<PAGE> 1
[BURLINGTON RESOURCES LOGO]
---------------------------------------------------------
September 15, 1997
Dear Fellow Stockholder:
You are cordially invited to attend a special meeting (the "Special
Meeting") of the stockholders (the "Stockholders") of Burlington Resources Inc.
("BR"), to be held on Wednesday, October 22, 1997, at 9:00 a.m., local time, at
The Ambassador Room of The Sheraton Hotel, 1919 Briar Oaks Lane, Houston, Texas.
At the Special Meeting, Stockholders will be asked to vote upon a proposal
to approve the issuance (the "Stock Issuance") of common stock, par value $.01
per share, of BR ("BR Common Stock") in connection with the transactions
contemplated by the Agreement and Plan of Merger dated as of July 16, 1997 (the
"Merger Agreement"). Subject to the terms and conditions of the Merger
Agreement, BR Acquisition Corporation, a wholly owned subsidiary of BR ("Sub"),
will be merged (the "Merger") with and into The Louisiana Land and Exploration
Company, a Maryland corporation ("LL&E"), and each share of capital stock, par
value $0.15 per share, of LL&E outstanding immediately prior to the effective
time of the Merger will be converted into 1.525 shares (the "Exchange Ratio") of
BR Common Stock (with cash being paid in lieu of any fractional shares of BR
Common Stock). Upon consummation of the Merger, LL&E will become a wholly owned
subsidiary of BR.
Your Board of Directors believes that the Merger will create a new model of
an oil and gas company -- the "super independent," combining the critical mass,
diversity of global opportunities and financial strength of a major oil and gas
company with the exploration and exploitation skills, entrepreneurial spirit,
flexibility and responsiveness of an independent oil and gas company. Your Board
of Directors believes that the Merger combines two oil and gas companies with
highly complementary management and operating expertise, personnel, asset
portfolios and financial attributes, which should provide the combined company
with substantial opportunities for growth.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY HAS
APPROVED THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT
AND HAS CONCLUDED THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE STOCKHOLDERS. ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE STOCK ISSUANCE.
Your Board of Directors has retained as financial advisor Morgan Stanley &
Co. Incorporated ("Morgan Stanley"), which has delivered to the Board of
Directors its written opinion dated as of July 16, 1997, to the effect that the
Exchange Ratio is fair to BR from a financial point of view. A copy of the
Morgan Stanley opinion letter, which sets forth the assumptions made, matters
considered and the scope of review undertaken in connection therewith, is set
forth as Appendix C to the accompanying Joint Proxy Statement/Prospectus and
should be read carefully in its entirety.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Stockholders at the Special Meeting and a proxy card. The
Joint Proxy Statement/Prospectus more fully describes the proposed Merger and
includes information about BR and LL&E and the reasons for the Merger.
<PAGE> 2
Your vote is important, regardless of the number of shares you own.
Approval of the Stock Issuance requires an affirmative vote of holders of a
majority of the shares of BR Common Stock present and entitled to vote at the
Special Meeting. I RESPECTFULLY URGE YOU TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
This will not prevent you from attending the Special Meeting or voting in
person, but will assure that your vote is counted if you are unable to attend
the Special Meeting.
On behalf of your Board of Directors, I thank you for your support and urge
you to vote FOR approval of the Stock Issuance.
Sincerely,
/s/ BOBBY S. SHACKOULS
BOBBY S. SHACKOULS
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
BURLINGTON RESOURCES INC.
5051 WESTHEIMER
SUITE 1400
HOUSTON, TEXAS 77056
(713) 624-9500
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 22, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the stockholders of Burlington Resources Inc., a Delaware corporation ("BR"),
will be held at The Ambassador Room of The Sheraton Hotel, 1919 Briar Oaks Lane,
Houston, Texas, on Wednesday, October 22, 1997, at 9:00 a.m., local time, for
the following purposes:
1. To approve the issuance (the "Stock Issuance") of shares of BR
common stock, par value $.01 per share, pursuant to the merger (the
"Merger") of BR Acquisition Corporation, a wholly owned subsidiary of
BR ("Sub"), with and into The Louisiana Land and Exploration Company
("LL&E"), in accordance with the Agreement and Plan of Merger, dated
as of July 16, 1997, among BR, Sub and LL&E (the "Merger Agreement");
and
2. To transact any other business which may be properly brought
before the Special Meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on September 10, 1997
are entitled to notice of, and to vote at, the Special Meeting and at any and
all adjournments or postponements thereof. Reference is made to the attached
Joint Proxy Statement/Prospectus for a more complete description of the Merger,
the Merger Agreement and the transactions contemplated in connection therewith.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE STOCK
ISSUANCE. THE MERGER AND THE MERGER AGREEMENT ARE DESCRIBED IN DETAIL IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
YOUR VOTE IS IMPORTANT.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF BR
COMMON STOCK PRESENT AND ENTITLED TO VOTE IS REQUIRED TO APPROVE THE STOCK
ISSUANCE. YOU ARE URGED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON, IF YOU WISH,
AND REVOKE ANY PREVIOUSLY SUBMITTED PROXY CARD.
Stockholders are cordially invited to attend the Special Meeting. It is
important that your shares of BR common stock be represented and voted at the
Special Meeting, regardless of the number of shares you hold. You are urged to
cast your vote by marking, dating and signing the enclosed proxy card and
returning it in the enclosed envelope. If you wish to vote in accordance with
the recommendation of the BR Board of Directors, all you need to do is date and
sign the proxy card and mail it in the enclosed envelope. If you receive more
than one form of proxy, it is an indication that your shares are registered in
more than one account. Please return promptly all proxy forms received by you to
ensure that your shares are voted.
By order of the Board of Directors,
WENDI S. ZERWAS
Corporate Secretary
September 15, 1997
<PAGE> 4
FILED PURSUANT TO RULE 424(b)
REGISTRATION NO. 333-32603
[BURLINGTON RESOURCES INC. LOGO]
[THE LOUISIANA LAND AND EXPLORATION COMPANY LOGO]
- -------------------------------------------------
BURLINGTON RESOURCES INC.
AND
THE LOUISIANA LAND AND EXPLORATION COMPANY
JOINT PROXY STATEMENT
FOR
SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD OCTOBER 22, 1997
------------------------
BURLINGTON RESOURCES INC.
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus constitutes the proxy statement of
each of Burlington Resources Inc., a Delaware corporation ("BR"), and The
Louisiana Land and Exploration Company, a Maryland corporation ("LL&E"),
relating to the solicitation of proxies for use at the special meetings of
stockholders of each of BR and LL&E, each scheduled to be held on October 22,
1997, and at any adjournments or postponements thereof (respectively, the "BR
Special Meeting" and the "LL&E Special Meeting" and, collectively, the "Special
Meetings"). This Joint Proxy Statement/Prospectus relates to the Agreement and
Plan of Merger (the "Merger Agreement"), dated as of July 16, 1997, among BR, BR
Acquisition Corporation, a wholly owned subsidiary of BR ("Sub"), and LL&E,
pursuant to which Sub will merge (the "Merger") with and into LL&E (such
combined company after the Merger is referred to herein as "New LL&E") and each
LL&E stockholder will receive 1.525 shares (the "Exchange Ratio") of common
stock, par value $.01 per share, of BR ("BR Common Stock"), together with the
associated preferred stock purchase rights under the Rights Plan (the "BR Rights
Plan") dated as of December 16, 1988, as amended, between BR and The First
National Bank of Boston, as rights agent ("BR Rights"), for each share of the
capital stock, $0.15 par value per share, of LL&E ("LL&E Stock") held by such
LL&E stockholder. Cash will be paid in lieu of any fractional shares of BR
Common Stock.
The consummation of the Merger is subject to (i) the approval of the
issuance of shares of BR Common Stock (the "Stock Issuance") pursuant to the
Merger by the affirmative vote of the holders of a majority of the shares of BR
Common Stock present and entitled to vote at the BR Special Meeting; (ii) the
approval of the Merger, the Merger Agreement and the transactions contemplated
thereby by holders of at least two-thirds of all outstanding shares of LL&E
Stock entitled to vote; and (iii) certain other conditions. A copy of the Merger
Agreement is attached hereto as Appendix A.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of BR
with respect to the BR Common Stock to be issued to LL&E stockholders pursuant
to the Merger. A registration statement on Form S-4 (the "Registration
Statement") has been filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to shares of BR Common Stock to be so issued. Based on the
current number of shares of LL&E Stock outstanding, BR will issue approximately
52.7 million shares of BR Common Stock in the aggregate to the LL&E stockholders
in connection with the Merger, which shares would have an aggregate market value
of approximately $2,684.4 million, based on the closing stock price of BR Common
Stock on September 12, 1997. As a result of the Stock Issuance, LL&E
stockholders will hold approximately 30%, and BR stockholders will hold
approximately 70%, of all of the outstanding BR Common Stock after the Merger.
In addition, outstanding options to purchase LL&E Stock will be assumed by BR
and converted into options to purchase BR Common Stock, based upon the Exchange
Ratio. As of June 30, 1997, there were outstanding LL&E options to purchase
approximately 1.6 million shares of LL&E Stock, which would be converted into
options to purchase an aggregate of approximately 2.5 million shares of BR
Common Stock. Any shares of BR Common Stock that may be issued pursuant to the
Merger or upon exercise of outstanding LL&E options will be authorized for
listing, subject to official notice of issuance, on the New York Stock Exchange,
Inc. (the "NYSE") prior to the effective time of the Merger.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of each of BR and LL&E on or about
September 18, 1997.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/ PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is September 15, 1997.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION....................................... 1
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 2
SUMMARY..................................................... 3
The Transaction........................................... 3
The Companies............................................. 3
The Special Meetings...................................... 4
The Merger and the Merger Agreement....................... 5
Cautionary Statement Concerning Forward-Looking
Statements............................................. 9
Market Price and Dividend Information..................... 10
Comparative Per Share Data................................ 11
Summary Selected Historical Consolidated Financial Data of
BR..................................................... 12
Summary Selected Historical Consolidated Financial Data of
LL&E................................................... 13
Summary Unaudited Pro Forma Combined Financial Data....... 15
THE SPECIAL MEETINGS........................................ 16
General................................................... 16
Voting Securities and Record Dates........................ 16
Purpose of Special Meetings............................... 16
Proxies................................................... 16
THE COMPANIES............................................... 18
BR........................................................ 18
LL&E...................................................... 18
Sub....................................................... 18
THE MERGER.................................................. 18
General................................................... 18
Background of the Merger.................................. 19
Reasons for the Merger; Recommendations of the Boards..... 21
Opinion of BR's Financial Advisor......................... 24
Opinions of LL&E's Financial Advisors..................... 28
Accounting Treatment...................................... 40
U.S. Federal Income Tax Consequences...................... 40
New LL&E Board and Management Following the Merger........ 40
Board of Directors of BR Following the Merger............. 40
Governmental and Regulatory Approvals..................... 40
Interests of Certain Persons in the Merger................ 40
Absence of Appraisal Rights............................... 42
Stock Exchange Listing.................................... 42
Delisting and Deregistration of LL&E Stock................ 42
Treatment of Stock Certificates........................... 42
</TABLE>
i
<PAGE> 6
<TABLE>
<S> <C>
THE MERGER AGREEMENT........................................ 43
General................................................... 43
Consideration to be Received in the Merger................ 43
Effective Time of the Merger.............................. 43
Corporate Organization and Governance..................... 44
Stockholders' Meetings.................................... 44
Representations and Warranties............................ 44
Conduct of Business Pending the Merger.................... 45
Additional Agreements..................................... 46
Employee Matters.......................................... 47
Indemnification........................................... 49
No Solicitation........................................... 50
Conditions Precedent...................................... 50
Termination, Amendment and Waiver......................... 51
Fees and Expenses......................................... 52
THE STOCK OPTION AGREEMENT.................................. 53
General................................................... 53
Termination............................................... 53
Certain Adjustments....................................... 54
Registration Rights....................................... 55
THE EMPLOYMENT AGREEMENT.................................... 55
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER.................................................... 56
General................................................... 56
Tax Consequences to BR and LL&E........................... 56
Tax Consequences to Holders of LL&E Stock................. 57
Backup Withholding........................................ 57
COMPARISON OF THE RIGHTS OF HOLDERS OF BR COMMON STOCK AND
LL&E STOCK................................................ 58
Authorized Capital........................................ 58
Number of Directors; Election of Directors; Removal;
Vacancies.............................................. 58
Charter Amendments........................................ 59
By-law Amendments......................................... 59
Advance Notice of Director Nominations and New Business... 59
Special Stockholder Meetings.............................. 60
Cumulative Voting......................................... 60
Stockholder Action Without a Meeting...................... 60
Rights Plans.............................................. 60
Business Combinations..................................... 61
State Takeover Legislation................................ 62
Standard of Conduct for Directors......................... 63
Indemnification of Directors and Officers................. 64
Limitation of Personal Liability of Directors and
Officers............................................... 65
Appraisal Rights.......................................... 65
Preemptive Rights......................................... 66
Denial of Voting Rights................................... 66
Payment of Dividends...................................... 66
Inspection of Books and Records........................... 66
</TABLE>
ii
<PAGE> 7
<TABLE>
<S> <C>
MARKET PRICE AND DIVIDEND INFORMATION....................... 67
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BR....... 68
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LL&E..... 69
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........... 71
EXPERTS..................................................... 76
LEGAL MATTERS............................................... 76
STOCKHOLDER PROPOSALS....................................... 76
APPENDICES:
A -- Merger Agreement
B -- Stock Option Agreement
C -- Fairness Opinion of Morgan Stanley & Co. Incorporated
D -- Fairness Opinion of Dillon, Read & Co. Inc.
E -- Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated
</TABLE>
iii
<PAGE> 8
AVAILABLE INFORMATION
Each of BR and LL&E is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following Regional Offices of the Commission: Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington D.C. 20549, at prescribed rates. The Commission also
maintains a World Wide Web site that contains reports, proxy and information
statements, and other information regarding registrants (including BR and LL&E)
that file electronically with the Commission (at http://www.sec.gov). Each of
the BR Common Stock and LL&E Stock is listed on the NYSE and reports, proxy
statements and other information relating to each of BR and LL&E can be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement filed with the Commission by
BR, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is made to the Registration Statement
and the exhibits thereto for further information. Exhibits to the Registration
Statement that are omitted from this Joint Proxy Statement/Prospectus may also
be obtained at the Commission's World Wide Web site described above. Statements
contained or incorporated by reference herein concerning the provisions of any
agreement or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and readers
are referred to the copy so filed for more detailed information, each such
statement being qualified in its entirety by such reference.
Each of BR and LL&E has supplied all information contained or incorporated
by reference in this Joint Proxy Statement/Prospectus relating to BR and LL&E,
respectively.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE
DOCUMENTS THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH
DOCUMENTS (OTHER THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED
BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF SHARES OF BR COMMON STOCK OR LL&E STOCK TO WHOM THIS JOINT
PROXY STATEMENT/PROSPECTUS IS SENT, UPON WRITTEN OR ORAL REQUEST, IN THE CASE OF
DOCUMENTS RELATING TO BR, TO WENDI S. ZERWAS, CORPORATE SECRETARY, BURLINGTON
RESOURCES INC., 5051 WESTHEIMER, SUITE 1400, HOUSTON, TEXAS 77056-2124,
TELEPHONE (713) 624-9500 AND, IN THE CASE OF DOCUMENTS RELATING TO LL&E, TO THE
LOUISIANA LAND AND EXPLORATION COMPANY, ATTN: GENERAL COUNSEL, 909 POYDRAS
STREET, NEW ORLEANS, LOUISIANA 70112, TELEPHONE (504) 566-6500. IN ORDER TO
ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE APPLICABLE SPECIAL MEETING, ANY SUCH
REQUEST SHOULD BE MADE NOT LATER THAN OCTOBER 15, 1997.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE BY THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY BR OR LL&E. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/ PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH SOLICITATION.
<PAGE> 9
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to
the Exchange Act are incorporated herein by reference and shall be deemed a part
hereof:
BR COMMISSION FILINGS (FILE NO. 1-9971)
1. the BR Proxy Statement on Schedule 14A dated February 20, 1997;
2. the BR Annual Report on Form 10-K for the year ended December 31, 1996;
3. the BR Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997;
4. the BR Current Report on Form 8-K dated July 18, 1997; and
5. the BR Registration Statement on Form 8-A filed with respect to the BR Common
Stock, as amended to date.
LL&E COMMISSION FILINGS (FILE NO. 1-959)
1. the LL&E Proxy Statement on Schedule 14A dated March 31, 1997;
2. the LL&E Annual Report on Form 10-K for the year ended December 31, 1996;
3. the LL&E Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997;
4. the LL&E Current Report on Form 8-K dated July 17, 1997; and
5. the LL&E Registration Statement on Form 8-A filed with respect to the LL&E
Stock, as amended to date.
All reports and other documents filed by either BR or LL&E pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Joint Proxy Statement/Prospectus and prior to the date of its Special
Meeting shall be deemed to be incorporated by reference herein and to be a part
hereof from the dates of filing of such reports and documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained herein, or
in any other subsequently filed document that also is incorporated or deemed to
be incorporated by reference herein, modifies or supersedes the earlier
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
------------------------
2
<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained elsewhere
or incorporated by reference in this Joint Proxy Statement/Prospectus and in the
appendices hereto including, but not limited to, the Merger Agreement set forth
as Appendix A hereto. Unless otherwise defined, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere in this Joint
Proxy Statement/Prospectus. Stockholders of BR and LL&E are urged to read
carefully this Joint Proxy Statement/Prospectus and the appendices hereto, and
the documents incorporated by reference herein, in their entirety. Unless the
context otherwise requires, as used herein the term "BR" refers to Burlington
Resources Inc. and its subsidiaries and the term "LL&E" refers to The Louisiana
Land and Exploration Company and its subsidiaries.
THE TRANSACTION
The merger of LL&E with a wholly owned subsidiary of BR will result in LL&E
stockholders receiving 1.525 shares of BR Common Stock for each share of LL&E
Stock held in a tax-free transaction, with LL&E becoming a wholly owned
subsidiary of BR. The Merger combines two oil and gas companies with highly
complementary management and operating expertise, personnel, asset portfolios
and financial attributes, which should provide the combined company with
substantial opportunities for growth.
The combined company, on a pro forma basis at June 30, 1997, had
approximately $506 million of cash and short-term investments, a net debt to
capital ratio of approximately 31%, and a net debt to total market
capitalization ratio of approximately 14%. The combined company expects annual
operating cash flow to exceed one billion dollars. This strong balance sheet and
expected operating cash flow should permit the combined company to exploit and
retain larger ownership interests in a greater number of LL&E's exploration
prospects and to develop these prospects more rapidly than LL&E could on a stand
alone basis. The combined company will have a diversified asset base, with
interests in oil and gas producing properties in most of the major domestic oil
and gas basins and will have interests in several of the most attractive
international hydrocarbon basins, including Algeria, Venezuela and the North
Sea.
THE COMPANIES
BR. BR is the largest independent (nonintegrated) oil and gas exploration
and production company in the United States in terms of total domestic proved
equivalent reserves, which were estimated at 6.4 Tcfe (trillion cubic feet of
gas equivalent) at December 31, 1996. BR is a holding company engaged, through
its subsidiaries, in the exploration, development and production of oil and gas,
and related marketing activities.
BR's principal executive offices are located at 5051 Westheimer, Suite
1400, Houston, Texas 77056, and its telephone number at that address is (713)
624-9500.
LL&E. LL&E is one of the largest independent oil and gas exploration and
production companies based in the United States. LL&E's domestic operations are
focused in three areas. In the onshore Gulf Coast area, LL&E owns nearly 600,000
acres of land in south Louisiana. In the Gulf of Mexico, LL&E owns interests in
125 leases in the shallow outer continental shelf and 73 leases in the deep
water area. In the Rocky Mountains, LL&E is the operator and a significant
working interest owner in the vast gas accumulation at the Madden Field in
Wyoming. Internationally, in addition to its production operations in the North
Sea and offshore Indonesia, LL&E is actively exploring for new reserves in
world-class hydrocarbon basins, including Algeria and Venezuela.
LL&E's principal executive offices are located at 909 Poydras Street, New
Orleans, Louisiana 70112, and its telephone number at that address is (504)
566-6500.
3
<PAGE> 11
THE SPECIAL MEETINGS
DATE, TIME AND PLACE.
BR. The BR Special Meeting will be held on Wednesday, October 22, 1997, at
The Ambassador Room of The Sheraton Hotel, 1919 Briar Oaks Lane, Houston, Texas,
commencing at 9:00 a.m. local time. See "The Special Meetings -- General."
LL&E. The LL&E Special Meeting will be held on Wednesday, October 22,
1997, at the Pan American Life Auditorium, 11th Floor, Pan American Life Center,
601 Poydras Street, New Orleans, Louisiana, commencing at 9:00 a.m. local time.
See "The Special Meetings -- General."
PURPOSE OF THE SPECIAL MEETINGS.
BR. The purpose of the BR Special Meeting is to (i) consider and vote upon
a proposal (the "BR Proposal") to approve the Stock Issuance in accordance with
the Merger Agreement and (ii) transact such other business as may properly come
before the BR Special Meeting and at any and all adjournments or postponements
thereof. See "The Special Meetings -- Purpose of Special Meetings."
LL&E. The purpose of the LL&E Special Meeting is to (i) consider and vote
upon a proposal (the "LL&E Proposal") to approve the Merger, the Merger
Agreement and the transactions contemplated thereby and (ii) transact such other
business as may properly come before the LL&E Special Meeting and at any and all
adjournments or postponements thereof. See "The Special Meetings -- Purpose of
Special Meetings."
RECORD DATES; SHARES ENTITLED TO VOTE.
BR. Only holders of record of shares of BR Common Stock at the close of
business on September 10, 1997 (the "BR Record Date") are entitled to notice of
and to vote at the BR Special Meeting. On such date, there were 123,815,853
shares of BR Common Stock outstanding. Each share of BR Common Stock will be
entitled to one vote on each matter to be acted upon at the BR Special Meeting.
See "The Special Meetings -- Voting Securities and Record Dates."
LL&E. Only holders of record of shares of LL&E Stock at the close of
business on September 10, 1997 (the "LL&E Record Date") are entitled to notice
of and to vote at the LL&E Special Meeting. On such date, there were 34,558,056
shares of LL&E Stock outstanding. Each share of LL&E Stock will be entitled to
one vote on each matter to be acted upon at the LL&E Special Meeting. See "The
Special Meetings -- Voting Securities and Record Dates."
VOTE REQUIRED.
BR. The affirmative vote of the holders of a majority of the shares of BR
Common Stock present and entitled to vote is required to approve the Stock
Issuance; provided, however, that the total number of votes cast on the Stock
Issuance represents more than 50% of the outstanding shares of BR Common Stock
entitled to vote thereon at the BR Special Meeting. An abstention with respect
to the Stock Issuance will have the effect of a vote cast against the BR
Proposal. Brokers who hold shares of BR Common Stock as nominees will not have
discretionary authority to vote such shares in the absence of instructions from
the beneficial owners thereof. Assuming that a quorum is present at the BR
Special Meeting, any shares which are not voted at the BR Special Meeting will
have no effect upon the outcome of the vote with respect to the Stock Issuance.
See "The Special Meetings -- Voting Securities and Record Dates -- BR" and
"-- Proxies."
LL&E. The affirmative vote of the holders of at least two-thirds of all
outstanding shares of LL&E Stock entitled to vote is required to approve the
Merger, the Merger Agreement and the transactions contemplated thereby. An
abstention or a failure to vote with respect to the LL&E Proposal will have the
effect of a vote cast against the Merger. Brokers who hold shares of LL&E Stock
as nominees will not have discretionary authority to vote such shares in the
absence of instructions from the beneficial owners thereof. Any votes which are
not cast by a nominee-broker will have the effect of votes cast against the
Merger. See "The Special Meetings -- Voting Securities and Record Dates -- LL&E"
and "-- Proxies."
4
<PAGE> 12
SECURITY OWNERSHIP OF MANAGEMENT. As of the BR Record Date, the directors
and executive officers of BR owned less than 1% of the outstanding shares of BR
Common Stock entitled to vote at the BR Special Meeting. As of the LL&E Record
Date, the directors and executive officers of LL&E owned approximately 1% of the
outstanding shares of LL&E Stock entitled to vote at the LL&E Special Meeting.
Each of the directors and executive officers of BR and LL&E has advised the
respective companies that he or she plans to vote or to direct the vote of all
shares of BR Common Stock or LL&E Stock, as the case may be, owned by him or her
and entitled to vote in favor of the Stock Issuance, in the case of BR, and in
favor of the Merger, the Merger Agreement and the transactions contemplated
thereby, in the case of LL&E.
THE MERGER AND THE MERGER AGREEMENT
GENERAL
The Merger Agreement is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference.
At the Effective Time (as defined below) of the Merger, Sub will be merged
with and into LL&E, with LL&E surviving the Merger as a wholly owned subsidiary
of BR. The Merger will become effective upon the acceptance for record of the
Articles of Merger (the "Articles of Merger") by the State Department of
Assessments and Taxation of Maryland, which is currently expected to occur after
receipt of requisite regulatory and stockholder approvals. The acceptance for
record of the Articles of Merger will occur as soon as practicable following the
satisfaction or waiver of the conditions set forth in the Merger Agreement. As
used in the Merger Agreement and herein, the time at which the Merger becomes
effective will be the "Effective Time." See "-- Conditions Precedent to the
Merger."
EXCHANGE RATIO
In the Merger, each share of LL&E Stock issued and outstanding immediately
prior to the Effective Time (excluding those held in the treasury of LL&E and
those owned by BR or Sub), without any action on the part of the holder thereof,
will be converted into the right to receive 1.525 shares of BR Common Stock
together with the associated BR Rights. Cash will be paid in lieu of any
fractional share of BR Common Stock. See "The Merger Agreement -- Consideration
to be Received in the Merger."
BACKGROUND AND REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARDS
The Board of Directors of BR (the "BR Board") believes that the Merger will
create a new model of oil and gas company -- the "super independent," combining
the critical mass, diversity of global opportunities and financial strength of a
major oil and gas company with the exploration and exploitation skills,
entrepreneurial spirit, flexibility and responsiveness of an independent oil and
gas company. The BR Board believes that the Merger combines two oil and gas
companies with highly complementary management and operating expertise,
personnel, asset portfolios and financial attributes, which should provide the
combined company with substantial opportunities for growth.
The Board of Directors of LL&E (the "LL&E Board") believes that the Merger
will create a stronger company better able to meet the challenges of the
increasingly competitive environment in the oil and gas industry and achieve
LL&E's strategic objectives and accompanying increase in stockholder value
substantially earlier than it could independently. The LL&E Board believes that
the Merger will permit LL&E stockholders to share in the combined company's
positive synergies in terms of enhanced financial and operational resources and
flexibility, the combination of complementary skills and experience, as well as
the combined entity's enhanced ability to exploit future strategic
opportunities.
To BR Stockholders:
THE BR BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF BR
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF BR COMMON STOCK VOTE
FOR APPROVAL OF THE STOCK ISSUANCE. For a more
5
<PAGE> 13
detailed discussion of the factors considered by the BR Board in reaching its
decision and the background and reasons for the Merger, see "The
Merger -- Background of the Merger" and "-- Reasons for the Merger;
Recommendations of the Boards."
To LL&E Stockholders:
THE LL&E BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF LL&E
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF LL&E STOCK VOTE FOR
APPROVAL OF THE MERGER, THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. For a more detailed discussion of the factors considered by the LL&E
Board in reaching its decision and the background and reasons for the Merger,
see "The Merger -- Background of the Merger" and "-- Reasons for the Merger;
Recommendations of the Boards."
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the Merger, each of the BR Board and the LL&E Board
(together, the "Boards") considered opinions from their respective financial
advisors as to the fairness of the Exchange Ratio from a financial point of
view. BR received an opinion (the "Morgan Stanley Opinion") from its financial
advisor, Morgan Stanley & Co. Incorporated ("Morgan Stanley"), to the effect
that, as of the date of such opinion, the Exchange Ratio is fair from a
financial point of view to BR. LL&E received a separate opinion from each of its
financial advisors, SBC Warburg Dillon Read Inc. (known prior to September 2,
1997 as Dillon, Read & Co. Inc.) ("SBC Warburg Dillon Read") and Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") (the "SBC Warburg Dillon
Read Opinion" and the "Merrill Lynch Opinion," respectively), each to the effect
that, as of the date of such opinion, the Exchange Ratio is fair from a
financial point of view to LL&E's stockholders. The Morgan Stanley Opinion, the
SBC Warburg Dillon Read Opinion and the Merrill Lynch Opinion are attached as
Appendices C, D and E, respectively, to this Joint Proxy Statement/Prospectus.
Stockholders are encouraged to read these opinions. See "The Merger -- Opinion
of BR's Financial Advisor" and "-- Opinions of LL&E's Financial Advisors."
OWNERSHIP OF BR FOLLOWING THE MERGER
The shares of BR Common Stock issued to LL&E stockholders in the Merger
will constitute approximately 30% of all of the outstanding BR Common Stock
after the Merger and the current BR stockholders will hold approximately 70% of
all of the outstanding BR Common Stock after the Merger.
Each outstanding and unexercised option (each, a "LL&E Option") to purchase
shares of LL&E Stock will be assumed by BR in the Merger and converted into an
option to purchase shares of BR Common Stock (each, a "Substitute Option"). As
of June 30, 1997, approximately 2.5 million shares of BR Common Stock will be
subject to such converted options based on the number of shares of LL&E Stock
subject to the existing LL&E Options multiplied by the Exchange Ratio, and the
exercise price with respect thereto will equal the exercise price under the LL&E
Options divided by the Exchange Ratio.
ACCOUNTING TREATMENT
The Merger is intended to qualify for "pooling of interests" accounting
treatment under generally accepted accounting principles. Pooling of interests
accounting treatment is not a condition to the consummation of the Merger. See
"The Merger -- Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon, among other things, receipt
by LL&E of an opinion of its tax counsel, Cahill Gordon & Reindel, and by BR of
an opinion of its tax counsel, White & Case, that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). Hence, a holder of LL&E Stock will not
recognize gain or loss on the exchange of LL&E Stock for BR Common Stock
pursuant to the Merger, except to the extent that such holder receives cash in
lieu of fractional shares of BR Common Stock.
6
<PAGE> 14
All stockholders should read carefully the discussion in "Certain U.S.
Federal Income Tax Consequences of the Merger" and other sections of this Joint
Proxy Statement/Prospectus. They are urged to consult their own tax advisors as
to the specific consequences to them of the Merger under U.S. federal, state,
local or any other applicable tax laws. See "Certain U.S. Federal Income Tax
Consequences of the Merger."
NEW LL&E BOARD AND MANAGEMENT FOLLOWING THE MERGER
If the proposed Merger is approved and consummated, holders of LL&E Stock
will become stockholders of BR, which will be under the direction of the Board
of Directors and management of BR. The directors of Sub immediately prior to the
Effective Time will be the directors of New LL&E and the officers of LL&E
immediately prior to the Effective Time will be the officers of New LL&E.
BOARD OF DIRECTORS OF BR FOLLOWING THE MERGER
As of the Effective Time, the Board of Directors of BR (the "New BR Board")
will consist of 12 members. Three members of the New BR Board will be Mr. H.
Leighton Steward, Chairman of the present LL&E Board, and Messrs. Kenneth W.
Orce and John F. Schwarz, present members of the LL&E Board. The remainder of
the New BR Board will be BR's current directors. Mr. Steward will serve as the
Vice Chairman of the New BR Board and Chairman of its Executive Committee.
REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), prohibits consummation of the Merger until Premerger Notification
and Report Forms have been submitted and certain information has been furnished
to the United States Federal Trade Commission and the Antitrust Division of the
United States Department of Justice and the specified waiting period
requirements of the HSR Act have expired or been terminated. The required
waiting period under the HSR Act with respect to the Merger expired on August
24, 1997.
ABSENCE OF APPRAISAL RIGHTS
Under the General Corporation Law of the State of Delaware (the "DGCL"),
the stockholders of BR are not entitled to appraisal rights with respect to the
Stock Issuance. Under the Maryland General Corporation Law (the "MGCL"), the
stockholders of LL&E are not entitled to objecting stockholders' appraisal
rights with respect to the Merger. See "The Merger -- Absence of Appraisal
Rights."
CONDITIONS PRECEDENT TO THE MERGER
The obligations of BR, LL&E and Sub to effect the Merger are subject, among
other things, to the fulfillment or, where permissible, waiver, of certain
conditions, including without limitation: (i) the approval of the Merger, the
Merger Agreement and the transactions contemplated thereby by the requisite vote
of the stockholders of LL&E and the approval of the Stock Issuance by the
requisite vote of the stockholders of BR; (ii) the expiration or termination of
any waiting period applicable to the consummation of the Merger under the HSR
Act; (iii) the effectiveness of the Registration Statement and the absence of a
stop order suspending such effectiveness; (iv) there not having been issued or
in effect any preliminary or permanent injunction or order by any federal or
state court in the United States of competent jurisdiction prohibiting the
consummation of the Merger; (v) the listing on the NYSE, subject only to
official notice of issuance, of the shares of BR Common Stock to be issued
pursuant to the Stock Issuance; and (vi) LL&E having received an opinion of
Cahill Gordon & Reindel and BR and Sub having received an opinion of White &
Case, in each case, that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code.
The obligation of LL&E to effect the Merger is also subject to the
fulfillment of certain additional conditions, including the accuracy of the
representations and warranties of BR and Sub and the performance in all material
respects of the obligations and covenants of BR and Sub under the Merger
Agreement and the receipt of a certificate of the President and Chief Executive
Officer or a Vice President of each of BR and Sub to such effect.
7
<PAGE> 15
The obligation of BR to effect the Merger is also subject to the
fulfillment of certain additional conditions, including the accuracy of the
representations and warranties of LL&E and the performance in all material
respects of the obligations and covenants of LL&E under the Merger Agreement and
the receipt of a certificate of the President and Chief Executive Officer or a
Vice President of LL&E to such effect.
While the Merger is intended to qualify for "pooling of interests"
accounting treatment under generally accepted accounting principles, pursuant to
the Merger Agreement, pooling of interests accounting treatment is not a
condition to the consummation of the Merger.
Prior to the Effective Time, the parties to the Merger Agreement may (i)
extend the time for the performance of any of the obligations or other acts of
the other parties thereto, (ii) waive any inaccuracies in the representations
and warranties contained therein or in any documents delivered pursuant thereto
and (iii) where permissible, waive compliance with any of the agreements or
conditions contained therein. See "The Merger Agreement -- Conditions
Precedent."
