Merger will constitute a reorganization under
section 368(a) of the Code, (ii) OEI and Seagull will each be a party to
that reorganization, and (iii) no gain or loss will be recognized by the
stockholders of OEI upon the receipt of shares of Seagull Common Stock in
exchange for shares of OEI Common Stock pursuant to the Merger except with
respect to any cash received in lieu of fractional share interests.
(e) The members of the Board of Directors of Seagull immediately prior
to the Effective Time who are not elected to the Board of Directors of
Seagull at the Seagull Special Meeting shall have resigned or been removed
from the Board of Directors of Seagull effective as of the Effective Time.
ARTICLE IX
SURVIVAL
Section 9.1 Survival of Representations and Warranties. The
representations and warranties of the parties contained in this Agreement shall
not survive the Effective Time.
Section 9.2 Survival of Covenants and Agreements. The covenants and
agreements of the parties to be performed after the Effective Time contained in
this Agreement shall survive the Effective Time.
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of OEI or Seagull:
(a) by the mutual written consent of Seagull and OEI;
(b) by either Seagull or OEI if the Effective Time shall not have
occurred on or before April 14, 1999 (the "Termination Date"); provided
that either party may extend the Termination Date until no later than
August 30, 1999 if (i) all the conditions to consummation of the Merger set
forth in Article VIII hereof have either been satisfied or are then capable
of being satisfied by such date, other than the condition set forth in
Section 8.1(f), and (ii) such party believes that there is a reasonable
probability that such condition will be satisfied by or before such
extended Termination Date; and provided, further, that the party seeking to
terminate this Agreement pursuant to this Section 10.1(b) shall not have
breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to
consummate the Merger on or before the Termination Date;
(c) by OEI if there has been a material breach by Seagull of any
representation, warranty, covenant or agreement set forth in this Agreement
which breach (if susceptible to cure) has not been cured in all material
respects within twenty business days following receipt by Seagull of notice
of such breach (an "Seagull Breach");
(d) by Seagull, if there has been a material breach by OEI of any
representation, warranty, covenant or agreement set forth in this Agreement
which breach (if susceptible to cure) has not been cured in all material
respects within twenty business days following receipt by OEI of notice of
such breach (an "OEI Breach");
(e) by either OEI or Seagull, if there shall be any applicable law,
rule or regulation that makes consummation of the Merger illegal or if any
judgment, injunction, order or decree of a court or other Governmental
Authority of competent jurisdiction shall restrain or prohibit the
consummation of the Merger, and such judgment, injunction, order or decree
shall become final and nonappealable;
(f) by either OEI or Seagull, if the stockholder approvals referred to
in Section 7.13 shall not have been obtained by reason of the failure to
obtain the requisite vote upon a vote at a duly held meeting of
stockholders or at any adjournment or postponement thereof;
(g) by Seagull, if (i) the Board of Directors of OEI withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to Seagull or shall have resolved to do any of the foregoing
or the Board of Directors of OEI shall have recommended to the stockholders
of OEI any OEI Acquisition Proposal or resolved to do so; or (ii) a tender
offer or exchange offer for outstanding shares of capital stock of OEI then
representing 50% or more of the combined power to vote generally for the
election of directors is commenced, and the Board of Directors of OEI does
not, within the applicable period required by law, recommend that
stockholders not tender their shares into such tender or exchange offer;
(h) by OEI or Seagull, if OEI accepts an OEI Superior Proposal and
makes payment as required pursuant to Section 7.5 of this Agreement and of
the Expenses for which OEI is responsible under Section 7.5 of this
Agreement. For purposes of this Agreement, "OEI Superior Proposal" means an
unsolicited bona fide proposal made by a third party relating to an OEI
Acquisition Proposal on terms that the Board of Directors of OEI determines
it cannot reject in favor of the Merger, based on applicable fiduciary
duties and the advice of OEI's outside counsel; provided, however, that OEI
shall not be permitted to terminate this Agreement pursuant to this Section
10.1(h) unless it has used all reasonable efforts to provide Seagull with
two business days prior written notice of its intent to so terminate this
Agreement together with a detailed summary of the terms and conditions of
such OEI Acquisition Proposal; provided further, that prior to any such
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termination, OEI shall, and shall cause its respective financial and legal
advisors to, negotiate in good faith with Seagull to make such adjustments in
the terms and conditions of this Agreement as would enable OEI to proceed with
the transactions contemplated herein, and it is acknowledged by Seagull that
such negotiations with Seagull shall be conducted in a manner consistent with
the fiduciary duties of the OEI Board of Directors;
(i) by OEI, if (i) the Board of Directors of Seagull withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to OEI or shall have resolved to do any of the foregoing or
the Board of Directors of Seagull shall have recommended to the
stockholders of Seagull any Seagull Acquisition Proposal or resolved to do
so; or (ii) a tender offer or exchange offer for outstanding shares of
capital stock of Seagull then representing 50% or more of the combined
power to vote generally for the election of directors is commenced, and the
Board of Directors of Seagull does not, within the applicable period
required by law, recommend that stockholders not tender their shares into
such tender or exchange offer;
(j) by Seagull or OEI, if Seagull accepts a Seagull Superior Proposal
and makes payment as required pursuant to Section 7.5 of this Agreement and
of the Expenses for which Seagull is responsible under Section 7.5 of this
Agreement. For purposes of this Agreement, "Seagull Superior Proposal"
means an unsolicited bona fide proposal made by a third party relating to a
Seagull Acquisition Proposal on terms that the Board of Directors of
Seagull determines it cannot reject in favor of the Merger, based on
applicable fiduciary duties and the advice of Seagull's outside counsel;
provided, however, that Seagull shall not be permitted to terminate this
Agreement pursuant to this Section 10.1(j) unless it has used all
reasonable efforts to provide OEI with two business days prior written
notice of its intent to so terminate this Agreement together with a
detailed summary of the terms and conditions of such Seagull Acquisition
Proposal; provided further, that prior to any such termination, Seagull
shall, and shall cause its respective financial and legal advisors to,
negotiate in good faith with OEI to make such adjustments in the terms and
conditions of this Agreement as would enable Seagull to proceed with the
transactions contemplated herein, and it is acknowledged by OEI that such
negotiations with OEI shall be conducted in a manner consistent with the
fiduciary duties of the Seagull Board of Directors.
