<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
UNION TEXAS PETROLEUM HOLDINGS, INC.
(NAME OF SUBJECT COMPANY)
UNION TEXAS PETROLEUM HOLDINGS, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $.05 PER SHARE
(TITLE OF CLASS OF SECURITIES)
908640105
(CUSIP NUMBER OF CLASS OF SECURITIES)
ALAN R. CRAIN, JR., ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
UNION TEXAS PETROLEUM HOLDINGS, INC.
1330 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
(713) 623-6544
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
COPY TO:
CHRISTINE B. LAFOLLETTE, ESQ.
KING & SPALDING 1100 LOUISIANA, SUITE 3300
HOUSTON, TEXAS 77002-5219
(713) 751-3200
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Union Texas Petroleum Holdings, Inc., a
Delaware corporation (the "Company"), and the address of its principal
executive offices is 1330 Post Oak Boulevard, Houston, Texas 77056. The title
of the equity securities to which this Statement relates is the Common Stock,
par value $.05 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer disclosed in the Tender Offer
Statement on Schedule 14D-1, dated May 8, 1998 (the "Schedule 14D-1"), of VWK
Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly owned
subsidiary of Atlantic Richfield Company, a Delaware corporation ("Parent"),
to purchase all the issued and outstanding Shares at $29.00 per Share (the
"Offer Price"), net to the seller in cash (the "Offer"), upon the terms and
subject to the conditions set forth in the Offer to Purchase dated May 8, 1998
and the related Letter of Transmittal (which together constitute the "Offer
Documents"). The principal executive offices of the Purchaser and Parent are
located at 515 South Flower Street, Los Angeles, California 90071-2201.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of May 4, 1998 among the Purchaser, Parent and the Company (the "Merger
Agreement"), which provides, among other things, for the making of the Offer
by the Purchaser and, subject to the conditions and upon the terms of the
Merger Agreement, for the subsequent Merger of the Company and the Purchaser
(the "Merger").
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
statement, are set forth above in Item 1.
(b) (1) The following describes material contracts, agreements, arrangements
or understandings and any actual or potential conflict of interest between the
Company or its affiliates and the Company, its executive officers, directors
or affiliates:
Certain contracts, agreements, arrangements or understandings between the
Company and certain of its directors, executive officers or affiliates are
described in the sections entitled "Voting Securities and Certain Beneficial
Owners," "Executive Compensation and Other Information" and "Compensation
Committee Interlocks and Insider Participation" in the Company's proxy
statement dated March 24, 1998 for its 1998 Annual Meeting of Stockholders
(the "1998 Proxy Statement"). A copy of such sections of the 1998 Proxy
Statement along with Annex A to the 1998 Proxy Statement are filed as Exhibit
(c)(1) hereto. Annex A to the 1998 Proxy Statement includes the Amended and
Restated Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan which was
adopted by the stockholders at the 1998 Annual Meeting of Stockholders on May
7, 1998.
Certain other contracts, agreements or understandings between the Company
and certain of its directors and executive officers are described below:
Pursuant to the Company stock ownership guidelines and in accordance with
the Company's securities compliance procedure, in February 1998, four of the
Company's independent directors purchased shares in the open market as
follows: Ambassador Robert L. Barry 4,000 Shares, Glenn A. Cox 5,000 Shares,
Wylie B. Pieper 3,000 Shares and Stanley P. Porter 2,000 Shares. Pursuant to
an arrangement adopted by the Company Board, the Company is authorized,
subject to applicable law, to repurchase Shares at the Offer Price from the
directors following consummation of the Offer. Pursuant to the terms of the
Merger Agreement, all vested and non-vested options will be fully vested and
exercisable in full upon consummation of the Offer and subject to a cash
payment equal to the excess of the Offer Price over the exercise price of such
option.
Pursuant to the authorization of the Company Board on May 3, 1998, John L.
Whitmire, Chairman of the Board and Chief Executive Officer, will be paid on
the date of consummation of the Offer an amount of $5 million plus an excise
tax gross-up amount. Pursuant to the same authorization, if Mr. Whitmire is
1
<PAGE>
terminated following consummation of the Offer, Mr. Whitmire will be provided
office space and certain support services and benefits for three years and
will be eligible for retiree medical coverage. At the same meeting, the
Company Board authorized that all officers be offered financial planning and
tax planning services for a two year period commencing on May 1, 1998.
(2) The following describes material contracts, agreements, arrangements or
understandings and any actual or potential conflict of interest between the
Company or its affiliates and the Purchaser, its executive officers, directors
or affiliates:
The Company and Parent are both in the oil and gas business and from time to
time enter into business transactions with one another in furtherance of their
respective business. A subsidiary of the Company and ARCO Alaska, Inc., a
wholly owned subsidiary of Parent ("ARCO Alaska"), are co-venturers with a
third party in the development of the Alpine oil field on the North Slope in
Alaska. ARCO Alaska is the operator of the Alpine field and the Company and
ARCO Alaska have 22% and 56% working interests, respectively, in the field. In
addition, a subsidiary of the Company, ARCO Trinidad Exploration and
Production Co., a wholly owned subsidiary of Parent ("ARCO Trinidad"), and a
third party signed a Production Sharing Contract dated February 18, 1998 with
the government of Trinidad and Tobago covering deep water Block 27. The
Company's subsidiary and ARCO Trinidad have 15% and 45% working interests,
respectively, in the block.
In connection with the Offer, (i) the Company has entered into the Merger
Agreement with Parent and the Purchaser and (ii) Petroleum Associates L.P., a
Delaware limited partnership, and KKR Partners II, L.P., a Delaware limited
partnership (such partnerships together, the "Tendering Stockholder") and
Parent have entered into a Stockholders Agreement, dated as of May 4, 1998
(the "Stockholder Agreement"). Summaries of the Merger Agreement and the
Stockholder Agreement are set forth below. Copies of such agreements are filed
herewith as Exhibits (c)(2) and (c)(3), respectively, and the following
summaries are qualified in their entirety by reference to the text of such
agreements.
Merger Agreement
The Merger Agreement provides that following the satisfaction or waiver of
the conditions described below under "Conditions to the Merger", the Purchaser
will be merged with and into the Company (or, at the option of Parent, the
Company will be merged with and into the Purchaser), and each issued Share
(other than Shares owned by Parent, the Purchaser or the Company or a wholly
owned subsidiary of Parent, the Purchaser or the Company or by stockholders,
if any, who are entitled to and who properly exercise appraisal rights under
Delaware law) will be converted into an amount in cash equal to the Offer
Price.
Vote Required To Approve Merger. The Delaware General Corporation Law (the
"DGCL") requires, among other things, that the adoption of any plan of merger
or consolidation of the Company must be approved by the Board of Directors of
the Company (the "Company Board") and, if the "short-form" merger procedure
described below is not available, approved by the holders of a majority of the
Company's outstanding voting securities. The Company Board has approved the
Offer, the Merger and the Merger Agreement; consequently, the only additional
action of the Company that may be necessary to effect the Merger is adoption
of the Merger Agreement by the Company's stockholders if such "short-form"
merger procedure is not available. Under the DGCL, if stockholder adoption of
the Merger Agreement is required in order to consummate the Merger, the vote
required is the affirmative vote of the holders of a majority of the
outstanding Shares (including any Shares owned by the Purchaser). If the
Purchaser acquires, through the Offer, the Merger Agreement, the Stockholder
Agreement or otherwise, voting power with respect to at least majority of the
outstanding Shares (which would be the case if the Minimum Tender Condition
(as defined in "Certain Conditions to the Offer") were satisfied and the
Purchaser were to accept for payment Shares tendered pursuant to the Offer),
it would have sufficient voting power to effect the Merger without the
affirmative vote of any other stockholder of the Company.
The DGCL also provides that if a parent company owns at least 90% of the
outstanding shares of each class of stock of a subsidiary, the parent company
may merge that subsidiary into the parent company, or the parent company may
merge itself into that subsidiary, pursuant to the "short-form" merger
procedures without
2
<PAGE>
prior notice to, or the approval of, the other stockholders of the subsidiary.
In order to consummate the Merger pursuant to these provisions of the DGCL,
the Purchaser would have to own at least 90% of the outstanding Shares and at
least 90% of the outstanding shares of the Series A Preferred Stock of the
Company.
Conditions to the Merger. The Merger Agreement provides that the respective
obligations of each party to effect the Merger are subject to the satisfaction
or waiver of certain conditions, including the following: (a) if required by
applicable law, the Merger Agreement having been approved and adopted by the
affirmative vote of the holders of a majority of the Shares; (b) the waiting
period (and any extension thereof) applicable to the Merger under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") having
terminated or expired and any consents, approvals and filings under any
foreign antitrust law (including, without limitation, the rules and
regulations of the Council of the European Communities (the "European
Council") and of the Commission of the European Communities (the "European
Commission," and the rules and regulations of the European Council and
European Commission, collectively, the "EC Regulations"), the absence of which
would prohibit the consummation of the Merger, having been obtained or made;
(c) no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger being in
effect; provided, however, that each of the Company, the Purchaser and Parent
has used all reasonable efforts to prevent the entry of any such injunction or
other order and to appeal as promptly as possible any such injunction or other
order that may have been entered; and (d) the Purchaser having previously
accepted for payment and paid for Shares pursuant to the Offer.
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the effective time of the Merger, whether before or after
adoption of the Merger Agreement by the stockholders of the Company:
(1) by mutual written consent of Parent, the Purchaser and the Company;
(2) by either Parent or the Company,
(a) if the Merger is not consummated on or before January 31, 1999,
unless the failure to consummate the Merger is the result of a wilful
and material breach of the Merger Agreement or the Stockholder
Agreement by the party seeking to terminate the Merger Agreement;
provided, however, that the passage of such period will be tolled for
any part thereof during which any party is subject to a nonfinal order,
decree, ruling or action restraining, enjoining or otherwise
prohibiting the consummation of the Merger;
(b) if any federal, state, local or foreign government or any court
of competent jurisdiction, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity") issues an order, decree or ruling or takes any
other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action
has become final and nonappealable; or
(c) if as the result of the failure of any of the conditions to the
Offer described below under "Certain Conditions of the Offer", the
Offer has terminated or expired in accordance with its terms without
the Purchaser having purchased any Shares pursuant to the Offer;
(3) by Parent if, prior to the consummation of the Offer (unless Parent
has waived its right to the Company's performance of certain conditions of
the Offer by exercising its right to extend the Offer for up to 10 days
following the latest expiration date of the Offer that would otherwise be
permitted under the terms of the Merger Agreement), the Company breaches
any of its representations or warranties or fails to perform in any
material respect any of its covenants and obligations contained in the
Merger Agreement or the Stockholder Agreement, which breach or failure to
perform would give rise to the failure of a condition described under
"Certain Conditions of the Offer," provided that Parent is not then in
wilful and material breach of any representation, warranty or covenant in
the Merger Agreement or the Stockholder Agreement, and provided further,
that such breach or failure to perform is not capable of being cured by the
earlier of 15 days from the time it came to the knowledge of the Company
and the then scheduled expiration date of the Offer;
3
<PAGE>
(4) by the Company in accordance with the terms of the Merger Agreement
described in the second paragraph below under "Takeover Proposals",
provided it has complied with all provisions described in the second
paragraph under "Takeover Proposals", including the notice provisions
therein, and that it complies with the applicable requirements relating to
the payment (including the timing of any payment) of the Termination Fee
(as defined below under "Fees and Expenses");
(5) by the Company if, prior to the consummation of the Offer, Parent or
the Purchaser shall be in breach of any of their representations and
warranties or fail to perform in any material respect any of their
covenants and obligations contained in the Merger Agreement (provided, that
the Company is not then in wilful and material breach of any
representation, warranty or covenant contained in the Merger Agreement and
provided further, that such breach or failure to perform is not capable of
being cured by the earlier of 15 days from the time it came to the
knowledge of Parent and the then scheduled expiration date of the Offer);
(6) by the Company if the Offer has not been made in accordance with the
terms of the Merger Agreement; or
(7) by the Company if any event occurs which would result in the
condition set forth in paragraph (e) under "Certain Conditions of the
Offer" not being satisfied, and five business days have elapsed since such
occurrence, unless Parent has waived its right to terminate the Merger
Agreement and its right not to consummate the Offer for the failure of such
condition resulting from such event.
Takeover Proposals. The Merger Agreement provides that the Company will not,
nor will it permit any of its subsidiaries to, nor will it authorize any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, the Company or any of its subsidiaries
(collectively, "Company Representatives") to, and will use its reasonable best
efforts to ensure that none of the Company Representatives will, (1) solicit,
initiate or encourage the submission of any Takeover Proposal (as defined
below), (2) enter into any agreement with respect to any Takeover Proposal or
(3) participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes a
Takeover Proposal; provided, however, that, at any time during the period
following the date of the Merger Agreement and prior to the consummation of
the Offer (the "Applicable Period"), the Company may, in response to a
Superior Proposal (as defined below, including the determination by the
Company Board set forth in such definition) that was not solicited by the
Company or any Company Representative and that did not otherwise result from a
breach or a deemed breach of the provisions described in this paragraph, and
subject to providing prior written notice of its decision to take such action
to Parent (the "Company Notice") and compliance with the notification
provisions described in the second succeeding paragraph below, for a period of
no more than ten business days following delivery of the Company Notice (which
period shall be extended to the end of the 48-hour period following the
receipt by Parent of notice from the Company that it is prepared to accept a
Superior Proposal), (i) furnish information with respect to the Company to any
person making a Superior Proposal pursuant to a customary confidentiality
agreement as determined by the Company after consultation with its outside
counsel and (ii) participate in discussions or negotiations regarding such
Superior Proposal. The Merger Agreement provides that any action that is in
violation of or inconsistent with the restrictions set forth in the preceding
sentence by any executive officer of the Company or any of its subsidiaries or
any Company Representative or affiliate of the Company, whether or not such
person is purporting to act on behalf of the Company or any of its
subsidiaries or otherwise, shall be deemed to be a breach of the provisions
described in this paragraph by the Company. The Merger Agreement defines
"Takeover Proposal" as any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of a business that
constitutes 15% or more of the net revenues, net income or the assets of the
Company and its subsidiaries taken as a whole, or 15% or more of any class of
equity securities of the Company or any of its significant subsidiaries, any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 15% or more of any class of equity securities of the
Company or any of its subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries, other than the transactions
contemplated by
4
<PAGE>
the Merger Agreement. The Company may deliver only one Company Notice with
respect to each person making a Superior Proposal.
The Merger Agreement provides further that, except as described below,
neither the Company Board nor any committee thereof may (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent, the
approval or recommendation by such Company Board or such committee of the
Offer, the Merger Agreement or the Merger, (ii) approve or cause the Company
to enter into any letter of intent, agreement in principle or any legally
binding acquisition agreement or similar agreement (an "Acquisition
Agreement") related to any Takeover Proposal or (iii) approve or recommend, or
propose to publicly approve or recommend, any Takeover Proposal.
Notwithstanding the foregoing, if the Company has received a Superior Proposal
and if the Purchaser has not accepted for payment any Shares pursuant to the
Offer, the Company Board may (subject to this and the following sentences)
terminate the Merger Agreement, but only at a time that is during the
Applicable Period and is more than 48 hours following Parent's receipt of
written notice advising Parent that the Company Board is prepared to accept
such Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal;
provided, however, that (x) at the time of such termination, such proposal
continues to be a Superior Proposal, taking into account any amendment of the
terms of the Offer or the Merger by Parent or any proposal by Parent to amend
the terms of the Merger Agreement, the Offer or the Merger or any other
Takeover Proposal made by Parent (a "New Parent Proposal"), and (y)
concurrently with or immediately after such termination, the Company Board
shall cause the Company to enter into an Acquisition Agreement with respect to
such Superior Proposal. The Merger Agreement defines "Superior Proposal" as
any proposal made by a third party to acquire, directly or indirectly,
including pursuant to a tender offer, exchange offer, merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash and/or securities, more than
50% of the outstanding Shares or all or substantially all the assets of the
Company and otherwise on terms which the Company Board determines in its good
faith judgment (after consultation with a financial advisor of nationally
recognized reputation) (x) is reasonably capable of being completed, taking
into account all legal, financial, regulatory and other aspects of the
proposal and the third party making such proposal, and (y) provides greater
value to the holders of Shares (specifically taking into account the expected
value of the consideration to be received by the holders of Shares on the date
such consideration is expected to be received by such holders) than the cash
consideration to be received by such stockholder pursuant to the Offer and the
Merger, as the Offer and the Merger may be amended from time to time, or the
value to the holders of Shares to be provided by any New Parent Proposal
(specifically taking into account the expected value of the consideration
expected to be received in the Offer, the Merger or any New Parent Proposal by
the holders of Shares on the date such consideration is expected to be
received by such holders).
In addition to the obligations of the Company described in the preceding two
paragraphs, the Merger Agreement provides that the Company will promptly
advise Parent orally and in writing of any Takeover Proposal or any inquiry or
request for information with respect to or that could reasonably be expected
to lead to any Takeover Proposal, the identity of the person making any such
Takeover Proposal or inquiry or request for information and the material terms
of any such Takeover Proposal or inquiry or request for information. The
Company is further required under the terms of the Merger Agreement to (i)
keep Parent fully informed of the status including any change to the material
terms of any such Takeover Proposal or inquiry or request for information and
(ii) provide to Parent as soon as practicable after receipt or delivery
thereof with copies of all correspondence and other written material sent or
provided to the Company or any Company Representative or any affiliate of the
Company from any third party in connection with any Takeover Proposal or
inquiry or request for information or sent or provided by the Company or any
Company Representative or any affiliate of the Company to any third party in
connection with any Takeover Proposal or inquiry or request for information;
provided, however, that the Company shall not be required to provide any
nonpublic information specified in this clause (ii) regarding the business or
financial condition or prospects of such third party if the Company is
prohibited from disclosing such information pursuant to a legally binding
confidentiality agreement.
The Merger Agreement provides that nothing contained therein will prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Securities
5
<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act"), or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Company Board, after consultation with outside counsel, failure so to disclose
would be inconsistent with applicable law; provided, however, that neither the
Company nor the Company Board nor any committee thereof may withdraw or
modify, or propose publicly to withdraw or modify, its position with respect
to the Offer, the Merger or the Merger Agreement or approve or recommend, or
propose publicly to approve or recommend, a Takeover Proposal so long as the
Merger Agreement is in effect.
Fees and Expenses. The Merger Agreement provides that, except as described
below, all fees and expenses incurred in connection with the Offer, the Merger
and the other transactions contemplated by the Merger Agreement and the
Stockholder Agreement will be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated. The Merger Agreement
further provides that the Company will pay in same-day funds to Parent a fee
of $85,000,000 (the "Termination Fee") under the following circumstances: (a)
if the Company terminates the Merger Agreement in accordance with the
provisions described above in clause (4) under "Termination of the Merger
Agreement"; (b) if (i) after the date of the Merger Agreement and prior to the
termination of the Merger Agreement, any person makes a Takeover Proposal,
(ii) the Offer shall have remained open until the scheduled expiration date
immediately following the date such Takeover Proposal is made, (iii) the
Minimum Tender Condition is not satisfied at the expiration of the Offer, (iv)
the Merger Agreement is terminated by Parent or the Company in accordance with
the provisions described above in clause (2)(c) under "Termination of the
Merger Agreement" and (v) within 12 months of the date of termination of the
Merger Agreement, the Company executes a legally binding agreement or an
agreement in principle pursuant to which any person, entity or group (other
than Parent, the Purchaser or any of their affiliates), in one transaction or
a series of transactions, will acquire more than 50% of the outstanding Shares
or assets of the Company through any open market purchases, merger,
consolidation, tender or exchange offer, recapitalization, reorganization or
other business combination (an "Acquisition Event"); or (c) if (i)after the
date of the Merger Agreement and prior to the termination of the Merger
Agreement, any person makes a Takeover Proposal, (ii)the Merger Agreement is
terminated in accordance with the provisions described above in clause (2)(c)
under "Termination of the Merger Agreement" as a result of the failure of any
condition set forth in paragraphs (f) or (g) under "Certain Conditions to the
Offer," and (iii) an Acquisition Event occurs within 12 months of the date of
termination of the Merger Agreement. Any fee due pursuant to the provisions
described in this paragraph will be paid on the date of termination of the
Merger Agreement in the case of a fee due under clause (a) of the preceding
sentence, or on the date such Acquisition Event is consummated in the case of
a fee due under clause (b) or (c) of the preceding sentence.
Conduct of Business. The Merger Agreement provides that, except as
contemplated or permitted by the Merger Agreement or the Stockholder Agreement
or to the extent that Parent otherwise agrees, from May 4, 1998 to the
effective time of the Merger or earlier termination of the Merger Agreement:
(a) the Company will, and will cause its subsidiaries to, conduct their
respective business in the usual, regular and ordinary course consistent with
past practice except as required to comply with changes in applicable law
occurring after the date of the Merger Agreement (subject to the express
restrictions set forth below, including, without limitation, the restrictions
of clauses (e) and (f) below) and, to the extent consistent therewith, use all
commercially reasonable efforts to preserve intact their current business
organizations and keep available the services of their current officers and
employees to maintain their respective goodwill and ongoing business; (b) the
Company will not, and will not permit any of its subsidiaries to, (i) declare,
set aside or pay any dividends on, or make other distributions in respect of,
any of its capital stock (other than regular quarterly cash dividends not in
excess of $0.05 per Share with usual record and payment dates and in
accordance with the Company's present dividend policy and regular quarterly
cash dividends with respect to the Series A Preferred Stock), other than
dividends and distributions by a direct or indirect wholly owned subsidiary of
the Company to its parent, (ii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(c) the Company will not, and will not permit any of its subsidiaries to,
issue, deliver, sell or grant (i) any shares of its capital stock, (ii) any
bonds, debentures, notes or
6
<PAGE>
other indebtedness of the Company having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matter
on which stockholders of the Company may vote or other voting securities,
(iii) any securities convertible into, or exchangeable for, or any options,
warrants or rights to acquire, any such shares, voting securities or
convertible or exchangeable securities or (iv) any "phantom" stock, "phantom"
stock rights, stock appreciation rights or stock-based performance units,
other than the issuance of Shares (and associated rights granted under the
Rights Agreement (as defined below under "Rights Agreement")) upon the
exercise of stock options outstanding on the date of the Merger Agreement or
under the Company's Savings Plan for Salaried Employees, Deferred Compensation
Plan or defined contribution retirement plan for employees of Virginia
Indonesia Company and in accordance with the present terms of such stock
options and plan; (d) the Company will not, and will not permit any of its
subsidiaries to, amend its certificate of incorporation or by-laws (or
comparable charter or organizational documents); (e) the Company will not, and
will not permit any of its subsidiaries to, enter into or amend any material
technical contract, long-term drilling rig contract, agreement to sell,
purchase or share seismic and other geological or geophysical data, or any
material contract for the purchase or sale of oil, gas, LPG, LNG, ethylene,
propylene or other hydrocarbon or petrochemical products other than in the
ordinary course of business consistent with past practice; (f) the Company
will not, and will not permit any of its subsidiaries to (i) enter into, or
amend, or negotiate to enter into or amend, any farm-out or farm-in
arrangement, area of mutual interest agreement, exploration license, lease,
concession agreement, production sharing contract, operating service agreement
or similar agreement or arrangement evidencing an interest in hydrocarbons, or
participate in any bidding group, bidding round or public hearing with respect
thereto, (ii) acquire, or negotiate to acquire, any interest in a corporation,
partnership or joint venture arrangement which holds an oil and gas interest
of the type described in the foregoing clause, (iii) sell, transfer, assign,
relinquish or terminate (other than relinquishments or terminations required
by the terms of existing agreements) or negotiate to take any such action with
respect to, the Company's interest (as of the date of the Merger Agreement) in
any oil and gas exploration license, lease, area of mutual interest agreement,
concession agreement, production sharing contract, operating service agreement
or other agreement or arrangement evidencing an interest in hydrocarbons, or
in the equity or debt securities of any corporation, partnership or joint
venture arrangement which holds such an interest, including, without
limitation, the imposition of any pledge, lien, charge, mortgage, encumbrance
or security interest of any kind or nature whatsoever (collectively, "Liens"),
other than Liens permitted by the Merger Agreement, on any of the foregoing,
(iv) give, or negotiate to give, any approvals relating to development plans,
work plans, budgets or capital expenditure commitments in connection with any
oil and gas interests of the type described in the foregoing clause, other
than expenditures in the Company's existing capital expenditure budget, or (v)
make any change in the Company's petrochemical business, including, without
limitation, the imposition of any Lien, other than Liens permitted by the
Merger Agreement, thereon, or enter into any agreements or negotiations to
acquire or build new petrochemicals capacity or expand existing petrochemicals
capacity, or dispose of (including by way of a contribution of assets or
otherwise), all or any portion of the Company's petrochemical business, or to
alter or amend, in any material respect, any contracts relating to the
Company's petrochemical business, other than in the ordinary course of
business consistent with past practice; (g) the Company will not, and will not
permit any of its subsidiaries to, acquire or agree to acquire (i) by merging
or consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division thereof
or (ii) any assets that are material, individually or in the aggregate, to the
Company and its subsidiaries taken as a whole; (h) the Company will not, and
will not permit any of its subsidiaries, to (i) grant to any officer or
director of the Company or any of its subsidiaries any increase in
compensation, except in the ordinary course of business consistent with prior
practice or to the extent required under employment agreements in effect as of
the date of the most recent audited financial statements included in the
documents required to be filed by the Company under the Exchange Act which are
filed and publicly available prior to the date of the Merger Agreement (the
"Filed Company SEC Documents"), (ii) grant to any employee, officer or
director of the Company or any of its subsidiaries any increase in severance
or termination pay, except to the extent required under any agreement in
effect as of December 31, 1997, (iii) enter into any employment, consulting,
indemnification, severance or termination agreement with any such employee,
officer or director, (iv) establish, adopt, enter into or amend in any
material respect any collective bargaining agreement or benefit plan of the
Company specified the Merger Agreement or
7
<PAGE>
(v) take any action to accelerate any rights or benefits, or make any material
determinations not in the ordinary course of business consistent with prior
practice, under any collective bargaining agreement or benefit plan of the
Company specified the Merger Agreement; (i) the Company will not, and will not
permit any of its subsidiaries to, make any change in accounting methods,
principles or practices materially affecting the reported consolidated assets,
liabilities or results of operations of the Company, except insofar as may
have been required by a change in generally accepted accounting principles or
by operation of law; (j) the Company will not, and will not permit any of its
subsidiaries to, sell, lease, license or otherwise dispose of, or subject to
any Lien, any properties or assets, except sales of inventory and excess or
obsolete assets in the ordinary course of business consistent with past
practice; (k) the Company will not, and will not permit any of its
subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person or issue or sell any debt securities
or warrants or other rights to acquire any debt securities of the Company or
any of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep-well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings or
trade obligations incurred in the ordinary course of business consistent with
past practice, or (ii) make any loans, advances or capital contributions to,
or investments in, any other person, other than to or in the Company or any
direct or indirect wholly owned subsidiary of the Company; (l) the Company
will not, and will not permit any of its subsidiaries to, make or agree to
make any new capital expenditure or expenditures, other than expenditures in
the Company's existing capital expenditure budget, that, individually, is in
excess of $1,500,000 or, in the aggregate, are in excess of $5,000,000; (m)
the Company will not, and will not permit any of its subsidiaries to, make any
tax election or settle or compromise any material tax liability or refund,
consent to any extension or waiver of the statute of limitations period
applicable to any tax claim or action, if any such election, settlement,
compromise, consent or other action would have the effect of increasing the
tax liability or reducing any net operating loss, foreign tax credit, net
capital loss or any other credit or tax attribute of the Company or any of its
subsidiaries (including, without limitation, deductions and credits related to
alternative minimum taxes); (n) the Company will not, and will not permit any
of its subsidiaries to, enter into any hedging agreement or other financial
agreement or arrangement designed to protect the Company against fluctuations
in commodities prices or currency exchange rates, except agreements or
arrangements entered into in the ordinary course of business consistent with
past practice; (o) the Company will not, and will not permit any of its
subsidiaries to, (i) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with their
terms or the terms of the Merger Agreement, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or notes thereto) of the Company included in the Filed
Company SEC Documents or incurred in the ordinary course of business
consistent with past practice, (ii) cancel any material indebtedness
(individually or in the aggregate) or waive any claims or rights of
substantial value or (iii) waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party; (p) the Company will not, and
will not permit any of its subsidiaries to, make any material change
(including failing to renew) in the amount or nature of the insurance policies
covering the Company and its subsidiaries, other than pursuant to the terms of
such existing policies as of the date of the Merger Agreement; (q) the Company
will not, and will not permit any of its subsidiaries to, enter into any
agreements in connection with, or negotiate to give any approvals to, the
amendment, extension, modification or waiver of any of the terms and
conditions (as in effect on the date of the Merger Agreement) of the
Indonesian Participating Units issued by Unimar Company, or any guarantee or
"keep well" or other agreement to maintain any financial condition with
respect thereto; and (r) the Company will not, and will not permit any of its
subsidiaries to, authorize any of, or commit or agree to take any of, the
foregoing actions.
In addition to the foregoing, in the Merger Agreement the Company and Parent
have agreed that they will not, and will not permit any of their respective
subsidiaries to, take any action that would, or that would reasonably be
expected to, result in (a) any of the representations and warranties of such
party set forth in the Merger Agreement and the Stockholder Agreement, to the
extent a party thereto, that is qualified as to materiality becoming untrue,
(b) any of such representations and warranties that is not so qualified
becoming untrue in any material respect or (c) any of the conditions described
under "Certain Conditions of the Offer"or any condition
8
<PAGE>
to the Merger described under "Conditions to the Merger" above, not being
satisfied, subject to the Company's right to take actions specifically
permitted by the Merger Agreement described above in "Takeover Proposals".
In the Merger Agreement, the Company has also agreed to promptly advise
Parent orally and in writing of any change or event having, or which, insofar
as can reasonably be foreseen, would have, a material adverse effect on the
Company.
Board of Directors. The Merger Agreement provides that promptly upon the
acceptance for payment of, and payment for, Shares by the Purchaser pursuant
to the Offer, the Purchaser will be entitled to designate such number of
directors on the Company Board as will give the Purchaser, subject to
compliance with Section 14(f) of the Exchange Act, representation on the
Company Board equal to at least that number of directors, rounded up to the
next whole number, which is the product of (a) the total number of directors
on the Company Board (giving effect to the directors elected pursuant to this
sentence) multiplied by (b) the percentage that (i) such number of Shares so
accepted for payment and paid for by the Purchaser plus the number of Shares
otherwise owned by the Purchaser or any other subsidiary of Parent bears to
(ii) the number of such Shares outstanding, and the Company will, at such
time, cause the Purchaser's designees to be so elected; provided, however,
that in the event that the Purchaser's designees are appointed or elected to
the Company Board, until the effective time of the Merger, the Company Board
will include at least three directors who were directors of the Company as of
the date of the Merger Agreement and who are not officers of the Company.
Subject to applicable law, the Company has agreed to take all action requested
by Parent necessary to effect any such election, including mailing to its
stockholders the Information Statement containing the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, which
Information Statement is attached as Appendix A to this Schedule 14D-9.
Stock Options. The Merger Agreement provides that prior to the consummation
of the Offer, the Company Board (or, if appropriate, any committee
administering the Company Stock Plans (as defined below)) shall have adopted
such resolutions or taken such other actions as are required to ensure that
all Company Stock Options (as defined below) and all Company SARs (as defined
below) heretofore granted under any Company Stock Plan that are outstanding at
the effective time of the Merger shall not give the holder thereof the right
to receive any capital stock of Parent, the Company or the Surviving
Corporation (as defined below) after the effective time of the Merger or to
receive from Parent, the Company or the Surviving Corporation any
consideration other than an amount of cash equal to (i) (x) the excess, if
any, of the consideration payable pursuant to the Merger over the exercise
price per share of Common Stock subject to such Company Stock Option or
Company SAR, multiplied by (y) the number of shares of Common Stock for which
such Company Stock Option or Company SAR shall not theretofore have been
exercised, less (ii) such amounts as may be required to be deducted or
withheld with respect thereto under the Code or under any provision of state,
local or foreign tax law. The Merger Agreement defines (a) "Company Stock
Option" as any option to purchase Shares granted under any Company Stock Plan,
(b) "Company SAR" as any stock appreciation right linked to the price of the
Shares and granted under any Company Stock Plan, and (c) "Company Stock Plans"
as the plans providing for the grant of Company Stock Options or any other
issuance of capital stock of the Company as specified in the Merger Agreement.
The Merger Agreement further provides that, prior to the expiration of the
Offer, the Company will, subject to compliance with applicable law, make an
offer to pay each holder of a Company Stock Option that is not automatically
subject to a cash payment upon consummation of the Offer, promptly after the
consummation of the Offer and in exchange for the cancellation of such Company
Stock Option, an amount in cash equal to (x)(1) the excess, if any, of the
Offer Price over the exercise price per share of Common Stock subject to such
Company Stock Option multiplied by (2) the number of shares of Common Stock
for which such Company Stock Option shall not theretofore have been exercised,
less (y) such amounts as may be required to be deducted or withheld with
respect thereto under the Internal Revenue Code of 1986 and the regulations
promulgated thereunder or under any provision of state, local or foreign tax
law. In addition, the Merger Agreement provides that, subject to compliance
with applicable law, the Company may take any actions necessary to purchase
Shares from those officers of the Company and members of the Company Board as
are designated by the Company Board, and
9
<PAGE>
such purchase shall take place after the consummation of the Offer at a price
per share equal to the Offer Price. See Item 3(b)(1) above.
Benefit Plans. The Merger Agreement provides that Parent will cause the
corporation surviving the Merger (the "Surviving Corporation") to (a) maintain
for a period of one year after the effective time of the Merger the benefit
plans of the Company, as specified in the Merger Agreement (other than plans
providing for the issuance of capital stock of the Company or based on the
value of capital stock of the Company) in effect on the date of the Merger
Agreement or (b) make available to employees of the Company and its
subsidiaries (including employees transferred to employment with Parent or
other subsidiaries of Parent) the employee benefit plans of Parent and its
subsidiaries that are provided to similarly situated employees of Parent and
its subsidiaries. The Merger Agreement also provides that (i) following the
effective time of the Merger, Parent will cause the Company and its
subsidiaries to honor (subject to the provisions described in this paragraph
and under "Indemnification") all obligations under any contracts, agreements
and commitments of the Company and its subsidiaries prior to the date of the
Merger Agreement (or as established or amended in accordance with or permitted
by the Merger Agreement) the existence of which does not constitute a
violation of the terms of the Merger Agreement, which apply to any current or
former employee, or current or former director of the parties to the Merger
Agreement or any of their subsidiaries; provided, however, that this
undertaking is not intended to prevent the Company or any subsidiary of the
Company from enforcing such contracts, agreements and commitments in
accordance with their terms, including, any reserved right to amend, modify,
suspend, revoke or terminate any such contract, agreement or commitment; (ii)
for purposes of any of the Company's benefit plans conferring rights on a
current or former employee, officer or director as a result of a change of
control of the Company, the consummation of the Merger shall be deemed to
constitute a "Change of Control" (as that term is defined in such benefit
plans of the Company); (iii) if any employee or officer of the Company or any
of its subsidiaries becomes a participant in any employee benefit plan,
program, practice or policy of Parent or any subsidiary of Parent or the
Surviving Corporation, such employee or officer shall be given credit
thereunder for all service prior to the effective time of the Merger with the
Company and its subsidiaries or any predecessor employer (to the extent such
credit was given by the Company) for purposes of eligibility and vesting (but
not for benefit accrual purposes), except to the extent that crediting such
service would result in duplication of benefits; (iv) for a period of two
years from the consummation of the Offer, if any segment or business of the
Company or its subsidiaries (a "Segment") is sold or otherwise disposed of,
Parent agrees, and shall cause the Surviving Corporation to agree, to provide,
or cause the buyer of or other successor to such Segment to provide, each
employee whose employment is involuntarily terminated after such sale or other
disposition with severance benefits which are no less favorable than the
severance benefits to which such employee would have been entitled had such
employee's employment instead then been involuntarily terminated by the
Company or its subsidiaries, pursuant to the Company's benefit plans existing
as of the date of the Merger Agreement, but only to the extent that the
obligations of the Company and its subsidiaries under the Company's benefit
plans have not been discharged prior to such involuntary termination of
employment (for the purposes of this clause, the term "involuntarily
terminated" shall be used as such term is used in the relevant benefit plans
of the Company); (v) on or before 90 days after the consummation of the
Merger, Parent will (x) notify each management employee who is a participant
in the Company's Executive Severance Plan as to whether Parent intends to
continue the employment of such participant or to terminate the employment of
such participant, (y) with respect to each participant whose employment Parent
intends to terminate, notify such participant of the effective date of such
termination and the details of the terms and conditions of such participant's
employment intended by Parent to be applicable prior to the date of such
termination, and (z) with respect to each participant to whom Parent intends
to offer continued employment, notify such participant of any desired changes
Parent would make in the terms and conditions of such participant's
employment; (vi) Parent shall maintain, or shall cause the Surviving
Corporation or its successors to maintain, with respect to employees and
former employees (and their eligible dependents) of the Company and its
subsidiaries who are participating in the Company's retiree medical plan as of
the effective time of the Merger or who should be eligible to participate in
the Company's retiree medical plan if they retired as of the later of (x) the
effective time of the Merger or (y) in the case of an employee who is
involuntarily terminated for purposes of any Company severance plan (as
currently in effect), as of the end of the salary continuation period under
such severance plan, retiree medical coverage that is consistent with the
10
<PAGE>
retiree medical coverage provided to similarly situated employees and former
employees of Parent and its subsidiaries at such time; (vii) without regard to
whether the Company's Salaried Employees' Pension Plan (the "CSEPP") or the
Company's Supplemental Retirement Plan II (the "SERP") are continued following
the effective time of the Merger, Parent shall cause certain benefits provided
by the CSEPP and the SERP (pertaining to additional service credit under such
plans for certain participants who are involuntarily terminated), with respect
to employees of the Company as of the effective time of the Merger who are
involuntarily terminated from employment with Parent or any subsidiary of
Parent within two years after the effective time of the Merger, to be
continued for a period of not less than two years following the effective time
of the Merger; (viii) at Parent's election, the Company shall amend the CSEPP
and Savings Plan for Salaried Employees to cause all employees of the Company
and its subsidiaries to become 100% vested in their accrued benefits under
such plans as of the effective time of the Merger, provided that in all cases,
any employee of the Company or any of its subsidiaries who is a participant in
the CSEPP or the Savings Plan for Salaried Employees as of the effective time
of the Merger shall become 100% vested in his or her accrued benefits under
such plans if and when such employee is involuntarily terminated within two
years of the effective time of the Merger. The Merger Agreement further
provides that nothing therein shall be construed as giving any employee of the
Company or any subsidiary of the Company any right to continued employment
following the effective time of the Merger.
Indemnification. In the Merger Agreement, Parent has agreed, to the fullest
extent permitted by law, (a) to cause the Surviving Corporation to honor all
the Company's obligations to indemnify (including any obligations to advance
funds for expenses) the current or former directors or officers of the Company
and its subsidiaries for acts or omissions by such directors and officers
occurring at or prior to the effective time of the Merger to the extent that
such obligations of the Company exist on the date of the Merger Agreement,
whether pursuant to the Restated Certificate of Incorporation, as amended, or
By-laws, as amended, of the Company, individual indemnity agreements or
otherwise; (b) that such obligations will survive the Merger and will continue
in full force and effect in accordance with the terms of the Restated
Certificate of Incorporation, as amended, and By-laws, as amended, of the
Company and such individual indemnity agreements from the effective time of
the Merger until the expiration of the applicable statute of limitations with
respect to any claims against such directors or officers arising out of such
acts or omissions; and (c) for a period of six years after the effective time
of the Merger, to cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company
(provided that Parent may substitute therefor policies with reputable and
financially sound carriers of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect
to claims arising from or related to facts or events which occurred at or
before the effective time of the Merger; provided, however, that Parent will
not be obligated to make annual premium payments for such insurance to the
extent such premiums exceed 300% of the annual premiums paid as of the date
hereof by the Company for such insurance (such 300% amount, the "Maximum
Amount"). If such insurance coverage cannot be obtained at all, or can only be
obtained at an annual premium in excess of the Maximum Amount, Parent will
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to such amount; provided, however, that
if such insurance coverage cannot be obtained at all, Parent shall purchase
all available extended reporting periods with respect to pre-existing
insurance in an amount which, together with all other insurance purchased
pursuant to clause (c) above, does not exceed the Maximum Premium. The Merger
Agreement further provides that Parent will not, and will cause the Company
not to, take any action that would have the effect of limiting the aggregate
amount of insurance coverage required to be maintained for the individuals
referred to in clause (c) above.
In the Merger Agreement, Parent has also agreed that (a) from and after the
consummation of the Offer, to the full extent permitted by law, Parent will,
and will cause the Company (or any successor to the Company), to indemnify,
defend and hold harmless the present officers and directors of the Company and
its subsidiaries (each an "Indemnified Party") against all losses, claims,
damages, liabilities, fees and expenses (including attorneys' fees and
disbursements), judgments, fines and amounts paid in settlement (collectively,
"Losses") arising out of actions or omissions occurring at or prior to the
effective time of the Merger in connection with the Merger Agreement, the
Stockholder Agreement, the Offer, the Merger and the other transactions
contemplated by the Merger Agreement and the Stockholder Agreement; provided,
however, that an Indemnified Party shall not be
11
<PAGE>
entitled to indemnification under this clause (a) for Losses arising out of
actions or omissions by the Indemnified Party constituting (i) a breach of the
Merger Agreement or the Stockholder Agreement, (ii) criminal conduct or (iii)
any violation of federal, state or foreign securities laws; and provided
further, however, that in order to be entitled to indemnification under this
clause (a), an Indemnified Party must give Parent and the Company prompt
written notice of any third party claim which may give rise to any indemnity
obligation under this clause (a), and Parent and the Company shall have the
right to assume the defense of any such claim through counsel of their own
choosing (subject to such counsel's reasonable judgment that separate defenses
that would create a conflict of interest on the part of such counsel are not
available), provided that if Parent and the Company do not assume any such
defense, they shall be liable for all reasonable costs and expenses of
defending such claim incurred by the Indemnified Party, including reasonable
fees and disbursements of counsel and shall advance such reasonable costs and
expenses to the Indemnified Party; provided, however, that such advance shall
be made only after receiving an undertaking from the Indemnified Party that
such advance shall be repaid if it is determined that such Indemnified Party
is not entitled to indemnification therefor and that neither Parent nor the
Company shall be liable under this clause (a) for any Losses resulting from
any settlement, compromise or offer to settle or compromise any such claim or
litigation or other action, without the prior written consent of Parent and
the Company; (b) the Company shall not, and Parent shall not permit the
Company to, amend or repeal any provision of the Restated Certificate of
Incorporation, as amended, or By-laws, as amended, of the Company after the
consummation of the Offer if such action would adversely affect the rights of
individuals who on or prior to the consummation of the Offer were entitled to
advances, indemnification or exculpation thereunder, for actions or omissions
by such individuals prior to the effective time of the Merger; and (c) in the
event the Surviving Corporation or any successor to the Surviving Corporation
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger
or (ii) transfers all or substantially all its properties and assets to any
person, then, and in each case, proper provision shall be made so that the
successors of the Surviving Corporation honor the obligations of the Company
set forth in the provisions of the Merger Agreement described in this and the
immediately preceding paragraph.
Reasonable Efforts; Notification. The Merger Agreement provides that upon
the terms and subject to the conditions set forth in the Merger Agreement,
each of the Company, Parent and the Purchaser will use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Offer, the Merger and the other
transactions contemplated by the Merger Agreement and the Stockholder
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of
all necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or proceeding by,
any Governmental Entity, (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iii) the defending of any lawsuits
or other legal proceedings, whether judicial or administrative, challenging
the Merger Agreement or the Stockholder Agreement or the consummation of the
transactions contemplated thereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by the
Merger Agreement and the Stockholder Agreement and to fully carry out the
purposes of the Merger Agreement and the Stockholder Agreement. In connection
with the foregoing sentence, the Company and the Company Board will (i) take
all action necessary to ensure that no state takeover statute or similar
statute or regulation is or becomes applicable to the Merger Agreement or the
Stockholder Agreement or any transaction contemplated thereby and (ii) if any
state takeover statute or similar statute or regulation becomes applicable to
the Merger Agreement or the Stockholder Agreement, take all action necessary
to ensure that the transactions contemplated thereby may be consummated as
promptly as practicable on the terms contemplated by the Merger Agreement and
the Stockholder Agreement and otherwise to minimize the effect of such statute
or regulation on the transactions contemplated thereby; provided, however,
that nothing in the Merger Agreement will require any party to waive any
substantial rights or agree to any substantial limitation on its operations or
to take any action that would result in any of the consequences referred to in
paragraph (a) under "Certain Conditions of the Offer." The Merger Agreement
further provides that the
12
<PAGE>
Company shall give prompt notice to Parent and Parent or the Purchaser shall
give prompt notice to the Company, of (i) any representation or warranty made
by it contained in the Merger Agreement or the Stockholder Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming untrue
or inaccurate in any material respect or (ii) the failure by it to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under the Merger Agreement or the Stockholder
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under the Merger Agreement or the
Stockholder Agreement.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties.
Procedure for Termination, Amendment, Extension or Waiver. The Merger
Agreement provides that following the election or appointment of the
Purchaser's designees to the Company Board as described above under "Board of
Directors", prior to the effective time of the Merger, any amendment or
termination of the Merger Agreement, extension for the performance or waiver
of the obligations of Parent or the Purchaser or waiver of the Company's
rights thereunder will require the concurrence of a majority of the directors
of the Company who were directors on the date of the Merger Agreement and who
are not officers of the Company.
Certain Conditions of the Offer. Notwithstanding any other term of the Offer
or the Merger Agreement, the Purchaser will not be required to accept for
payment or, subject to any applicable rules and regulations of the Commission,
including Rule14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after the termination
or withdrawal of the Offer), to pay for any Shares tendered pursuant to the
Offer unless (i) there have been validly tendered and not withdrawn prior to
the expiration of the Offer the number of Shares which would represent at
least a majority of the Fully Diluted Shares, as defined below (the "Minimum
Tender Condition"), (ii) any waiting period under the HSR Act applicable to
the purchase of Shares pursuant to the Offer has expired or been terminated
and (iii) any waiting period or other period under the EC Regulations
applicable to the Offer or the Merger, or the exercise by Parent or the
Purchaser of full ownership and voting rights with respect to such Shares
acquired pursuant to the Offer and the Merger, shall have expired or been
terminated, and European Council and the European Commission shall have taken
all such action as shall be required so that Parent and the Purchaser may
consummate the Offer and the Merger and exercise full ownership and voting
rights with respect to the Shares to be acquired pursuant to the Offer and the
Merger. For purposes of the Minimum Tender Condition, the Merger Agreement
defines "Fully Diluted Shares" as all outstanding securities entitled
generally to vote in the election of directors of the Company on a fully
diluted basis, after giving effect to the exercise or conversion of all
options, rights and securities exercisable or convertible into such voting
securities, other than potential dilution attributable to the Rights.