TERMINATION OF THE MERGER
The Merger Agreement may be terminated by action of either the BR Board or
the LL&E Board and the Merger abandoned under certain circumstances, including,
but not limited to, the following: (a) the Merger has not been consummated by
January 31, 1998, provided that the terminating party has not breached in any
material respect its obligations under the Merger Agreement in any manner that
would have proximately contributed to the failure to consummate the Merger; (b)
the requisite approval of the Merger, the Merger Agreement and the transactions
contemplated thereby by the stockholders of LL&E is not obtained; (c) the
requisite approval of the Stock Issuance by the stockholders of BR is not
obtained; (d) a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or administrative
agency or commission (each, a "Governmental Entity") shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger Agreement and
such order, decree, ruling or other action shall have become final and
non-appealable; provided that the party seeking to terminate the Merger
Agreement pursuant to this clause has used all commercially reasonable efforts
to remove such injunction, order or decree; or (e)(i) if the BR Board or the
LL&E Board withdraws or modifies in a manner adverse to the other party its
approval or recommendation of the Merger Agreement or the Merger or recommends
an Alternative Proposal (as defined below) with respect to such party to such
party's stockholders or (ii) such party receives an Alternative Proposal which
the board of directors of such party believes is superior from a financial point
of view to the Merger and is reasonably likely to be consummated and the board
of directors of such party, having received a written opinion of legal counsel
relating thereto, in the exercise of its good faith judgment as to its fiduciary
duties to its stockholders imposed by law, determines that such termination is
required.
An "Alternative Proposal" means, with respect to BR or LL&E, any offer or
proposal (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or similar
transaction (other than, in the case of BR, any acquisitions of assets or
businesses that are primarily engaged in the same business as that conducted by
BR and its subsidiaries as of the date of the Merger Agreement and any financing
transactions or issuances of securities related thereto which, in each case, do
not require approval by the stockholders of BR) involving, or any purchase of
all or any significant portion of the assets or any equity securities of, such
party and its subsidiaries, taken as a whole.
The Merger Agreement may also be terminated prior to the Effective Time,
before or after approval by the BR stockholders of the Stock Issuance or by the
LL&E stockholders of the Merger, the Merger Agreement and the transactions
contemplated thereby, by the mutual consent of BR and LL&E.
Under certain circumstances in connection with the termination of the
Merger Agreement, BR may be required to reimburse LL&E for its expenses up to
$8,000,000 and to pay LL&E a termination fee of $150,000,000. Under certain
circumstances in connection with the termination of the Merger Agreement, LL&E
may be required to reimburse BR for its expenses up to $8,000,000 and to pay BR
a termination fee of $80,000,000. See "The Merger Agreement -- Termination,
Amendment and Waiver."
8
<PAGE> 16
STOCK OPTION AGREEMENT
Pursuant to the Stock Option Agreement, dated as of July 16, 1997, by and
between BR and LL&E (the "Stock Option Agreement"), LL&E has granted BR an
irrevocable option (the "Option") to purchase 5,145,000 shares (subject to
adjustment for changes in capitalization) of LL&E Stock (representing
approximately 14.9% of the outstanding LL&E Stock on July 16, 1997), at $70.34
per share, in the event of a termination of the Merger Agreement under certain
circumstances. The exercise of the Option is subject to certain conditions set
forth in the Stock Option Agreement and is limited so that the aggregate value
received by BR pursuant to the Stock Option Agreement and any termination fee
paid pursuant to the Merger Agreement shall not exceed $120,000,000. See "The
Stock Option Agreement -- General" and "The Merger Agreement -- Termination,
Amendment and Waiver." The Stock Option Agreement is attached as Appendix B to
this Joint Proxy Statement/Prospectus.
THE EMPLOYMENT AGREEMENT
In connection with the Merger, BR will enter into an employment agreement
with H. Leighton Steward, Chairman of the Board, President and Chief Executive
Officer of LL&E, pursuant to which Mr. Steward will serve as Vice Chairman of
the New BR Board and Chairman of its Executive Committee until December 1, 1999.
See "The Employment Agreement."
COMPARATIVE RIGHTS OF HOLDERS OF BR COMMON STOCK AND LL&E STOCK
The rights of holders of LL&E Stock are currently governed by Maryland law
and by the LL&E Charter (the "LL&E Charter") and the LL&E By-laws (the "LL&E
By-laws"). If the Merger is consummated and becomes effective pursuant to the
terms of the Merger Agreement, the rights of former LL&E stockholders who become
BR stockholders pursuant to the Merger will consequently be governed by Delaware
law and by the BR Certificate of Incorporation (the "BR Certificate") and the BR
By-Laws (the "BR By-Laws"). The rights of BR stockholders differ in certain
respects from those of the LL&E stockholders. See "Comparison of the Rights of
Holders of BR Common Stock and LL&E Stock" for a description of such
differences.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
For information regarding interests of certain officers and directors of
LL&E separate from and in addition to their interests as stockholders of LL&E
generally, see "The Merger -- Interests of Certain Persons in the Merger."
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains or incorporates by reference
forward-looking statements that are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations of BR and LL&E such as statements of estimated oil
and gas production and reserves, drilling plans, future cash flows, anticipated
capital expenditures and managements' strategies, plans and objectives as set
forth under "The Merger -- Background of the Merger," "-- Reasons for the
Merger; Recommendations of the Boards," "-- Opinion of BR's Financial Advisor"
and "-- Opinions of LL&E's Financial Advisors" and those preceded by, followed
by or that include the words "believes," "expects," "anticipates" or similar
expressions. The following important factors, in addition to those discussed
elsewhere in this Joint Proxy Statement/Prospectus and in the documents which
are incorporated herein by reference, could affect the future results of the
energy industry in general, and BR and/or LL&E in particular, and could cause
those results to differ materially from those expressed in such forward-looking
statements: risks incident to the drilling and operation of oil and gas wells;
future production and development costs; the effect of existing and future laws
and regulatory actions; the political and economic climate in the territories in
which BR or LL&E conducts oil and gas operations; the effect of changes in
commodity prices, hedging activities and conditions in the capital markets; a
significant delay in the expected closing of the Merger; and competition from
others in the energy industry. For additional information with respect to these
factors, see the respective Annual Reports on Form 10-K for the year ended
December 31, 1996 of each of BR and LL&E.
9
<PAGE> 17
MARKET PRICE AND DIVIDEND INFORMATION
The BR Common Stock is listed and traded on the NYSE and the LL&E Stock is
listed and traded on the NYSE, the London Stock Exchange and the Swiss Stock
Exchanges (Basle, Geneva and Zurich). The following table sets forth the high
and low trading prices per share of each of the BR Common Stock and the LL&E
Stock on the NYSE for the periods indicated as reported in published financial
sources and the dividends paid per share for such periods:
<TABLE>
<CAPTION>
BR COMMON BR LL&E LL&E
STOCK PRICES DIVIDENDS STOCK PRICES DIVIDENDS
-------------------- DECLARED -------------------- DECLARED
HIGH LOW PER SHARE HIGH LOW PER SHARE
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter.......................... $40 3/4 $33 5/8 $.1375 $38 1/2 $31 1/4 $.06
Second Quarter......................... 41 1/2 36 1/2 .1375 41 1/8 35 3/8 .06
Third Quarter.......................... 42 1/4 36 3/8 .1375 40 1/8 35 .06
Fourth Quarter......................... 41 3/8 34 7/8 .1375 43 35 1/8 .06
1996
First Quarter.......................... 40 1/4 35 5/8 .1375 48 7/8 39 3/8 .06
Second Quarter......................... 43 1/4 35 1/8 .1375 57 7/8 46 7/8 .06
Third Quarter.......................... 47 1/8 41 5/8 .1375 63 5/8 50 3/8 .06
Fourth Quarter......................... 53 1/2 44 1/8 .1375 62 1/2 51 1/2 .06
1997
First Quarter.......................... 54 1/2 42 5/8 .1375 59 1/4 46 .06
Second Quarter......................... 48 5/8 39 3/4 .1375 57 1/4 45 1/4 .06
Third Quarter (through September 12,
1997)............................... 533/16 43 5/8 .1375 80 1/8 55 5/8 .06
</TABLE>
On July 16, 1997, the last full trading day prior to the first public
announcement of the execution of the Merger Agreement, the reported high and low
sale prices per share and closing price per share of BR Common Stock and LL&E
Stock on the NYSE were as follows:
<TABLE>
<CAPTION>
JULY 16, 1997
--------------------------------
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
BR.......................................................... $46 3/8 $4513/16 $46 1/8
LL&E........................................................ 60 56 1/8 58 1/4
</TABLE>
On September 12, 1997, the last full trading day prior to the date of this
Joint Proxy Statement/ Prospectus, the reported high and low sale prices per
share and closing price per share of BR Common Stock and LL&E Stock on the NYSE
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 12, 1997
--------------------------------
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
BR.......................................................... $5015/16 $50 1/8 $5015/16
LL&E........................................................ 77 1/2 76 1/4 77 1/2
</TABLE>
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF BR
COMMON STOCK AND LL&E STOCK.
10
<PAGE> 18
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data for BR and
LL&E and unaudited pro forma and equivalent pro forma combined per share data
after giving effect to the proposed Merger on a pooling of interests basis at
the Exchange Ratio of 1.525 shares of BR Common Stock for each share of LL&E
Stock. Earnings (Loss) and Cash Dividends per Share are presented for the six
months ended June 30, 1997 and for each of the three years in the period ended
December 31, 1996. Book Value per Share is presented as of June 30, 1997 and
December 31, 1996. These data should be read in conjunction with the selected
historical consolidated financial data and the unaudited pro forma combined
financial statements included in this Joint Proxy Statement/Prospectus and the
separate historical consolidated financial statements of BR and LL&E and the
notes thereto incorporated by reference in this Joint Proxy
Statement/Prospectus. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results or financial position that would
have occurred had the Merger been consummated at the beginning of the earliest
period presented and should not be construed as indicative of future operations.
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED DECEMBER 31,
JUNE 30, --------------------------------
1997 1996 1995 1994
---------- -------- -------- --------
<S> <C> <C> <C> <C>
HISTORICAL -- BR
Earnings (Loss) per Common Share(a)................... $ 1.52 $ 2.02 $(2.20) $ 1.20
Cash Dividends per Common Share....................... .275 .55 .55 .55
Book Value per Common Share(b)........................ 19.52 18.67
HISTORICAL -- LL&E
Earnings (Loss) per Share(a).......................... $ .79 $ 2.35 $ .56 $(6.80)
Cash Dividends per Share.............................. .12 .24 .24 1.00
Book Value per Share(b)............................... 14.62 13.87
PRO FORMA PER COMMON SHARE DATA
Earnings (Loss) per Share(c).......................... $ 1.22 $ 1.88 $(1.47) $ (.41)
Cash Dividends per Share(d)........................... .22 .44 .44 .58
Payout Ratio(e)....................................... 22% 29%
Book Value per Share.................................. 16.17 15.85
EQUIVALENT PRO FORMA PER COMMON SHARE DATA(f)
Earnings (Loss) per Share............................. $ 1.86 $ 2.87 $(2.24) $ (.63)
Cash Dividends per Share.............................. .34 .67 .67 .88
Book Value per Share.................................. 24.66 24.17
</TABLE>
- ---------------
(a) The Historical Earnings (Loss) per Common Share is based upon the weighted
average number of common and common equivalent shares of BR and LL&E
outstanding for each period.
(b) The Historical Book Value per Common Share is computed by dividing
stockholders' equity by the number of shares of common stock outstanding at
the end of each period.
(c) The unaudited Pro Forma Earnings (Loss) per Common Share is based upon the
weighted average number of common and common equivalent shares outstanding
of BR and LL&E for each period at the Exchange Ratio of 1.525 shares of BR
Common Stock for each share of LL&E Stock.
(d) The Pro Forma Cash Dividends per Share is calculated based upon the
historical cash dividends paid by LL&E and BR.
(e) The Pro Forma Payout Ratio is based upon BR's current dividend of $.55
multiplied by the total common shares outstanding after applying the
Exchange Ratio of 1.525 divided by the pro forma net income.
(f) The unaudited Equivalent Pro Forma per Common Share Data is calculated by
multiplying the Pro Forma per Common Share Data by the Exchange Ratio of
1.525 shares.
11
<PAGE> 19
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BR
The following table sets forth summary selected historical consolidated
financial data for BR as of and for each of the five years in the period ended
December 31, 1996 and as of and for the six months ended June 30, 1997 and 1996.
Such data have been derived from, and should be read in conjunction with, the
audited consolidated financial statements and other financial information
contained in BR's Annual Report on Form 10-K for the year ended December 31,
1996 and the unaudited consolidated interim financial information contained in
BR's Quarterly Report on Form 10-Q for the six months ended June 30, 1997,
including the notes thereto, incorporated by reference herein. See "Available
Information" and "Incorporation of Documents by Reference."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- -------------------------------------------
1997 1996 1996 1995 1994 1993 1992(A)
------ ------ ------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues............................. $ 666 $ 551 $1,293 $ 873 $1,055 $1,043 $ 943
Operating Income (Loss)(b)........... 238 159 418 (467) 175 256 240
Income (Loss) from Continuing
Operations(b)(c).................. 189 86 255 (280) 154 256 190
Income (Loss) from Continuing
Operations per Common
Share(b)(c)(d).................... 1.52 .68 2.02 (2.20) 1.20 1.96 1.44
BALANCE SHEET DATA
Total Assets(b)...................... $4,372 $4,175 $4,316 $4,142 $4,809 $4,448 $4,470
Long-term Debt....................... 1,347 1,358 1,347 1,350 1,309 819 1,003
Stockholders' Equity(b).............. 2,416 2,223 2,333 2,220 2,568 2,608 2,406
Common Shares Outstanding............ 124 125 125 127 127 130 129
Cash Dividends Declared per Common
Share(e).......................... .275 .275 .55 .55 .55 .55 .60
CASH FLOW DATA
Net Cash Provided by Operating
Activities........................ $ 407 $ 272 $ 652 $ 452 $ 498 $ 455 $ 433
Net Cash Provided by (Used in)
Investing Activities.............. 59 (197) (423) (406) (799) (331) (354)
Net Cash Provided by (Used in)
Financing Activities.............. (85) (76) (181) (45) 301 (137) (176)
</TABLE>
- ---------------
(a) In 1992, as a result of the spin-off of El Paso Natural Gas Company
("EPNG"), EPNG's results of operations were reported as discontinued and
have been excluded from the historical consolidated financial data.
(b) In 1995, as a result of the impairment of oil and gas assets related to the
adoption of SFAS No. 121, BR recognized a non-cash, pretax charge of $490
million ($304 million after tax).
(c) In 1997, BR recognized a $31 million after tax gain, or Earnings per Common
Share ("EPS") of $.25, on sale of oil and gas properties associated with its
accelerated divestiture program.
(d) Excluding the gain related to the sale of oil and gas properties associated
with the accelerated divestiture program, EPS would have been $1.27 for the
six months ended June 30, 1997. Excluding non-recurring items totaling $.15,
$2.39, $.47 and $.24 per share, EPS would have been $2.17, $.19, $1.49 and
$1.20 in 1996, 1995, 1993 and 1992, respectively.
(e) On January 13, 1993, BR increased its quarterly dividend rate to $.1375 per
share. In July 1992, the quarterly dividend rate was reduced from $.175 per
share to $.125 per share to reflect the June 30, 1992 spin-off of EPNG to BR
stockholders.
12
<PAGE> 20
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LL&E
The following table sets forth summary selected historical consolidated
financial data for LL&E as of and for each of the five years in the period ended
December 31, 1996 and as of and for the six months ended June 30, 1997 and 1996.
Such data have been derived from, and should be read in conjunction with, the
audited consolidated financial statements and other financial information
contained in LL&E's Annual Report on Form 10-K for the year ended December 31,
1996 and the unaudited consolidated interim financial information contained in
LL&E's Quarterly Report on Form 10-Q for the six months ended June 30, 1997,
including the notes thereto, incorporated by reference herein. See "Available
Information" and "Incorporation of Documents by Reference."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues(a)................... $ 306 $ 509 $ 863 $ 822 $ 789 $ 794 $ 766
Operating Profit
(Loss)(a)(b)(c)(d)......... 76 95 194 113 (288) 91 53
Net Earnings
(Loss)(a)(b)(c)(d)......... 27 38 80 19 (227) 10 (7)
Earnings (Loss) per
Share(a)(b)(c)(d).......... .79 1.11 2.35 .56 (6.80) .33 (.24)
BALANCE SHEET DATA
Total Assets(b)(c)(d)......... $1,346 $1,455 $1,365 $1,468 $1,478 $1,839 $1,209
Long-term Debt................ 460 592 506 692 740 735 343
Stockholders'
Equity(b)(c)(d)............ 502 428 475 371 352 600 417
Average Shares................ 34 34 34 34 33 30 28
Cash Dividends Declared per
Share(e)................... .12 .12 .24 .24 1.00 1.00 1.00
CASH FLOW DATA
Net Cash Flows From Operating
Activities(f).............. $ 198 $ 177 $ 318 $ 221 $ 212 $ 179 $ 179
Net Cash Flows From Investing
Activities(f).............. (144) (99) (163) (174) (238) (722) (116)
Net Cash Flows From Financing
Activities................. (47) (77) (157) (49) 5 536 (49)
</TABLE>
- ---------------
(a) Effective July 31, 1996, LL&E sold its crude oil refinery resulting in a
gain of $2 million. For the six months ended June 30, 1996 and for each of
the five years in the period ended December 31, 1996, the refinery generated
revenues of $225 million, $264 million, $355 million, $361 million, $400
million and $442 million, respectively, and pretax operating profits
(losses) of $8 million, $7 million, $3 million, ($37) million, ($10) million
and $10 million, respectively.
(b) During 1994, LL&E changed its method of assessing the impairment of
long-lived assets. As a result, LL&E recognized a non-cash pretax charge of
$319 million ($210 million after tax).
(c) In 1993, LL&E changed its method of accounting for income taxes and recorded
a $14 million credit to earnings. LL&E also completed the sale of certain
assets in Canada for approximately $43 million resulting in a gain of
approximately $24 million (before income taxes of approximately $10
million).
(d) In 1992, LL&E recorded a charge of approximately $54 million (before income
tax benefits of approximately $18 million) against earnings to provide for
the restructuring of its oil and gas operations and completed the sale of
substantially all of the selected properties for a purchase price of
approximately
13
<PAGE> 21
$48 million, resulting in a gain of approximately $8 million which was
applied against the restructuring charges.
(e) In 1995, LL&E decreased its quarterly dividend rate to $.06 per share and
directed the savings to the capital and exploration program.
(f) LL&E reports Net Cash Flows from Operating Activities and Net Cash Flows
from Investing Activities using a different method than BR. LL&E excludes
and BR includes exploratory seismic costs in exploration costs when
adjusting net income (loss) to Net Cash Flows from Operating Activities. If
LL&E had utilized BR's method, Net Cash Flows from Operating Activities
would have been greater and Net Cash Flows from Investing Activities would
have been less by $18 million and $14 million for the six months ended June
30, 1997 and 1996, respectively, and $22 million, $13 million, $18 million,
$17 million and $11 million for the years ended December 31, 1996, 1995,
1994, 1993 and 1992, respectively.
14
<PAGE> 22
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma combined
financial data which are presented to give effect to the Merger of BR and LL&E
under the pooling of interests method of accounting. The income statement data
for each of the three years in the period ended December 31, 1996 and the six
months ended June 30, 1997, assume that the Merger had been consummated at the
beginning of the earliest period presented. The balance sheet data assume that
the Merger had been consummated on June 30, 1997. The unaudited pro forma
combined financial data do not reflect any cost savings and other synergies
anticipated by BR management as a result of the Merger and are not necessarily
indicative of the results of operations or the financial position which would
have occurred had the Merger been consummated at the beginning of the earliest
period presented, nor are they necessarily indicative of future results of
operations or financial position. The unaudited pro forma combined financial
data should be read in conjunction with the historical consolidated financial
statements of BR and LL&E, including the notes thereto, incorporated by
reference in this Joint Proxy Statement/Prospectus and the unaudited pro forma
combined financial statements contained elsewhere herein. See "Available
Information," "Incorporation of Documents by Reference" and "Unaudited Pro Forma
Combined Financial Statements."
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, --------------------------
1997 1996 1995 1994
-------------- ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues......................................... $ 972 $2,154 $1,693 $1,837
Operating Income (Loss).......................... 288 560 (410) (174)
Net Income (Loss)................................ 216 335 (261) (73)
Earnings (Loss) per Common Share................. 1.22 1.88 (1.47) (.41)
Weighted Average Number of Common Shares
Outstanding................................... 177 178 178 180
BALANCE SHEET DATA
Cash, Cash Equivalents and Short-term
Investments................................... $ 506
Total Assets..................................... 5,720
Long-term Debt................................... 1,807
Stockholders' Equity............................. 2,847
Common Shares Outstanding........................ 176
Cash Dividends Declared per Common Share......... .22
</TABLE>
15
<PAGE> 23
THE SPECIAL MEETINGS
GENERAL
The BR Special Meeting will be held at 9:00 a.m., local time, on Wednesday,
October 22, 1997, at The Ambassador Room of The Sheraton Hotel, 1919 Briar Oaks
Lane, Houston, Texas for the purpose set forth in the Notice of BR Special
Meeting and as described below. The LL&E Special Meeting will be held at 9:00
a.m. local time, on Wednesday, October 22, 1997, at the Pan American Life
Auditorium, 11th Floor, Pan American Life Center, 601 Poydras Street, New
Orleans, Louisiana for the purpose set forth in the Notice of LL&E Special
Meeting and as described below. This Joint Proxy Statement/Prospectus is
furnished in connection with the solicitation by the Board of Directors of each
of BR and LL&E of proxies to be used at their respective Special Meeting and at
any and all adjournments or postponements of such Special Meetings. Any person
executing a proxy card may revoke it prior to its exercise by filing with the
Corporate Secretary of BR or LL&E, as the case may be, prior to or at the
applicable Special Meeting, at the address specified under the caption
"Available Information" in this Joint Proxy Statement/Prospectus, either an
instrument revoking the proxy or a duly executed proxy bearing a later date.
VOTING SECURITIES AND RECORD DATES
BR. BR stockholders of record at the close of business on September 10,
1997 are entitled to notice of and to vote at the BR Special Meeting. On
September 10, 1997, there were 123,815,853 outstanding shares of BR Common
Stock. Each share of BR Common Stock is entitled to one vote. No shares of BR
preferred stock were outstanding as of the BR Record Date. The presence, in
person or by proxy, at the BR Special Meeting of the holders of a majority of
the shares of BR Common Stock outstanding and entitled to vote at the BR Special
Meeting is necessary to constitute a quorum at the BR Special Meeting. The
affirmative vote of the holders of a majority of the shares of BR Common Stock
present and entitled to vote at the BR Special Meeting is required to approve
the Stock Issuance; provided, however, that the total number of votes cast on
the Stock Issuance represents more than 50% of the outstanding shares of BR
Common Stock entitled to vote thereon at the BR Special Meeting. Abstentions
will be counted for the purpose of determining the existence of a quorum.
LL&E. LL&E stockholders of record at the close of business on September
10, 1997 are entitled to notice of and to vote at the LL&E Special Meeting. On
September 10, 1997, there were 34,558,056 outstanding shares of LL&E Stock. Each
share of LL&E Stock is entitled to one vote. The presence, in person or by
proxy, at the LL&E Special Meeting of the holders of a majority of the shares of
LL&E Stock outstanding and entitled to vote at the LL&E Special Meeting is
necessary to constitute a quorum at the LL&E Special Meeting. The affirmative
vote of the holders of at least two-thirds of outstanding LL&E Stock entitled to
vote is required to approve the LL&E Proposal. Abstentions will be counted for
the purpose of determining the existence of a quorum.
PURPOSE OF SPECIAL MEETINGS
BR. The purpose of the BR Special Meeting is to (i) consider and vote upon
the BR Proposal to approve the Stock Issuance in accordance with the Merger
Agreement and (ii) transact such other business as may properly come before the
BR Special Meeting and at any and all adjournments or postponements thereof.
LL&E. The purpose of the LL&E Special Meeting is to (i) consider and vote
upon the LL&E Proposal to approve the Merger Agreement, the Merger and the
transactions contemplated thereby and (ii) transact such other business as may
properly come before the LL&E Special Meeting and at any and all adjournments or
postponements thereof. A copy of the Merger Agreement is attached hereto as
Appendix A.
PROXIES
All shares of BR Common Stock and LL&E Stock represented by properly
executed proxies received prior to or at the BR Special Meeting or LL&E Special
Meeting, as the case may be, and not duly and timely revoked, will be voted in
accordance with the instructions indicated on such proxies. If no instructions
are
16
<PAGE> 24
indicated on a properly executed returned proxy, such proxies will be voted FOR
the approval of the BR Proposal or the LL&E Proposal, as the case may be. A
properly executed proxy marked "ABSTAIN," although counted for purposes of
determining whether there is a quorum and for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote at
the applicable Special Meeting, will not be voted. Accordingly, since the
affirmative vote of a majority of shares present and entitled to vote is
required for approval of the BR Proposal and the affirmative vote of at least
two-thirds of all votes entitled to be cast by all holders of LL&E Stock is
required for the LL&E Proposal, a proxy marked "ABSTAIN" will have the effect of
a vote against the related proposals. Shares represented by "broker non-votes"
(i.e., shares held by brokers or nominees which are represented at a meeting but
with respect to which the broker or nominee is not empowered to vote) will be
counted for purposes of determining whether there is a quorum at a Special
Meeting. In accordance with NYSE rules, brokers and nominees are precluded from
exercising their voting discretion with respect to the approval and adoption of
either the BR Proposal or the LL&E Proposal and thus, absent specific
instructions from the beneficial owner of such shares, are not empowered to vote
such shares with respect to the approval and adoption of such proposals. Since
the affirmative vote of a majority of the BR Common Stock present and entitled
to vote is required to approve the BR Proposal (provided that the number of
votes cast represents more than 50% of the outstanding shares of BR Common
Stock), a "broker non-vote" or the failure to be present in person or by proxy
at the BR Special Meeting will have no effect upon the outcome of the vote with
respect to the BR Proposal, provided that the total number of votes cast on such
proposal represents more than 50% of the outstanding shares of BR Common Stock.
However, since the affirmative vote of at least two-thirds of the outstanding
LL&E Stock entitled to vote is required to approve the LL&E Proposal, a "broker
non-vote" or the failure to vote in person or by proxy will have the effect of a
vote against the LL&E Proposal.
The BR Board and the LL&E Board are not currently aware of any business to
be acted upon at their respective Special Meeting other than as described
herein. If, however, other matters are properly brought before either Special
Meeting, or any adjournments or postponements thereof, the persons appointed as
proxies will have discretion to vote or act thereon according to their judgment.
Such adjournments may be for the purpose of soliciting additional proxies.
Neither BR or LL&E currently intends to seek an adjournment of its Special
Meeting.
Any proxy given pursuant to this solicitation may be revoked at any time
before such proxy is voted. Attendance at the BR Special Meeting or the LL&E
Special Meeting will not in and of itself constitute a revocation of a proxy.
The cost of soliciting proxies will be borne by BR for BR proxies and by
LL&E for LL&E proxies. In addition to the use of the mail, arrangements will be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to beneficial owners and BR or LL&E, as the case may be,
will, upon request, reimburse them for their reasonable expenses. BR and LL&E
have retained D.F. King & Co., Inc. to aid in the solicitation of proxies and to
verify certain records related to the solicitation at a maximum fee of $32,500
plus expenses. To the extent necessary in order to ensure sufficient
representation at its Special Meeting, BR or LL&E may request by telephone,
telegram or in person the return of proxy cards. The extent to which this will
be necessary depends entirely upon how promptly proxy cards are returned.
Stockholders are urged to send in their proxies without delay.
LL&E STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR LL&E STOCK WILL BE MAILED BY A BANK OR TRUST COMPANY DESIGNATED
BY BR AS THE EXCHANGE AGENT (THE "EXCHANGE AGENT") AS SOON AS PRACTICABLE AFTER
THE CONSUMMATION OF THE MERGER.
17
<PAGE> 25
THE COMPANIES
BR. BR is the largest independent (nonintegrated) oil and gas exploration
and production company in the United States in terms of total domestic proved
equivalent reserves, which were estimated at 6.4 Tcfe (trillion cubic feet of
gas equivalent) at December 31, 1996. BR is a holding company engaged, through
its subsidiaries, in the exploration, development and production of oil and gas,
and related marketing activities.
BR's principal executive offices are located at 5051 Westheimer, Suite
1400, Houston, Texas 77056, and its telephone number at that address is (713)
624-9500.
LL&E. LL&E is one of the largest independent oil and gas exploration and
production companies based in the United States. LL&E's domestic operations are
focused in three areas. In the onshore Gulf Coast area, LL&E owns nearly 600,000
acres of land in south Louisiana. In the Gulf of Mexico, LL&E owns interests in
125 leases in the shallow outer continental shelf and 73 leases in the deep
water area. In the Rocky Mountains, LL&E is the operator and a significant
working interest owner in the vast gas accumulation at the Madden Field in
Wyoming. Internationally, in addition to its production operations in the North
Sea and offshore Indonesia, LL&E is actively exploring for new reserves in
world-class hydrocarbon basins, including Algeria and Venezuela.
LL&E's principal executive offices are located at 909 Poydras Street, New
Orleans, Louisiana 70112, and its telephone number at that address is (504)
566-6500.
SUB. Sub is a wholly owned subsidiary of BR, incorporated in Maryland on
July 15, 1997 for the purpose of effectuating the Merger and the other
transactions contemplated by the Merger Agreement. Prior to the consummation of
the Merger, Sub will not engage in any activity other than activities related to
the transactions contemplated by the Merger Agreement. Sub's principal executive
offices are located at 5051 Westheimer, Suite 1400, Houston, Texas 77056.
THE MERGER
GENERAL
At the Effective Time of the Merger, Sub will be merged with and into LL&E,
with LL&E surviving the Merger as a wholly owned subsidiary of BR. In the
Merger, each share of LL&E Stock issued and outstanding immediately before the
Effective Time (excluding those held in the treasury of LL&E and those owned by
BR or Sub), without any action on the part of the holder thereof, will be
converted into the right to receive 1.525 shares of BR Common Stock. Each share
of BR Common Stock issued to holders of LL&E Stock in the Merger will be issued
together with one associated BR Right under the BR Rights Plan. Cash will be
paid in lieu of fractional shares of BR Common Stock. The Merger will become
effective upon the acceptance for record of the Articles of Merger by the State
Department of Assessments and Taxation of Maryland, which is currently expected
to occur after receipt of requisite regulatory and stockholder approvals. The
acceptance for record of the Articles of Merger will occur as soon as
practicable following the satisfaction or waiver of the conditions set forth in
the Merger Agreement.
The shares of BR Common Stock issued to LL&E stockholders in the Merger
will constitute approximately 30% of all of the outstanding shares of BR Common
Stock after the Merger and the current BR stockholders will hold approximately
70% of all of the outstanding shares of BR Common Stock after the Merger.
Each outstanding and unexercised LL&E Option to purchase shares of LL&E
Stock will be assumed by BR in the Merger and converted into a Substitute Option
to purchase shares of BR Common Stock. Approximately 2.5 million shares of BR
Common Stock will be subject to such converted options based on the number of
shares of LL&E Stock subject to the existing LL&E Options multiplied by the
Exchange Ratio, and the exercise price with respect thereto will equal the
exercise price under the LL&E Options divided by the Exchange Ratio.
18
<PAGE> 26
BACKGROUND OF THE MERGER
In light of LL&E's anticipated capital and resource requirements going
forward both to pursue opportunities in the higher cost frontier and foreign
areas and to exploit aggressively its existing positions, LL&E has been engaged
in a review of ways in which it might best achieve its strategic goals and
enhance stockholder value. In addition to considering acquisitions of smaller
companies within the industry, LL&E has also given consideration to strategic
combinations with larger companies. In mid-April 1997, Bobby S. Shackouls, who
was then President and Chief Executive Officer of BR and who is now Chairman,
President and Chief Executive Officer of BR, requested a meeting with H.
Leighton Steward, the Chairman, Chief Executive Officer and President of LL&E.
The two met on April 23, 1997, at which time Mr. Shackouls communicated BR's
interest in pursuing a strategic combination with LL&E. Following the meeting,
LL&E's ongoing strategic review process identified BR as the most attractive
partner for a strategic combination.
Shortly after this initial meeting, Messrs. Shackouls and Steward met again
to discuss in general terms the future of the industry, the direction of their
respective companies, their strategies for growth, their management philosophies
and other matters, including a framework for possible future discussions
regarding a strategic combination of the two companies. Among the elements of
such a framework were a range of possible exchange ratios which would result in
an appropriate premium to LL&E stockholders, proportional representation of the
LL&E Board on the board of directors of the combined entity and integration of
the managements and other personnel of the two companies within the combined
entity.
On May 8, 1997, at a regularly scheduled meeting of the LL&E Board, Mr.
Steward reported BR's approach and the substance of his discussions with Mr.
Shackouls. Following a presentation regarding strategic options available to
LL&E, a review of available information regarding BR and a review, based upon
such information, of a possible strategic combination of BR and LL&E, the Board
authorized LL&E management and advisors to explore further the possibility of a
strategic combination with BR.
Mr. Steward contacted Mr. Shackouls by telephone on May 8, 1997 and advised
him that he was prepared to continue discussions. They also discussed the
procedures which would be appropriate in order to explore further the
feasibility of such a combination.
Messrs. Steward and Shackouls met on May 19, 1997 and discussed further the
possibility of a strategic merger. This discussion resulted in the companies'
counsels discussing by telephone, and the parties entering into, a mutual
confidentiality and standstill agreement which was entered into on May 22, 1997.
On May 22 and 28, 1997, Mr. Steward and Mr. Shackouls spoke by telephone to
discuss the benefits and challenges associated with a strategic combination of
the two companies. They identified important areas of due diligence and
concluded that it would be appropriate to involve key members of their
respective senior managements in a mutual informational exchange.
On May 28 and 29, 1997, Mr. Shackouls telephoned the members of the BR
Board individually to brief them on BR's discussions with LL&E.
On May 30 and 31, 1997, members of the senior management of each of LL&E
and BR, along with representatives of Morgan Stanley, BR's financial advisor,
SBC Warburg Dillon Read, LL&E's co-financial advisor, Cahill Gordon & Reindel,
counsel to LL&E, and Fried, Frank, Harris, Shriver & Jacobson, counsel to BR,
met to exchange information. Management representatives of LL&E and BR each made
a presentation about their respective businesses to the other and responded to
questions. The parties discussed their respective business strategies,
operations, principal properties, financial statements, capital budgets and
related matters as well as certain tax and accounting issues. At the end of the
sessions, Messrs. Steward, Shackouls and their respective counsel met to discuss
the possible exchange of additional information. Messrs. Steward and Shackouls
concluded that there was an insufficient level of agreement on certain issues to
warrant a further exchange and the information exchange process was suspended.