Section 10.2 Effect of Termination. In the event of termination of the
Agreement and the abandonment of the Merger pursuant to this Article X, all
obligations of the parties shall terminate, except the obligations of the
parties pursuant to this Section 10.2 and except for the provisions of Sections
7.5, 7.7, 11.8 and the last two sentences of Section 7.1, provided that nothing
herein shall relieve any party from liability for any breaches hereof.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. All notices or communications hereunder shall be in
writing (including facsimile or similar writing) addressed as follows:
To Seagull:
Seagull Energy Corporation
1001 Fannin, Suite 1700
Houston, Texas 77002
Attention: James T. Hackett
Facsimile No.: (713) 951-4790
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With a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: J. Mark Metts
Facsimile No.: (713) 615-5605
To OEI:
Ocean Energy, Inc.
1201 Louisiana, Suite 1400
Houston, Texas 77002
Attention: Robert K. Reeves
Facsimile No.: (713) 420-1182
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Attention: Michael E. Dillard, P.C.
Facsimile No.: (214) 969-4343
Any such notice or communication shall be deemed given (i) when made, if made by
hand delivery, and upon confirmation of receipt, if made by facsimile, (ii) one
business day after being deposited with a next-day courier, postage prepaid, or
(iii) three business days after being sent certified or registered mail, return
receipt requested, postage prepaid, in each case addressed as above (or to such
other address as such party may designate in writing from time to time).
Section 11.2 Separability. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
Section 11.3 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors, and assigns; provided, however, that neither this
Agreement nor any rights hereunder shall be assignable or otherwise subject to
hypothecation and any assignment in violation hereof shall be null and void.
Section 11.4 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 11.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each party.
Section 11.6 Entire Agreement. This Agreement and the Confidentiality
Agreement represent the entire Agreement of the parties with respect to the
subject matter hereof and shall supersede any and all previous contracts,
arrangements or understandings between the parties hereto with respect to the
subject matter hereof.
Section 11.7 Governing Law. This Agreement shall be construed,
interpreted, and governed in accordance with the laws of Texas, without
reference to rules relating to conflicts of law.
Section 11.8 Attorneys' Fees. If any action at law or equity, including an
action for declaratory relief, is brought to enforce or interpret any provision
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and expenses from the other party, which fees and expenses shall
be in addition to any other relief which may be awarded.
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Section 11.9 No Third Party Beneficiaries. Except as provided in Section
7.3, no person or entity other than the parties hereto is an intended
beneficiary of this Agreement or any portion hereof.
Section 11.10 Disclosure Schedules. The disclosures made on any disclosure
schedule, including the OEI Disclosure Schedule and the Seagull Disclosure
Schedule, with respect to any representation or warranty shall be deemed to be
made with respect to any other representation or warranty requiring the same or
similar disclosure to the extent that the relevance of such disclosure to other
representations and warranties is evident from the face of the disclosure
schedule. The inclusion of any matter on any disclosure schedule will not be
deemed an admission by any party that such listed matter is material or that
such listed matter has or would have an OEI Material Adverse Effect or a Seagull
Material Adverse Effect, as applicable.
Section 11.11 Amendments and Supplements. At any time before or after
approval of the matters presented in connection with the Merger by the
respective stockholders of Seagull and OEI and prior to the Effective Time, this
Agreement may be amended or supplemented in writing by Seagull and OEI with
respect to any of the terms contained in this Agreement, except as otherwise
provided by law; provided, however, that following approval of this Agreement by
the stockholders of Seagull there shall be no amendment or change to the
provisions hereof with respect to the Common Stock Exchange Ratio that is
adverse to the stockholders of Seagull without further approval by the
stockholders of Seagull, and following approval and adoption of this Agreement
by the stockholders of OEI there shall be no amendment or change to the
provisions hereof with respect to the Common Stock Exchange Ratio that is
adverse to the stockholders of OEI without further approval by the stockholders
of OEI.
Section 11.12 Extensions, Waivers, Etc. At any time prior to the Effective
Time, either party may:
(a) extend the time for the performance of any of the obligations or
acts of the other party;
(b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered pursuant
hereto; or
(c) subject to the proviso of Section 11.11 waive compliance with any
of the agreements or conditions of the other party contained herein.
Notwithstanding the foregoing, no failure or delay by Seagull or OEI in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
SEAGULL ENERGY CORPORATION
By: /s/ JAMES T. HACKETT
----------------------------------
James T. Hackett
President and Chief Executive
Officer
OCEAN ENERGY, INC.
By: /s/ JAMES C. FLORES
----------------------------------
James C. Flores
President and Chief Executive
Officer
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ANNEX B
LEHMAN BROTHERS
November 24, 1998
Board of Directors
Ocean Energy, Inc.
1201 Louisiana, Suite 1400
Houston, Texas 77002
Members of the Board:
We understand that Ocean Energy, Inc. ("Ocean") and Seagull Energy
Corporation ("Seagull") are considering entering into a transaction pursuant to
which, among other things, (i) Ocean will merge with and into Seagull, with
Seagull being the surviving corporation (the "Merger"); (ii) upon effectiveness
of the Merger, each share of common stock of Ocean outstanding prior to the
Merger will be converted into the right to receive one share of the common stock
of Seagull (the "Exchange Ratio"); and (iii) upon effectiveness of the Merger
Seagull will be renamed Ocean Energy, Inc. (the combined businesses of Ocean and
Seagull following the Merger being referred to herein as "New Ocean"). The terms
and conditions of the Merger are set forth in more detail in the Agreement and
Plan of Merger dated November 24, 1998 by and among Ocean and Seagull (the
"Agreement").