Furthermore, notwithstanding any other term of the Offer or the Merger
Agreement, the Purchaser will not be required to commence the Offer, accept
for payment or, subject as aforesaid, to pay for any Shares not theretofore
accepted for payment or paid for, and may terminate or amend the Offer, with
the consent of the Company or if, at any time on or after the date of the
Merger Agreement and before the acceptance of Shares for payment or the
payment therefor, any of the following conditions exists:
(a) there shall be threatened or pending any suit, action or proceeding
by any Governmental Entity in any of the significant geographical regions
in which the Company or any of its subsidiaries operates or before the
European Commission (i) challenging the acquisition by Parent or the
Purchaser of any Shares, seeking to restrain or prohibit the making or
consummation of the Offer or the Merger or any other transaction
contemplated by the Merger Agreement or the Stockholder Agreement, or
seeking to obtain from the Company, Parent or the Purchaser any damages in
connection with the Offer, the Merger or the Merger Agreement that are
material in relation to the Company and its subsidiaries taken as a whole,
(ii) seeking to prohibit or limit the ownership or operation by the
Company, Parent or any of their respective subsidiaries of any material
portion of the business or assets of the Company, Parent or any of their
respective subsidiaries, or to compel the Company, Parent or any of their
respective subsidiaries, to dispose of or hold separate any material
portion of the business or assets of the Company, Parent or any of their
respective
13
<PAGE>
subsidiaries, as a result of the Offer, the Merger or any other transaction
contemplated by the Merger Agreement or the Stockholder Agreement, (iii)
seeking to impose limitations on the ability of Parent or the Purchaser to
acquire or hold, or exercise full rights of ownership of, any Shares,
including the right to vote the Shares purchased by it on all matters
properly presented to the stockholders of the Company, (iv) seeking to
prohibit Parent or any of its subsidiaries from effectively controlling in
any material respect the business or operations of the Company and its
subsidiaries in connection with the Offer, the Merger or the Merger
Agreement or (v) which otherwise is reasonably likely to have a Material
Adverse Effect. The Merger Agreement defines "Material Adverse Effect" as
(a) any materially adverse effect on the business, assets, properties,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole, or (b) any prevention or material delay in
the ability of the Company to consummate the Offer, the Merger and the
other transactions contemplated by the Merger Agreement and the Stockholder
Agreement, which has occurred or would reasonably be expected to occur as a
result of any change, effect, event, occurrence or state of facts;
provided, however, with respect to clauses (a) and (b), other than any
change, effect, event, occurrence or state of facts, to the extent such
change, effect, event, occurrence or state of facts is the result of
adverse changes in economic conditions, or of conditions or adverse changes
in or affecting the worldwide energy industry generally, including, but not
limited to, changes in markets and prices for oil, gas and other
hydrocarbons or hydrocarbon products.
(b) any statute, rule, regulation, legislation, interpretation, judgment,
order or injunction shall be enacted, entered, enforced, promulgated,
amended or issued in any of the significant geographical regions in which
the Company or any of its subsidiaries operates or by the European Council
or the European Commission with respect to, or shall be deemed applicable
to, or any consent or approval shall be withheld with respect to, (i)
Parent, the Company or any of their respective subsidiaries or (ii) the
Offer, the Merger or any of the other transactions contemplated by the
Merger Agreement or the Stockholder Agreement, by any Governmental Entity
that is reasonably likely to result, directly or indirectly, in any of the
consequences referred to in paragraph (a) above;
(c) since the date of the Merger Agreement, there shall have occurred any
event, change, effect or development that, individually or in the
aggregate, has had or would be reasonably expected to have a Material
Adverse Effect, and if a Material Adverse Effect has occurred, it shall be
continuing;
(d) there shall be any temporary, preliminary or permanent restraining
order or injunction or other legal restraint or prohibition by any
Governmental Entity that prevents or makes illegal the consummation of the
Offer, the Merger or any of the other transactions contemplated by the
Merger Agreement or the Stockholder Agreement;
(e) there shall have occurred and continued for at least three calendar
days: (i) a general suspension of trading in, or limitation on prices for,
securities on the New York Stock Exchange, any national securities exchange
or the Nasdaq National Market System (excluding suspensions or limitations
resulting from physical damage or interference with such exchanges not
related to market conditions); (ii) a decline of at least 30% in the Dow
Jones Industrial Index; (iii) a declaration of a banking moratorium or
suspension of payments in respect of banks in the United States; (iv) a
mandatory limitation by the United States Government or a change in the
general financial, banking or capital markets which materially and
adversely affects the ability of major financial institutions in the United
States to extend credit; (v) a commencement of a war, armed hostilities or
other major national or international crisis directly involving the United
States (other than an action involving personnel of the United Nations) or
(vi) in the case of any of the foregoing existing on the date of the Merger
Agreement, a material acceleration or worsening thereof;
(f) any representation and warranty of the Company or any other party
(other than Parent and the Purchaser) in the Merger Agreement or the
Stockholder Agreement shall not be true and correct in all material
respects (provided that any representation or warranty of the Company or
any other party (other than Parent and the Purchaser) contained in the
Merger Agreement or the Stockholder Agreement that is qualified by a
materiality standard or a material adverse effect qualification shall not
be further qualified by this condition) as of the date of the Merger
Agreement and (except with respect to the representation and warranty
relating to title to properties and to the extent such representations or
warranties expressly relate to an earlier date) as of the scheduled or
extended expiration of the Offer;
14
<PAGE>
(g) the Company shall have failed to comply with the terms of the Merger
Agreement described in clause (f) under "Conduct of Business" or the
Company or any other party (other than Parent and the Purchaser) shall have
failed to comply with any agreement or covenant in any material respect of
the Company or any other party (other than Parent and the Purchaser) to be
performed or complied with by any of them under the Merger Agreement or the
Stockholder Agreement;
(h) there shall have been issued, delivered, sold or granted any Common
Stock pursuant to the Rights Agreement; or
(i) the Merger Agreement shall have been terminated in accordance with
its terms; which in the sole judgment of the Purchaser or Parent, in the
case of any such condition, and regardless of the circumstances giving rise
to any such condition (including any action or inaction by Parent or any of
its affiliates), makes it inadvisable to proceed with such acceptance for
payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and
Parent and may be asserted by the Purchaser or Parent regardless of the
circumstances giving rise to such condition or may be waived by the Purchaser
and Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent, the Purchaser or any other affiliate of
Parent at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right, the waiver of any such right with respect to
particular facts and circumstances shall not be deemed a waiver with respect
to any other facts and circumstances and each such right shall be deemed an
ongoing right that may be asserted at any time and from time to time.
The foregoing summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is filed as Exhibit
(c)(2) hereto. The Merger Agreement should be read in its entirety for a more
complete description of the matters summarized above.
Rights Agreement
The Rights Agreement, dated September12, 1997, between the Company and First
Chicago Trust Company of New York as Rights Agent (the "Rights Agreement") has
been amended as of May 3, 1998 (the "Amendment") to exempt the Merger
Agreement, the Stockholder Agreement, the acquisition of Shares by Parent or
the Purchaser pursuant to the Offer or the Stockholder Agreement and the other
transactions contemplated by the Merger Agreement and the Stockholder
Agreement from the provisions of the Rights Agreement. The Company has agreed
that neither it nor the Company Board will, without the prior consent of
Parent, (i) further amend the Rights Agreement, (ii) redeem the rights issued
pursuant to the Rights Agreement or (iii) take any action with respect to, or
make any determination under, the Rights Agreement.
The foregoing summary of the Amendment is qualified in its entirety by
reference to the Amendment, a copy of which is filed as Exhibit (c)(5) hereto.
The Amendment should be read in its entirety for a more complete description
of the matters summarized above.
The Stockholder Agreement
Pursuant to the Stockholder Agreement, Petroleum Associates, L.P. and KKR
Partners II, L.P., each a Delaware limited partnership, who collectively own
25.6% of the outstanding Shares (the "Principal Stockholders"), have
unconditionally agreed to tender into the Offer, and not to withdraw
therefrom, all the Shares over which the Principal Stockholders had voting and
dispositive control on May 4, 1998 (comprising 21,833,334 Shares), as well as
any Shares acquired by the Principal Stockholders after such time.
The Principal Stockholders have further agreed in the Stockholder Agreement
that they will not (a) transfer (which term for purposes of the Stockholder
Agreement includes any sale, gift, pledge or other disposition), or consent to
any transfer of, any or all of the Shares subject to the Stockholder Agreement
or any interest therein, (b) enter into any contract, option or other
agreement or understanding with respect to any transfer of any or all of the
Shares subject to the Stockholder Agreement or any interest therein, (c) grant
any proxy, power-of-attorney or other authorization in or with respect to the
Shares subject to the Stockholder Agreement, (d) deposit the
15
<PAGE>
Shares subject to the Stockholder Agreement into a voting trust or enter into
a voting agreement or arrangement with respect to such Shares or (e) take any
other action that would in any way restrict, limit or interfere with the
performance of the Principal Stockholders' obligations under the Stockholder
Agreement or the transactions contemplated by the Stockholder Agreement or the
Merger Agreement. The Principal Stockholders have also agreed in the
Stockholder Agreement that they will not, nor will they authorize or permit
any officer, director, partner, affiliate or employee of, or any investment
banker, attorney or other advisor or representative of, the Principal
Stockholders to, solicit, initiate or encourage the submission of, enter into
any agreement with respect to, or participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal, in each case subject to certain exceptions applicable in
the event the Company is entitled to take such action with regard to any
Takeover Proposal.
In addition, the Principal Stockholders have granted Parent an irrevocable
option to purchase the Shares subject to the Stockholder Agreement at a price
per Share of $29.00 in cash (the "Option"). The Option becomes exercisable, in
whole but not in part, by Parent if, and only if, the Principal Stockholders
breach or otherwise fail to comply with their obligations to tender into the
Offer, and not to withdraw therefrom, the Shares subject to the Stockholder
Agreement and the Purchaser has otherwise accepted the Shares for purchase
pursuant to the Offer.
Under the Stockholder Agreement, the Principal Stockholders have also
granted to Parent and certain individuals designated by Parent a proxy which
is irrevocable during the term of the Stockholder Agreement with respect to
the Shares subject to the Stockholder Agreement to vote such Shares in favor
of the Merger, the adoption of the Merger Agreement and the approval of the
other transactions contemplated by the Merger Agreement and against (i) any
merger agreement or merger (other than the Merger Agreement and the Merger),
consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by the Company,
(ii) any Takeover Proposal and (iii) any amendment of the Company's Restated
Certificate of Incorporation, as amended, or its By-laws, as amended, or other
proposal or transaction involving the Company or any subsidiary of the
Company, which amendment or other proposal or transaction would in any manner
impede, frustrate, prevent or nullify any provision of the Merger Agreement,
the Stockholder Agreement, the Merger or any other transaction contemplated by
the Merger Agreement or change in any manner the voting rights of any class of
capital stock of the Company. The Principal Stockholders have agreed not to
commit or agree to take any action inconsistent with the foregoing.
The Stockholder Agreement (including the Option) will terminate upon the
earlier of (i) the effective time of the Merger and (ii) the termination of
the Merger Agreement in accordance with its terms. Upon any termination of the
Stockholder Agreement, the Stockholder Agreement (including the Option) will
thereupon become void and of no further force and effect, and there shall be
no liability in respect of the Stockholder Agreement or of any transactions
contemplated thereby or by the Merger Agreement on the part of any party
thereto or any of its directors, officers, partners, stockholders, employees,
agents, advisors, representatives, or affiliates; provided, however, that
nothing in the Stockholder Agreement shall relieve any party thereto from any
liability for such party's wilful breach of the Stockholder Agreement.
The foregoing summary of the Stockholder Agreement is qualified in its
entirety by reference to the Stockholder Agreement, a copy of which is filed
as Exhibit (c)(3) hereto. The Stockholder Agreement should be read in its
entirety for a more complete description of the matters summarized above.
Appraisal Rights
The holders of Shares do not have appraisal rights as a result of the Offer.
However, if the Merger is consummated, holders of Shares and holders of Series
A Preferred Stock at the effective time of the Merger will have certain rights
pursuant to the provisions of Section 262 of the DGCL ("Section 262") to
dissent and demand appraisal of their Shares or Series A Preferred Stock, as
the case may be. Under Section 262, dissenting stockholders who comply with
the applicable statutory procedures will be entitled to receive a judicial
16
<PAGE>
determination of the fair value of their Shares or Series A Preferred Stock
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive payment of such fair value in cash,
together with a fair rate of interest, if any. Any such judicial determination
of the fair value of Shares or Series A Preferred Stock could be based upon
factors other than, or in addition to, the price per Share to be paid in the
Merger or the market value of the Shares or Series A Preferred Stock. The
value so determined could be more or less than the price per Share to be paid
in the Merger.
The foregoing summary of Section 262 does not purport to be complete and is
qualified in its entirety by reference to Section 262. FAILURE TO FOLLOW THE
STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY
RESULT IN THE LOSS OF SUCH RIGHTS.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) The Company Board met to consider the proposed structure for a possible
business combination with the Purchaser and to consider the terms of the Offer
at meetings held on April 17, 24 and 27, 1998 and on May 3, 1998. At its
meeting held on May 3, 1998, the Company Board unanimously determined that the
Merger Agreement, the Stockholder Agreement, the Offer, the Merger and the
other transactions contemplated by the Merger Agreement and the Stockholder
Agreement are fair to and in the best interests of the Company and its
stockholders, authorized the Company to enter into the Merger Agreement with
Parent and the Purchaser, approved the Offer and the Merger and agreed to
recommend the acceptance of the Offer to the Company's stockholders. A copy of
the letter to the stockholders of the Company dated May 8, 1998 from John L.
Whitmire, Chairman of the Board, containing the recommendation of the Company
Board, is filed as Exhibit (a)(1) hereto and is incorporated herein by
reference.
As set forth in the Purchaser's Offer to Purchase, the Purchaser will
purchase Shares tendered prior to the close of the Offer if at least a
majority of the outstanding Shares have been tendered by that time and all
conditions to the Offer have been satisfied. Stockholders considering not
tendering their Shares in order to wait for the Merger should note that the
Purchaser is not obligated to purchase any Shares, and can terminate the Offer
and the Merger Agreement and not proceed with the Merger, if fewer than a
majority of the outstanding Shares are tendered prior to the expiration of the
Offer or if any of the other Offer conditions are not satisfied. The Offer is
scheduled to expire at 12:00 Midnight, New York City time, on Friday, June 5,
1998, unless the Purchaser, in its sole discretion, elects to extend the
period of time for which the Offer is open. The Purchaser may (i) extend the
Offer if at the scheduled expiration date of the Offer any of the conditions
to the Purchaser's obligation to purchase Shares are not satisfied until such
time as such conditions are satisfied or waived or (ii) extend the Offer for
any period required by any rule, regulation, interpretation or position of the
SEC or the staff thereof applicable to the Offer, (iii) extend the Offer for
any reason for a period of not more than 10 business days beyond the latest
expiration date that would otherwise be permitted under clause (i) or (ii) of
this sentence, provided, in the case of clause (iii), that the Purchaser shall
waive certain conditions to the Offer during such extension. In addition, the
Purchaser has agreed that it shall, at the request of the Company, extend the
Offer one or more times for up to 30 days in the aggregate if any of the
conditions to the Offer are not satisfied on the expiration date of the Offer
provided that such conditions are reasonably capable of being satisfied and
provided that the Company has not received a Company Takeover Proposal. A copy
of the press release issued by Parent and the Company announcing the Merger
and the Offer is filed as Exhibit (a)(2) hereto and is incorporated herein by
reference.
(b) On Thursday, April 16, 1998, William E. Wade, Jr., President of Parent,
visited John Whitmire, Chairman and Chief Executive Officer of the Company, at
Mr. Whitmire's office in Houston. During that visit Mr. Wade asked Mr.
Whitmire to consider an all cash purchase of the Company by Parent in a
negotiated transaction at $28.50 per share. At a telephonic board meeting the
next day, Mr. Whitmire informed the Company Board of Mr. Wade's proposal. The
Company Board authorized Mr. Whitmire to retain Salomon Brothers Inc, now
doing business as Salomon Smith Barney (collectively, with all other entities
doing business as Salomon Smith Barney, "Salomon Smith Barney") and Petrie
Parkman & Co., Inc. ("'Petrie Parkman"), as its financial advisors (the
"Advisors"), to review Parent's proposal, to study alternative transactions
that might be available with other companies and to make a recommendation to
the Company Board as to whether a sale of the Company
17
<PAGE>
at the offered price should be considered. Following such meeting and during
the week of April 20, 1998, Mr. Whitmire had discussions with several other
oil and gas companies regarding a possible transaction. Management of the
Company and the Advisors met with two additional companies and had ongoing
discussions. On Monday, April 20, 1998, Mr. Whitmire called Mr. Wade and
informed him that the Company had retained financial and legal advisors and
that the Company's Board would meet on Friday, April 24th to consider the
proposal.
On Friday, April 24, 1998, the Company Board met in Houston and received a
presentation from Salomon Smith Barney and a presentation from Petrie Parkman.
Mr. Whitmire and the Advisors reported to the Company Board that several other
companies had expressed an interest in the Company and that there had been
discussions with such companies as to whether any of them would be willing to
make a proposal. Mr. Whitmire and the Advisors reported that one of these
companies was considering a potential transaction in the form of an all stock
merger and a second company was considering a cash offer. At this meeting, the
Company Board authorized Mr. Whitmire and the Advisors to continue discussions
regarding both cash and stock transactions, and to make a recommendation to
the Company Board on the following Monday.
Following the April 24, 1998 Company Board meeting, Mr. Whitmire telephoned
Mr. Wade and advised him that, while Parent's proposal was attractive, he was
not authorized by the Company Board to enter into exclusive negotiations with
Parent. On Sunday, April 26, 1998, representatives of the Company and Parent
met in Houston to review certain information provided by the Company, which
included data regarding the Company's exploration and operating activities
outside the United States and its petrochemical business. During that weekend,
representatives of the Company also met with representatives of the
independent oil and gas company with which the Company was discussing an all
stock merger.
On Monday, April 27, 1998, the Company Board met telephonically and received
a report from Mr. Whitmire and the Advisors concerning Parent's cash proposal,
the terms of the potential transaction with the independent oil and gas
company in the form of an all stock merger and the results of discussions with
other companies. Mr. Whitmire reported to the Company Board that Parent had
increased its offer to $29.00 per Share in cash and that Mr. Wade had informed
Mr. Whitmire that $29.00 per Share was Parent's best offer. After discussion,
the Company Board authorized Mr. Whitmire and the Company's management to
enter into negotiations with Parent for an all cash merger at $29.00 per
Share. Later that evening, Parent's legal advisors sent to the Company and its
legal advisors drafts of the Merger Agreement and related documents. On
Tuesday, April 28, 1998, Mr. Whitmire and Mr. Wade met in New York to discuss
the proposed transaction. After such meeting, the Company immediately
commenced negotiations with Parent. On Sunday, May 3, 1998, the Company Board
met to review the Merger Agreement. At the May 3, 1998 meeting, at which all
of the directors other than Mr. Kravis were present, the Company Board
received opinions of the Advisors, dated May 3, 1998 that, based upon and
subject to various considerations and assumptions (and the analyses presented
to the Company Board underlying such opinions) set forth in such opinions, as
of the date of such opinions, the $29.00 per Share consideration to be
received by the holders of the Shares in the Offer and the Merger is fair from
a financial point of view to such holders. After review of the Merger
Agreement and receipt of such opinions, the Company Board unanimously approved
the Offer, the Merger, the Merger Agreement and other transactions
contemplated by the Merger Agreement. The Merger Agreement was executed and
delivered by the parties, and the Company and Parent publicly announced the
transaction before the opening of trading on the New York Stock Exchange
("NYSE") on Monday, May 4, 1998.
In reaching its conclusions described in Item 4(a) above, the Company Board
considered a number of factors, including, without limitation, the following:
(i) that the $29.00 per Share Offer Price represented a premium of
approximately 40% over the last reported sales price of the Shares on the NYSE
Composite Transactions Tape on May 1, 1998 of $20.50 per Share (the last
trading day prior to announcement of the Merger Agreement); (ii) the terms of
the Merger Agreement, including the Company's ability to terminate the Merger
Agreement and accept a Superior Proposal and the absence of any financing
contingency on the part of Parent; (iii) the opinions of Salomon Smith Barney
and Petrie Parkman, dated May 3, 1998, that, based upon and subject to various
considerations and assumptions, as of such date the $29.00 per Share in cash
to be received by the holders of the Shares in the Offer and the Merger is
fair from a financial point of view to such holders; (iv) the results of
management's discussions with other potential purchasers of the Company;
(v) information with
18
<PAGE>
respect to the financial condition, results of operations and business of the
Company, on both a historical and a prospective basis, current industry,
economic and market conditions and historical and various projected ranges of
prices for oil and gas; (vi) the historical market prices and recent trading
patterns of the Shares and the market prices and financial data relating to
other companies engaged in the same business as the Company; (vii) the prices
paid in other recent acquisition transactions, including acquisitions in the
industry in which the Company does business; and (viii) alternatives to the
Offer and the Merger that might be available to the Company and its
stockholders, particularly the Company remaining independent and continuing to
pursue its long-term growth strategy. The Company Board did not assign
relative weights to the foregoing factors or determine that any factor was of
more importance than other factors. Rather, the Company Board viewed its
position and recommendation as being based on the totality of the information
presented to it and considered by it.
In analyzing the Offer and the Merger, the Company Board was assisted and
advised at its meetings on April 24 and 27, 1998 and May 3, 1998 by
representatives of Salomon Smith Barney and Petrie Parkman, who reviewed
various financial considerations, and representatives of the Company's legal
counsel, who reviewed various legal and other considerations, as well as the
terms of the Merger Agreement and related agreements, with the Company Board.
Salomon Smith Barney and Petrie Parkman are investment banking firms engaged
in the evaluation of businesses and their securities in connection with
mergers and acquisitions, negotiated primary and secondary underwritings,
private placements and valuations for corporate and other purposes. The
Company selected Salomon Smith Barney and Petrie Parkman as its financial
advisors based upon Salomon Smith Barney and Petrie Parkman's familiarity with
the Company and the industry in which the Company operates and their
experience, ability and reputation with respect to mergers and acquisitions.
Copies of the written opinions of Salomon Smith Barney and Petrie Parkman,
each dated May 3, 1998, describing the assumptions made, matters considered
and the scope of the review undertaken and procedures followed by each firm,
are filed as Exhibits(a)(3) and (a)(4) hereto, respectively, and are
incorporated herein by reference. STOCKHOLDERS ARE ENCOURAGED TO READ SUCH
OPINIONS IN THEIR ENTIRETY.
Based upon the foregoing, at its May 3, 1998 meeting, the Company Board
unanimously determined that the terms of the Offer and the Merger are fair to
and in the best interests of the Company and its stockholders, approved the
Offer and the Merger and recommended that stockholders of the Company accept
the Offer as set forth above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Salomon Smith Barney and Petrie Parkman are acting as the Company's
financial advisors in connection with the Offer and the Merger. Pursuant to
their respective agreements with the Company, Salomon Smith Barney and Petrie
Parkman are entitled to transaction fees of $7.7 million and $2.75 million,
respectively, each of which shall become payable upon consummation of the
transactions contemplated by the Merger Agreement. The Advisors are also
entitled to receive an additional fee in the event the holders of the Shares
ultimately receive in excess of $29.00 per Share. In addition, whether or not
the Offer or the Merger is completed, the Company has agreed to reimburse each
of Salomon Smith Barney and Petrie Parkman periodically for reasonable out-of-
pocket expenses, including the fees and disbursements of its counsel, and to
indemnify each of Salomon Smith Barney and Petrie Parkman against certain
expenses and liabilities incurred in connection with its engagement, including
liabilities under Federal securities laws.
The Advisors have each previously rendered certain investment banking and
financial advisory services to the Company and Parent and certain of its
affiliates, for which each Advisor received customary compensation. The
Advisors each may have other business relationships with the Company or
Parent. In the ordinary course of its business, Salomon Smith Barney may
actively trade the debt and equity securities of the Company for its own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. In the ordinary course of
business, Petrie Parkman may actively trade the debt and equity securities of
the Company for the accounts of customers.
19
<PAGE>
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated, or currently intends to employ,
retain or compensate, any person to make solicitations or recommendations to
the stockholders of the Company on its behalf with respect to the Offer.
19--1
<PAGE>
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Common Stock of the Company have been effected in
the past 60 days by the Company or any affiliate or subsidiary of the Company,
or, to the best knowledge of the Company, by any executive officer or director
of the Company, with the exception of (x) purchases by the administrator of
the Company's 401(k) plan of approximately: (i) 311 Shares for the account of
John L. Whitmire, Chairman of the Board and Chief Executive Officer; (ii) 247
Shares for the account of William M. Krips, Senior Vice President; (iii) 284
Shares for the account of Arthur W. Peabody, Jr., Senior Vice President; (iv)
424 Shares for the account of Larry D. Kalmbach, Vice President and Chief
Financial Officer; (v) 171 Shares for the account of Alan R. Crain, Jr.,
Vice President and General Counsel; (vi) 147 Shares for the account of Richard
A. Cunningham, Regional Vice President; (vii) 237 Shares for the account of
James E. Knight, Regional Vice President; (viii) 119 Shares for the account of
Michael N. Markowitz, Vice President and Treasurer; (ix) 123 Shares for the
account of Donald M. McMullan, Vice President and Controller; (x) 273 Shares
for the account of Roger W. Pierce, Vice President Exploration; (xi) 228
Shares for the account of Newton W. Wilson, III, Regional Vice President; and
(xii) 230 Shares for the account of John M. Zimmerman, Vice President, all
pursuant to previous elections made by such officers under the 401(k) plan and
(y) the exercise by Alan R. Crain, Jr., Vice President and General Counsel of
the Company on April 7, 1998, of an outstanding stock option, which would have
expired April 14, 1998, for 4,500 Shares under a stock option plan of the
Company.
(b) To the best knowledge of the Company, each principal executive officer
and director of the Company currently intends to tender, pursuant to the
Offer, all unrestricted Shares which are held of record or beneficially owned
by such person (other than the Shares of the four directors described in Item
3 above).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described under Item 3(b), the Company is not engaged in any
negotiations in response to the Offer which relate to or would result in: (i)
an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of
the Company; (iii) a tender offer for or other acquisition of securities by or
of the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described under Item 4, there are no transactions, board
resolutions, agreements in principle, or signed contracts in response to the
Offer, other than those described under Item 3(b), which relate to or would
result in one or more of the matters referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The information statement attached as Annex I hereto is being furnished in
connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Company Board
other than at a meeting of the Company's stockholders.
The Company, the Company Board and Parent are defendants in two purported
class actions filed on May 6, 1998, each filed in the Chancery Court of the
State of Delaware in and for New Castle County. The actions are styled Dorthy
M. McMullen v. Union Texas Petroleum Holdings, Inc.; John L. Whitmire; Sellers
Stough; Richard R. Shinn; George R. Roberts; Stanley P. Porter; Wylie B.
Pieper; Michael W. Michelson; Henry R. Kravis; James H. Greene, Jr.; Edward A.
Gilhuly; Glenn A Cox; Robert L. Barry; and Atlantic Richfield Company and
Byron S. Squyres and Mary Falcon Squyres v. Robert L. Barry; Wylie Bernard
Pieper, John L. Whitmire, Glenn A. Cox, James H. Greene, Jr., Edward A.
Gilhuly, Richard R. Shinn, Sellers Stough, Henry R. Kravis, George S. Roberts,
Michael W. Michelson, Stanley P. Porter, Union Texas Petroleum Holdings, Inc.,
Kohlberg Kravis Roberts & Co. L.P. and Atlantic Richfield Company. These
actions, both of which are filed by alleged owners of Shares, both claim,
among other things, that certain individual directors of the Company have
20
<PAGE>
breached their fiduciary duties to stockholders by failing to consider
strategic alternatives to the Merger that would maximize value to the
stockholders. In addition, the Squyres action claims that Parent aided and
abetted in the breaches of fiduciary duty committed by these individual
directors and that the Principal Stockholders breached their duty of loyalty
to the stockholders by arranging a transaction that unfairly benefits them to
the detriment of the other stockholders. Both complaints seek declaratory and
injunctive relief and attorneys' fees and experts' fees. The Company believes
that the suits are without merit. The Company will take all appropriate action
to respond to such litigation.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
<TABLE>
<C> <S>
(a)(1) Recommendation Letter to the Stockholders of the Company, dated May
8, 1998, from John L. Whitmire, Chairman of the Board of the
Company.*
(a)(2) Press Release issued jointly by the Company and Atlantic Richfield
Company announcing the Merger and the Offer.
(a)(3) Opinion of Salomon Smith Barney, dated May 3, 1998.*
(a)(4) Opinion of Petrie Parkman & Co., dated May 3, 1998.*
(b) None.
(c)(1) "Voting Securities and Certain Beneficial Owners," "Executive
Compensation and Other Information," "Compensation Committee
Interlocks and Insider Participation" and "Annex A: Amended and
Restated Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan"
sections of the Proxy Statement of the Company filed with the
Commission on March 24, 1998.
(c)(2) Agreement and Plan of Merger, dated May 4, 1998, between the Company,
Atlantic Richfield Company and VWK Acquisition Corp.
(c)(3) Stockholders Agreement, dated May 4, 1998, between the Atlantic
Richfield Company, Petroleum Associates, L.P. and KKR Partners II,
L.P.
(c)(4) Rights Agreement dated as of September 12, 1997 between the Company
and First Chicago Trust Company of New York, as Rights Agent, which
includes as Exhibit A the Form of Rights Certificate and as Exhibit B
the Summary of Rights to Purchase Common Stock (filed as Exhibit 1 to
the Company's Form 8-A Registration Statement filed September 15,
1997 (Commission File No. 1-9019) and as Exhibit 4.1 to the Company's
10-Q for the quarter ended September 30, 1997 (Commission File No. 1-
9019) and incorporated herein by reference).
(c)(5) Amendment to Rights Agreement, dated May 3, 1998, between the Company
and First Chicago Trust Company of New York, as Rights Agent.
</TABLE>
- --------
* Included in copies mailed to stockholders.
21
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
UNION TEXAS PETROLEUM HOLDINGS, INC.
By: /s/ John L. Whitmire
-------------------------------------
Name: John L. Whitmire
Title: Chairman of the Board
and Chief Executive Officer
Dated: May 8, 1998
<PAGE>
ANNEX I
UNION TEXAS PETROLEUM HOLDINGS, INC.
1330 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
----------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
----------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY
----------------
This Information Statement, which is being mailed on or about May 8, 1998 to
the holders of shares of the Common Stock, par value $.05 per share (the
"Company Common Stock"), of Union Texas Petroleum Holdings, Inc., a Delaware
corporation (the "Company"), is being furnished in connection with the
designation by Atlantic Richfield Company, a Delaware corporation ("Parent"),
and VWK Acquisition Corp., a Delaware corporation and wholly owned subsidiary
of Parent ("Sub"), of persons to the Board of Directors of the Company (the
"Board"). Such designation is to be made pursuant to an Agreement and Plan of
Merger dated as of May 4, 1998 (the "Merger Agreement") among the Company,
Parent and Sub. Pursuant to the Merger Agreement, among other things, Parent
is to commence a cash tender offer no later than May 8, 1998 to purchase all
of the issued and outstanding shares of Company Common Stock at $29.00 per
share, net to the seller in cash, as described in Parent's Offer to Purchase
dated May 8, 1998 (the "Offer to Purchase") and the related Letter of
Transmittal (which Offer to Purchase and related Letter of Transmittal
together constitute the "Offer"). The Offer is scheduled to expire at 12:00
midnight, New York City time, on Friday, June 5, 1998, unless extended. The
Offer is conditioned on, among other things, a majority of the outstanding
shares of Company Common Stock on a fully diluted basis being validly tendered
prior to the expiration of the Offer and not withdrawn (the "Minimum
Condition"). The Merger Agreement also provides for the merger (the "Merger")
of Sub with and into the Company as soon as practicable after consummation of
the Offer. Following the consummation of the Merger (the "Effective Time"),
the Company will be the surviving corporation (the "Surviving Corporation")
and a wholly owned subsidiary of Parent. In the Merger, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares of Company Common Stock held in the treasury of the Company
or by Parent, Sub or any direct or indirect wholly owned subsidiary of Parent
or the Company, all of which will be canceled, and other than shares of
Company Common Stock, if any, held by stockholders who have perfected rights
as dissenting stockholders under Delaware law) will be converted into the
right to receive cash in the amount of $29.00.
The Merger Agreement provides that promptly upon the purchase by Sub of any
of the outstanding shares of Company Common Stock pursuant to the Offer, Sub
shall be entitled to designate the number of directors on the Board equal to
at least the number of directors, rounded up to the next whole number, which
is the product of (a) the total number of directors on the Board (giving
effect to the directors elected pursuant to this sentence) multiplied by (b)
the percentage that (i) such number of shares of Company Common Stock so
purchased by Sub plus the number of such shares otherwise owned by Sub or any
other subsidiary of Parent bears to (ii) the
A-1
<PAGE>
number of such shares of Company Common Stock outstanding. The Company's
obligations to cause such designees (the "Sub Designees") to be elected to the
Board shall be subject to Section 14(f) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 14f-1 promulgated thereunder.
Notwithstanding the above, until the Effective Time the Company shall have
at least three directors who were directors as of the date of the Merger
Agreement and who are not officers of the Company (the "Independent
Directors"). If the number of Independent Directors falls below three, the
remaining Independent Directors (or if no Independent Directors remain the
other directors) shall be entitled to designate persons who are not officers,
stockholders or affiliates of the Company, Parent or Sub to fill the
vacancies.
Following the election of the Sub Designees and prior to the Effective Time,
the approval of a majority of the Independent Directors or their successors
will be required to authorize any termination of the Merger Agreement by the
Company, any amendment of the Merger Agreement requiring action by the Board,
any extension of time for the performance or waiver of any of the obligations
of Sub or Parent, or any waiver of the Company's rights under the Merger
Agreement.
The terms of the Merger Agreement, a summary of the events leading up to the
Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer, copies of which are being
delivered to stockholders of the Company contemporaneously herewith. Certain
other documents (including the Merger Agreement) were filed with the
Securities and Exchange Commission (the "SEC") as exhibits to the Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") of Sub and as exhibits to
the Schedule 14D-9. The exhibits to the Schedule 14D-1 and the Schedule 14D-9
may be examined at and copies thereof may be obtained from the SEC in the
manner set forth in Section 8 of the Offer to Purchase. Parent intends to
finance the purchase of Company Common Stock in the Offer and the Merger from
the proceeds of the sale of commercial paper and other short-term borrowings
backed by an existing and an additional bank facility.
No action is required by the stockholders of the Company in connection with
the election of the Sub Designees to the Board. However, Section 14(f) of the
Exchange Act requires the mailing to the Company's stockholders of the
information set forth in this Information Statement prior to a change in a
majority of the Company's directors otherwise than at a meeting of the
Company's stockholders.
The information contained in this Information Statement concerning Parent,
Sub and the Sub Designees has been furnished to the Company by such persons,
and the Company assumes no responsibility for the accuracy or completeness of
such information. The principal executive offices of Parent and Sub are
located at 515 South Flower Street, Los Angeles, California 90071-2201.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
At the close of business on May 1, 1998, there were issued and outstanding
85,285,286 shares of Company Common Stock, excluding Company Common Stock held
by the Company, each share being entitled to one vote upon matters to be voted
upon at a stockholders meeting. There are no other voting securities
outstanding. The table below sets forth certain information as of May 1, 1998
regarding the beneficial ownership of Company Common Stock, excluding Common
Stock held by the Company, by (i) each person known by the Company to own
beneficially more than 5% of its outstanding shares of Company Common Stock,
(ii) each director of the Company, (iii) the five executive officers of the
Company named in the Summary Compensation Table and (iv) all executive
officers and directors of the Company as a group.
A-2
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE OF
BENEFICIAL SHARES OF COMMON
NAME OWNERSHIP(1) STOCK OUTSTANDING
---- ------------ -----------------
<S> <C> <C>
Petroleum Associates, L.P.(2)................... 21,833,334 25.6%
KKR Partners II, L.P.(2)........................
9 West 57th Street
New York, New York 10019
GSB Investment Management, Inc.(3).............. 4,424,912 5.2%
301 Commerce Street
Fort Worth, Texas 76102
Robert L. Barry, Director(4).................... 9,000 *
Glenn A. Cox, Director(4)(5).................... 24,000 *
Edward A. Gilhuly, Director(2).................. 0 --
James H. Greene, Jr., Director(2)............... 0 --
Henry R. Kravis, Director(2).................... 0 --
Michael W. Michelson, Director(2)............... 0 --
Wylie B. Pieper, Director(4).................... 10,000 *
Stanley P. Porter, Director(4).................. 17,000 *
George R. Roberts, Director(2).................. 0 --
Richard R. Shinn, Director(4)................... 19,000 *
Sellers Stough, Director(4)..................... 18,000 *
John L. Whitmire(4)(6)(7)....................... 228,172 *
Chairman of the Board and Chief Executive Offi-
cer
William M. Krips, Senior Vice President(4)(6)... 205,687 *
Arthur W. Peabody, Jr., Senior Vice Presi-
dent(4)(6)..................................... 269,858 *
Newton W. Wilson, III, Regional Vice Presi-
dent(4)(6)..................................... 140,109 *
Larry D. Kalmbach(4)(6)......................... 92,333 *
Vice President and Chief Financial Officer
All executive officers and directors as a group,
including the above
(group equals 23 percent)(4)(6)(8)............. 1,404,107 1.7%
</TABLE>
- --------
*Less than 1%.
(1) Beneficial ownership of Common Stock, except as noted.
(2) KKR Associates is the sole general partner of Petroleum Associates, L.P.
("Petroleum Associates") and KKR Partners II, L.P. (collectively, the "KKR
Partnerships") and possesses sole voting power and investment power with
respect to the 21,833,334 shares owned by such stockholders. KKR
Associates is a limited partnership of which Henry R. Kravis, George R.
Roberts, Michael W. Michelson, James H. Greene, Jr., Edward A. Gilhuly
(all directors of the Company), Robert I. MacDonnell, Paul E. Raether,
Michael T. Tokarz, Perry Golkin, Clifton S. Robbins and Scott Stuart are
the general partners, and Messrs. Kravis and Roberts are also members of
the Executive Committee of KKR Associates. None of the aforementioned
individuals beneficially owns any other shares of Company Common Stock.
Petroleum Associates made its investment in the Company in 1985. The
limited partnership agreement pursuant to which Petroleum Associates was
organized expired on December 31, 1997 in accordance with the terms of the
limited partnership agreement. The terminated Petroleum Associates
partnership continues to be in existence for a winding-up period after
such date. The limited partnership agreement provides that, in connection
with the dissolution and winding up of Petroleum Associates, KKR
Associates has the sole discretion regarding the timing (which may be one
or more years after the expiration of the limited partnership agreement)
and the manner of disposition of the Company Common Stock owned by
Petroleum Associates, including public or private sales of such Company
Common Stock, the distribution of such Company Common Stock to the limited
partners of Petroleum Associates or a combination of the foregoing. If
shares of Company Common Stock are distributed to the limited partners of
Petroleum Associates, each limited partner will thereafter have sole
discretion with respect to its Company Common Stock. In addition, pursuant
to the limited
A-3
<PAGE>
partnership agreement, Petroleum Associates will distribute to KKR
Associates for its own account, concurrently with any sales of shares owned
by Petroleum Associates, cash and/or shares of Company Common Stock that
together have a fair market value equal to approximately 20% of the profits
realized with respect to the shares sold and distributed. The Company has
agreed that, upon the request of KKR Partnerships, the Company will
register under the Securities Act and applicable state securities laws the
sale of the Company Common Stock owned by the KKR Partnerships as to which
registration has been requested. The Company's obligation is subject to
certain limitations relating to a minimum amount required for registration,
the timing of a registration and other similar matters. The Company is
obligated to pay any registration expenses incidental to such
registrations, excluding underwriters' commissions and discounts.
The KKR Partnerships currently own approximately 25.6% of the issued and
outstanding shares of Company Common Stock, excluding shares held by the
Company. As a result, the KKR Partnerships and their general partners may
be able to exercise substantial influence over the Company, through their
representation on the Board and by reason of their significant voting power
with respect to the election of directors and actions submitted to a vote
of stockholders. See also "Compensation Committee Interlocks and Insider
Participation."
(3) GSB Investment Management, Inc. is a registered investment advisor that
pursuant to a Schedule 13G dated February 10, 1998 reported such shares.
(4) Includes the following shares issuable upon the exercise of outstanding or
issuable stock options that are exercisable within 60 days after May 1,
1998: (i) 14,000 for each of Messrs. Cox, Porter, Shinn and Stough; (ii)
5,000 for Messrs. Pieper and Barry; (iii) 142,500 for Mr. Whitmire;
172,894 for Mr. Krips; 168,694 for Mr. Peabody; 129,293 for Mr. Wilson;
75,026 for Mr. Kalmbach; and (iv) 1,031,931 for all executive officers and
directors as a group. Excludes shares issuable upon the exercise of
options that became exercisable upon a change in control.
(5) Voting and investment power are shared with Veronica Cox with respect to
10,000 shares, all of which are held in the Glenn A. Cox Trust, UTA.
(6) Shares held by executive officers in the Company's Savings Plan for
Salaried Employees are included in the table.
(7) Voting and investment power are shared with Virginia Whitmire with respect
to 9,700 shares, all of which are held in the Virginia Kempton Whitmire
Revocable Trust dated September 7, 1995.
(8) As of May 1, 1998, the executive officers of the Company include the five
executive officers named in the Summary Compensation Table and the other
officers listed as Executive Officers. See "Executive Officers."
DIRECTORS AND EXECUTIVE OFFICERS
The Sub Designees. Sub has selected William E. Wade, Jr., Marie L. Knowles,
Michael E. Wiley and Donald R. Voelte, Jr. as the Sub Designees. All of the
Sub Designees are officers of Parent, and all except Mr. Wiley are executive
officers and/or directors of Sub. Certain information regarding the Sub
Designees is contained in Schedule I annexed hereto. To the best knowledge of
the Company, none of the Sub Designees or their associates beneficially owns
any equity securities, or rights to acquire any equity securities, of the
Company or has been involved in any transactions with the Company or any
directors or executive officers thereof that are required to be disclosed
pursuant to the rules and regulations of the SEC.
Current and Continuing Directors. The following table sets forth certain
information with respect to the current directors of the Company:
Robert L. Barry--Age 63, Director since December 1997. Ambassador Barry
retired from the United States (U.S.) Foreign Service in 1995 after 34 years
of service. Ambassador Barry held numerous positions of increasing
responsibility during his Foreign Service career, including U.S. Ambassador to
Indonesia from 1992 to 1995. He is a principal in Phoenix International, an
electric power development company focused on projects
A-4
<PAGE>
in Indonesia, and his own international consulting firm, Robert Barry and
Associates, which specializes in Indonesia, Eastern Europe and the independent
states of the former Soviet Union. Ambassador Barry currently heads the
mission of the Organization for Security and Cooperation in Europe, where he
is responsible for elections, human rights, arms control and democracy
initiatives in Bosnia-Hercegovinia.
Glenn A. Cox--Age 68, Director since January 1993. Mr. Cox is a retired
President and Chief Operating Officer of Phillips Petroleum Company
("Phillips"), a position he held from 1985 until December 1991. Phillips is a
corporation involved in petroleum exploration, production and refining and
also in the manufacturing and distribution of a variety of chemicals. Mr. Cox
is also a director of BOK Financial Corp., Bank of Oklahoma, The Williams
Companies and Helmerich & Payne, Inc. Member of the Audit Committee and the
Section 16 Committee.
Edward A. Gilhuly--Age 38, Director since December 1992. Mr. Gilhuly was an
associate of Kohlberg Kravis Roberts & Co. ("KKR") from 1986 until 1995, when
he became a partner. He is also a director of Layne Christensen Company,
Owens-Illinois Group, Inc. and Owens-Illinois, Inc. Member of the Organization
and Compensation Committee.
James H. Greene, Jr.--Age 47, Director since December 1992. Mr. Greene was
an associate of KKR from 1986 until 1993, when he became a partner. He is also
a director of Bruno's, Inc., Owens-Illinois Group, Inc., Owens-Illinois, Inc.,
Randall's Food Markets, Inc. and Safeway, Inc.
Henry R. Kravis--Age 54, Director since July 1985. Mr. Kravis has been a
partner in KKR since its organization in 1976. He is also a director of
Amphenol Corporation, Borden, Inc., Bruno's, Inc., Evenflo & Spalding Holdings
Corporation, The Gillette Company, IDEX Corporation, Inc., Kinder Care
Learning Centers, Inc., KSL Recreation Group, Inc., Newsquest Capital plc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA Inc., Randall's
Food Markets, Inc., Reltec Corporation, Safeway, Inc., Sotheby's Holdings,
Inc. and World Color Press, Inc. Mr. Kravis is a first cousin of Mr. Roberts.
Michael W. Michelson--Age 46, Director since July 1985. Mr. Michelson has
been a partner of KKR since January 1987, and prior to that he had been an
associate of KKR. Mr. Michelson is also a director of Amphenol Corporation,
AutoZone, Inc., Owens-Illinois, Inc., Owens-Illinois Group, Inc. and Promus
Hotel Corporation. Member of the Organization and Compensation Committee.
Wylie B. Pieper--Age 65, Director since May 1997. Mr. Pieper is a retired
Vice Chairman and Chief Operating Officer of Halliburton Company
("Halliburton"). Mr. Pieper served in a number of executive capacities
throughout his 38 year career with Halliburton and its subsidiary, Brown &
Root, Inc. Mr. Pieper serves on the Board of Governors, the George R. Brown
School of Engineering Advisory Board and the Jones Graduate School of
Administration Council of Overseers at Rice University. Mr. Pieper is also a
director at Highlands Insurance Group, Inc.