Mr. Shackouls called Mr. Steward on June 1, 1997 and a meeting was arranged
for the following day among Messrs. Shackouls and Steward and Mr. Thomas H.
O'Leary, then Chairman of BR. Mr. Steward reported to the LL&E Board on June 1,
1997 the status of the situation with BR.
19
<PAGE> 27
The scheduled meeting among Messrs. Shackouls, Steward and O'Leary took
place on June 2, 1997, but did not result in a resumption of the mutual
information exchange or the scheduling of future substantive discussions between
the parties.
Representatives of Morgan Stanley contacted a representative of SBC Warburg
Dillon Read on June 10, 1997 to discuss whether there was a basis upon which to
resume discussions. Discussions between the financial advisors during the next
few days resulted in a proposal to resume an informal exchange of information.
On June 20, 1997, Mr. Shackouls and Mr. Steward met and reviewed the status
of various issues, including Board representation, the principles and process
which might be utilized to establish an exchange ratio and management and
employee integration issues. During this meeting, they decided to resume the
information exchange.
During the following week, various information was exchanged between
representatives of BR and LL&E and on July 1 and 2, 1997, LL&E and BR, and their
respective financial and legal advisors, met to exchange additional data.
On July 3 through July 6, 1997, LL&E and BR and their respective legal
counsel and financial advisors negotiated the structure of the Merger and
certain provisions of the Merger Agreement, the Stock Option Agreement and other
related documents. The parties and their advisors also reviewed the data
received.
On July 6, 1997, BR and LL&E and their respective legal counsel and
financial advisors met to discuss the exchange ratio. These discussions did not
result in an agreement on an exchange ratio. The next morning, Mr. Steward met
with Mr. Shackouls and the two agreed to terminate negotiations. The LL&E Board
of Directors was apprised of this development.
On July 9, 1997, Mr. Shackouls provided an update of the status of the
discussions with LL&E to the BR Board at its regularly scheduled meeting.
On July 10, 1997, legal counsel to LL&E and BR met to review various issues
and to discuss the feasibility of resuming discussions. They agreed to recommend
to their respective clients that discussions resume on the basis of a framework
proposed by such counsel. On July 13, 1997, Mr. Shackouls and Mr. Steward met
and discussed matters principally relating to the exchange ratio.
From July 13 through July 16, 1997, representatives of LL&E and BR,
including their financial advisors, legal counsel and accountants, held numerous
meetings to complete their respective factual investigations, resolve various
open issues, employee benefit matters and the accounting treatment of the
Merger, and to finalize the documentation of the Merger. The exchange ratio was
agreed to on July 14, 1997.
On July 16, 1997, the LL&E Board met with senior management and LL&E's
financial and legal advisors to review the proposed Merger. LL&E's management
made a presentation regarding LL&E, BR and the proposed Merger. LL&E's financial
advisors gave a detailed review of their analyses of the terms of the proposed
Merger and each of SBC Warburg Dillon Read and Merrill Lynch orally delivered
its opinion, subsequently confirmed in writing, that as of such date the
Exchange Ratio was fair to the stockholders of LL&E from a financial point of
view. Finally, legal counsel reviewed with the LL&E Board the material terms of
the legal documentation to be entered into by LL&E and the Board's fiduciary
duties and obligations in consideration of the proposed transaction. After
discussion and consideration of the factors described under "-- Reasons for the
Merger; Recommendation of the Boards -- Reasons for the Merger -- LL&E," the
LL&E Board unanimously approved the Merger, the Merger Agreement and the
transactions contemplated thereby.
On July 16, 1997, the BR Board met with senior management of BR and BR's
financial and legal advisors to review the proposed Merger. BR's management made
presentations regarding BR, LL&E and the proposed Merger. Morgan Stanley, BR's
financial advisor, gave its presentation on certain financial aspects of the
Merger and orally delivered its opinion that, as of such date, the Exchange
Ratio was fair to BR from a financial point of view. Legal counsel reviewed with
the BR Board the material terms of the legal documentation to be entered into by
BR and the BR Board's fiduciary duties and obligations in consideration of the
proposed Merger. After discussion and consideration of the factors described
under "-- Reasons for the
20
<PAGE> 28
Merger; Recommendation of the Boards -- Reasons for the Merger -- BR," the BR
Board unanimously approved the Merger Agreement and the transactions
contemplated thereby.
On the evening of July 16, 1997, LL&E and BR executed the Merger Agreement
and the Stock Option Agreement.
On July 17, 1997, the parties publicly announced that they had entered into
a definitive agreement to effect a strategic combination.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS
Reasons for the Merger -- BR
At a meeting on July 16, 1997, the BR Board unanimously approved the Merger
Agreement and the transactions contemplated thereby. The BR Board believes that
the Merger is in the best interests of BR and its stockholders and recommends
that BR's stockholders vote "FOR" approval of the Stock Issuance.
In reaching its determination, the BR Board consulted with BR's management,
as well as its financial and legal advisors, and considered the following
material factors:
(i) New Model "Super Independent." The BR Board's belief that the
Merger will create a new model of oil and gas company -- the "super
independent," combining the critical mass, diversity of global
opportunities and financial strength of a major oil and gas company with
the exploration and exploitation skills, entrepreneurial spirit,
flexibility and responsiveness of an independent oil and gas company.
(ii) Complementary Strategic Combination. The BR Board's belief that
the Merger combines two oil and gas companies with highly complementary
management and operating expertise, personnel, asset portfolios and
financial attributes. The Merger combines BR's more stable primarily
domestic portfolio of properties with LL&E's higher risk domestic and
international asset mix, resulting in an attractive reserve life of
approximately 10 years and a 75%/25% mix between gas and oil production.
(iii) Substantially Enhanced Growth Opportunities. The BR Board's
belief, in view of the factors described in (iv) through (x) below, that
the Merger should enable the combined company to exceed the rates of growth
of net asset value and cash flows that BR might achieve on a stand-alone
basis.
(iv) Immediate Cash Flow Per Share Accretion. The Merger is expected
to be immediately accretive to BR's operating cash flow per share, although
the Merger is expected initially to be dilutive to BR's earnings per share.
See "Selected Historical Consolidated Financial Data of BR," "Selected
Historical Consolidated Financial Data of LL&E" and "Unaudited Pro Forma
Combined Financial Statements."
(v) Strong Financial Position to Exploit Growth Opportunities. The
combined company, on a pro forma basis at June 30, 1997, had approximately
$506 million of cash and short-term investments, a net debt to capital
ratio of approximately 31%, and a net debt to total market capitalization
ratio of approximately 14%. The combined company expects annual operating
cash flows to exceed one billion dollars. This strong balance sheet and
expected operating cash flow should permit the combined company to exploit
and retain larger ownership interests in a greater number of LL&E's
exploration prospects and to develop these prospects more rapidly than LL&E
could on a stand-alone basis.
(vi) Attractive and Diverse Portfolio of Global Opportunities. The
combined company will have a diversified asset base, with interests in oil
and gas producing properties in most of the major domestic oil and gas
basins and will have interests in several of the most attractive
international hydrocarbon basins, including Algeria, Venezuela and the
North Sea. The combined company will enjoy critical mass in the high
potential deep water area of the Gulf of Mexico, with interests in 101 deep
water leases. The financial resources and relationships of the combined
company should enable it to explore and exploit these leases more rapidly
than BR or LL&E could on a stand-alone basis. LL&E's interest in the vast
unrealized potential of the Madden Field in Wyoming represents a
substantial growth opportunity, and
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BR's technical and operating strengths, as well as its gas transportation
and processing expertise, should permit the combined company to exploit
this property quickly and cost effectively.
(vii) Critical Mass. On a pro forma basis, the combined company will
rank second in worldwide proved reserves among U.S. independent oil and gas
companies, with proved reserves of approximately 7.7 Tcfe (trillion cubic
feet of gas equivalent) at June 30, 1997 (based upon BR's proved reserves
of approximately 5.6 Tcfe and LL&E's proved reserves of approximately 2.1
Tcfe at June 30, 1997), second in worldwide daily production among U.S.
independent oil and gas companies, with daily production of 2.2 Bcfe/d
(billion cubic feet of gas equivalent/day), first in worldwide net
developed acreage among U.S. independent oil and gas companies, with net
developed acreage of approximately 3.1 million acres, and third in domestic
proved gas reserves among all U.S. oil and gas companies (major and
independent), with domestic proved gas reserves of approximately 5.8 Tcf
(trillion cubic feet of gas).
(viii) Operational Synergies from Combined Expertise. BR's
operational and technological expertise in the exploitation of oil and gas
properties should substantially enhance the value of LL&E's exploration
projects and provide additional exploitation opportunities within LL&E's
existing assets, while LL&E's experienced exploration staff should generate
additional exploration prospects which will be additive to BR's existing
inventory of exploratory prospects. The combined company will have
substantial expertise in key oil and gas exploration and exploitation
technologies, combining technological expertise in coalbed methane
recovery, horizontal drilling, gas processing, ultra deep drilling, 3D
seismic and deep water explorations.
(ix) Potential Cost Synergies. The combined company should have
substantial professional resources which will allow the optimal deployment
of existing personnel. Through operating efficiencies, rationalization of
personnel and facilities, and other cost savings opportunities, the
combined company expects to realize annual savings of $20 million to $30
million by 1999.
(x) Enhanced Gas Marketing Capability. The Merger will enhance the
scope of BR's natural gas marketing, adding LL&E's Gulf Coast and Rocky
Mountain natural gas production to BR's existing production and east/west
transportation capacity. This should enable the combined company to move
substantial natural gas volumes to the highest value markets nationwide.
The combined company's enhanced natural gas marketing capabilities should
enable the combined company to obtain improved pricing for the natural gas
it produces.
(xi) Transaction Terms. The terms of the Merger Agreement and the
Stock Option Agreement, including the fact that BR will be entitled to
receive up to a total of $120,000,000 in fees and LL&E Stock, plus
reimbursement of its expenses up to $8,000,000, under certain
circumstances, if the Merger Agreement is terminated.
(xii) Advice of Financial Advisor. The opinion of BR's financial
advisor, Morgan Stanley, described below, as to the fairness to BR from a
financial point of view of the Exchange Ratio. See "-- Opinion of BR's
Financial Advisor."
(xiii) Presentation of BR Management. BR management's presentation and
conclusion that the Exchange Ratio is fair from a financial point of view
to BR.
(xiv) Certain Risks. The BR Board also considered potential risks
associated with the Merger, including the possibilities that the combined
company may not be able to retain and successfully integrate key personnel
of BR and LL&E, that the combined company may not realize significant
operational or financial synergies, and that the Merger could be disruptive
to the businesses or operations of BR and LL&E.
The foregoing discussion sets forth the material information and factors
considered by the BR Board. In view of the variety of factors considered in
connection with its evaluation of the Merger, the BR Board did not find it
practicable or necessary to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the BR Board may have given different weights to
different factors.
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THE BR BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF BR COMMON STOCK
VOTE FOR APPROVAL OF THE STOCK ISSUANCE.
Reasons for the Merger -- LL&E
The LL&E Board has (a) determined unanimously that the Merger, the Merger
Agreement and the transactions contemplated thereby are advisable and fair to
and in the best interests of LL&E and its stockholders, (b) directed that the
proposed transaction be submitted for consideration by the LL&E stockholders and
(c) recommended that LL&E stockholders vote in favor of the approval of the
Merger, the Merger Agreement and the transactions contemplated thereby. In
reaching this conclusion, the LL&E Board, with the assistance of its financial
and legal advisors, considered a number of factors, including, without
limitation, the following:
(i) the Merger will permit LL&E stockholders to share in the combined
company's positive synergies in terms of enhanced financial and operational
resources and flexibility, the combination of complementary skills and
experience, as well as the combined entity's enhanced ability to take
advantage of future strategic opportunities;
(ii) the Merger should allow the combined company to meet the
challenges of the increasingly competitive environment in the oil and gas
industry more effectively than LL&E could on its own because BR's financial
capacity and engineering expertise complement LL&E's exploration skills,
domestic and international property base and prospect inventory, thereby
enabling LL&E to achieve its strategic objectives substantially earlier
than it could independently;
(iii) the Board considered and analyzed alternative strategies for
growth to address the anticipated need for greater capital to pursue
opportunities in the future and to exploit aggressively LL&E's present
positions and found the Merger to be the best alternative;
(iv) the addition of BR's more stable, primarily domestic portfolio of
property to LL&E's higher risk, domestic and international asset mix
creates a diverse and complementary asset base;
(v) the combination of BR's longer-lived gas reserves with LL&E's
shorter-lived reserve base should result in an attractive reserve life of
approximately 10 years, with a 75%/25% mix between gas and oil production;
(vi) the oral and written presentations of SBC Warburg Dillon Read and
Merrill Lynch and their respective opinions that, as of July 16, 1997, the
Exchange Ratio is fair to the stockholders of LL&E from a financial point
of view and the analyses forming the bases for such opinions. See
"-- Opinions of LL&E's Financial Advisors" for a discussion of the factors
considered in rendering the opinions. Such opinions, which are subject to
limitations, qualifications and assumptions, are included as Appendices D
and E, respectively, hereto and should be read in their entirety;
(vii) LL&E management's presentation and conclusion that the Exchange
Ratio is fair from a financial point of view to the stockholders of LL&E;
and
(viii) the view of LL&E management that there would be cost-saving
synergies from the Merger which should improve the financial performance of
the combined entity through the elimination of duplicative activities and
by creating improved operating efficiencies and lower costs.
In reaching the determination that the Merger, the Merger Agreement and the
transactions contemplated thereby were fair to and in the best interests of LL&E
and its stockholders, the LL&E Board also considered a number of additional
factors, including its discussions with LL&E's management concerning the results
of LL&E's investigation of BR, the strategic, operational and financial
opportunities available to LL&E, the historical and current market prices of
LL&E Stock and BR Common Stock and the proposed structure of the transaction and
the other terms of the Merger Agreement and related agreements.
The LL&E Board also considered certain risks and potential disadvantages
associated with the Merger, including the risk that the positive synergies will
not be realized to the degree anticipated if key management
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personnel of both companies are not successfully retained and productively
integrated into the combined organization, the management distractions
necessarily associated with a business combination of the magnitude of the
Merger and the potential disruption to the businesses of BR and LL&E, along with
the risk that the transaction might not be completed as a result of a failure to
satisfy the conditions to the Merger Agreement.
The foregoing discussion of the information and factors which were given
weight by the LL&E Board is not intended to be exhaustive, but is believed to
include all material factors considered by the LL&E Board. The LL&E Board did
not assign specific weights to the foregoing factors and individual directors
may have given different weights to different factors. After considering all
such factors,
THE LL&E BOARD UNANIMOUSLY RECOMMENDS TO ITS STOCKHOLDERS THAT THEY VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER, THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF BR'S FINANCIAL ADVISOR
BR retained Morgan Stanley to act as its financial advisor in connection
with the transactions contemplated by the Merger Agreement based on Morgan
Stanley's qualifications, expertise and reputation. On July 16, 1997, Morgan
Stanley rendered to the BR Board its oral opinion which was confirmed in writing
by a letter dated July 16, 1997 (the "Morgan Stanley Opinion") that, as of such
date and based upon and subject to the various considerations set forth in such
opinion, the Exchange Ratio pursuant to the Merger Agreement was fair from a
financial point of view to BR. The BR Board does not intend to obtain any
further opinion of Morgan Stanley in connection with the Merger.
THE FULL TEXT OF THE MORGAN STANLEY OPINION WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS OF THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX C TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF
BR COMMON STOCK ARE URGED TO, AND SHOULD, READ THE MORGAN STANLEY OPINION
CAREFULLY AND IN ITS ENTIRETY. THE MORGAN STANLEY OPINION IS DIRECTED TO THE BR
BOARD, ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO PURSUANT TO THE MERGER
AGREEMENT FROM A FINANCIAL POINT OF VIEW TO BR, AND DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER, DOES NOT EXPRESS AN OPINION AS TO THE PRICE AT WHICH BR
COMMON STOCK WILL TRADE AT ANY TIME, NOR DOES IT CONSTITUTE AN OPINION OR
RECOMMENDATION TO ANY STOCKHOLDER OF BR AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE BR SPECIAL MEETING. THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH
IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things: (i) reviewed certain publicly available financial statements and other
information of LL&E and BR; (ii) reviewed certain internal financial statements
and other financial and operating data, including internal reserve estimates and
certain financial forecasts, concerning LL&E prepared by the management of LL&E;
(iii) discussed the past and current operations and financial condition and the
prospects of LL&E, including information relating to certain strategic,
financial and operational benefits anticipated from the Merger, with senior
executives of LL&E; (iv) analyzed certain internal financial statements and
other financial operating data, including internal reserve estimates and certain
financial forecasts, concerning BR prepared by the management of BR; (v)
discussed the past and current operations and financial condition and the
prospects of BR, including information relating to certain strategic, financial
and operational benefits anticipated from the Merger, with senior executives of
BR, and analyzed the pro forma impact of the Merger on BR's cash flow per share,
earnings per share, consolidated capitalization and financial ratios; (vi)
reviewed the reported prices and trading activity for LL&E Stock and BR Common
Stock; (vii) compared the financial performance of LL&E and the prices and
trading activity of LL&E Stock with that of certain other comparable
publicly-traded
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companies and their securities; (viii) compared the financial performance of BR
and the prices and trading activity of BR Common Stock with that of certain
other comparable publicly-traded companies and their securities; (ix) reviewed
the financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (x) participated in discussions and negotiations among
representatives of LL&E and BR and their financial and legal advisors; (xi)
reviewed the July 15, 1997 draft of the Merger Agreement, including exhibits
thereto, and certain related documents; and (xii) performed such other analyses
and considered such other factors as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to the
financial forecasts provided by the management of LL&E and BR, respectively,
Morgan Stanley assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the future financial
performance of LL&E and BR, respectively. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of LL&E or BR,
nor was Morgan Stanley furnished with any such appraisal. With respect to the
reserve estimates referred to in clauses (ii) and (iv) in the above paragraph,
Morgan Stanley is not an expert in the engineering evaluation of oil and gas
properties and, with the consent of BR Board, has relied solely upon the
internal reserve estimates of LL&E and BR, respectively. In addition, Morgan
Stanley assumed that the Merger would be consummated in accordance with the
terms set forth in the July 15, 1997 draft of the Merger Agreement. Morgan
Stanley also relied as to all legal matters on advice of counsel to BR. The
Morgan Stanley Opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to Morgan Stanley
as of the date of, the Morgan Stanley Opinion. Morgan Stanley does not have any
obligation to update, revise or reaffirm its opinion.
The following is a summary of certain analyses contained in the materials
presented by Morgan Stanley to the BR Board at its meeting on July 16, 1997 in
connection with the Morgan Stanley Opinion.
Historical Stock Price Analysis. Morgan Stanley reviewed the daily
historical ratios of the closing stock prices per share of LL&E Stock and BR
Common Stock for the period from July 14, 1995 to July 15, 1997. Morgan Stanley
calculated that the average of the ratios of the closing stock prices per share
of LL&E Stock and BR Common Stock for the following specified periods ending
July 15, 1997 were (i) 1.151x since July 14, 1995 (ii) 1.201x over the last 30
days and (iii) 1.160x over the last twelve months (with a high of 1.508x and a
low of .899x since July 14, 1996). In addition, the ratio of closing stock
prices per share of LL&E Stock and BR Common Stock on July 15, 1997 was
approximately 1.212x. This is in comparison to the Exchange Ratio of 1.525.
Comparable Company Analysis. As part of this analysis, Morgan Stanley
compared certain financial information of BR and LL&E with that of a group of
eight publicly traded oil and gas exploration and production companies: Anadarko
Petroleum Corporation, Apache Corporation, Enron Oil & Gas Company, Noble
Affiliates, Inc., Oryx Energy Company, Pogo Producing Company, Santa Fe Energy
Resources, Inc., and United Meridian Corporation (collectively, the
"Comparables"). Such comparison of financial information included analysis of
financial ratios such as stock price to forecasted 1997 and 1998 cash flow per
share and the multiple of equity value plus net debt plus preferred stock
("Aggregate Value") to forecasted 1997 and 1998 earnings before interest, taxes,
depreciation and amortization ("EBITDA"). Morgan Stanley noted that (i) based on
a compilation of cash flow projections obtained from Morgan Stanley's equity
research and other equity research analysts and on share prices as of July 15,
1997, the Comparables traded at multiples of share price to forecasted 1997 cash
flow per share in a range of 4.1 times to 11.8 times and to forecasted 1998 cash
flow per share in a range of 3.8 times to 9.6 times, compared to 7.7 times for
BR and 5.2 times for LL&E based on forecasted 1997 cash flow per share, and
compared to 7.7 times for BR and 5.1 times for LL&E based on forecasted 1998
cash flow per share, and (ii) based on publicly available information and
implied market valuations as of July 15, 1997, the Comparables traded at
multiples of Aggregate Value to forecasted 1997 EBITDA in a range of 4.8 times
to 11.8 times, and at multiples of Aggregate Value to forecasted 1998 EBITDA in
a range of 3.5 times to 9.6 times, compared to 7.1 times for BR and 5.9 times
for LL&E based on forecasted 1997 EBITDA, and compared to 7.2 times for BR and
5.8 times for LL&E based on forecasted 1998 EBITDA.
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No company utilized in the comparable company analysis is identical to BR
or LL&E. In evaluating the Comparables, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of BR and LL&E such as the impact of competition on the business of BR
and LL&E and the industry generally, industry growth and the absence of any
material adverse change in the financial condition and prospects of BR or LL&E
or the industry or in the financial markets in general. Mathematical analysis
(such as determining the average or median) of the financial ratios of the
Comparables is not in itself a meaningful method of using comparable company
data.
Relative Net Asset Valuation Analysis. Morgan Stanley estimated the present
value of the future cash flows that LL&E expects to generate from its proved,
probable and possible reserves as of January 1, 1997 based on reserve,
production and production cost estimates and a range of discount rates, all as
provided by LL&E management and discussed with BR management without giving
effect to any potential synergies that may result from the Merger. Morgan
Stanley added to such estimated values for proved, probable and possible
reserves assessments of the historical value of certain other assets and
liabilities of LL&E, including certain exploration and exploitation prospects,
other land and acreage, working capital and debt under three scenarios (the "Low
Case", the "Base Case", and the "High Case"). These assessments were made by
Morgan Stanley based on information provided by LL&E management and on various
industry benchmarks and assumptions provided by and discussed with BR
management.
Morgan Stanley estimated the present value of the future cash flows that BR
expects to generate from its proved reserves as of January 1, 1997 based on
reserve, production and production cost estimates and a range of discount rates,
all as provided by BR management and discussed with BR management without giving
effect to any potential synergies that may result from the Merger. Morgan
Stanley added to such estimated values for proved reserves assessments of the
historical value of certain other assets and liabilities of BR, including
probable and possible reserves, certain additional exploration and exploitation
prospects, other land and acreage, working capital and debt under three
scenarios (the "Low Case", the "Base Case", and the "High Case"). These
assessments were made by Morgan Stanley based on information provided by BR
management and on various industry benchmarks and assumptions provided by BR
management and discussed with BR management.
For the purposes of this analysis, Morgan Stanley relied on the accuracy of
all estimates and information provided by LL&E and BR. From this analysis Morgan
Stanley calculated a range of implied per share equity values for LL&E and BR,
in the Base Case, Low Case, and High Case scenarios, respectively. The Relative
Net Asset Valuation Analysis resulted in implied exchange ratios for the LL&E
Base Case relative to the BR Low Case and High Case of 1.1 to 1.9, for the LL&E
Low Case relative to the BR Low Case and High Case of 0.8 to 1.3, and for the
LL&E High Case relative to the BR Low Case and High Case of 1.3 to 2.1,
respectively. The Relative Net Asset Valuation Analysis resulted in implied
exchange ratios for the BR Base Case relative to the LL&E Low Case and High Case
of 0.9 to 1.5, for the BR Low Case relative to the LL&E Low Case and High Case
of 1.3 to 2.1, and for the BR High Case relative to the LL&E Low Case and High
Case of 0.8 to 1.3, respectively.
Contribution Analysis. Morgan Stanley reviewed certain historical operating
and financial information (including, among other things, equity market
capitalization, book value, oil and gas production volumes, 1996 standardized
measure discounted future net cash flows ("SEC 10 Value"), and proved reserves)
for BR, LL&E and the pro forma combined entity resulting from the Merger,
without giving effect to any potential synergies that may result from the
Merger, based on publicly available information. The analysis indicated that
LL&E, the stockholders of which will receive approximately 30% of the fully
diluted equity interest of the combined company, would contribute (i) 25.8% of
the combined pro forma equity market capitalization of the combined company
based on the implied market valuation of BR and LL&E as of July 15, 1997, (ii)
26.1% of the total debt of the combined company based on the total debt of BR
and LL&E as of March 31, 1997, respectively, (iii) 17.2% of the book value of
the combined company based on the book value of BR and LL&E as of March 31,
1997, respectively, (iv) 48.3%, 21.6% and 28.3% of the pro forma combined oil,
gas and total production, respectively, based on annualized second quarter
production volumes as of June 30, 1997, (v) 22.5% of the pro forma combined SEC
10 Value as of December 31, 1996, and (vi) 36.5%, 24.3%
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and 26.8% of the pro forma combined oil, gas and total reserves, respectively,
of the combined entity based on the adjusted total reserves as of December 31,
1996 of BR and LL&E, respectively.
Analysis of Certain Pro Forma Credit Considerations. Morgan Stanley
reviewed certain pro forma credit considerations for the combined entity
following the Merger based on certain income statement and balance sheet items
of BR and LL&E, respectively, as of March 31, 1997. In conducting such analysis,
Morgan Stanley assumed that the Merger will be accounted for as a pooling of
interests. Such analysis indicated the following pro forma information. Pro
forma Last Twelve Months ("LTM") earnings before interest and taxes ("EBIT") as
a multiple of pro forma LTM net interest would be 4.5 times for the combined
entity, compared to 4.6 times and 4.0 times for BR and LL&E, respectively, on a
stand-alone basis for the LTM ending March 31, 1997. The pro forma cash flow to
total net debt ratio would be 72.0% for the combined entity, compared to 64.2%
and 96.7% for BR and LL&E, respectively, on a stand-alone basis for the LTM
ending March 31, 1997. The pro forma net debt to total market capitalization
ratio would be 14.2% for the combined entity, compared to 13.0% and 17.8% for BR
and LL&E, respectively, on a stand-alone basis for the LTM ending March 31, 1997
and based on the implied market valuation of BR and LL&E as of July 15, 1997.
The pro forma net debt to total book capitalization ratio would be 30.4% for the
combined entity, compared to 26.2% and 45.5% for BR and LL&E, respectively, on a
stand-alone basis for the LTM ending March 31, 1997.
Analysis of Impact of the Merger on Operating Cash Flow. Morgan Stanley
analyzed the impact of the Merger on BR's operating cash flow per share for the
fiscal years ended 1997 and 1998 without giving effect to any potential
synergies that may result from the Merger. The analysis was performed utilizing
securities research analyst estimates, including estimates provided by Morgan
Stanley's equity research analysts, for the fiscal years ended 1997 and 1998 for
BR and LL&E, respectively. Based on these forecasts, the Merger is expected to
be modestly accretive to BR's operating cash flow per share in the first year
after the consummation of the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses or factors considered by it, without
considering all analyses and factors as a whole, would create an incomplete view
of the process underlying its opinion. In addition, Morgan Stanley may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis described above
should therefore not be taken to be Morgan Stanley's view of the actual value of
BR or LL&E.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of BR or LL&E. The analyses
performed by Morgan Stanley are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as a part of
Morgan Stanley's analyses of the fairness of the Exchange Ratio from a financial
point of view to BR in connection with the Merger and were conducted in
connection with the delivery of the Morgan Stanley Opinion. The analyses do not
purport to be appraisals or to reflect the prices at which BR or LL&E actually
may be valued or the prices at which their stocks may actually trade in the
marketplace. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
In addition, as described in this Joint Proxy Statement/Prospectus, Morgan
Stanley's opinion and presentation to the BR Board was one of many factors taken
into consideration by the BR Board in making its determination to recommend
approval of the issuance of BR Common Stock in the Merger. Consequently, the
Morgan Stanley analyses described above should not be viewed as determinative of
the opinion of the BR Board or the view of the management of BR with respect to
the value of BR or of whether the BR Board would have been willing to agree to a
different exchange ratio. The Exchange Ratio was determined through negotiations
between BR and LL&E and was approved by the BR Board. Morgan Stanley provided
advice to BR during the course of such negotiations; however, the decision to
enter into the Merger Agreement and to accept the Exchange Ratio was solely that
of the BR Board.
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Pursuant to a letter agreement dated June 1, 1997 (the "Morgan Stanley
Engagement Letter"), BR engaged Morgan Stanley to act as its financial advisor
in connection with a potential business combination with LL&E. Pursuant to the
terms of the Morgan Stanley Engagement Letter, BR agreed to pay Morgan Stanley
an advisory fee or a transaction fee depending on whether a transaction is
consummated. The advisory fee, payable if no transaction is consummated, is
expected to be between $100,000 and $150,000. If a transaction involving LL&E is
consummated, Morgan Stanley will be entitled to receive a transaction fee of
approximately $11.2 million against which any advisory fee paid will be
credited. BR has also agreed to reimburse Morgan Stanley for its out-of-pocket
and legal expenses and to indemnify Morgan Stanley and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling Morgan Stanley or any of its affiliates against certain liabilities,
including liabilities under federal securities laws, and expenses, related to
Morgan Stanley's engagement.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. As part of its investment banking business, Morgan Stanley is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations, for estate, corporate and other purposes. Morgan
Stanley is a full-service securities firm engaged in securities trading and
brokerage activities, as well as providing investment banking, financing and
financial advisory services. In the course of its trading, brokerage and
financing activities, Morgan Stanley may, at any time, hold long or short
positions in, and may trade or otherwise effect transactions for its own account
or the accounts of customers in, debt or equity securities or senior loans of BR
or LL&E. From time to time, Morgan Stanley has provided investment banking and
financial advisory services to BR and LL&E and has received fees for rendering
such services.
OPINIONS OF LL&E'S FINANCIAL ADVISORS
Opinion of SBC Warburg Dillon Read
LL&E retained SBC Warburg Dillon Read to act as one of its financial
advisors in connection with the Merger. Prior thereto, SBC Warburg Dillon Read
had provided general financial advisory and financing services for LL&E from
time to time.
On July 16, 1997, SBC Warburg Dillon Read rendered its oral opinion, which
was confirmed by its written opinion dated July 16, 1997, to the LL&E Board to
the effect that, based upon and subject to certain matters stated therein, as of
the date of such opinion, the Exchange Ratio was fair to LL&E stockholders from
a financial point of view.
THE FULL TEXT OF THE SBC WARBURG DILLON READ OPINION DATED JULY 16, 1997,
WHICH SETS FORTH A DESCRIPTION OF THE ASSUMPTIONS MADE, GENERAL PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED HERETO AS APPENDIX D. SBC WARBURG DILLON READ'S OPINION IS DIRECTED
ONLY TO THE FAIRNESS TO LL&E STOCKHOLDERS, FROM A FINANCIAL POINT OF VIEW, OF
THE EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY LL&E
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER AGREEMENT. LL&E
STOCKHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY, ESPECIALLY
WITH REGARD TO THE ASSUMPTIONS MADE AND MATTERS CONSIDERED BY SBC WARBURG DILLON
READ. THE SUMMARY OF THE OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
SBC Warburg Dillon Read has consented to the use of Appendix D, containing
its opinion dated July 16, 1997, in this Joint Proxy Statement/Prospectus and to
the references to SBC Warburg Dillon Read under the headings "Summary" and "The
Merger" in this Joint Proxy Statement/Prospectus. In giving such consent, SBC
Warburg Dillon Read does not admit that it comes within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission promulgated thereunder, nor does SBC Warburg
Dillon Read admit that it is an expert with respect to any part of the
Registration Statement in which this Joint Proxy Statement/Prospectus is
included, within the meaning of the term "experts" as used in the Securities Act
or the rules and regulations of the Commission promulgated thereunder.
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In arriving at its opinion, SBC Warburg Dillon Read has, among other
things, (i) reviewed the Merger Agreement, (ii) reviewed certain publicly
available business and historical financial information relating to LL&E and BR,
(iii) reviewed and performed analyses based on certain financial information and
other data relating to the business and prospects of LL&E that was prepared by
the management of LL&E, including financial projections based on LL&E's business
plan and, in particular, (A) certain estimates of the proved, probable and
possible reserves, (B) projected annual production of such reserves, (C)
exploration successes and related production in certain domestic and
international areas, and (D) amounts and timing of the cost savings and related
expenses and synergies expected to result from the Merger ("Expected
Synergies"), (iv) reviewed certain financial information and other data relating
to the business and prospects of BR that was prepared by the management of BR,
including financial projections based on BR's business plan and, in particular,
(A) certain estimates of the proved reserves and (B) projected annual production
of such reserves, (v) considered the pro forma per share effects of the Merger
on LL&E's and BR's current and prospective earnings and cash flow per share,
(vi) reviewed publicly available financial and stock market data with respect to
certain other companies in lines of business we believe to be generally
comparable to those of LL&E and BR, (vii) compared the financial terms of the
Merger with the financial terms of certain other selected transactions, (viii)
reviewed the historical market prices and trading volumes of the LL&E Stock and
the BR Common Stock, (ix) conducted discussions with selected members of the
senior managements of LL&E and BR and participated in certain discussions and
negotiations among representatives of LL&E and BR and their financial advisors
and legal advisors, and (x) conducted such other financial studies, analyses and
investigations, and considered such other information as SBC Warburg Dillon Read
deemed necessary or appropriate.
In connection with its review, SBC Warburg Dillon Read has not
independently verified any of the foregoing information and has relied on its
being complete and accurate in all material respects. In addition, SBC Warburg
Dillon Read has not made any evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of LL&E or BR, nor has SBC Warburg Dillon
Read been furnished with any such evaluation or appraisal other than the
valuation assessments discussed above.
With respect to the financial projections referred to above, SBC Warburg
Dillon Read has assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of LL&E's and
BR's managements as to the future financial performance of each company. With
respect to the Expected Synergies, SBC Warburg Dillon Read has assumed that they
have also been reasonably prepared on bases reflecting the best currently
available estimates and judgments of LL&E's management. SBC Warburg Dillon Read
has further assumed that the Merger will qualify as a tax-free reorganization
for U.S. federal income tax purposes. Further, SBC Warburg Dillon Read's opinion
is based on economic, monetary and market conditions existing on the date of its
opinion.
SBC Warburg Dillon Read was not authorized by LL&E or the LL&E Board to
solicit, nor did it solicit, third party indications of interest for the
acquisition of all or any part of LL&E. In addition, SBC Warburg Dillon Read was
not asked to consider, and its opinion does not in any manner address, the price
at which shares of BR will actually trade following the consummation of the
Merger. LL&E did not impose any other limitations on the scope of SBC Warburg
Dillon Read's analyses.