We have been requested by the Board of Directors of Ocean to render our
opinion with respect to the fairness, from a financial point of view, to the
stockholders of Ocean of the Exchange Ratio to be offered to such stockholders
in the Merger. We have not been requested to opine as to, and our opinion does
not in any manner address, Ocean's underlying business decision to proceed with
or effect the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Merger, including provisions therein relating to
corporate governance and management of New Ocean following the Merger; (2) such
publicly available information concerning Ocean and Seagull that we believe to
be relevant to our analysis, including, without limitation, each of the periodic
reports and proxy statements filed by Ocean and Seagull since January 1, 1998
(including the audited and unaudited financial statements included in such
reports and statements); (3) financial and operating information with respect to
the respective businesses, operations and prospects of Ocean and Seagull
furnished to us by Ocean and Seagull, respectively, including financial
projections based on the respective business plans of Ocean and Seagull and, in
particular, (A) certain estimates of proved and non-proved reserves, (B)
projected annual production of such reserves in certain domestic and
international areas and (C) amounts and timing of the cost savings and operating
synergies expected to result from a combination of the businesses of Ocean and
Seagull; (4) a trading history of the common stock of Ocean from March 31, 1998
to the present and a comparison of that trading history with those of other
companies that we deemed relevant, including Seagull; (5) a trading history of
the common stock of Seagull from March 31, 1998 to the present and a comparison
of that trading history with those of other companies that we deemed relevant,
including Ocean; (6) a comparison of the historical financial results and
present financial condition of Ocean with those of other companies that we
deemed relevant; (7) a comparison of the historical financial results and
present financial condition of Seagull with those of other companies that we
deemed relevant; (8) the potential pro forma impact of the Merger on Ocean
(including the cost savings and operating synergies expected by the managements
of Ocean and Seagull to result from a combination of the businesses of Ocean and
Seagull); (9) a comparison of the financial terms of the Merger with the
financial terms of certain other transactions that we deemed relevant; and (10)
the relative contributions on a pro forma basis of Ocean and Seagull to the
financial condition and results of
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operations of New Ocean. In addition, we have (i) had discussions with the
senior managements of Ocean and Seagull concerning their respective businesses,
operations, financial conditions, assets, reserves, production profiles,
exploration programs and prospects and the cost savings, operating synergies and
strategic benefits expected by the managements of Ocean and Seagull to result
from a combination of the businesses of Ocean and Seagull and (ii) undertaken
such other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of managements of Ocean and Seagull that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
for Ocean, Seagull and New Ocean (including the cost savings and operating
synergies expected to result from a combination of the businesses of Ocean and
Seagull), upon advice of Ocean and Seagull, we have assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the managements of Ocean and
Seagull, as the case may be, as to the future financial performance of Ocean,
Seagull and New Ocean, and that each of Ocean and Seagull on a stand alone basis
would perform, and New Ocean will perform, substantially in accordance with such
projections. In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of Ocean or Seagull and have not
made or obtained from third parties any evaluations or appraisals of the assets
or liabilities of Ocean or Seagull. Upon advice of the Company and its legal and
accounting advisors, we have assumed that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and therefore as a tax-free transaction to the stockholders
of Ocean. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
In addition, we express no opinion as to the price at which shares of
common stock of New Ocean actually will trade following consummation of the
Merger. Accordingly, this opinion should not be viewed as providing any
assurances that the market value of the shares of Seagull common stock to be
received by a stockholder of Ocean in connection with the Merger will be in
excess of the market value of the shares of common stock of Ocean owned by such
stockholders at any time prior to announcement or consummation of the Merger.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered to the stockholders of Ocean in the Merger is fair to such stockholders.
We have acted as financial advisor to Ocean in connection with the Merger
and will receive a fee for our services, a substantial portion of which is
contingent upon the consummation of the Merger. In addition, Ocean has agreed to
indemnify us for certain liabilities that may arise out of the rendering of this
opinion. We also have performed various investment banking services for Ocean
and Seagull in the past and have received customary compensation for such
services. In the ordinary course of our business, we actively trade in the debt
and equity securities of Ocean and Seagull for our own account and for the
accounts of our 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 Ocean
and is rendered to the Board of Directors in connection with its consideration
of the Merger. This opinion is not intended to be and does not constitute a
recommendation to any stockholder of Ocean as to how such stockholder should
vote with respect to the Merger.
Very truly yours,
LEHMAN BROTHERS
B-2
<PAGE> 151
JP MORGAN
ANNEX C
November 24, 1998
The Board of Directors
Ocean Energy, Inc.
1201 Louisiana Street
Suite 1400
Houston, Texas 77002
Attention: Mr. James C. Flores
President and Chief Executive Officer
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Ocean Energy, Inc. (the "Company") of the
consideration proposed to be received by them in connection with the proposed
merger (the "Merger") of the Company with Seagull Energy Corporation
("Seagull"). Pursuant to the Agreement and Plan of Merger, dated as of November
24, 1998 (the "Agreement"), between the Company and Seagull, the Company will
merge with and into Seagull, and each share of the common stock, par value $.01
per share (the "Company Common Stock"), of the Company issued and outstanding
immediately prior to the effective time of the Merger shall be converted into
one share of common stock, par value $0.10 per share (the "Seagull Common
Stock"), of Seagull, subject to adjustment as set forth in the Agreement.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) certain
publicly available information concerning the business of the Company and
Seagull and of certain other companies engaged in businesses comparable to those
of the Company and Seagull, and the reported market prices for certain other
companies' securities deemed comparable; (iii) publicly available terms of
certain transactions involving companies comparable to the Company and Seagull
and the consideration received for such companies; (iv) current and historical
market prices of the common stock of the Company and Seagull; (v) the audited
financial statements of the Company and Seagull for the fiscal year ended
December 31, 1997, and the unaudited financial statements of the Company and
Seagull for the period ended September 30, 1998; (vi) certain agreements with
respect to outstanding indebtedness or obligations of the Company and Seagull;
(vii) certain internal financial analyses and forecasts prepared by the Company
and Seagull and their respective managements, including (a) certain estimates of
proved and non-proved oil and natural gas reserves, (b) projected annual
production volumes of such reserves in certain domestic and international areas,
and (c) the amount and timing of cost savings expected to result from the
Merger; and (viii) the terms of other business combinations that we deemed
relevant.