Stanley P. Porter--Age 79, Director since July 1985. Mr. Porter is a retired
Vice Chairman of Arthur Young & Company. Mr. Porter was a director of
AlliedSignal Inc. (collectively with its predecessor, Allied Corporation,
"Allied") from 1980 until April 1989. Allied is an advanced technology
company. Mr. Porter is a former director of Fiber Industries, Inc. and
Engraph, Inc. Member of the Audit Committee.
George R. Roberts--Age 54, Director since July 1985. Mr. Roberts has been a
partner in KKR since its organization in 1976. He is also a director of
Amphenol Corporation, Borden, Inc., Bruno's Inc., Evenflo & Spalding Holdings
Corporation, IDEX Corporation, KinderCare Learning Centers, Inc., KSL
Recreation Group, Inc., Owens-Illinois Group, Inc. Owens-Illinois, Inc.,
PRIMEDIA INC., Randall's Food Markets, Inc., Safeway Inc. and World Color
Press, Inc. Mr. Roberts is a first cousin of Mr. Kravis.
Richard R. Shinn--Age 80, Director since May 1988. Mr. Shinn was Executive
Vice Chairman of the New York Stock Exchange from May 1985 through December
1990. Mr. Shinn retired as Chairman and Chief
A-5
<PAGE>
Executive Officer of Metropolitan Life Insurance Company in 1983. Mr. Shinn
was a director of Allied from 1973 until April 1988. Mr. Shinn is also a
director of Grey Advertising, Inc. Member of the Audit Committee, the
Organization and Compensation Committee and the Section 16 Committee.
Sellers Stough--Age 75, Director since March 1988. Mr. Stough is a retired
Vice President, Finance of Chevron Corporation. Mr. Stough also served on the
Executive Committee of Chevron Corporation from August 1986 until his
retirement in December 1987. Mr. Stough was a consultant to the law firm of
Pillsbury Madison & Sutro from February 1988 until December 1990 and served as
Executive Director of the firm from November 1989 through December 1990. Mr.
Stough was a director of Amax, Inc. from 1982 until 1987. Member of the Audit
Committee.
John L. Whitmire--Age 57, Chairman of the Board and Chief Executive Officer
since January 1996. Mr. Whitmire has responsibility for the overall management
of the Company. Mr. Whitmire served as Executive Vice President--Exploration
and Production and as a director of Phillips from January 1994 to January
1996, when he retired. Prior thereto, Mr. Whitmire served in a number of
executive capacities throughout his 30 year career with Phillips.
If a majority of the outstanding Shares are purchased by the Purchaser
pursuant to the Offer, Parent currently intends to request the Company to
reduce the number of its directors to not more than seven and to designate the
four Sub Designees as a majority of the Board. The current directors of the
Company who would be removed pursuant to this reduction in the size of the
Board have not yet been identified. If a greater number of Shares are
purchased by Sub pursuant to the Offer, Sub may, pursuant to the terms of the
Merger Agreement, designate additional directors to the Board.
The Board has standing audit, organization and compensation and Section 16
committees that are composed of directors of the Company. The functions of the
Audit Committee (the "Audit Committee") include reviewing external financial
reporting, both annual and quarterly reports, and other financial portions of
external reporting of the Company, recommending engagement of the Company's
independent accountants, reviewing and approving the terms of engagement of
the independent accountants, reviewing the independence of such accountants,
reviewing with the independent accountants the plan, scope and results of the
auditing engagement, and reviewing the scope and results of the Company's
procedures for internal auditing and the adequacy of the Company's internal
accounting controls.
The functions of the Organization and Compensation Committee (the
"Compensation Committee") include establishing compensation for executive
officers, monitoring compensation arrangements of certain management employees
for consistency with corporate objectives and to enhance shareholder value,
recommending remuneration arrangements for senior management, serving as the
Stock Option Committee under the Company's 1985, 1987 and 1992 Stock Option
Plans and the Company's 1994 Incentive Plan, administering the Incentive
Compensation Plan and Deferred Plan, and making recommendations with respect
to employee benefit plans.
The functions of the Section 16 Committee, established to comply with
amendments to the rules promulgated under Section 16 of the Exchange Act, as
well as Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), include approving grants of options, stock, stock appreciation rights
and other types of awards to and certain deferrals by officers of the Company
that are subject to or intended for compliance with the Exchange Act or the
Code (the "Section 16 Officers").
In addition, although the Board does not have a standing nominating
committee, the Compensation Committee considers and makes recommendations to
the Board regarding persons to be nominated for election as directors by the
Board to fill vacancies that arise between annual meetings of stockholders.
Stockholders wishing to recommend a person for consideration as a nominee for
election to the Board can do so in accordance with the Company's Bylaws by
providing timely written notice to the Secretary of the Company at 1330 Post
Oak Blvd., Houston, Texas 77056, providing such nominee's name, appropriate
biographical information and
A-6
<PAGE>
any other information that would be required in a proxy statement. Any such
recommendation should be accompanied by a written statement from the person
recommended, giving his or her consent to be named as a nominee and, if
nominated and elected, to serve as a director. A notice must be delivered to
the Secretary not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder must be so
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the close of business on the 10th day
following the day on which public announcement of the date of such meeting is
first made by the Company. Such notice to the Secretary must set forth the
name and address of the stockholder that is giving the notice and the
beneficial owner, if any, on whose behalf the nomination is made and the
number of shares that are owned beneficially by such stockholder and, if any,
such beneficial owner.
During the year ended December 31, 1997, the Board held a total of fourteen
meetings, the Audit Committee held three meetings, the Compensation Committee
held four meetings and the Section 16 Committee held one meeting and acted
once by written consent. Messrs. Gilhuly, Greene, Kravis and Roberts attended
less than 75% of the Board meetings.
Compensation Committee Interlocks and Insider Participation. Two of the
current members of the Compensation Committee, Mr. Michelson and Mr. Gilhuly,
are affiliates of KKR and the KKR Partnerships. The KKR Partnerships
collectively own approximately 25.6% of the outstanding Company Stock. In
connection with the 1985 Stock Acquisition, the Company agreed to pay each of
KKR and Allied a fee for financial advisory services of $250,000 per year,
increasing at a compound rate of 10% per annum. The Company is obligated to
continue to pay this annual advisory service fee to KKR until KKR or its
affiliates own less than 20% of the number of shares of Company Common Stock
outstanding. During 1997, KKR was paid $748,943 for such financial advisory
services pursuant to this agreement.
DIRECTOR COMPENSATION
All directors who are not officers of the Company receive $40,000 per annum
for serving on the Board. In addition, all directors are reimbursed for out-
of-pocket costs of attending Board and committee meetings. Messrs. Gilhuly,
Greene, Kravis, Michelson and Roberts are directors affiliated with KKR.
Under the 1994 Incentive Plan, as in effect and amended in accordance with
Proposal 3 of the Company's Proxy Statement dated March 24, 1998, each person
who becomes a director who is not then an employee of the Company or any
subsidiary or is not affiliated with KKR (an "Eligible Director") for the
first time is granted an option to purchase 5,000 shares of Common Stock
effective as of the date the individual becomes an Eligible Director. Each
incumbent Eligible Director also receives an option to purchase 3,000 shares
of Common Stock effective as of the date of each annual meeting of
stockholders. During 1997, each Eligible Director, other than Mr. Pieper and
Ambassador Barry, who were not directors as of such date, received an annual
grant of an option to purchase 3,000 shares of Common Stock at $19.75 per
share under the 1994 Incentive Plan. Effective May 9, 1997 and December 19,
1997, Mr. Pieper and Ambassador Barry each received an option to purchase
5,000 shares of Common Stock at $19.75 and $20.6875 per share, respectively,
under the 1994 Incentive Plan. Each such option is fully vested and
exercisable and has a term of ten years, but must be exercised within six
months of termination of service on the Board for any reason other than death
or disability or retirement after at least five years of continuous Board
service, in which event such option must be exercised within two years of
death or disability and within three years of retirement. The price per share
to be paid by the holder of such an option is equal to the fair market value
per share of Common Stock on the date the option is granted. Except transfers
to family members, family entities or private foundations, no transfer, sale
or other disposition of Common Stock acquired upon option exercise is
permitted, except in an amount necessary to satisfy tax withholding liability,
until the Eligible Director terminates service as an Eligible Director of the
Company, unless a prior extraordinary corporate transaction occurs.
A-7
<PAGE>
In May 1997, the Board approved the establishment of stock ownership
guidelines for Eligible Directors and executives to further strengthen the tie
between executive officers, directors and the stockholders of the Company. The
ownership level for Eligible Directors was set at three times the annual
retainer fee, with the recommendation that the Eligible Directors meet this
ownership guideline within a five year period based on beneficial ownership of
Common Stock. Such guideline and suggested ownership levels are subject to
annual review by the Compensation Committee. As of December 31, 1997, two of
the six Eligible Directors had met the guideline.
To encourage stock ownership opportunities, the Board also approved at its
May 1997 meeting the Union Texas Petroleum Holdings, Inc. Deferred
Compensation Plan, as amended and restated at its February 1998 meeting (the
"Deferred Plan") to give key employees and directors the ability to defer
compensation on an elective basis in the form of restricted shares of Common
Stock or in phantom shares of Common Stock. Other options available for
interest accrual on deferred amounts include a mutual fund program account and
an interest account. Directors may defer up to 100% of their annual retainer
fees, in increments of 25%. Ambassador Barry and Messrs. Gilhuly, Greene,
Kravis, Michelson and Whitmire have elected to participate in the Deferred
Plan for 1998.
Executive Officers. Set forth below is the age at May 1, 1998 and certain
other information concerning each person, including their principal
occupations and positions for the past five years, currently serving as an
executive officer of the Company.
John L. Whitmire--Age 57, Chairman of the Board and Chief Executive Officer
since January 1996. Mr. Whitmire has responsibility for the overall management
of the Company. Mr. Whitmire served as Executive Vice President--Exploration
and Production and as a director of Phillips Petroleum Company ("Phillips")
from January 1994 to January 1996 when he retired. Prior thereto, Mr. Whitmire
served in a number of executive capacities throughout his 30 year career with
Phillips.
William M. Krips--Age 58, Senior Vice President since May 1994, after having
served as Senior Vice President Exploration and Production, Senior Vice
President and General Manager--U.S. Exploration and Production, Senior Vice
President and General Manager--Hydrocarbon Products Group and Vice President
and General Manager--International Operations. Mr. Krips has responsibility
for the Regional Business Units and Technical Services. Mr. Krips joined
Allied in 1964, and served in a number of management positions in planning,
financing, marketing and operations. Mr. Krips is also a member of the
Management Board of Unimar Company, a partnership that is half owned by the
Company, and a director of ENSTAR Corporation ("ENSTAR"), a corporation owned
by Unimar Company, and of VICO 7.5, Inc., ENSTAR Indonesia, Inc., Virginia
International Company and Virginia Indonesia Company, which entities are
subsidiaries of ENSTAR.
Arthur W. Peabody, Jr.--Age 55, Senior Vice President since May 1994, after
having served as Senior Vice President--Exploration and Production, Senior
Vice President and General Manager--Hydrocarbon Products Group, Vice
President--Planning and Administration and Vice President--Acquisitions and
Planning. Mr. Peabody has responsibility for Exploration, Acquisitions,
Enhanced Production Ventures, Information Technology and Portfolio Management.
Mr. Peabody is also a member of the Unimar Company Management Board, and a
director of ENSTAR, ENSTAR Indonesia, Inc., VICO 7.5, Inc. and Virginia
International Company, which entities are subsidiaries of ENSTAR. Mr. Peabody
joined Allied in 1981 and, prior to assuming his current position, held
various positions in management and in planning and development with Allied
and thereafter with the Company.
Larry D. Kalmbach--Age 46, Vice President and Chief Financial Officer since
February 1995, after having served as Vice President--Finance and Vice
President and Controller of the Company. Mr. Kalmbach has responsibility for
Accounting, Tax, Treasury, Audit, Risk Management, Corporate Planning,
Purchasing, Administration and Investor Relations. He joined the Company in
1974 and has held various financial management positions with the Company. He
is also a member of the Unimar Company Management Board, and a director of
ENSTAR and of VICO 7.5, Inc., Virginia International Company and Virginia
Indonesia Company, which entities are subsidiaries of ENSTAR.
A-8
<PAGE>
Alan R. Crain, Jr.--Age 46, Vice President and General Counsel since May
1996, after having served as Assistant General Counsel from September 1988
until he assumed his current position. Mr. Crain has responsibility for Law,
Commercial Negotiations, Government Affairs and Security. Mr. Crain joined the
Company in March 1988.
Richard A. Cunningham--Age 46, Regional Vice President since May 1996, after
having served as General Manager Worldwide Business Development from September
1991 until he assumed his current position. Mr. Cunningham has responsibility
for the Asia Pacific regional business unit. Mr. Cunningham joined the Company
in 1981 and, prior to assuming his current position, held various positions in
negotiations and business development as well as serving as President of VICO
Indonesia.
James E. Knight--Age 52, Regional Vice President since May 1996, after
having served as Vice President, Technical Services from December 1991 until
he assumed his current position. Mr. Knight has responsibility for the Europe,
Middle East, Africa and Central Asia regional business unit. Mr. Knight joined
the Company in 1980 and, prior to assuming his current position, held various
positions in management in gas processing, engineering and international
operations.
Michael N. Markowitz--Age 51, Vice President and Treasurer since July 1985,
after having served as Treasurer from August 1983 until he assumed his current
position. Mr. Markowitz has responsibility for Treasury and Tax. Mr. Markowitz
joined the Company in 1972 and, prior to assuming his current position, held
various positions of increasing responsibility in tax and treasury.
Donald M. McMullan--Age 49, Vice President and Controller since June 1993,
after having served as Assistant Treasurer and Director Finance from July 1988
until he assumed his current position. Mr. McMullan has responsibility for
Accounting and Corporate Planning. Mr. McMullan joined the Company in 1980
and, prior to assuming his current position, held various management positions
in finance, treasury and acquisitions.
Roger W. Pierce--Age 48, Vice President Exploration since May 1996, after
having served as General Manager Exploration Operations from December 1994
until he assumed his current position. Mr. Pierce has responsibility for
worldwide Exploration. Mr. Pierce joined the Company in 1976 and, prior to
assuming his current position, held various positions in domestic and
international exploration operations.
Newton W. Wilson, III--Age 47, Regional Vice President since May 1996, after
having served as General Counsel, Vice President--Administration and Secretary
from January 1993 until he assumed his current position. Mr. Wilson has
responsibility for the Americas regional business unit. Mr. Wilson joined the
Company in 1985 as Vice President, General Counsel and Secretary.
John M. Zimmerman--Age 51, Vice President--Investor Relations since May
1996, and Vice President--Planning and Investor Relations from April 1990
until he assumed his current position. Mr. Zimmerman joined the Company in
April 1983.
Certain of the executive officers also serve as directors of certain of the
Company's subsidiaries and affiliates in addition to those named above. The
Company's Bylaws provide that each officer shall hold office until the
officer's successor is elected or appointed or until the officer's death,
resignation or removal by the Board.
A-9
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding aggregate cash
compensation, stock option awards and other compensation earned by the
Company's Chief Executive Officer and the four other most highly compensated
executive officers for services rendered in all capacities to the Company and
its subsidiaries in the years 1995 to 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- -----------------------
NUMBER OF SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING OPTIONS/SARS ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION(2) GRANTED(3) COMPENSATION(4)
------------------ ---- -------- -------- --------------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John L. Whitmire........ 1997 $600,000 $600,000 -- 175,000 $48,000
Chairman of the Board 1996 $586,957 $565,500 $577,873(5) 345,000 $28,000
and Chief Executive
Officer
William M. Krips........ 1997 $324,000 $198,500 -- 61,000 $25,920
Senior Vice President 1996 $314,667 $205,300 -- 39,100 $25,173
1995 $305,000 $193,000 -- 39,100 $24,400
Arthur W. Peabody, Jr... 1997 $320,500 $198,500 -- 61,000 $25,640
Senior Vice President 1996 $310,000 $205,300 -- 39,100 $24,800
1995 $296,250 $193,000 -- 39,100 $23,700
Newton W. Wilson, III... 1997 $304,000 $197,100 -- 41,000 $24,320
Regional Vice President 1996 $294,667 $170,000 -- 31,600 $23,574
1995 $285,000 $170,000 -- 31,600 $22,800
Larry D. Kalmbach....... 1997 $272,000 $169,300 -- 37,000 $21,760
Vice President and 1996 $267,000 $154,900 -- 31,600 $21,360
Chief Financial Officer 1995 $255,833 $150,000 -- 31,600 $20,467
</TABLE>
- --------
(1) Includes compensation under the Company's Incentive Compensation Plan (the
"Incentive Compensation Plan"), which program is under the 1994 Incentive
Plan and provides cash awards for executive officers and employees of the
Company. Awards are paid currently in a lump sum or may be deferred
pursuant to the Deferred Plan. No incentive compensation accrued in 1997,
1996 or 1995 was deferred by any of the executive officers to later years,
except for the Chief Executive Officer who deferred 100% of his 1997 award
into restricted shares of Common Stock under the Deferred Plan.
(2) During each of the three years ended December 31, 1995, 1996 and 1997,
perquisites for each individual named in the Summary Compensation Table,
other than Mr. Whitmire in 1996, aggregated less than 10% of the total
annual salary and bonus reported for such individual in the Summary
Compensation Table, or $50,000, if lower. Accordingly, no such amounts are
included in the Summary Compensation Table.
(3) Each option granted included an equal number of stock appreciation rights
("SARs").
(4) Information in this column includes amounts contributed by the Company
under the Company's Savings Plan for Salaried Employees (the "Savings
Plan") and Supplemental Non-Qualified Savings Plan for Executive Employees
(the "Supplemental Savings Plan"). The Company's matching contributions to
the Savings Plan for 1997 were in the respective amounts of: $9,500.00 for
Mr. Whitmire, $9,500.00 for Mr. Krips, $9,500.00 for Mr. Peabody,
$8,486.64 for Mr. Wilson, and $9,500.00 for Mr. Kalmbach. The Company's
matching contributions to the Supplemental Saving Plan for 1997 were in
the respective amounts of: $38,500.00 for Mr. Whitmire; $16,420.00 for Mr.
Krips; $16,140.01 for Mr. Peabody, $15,833.36 for Mr. Wilson, and
$12,259.97 for Mr. Kalmbach.
(5) Includes certain amounts in connection with Mr. Whitmire's employment in
January 1996, including the purchase of Mr. Whitmire's home in
Bartlesville, Oklahoma at its appraised value of $388,000 and special
payment of $170,000 related to relocation to Houston, Texas by the
Company.
Pursuant to the authorization of the Company Board on May 3, 1998, John L.
Whitmire, Chairman of the Board and Chief Executive Officer, will be paid on
the date of consummation of the Offer in an amount of $5 million plus an
excise tax gross-up amount. Pursuant to the same authorization, if Mr.
Whitmire is terminated following consummation of the Offer, Mr. Whitmire will
be provided office space and certain support services and benefits for three
years and will be eligible for retiree medical coverage. At the same meeting,
the Company Board authorized that all officers be offered financial planning
and tax planning services for a two year period commencing on May 1, 1998.
A-10
<PAGE>
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the exercise of
options and SARs during 1997 and unexercised options and SARs held as of the
end of 1997, which includes grants made under the Company's 1985 and 1992
Stock Option Plans and the 1994 Incentive Plan.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND OPTION/SAR VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SECURITIES OPTIONS/SARS HELD AT 1997 HELD AT 1997 FISCAL
UNDERLYING FISCAL YEAR-END YEAR-END(2)
OPTIONS/SARS VALUE ------------------------- -------------------------
NAME EXERCISED REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John L. Whitmire........ 0 $ 0 142,500 377,500 $158,203 $158,203
William M. Krips........ 31,330 $262,388.75 172,894 126,450 $502,257 $ 71,174
Arthur W. Peabody, Jr... 23,800 $299,075.00 192,494 126,450 $684,519 $ 71,174
Newton W. Wilson, III... 19,330 $166,117.21 138,958 93,900 $426,438 $ 57,522
Larry D. Kalmbach....... 0 $ 0 75,026 85,275 $163,409 $ 52,157
</TABLE>
- --------
(1) Market value of the Company's Common Stock at the time of exercise, minus
the exercise price, multiplied by the number of shares underlying the
options or SARs exercised.
(2) Value calculated by subtracting the exercise price from the market value
of the Company's Common Stock on December 31 1997, which was $20.71875
based on the average of the high and low sales price on December 31, 1997
on the New York Stock Exchange, multiplied by the number of shares
underlying the unexercised options or SARs.
PENSION PLANS
Certain employees of the Company, including each of its executive officers,
are participants in the Company's Salaried Employees' Pension Plan (the
"Pension Plan"). The table below illustrates the annual straight-life annuity
benefits payable to an employee under the Pension Plan as if the employee were
age 65 in 1997.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSION BENEFIT FOR YEARS OF CREDITED SERVICE
INDICATED
---------------------------------------------------------------
AVERAGE 5 10 15 20 25 30 35 40
ANNUAL PAY YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS
---------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 300,000..... 24,600 49,200 73,800 98,400 123,000 147,600 172,200 196,800
400,000..... 32,800 65,600 98,400 131,200 164,000 196,800 229,600 262,400
500,000..... 41,000 82,000 123,000 164,000 205,000 246,000 287,000 328,000
600,000..... 49,200 98,400 147,600 196,800 246,000 295,200 344,400 393,600
700,000..... 57,400 114,800 172,200 229,600 287,000 244,400 401,800 459,200
800,000..... 65,600 131,200 196,800 262,400 328,000 393,600 459,200 524,800
900,000..... 73,800 147,600 221,400 295,200 369,000 442,800 516,600 590,400
1,000,000..... 82,000 164,000 246,000 328,000 410,000 492,000 574,000 656,000
1,100,000..... 90,200 180,400 270,600 360,800 451,000 541,200 631,400 721,600
1,200,000..... 98,400 196,800 295,200 393,600 492,000 590,400 688,800 787,200
1,300,000..... 106,600 213,200 319,800 426,400 533,000 639,600 746,200 852,800
1,400,000..... 114,800 229,600 344,400 459,200 574,000 688,800 803,600 918,400
1,500,000..... 123,000 246,000 369,000 492,000 615,000 738,000 861,000 984,000
</TABLE>
The Pension Plan is a noncontributory, tax-qualified plan and provides that
the normal retirement age is 65. The benefits listed in the table above are
not subject to any reduction for Social Security benefits or, with respect to
the executive officers named in the Summary Compensation Table, for other
offset amounts. The amount of pension payable at normal or later retirement
under the Pension Plan is based on an employee's years of credited
A-11
<PAGE>
service and the employee's average pay (including salary, Incentive
Compensation Plan payments that are not deferred, elective deferrals made
under the Company's Savings Plan or Section 125 cafeteria plans, and severance
pay (excluding officers), but excluding amounts deferred under a deferred
compensation plan, income from an exercise of a stock option or SAR and
certain other fringe benefits as specified in the Pension Plan) during the
most highly paid five consecutive years of the employee's last ten years of
employment. An employee who was employed by the Company on or after April 29,
1990, may elect to receive a lump sum payment at retirement in lieu of a
pension.
The Code places certain maximum limitations on the amount of benefits that
may be payable under tax-qualified plans, such as the Pension Plan. Any excess
over such maximum limitation calculated in accordance with the provisions of
the Pension Plan will be paid separately by the Company through one or more
unfunded excess benefit plans. Such excess benefit plans also provide benefits
to certain employees in excess of those provided under the Pension Plan, based
upon deferred compensation, severance pay and certain additional service that
is not taken into account under the Pension Plan and to the extent the formula
in effect for the Pension Plan prior to 1989 would produce a larger benefit
than the current formula. Such additional benefits are calculated and included
in the table above, with the exception of benefits related to the formula in
effect prior to 1989 and a special supplemental benefit to Mr. Whitmire. In
1988, the Company adopted a trust pursuant to which the Company may, at its
discretion, including in the event of a change of control, contribute amounts
to the trust to provide for all or part of the benefits the Company is
obligated to pay pursuant to the excess benefit plans. Any assets placed in
the trust will remain subject to the general unsecured creditors of the
Company.
At December 31, 1997, the following individuals had the number of years of
credited service indicated: Mr. Whitmire, 1; Mr. Krips, 33; Mr. Peabody, 16;
Mr. Wilson, 12; and Mr. Kalmbach, 23. Mr. Whitmire is also entitled to receive
a special supplemental benefit to ensure that he receives compensation for any
loss of total pension benefit as a result of his retirement from his previous
employer.
A-12
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return (change in year-end stock price plus
reinvested dividends) on the Company's Common Stock against the cumulative
total return of the Standard & Poor's 500 Stock Index and the Dow Jones
Secondary Oil Industry Index for the period of five years ended December 31,
1997.
1992 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------
United Texas 100.0 109.6 112.8 106.4 124.2 116.6
S&P 500 100.0 110.1 111.5 153.5 188.7 251.6
Dow Jones Secondary Oil 100.0 113.0 112.2 128.8 158.7 170.1
- -----------------------------------------------------------------------------
Assumes $100 invested December 31, 1992, in the Company's Common Stock, S&P
500 Stock Index and Dow Jones Secondary Oil Industry Index (dividends
reinvested).
There can be no assurance that the Company's stock performance will continue
into the future with the same or similar trends depicted in the graph above.
The Company will not make or endorse any predictions as to future stock
performance.
A-13
<PAGE>
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE AND THE SECTION 16
COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
COMPENSATION PROGRAM
The Company's compensation program for all executives, including the
executive officers named in the Summary Compensation Table, is administered by
the Compensation Committee and the Section 16 Committee of the Company's
Board. The Compensation Committee currently consists of three members, all of
who are non-employee directors and two of whom are affiliated with the KKR
Partnerships, which collectively own approximately 25.6% of the Company's
Common Stock. The Section 16 Committee currently consists of two members, both
of whom are non-employee directors as defined under the Exchange Act, and
approves grants of options, stock, stock appreciation rights and other types
of awards to Section 16 Officers. Set forth below is a report collectively
submitted by the Compensation Committee and the Section 16 Committee
(collectively, the "Committees" and individually a "Committee") addressing the
Company's executive compensation program for 1997.
The Company's executive compensation program is designed to attract,
motivate and retain executives critical to the long-term success of the
Company. An important consideration in this philosophy is to relate the
interests of the executive officers with those of the stockholders. In
connection with this philosophy, the Compensation Committee approved a new
compensation program for 1997, which places more emphasis on variable
performance-based pay that is tied directly to the results of the Company. The
new program strengthens, and the Company's proposed amendment to the 1994
Incentive Plan is intended to continue, the alignment between compensation and
stockholder wealth creation.
The program is composed of four elements: a base salary, an annual bonus,
long-term incentives in the form of stock options, and a comprehensive
benefits program. The goal of the new program for all employees, including
executive officers, is to establish base salaries at the market median, target
bonus opportunities at the 65th percentile and grant stock options to all
employees. All employees participate in the Company's annual incentive
compensation program, which is based entirely on the Company meeting
predetermined financial and strategic goals as approved by the Compensation
Committee. Individual personal objections for executive officers and other key
employees have been eliminated. Specific award opportunities vary depending on
the Company's performance level and the employee's salary grade. If the
Company meets or exceeds its goals, then the expectation is that each
employee's total direct compensation (i.e., salary, bonus and annualized long-
term incentives) will be well above the market median (50th percentile).
The Committees annually review the Company's executive compensation program
on the basis of information provided by the Company, as well as studies, data
and reports provided by independent consultants. Each component of the
executive compensation program is described below.
BASE SALARIES
The objective of the Company's base salary program for key management
positions is to provide its executives with base salary opportunities that are
competitive with similar positions in companies similar in size to the
Company, based on annual revenues (referred to in this report as "comparable
companies"). In order to motivate and retain key executives critical to the
long-term success of the Company, the Company has established certain
practices in regard both to base salary and to the relationship of incentive
bonus to predetermined performance-oriented goals for the Company. The base
salaries established for 1997 for the executive officers of the Company were
reviewed at the January meeting of the Compensation Committee. In setting such
base salaries, the Compensation Committee reviewed compensation data for
comparable companies, including a comparison of market compensation data from
a December 1996 comprehensive study that included detailed market data
regarding base salaries, annual incentives and long-term incentives, prepared
by Towers Perrin, an independent consultant (the "Consultant Study"), and
analyzed the Company's executive compensation program. The Consultant Study
included data collected from nationally recognized private and
A-14
<PAGE>
published compensation surveys of energy and other industry companies of
comparable size to the Company for fiscal year 1996, but did not necessarily
include data from proxy statements published in 1996 for fiscal year 1995 for
the companies included in the Dow Jones Secondary Oil Industry published
index.
The data obtained from the foregoing surveys is more reflective of
competitive compensation among companies of similar size, based on annual
revenues, than the data pertaining to companies included in the Dow Jones
Secondary Oil Industry published index for purposes of the Company's Stock
Price Performance Graph, which index includes several companies that are much
larger and other companies that are smaller than the Company in terms of
annual revenues. The energy and other industry survey data provide more detail
about actual current compensation practices and levels to the Compensation
Committee than information from proxy statements published in prior years.
With the data collected, the Compensation Committee's objective for 1997 was
to establish the executives' salary at the market median (50th percentile) and
bonus opportunities at the 65th percentile in an effort to be competitive with
compensation provided to executives at comparable companies. The Company
believes it is crucial to provide strongly competitive salaries in order to
attract and retain managers who are highly talented. The specific competitive
markets considered depend on the nature and level of the particular positions
and the labor markets from which qualified individuals would be recruited for
such positions. Base salary levels also reflect the performance of each
individual employee over time. Thus, employees with higher levels of
performance sustained over time will be paid correspondingly higher salaries.
The Chief Executive Officer and the senior human resources executive of the
Company reviewed with the Compensation Committee a proposed 1997 salary plan
for the Company's executive officers, following with the Compensation
Committee approved the proposed plan at the January 1997 meeting. Three
executive officers, including one of the executive officers named in the
Summary Compensation Table, received salary increases at levels considered
appropriate in view of the duties and scope of responsibilities of each such
officer's position and were in a range generally consistent with the market
median (50th percentile) of comparable companies.
ANNUAL INCENTIVES
The objective of the Company's annual incentive bonus, a pay-for-performance
program under the 1994 Incentive Plan, is to motivate and reward individuals
based on contributions to business results. The Compensation Committee
administers the Company's incentive program, recommends to the Board the
aggregate amount of incentive compensation and approves individual officer
awards. The Board approves the aggregate amount of the incentive compensation
awards to all participants.
The annual bonus in 1997 was tied directly to the results of the Company and
was based upon achievement of performance-oriented goals, 65% of which were
financial measures and 35% of which were strategic objectives. These goals and
their weightings were approved by the Compensation Committee at its January
1997 meeting. In addition, a target bonus was approved for each employee based
on salary grade. The target is adjusted based on the Company's achievement of
these goals. Annual bonus target as a percentage of salary ranged from 40% to
50% for each of the executive officers named in the Summary Compensation
Table, except for the Chief Executive Officer. See "Chief Executive Officer
Compensation" below. If the Company exceeds its goals, such executive officers
may receive a maximum of up to 80% to 100% of their salary as their bonus and,
conversely, such officers may receive a reduced bonus or no bonus payment if
the Company does not attain the goals. Each employee's award, including for
executive officers, can be adjusted up or down by as much as 25% depending on
individual performance to allow the Company discretion in rewarding individual
performance.
For 1997, the financial measures considered in the incentive compensation
program included net income, net cash flow, reserve replacement, total
shareholder return and economic value added from reserves. The total
shareholder return measure compared the Company's return relative to the
return of the companies in the Dow Jones Secondary Oil Industry published
index. Financial results were measured against predetermined target
performance levels approved by the Compensation Committee. The remaining
portion of the awards was based on the achievement of certain strategic
objectives, which were performance-oriented goals that directly supported the
Company's overall business objectives, which included the development of a
risk balanced exploration
A-15
<PAGE>
portfolio, the initiation of a significant industry project, the development
of enhanced production ventures, the acquisition of producing or developing
reserves and the control of cash operating costs and expenses. The
accomplishment of such measures and objectives, as well as other significant
growth initiatives achieved during the year, was evaluated by the Chief
Executive Officer. The results of this evaluation were reflected in a
recommended award for each employee, including executive officers.
All employees, including the executive officers, received a bonus on the
basis of percentage award levels previously approved by the Compensation
Committee at its January 1997 meeting. In certain cases, an award to an
employee, including an officer, was adjusted upward or downward by senior
management, as much as 25% in either direction, to allow senior management
discretion in rewarding performance. These adjustments were subject to
approval by the Chief Executive Officer, and with respect to adjustments to
awards for officers, approval by the Compensation Committee. The Chief
Executive Officer reviewed all of the calculated awards for certain key
salaried employees, including officers, adjusted such awards as he deemed
appropriate and reviewed with the Compensation Committee at the February 1998
meeting a list of recommended awards for all officers of the Company. Bonuses
as a percentage of salary ranged from 61% to 65% for each of the officers
named in the Summary compensation Table, excluding the Chief Executive
Officer. See "Chief Executive Officer Compensation" below. Such awards were
above target because the Company on a weighted completion basis exceeded its
financial measures and strategic objectives in 1997. The awards resulted in
total cash compensation (base salary plus bonus) for executive officers
generally reflective of the 65th percentile of comparable companies.
LONG-TERM INCENTIVES
Another important consideration in the compensation philosophy of the
Company is to align the interests of the directors, key executive officers and
employees with the long-term interests of the stockholders of the Company. The
1994 Incentive Plan provides authority for the Committees to use a range of
long-term incentive awards in various forms as part of the company's overall
compensation program. In connection with this philosophy, the Company
historically has attempted to periodically award its employees with the stock
options whose value depends upon an increase in the value of the Common Stock
of the Company. The use of stock options is an integral part of the entire
compensation package of the employees of the Company, which also serves as a
pay-for-performance plan. Through providing the executives an opportunity for
stock ownership, stock options reward executives, on the basis of the
Company's future performance reflected in increased stock price, for long-term
service to the Company and for enhancing shareholder value. Accordingly, the
long-term stock options are granted to vest over time without regard to the
number of options held currently by each executive officer on the date of
grant. By working to increase the Company's stock value, one of the Company's
performance goals is met, and the executives and employees are likewise
compensated through increased option value. See "Director Compensation."
On October 23, 1997, the Committees granted a total of 1,613,200 stock
options pursuant to the 1994 Incentive Plan, which plan was previously
approved by the stockholders. Options were received by all U.S.-based
employees, including the named executive officers as described in the Summary
Compensation Table and the Option/SAR Grants in 1997 Table. The option
exercise price is equal to the fair market value of the stock on October 23,
1997, the date of the grants. The 1997 option grants vest at a rate of 25% per
year beginning one year after the grant date.
Consistent with the Company's objective that each employee's total direct
compensation be well above the market median, the Committees' overall stock
option grant guidelines for employees, including officers were generally to
position grants at the 75th percentile of the competitors. At its October 1997
meeting, the Committees reviewed a September 1997 update of the Consultant
Study and analyzed the executive compensation program. The results of the
updated study indicated that the officers total direct compensation levels
were generally competitive with the 65th percentile of the market. A history
of stock options granted to officers from 1985 to such October 1997 meeting
was also provided. The number of shares subject to option
A-16
<PAGE>
grants varied based on job grade classification. In recognition of the success
of the Company in implementing the Company's growth strategies, the 1997 stock
option grants were at the market 75th percentile, except for the Chief
Executive Officer. See "Chief Executive Officer Compensation" below.
Consistent with the Company's philosophy that compensation should be
significantly aligned to stockholder value, the Committees have proposed the
Amended 1994 Plan for stockholder approval. A copy of the plan document is
provided as Appendix A to this Proxy Statement. The proposed amendment
increases the number of shares of Common Stock available for award from four
million to a total of eight million. If the Amended 1994 Plan is approved by
the stockholders, grants of stock options or other awards will allow the
Committees to continue to use stock options under such plan as a long-term
incentive to motivate, attract and retain high-quality executive talent.
STOCK OWNERSHIP PHILOSOPHY
To further strengthen the tie between directors, key executive officers and
the long-term interests of stockholders, the Compensation committee at its May
1997 meeting approved a program designed to build stock ownership among the
directors and key executive officers. The various aspects of the program are
discussed below.
First, stock ownership guidelines were established for officers and Eligible
Directors. Guidelines for the Chief Executive Officer were set at three times
his annual salary, and for other officers at two or one times their annual
salary, depending on position, with the expectation that the executives would
attain their respective ownership levels within a five year period. The
guidelines and each officer's individual ownership level in relationship with
the guidelines are reviewed with the Compensation Committee annually. As of
December 31, 1997, each of the executive officers in the Summary Compensation
Table, except the Chief Executive Officer and Chief Financial Officer, have
met the applicable guidelines; however, as of the date of this report, the
Chief Executive Officer has met the guidelines with the deferral of his 1997
incentive bonus into restricted shares of the Company's Common Stock pursuant
to the Deferred Plan. See "Chief Executive Officer Compensation" below.
Second, the Committees approved the adoption of a non-qualified deferred
compensation plan (the "Deferred Plan") to provide the opportunity for
directors to defer up to 100% of their annual retainer fee in increments of
25%, officers and certain key employees to defer up to 50% of their base
salaries in increments of 10% and key employees, including officers, to defer
up to 100% of their annual incentive awards in increments of 25%. In addition,
to provide more opportunities to build personal stock ownership, officers, key
employees and directors are eligible to defer a portion or all of their annual
incentive award and annual retainer fee, respectively, into restricted shares
of the Company's Common Stock. Restrictions on the shares of stock received
lapse at a rate no more quickly than 25% per year from the award date. In
addition to the restricted share option election, participants in the Deferred
Plan are allowed to select one of the following interest accrual options:
Company phantom stock account, mutual funds program account or an interest
account. A trust was established to secure these deferred compensation
amounts. Any assets placed in the trust will remain subject to the general
unsecured creditors of the Company. Currently, Mr. Whitmire has elected to
participate in the Deferred Plan for 1998.
OTHER COMPENSATION PROGRAMS AND POLICIES
Another aspect of the Company's compensation package is to encourage
employees to save for the future through the Savings Plan. The Savings Plan
permits most regular salaried employees of the Company to contribute a
percentage of their annual base salary to the Savings Plan on a before-tax
basis. A participant's contributions to the Savings Plan are matched by the
Company. Generally, the Company's basic matching contribution is an amount
equal to 100% of the first 8% of the participant's base salary contributed to
the Savings Plan, which 8% is referred to as the participant's basic
contribution. To encourage alignment of the employees' and stockholders' long-
term financial interests, all of the Company's contributions to the Savings
Plan are
A-17
<PAGE>
invested in the Company's Common Stock, and participants may elect to invest
their contributions in ten investment funds, including the one invested in the
Company's Common Stock. The Code places certain maximum limitations on the
amount of contributions which otherwise could be contributed to the Savings
Plan. Highly compensated participants limited by such provisions, which
include all of the executive officers, may contribute to the Supplemental
Savings Plan and have their contributions matched by the Company in cash in
accordance with the terms of the Supplemental Savings Plan. The Supplemental
Savings Plan is unfunded, and benefits are paid from the general assets of the
Company. Company contributions to the Supplemental Savings Plan in 1997 were
$214,985.07, and 1997 contributions of $214,985.07 were made by the
participants. See the Summary Compensation Table for information with respect
to each named executive officer.
The Company has certain broad-based employee benefit plans in which all
employees, including the executives, participate, such as life and health
insurance plans and the company's Matching Gifts Program, under which program
the Company currently will match a maximum of $10,000 of gifts by employees
and directors to eligible institutions per participant per year. Also, the
executives of the Company are provided director and officer insurance
coverage. The incremental cost to the Company of the executives' benefits
provided under these plans is not material to the Company. For employee
participants (which include all of the executive officers) whose benefits
under the Savings Plan or Pension Plan are reduced or restricted due to tax
law limits, the Company has applicable excess supplemental benefit plans.
Benefits under these plans are not directly or indirectly tied to Company
performance.
Section 162(m) of the Code limits the tax deduction that the Company may
take with respect to the compensation of certain executive officers, unless
the compensation is "performance based" as defined in the Code. The Company's
1997 executive compensation, other than with respect to the Chief Executive
Officer, was within the provisions for the $1 million deductibility cap set
forth in Section 162(m) of the Code. Stock options granted under the 1992
Stock Option Plan and the 1994 Incentive Plan are intended to qualify for
exemption from the cap. To the extent a committee has discretion in its
decision making that is not permissible under the Code, certain awards such as
annual incentive bonuses will not meet the requirement of deductibility under
the Code. The Committees intend to continue to monitor developments under the
tax law and consider actions that may be taken in the future that would enable
any compensation in excess of $1 million paid to its executives who are
"covered persons" under the provisions of Section 162(m) will be paid without
regard to the limitation on deductibility thereunder.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Whitmire participates in the same compensation program as do the other
executives of the Company. In accordance with the discussion above of the
Company's philosophy for executive compensation, a significant portion of the
compensation for the Chief Executive Officer is based upon the Company's
performance. Mr. Whitmire's annual base salary remained at $600,000 for 1997
and his annual cash bonus target under the Company's incentive compensation
program was 70% of his base salary. On October 23, 1997, Mr. Whitmire was
granted options to purchase 175,000 shares of Common Stock at $23.03125 per
share under the 1994 Incentive Plan. Such grant was above the 75th percentile
of the market to reflect his significant contribution to the Company over the
past year in advancing the various growth strategies of the Company. Mr.
Whitmire currently owns 85,388 shares of Company Common Stock and has been
granted a total of 520,000 stock options. Mr. Whitmire also will receive a
special supplemental benefit to ensure that he receives compensation for any
loss of total pension benefit as a result of his early retirement from his
former employer to become the Chief Executive Officer of the Company.
Mr. Whitmire's discretionary annual incentive bonus for 1997 was $600,000,
which was 100% of his base salary and approximated 50% of his combined bonus
and salary compensation for 1997. His annual incentive compensation was based
on the achievement of financial and strategic objectives by the Company, as
described above. The Compensation Committee evaluated the attainment of the
Company's financial and strategic objectives and approved Mr. Whitmire's 1997
bonus. His award was above target because the Company
A-18
<PAGE>
exceeded on a weighted completion basis its financial measures and strategic
objectives in 1997. The Committee also approved an upward adjustment to his
award to reward Mr. Whitmire's performance over the past year. Mr. Whitmire
elected to defer all of his 1997 incentive bonus into restricted shares of
Common Stock pursuant to the Deferred Plan. Also, Mr. Whitmire participated in
the Supplemental Savings Plan as reflected in the Summary Compensation Table.
Mr. Whitmire's compensation in excess of $1 million for 1997 did not qualify
for deductibility under the provisions of Section 162(m) of the Code. Since
the Compensation Committee applied discretion to its decision making for 1997
awards that is not permissible under the Code, its annual incentive bonus to
Mr. Whitmire did not and was not intended to meet the requirements for
deductibility under the Code. The Compensation Committee believes the payment
of the annual incentive bonus was in the best interests of the Company.
Although the excess amount was not deductible, it was not material.
The report of the Committees shall not be deemed incorporated by reference
by any general statement incorporating by reference the 1998 Proxy Statement
into any filing under the Securities Act or under the Exchange Act, except to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
Organization and Compensation Committee:
Edward A. Gilhuly
Michael W. Michelson
Richard R. Shinn
Section 16 Committee:
Glenn A. Cox
Richard R. Shinn
February 26, 1998
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports
of changes in ownership (Forms 3, 4 and 5) of Common Stock and other equity
securities of the Company with the SEC and the New York Stock Exchange.
Officers, directors and greater-than-10% beneficial holders are required by
SEC regulation to furnish the Company with copies of all such forms that they
file.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and, if applicable, written
representations from certain reporting persons, that no reports on Form 5 were
required. The Company believes that during the fiscal year ended December 31,
1997, its officers, directors and greater-than-10% beneficial owners complied
with all applicable Section 16(a) filing requirements.
A-19
<PAGE>
SCHEDULE I
SUB DESIGNEES
The name, business address, present principal occupation or employment and
employment history of each of the Sub Designees designated by Sub to serve on
the Company's Board are set forth below. All such Sub Designees are citizens
of the United States. Unless otherwise indicated, the principal business
address of each Sub Designee is Atlantic Richfield Company, 515 South Flower
Street, Los Angeles 90071.
<TABLE>
<CAPTION>
<S> <C>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, AGE AND BUSINESS ADDRESSMATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
--------------------------------------------------------------------------------
</TABLE>
William E. Wade, Jr. (55).... President of ARCO since January 1998. Mr. Wade
was a director of ARCO from June 1993 to May
1998. Mr. Wade served as an Executive Vice
President from June 1993 to January 1998 and a
Senior Vice President of ARCO from May 1987 to
May 1993, President of ARCO Oil and Gas Company
from October 1990 to May 1993, President of
ARCO Alaska, Inc. from July 1987 to July 1990,
a Vice President of ARCO from 1985 to 1987 and
a Vice President of ARCO Exploration Company
from 1981 to 1985. Mr. Wade has been an officer
of ARCO since 1985. Mr. Wade also serves as a
Director of Vastar Resources, Inc.
Marie L. Knowles (51)........ Executive Vice President and Chief Financial
Officer of ARCO since July 1996. Mrs. Knowles
was a director of ARCO from July 1996 to May
1998. Mrs. Knowles served as a Senior Vice
President of ARCO and President of ARCO
Transportation Company from June 1993 to July
1996, Vice President and Controller of ARCO
from July 1990 to May 1993, Vice President of
Finance, Control and Planning of ARCO
International Oil and Gas Company from July
1988 to July 1990, and Assistant Treasurer of
Banking of ARCO from October 1986 to July 1988.
Mrs. Knowles has been an officer of ARCO since
1990. Mrs. Knowles also serves as a Director of
ARCO Chemical Company and Vastar Resources,
Inc.
Michael E. Wiley (47)........ Executive Vice President of ARCO since March
1997. Mr. Wiley was a director of ARCO from
June 1997 to May 1998. Mr. Wiley served as
Chief Executive Officer of Vastar Resources,
Inc. from January 1994 to March 1997 and
President from September 1993 to March 1997.
Prior to the formation of Vastar Resources,
Inc., Mr. Wiley was Senior Vice President of
ARCO from June 1993 to June 1994, President of
ARCO Oil and Gas Company from June 1993 to
October 1993 and Vice President of ARCO and
Manager of ARCO Exploration and Production
Technology from 1991 to 1993. Mr. Wiley has
been an officer of ARCO since 1997. Mr. Wiley
also serves as Chairman of the Board of Vastar
Resources, Inc.
Donald R. Voelte, Jr. (45)... Senior Vice President of ARCO since April 1997.