In arriving at its opinion and as to the significance and relevance of each
analysis and factor, SBC Warburg Dillon Read did not assign any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments based on its experience in rendering such opinions and on the existing
economic, monetary and market conditions as of the date of its opinion.
Accordingly, SBC Warburg Dillon Read believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered, without considering all analyses and factors, could create a
misleading or incomplete view of the processes underlying such analyses and its
opinion. In its analyses, SBC Warburg Dillon Read made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond LL&E's or BR's control. Any estimates
contained in SBC Warburg Dillon Read's analyses are not necessarily indicative
of actual values or predictive of the future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of a business or securities do not purport to be
appraisals or to reflect the actual prices at which businesses or securities
might be sold.
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The following paragraphs summarize the material quantitative analyses
performed by SBC Warburg Dillon Read in arriving at the opinion dated July 16,
1997 presented to the LL&E Board:
Historical Stock Trading Analysis. SBC Warburg Dillon Read reviewed the
daily historical closing prices of LL&E Stock during the period from January 1,
1995 to July 11, 1997. During this period, the low closing share price for LL&E
was $32.625 on January 31, 1995, and the high closing share price for LL&E was
$62.250 on November 22, 1996. SBC Warburg Dillon Read also reviewed the ratio of
the closing share price of LL&E to the closing share price of BR during the
period from January 1, 1995 to July 11, 1997. During this period, the average
implied exchange ratio was 1.114, the low implied exchange ratio was 0.890 on
March 14, 1995 and the high implied exchange ratio was 1.508 on May 21, 1996
compared to the Exchange Ratio of 1.525.
Relative Net Asset Valuation Analysis. Under this method, SBC Warburg
Dillon Read calculated the present value of the future cash flows that (i) LL&E
expects to generate from its proved, probable and possible reserves in each of
its domestic operating regions and internationally, in the United Kingdom,
Colombia and Indonesia, and that (ii) BR expects to generate from its proved
reserves in each of its domestic operating regions. The present value
calculations for LL&E and BR were performed as of January 1, 1997 and
incorporated three separate pricing scenarios (the "Low Case," the "Base Case"
and the "Upside Case"). The present value of the future cash flows for LL&E and
BR were analyzed over a range of pre-tax discount rates from 12% to 15% and
after-tax discount rates from 10% to 12%.
In addition to the present value of BR's proved reserves, SBC Warburg
Dillon Read made an estimate of BR's probable and possible reserves. The
Relative Net Asset Valuation Analysis also included certain assessments of the
valuations of certain miscellaneous assets, and the undeveloped properties and
exploratory prospects of LL&E and BR. The summation of the present value of each
company's proved, probable and possible reserves and each company's
miscellaneous assets (including net working capital and cash proceeds from
exercise of stock options), undeveloped properties and exploratory prospects
less each company's (i) estimated present value of certain general and
administrative expenses, (ii) long-term debt and (iii) estimates of certain
other long-term liabilities, each as of January 1, 1997, represented each
respective company's aggregate net asset value. The net asset value per share
for each company was then determined on a fully-diluted basis as of January 1,
1997.
The three natural gas price scenarios were based on NYMEX (Henry Hub,
Louisiana delivery) price forecasts from which adjustments were made by each
respective company to reflect the value differential related to (i) the
transportation charges associated with location of the gas reserves relative to
the Henry Hub, Louisiana delivery point, (ii) the volumetric heating value
relative to the British Thermal Unit ("Btu") quote per the NYMEX price quotation
and (iii) such other adjustments required to reflect the price received at the
wellhead for any given property, well or field. The NYMEX price quotation is
stated in heating value equivalents of 1,000 Btus per one cubic foot of gas
delivered to the Henry Hub. The NYMEX natural gas price is quoted in $/MMBtu
(millions of Btus).
The three oil price scenarios were also based on NYMEX (Cushing, Oklahoma
delivery) price forecasts from which adjustments were also made by each
respective company to reflect the value differential related to (i) the
transportation charges associated with location of the oil reserves relative to
the Cushing, Oklahoma delivery point and (ii) such other adjustments required to
reflect the price received at the wellhead for any given property, well or
field.
In the Low Case price scenario, natural gas prices on a NYMEX basis for the
period beginning January 1, 1997 were assumed to remain constant at $1.95 per
MMBtu. Oil prices for the same period and on the same NYMEX basis were assumed
to also remain constant at $18.65 per barrel. In addition, lease operating costs
and capital expenditures were also unescalated under the Low Case price
scenario.
In the Base Case price scenario, natural gas prices on a NYMEX basis per
MMBtu for the years 1997 through 2007 were assumed to be $2.12, $2.11, $2.17,
$2.24, $2.31, $2.38, $2.45, $2.53, $2.61, $2.70 and $2.79, respectively, and
were assumed to escalate at 3.4% per annum thereafter. In the Base Case price
scenario, oil prices on a NYMEX basis per barrel for the years 1997 through 2007
were assumed to be $20.87, $20.80,
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$21.20, $21.75, $22.27, $22.82, $23.39, $23.98, $24.53, $25.18 and $25.76,
respectively, and were assumed to escalate at 2.6% per annum thereafter.
In the Upside Case price scenario, natural gas prices on a NYMEX basis per
MMBtu for the years 1997 through 2007 were assumed to be $2.21, $2.30, $2.40,
$2.50, $2.60, $2.70, $2.81, $2.92, $3.04, $3.16 and $3.29, respectively, and
were assumed to escalate at 3.0% per annum thereafter. In the Upside Case price
scenario, oil prices on a NYMEX basis per barrel for the years 1997 through 2007
were assumed to be $20.25, $22.00, $23.00, $24.00, $25.00, $26.04, $27.13,
$28.26, $29.43, $30.66 and $31.94, respectively, and were assumed to escalate at
3.0% per annum thereafter.
In addition, the lease operating expenses and capital expenditures were
escalated on an annual basis at 2% and 4%, respectively, for the Base Case and
Upside Case price scenarios.
The Relative Net Asset Valuation Analysis resulted in implied exchange
ratio ranges for the Low Case, Base Case and Upside Case oil and gas price
scenarios of 1.309 to 1.311, 1.456 to 1.474, and 1.518 to 1.591, respectively.
Relative Comparable Company Trading Analysis. SBC Warburg Dillon Read
calculated implied equity values for LL&E and BR and the resultant implied
exchange ratios based on an analysis of the following publicly traded companies:
Anadarko Petroleum Corporation, Apache Corporation, Enron Oil and Gas Company,
Enserch Exploration, Inc., Murphy Oil Corporation, Newfield Exploration Company,
Noble Affiliates, Inc., Oryx Energy Company, Pogo Producing Company, Seagull
Energy Corporation, Union Pacific Resources Group Inc., Union Texas Petroleum
Holdings, Inc., United Meridian Corporation and Vastar Resources, Inc.
(collectively, the "Comparable Companies"). In an attempt to better measure
trading levels of these companies which SBC Warburg Dillon Read believes may be
affected, in part, by their reserve and production characteristics, SBC Warburg
Dillon Read further divided this group into those companies with a
reserves/production statistic ("R/P") less than 9.0 (the "Low R/P Peer Group")
and those with an R/P greater than or equal to 9.0 (the "High R/P Peer Group").
LL&E has an R/P of 7.2, and BR has an R/P of 11.5. SBC Warburg Dillon Read
compared LL&E's financial statistics to the Low R/P Peer Group and BR's
financial statistics to the High R/P Peer Group.
SBC Warburg Dillon Read calculated the net market capitalization of the
Comparable Companies as a multiple of each such company's (i) earnings before
interest, taxes, depreciation, depletion, amortization, and exploration expense
("EBITDAX") for the latest twelve months ("LTM") ended March 31, 1997 or the
date of the latest available 10-K or 10-Q, (ii) estimated 1997 EBITDAX and (iii)
estimated 1998 EBITDAX. For this purpose, SBC Warburg Dillon Read defined "Net
Market Capitalization" as market value of the relevant company's common equity
plus total debt, plus liquidation value of preferred stock and book value of
minority interest, less cash and cash equivalents. SBC Warburg Dillon Read then
calculated the implied Net Market Capitalization for LL&E based on the Low R/P
Peer Group and for BR based on the High R/P Peer Group. The average multiples
yielded by such calculations for the Low R/P Peer Group were 5.6x LTM EBITDAX,
5.5x estimated 1997 EBITDAX, and 5.0x estimated 1998 EBITDAX. The average
multiples yielded by such calculations for the High R/P Peer Group were 7.1x LTM
EBITDAX, 7.0x estimated 1997 EBITDAX, and 6.1x estimated 1998 EBITDAX. Applying
these multiples to LL&E's and BR's Base Case business plan statistics resulted
in implied exchange ratios of 1.305, 1.271, and 1.252, respectively.
SBC Warburg Dillon Read also calculated the adjusted Net Market
Capitalization of LL&E based on the Low R/P Peer Group and the adjusted Net
Market Capitalization of BR based on the High R/P Peer Group as a multiple of
each such company's 1996 fiscal year-end pre-tax SEC 10 value, 1996 fiscal
year-end after-tax SEC 10 value and proved reserves also as of each company's
respective fiscal year-end on an Mcf equivalent ("Mcfe") (6:1) basis. The
average multiples yielded by such calculations for the Low R/P Peer Group were
$1.54 per Mcfe, 0.9x 1996 fiscal year-end pre-tax SEC 10 value and 1.2x 1996
fiscal year-end after-tax SEC 10 value. The average multiples yielded by such
calculations for the High R/P Peer Group were $1.17 per Mcfe, 0.9x 1996 fiscal
year-end pre-tax SEC 10 value and 1.3x 1996 fiscal year-end after-tax SEC 10
value. Applying these multiples to LL&E's and BR's Base Case business plan
statistics resulted in implied exchange ratios of 1.168, 1.035, and 0.940,
respectively.
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SBC Warburg Dillon Read also calculated the implied equity value of LL&E
based on the Low R/P Peer Group and the implied equity value of BR based on the
High R/P Peer Group as a multiple of each such company's cash flow from
operations ("CFFO"). SBC Warburg Dillon Read defined "CFFO" as net income plus
depreciation, depletion, amortization, deferred taxes, exploration expenses and
other non-cash items, but before effects of changes in working capital. The
average multiples yielded by such calculations for the Low R/P Peer Group were
5.4x LTM CFFO, 5.3x estimated 1997 CFFO and 4.8x estimated 1998 CFFO. The
average multiples yielded by such calculations for the High R/P Peer Group were
7.3x LTM CFFO, 7.0x estimated 1997 CFFO and 6.3x estimated 1998 CFFO. Applying
these multiples to LL&E's and BR's Base Case business plan statistics resulted
in implied exchange ratios of 1.180, 1.192, and 1.126, respectively.
No company utilized in the above Relative Comparable Company Trading
Analysis nor any company or transaction utilized in the Transaction Multiples
for Selected Acquisitions analysis below is identical to LL&E, BR or the Merger.
Accordingly, an analysis of the results of such analyses is not purely
mathematical. Rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
Relative Discounted Cash Flow Analysis. SBC Warburg Dillon Read performed a
discounted cash flow analysis on each of LL&E and BR on a standalone basis using
a set of underlying operating projections which were based upon the financial
forecasts provided by the respective managements of LL&E and BR under the Low
Case, Base Case, and Upside Case commodity price scenarios (collectively, the
"Management Cases") described above. In addition, a revised plan for BR under
each of the Low Case, Base Case, and Upside Case commodity price scenarios (the
"Revised Low Case," "Revised Base Case," and "Revised Upside Case," collectively
the "Revised Cases") was developed pursuant to discussions with LL&E's technical
team. The BR Revised Cases reflected certain adjustments to BR's business plan,
which included, but were not limited to, reductions in its drilling programs in
the Mid-Continent and Gulf Coast regions.
Utilizing the projections discussed above, SBC Warburg Dillon Read
calculated the theoretical discounted net present value per fully-diluted share
for each of LL&E and BR by adding together the present value of (i) the
projected stream of unlevered free cash flow after changes in working capital
and capital expenditures through the year 2002 for each company and (ii) the
projected value at the end of the year 2002 (the "Terminal Value") less the net
debt balance for each respective company as of March 31, 1997. The discount
rates applied to both companies ranged from 10.0% to 12.0%. The terminal
multiples of EBITDAX used to calculate the Terminal Value of each company ranged
from 5.0x to 6.0x for LL&E and from 6.5x to 7.5x for BR.
A comparison of the relative discounted cash flow values of the LL&E
Management Cases and the BR Management Cases resulted in implied Low Case, Base
Case and Upside Case exchange ratios ranges of 1.120 to 1.207, 1.221 to 1.289,
and 1.325 to 1.385, respectively. A comparison of the relative discounted cash
flow values of the LL&E Management Cases and the BR Revised Cases resulted in
implied Low Case, Base Case, and Upside Case exchange ratio ranges of 1.687 to
1.827, 1.729 to 1.840, and 1.821 to 1.914, respectively.
Contribution Analysis. SBC Warburg Dillon Read analyzed the relative
contribution of LTM CFFO from each of LL&E and BR, which resulted in an implied
exchange ratio of 1.552, and estimated 1997 through estimated 2002 CFFO, under
each of the price scenarios for the LL&E Management Cases, the BR Management
Cases and the BR Revised Cases. A comparison of the LL&E Management Cases and
the BR Management Cases for each of the Low Case, Base Case, and Upside Case
price scenarios resulted in implied exchange ratio ranges of 1.244 to 1.434,
1.207 to 1.538, and 1.232 to 1.475, respectively. A comparison of the LL&E
Management Cases and the BR Revised Cases resulted in Low Case, Base Case, and
Upside Case implied exchange ratio ranges of 1.295 to 2.207, 1.517 to 2.126, and
1.468 to 2.117, respectively. In addition, SBC Warburg Dillon Read analyzed the
Contribution Analysis based on the market value of equity as of July 11, 1997,
Net Market Capitalization, total reserves at year-end 1996, 1996 total
production, year-end 1996 pre-tax SEC 10 value, year-end 1996 after-tax SEC 10
value, year-end 1996 pre-tax SEC 10 value adjusted for net debt and year-end
1996 after-tax SEC 10 value adjusted for net debt that each of LL&E and
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BR would contribute to the total of the combined entity. These statistics
resulted in implied exchange ratio ranges of 0.916 to 1.441.
Transaction Multiples for Selected Acquisitions. SBC Warburg Dillon Read
reviewed publicly available information about the following acquisitions that
involved acquisitions of domestic oil and gas exploration and production
companies that were announced between January 1995 and July 1997 with
transaction values in excess of $250 million: YPF SA/Maxus Energy Corporation,
Enserch Exploration, Inc./Dalen Corporation, Barrett Resources
Corporation/Plains Petroleum Company, Joint Energy Development Investments
Limited Partnership/Coda Energy, Inc., Apache Corporation/The Phoenix Resource
Companies, Inc., Samedan Oil Corporation/Energy Development Corporation, Seagull
Energy Corporation/Global Natural Resources Inc., Lomak Petroleum, Inc./American
Cometra, Inc., Mesa Operating Co./Greenhill Petroleum Corporation, TPG Partners
II, L.P./Belden & Blake Corporation, Mesa Inc./Parker & Parsley Petroleum
Company, The Eastern Group, Inc./Blazer Energy Corp., Louis Dreyfus Natural Gas
Corp./American Exploration Company, and the Meridian Resources Corporation/Cairn
Energy USA, Inc.
SBC Warburg Dillon Read calculated the equity transaction value as a
multiple of LTM CFFO and arrived at an average multiple of 7.5x compared to the
implied multiple for LL&E of 6.7x based on the terms of the Merger and the
closing share price of BR as of July 11, 1997. SBC Warburg Dillon Read also
calculated the total transaction value as a multiple of LTM EBITDAX, total
proved reserves on an Mcfe basis and pre-tax SEC 10 value for each of the
transactions above. The average multiples were 7.8x LTM EBITDAX, $1.25 per Mcfe,
and 1.3x pre-tax SEC 10 value compared to implied transaction multiples of 6.4x,
$1.76 per Mcfe, and 1.2x, respectively, for LL&E based on the terms of the
Merger and on the closing share price of BR as of July 11, 1997. For purposes of
this analysis, SBC Warburg Dillon Read has excluded the high and low multiple
values from the averages and has defined "Transaction Value" as equity
transaction value plus total debt, plus liquidation value of preferred stock and
book value of minority interest, less cash and cash equivalents.
In addition to the transactions above, SBC Warburg Dillon Read reviewed
premiums paid for: (i) friendly stock-for-stock transactions from January 1,
1995 through July 11, 1997 with a transaction value greater than $500 million,
which resulted in average premiums of 35.9% four weeks prior to the
announcement, 33.6% one week prior to the announcement, 27.2% one day prior to
the announcement, and 3.6% compared to the 12 month high; (ii) energy-related
(excluding utility) stock-for-stock transactions from January 1, 1995 through
July 11, 1997 with a transaction value greater than $100 million, which resulted
in average premiums of 24.2% four weeks prior to the announcement, 19.3% one
week prior to the announcement, 15.5% one day prior to the announcement, and
0.6% compared to the 12 month high; and (iii) energy-related (excluding utility)
transactions from January 1, 1995 through July 11, 1997 with a transaction value
greater than $100 million, which resulted in average premiums of 28.4% four
weeks prior to announcement, 25.6% one week prior to announcement, 22.8% one day
prior to announcement, and 2.5% compared to the 12 month high. Based on closing
share prices as of July 11, 1997, implied transaction share price premiums for
LL&E would be 38.1% four weeks prior to announcement date, 16.7% one week prior
to announcement date, 24.1% one day prior to announcement date, and 11.8%
compared to the 12 month high.
Pro Forma Merger Consequences Analysis. SBC Warburg Dillon Read analyzed
certain pro forma effects that could result from the Merger. In connection with
such analyses, SBC Warburg Dillon Read reviewed the projections provided by the
management of LL&E with respect to the future financial performance of LL&E
under the Base Case price scenario for the years 1997 through 2002. Similarly,
SBC Warburg Dillon Read reviewed the projections provided by the management of
BR with respect to the future financial performance of BR under the Base Case
and the Revised Base Case price scenarios for the years 1997 through 2002. Based
upon these projections and certain cost savings and synergies that LL&E's
management expects to result from the Merger and assuming pooling of interests
accounting treatment, SBC Warburg Dillon Read examined the impact of the Merger
on fully-diluted earnings per share ("EPS") and fully-diluted CFFO per share to
LL&E's shareholders. Under BR's Base Case, this analysis indicated that the
Merger would be accretive to LL&E's EPS by 147.2% in 1997 and 52.3% in 1998.
This analysis also indicated that the Merger would be dilutive to LL&E's CFFO
per share by 0.8% in 1997 and accretive by 7.3% in 1998. SBC Warburg Dillon Read
also performed an analysis that assumed that only 50% of the above costs savings
and synergies are
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realized. This analysis indicated that the Merger would be accretive to LL&E's
EPS by 147.2% in 1997 and 43.4% in 1998. This analysis also indicated that the
Merger would be dilutive to LL&E's CFFO per share by 0.8% in 1997 and accretive
by 5.7% in 1998.
Under BR's Revised Base Case, this analysis incorporating the same
assumptions as above indicated that the Merger would be accretive to LL&E's EPS
by 150.0% in 1997 and 55.6% in 1998. This analysis also indicated that the
Merger would be dilutive to LL&E's CFFO per share by 0.5% in 1997 and 1.9% in
1998. SBC Warburg Dillon Read also performed an analysis that assumed that only
50% of the above cost savings and synergies are realized. This analysis
indicated that the Merger would be accretive to LL&E's EPS by 150.0% in 1997 and
46.6% in 1998. This analysis also indicated that the Merger would be dilutive to
LL&E's CFFO per share by 0.5% in 1997 and 3.5% in 1998.
In addition to the accretion/dilution analysis, SBC Warburg Dillon Read
looked at the impact of the Merger on LL&E's dividend per share. Pro forma for
the Merger, LL&E's dividend would increase 249.2% on a per share basis, based on
BR's existing dividend rate of $0.55 per share.
SBC Warburg Dillon Read also combined the theoretical net present value of
LL&E's business plan under its Base Case price scenario and the theoretical net
present value of BR's business plan under its Base Case price scenario plus the
present value of cost savings and synergies as estimated by LL&E's management
utilizing the discounted cash flow methodology with discount rates ranging from
10.0% to 12.0% for both companies and terminal multiples of 5.5x and 7.0x for
LL&E (pro forma for the Merger) and 7.0x for BR. SBC Warburg Dillon Read
calculated that under this methodology and assuming a 1.525 exchange ratio, LL&E
shareholders would experience a change in theoretical value ranging from an
increase of 24.2% to an increase of 33.4% pro forma for the Merger relative to
the standalone theoretical value of LL&E under the above assumptions. SBC
Warburg Dillon Read also combined the theoretical value of LL&E under its Base
Case scenario and the theoretical value of BR under its Revised Base Case
scenario plus the present value of cost savings and synergies as estimated by
LL&E's management, with all other assumptions unchanged. SBC Warburg Dillon Read
calculated that under this methodology and assuming a 1.525 exchange ratio, LL&E
shareholders would experience a change in theoretical value ranging from a
decrease of 0.8% to an increase of 8.3% pro forma for the Merger relative to the
standalone theoretical value of LL&E under the above assumptions.
SBC Warburg Dillon Read is an internationally recognized investment banking
firm which, as a part of its investment banking business, regularly is engaged
in the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The LL&E Board selected SBC
Warburg Dillon Read on the basis of its experience and independence. In the
past, SBC Warburg Dillon Read has provided investment banking services to LL&E
and has received customary compensation for the rendering of such services. In
the ordinary course of business, SBC Warburg Dillon Read may trade the equity
securities of LL&E and BR (and anticipates trading after the Merger in the
securities of BR) for its own account and the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Pursuant to the engagement letter, dated as of July 10, 1997, between LL&E
and SBC Warburg Dillon Read, LL&E has agreed to pay SBC Warburg Dillon Read a
fee of $5,750,000 for services rendered in connection with the Merger. Of this
amount, $250,000 was due upon execution of the engagement letter, $500,000 was
due at the time LL&E requested the SBC Warburg Dillon Read Opinion, and the
balance is contingent upon the consummation of the Merger. In addition, LL&E has
agreed to reimburse SBC Warburg Dillon Read for the expenses reasonably incurred
by it in entering into and performing services by it in connection with its
engagement (including reasonable counsel fees) and to indemnify SBC Warburg
Dillon Read and its officers, directors, employees, agents and controlling
persons against certain expenses, losses, claims, damages or liabilities in
connection with its services performed in connection with its engagement.
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Opinion of Merrill Lynch
LL&E retained Merrill Lynch to act as one of its financial advisors in
connection with the Merger. On July 16, 1997, Merrill Lynch rendered to the LL&E
Board its oral opinion, later confirmed in writing (the "Merrill Lynch Opinion")
that, as of such date and based upon and subject to the factors and assumptions
set forth therein, the Exchange Ratio was fair from a financial point of view to
holders of LL&E Stock.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS APPENDIX E HERETO AND IS
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE MERRILL LYNCH OPINION SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. STOCKHOLDERS OF LL&E ARE URGED TO
READ SUCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION WAS PROVIDED TO THE
LL&E BOARD FOR ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO TO THE HOLDERS OF LL&E STOCK, DOES
NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY LL&E TO ENGAGE IN THE
MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO LL&E'S STOCKHOLDERS AS TO HOW
SUCH STOCKHOLDERS SHOULD VOTE ON THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT OR ANY MATTER RELATED THERETO.
Merrill Lynch has consented to the use of Appendix E, containing the
Merrill Lynch Opinion, in this Joint Proxy Statement/Prospectus, and to the
references to Merrill Lynch under the headings "Summary" and "The Merger" in
this Joint Proxy Statement/Prospectus. In giving such consent, Merrill Lynch
does not admit that it comes within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission promulgated thereunder, nor does Merrill Lynch admit that it is
an expert with respect to any part of the Registration Statement in which this
Joint Proxy Statement/ Prospectus is included, within the meaning of the term
"experts" as used in the Securities Act or the rules and regulations of the
Commission promulgated thereunder.
The Exchange Ratio was determined through negotiations between LL&E and BR
and was approved by the LL&E Board.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the LL&E Board. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Merrill Lynch did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all of its analyses,
would create an incomplete view of the process underlying the Merrill Lynch
Opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, LL&E or BR. Any estimates contained in the analyses performed by Merrill
Lynch are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. In addition, the Merrill Lynch Opinion and
Merrill Lynch's presentation to the LL&E Board were among several factors taken
into consideration by the LL&E Board in making its determination to approve and
adopt the Merger Agreement. Consequently, the Merrill Lynch analyses described
below should not be viewed as determinative of the decision of the LL&E Board or
LL&E's management with respect to the fairness of the Exchange Ratio.
In arriving at its opinion, Merrill Lynch, among other things: (i) reviewed
certain publicly available business and financial information relating to each
of LL&E and BR that Merrill Lynch deemed to be
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relevant; (ii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and prospects
of LL&E and BR furnished to Merrill Lynch by LL&E and BR, respectively,
including certain estimates of LL&E's proved, probable and possible reserves,
the projected annual production of such reserves and exploration successes and
related production in certain domestic and international areas and certain
estimates of BR's proved reserves and projected annual production of such
reserves (the "Projected Reserve Developments"), as well as the amount and
timing of the cost savings and related expenses and synergies expected to result
from the Merger (the "Expected Synergies") furnished to Merrill Lynch by LL&E;
(iii) conducted discussions with members of senior management of LL&E and BR
concerning the matters described in clauses (i) and (ii) above, as well as their
respective businesses and prospects before and after giving effect to the
Merger; (iv) reviewed the market prices and valuation multiples for the LL&E
Stock and the BR Common Stock and compared them with those of certain publicly
traded companies that Merrill Lynch deemed to be relevant; (v) reviewed the
results of operations of LL&E and BR and compared them with those of certain
publicly traded companies that Merrill Lynch deemed to be relevant; (vi)
compared the proposed financial terms of the Merger with the financial terms of
certain other transactions that Merrill Lynch deemed to be relevant; (vii)
participated in certain discussions and negotiations among representatives of
LL&E and BR and their financial and legal advisors; (viii) reviewed the
potential pro forma impact of the Merger; (ix) reviewed a draft, dated July 16,
1997, of the Merger Agreement; and (x) reviewed such other financial studies and
analyses and took into account such other matters as Merrill Lynch deemed
necessary, including Merrill Lynch's assessment of general economic, market and
monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information, did not undertake an independent evaluation or
appraisal of any of the assets or liabilities of LL&E or BR and was not
furnished with any such evaluation or appraisal. In addition, Merrill Lynch did
not assume any obligation to conduct, nor did Merrill Lynch conduct, any
physical inspection of the properties or facilities of LL&E or BR. With respect
to the financial forecast information, the Projected Reserve Developments and
the Expected Synergies furnished to or discussed with Merrill Lynch by LL&E or
BR, Merrill Lynch assumed that they were reasonably prepared and reflected the
best currently available estimates and judgments of LL&E's or BR's management as
to the expected future financial performance, the Projected Reserve Developments
and the Expected Synergies of LL&E or BR, as the case may be. Merrill Lynch
further assumed that the Merger will qualify as a tax-free reorganization for
U.S. federal income tax purposes. Merrill Lynch also assumed that the final form
of the Merger Agreement will be substantially similar to the last draft reviewed
by Merrill Lynch.
For purposes of rendering its opinion Merrill Lynch assumed, in all
respects material to its analyses, that the representations and warranties of
each party to the Merger Agreement and all related documents and instruments
contained therein were true and correct, that each party to such documents will
perform all of the covenants and agreements required to be performed by such
party under such documents and that all conditions to the consummation of the
Merger will be satisfied without waiver thereof. Merrill Lynch also assumed that
all material governmental, regulatory or other consents and approvals will be
obtained in connection with the Merger and that in the course of obtaining any
necessary governmental, regulatory or other consents and approvals, or any
amendments, modifications or waivers to any documents to which either of LL&E or
BR is a party, no restrictions will be imposed or amendments, modifications or
waivers made that would have any material adverse effect on the contemplated
benefits to LL&E of the Merger.
The Merrill Lynch Opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of such opinion.
Merrill Lynch was not authorized by LL&E or the LL&E Board to solicit, nor did
it solicit, third-party indications of interest for the acquisition of all or
any part of LL&E. In addition, Merrill Lynch was not asked to consider, and the
Merrill Lynch Opinion does not in any manner address, the price at which shares
of BR will actually trade following consummation of the Merger. LL&E did not
impose any other limitations on the scope of Merrill Lynch's analyses.
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The following is a brief summary of the material analyses performed by
Merrill Lynch in connection with its preparation of the Merrill Lynch Opinion.
Relative Net Asset Value Analysis. Using a discounted cash flow analysis,
Merrill Lynch calculated the present value of the after-tax future cash flows
that each of LL&E and BR could be expected to generate after January 1, 1997
based upon (a) the Projected Reserve Developments and (b) oil, gas and natural
gas liquids ("NGL") price forecasts under three distinct pricing scenarios, Base
Case, Upside Case and Flat Case.
The natural gas price forecasts were based on NYMEX natural gas prices and
on a standard heating value of 1,000 British Thermal Units per cubic foot of
natural gas. Adjustments were made to the natural gas price forecasts to reflect
transportation charges and quality differentials. In the Base Case, natural gas
prices per thousand cubic feet ("Mcf") for the years 1997 to 2002 were assumed
to be $2.12, $2.11, $2.17, $2.24, $2.31 and $2.38, respectively, and were
assumed to escalate at 2.5% per annum thereafter. In the Upside Case, natural
gas prices per Mcf for the years 1997 to 2002 were assumed to be $2.21, $2.30,
$2.40, $2.50, $2.60 and $2.70, respectively, and were assumed to escalate at 4%
per annum thereafter. In the Flat Case, the natural gas price per Mcf for the
year 1997 was assumed to be $1.95 and was assumed to remain at that price
thereafter. The unadjusted natural gas prices were capped at $5.00 per Mcf.
The oil price forecasts were based on NYMEX oil prices. Adjustments were
made to the oil price forecasts to reflect transportation charges and quality
differentials of LL&E's and BR's respective crude oil. In the Base Case,
unadjusted NYMEX based oil prices per barrel for the years 1997 to 2002 were
assumed to be $20.87, $20.80, $21.20, $21.75, $22.77 and $22.82, respectively,
and were assumed to escalate at 2.5% per annum thereafter. In the Upside Case,
unadjusted NYMEX based oil prices per barrel for the years 1997 to 2002 were
assumed to be $20.25, $22.00, $23.00, $24.00, $25.00 and $26.04, respectively,
and were assumed to escalate at 4% per annum thereafter. In the Flat Case, the
unadjusted NYMEX based oil price per barrel for the year 1997 was assumed to be
$18.65 and was assumed to remain at that price thereafter. The unadjusted oil
prices were capped at $50.00 per barrel.
The NGL price forecasts were based on 70% of the oil price forecast and
were adjusted for the transportation and quality of LL&E's and BR's respective
NGLs. The NGL prices per barrel assumed in the Upside Case, the Base Case and
the Flat Case had only a minor impact on the Merrill Lynch analyses.
Production forecasts and associated production costs were supplied by LL&E
and BR, respectively. Operating expenses and maintenance capital expenditures
necessary to lift and produce the proved, probable and possible reserves
estimated in the Projected Reserve Developments were assumed to increase at a
rate of 2%, 4%, and 0% per annum in the Base Case, the Upside Case and the Flat
Case, respectively. The after-tax cash flows were discounted at rates ranging
from 8% to 15% for proved reserves and from 15% to 20% for probable and possible
reserves.
Merrill Lynch estimated the value of LL&E's proved, probable and possible
reserves by discounting the estimated after-tax cash flows generated by LL&E's
proved, probable and possible reserves in the Projected Reserve Developments as
of January 1, 1997. Merrill Lynch estimated the value of BR's proved, probable
and possible reserves by discounting the estimated after-tax cash flows
generated by BR's proved reserves in the Projected Reserve Developments as of
January 1, 1997 and adding an estimated value of BR's probable and possible
reserves (for which BR did not provide Merrill Lynch with estimates). Merrill
Lynch added to such estimated values of LL&E's and BR's proved, probable and
possible reserves assumed value for additional LL&E exploration and reserves
potential obtained in discussions with LL&E management, royalty properties,
undeveloped acreage, net working capital and other assets, and reduced such
estimated value by estimated net debt and certain other long term liabilities as
of January 1, 1997. From this analysis Merrill Lynch arrived at a range of
implied per share equity values on a fully-diluted basis for LL&E and BR,
respectively, for each of the Base Case, the Upside Case and the Flat Case
pricing scenarios. Merrill Lynch used such LL&E and BR ranges of implied per
share equity values to calculate ranges of implied exchange ratios of (i) using
the Base Case pricing assumptions, 1.405x to 1.495x, (ii) using the Upside Case
pricing assumptions, 1.391x to 1.475x, and (iii) using the Flat Case pricing
assumptions, 1.371x to 1.471x.
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Relative Discounted Cash Flow Analysis. Using projections for LL&E prepared
by LL&E management (the "LL&E Management Projections"), Merrill Lynch calculated
ranges of implied per share equity values for LL&E for each of the Base Case,
Upside Case and Flat Case pricing assumptions used in the LL&E Management
Projections based upon the sum of the discounted net present value of LL&E's
five and a half year stream of projected unlevered after-tax free cash flow and
the present value of a terminal value based on a range of multiples of its
projected calendar year 2002 earnings before interest, tax, depreciation and
exploration ("EBITDE"). In performing this analysis, Merrill Lynch utilized
discount rates reflecting a weighted average cost of capital ranging from 11.5%
to 13.5% and terminal value multiples of calendar year 2002 EBITDE ranging from
5.0x to 6.0x. Merrill Lynch also calculated ranges of implied per share equity
values for LL&E for each of the Base Case, Upside Case and Flat Case pricing
assumptions used in the LL&E Management Projections using the same discounted
cash flow methodology and discount rates and terminal value multiples as the
analysis using the LL&E Management Projections, but using an assumption that
LL&E would achieve only ninety percent of the projected EBITDE for 2002
contained in the LL&E Management Projections (the "LL&E Discounted
Projections").