In addition, we have held discussions with certain members of the management of
the Company and Seagull with respect to certain aspects of the Merger, the past
and current business operations of the Company and Seagull, the financial
condition and future prospects and operations of the Company and Seagull, the
effects of the Merger on the financial condition and future prospects of the
Company and Seagull, and certain other matters we believed necessary or
appropriate to our inquiry. We have reviewed such other financial studies and
analyses and considered such other information as we deemed appropriate for the
purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and Seagull or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor.
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<PAGE> 152
JP MORGAN
We have not conducted any valuation or appraisal of any assets or liabilities,
nor have any such valuations or appraisals been provided to us. In relying on
financial analyses and forecasts provided to us, we have assumed that they have
been reasonably prepared based on assumptions reflecting the best currently
available estimates and judgments by management as to the expected future
results of operations and financial condition of the Company and Seagull to
which such analyses or forecasts relate. We have also assumed that the Merger
will have the tax consequences described in discussions with, and materials
furnished to us by, representatives of the Company, and that the other
transactions contemplated by the Agreement will be consummated as described in
the Agreement. We have relied as to all legal matters relevant to rendering our
opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the price at which the Company Common
Stock or the Seagull Common Stock will trade at any future time.
We have acted as financial advisor to the Company with respect to the proposed
Merger and will receive a fee from the Company for our services. We will also
receive an additional fee if the proposed Merger is consummated. In the past we
have performed various investment and commercial banking services for the
Company and Seagull, and have received customary compensation for such services.
In the ordinary course of their businesses, our affiliates may actively trade
the debt and equity securities of the Company or Seagull for their own account
or for the accounts of customers and, accordingly, they may at any time hold
long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be received by the Company's stockholders in
the proposed Merger is fair, from a financial point of view, to such
stockholders.
This letter is provided to the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Merger. This opinion does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ MICHAEL C. McCALL
----------------------------------
Name: Michael C. McCall
Title: Managing Director
C-2
<PAGE> 153
(LOGO)
ANNEX D
November 24, 1998
Board of Directors
Seagull Energy Corporation
1001 Fannin, Suite 1700
Houston, Texas 77002
Gentlemen:
You have informed us that Seagull Energy Corporation (the "Company") and
Ocean Energy, Inc. ("Ocean") propose to enter into an agreement and plan of
merger dated as of November 24, 1998 (the "Agreement") pursuant to which Ocean
will merge with and into the Company in a transaction (the "Merger") in which
each issued and outstanding share of Ocean's common stock, par value $0.01 per
share, including the associated preferred stock purchase rights (the "Ocean
Common Stock"), will be converted into 1.0 shares (the "Exchange Ratio") of the
common stock of the Company, including the associated preferred share purchase
rights (the "Company Common Stock"), and each issued and outstanding share of
Ocean's Series A Convertible Preferred Stock, par value $0.01 per share (the
"Ocean Preferred Stock"), will be converted into one share of preferred stock,
par value $1.00 per share, of the Company having substantially equivalent
rights, preferences and limitations as the Ocean Preferred Stock but convertible
into Company Common Stock instead of Ocean Common Stock in the manner
contemplated by the terms of the Ocean Preferred Stock. The Company is to be the
surviving corporation in the Merger.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the holders of the Company Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Ocean's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1997, Ocean's
Form 8-K dated April 30, 1998 and the audited financial information for
the five fiscal years ended December 31, 1997 contained therein,
Ocean's Joint Proxy Statement/Prospectus dated February 27, 1998 and
Ocean's Forms 10-Q and the related unaudited financial information for
the quarterly periods ending March 31, 1998, June 30, 1998 and
September 30, 1998;
(2) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1997, and the
Company's Forms 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1998, June 30, 1998 and
September 30, 1998;
(3) Reviewed certain historical reserve reports as of December 31, 1997
prepared by the Company's independent petroleum engineers (the
"Company's Petroleum Engineers") and certain updated reserve reports as
of December 31, 1998 prepared by the Company (the "Company Reserve
Reports");
(4) Reviewed certain reserve reports as of December 31, 1997 prepared by
Ocean's independent petroleum engineers ("Ocean's Petroleum Engineers"
and together with the Company's Petroleum Engineers, the "Petroleum
Engineers") and certain updated reserve reports as of October 1, 1998
and certain other projected reserve information prepared by the Company
(the "Ocean Reserve Reports") and together with the Company Reserve
Reports, the "Reserve Reports");
D-1
<PAGE> 154
Board of Directors
Seagull Energy Corporation
November 24, 1998
Page 2
(5) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of Ocean and the Company, furnished to us by Ocean and the Company,
respectively, and considered certain additional financial forecasts
relating to Ocean prepared by us with the cooperation of management of
the Company;
(6) Conducted discussions with members of senior management of Ocean and
the Company concerning their respective businesses and prospects before
and after giving effect to the Merger;
(7) Reviewed the historical market prices and valuation multiples for the
Ocean Common Stock and the Company Common Stock and compared them with
those of certain publicly traded companies that we deemed to be
relevant;
(8) Reviewed the results of operations of Ocean and the Company and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(9) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(10) Reviewed the potential pro forma impact of the Merger;
(11) Reviewed a draft of the Agreement dated November 24, 1998; and
(12) Reviewed such other financial studies and analyses and taken 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 or
publicly available or discussed with or reviewed by or for us, 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 Ocean or the Company or been furnished with any such evaluation
or appraisal other than the Reserve Reports. In addition, we have not conducted
any physical inspection of the properties or facilities of Ocean or the Company.