Mr. Voelte previously worked for the Mobil
Corporation for 22 years. Mr. Voelte's most
recent position was President of Mobil Oil
Company's New Exploration and Producing
Ventures from 1994 to April 1997. Mr. Voelte
has been an officer of ARCO since 1997.
<PAGE>
EXHIBIT (A)(1)
[LOGO] UNION TEXAS PETROLEUM
1330 Post Oak Boulevard (77056)
P.O. Box 2120
Houston, Texas 77252-2120
Telephone (713) 968-2752
Facsimile (713) 968-2720
JOHN WHITMIRE
Chairman and Chief Executive Officer
May 8, 1998
Dear Stockholder:
On May 4, 1998, Union Texas Petroleum Holdings, Inc. (the "Company"),
Atlantic Richfield Company ("ARCO") and VWK Acquisition Corp. (the
"Purchaser"), a wholly-owned subsidiary of ARCO, entered into a merger
agreement providing for the acquisition of all of the issued and outstanding
shares of the Common Stock, par value $.05 per share, of the Company at $29.00
cash per share.
The Purchaser has today commenced a cash tender offer for all outstanding
shares of Common Stock at a price of $29.00 net per share. The tender offer is
conditioned, among other things, upon a majority of the outstanding shares
being validly tendered. The merger agreement provides that, following the
tender offer, all shares of the Common Stock of the Company which are not
acquired through the tender offer will be acquired through a merger at the
same $29.00 cash price.
At a meeting on May 3, 1998, your Board of Directors unanimously approved
the tender and the merger and unanimously recommended that stockholders accept
the offer. Enclosed for your consideration are copies of the tender offer
materials and the Company's Schedule 14D-9, which are being filed today with
the Securities and Exchange Commission. These documents should be read
carefully. In particular, I call your attention to Item 4 of the enclosed
Schedule 14D-9, which describes both the reasons for the Board's
recommendation and certain additional factors that stockholders may wish to
consider before taking action with respect to the offer.
Your Board of Directors believes that the proposed acquisition of the
Company by ARCO is fair and in the best interests of our stockholders. Each
principal executive officer and director of the Company currently intends to
tender their shares for purchase by ARCO (except for shares that are subject
to certain restrictions) and, if a stockholder vote is required, to vote in
favor of the merger.
Sincerely,
/s/ John L. Whitmire
John L. Whitmire
Chairman of the Board
<PAGE>
EXHIBIT (A)(2)
- --------------------------------------------------------------------------------
LOGO UNION TEXAS PETROLEUM NEWS RELEASE
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE May 4, 1998
ARCO ANNOUNCES MERGER AGREEMENT WITH
UNION TEXAS PETROLEUM
$3.3 BILLION DEAL SUBSTANTIALLY INCREASES ARCO'S
INTERNATIONAL PRODUCTION AND RESERVES
KKR, CONTROLLING 25.6% OF UNION TEXAS STOCK, SIGNS
COMMITMENT TO TENDER UNION TEXAS INTEREST TO ARCO
LOS ANGELES AND HOUSTON - ARCO (NYSE: ARC) and Union Texas Petroleum
(NYSE: UTH) announced today that they have signed a definitive merger agreement
under which ARCO will acquire for cash all outstanding shares of Union Texas
common stock for $29 per share in a transaction valued at approximately $3.3
billion, including debt and preferred stock of Union Texas. The agreement was
approved unanimously by the Boards of Directors of both companies.
In connection with the transaction, ARCO has obtained a commitment from
Kohlberg Kravis Roberts & Co. to tender its holdings of 25.6 percent of the
outstanding Union Texas common shares pursuant to the tender offer.
ARCO Chairman and Chief Executive Officer Mike R. Bowlin called the
agreement "an important building block" for the company. "This acquisition is
consistent with our strategy of building scale and presence in 5 to 6 core
producing areas as a means of creating shareholder value," Bowlin added. "Over
90 percent of Union Texas' assets are located in ARCO's core producing areas,
specifically Venezuela, Indonesia, the North Sea and Alaska. The combination of
the two companies solidifies ARCO's position as a significant player in those
regions and is another step toward accomplishing our goal of becoming a great
global player."
<PAGE>
Bowlin noted that "the transaction is especially attractive to ARCO
because of the exceptional degree of overlap between the assets of the two
companies and the ability to implement significant cost reductions as a
consequence." Bowlin said he expects the combination to eventually yield after-
tax cost savings of at least $85 million per year.
The transaction will immediately add 140,000 barrels per day of oil
equivalent (BOE) to ARCO's production. Union Texas expects strong production
growth over the near term from assets such as the Britannia field in the North
Sea, the Boqueron and DZO concessions in Venezuela, and the Alpine field in
Alaska.
The transaction will also add 573 million barrels of proved reserves for
a gross cost of $5.76 per BOE. ARCO estimates it is paying approximately $5 per
proved BOE based on costs attributable to producing oil and gas assets. In
addition, probable and possible reserves also have been identified for future
development.
"In addition to strengthening our core areas," Bowlin noted, "Union
Texas offers several new venture options to ARCO, ranging from its long-
established operations in Pakistan to its growing position in Kazakhstan and
Azerbaijan in the Caspian region. Finally, Union Texas' long-term experience in
Indonesia's LNG business should prove valuable as we continue development and
marketing of ARCO's Tangguh gas reserves discovered last year."
John Whitmire, Chairman and Chief Executive Officer of Union Texas,
said that "ARCO's tender offer reflects the proven value and potential of Union
Texas Petroleum. Over the past two years, Union Texas' management team and our
employees around the world have made significant progress in creating exciting
growth prospects for our company in areas such as Venezuela, Kazakhstan, China
and Northern Africa. I believe it was Union Texas' growth performance that
attracted ARCO to our organization."
Bowlin said he expects the acquisition to be accretive to operating cash
flow in the first year and only modestly dilutive to earnings through next year.
He noted that there is little downside risk in this transaction as Union Texas'
production from known resources is rising and the cost reductions anticipated
are totally within ARCO's control.
ARCO expects the tender offer will be completed by the end of the
company's second quarter. ARCO plans to finance the transaction using commercial
paper and other short-term borrowings backed by existing and additional bank
facilities.
<PAGE>
Under the terms of the merger agreement, ARCO will commence an all-cash
tender offer for all of Union Texas' outstanding common stock on or prior to May
8, 1998. Any shares not purchased in the tender offer will be acquired for $29
per share in cash pursuant to a merger after completion of the tender offer. As
of March 31, 1998, Union Texas had approximately 85.25 million shares
outstanding. The transaction is subject to usual closing conditions, including
regulatory approvals.
Union Texas Petroleum is a Houston-based oil and gas company with 1997
sales of $909 million and assets of $2.0 billion. In addition to its Caspian Sea
exploration projects and major operations in Indonesia, the North Sea and
Venezuela, the company also has operations in Pakistan, where it produces
approximately 45 percent of the country domestic oil output.
ARCO is a Los Angeles-based integrated oil and gas company with 1997
earnings of $1.8 billion and global assets of $25.3 billion. Worldwide
operations include all aspects of exploration, production and marketing of crude
oil, natural gas, and natural gas liquids, as well as refining, marketing and
transportation of petroleum products. ARCO is also the majority owner of ARCO
Chemical Company.
###
[Some of the matters discussed in this news release are foward-looking
statements that involve risks and uncertainties. Actual results could differ
materially based on numerous factors, including the realized level of crude oil
and natural gas production and other risks detailed from time to time in the
company's SEC reports, including the 1997 report on Form 10-K.]
For information call:
ARCO: (Media) Albert Greenstein, 213-486-3384;
(Investors) Dennis Schiffel, 213-486-1511
UTP: (Media) Carol Cox, 713-968-2714;
(Investors) John Zimmerrnan, 713-963-2740
<PAGE>
ARCO-UNION TEXAS PERSPECTIVES
- --------------------------------------------------------------------------------
ASSETS
UTP total proved reserves: 573 million barrels of oil equivalent (BOE) of which
25% is from the United Kingdom, 37% from Indonesia, 27% from Venezuela, 5% from
Pakistan, and 6% from Alaska.
1997 UTP production was 44 million BOE (51% natural gas), which is expected to
increase with development of operations in Venezuela, the Britannia field in
the U.K., and the Alpine field in Alaska.
ARCO-UTP SYNERGY
U.K. NORTH SEA: Adds to ARCO's growing presence in the Central North Sea.
- --------------
Britannia (9.42% interest), one of the largest gas and condensate projects in
the U.K., is expected to begin production in August, 1998. Net proved reserves
are 54 million BOE. The Alba oil field (15.5%) overlies the Britannia field
with 34 million BOE reserves. The Piper/Claymore and associated satellite fields
(20% interest) add 33 million BOE of reserves. UTP's 25% interest in the Sean
peak shaver fields enhances ARCO's strong presence in the Southern Gas Basin
with 20 million BOE reserves. 1997 average net production from the U.K as a
whole was 49,000 BOE per day.
INDONESIA: Enhances ARCO's current oil and gas operations and fits with ARCO's
- ----------
Tangguh LNG project scheduled for startup in 2003/2004. UTP operations include a
37.8% interest (26.25% direct, 11.56% indirect through Unimar) in the Sanga
Sanga production sharing contract (PSC) with production supplying the Bontang
LNG plant. UTP has a 50% interest in Unimar whose subsidiary VICO operates the
Bontang PSC and is part operator of the Bontang LNG facility. Proved reserves
were 219 million BOE at the end of 1997 while average net production was 57,000
BOE per day.
VENEZUELA: Builds upon ARCO's Hamaca project and third reactivation round
- ---------
fields. Operator of the DZO unit (100%). In addition, UTP expects to take
operatorship of the Boqueron field later this year. Boqueron has 40 million
barrels of reserves while the DZO has 114 million barrels. Net production is
currently 27,000 BOE per day from the DZO.
PAKISTAN: Adds scope to ARCO's current portfolio. UTP is operator with 30%
- --------
equity in oil and gas production from 35 fields in the Badin areas in
southeastern Pakistan. Proved reserves are 27 million BOE at the end of 1997
while average net production was 13,000 BOE per day.
ALASKA: Increases ARCO's 56% interest in the Alpine field by 22%. Total field
- ------
reserves are estimated at 365 million barrels. UTP's share of proved reserves is
32 million BOE.
<PAGE>
EXPLORATION
UTP has attractive ventures in Kazakhstan and Azerbaijan. ARCO, through its
LUKARCO joint venture partnership with LUKOIL, has a 12.5% interest in the
Caspian Pipeline Consortium and a 5% interest in the Tengiz oil field in
Kazakhstan. Other UTP prospects are in Trinidad, Tunisia, Papua New Guinea,
Italy, China, Greece, Yemen, Jordan, Bolivia, and Egypt, and Algeria. ARCO
operates a crude oil upgrade project at the Rhourde el Baguel field in Algeria.
PETROCHEMICALS
UTP has a 41% interest and operates an olefins plant in Louisiana. Interests
also include related natural gas liquids plant, pipelines and storage.
<PAGE>
- ------------------------------------------------------------------------
As of December 1997 ARCO UTP COMBINED
- ------------------------------------------------------------------------
Financial
- ---------
Revenues ($MM) 19,272 933 20,205
Net Income ($MM) 1,771 136 1,907
Cash from Operations ($M) 3,722 272 3,994
Production
Oil (mbbl/d) 641 58 699
Gas (mmcf/d) 1,910 365 2,275
Combined (mboepd) 959 119 1,077
% International 23% 100% 32%
Reserves
Oil (mmbl) 2,699 296* 2,995
Gas (bcf) 8,472 1,605 10,077
Combined (mmboe) 4,111 573 4,684
% International 27% 94% 35%
- ------------------------------------------------------------------------
* Including acquisition of Desarrollo Zulia Occidental (DZO)
in February 1998
- ------------------------------------------------------------------------
<PAGE>
EXHIBIT (A)(3)
LOGO
May 3, 1998
Board of Directors
Union Texas Petroleum Holdings, Inc.
1330 Post Oak Boulevard
P.O. Box 2120
Houston, Texas 77056
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of shares of common stock, par
value $0.05 per share ("Company Common Stock") of Union Texas Petroleum
Holdings, Inc. (the "Company") of the consideration to be received by such
holders in the proposed acquisition of the Company by Atlantic Richfield
Company ("Acquiror") pursuant to the Agreement and Plan of Merger (the
"Agreement"), dated May 3, 1998, among Acquiror, VWK Acquisition Corp. ("Sub")
and the Company.
As more specifically set forth in the Agreement, Sub will commence a tender
offer (the "Proposed Tender Offer") to purchase all outstanding shares of
Company Common Stock at a price of $29.00 per share. Following consummation of
the Proposed Tender Offer, Sub will be merged with and into the Company (or,
at the election of Acquiror, the Company will be merged with and into Sub)
(the "Proposed Merger" and, collectively with the Proposed Tender Offer, the
"Proposed Transaction") and each then outstanding share of Company Common
Stock (other than shares held in the treasury of the Company, shares owned by
Acquiror, Sub or any other wholly owned subsidiary of Acquiror or of the
Company, and shares as to which appraisal rights have been properly exercised
under applicable law) will be converted into the right to receive, in cash,
the amount paid for a share of Company Common Stock pursuant to the Proposed
Tender Offer.
In connection with rendering our opinion, we have reviewed and analyzed
material bearing upon the financial and operating condition and prospects of
the Company including, among other things, the following: (i) the final draft
of each of the Agreement and the stockholder's agreement between Acquiror and
the Company's principal stockholder; (ii) certain publicly available
information concerning the Company, including the Annual Report on Form 10-K
of the Company for the period ended December 31, 1997 and the amendment
thereto and the Quarterly Report on Form 10-Q of the Company for the quarter
ended March 31, 1998; (iii) certain internal information of the Company,
primarily financial in nature, including projections, concerning the business
and operations of the Company furnished to us by the Company for purposes of
our analysis; (iv) certain publicly available information concerning the
trading of, and the trading market for, the Company Common Stock; (v) certain
publicly available information with respect to certain publicly traded
companies that we believe to be comparable to the Company and the trading
markets for certain of such other companies' securities; and (vi) certain
publicly available information concerning the nature and terms of certain
other transactions that we consider relevant to our inquiry. We have also
considered such other information, financial studies, analyses, investigations
and financial, economic and market criteria that we deemed relevant. We have
also discussed the foregoing, as well as other matters we believe relevant to
our inquiry, with the management of the Company.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and
other information provided to us or publicly available and have neither
attempted independently to verify nor assumed any responsibility for verifying
any of such information and have further relied upon the assurance of
management of the Company that they are not aware of any facts
that would make any of such information inaccurate or misleading. We have not
conducted a physical inspection
SALOMON BROTHERS INC Seven World Trade Center New York NY 10048
<PAGE>
of any of the properties or facilities of the Company, nor have we made or
obtained or assumed any responsibility for making or obtaining any independent
evaluations or appraisals of any of such properties or facilities, nor have we
been furnished with any such evaluations or appraisals. With respect to
projections, we have been advised by management of the Company that such
projections were reasonably prepared on bases reflecting the best currently
available estimates and judgment of the Company's management as to the future
financial performance of the Company and we express no view with respect to
such projections or the assumptions on which they were based. We have also
assumed that the definitive Agreement will not, when executed, contain any
terms or conditions that differ materially from the terms and conditions
contained in the draft of such document we have reviewed and that the Proposed
Transaction will be consummated in a timely manner and in accordance with the
terms of the Agreement.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following:
(i) the historical and current financial position and results of operations of
the Company; (ii) the business prospects of the Company; (iii) the historical
and current market for the Company Common Stock and for the equity securities
of certain other companies that we believe to be comparable to the Company;
and (iv) the nature and terms of certain other acquisition transactions that
we believe to be relevant. We have also taken into account our assessment of
general economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuation generally. We
have also considered the process that resulted in the negotiation of the
Agreement, including discussions with certain other potential acquirors. Our
opinion necessarily is based upon conditions as they exist and can be
evaluated on the date hereof and we assume no responsibility to update or
revise our opinion based upon circumstances or events occurring after the date
hereof. Our opinion is, in any event, limited to the fairness, from a
financial point of view, of the consideration to be received by the holders of
Company Common Stock in the Proposed Transaction and does not address the
Company's underlying business decision to effect the Proposed Transaction or
constitute a recommendation to any holder of Company Common Stock as to
whether such holder should tender such stock in the Proposed Tender Offer or
as to how such holder should vote with respect to the Proposed Merger.
As you are aware, Salomon Brothers Inc, now doing business as Salomon Smith
Barney (collectively with all other entities doing business as Salomon Smith
Barney, "Salomon Smith Barney"), is acting as financial advisor to the Company
in connection with the Proposed Transaction and will receive a fee for its
services, a substantial portion of which is contingent upon consummation of
the Proposed Transaction. Additionally, Salomon Smith Barney or its affiliates
have previously rendered certain investment banking and financial advisory
services to the Company and Acquiror and certain of its affiliates, for which
we received customary compensation. In addition, in the ordinary course of our
business, Salomon Smith Barney may actively trade the debt and equity
securities of the Company for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Salomon Smith Barney and its affiliates (including Travelers
Group Inc.) may have other business relationships with the Company or
Acquiror.
This opinion is intended for the benefit and use of the Company (including
its management and directors) in considering the transaction to which it
relates and may not be used by the Company for any other purpose or
reproduced, disseminated, quoted or referred to by the Company at any time, in
any manner or for any purpose, without the prior written consent of Salomon
Smith Barney.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the consideration to be received by the
holders of Company Common Stock in the Proposed Transaction is fair, from a
financial point of view, to such holders.
Very truly yours,
/s/ Salomon Smith Barney
Salomon Smith Barney
<PAGE>
EXHIBIT (a)(4)
LOGO
May 3, 1998
The Board of Directors
Union Texas Petroleum Holdings, Inc.
1330 Post Oak Boulevard
Houston, Texas 77056
Members of the Board:
Atlantic Richfield Company, a Delaware corporation ("Parent"), VWK
Acquisition Corp., a Delaware corporation ("Sub"), and Union Texas Petroleum
Holdings, Inc., a Delaware corporation (the "Company"), propose to enter into
an agreement and plan of merger (the "Merger Agreement"), which provides for,
among other things, the tender offer (the "Offer") by Sub for all of the
issued and outstanding shares of common stock, par value $.05 per share (the
"Shares"), of the Company at $29.00 per Share, net to the seller in cash, and
the merger (the "Merger") of Sub with and into the Company, as a result of
which the Company will become a wholly owned subsidiary of Parent. Upon
consummation of the Merger, each Share (other than Shares owned by the
Company, Sub, Parent or any wholly-owned subsidiary of the Company, Sub or
Parent) will be converted into the right to receive $29.00 in cash.
You have requested our opinion as to whether the per Share consideration to
be received by the holders of the Shares in the Offer and the Merger is fair
from a financial point of view to such holders.
In arriving at our opinion, we have, among other things:
1.reviewed certain publicly available business and financial information
relating to the Company, including (a) the Annual Reports on Form
10-K and related audited financial statements for the fiscal years
ended December 31, 1996 and December 31, 1997 and (b) the Quarterly
Report on Form 10-Q and related unaudited financial statements for
the fiscal quarter ended March 31, 1998;
2.reviewed estimates of the Company's oil and gas reserves prepared by (a)
DeGolyer & MacNaughton ("D&M") as of January 1, 1997 and January 1,
1998 and (b) the management and staff of the Company as of December
31, 1996, December 31, 1997 and March 31, 1998;
3.analyzed certain historical and projected financial and operating data of
the Company prepared by the management and staff of the Company;
4.discussed the current and projected operations and prospects of the
Company with the management and staff of the Company;
5.reviewed the historical trading history of the Shares;
6.compared recent stock market capitalization indicators for the Company
with the recent stock market capitalization indicators for certain
other publicly traded independent energy companies;
7.compared the financial terms of the Offer and the Merger with the
financial terms of certain other transactions that we deemed to be
relevant;
<PAGE>
8.reviewed drafts dated May 2, 1998 of the Merger Agreement and the related
stockholder agreement;
9.reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as we have
deemed necessary or appropriate.
In preparing our opinion, we have assumed and relied upon, without assuming
any responsibility for verification, the accuracy and completeness of any
information supplied or otherwise made available to us by the Company. We have
further relied upon the assurances of the management of the Company that it is
unaware of any facts that would make the information provided to us incomplete
or misleading in any material respect. With respect to projected financial and
operating data, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgment of the
management of the Company relating to the future financial and operational
performance of the Company. With respect to the estimates of oil and gas
reserves, we have assumed that they have been reasonably prepared on bases
reflecting the best available estimates and judgments of the management of the
Company and D&M relating to the oil and gas properties of the Company. We have
not made an independent evaluation or appraisal of the assets or liabilities of
the Company or, except for the estimates of oil and gas reserves referred to
above, been furnished with such an evaluation or appraisal.
Our opinion relates solely to the fairness from a financial point of view of
the per Share consideration to be received by the holders of Shares in the
Offer and the Merger. This opinion is for the use and benefit of the Board of
Directors of the Company and does not constitute a recommendation to any holder
of Shares as to whether such holder should tender any Shares pursuant to the
Offer or how such holder should vote on the Merger. We have not been asked to
consider, and this opinion does not address, the after-tax consequences of the
Offer or the Merger to any particular holder of Shares. As you are aware, we
have acted as financial advisor to the Company and we will receive a fee from
the Company, a substantial portion of which is contingent upon the consummation
of the Merger, and we will receive a fee for rendering this opinion.
Our opinion is rendered on the basis of conditions in the securities markets
and the oil and gas markets prevailing as of the date hereof and the condition
and prospects, financial and otherwise, of the Company as they have been
represented to us as of the date hereof or as they were reflected in the
materials and discussions described above.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the per Share consideration to be received by the holders of
Shares in the Offer and the Merger is fair from a financial point of view to
such holders.
Very truly yours,
/s/ Petrie Parkman & Co., Inc.
PETRIE PARKMAN & CO., INC.
<PAGE>
EXHIBIT (c)(1)
VOTING SECURITIES AND CERTAIN BENEFICIAL OWNERS
At the close of business on March 10, 1998, the record date for
determination of stockholders entitled to notice of and to vote at the meeting,
there were issued and outstanding 85,169,892 shares of the Company's common
stock, par value $.05 per share ("Common Stock"), excluding Common Stock held by
the Company, each share being entitled to one vote upon each of the matters to
be voted upon at the meeting. There are no other voting securities outstanding.
The presence in person or by proxy of the holders of a majority of the
issued and outstanding Common Stock, excluding Common Stock held by the Company,
is necessary to constitute a quorum at this meeting. In the absence of a quorum
(42,584,947 shares) at the meeting, the meeting may be adjourned from time to
time without notice, other than announcement at the meeting, until a quorum
shall be formed. A plurality of the votes of the shares present in person or by
proxy at the meeting and entitled to vote is required for the election of
directors, meaning that the 12 nominees with the largest number of affirmative
votes will be elected as directors. The affirmative vote of a majority of the
shares present in person or by proxy at the meeting and entitled to vote is
required for the approval to amend the 1994 Incentive Plan. Any other matter
that may come before the meeting shall be adopted if the votes cast for such
matter exceed the votes cast against. Under Delaware law and under the Company's
Restated Certificate of Incorporation, each share of Common Stock entitles a
stockholder to one vote.
In certain circumstances, a stockholder will be considered to be present at
the meeting for quorum purposes but will not be deemed to have cast a vote on a
matter. Such circumstances exist when a stockholder is present but abstains from
voting on a matter or when shares are represented at the meeting by a proxy
conferring authority to vote only on certain matters, as in the case of broker
non-votes.
In connection with the approval of the amendment of the 1994 Incentive
Plan, abstentions will be treated as negative votes and, therefore, will affect
the outcome of such votes. In conformity with the Company's Bylaws, shares
abstaining from voting on any other matter or not voted on certain matters
coming before the
<PAGE>
meeting, including broker non-votes, will not be treated as votes cast with
respect to those matters, and therefore will not affect the outcome of any such
matter.
The table below sets forth certain information as of March 10, 1998,
regarding the beneficial ownership of the Common Stock, excluding Common Stock
held by the Company, by (i) each person known by the Company to own beneficially
more than 5% of its outstanding shares of Common Stock, (ii) each director of
the Company, (iii) the five executive officers of the Company named in the
Summary Compensation Table and (iv) all executive officers and directors of the
Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF
NATURE OF SHARES OF
BENEFICIAL COMMON STOCK
NAME OWNERSHIP(1) OUTSTANDING
---- ------------ -------------
<S> <C> <C>
Petroleum Associates, L.P.(2)............................... 21,833,334 25.6%
KKR Partners II, L.P.(2)....................................
9 West 57th Street
New York, New York 10019
GSB Investment Management, Inc.(3).......................... 4,424,912 5.2%
301 Commerce Street
Fort Worth, Texas 76102
Robert L. Barry, Director (4)............................... 12,000 *
Glenn A. Cox, Director(4)(5)................................ 27,000 *
Edward A. Gilhuly, Director(2).............................. 0 --
James H. Greene, Jr., Director(2)........................... 0 --
Henry R. Kravis, Director(2)................................ 0 --
Michael W. Michelson, Director(2)........................... 0 --
Wylie B. Pieper, Director (4)............................... 13,000 *
Stanley P. Porter, Director(4).............................. 20,000 *
George R. Roberts, Director(2).............................. 0 --
Richard R. Shinn, Director(4)............................... 22,000 *
Sellers Stough, Director(4)................................. 21,000 *
John L. Whitmire(4)(6)(7)................................... 227,888 *
Chairman of the Board and Chief Executive Officer
William M. Krips, Senior Vice President(4)(6)............... 205,451 *
Arthur W. Peabody, Jr., Senior Vice President(4)(6)......... 269,590 *
Newton W. Wilson, III, Regional Vice President(4)(6)........ 139,891 *
Larry D. Kalmbach(4)(6)..................................... 91,928 *
Vice President and Chief Financial Officer
All executive officers and directors as a group, including
the above (group equals 23 persons)(4)(6)(8).............. 1,419,473 1.7%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership of Common Stock, except as noted.
(2) KKR Associates is the sole general partner of each of Petroleum Associates,
L.P. ("Petroleum Associates") and KKR Partners II, L.P. (collectively, the
"KKR Partnerships") and possesses sole voting and investment power with
respect to the 21,833,334 shares owned by such stockholders. KKR Associates
is a limited partnership of which Henry R. Kravis, George R. Roberts,
Michael W. Michelson, James H. Greene, Jr., Edward A. Gilhuly (all
directors of the Company), Robert I. MacDonnell, Paul E. Raether, Michael
T. Tokarz, Perry Golkin, Clifton S. Robbins and Scott Stuart are the
general partners and Messrs. Kravis and Roberts are also the members of the
Executive Committee of KKR Associates. None of the aforementioned
individuals beneficially owns any other shares of Common Stock.
(Footnotes continued on following page)
2
<PAGE>
Petroleum Associates made its investment in the Company in 1985. The
limited partnership agreement pursuant to which Petroleum Associates was
organized expired on December 31, 1997 in accordance with the terms of the
limited partnership agreement. The terminated Petroleum Associates
partnership continues to be in existence for a winding-up period after such
date. The limited partnership agreement provides that, in connection with
the dissolution and winding up of Petroleum Associates, KKR Associates has
the sole discretion regarding the timing (which may be one or more years
after the expiration of the partnership agreement) and the manner of the
disposition of the Common Stock of the Company owned by Petroleum
Associates, including public or private sales of such Common Stock, the
distribution of such Common Stock to the limited partners of Petroleum
Associates or a combination of the foregoing. If shares of the Company's
Common Stock are distributed to the limited partners of Petroleum
Associates, each limited partner will thereafter have sole discretion with
respect to its Common Stock. In addition, pursuant to the limited
partnership agreement, Petroleum Associates will distribute to KKR
Associates for its own account, concurrently with any sales of shares owned
by Petroleum Associates, cash and/or shares of Common Stock that together
have a fair market value equal to approximately 20% of the profits realized
with respect to the shares sold and distributed. The Company has agreed
that, upon request of the KKR Partnerships, the Company will register under
the Securities Act of 1933, as amended (the "Securities Act") and
applicable state securities laws the sale of the Company's Common Stock
owned by the KKR Partnerships as to which registration has been requested.
The Company's obligation is subject to certain limitations relating to a
minimum amount required for registration, the timing of a registration and
other similar matters. The Company is obligated to pay any registration
expenses incidental to such registration, excluding underwriters'
commissions and discounts.
The KKR Partnerships currently own approximately 25.6% of the issued and
outstanding shares of Common Stock of the Company, excluding shares held by
the Company. As a result, the KKR Partnerships and their general partners
may be able to exercise substantial influence over the Company, through
their representation on the Board and by reason of their significant voting
power with respect to the election of directors and actions submitted to a
vote of stockholders. See also "Compensation Committee Interlocks and
Insider Participation."
(3) GSB Investment Management, Inc. is a registered investment advisor that
pursuant to a Schedule 13G dated February 10, 1998 reported such shares.
(4) Includes the following shares issuable upon the exercise of outstanding or
issuable stock options that are exercisable within 60 days after March 10,
1998: (i) 17,000 for each of Messrs. Cox, Porter, Shinn and Stough; (ii)
8,000 for Messrs. Pieper and Barry; (iii) 142,500 for Mr. Whitmire; 172,894
for Mr. Krips; 168,694 for Mr. Peabody; 129,293 for Mr. Wilson; 75,026 for
Mr. Kalmbach; and (iv) 1,049,931 for all executive officers and directors
as a group.
(5) Voting and investment power are shared with Veronica Cox with respect to
10,000 shares, all of which are held in the Glenn A. Cox Trust, UTA.
(6) Shares held by executive officers in the Company's Savings Plan for
Salaried Employees are included in the table.
(7) Voting and investment power are shared with Virginia Whitmire with respect
to 9,700 shares, all of which are held in the Virginia Kempton Whitmire
Revocable Trust dated September 7, 1995.
(8) As of March 10, 1998, the executive officers of the Company include the
five executive officers named in the Summary Compensation Table and the
other officers listed as Executive Officers. See "Executive Officers."
3
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Two of the current members of the Compensation Committee, Mr. Michelson and
Mr. Gilhuly, are affiliates of KKR and the KKR Partnerships. The KKR
Partnerships collectively own approximately 25.6% of the Company's outstanding
Common Stock. In connection with the 1985 Stock Acquisition, the Company agreed
to pay each of KKR and Allied a fee for financial advisory services of $250,000
per year, increasing at a compounded rate of 10% per annum. The Company is
obligated to continue to pay this annual advisory service fee to KKR until KKR
or its affiliates own less than 20% of the number of shares of Common Stock
outstanding. During 1997, KKR was paid $748,943 for such financial advisory
services pursuant to this Consulting Agreement. See "Voting Securities and
Certain Beneficial Owners."
4
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth information regarding aggregate cash
compensation, stock option awards and other compensation earned by the Company's
Chief Executive Officer and the four other most highly compensated executive
officers for services rendered in all capacities to the Company and its
subsidiaries in the years 1995 to 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING
NAME AND OTHER ANNUAL OPTIONS/SARS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) GRANTED(3) COMPENSATION(4)
------------------ ---- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
John L. Whitmire.......... 1997 $600,000 $600,000 -- 175,000 $48,000
Chairman of the Board and 1996 $586,957 $565,500 $577,873(5) 345,000 $28,000
Chief Executive Officer
William M. Krips.......... 1997 $324,000 $198,500 -- 61,000 $25,920
Senior Vice President 1996 $314,667 $205,300 -- 39,100 $25,173
1995 $305,000 $193,000 -- 39,100 $24,400
Arthur W. Peabody, Jr..... 1997 $320,500 $198,500 -- 61,000 $25,640
Senior Vice President 1996 $310,000 $205,300 -- 39,100 $24,800
1995 $296,250 $193,000 -- 39,100 $23,700
Newton W. Wilson, III..... 1997 $304,000 $197,100 -- 41,000 $24,320
Regional Vice President 1996 $294,667 $170,000 -- 31,600 $23,574
1995 $285,000 $170,000 -- 31,600 $22,800
Larry D. Kalmbach......... 1997 $272,000 $169,300 -- 37,000 $21,760
Vice President and 1996 $267,000 $154,900 -- 31,600 $21,360
Chief Financial Officer 1995 $255,833 $150,000 -- 31,600 $16,400
</TABLE>
- ---------------
(1) Includes compensation under the Company's Incentive Compensation Plan (the
"Incentive Compensation Plan"), which program is under the 1994 Incentive
Plan and provides cash awards for executive officers and employees of the
Company. For a description of the Incentive Compensation Plan, see "Report
of the Organization and Compensation Committee and the Section 16 Committee
of the Board of Directors on Executive Compensation." Awards are paid
currently in a lump sum or may be deferred pursuant to the Deferred Plan. No
incentive compensation accrued in 1997, 1996 or 1995 was deferred by any of
the executive officers to later years, except for the Chief Executive
Officer who deferred 100% of his 1997 award into restricted shares of Common
Stock under the Deferred Plan.
(2) During each of the three years ended December 31, 1995, 1996 and 1997,
perquisites for each individual named in the Summary Compensation Table,
other than Mr. Whitmire in 1996, aggregated less than 10% of the total
annual salary and bonus reported for such individual in the Summary
Compensation Table, or $50,000, if lower. Accordingly, no such amounts are
included in the Summary Compensation Table.
(3) Each option granted included an equal number of stock appreciation rights
("SARs").
(4) Information in this column includes amounts contributed by the Company under
the Company's Savings Plan for Salaried Employees (the "Savings Plan") and
Supplemental Non-Qualified Savings Plan for Executive Employees (the
"Supplemental Savings Plan"). The Company's matching contributions to the
Savings Plan for 1997 were in the respective amounts of: $9,500.00 for Mr.
Whitmire, $9,500.00 for Mr. Krips, $9,500.00 for Mr. Peabody, $8,486.64 for
Mr. Wilson, and $9,500.00 for Mr. Kalmbach. The Company's matching
contributions to the Supplemental Savings Plan for 1997 were in the
respective
(Footnotes continued on following page)
5
<PAGE>
amounts of: $38,500.00 for Mr. Whitmire, $16,420.00 for Mr. Krips,
$16,140.01 for Mr. Peabody, $15,833.36 for Mr. Wilson, and $12,259.97 for
Mr. Kalmbach.
(5) Includes certain amounts in connection with Mr. Whitmire's employment in
January 1996, including the purchase of Mr. Whitmire's home in Bartlesville,
Oklahoma at its appraised value of $388,000 and special payment of $170,000
related to relocation to Houston, Texas by the Company.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table sets forth information concerning the grant of stock
options and tandem SARs under the Company's 1994 Incentive Plan to the executive
officers named in the Summary Compensation Table:
OPTION/SAR GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
PERCENT GRANT
REPRESENTS
NUMBER OF OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO ALL GRANT DATE
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
GRANTED(1) 1997 PRICE(2) DATE VALUE(3)
------------ -------------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
John L. Whitmire................ 175,000 10.8% $23.0312 10/22/2007 1,304,662.73
William M. Krips................ 61,000 3.8% $23.0312 10/22/2007 454,768.15
Arthur W. Peabody, Jr........... 61,000 3.8% $23.0312 10/22/2007 454,768.15
Newton W. Wilson, III........... 41,000 2.5% $23.0312 10/22/2007 305,663.84
Larry D. Kalmbach............... 37,000 2.3% $23.0312 10/22/2007 275,842.98
</TABLE>
- ---------------
(1) A total of 1,613,200 options were granted on October 23, 1997. Options were
received by all U.S.-based employees, with 539,000 options (57,103 of which
were ISOs) being granted to the executive officers and 1,074,200 options
being granted to 513 other employees. The options become exercisable for 25%
of the shares after the expiration of one year from the date of grant, 50%
after the expiration of two years, 75% after the expiration of three years
and in full after the expiration of four years. Options are granted for a
term of ten years, subject to termination between 90 days to three years
following termination of employment. Each option vests in full upon death,
disability, normal retirement, voluntary resignation for the purpose of
accepting employment with Virginia Indonesia Company, involuntary
termination of an executive officer, or a change in control (generally
defined as liquidation or dissolution of the Company or acquisition of 50%
or more of the Company's voting stock or 75% or more of the Company's
assets, other than such a transaction with the KKR Partnerships, but not a
merger or consolidation unless the Board determines by a majority vote that
such transaction is a change in control). Upon the occurrence of a
change-in-control event, including specified sales of Common Stock by the
KKR Partnerships, the options held by executive officers are automatically
exchanged for cash equal to the difference in the value of the Common Stock
and the option exercise price subject to certain provisions in the 1994
Incentive Plan. In addition, each option to executive officers is
accompanied by an equivalent number of SARs. The SARs allow the optionee,
subject to certain restrictions, to surrender his option in return for a
payment in cash or shares of Common Stock or a combination thereof equal in
value to the excess of the fair market value of the shares of Common Stock
represented by the option over the option price thereof. The SARs are
subject to the same vesting, expiration and termination provisions as the
related option. Options are not transferable, except transfers (other than
ISOs) by officers to family members, family entities or private foundations.
See "Report of the Organization and Compensation Committee and the Section
16 Committee of the Board of Directors on Executive Compensation" and
Appendix A.
(Footnotes continued on following page)
6
<PAGE>
(2) The options other than ISOs contain an "early payment provision" whereby the
Board, the Compensation Committee or the Section 16 Committee may authorize
the Company to make a cash payment, equal to the difference in the market
value of a share of Common Stock on the date of payment and the exercise
price, to the holder of the option and adjust the exercise price of the
option to the then market price of the Common Stock.
(3) To calculate the present value of option/SAR grants in 1997, the Company has
used the Black-Scholes option pricing model. The actual value, if any, an
executive may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised, so that there is no
assurance the value realized by an executive will be at or near the value
estimated by the Black-Scholes model. The estimated values under that model
are based on assumptions that include (i) a stock price volatility of
25.45%, calculated using monthly stock prices for the three years prior to
the grant date, (ii) an interest rate of 6.0%, (iii) a dividend yield of
1.03% and (iv) an option exercise term of 5.5 years. This value has been
adjusted to reflect any risk of forfeiture prior to vesting. The Securities
and Exchange Commission (the "SEC") requires disclosure of the potential
realizable value or present value of each grant. The Company's use of the
Black-Scholes model to indicate the present value of each grant is not an
endorsement of this valuation.
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the exercise of
options and SARs during 1997 and unexercised options and SARs held as of the end
of 1997, which include grants made under the Company's 1985 and 1992 Stock
Option Plans and the 1994 Incentive Plan.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND OPTION/SAR VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SECURITIES OPTIONS/SARS HELD AT OPTIONS/SARS HELD AT
UNDERLYING 1997 FISCAL YEAR-END 1997 FISCAL YEAR-END(2)
OPTIONS/SARS VALUE --------------------------- ---------------------------
NAME EXERCISED REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John L. Whitmire........ 0 $ 0 142,500 377,500 $158,203 $158,203
William M. Krips........ 31,330 $262,388.75 172,894 126,450 $502,257 $ 71,174
Arthur W. Peabody,
Jr.................... 23,800 $229,075.00 192,494 126,450 $684,519 $ 71,174
Newton W. Wilson, III... 19,330 $166,117.21 138,958 93,900 $426,438 $ 57,522
Larry D. Kalmbach....... 0 $ 0 75,026 85,275 $163,409 $ 52,157
</TABLE>
- ---------------
(1) Market value of the Company's Common Stock at the time of exercise, minus
the exercise price, multiplied by the number of shares underlying the
options or SARs exercised.
(2) Value calculated by subtracting the exercise price from the market value of
the Company's Common Stock on December 31, 1997, which was $20.71875 based
on the average of the high and low sales price on December 31, 1997 on the
New York Stock Exchange, multiplied by the number of shares underlying the
unexercised options or SARs.
7
<PAGE>
PENSION BENEFITS
Certain employees of the Company, including each of its executive officers,
are participants in the Company's Salaried Employees' Pension Plan (the "Pension
Plan"). The table below illustrates the annual straight-life annuity benefits
payable to an employee under the Pension Plan as if the employee were age 65 in
1997.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSION BENEFIT FOR YEARS OF CREDITED SERVICE INDICATED
-----------------------------------------------------------------------------
AVERAGE 5 10 15 20 25 30 35 40
ANNUAL PAY YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS
---------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 300,000............ 24,600 49,200 73,800 98,400 123,000 147,600 172,200 196,800
400,000........... 32,800 65,600 98,400 131,200 164,000 196,800 229,600 262,400
500,000........... 41,000 82,000 123,000 164,000 205,000 246,000 287,000 328,000
600,000........... 49,200 98,400 147,600 196,800 246,000 295,200 344,400 393,600
700,000........... 57,400 114,800 172,200 229,600 287,000 244,400 401,800 459,200
800,000........... 65,600 131,200 196,800 262,400 328,000 393,600 459,200 524,800
900,000........... 73,800 147,600 221,400 295,200 369,000 442,800 516,600 590,400
1,000,000........... 82,000 164,000 246,000 328,000 410,000 492,000 574,000 656,000
1,100,000........... 90,200 180,400 270,600 360,800 451,000 541,200 631,400 721,600
1,200,000........... 98,400 196,800 295,200 393,600 492,000 590,400 688,800 787,200
1,300,000........... 106,600 213,200 319,800 426,400 533,000 639,600 746,200 852,800
1,400,000........... 114,800 229,600 344,400 459,200 574,000 688,800 803,600 918,400
1,500,000........... 123,000 246,000 369,000 492,000 615,000 738,000 861,000 984,000
</TABLE>
The Pension Plan is a noncontributory, tax-qualified plan and provides that
the normal retirement age is 65. The benefits listed in the table above are not
subject to any reduction for Social Security benefits or, with respect to the
executive officers named in the Summary Compensation Table, for other offset
amounts. The amount of pension payable at normal or later retirement under the
Pension Plan is based on an employee's years of credited service and the
employee's average pay (including salary, Incentive Compensation Plan payments
that are not deferred, elective deferrals made under the Company's Savings Plan
or Section 125 cafeteria plans, and severance pay (excluding officers), but
excluding amounts deferred under a deferred compensation plan, income from an
exercise of a stock option or SAR and certain other fringe benefits as specified
in the Pension Plan) during the most highly paid five consecutive years of the
employee's last ten years of employment. An employee who was employed by the
Company on or after April 29, 1990, may elect to receive a lump sum payment at
retirement in lieu of a pension.
The Code places certain maximum limitations on the amount of benefits that
may be payable under tax-qualified plans, such as the Pension Plan. Any excess
over such maximum limitation calculated in accordance with the provisions of the
Pension Plan will be paid separately by the Company through one or more unfunded
excess benefit plans. Such excess benefit plans also provide benefits to certain
employees in excess of those provided under the Pension Plan, based upon
deferred compensation, severance pay and certain additional service that is not
taken into account under the Pension Plan and to the extent the formula in
effect for the Pension Plan prior to 1989 would produce a larger benefit than
the current formula. Such additional benefits are calculated and included in the
table above, with the exception of benefits related to the formula in effect
prior to 1989 and a special supplemental benefit to Mr. Whitmire. In 1988, the
Company adopted a trust pursuant to which the Company may, at its discretion,
including in the event of a change of control, contribute amounts to the trust
to provide for all or part of the benefits the Company is obligated to pay
pursuant to the excess benefit plans. Any assets placed in the trust will remain
subject to the general unsecured creditors of the Company.
At December 31, 1997, the following individuals had the number of years of
credited service indicated: Mr. Whitmire, 1; Mr. Krips, 33; Mr. Peabody, 16; Mr.
Wilson, 12; and Mr. Kalmbach, 23. Mr. Whitmire is also entitled to receive a
special supplemental benefit to ensure that he receives compensation for any
loss of total pension benefit as a result of his retirement from his previous
employer. See "Report of the Organization
8
<PAGE>
and Compensation Committee and the Section 16 Committee of the Board of
Directors -- Chief Executive Officer Compensation."
EXECUTIVE SEVERANCE PLAN
The Company's Executive Severance Plan provides for certain salary and
other severance benefits to certain of the Company's employees, including each
of the Company's executive officers, if the employee's employment with the
Company is terminated under certain circumstances following a change of control
(as defined therein) of the Company. For purposes of the Executive Severance
Plan, the acquisition by affiliates of KKR of approximately 50% of the Common
Stock from Allied (the "1985 Stock Acquisition") constituted a change of control
of the Company. The period following such change of control through the later of
March 31, 1999, or 24 months after a change of control is referred to as the
"Protected Period." Since benefits are payable if employment with the Company is
terminated during the Protected Period, benefits could be required to be paid in
the future to employees who are covered by the Executive Severance Plan. The
Executive Severance Plan does not restrict the termination of a participant's
employment, and no benefits are payable if the participant voluntarily
terminates his or her employment, accepts employment with the purchaser of
assets from the Company, or receives a comparable offer of employment (as
defined in the plan) by the purchaser of assets from the Company. Certain offers
of continued employment either at lower compensation or that require a
participant to change his or her work site are deemed involuntary terminations
of employment. If a change of control occurs, certain reductions in benefits and
changes in an employee's responsibilities are also deemed involuntary
terminations of employment.
After a review of a July 31, 1997 report from Towers Perrin, an independent
consultant, and recommendations made by Towers Perrin based on such report, the
Board approved amendments to the Executive Severance Plan at its September 1997
meeting. Such report contained a summary of typical industry change of control
agreements based on a survey of over one hundred companies and of energy
industry peer group (including companies in the Dow Jones Secondary Oil Index)
change of control agreements. Such amendments include, among other matters, an
expansion of the number of persons eligible for the plan including officers and
certain key employees, an increase in the amount of benefits in the event of a
change of control after September 5, 1997, an increase in the number of years of
credited service for pension and excess benefit plans, the addition of a savings
plan match, an excise tax gross-up in the event of a change of control and the
"golden parachute" provision of the Code applies and outplacement services.