Using projections for BR prepared by BR management (the "BR Management
Projections"), Merrill Lynch calculated ranges of implied per share equity
values for BR for each of the Base Case, Upside Case and Flat Case pricing
assumptions used in the BR Management Projections based upon the sum of the
discounted net present value of BR's five and a half year stream of projected
unlevered after-tax free cash flow and the present value of a terminal value
based on a range of multiples of its projected calendar year 2002 EBITDE. In
performing this analysis, Merrill Lynch utilized discount rates reflecting a
weighted average cost of capital ranging from 10% to 12% and terminal value
multiples of calendar year 2002 EBITDE ranging from 6.5x to 7.5x. Using the BR
Management Projections adjusted using information received in discussions with
LL&E Management (the "BR Adjusted Projections"), Merrill Lynch also calculated
ranges of implied per share equity values for BR for each of the Base Case,
Upside Case and Flat Case pricing assumptions used in the BR Adjusted
Projections using the same discounted cash flow methodology and discount rates
and terminal value multiples as the analysis using BR Management Projections.
Merrill Lynch calculated implied exchange ratio ranges by comparing the
LL&E implied per share equity value ranges calculated using the LL&E Management
Projections with the BR implied per share equity values calculated using the BR
Management Projections. This analysis resulted in implied exchange ratio ranges
of (i) using the Base Case pricing assumptions, 1.098x to 1.170x, (ii) using the
Upside Case pricing assumptions, 1.212x to 1.271x, and (iii) using the Flat Case
pricing assumptions, 0.999x to 1.092x.
Merrill Lynch also calculated implied exchange ratio ranges by comparing
the LL&E implied per share equity value ranges calculated using the LL&E
Management Projections with the BR implied per share equity values calculated
using BR Adjusted Projections. This analysis resulted in implied exchange ratio
ranges of (i) using the Base Case pricing assumptions, 1.567x to 1.681x, (ii)
using the Upside Case pricing assumptions, 1.678x to 1.772x, and (iii) using the
Flat Case pricing assumptions, 1.466x to 1.614x. Merrill Lynch also calculated
implied exchange ratio ranges by comparing the BR implied per share equity
reference ranges calculated using the BR Adjusted Projections to the LL&E
implied per share equity reference ranges calculated using the LL&E Discounted
Projections, which resulted in implied exchange ratio ranges of (i) using the
Base Case pricing assumptions, 1.383x to 1.491x, (ii) using the Upside Case
pricing assumptions, 1.498x to 1.586x, and (iii) using the Flat Case pricing
assumptions, 1.261x to 1.406x.
Historical Stock Price Analysis. Merrill Lynch reviewed the historical
prices of LL&E Stock and BR Stock and compared such prices to obtain a range of
implied exchange ratios. This analysis resulted in an implied exchange ratio
range of 1.130x for average price of LL&E Stock and BR Stock for the six months
prior to July 11, 1997 and 1.267x for the average price of LL&E Stock and BR
Stock for the week prior to July 11, 1997.
Contribution Analysis. Merrill Lynch analyzed the respective contributions
of each of LL&E and BR to the estimated EBITDE, net income, discretionary cash
flow, proved reserves and daily production of the resulting company giving
effect to the Merger for the years 1996 through 1999, and compared such
contributions to the relative ownership positions of the existing LL&E
stockholders and BR stockholders after
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the Merger. Using historical information provided by LL&E and BR, the LL&E
Management Projections using Base Case pricing assumptions and the BR Management
Projections using Base Case pricing assumptions, the analysis indicated that
LL&E would contribute to historical and/or estimated (i) EBITDE, 33.8% in 1996,
31.8% in the latest twelve months ("LTM") to March 31, 1997, 31.1% in 1997,
29.8% in 1998 and 26.3% in 1999, (ii) net income, 22.6% in 1996, 18.9% in LTM to
March 31, 1997, 12.1% in 1997, 22.4% in 1998 and 18.6% in 1999, (iii)
discretionary cash flow, 36.0% in 1996, 33.6% in LTM to March 31, 1997, 30.4% in
1997, 30.4% in 1998 and 26.3% in 1999, (iv) proved reserves, 20.6% in 1996,
26.4% in LTM to March 31, 1997, 24.6% in 1997, 24.2% in 1998 and 24.1% in 1999,
and (v) daily production, 27.8% in 1996, 29.1% in 1997, 26.1% in 1998 and 23.9%
in 1999. Using the average of the various contribution analyses for each such
period Merrill Lynch calculated average implied equity ownership figures of
28.2% in 1996, 27.7%in LTM to March 31, 1997, 25.4% in 1997, 26.6% in 1998 and
23.9% in 1999. Merrill Lynch used such averages to calculate an implied exchange
ratio for each such period, which resulted in an implied exchange ratio range
for 1996 through 1999 of 1.142x to 1.428x.
Using historical information provided by LL&E and BR, the LL&E Management
Projections using Base Case pricing assumptions and the BR Adjusted Projections
using Base Case pricing assumptions, the analysis indicated that LL&E would
contribute to historical and/or estimated (i) EBITDE, 33.8% in 1996, 31.8% in
LTM to March 31, 1997, 31.3% in 1997, 33.0% in 1998 and 31.8% in 1999, (ii) net
income, 22.6% in 1996, 18.9% in LTM to March 31, 1997, 12.0% in 1997, 21.8% in
1998 and 20.7% in 1999, (iii) discretionary cash flow, 36.0% in 1996, 33.6% in
LTM to March 31, 1997, 30.3% in 1997, 33.3% in 1998 and 31.0% in 1999, (iv)
proved reserves, 20.6% in 1996, 26.4% in LTM to March 31, 1997, 24.9% in 1997,
25.6% in 1998 and 26.5% in 1999, and (v) daily production, 27.8% in 1996, 29.3%
in 1997, 28.0% in 1998 and 27.4% in 1999. Using the average of the various
contribution analyses for each such period Merrill Lynch calculated average
implied equity ownership figures of 28.2% in 1996, 27.7% in LTM to March 31,
1997, 25.5% in 1997, 28.3% in 1998 and 27.5% in 1999. Merrill Lynch used such
averages to calculate an implied exchange ratio for each such period, which
resulted in an implied exchange ratio range for 1996 through 1999 of 1.250x to
1.428x.
Merrill Lynch Financial Advisor Fee. Pursuant to a letter agreement dated
July 1, 1997 between LL&E and Merrill Lynch, LL&E agreed to pay Merrill Lynch
(i) $250,000 upon LL&E's execution of such letter agreement, (ii) an additional
fee of $500,000 payable upon LL&E requesting that Merrill Lynch deliver the
Merrill Lynch Opinion and (iii) a fee of $4,250,000 (less any fees previously
paid pursuant to (i) and (ii) above) if, during the period Merrill Lynch is
retained by LL&E or within three months thereafter, (A) a Business Combination,
as defined in such letter agreement, is consummated with BR, (B) a transaction
similar to the Business Combination is consummated with BR, or (C) LL&E enters
into an agreement with BR which subsequently results in a Business Combination,
payable in cash upon the closing of such Business Combination, or in the case of
a tender offer or exchange offer, upon the first purchase or exchange of shares
pursuant to such tender offer or exchange offer, as the case may be. LL&E also
agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses,
including reasonable fees and disbursements of its legal counsel. Additionally,
LL&E agreed to indemnify Merrill Lynch and certain related persons for certain
liabilities related to or arising out of its engagement, including liabilities
under federal securities laws.
LL&E retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Merrill Lynch has in the past
provided financial advisory and/or financing services to LL&E and/or BR and may
continue to do so and has received, and may receive, fees for the rendering of
such services. In the ordinary course of its business, Merrill Lynch and its
affiliates may actively trade the debt and equity securities of LL&E and BR (and
anticipate trading after the Merger in the securities of BR) for their own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
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ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "pooling of interests" in
accordance with generally accepted accounting principles. Under this accounting
method, the historical financial information of BR and LL&E will be restated to
reflect the combined financial position and operations of both companies. The
combined financial position, cash flows and operations will be adjusted, if
appropriate, to conform the accounting practices of the companies.
U.S. FEDERAL INCOME TAX CONSEQUENCES
See "Certain U.S. Federal Income Tax Consequences of the Merger."
NEW LL&E BOARD AND MANAGEMENT FOLLOWING THE MERGER
If the proposed Merger is approved and consummated, holders of LL&E Stock
will become stockholders of BR, which will be under the direction of the Board
of Directors and management of BR. The directors of Sub immediately prior to the
Effective Time will be the directors of New LL&E and the officers of LL&E
immediately prior to the Effective Time will be the officers of New LL&E.
BOARD OF DIRECTORS OF BR FOLLOWING THE MERGER
As of the Effective Time, the New BR Board will consist of 12 members.
Three members of the New BR Board will be Mr. H. Leighton Steward, Chairman of
the present LL&E Board, and Messrs. Kenneth W. Orce and John F. Schwarz, present
members of the LL&E Board. The remainder of the New BR Board will be BR's
current directors. Mr. Steward will serve as the Vice Chairman of the New BR
Board and Chairman of its Executive Committee.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated until the
following steps have been taken: (1) Premerger Notification and Report Forms
have been submitted and certain information has been furnished to the FTC and
the Antitrust Division of the Department of Justice (the "Antitrust Division");
and (2) required waiting periods have expired or terminated.
BR and LL&E have agreed, pursuant to the Merger Agreement, to use their
best efforts to file or cause to be filed with the FTC and the Antitrust
Division such notifications as are required to be filed under the HSR Act and
the rules and regulations promulgated thereunder, and to respond as promptly as
practicable to any requests for additional information made by either the FTC or
the Antitrust Division. Accordingly, BR and LL&E each filed Premerger
Notification and Report Forms with the FTC and the Antitrust Division, on July
25, 1997. The statutory waiting period expired on August 24, 1997.
At any time before or after the consummation of the Merger and
notwithstanding the expiration or termination of the HSR Act waiting period, any
federal or state antitrust authorities could take action under the antitrust
laws as they deem necessary or desirable in the public interest. Such action
could include seeking to enjoin the consummation of the Merger or seeking
divestiture of all or part of the assets of BR or LL&E. Private parties may also
seek to take legal action under the antitrust laws, if circumstances permit.
If the Antitrust Division, or any other federal or state antitrust
authority, were to challenge the Merger, the consummation of the Merger could be
postponed beyond January 31, 1998, in which event, either BR, Sub or LL&E may
terminate the Merger Agreement, pursuant to its terms, at any time after January
31, 1998. See "The Merger Agreement -- Termination, Amendment and Waiver."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the LL&E Board with respect to the
Merger, LL&E stockholders should be aware that certain officers and directors of
LL&E have the following interests in the Merger
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separate from and in addition to their interests as stockholders of LL&E
generally. The LL&E Board was aware of these interests and took them into
account in approving the Merger Agreement and the transactions contemplated
thereby, including the Merger.
Composition of New BR Board. The Merger Agreement provides that as of the
Effective Time, the New BR Board will consist of up to 12 members, one of whom
will be Mr. H. Leighton Steward, Chairman of the current LL&E Board, and two of
whom will be designated by Mr. Steward from the current members of the LL&E
Board. Pursuant to an employment agreement between Mr. Steward and BR, he will
serve on the BR Board as its Vice Chairman and as the Chairman of its Executive
Committee. See "The Employment Agreement."
Stock Options, Performance Shares, and Restricted Stock. Pursuant to the
Merger Agreement, BR has agreed to assume at the Effective Time all LL&E
Options, whether vested or unvested. Each LL&E Option will be converted at the
Effective Time into a Substitute Option to purchase shares of BR Common Stock.
BR has agreed to file after the Effective Time a Registration Statement on Form
S-8 or on another appropriate form under the Securities Act to register the
shares of BR Common Stock issuable upon exercise of the Substitute Options and
to maintain the effectiveness of such registration statement until all the
Substitute Options have been exercised, forfeited or have expired. At the
Effective Time, LL&E restricted stock and performance shares will be converted
into restricted stock and performance shares in respect of BR Common Stock.
The Merger constitutes a change in control for purposes of The Louisiana
Land and Exploration Company 1990 Stock Option Plan for Non-Employee Directors,
The Louisiana Land and Exploration Company 1995 Stock Option Plan for
Non-Employee Directors, and awards granted prior to 1996 under The Louisiana
Land and Exploration Company 1988 Long-Term Stock Incentive Plan. Upon a Change
in Control, as defined within such plans, stock options automatically become
fully exercisable and restricted stock becomes fully vested without any further
action on the part of the LL&E Board, and performance shares and performance
units vest as if the performance period had ended upon the Change in Control.
The Merger does not constitute a change in control for purposes of any of
the LL&E Options, performance shares or restricted stock granted after 1995
under LL&E's 1988 or 1997 Long-Term Stock Incentive Plan and there will be no
acceleration of the vesting of any LL&E Options, performance shares or
restricted stock granted after 1995 in connection with the Merger.
Termination Agreements and Change in Control Severance Plan for Key
Employees. Mr. H. Leighton Steward and two other members of the current LL&E
management are parties to termination agreements with LL&E. Also, certain
members of LL&E management participate in The LL&E Change in Control Severance
Plan for Key Executives (the "Severance Plan"). The Merger constitutes a Change
in Control for purposes of the termination agreements and the Severance Plan,
and accordingly, key employees are entitled to certain benefits in the event of
involuntary termination of employment without cause or termination of employment
by the employee for good reason within two years (or five years if the employee
is age 55 or older) after the Change in Control. In the event of such
termination, employees with termination agreements and participants in the
Severance Plan will receive benefits comprised of (i) two or three times the
annual salary and bonus, (ii) supplemental pension benefit based on two or three
years of additional service, (iii) medical, life insurance and long-term
disability coverage for two or three years, (iv) 20% or 30% of annual salary,
(v) full vesting in stock options and restricted stock, (v) vesting of
performance shares at the greater of 100% or the percentage for the prior cycle,
and (vi) a tax gross-up payment.
Directors' Retirement Plan and Deferred Compensation. Pursuant to the
Retirement Plan for Directors of The Louisiana Land and Exploration Company (the
"Retirement Plan"), upon a Change in Control, as such term is defined in the
Retirement Plan, each director participating in such plan will be credited with
a period of service equal to the greater of the period of such director's
service as a non-employee director or ten years. The Merger constitutes a Change
in Control for purposes of the Retirement Plan. Upon the attainment of age 70,
each such director will become entitled to receive annually the current LL&E
retainer of $30,000 payable for the credited period of service or such
director's earlier death.
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Pursuant to the LL&E Deferred Compensation Arrangement for Directors, upon
the cessation of service as a director of LL&E, each director is entitled to
payments of deferred retainer and meeting fees in cash over the course of 15
years. Such deferrals are held in a bookkeeping account and accrue interest at
fixed rates.
Employee Benefit Plans. Pursuant to the Merger Agreement, for the period of
one year beginning at the Effective Time, BR will cause New LL&E and its
subsidiaries to provide employee benefits to persons who were employees of LL&E
and its subsidiaries immediately before the Effective Time and their
beneficiaries that in the aggregate are substantially equivalent to those
provided before the Effective Time. See "The Merger Agreement -- Employee
Matters."
Directors' and Officers' Indemnification and Insurance. Pursuant to the
Merger Agreement, New LL&E and BR have agreed that they will indemnify, defend
and hold harmless officers, directors and employees of LL&E and its subsidiaries
who were such at any time prior to the Effective Time from and against all
losses, expenses, claims, damages or liabilities arising out of the transactions
contemplated by the Merger Agreement to the fullest extent permitted or required
under applicable law, and advance expenses to such indemnified parties subject
to a customary reimbursement agreement. All indemnification rights of such
officers, directors and employees which exist prior to the Effective Time will
survive the Merger and New LL&E will maintain in effect for not less than six
years after the Effective Time, the current policies of directors' and officers'
liability insurance with respect to matters occurring on or prior to the
Effective Time. In addition, the Merger Agreement provides that New LL&E may
provide substitute policies of at least the same coverage, provided that New
LL&E will be required to obtain only as much coverage as can be obtained by
paying an annual premium not in excess of 300% of the current annual premium
paid by LL&E for its existing coverage. See "The Merger
Agreement -- Indemnification."
ABSENCE OF APPRAISAL RIGHTS
Under the DGCL, the stockholders of BR are not entitled to appraisal rights
with respect to the Stock Issuance. Under the MGCL, the stockholders of LL&E are
not entitled to objecting stockholders' appraisal rights with respect to the
Merger.
STOCK EXCHANGE LISTING
It is a condition to the Merger that, upon consummation of the Merger, the
shares of BR Common Stock constituting the Stock Issuance to be issued by BR in
connection with the Merger will be authorized for listing on the NYSE, subject
only to official notice of issuance.
DELISTING AND DEREGISTRATION OF LL&E STOCK
If the Merger is consummated, the LL&E Stock will be delisted from the
NYSE, the London Stock Exchange and the Swiss Stock Exchanges.
TREATMENT OF STOCK CERTIFICATES
After the Effective Time, each certificate previously representing shares
of LL&E Stock will automatically, with no further action by the holder thereof,
represent the right to receive 1.525 shares of BR Common Stock for each share of
LL&E Stock held. The First National Bank of Boston is the transfer agent and
registrar (the "Exchange Agent") for the BR Common Stock. Promptly after the
Effective Time, the Exchange Agent will mail a letter of transmittal with
instructions to each holder of record of LL&E Stock outstanding immediately
prior to the Effective Time for use in exchanging certificates formerly
representing shares of LL&E Stock for certificates representing shares of BR
Common Stock. Certificates should not be surrendered by any holders of LL&E
Stock until they have received the letter of transmittal from the Exchange
Agent.
THE BOARDS OF DIRECTORS OF BR AND LL&E UNANIMOUSLY RECOMMEND A VOTE "FOR"
THE APPROVAL OF THE BR PROPOSAL AND THE LL&E PROPOSAL, RESPECTIVELY.
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THE MERGER AGREEMENT
The following summary of the terms of the Merger Agreement is qualified in
its entirety by reference to the Merger Agreement, which is incorporated by
reference herein and attached as Appendix A to this Joint Proxy
Statement/Prospectus. Certain defined terms used in the description of the
Merger Agreement below which are not otherwise defined in this Joint Proxy
Statement/Prospectus and which are defined in the Merger Agreement or the
exhibits thereto shall have the respective meanings set forth therein.
GENERAL
The Merger Agreement contemplates the Merger of Sub with and into LL&E,
with LL&E surviving the Merger as a wholly owned subsidiary of BR. The Merger
will become effective in accordance with the Articles of Merger to be filed with
the State Department of Assessments and Taxation of Maryland. It is anticipated
that such filing will be made immediately after the closing under the Merger
Agreement, which closing, in turn, should occur as soon as practicable after the
last of the conditions precedent to the Merger set forth in the Merger Agreement
has been satisfied or waived. The Merger Agreement obligates BR to have the
shares of BR Common Stock to be issued in connection with the Merger approved
for listing on the NYSE, subject only to official notice of issuance, prior to
the Effective Time.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time, (a) each issued and outstanding share of LL&E Stock
(excluding shares held in the treasury of LL&E or shares owned by BR or Sub)
will be converted into the right to receive 1.525 shares of BR Common Stock,
together with one associated BR Right in accordance with the BR Rights Plan, (b)
each share of LL&E Stock owned by BR or Sub or held in the treasury of LL&E will
be canceled and retired, (c) each issued and outstanding share of the capital
stock of Sub will be converted into and become one fully paid and nonassessable
share of capital stock of New LL&E and (d) each outstanding and unexercised LL&E
Option to purchase shares of LL&E Stock will be assumed by BR and converted into
a Substitute Option to acquire shares of BR Common Stock. The number of shares
of BR Common Stock to be subject to a Substitute Option will be determined by
multiplying the number of shares of LL&E Stock subject to the related LL&E
Option by the Exchange Ratio, and the exercise price with respect thereto will
equal the exercise price under the LL&E Option divided by the Exchange Ratio.
Such Substitute Option will be subject to all of the other terms and conditions
of the LL&E Option to which it relates. No LL&E Option will be accelerated by
reason of the Merger to the extent the LL&E Board has discretion to make a
determination to cause such acceleration. As a result of the Merger, BR will
assume approximately $500 million of indebtedness of LL&E.
As soon as practicable after the Effective Time, BR will cause to be
included under a registration statement on Form S-8 of BR all shares of BR
Common Stock that are subject to Substitute Options and all shares of BR Common
Stock that were issued in exchange for LL&E Stock which constituted performance
shares or restricted stock of LL&E to the extent such registration is legally
required for such BR Common Stock to be freely tradeable by such holder, and
will maintain the effectiveness of such registration statement until all
Substitute Options have been exercised, expired or forfeited.
For a further discussion of the treatment of LL&E Options and other
employee benefit plans of LL&E under the Merger Agreement, see "The
Merger -- Interests of Certain Persons in the Merger."
EFFECTIVE TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the Merger
will become effective at the date and time when properly executed Articles of
Merger are accepted for recording by the State Department of Assessments and
Taxation of Maryland, which Articles shall be filed as soon as practicable
following fulfillment of the conditions precedent of the Merger Agreement. See
"-- Conditions Precedent."
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CORPORATE ORGANIZATION AND GOVERNANCE
Certificate of Incorporation. At the Effective Time, the LL&E Charter will
be amended to read in its entirety as set forth in Exhibit A to the Merger
Agreement, which is attached as Appendix A to this Joint Proxy
Statement/Prospectus.
By-laws. The By-laws of Sub as in effect at the Effective Time will be the
By-laws of New LL&E, and thereafter may be amended in accordance with their
terms and as provided by law and the Merger Agreement.
Board of Directors; Officers. The directors of Sub immediately prior to
the Effective Time will be the directors of New LL&E, and the officers of LL&E
immediately prior to the Effective Time will be the officers of New LL&E, in
each case until their respective successors are duly elected and qualified.
Exchange of Shares. Prior to the Effective Time, BR will select an Exchange
Agent, which will be BR's Transfer Agent or such other person or persons
reasonably satisfactory to LL&E, to act as Exchange Agent for the Merger. As
soon as practicable after the Effective Time, BR will make available, and each
holder of LL&E Stock will be entitled to receive, upon surrender to the Exchange
Agent of one or more certificates ("Certificates") representing shares of LL&E
Stock for cancellation, certificates representing the number of shares of BR
Common Stock into which such shares are converted in the Merger and cash in
consideration of fractional shares (the "Share Consideration"). Holders of
unexchanged shares of LL&E Stock will not be entitled to receive any dividends
or other distributions payable by BR until their Certificates are surrendered.
Upon surrender, however, such holders will receive accumulated dividends and
distributions without interest, together with cash in lieu of fractional shares.
Holders of unexchanged shares of LL&E Stock will have no further claim upon the
Exchange Agent twelve months after the Effective Time and will thereafter look
only to BR and New LL&E for payment in respect of their shares of LL&E Stock.
Fractional shares of BR Common Stock will not be issued to holders of LL&E
Stock. For each fractional share of BR Common Stock that would otherwise be
issued, the holder will receive, in lieu thereof, Share Consideration in an
amount equal to such fractional part of a share of BR Common Stock multiplied by
the average of the closing sale prices of the BR Common Stock for the ten
business days next preceding the Effective Time, using the composite closing
sale price on the NYSE, as reported in each case in The Wall Street Journal.
STOCKHOLDERS' MEETINGS
Each of BR and LL&E will take all action necessary in accordance with
applicable law and its Certificate of Incorporation or Charter, as the case may
be, and By-laws to convene a meeting of its stockholders as promptly as
practicable to consider and vote upon (i) in the case of BR, the approval by the
holders of a majority of the shares of BR Common Stock present and entitled to
vote of the Stock Issuance and (ii) in the case of LL&E, the approval by the
holders of at least two-thirds of the shares of LL&E Stock outstanding and
entitled to vote on the Merger, the Merger Agreement and the transactions
contemplated thereby. BR will take all action necessary to authorize Sub to
consummate the Merger. Each of the BR Board and the LL&E Board recommends such
approval and BR and LL&E will each take all lawful action to solicit such
approval; including, without limitation, timely and promptly mailing this Joint
Proxy Statement/Prospectus; provided, however, that such recommendation is
subject to any action required by the fiduciary duties of the BR Board or the
LL&E Board, as the case may be, under applicable law. BR and LL&E will
coordinate and cooperate with respect to the timing of such meetings and will
use their best efforts to hold such meetings on the same day.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of BR,
LL&E and Sub, relating, among other things, to the following: (i) their
incorporation, existence, good standing, corporate power and similar corporate
matters; (ii) their capitalization; (iii) their authorization, execution,
delivery and performance and the enforceability of the Merger Agreement and
Stock Option Agreement and related matters; (iv) the absence of conflicts,
violations and defaults under their certificate or articles of incorporation and
by-
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laws and certain other agreements and documents; (v) the documents and reports
filed with the Commission and the accuracy and completeness of the information
contained therein; (vi) the absence of certain material changes or events since
March 31, 1997; (vii) pending or threatened investigations or litigation; (viii)
employee benefit matters; (ix) the receipt of fairness opinions from financial
advisors; (x) compliance with laws, ordinances and regulations; (xi) tax
matters; and (xii) tax and accounting matters relating to qualification of the
Merger as a reorganization within the meaning of the Code and the availability
of "pooling of interests" accounting treatment. LL&E made additional
representations and warranties as to (i) the approval of the Merger by the LL&E
Board, its recommendation of the Merger and the Merger Agreement to the LL&E
stockholders and its determination that the Merger is fair to and in the best
interests of LL&E and its stockholders and (ii) the inapplicability of its
stockholder rights plan (the "LL&E Rights Plan") to the Merger.
All representations and warranties of BR, LL&E and Sub expire at the
Effective Time.
CONDUCT OF BUSINESS PENDING THE MERGER
BR
BR has agreed that prior to the Effective Time, unless LL&E otherwise
agrees in writing or except as otherwise required by the Merger Agreement, it
will carry on its business in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the date of the Merger
Agreement and will use its reasonable efforts to preserve intact its present
business organizations and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing businesses will be unimpaired at the Effective Time, and not propose or
agree to (i) sell or pledge or agree to sell or pledge any capital stock owned
by it in any of its subsidiaries, (ii) amend the BR Certificate or BR By-Laws,
(iii) split, combine or reclassify its outstanding capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of capital stock of BR, or declare, set aside,
authorize or pay any dividend or other distribution payable in cash, stock or
property (other than the regular cash dividends not exceeding $.1375 per share
per quarter of BR Common Stock), or (iv) directly or indirectly redeem, purchase
or otherwise acquire or agree to redeem, purchase or otherwise acquire any
shares of BR capital stock.
BR has also agreed that, except in connection with acquisitions of assets
or businesses that are primarily engaged in the same business as that conducted
by BR as of the date of the Merger Agreement and any financing transactions or
issuances of securities related thereto which, in each case, do not require the
approval of the stockholders of BR, it will not (i) issue, deliver or sell or
agree to issue, deliver or sell any additional shares of, or rights of any kind
to acquire any shares of, its respective capital stock of any class, any
indebtedness having the right to vote on any matter on which the BR stockholders
may vote or any options, rights or warrants to acquire, or securities
convertible into, exercisable for or exchangeable for, shares of capital stock
(subject to limited exceptions for certain existing rights, dividend
reinvestment and benefits plans); (ii) acquire, lease or dispose or agree to
acquire, lease or dispose of any capital assets or any other assets other than
in the ordinary course of business; (iii) incur additional indebtedness or
encumber or grant a security interest in any asset or enter into any other
material transaction other than in each case in the ordinary course of business;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof; or (v) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing.
BR has further agreed not to, nor permit any of its subsidiaries to, take
or cause to be taken any action, whether before or after the Effective Time,
which would disqualify the Merger as a "pooling of interests" for accounting
purposes or as a "reorganization" within the meaning of Section 368(a) of the
Code, or amend, modify, terminate, waive or permit to lapse any material right
of first refusal, preferential right, right of first offer, or any other
material right of BR.
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Sub
Sub has agreed not to engage, during the period from the date of the Merger
Agreement to the Effective Time, in any activities of any nature except as
provided in or contemplated by the Merger Agreement.
LL&E
LL&E has agreed that prior to the Effective Time, unless BR otherwise
agrees in writing or except as otherwise required by the Merger Agreement, it
will carry on its business in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the Merger Agreement, use
its reasonable efforts to preserve intact its present business organizations and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and on-going businesses will be
unimpaired at the Effective Time, and not propose or agree to (i) sell or pledge
or agree to sell or pledge any capital stock owned by it in any of its
subsidiaries, (ii) amend the LL&E Charter or the LL&E By-laws, (iii) split,
combine or reclassify its outstanding stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of LL&E Stock, or declare, set aside, authorize or pay any dividend
or other distribution payable in cash, stock or property (other than the regular
cash dividends not exceeding $.06 per share per quarter of LL&E Stock), or (iv)
directly or indirectly redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of LL&E Stock.
LL&E has also agreed that it will not (i) issue, deliver or sell or agree
to issue, deliver or sell any additional shares of, or rights of any kind to
acquire any shares of, its respective stock of any class, any indebtedness
having the right to vote on any matter on which the LL&E stockholders may vote
or any option, rights or warrants to acquire, or securities convertible into,
exercisable for or exchangeable for, shares of stock (subject to limited
exceptions for certain existing rights, dividend reinvestment and benefits
plans); (ii) acquire, lease or dispose or agree to acquire, lease or dispose of
any capital assets or any other assets other than in the ordinary course of
business; (iii) incur additional indebtedness or encumber or grant a security
interest in any asset or enter into any other material transaction other than in
each case in the ordinary course of business; (iv) acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial equity interest
in, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof; or (v) enter
into any contract, agreement, commitment or arrangement with respect to any of
the foregoing. LL&E has also agreed that except as required to comply with
applicable law and except as provided in the provisions relating to employee
matters (see "-- Employee Matters"), it will not enter into any new (or amend
any existing) employee benefit plan of LL&E or any new (or amend any existing)
employment, severance or consulting agreement, grant any general increase in the
compensation of current or former directors, officers or employees (including
any such increase pursuant to any bonus, pension, profit-sharing or other plan
or commitment) or grant any increase in the compensation payable or to become
payable to any director, officer or employee, except in any of the foregoing
cases in accordance with pre-existing contractual provisions or in the ordinary
course of business consistent with past practice.
LL&E has further agreed not to, nor permit any of its subsidiaries to, take
or cause to be taken any action, whether before or after the Effective Time,
which would disqualify the Merger as a "pooling of interests" for accounting
purposes or as a "reorganization" within the meaning of Section 368(a) of the
Code, or amend, modify, terminate, waive or permit to lapse any material right
of first refusal, preferential right, right of first offer, or any other
material right of LL&E.
ADDITIONAL AGREEMENTS
The Merger Agreement contains certain covenants and agreements of BR and
LL&E customary for transactions such as those contemplated by the Merger
Agreement. These relate to, among other things, (i) each party allowing the
other access, during normal business hours, to its properties, books, contracts,
commitments and records, documents filed pursuant to requirements of the
Commission and such other information to which the other party may reasonably
request access, subject to existing confidentiality obligations; (ii) the
preparation of the Registration Statement and this Joint Proxy
Statement/Prospectus;
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(iii) each party delivering an affiliate letter from each of its affiliates in
the form set forth in Exhibit B to the Merger Agreement, rescinding such party's
stock repurchase programs and using commercially reasonable efforts to cause the
Merger to qualify for "pooling of interests" accounting treatment; (iv) listing
of the BR Common Stock constituting the Stock Issuance by BR on the NYSE, upon
official notice of issuance; (v) certain employee matters; (vi) filing of such
notifications as are required to be filed under the HSR Act; (vii) using
commercially reasonable efforts to consummate and make effective the
transactions contemplated by the Merger Agreement, including the use of
commercially reasonable efforts to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings and to lift any
injunction to the Merger; (viii) conducting its business in a manner which would
not result in any adverse accounting or tax consequences (such as the failure of
the Merger to qualify as tax-free for federal income tax purposes or as a
"pooling of interests" for accounting purposes); (ix) advising the other party
orally and in writing of any change or event that has had, or could reasonably
be expected to have, a Material Adverse Effect on such party and providing
copies of all filings made by such party with the Commission or other
Governmental Entities in connection with the Merger Agreement and other
transactions contemplated thereby; (x) rendering the BR Rights Plan and the LL&E
Rights Plan inapplicable to the Merger, amending or redeeming such party's
rights plan or making a determination by such party's Board under such party's
rights plan including a redemption of such party's rights under such rights plan
or any action to facilitate an Alternative Proposal in respect of such party or
taking any actions to render any state takeover statute inapplicable to any
Alternative Proposal; (xi) the appointment of Mr. H. Leighton Steward to the New
BR Board and the appointment of two other present members of the LL&E Board
designated by Mr. Steward to the New BR Board; and (xii) the creation of a
special transition team consisting of personnel from each of BR and LL&E.
BR has agreed to use commercially reasonable efforts to obtain a letter
from Coopers & Lybrand L.L.P. stating that the Merger qualifies for "pooling of
interests" accounting treatment if consummated in accordance with the Merger
Agreement, and LL&E has agreed to use commercially reasonable efforts to obtain
a letter from KPMG Peat Marwick LLP with respect to the eligibility of LL&E for
"pooling of interests" accounting treatment, provided that the delivery of such
letters is not a condition to Closing.
EMPLOYEE MATTERS
The Merger Agreement provides that, as of the Effective Time, the employees
of LL&E and each subsidiary will continue employment with New LL&E and its
subsidiaries, respectively, in the same positions and at the same level of wages
and/or salary and without having incurred a termination of employment or
separation from service; provided, however, that except as may be specifically
required by applicable law or any contract, New LL&E and its subsidiaries will
not be obligated to continue any employment relationship with any employee for
any specific period of time. Except with respect to the stock option plans to be
assumed by BR as provided in the Merger Agreement, as of the Effective Time, New
LL&E will be the sponsor of the employee benefit plans sponsored by LL&E
immediately prior to the Effective Time, and BR will cause New LL&E and its
subsidiaries to satisfy all obligations and liabilities under such employee
benefit plans; provided, however, that, except as contemplated by the Merger
Agreement, nothing contained in the Merger Agreement will limit or restrict New
LL&E's right on or after the Effective Time to amend, modify or terminate any of
such employee benefit plans. To the extent any employee benefit plan, program or
policy of BR, New LL&E, or their affiliates is made available to any person who
is an employee of LL&E or any of its subsidiaries immediately prior to the
Effective Time: (i) service with LL&E and its subsidiaries by any employee prior
to the Effective Time will be credited for eligibility and vesting purposes and
for purposes of qualifying for any additional benefits tied to periods of
service (such as higher rates of matching contributions and eligibility for
early retirement) under such plan, program or policy, but not for benefit
accrual purposes; and (ii) with respect to any benefit plans to which such
employees may become eligible, BR will cause such plans to provide credit for
any co-payments or deductibles by such employees and waive all pre-existing
condition exclusions and waiting periods, other than limitations or waiting
periods that have not been satisfied under any benefit plans maintained by LL&E
and its subsidiaries for their employees prior to the Effective Time.