With respect to the financial forecast information furnished to or discussed
with us by Ocean or the Company, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of the
management of Ocean or the Company as to the expected future financial
performance of Ocean or the Company, as the case may be. In addition, we have
assumed that the Reserve Reports have been reasonably prepared and reflect the
best currently available estimates and judgments of Ocean and the Company and
their respective Petroleum Engineers as to their respective reserves, their
future hydrocarbon production volume and associated costs. We have further
assumed that the Merger will be accounted for as a purchase under generally
accepted accounting principles and that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes. Further, we have assumed
that the Company will adopt full-cost accounting principles with respect to its
oil and gas operations and that any write-downs associated therewith have been
reasonably prepared and reflect the best currently available estimates and
judgment of the management of the Company. We have also assumed that the final
form of the Agreement will be substantially in the form of the last draft
reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof.
D-2
<PAGE> 155
Board of Directors
Seagull Energy Corporation
November 24, 1998
Page 2
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Company 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 Ocean and/or its affiliates and to the Company and/or its affiliates
and have received fees for the rendering of such services. In addition, in the
ordinary course of our business, we may actively trade the Company Common Stock
and other securities of the Company, as well as the Ocean Common Stock and other
securities of Ocean, 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
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger, and does not constitute a recommendation to
any stockholder as to how such stockholder should vote on the proposed Merger.
We are not expressing any opinion herein as to the prices at which the
Company Common Stock will trade following the consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the Exchange Ratio is fair from a financial point of view to the holders of the
Company Common Stock.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
D-3
<PAGE> 156
ANNEX E
[WARBURG DILLON READ LLC LOGO]
WARBURG DILLON READ LLC
2001 Ross Avenue, Suite 3950
Dallas, TX 75201
Telephone 214 969-4000
www.wdr.com November 24, 1998
Board of Directors
Seagull Energy Corporation
1001 Fannin, Suite 1700
Houston, TX 77002
Gentlemen:
We understand that Seagull Energy Corporation ("Seagull" or the "Company")
is considering a transaction whereby Ocean Energy, Inc. ("Ocean"), will merge
with and into the Company pursuant to the terms of an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of November 24, 1998, between Seagull
and Ocean, with Seagull to be the surviving corporation (the "Transaction").
Pursuant to the Transaction, each issued and outstanding share of Ocean's common
stock, par value $0.01 per share ("Ocean Common Stock") will be converted into
1.000 shares (the "Exchange Ratio") of Seagull's common stock, par value $0.10
per share ("Seagull Common Stock"), and each issued and outstanding share of
Ocean's Series A Convertible Preferred Stock, par value $0.01 per share (the
"Ocean Preferred Stock"), will be converted into one share of preferred stock,
par value $1.00 per share, of the Company having substantially equivalent
rights, preferences and limitations as the Ocean Preferred Stock but convertible
into Seagull Common Stock instead of Ocean Common Stock in the manner
contemplated by the Ocean Preferred Stock. The terms and conditions of the
Transaction are more fully set forth in the Merger Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair,
from a financial point of view, to the holders of Seagull Common Stock.
Warburg Dillon Read LLC ("WDR") has acted as financial advisor to Seagull
in connection with the Transaction and will receive a fee for its services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Company has agreed to indemnify WDR for certain
liabilities arising out of its engagement. WDR has provided investment banking
services to Seagull unrelated to the Transaction and has received customary fees
for the rendering of such services. In addition, in the ordinary course of its
business, WDR may trade the securities of the Company and of Ocean for its own
account and for the accounts of customers, and it may at any time hold a long or
short position in such securities.
In arriving at our opinion, we have, among other things (i) reviewed the
Merger Agreement, (ii) reviewed certain publicly available business and
historical financial information relating to Seagull and Ocean, including the
audited financial statements included in the Annual Reports on Form 10-K for
Seagull and Ocean as of December 31, 1997 and the unaudited financial statements
included in the Quarterly Reports on Form 10-Q as of March 31, 1998, June 30,
1998 and September 30, 1998 for Seagull and Ocean and the Ocean Joint Proxy
Statement/Prospectus dated February 27, 1998 as well as the audited financial
statements included in the Form 8-K for Ocean dated April 30, 1998, (iii)
reviewed and performed analyses based on certain financial information and other
data provided to us by Seagull that is not publicly available relating to the
business and prospects of Seagull that was prepared by the
MEMBER SIPC
WARBURG DILLON READ LLC IS A SUBSIDIARY OF UBS AG. MEMBER NEW YORK STOCK
EXCHANGE
AND OTHER PRINCIPAL
EXCHANGES
WARBURG DILLON READ IS THE INVESTMENT BANKING DIVISION OF UBS AG.
E-1
<PAGE> 157
[Warburg Dillon Read LLC Logo]
WARBURG DILLON READ LLC
2001 Ross Avenue, Suite 3950
Dallas, TX 75201
Telephone 214 969-4000
www.wdr.com
management of the Company, including financial projections based on the
Company's business plan and, in particular, (A) certain estimates of the proved,
probable and possible reserves, (B) projected annual production of such reserves
and (C) exploration successes and related production in certain domestic and
international areas, (iv) reviewed certain financial information and other data
provided to us by Ocean that is not publicly available relating to the business
and prospects of Ocean that was prepared by the management of Ocean, including
financial projections based on Ocean's business plan (certain of which were
prepared by the management of Ocean and certain of which were prepared by us in
cooperation with the management of Seagull) and, in particular, (A) certain
estimates of the proved, probable and possible reserves, (B) projected annual
production of such reserves and (C) exploration successes and related production
in certain domestic and international areas, (v) considered estimates, prepared
by the respective managements of the Company and Ocean and not publicly
available, of the amounts and timing of the synergies expected to result from
the Transaction, (vi) considered the pro forma financial effects of the
Transaction to the Company and Ocean, (vii) reviewed publicly available
financial and stock market data with respect to certain other companies in lines
of business we believe to be generally comparable to those of the Company and
Ocean, (viii) compared the financial terms of the Transaction with the financial
terms of certain other selected transactions that we deemed to be relevant, (ix)
reviewed the historical market prices and trading volumes of the Seagull Common
Stock and Ocean Common Stock, (x) conducted discussions with selected members of
the senior managements and technical staffs of the Company and Ocean, (xi)
considered the relative reserve replacement and finding cost statistics for the
Company and Ocean, and (xii) conducted such other financial studies, analyses
and investigations, and considered such other information, as we deemed
necessary or appropriate. With respect to (iii)(A) and (B) and (iv)(A) and (B)
above, the estimates of future reserves and related production were based on the
Company's and Ocean's independent petroleum engineers' reports dated December
31, 1997 which were updated by the Company and Ocean, respectively, to adjust
such reports for historical production and estimated future production which was
or will be the result of the Company's and Ocean's historical and estimated
future development, exploitation and exploration activities (collectively, the
"Reserve Reports").