A participant in the Executive Severance Plan who is involuntarily
terminated other than for gross cause during the Protected Period is now
entitled to receive his or her base salary together with incentive compensation
payments for a period of not less than 24, nor greater than 36 months, as
specified in the Executive Severance Plan as to such participant, or 36 months
in the event a change of control occurs after September 5, 1997. Payments under
the Executive Severance Plan will not continue, however, past the month in which
the participant attains age 65. Also, an employee who is so terminated is
entitled to have the months of payments credited toward calculation of benefits
payable under the excess benefit plans. Under the Executive Severance Plan,
Messrs. Whitmire, Krips and Peabody are entitled to 36 months of benefits, and
Messrs. Wilson and Kalmbach are entitled to 24 months of benefits, except in the
event of a change of control, Messrs. Wilson and Kalmbach are entitled to 36
months of benefits. See "Description of Certain Employment Agreements and
Changes of Employment Arrangements." A participant entitled to Executive
Severance Plan benefits is also entitled to receive a payment equal to 24% of
his or her base salary, which is equivalent to three years of a Company match
under the Company's Savings Plan at 8% a year, the continuation of certain basic
life and medical insurance coverage and outplacement services. In the event any
payments made under the Executive Severance Plan result in the imposition of
excise tax under the "golden parachute" provision of the Code, such payments are
grossed up so that the participant receives the net amount he or she is
otherwise entitled to under the plan. An employee who either becomes entitled to
salary and benefit continuation pursuant to the Executive Severance Plan after a
change of control or who was receiving benefits pursuant to the Executive
Severance Plan on the date of such change of control is entitled to receive in a
lump sum any cash benefits which he or she is entitled to receive or which
remain to be paid as of the change of control. Assuming that Messrs. Whitmire,
Krips, Peabody, Wilson and Kalmbach were entitled to receive payments as
9
<PAGE>
of December 31, 1997, such payments would total $3,204,000, $1,535,760,
$1,535,760, $1,395,360 and $1,248,480, respectively.
The Company may generally terminate the Executive Severance Plan, but no
termination of the Plan is permitted prior to the later of March 31, 1999, or 24
months after a change of control. In addition, no termination may adversely
affect the rights of participants already receiving benefits at the time of
termination.
DESCRIPTION OF CERTAIN EMPLOYMENT AGREEMENTS AND CHANGES OF EMPLOYMENT
ARRANGEMENTS
In connection with the 1985 Stock Acquisition by affiliates of KKR of
approximately 50% of the Company's stock from Allied, the Company summarized in
letter agreements its existing understandings with certain officers, including
the executive officers named in the Summary Compensation Table, except Mr.
Whitmire, regarding compensation and benefits. In all cases, these letter
agreements provide for employment at will, which may be terminated by the
Company or such officers at any time, with or without cause. The compensation
and benefits summarized in the letter agreements are consistent with the
Compensation and Benefits Agreement among the Company, Allied and affiliates of
KKR, which was executed in connection with the 1985 Stock Acquisition, in part
as an inducement for employees to continue employment with the Company. Such
letter agreements have not been formally amended since the original date of the
agreements to reflect changes made in benefits resulting from promotions and
increased or changed job responsibilities.
Currently, each of Messrs. Whitmire, Krips, Peabody, Wilson and Kalmbach
has an annual incentive compensation (bonus), as determined by the Compensation
Committee, and each is covered by the Executive Severance Plan, 1985 and 1992
Stock Option Plans (other than Mr. Whitmire), 1994 Incentive Plan, Deferred
Plan, Pension Plan, Savings Plan, Supplemental Savings Plan and supplemental
executive retirement plans. See "Executive Compensation and Other
Information -- Executive Severance Plan" and "Report of the Organization and
Compensation Committee and the Section 16 Committee of the Board of Directors on
Executive Compensation."
10
<PAGE>
APPENDIX A
UNION TEXAS PETROLEUM HOLDINGS, INC.
1994 INCENTIVE PLAN
(AS AMENDED AND RESTATED)
SECTION 1. Purpose of the Plan.
The Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan (the "Plan")
is intended to promote the interests of Union Texas Petroleum Holdings, Inc., a
Delaware corporation (the "Company"), by encouraging employees of the Company,
its subsidiaries and affiliated entities, and non-employee directors of the
Company to acquire or increase their equity interest in the Company and to
provide a means whereby employees may develop a sense of proprietorship and
personal involvement in the development and financial success of the Company,
and to encourage them to remain with and devote their best efforts to the
business of the Company thereby advancing the interests of the Company and its
shareholders. The Plan is also contemplated to enhance the ability of the
Company, its subsidiaries and affiliated entities to attract and retain the
services of individuals who are essential for the program, growth and
profitability of the Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
"Affiliate" shall mean (i) any entity that, directly or through one or
more intermediaries, is controlled by the Company and (ii) any entity in
which the Company has a significant equity interest, as determined by the
Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Performance Award, Stock Compensation Award, Deferred Shares, Bonus
Shares, Other Stock-Based or Cash Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Bonus Shares" shall mean an award of Shares granted pursuant to
Section 6(e) of the Plan.
"Cash Award" shall mean an award payable in cash granted pursuant to
Section 6(g) of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations thereunder.
"Committee" shall mean the Organization and Compensation Committee of
the Board.
"Covered Employees" shall have the meaning specified in Section
162(m)(3) of the Code.
"Deferred Shares" shall mean an Award of the right to receive Shares
issued at the end of a Restricted Period which is granted pursuant to
Section 6(f) of the Plan.
"Disability" shall mean (i) with respect to an Employee, becoming
permanently disabled under the standards of the Company's or Affiliate's
long-term disability program as determined by the Committee or (ii) with
respect to an Eligible Director, inability to perform duties and services
as a director of the Company by reason of a medically determinable physical
or mental impairment supported by medical evidence which in the opinion of
the Committee can be expected to result in death or which can be expected
to last for a continuous period of not less than twelve (12) months.
"Eligible Director" shall mean a director of the Company who is not
(i) an Employee or (ii) a general partner, limited partner or employee of
Kohlberg Kravis Roberts & Co.
"Employee" shall mean any employee of the Company or of any Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
A-1
<PAGE>
"Fair Market Value" shall mean the fair market value of the property
or other item being valued, as determined by the Committee. With respect to
Shares, if the Shares are traded on a national stock exchange, the fair
market value of a Share on a particular date shall be equal to the average
of the reported high and low sales prices of the Share on such exchange on
that date, or if no prices are reported on that date, on the last preceding
date on which such prices of the Share are so reported. If the Shares are
publicly traded but are not traded on a national stock exchange at the time
a determination of its fair market value is required to be made hereunder,
its fair market value shall be deemed to be equal to the average between
the closing bid and asked price of the Share on the most recent date the
Shares were publicly traded. In the event the Shares are not publicly
traded at the time a determination of its fair market value is required to
be made hereunder, the determination of fair market value shall be made in
good faith by the Committee.
"Incentive Stock Option" or "ISO" shall mean an option granted under
Section 6(a) of the Plan that is intended to qualify as an "incentive stock
option" under Section 422 of the Code or any successor provision thereto.
"Non-Qualified Stock Option" or "NQO" shall mean an option granted
under Sections 6(a) or 6(h) of the Plan that is not intended to be an
Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean any right granted under Section
6(g) of the Plan.
"Participant" shall mean any individual granted an Award under the
Plan. Any other provisions hereof to the contrary notwithstanding, no
Eligible Director may receive benefits under this Plan except for
Non-Qualified Stock Options as provided in Section 6(h).
"Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
"Person" shall mean individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or
political subdivision thereof or other entity.
"Restricted Period" shall mean the period established by the Committee
with respect to an Award during which the Award either remains subject to
forfeiture or is not exercisable by the Participant.
"Restricted Stock" shall mean any Share, prior to the lapse of
restrictions thereon, granted under Section 6(c) of the Plan.
"Retirement" shall mean (i) with respect to an Employee, retirement as
determined by the Committee, and (ii) with respect to an Eligible Director,
termination of service as a director or honorary director, after at least
five (5) years of continuous service.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect from
time to time.
"SEC" shall mean the Securities and Exchange Commission, or any
successor thereto.
"Section 16 Committee" shall mean a committee consisting of two or
more members of the Board, each of whom satisfy the requirements of the
definition of a "non-employee director" under Rule 16b-3.
"Shares" or "Common Shares" or "Common Stock" shall mean the common
stock of the Company, $0.05 par value, and such other securities or
property as may become the subject of Awards or become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
"Stock Appreciation Right" or "Right" shall mean any right to receive
the appreciation of Shares granted under Section 6(b) of the Plan.
"Stock Compensation" shall mean any right granted under Section 6(e)
of the Plan.
A-2
<PAGE>
"Substitute Award" shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by (i) a company
acquired by the Company or one or more of its Affiliates, or (ii) a company
with which the Company or one or more of its Affiliates combines.
SECTION 3. Administration.
The Plan shall be administered by the Committee, which Committee shall
consist of at least two members. A majority of the Committee shall constitute a
quorum, and the acts of the members of the Committee who are present at any
meeting thereof at which a quorum is present, or acts unanimously approved by
the members of the Committee in writing, shall be the acts of the Committee.
Subject to the terms of the Plan and applicable law, and in addition to other
express powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to an eligible
Employee; (iii) determine the number of Shares to be covered by, or with respect
to which payments, rights, or other matters are to be calculated in connection
with, Awards; (iv) determine the terms and conditions of any Award; (v)
determine whether, to what extent, and under what circumstances Awards may be
settled or exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances cash, Shares,
other securities, other Awards, other property, and other amounts payable with
respect to an Award shall be deferred either automatically or at the election of
the holder thereof or of the Committee; (vii) interpret and administer the Plan
and any instrument or agreement relating to, or Award made under, the Plan;
(viii) establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (ix) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the
Plan. Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, any stockholder and any Employee. The provisions of
this Section 3 with respect to decisions made by, and authority of, the
Committee shall be subject to the controlling provisions of Section 6(h).
Notwithstanding the foregoing, the Section 16 Committee shall have full power
and authority to take any of the actions described in clauses (i) through (ix)
above and any other action necessary or desirable to ensure compliance with the
requirements of, and to provide the exemption of transactions under the Plan
pursuant to, Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder, and further, to ensure compliance with the requirements
of Section 162(m) of the Code and the rules and regulations promulgated
thereunder, to the extent Awards are intended to qualify thereunder. References
in the Plan to the "Committee" shall mean the "Section 16 Committee" when it is
necessary or desirable that such action be taken by the Section 16 Committee and
not by the Committee to satisfy such objectives.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(c),
the number of Shares with respect to which Awards may be granted under the Plan
shall be 8,000,000. If, after the effective date of the Plan, any Shares covered
by an Award granted under the Plan, or to which such an Award relates, are
forfeited, or if an Award otherwise terminates or is canceled without the
delivery of Shares or of other consideration, then the Shares covered by such
Award, or to which such Award relates, or the number of Shares otherwise counted
against the aggregate number of Shares with respect to which Awards may be
granted, to the extent of any such forfeiture, termination or cancellation,
shall again be, or shall become, to the extent permissible under Rule 16b-3,
Shares with respect to which Awards may be granted. In the event that any Option
or other Award granted hereunder is exercised through the delivery of Shares,
the number of Shares available for Awards (other than an Incentive Stock Option)
under the Plan shall be increased by the number of Shares surrendered, to the
extent permissible under Rule 16b-3. Notwithstanding the foregoing, no more than
2,400,000 Shares available for Awards shall be issued as Restricted Stock.
A-3
<PAGE>
(b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
(c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
(or other securities or property) with respect to which Awards may be granted,
(ii) the number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award or, if deemed appropriate, make provision for a cash payment to the holder
of an outstanding Award; provided, in each case, that with respect to Awards of
Incentive Stock Options and Awards intended to qualify as performance based
compensation under Section 162(m)(4)(C) of the Code, no such adjustment shall be
authorized to the extent that such authority would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such Award to fail to so qualify
under Section 162(m) of the Code, as the case may be, or any successor
provisions thereto; and provided, further, that the number of Shares subject to
any Award denominated in Shares shall always be a whole number.
SECTION 5. Eligibility.
Eligible Directors shall be granted Awards only pursuant to Section 6(h) of
the Plan. All Employees shall be eligible to be designated a Participant for
Awards under the Plan, other than Awards granted pursuant to Section 6(h) to
Eligible Directors. However, no Employee under this Plan may receive in any
calendar year Stock Options and/or Rights that, in the aggregate, are with
respect to more than 500,000 Shares (tandem Awards shall be deemed to be one
Award for this purpose).
SECTION 6. Awards.
(a) Options. Subject to the provisions of the Plan, the Committee shall
have authority to determine the Employees to whom Options shall be granted, the
number of Shares to be covered by each Option, the purchase price therefor and
the conditions and limitations applicable to the exercise of the option
including the following terms and conditions and such additional terms and
conditions, as the Committee shall determine are not inconsistent with the
provisions of the Plan.
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee at the time each Option is
granted; provided, however, that the purchase price per Share shall not be
less than 100% of the Fair Market Value on the date of grant, except in the
case of Options that are Substitute Awards.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, and
the method or methods by which, and the form or forms (which may include,
without limitation, cash, Shares, outstanding Awards, Shares that would
otherwise be acquired upon exercise of the Option, other securities or
other property, or any combination thereof, having a Fair Market Value on
the exercise date equal to the relevant exercise price) in which payment of
the exercise price with respect thereto may be made or deemed to have been
made. Pursuant to Section 7(b) of the Plan, the Committee may, at its
discretion, accelerate the time at which Options may be exercised and
otherwise modify the time or methods of exercise of the Options.
(iii) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code, or any successor provision, and any regulations
promulgated thereunder. Incentive Stock Options may be granted only to
employees of the Company and its "subsidiaries" within the meaning of
Section 424(f) of the Code.
A-4
<PAGE>
(b) Stock Appreciation Rights. Subject to the provisions of the Plan, the
Committee shall have authority to determine the Employees to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by each
Stock Appreciation Right Award, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. A Stock Appreciation Right may
be granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to another Award. A Stock Appreciation Right granted
in tandem with or in addition to another Award may be granted either at the same
time as such other Award or at a later time.
(i) Grant Price. The grant price of a Stock Appreciation Right shall
be determined by the Committee; provided, however, that the grant price
shall not be less than 100% of the Fair Market Value on the date of grant
or on the date of original grant of any related Award, except in the case
of Stock Appreciation Rights that are Substitute Awards.
(ii) Other Terms and Conditions. Subject to the terms of the Plan and
any applicable Award Agreement, the Committee shall determine, at or after
the grant of a Stock Appreciation Right, the term, methods of exercise,
methods of settlement, and any other terms and conditions of any Stock
Appreciation Right. Any such determination by the Committee may be changed
by the Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as
well as Stock Appreciation Rights granted or exercised thereafter. The
Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it shall deem appropriate.
(c) Restricted Stock. Subject to the provisions of the Plan, the Committee
shall have authority to determine the Employees to whom Restricted Stock shall
be granted, the number of Shares of Restricted Stock to be granted to each such
Participant, the duration of the Restricted Period during which, and the
conditions under which, the Restricted Stock may be forfeited to the Company,
and the other terms and conditions of such Awards.
(i) Dividends. Unless otherwise determined by the Committee,
Restricted Stock Awards shall provide for the payment of dividends during
the Restricted Period. Any Restricted Stock Award may require that any or
all dividends or other distributions paid on the Restricted Stock during
the Restricted Period be automatically sequestered and held in a
bookkeeping cash account (with or without interest) or reinvested on an
immediate or deferred basis in additional shares of Common Stock, which
credit or shares may be subject to the same restrictions as the underlying
Award or such other restrictions as the Committee may determine. Dividends
paid on Restricted Stock may be paid directly to the Participant, may be
subject to risk of forfeiture and/or transfer restrictions during any
period established by the Committee, all as determined by the Committee in
its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in such
manner as the Committee shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate or
certificates. In the event any stock certificate is issued in respect of
Restricted Stock granted under the Plan, such certificate shall be
registered in the name of the Participant and shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to
such Restricted Stock.
(iii) Forfeiture and Restrictions Lapse. Except as otherwise
determined by the Committee or the terms of the Award that granted the
Restricted Stock, upon termination of a Participant's employment (as
determined under criteria established by the Committee, including, without
limitation, in the Committee's discretion, goals described under Section
6(d)(i)) for any reason during the applicable Restricted Period, all
Restricted Stock shall be forfeited by the Participant and re-acquired by
the Company. The Committee may, when it finds that a waiver would be in the
best interests of the Company and not cause such Award, if it is intended
to qualify as performance based compensation under Section 162(m) of the
Code, to fail to so qualify under Section 162(m) of the Code, waive in
whole or in part any or all remaining restrictions with respect to such
Participant's Restricted Stock. Unrestricted Shares, evidenced in such
manner as the Committee shall deem appropriate, shall be issued to the
holder of Restricted Stock promptly after the applicable restrictions have
lapsed or otherwise been satisfied.
A-5
<PAGE>
(iv) Transfer Restrictions. During the Restricted Period, Restricted
Stock will be subject to the limitations on transfer as provided in Section
6(i)(iii).
(d) Performance Awards. The Committee shall have authority to determine the
Employees who shall receive a Performance Award, which shall (A) consist of a
right, denominated or payable in cash, Shares, Deferred Shares, other securities
or other property (including, without limitation, Restricted Stock, or any
combination thereof), and (B) confer on the holder thereof rights valued as
determined by the Committee and payable to, or exercisable by, such holder, in
whole or in part, upon the achievement of such performance goals during such
performance periods as the Committee shall establish.
(i) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount of
any payment or transfer to be made pursuant to any Performance Award.
Without limiting the generality of the foregoing, it is intended that the
Committee may establish performance goals applicable to Performance Awards
granted to Participants who, in the judgment of the Committee, may be
Covered Employees in such a manner as shall permit payments with respect
thereto to qualify as "performance-based compensation" as described in
Section 162(m)(4)(C) of the Code. It is specifically provided that the
material terms of such performance goals for Participants who, in the
judgment of the Committee, may be Covered Employees, shall, until changed
by the Committee with the approval of the stockholders, if such stockholder
approval is required by the Code, be as follows: (x) the business criteria
on which the performance goals shall be based shall be the attainment of
such target levels of either net income, cash flows, reserve additions or
revisions, economic value added from reserves, total capitalization, total
shareholder return, assets, exploration successes, production volumes,
finding and development costs, costs reductions and savings, reportable
incidents in safety or environmental matters, return on sales, profit
margin, earnings per share or strategic or personal objectives tied to the
foregoing, operational studies, implementing policies and plans,
negotiating transactions and sales, developing long-term business goals,
managerial responsibilities and assessments as may be specified by the
Committee; and (y) the maximum amount of compensation that may be paid to
any one Participant with respect to any one year shall be $1.5 million
under an annual performance bonus Award and $1.5 million under a long-term
Award with a performance period longer than one fiscal year.
(ii) Payment of Performance Awards. Performance Awards may be paid in
a lump sum or in installments following the close of the performance period
or, in accordance with procedures established by the Committee, on a
deferred basis.
(e) Stock Compensation and Bonus Shares.
(i) Stock Compensation. The Committee shall have the authority, in its
discretion, to pay in Shares all, or such portion as it shall determine, of
amounts payable (x) under any Award of the Plan, other than Performance
Awards payable in cash as a short term annual incentive or Cash Awards
granted in tandem with Restricted Stock or (y) if requested by an Employee,
under any compensation program of the Company. The number and type of
Shares to be distributed in lieu of the cash compensation to which an
Employee would otherwise be entitled, as well as the terms and conditions
of any such bonus awards, shall be determined by the Committee.
(ii) Bonus Shares. The Committee may also grant Bonus Shares to
eligible Employees. Each Bonus Share shall constitute a transfer of Common
Shares to the Participant, without other payment therefor, as additional
compensation for the Participant's services to the Company.
(f) Deferred Shares. The Committee may also grant Awards of Deferred Shares
to eligible Employees upon such terms and conditions as the Committee may
determine.
(i) Terms and Conditions. Each Deferred Share award shall constitute
an agreement by the Company to issue or transfer a specified number of
Shares to the Participant in the future, subject to the fulfillment during
the Restricted Period of such conditions, including performance objectives
or, as
A-6
<PAGE>
described in Section 6(d)(i), performance goals, if any, as the Committee
may specify at the date of grant. During the Restricted Period, the
Participant shall not have any right to transfer any rights under the
subject Award, shall not have any rights of ownership in the Deferred
Shares and shall not have any right to vote such shares.
(ii) Dividends. Any Deferred Share award may provide that any or all
dividends or other distributions paid on Shares during the Restricted
Period be credited in a cash bookkeeping account (without interest) or that
equivalent additional Deferred Shares be awarded, which account or shares
may be subject to the same restrictions as the underlying Award or such
other restrictions as the Committee may determine.
(g) Other Stock-Based and Cash Awards.
(i) Other Stock Based Awards. The Committee is hereby authorized to
grant to eligible Employees an "Other Stock-Based Award," which shall
consist of a right (i) which is not an Award or right described in Section
6(a), (b), (c), (d), (e) or (f) above and (ii) which is denominated or
payable in, valued in whole or in part by reference to, or otherwise based
on or related to, Shares (including, without limitation, securities
convertible into Shares) as are deemed by the Committee to be consistent
with the purposes of the Plan; provided, that any such rights must comply,
to the extent deemed desirable by the Committee, with Rule 16b-3 and
applicable law. Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the terms and conditions of any
such Other Stock-Based Award.
(ii) Cash Awards. Subject to the provisions of the Plan, the Committee
shall have authority to determine the Employees to whom Cash Awards shall
be granted, the amount, and the terms or conditions, if any, as additional
compensation for the Employee's services to the Company or its Affiliates.
A Cash Award may be granted (simultaneously or subsequently) in tandem with
another Award and may entitle a Participant to receive a specified amount
of cash from the Company upon such other Award becoming taxable to the
Participant, which cash amount may be based on a formula relating to the
anticipated taxable income associated with such other Award and the payment
of the Cash Award or other terms determined by the Committee.
(h) Awards to Eligible Directors.
(i) Initial Granting of Options. Subject to stockholder approval of
the Plan pursuant to Section 10, and to the limitation of the number of
shares of Stock set forth in Section 4(a), each Eligible Director who is
elected or appointed to the Board for the first time on or after the
effective date of this Plan amendment shall receive, as of the date of his
or her election or appointment and without the exercise of the discretion
of any person or persons, a Non-Qualified Stock Option exercisable for
5,000 shares of Stock (subject to adjustment in the same manner as provided
in Section 7 hereof with respect to shares of Stock subject to Options then
outstanding). Any nominee Eligible Director may make an irrevocable
election in advance of election not to receive an option pursuant to this
Section 6(h)(i).
(ii) Annual Granting of Options. Subject to stockholder approval of
the Plan pursuant to Section 10, and to the limitation of the number of
shares of Stock set forth in Section 4(a), as of the date of the annual
meeting of the stockholders of the Company in each year that the Plan is in
effect as provided in Section 11 hereof (commencing with the 1998 annual
meeting of stockholders), each Eligible Director who is in office
immediately after such meeting and who is not then entitled to receive an
Option pursuant to the preceding provisions of this Section 6(h) shall
receive, without the exercise of the discretion of any person or persons, a
Non-Qualified Stock Option exercisable for 3,000 shares of Stock (subject
to adjustment in the same manner as provided in Section 7 hereof with
respect to shares of Stock subject to Options then outstanding). Any
Eligible Director may make an irrevocable election in advance not to
receive an option pursuant to this Section 6(h)(ii).
A-7
<PAGE>
(iii) Other Terms and Conditions. The following provisions are
applicable to Options granted pursuant to Sections 6(h)(i) and (ii):
A. Options shall be exercisable on the day following the date of
grant.
B. The purchase price of a Share covered under an Option granted
under this Section 6(h) shall be the Fair Market Value of a Share on the
date of grant.
C. The Option may be exercised in full at one time or in part from
time to time by giving written notice, signed by the optionee exercising
the Option, to the Company, stating the number of Shares with respect to
which the Option is being exercised, accompanied by payment in full for
such Shares, which payment may be in whole or in part in Shares of the
Company already owned by said optionee, valued at Fair Market Value;
provided, however, that (i) no Option shall be exercisable after ten
(10) years from the date on which it was granted, and (ii) there shall
be no such exercise at any one time for fewer than one hundred (100)
Shares or for all of the remaining Shares then purchasable by the
optionee exercising the Option, if fewer than one hundred (100) Shares.
D. Each Option shall expire ten (10) years from the date of grant
thereof, but shall be subject to earlier termination as follows.
Options, to the extent exercisable as of the date an Eligible Director
optionee ceases to serve as a director of the Company, must be exercised
within six months of such date unless such event results from death,
Disability or Retirement, in which case Options may be exercised by the
optionee, the optionee's legal representative, heir or devisee, as the
case may be, within two (2) years from the date of death or Disability
and within three (3) years from the date of Retirement; provided,
however, that no such event shall extend the normal expiration date of
such Options.
E. Upon exercise of the Option, subject to paragraph F below,
delivery of a certificate for fully paid and nonassessable Shares shall
be made either at the corporate office of the Company in Houston, Texas
to the optionee exercising the Option at such time during ordinary
business hours after fifteen (15) days but not more than thirty (30)
days from the date of receipt of the notice by the Company as shall be
designated in such notice, or at such time, place and manner as may be
agreed upon by the Company and the optionee exercising the Option.
F. Until the earlier to occur of the following events (i) the
Eligible Director no longer serves as a director of the Company for any
reason, (ii) a Change in Control, (iii) the approval by the Company's
stockholders of a merger or consolidation or (iv) a tender offer for the
Common Stock of the Company ("Termination of Restriction"), except as
provided below, the Shares received by the Eligible Director upon the
exercise of an Option granted pursuant to Section 6(h)(i) and (ii) shall
not be subject to disposition by the Eligible Director, by sale,
transfer, alienation, anticipation, pledge, encumbrance, assignment or
any other means whether such disposition be voluntary or involuntary or
by operation of law by judgment, levy, attachment, garnishment or any
other legal or equitable proceeds (including bankruptcy), and any
attempted disposition thereof, shall be null and void and of no effect;
provided, however, that nothing in this Section 6(h)(iii)F shall prevent
transfer by will, the applicable laws of descent and distribution or
pursuant to a qualified domestic relations order or the disposition of
Shares in an amount necessary to pay applicable taxes that become
payable as a result of the exercise of the Option. The certificates
evidencing the Shares may bear a legend restricting or incorporating the
restrictions, and the Company may cause the certificates to be delivered
upon issuance to the Secretary of the Company or such other depositary
as may be designated by the Company as a depositary for safe-keeping
until Termination of Restriction. Upon Termination of Restriction, the
Company will cause a new certificate or certificates to be issued
without legend in the name of such former director.
G. Notwithstanding the foregoing, an Option or the Shares received
by the Eligible Director upon the exercise of an Option may be
transferred (in whole or in part) by the Eligible Director to (i) the
spouse, children or grandchildren of the Eligible Director ("Immediate
Director Family Members"), (ii) a trust or trust for the exclusive
benefit of the Immediate Director Family
A-8
<PAGE>
Members and, if applicable, the Eligible Director, (iii) a partnership,
limited liability company or other entity in which such Immediate
Director Family Members and, if applicable, the Eligible Director are
the only partners, members or stockholders, (iv) an organization
described under Section 501(c)(3) of the Code and which is a private
foundation within Section 509(a) of the Code or any trust the only
beneficiary (other than an Immediate Family Member and if applicable,
the Eligible Director) of which is an organization described under
Section 501(c)(3) of the Code and which organization is a private
foundation within Section 509(a) of the Code, or (v) to other persons or
entities as approved by the Board. Following transfer, any such Option
or Shares shall continue to be subject to the same terms and conditions
as were applicable to the Option or Shares immediately prior to
transfer.
(iv) Notwithstanding anything in the Plan to the contrary, an Eligible
Director shall be ineligible to receive a grant provided for in Section
6(h) if as of the date of such grant the director (i) is an employee of the
Company or any Affiliate or (ii) has been an employee of the Company or any
Affiliate for any part of the calendar year preceding the calendar year in
which such a grant is to be made.
(v) In the event that the number of Shares available for grants under
the Plan is insufficient to make all grants provided for in this Section
6(h) hereby made on the applicable date, then all Eligible Directors who
are entitled to a grant on such date shall share ratably in the number of
Shares then available for grant under the Plan, and shall have no right to
receive a grant with respect to the deficiencies in the number of available
Shares and the grants under this Section 6(h) shall terminate.
(vi) Except as expressly provided in this Section 6(h) grants made
pursuant to this Section 6(h) shall be subject to the terms and conditions
of the Plan; however, if there is a conflict between the terms and
conditions of the Plan and this Section 6(h) then the terms and conditions
of this Section 6(h) shall control. The Committee may not exercise any
discretion with respect to this Section 6(h) which would be inconsistent
with the intent expressed in Section 6(h)(vii).
(vii) It is intended that the Plan meet the requirements of Rule 16b-3
and that any Eligible Director who is eligible to receive a grant or to
whom a grant is made pursuant to this Section 6 will not for such reason
cease to be a "non-employee director" within the meaning of Rule 16b-3 with
respect to the Plan and other stock related plans of the Company.
(viii) All Options under this Section 6(h) shall be evidenced by Award
Agreements.
(i) General.
(i) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award granted under the Plan
or any award granted under any other plan of the Company or any Affiliate.
Awards granted in addition to or in tandem with other Awards or awards
granted under any other plan of the Company or any Affiliate may be granted
either at the same time as or at a different time from the grant of such
other Awards or awards.
(ii) Forms of Payment by Company Under Awards. Subject to the terms of
the Plan and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise or payment of
an Award may be made in such form or forms as the Committee shall
determine, including, without limitation, cash, Shares, other securities,
other Awards or other property, or any combination thereof, and may be made
in a single payment or transfer, in installments, or on a deferred basis,
in each case in accordance with rules and procedures established by the
Committee. Such rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest on
installment or deferred payments.
(iii) Limits on Transfer of Awards.
(A) Except as provided in (C) below, each Award, and each right
under any Award, shall be exercisable only by the Participant during the
Participant's lifetime, or, if permissible under applicable law, by the
Participant's guardian or legal representative or by a transferee
receiving such
A-9
<PAGE>
Award pursuant to a qualified domestic relations order (a "QDRO") as
determined by the Committee.
(B) Except as provided in (C) below, no Award and no right under
any such Award may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by
will or by the laws of descent and distribution (or, in the case of
Restricted Stock, to the Company) or pursuant to a QDRO and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate.
(C) The Committee may, in its discretion, adopt rules or guidelines
under which any Award (other than an Option intended to constitute an
Incentive Stock Option so long as transferability of an Incentive Stock
Option is prohibited by the Code) previously granted or to be granted to
a Participant may be transferred (in whole or in part pursuant to such
form as approved by the Company) by the Participant to (i) the spouse,
children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of the
Immediate Family Members and, if applicable, the Participant, (iii) a
partnership, limited liability company or other entity in which such
Immediate Family Members and, if applicable, the Participant are the
only partners, members or stockholders, (iv) an organization described
under Section 501(c)(3) of the Code and which is a private foundation
within Section 509(a) of the Code or any trust the only beneficiary
(other than an Immediate Family Member and, if applicable, the
Participant) of which is an organization described under Section
501(c)(3) of the Code and which organization is a private foundation
within Section 509(a) of the Code, or (v) to other persons or entities
as approved by the Board or the Committee in its discretion. Following
transfer, any such Awards shall continue to be subject to the same terms
and conditions as were applicable to the Award immediately prior to
transfer; provided, however, that no transferred Award shall be
exercisable or payable, as the case may be, unless arrangements
satisfactory to the Company have been made to satisfy any tax
withholding obligations the Company may have with respect to the Award.
(iv) Term of Awards. The term of each Award (other than pursuant to
Section 6(h)) shall be for such period as may be determined by the
Committee; provided, that in no event shall the term of any Incentive Stock
Option Award exceed a period of ten years from the date of its grant.
(v) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations, and other requirements of the
SEC, any stock exchange upon which such Shares or other securities are then
listed, and any applicable Federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(vi) Consideration for Grants. Awards may be granted for no cash
consideration or for such consideration as the Committee determines
including, without limitation, such minimal cash consideration as may be
required by applicable law.
(vii) Delivery of Shares or other Securities and Payment by
Participant of Consideration. No Shares or other securities shall be
delivered pursuant to any Award until payment in full of any amount
required to be paid pursuant to the Plan or the applicable Award Agreement,
including satisfying all tax withholding obligations of the Company, is
received by the Company. Such payment may be made by such method or methods
and in such form or forms as the Committee shall determine, including,
without limitation, cash, Shares, other securities, other Awards or other
property, withholding of Shares, cashless exercise with simultaneous sale,
or any combination thereof; provided, that the combined value, as
determined by the Committee, of all cash and cash equivalents and the Fair
Market Value of any such Shares or other property so tendered to the
Company, as of the date of such tender, is at least equal to the full
amount required to be paid pursuant to the Plan or the applicable Award
Agreement to the Company.
A-10
<PAGE>
SECTION 7. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of any shareholder,
Participant, other holder or beneficiary of an Award, or other Person; provided,
however, that notwithstanding any other provision of the Plan or any Award
Agreement, without the approval of the stockholders of the Company no such
amendment, alteration, suspension, discontinuation, or termination shall be made
that would:
(i) increase the total number of Shares available for Awards under the
Plan, except as provided in Section 4(c) of the Plan;
(ii) permit Incentive Stock Options to be granted with per Share
grant, exercise or purchase prices of less than the Fair Market Value of a
Share on the date of grant thereof; or
(iii) result in this Plan no longer satisfying the requirements of
Rule 16b-3.
(b) Amendments to Awards. The Committee may waive any conditions or rights
under, amend any terms of, or alter any Award theretofore granted (other than
Awards granted pursuant to Section 6(h)), provided no change in any Award, other
than pursuant to Section 7(c), shall reduce the benefit to Participant without
the consent of such Participant. Notwithstanding the foregoing, with respect to
any Award intended to qualify as performance-based compensation under Section
162(m) of the Code, no adjustment shall be authorized to the extent such
adjustment would cause the Award to fail to so qualify.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4(c) of the Plan) affecting the Company, any Affiliate, or
the financial statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan. Notwithstanding the foregoing, with respect to any Award
intended to qualify as performance-based compensation under Section 162(m) of
the Code, no adjustment shall be authorized to the extent such adjustment would
cause the Award to fail to so qualify.
SECTION 8. Change in Control.
(a) In addition to the Committee's authority set forth in Section 7(c) of
the Plan, in order to maintain the Participants' rights in the event of any
Change in Control, as hereinafter defined, the Committee, as constituted before
such Change in Control, is hereby authorized and directed to provide for the
acceleration of any time periods relating to the exercise or realization of all
Awards so that such Award may be exercised or realized in full, and has sole
discretion, as to any Award, either at the time such Award is made hereunder or
any time thereafter, to take any one or more of the following actions: (i)
provide for the purchase of any such Award, either automatically or upon the
Participant's request, for an amount of cash equal to the amount that could have
been attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable or payable; (ii)
make such adjustment to any such Award then outstanding as the Committee deems
appropriate to reflect such Change in Control; or (iii) if equitable and in the
best interests of the Company and its stockholders, cause (x) any such Award
then outstanding to be assumed, or new rights substituted therefor, by the
acquiring or surviving corporation after such Change in Control or (y) the
exercise period for any such Award then outstanding to terminate on a fixed date
following such Change in Control provided the Participant receives written
notice of such event and the fixed date at least twenty days prior to the
effective date of such Change in Control. The Committee may, in its discretion,
include such further provisions and limitations in any Award Agreement as it may
deem equitable and in the best interests of the Company and its stockholders.
A-11
<PAGE>
(b) A "Change in Control" shall be deemed to occur (i) if any person or
persons or entity or entities (other than Petroleum Associates, L.P., KKR
Partners II, L.P. and any entity controlling, controlled by or under common
control with any such entities, separately or in the aggregate ("KKR")) acquires
75% or more of the assets of the Company or a successor of the Company or such
successor's parent corporation (based upon the then current fair market value
thereof) or 50% or more of the Company's then outstanding voting stock or a
successor's or such successor's parent corporation's then outstanding voting
securities, and, if there shall be more than one class of voting securities
thereof, then of the combined voting power held by all classes of voting
securities of the Company, a successor corporation or its parent corporation
(whether such acquisition of stock or assets occurs pursuant to a single
transaction or several related transactions or series of transactions), (ii)
upon the approval by the Company's stockholders of a plan of liquidation or
dissolution of the Company or a successor of the Company or such successor's
parent corporation, or (iii) upon the approval by the Company's stockholders of
a merger or consolidation and such transaction was determined to be a Change in
Control, which transaction and determination was approved by a majority of the
Company's Board of Directors in actions taken prior to, and with respect to such
transaction.
SECTION 9. General Provisions.
(a) No Rights to Awards. No Employee, Participant or other Person shall
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants, or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.
(b) Delegation. Subject to the terms of the Plan and applicable law, the
Committee may delegate to one or more officers or managers of the Company or any
Affiliate, or to a committee of such officers or managers, the authority,
subject to such terms and limitations as the Committee shall determine, to grant
Awards to, or to cancel, modify or waive rights with respect to, or to alter,
discontinue, suspend, or terminate Awards held by, Employees who are not
officers or directors of the Company for purposes of Section 16 of the Exchange
Act, or any successor Section thereto, or who are otherwise not subject to such
Section.
(c) Withholding. The Company or any Affiliate is hereby authorized to
withhold from any Award, from any payment due or transfer made under any Award
or under the Plan or from any compensation or other amount owing to a
Participant the amount (in cash, Shares, other securities, Shares that would
otherwise be issued pursuant to such Award (including automatic withholding),
other Awards or other property) of any applicable taxes payable in respect of an
Award, its exercise, the lapse of restrictions thereon, or any payment or
transfer under an Award or under the Plan and to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. Any Participant who is subject to Rule 16b-3 may direct
the Company to withhold Shares from an Award or tender Shares to satisfy his tax
withholding liability.
(d) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other compensation arrangements (subject to shareholder approval of such
other arrangement, if such approval is required), and such arrangements may be
either generally applicable or applicable only in specific cases.
(e) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware and applicable Federal law.
(g) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
A-12
<PAGE>
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(h) Other Laws. The Committee may refuse to issue or transfer any Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary. It is intended that the Plan and
any grant of an Award made to a person subject to Section 16 of the Exchange Act
meet all of the requirements of Rule 16b-3. If any provision of the Plan or any
such Award would disqualify the Plan or such Award under, or would otherwise not
comply with, Rule 16b-3, such provision or Award shall be construed or deemed
amended to conform to Rule 16b-3.
(i) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(j) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
(k) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10. Effective Date of the Plan.
This Plan amendment and restatement shall be effective as of February 4,
1998, provided it is subsequently approved by the stockholders of the Company
within 12 months thereafter.
SECTION 11. Term of the Plan.
No Award shall be granted under the Plan after November 27, 2004. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award theretofore granted may, and the authority of the Board or
the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under any such Award shall,
extend beyond such date.
A-13
<PAGE>
EXHIBIT (c)(2)
CONFORMED COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of May 4, 1998,
Among
ATLANTIC RICHFIELD COMPANY,
VWK ACQUISITION CORP.
And
UNION TEXAS PETROLEUM HOLDINGS, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
The Offer and the Merger
------------------------
SECTION 1.01. The Offer................................. 2
SECTION 1.02. Company Actions........................... 4
SECTION 1.03. The Merger................................ 5
SECTION 1.04. Closing................................... 6
SECTION 1.05. Effective Time............................ 6
SECTION 1.06. Effects................................... 6
SECTION 1.07. Certificate of Incorporation and
By-laws.............................. 6
SECTION 1.08. Directors................................. 7
SECTION 1.09. Officers.................................. 7
ARTICLE II
Effect on the Capital Stock of the
----------------------------------
Constituent Corporations; Exchange of Certificates
--------------------------------------------------
SECTION 2.01. Effect on Capital Stock................... 7
SECTION 2.02. Exchange of Certificates.................. 9
ARTICLE III
Representations and Warranties of the Company
---------------------------------------------
SECTION 3.01. Organization, Standing and Power.......... 11
SECTION 3.02. Company Subsidiaries; Equity Interests.... 12
SECTION 3.03. Capital Structure......................... 13
SECTION 3.04. Authority; Execution and Delivery;
Enforceability....................... 14
SECTION 3.05. No Conflicts; Consents.................... 15
SECTION 3.06. SEC Documents; Undisclosed Liabilities.... 17
SECTION 3.07. Information Supplied...................... 18
SECTION 3.08. Absence of Certain Changes or Events...... 19
SECTION 3.09. Taxes..................................... 21
SECTION 3.10. Absence of Changes in Benefit Plans....... 23
SECTION 3.11. ERISA Compliance; Excess Parachute
Payments............................. 23
<PAGE>
2
SECTION 3.12. Litigation................................ 26
SECTION 3.13. Environmental Matters; Compliance with
Environmental Laws; Other
Applicable Laws.................. 26
SECTION 3.14. Title to Properties....................... 26
SECTION 3.15. Confidentiality and Other Agreements...... 27
SECTION 3.16. Brokers; Schedule of Fees and Expenses.... 27
SECTION 3.17. Opinion of Financial Advisor.............. 28
ARTICLE IV
Representations and Warranties of Parent and Sub
------------------------------------------------
SECTION 4.01. Organization, Standing and Power.......... 28
SECTION 4.02. Sub....................................... 28
SECTION 4.03. Authority; Execution and Delivery;
Enforceability....................... 28
SECTION 4.04. No Conflicts; Consents.................... 29
SECTION 4.05. Information Supplied...................... 30
SECTION 4.06. Brokers................................... 30
SECTION 4.07. Financing................................. 30
SECTION 4.08. Litigation................................ 30
SECTION 4.09. Interested Stockholder.................... 31
ARTICLE V
Covenants Relating to Conduct of Business
-----------------------------------------
SECTION 5.01. Conduct of Business....................... 31
SECTION 5.02. No Solicitation........................... 36
ARTICLE VI
Additional Agreements
---------------------
SECTION 6.01. Preparation of Proxy Statement;
Stockholders Meeting................. 40
SECTION 6.02. Access to Information; Confidentiality.... 41
SECTION 6.03. Reasonable Efforts; Notification.......... 41
SECTION 6.04. Stock Options............................. 42
SECTION 6.05. Benefit Plans............................. 43
SECTION 6.06. Indemnification........................... 46
SECTION 6.07. Fees and Expenses......................... 48
SECTION 6.08. Public Announcements...................... 49
<PAGE>
3
SECTION 6.09. Directors................................. 49
SECTION 6.10. Rights Agreement.......................... 51
SECTION 6.11. Stockholder Litigation.................... 51
SECTION 6.12. Performance by Sub........................ 51
SECTION 6.13. Dual Consolidated Losses.................. 51
ARTICLE VII
Conditions Precedent
--------------------
SECTION 7.01. Conditions to Each Party's Obligation To
Effect the Merger.................... 51
ARTICLE VIII
Termination, Amendment and Waiver
---------------------------------
SECTION 8.01. Termination............................... 52
SECTION 8.02. Effect of Termination..................... 54
SECTION 8.03. Amendment................................. 54
SECTION 8.04. Extension; Waiver......................... 54
SECTION 8.05. Procedure for Termination, Amendment,
Extension or Waiver.................. 55
ARTICLE IX
General Provisions
------------------
SECTION 9.01. Nonsurvival of Representations and
Warranties........................... 55
SECTION 9.02. Notices................................... 55
SECTION 9.03. Definitions............................... 56
SECTION 9.04. Interpretation; Disclosure Letters........ 56
SECTION 9.05. Severability.............................. 57
SECTION 9.06. Counterparts.............................. 57
SECTION 9.07. Entire Agreement; No Third-Party
Beneficiaries........................ 57
SECTION 9.08. Governing Law............................. 57
SECTION 9.09. Assignment................................ 57
SECTION 9.10. Enforcement............................... 58
EXHIBIT A- Conditions of the Offer
EXHIBIT B- Amendment to the Company Rights Agreement
SCHEDULE I- Definitions
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of May 4, 1998, among
ATLANTIC RICHFIELD COMPANY, a Delaware corporation ("Parent"),
------
VWK ACQUISITION CORP., a Delaware corporation ("Sub") and a
---
wholly owned subsidiary of Parent, and UNION TEXAS PETROLEUM
HOLDINGS, INC., a Delaware corporation (the "Company").
-------
WHEREAS the respective Boards of Directors of Parent, Sub and the
Company have approved the acquisition of the Company by Parent on the terms and
subject to the conditions set forth in this Agreement;
WHEREAS in furtherance of such acquisition, Parent proposes to cause
Sub to make a tender offer (as it may be amended from time to time as permitted
under this Agreement, the "Offer") to purchase all the issued and outstanding
-----
shares of common stock, par value $.05 per share, of the Company (the "Company
-------
Common Stock"), including the associated Company Rights (as defined in Section
- ------------
3.03), at a price per share of Company Common Stock (including the associated
Company Right) of $29.00, net to the seller in cash (such amount, or any greater
amount per share paid pursuant to the Offer, the "Offer Price"), upon the terms
-----------
and subject to the conditions set forth in this Agreement;
WHEREAS the respective Boards of Directors of Parent, Sub and the
Company have approved the merger (the "Merger") of Sub into the Company, or (at
------
the election of Parent) the Company into Sub, on the terms and subject to the
conditions set forth in this Agreement, whereby each issued share of Company
Common Stock not owned directly or indirectly by Parent or the Company will be
converted into the right to receive the per share consideration paid pursuant to
the Offer;
WHEREAS simultaneously with the execution and delivery of this
Agreement Parent and KKR Partners II, L.P. and Petroleum Associates, L.P., each
a Delaware limited partnership (together, the "Principal Company Stockholder")
-----------------------------
are entering into an agreement (the "Company Stockholder Agreement" and together
-----------------------------
with this Agreement, the "Transaction Agreements") pursuant to which the
----------------------
Principal Company Stockholder has agreed to take specified actions in
furtherance of the Offer and the Merger; and
WHEREAS Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
The Offer and the Merger
------------------------
SECTION 1.01. The Offer. (a) Subject to the conditions of this
----------
Agreement, as promptly as practicable but in no event later than five business
days after the date of this Agreement, Sub shall, and Parent shall cause Sub to,
commence the Offer within the meaning of the applicable rules and regulations of
the Securities and Exchange Commission (the "SEC"). The obligation of Sub to,
---
and of Parent to cause Sub to, commence the Offer and accept for payment, and
pay for, any shares of Company Common Stock tendered pursuant to the Offer shall
be subject to the conditions set forth in Exhibit A (any of which may be waived
by Sub in its sole discretion, provided that, without the consent of the
Company, Sub may not, except as provided below, waive the Minimum Tender
Condition (as defined in Exhibit A)). The initial expiration date of the Offer
shall be the 20th business day following the commencement of the Offer
(determined using Rule 14d-1(e)(6) of the SEC). Sub expressly reserves the
right to modify the terms of the Offer, except that, without the consent of the
Company, Sub shall not, except as provided in the next sentence, (i) reduce the
number of shares of Company Common Stock subject to the Offer, (ii) reduce the
price per share of Company Common Stock to be paid pursuant to the Offer, (iii)
modify or add to the conditions set forth in Exhibit A, (iv) extend the Offer,
(v) change the form of consideration payable in the Offer or (vi) otherwise
amend the Offer in any manner materially adverse to the holders of Company
Common Stock. Notwithstanding the foregoing, Sub may, without the consent of
the Company, (i) extend the Offer, if at the scheduled expiration date of the
Offer any of the conditions to Sub's obligation to purchase shares of Company
Common Stock are not satisfied, until such time as such conditions are satisfied
or waived, (ii) extend the Offer for any period required by any rule,
regulation, interpretation or position of the SEC or the staff thereof
applicable to the Offer, (iii) extend the Offer for any reason for a period of
not more than 10 business days beyond the latest expiration date that would
otherwise be permitted under clause (i) or (ii) of this sentence (a "Parent
------
Extension Period"); provided that if Sub shall extend the Offer pursuant to
- ----------------
this clause (iii), it shall waive during any Parent Extension Period all
conditions of the Offer set
2
<PAGE>
forth in Exhibit A other than the Minimum Tender Condition and the conditions
set forth in paragraphs (d) and (g) in Exhibit A; and (iv) if the option granted
pursuant to Section 4 of the Company Stockholder Agreement is then exercisable,
reduce the number of shares of Company Common Stock necessary to satisfy the
Minimum Tender Condition (as defined in Exhibit A) to that number of shares
which, together with the shares of Company Common Stock that may be purchased by
Parent upon exercise of the option granted pursuant to Section 4 of the Company
Stockholder Agreement, would represent at least a majority of the Fully Diluted
Shares (as defined in Exhibit A). If any of the conditions of the Offer set
forth in Exhibit A (other than the Minimum Tender Condition) is not satisfied on
any scheduled expiration date of the Offer, then, if requested by the Company,
Sub shall extend the Offer one or more times (the period of each such extension
to be determined by Sub) for up to 30 days in the aggregate for all such
extensions, provided that at the time of such extension any such condition is
reasonably capable of being satisfied and the Company has not received a Company
Takeover Proposal (as defined in Section 5.02(a)). On the terms and subject to
the conditions of the Offer and this Agreement, Sub shall, and Parent shall
cause Sub to, pay for all shares of Company Common Stock validly tendered and
not withdrawn pursuant to the Offer that Sub becomes obligated to purchase
pursuant to the Offer as soon as practicable after the expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer, which shall contain an offer to purchase and a related letter of
transmittal and summary advertisement (such Schedule 14D-1 and the documents
included therein pursuant to which the Offer will be made, together with any
supplements or amend ments thereto, the "Offer Documents"). Each of Parent,
---------------
Sub and the Company shall promptly correct any information pro vided by it for
use in the Offer Documents if and to the extent that such information shall have
become false or misleading in any material respect, and each of Parent and Sub
shall take all steps necessary to amend or supplement the Offer Documents and to
cause the Offer Documents as so amended or supplemented to be filed with the SEC
and to be disseminated to the Company's stockholders, in each case as and to the
extent required by applicable Federal securities laws. Parent and Sub shall
provide the Company and its counsel in writing with any comments Parent, Sub or
their counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt of such comments.