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In addition, for the period of one year beginning at the Effective Time, BR
has agreed to cause New LL&E and its subsidiaries to provide employee benefits
to persons who were employees of LL&E and its subsidiaries before the Effective
Time and their beneficiaries that in the aggregate are substantially equivalent
to those provided before the Effective Time. For the period of one year
beginning at the Effective Time, there will be no amendment to the terms of any
employee pension benefit plan of LL&E or any of its subsidiaries or to the terms
of any employee benefit plan of LL&E or any of its subsidiaries that provides
post-retirement medical benefits, if such amendment could adversely affect the
eligibility for retirement benefits of any participant thereunder as of the
Effective Time who is eligible for retirement as of the Effective Time or who
would become eligible for retirement within the one-year period beginning at the
Effective Time under LL&E's retirement policies in effect immediately before the
Effective Time; provided, however, that LL&E or New LL&E may amend such plans in
any way that is permissible under the applicable plan and applicable law and
that applies to all retirees covered under the applicable plan. There will be no
amendment to the interest rate crediting provisions of The LL&E Deferred
Compensation Arrangement for Selected Key Employees or of The LL&E Deferred
Compensation Arrangement for Directors in respect of any deferrals made prior to
the Effective Time that could adversely affect (i) any employee who retired
before the Effective Time, (ii) any employee who becomes eligible for
"Retirement" (as defined in The LL&E Deferred Compensation Arrangement for
Selected Key Employees) within the one-year period beginning at the Effective
Time, (iii) any director, or (iv) any beneficiary of any of the foregoing, and
such arrangements will not be terminated with respect to any such deferrals by
any such individuals. BR has also agreed to provide pursuant to a severance plan
of BR (the "BR Severance Plan") to all "Employees," as defined in The LL&E
Special Termination Benefit Plan, at the Effective Time who, within the period
of one year beginning at the Effective Time, are either involuntarily terminated
without "cause" (as defined in the BR Severance Plan) or are offered a position
with BR or New LL&E more than 50 miles from their work location at the Effective
Time and decline to accept such position, severance benefits equal to the sum of
(1) the greater of (A) 6% of current base salary and target bonus opportunity
for the year of termination of employment ("total compensation") times number of
years of service (rounded up to the nearest whole number), to a maximum of 30
years, plus 4% of "total compensation" for every $10,000 in total compensation
(rounded up to the nearest increment of $10,000) to a maximum of 50% of total
compensation, or (B) 6 times the employee's monthly base salary rate; and (2) a
prorated bonus for the year of termination of employment based on the employee's
target bonus opportunity for that year; provided that any benefit payable
pursuant to clause (1) will be reduced by any payments made in lieu of notice
under the Workers Adjustment and Retraining Notification Act; and provided,
further, that the employee may be required, as a condition for receiving such
severance benefits, to sign a severance agreement and release (in the form
customarily used by BR) that includes a waiver and release of all claims arising
out of employment or termination thereof. LL&E has agreed that the transactions
contemplated by the Merger Agreement will not constitute a "Change in Control"
for purposes of The LL&E Special Termination Benefit Plan, and LL&E will take no
action inconsistent with such a determination.
BR has further agreed that bonuses awarded in respect of 1997 to each
employee of LL&E who continues to be employed by New LL&E or BR will be
determined by the BR Board and will not be less than the target bonus applicable
to such employee under LL&E's 1997 Annual Incentive Plan calculated at his or
her salary in effect at the Effective Time, and each such employee will, if
permissible under the terms of BR's Incentive Compensation Plan, be given the
right to defer all or a portion of such bonus in accordance with the provisions
of BR's Incentive Compensation Plan. Prior to the Effective Time, LL&E will (i)
cause the terms of all outstanding Restricted Stock Unit Agreements under The
Louisiana Land and Exploration Company 1988 Long-Term Stock Incentive Plan and
the terms of all outstanding awards under The Louisiana Land and Exploration
Company Special Incentive/Salary Continuation Plan to be amended, effective as
of the Effective Time, to eliminate the power of management to reduce or
eliminate payment based on performance and to provide a definition of "cause,"
with "cause" defined to mean an act or acts of dishonesty resulting or intended
to result in substantial gain or personal enrichment to the participant to which
he or she is not legally entitled at the expense of the employer, or a material
breach of the participant's duties or responsibilities resulting in demonstrably
material injury to the employer; (ii) cause all performance share awards granted
in 1996 and 1997 prior to the Effective Time under The Louisiana Land and
Exploration Company 1997 Long-Term
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Stock Incentive Plan or under The Louisiana Land and Exploration Company 1988
Long-Term Stock Incentive Plan to be converted, effective as of the Effective
Time, to provide for earn-out at the earn-out percentage applicable for the
substantially comparable period under BR's 1997 Performance Share Unit Plan;
(iii) for purposes of The LL&E Deferred Compensation Arrangement for Selected
Key Employees, cause an administrative determination to be made that any
involuntary termination of employment without cause (with "cause" defined as set
forth in (i) above) within the one-year period beginning at the Effective Time
is to be considered a termination by reason of a reduction in labor force; and
(iv) amend The LL&E Directors Retirement Trust Agreement and The LL&E Change in
Control Arrangement Trust Agreement to cause the transactions contemplated in
the Merger Agreement not to constitute a "Change in Control" and to substitute
BR for LL&E for purposes of the definition of "Change in Control" in said Trust
Agreements, and to impose on BR an obligation to make the contributions required
to be made under said Trust Agreements following a "Change in Control" following
the Effective Time if such contributions are not promptly made by New LL&E (and
BR has agreed to assume such obligation). BR has agreed that, with respect to
all outstanding awards under The Louisiana Land and Exploration Company 1988
Long-Term Stock Incentive Plan and The Louisiana Land and Exploration Company
1997 Long-Term Stock Incentive Plan, any administrative determinations as to
whether a termination is with the consent of the Committee will be made in a
manner consistent with prior administrative practice under such Long-Term
Incentive Plan, to the extent not inconsistent with BR's prior administrative
practices under BR's Stock Incentive Plan. Notwithstanding the foregoing, none
of the actions specified above will be effective, nor will the employment
agreement of H. Leighton Steward described under "The Employment Agreement" be
executed, unless such action or execution would not adversely affect the
qualification of the Merger for "pooling of interests" accounting treatment. If
any such action or execution would adversely affect the qualification of the
Merger for "pooling of interests" treatment, the parties will not take such
action, and will take such other actions, consistent with the qualification of
the Merger for "pooling of interests" treatment, to provide substantially
equivalent economic benefits to such employees.
INDEMNIFICATION
From and after the Effective Date, New LL&E and BR shall indemnify, defend
and hold harmless the officers, directors and employees of LL&E and its
subsidiaries who were such at any time prior to the Effective Time (the
"Indemnified Parties") from and against all losses, expenses, claims, damages or
liabilities arising out of the transactions contemplated by the Merger Agreement
to the fullest extent permitted or required under applicable law, and the
Indemnified Parties will be advanced expenses subject to a customary
reimbursement agreement. All rights to indemnification existing in favor of the
directors, officers or employees of LL&E as provided in the LL&E Charter or the
LL&E By-laws, as in effect as of the date of the Merger Agreement, with respect
to matters occurring through the Effective Time, will survive the Merger and
will continue in full force and effect thereafter. New LL&E will maintain in
effect for not less than six years after the Effective Time the current policies
of directors' and officers' liability insurance maintained by LL&E with respect
to matters occurring on or prior to the Effective Time. The Merger Agreement
further provides that New LL&E may substitute therefor policies of at least the
same coverage (with carriers comparable to LL&E's existing carriers) containing
terms and conditions which are no less advantageous to the Indemnified Parties,
that New LL&E will not be required in order to maintain or procure such coverage
to pay an annual premium in excess of 300% of the current annual premium paid by
LL&E for its existing coverage (the "Cap") and that if equivalent coverage
cannot be obtained, or can be obtained only by paying an annual premium in
excess of the Cap, New LL&E will only be required to obtain as much coverage as
can be obtained by paying an annual premium equal to the Cap.
In the event that any action, suit, proceeding or investigation relating to
the Merger Agreement or to the transactions contemplated by the Merger Agreement
is commenced, whether before or after the Effective Time, BR, LL&E and Sub agree
to cooperate and use their respective reasonable efforts to vigorously defend
against and respond thereto.
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NO SOLICITATION
Each of BR and LL&E has agreed in the Merger Agreement (i) that neither it
nor any of its subsidiaries will, and it will direct and use its best efforts to
cause its officers, directors, employees, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any of its subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders)
with respect to a merger, acquisition, consolidation or similar transaction
(other than, in the case of BR, any acquisitions of assets or businesses that
are primarily engaged in the same business as that conducted by BR and its
subsidiaries as of the date of the Merger Agreement and any financing
transactions or issuances of securities related thereto which, in each case, do
not require approval by the stockholders of BR), involving, or any purchase of
all or any significant portion of the assets or any equity securities of, such
party and its subsidiaries, taken as a whole (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal"), or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Alternative Proposal, or
release any third party from any obligations under any existing standstill
agreement or arrangement, or enter into any agreement with respect to an
Alternative Proposal, or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal; (ii) that it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted theretofore with respect to any of the foregoing, and it will
take the necessary steps to inform the individuals or entities referred to above
of the obligations undertaken as set forth above; and (c) that it will notify
the other party immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, it. The Merger Agreement provides
that each of BR and LL&E may, directly or indirectly, furnish information and
access to, and may participate in discussions and negotiate with, any
corporation, partnership, person or other entity, if such corporation,
partnership, person or other entity has submitted a written proposal to the
Board of Directors of such party relating to an Alternative Proposal which the
Board of Directors of such party believes is superior from a financial point of
view to the Merger and is reasonably likely to be consummated and the Board of
Directors of such party, having received a written opinion of legal counsel
relating thereto, determines in its good faith judgment that failing to take
such action would constitute a breach of such Board of Directors' fiduciary duty
to its stockholders imposed by law. Such Board of Directors will provide a copy
of any such written proposal to the other party immediately after receipt
thereof and thereafter keep the other party promptly advised of any development
with respect thereto and any revision of the terms of such Alternative Proposal.
The respective Boards of Directors of each of BR and LL&E will not be prevented
from taking, and disclosing to its respective stockholders, a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
regard to any tender offer. The Merger Agreement further provides that the BR
Board or the LL&E Board may not recommend that the stockholders of such party
tender their shares in connection with any such tender offer unless such Board
of Directors, having received a written opinion of legal counsel relating
thereto, determines in its good faith judgment that failing to take such action
would constitute a breach of such Board of Directors' fiduciary duty to its
stockholders imposed by law. The Merger Agreement provides that the foregoing
does not (x) permit BR or LL&E to terminate the Merger Agreement (except as
specifically provided in the termination provisions of the Merger Agreement),
(y) permit BR or LL&E to enter into any agreement with respect to an Alternative
Proposal during the term of the Merger Agreement (it being agreed that during
the term of the Merger Agreement, neither BR nor LL&E may enter into any
agreement with any person that provides for, or in any way facilitates, an
Alternative Proposal (other than a confidentiality agreement in customary
form)), or (z) affect any other obligation of BR or LL&E under the Merger
Agreement.
CONDITIONS PRECEDENT
The obligations of BR, LL&E and Sub to effect the Merger are subject, among
other things, to the fulfillment or, where permissible, waiver, of certain
conditions, including without limitation: (i) the approval of the Merger, the
Merger Agreement and the transactions contemplated thereby by the requisite vote
of the stockholders of LL&E and the approval of the Stock Issuance by the
requisite vote of the stockholders of BR; (ii) the expiration or termination of
any waiting period applicable to the consummation of the Merger under
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the HSR Act; (iii) the effectiveness of the Registration Statement and the
absence of a stop order suspending such effectiveness; (iv) there not having
been issued or in effect any preliminary or permanent injunction or order by any
federal or state court in the United States of competent jurisdiction
prohibiting the consummation of the Merger; (v) the listing on the NYSE, subject
only to official notice of issuance, of the shares of BR Common Stock to be
issued pursuant to the Stock Issuance; and (vi) LL&E having received an opinion
of Cahill Gordon & Reindel and BR and Sub having received an opinion of White &
Case, in each case, that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code. Forms of the tax opinions of Cahill
Gordon & Reindel and White & Case are attached hereto as Exhibits D and E,
respectively, to Appendix A, and such opinions are currently expected to be
delivered at Closing. Although the condition that LL&E and BR receive such tax
opinions of Cahill Gordon & Reindel and White & Case, respectively, may be
waived, LL&E and BR do not presently intend to waive such condition. However, in
the event such condition is waived, BR and LL&E will resolicit proxies and
disclose the waiver of such condition and all other related material disclosure,
including risks to their respective stockholders.
The obligation of LL&E to effect the Merger is also subject to the
fulfillment of certain additional conditions, including with respect to the
accuracy of the representations and warranties of BR and Sub and the performance
in all material respects of the obligations and covenants of BR and Sub under
the Merger Agreement and the receipt of a certificate of the President and Chief
Executive Officer or a Vice President of each of BR and Sub to such effect.
The obligation of BR to effect the Merger is also subject to the
fulfillment of certain additional conditions, including with respect to the
accuracy of the representations and warranties of LL&E and the performance in
all material respects of the obligations and covenants of LL&E under the Merger
Agreement and the receipt of a certificate of the President and Chief Executive
Officer or a Vice President of LL&E to such effect.
Prior to the Effective Time, the parties to the Merger Agreement may (i)
extend the time for the performance of any of the obligations or other acts of
the other parties thereto, (ii) waive any inaccuracies in the representations
and warranties contained therein or in any documents delivered pursuant thereto
and (iii) waive compliance with any of the agreements or conditions contained
therein.
TERMINATION, AMENDMENT AND WAIVER
The Merger Agreement may be terminated by action of either the BR Board or
LL&E Board and the Merger abandoned under certain circumstances, including, but
not limited to, the occurrence of any of the following: (a) the Merger has not
been consummated by January 31, 1998, provided that the terminating party has
not breached in any material respect its obligations under the Merger Agreement
in any manner that would have proximately contributed to the failure to
consummate the Merger; (b) the requisite approval of the Merger, the Merger
Agreement and the transactions contemplated thereby by the stockholders of LL&E
is not obtained; (c) the requisite approval of the Stock Issuance by the
stockholders of BR is not obtained; (d) a United States federal or state court
of competent jurisdiction or Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger Agreement and
such order, decree, ruling or other action has become final and non-appealable;
provided that the party seeking to terminate the Merger Agreement pursuant to
this clause has used all commercially reasonable efforts to remove such
injunction, order or decree; or (e)(i) if the Board of Directors of BR or LL&E
withdraws or modifies in a manner adverse to the other party its approval or
recommendation of the Merger Agreement or the Merger or recommends an
Alternative Proposal with respect to such party to such party's stockholders or
(ii) such party receives an Alternative Proposal which the board of directors of
such party believes is superior from a financial point of view to the Merger and
is reasonably likely to be consummated and the board of directors of such party,
having received a written opinion of legal counsel relating thereto, in the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law determines that such termination is required.
The Merger Agreement may also be terminated prior to the Effective Time,
before or after approval of the BR stockholders or LL&E stockholders, by the
mutual consent of BR and LL&E.
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In the event that (w) any person makes an Alternative Proposal with respect
to BR or LL&E and thereafter the Merger Agreement is terminated by either party
due to the failure to obtain such party's requisite stockholders' approval and
within 12 months thereafter any Alternative Proposal with respect to such party
has been consummated, (x) the Board of Directors of such party withdraws or
modifies in a manner adverse to the other party its approval or recommendation
to such party's stockholders by reason of an Alternative Proposal with respect
to such party and the other party terminates the Merger Agreement pursuant to
clause (e)(i) above and within 12 months thereafter any Alternative Proposal
with respect to such party has been consummated, (y) the Board of Directors of
such party recommends an Alternative Proposal with respect to such party to such
party's stockholders and the other party terminates the Merger Agreement
pursuant to clause (e)(i) above or (z) such party terminates the Merger
Agreement pursuant to clause (e)(ii) above, then, in any such case, such party
must in no event later than (i) the date of consummation of such Alternative
Proposal, in the case of a termination described in clause (w) or (x), or (ii)
two days after such termination, in the case of a termination described in
clause (y) or (iii) concurrently with such termination, in the case of a
termination described in clause (z), pay the other party a fee of $80,000,000,
in the case where LL&E is obligated to make the payment, or $150,000,000, in the
case where BR is obligated to make the payment (a "Termination Fee"), which
amount will be payable by wire transfer of same day funds, and such party must
promptly reimburse the other party for all substantiated out-of-pocket costs and
expenses incurred by such party in connection with the Merger Agreement and the
transactions contemplated thereby, including, without limitation, costs and
expenses of accountants, attorneys and financial advisors, up to an aggregate of
$8,000,000. If a party fails to promptly pay the amount due as set forth above,
and, in order to obtain such payment, the other party commences a suit which
results in a judgment against such party for the fee and expenses set forth
above, such party must pay to the other party its costs and expenses (including
attorneys' fees) in connection with such suit.
The provisions in the Merger Agreement relating to, among other things, the
effect of termination and abandonment, fees and expenses, no shop, the rights
agreement covenant and the applicability of state takeover statutes, specific
performance and assignment will survive the termination of the Merger Agreement.
FEES AND EXPENSES
Whether or not the Merger is consummated, except as otherwise provided in
the Merger Agreement, all costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated by the Merger Agreement will
be paid by the party incurring such expenses, whether or not the Merger is
consummated, except that (a) the filing fee in connection with the HSR Act
filing, (b) the filing fees in connection with the filing of the Registration
Statement and this Joint Proxy Statement/Prospectus with the Commission and (c)
the expenses of printing and mailing the Registration Statement and this Joint
Proxy Statement/Prospectus, will be shared equally by LL&E and BR.
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THE STOCK OPTION AGREEMENT
The following summary of the terms of the Stock Option Agreement is
qualified in its entirety by reference to the Stock Option Agreement, which is
incorporated herein by reference and attached as Appendix B to this Joint Proxy
Statement/Prospectus. Certain defined terms used in the description of the Stock
Option Agreement below which are not otherwise defined in this Joint Proxy
Statement/Prospectus and which are defined in the Stock Option Agreement shall
have the respective meanings set forth therein.
GENERAL
Concurrently with the execution of the Merger Agreement, BR and LL&E
entered into the Stock Option Agreement pursuant to which LL&E granted BR the
option to purchase 5,145,000 shares (subject to adjustment for changes in
capitalization) of LL&E Stock (the "Option Shares") at an exercise price of
$70.34 per share (the "Purchase Price"), representing 14.9% of the number of
shares of LL&E Stock outstanding on July 16, 1997. The Option becomes
exercisable only if the holder thereof could be entitled to a termination
payment under the Merger Agreement (see "The Merger Agreement -- Termination,
Amendment and Waiver") (a "Purchase Event"). The Stock Option Agreement was
executed as an inducement to BR to enter into the Merger Agreement and is
intended, together with the Termination Fee payable by LL&E as described under
"The Merger Agreement -- Fees and Expenses," to compensate BR in the event that
the Merger Agreement is terminated under certain circumstances. In addition, as
discussed below, certain aspects of the Stock Option Agreement may discourage
other persons from considering or proposing a business combination with LL&E.
The terms of the Stock Option Agreement are the result of arms' length
negotiations between LL&E and BR with respect to the conditions to the exercise
of the Option and the maximum value receivable by BR pursuant to the Stock
Option Agreement and the Termination Fee. The exercise price of the Option is
equivalent to the value of the BR Common Stock receivable by holders of the LL&E
Stock pursuant to the Merger valued as of the execution of the Merger Agreement,
based upon the closing price of the BR Common Stock on the trading day
immediately preceding the execution of the Merger Agreement and the Stock Option
Agreement. The Option is exercisable only under certain circumstances in the
event of termination of the Merger Agreement. In the analysis undertaken by each
of Morgan Stanley, Merrill Lynch and SBC Warburg Dillon Read in rendering its
fairness opinion, each such financial advisor considered a broad range of
factors and information as described in "The Merger -- Opinion of BR's Financial
Advisor" and "-- Opinions of LL&E's Financial Advisors", including the terms of
the Merger Agreement and the Stock Option Agreement. However, the fairness
opinion of each of Morgan Stanley, Merrill Lynch and SBC Warburg Dillon Read
addresses the fairness of the Exchange Ratio from a financial point of view to
BR, in the case of Morgan Stanley, and to LL&E's stockholders, in the case of
Merrill Lynch and SBC Warburg Dillon Read, and does not express any opinion on
any other aspect of the Merger or the terms of the Merger Agreement or the Stock
Option Agreement.
Certain aspects of the Stock Option Agreement (including the fact that the
exercise by BR of the Option would render LL&E ineligible for "pooling of
interests" accounting treatment for a period of two years) may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all of or a significant interest in, or otherwise
effecting a business combination with LL&E, from considering or proposing such a
transaction, even if such persons were prepared to offer to pay consideration to
stockholders of LL&E which had a higher value than the shares of BR Common Stock
to be received per share of LL&E pursuant to the Merger Agreement.
TERMINATION
The Option will terminate upon the earliest to occur of (i) the Effective
Time, (ii) 18 months after the first occurrence of a Purchase Event and (iii)
termination of the Merger Agreement in accordance with its terms prior to the
occurrence of a Purchase Event, unless BR has the right to receive a termination
fee following such termination upon the occurrence of certain events, in which
case the Option shall not terminate until the later of (x) six months following
the time such termination fee becomes payable and (y) the expiration of the
period in which BR has such right to receive a termination fee. Notwithstanding
the termination of the Option, BR will be entitled to purchase the Option Shares
if it has exercised the Option in
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accordance with the terms thereof prior to the termination of the Option and the
termination of the Option shall not affect any rights under the Stock Option
Agreement which by their terms do not terminate or expire prior to or as of such
termination.
CERTAIN ADJUSTMENTS
In the event of any change in LL&E Stock by reason of a stock dividend,
split-up, merger, recapitalization, combination, exchange of shares, or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price therefor, will be adjusted appropriately, and proper
provision will be made in the agreements governing such transaction, so that BR
will receive upon exercise of the Option the number and class of shares or other
securities or property that BR would have received in respect of LL&E Stock if
the Option had been exercised immediately prior to such event or the record date
therefor, as applicable.
In the event that LL&E enters into an agreement (i) to consolidate with or
merge into any person, other than BR or one of its subsidiaries, and LL&E will
not be the continuing or surviving corporation in such consolidation or merger,
(ii) to permit any person, other than BR or one of its subsidiaries, to merge
into LL&E and LL&E will be the continuing or surviving corporation, but in
connection with such merger, the shares of LL&E Stock outstanding immediately
prior to the consummation of such merger will be changed into or exchanged for
stock or other securities of LL&E or any other person or cash or any other
property, or the shares of LL&E Stock outstanding immediately prior to the
consummation of such merger will, after such merger, represent less than 50% of
the outstanding voting securities of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than BR or one of its subsidiaries, then, and in each such case, the agreement
governing such transaction should make proper provision so that the Option will,
upon the consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of shares or other
securities or property that BR would have received in respect of LL&E Stock if
the Option had been exercised immediately prior to such consolidation, merger,
sale, or transfer, or the record date therefor, as applicable.
If, prior to the termination of the Option, LL&E in accordance with the
immediately preceding paragraph, enters into any agreement (x) pursuant to which
all outstanding shares of LL&E Stock are to be purchased for, or converted into
the right to receive in whole or in part (other than in respect of fractional
shares) cash or (y) with respect to any transaction described in clauses (i),
(ii) and (iii) of the preceding paragraph (each of (x) and (y), a
"Transaction"), LL&E covenants that proper provision will be made in such
agreement to provide that, if the Option has not previously been exercised, then
upon the consummation of the Transaction (which in the case of a Transaction
involving a tender offer will be when shares of LL&E Stock are accepted for
payment), BR will have the right, at its election, by not less than two business
days' prior written notice to LL&E, to receive in exchange for the cancellation
of the Option an amount in cash equal to the Spread. For purposes of the Stock
Option Agreement, the term "Spread" means the number of Option Shares multiplied
by the excess of (A) the closing sales price per share of LL&E Stock on the
principal securities exchange or quotation system on which LL&E Stock is then
listed or traded, as reported by The Wall Street Journal on the day immediately
prior to the consummation of such Transaction, over (B) the Purchase Price.
Notwithstanding the foregoing, the amount of the Spread, when added to any
termination fee paid or payable to BR, will not exceed $120 million. See "The
Merger Agreement -- Termination, Amendment and Waiver."
Following exercise of the Option by BR, in the event that BR sells, pledges
or otherwise disposes of (including, without limitation, by merger or exchange)
any of the Option Shares (a "Sale"), then: (i) any Termination Fee due and
payable by LL&E following such time will be reduced by an amount, if any, equal
to the excess of (1) the total of (A) such termination fee and (B) the excess of
(w) the aggregate amounts received (whether in cash, securities or otherwise) by
BR in all such Sales, over (x) the aggregate Purchase Price of the Option Shares
sold in such Sales (such excess in this sub-clause (B) being the "Offset
Amounts") over (2) $120 million; and (ii) if LL&E has paid to BR such
termination fee prior to the Sale,
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then BR will immediately remit to LL&E, as additional Purchase Price for the
Option Shares, the excess, if any, of (y) the total of such termination fee and
the Offset Amounts of all Sales over (z) $120 million.
Notwithstanding anything to the contrary in the Stock Option Agreement or
the Merger Agreement, in no event will the aggregate of any termination fee, all
Offset Amounts and the Spread exceed $120 million.
REGISTRATION RIGHTS
Pursuant to the Stock Option Agreement, BR also has the right on not more
than two occasions to require LL&E to register any portion of the Option Shares
under the Securities Act within two years after the date of exercise of the
Option, if such registration is necessary in order to permit the sale or other
disposition of any or all of the Option Shares.
THE EMPLOYMENT AGREEMENT
The following summary of the terms of the Employment Agreement is qualified
in its entirety by reference to Exhibit C to the Merger Agreement which is
incorporated by reference herein and is attached as Appendix A to this Joint
Proxy Statement/Prospectus. Certain defined terms used in the description of the
Employment Agreement below which are not otherwise defined in this Joint Proxy
Statement/Prospectus and which are defined in the Employment Agreement shall
have the respective meanings set forth therein.
The Merger Agreement contemplates that, effective as of the Effective Time,
BR will enter into an employment agreement with Mr. H. Leighton Steward,
Chairman of the Board, President and Chief Executive Officer of LL&E (the
"Employment Agreement") pursuant to which Mr. Steward will serve as Vice
Chairman of the New BR Board and Chairman of its Executive Committee through
December 1, 1999. For his services, Mr. Steward will receive a minimum salary of
$450,000 per annum and will participate in BR's 1993 Stock Incentive Plan.
Under the Employment Agreement, Mr. Steward will participate with other
senior executives of BR in compensation and benefit plans in effect from time to
time (other than BR's Senior Executive Survivor Plan) and will be entitled to
receive $50,000 per year as a housing allowance. For purposes of computing all
benefits (other than incentive compensation) tied to the level of his
compensation, Mr. Steward's salary will be treated as the greater of his actual
salary under the Employment Agreement or his actual annual salary rate from LL&E
immediately before the Effective Time.
If Mr. Steward's employment is terminated by BR for any reason before
December 1, 1999 other than as a result of death, permanent disability or for
cause, or is initiated by him for good reason, BR will pay him an amount equal
to the product of the number of whole and partial months remaining from the date
of his termination until December 1, 1999, times his then current monthly base
salary. If Mr. Steward's termination entitles him to benefits under BR's Key
Executive Severance Protection Plan, he may elect to receive the benefits
described in the preceding sentence in lieu of those benefits. If he elects to
receive the benefits described above, he will nevertheless be eligible to
receive the additional benefits related to the gross-up payment for excise taxes
under such plan.
BR will pay or cause to be paid to Mr. Steward the benefits described in
the Termination Agreement dated March 13, 1996 between him and LL&E (the
"Termination Agreement") if (i) Mr. Steward is terminated by BR on any grounds
whatsoever except for "cause" during the "Protection Period" (as defined in the
Termination Agreement) or if he terminates his employment with BR voluntarily
within the Protection Period or (ii) his employment with BR terminates by reason
of his death during the Protection Period, or (iii) he becomes disabled during
the Protection Period under circumstances entitling him to disability benefits
under BR's long-term disability plan or under Social Security. The Employment
Agreement contains customary non-disclosure, non-competition and
non-solicitation covenants on the part of Mr. Steward.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a general discussion of the material U.S. federal income
tax consequences of the receipt of BR Common Stock by a holder of LL&E Stock
pursuant to the Merger and is not intended to constitute advice regarding the
federal income tax consequences of the Merger to any such holder. This summary
only applies to U.S. Holders (as defined below) who hold shares of LL&E Stock as
capital assets and does not deal with special classes of investors, such as
insurance companies, tax-exempt organizations, financial institutions, dealers
in securities, foreign persons, persons who acquired shares of LL&E Stock
pursuant to an exercise of employee stock options or rights or otherwise as
compensation, persons that hold shares of LL&E Stock as part of a position in a
"straddle" or as part of a "hedging" or "conversion" transaction for U.S.
federal income tax purposes, and persons with a "functional currency" other than
the U.S. dollar.
A "U.S. Holder" means a holder of shares of LL&E Stock who is (i) a citizen
or resident of the United States, (ii) a corporation or partnership created in
or organized under the laws of the United States or state thereof (including the
District of Columbia), (iii) an estate the income of which is subject to U.S.
federal income tax regardless of its source, or (iv) a trust if (x) a U.S. court
can exercise primary supervision over the administration of such trust, and one
or more U.S. persons have the authority to control all of the substantial
decisions of such trust or (y) such trust was in existence on August 20, 1996
and elects to continue to be treated as a United States person.
This discussion is based on current law and is the opinion of White & Case
and Cahill Gordon & Reindel. Future legislative, judicial or administrative
changes or interpretations, which may be retroactive, could alter or modify the
statements set forth herein. Neither BR nor LL&E will request any ruling from
the Internal Revenue Service ("IRS") as to the U.S. federal income tax
consequences of the Merger. Opinions of counsel are not binding on the IRS or
the courts, and the IRS and the courts are not precluded from taking contrary
positions.
EACH HOLDER OF SHARES OF LL&E STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
GENERAL
It is a condition to the consummation of the Merger that BR receive an
opinion of its tax counsel, White & Case, and that LL&E receive an opinion of
its tax counsel, Cahill Gordon & Reindel, that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code. In rendering
these opinions with respect to the U.S. federal income tax consequences, White &
Case and Cahill Gordon & Reindel have assumed that the Merger generally will be
consummated as contemplated by this Joint Proxy Statement/Prospectus, and will
receive and will rely upon representations of fact contained in certificates of
BR and LL&E, including that (i) there is no plan or intention on the part of the
holders of LL&E Stock to sell, exchange or otherwise dispose of a number of
shares of BR Common Stock received in the Merger in exchange for such LL&E Stock
that would reduce the LL&E stockholders ownership of BR Common Stock to a number
of shares having a value, as of the Effective Time of the Merger, of less than
50 percent of the value of all of the formerly outstanding LL&E stock
immediately prior to the Effective Time of the Merger, (ii) BR intends to cause
LL&E to continue LL&E's historic business or use a significant portion of LL&E's
historic business assets in a business and (iii) after the Merger, LL&E will
hold at least 90 percent of the fair market value of its net assets and at least
70 percent of the fair market value of its gross assets held immediately prior
to the Merger.
TAX CONSEQUENCES TO BR AND LL&E
BR, Sub and LL&E will each be a party to the reorganization within the
meaning of Section 368(b) of the Code. No gain or loss will be recognized by BR
or LL&E with respect to the exchange of LL&E Stock and BR Common Stock as a
result of the Merger.
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TAX CONSEQUENCES TO HOLDERS OF LL&E STOCK
A holder of LL&E Stock will not recognize gain or loss on the exchange of
LL&E Stock for BR Common Stock pursuant to the Merger, except to the extent that
such U.S. Holder receives cash in lieu of fractional shares of BR Common Stock.
Such holder's aggregate adjusted tax basis in the shares of BR Common Stock
received in the Merger will equal such holder's adjusted tax basis in the shares
of LL&E Stock surrendered in exchange therefor, less the portion of such basis,
if any, allocable to fractional shares. The holding period of the shares of BR
Common Stock received by each holder of LL&E Stock in the Merger (including any
fractional share interest) will include the holding period of the LL&E Stock
surrendered in exchange therefor.
No fractional shares of BR Common Stock will be issued pursuant to the
Merger. A holder of LL&E Stock who, pursuant to the Merger, receives cash in
lieu of fractional shares of BR Common Stock will be treated as having received
such fractional shares of BR Common Stock pursuant to the Merger and then as
having received such cash in a redemption of such fractional shares of BR Common
Stock. Under Section 302 of the Code, provided that such deemed redemption is
"substantially disproportionate" with respect to such holder or is not
"essentially equivalent to a dividend" after giving effect to the constructive
ownership rules of the Code, the holder generally will recognize capital gain or
loss on such deemed redemption equal to the difference between the amount of
cash received and the holder's adjusted tax basis in the fractional shares of BR
Common Stock deemed to have been issued.
BACKUP WITHHOLDING
Generally, U.S. backup withholding tax and information reporting
requirements will apply to payments with respect to the Merger to non-corporate
U.S. Holders of LL&E Stock (other than "exempt recipients," including
corporations, non-U.S. Holders that provide appropriate certification and
certain other persons). The payor will be required to withhold 31% of any such
payment if the U.S. Holder fails to furnish its correct taxpayer identification
number or otherwise fails to comply with such backup withholding tax
requirements.
These backup withholding tax and information reporting rules currently are
under review by the U.S. Treasury Department and proposed Treasury Regulations
issued on April 15, 1996 would modify certain of such rules generally with
respect to payments made after December 31, 1997. Accordingly, the application
of such rules to payments with respect to the Merger could be changed.
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COMPARISON OF THE RIGHTS OF HOLDERS OF BR COMMON STOCK AND LL&E STOCK
If the Merger is consummated, holders of LL&E Stock will become holders of
BR Common Stock and BR Rights, and the rights of the former LL&E stockholders
will be governed by the laws of the State of Delaware and by the BR Certificate,
the BR By-Laws and the BR Rights Plan. The rights of BR stockholders differ in
certain respects from the rights of LL&E stockholders. The material differences
are summarized below. This summary does not purport to be complete and is
qualified in its entirety by reference to the detailed provisions of the DGCL,
the MGCL, the BR Certificate, the BR By-Laws, the BR Rights Plan, the LL&E
Charter, the LL&E By-laws and the LL&E Rights Plan. For information as to how
such documents may be obtained, see "Available Information."
AUTHORIZED CAPITAL
The authorized capital stock of BR consists of 325,000,000 shares of Common
Stock, par value $.01 per share, and 75,000,000 shares of preferred stock, par
value $.01 per share, of which 3,250,000 shares are designated Series A
Preferred Stock. The authorized capital stock of LL&E consists of 100,000,000
shares of LL&E Stock, par value $0.15 per share.