In connection with our review, at your direction, we have not independently
verified any of the foregoing information and have relied on its being complete
and accurate in all material respects. In addition, we have not made any
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Seagull or Ocean, nor have we been furnished with any such
evaluation or appraisal other than Reserve Reports. With respect to the
financial projections and amounts and timing of synergies expected to result
from the Transaction referred to above, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of Seagull's and Ocean's management as to the future financial
performance of each company. We have further assumed that the Transaction will
be accounted for as a purchase under generally accepted accounting principles
and that the Transaction will qualify as a tax-free reorganization for U.S.
federal income tax purposes. Further, we have assumed that the Company will
adopt full-cost accounting principles with respect to its oil and gas operations
and that any write-downs associated therewith have been reasonably prepared and
reflect the best currently available estimates and judgment of the management of
the Company. Our opinion is based on economic, monetary and market conditions
existing on the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company or its Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the merger and does not
E-2
<PAGE> 158
[Warburg Dillon Read LLC Logo]
WARBURG DILLON READ LLC
2001 Ross Avenue, Suite 3950
Dallas, TX 75201
Telephone 214 969-4000
www.wdr.com
constitute a recommendation to any shareholder as to how such shareholder should
vote on the proposed Transaction.
We are not expressing any opinion herein as to the prices at which the
Seagull Common Stock will trade following the announcement or consummation of
the Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the holders of Seagull Common Stock
from a financial point of view.
Very truly yours,
WARBURG DILLON READ LLC
E-3
<PAGE> 159
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides that any
director or officer of a Texas corporation may be indemnified against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by him
in connection with or in defending any action, suit or proceeding in which he is
a party by reason of his position. With respect to any proceeding arising from
actions taken in his official capacity, as a director or officer, he may be
indemnified so long as it shall be determined that he conducted himself in good
faith and that he reasonably believed that such conduct was in the corporation's
best interest. In cases not concerning conduct in his official capacity as a
director or officer, a director or officer may be indemnified so long as it
shall be determined that he conducted himself in good faith and that he
reasonably believed that his conduct was not opposed to the corporation's best
interest. In the case of any criminal proceeding, a director or officer may be
indemnified if he had no reasonable cause to believe his conduct was unlawful.
If a director or officer is wholly successful, on the merits or otherwise, in
connection with such a proceeding, such indemnification is mandatory. Article VI
of Seagull's Bylaws requires the indemnification of officers and directors to
the fullest extent permitted by the Texas Business Corporation Act.
Seagull maintains insurance coverage providing its officers and directors
with indemnification against certain liabilities for actions taken in such
capacities, including liabilities under the Securities Act of 1933.
Reference is made to Article Eleven of the Articles of Incorporation of
Seagull, which was adopted by Seagull's shareholders on May 11, 1988 and which
provides as follows: "ARTICLE ELEVEN. A director of the corporation shall not be
liable to the corporation or its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except for liability (i) for
any breach of the director's duty of loyalty to the corporation or its
shareholders; (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) for any transaction
from which the director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office; (iv)
for acts or omissions for which the liability of a director is expressly
provided for by statute; or (v) for acts related to an unlawful stock repurchase
or dividend payment. Any repeal or amendment of this Article by the shareholders
of the corporation shall be prospective only, and shall not adversely affect any
limitation on the liability of a director of the corporation existing at the
time of such repeal or amendment. In addition to the circumstances in which a
director of the corporation is not liable as set forth in the preceding
sentences, a director shall not be liable to the fullest extent permitted by any
provision of the statutes of Texas hereafter enacted that further limits the
liability of a director."
Effective as of August 28, 1989, Article 7.06.B of the Texas Miscellaneous
Corporation Laws Act was amended to read in its entirety as follows: "B. The
articles of incorporation of a corporation may provide that a director of the
corporation shall not be liable, or shall be liable only to the extent provided
in the articles of incorporation, to the corporation or its shareholders or
members for monetary damages for an act or omission in the director's capacity
as a director, except that this article does not authorize the elimination or
limitation of the liability of a director to the extent the director is found
liable for: (1) a breach of the director's duty of loyalty to the corporation or
its shareholders or members; (2) an act or omission not in good faith that
constitutes a breach of duty of the director to the corporation or an act or
omission that involves intentional misconduct or a knowing violation of the law;
(3) a transaction from which the director received an improper benefit, whether
or not the benefit resulted from an action taken within the scope of the
director's office; or (4) an act or omission for which the liability of a
director is expressly provided for by an applicable statute."
The merger agreement provides that New Ocean will, for six years after the
effective time of the merger (as such terms are defined in the merger
agreement), indemnify, defend and hold harmless each person who is, has been or
becomes prior to the effective time of the merger an officer or director of OEI
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<PAGE> 160
and it subsidiaries or an employee of OEI or any of its subsidiaries who acts as
a fiduciary under any OEI Benefit Plan (as defined in the merger agreement)
against all losses, claims, damages, liabilities, fees and expenses arising in
whole or in part out of actions or omissions in their capacity as such which
occur prior to the effective time. Such indemnification is made to the full
extent permitted under Texas law or New Ocean's Articles of Incorporation and
Bylaws and OEI's written indemnification agreements in effect as of November 24,
1998. Any determination of whether a person's conduct complies with the required
standard will be made by independent counsel acceptable to both Seagull and the
indemnified party.