3
<PAGE>
(c) Parent shall provide or cause to be provided to Sub on a timely
basis the funds necessary to purchase any shares of Company Common Stock that
Sub becomes obligated to purchase pursuant to the Offer.
SECTION 1.02. Company Actions. (a) The Company Board (as defined in
----------------
Section 3.04(b)) has approved of and consented to the Offer, the Merger and the
other transactions contemplated by the Transaction Agreements (collectively, the
"Transactions").
------------
(b) On the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/ Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the recommen dations described in
--------------
Section 3.04(b) and shall mail the Schedule 14D-9 to the stockholders of the
Company. Each of the Company, Parent and Sub shall promptly correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that such information shall have become false or misleading in any material
respect, and the Company shall take all steps necessary to amend or supplement
the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented
to be filed with the SEC and disseminated to the Company's stockholders, in each
case as and to the extent required by applicable Federal securities laws. The
Company shall provide Parent and its counsel in writing with any comments the
Company or its counsel may receive from the SEC or its staff with respect to the
Schedule 14D-9 promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its
transfer agent to furnish Sub promptly with mailing labels containing the names
and addresses of the record holders of Company Common Stock as of a recent date
and of those persons becoming record holders subsequent to such date, together
with copies of all lists of stockholders, security position listings and
computer files and all other information in the Company's possession or control
regarding the beneficial owners of Company Common Stock, and shall furnish to
Sub such information and assistance (including updated lists of stockholders,
security position listings and computer files) as Parent may reasonably request
in communicating the Offer to the Company's stockholders. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Transactions, Parent and Sub shall hold in confidence the information
contained in any such labels, listings and files, shall use such information
4
<PAGE>
only in connection with the Offer and the Merger and, if this Agreement shall be
terminated, shall, upon request, deliver to the Company all copies of such
information then in their possession.
(d) Prior to the expiration of the Offer, the Company (i) shall take
all actions necessary to cause all outstanding Company Stock Options (as defined
in Section 6.04(b)), whether or not otherwise vested pursuant to their terms, to
be fully vested and exercisable in full upon the consummation of the Offer
subject to compliance with applicable law, and (ii) shall, subject to compliance
with applicable law, make an offer to pay each holder of a Company Stock Option
that is not automatically subject to a cash payment upon consummation of the
Offer, promptly after the consummation of the Offer and in exchange for the
cancelation of such Company Stock Option, an amount in cash equal to (x)(1) the
excess, if any, of the Offer Price over the exercise price per share of Company
Common Stock subject to such Company Stock Option multiplied by (2) the number
of shares of Company Common Stock for which such Company Stock Option shall not
theretofore have been exercised, less (y) such amounts as may be required to be
deducted or withheld with respect thereto under the Code (as defined in Section
3.11) or under any provision of state, local or foreign tax law (the amount
determined in accordance with the foregoing clauses (x) and (y), the "Option
------
Spread"). The payments made by the Company to holders of Company Stock Options
- ------
pursuant to clause (ii) of the preceding sentence shall be made automatically
and promptly after the consummation of the Offer; provided, however, that such
-------- -------
holders may request and receive in lieu of such payment and in exchange for
their Company Stock Options the number of shares of Company Common Stock equal
to the aggregate Option Spread for the shares of Company Common Stock for which
such holders' Company Stock Options are then exercisable divided by the Offer
Price. In addition, and subject to compliance with applicable law, the Company
may take any actions necessary to purchase Company Common Stock from those
officers of the Company and members of the Company Board as are designated in
the Company Disclosure Letter (as defined in Section 3.02(a)) by the Company
Board, and such purchase shall take place after the consummation of the Offer at
a price per share equal to the Offer Price.
SECTION 1.03. The Merger. On the terms and subject to the conditions
-----------
set forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), Sub shall be merged with and into the Company at
----
the Effective Time (as defined in Section 1.05). At the Effective Time, the
separate corporate existence of Sub
5
<PAGE>
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation"). Notwithstanding the foregoing, Parent may elect at
---------------------
any time prior to the Merger, instead of merging Sub into the Company as
provided above, to merge the Company with and into Sub, in which case Sub shall
be the Surviving Corporation; provided, however, that the Company shall not
-------- -------
be deemed to have breached any of its representations, warranties or covenants
set forth in this Agreement solely by reason of such election. In such event,
the parties shall execute an appropriate amendment to this Agreement in order to
reflect the foregoing. At the election of Parent, any direct or indirect wholly
owned subsidiary of Parent may be substituted for Sub as a constituent
corporation in the Merger. In such event, the parties shall execute an
appropriate amendment to this Agreement in order to reflect the foregoing.
SECTION 1.04. Closing. The closing (the "Closing") of the Merger
-------- -------
shall take place at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue,
New York, New York 10019 at 10:00 a.m. on the second business day following the
satisfaction (or, to the extent permitted by law, waiver by all parties) of the
conditions set forth in Section 7.01, or as soon as practicable after all the
conditions set forth in Section 7.01 have been satisfied (or, to the extent
permitted by law, waived by the parties entitled to the benefits thereof), or at
such other place, time and date as shall be agreed in writing between Parent and
the Company. The date on which the Closing occurs is referred to in this
Agreement as the "Closing Date".
------------
SECTION 1.05. Effective Time. Prior to the Closing, Parent shall
---------------
prepare, and on the Closing Date or as soon as practicable thereafter Parent
shall file with the Secretary of State for the State of Delaware, a certificate
of merger or other appropriate documents (in any such case, the "Certificate of
--------------
Merger") executed in accordance with the relevant provisions of the DGCL and
- ------
shall make all other filings or recordings required under the DGCL. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
with such Secretary of State, or at such other time as Parent and the Company
shall agree and specify in the Certificate of Merger (the time the Merger
becomes effective being the "Effective Time").
--------------
SECTION 1.06. Effects. The Merger shall have the effects set forth
--------
in Section 259 of the DGCL.
SECTION 1.07. Certificate of Incorporation and By-laws. (a) The
-----------------------------------------
Restated Certificate of Incorporation of the Company, as in effect immediately
prior to the Effective
6
<PAGE>
Time, shall be amended at the Effective Time so that the first paragraph of
Article Fourth of such Restated Certifi cate of Incorporation reads in its
entirety as follows: "The total number of shares of all classes of stock which
the corporation shall have authority to issue is (i) 1,000 shares of Common
Stock, par value $0.01 per share and (ii) 1,750,000 shares of Preferred Stock,
par value $0.01 per share, all of which have been designated as 7.14% Series A
Cumulative Preferred Stock, par value $.01 per share.", and, as so amended, such
Certificate of Incorpora tion shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(b) The By-laws of Sub as in effect immediately prior to the
Effective Time shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.08. Directors. The directors of Sub immediately prior to
----------
the Effective Time shall be the directors of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
SECTION 1.09. Officers. The officers of the Company immediately
---------
prior to the Effective Time shall be the officers of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
ARTICLE II
Effect on the Capital Stock of the
----------------------------------
Constituent Corporations; Exchange of Certificates
--------------------------------------------------
SECTION 2.01. Effect on Capital Stock. At the Effective Time, by
------------------------
virtue and without any action on the part of the holder of any shares of Company
Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
---------------------
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of common stock, par value $0.01 per share, of the Surviving
Corporation.
7
<PAGE>
(b) Cancelation of Treasury Stock and Parent-Owned Stock. Each share
-----------------------------------------------------
of Company Common Stock that is owned by the Company, Parent or Sub or any
wholly owned subsidiary of the Company, Parent or Sub shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and no cash or other consideration shall be delivered in exchange
therefor.
(c) Conversion of Company Common Stock. Subject to Sections 2.01(b)
-----------------------------------
and 2.01(e), each issued share of Company Common Stock shall be converted into
the Offer Price. The cash payable upon the conversion of shares of Company
Common Stock pursuant to this Section 2.01(c) is referred to as the "Merger
------
Consideration". As of the Effective Time, all such shares of Company Common
- -------------
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate representing
any such shares of Company Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration upon
surrender of such certificate in accordance with Section 2.02, without interest.
(d) Series A Preferred To Remain Outstanding. Each share of the
-----------------------------------------
Company's 7.14% Series A Cumulative Preferred Stock (the "Series A Preferred")
------------------
outstanding at the Effective Time shall remain outstanding and be unaffected by
the Merger, except as provided in Section 2.01(e).
(e) Appraisal Rights. Notwithstanding anything in this Agreement to
-----------------
the contrary, shares ("Appraisal Shares") of Company Common Stock and Series A
----------------
Preferred that are outstanding immediately prior to the Effective Time and
that are held by persons who are entitled to demand and properly demand
appraisal of such Appraisal Shares pursuant to, and who comply in all respects
with, Section 262 of the DGCL ("Section 262") shall not (i) be converted into
-----------
the Merger Consideration as provided in Section 2.01(c), in the case of such
shares of the Company Common Stock, or (ii) remain outstanding, in the case of
such shares of the Series A Preferred, but rather the holders of Appraisal
Shares shall be entitled to payment of the fair market value of such Appraisal
Shares in accordance with Section 262; provided, however, that if any holder of
-------- -------
Appraisal Shares shall fail to perfect or otherwise shall waive, withdraw or
lose the right to appraisal under Section 262, then the right of such holder to
be paid the fair value of such holder's Appraisal Shares shall cease and such
Appraisal Shares shall be treated as if they had been converted as of the
Effective Time into the Merger Consideration, as
8
<PAGE>
provided in Section 2.01(c) in the case of the Company Common Stock, and shall
remain outstanding, as provided in Section 2.01(d) in the case of the Series A
Preferred. The Company shall serve prompt notice to Parent of any demands
received by the Company for appraisal of any shares of Company Common Stock, and
Parent shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to, or settle or
offer to settle, any such demands, or agree to do any of the foregoing.
SECTION 2.02. Exchange of Certificates. (a) Paying Agent. Prior to
------------------------- -------------
the Effective Time, Parent shall select a bank or trust company to act as paying
agent (the "Paying Agent") for the payment of the Merger Consideration upon
------------
surrender of certificates representing Company Common Stock. Parent shall take
all steps necessary to enable and cause the Surviving Corporation to provide to
the Paying Agent immediately following the Effective Time all the cash necessary
to pay for the shares of Company Common Stock converted into the right to the
Merger Consideration pursuant to Section 2.01(c) (such cash being hereinafter
referred to as the "Exchange Fund").
-------------
(b) Exchange Procedure. As soon as reasonably practicable after the
-------------------
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates (the "Certificates") that immediately prior to the
------------
Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent and shall be in
a form and have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancelation to
the Paying Agent or to such other agent or agents as may be appointed by the
Parent, together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the amount of cash
into which the shares of Company Common Stock theretofore represented by such
Certificate shall have been converted pursuant to Section 2.01, and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Company Common Stock which is not registered in the
transfer records of the
9
<PAGE>
Company, payment may be made to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of such Certificate or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.02, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the amount of
cash, without interest, into which the shares of Company Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 2.01. No interest shall be paid or shall accrue on the cash payable
upon the surrender of any Certificate. If a mutilated Certificate is surrendered
to the Paying Agent or if the holder of a Certificate submits an affidavit to
the Paying Agent stating that the Certificate has been lost, destroyed or
wrongfully taken, such holder shall furnish an indemnity bond sufficient in the
judgment of the Parent to protect the Parent, the Surviving Corporation and the
Paying Agent from any loss which any of them may suffer.
(c) No Further Ownership Rights in Company Common Stock. The Merger
----------------------------------------------------
Consideration paid in accordance with the terms of this Article II upon
conversion of any shares of Company Common Stock shall be deemed to have been
paid in full satisfaction of all rights pertaining to such shares, subject,
however, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time that may
have been declared or made by the Company on such shares in accordance with the
terms of this Agreement or prior to the date of this Agreement and which remain
unpaid at the Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of shares of
Company Common Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, any certificates formerly representing
shares of Company Common Stock are presented to the Surviving Corporation or the
Paying Agent for any reason, they shall be canceled and exchanged as provided in
this Article II.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund
-----------------------------
that remains undistributed to the holders of Company Common Stock as provided in
this Section 2.02 for one year after the Effective Time shall be delivered to
Parent, upon demand, and any holder of Company Common Stock
10
<PAGE>
who has not theretofore complied with this Article II shall thereafter look only
to Parent for payment of its claim for the Merger Consideration.
(e) No Liability. None of Parent, Sub, the Company or the Paying
-------------
Agent shall be liable to any person in respect of any cash from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. Subject to the last sentence of Section
2.02(b), if any Certificate has not been surrendered prior to the date on which
the Merger Consideration in respect of such Certificate would otherwise escheat
to or become the property of any Governmental Entity (as defined in Section
3.05), any such shares, cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(f) Investment of Exchange Fund. The Paying Agent shall invest any
----------------------------
cash included in the Exchange Fund, as directed by Parent, on a daily basis. If
for any reason (including losses) the Exchange Fund is inadequate to pay the
amounts to which holders of Company Common Stock shall be entitled under this
Section 2.02, Parent and the Surviving Corporation shall in any event be liable
for payment thereof. The Exchange Fund shall not be used except as provided in
this Agreement. Any interest and other income resulting from such investments
shall be paid to Parent.
(g) Withholding Rights. Parent and the Surviving Corporation shall be
-------------------
entitled to deduct and withhold from the consideration otherwise payable to any
holder of Company Common Stock pursuant to this Agreement such amounts as may be
required to be deducted and withheld with respect to the making of such payment
under the Code or under any provision of state, local or foreign tax law.
ARTICLE III
Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to Parent and Sub as follows
except as set forth in the Filed Company SEC Documents (as defined in Section
3.08):
SECTION 3.01. Organization, Standing and Power. (a) Each of the
---------------------------------
Company and each Significant Company
11
<PAGE>
Subsidiary (as defined below) is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has
full corporate power and authority and, to the Company's Knowledge, possesses
all governmental franchises, licenses, permits, authorizations and approvals
necessary to enable it to own, lease or otherwise hold its properties and assets
and to conduct its businesses as presently conducted, other than such
franchises, licenses, permits, authorizations and approvals, the lack of which,
individually or in the aggregate, would not have a Company Material Adverse
------------------------
Effect (as defined below). The Company and each Significant Company Subsidiary
- ------
is duly qualified to do business in each jurisdiction where the nature of its
business or their ownership or leasing of its properties make such qualification
necessary or the failure to so qualify would reasonably be expected to have a
Company Material Adverse Effect. The Company has made available to Parent true
and complete copies of the Restated Certificate of Incorporation of the Company,
as amended to the date of this Agreement (as so amended, the "Company Charter"),
---------------
and the By-laws of the Company, as amended to the date of this Agreement (as so
amended, the "Company By-laws"), and the comparable charter and organizational
---------------
documents of each Significant Company Subsidiary, in each case as amended
through the date of this Agreement. For purposes of this Agreement, a
"Significant Company Subsidiary" means any subsidiary of the Company that
------------------- ----------
constitutes a significant subsidiary within the meaning of Rule 1-02 of
Regulation S-X of the SEC. As used in this Agreement, "Company Material Adverse
------------------------
Effect" means (a) any materially adverse effect on the business, assets,
- ------
properties, financial condition or results of operations of the Company and the
Company Subsidiaries (as defined in Section 3.02) taken as a whole, or (b) any
prevention or material delay in the ability of the Company to consummate the
Offer, the Merger and the other Transactions, which has occurred or would
reasonably be expected to occur as a result of any change, effect, event,
occurrence or state of facts; provided, however, with respect to clauses (a) and
-------- -------
(b), other than any change, effect, event, occurrence or state of facts, to the
extent such change, effect, event, occurrence or state of facts is the result of
adverse changes in economic conditions, or of conditions or adverse changes in
or affecting the worldwide energy industry generally, including, but not limited
to, changes in markets and prices for oil, gas and other hydrocarbons or
hydrocarbon products.
SECTION 3.02. Company Subsidiaries; Equity Interests. The letter,
---------------------------------------
dated as of the date of this Agreement, from the Company to Parent and Sub (the
"Company
-------
12
<PAGE>
Disclosure Letter") lists each Significant Company Subsidiary. All the
- -----------------
outstanding shares of capital stock of each Significant Company Subsidiary have
been validly issued and are fully paid and nonassessable and, except as set
forth in the Company Disclosure Letter, are owned by the Company, by another
subsidiary of the Company (a "Company Subsidiary") or by the Company and another
------------------
Company Subsidiary, free and clear of all pledges, liens, charges, mortgages,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens").
-----
SECTION 3.03. Capital Structure. The authorized capital stock of the
------------------
Company consists of 200,000,000 shares of Company Common Stock and 15,000,000
shares of preferred stock, par value $.01 per share (the "Company Preferred
-----------------
Stock", and together with the Company Common Stock, the "Company Capital
- ----- ---------------
Stock"). At the close of business on (i) March 31, 1998, 85,248,101 shares of
Company Common Stock and 1,750,000 shares of Series A Preferred were issued and
outstanding, (ii) March 31, 1998, 2,581,182 shares of Company Common Stock were
held by the Company in its treasury, (iii) April 20, 1998, 6,033,471 shares of
Company Common Stock were subject to outstanding Company Stock Options and not
more than 4,250,475 additional shares of Company Common Stock were reserved for
issuance pursuant to the Company's 1994 Incentive Plan, as amended, for stock
options, SARs, and other awards of Company Common Stock which had not been
granted as of the date of this Agreement, (iv) March 31, 1998, 45,000,000 shares
of Company Common Stock were reserved for issuance in connection with the
rights (the "Company Rights") issued pursuant to the Company Rights Agreement
--------------
(as defined in Section 6.10) and (v) March 31, 1998, 100,000 shares of Company
Common Stock were reserved for issuance pursuant to the Company's Amended and
Restated Deferred Compensation Plan and 45,000 shares of Company Common Stock
were reserved for issuance pursuant to the defined contribution retirement plan
for employees of Virginia Indonesia Company. Except as set forth above and with
respect to the Company's Savings Plan for Salaried Employees, at the close of
business on May 1, 1998, no shares of capital stock or other voting securities
of the Company were issued, reserved for issuance or outstanding. There are no
outstanding Company SARs (as defined in Section 6.04) that were not granted in
tandem with a related Company Stock Option. All outstanding shares of Company
Capital Stock are, and all such shares that may be issued prior to the Effective
Time will be when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to or issued in violation of any purchase option,
call option, right of first refusal, preemptive right, subscription right or any
similar right under any
13
<PAGE>
provision of the DGCL, the Company Charter, the Company By-laws or any Contract
(as defined in Section 3.05) to which the Company is a party or otherwise bound.
There are not any bonds, debentures, notes or other indebtedness of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of the Company
may vote ("Voting Company Debt"). Except as set forth above, as of the date
-------------------
of this Agreement, there are not any options, warrants, rights, convertible or
exchangeable securities, "phantom" stock rights, stock appreciation rights,
stock-based performance units, commitments, Contracts, arrangements or
undertakings of any kind to which the Company or any Company Subsidiary is a
party or by which any of them is bound (i) obligating the Company or any Company
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other equity interests in, or any security
convertible or exercisable for or exchangeable into any capital stock of or
other equity interest in, the Company or of any Company Subsidiary or any Voting
Company Debt, (ii) obligating the Company or any Company Subsidiary to issue,
grant, extend or enter into any such option, warrant, call, right, security,
commitment, Contract, arrangement or undertaking or (iii) that give any person
the right to receive any economic benefit or right similar to or derived from
the economic benefits and rights accruing to holders of Company Capital Stock.
As of the date of this Agreement, except as disclosed in the Company Disclosure
Letter and as contemplated by Section 1.02(d), there are not any outstanding
contractual obligations of the Company or any Company Subsidiary to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any
Company Subsidiary.
SECTION 3.04. Authority; Execution and Delivery; Enforceability. (a)
--------------------------------------------------
The Company has all requisite corporate power and authority to execute this
Agreement and to consummate the Transactions, subject to compliance with the HSR
Act (as defined in Section 3.05(a)) and the EC Regulations (as defined in
Section 3.05(a)). The execution and delivery by the Company of each Transaction
Agreement to which it is a party and the consummation by the Company of the
Transactions have been duly authorized by all necessary corporate action on the
part of the Company, subject, in the case of the Merger, to receipt of the
Company Stockholder Approval (as defined in Section 3.04(c)). This Agreement
has been duly and validly executed and delivered by the Company and, assuming
this Agreement constitutes a valid and binding obligation of each of the other
parties hereto, this Agreement constitutes a valid and binding agreement of the
14
<PAGE>
Company, enforceable against the Company, except as the enforceability hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(b) The Board of Directors of the Company (the "Company Board"), at a
-------------
meeting duly called and held, duly and unanimously adopted resolutions (i)
approving this Agreement and the Company Stockholder Agreement, the Offer, the
Merger and the other Transactions, (ii) determining that the terms of the Offer,
the Merger and the other Transactions are fair to and in the best interests of
the Company and its stockholders, (iii) recommending that the holders of Company
Common Stock accept and tender their shares of Company Common Stock pursuant to
the Offer and (iv) recommending that the Company's stockholders adopt this
Agreement. Such resolutions are sufficient to render Section 203 of the DGCL
inapplicable (A) to Parent and Sub by reason of their entering into this
Agreement and the Company Stockholder Agreement or consummating any of the
Transactions and (B) to the Offer, the Merger and the other Transactions. To
the Company's Knowledge, no other state takeover statute or similar statute or
regulation applies or purports to apply to the Company with respect to this
Agreement and the Company Stockholder Agreement, the Offer, the Merger or any
other Transaction. Each of the Company's directors and principal executive
officers named in the Company Disclosure Letter either (x) has advised the
Company that such person intends to tender all shares of Company Common Stock
owned by such person pursuant to the Offer or (y) has been designated in the
Company Disclosure Letter pursuant to Section 1.02(d).
(c) The only vote of holders of any class or series of Company
Capital Stock necessary to approve and adopt this Agreement and the Merger is
the adoption of this Agreement by the holders of a majority of the outstanding
Company Common Stock (the "Company Stockholder Approval"). The affirmative vote
----------------------------
of any holders of Company Capital Stock is not necessary to approve any
Transaction Agreement other than this Agreement or to consummate the Offer or
any Transaction other than the Merger.
SECTION 3.05. No Conflicts; Consents. (a) Except as disclosed in the
-----------------------
Company Disclosure Letter, the execution and delivery by the Company of this
Agreement do not, and the consummation of the Offer, the Merger and the other
Transactions and compliance with the terms hereof
15
<PAGE>
and thereof will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancelation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Company or any Company Subsidiary under, any
provision of (i) the Company Charter, the Company By-laws or the comparable
charter or organizational documents of any Company Subsidiary, (ii) any
contract, lease, license, indenture, note, bond, agreement, permit, concession,
franchise or other instrument (a "Contract") to which the Company or any
--------
Company Subsidiary is a party or by or to which any of their respective
properties or assets is bound or subject, except for such conflicts, violations
or defaults (or rights of termination, cancelation or acceleration) as to which
requisite waivers or consents have been obtained or will be obtained prior to
acceptance for payment of shares of Company Common Stock by Sub pursuant to the
Offer or which would not in the aggregate have a Company Material Adverse
Effect; or (iii) subject to the filings and other matters referred to in the
following sentence, to the Knowledge of the Company, any judgment, order or
decree ("Judgment") or statute, law, ordinance, rule or regulation ("Applicable
-------- ----------
Law") applicable to the Company or any Company Subsidiary or their respective
- ---
properties or assets, including, without limitation, the Applicable Law of any
foreign country, except for such conflicts, violations or defaults which would
not in the aggregate have a Company Material Adverse Effect and would not
prevent or delay in any material respect the consummation of the Transactions.
To the Knowledge of the Company, no consent, approval, license, permit, order or
authorization ("Consent") of, or registration, declaration or filing with,
-------
any Federal, state, local or foreign government or any court of competent
jurisdiction, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental Entity"), is
------------ ------
required to be obtained or made by or with respect to the Company or any Company
Subsidiary in connection with the execution, delivery and performance of any
Transaction Agreement to which it is a party or the consummation of the
Transactions, other than (i) compliance with and filings under (A) the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and (B) the
--- ---
rules and regulations of the Council of the European Communities (the "European
--------
Council") and of the Commission of the European Communities (the "European
-------- ---------- --------
Commission"), including, without limitation, Council Regulation (EEC) No 4064/89
- ----------
of 21 December 1989 on the control of concentration between undertakings (as
amended) (OJ L 257/14, 21.9.90) and Commission Regulation (EC)
16
<PAGE>
No 447/98 of 1 March 1998 on the notifications, time limits and hearings
provided for Council Regulation (EEC) No 4064/89 on the control of
concentrations between undertakings (OJ L 61/1/, 2.3.98) (the "EC Regulations")
-- -----------
and the rules and regulations of any Governmental Entity to which a reference is
made pursuant to the EC Regulations, (ii) the filing with the SEC of (A) the
Schedule 14D-9, (B) a proxy or information statement relating to the approval
and adoption of this Agreement and the Merger by the Company's stockholders (the
"Proxy Statement"), (C) any information statement (the "Information Statement")
----- --------- ----------- ---------
required under Rule 14f-1 in connection with the Offer and (D) such reports and
statements under Section 13 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as may be required in connection with this Agreement and
-------- ---
the Company Stockholder Agreement, the Offer, the Merger and the other
Transactions, (iii) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware and appropriate documents with the relevant
authorities of the other jurisdictions in which the Company is qualified to do
business, (iv) compliance with and such filings as may be required under
applicable U.S. Federal, state or local environmental laws, (v) such filings as
may be required in connection with any taxes, (vi) filings under any applicable
state takeover law, (vii) where the failure to obtain such consent, approval or
authorization, or to make such filing or notification, would not in the
aggregate have a Company Material Adverse Effect and (viii) such other items (A)
required solely by reason of the participation of Parent (as opposed to any
third party) in the Transactions or (B) as are set forth in the Company
Disclosure Letter.
(b) The Company and the Company Board have taken all action necessary
to (i) render the Company Rights inapplicable to this Agreement, the Company
Stockholder Agreement, the Offer, the Merger and the other Transactions and (ii)
ensure that (A) neither Parent nor any of its affiliates or associates is or
will become an "Acquiring Person" (as defined in the Company Rights Agreement)
by reason of this Agreement or the Company Stockholder Agreement, the Offer, the
Merger or any of the other Transactions, (B) a "Distribution Date" (as defined
in the Company Rights Agreement) shall not occur by reason of this Agreement or
the Company Stockholder Agreement, the Offer, the Merger or any of the other
Transactions and (C) the Company Rights shall expire immediately prior to the
consummation of the Offer.
SECTION 3.06. SEC Documents; Undisclosed Liabilities. The Company
---------------------------------------
has filed all reports, schedules, forms, statements and other documents required
to be filed
17
<PAGE>
by the Company with the SEC since January 1, 1996, pursuant to Sections 13(a)
and 15(d) of the Exchange Act (the "Company SEC Documents"). As
---------------------
of its respective date, each Company SEC Document complied in all material
respects with the requirements of the Exchange Act or the Securities Act of
1933, as amended (the "Securities Act"), as the case may be, and the rules and
--------------
regulations of the SEC promulgated thereunder applicable to such Company SEC
Document, and 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. Except to the extent that information contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the
"1997 Company 10-K"), has been revised or superseded by a Company SEC Document
- ------------------
filed prior to the date of this Agreement, and except as disclosed in the
Company Disclosure Letter, as of the date of this Agreement, the 1997 Company
10-K does not contain any untrue statement of a material fact or omit to state
any 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. The consolidated financial statements of the Company
included in the Company SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") (except, in the case of
----
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the Filed Company SEC Documents, as of the
date of this Agreement neither the Company nor any Company Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by GAAP to be set forth on a consolidated balance sheet
of the Company and its consolidated subsidiaries or in the notes thereto and
that, individually or in the aggregate, would reasonably be expected to have a
Company Material Adverse Effect. None of the Company Subsidiaries is, or has at
any time since January 1, 1996, been, subject to the reporting requirements of
Sections 13(a) and 15(d) of the Exchange Act.
18
<PAGE>
SECTION 3.07. Information Supplied. None of the information supplied
---------------------
or to be supplied by the Company for inclusion or incorporation by reference in
(i) Offer Documents, the Schedule 14D-9 or any Information Statement will, at
the time such document is filed with the SEC, at any time it is amended or
supplemented or at the time it is first published, sent or given to the
Company's stockholders, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) the Proxy Statement will, at the
date it is first mailed to the Company's stockholders or, unless promptly
corrected, at the time of the Company Stockholders Meeting (as defined in
Section 6.01) or, unless promptly corrected, at the time of any action by
written consent in lieu of a meeting pursuant to Section 228 of the DGCL with
respect to this Agreement and the Merger, as applicable, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Schedule 14D-
9, the Information Statement and the Proxy Statement will comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations thereunder, except that no representation is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by Parent or Sub for inclusion or incorporation by
reference therein.
SECTION 3.08. Absence of Certain Changes or Events. Except as
-------------------------------------
contemplated by or expressly permitted in this Agreement and as disclosed in the
Company SEC Documents filed and publicly available prior to the date of this
agreement (the "Filed Company SEC Documents") or in the Company Disclosure
---------------------------
Letter, since December 31, 1997, the Company has conducted its business only in
the ordinary course, and during such period there has not been:
(i) any change (which would reasonably be expected, individually or in
the aggregate, to have a Company Material Adverse Effect) in the Company's
interest (as of December 31, 1997) in any oil and gas exploration license,
lease, area of mutual interest agreement, concession agreement, production
sharing contract, operating service agreement or other agreement or
arrangement evidencing an interest in hydrocarbons (an "Oil and Gas
-----------
Interest"), or in any corporation, partnership or joint venture arrangement
--------
which holds an Oil and Gas Interest, including, without limitation, the
imposition of any Lien on any Oil and
19
<PAGE>
Gas Interest other than (A) the terms and conditions of all leases,
contracts for sale, purchase, exchange, refining or processing of
hydrocarbons, unitization and pooling designations, declarations, orders
and agreements, gas balancing or deferred production agreements, processing
agreements and plant agreements, pipeline, gathering and transportation
agreements, (B) easements, rights of way, servitudes, permits, surface
leases and other rights with respect to surface obligations, (C) Liens for
taxes or assessments not yet delinquent or being protested in good faith by
appropriate action brought in the normal course, and (D) materialmen's,
mechanic's, repairman's, employee's, contractor's, operator's and other
similar Liens or charges, in all cases arising in the ordinary course of
business and which were not made in violation of Section 5.01
(collectively, "Permitted Encumbrances");
----------------------
(ii) any acquisition of, or any ongoing negotiations to acquire, any
Oil and Gas Interest, or any interest in a corporation, partnership or
joint venture arrangement which holds an Oil and Gas Interest, that,
individually or in the aggregate, involves or would involve a required
commitment by the Company to make an investment or expenditure in excess of
$10,000,000;
(iii) any change in the Company's petrochemical business (as in
existence on December 31, 1997), including, without limitation, the
Company's interest in the Geismar, Louisiana, olefins plant and the
Company's role as operator thereof (the Company's petrochemical business
being collectively referred to herein as the "Petrochemicals Interests"),
------------------------
the acquisition or building of new petrochemicals capacity or expansion of
existing petrochemicals capacity, or disposition of (including by way of a
contribution of assets or otherwise), all or any portion of the
Petrochemical Interests or the alteration or amendment of any contracts
relating to any Petrochemicals Interests but excluding, in each case, any
change that would not reasonably be expected to have a Company Material
Adverse Effect;
(iv) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any
Company Capital Stock (other than regular quarterly cash dividends not in
excess of $.05 per share of Company Common Stock with usual record and
payment dates and in accordance with the Company's present dividend policy
and regular
20
<PAGE>
quarterly cash dividends with respect to the Series A Preferred), or any
repurchase for value by the Company of any Company Capital Stock;
(v) any split, combination or reclassification of any Company Capital
Stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of
Company Capital Stock;
(vi) (A) any granting by the Company or any Company Subsidiary to any
director or executive officer of the Company or any Company Subsidiary of
any increase in compensation, except in the ordinary course of business
consistent with prior practice or as was required under employment
agreements in effect as of December 31, 1997, (B) any granting by the
Company or any Company Subsidiary to any such director or executive officer
of any increase in severance or termination pay, except as was required
under any employment, severance or termination agreements in effect as of
December 31, 1997, or (C) any entry by the Company or any Company
Subsidiary into any employment, severance or termination agreement with any
such director or executive officer;
(vii) any change in accounting methods, principles or practices by the
Company or any Company Subsidiary materially affecting the consolidated
assets, liabilities or results of operations of the Company, except insofar
as may have been required by a change in GAAP; or
(viii) unless Parent has otherwise agreed pursuant to Section 5.01(a),
any action taken by the Company or any Company Subsidiary that would be
prohibited after the date of this Agreement by Section 5.01(a) hereof,
other than any of clauses (iv), (v), (xi), and (xvii) (insofar as clause
(xvii) relates to clauses (iv), (v) and (xi)) of Section 5.01(a).
SECTION 3.09. Taxes. (a) Each of the Company, each Company
------
Subsidiary and each affiliated, combined, consolidated or unitary group of which
the Company or any Company Subsidiary is or has been a member (a "Company
-------
Affiliated Group") has timely filed, or has caused to be timely filed on its
- ----------------
behalf, all Tax Returns required to be filed by it, and all such Tax Returns are
true, complete and accurate, except to the extent any failure to file or any
inaccuracies in any filed Tax Returns would not, individually or in the
aggregate, have a Company Material
21
<PAGE>
Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed
by the Company, any Company Subsidiary or any Company Affiliated Group, have
been timely paid, except to the extent that any failure to pay would not,
individually or in the aggregate, have and would not reasonably be expected to
have a Company Material Adverse Effect.
(b) The most recent financial statements contained in the Filed
Company SEC Documents reflect an adequate reserve for all Taxes payable by the
Company and the Company Subsidiaries (including by virtue of being or having
been a member of a Company Affiliated Group) for all Taxable periods and
portions thereof through the date of such financial statements. No deficiency
with respect to any Taxes has been proposed, asserted or assessed against the
Company or any Company Subsidiary, and no requests for waivers of the time to
assess any such Taxes are pending, except to the extent any such deficiency or
request for waiver, individually or in the aggregate, would not have and would
not reasonably be expected to have a Company Material Adverse Effect. There is
no audit, examination, refund litigation, proposed adjustment or matter in
controversy with respect to any Taxes due and owing by the Company, any Company
Subsidiary or any Company Affiliated Group which matter would, individually or
in the aggregate, have or would reasonably be expected to have a Company
Material Adverse Effect.
(c) The Company and each Company Subsidiary have complied with all
rules and regulations relating to the withholding of Taxes, except to the extent
failure to comply would not, individually or in the aggregate, have and would
not reasonably be expected to have a Company Material Adverse Effect.
(d) For purposes of this Agreement:
"Taxes" shall include all forms of taxes, levies, imposts, duties,
-----
charges or withholdings, whenever created or imposed, and whether of the United
States or elsewhere, and whether imposed by a local, municipal, governmental,
state, foreign, Federal or other Governmental Entity, or in connection with any
agreement with respect to Taxes, including all interest, penalties and additions
imposed with respect to such amounts.
"Tax Return" shall mean all Federal, state, local, provincial and
----------
foreign Tax returns, declarations, statements, reports, schedules, forms and
information returns and any amended Tax return relating to Taxes.
22
<PAGE>
SECTION 3.10. Absence of Changes in Benefit Plans. Except as
------------------------------------
disclosed in the Filed Company SEC Documents or in the Company Disclosure
Letter, from December 31, 1997 to the date of this Agreement, there has not been
any adoption or amendment in any material respect by the Company or any Company
Subsidiary of any collective bargaining agreement or any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, welfare, vacation, severance,
disability, death benefit, hospitalization, medical or other plan, arrangement
or understanding (whether or not legally binding) providing benefits to any
current or former employee, officer or director of the Company or any Company
Subsidiary except any such plan, arrangement or understanding the Company has
adopted as required by law (collectively, "Company Benefit Plans"). Except as
---------------------
disclosed in the Filed Company SEC Documents or in the Company Disclosure
Letter, to the Knowledge of the Company, as of the date of this Agreement
there are not any employment, consulting, indemnification severance or
termination agreements or arrangements between the Company or any Company
Subsidiary and any current or former employee, officer or director of the
Company or any Company Subsidiary.
SECTION 3.11. ERISA Compliance; Excess Parachute Payments. (a) The
--------------------------------------------
Company Disclosure Letter contains a list of all "employee pension benefit
plans" (as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Company
----- -------
Pension Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of
- -------------
ERISA) and all other Company Benefit Plans maintained, or contributed to, by the
Company or any Company Subsidiary for the benefit of any current or former
employees, officers or directors of the Company or any Company Subsidiary. The
Company has used its best efforts to make available to Parent true, complete and
correct copies in all material respects of (i) each Company Benefit Plan (or, in
the case of any unwritten Company Benefit Plan, a description thereof), (ii) the
most recent annual report on Form 5500 and Schedule B thereto (including any
related actuarial valuation report) filed with the Internal Revenue Service with
respect to each Company Benefit Plan (if any such report was required), (iii)
the most recent summary plan description for each Company Benefit Plan for which
such summary plan description is required and (iv) each trust agreement and
group annuity contract relating to any Company Benefit Plan.
(b) Except as disclosed in the Company Disclosure Letter, all Company
Pension Plans intended to be qualified
23
<PAGE>
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") have been the subject of determination letters from the Internal Revenue
Service to the effect that such Company Pension Plans are qualified and exempt
from Federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, and no such determination letter has been revoked nor, to the Knowledge of
the Company, has revocation been threatened, nor has any such Company Pension
Plan been amended since the date of its most recent determination letter or
application therefor in any respect that would adversely affect its
qualification or materially increase its costs. The Company has made available
to Parent true, complete and correct copies of the determination letters
referred to herein.
(c) Except as disclosed in the Company Disclosure Letter with respect
to ENSTAR Corporation, no Company Pension Plan, other than any Company Pension
Plan that is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA (a "Company Multiemployer Pension Plan"), had, as of the respective last
annual valuation date for each such Company Pension Plan, an "unfunded benefit
liability" (as such term is defined in Section 4001(a)(18) of ERISA), based on
actuarial assumptions that have been furnished to Parent. None of the Company
Pension Plans has an "accumulated funding deficiency" (as such term is defined
in Section 302 of ERISA or Section 412 of the Code), whether or not waived. None
of the Company, any Company Subsidiary, any officer of the Company or any
Company Subsidiary or any of the Company Benefit Plans which are subject to
ERISA, including the Company Pension Plans, any trusts created thereunder or any
trustee or administrator thereof, has engaged in a "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section 4975 of the Code) or any
other breach of fiduciary responsibility that could subject the Company, any
Company Subsidiary or any officer of the Company or any Company Subsidiary to
the tax or penalty on prohibited transactions imposed by such Section 4975 or to
any liability under Section 502(i) or 502(1) of ERISA. None of such Company
Benefit Plans and trusts has been terminated, nor has there been any "reportable
event" (as that term is defined in Section 4043 of ERISA) for which the
disclosure requirements of Section 4043.1 et seq., promulgated by the Pension
-- ---
Benefit Guaranty Corporation, have not been waived with respect to any Company
Benefit Plan during the last five years. Neither the Company nor any Company
Subsidiary has incurred a "complete withdrawal" or a "partial withdrawal" (as
such terms are defined in Sections 4203 and 4205, respectively, of ERISA) since
the
24
<PAGE>
effective date of such Sections 4203 and 4205 with respect to any of the
Multiemployer Pension Plan.
(d) Except as disclosed in the Company Disclosure Letter, to the
Knowledge of the Company, each Company Benefit Plan complies in all material
respects with and has been administered, operated and maintained in all material
respects in compliance with all applicable provisions of ERISA, the Code and
other applicable laws.
(e) With respect to each Company Benefit Plan, no action, suit,
grievance, claim, arbitration or other manner of litigation with respect to the
assets of such Plan (other than routine claims for benefits made in the ordinary
course of plan administration for which plan administrator review procedures
have not been exhausted) is pending, or to the Company's Knowledge, threatened
or imminent against or with respect to the Company Benefit Plans or any Company
Benefit Plan sponsor or fiduciary (as defined in Section 3(21) of ERISA).
(f) With respect to any Company Benefit Plan that is an employee
welfare benefit plan, except as disclosed in the Company Disclosure Letter, (i)
no such Company Benefit Plan is unfunded or funded through a "welfare benefits
fund" (as such term is defined in Section 419(e) of the Code), (ii) each such
Company Benefit Plan that is a "group health plan" (as such term is defined in
Section 5000(b)(1) of the Code), complies with the applicable requirements of
Section 4980B(f) of the Code and (iii) each such Company Benefit Plan (including
any such Plan covering retirees or other former employees) may be amended or
terminated without material liability to the Company and the Company Subsidiary
on or at any time after the Effective Time except as otherwise provided in this
Agreement.
(g) Other than payments that may be made to the persons listed in the
Company Disclosure Letter (the "Primary Company Executives"), any amount that
--------------------------
could be received (whether in cash or property or the vesting of property) as a
result of the Offer, the Merger or any other Transaction by any employee,
officer or director of the Company or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Company Benefit Plan currently in
effect would not be characterized as an "excess parachute payment" (as defined
in Section 280G(b)(1) of the Code). Set forth in the Company Disclosure Letter
is (i) the estimated maximum amount that could be paid to each Primary Company
Executive
25
<PAGE>
as a result of the Offer, the Merger and the other Transactions under
all employment, severance and termination agreements, other compensation
arrangements and Company Benefit Plans currently in effect and (ii) the "base
amount" (as defined in Section 280G(b)(3) of the Code) for each Primary Company
Executive calculated as of the date of this Agreement.
SECTION 3.12. Litigation. Except as disclosed in the Filed Company
-----------
SEC Documents, there is no suit, action or proceeding not disclosed in the
Company Disclosure Letter pending or, to the Knowledge of the Company,
threatened against or affecting the Company or any Company Subsidiary that,
individually or in the aggregate, has had or would reasonably be expected to
have a Company Material Adverse Effect, nor is there any Judgment outstanding
against the Company or any Company Subsidiary that has had or would reasonably
be expected to have a Company Material Adverse Effect.
SECTION 3.13. Environmental Matters; Compliance with Laws. (a)
-------------------------------------------
Except as disclosed in the Filed Company SEC Documents, there are no claims,
investigations or administrative actions not disclosed in the Company Disclosure
Letter pending or, to the Knowledge of the Company, threatened against or
affecting the Company or any Company Subsidiary arising from or related to the
harmful effects of, or the removal or remediation of, hazardous substances or
pollutants that has had or would be reasonably expected to have a Company
Material Adverse Effect.
(b) Except as disclosed in the Filed Company SEC Documents or in the
Company Disclosure Letter, to the Knowledge of the Company, the Company and the
Company Subsidiaries are in compliance with all Applicable Laws, except for
instances of noncompliance that, individually and in the aggregate, have not had
and would not reasonably be expected to have a Company Material Adverse Effect.
This Section 3.13 does not relate to matters with respect to Taxes, which are
the subject of Section 3.09.
SECTION 3.14. Title to Properties. Except as set forth in the
--------------------
Company Disclosure Letter, as of the date of this Agreement, each of the Company
and each of the Significant Company Subsidiaries has good title to, or valid
leasehold or other ownership interests or rights in, all its properties and
assets except:
(i) for such interest or rights as are no longer used or useful in the
conduct of its businesses or as
26
<PAGE>
have been disposed of in the ordinary course of business, and
(ii) for defects in title, easements, restrictive covenants and
similar encumbrances or impediments that, in the aggregate, do not and will
not interfere with its ability to conduct its business as currently
conducted to the extent that such interference would not reasonably be
expected to have a Company Material Adverse Effect.