NUMBER OF DIRECTORS; ELECTION OF DIRECTORS; REMOVAL; VACANCIES
The DGCL permits the certificate of incorporation or the by-laws of a
corporation to contain provisions governing the number and qualifications of
directors. However, if the certificate of incorporation contains provisions
fixing the number of directors, such number may not be changed without amending
the certificate of incorporation. The BR By-Laws state that the number of
directors shall be any number not less than one, which number shall be fixed
from time to time by a vote of a majority of the directors then in office. The
current number of directors fixed by resolution of the BR Board is ten. Pursuant
to the BR By-Laws, directors shall be elected at the annual meeting of
stockholders for a term of one year.
The MGCL provides that any corporation with outstanding stock and three or
more stockholders shall have at least three directors at all times and that a
corporation shall have the number of directors provided in its charter until
such number is changed by the by-laws. The LL&E By-laws provide that the number
of directors comprising the LL&E Board may be fixed from time to time by a vote
of a majority of the directors at any number not less than three and not greater
than fifteen. There are currently eleven directors serving on the LL&E Board.
Under the DGCL, unless the board of a corporation is classified or the
by-laws provide for cumulative voting, any director may be removed with or
without cause, by the holders of a majority of shares entitled to vote for the
election of directors.
Under the MGCL, unless the corporation's charter provides otherwise, the
stockholders of a corporation may remove any director, with or without cause, by
the affirmative vote of a majority of all the votes entitled to be cast for the
election of directors. The LL&E Charter is silent as to removal of directors
and, therefore, directors may be removed with or without cause.
Under the DGCL, vacancies and newly created directorships may be filled by
a majority of the directors then in office or by a sole remaining director (even
though less than a quorum) unless otherwise provided in the certificate of
incorporation or by-laws. However, the DGCL also provides that if the directors
then in office constitute less than a majority of the whole board, the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of shares at the time outstanding entitled to vote
for directors, order an election of directors to be held. The BR By-Laws provide
that vacancies caused by removal shall be filled by the stockholders and
vacancies not caused by removal shall be filled by the vote of a majority of the
BR Board.
Under the MGCL, stockholders may elect a successor to fill a vacancy on the
board of directors which results from the removal of a director. Further, unless
the charter or by-laws provide otherwise, a majority of the remaining directors
(even though less than a quorum) may fill a vacancy which results from any cause
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except an increase in the authorized number of directors, and a majority of the
entire board of directors may fill a vacancy which results from an increase in
the number of directors. There is no provision in the MGCL providing for the
filling of vacancies on the board of directors by the Maryland courts. A
director elected by the board of directors to fill a vacancy serves until the
next annual meeting of stockholders and until his successor is elected and
qualified. A director elected by the stockholders to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director. Under the LL&E By-laws, vacancies caused by reason of an
increase in the number of directors may be filled by a majority of the LL&E
Board and any vacancy caused by any other reason, except removal by the
stockholders, may be filled by a majority of the remaining directors.
CHARTER AMENDMENTS
Under the DGCL, a proposed amendment to the certificate of incorporation
requires a resolution adopted by the board of directors and, unless otherwise
provided in the certificate of incorporation, the affirmative vote of the
holders of a majority of the outstanding stock entitled to vote thereon and (if
applicable) the affirmative vote of the holders of a majority of the outstanding
stock of each class entitled to vote thereon as a class. If any such amendment
would adversely affect the rights of any holders of shares of a class or series
of stock, the vote of the holders of a majority of all outstanding shares of the
class or series, voting as a class, is also necessary to authorize such
amendment. However, the BR Certificate provides that no amendment to the BR
Certificate shall amend, alter or repeal the provisions of Article 14 (action by
stockholders without a meeting) or Article 15 (special voting requirements),
without the affirmative vote of not less than 51% of the Voting Stock (as such
term is defined in the BR Certificate).
Under the MGCL, to approve any charter amendment the board of directors
must adopt a resolution setting forth the proposed amendment, declare that it is
advisable and direct that the proposed amendment be submitted to the
stockholders for their consideration and the stockholders must approve any
amendment by the affirmative vote of two-thirds of all votes entitled to be cast
on the matter. The LL&E Charter provides that LL&E may from time to time make
any amendments to the LL&E Charter which are authorized by law, except that no
amendment which changes the terms of any of the outstanding stock shall be valid
unless such amendment is authorized by the vote of the holders of two-thirds of
all of the outstanding shares of such stock.
BY-LAW AMENDMENTS
Under the DGCL, the power to adopt, alter and repeal the by-laws is vested
in the stockholders, except to the extent that a corporation's certificate of
incorporation or by-laws vest it in the board of directors. However, the
conferral of the power to adopt, alter and repeal the by-laws upon the directors
does not divest the stockholders of their power to adopt, amend or repeal the
by-laws. The BR Certificate grants the BR Board the power to make and alter the
BR By-Laws subject to certain restrictions and the provisions of the BR By-Laws.
With certain exceptions and subject to the power of the stockholders to amend
and alter the By-laws, the BR By-Laws provide that the BR By-Laws may be altered
or repealed (i) by the affirmative vote of the holders of a majority of shares
present and entitled to vote at a meeting of stockholders or (ii) by the
affirmative vote of a majority of the whole BR Board.
Under the MGCL, the power to adopt, alter and repeal the by-laws is vested
in the stockholders, except to the extent a corporation's charter or by-laws
vest it in the board of directors. The LL&E By-laws provide that the LL&E
By-laws may be altered or appealed by the stockholders at any annual or special
meeting by a vote of a majority of the holders of shares represented in person
or by proxy or by the vote of a majority of the Board as to any provision except
Sections 5 (amendments) and 6 (indemnification) of Article VII of the By-laws.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The BR Certificate and BR By-Laws do not require advance notice of
nominations of persons for election to the BR Board.
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The LL&E By-laws require nominations of persons for election to the LL&E
Board and the submission of other business to be considered at a meeting of
stockholders to be made only by or at the direction of the LL&E Board, a
committee appointed by the Board or by any stockholder of record who complies
with certain advance notice procedures set forth in the LL&E By-laws.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by a
corporation's certificate of incorporation or by-laws. The BR By-Laws provide
that special meetings may be called only by the BR Board, the Chairman of the
Board, or the President.
The MGCL provides that a special meeting of stockholders may be called by
the president, the board of directors, or any other person specified in the
corporation's charter or by-laws. The MGCL further provides that the secretary
of a corporation shall call a special meeting of stockholders on the written
request of stockholders entitled to cast at least 25% of all the votes entitled
to be cast at the meeting; however, such 25% may be increased, to not greater
than a majority of all votes entitled to be cast at the meeting, or decreased
pursuant to a corporation's charter or by-laws. The LL&E By-laws provide that a
special meeting of stockholders may be called by the Chief Executive Officer, a
majority of the LL&E Board, or a majority of the members of the Executive
Committee, either in writing or by vote.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided by the certificate of incorporation, but the BR Certificate does not so
provide.
The MGCL permits cumulative voting for the election of directors if
provided by the charter, but the LL&E Charter does not so provide.
STOCKHOLDER ACTION WITHOUT A MEETING
Under the DGCL, unless otherwise provided in the corporation's certificate
of incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted and
such votes are delivered to the corporation. However, the BR Certificate
provides that any action by stockholders shall be taken at a meeting of
stockholders and no action may be taken by written consent of the stockholders.
Under the MGCL, any action required or permitted to be taken at a meeting
of stockholders may be taken without a meeting only if a unanimous written
consent is signed by each stockholder entitled to vote on the matter and a
written waiver of any right to dissent is signed by each stockholder who would
have been entitled to notice of, but could not vote at, such stockholder
meeting.
RIGHTS PLANS
Each share of BR Common Stock currently has a BR Right associated with it.
The BR Rights Plan expires on December 16, 1998.
In December of 1988, BR adopted the BR Rights Plan and declared a dividend
distribution of one BR Right for each outstanding share of BR Common Stock.
Under certain conditions, each BR Right may be exercised to purchase one
one-hundredth of a share of Series A Preferred Stock of BR at a purchase price
of $95 per one one-hundredth share, subject to adjustment. The BR Rights will be
exercisable upon the earlier to occur of (i) a public announcement that a person
or group, without the prior consent of BR has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of BR
Common Stock (any such person or group, a "BR Acquiring Person"); or (ii) ten
days following the commencement of
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a tender or exchange offer which would result in any person or group of related
persons becoming a BR Acquiring Person, without the prior consent of BR.
If any person or group becomes a BR Acquiring Person, or thereafter BR is
involved in a merger or other business combination in which 50% or more of BR's
assets or earning power is sold, each BR Right will entitle its holder to
receive, upon exercise, BR Common Stock (or, in the case of a merger or other
business combination, stock of the acquiring company) having a value equal to
two times the exercise price of the BR Right. BR will be entitled to redeem the
BR Rights at $.05 per BR Right at any time prior to the earlier of the
expiration of the BR Rights or the time that a person has acquired or obtained
the right to acquire a 20% position. The BR Rights do not have voting or
dividend rights and, until they become exercisable, have no dilutive effect on
the earnings of BR.
Each share of LL&E Stock has an LL&E Right associated with it. In May of
1986, LL&E adopted a Rights Plan and declared a dividend distribution of one
LL&E Right for each outstanding share of LL&E Stock outstanding on June 6, 1986
and authorized the issuance of one LL&E Right in respect of each share of
capital stock of LL&E issued between June 6, 1986 and the earlier of the
Distribution Date, the Expiration Date and the Final Expiration Date (each as
defined in the LL&E Rights Plan). In May of 1996, LL&E amended and restated its
Rights Plan. The description and terms of the LL&E Rights are set forth in the
LL&E Rights Plan. Under certain conditions, each LL&E Right may be exercised to
purchase one share of LL&E Stock at a purchase price of $175, subject to
adjustment. The LL&E Rights will be exercisable only (i) following the date on
which a person or group, without the prior written approval of the LL&E Board,
acquires or obtains the right to acquire "beneficial ownership" of 20% or more
of the LL&E Stock outstanding (any such person or group, an "LL&E Acquiring
Person") or (ii) ten days following the commencement of a tender or exchange
offer which would result in a person or group becoming an LL&E Acquiring Person.
In the event that any person or group becomes an LL&E Acquiring Person or
thereafter LL&E were acquired in a merger or other business combination or that
50% or more of its assets or earning power were sold, each LL&E Right would
entitle its holder to receive, upon exercise, stock of LL&E (or, in the case of
a merger or other business combination or sale of 50% or more of its assets or
earning power, stock of the acquiring company), which would have a value equal
to two times the purchase price. LL&E will be entitled to redeem the LL&E Rights
at $.01 per LL&E Right at any time prior to the earlier of the expiration of the
LL&E Rights in June, 2006 or ten days following the time that a person or group
has become the beneficial owner of 20% of LL&E Stock. The LL&E Rights do not
have voting or dividend rights, and until they become exercisable, have no
dilutive effect on the earnings of LL&E. On July 16, 1997, LL&E took action to
exempt Sub and BR from the provisions of the LL&E Rights Plan. Thus, neither the
execution of the Merger Agreement nor the consummation of the Merger will result
in the LL&E Rights becoming exercisable.
BUSINESS COMBINATIONS
Under the DGCL, the approval by the affirmative vote of the holders of a
majority of the outstanding stock of a corporation entitled to vote on the
matter generally is required for a merger, consolidation or sale, lease or
exchange of all or substantially all the corporation's assets to be consummated.
The BR Certificate provides certain restrictions on business combinations with
"Interested Stockholders" (as defined in the BR Certificate) or their
affiliates. Accordingly, the BR Certificate requires the affirmative vote of at
least 51% of the "Voting Stock" (as defined in the BR Certificate), excluding
the vote of any Interested Stockholder, for the adoption or authorization of a
Business Combination (as defined in the BR Certificate) unless (i) the
Disinterested Directors (as defined in the BR Certificate) determine that the
Interested Stockholder is the beneficial owner of at least 80% of the Voting
Stock and has agreed to vote in favor of such Business Combination or (ii) the
fair market value of the consideration per share to be received by the holders
of shares in the Business Combination is equal to or greater than the
consideration paid by an Interested Stockholder in acquiring the largest number
of shares of such class of stock previously acquired in any one transaction or
series of related transactions and the Interested Stockholder has not received
the benefit of any loans, advances, guarantees, pledges or other financial
assistance provided by BR.
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Under the MGCL, the affirmative vote of at least two-thirds of all the
votes entitled to be cast on the matter is required to approve a merger,
consolidation, share exchange or transfer of all or substantially all of the
corporation's assets, subject to certain exceptions. The LL&E Charter does not
provide for any restrictions with respect to business combinations with
interested stockholders.
STATE TAKEOVER LEGISLATION
DELAWARE BUSINESS COMBINATION LAW. Section 203 of the DGCL generally
prohibits a Delaware corporation from engaging in a "Business Combination"
(defined as a variety of transactions, including mergers, asset sales, issuance
of stock and other transactions resulting in a financial benefit to the
Interested Stockholder) with an "Interested Stockholder" (defined generally as a
person that is the beneficial owner of 15% or more of a corporation's
outstanding voting stock) for a period of three years following the date that
such person became an Interested Stockholder unless:
(i) prior to the date such person became an Interested Stockholder,
the board of directors of the corporation approved either the Business
Combination or the transaction that resulted in the stockholder's becoming
an Interested Stockholder;
(ii) upon consummation of the transaction that resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding stock held by directors who
are also officers of the corporation and employee stock ownership plans
that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
(iii) on or subsequent to the date such person became an Interested
Stockholder, the Business Combination is approved by the board of directors
of the corporation and authorized at a meeting of stockholders, and not by
written consent, by the affirmative vote of the holders of at least 66 2/3%
of the outstanding voting stock of the corporation not owned by the
Interested Stockholder.
A corporation may adopt an amendment to its certificate of incorporation or
By-laws expressly electing not to be governed by Section 203 of the DGCL if, in
addition to any other vote required by law, such amendment is approved by the
affirmative vote of a majority of the shares entitled to vote. However, such
amendment generally will not be effective until 12 months after adoption of such
amendment and will not apply to a business combination with an Interested
Stockholder who was such on or prior to the adoption of the amendment. BR has
not adopted an amendment to its Certificate or By-laws by which BR elects not to
be governed by Section 203 of the DGCL.
MARYLAND BUSINESS COMBINATION LAW. Under the MGCL, certain "business
combinations" (including a merger, a consolidation, a share exchange or, in
certain circumstances, an asset transfer or issuance or reclassification of
equity securities) between a Maryland corporation and any person who
beneficially owns 10% or more of the voting power of the corporation's shares or
an affiliate of the corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the
voting power of the then-outstanding voting stock of the corporation (an
"Interested Stockholder") or an affiliate of such an Interested Stockholder are
prohibited for five years after the most recent date on which the Interested
Stockholder becomes an Interested Stockholder. Thereafter, the MGCL provides
that any such business combination must be recommended by the board of directors
of such corporation and approved by the affirmative vote of at least (a) 80% of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation and (b) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other things, the corporation's
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares or the business combination is
approved or exempted by the board of directors of the corporation prior to the
time that the Interested Stockholder becomes an Interested Stockholder. The
board of directors of a Maryland corporation may adopt a resolution approving or
exempting specific business combinations, business combinations generally, or
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generally by types, as to specifically identified or unidentified existing or
future stockholders or their affiliates from the business combination provisions
of the MGCL.
Furthermore, a Maryland corporation may elect not to be subject to the
foregoing requirements by amending its charter, but such amendment must be
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by all holders of outstanding shares of voting stock and at least
two-thirds of the votes entitled to be cast by holders of outstanding shares of
voting stock who are not interested stockholders. Any such amendment is not
effective until 18 months after the vote of stockholders and does not apply to
any business combination of a corporation with a stockholder who was an
interested stockholder on the date of the stockholder vote. LL&E has not adopted
an amendment to the LL&E Charter by which LL&E elects not to be governed by the
default provisions of the MGCL with respect to business combinations with
interested stockholders.
MARYLAND CONTROL SHARE ACQUISITION STATUTE. The MGCL provides that
"control shares" of a Maryland corporation acquired in a "control share
acquisition" have no voting rights except to the extent the acquisition is
exempt or is approved by a vote of at least two-thirds of the votes entitled to
be cast on the matter, excluding shares of stock owned by the acquiror or by
officers or directors who are employees of the corporation. "Control shares" are
voting shares of stock which, if aggregated with all other shares of voting
stock previously acquired by the acquiror, would entitle such acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) 20% or more but less than 33 1/3%; (ii) 33 1/3% or more but
less than a majority; or (iii) a majority of all voting power. Control shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means, subject to certain exceptions, the direct or indirect acquisitions of,
ownership of, or the power to direct the exercise of voting power with respect
to, control shares.
The MGCL also requires Maryland corporations to hold a special meeting of
stockholders at the request of a person who has made or proposes to make a
control share acquisition within 50 days after such request is made, subject to
the satisfaction of certain conditions, to consider the voting rights of the
shares. In addition, unless the corporation's charter or By-laws provide
otherwise, if no request for a meeting is made, the corporation may itself
present the question at any stockholders' meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as provided in the statute, then, subject to certain conditions
and limitations, the corporation may redeem any or all of the control shares
(except those for which voting rights have previously been approved) for fair
value determined without regard to voting rights as of the date of the last
control share acquisition or as of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. Moreover, unless
the corporation's charter or By-laws provide otherwise, if voting rights are
accorded to control shares at a special meeting of stockholders which results in
the acquiring person's having majority voting power, then minority stockholders
may exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid by the acquiror in the control share acquisition. The control share
acquisition statute does not apply to stock acquired in a merger, consolidation
or share exchange if the corporation is a party to the transaction. An
acquisition of shares may be exempted from the control share statute provided
that a charter or by-law provision is adopted for such purpose prior to the
control share acquisition. LL&E has not adopted an amendment to the LL&E Charter
or LL&E By-laws electing not to be governed by the control share acquisitions
provisions of the MGCL.
The DGCL has no comparable control share acquisition provision.
STANDARD OF CONDUCT FOR DIRECTORS
Under Delaware law, the standards of conduct for directors have developed
through written opinions of the Delaware courts in cases decided by them.
Generally, directors of Delaware corporations are subject to a duty of loyalty
and a duty of care. The duty of loyalty has been said to require directors to
refrain from self-dealing. According to the Delaware Supreme Court, the duty of
care requires "directors . . . in managing the corporate affairs . . . to use
that amount of care which ordinarily careful and prudent men would use in
similar
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circumstances." Later case law has established "gross negligence" as the test
for breach of the standard for the duty of care in the process of
decision-making by directors of Delaware corporations.
Under Maryland law, the standards of conduct for directors are governed by
statute. Section 2-405.1(a) of the MGCL requires that a director of a Maryland
corporation perform his or her duties in "good faith," with "a reasonable
belief" that his or her actions are "in the best interests of the corporation"
and with the care of an "ordinarily prudent person in a like position . . .
under similar circumstances."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
The DGCL permits similar indemnification in the case of derivative actions,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability and in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper. A
director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's indemnification
provisions must be indemnified by the corporation for reasonable expenses
incurred in connection therewith, including attorneys' fees.
The BR By-Laws provide, in substance, that each person made a party or
threatened to be made a party to any type of proceeding, by reason of the fact
that he or she is or was a director or officer of BR or is or was serving at the
request of BR as a director, officer, employee or agent of another corporation,
will be indemnified and held harmless by BR to the full extent permitted by the
DGCL, against all expense, liability and loss actually and reasonably incurred
by such person in connection therewith. In certain cases, the indemnified party
will be entitled to the advancement of certain expenses relating to
indemnification.
The MGCL permits a corporation to indemnify its current and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any suit or proceeding to which they may be a party by reason of their service
in those or other capacities, unless it is established that: (a) the act or
omission was material to the matter giving rise to the proceeding and either was
committed in bad faith or was the result of active and deliberate dishonesty;
(b) the person actually received an improper personal benefit in money,
property, or services; or (c) in the case of any criminal proceeding, the person
had reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse judgment
in a suit by or in the right of the corporation or for a judgment of liability
on the basis that personal benefit was improperly received, unless in either
case a court orders indemnification and then only for expenses. Indemnification
for settlement of a suit by or in the right of the corporation is permitted
under the MGCL. In addition, the MGCL permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt of
(a) a written affirmation by the director or officer of his good faith belief
that he has met the standard of conduct necessary for indemnification by the
corporation and (b) a written statement by or on his behalf to repay the amount
paid or reimbursed by the corporation if it shall ultimately be determined that
the standard of conduct was not met. Unless limited by a corporation's charter,
a corporation must indemnify a
64
<PAGE> 72
director or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding subject to the MGCL's indemnification provisions.
The LL&E By-laws provide, in substance, that LL&E, to the fullest extent of
the MGCL, will indemnify, and advance expenses to, former and current directors,
arising out of such person's service to LL&E.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
The DGCL provides that a corporation's certificate of incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. However, no such provision can limit the liability of a
director for (i) any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) violation of
certain provisions of the DGCL, (iv) any transaction from which the director
derived an improper personal benefit or (v) any act or omission prior to the
adoption of such a provision in the certificate of incorporation. The BR
Certificate provides that, to the full extent of the DGCL, BR directors are not
liable to BR or its stockholders for monetary damages for conduct as a director.
However, such provisions do not limit the availability of equitable relief to BR
or its stockholders.
Under the MGCL, a corporation's charter may, with certain exceptions,
include any provisions expanding or limiting the liability of its directors and
officers to the corporation or its stockholders for money damages, but may not
include any provision that restricts or limits the liability of its directors or
officers to the corporation or its stockholders to the extent that (i) it is
proved that the person actually received an improper benefit or profit in money,
property, or services (in which case recovery is limited to the actual amount of
the benefit or profit actually received) or (ii) a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a finding
in the proceeding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. The LL&E Charter provides that, to the fullest
extent permitted by law, LL&E directors and officers are not liable to LL&E or
its stockholders for money damages. However, such provisions do not limit the
availability of equitable relief to LL&E or its stockholders.
APPRAISAL RIGHTS
Under the DGCL, except as otherwise provided by the DGCL, stockholders have
the right to demand and receive payment in cash of the fair value of their stock
(as appraised pursuant to judicial proceedings) in the event of a merger or
consolidation in lieu of the consideration such stockholder would otherwise
receive in such transaction. However, except as otherwise provided by the DGCL,
stockholders do not have such appraisal rights if, among other things, the
consideration they receive for their shares consists of (i) shares of stock of
the corporation surviving or resulting from such merger or consolidation, (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will be either listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") or held
of record by more than 2,000 stockholders, (iii) cash in lieu of fractional
shares of the corporations described in clause (i) or (ii) of this sentence, or
(iv) any combination of shares of stock and cash in lieu of fractional shares
described in the foregoing clauses (i), (ii) and (iii). The BR Common Stock is
listed on the NYSE.
Under the MGCL, stockholders have the right, subject to certain exemptions,
to demand and receive payment of the fair value of their stock in the event of
certain mergers, consolidations, share exchanges or transfers of assets or if
the corporation amends its charter in a way that substantially adversely affects
the stockholder's rights unless the right to do so is reserved in the
corporation's charter. However, except as otherwise provided by the MGCL, a
stockholder does not have such appraisal rights if, among other things, (i) such
stockholder's stock is listed on a national securities exchange or is designated
as a national market system security on an interdealer quotation system by the
NASD, or (ii) such stockholder's stock is that of the surviving corporation in
the merger unless the merger alters the contract rights of the stock as
expressly set forth in the charter, and the charter does not reserve the right
to do so, or the stock is to be changed or
65
<PAGE> 73
converted in whole or in part in the merger into something other than either
stock in the successor or cash, scrip, or other rights or interests, arising out
of provisions for the treatment of fractional shares of stock in the successor.
The LL&E Stock is listed on the NYSE.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not have preemptive rights unless such
rights are specifically granted in the corporation's certificate of
incorporation. The BR Certificate provides that no holder of stock of any class
of BR shall have, as such holder, any preemptive or preferential right with
respect to any stock of any class of BR or to any securities convertible into
shares of stock of BR.
Under the MGCL, a stockholder of a corporation formed before October 1,
1995, such as LL&E, has preemptive rights unless such rights are specifically
negated in the corporation's charter. The LL&E Charter provides that no holders
of stock of LL&E, of whatever class or series, have any preferential right of
subscription to any shares of any class or to any securities convertible into
shares of stock of LL&E other than such, if any, as the LL&E Board may
determine, and at such a price as the LL&E Board in its discretion may fix.
DENIAL OF VOTING RIGHTS
The DGCL provides that holders of the outstanding shares of a class of
stock shall be entitled to vote as a class upon a proposed amendment to the
certificate of incorporation, whether or not entitled to vote thereon by the
certificate of incorporation, if the amendment would change the aggregate number
of authorized shares or the par value of the class or would adversely affect the
powers, preferences or special rights of the class.
Under the MGCL there is no such statutory provision.
PAYMENT OF DIVIDENDS
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
certificate of incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if, following the distribution, the
corporation's capital is less than the aggregate amount of capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. The BR Certificate does not further restrict the ability
of the BR Board to declare dividends.
Under the MGCL, a corporation may not pay a dividend or other distribution
if, after giving effect to such distribution, (i) the corporation would not be
able to pay its indebtedness as such indebtedness becomes due in the usual
course of business or (ii) the corporation's total assets would be less than the
sum of the corporation's total liabilities plus, unless the charter provides
otherwise (which the LL&E Charter does not), the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of stockholders whose preferential
rights on dissolution are superior to those receiving the distribution. The LL&E
Charter does not further restrict the ability of the LL&E Board to declare
dividends.
INSPECTION OF BOOKS AND RECORDS
Under the DGCL, any stockholder of a Delaware corporation may examine the
list of stockholders and any stockholder making a written demand may inspect any
other corporate books and records for any purpose reasonably related to the
stockholder's interest as a stockholder.
The MGCL provides that persons who together have been stockholders for more
than six months and own at least 5% of the outstanding stock of any class of a
Maryland corporation may inspect and copy the corporation's books of account and
stock ledger, request and receive a statement of the corporation's affairs and
request and receive a list of its stockholders. In addition, any stockholder of
a Maryland corporation may (a) inspect and copy the bylaws, minutes of the
proceedings of stockholders and annual statements of affairs and (b) request the
corporation to provide a sworn statement showing all stock and securities issued
and all consideration received by the corporation for such stock during the
preceding twelve months.
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<PAGE> 74
MARKET PRICE AND DIVIDEND INFORMATION
The BR Common Stock is listed and traded on the NYSE and the LL&E Stock is
listed and traded on the NYSE, the London Stock Exchange and the Swiss Stock
Exchanges (Basle, Geneva and Zurich). The following table sets forth the high
and low trading prices per share of each of the BR Common Stock and the LL&E
Stock on the NYSE for the periods indicated as reported in published financial
sources and the dividends paid per share for such periods:
<TABLE>
<CAPTION>
BR COMMON BR LL&E STOCK LL&E
STOCK PRICES DIVIDENDS PRICES DIVIDENDS
-------------------- DECLARED -------------------- DECLARED
HIGH LOW PER SHARE HIGH LOW PER SHARE
---- --- --------- ---- --- -------------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter.......................... $40 3/4 $33 5/8 $.1375 $38 1/2 $31 1/4 $.06
Second Quarter......................... 41 1/2 36 1/2 .1375 41 1/8 35 3/8 .06
Third Quarter.......................... 42 1/4 36 3/8 .1375 40 1/8 35 .06
Fourth Quarter......................... 41 3/8 34 7/8 .1375 43 35 1/8 .06
1996
First Quarter.......................... 40 1/4 35 5/8 .1375 48 7/8 39 3/8 .06
Second Quarter......................... 43 1/4 35 1/8 .1375 57 7/8 46 7/8 .06
Third Quarter.......................... 47 1/8 41 5/8 .1375 63 5/8 50 3/8 .06
Fourth Quarter......................... 53 1/2 44 1/8 .1375 62 1/2 51 1/2 .06
1997
First Quarter.......................... 54 1/2 42 5/8 .1375 59 1/4 46 .06
Second Quarter......................... 48 5/8 39 3/4 .1375 57 1/4 45 1/4 .06
Third Quarter (through September 12,
1997)............................... 533/16 43 5/8 .1375 80 1/8 55 5/8 .06
</TABLE>
On July 16, 1997, the last full trading day prior to the first public
announcement of the execution of the Merger Agreement, the reported high and low
sale prices per share and closing price per share of BR Common Stock and LL&E
Stock on the NYSE were as follows:
<TABLE>
<CAPTION>
JULY 16, 1997
--------------------------------
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
BR.......................................................... $46 3/8 $4513/16 $46 1/8
LL&E........................................................ 60 56 1/8 58 1/4
</TABLE>
On September 12, 1997, the last full trading day prior to the date of this
Joint Proxy Statement/Prospectus, the reported high and low sale prices per
share and closing price per share of BR Common Stock and LL&E Stock on the NYSE
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 12, 1997
--------------------------------
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
BR.......................................................... $5015/16 $50 1/8 $5015/16
LL&E........................................................ 77 1/2 76 1/4 77 1/2
</TABLE>
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF BR
COMMON STOCK AND LL&E STOCK.
The Exchange Ratio pursuant to the Merger Agreement is a fixed ratio.
Accordingly, the Exchange Ratio will not be adjusted in the event of any
increase or decrease in the price of either BR Common Stock or LLE Stock. The
price of BR Common Stock at the Effective Time may be higher or lower than its
price at the date of this Joint Proxy Statement/Prospectus and at the date of
the Special Meetings. Because the Effective Time may occur on a date later than
the Special Meetings, there can be no assurance that the price of BR Common
Stock on the date of the Special Meetings will be indicative of its price at the
Effective Time.
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<PAGE> 75
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BR
The following table sets forth selected historical consolidated financial
data for BR as of and for each of the five years in the period ended December
31, 1996 and as of and for the six months ended June 30, 1997 and 1996. Such
data have been derived from, and should be read in conjunction with, the audited
consolidated financial statements and other financial information contained in
BR's Annual Report on Form 10-K for the year ended December 31, 1996 and the
unaudited consolidated interim financial information contained in BR's Quarterly
Report on Form 10-Q for the six months ended June 30, 1997, including the notes
thereto, incorporated by reference herein. See "Available Information" and
"Incorporation of Documents by Reference."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- -------------------------------------------
1997 1996 1996 1995 1994 1993 1992(A)
------ ------ ------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues............................. $ 666 $ 551 $1,293 $ 873 $1,055 $1,043 $ 943
Operating Income (Loss)(b)........... 238 159 418 (467) 175 256 240
Income (Loss) from Continuing
Operations(b)(c).................. 189 86 255 (280) 154 256 190
Income (Loss) from Continuing
Operations per Common
Share(b)(c)(d).................... 1.52 .68 2.02 (2.20) 1.20 1.96 1.44
BALANCE SHEET DATA
Total Assets(b)...................... $4,372 $4,175 $4,316 $4,142 $4,809 $4,448 $4,470
Long-term Debt....................... 1,347 1,358 1,347 1,350 1,309 819 1,003
Stockholders' Equity(b).............. 2,416 2,223 2,333 2,220 2,568 2,608 2,406
Common Shares Outstanding............ 124 125 125 127 127 130 129
Cash Dividends Declared per Common
Share(e).......................... .275 .275 .55 .55 .55 .55 .60
CASH FLOW DATA
Net Cash Provided by Operating
Activities........................ $ 407 $ 272 $ 652 $ 452 $ 498 $ 455 $ 433
Net Cash Provided by (Used in)
Investing Activities.............. 59 (197) (423) (406) (799) (331) (354)
Net Cash Provided by (Used in)
Financing Activities.............. (85) (76) (181) (45) 301 (137) (176)
</TABLE>
- ---------------
(a) In 1992, as a result of the spin-off of EPNG, EPNG's results of operations
were reported as discontinued and have been excluded from the historical
consolidated financial data.
(b) In 1995, as a result of the impairment of oil and gas assets related to the
adoption of SFAS No. 121, BR recognized a non-cash, pretax charge of $490
million ($304 million after tax).
(c) In 1997, BR recognized a $31 million after tax gain, or Earnings per Common
Share ("EPS") of $.25, on sale of oil and gas properties associated with its
accelerated divestiture program.
(d) Excluding the gain related to the sale of oil and gas properties associated
with the accelerated divestiture program, EPS would have been $1.27 for the
six months ended June 30, 1997. Excluding non-recurring items totaling $.15,
$2.39, $.47 and $.24 per share, EPS would have been $2.17, $.19, $1.49 and
$1.20 in 1996, 1995, 1993 and 1992, respectively.
(e) On January 13, 1993, BR increased its quarterly dividend rate to $.1375 per
share. In July 1992, the quarterly dividend rate was reduced from $.175 per
share to $.125 per share to reflect the June 30, 1992 spin-off of EPNG to BR
stockholders.
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<PAGE> 76
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LL&E
The following table sets forth selected historical consolidated financial
data for LL&E as of and for each of the five years in the period ended December
31, 1996 and as of and for the six months ended June 30, 1997 and 1996. Such
data have been derived from, and should be read in conjunction with, the audited
consolidated financial statements and other financial information contained in
LL&E's Annual Report on Form 10-K for the year ended December 31, 1996 and the
unaudited consolidated interim financial information contained in LL&E's
Quarterly Report on Form 10-Q for the six months ended June 30, 1997, including
the notes thereto, incorporated by reference herein. See "Available Information"
and "Incorporation of Documents by Reference."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues(a)........................... $ 306 $ 509 $ 863 $ 822 $ 789 $ 794 $ 766
Operating Profit (Loss)(a)(b)(c)(d)... 76 95 194 113 (288) 91 53
Net Earnings (Loss)(a)(b)(c)(d)....... 27 38 80 19 (227) 10 (7)
Earnings (Loss) per
Share(a)(b)(c)(d)................... .79 1.11 2.35 .56 (6.80) .33 (.24)
BALANCE SHEET DATA
Total Assets(b)(c)(d)................. $1,346 $1,455 $1,365 $1,468 $1,478 $1,839 $1,209
Long-term Debt........................ 460 592 506 692 740 735 343
Stockholders' Equity(b)(c)(d)......... 502 428 475 371 352 600 417
Average Shares........................ 34 34 34 34 33 30 28
Cash Dividends Declared per
Share(e)............................ .12 .12 .24 .24 1.00 1.00 1.00
CASH FLOW DATA
Net Cash Flows From Operating
Activities(f)....................... $ 198 $ 177 $ 318 $ 221 $ 212 $ 179 $ 179
Net Cash Flows From Investing
Activities(f)....................... (144) (99) (163) (174) (238) (722) (116)
Net Cash Flows From Financing
Activities.......................... (47) (77) (157) (49) 5 536 (49)
</TABLE>
- ---------------
(a) Effective July 31, 1996, LL&E sold its crude oil refinery resulting in a
gain of $2 million. For the six months ended June 30, 1996 and for each of
the five years in the period ended December 31, 1996, the refinery generated
revenues of $225 million, $264 million, $355 million, $361 million, $400
million and $442 million, respectively, and pretax operating profits
(losses) of $8 million, $7 million, $3 million, ($37) million, ($10) million
and $10 million, respectively.