New Ocean will also maintain OEI's existing directors' and officers'
liability insurance policy (or a policy with substantially similar coverage) for
not less than six years after the Effective Time of the Merger but only to the
extent related to actions or omissions prior to the effective time of the
merger, provided that the aggregate premium for maintaining such policy for the
six year period will not exceed $2,500,000.00. Additionally, Seagull will
maintain the UMC D&O Policy (as defined in the Merger Agreement) as currently in
effect until March 27, 2003.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of November 24, 1998
among Seagull and OEI (incorporated by reference to Exhibit
2.1 to Seagull's Current Report on Form 8-K filed on
December 1, 1998).
+2.2 -- Amendment No. 1 to Agreement and Plan of Merger between
Seagull and OEI dated as of December 9, 1998.
3.1 -- Articles of Incorporation of Seagull, as amended, including
Articles of Amendment filed May 12, 1988, May 21, 1991 and
May 21, 1993 with the Secretary of State of the State of
Texas and that certain Statement of Resolution Establishing
Series of Shares of Series B Junior Participating Preferred
Stock of Seagull Energy Corporation filed March 21, 1989
with the Secretary of State of the State of Texas
(incorporated by reference to Exhibit 3.1 to Seagull's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
3.2 -- Bylaws of Seagull, as amended through March 7, 1997
(incorporated by reference to Exhibit 4.9 to Seagull's Form
S-3 filed with the Securities and Exchange Commission on
September 18, 1997).
4.1 -- Amended and Restated Rights Agreement, dated March 17, 1989,
as amended effective June 13, 1992 and amended and restated
as of December 12, 1997, between Seagull and BankBoston,
N.A. (as successor to NCNB Texas National Bank), including
Form of Statement of Resolution Establishing the Series B
Junior Participating Preferred Stock, the Form of Right
Certificate and Form of Summary of Rights to Purchase
Preferred Shares (incorporated by reference to Exhibit 2 to
Seagull's Current Report on Form 8-K dated December 15,
1997).
4.2 -- Amendment No. 1 to Amended and Restated Rights Agreement
dated November 24, 1998, between Seagull and BankBoston,
N.A. (incorporated by reference to Exhibit 4.1 to Seagull's
Current Report on Form 8-K filed on December 1, 1998).
+5.1 -- Opinion of Vinson & Elkins L.L.P. regarding legality of the
securities to be registered.
+8.1 -- Opinion of Vinson & Elkins L.L.P. regarding tax matters.
+8.2 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
regarding tax matters.
23.1 -- Consents of Vinson & Elkins L.L.P. (included in the opinions
filed as Exhibits 5.1 and 8.1 to this Registration
Statement).
23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in the opinion filed as Exhibit 8.2 to this
Registration Statement).
*23.3 -- Consent of Independent Public Accountants, KPMG LLP --
Seagull.
</TABLE>
II-2
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
<C> <C> <S>
*23.4 -- Consent of Independent Public Accountants, Arthur Andersen
LLP -- OEI.
+23.5 -- Consent of Netherland, Sewell & Associates, Inc. -- Seagull.
+23.6 -- Consent of Netherland, Sewell & Associates, Inc. -- OEI.
+23.7 -- Consent of Ryder Scott Company Petroleum Engineers --
Seagull.
+23.8 -- Consent of DeGolyer and McNaughton -- Seagull.
24.1 -- Powers of Attorney (included in the signature pages of this
Registration Statement).
99.1 -- Voting Agreement, dated as of November 24, 1998, between
John B. Brock and Seagull (incorporated by reference to
Exhibit 99.2 to Seagull's Current Report on Form 8-K filed
on December 1, 1998).
99.2 -- Voting Agreement, dated as of November 24, 1998, between
James C. Flores and Seagull (incorporated by reference to
Exhibit 99.3 to Seagull's Current Report on Form 8-K filed
on December 1, 1998).
99.3 -- Voting Agreement, dated as of November 24, 1998, between the
Flores Family Limited Partnership and Seagull (incorporated
by reference to Exhibit 99.4 to Seagull's Current Report on
Form 8-K filed on December 1, 1998).
99.4 -- Voting Agreement, dated as of November 24, 1998, between The
Prudential Insurance Company of America and Seagull
(incorporated by reference to Exhibit 99.5 to Seagull's
Current Report on Form 8-K filed on December 1, 1998).
99.5 -- Voting Agreement, dated as of November 24, 1998, between
James T. Hackett and Seagull (incorporated by reference to
Exhibit 99.6 to Seagull's Current Report on Form 8-K filed
on December 1, 1998).
99.6 -- Voting Agreement, dated as of November 24, 1998, between
Barry J. Galt and Seagull (incorporated by reference to
Exhibit 99.7 to Seagull's Current Report on Form 8-K filed
on December 1, 1998).
**99.7 -- Form of Proxy Card for Special Meeting -- Seagull
**99.8 -- Form of Proxy Card for Special Meeting -- OEI
**99.9 -- Consents of OEI director nominees
+99.10 -- Section 262 of the Delaware General Corporation Law
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
+ Previously filed.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 162
The undersigned registrant hereby undertakes:
(1) To file, during any period during which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof;
(3) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(4) That every prospectus: (i) that is filed pursuant to paragraph
(3) immediately preceding, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Exchange Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(5) To respond to requests for information that is incorporated by
reference into this Joint Proxy Statement/Prospectus pursuant to Items 4,
10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request; and
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-4
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on January 27, 1999.