As of the date of this Agreement, none of the Company and the Significant
Company Subsidiaries' properties and assets are subject to any Liens (other than
Permitted Encumbrances) that, in the aggregate, interfere with the ability of
the Company and the Company Subsidiaries to conduct business as currently
conducted to an extent that have had or would reasonably be expected to have a
Company Material Adverse Effect.
SECTION 3.15. Confidentiality and Other Agreements. (a) The Company
-------------------------------------
has no confidentiality agreement or standstill agreement with any third party
with respect to a Company Takeover Proposal by such third party (each, a
"Company Confidentiality Agreement") in effect as of the date of this Agreement
- ----------------------------------
that has not been provided to Parent or Sub, other than those Company
Confidentiality Agreements that are prohibited by their terms from being
disclosed to Parent or Sub.
(b) Except as set forth in the Company Disclosure Letter, none of the
Company or any of its subsidiaries is subject to any noncompetition or similar
agreement that prohibits or restricts the Company or any of its affiliates from
engaging in any business or other activities.
SECTION 3.16. Brokers; Schedule of Fees and Expenses. No broker,
---------------------------------------
investment banker, financial advisor or other person, other than Salomon
Brothers Inc, Smith Barney Inc. and Petrie Parkman & Co., Inc. (the "Financial
---------
Advisors"), the fees and expenses of which will be paid by the Company, is
- --------
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the Offer, the Merger or any of the other
Transactions based upon arrangements made by or on behalf of the Company or any
Company Subsidiary or affiliate of the Company. The estimated fees and expenses
incurred and to be incurred by the Company in connection with the Offer, the
Merger and the other Transactions (including the fees of the Financial Advisors
and the fees of the Company's legal counsel) are set forth in the Company
Disclosure Letter.
27
<PAGE>
The Company has furnished to Parent a true and complete copy of all agreements
between the Company and the Financial Advisors relating to the Offer, the Merger
and the other Transactions.
SECTION 3.17. Opinion of Financial Advisor. The Company has received
-----------------------------
the opinion of each of the Financial Advisors, dated the date of this Agreement,
to the effect that, as of such date, the consideration to be received in the
Offer and the Merger by the holders of the shares of Company Common Stock is
fair to the Company's stockholders from a financial point of view, a signed copy
of which opinion has been delivered to Parent.
ARTICLE IV
Representations and Warranties of Parent and Sub
------------------------------------------------
Parent and Sub, jointly and severally, represent and warrant to the
Company as follows:
SECTION 4.01. Organization, Standing and Power. (a) Each of Parent
---------------------------------
and Sub is duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its businesses as presently conducted.
SECTION 4.02. Sub. (a) Since the date of its incorporation, Sub has
----
not carried on any business or conducted any operations other than the execution
of the Transaction Agreements to which it is a party, the performance of its
obligations hereunder and thereunder and matters ancillary thereto.
(b) The authorized capital stock of Sub consists of 1,000 shares of
common stock, par value $0.01 per share, all of which have been validly issued,
are fully paid and nonassessable and are owned by Parent free and clear of any
Lien.
SECTION 4.03. Authority; Execution and Delivery; Enforceability.
--------------------------------------------------
Each of Parent and Sub has all requisite corporate power and authority to
execute each Transaction Agreement to which it is a party and to consummate the
Transactions. The execution and delivery by each of Parent and Sub of each
Transaction Agreement to which it is a party and the consummation by it of the
Transactions have been duly authorized by all necessary corporate action as the
part of Parent and Sub. Parent, as sole stockholder of Sub, has approved and
adopted this Agreement. Each of Parent and
28
<PAGE>
Sub has duly executed and delivered each Transaction Agreement to which it is a
party, and each Transaction Agreement to which it is a party constitutes its
legal, valid and binding obligation, enforceable against it in accordance with
its terms.
SECTION 4.04. No Conflicts; Consents. The execution and delivery by
-----------------------
each of Parent and Sub of each Transaction Agreement to which it is a party, do
not, and the consummation of the Offer, the Merger and the other Transactions
and compliance with the terms hereof and thereof will not, conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancelation or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any Lien upon any of the properties or assets of Parent or
any of its subsidiaries under, any provision of (i) the charter or
organizational documents of Parent or any of its subsidiaries, (ii) any Contract
to which Parent or any of its subsidiaries is a party or by or to which any of
their respective properties or assets is bound or subject or (iii) subject to
the filings and other matters referred to in the following sentence, any
Judgment or Applicable Law applicable to Parent or any of its subsidiaries or
their respective properties or assets, other than, in the case of clauses (ii)
and (iii) above, any such items that, individually or in the aggregate, have not
had and could not reasonably be expected to prevent or materially delay the
ability of Parent to consummate the Offer, the Merger and the other Transactions
(a "Parent Material Adverse Effect"). No Consent of, or registration,
------------------------------
declaration or filing with, any Governmental Entity is required to be obtained
or made by or with respect to Parent or any of its subsidiaries in connection
with the execution, delivery and performance of any Transaction Agreement to
which Parent or Sub is a party or the consummation of the Transactions, other
than (i) compliance with and filings under (A) the HSR Act and (B) the EC
Regulations and the rules and regulations of any Governmental Entity to which a
reference is made pursuant to the EC Regulations, (ii) the filing with the SEC
of (A) the Offer Documents and (B) such reports and statements under Sections 13
and 16 of the Exchange Act as may be required in connection with this Agreement
and the Company Stockholder Agreement, the Offer, the Merger and the other
Transactions, (iii) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware, (iv) compliance with and such filings as may
be required under applicable environmental laws, (v) such filings as may be
required in connection with the taxes described in Section 6.09, (vi) filings
under any applicable state takeover law and
29
<PAGE>
(vii) such other items (A) required solely by reason of the participation of the
Company (as opposed to any third party) in the Transactions, (B) that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect or (C) as are set forth in the
letter, dated as of the date of this Agreement, from Parent to Sub.
SECTION 4.05. Information Supplied. None of the information supplied
---------------------
or to be supplied by Parent or Sub for inclusion or incorporation by reference
in (i) Offer Documents, the Schedule 14D-9 or the Information Statement will, at
the time such document is filed with the SEC, at any time it is amended or
supplemented or at the time it is first published, sent or given to the
Company's stockholders, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) the Proxy Statement will, at the
date it is first mailed to the Company's stockholders or at the time of the
Company Stockholders Meeting (if applicable), contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Offer Documents
will comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder, except that no
representation is made by Parent or Sub with respect to statements made or
incorporated by reference therein based on information supplied by the Company
for inclusion or incorporation by reference therein.
SECTION 4.06. Brokers. No broker, investment banker, financial
--------
advisor or other person, other than Morgan Stanley & Co. Incorporated, the fees
and expenses of which will be paid by Parent, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Offer, the Merger and the other Transactions based upon arrangements
made by or on behalf of Parent.
SECTION 4.07. Financing. Parent and Sub have funds available
----------
sufficient to consummate the Offer and the Merger on the terms contemplated by
this Agreement, and, at the expiration of the Offer and the Effective Time,
Parent and Sub will have available all of the funds necessary for the
acquisition of all shares of Common Stock pursuant to the Offer and the Merger,
as the case may be, and to perform their respective obligations under this
Agreement.
30
<PAGE>
SECTION 4.08. Litigation. As of the date hereof, to the knowledge of
-----------
Parent, no person has filed any action or suit against Parent with respect to
this Agreement and the Transactions.
SECTION 4.09. Interested Stockholder. Immediately prior to the
----------------------
execution and delivery of this Agreement and the Company Stockholder Agreement,
neither Parent nor Sub was an "interested stockholder" of the Company, as such
term is defined in Section 203(c)(5) of the DGCL.
ARTICLE V
Covenants Relating to Conduct of Business
-----------------------------------------
SECTION 5.01. Conduct of Business. (a) Except for matters set forth
--------------------
in the Company Disclosure Letter or otherwise contemplated by the Transaction
Agreements, unless Parent shall otherwise agree, from the date of this Agreement
to the Effective Time or earlier termination of this Agreement, the Company
shall, and shall cause each Company Subsidiary to, conduct its business in the
usual, regular and ordinary course consistent with past practice except as
required to comply with changes in applicable law occurring after the date
hereof (subject to the express restrictions set forth below in this Section
5.01, including, without limitation, the restrictions of clauses (iv) and (v)
below) and, to the extent consistent therewith, use all commercially reasonable
efforts to preserve intact its current business organization and keep available
the services of its current officers and employees to maintain its goodwill and
ongoing business. In addition, and without limiting the generality of the
foregoing, except for matters set forth in the Company Disclosure Letter or
otherwise contemplated by the Transaction Agreements, unless Parent shall
otherwise agree, and except as required to comply with changes in applicable law
occurring after the date hereof, from the date of this Agreement to the
Effective Time, the Company shall not, and shall not permit any Company
Subsidiary to, do any of the following without the prior written consent of
Parent:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (other than regular
quarterly cash dividends not in excess of $.05 per share of Company Common
Stock with usual record and payment dates and in accordance with the
Company's present dividend policy and regular quarterly cash dividends with
respect to
31
<PAGE>
the Series A Preferred), other than dividends and distributions by a direct
or indirect wholly owned subsidiary of the Company to its parent, (B)
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (C) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any Company
Subsidiary or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) issue, deliver, sell or grant (A) any shares of its capital
stock, (B) any Voting Company Debt or other voting securities, (C) any
securities convertible into or exchangeable for, or any options, warrants
or rights to acquire, any such shares, voting securities or convertible or
exchangeable securities or (D) any "phantom" stock, "phantom" stock rights,
stock appreciation rights or stock-based performance units, other than the
issuance of Company Common Stock (and associated Company Rights) upon the
exercise of Company Stock Options outstanding on the date of this Agreement
or under the Company's Savings Plan for Salaried Employees, Deferred
Compensation Plan or the defined contribution retirement plan for employees
of Virginia Indonesia Company, and in accordance with their present terms;
(iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(iv) enter into, or amend, any material technical contract, long-term
drilling rig contract, agreement to sell, purchase or share seismic and
other geological or geophysical data, or any material contract for the
purchase or sale of oil, gas, LPG, LNG, ethylene, propylene or other
hydrocarbon or petrochemical products, other than in the ordinary course of
business consistent with past practice;
(v) (A) enter into, or amend, or negotiate to enter into or amend, any
farm-out or farm-in arrangement, area of mutual interest agreement,
exploration license, lease, concession agreement, production sharing
contract, operating service agreement or similar agreement or arrangement
evidencing an interest in hydrocarbons, or participate in any bidding
group, bidding round or public hearing with respect thereto, (B) acquire,
or negotiate to
32
<PAGE>
acquire, any interest in a corporation, partnership or joint venture
arrangement which holds an oil and gas interest of the type described in
the foregoing clause (A), (C) sell, transfer, assign, relinquish or
terminate (other than relinquishments or terminations required by the terms
of existing agreements) or negotiate to take any such action with respect
to, the Company's interest (as of the date of this Agreement) in any oil
and gas exploration license, lease, area of mutual interest agreement,
concession agreement, production sharing contract, operating service
agreement or other agreement or arrangement evidencing an interest in
hydrocarbons, or in the equity or debt securities of any corporation,
partnership or joint venture arrangement which holds such an interest,
including, without limitation, the imposition of any Lien (other than
Permitted Encumbrances) on any of the foregoing, (D) give, or negotiate to
give, any approvals relating to development plans, work plans, budgets or
capital expenditure commitments in connection with any oil and gas
interests of the type described in the foregoing clause (C), other than
expenditures in the existing capital expenditure budget disclosed in the
Company Disclosure Letter, or (E) make any change in the Petrochemical
Interests, including, without limitation, the imposition of any Lien (other
than Permitted Encumbrances) thereon, or enter into any agreements or
negotiations to acquire or build new petrochemicals capacity or expand
existing petrochemicals capacity, or dispose of (including, by way of a
contribution of assets or otherwise), all or any portion of the
Petrochemical Interests, or to alter or amend, in any material respect, any
contracts relating to the Petrochemical Interests, other than in the
ordinary course of business consistent with past practice;
(vi) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
assets that are material, individually or in the aggregate, to the Company
and the Company Subsidiaries taken as a whole;
(vii) (A) grant to any officer or director of the Company or any
Company Subsidiary any increase in compensation, except in the ordinary
course of business consistent with prior practice or to the extent required
under employment agreements in effect as of
33
<PAGE>
the date of the most recent audited financial statements included in the
Filed Company SEC Documents, (B) grant to any employee, officer or director
of the Company or any Company Subsidiary any increase in severance or
termination pay, except to the extent required under any agreement in
effect as of December 31, 1997, (C) enter into any employment, consulting,
indemnification, severance or termination agreement with any such employee,
officer or director, (D) establish, adopt, enter into or amend in any
material respect any collective bargaining agreement or Company Benefit
Plan or (E) take any action to accelerate any rights or benefits, or make
any material determinations not in the ordinary course of business
consistent with prior practice, under any collective bargaining agreement
or Company Benefit Plan;
(viii) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or
results of operations of the Company, except insofar as may have been
required by a change in GAAP or by operation of law;
(ix) sell, lease, license or otherwise dispose of or subject to any
Lien any properties or assets, except sales of inventory and excess or
obsolete assets in the ordinary course of business consistent with past
practice;
(x) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any Company Subsidiary, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings or trade obligations incurred in the ordinary course of business
consistent with past practice, or (B) make any loans, advances or capital
contributions to, or investments in, any other person, other than to or in
the Company or any direct or indirect wholly owned subsidiary of the
Company;
(xi) make or agree to make any new capital expenditure or expenditures
(other than expenditures in the existing capital expenditure budget
disclosed in the Company Disclosure Letter) that, individually, is
34
<PAGE>
in excess of $1,500,000 or, in the aggregate, are in excess of $5,000,000;
(xii) make any material Tax election or settle or compromise any
material Tax liability or refund, consent to any extension or waiver of the
statute of limitations period applicable to any Tax claim or action, if any
such election, settlement, compromise, consent or other action would have
the effect of increasing the Tax liability or reducing any net operating
loss, foreign tax credit, net capital loss or any other credit or tax
attribute of the Company or any of the Company Subsidiaries (including,
without limitation, deductions and credits related to alternative minimum
Taxes);
(xiii) enter into any hedging agreement or other financial agreement
or arrangement designed to protect the Company against fluctuations in
commodities prices or currency exchange rates, except agreements or
arrangements entered into in the ordinary course of business consistent
with past practice;
(xiv) (A) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms or the terms of this Agreement, of liabilities reflected
or reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
Filed Company SEC Documents or incurred in the ordinary course of business
consistent with past practice, (B) cancel any material indebtedness
(individually or in the aggregate) or waive any claims or rights of
substantial value or (C) waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which the
Company or any Company Subsidiary is a party;
(xv) make any material change (including failing to renew) in the
amount or nature of the insurance policies covering the Company and the
Company Subsidiaries, other than pursuant to the terms of such existing
policies as of the date of this Agreement;
(xvi) enter into any agreements in connection with, or negotiate to
give any approvals to, the amendment, extension, modification or waiver of
any of
35
<PAGE>
the terms and conditions (as in effect on the date of this Agreement) of the
Indonesian Participating Units issued by Unimar Company, or any guarantee or
"keep well" or other agreement to maintain any financial condition with respect
thereto; or
(xvii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) The Company and Parent shall not, and shall not permit any of
their respective subsidiaries to, take any action that would, or that would
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in any Transaction Agreement to which it is a
party that is qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that is not so qualified becoming untrue in any
material respect or (iii) except as otherwise permitted by Section 5.02, any
condition to the Offer set forth in Exhibit A, or any condition to the Merger
set forth in Article VII, not being satisfied.
(c) The Company shall promptly advise Parent orally and in writing of
any change or event having, or which, insofar as can reasonably be foreseen,
would have, a Company Material Adverse Effect.
SECTION 5.02. No Solicitation. (a) The Company shall not, nor shall
----------------
it permit any Company Subsidiary to, nor shall it authorize any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any Company Subsidiary (collectively, "Company
-------
Representatives") to, and will use its reasonable best efforts to ensure that
- ---------------
none of the Company Representatives shall, (i) solicit, initiate or encourage
the submission of, any Company Takeover Proposal, (ii) enter into any agreement
with respect to any Company Takeover Proposal or (iii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, a Company Takeover Proposal; provided,
--------
however, that, at any time during the period following the execution of the
- -------
Agreement and prior to the consummation of the Offer (the "Applicable Period"),
-----------------
the Company may, in response to a Company Superior Proposal (as defined in
Section 5.02(b), including the determination by the Company Board set forth in
such definition) that was not solicited by the Company or any Company
Representative and that did not otherwise result from a breach or a deemed
breach of this Section 5.02(a), and subject to providing prior written notice of
its
36
<PAGE>
decision to take such action to Parent (the "Company Notice") and compliance
--------------
with Section 5.02(c), for a period of no more than ten business days following
delivery of the Company Notice (which period shall be extended to the end of the
48-hour period following the receipt by Parent of the notice from the Company
that it is prepared to accept a Company Superior Proposal referred to in Section
5.02(b)), (x) furnish information with respect to the Company to any
person making a Company Superior Proposal pursuant to a customary
confidentiality agreement as determined by the Company after consultation with
its outside counsel, and (y) participate in discussions or negotiations
regarding such Company Superior Proposal. Without limiting the fore going, it is
agreed that any action that is in violation of or inconsistent with the
restrictions set forth in the preceding sentence by any executive officer of the
Company or any Company Subsidiary or any Company Representative or affiliate of
the Company, whether or not such person is purporting to act on behalf of the
Company or any Company Subsidiary or otherwise, shall be deemed to be a breach
of this Section 5.02(a) by the Company. For purposes of this Agreement, "Company
-------
Takeover Proposal" means any inquiry, proposal or offer from any person relating
- -------- --------
to any direct or indirect acquisition or purchase of a business that constitutes
15% or more of the net revenues, net income or the assets of the Company and the
Company Subsidiaries taken as a whole, or 15% or more of any class of equity
securities of the Company or any Significant Company Subsidiary, any tender
offer or exchange offer that if consummated would result in any person
beneficially owning 15% or more of any class of equity securities of the Company
or any Company Subsidiary, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any Company Subsidiary, other than the transactions contemplated by
this Agreement. The Company shall be permitted to deliver only one Company
Notice with respect to each person making a Company Superior Proposal.
(b) Except as expressly permitted by this Section 5.02, neither the
Company Board nor any committee thereof shall (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to Parent, the approval or
recommendation by the Company Board or any such committee of this Agreement, the
Offer or the Merger, (ii) approve or cause the Company to enter into any letter
of intent, agreement in principle or any legally binding acquisition agreement
or similar agreement (any such legally binding agreement, a "Company Acquisition
-------------------
Agreement") relating to any Company Takeover Proposal or (iii) approve or
- ---------
recommend, or propose to publicly approve or recommend, any Company
37
<PAGE>
Takeover Proposal. Notwithstanding the foregoing, if the Company has received a
Company Superior Proposal and if Sub has not accepted for payment any shares of
Company Common Stock tendered pursuant to the Offer, the Company Board may
(subject to this and the following sentences) terminate this Agreement, but only
at a time that is during the Applicable Period and is more than 48 hours
following Parent's receipt of written notice advising Parent that the
Company Board is prepared to accept such Company Superior Proposal, specifying
the material terms and conditions of such Company Superior Proposal and
identifying the person making such Company Superior Proposal; provided, however,
-------- -------
that (x) at the time of such termination, such Proposal continues to be a
Company Superior Proposal, taking into account any amendment of the terms of the
Offer or the Merger by Parent or any proposal by Parent to amend the terms of
this Agreement, the Offer or the Merger or any other Company Takeover Proposal
made by Parent (a "New Parent Proposal"), and (y) concurrently with or
--- ------ --------
immediately after such termination, the Company Board shall cause the Company to
enter into a Company Acquisition Agreement with respect to such Company Superior
Proposal. For purposes of this Agreement, a "Company Superior Proposal" means
------- -------- --------
any proposal made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction,
for consideration consisting of cash and/or securities, more than 50% of the
outstanding shares of Company Common Stock or all or substantially all the
assets of the Company and otherwise on terms which the Company Board determines
in its good faith judgment (after consultation with a financial advisor of
nationally recognized reputation) (x) is reasonably capable of being completed,
taking into account all legal, financial, regulatory and other aspects of the
proposal and the third party making such proposal, and (y) provides greater
value to the holders of Company Common Stock (specifically taking into account
the expected value of the consideration to be received by the holders of Company
Common Stock on the date such consideration is expected to be received by such
holders) than the cash consideration to be received by such stockholder pursuant
to the Offer and the Merger, as the Offer and the Merger may be amended from
time to time, or the value to the holders of Company Common Stock to be provided
by any New Parent Proposal (specifically taking into account the expected value
of the consideration expected to be received in the Offer, the Merger or any New
Parent Proposal by the holders of Company Common Stock on the date such
consideration is expected to be received by such holders).
38
<PAGE>
(c) In addition to the obligations of the Company set forth in
Sections 5.02(a) and 5.02(b), the Company promptly shall advise Parent orally
and in writing of any Company Takeover Proposal or any inquiry or request for
information with respect to or that could reasonably be expected to lead to any
Company Takeover Proposal, the identity of the person making any such Company
Takeover Proposal or inquiry or request for information and the material terms
of any such Company Takeover Proposal or inquiry or request for information. The
Company shall (i) keep Parent fully informed of the status including any change
to the material terms of any such Company Takeover Proposal or inquiry or
request for information and (ii) provide to Parent as soon as practicable after
receipt or delivery thereof with copies of all correspondence and other written
material sent or provided to the Company or any Company Representative or any
affiliate of the Company from any third party in connection with any Company
Takeover Proposal or inquiry or request for information or sent or sent or
provided by the Company or any Company Representative or any affiliate of the
Company to any third party in connection with any Company Takeover Proposal or
inquiry or request for information; provided, however, that the Company shall
-------- -------
not be required to provide any nonpublic information specified in this clause
(ii) regarding the business or financial condition or prospects of such third
party if the Company is prohibited from disclosing such information pursuant to
a legally binding confidentiality agreement.
(d) Nothing contained in this Section 5.02 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders if, in the good faith judgment of the Company Board,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however, that
-------- -------
neither the Company nor its Board nor any committee thereof shall withdraw or
modify, or propose publicly to withdraw or modify, its position with respect to
this Agreement or in connection with the Offer or the Merger, or approve or
recommend, or propose publicly to approve or recommend, a Company Takeover
Proposal.
39
<PAGE>
ARTICLE VI
Additional Agreements
---------------------
SECTION 6.01. Preparation of Proxy Statement; Stockholders Meeting.
-----------------------------------------------------
(a) If the approval and adoption of this Agreement by the Company's
stockholders is required by law, the Company shall, at Parent's request, as soon
as practicable following the expiration of the Offer, prepare and file with the
SEC the Proxy Statement in preliminary form, and the Company shall use its best
efforts to respond as promptly as practicable to any comments of the SEC with
respect thereto. The Company shall notify Parent promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Proxy Statement or for additional
information and shall supply Parent with copies of all correspondence between
the Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement. If at any time
prior to receipt of the Company Stockholder Approval there shall occur any event
that should be set forth in an amendment or supplement to the Proxy Statement,
the Company shall promptly prepare and mail to its stockholders such an
amendment or supplement. The Company shall not mail any Proxy Statement, or any
amendment or supplement thereto, to which Parent reasonably objects. The Company
shall use its best efforts to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable after filing with the SEC.
(b) If the approval and adoption of this Agreement by the Company's
stockholders is required by law, the Company shall, if requested by Parent and
as soon as practicable following the expiration of the Offer, duly call, give
notice of, convene and hold a meeting of its stockholders (the "Company
-------
Stockholders Meeting") for the purpose of seeking the Company Stockholder
- --------------------
Approval. The Company shall, through the Company Board, recommend to its
stockholders that they give the Company Stockholder Approval. Without limiting
the generality of the foregoing, the Company agrees that its obligations
pursuant to the first sentence of this Section 6.01(b) shall not be affected by
the commencement, public proposal, public disclosure or communication to the
Company of any Company Takeover Proposal. Notwithstanding the foregoing, if Sub
or any other subsidiary of Parent shall acquire at least 90% of the outstanding
shares of each class of Company Capital Stock, the parties shall, at the request
of Parent, take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after the expiration
40
<PAGE>
of the Offer without a stockholders meeting in accordance with Section 253 of
the DGCL.
(c) Subject to any restrictions imposed by Applicable Law, Parent
shall cause all shares of Common Stock purchased pursuant to the Offer and all
other shares of Common Stock owned by Sub or any other subsidiary of Parent to
be voted to adopt and approve this Agreement and the Merger at the Company
Stockholders Meeting or, at the election of Parent, shall consent in writing to
adoption and approval of this Agreement and the Merger pursuant to Section 228
of the DGCL.
SECTION 6.02. Access to Information; Confidentiality. The Company
---------------------------------------
shall, and shall cause each of its subsidiaries to, afford to Parent, and to
Parent's directors, officers, employees, accountants, counsel, financial
advisers, financing sources and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, the Company shall, and shall cause each of its subsidiaries
to, furnish promptly to Parent (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of Federal or state securities laws and (b) all other information
concerning its business, properties and personnel as Parent may reasonably
request, subject to legally binding confidentiality restrictions with third
parties. All nonpublic information exchanged pursuant to this Section 6.02
shall be subject to the confidentiality agreement dated as of April 25, 1998
between the Company and Parent (the "Confidentiality Agreement").
-------------------------
SECTION 6.03. Reasonable Efforts; Notification. (a) Upon the terms
---------------------------------
and subject to the conditions set forth in this Agreement, each of the parties
shall use all reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the other parties
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Offer, the Merger and
the other Transactions, including (i) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and the
making of all necessary registrations and filings (including filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining
41
<PAGE>
of all necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the Company Stockholder Agreement
or the consummation of the Transactions, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the Transactions and to fully carry out the
purposes of the Transaction Agreements. In connection with and without limiting
the foregoing, the Company and the Company Board shall (i) take all action
necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to any Transaction or this Agreement or the
Company Stockholder Agreement and (ii) if any state takeover statute or similar
statute or regulation becomes applicable to this Agreement or the Company
Stockholder Agreement, take all action necessary to ensure that the Offer, the
Merger and the other Transactions may be consummated as promptly as practicable
on the terms contemplated by the Transaction Agreements and otherwise to
minimize the effect of such statute or regulation on the Offer, the Merger and
the other Transactions. Nothing in this Agreement shall be deemed to require any
party to waive any substantial rights or agree to any substantial limitation on
its operations or to take any action that would result in any of the
consequences referred to in paragraph (a) of Exhibit A.
(b) The Company shall give prompt notice to Parent, and Parent or Sub
shall give prompt notice to the Company, of (i) any representation or warranty
made by it contained in any Transaction Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under any Transaction Agreement; provided,
--------
however, that no such notification shall affect the representations, warranties,
- -------
covenants or agreements of the parties or the conditions to the obligations of
the parties under any Transaction Agreement.
SECTION 6.04. Stock Options. (a) Prior to the consummation of the
--------------
Offer, the Company Board (or, if appropriate, any committee administering the
Company Stock Plans) shall have adopted such resolutions or taken such other
actions as are required to ensure that all Company Stock Options and all Company
SARs heretofore granted under any Company Stock Plan that are outstanding at the
Effective
42
<PAGE>
Time shall not give the holder thereof the right to receive any capital stock of
Parent, the Company or the Surviving Corporation after the Effective Time or to
receive from Parent, the Company or the Surviving Corporation any consideration
other than an amount of cash equal to the Option Spread.
(b) In this Agreement:
"Company Stock Option" means any option to purchase Company Common
--------------------
Stock granted under any Company Stock Plan.
"Company SAR" means any stock appreciation right linked to the price
-----------
of Company Common Stock and granted under any Company Stock Plan.
"Company Stock Plans" means the plans providing for the grant of
-------------------
Company Stock Options or any other issuance of Company Capital Stock and
listed in the Company Disclosure Letter.
SECTION 6.05. Benefit Plans. (a) Parent shall cause the Surviving
--------------
Corporation to (i) maintain for a period of one year after the Effective Time
the Company Benefit Plans (other than plans providing for the issuance of
Company Capital Stock or based on the value of Company Capital Stock) in effect
on the date of this Agreement or (ii) make available to employees of the Company
and the Company Subsidiaries (including employees transferred to employment with
Parent or other subsidiaries of Parent) the employee benefit plans of Parent and
its subsidiaries that are provided to similarly situated employees of Parent and
its subsidiaries.
(b) Following the Effective Time, Parent shall cause the Company and
its subsidiaries to honor (subject to this Section 6.05 and Section 6.06) all
obligations under any contracts, agreements and commitments of the Company and
its subsidiaries prior to the date hereof (or as established or amended in
accordance with or permitted by this Agreement) the existence of which does not
constitute a violation of the terms of this Agreement, which apply to any
current or former employee, or current or former director of the parties hereto
or any of their subsidiaries; provided, however, that this undertaking is not
-------- -------
intended to prevent the Company or any subsidiary of the Company from enforcing
such contracts, agreements and commitments in accordance with their terms,
including, any reserved right to amend, modify, suspend, revoke or terminate any
such contract, agreement or commitment.
43
<PAGE>
(c) Nothing herein shall be construed as giving any employee of the
Company or any Company Subsidiary any right to continued employment following
the Effective Time.
(d) Parent agrees that for purposes of any of the Company Benefit
Plans conferring rights on a current or former employee, officer or director as
a result of a change of control of the Company, the consummation of the Merger
shall be deemed to constitute a "Change of Control" (as that term is defined in
such Company Benefit Plans).
(e) If any employee or officer of the Company or any of the Company
Subsidiaries becomes a participant in any employee benefit plan, program,
practice or policy of Parent or any subsidiary of Parent or the Surviving
Corporation, such employee or officer shall be given credit thereunder for all
service prior to the Effective Time with the Company and the Company
Subsidiaries or any predecessor employer (to the extent such credit was given by
the Company) for purposes of eligibility and vesting (but not for benefit
accrual purposes), except to the extent that crediting such service would result
in duplication of benefits.
(f) For a period of two years from the consummation of the Offer, if
any segment or business of the Company or the Company Subsidiaries (a "Segment")
-------
is sold or otherwise disposed of, Parent agrees, and shall cause the Surviving
Corporation to agree, to provide, or cause the buyer of or other successor to
such Segment to provide, each employee whose employment is involuntarily
terminated after such sale or other disposition with severance benefits which
are no less favorable than the severance benefits to which such employee would
have been entitled had such employee's employment instead then been
involuntarily terminated by the Company or the Company Subsidiaries, pursuant to
the Company Benefit Plans existing as of the date hereof, but only to the extent
that the obligations of the Company and the Company Subsidiaries under the
Company Benefit Plans have not been discharged prior to such involuntary
termination of employment. For the purposes of this Section 6.05(f) the term
"involuntarily terminated" shall be used as such term is used in the relevant
Company Benefit Plans.
(g) On or before 90 days after the Closing Date, Parent shall (i)
notify each management employee who is a participant in the Company's Executive
Severance Plan (a "Participant") as to whether Parent intends to continue the
employment of such Participant or to terminate the employment of such
Participant, (ii) with respect to each Participant whose employment Parent
intends to terminate, notify such Participant of the effective date of such
44
<PAGE>
termination and the details of the terms and conditions of such Participant's
employment intended by Parent to be applicable prior to the date of such
termination, and (iii) with respect to each Participant to whom Parent intends
to offer continued employment, notify such Participant of any desired changes
Parent would make in the terms and conditions of such Participant's employment.
(h) Parent shall maintain, or shall cause the Surviving Corporation or
its successors to maintain, with respect to employees and former employees (and
their eligible dependents) of the Company and the Company Subsidiaries who are
participating in the Company's retiree medical plan as of the Effective Time or
who should be eligible to participate in the Company's retiree medical plan if
they retired as of the later of (i) the Effective Time or (ii) in the case of an
employee who is involuntarily terminated for purposes of any Company severance
plan (as currently in effect), as of the end of the salary continuation period
under such severance plan, retiree medical coverage that is consistent with the
retiree medical coverage provided to similarly situated employees and former
employees of the Parent and its subsidiaries at such time.
(i) Without regard to whether the Company's Salaried Employees'
Pension Plan (the "CSEPP") or the Company's Supplemental Retirement Plan II (the
-----
"SERP") are continued following the Effective Time, Parent shall cause the
----
benefits provided by Section 1.01(30)(C) of the CSEPP and Paragraphs (iv), (v)
and (vi) of Article V of the SERP (pertaining to additional service credit under
such plans for certain participants who are involuntarily terminated), with
respect to employees of the Company as of the Effective Time who are
involuntarily terminated from employment with Parent or any subsidiary of Parent
within two years after the Effective Time, to be continued for a period of not
less than two years following the Effective Time.
(j) At Parent's election, the Company shall amend the CSEPP and
Savings Plan for Salaried Employees to cause all employees of the Company and
the Company Subsidiaries to become 100% vested in their accrued benefits under
such plans as of the Effective Time. In all cases, any employee of the Company
or a Company Subsidiary who is a participant in the CSEPP or the Savings Plan
for Salaried Employees as of the Effective Time shall become 100% vested in his
or her accrued benefits under such plans if and when such employee is
involuntarily terminated within two years of the Effective Time.
45
<PAGE>
SECTION 6.06. Indemnification. (a) Parent shall, to the fullest
----------------
extent permitted by law, cause the Surviving Corporation to honor all the
Company's obligations to indemnify (including any obligations to advance funds
for expenses) the current or former directors or officers of the Company and the
Company Subsidiaries for acts or omissions by such directors and officers
occurring at or prior to the Effective Time to the extent that such obligations
of the Company exist on the date of this Agreement, whether pursuant to the
Company Charter, the Company By-laws, individual indemnity agreements or
otherwise, and such obligations shall survive the Merger and shall continue in
full force and effect in accordance with the terms of the Company Charter, the
Company By-laws and such individual indemnity agreements from the Effective Time
until the expiration of the applicable statute of limitations with respect to
any claims against such directors or officers arising out of such acts or
omissions.
(b) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (provided that Parent
may substitute therefor policies with reputable and financially sound carriers
of at least the same coverage and amounts containing terms and conditions which
are no less advantageous) with respect to claims arising from or related to
facts or events which occurred at or before the Effective Time; provided,
--------
however, that Parent shall not be obligated to make annual premium payments for
- -------
such insurance to the extent such premiums exceed 300% of the annual premiums
paid as of the date hereof by the Company for such insurance (such 300% amount,
the "Maximum Premium"). If such insurance coverage cannot be obtained at all,
---------------
or can only be obtained at an annual premium in excess of the Maximum Premium,
Parent shall maintain the most advantageous policies of directors' and officers'
insurance obtainable for an annual premium equal to the Maximum Premium;
provided further, if such insurance coverage cannot be obtained at all, Parent
- -------- -------
shall purchase all available extended reporting periods with respect to pre-
existing insurance in an amount which, together with all other insurance
purchased pursuant to this Section 6.06(b), does not exceed the Maximum Premium.
The Company represents to Parent that the Maximum Premium is $1,899,000. Parent
agrees, and will cause the Company, not to take any action that would have the
effect of limiting the aggregate amount of insurance coverage required to be
maintained for the individuals referred to in this Section 6.06(b).
46
<PAGE>
(c) From and after the consummation of the Offer, to the full extent
permitted by the law, Parent shall, and shall cause the Company (or any
successor to the Company) to, indemnify, defend and hold harmless the present
officers and directors of the Company and its subsidiaries (each an "Indemnified
-----------
Party") against all losses, claims, damages, liabilities, fees and expenses
- -----
(including attorneys' fees and disbursements), judgments, fines and amounts paid
in settlement (collectively, "Losses") arising out of actions or omissions
occurring at or prior to the Effective Time in connection with this Agreement,
the Company Stockholder Agreement, the Offer, the Merger and the other
Transactions; provided, however, that an Indemnified Party shall not be entitled
-------- -------
to indemnification under this Section 6.06(c) for Losses arising out of actions
or omissions by the Indemnified Party constituting (i) a breach of this
Agreement or the Company Stockholder Agreement, (ii) criminal conduct or (iii)
any violation of federal, state or foreign securities laws. In order to be
entitled to indemnification under this Section 6.06(c), an Indemnified Party
must give Parent and the Company prompt written notice of any third party claim
which may give rise to any indemnity obligation under this Section 6.06(c), and
Parent and the Company shall have the right to assume the defense of any such
claim through counsel of their own choosing, subject to such counsel's
reasonable judgment that separate defenses that would create a conflict of
interest on the part of such counsel are not available. If Parent and the
Company do not assume any such defense, they shall be liable for all reasonable
costs and expenses of defending such claim incurred by the Indemnified Party,
including reasonable fees and disbursements of counsel and shall advance such
reasonable costs and expenses to the Indemnified Party; provided, however, that
-------- -------
such advance shall be made only after receiving an undertaking from the
Indemnified Party that such advance shall be repaid if it is determined that
such Indemnified Party is not entitled to indemnification therefor. Neither
Parent nor the Company shall be liable under this Section 6.06(c) for any Losses
resulting from any settlement, compromise or offer to settle or compromise any
such claim or litigation or other action, without the prior written consent of
Parent and the Company.
(d) The Company shall not, and Parent shall not permit the Company to,
amend or repeal any provision of the certificate of incorporation or by-laws of
the Company after the consummation of the Offer if such action would adversely
affect the rights of individuals who on or prior to the consummation of the
Offer were entitled to advances, indemnification or exculpation thereunder, for
actions or omissions by such individuals prior to the Effective Time.
47
<PAGE>
The individuals referred to in the preceding sentence shall include any
individuals serving as directors or officers of any subsidiaries of the Company
at the Company's request, it being acknowledged by the parties hereto that each
director or officer of the Company who is currently serving as a director or
officer of a subsidiary of the Company is doing so at such request of the
Company.
(e) In the event the Surviving Corporation or any successor to the
Surviving Corporation (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity in such
consolidation or merger or (ii) transfers all or substantially all its
properties and assets to any person, then, and in each case, proper provision
shall be made so that the successors of the Surviving Corporation honor the
obligations of the Company set forth in this Section 6.06.
SECTION 6.07. Fees and Expenses. (a) Except as provided below, all
-----------------
fees and expenses incurred in connection with the Merger and the other
Transactions shall be paid by the party incurring such fees or expenses, whether
or not the Merger is consummated.
(b) The Company shall pay to Parent a fee of $85,000,000 if:
(i) the Company terminates this Agreement pursuant to Section 8.01(d);
(ii) (A) after the date of this Agreement and prior to the termination
of this Agreement, any person makes a Company Takeover Proposal, (B) the
Offer shall have remained open until the scheduled expiration date
immediately following the date such Company Takeover Proposal is made, (C)
the Minimum Tender Condition is not satisfied at the expiration of the
Offer, (D) this Agreement is terminated pursuant to Section 8.01(b)(iii)
and (E) within 12 months of the date of termination of this Agreement, the
Company executes a legally binding agreement or an agreement in principle
pursuant to which any person, entity or group (other than Parent, Sub or
any of their affiliates), in one transaction or a series of transactions,
will acquire more than 50% of the outstanding Company Common Stock or
assets of the Company through any open market purchases, merger,
consolidation, tender or exchange offer, recapitalization, reorganization
or other business combination (an "Acquisition Event"); or
-----------------
48
<PAGE>
(iii) (A) after the date of this Agreement and prior to the
termination of this Agreement, any person makes a Company Takeover
Proposal, (B) this Agreement is terminated pursuant to Section 8.01(b)(iii)
as a result of the failure of any condition set forth in paragraph (f) or
(g) of Exhibit A, and (C) an Acquisition Event occurs within 12 months of
the date of termination of this Agreement.
Any fee due under this Section 6.07(b) shall be paid by wire transfer
of same-day funds on the date of termination of this Agreement in the case of a
fee due under clause (i) of the preceding sentence, or on the date such
Acquisition Event is consummated in the case of a fee due under clause (ii) or
(iii) of the preceding sentence. The payment of a fee pursuant to the foregoing
clause (iii) as a result of any wilful breach by the Company of its
representations, warranties or covenants shall in no way limit any remedy
available to Parent or Sub for such breach, except that the receipt by Parent of
such fee shall be taken into account in calculating any damages suffered by
Parent or Sub as a result of such breach.
SECTION 6.08. Public Announcements. (a) Parent and Sub, on the one
---------------------
hand, and the Company, on the other hand, shall consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press release or other public statements with respect to the Offer, the Merger
and the other Transactions and shall not issue any such press release or make
any such public statement prior to such consultation, except as may be required
by applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange.
(b) The Company shall give prior notice (which to the extent
practicable shall be given in writing and on 24 hours' prior notice) to Parent
and Sub of any proposed press release or other public statement not relating to
the Offer, the Merger or any of the other Transactions, which notice shall
include the text of such press release or public statement.
SECTION 6.09. Directors. (a) Promptly upon the acceptance for
----------
payment of, and payment by Sub for, any shares of Common Stock pursuant to the
Offer, Sub shall be entitled to designate such number of directors on the
Company Board as will give Sub, subject to compliance with Section 14(f) of the
Exchange Act, representation on the Company Board equal to at least that number
of directors, rounded up to the next whole number, which is the product of
49
<PAGE>
(a) the total number of directors on the Company Board (giving effect
to the directors elected pursuant to this sentence) multiplied by (b) the
percentage that (i) such number of shares of Company Common Stock so
accepted for payment and paid for by Sub plus the number of shares of Company
Common Stock otherwise owned by Sub or any other subsidiary of Parent bears to
(ii) the number of such shares outstanding, and the Company shall, at such time,
cause Sub's designees to be so elected; provided, however, that in the event
-------- -------
that Sub's designees are appointed or elected to the Company Board, until the
Effective Time the Company Board shall have at least three directors who are
Directors on the date of this Agreement and who are not officers of the Company
(the "Independent Directors"); and provided further that, in such event, if the
----------- --------- -------- -------
number of Independent Directors shall be reduced below three for any reason
whatsoever, any remaining Independent Directors (or Independent Director, if
there shall be only one remaining) shall be entitled to designate persons to
fill such vacancies who shall be deemed to be Independent Directors for purposes
of this Agreement or, if no Independent Directors then remain, the other
directors shall designate three persons to fill such vacancies who shall not be
officers, stockholders or affiliates of the Company, Parent or Sub, and such
persons shall be deemed to be Independent Directors for purposes of this
Agreement. Subject to applicable law, the Company shall take all action
requested by Parent necessary to effect any such election, including mailing to
its stockholders the Information Statement containing the information required
by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and
the Company shall make such mailing with the mailing of the Schedule 14D-9
(provided that Sub shall have provided to the Company on a timely basis all
information required to be included in the Information Statement with respect to
Sub's designees). In connection with the foregoing, the Company shall promptly,
at the option of Sub, use its best efforts to either increase the size of the
Company Board or obtain the resignation of such number of its current directors
as is necessary to enable Sub's designees to be elected or appointed to the
Company Board as provided above.
(b) Following the election or appointment of Sub's designees pursuant
to this Section 6.09 and prior to the Effective Time, any amendment or
termination of this Agreement, extension for the performance or waiver of the
obligations of Parent or Sub or waiver of the Company's rights hereunder shall
require the concurrence of a majority of the Independent Directors.
50
<PAGE>
SECTION 6.10. Rights Agreement. The Rights Agreement dated as of
-----------------
September 12, 1997, between the Company and First Chicago Trust Company of New
York, as Rights Agent (the "Company Rights Agreement"), has been amended as
------------------------
provided in Exhibit B. Except as approved in writing by Parent, neither the
Company nor the Company Board shall (i) amend the Company Rights Agreement, (ii)
redeem the Company Rights or (iii) take any action with respect to, or make any
determination under, the Company Rights Agreement.
SECTION 6.11. Stockholder Litigation. The Company shall give Parent
-----------------------
the opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any Transaction;
provided, however, that no such settlement shall be agreed to without Parent's
- -------- -------
consent, which shall not be unreasonably withheld.
SECTION 6.12. Performance by Sub. Parent shall cause Sub to comply
-------------------
with each of its obligations hereunder and pursuant to the Offer, including,
without limitation, causing Sub to consummate the Offer and the Merger as
contemplated herein, and Parent hereby guarantees the performance by Sub of such
obligations.
SECTION 6.13. Dual Consolidated Losses. If the Company or any
-------------------------
Company Subsidiary has any dual consolidated loss that would be subject to
recapture under Treasury Regulation Section 1.1503-2(g)(2) as a result of the
Offer, the Merger or the other Transactions, the Company or such Company
Subsidiary shall use its best efforts in conjunction with Parent to file, prior
to the date that the Company becomes a member of Parent's consolidated group, a
request with the Internal Revenue Service to enter into a closing agreement
under Treasury Regulation Section 1.1503-2(g)(2)(iv)(B) to avoid such recapture.
ARTICLE VII
Conditions Precedent
--------------------
SECTION 7.01. Conditions to Each Party's Obligation To Effect The
---------------------------------------------------
Merger. The respective obligation of each party to effect the Merger is subject
- -------
to the
51
<PAGE>
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. If required by law, the Company shall have
---------------------
obtained the Company Stockholder Approval.
(b) Antitrust. The waiting period (and any extension thereof)
----------
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired. Any consents, approvals and filings under any foreign antitrust
law (including, without limitation, the EC Regulations), the absence of which
would prohibit the consummation of the Merger, shall have been obtained or made.
(c) No Injunctions or Restraints. No temporary restraining order,
-----------------------------
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that each of
-------- -------
the parties shall have used all reasonable efforts to prevent the entry of any
such injunction or other order and to appeal as promptly as possible any such
injunction or other order that may be entered.
(d) Purchase of Stock. Sub shall have previously accepted for
------------------
payment and paid for Company Common Stock pursuant to the Offer.