SEAGULL ENERGY CORPORATION
By: /s/ JAMES T. HACKETT
------------------------------------
James T. Hackett
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Amendment No. 1 to Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on January 27, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ JAMES T. HACKETT Director, Chairman of the Board, President and Chief
- --------------------------------------------- Executive Officer (Principal Executive Officer)
James T. Hackett
/s/ WILLIAM L. TRANSIER Executive Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer)
William L. Transier
* Vice President and Controller (Principal Accounting
- --------------------------------------------- Officer)
Gordon L. McConnell
* Vice Chairman, Director
- ---------------------------------------------
Barry J. Galt
* Director
- ---------------------------------------------
Milton Carroll
* Director
- ---------------------------------------------
Peter J. Fluor
* Director
- ---------------------------------------------
Sam F. Segnar
* Director
- ---------------------------------------------
J. Evans Attwell
</TABLE>
II-5
<PAGE> 164
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
* Director
- ---------------------------------------------
Dee S. Osborne
* Director
- ---------------------------------------------
Sidney R. Petersen
* Director
- ---------------------------------------------
Richard J. Burgess
* Director
- ---------------------------------------------
Thomas H. Cruikshank
* Director
- ---------------------------------------------
Robert F. Vagt
* Director
- ---------------------------------------------
R. A. Walker
*By /s/ JAMES T. HACKETT
- ---------------------------------------------
James T. Hackett
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 165
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of November 24, 1998
among Seagull and OEI (incorporated by reference to Exhibit
2.1 to Seagull's Current Report on Form 8-K filed on
December 1, 1998).
+2.2 -- Amendment No. 1 to Agreement and Plan of Merger between
Seagull and OEI dated as of December 9, 1998.
3.1 -- Articles of Incorporation of Seagull, as amended, including
Articles of Amendment filed May 12, 1988, May 21, 1991 and
May 21, 1993 with the Secretary of State of the State of
Texas and that certain Statement of Resolution Establishing
Series of Shares of Series B Junior Participating Preferred
Stock of Seagull Energy Corporation filed March 21, 1989
with the Secretary of State of the State of Texas
(incorporated by reference to Exhibit 3.1 to Seagull's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
3.2 -- Bylaws of Seagull, as amended through March 7, 1997
(incorporated by reference to Exhibit 4.9 to Seagull's Form
S-3 filed with the Securities and Exchange Commission on
September 18, 1997).
4.1 -- Amended and Restated Rights Agreement, dated March 17, 1989,
as amended effective June 13, 1992 and amended and restated
as of December 12, 1997, between Seagull and BankBoston,
N.A. (as successor to NCNB Texas National Bank), including
Form of Statement of Resolution Establishing the Series B
Junior Participating Preferred Stock, the Form of Right
Certificate and Form of Summary of Rights to Purchase
Preferred Shares (incorporated by reference to Exhibit 2 to
Seagull's Current Report on Form 8-K dated December 15,
1997).
4.2 -- Amendment No. 1 to Amended and Restated Rights Agreement
dated November 24, 1998, between Seagull and BankBoston,
N.A. (incorporated by reference to Exhibit 4.1 to Seagull's
Current Report on Form 8-K filed on December 1, 1998).
+5.1 -- Opinion of Vinson & Elkins L.L.P. regarding legality of the
securities to be registered.
+8.1 -- Opinion of Vinson & Elkins L.L.P. regarding tax matters.
+8.2 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
regarding tax matters.
23.1 -- Consents of Vinson & Elkins L.L.P. (included in the opinions
filed as Exhibits 5.1 and 8.1 to this Registration
Statement).
23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in the opinion filed as Exhibit 8.2 to this
Registration Statement).
*23.3 -- Consent of Independent Public Accountants, KPMG LLP --
Seagull.
*23.4 -- Consent of Independent Public Accountants, Arthur Andersen
LLP -- OEI.
+23.5 -- Consent of Netherland, Sewell & Associates, Inc. -- Seagull.
+23.6 -- Consent of Netherland, Sewell & Associates, Inc. -- OEI.
+23.7 -- Consent of Ryder Scott Company Petroleum Engineers --
Seagull.
+23.8 -- Consent of DeGolyer and McNaughton -- Seagull.
24.1 -- Powers of Attorney (included in the signature pages of this
Registration Statement).
99.1 -- Voting Agreement, dated as of November 24, 1998, between
John B. Brock and Seagull (incorporated by reference to
Exhibit 99.2 to Seagull's Current Report on Form 8-K filed
on December 1, 1998).
99.2 -- Voting Agreement, dated as of November 24, 1998, between
James C. Flores and Seagull (incorporated by reference to
Exhibit 99.3 to Seagull's Current Report on Form 8-K filed
on December 1, 1998).
</TABLE>
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
<C> <C> <S>
99.3 -- Voting Agreement, dated as of November 24, 1998, between the
Flores Family Limited Partnership and Seagull (incorporated
by reference to Exhibit 99.4 to Seagull's Current Report on
Form 8-K filed on December 1, 1998).
99.4 -- Voting Agreement, dated as of November 24, 1998, between The
Prudential Insurance Company of America and Seagull
(incorporated by reference to Exhibit 99.5 to Seagull's
Current Report on Form 8-K filed on December 1, 1998).
99.5 -- Voting Agreement, dated as of November 24, 1998, between
James T. Hackett and Seagull (incorporated by reference to
Exhibit 99.6 to Seagull's Current Report on Form 8-K filed
on December 1, 1998).
99.6 -- Voting Agreement, dated as of November 24, 1998, between
Barry J. Galt and Seagull (incorporated by reference to
Exhibit 99.7 to Seagull's Current Report on Form 8-K filed
on December 1, 1998).
**99.7 -- Form of Proxy Card for Special Meeting -- Seagull
**99.8 -- Form of Proxy Card for Special Meeting -- OEI
**99.9 -- Consents of OEI director nominees
+99.10 -- Section 262 of the Delaware General Corporation Law
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors
Seagull Energy Corporation:
We consent to the incorporation by reference in this registration
statement on Form S-4 of Seagull Energy Corporation of our report dated January
28, 1998, relating to the consolidated balance sheets of Seagull Energy
Corporation and Subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997, which
report is incorporated by reference in the December 31, 1997 Annual Report on
Form 10-K of Seagull Energy Corporation and to the reference to our firm under
the heading "Experts" in the prospectus.
/s/ KPMG LLP
------------------------
KPMG LLP
Houston, Texas
January 27, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated April 6, 1998
included in the Ocean Energy, Inc. Form 8-K dated May 6, 1998 and to all
references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
-------------------------------
ARTHUR ANDERSEN LLP
Houston, Texas
January 27, 1999