ARTICLE VIII
Termination, Amendment and Waiver
---------------------------------
SECTION 8.01. Termination. This Agreement may be terminated at any
------------
time prior to the Effective Time, whether before or after the Company
Stockholder Approval:
(a) by mutual written consent of Parent, Sub and the Company;
(b) by either Parent or the Company:
(i) if the Merger is not consummated on or before January 31,
1999 (the "Outside Date"), unless the failure to consummate the Merger
------------
is the result of a wilful and material breach of any Transaction
Agreement by the party seeking to terminate this Agreement; provided,
--------
however, that the passage of such period shall be tolled for any
-------
52
<PAGE>
part thereof during which any party shall be subject to a nonfinal
order, decree, ruling or action restraining, enjoining or otherwise
prohibiting the consummation of the Merger;
(ii) if any Governmental Entity issues an order, decree or ruling
or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and nonappealable; or
(iii) if as the result of the failure of any of the conditions
set forth in Exhibit A to this Agreement, the Offer shall have
terminated or expired in accordance with its terms without Sub having
purchased any shares of Company Common Stock pursuant to the Offer;
(c) by Parent, if, prior to the consummation of the Offer (and other
than during any Parent Extension Period), the Company shall be in breach of
any of its representations and warranties or fail to perform in any
material respect any of its covenants and obligations contained in any
Transaction Agreement, which breach or failure to perform would give rise
to the failure of a condition set forth in Exhibit A (provided that Parent
--------
is not then in wilful and material breach of any representation, warranty
or covenant contained in any Transaction Agreement, and provided further,
-------- -------
that such breach or failure to perform is not capable of being cured by the
earlier of 15 days from the time it came to the Knowledge of the Company
and the then scheduled expiration date of the Offer);
(d) by the Company in accordance with Section 5.02(b); provided,
--------
however, that, in order for the termination of this Agreement pursuant to
-------
this clause (d) to be deemed effective, the Company shall have complied
with all provisions contained in Section 5.02(b), including the notice
provisions therein and with applicable requirements of Section 6.07,
including the payment of the fee pursuant to Section 6.07(b);
(e) by the Company, if, prior to the consummation of the Offer, the
Parent or Sub shall be in breach of any of their representations and
warranties or fail to perform in any material respect any of their
covenants and obligations contained herein (provided, that the
--------
53
<PAGE>
Company is not then in wilful and material breach of any representation,
warranty or covenant contained in this Agreement and provided further, that
-------- -------
such breach or failure to perform is not capable of being cured by the
earlier of 15 days from the time it came to the knowledge of the Parent and
the then scheduled expiration date of the Offer);
(f) by the Company if the Offer has not been made in accordance with
Section 1.01; or
(g) by the Company if any event occurs which would result in the
condition set forth in paragraph (e) of Exhibit A not being satisfied, and
five business days have elapsed since such occurrence, unless Parent shall
have waived its right to terminate this Agreement in accordance with
Section 8.04 and its right not to consummate the Offer for the failure of
such condition resulting from such event.
SECTION 8.02. Effect of Termination. In the event of termination of
----------------------
this Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, other than Section
3.16, Section 4.06, Section 6.02, Section 6.07, this Section 8.02 and Article IX
and except to the extent that such termination results from the wilful and
material breach by a party of any representa tion, warranty, covenant or
obligation set forth in any Transaction Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the
----------
parties at any time before or after receipt of the Company Stockholder Approval;
provided, however, that after receipt of the Company Stockholder Approval, there
- -------- -------
shall be made no amendment that by law requires further approval by such
stockholders without the further approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties.
SECTION 8.04. Extension; Waiver. Subject to the provisions of
------------------
Section 6.09(b), at any time prior to the Effective Time, the parties may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant to
this Agreement or (c) subject to the proviso of Section 8.03, waive compliance
with any of the agreements or conditions contained in this
54
<PAGE>
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
SECTION 8.05. Procedure for Termination, Amendment, Extension or
---------------------------------------------------
Waiver. A termination of this Agreement pursuant to Section 8.01, an amendment
- -------
of this Agreement pursuant to Section 8.03 or an extension or waiver pursuant to
Section 8.04 shall, in order to be effective, require in the case of Parent, Sub
or the Company, action by its Board of Directors or the duly authorized designee
of its Board of Directors.
ARTICLE IX
General Provisions
------------------
SECTION 9.01. Nonsurvival of Representations and Warranties. None of
----------------------------------------------
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 9.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 9.02. Notices. All notices, requests, claims, demands and
--------
other communications under this Agree ment shall be in writing and shall be
deemed given upon receipt by the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Atlantic Richfield Company
515 South Flower Street
Los Angeles, CA 90071
Attention: John R. Lucas, Esq.
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Alan C. Stephenson, Esq.
55
<PAGE>
(b) if to the Company, to
Union Texas Petroleum Holdings, Inc.
1330 Post Oak Boulevard
Houston, TX 77056
Attention: Alan Crain, Jr. Esq.
with a copy to:
King & Spalding
1185 Avenue of the Americas
New York, NY 10036
Attention: Mark Zvonkovic, Esq.
SECTION 9.03. Definitions. For purposes of this Agreement:
------------
An "affiliate" of any person means another person that directly or
---------
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"Knowledge of the Company" or "Company's Knowledge" means, when used
------------------------ -------------------
in any representation, covenant or warranty of the Company contained herein, the
actual knowledge of or what should reasonably have been known by any officer or
director of the Company.
A "person" means any individual, firm, corporation, partnership,
------
company, limited liability company, trust, joint venture, association,
Governmental Entity or other entity.
A "subsidiary" of any person means another person, an amount of the
----------
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person.
SECTION 9.04. Interpretation; Disclosure Letter. When a reference is
----------------------------------
made in this Agreement to a Section, such reference shall be to a Section of
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this
56
<PAGE>
Agreement, they shall be deemed to be followed by the words "without
limitation". Any matter disclosed in any section of the Company Disclosure
Letter shall be deemed disclosed for all purposes and all sections of the
Company Disclosure Letter.
SECTION 9.05. Severability. If any term or other provision of this
-------------
Agreement is invalid, illegal or incapable of being enforced by any rule or law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.06. 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 counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 9.07. Entire Agreement; No Third-Party Beneficiaries. The
-----------------------------------------------
Transaction Agreements, taken together, (a) constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the Transactions and (b) except for the provisions
of Article II, Section 6.04 and Section 6.06, are not intended to confer upon
any person other than the parties any rights or remedies.
SECTION 9.08. Governing Law. This Agreement shall be governed by,
--------------
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 9.09. Assignment. Neither this Agreement nor any of the
-----------
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by opera tion of law or otherwise by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent formed solely for the purpose of engaging in the
57
<PAGE>
transactions contemplated hereby, which has not engaged in any business
activities or conducted any operations other than in connection with the
transactions contemplated hereby, but no such assignment shall relieve Sub of
any of its obligations under this Agreement. Any purported assignment without
such consent shall be void. Subject to the preceding sentences, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
SECTION 9.10. Enforcement. The parties agree that irreparable damage
------------
would occur in the event that any of the provisions of any Transaction Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of any Transaction Agreement and
to enforce specifically the terms and provisions of each Transaction Agreement
in any Delaware state court or any Federal court located in the State of
Delaware, this being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any Delaware state court or any
Federal court located in the State of Delaware in the event any dispute arises
out of any Transaction Agreement or any Transaction, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, (c) agrees that it will not bring any action
relating to any Transaction Agreement or any Transaction in any court other than
any Delaware state court or any Federal court sitting in the State of Delaware
and (d) waives any right to trial by jury with respect to any action related to
or arising out of any Transaction Agreement or any Transaction.
58
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have duly executed
this Agreement, all as of the date first written above.
ATLANTIC RICHFIELD COMPANY,
by
/s/ Terry G. Dallas
-----------------------
Name: Terry G. Dallas
Title:Senior Vice
President and
Treasurer
VWK ACQUISITION CORP.,
by
/s/ Terry G. Dallas
----------------------
Name: Terry G. Dallas
Title:President
UNION TEXAS PETROLEUM
HOLDINGS, INC.,
by
/s/ John L. Whitmire
--------------------
Name:John L. Whitmire
Title:Chairman and Chief
Executive Officer
<PAGE>
EXHIBIT A
Conditions of the Offer
-----------------------
Notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered shares of Company
Common Stock promptly after the termination or withdrawal of the Offer), to pay
for any shares of Common Stock tendered pursuant to the Offer unless (i) there
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer that number of shares of Company Common Stock which would represent at
least a majority of the Fully Diluted Shares (the "Minimum Tender Condition"),
------------------------
(ii) any waiting period under the HSR Act applicable to the purchase of shares
of Company Common Stock pursuant to the Offer shall have expired or been
terminated and (iii) any waiting or other period under the EC Regulations
applicable to the Offer or the Merger, or the exercise by Parent or Sub of full
ownership and voting rights with respect to such shares of Company Common Stock
acquired pursuant to the Offer and the Merger, shall have expired or been
terminated, and the European Commission shall have taken all such action as
shall be required so that Parent and Sub may consummate the Offer and the Merger
and exercise full ownership and voting rights with respect to the shares of
Company Common Stock to be acquired pursuant to the Offer and the Merger. The
term "Fully Diluted Shares" means all outstanding securities entitled generally
--------------------
to vote in the election of directors of the Company on a fully diluted basis,
after giving effect to the exercise or conversion of all options, rights and
securities exercisable or convertible into such voting securities, other than
potential dilution attributable to the Rights. Furthermore, notwithstanding any
other term of the Offer or this Agreement, Sub shall not be required to commence
the Offer, accept for payment or, subject as aforesaid, to pay for any shares of
Company Common Stock not theretofore accepted for payment or paid for, and may
terminate or amend the Offer, with the consent of the Company or if, at any time
on or after the date of this Agreement and before the acceptance of such shares
for payment or the payment therefor, any of the following conditions exists:
(a) there shall be threatened or pending any suit, action or
proceeding by any Governmental Entity in any of the significant
geographical regions in which the Company or any of the Company
Subsidiaries operates or by or before the European Commission (i)
challenging the acquisition by Parent or Sub of any Company Common
Stock, seeking to restrain or prohibit the making or
<PAGE>
consummation of the Offer or the Merger or any other Transaction, or
seeking to obtain from the Company, Parent or Sub any damages in connection
with the Offer, the Merger or this Agreement that are material in relation
to the Company and its subsidiaries taken as whole, (ii) seeking to
prohibit or limit the ownership or operation by the Company, Parent or any
of their respective subsidiaries of any material portion of the business or
assets of the Company, Parent or any of their respective subsidiaries, or
to compel the Company, Parent or any of their respective subsidiaries to
dispose of or hold separate any material portion of the business or assets
of the Company, Parent or any of their respective subsidiaries, as a result
of the Offer, the Merger or any of the other Transaction, (iii) seeking to
impose limitations on the ability of Parent or Sub to acquire or hold, or
exercise full rights of ownership of, any shares of Company Common Stock,
including the right to vote the Company Common Stock purchased by it on all
matters properly presented to the stockholders of the Company, (iv) seeking
to prohibit Parent or any of its subsidiaries from effectively controlling
in any material respect the business or operations of the Company and the
Company Subsidiaries in connection with the Offer, the Merger or this
Agreement, or (v) which otherwise is reasonably likely to have a Company
Material Adverse Effect;
(b) any statute, rule, regulation, legislation, interpretation,
judgment, order or injunction shall be enacted, entered, enforced,
promulgated, amended or issued in any of the significant geographical
regions in which the Company or any of the Company Subsidiaries operates or
by the European Council or the European Commission with respect to, or
shall be deemed applicable to, or any consent or approval shall be withheld
with respect to, (i) Parent, the Company or any of their respective
subsidiaries or (ii) the Offer, the Merger or any of the other
Transactions, by any Governmental Entity that is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
paragraph (a) above;
(c) since the date of this Agreement, there shall have occurred any
event, change, effect or development that, individually or in the
aggregate, has had or would be reasonably expected to have a Company
Material Adverse Effect, and if a Company Material Adverse Effect has
occurred, it shall be continuing;
2
<PAGE>
(d) there shall be any temporary, preliminary or permanent restraining
order or injunction or other legal restraint or prohibition by any
Governmental Entity that prevents or makes illegal the consummation of the
Offer, the Merger or any of the other Transactions;
(e) there shall have occurred and continued for at least three
calendar days: (i) a general suspension of trading in, or limitation on
prices for, securities on the New York Stock Exchange, any national
securities exchange or the NASDAQ National Market System (excluding
suspensions or limitations resulting from physical damage or interference
with such exchanges not related to market conditions); (ii) a decline of at
least 30% in the Dow Jones Industrial Index; (iii) a declaration of a
banking moratorium or suspension of payments in respect of banks in the
United States; (iv) a mandatory limitation by the United States Government
or a change in the general financial, banking or capital markets which
materially and adversely affects the ability of major financial
institutions in the United States to extend credit; (v) a commencement of
war, armed hostilities or other major national or international crisis
directly involving the United States (other than an action involving
personnel of the United Nations) or (vi) in the case of any of the
foregoing existing on the date of this Agreement, a material acceleration
or worsening thereof;
(f) any representation and warranty of the Company or any other party
(other than Parent and Sub) in this Agreement or the Company Stockholder
Agreement shall not be true and correct in all material respects (provided
that any representation or warranty of the Company or any other party
(other than Parent and Sub) contained herein or therein that is qualified
by a materiality standard or a Material Adverse Effect qualification shall
not be further qualified hereby) as of the date of this Agreement and
(except with respect to Section 3.14 and to the extent such representations
or warranties expressly relate to an earlier date) as of the scheduled or
extended expiration of the Offer;
(g) the Company shall have failed to comply with the provisions of
Section 5.01(a)(v) of this Agreement, or the Company or any other party
(other than Parent and Sub) shall have failed to comply with any agreement
or covenant in any material respect of the Company or any other party
(other than Parent and Sub) to be
3
<PAGE>
performed or complied with by any of them under this Agreement or the
Company Stockholder Agreement; or
(h) there shall have been issued, delivered, sold or granted any
Company Common Stock pursuant to the Company Rights Agreement; or
(i) this Agreement shall have been terminated in accordance with its
terms;
which in the sole judgment of Sub or Parent, in the case of any such condition,
and regardless of the circumstances giving rise to any such condition (including
any action or inaction by Parent or any of its affiliates), makes it
inadvisable, to proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Sub and Parent
and may be asserted by Sub or Parent regardless of the circumstances giving rise
to such condi tion or may be waived by Sub and Parent in whole or in part at
any time and from time to time in their sole discretion. The failure by Parent,
Sub or any other affiliate of Parent at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circum stances shall not be
deemed a waiver with respect to any other facts and circumstances and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
4
<PAGE>
EXHIBIT B
AMENDMENT TO RIGHTS AGREEMENT BETWEEN
UNION TEXAS PETROLEUM HOLDINGS, INC. AND
FIRST CHICAGO TRUST COMPANY OF NEW YORK
THIS AMENDMENT TO RIGHTS AGREEMENT (this "Amendment") is made as of
this third day of May, 1998 by and between Union Texas Petroleum Holdings, Inc.,
a Delaware corporation (the "Company"), and First Chicago Trust Company of New
York, a New York corporation, as rights agent (the "Rights Agent"). Capitalized
terms used but not defined herein shall have the meanings give to such terms in
the Merger Agreement (as defined below).
WHEREAS, the Corporation is entering into an Agreement and Plan of
Merger (as the same may be amended from time to time, the "Merger Agreement")
among the Company, Atlantic Richfield Company, a Delaware corporation
("Parent"), and VWK Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("the Sub"), providing for transactions (collectively, the
"Merger") pursuant to which, among other things, the Company will become a
wholly-owned subsidiary of Parent and the former stockholders of the Company
will receive the Merger Consideration;
WHEREAS, the Company and the Rights Agent are parties to a Rights
Agreement dated as of September 12, 1997 (the "Rights Agreement"); and
<PAGE>
WHEREAS, the parties desire to amend the Rights Agreement in
connection with the execution and delivery of the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein set forth, the parties hereby agree as follows:
1. The definition of "Acquiring Person" set forth in Section 1
of the Rights Agreement is hereby amended by adding the following sentence to
the end of that definition:
Notwithstanding the foregoing, no Person shall be or become
an Acquiring Person by reason of (i) the execution and delivery
of the Agreement and Plan of Merger dated as of May 4, 1998 among
the Company, Atlantic Richfield Company, a Delaware corporation
("Parent"), and , a Delaware corporation ("Sub"), (the "Merger
Agreement") or the execution of any amendment thereto, (ii) the
purchase of Common Stock by Parent or Sub pursuant to (A) the
Offer or (B) Section 4 of the Stockholder Agreement dated May 4,
1998 among Parent, KKR Partners II, L.P., a Delaware limited
partnership, and Petroleum Associates, L.P., a Delaware limited
partnership (the "Stockholder Agreement") or (iii) the
consummation of the other Transactions.
2. Section 7(a)(i) of the Rights Agreement shall be amended to
read in its entirety as follows:
(i) the earlier of (1) the consummation of the Offer (as
defined in the Merger Agreement) or (2) the Close of
Business on September 30, 2007.
3. The definition of "Stock Acquisition Date" included in
Section 1 of the Rights Agreement shall be
2
<PAGE>
amended by adding the following sentence to the end of such definition:
Notwithstanding anything else set forth in this Agreement, a
Stock Acquisition Date shall not be deemed to have occurred by
reason of (i) the public announcement, public disclosure,
execution and delivery or amendment of the Merger Agreement, (ii)
the public announcement, public disclosure, execution and
delivery or amendment of the Stockholder Agreement, (iii) the
purchase of Common Stock by Parent or Sub pursuant to (A) Section
4 of the Stockholder Agreement or (B) the consummation of the
Offer or (iv) the consummation of any of the other Transactions.
4. Section 3(a) of the Rights Agreement shall be amended by
adding the following sentence to the end thereof:
Notwithstanding anything else set forth in this Agreement,
no Distribution Date shall be deemed to have occurred by reason
of (i) the execution and delivery or amendment of the Merger
Agreement, (ii) the execution and delivery or amendment of the
Stockholder Agreement, (iii) the purchase of Common Stock by
Parent or Sub pursuant to (A) Section 4 of the Stockholder
Agreement or (B) the consummation of the Offer or (iv) the
consummation of any of the other Transactions.
5. The first paragraph of Section 13(c) of the Rights Agreement
shall be amended to read in its entirety as follows:
The Company shall not consummate any consolidation, merger,
sale or transfer referred to in Section 13(a) (other than any
such transaction contemplated by the Merger Agreement or the
Stockholder Agreement) unless the Principal Party shall have a
sufficient number of authorized shares of its
3
<PAGE>
Common Stock which have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and the Principal
Party involved therein shall have executed and delivered to the Rights
Agent an agreement confirming that the requirements of Section 13(a)
and (b) shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not
result in a default by the Principal Party under this Agreement as the
same shall have been assumed by the Principal Party pursuant to
Sections 13(a) and (b) hereof and further providing that, as soon as
practicable after executing such agreement pursuant to this Section
13, the Principal Party will:
6. The Rights Agreement, as amended by this Amendment, shall remain in
full force and effect in accordance with its terms.
7. This Amendment shall be deemed to be a contract made under the laws
of the State of Delaware and for all purposes shall be governed by and construed
in accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State. This Amendment may be executed in any
number of counterparts, each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument. If any term, provision, covenant or restriction
of this Amendment is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions,
4
<PAGE>
covenants and restrictions of this Amendment shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties herein have caused this Amendment to
be duly executed and attested, all as of the date and year first above written.
UNION TEXAS PETROLEUM HOLDINGS, INC.,
by /s/ John L. Whitmire
-----------------------
Name: John L. Whitmire
Title: Chairman of the Board and
Chief Executive Officer
Attest: /s/ A.R. Crain, Jr.
------------------------------
Name: A.R. Crain, Jr.
Title: Vice President and
General Counsel
FIRST CHICAGO TRUST COMPANY OF NEW
YORK, RIGHTS AGENT,
5
<PAGE>
by /s/ John Piskaldo
----------------------------
Name: John Piskaldo
Title: Assistant Vice President
Attest: /s/ illegible
-----------------
Name:
Title:
6
<PAGE>
SCHEDULE I
Definitions
-----------
Term Defined in Section
- ---- ------------------
"Acquisition Event" 6.07(b)
"affiliate" 9.03
"Applicable Law" 3.05(a)
"Applicable Period" 5.02(a)
"Appraisal Shares" 2.01(e)
"Certificate of Merger" 1.05
"Certificates" 2.02(b)
"Closing" 1.04
"Closing Date" 1.04
"Code" 3.11(b)
"Company" Recitals
"Company Acquisition Agreement" 5.02(b)
"Company Affiliated Group" 3.09(a)
"Company Benefit Plans" 3.10
"Company Board" 3.04(b)
"Company By-Laws" 3.01
"Company Capital Stock" 3.03
"Company Charter" 3.01
"Company Common Stock" Recitals
"Company Confidentiality Agreement" 3.15(a)
"Company Disclosure Letter" 3.02(a)
"Company Material Adverse Effect" 3.01
"Company Multiemployer Pension Plan" 3.11(c)
"Company Notice" 5.02(a)
"Company Pension Plans" 3.11(a)
"Company Preferred Stock" 3.03
"Company Representatives" 5.02(a)
"Company Rights" 3.03
"Company Rights Agreement" 3.03
"Company SAR" 6.04(b)
"Company SEC Documents" 3.06
"Company Stockholder Agreement" Recitals
"Company Stockholder Approval" 3.04(c)
"Company Stockholder Meeting" 6.01(b)
"Company Stock Option" 6.04(b)
"Company Stock Plans" 6.04(b)
"Company Subsidiary" 3.02(a)
"Company Superior Proposal" 5.02(b)
"Company Takeover Proposal" 5.02(a)
"Company's Knowledge 9.03
"Confidentiality Agreement" 6.02(b)
"Contract" 3.05(a)
"Consent" 3.05(a)
"CSEPP" 6.05(i)
"DGCL" 1.03
"EC Regulations" 3.05(a)
"Effective Time" 1.05
<PAGE>
2
"ERISA" 3.11(a)
"European Commission" 3.05(a)
"Exchange Act" 3.05(a)
"Exchange Fund" 2.02(a)
"Filed Company SEC Documents" 3.08
"Financial Advisors" 3.16
"Fully Diluted Shares" Exhibit A
"GAAP" 3.06
"Governmental Entity" 3.05(a)
"HSR Act" 3.05(a)
"Indemnified Party" 6.06(a)
"Independent Directors" 6.10
"Information Statement" 3.05(a)
"Judgment" 3.05(a)
"Knowledge" 9.03
"Liens" 3.02(a)
"Losses" 6.06(c)
"Maximum Premium" 6.06(b)
"Merger" Recitals
"Merger Consideration" 2.01(c)
"Minimum Trade Condition" Exhibit A
"New Parent Proposal" 5.02(b)
"1997 Company 10-K" 3.06
"Offer" Recitals
"Offer Documents" 1.01(b)
"Oil and Gas Interest" 3.08
"Offer Price" Recitals
"Option Spread 1.02(d)
"Outside Date" 8.01(b)
"Parent" Recitals
"Parent Extension Period" 1.01(a)
"Parent Material Adverse Effect" 4.04
"Participant" 6.05(g)
"Paying Agent" 2.02(a)
"Permitted Encumbrances" 3.02
"person" 9.03
"Petrochemicals Interests" 3.08
"Primary Company Executives" 3.11(g)
"Principal Company Stockholder" Recitals
"Proxy Statement" 3.05(a)
"SEC" 1.01(a)
"Section 262" 2.01(e)
"Securities Act" 3.06
"SERP" 6.05(i)
"Schedule 14D-9" 1.02(b)
"Segment" 6.05(f)
"Series A Preferred" 2.01(d)
"Significant Company Subsidiary" 3.01
"Sub" Recitals
"subsidiary" 9.03
"Surviving Corporation" 1.03
<PAGE>
3
"Taxes" 3.09(f)
"Tax Return" 3.01(f)
"Transaction Agreements" Recitals
"Transactions" 1.02(a)
"Voting Company Debt" 3.03
<PAGE>
EXHIBIT (c)(3)
CONFORMED COPY
STOCKHOLDER AGREEMENT dated as of May 4, 1998, among ATLANTIC
RICHFIELD COMPANY, a Delaware corporation ("Parent"), and PETROLEUM
------
ASSOCIATES, L.P., a Delaware limited partnership, and KKR PARTNERS
II, L.P., a Delaware limited partnership, such partnerships together,
the "Stockholder").
-----------
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, Sub and Union Texas Petroleum Holdings, Inc., a Delaware
corporation (the "Company"), have entered into an Agreement and Plan of Merger
-------
(as the same may be amended or supplemented, the "Merger Agreement"; capitalized
----------------
terms used but not defined herein shall have the meanings set forth in the
Merger Agreement) providing for the merger of Sub with and into the Company (the
"Merger");
------
WHEREAS the Stockholder owns or has sole authority with respect to the
voting and disposition of 21,833,334 shares of Company Common Stock (such shares
of Company Common Stock, together with any other shares of capital stock of the
Company as to which ownership or voting or dispositive control is acquired by
the Stockholder after the date hereof and during the term of this Agreement,
being collectively referred to herein as the "Subject Shares");
--------------
WHEREAS, in furtherance of the Merger, Parent and the Company desire
that as soon as practicable (and not later than five business days) from the
announcement of the execution of the Merger Agreement, Sub shall commence a cash
tender offer (the "Offer") to purchase at a price of $29.00 per share all
-----
outstanding shares of Company Common Stock, including the Subject Shares, on the
terms and subject to the conditions provided in the Merger Agreement; and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Sub have requested that the Stockholder enter into this
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Representations and Warranties of the Stockholder. The
--------------------------------------------------
Stockholder hereby represents and warrants to Parent as of the date hereof as
follows:
(a) Authority; Execution and Delivery; Enforce ability. The
---------------------------------------------------
Stockholder has all requisite partnership power and authority to execute this
Agreement and to
<PAGE>
consummate the transactions contemplated hereby. The execution and delivery by
the Stockholder of this Agreement and consummation of the transactions
contemplated hereby have been duly authorized by all necessary partnership
action on the part of the Stockholder. The Stockholder has duly executed and
delivered this Agreement, and this Agreement constitutes the legal, valid and
binding obligation of the Stockholder, enforceable against the Stockholder in
accordance with its terms except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefore may be brought. Except as would not materially impair or
delay the ability of the Stockholder to consummate the transactions contemplated
hereby, the execution and delivery by the Stockholder of this Agreement do not,
and the consummation of the trans actions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, can celation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon any
of the properties or assets of the Stockholder under, any provision of any
Contract to which the Stock holder is a party or by which any properties or
assets of the Stockholder are bound or, subject to the filings and other matters
referred to in the next sentence, any provi sion of any Judgment or Applicable
Law applicable to the Stockholder or the properties or assets of the
Stockholder. Except as would not materially impair or delay the ability of the
Stockholder to consummate the transactions contemplated hereby, no Consent of,
or registration, declaration or filing with, any Governmental Entity is required
to be obtained or made by or with respect to the Stockholder in connection with
the execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby, other than such reports under Sections
13(d) and 16 of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby.
(b) The Subject Shares. The Stockholder is the record holder of and
-------------------
has the sole authority to transfer, dispose of, sell and convey the Subject
Shares and the sole power to convey good and valid title to, the Subject Shares,
free and clear of any Liens except for encumbrances or
<PAGE>
proxies arising pursuant to this Agreement. Neither the Stockholder nor any of
its affiliates owns, of record or beneficially, or has voting or dispositive
control over, any shares of capital stock of the Company other than the Subject
Shares. The Stockholder has the sole right to vote the Subject Shares, and none
of the Subject Shares is subject to any voting trust or other agreement,
arrangement or restriction with respect to the voting of the Subject Shares,
except as contemplated by this Agreement.
SECTION 2. Representations and Warranties of Parent. Parent hereby
-----------------------------------------
represents and warrants to the Stock holder as follows: Parent has all
requisite corporate power and authority to execute this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery by
Parent of this Agreement and consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of Parent.
Parent has duly executed and delivered this Agreement, and this Agreement
constitutes the legal, valid and binding obliga tion of Parent, enforceable
against Parent in accordance with its terms. The execution and delivery by
Parent of this Agreement do not, and the consummation of the trans actions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, can celation
or acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets of
Parent under, any provision of any Contract to which Parent is a party or by
which any properties or assets of Parent are bound or, subject to the filings
and other matters referred to in the next sentence, any provision of any
Judgment or Applicable Law applicable to Parent or the properties or assets of
Parent. No Consent of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained or made by or with respect to
Parent in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contem plated hereby, other
than (i) compliance with and filings under the HSR Act in connection with the
exercise of the Option (as defined in Section 4) and (ii) such reports under
Section 13(d) of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby.
<PAGE>
SECTION 3. Covenants of the Stockholder. Until such time as this
-----------------------------
Agreement is terminated pursuant to Section 5 hereof, the Stockholder covenants
and agrees as follows:
(a) (1) At any meeting of the stockholders of the Company called to
seek the Company Stockholder Approval or in any other circumstances upon which a
vote, consent or other approval (including by written consent in lieu of a
meeting of stockholders) with respect to the Merger Agreement, any other
Transaction Agreement, the Merger or any other Transaction is sought, the
Stockholder shall, including by executing a written consent if requested by
Parent, vote (or cause to be voted) the Subject Shares in favor of granting the
Company Stockholder Approval.
(2) The Stockholder hereby grants to and appoints Parent, and the
President of Parent and the Treasurer of Parent, in their respective capacities
as officers of Parent, and any individual who shall hereafter succeed to any
such office of Parent, and any other designee of Parent, each of them
individually, the Stockholder's proxy and attorney-in-fact (with full power of
substitution) to vote or act by written consent with respect to the Subject
Shares in accordance with this Section 3. This proxy is coupled with an
interest and shall be irrevocable during the term of this Agreement, and the
Stockholder will take such further action or execute such other instruments as
may be necessary to effectuate the intent of this proxy and hereby revokes any
proxy previously granted by it with respect to the Subject Shares.
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the Stockholder's
vote, consent or other approval is sought, the Stockholder shall vote (or cause
to be voted) the Subject Shares against (i) any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, combination,
sale of substantial assets, reorganization, recapitalization, dissolution,
liquidation or winding up of or by the Company, (ii) any Company Takeover
Proposal and (iii) any amendment of the Company Charter or the Company By-laws
or other proposal or trans action involving the Company or any Company
Subsidiary, which amendment or other proposal or transaction would in any manner
impede, frustrate, prevent or nullify any provi sion of the Merger Agreement or
any other Transaction Agreement, the Merger or any other Transaction or change
in any manner the voting rights of any class of Company Capital
<PAGE>
Stock. The Stockholder shall not commit or agree to take any action inconsistent
with the foregoing.
(c) In order to induce Parent and Sub to enter into the Merger
Agreement, the Stockholder shall validly tender (or cause the record owner of
such shares to validly tender), and not to withdraw, pursuant to and in
accordance with the terms of the Offer, in a timely manner for acceptance by Sub
in the Offer, the Subject Shares; provided that there has been no modification
or amendment to the terms of the Offer which would require the consent of the
Company pursuant to Section 1.01 of the Merger Agreement as in effect on the
date hereof, including, without limitation, any waiver or reduction of the
Minimum Tender Condition which would require the consent of the Company pursuant
to such Section 1.01. The Stockholder acknowledges and agrees that Parent's and
Sub's obligation to accept for payment and pay for the Company Common Stock in
the Offer, including the Subject Shares, is subject to the terms and conditions
of the Offer.
(d) The Stockholder shall permit Parent and Sub to publish and
disclose in the Offer Documents and, if approval of the Company's stockholders
is required under applicable law, the Proxy Statement (including all documents
and schedules filed with the SEC) its identity and ownership or other rights
with respect to the Company Common Stock and the nature of its commitments,
arrangements and under standings under this Agreement.
(e) Except as contemplated by this Agreement and the Merger
Agreement, the Stockholder shall not (i) transfer (which term shall include,
without limitation, any sale, gift, pledge or other disposition), or consent to
any transfer of, any or all of the Subject Shares or any interest therein, (ii)
enter into any contract, option or other agreement or understanding with respect
to any transfer of any or all of the Subject Shares or any interest therein,
(iii) grant any proxy, power-of-attorney or other authorization in or with
respect to the Subject Shares, (iv) deposit the Subject Shares into a voting
trust or enter into a voting agreement or arrangement with respect to the
Subject Shares or (v) take any other action that would in any way restrict,
limit or interfere with the performance of its obligations hereunder or the
transactions contemplated hereby or by the Merger Agreement.
(f) The Stockholder shall not, nor shall it authorize or permit any
officer, director, partner, affiliate or employee of, or any investment banker,
attorney
<PAGE>
or other advisor or representative of, the Stockholder to, (i) solicit,
initiate or encourage the submission of, any Company Takeover Proposal, (ii)
enter into any agreement with respect to any Company Takeover Proposal or (iii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Company Takeover Proposal. If the Company is
engaged in discussions or negotiations with, or has furnished information to, a
person making a Company Superior Proposal as permitted by Section 5.02(a) of the
Merger Agreement, the foregoing provisions of this Section 3(f) shall not
prohibit or restrict the Stockholder or any of its officers, directors,
partners, affiliates or employees, or investment bankers, attorneys or other
advisors or representatives, from participating in discussions or negotiations
regarding, or furnishing any person any information with respect to, a Company
Superior Proposal or any agreement (an "Alternative Stockholder Agreement")
---------------------------------
regarding the voting or disposition of the Subject Shares proposed or requested
by the person making such Company Superior Proposal to be entered into in
connection with such Company Superior Proposal, during such time as the Company
is permitted to furnish information and participate in discussions or
negotiations regarding such Company Superior Proposal in accordance with Section
5.02(a) of the Merger Agreement; provided, however, that the Stockholder shall
-------- -------
promptly advise Parent orally and in writing of the material terms of any
Alternative Stockholder Agreement being proposed or requested by the Person
making such Company Superior Proposal; and provided further that any information
-------- -------
relating to the Company furnished pursuant to this sentence shall be subject to
a customary confidentiality agreement if such an agreement would be required
under Section 5.02(a) of the Merger Agreement. The Stockholder promptly shall
advise Parent orally and in writing of any Company Takeover Proposal or any
inquiry or request for information made to the Stockholder with respect to or
that could reasonably be expected to lead to any Company Takeover Proposal and
the identity of the person making any such Company Takeover Proposal or inquiry
or request for information and the material terms of any such Company Takeover
Proposal or inquiry or request for information.
(g) The Stockholder shall not issue any press release or make any
other public statement with respect to the Offer, the Merger and the other
Transactions without the
<PAGE>
prior consent of Parent, except as may be required by applicable law.
(h) The Stockholder shall use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other Transactions.
(i) The Stockholder hereby consents to and approves the actions taken
by the Company Board in approving the Transaction Agreements, the Merger and the
other Trans actions. The Stockholder hereby waives, and agrees not to exercise
or assert, any appraisal rights under Section 262 of the DGCL in connection with
the Merger.
(j) Notwithstanding anything in this Agreement to the contrary, the
covenants and agreements set forth herein shall not prevent (i) any of the
Stockholder's designees, partners or affiliates serving on the Company's Board
of Directors from taking any action, subject to applicable provisions of the
Merger Agreement, while acting in such capacity as a director of the Company, or
(ii) the Stockholder entering into an Alternative Stockholder Agreement in
connection with a Company Superior Proposal at such time as the Company enters
into a Company Acquisition Agreement with respect to such Company Superior
Proposal in accordance with Section 5.02(b) of the Merger Agreement.
SECTION 4. Option. (a) The Stockholder hereby grants to Parent an
-------
irrevocable option (the "Option") to purchase all the Subject Shares at a
------
purchase price per share (the "Purchase Price") equal to the Offer Price in
--------------
cash. The Option will become exercisable, in whole but not in part, by Parent
if, and only if, the Stockholder shall have breached or otherwise failed to
comply with Section 3(c) and Sub shall otherwise have accepted shares of Company
Common Stock for purchase pursuant to the Offer. If the Option becomes
exercisable, the Option may be exercised at any time during the period
commencing with the acceptance by Sub of shares of Company Common Stock for
purchase pursuant to the Offer and ending 30 days thereafter (the "Option
------
Period"), so long as there shall not be in effect any preliminary or permanent
- ------
injunction or other order issued by any Governmental Entity prohibiting the
exercise of the Option pursuant to this Agreement; provided, however, that if
-------- -------
there shall be in effect any such injunction or order, in each case on the
expiration of the Option Period,
<PAGE>
the Option Period shall be extended until five business days after the date of
removal or lifting of such injunction or order.
(b) If Parent wishes to exercise the Option, it may do so by giving
written notice (the date of such notice being herein called the "Notice Date")
-----------
to the Stockholder (in the manner set forth in Section 8(b)) specifying that all
the Subject Shares are to be purchased and specifying the place, time and date
(not earlier than one business day, nor later than 10 business days, from the
Notice Date) for the closing of the purchase of the Subject Shares by Parent
pursuant to such exercise. Such notice may be given prior to the commencement
of the Option Period if the Option shall have become exercisable as provided in
Section 4(a).
(c) Parent represents that any Subject Shares purchased by Parent
pursuant to the Option will be acquired for investment only and not with a view
to any public distribution thereof, and Parent will not offer to sell or
otherwise dispose of any Subject Shares so acquired by it in violation of the
registration requirements of the Securities Act.
SECTION 5. Termination. (a) This Agreement (including the Option)
------------
shall terminate upon the earlier of (i) the Effective Time and (ii) the
termination of the Merger Agreement in accordance with its terms.
(b) Upon any termination of this Agreement, this Agreement (including
the Option) shall thereupon become void and of no further force and effect, and
there shall be no liability in respect of this Agreement or of any transactions
contemplated hereby or by the Merger Agreement on the part of any party hereto
or any of its directors, officers, partners, stockholders, employees, agents,
advisors, representatives, or affiliates; provided, however, that nothing herein
-------- -------
shall relieve any party from any liability for such party's willful breach of
this Agreement.
SECTION 6. Additional Matters. The Stockholder shall, from time to
-------------------
time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments as Parent may
reasonably request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
SECTION 7. Stop Transfer. The Stockholder shall not request that the
--------------
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated
<PAGE>
interest representing any of the Subject Shares unless such transfer is made in
compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Subject Shares" shall refer to and include the Subject Shares as
well as all such stock divi dends and distributions and any shares into which or
for which any or all of the Subject Shares may be changed or exchanged.
SECTION 8. General Provisions.
-------------------
(a) Amendments. This Agreement may not be amended except by an
-----------
instrument in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to Parent in accordance with
Section 9.02 of the Merger Agreement and to the Stockholder at its address set
forth below:
Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, NY 10019
Attention of Sal Badalamenti
Copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention of Edward Sonnenschein, Jr.
(c) Interpretation. When a reference is made in this Agreement to a
---------------
Section, such reference shall be to a Section to this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference pur
poses only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
(d) Severability. If any term or other provision of this Agreement
-------------
is invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall neverthe-
<PAGE>
less remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
(e) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, all of which shall be consid ered one and the same agreement.
This Agreement shall become effective against Parent when one or more counter
parts have been signed by Parent and delivered to the Stock holder. This
Agreement shall become effective against the Stockholder when one or more
counterparts have been executed by the Stockholder and delivered to Parent.
Each party need not sign the same counterpart.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
-----------------------------------------------
(i) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
(g) Governing Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of Delaware regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof.
(h) Assignment. Neither this Agreement nor any of the rights,
-----------
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise, by Parent without the prior written
consent of the Stockholder or by the Stockholder without the prior written
consent of Parent, and any purported assignment without such consent shall be
void; provided, however, that Parent may assign any of its rights, interests or
-------- -------
obligations under this Agreement to any wholly owned subsidiary of Parent
without the consent of the Stockholder, but no such assignment shall relieve
Parent of its obligations hereunder. Subject to the preceding sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns. If for any reason any
of the
<PAGE>
Subject Shares are distributed or otherwise transferred to any general or
limited partner of the Stockholder in violation of Section 3(e), such partner
shall succeed to, and become bound by, the provisions of this Agreement with
respect to such Subject Shares.
(i) Enforcement. The parties agree that irreparable damage would
------------
occur in the event that any of the provi sions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provi sions of this Agreement in any Delaware state court or any
Federal court located in the State of Delaware or the State of Delaware or in
any Delaware state court, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties hereto
(i) consents to submit itself to the personal jurisdiction of any Delaware state
court or any Federal court located in the State of Delaware or any Delaware
state court in the event any dispute arises out of this Agreement or any Trans
action, (ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (iii)
agrees that it will not bring any action relating to this Agreement or any Trans
action in any court other than a Delaware state court or any Federal court
sitting in the State of Delaware and (iv) waives any right to trial by jury with
respect to any claim or proceeding related to or arising out of this Agreement
or any transaction contemplated hereby.
(j) Limited Liability of Partners. Notwithstanding any provisions
------------------------------
hereof (but subject to the last sentence of Section 8(h)), (1) none of the
obligations of the Stockholder under or contemplated by this Agreement shall be
an obligation of any limited partner or general partner of the Stockholder, or
any of their respective officers, directors, stockholders, limited partners,
general partners or owners, or successors or assigns, (2) the Stockholders shall
be the only person or entity liable with respect to such obligations, and (3)
any monetary liability of the Stockholder under this Agreement shall be
satisfied solely out of the assets of the Stockholder.
<PAGE>
IN WITNESS WHEREOF, each party has duly executed this Agreement, all as of
the date first written above.
ATLANTIC RICHFIELD COMPANY,
by
/s/ Terry G. Dallas
-------------------
Name: Terry G. Dallas
Title:Senior Vice
President and
Treasurer
PETROLEUM ASSOCIATES, L.P.,
by KKR Associates
Its General Partner
by
/s/ Michael W. Michelson
------------------------
Name: Michael W. Michelson
Title: General Partner
KKR PARTNERS II, L.P.,
by KKR Associates
Its General Partner
by
/s/ Michael W. Michelson
------------------------
Name: Michael W. Michelson
Title: General Partner
<PAGE>
Exhibit (c)(5)
AMENDMENT TO RIGHTS AGREEMENT BETWEEN
UNION TEXAS PETROLEUM HOLDINGS, INC. AND
FIRST CHICAGO TRUST COMPANY OF NEW YORK
THIS AMENDMENT TO RIGHTS AGREEMENT (this "Amendment") is made as of
this third day of May, 1998 by and between Union Texas Petroleum Holdings, Inc.,
a Delaware corporation (the "Company"), and First Chicago Trust Company of New
York, a New York corporation, as rights agent (the "Rights Agent"). Capitalized
terms used but not defined herein shall have the meanings give to such terms in
the Merger Agreement (as defined below).
WHEREAS, the Corporation is entering into an Agreement and Plan of
Merger (as the same may be amended from time to time, the "Merger Agreement")
among the Company, Atlantic Richfield Company, a Delaware corporation
("Parent"), and VWK Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("the Sub"), providing for transactions (collectively, the
"Merger") pursuant to which, among other things, the Company will become a
wholly-owned subsidiary of Parent and the former stockholders of the Company
will receive the Merger Consideration;
WHEREAS, the Company and the Rights Agent are parties to a Rights
Agreement dated as of September 12, 1997 (the "Rights Agreement"); and
<PAGE>
WHEREAS, the parties desire to amend the Rights Agreement in
connection with the execution and delivery of the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein set forth, the parties hereby agree as follows:
1. The definition of "Acquiring Person" set forth in Section 1
of the Rights Agreement is hereby amended by adding the following sentence to
the end of that definition:
Notwithstanding the foregoing, no Person shall be or become
an Acquiring Person by reason of (i) the execution and delivery
of the Agreement and Plan of Merger dated as of May 4, 1998 among
the Company, Atlantic Richfield Company, a Delaware corporation
("Parent"), and , a Delaware corporation ("Sub"), (the "Merger
Agreement") or the execution of any amendment thereto, (ii) the
purchase of Common Stock by Parent or Sub pursuant to (A) the
Offer or (B) Section 4 of the Stockholder Agreement dated May 4,
1998 among Parent, KKR Partners II, L.P., a Delaware limited
partnership, and Petroleum Associates, L.P., a Delaware limited
partnership (the "Stockholder Agreement") or (iii) the
consummation of the other Transactions.
2. Section 7(a)(i) of the Rights Agreement shall be amended to
read in its entirety as follows:
(i) the earlier of (1) the consummation of the Offer (as
defined in the Merger Agreement) or (2) the Close of
Business on September 30, 2007.
3. The definition of "Stock Acquisition Date" included in
Section 1 of the Rights Agreement shall be
2
<PAGE>
amended by adding the following sentence to the end of such definition:
Notwithstanding anything else set forth in this Agreement, a
Stock Acquisition Date shall not be deemed to have occurred by
reason of (i) the public announcement, public disclosure,
execution and delivery or amendment of the Merger Agreement, (ii)
the public announcement, public disclosure, execution and
delivery or amendment of the Stockholder Agreement, (iii) the
purchase of Common Stock by Parent or Sub pursuant to (A) Section
4 of the Stockholder Agreement or (B) the consummation of the
Offer or (iv) the consummation of any of the other Transactions.
4. Section 3(a) of the Rights Agreement shall be amended by
adding the following sentence to the end thereof:
Notwithstanding anything else set forth in this Agreement,
no Distribution Date shall be deemed to have occurred by reason
of (i) the execution and delivery or amendment of the Merger
Agreement, (ii) the execution and delivery or amendment of the
Stockholder Agreement, (iii) the purchase of Common Stock by
Parent or Sub pursuant to (A) Section 4 of the Stockholder
Agreement or (B) the consummation of the Offer or (iv) the
consummation of any of the other Transactions.
5. The first paragraph of Section 13(c) of the Rights Agreement
shall be amended to read in its entirety as follows:
The Company shall not consummate any consolidation, merger,
sale or transfer referred to in Section 13(a) (other than any
such transaction contemplated by the Merger Agreement or the
Stockholder Agreement) unless the Principal Party shall have a
sufficient number of authorized shares of its
3
<PAGE>
Common Stock which have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and the Principal
Party involved therein shall have executed and delivered to the Rights
Agent an agreement confirming that the requirements of Section 13(a)
and (b) shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not
result in a default by the Principal Party under this Agreement as the
same shall have been assumed by the Principal Party pursuant to
Sections 13(a) and (b) hereof and further providing that, as soon as
practicable after executing such agreement pursuant to this Section
13, the Principal Party will:
6. The Rights Agreement, as amended by this Amendment, shall remain in
full force and effect in accordance with its terms.
7. This Amendment shall be deemed to be a contract made under the laws
of the State of Delaware and for all purposes shall be governed by and construed
in accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State. This Amendment may be executed in any
number of counterparts, each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument. If any term, provision, covenant or restriction
of this Amendment is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions,
4
<PAGE>
covenants and restrictions of this Amendment shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties herein have caused this Amendment to
be duly executed and attested, all as of the date and year first above written.
UNION TEXAS PETROLEUM HOLDINGS, INC.,
by
-----------------------
Name: John L. Whitmire
Title: Chairman of the
Board and Chief
Executive Officer
Attest: _________________
Name:
Title:
FIRST CHICAGO TRUST COMPANY OF NEW
YORK, RIGHTS AGENT,
5
<PAGE>
by /s/ Gerard O'Leary
-----------------------
Name: Gerard O'Leary
Title: Vice President
Attest: /s/ Mary E. Garcia
-----------------
Name: Mary E. Garcia
Title: Customer Servie Officer
6