(b) During 1994, LL&E changed its method of assessing the impairment of
long-lived assets. As a result, LL&E recognized a non-cash pretax charge of
$319 million ($210 million after tax).
(c) In 1993, LL&E changed its method of accounting for income taxes and recorded
a $14 million credit to earnings. LL&E also completed the sale of certain
assets in Canada for approximately $43 million resulting in a gain of
approximately $24 million (before income taxes of approximately $10
million).
(d) In 1992, LL&E recorded a charge of approximately $54 million (before income
tax benefits of approximately $18 million) against earnings to provide for
the restructuring of its oil and gas operations and completed the sale of
substantially all of the selected properties for a purchase price of
approximately
69
<PAGE> 77
$48 million, resulting in a gain of approximately $8 million which was
applied against the restructuring charges.
(e) In 1995, LL&E decreased its quarterly dividend rate to $.06 per share and
directed the savings to the capital and exploration program.
(f) LL&E reports Net Cash Flows from Operating Activities and Net Cash Flows
from Investing Activities using a different method than BR. LL&E excludes
and BR includes exploratory seismic costs in exploration costs when
adjusting net income (loss) to Net Cash Flows from Operating Activities. If
LL&E had utilized BR's method, Net Cash Flows from Operating Activities
would have been greater and Net Cash Flows from Investing Activities would
have been less by $18 million and $14 million for the six months ended June
30, 1997 and 1996, respectively, and $22 million, $13 million, $18 million,
$17 million and $11 million for the years ended December 31, 1996, 1995,
1994, 1993 and 1992, respectively.
70
<PAGE> 78
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are
presented to give effect to the Merger of BR & LL&E under the pooling of
interests method of accounting. The income statements for each of the three
years in the period ended December 31, 1996 and six months ended June 30, 1997,
assume that the Merger had been consummated at the beginning of the earliest
period presented. The balance sheet assumes that the Merger had been consummated
on June 30, 1997. The unaudited pro forma combined financial statements do not
reflect any cost savings and other synergies anticipated by BR management as a
result of the Merger and are not necessarily indicative of the results of
operations or the financial position which would have occurred had the Merger
been consummated at the beginning of the earliest period presented, nor are they
necessarily indicative of future results of operations or financial position.
Additionally, the unaudited pro forma combined statements of income exclude
non-recurring charges directly attributable to the Merger which will be charged
to operations in the quarter in which the Merger is consummated. The unaudited
pro forma combined financial statements should be read in conjunction with the
historical consolidated financial statements of BR and LL&E, including the notes
thereto, incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Available Information," and "Incorporation of Documents by Reference."
71
<PAGE> 79
BR AND LL&E
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------
PRO FORMA PRO FORMA
BR LL&E ADJUSTMENTS COMBINED
------ ----- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues............................................ $ 666 $ 306 $ $ 972
Costs and Expenses.................................. 428 256 -- 684
------ ----- --- ------
Operating Income.................................... 238 50 288
Interest Expense.................................... 56 14 -- 70
Other Income -- Net................................. 53 7 60
------ ----- --- ------
Income Before Income Taxes.......................... 235 43 -- 278
Income Tax Expense.................................. 46 16 -- 62
------ ----- --- ------
Net Income.......................................... $ 189 $ 27 $-- $ 216
====== ===== === ======
Earnings per Common Share........................... $ 1.52 $ .79 $ 1.22
====== ===== ======
Weighted Average Number of Common Shares
Outstanding....................................... 125 34 177(a)
====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
PRO FORMA PRO FORMA
BR LL&E ADJUSTMENTS COMBINED
------ ----- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues............................................ $1,293 $ 863 $(2)(b) $2,154
Costs and Expenses.................................. 875 719 -- 1,594
------ ----- --- ------
Operating Income.................................... 418 144 (2) 560
Interest Expense.................................... 113 34 -- 147
Other Income -- Net................................. 2 10 2(b) 14
------ ----- --- ------
Income Before Income Taxes.......................... 307 120 -- 427
Income Tax Expense.................................. 52 40 -- 92
------ ----- --- ------
Net Income.......................................... $ 255 $ 80 $-- $ 335
====== ===== === ======
Earnings per Common Share........................... $ 2.02 $2.35 $ 1.88
====== ===== ======
Weighted Average Number of Common Shares
Outstanding....................................... 126 34 178(a)
====== ===== ======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
72
<PAGE> 80
BR AND LL&E
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------
PRO FORMA PRO FORMA
BR LL&E ADJUSTMENTS COMBINED
------ ------ ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues........................................... $ 873 $ 822 $(2)(b) $1,693
Costs and Expenses................................. 1,340 763 -- 2,103
------ ------ --- ------
Operating Income (Loss)............................ (467) 59 (2) (410)
Interest Expense................................... 109 39 -- 148
Other (Expense) Income -- Net...................... (1) 9 2(b) 10
------ ------ --- ------
Income (Loss) Before Income Taxes.................. (577) 29 -- (548)
Income Tax Expense (Benefit)....................... (297) 10 -- (287)
------ ------ --- ------
Net Income (Loss).................................. $ (280) $ 19 $-- $ (261)
====== ====== === ======
Earnings (Loss) per Common Share................... $(2.20) $ .56 $(1.47)
====== ====== ======
Weighted Average Number of Common Shares
Outstanding...................................... 127 34 178(a)
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------------
PRO FORMA PRO FORMA
BR LL&E ADJUSTMENTS COMBINED
------ ------ ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues........................................... $1,055 $ 789 $(7)(b) $1,837
Costs and Expenses................................. 880 1,131 -- 2,011
------ ------ --- ------
Operating Income (Loss)............................ 175 (342) (7) (174)
Interest Expense................................... 90 26 -- 116
Other Income -- Net................................ 5 22 7(b) 34
------ ------ --- ------
Income (Loss) Before Income Taxes.................. 90 (346) -- (256)
Income Tax (Benefit)............................... (64) (119) -- (183)
------ ------ --- ------
Net Income (Loss).................................. $ 154 $ (227) $-- $ (73)
====== ====== === ======
Earnings (Loss) per Common Share................... $ 1.20 $(6.80) $ (.41)
====== ====== ======
Weighted Average Number of Common Shares
Outstanding...................................... 129 33 180(a)
====== ====== ======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
73
<PAGE> 81
BR AND LL&E
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------------
PRO FORMA PRO FORMA
BR LL&E ADJUSTMENTS COMBINED
------ ------ ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents..................... $ 449 $ 16 $ -- $ 465
Short-term Investments........................ 41 -- -- 41
Accounts Receivable........................... 191 116 (8)(c) 299
Inventories................................... 23 -- 20(c) 43
Other Current Assets.......................... 21 13 -- 34
------ ------ ------ ------
725 145 12 882
------ ------ ------ ------
Oil & Gas Properties (Successful Efforts
Method)....................................... 5,241 3,063 (12)(c) 8,292
Other Properties................................ 523 69 -- 592
------ ------ ------ ------
5,764 3,132 (12) 8,884
Accumulated Depreciation, Depletion and
Amortization.................................. 2,210 1,965 -- 4,175
------ ------ ------ ------
Properties -- Net............................... 3,554 1,167 (12) 4,709
------ ------ ------ ------
Other Assets.................................... 93 34 2(d) 129
------ ------ ------ ------
Total Assets.......................... $4,372 $1,346 $ 2 $5,720
====== ====== ====== ======
LIABILITIES
Current Liabilities
Accounts Payable.............................. $ 218 $ 138 $ 76(e)(h) $ 432
Taxes Payable................................. 58 4 (5)(f)(h) 57
Other Current Liabilities..................... 38 -- -- 38
------ ------ ------ ------
314 142 71 527
------ ------ ------ ------
Long-term Debt.................................. 1,347 460 -- 1,807
------ ------ ------ ------
Deferred Income Taxes........................... 105 82 -- 187
------ ------ ------ ------
Other Liabilities and Deferred Credits.......... 190 160 2(d) 352
------ ------ ------ ------
Commitments and Contingent Liabilities
STOCKHOLDERS' EQUITY
Common Stock.................................... 2 5 (5)(g) 2
Paid-in Capital................................. 2,911 49 5(g) 2,965
Retained Earnings............................... 544 448 (71)(e)(f) 921
------ ------ ------ ------
3,457 502 (71) 3,888
Cost of Treasury Stock.......................... 1,041 -- -- 1,041
------ ------ ------ ------
Common Stockholders' Equity..................... 2,416 502 (71) 2,847
------ ------ ------ ------
Total Liabilities and Common
Stockholders' Equity................ $4,372 $1,346 $ 2 $5,720
====== ====== ====== ======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
74
<PAGE> 82
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) The pro forma weighted average number of common and equivalent shares
outstanding for each period has been calculated using the Exchange Ratio of
1.525 shares of BR Common Stock for each share of LL&E Stock.
(b) Reflects the reclassification of gains on sale of oil and gas properties by
LL&E to conform to the presentation of BR.
(c) Reflects the reclassification of inventory by LL&E to conform to the
presentation of BR.
(d) Reflects the reclassification of oil and gas overproduction by LL&E to
conform to the presentation of BR.
(e) Reflects the estimated direct costs associated with the Merger of BR and
LL&E which approximate $80 million. These costs primarily consist of $51
million for severance, outplacement and related exit costs and $29 million
for direct transaction costs. These non-recurring costs, which are subject
to change, will be charged to operations in the quarter in which the Merger
is consummated. It is expected that substantially all of the costs related
to this transaction will be paid within one year after the Merger is
consummated.
(f) Reflects the $9 million income tax effect of the costs included in Note (e)
above.
(g) Reflects the exchange of BR Common Stock for LL&E Stock.
(h) Reflects the reclassification of other taxes by LL&E to conform to the
presentation of BR.
75
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EXPERTS
The consolidated financial statements of BR as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996 have
been incorporated by reference herein and in the Registration Statement in
reliance on the report, which includes an explanatory paragraph for the change
in BR's method of accounting for the impairment of long-lived assets in 1995, of
Coopers & Lybrand L.L.P., independent accountants, given upon the authority of
such firm as experts in accounting and auditing.
The Consolidated Financial Statements of LL&E as of December 31, 1996 and
1995 and for each of the years in the three-year period ended December 31, 1996
have been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon authority of said firm
as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
refers to the change in 1994 of LL&E's methods of assessing the impairment of
the capitalized costs of proved oil and gas properties and other long-lived
assets.
The Consolidated Financial Statements of Maralou Netherlands Partnership as
of December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon authority of said firm as experts in accounting and auditing.
With respect to the unaudited interim financial information of LL&E for the
three-months ended March 31, 1997 and 1996 and the three-months and six-months
ended June 30, 1997 and 1996, incorporated by reference herein, the independent
accountants have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate reports for the three-months ended March 31, 1997 and
1996 and three-months and six-months ended June 30, 1997 and 1996 and
incorporated by reference herein, state that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. The accountants
are not subject to the liability provisions of Section 11 of the Securities Act
for their reports on the unaudited interim financial information because those
reports are not a "report" or a "part" of the registration statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.
Representatives of Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP will
be present at the BR Special Meeting and the LL&E Special Meeting, respectively,
with the opportunity to make a statement if they desire to do so and to respond
to appropriate questions.
LEGAL MATTERS
The validity of the BR Common Stock to be issued by BR pursuant to the
Merger will be passed upon by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations). Certain tax matters will be
passed upon by White & Case on behalf of BR and by Cahill Gordon & Reindel (a
partnership including a professional corporation) on behalf of LL&E.
STOCKHOLDER PROPOSALS
Stockholder proposals to be considered for inclusion in the proxy statement
of BR to be issued in connection with the 1998 Annual Meeting of BR Stockholders
must be mailed to Ms. Wendi S. Zerwas, Corporate Secretary, Burlington Resources
Inc., 5051 Westheimer, Suite 1400, Houston, Texas 77056-2124, and must be
received by the Corporate Secretary on or before October 23, 1997.
If the Merger is not consummated in accordance with the Merger Agreement,
LL&E will consider including a stockholder's proposal for action at its 1998
Annual Meeting of stockholders in the proxy material to be mailed to its
stockholders in connection with such meeting if such proposal is received at the
principal office of LL&E no later than November 30, 1997.
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<PAGE> 84
APPENDIX A
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
JULY 16, 1997
AMONG
BURLINGTON RESOURCES INC.,
BR ACQUISITION CORPORATION
AND
THE LOUISIANA LAND AND EXPLORATION COMPANY
<PAGE> 85
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I THE MERGER................................................................ A-1
Section 1.1 The Merger.................................................. A-1
Section 1.2 Effective Time of the Merger................................ A-1
ARTICLE II THE SURVIVING CORPORATION................................................ A-1
Section 2.1 Certificate of Incorporation................................ A-1
Section 2.2 By-laws..................................................... A-1
Section 2.3 Board of Directors; Officers................................ A-2
Section 2.4 Effects of Merger........................................... A-2
ARTICLE III CONVERSION OF SHARES.................................................... A-2
Section 3.1 Exchange Ratio.............................................. A-2
Section 3.2 Parent to Make Certificates Available....................... A-2
Section 3.3 Dividends; Stock Transfer Taxes............................. A-2
Section 3.4 No Fractional Shares........................................ A-3
Section 3.5 Stock Options............................................... A-3
Section 3.6 Stockholders' Meetings...................................... A-4
Section 3.7 Closing of the Company's Transfer Books..................... A-4
Section 3.8 Closing..................................................... A-4
Section 3.9 Transfer Taxes.............................................. A-4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT................................. A-4
Section 4.1 Organization and Qualification.............................. A-4
Section 4.2 Capitalization.............................................. A-5
Section 4.3 Subsidiaries................................................ A-5
Section 4.4 Authority Relative to this Agreement........................ A-5
Section 4.5 Reports and Financial Statements............................ A-6
Section 4.6 Absence of Certain Changes or Events........................ A-7
Section 4.7 Litigation.................................................. A-7
Section 4.8 Employee Benefit Plans...................................... A-7
Section 4.9 Financial Advisor........................................... A-8
Section 4.10 Compliance with Applicable Laws............................. A-8
Section 4.11 Taxes....................................................... A-9
Section 4.12 Certain Agreements.......................................... A-9
Section 4.13 Tax and Accounting Matters.................................. A-9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. A-9
Section 5.1 Organization and Qualification.............................. A-9
Section 5.2 Capitalization.............................................. A-10
Section 5.3 Subsidiaries................................................ A-10
Section 5.4 Authority Relative to this Agreement........................ A-10
Section 5.5 Reports and Financial Statements............................ A-11
Section 5.6 Absence of Certain Changes or Events........................ A-11
Section 5.7 Litigation.................................................. A-12
Section 5.8 Employee Benefit Plans...................................... A-12
Section 5.9 Company Action.............................................. A-13
Section 5.10 Financial Advisors.......................................... A-13
Section 5.11 Compliance with Applicable Laws............................. A-14
Section 5.12 Taxes....................................................... A-14
Section 5.13 Certain Agreements.......................................... A-14
Section 5.14 Tax and Accounting Matters.................................. A-14
</TABLE>
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<PAGE> 86
<TABLE>
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PAGE
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<S> <C> <C>
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING SUB............................. A-15
Section 6.1 Organization................................................ A-15
Section 6.2 Capitalization.............................................. A-15
Section 6.3 Authority Relative to this Agreement........................ A-15
ARTICLE VII CONDUCT OF BUSINESS PENDING THE MERGER.................................. A-15
Section 7.1 Conduct of Business by the Company Pending the Merger....... A-15
Section 7.2 Conduct of Business by Parent Pending the Merger............ A-16
Section 7.3 Conduct of Business of Sub.................................. A-17
ARTICLE VIII ADDITIONAL AGREEMENTS.................................................. A-17
Section 8.1 Access and Information...................................... A-17
Section 8.2 Registration Statement/Proxy Statement...................... A-17
Section 8.3 Compliance with the Securities Act and Pooling
Requirements................................................ A-18
Section 8.4 Stock Exchange Listing...................................... A-19
Section 8.5 Employee Matters............................................ A-19
Section 8.6 Indemnification............................................. A-19
Section 8.7 HSR Act..................................................... A-20
Section 8.8 Additional Agreements....................................... A-20
Section 8.9 No Shop..................................................... A-20
Section 8.10 Advice of Changes; SEC Filings.............................. A-21
Section 8.11 Company and Parent Rights Agreements; State Takeover
Statutes;
Certain Agreements.......................................... A-21
Section 8.12 Certain Appointments........................................ A-21
Section 8.13 Transition Team............................................. A-22
ARTICLE IX CONDITIONS PRECEDENT..................................................... A-22
Section 9.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-22
Section 9.2 Conditions to Obligation of the Company to Effect the
Merger...................................................... A-22
Section 9.3 Conditions to Obligations of Parent and Sub to Effect the
Merger...................................................... A-23
ARTICLE X TERMINATION, AMENDMENT AND WAIVER......................................... A-23
Section 10.1 Termination by Mutual Consent............................... A-23
Section 10.2 Termination by Either Parent or the Company................. A-23
Section 10.3 Other Termination Rights.................................... A-23
Section 10.4 Effect of Termination and Abandonment....................... A-24
ARTICLE XI MISCELLANEOUS............................................................ A-25
Section 11.1 Non-Survival of Representations, Warranties and
Agreements.................................................. A-25
Section 11.2 Notices..................................................... A-25
Section 11.3 Fees and Expenses........................................... A-26
Section 11.4 Publicity................................................... A-26
Section 11.5 Specific Performance........................................ A-26
Section 11.6 Assignment; Binding Effect.................................. A-26
Section 11.7 Entire Agreement............................................ A-26
Section 11.8 Amendment................................................... A-26
Section 11.9 Governing Law............................................... A-26
Section 11.10 Counterparts................................................ A-27
Section 11.11 Headings and Table of Contents.............................. A-27
Section 11.12 Interpretation.............................................. A-27
Section 11.13 Waivers..................................................... A-27
Section 11.14 Severability................................................ A-27
Section 11.15 Subsidiaries................................................ A-27
</TABLE>
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<TABLE>
<S> <C> <C>
EXHIBITS
A. Form of Certificate of Incorporation of the Company......... A-29
B. Form of Affiliate Letters................................... A-30
C. Form of Employment Agreement................................ A-34
D. Form of Tax Opinion of Cahill Gordon & Reindel.............. A-37
E. Form of Tax Opinion of White & Case......................... A-38
F. Form of Company Certificate re: Tax Opinions................ A-40
G. Form of Parent Certificate re: Tax Opinions................. A-43
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July 16,
1997, by and among Burlington Resources Inc., a Delaware corporation ("Parent"),
BR Acquisition Corporation, a Maryland corporation and a wholly owned subsidiary
of Parent ("Sub"), and The Louisiana Land and Exploration Company, a Maryland
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, each of Parent and the Company has concluded that a business
combination between Parent and the Company represents a strategic combination of
their complementary assets and operational and long term vision and is in the
best interests of the stockholders of Parent and the Company, respectively, and,
accordingly, Parent and the Company desire to effect a business combination by
means of the merger of Sub with and into the Company (the "Merger");
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
unanimously approved the Merger, upon the terms and subject to the conditions
set forth herein;
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests";
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent and the Company are entering into a stock option agreement (the "Stock
Option Agreement"), pursuant to which Parent shall be granted the option (the
"Option") to purchase shares of capital stock, par value $.15 per share, of the
Company ("Company Stock"), upon the terms and subject to the conditions set
forth therein.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein the parties hereto
agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.2), Sub shall be merged
with and into the Company and the separate existence of Sub shall thereupon
cease, and the Company, as the corporation surviving the Merger (the "Surviving
Corporation"), shall by virtue of the Merger continue its corporate existence
under the laws of the State of Maryland.
Section 1.2 Effective Time of the Merger. The Merger shall become
effective at the date and time (the "Effective Time") when properly executed
Articles of Merger are accepted for record by the State Department of
Assessments and Taxation of Maryland, which Articles shall be filed as soon as
practicable following fulfillment of the conditions set forth in Article IX
hereof.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation. At the Effective Time, the
charter of the Company shall be amended to read in its entirety as set forth in
Exhibit A.
Section 2.2 By-laws. The By-laws of Sub as in effect at the Effective
Time shall be the By-laws of the Surviving Corporation, and thereafter may be
amended in accordance with their terms and as provided by law and this
Agreement.
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<PAGE> 89
Section 2.3 Board of Directors; Officers. The directors of Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, and the officers of the Company immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected and qualified.
Section 2.4 Effects of Merger. The Merger shall have the effects set
forth in Section 3-114 of the Maryland General Corporation Law (the "MGCL").
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Exchange Ratio. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any Company Stock:
(a) All shares of Company Stock which are held by the Company or any
subsidiary of the Company, and any shares of Company Stock owned by Parent, Sub
or any other subsidiary of Parent, shall be canceled.
(b) Subject to Section 3.4, each remaining outstanding share of Company
Stock shall be converted into the right to receive 1.525 (the "Exchange Ratio")
fully paid and nonassessable shares of the common stock, par value $.01 per
share of Parent ("Parent Common Stock"). Each share of Parent Common Stock
issued to holders of Company Stock in the Merger shall be issued together with
one associated preferred stock purchase right (a "Parent Right") in accordance
with the Rights Agreement dated as of December 16, 1988, as amended, between
Parent and The First National Bank of Boston, as rights agent, or any successor
rights agreement (the "Parent Rights Agreement"). References herein to the
shares of Parent Common Stock issuable in the Merger shall be deemed to include
the associated Parent Rights.
(c) In the event of any dividend (other than regular quarterly cash
dividends not exceeding $.1375 per share per quarter on the Parent Common Stock
(the "Parent Quarterly Dividend") and $.06 per share per quarter on the Company
Stock the "Company Quarterly Dividend"), stock split, reclassification,
recapitalization, combination or exchange of shares or other similar transaction
with respect to the Parent Common Stock or Company Stock after the date of this
Agreement and prior to the Effective Time, the Exchange Ratio shall be
appropriately adjusted.
(d) Each issued and outstanding share of stock of Sub shall be converted
into and become one fully paid and nonassessable share of capital stock of the
Surviving Corporation.
Section 3.2 Parent to Make Certificates Available. (a) Prior to the
Effective Time, Parent shall select an Exchange Agent, which shall be Parent's
Transfer Agent or such other person or persons reasonably satisfactory to the
Company, to act as Exchange Agent for the Merger (the "Exchange Agent"). As soon
as practicable after the Effective Time, Parent shall make available, and each
holder of Company Stock will be entitled to receive, upon surrender to the
Exchange Agent of one or more certificates ("Certificates") representing shares
of Company Stock for cancellation, certificates representing the number of
shares of Parent Common Stock into which such shares are converted in the Merger
and cash in consideration of fractional shares as provided in Section 3.4 (the
"Share Consideration").
(b) Any holder of shares of Company Stock who has not exchanged his
Certificates for Parent Common Stock in accordance with subsection (a) of this
Section 3.2 within twelve months after the Effective Time shall have no further
claim upon the Exchange Agent and shall thereafter look only to Parent and the
Surviving Corporation for payment in respect of his shares of Company Stock.
Until so surrendered, Certificates shall represent solely the right to receive
the Share Consideration.
Section 3.3 Dividends; Stock Transfer Taxes. No dividends or other
distributions that are declared or made on Parent Common Stock will be paid to
persons entitled to receive certificates representing Parent Common Stock
pursuant to this Agreement until such persons surrender their Certificates
representing Company Stock. Upon such surrender, there shall be paid to the
person in whose name the certificates representing such Parent Common Stock
shall be issued (i) at the time of such surrender, the amount of
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<PAGE> 90
dividends or other distributions with a record date after the Effective Time and
a payment date prior to surrender with respect to such whole shares of Parent
Common Stock and which have not been paid, less the amount of any withholding
taxes which may be required thereon, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Parent Common Stock, less the
amount of any withholding taxes which may be required thereon. In no event shall
the person entitled to receive such dividends be entitled to receive interest on
such dividends. In the event that any certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it shall be a
condition of such exchange that the Certificate or Certificates so surrendered
shall be properly endorsed or be otherwise in proper form for transfer and that
the person requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of certificates for such
shares of Parent Common Stock in a name other than that of the registered holder
of the Certificate or Certificates surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Company Stock for any
shares of Parent Common Stock or dividends thereon delivered to a public
official pursuant to any applicable abandoned property, escheat or similar laws.
In the event any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving Corporation, the
posting by such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Parent Common Stock
and cash in lieu of fractional shares, and unpaid dividends and distributions on
shares of Parent Common Stock as provided in this Section 3.3, deliverable in
respect thereof pursuant to this Agreement.
Section 3.4 No Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to Section 3.1(b). Notwithstanding any other
provision of this Agreement, each holder of Company Stock exchanged pursuant to
the Merger who would otherwise be entitled to receive a fraction of a share of
Parent Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash from Parent in an amount equal
to such fractional part of a share of Parent Common Stock multiplied by the
average of the closing sale prices of the Parent Common Stock for the 10
business days next preceding the Effective Time, using the composite closing
sale price on the New York Stock Exchange (the "NYSE"), as reported in each case
in The Wall Street Journal.
Section 3.5 Stock Options. (a) Each of the Company's stock option plans
(the "Option Plans"), each of which is set forth in Section 3.5(a) of the
disclosure schedule delivered by the Company to Parent in connection with this
Agreement (the "Company Disclosure Schedule"), and each option to acquire shares
of Company Stock outstanding immediately prior to the Effective Time thereunder,
whether vested or unvested (each, an "Option" and collectively, the "Options"),
shall be assumed by Parent at the Effective Time, and each such Option shall
become an option to purchase a number of shares of Parent Common Stock (a
"Substitute Option") equal to the number of shares of Company Stock subject to
such Option multiplied by the Exchange Ratio (rounded to the nearest whole
share, with 0.5 shares being rounded up). The per share exercise price for each
Substitute Option shall be the current exercise price per share of Company Stock
divided by the Exchange Ratio (rounded up to the nearest full cent), and each
Substitute Option otherwise shall be subject to all of the other terms and
conditions of the original option to which it relates. Prior to the Effective
Time, the Company shall take such additional actions as are necessary under
applicable law and the applicable agreements and Option Plans to ensure that
each outstanding Option shall, from and after the Effective Time, represent only
the right to purchase, upon exercise, shares of Parent Common Stock. No Option
shall be accelerated by reason of the Merger to the extent the Board of
Directors of the Company has discretion to make a determination to cause such
acceleration.
(b) As soon as practicable after the Effective Time, Parent shall cause to
be included under a registration statement on Form S-8 of Parent all shares of
Parent Common Stock which are subject to
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<PAGE> 91
Substitute Options and all shares of Parent Common Stock which were issued in
exchange for Company Stock which constituted performance shares or restricted
stock of the Company to the extent such registration is legally required for
such Parent Common Stock to be freely tradeable by such holder, and shall
maintain the effectiveness of such registration statement until all Substitute
Options have been exercised, expired or forfeited.
Section 3.6 Stockholders' Meetings. Each of Parent and the Company will
take all action necessary in accordance with applicable law and its Certificate
of Incorporation or charter, as the case may be, and By-laws to convene a
meeting of its stockholders as promptly as practicable to consider and vote upon
(i) in the case of Parent, the approval by the holders of a majority of the
shares of Parent Common Stock present and voting of the issuance of the shares
of Parent Common Stock contemplated by this Agreement and (ii) in the case of
the Company, the approval by the holders of two-thirds of the shares of Company
Stock outstanding and entitled to vote thereon of this Agreement and the
transactions contemplated hereby. Parent shall take all action necessary to
authorize Sub to consummate the Merger. The Board of Directors of each of Parent
and the Company shall recommend such approval and Parent and the Company shall
each take all lawful action to solicit such approval; including, without
limitation, timely and promptly mailing the Proxy Statement/Prospectus (as
defined in Section 8.2); provided, however, that such recommendation is subject
to any action required by the fiduciary duties of the Board of Directors of
Parent or the Company, as the case may be, under applicable law. Parent and the
Company shall coordinate and cooperate with respect to the timing of such
meetings and shall use their best efforts to hold such meetings on the same day.
Section 3.7 Closing of the Company's Transfer Books. At the Effective
Time, the stock transfer books of the Company shall be closed and no transfer of
shares of Company Stock shall be made thereafter. In the event that Certificates
are presented to the Surviving Corporation after the Effective Time, they shall
be canceled and exchanged for Parent Common Stock and/or cash as provided in
Sections 3.1(b) and 3.4.
Section 3.8 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Fried, Frank,
Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004, at
9:00 a.m. local time on the day which is not more than one business day after
the day on which the last of the conditions set forth in Article IX (other than
those that can only be fulfilled at the Effective Time) is fulfilled or waived
or at such other time and place as Parent and the Company shall agree in
writing.
Section 3.9 Transfer Taxes. Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, applications or other
documents regarding any real property transfer, stamp, recording, documentary or
other taxes and any other fees and similar taxes which become payable in
connection with the Merger other than transfer or stamp taxes payable in respect
of transfers pursuant to the fourth sentence of Section 3.3(collectively,
"Transfer Taxes"). From and after the Effective Time, Parent shall pay or cause
to be paid, without deduction or withholding from any amounts payable to the
holders of Company Stock, all Transfer Taxes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows (such
representations and warranties (as well as other provisions of this Agreement)
are qualified by the matters identified (with reference to the appropriate
Section and, if applicable, subsection being qualified) on a disclosure schedule
(the "Parent Disclosure Schedule") delivered by Parent to the Company prior to
execution of this Agreement):
Section 4.1 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted or currently proposed to be conducted. Parent is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities make such qualification necessary, except
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where the failure to be so qualified will not, alone or in the aggregate, have a
Parent Material Adverse Effect. For the purposes of this Agreement, a "Parent
Material Adverse Effect" means any material adverse effect on the business,
properties, assets, condition (financial or otherwise), liabilities or results
of operations of Parent and its subsidiaries taken as a whole, other than any
effects arising out of, resulting from or relating to changes in general
economic or financial conditions and other than the results of Parent's
exploration program. Complete and correct copies as of the date hereof of the
Certificate of Incorporation and By-laws of Parent have been delivered to the
Company as part of the Parent Disclosure Schedule.
Section 4.2 Capitalization. The authorized capital stock of Parent
consists of 325,000,000 shares of Parent Common Stock, and 75,000,000 shares of
Preferred Stock, par value $.01 per share (the "Parent Preferred Stock"). As of
June 30, 1997, 123,769,412 shares of Parent Common Stock were validly issued and
outstanding, fully paid, and nonassessable, and no shares of Parent Preferred
Stock were issued and outstanding and there have been no changes in such numbers
through the date of this Agreement. As of the date of this Agreement, there are
no bonds, debentures, notes or other indebtedness issued or outstanding having
the right to vote on any matters on which Parent's stockholders may vote. As of
the date of this Agreement, there are no options, warrants, calls, convertible
securities or other rights, agreements or commitments presently outstanding
obligating Parent to issue, deliver or sell shares of its capital stock or debt
securities, or obligating Parent to grant, extend or enter into any such option,
warrant, call or other such right, agreement or commitment, and, except for
exercises thereof, there have been no changes in such numbers through the date
of this Agreement. All of the shares of Parent Common Stock issuable in
accordance with this Agreement in exchange for Company Stock at the Effective
Time in accordance with this Agreement will be, when so issued, duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights and
shall be delivered free and clear of all liens, claims, charges and encumbrances
of any kind or nature whatsoever.
Section 4.3 Subsidiaries. Each subsidiary of Parent is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization (except where the
failure to be validly existing and in good standing would not be material to the
business of such subsidiary) and has the corporate or similar power to carry on
its business as it is now being conducted or currently proposed to be conducted.
Each subsidiary of Parent is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary except where the failure to be so qualified, when taken together with
all such failures, has not had, and would not reasonably be expected to have, a
Parent Material Adverse Effect. Section 4.3 of the Parent Disclosure Schedule
contains, with respect to each subsidiary of Parent, its name and jurisdiction
of organization and, with respect to each subsidiary that is not wholly owned,
the number of issued and outstanding shares of capital stock or share capital
and the number of shares of capital stock or share capital owned by Parent or a
subsidiary. All the outstanding shares of capital stock or share capital of each
subsidiary of Parent are validly issued, fully paid and nonassessable, and those
owned by Parent or by a subsidiary of Parent are owned free and clear of any
liens, claims or encumbrances. There are no existing options, warrants, calls,
convertible securities or other rights, agreements or commitments of any
character relating to the issued or unissued capital stock or other securities
of any of the subsidiaries of Parent. Except as set forth in Parent's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, Parent does not
directly or indirectly own any interest in any other corporation, partnership,
joint venture or other business association or entity or have any obligation,
commitment or undertaking to acquire any such interest other than joint ventures
of the type customarily entered into in the oil and gas industry.
Section 4.4 Authority Relative to this Agreement. Parent has the
corporate power to enter into this Agreement and the Stock Option Agreement and
to carry out its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Stock Option Agreement and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
Parent's Board of Directors. Each of this Agreement and the Stock Option
Agreement constitutes a valid and binding obligation of Parent enforceable in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
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proceeding therefor may be brought. Except for the approval of the issuance of
the Parent Common Stock contemplated by this Agreement by the holders of the
Parent Common Stock as described in Section 3.6, no other corporate proceedings
on the part of Parent are necessary to authorize this Agreement and the Stock
Option Agreement and the transactions contemplated hereby and thereby. Parent is
not subject to or obligated under (i) any charter, by-law, indenture or other
loan or credit document provision or (ii) any other contract, license,
franchise, permit, order, decree, concession, lease, instrument, judgment,
statute, law, ordinance, rule or regulation applicable to Parent or any of its
subsidiaries or their respective properties or assets, which would be breached
or violated, or under which there would be a default (with or without notice or
lapse of time, or both), or under which there would arise a right of
termination, cancellation, modification or acceleration of any obligation, or
any right to payment or compensation, or the loss of a material benefit, by its
executing and carrying out this Agreement and the Stock Option Agreement other
than, in the case of clause (ii) only, (A) any breaches, violations, defaults,
terminations, cancellations, modifications, accelerations, rights to payment or
compensation, or losses which, either alone or in the aggregate, have not had,
and would not reasonably be expected to have, a Parent Material Adverse Effect
or prevent the consummation of the transactions contemplated hereby and (B) the
laws and regulations referred to in the next sentence. Except as required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
corporation, securities or blue sky laws or regulations of the various states,
no filing or registration with, or authorization, consent or approval of, any
court, administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (each, a "Governmental Entity"), is
necessary for the consummation by Parent of the Merger or the other transactions
contemplated by this Agreement and the Stock Option Agreement, other than
filings, registrations, authorizations, consents or approvals the failure to
make or obtain which has not had, and would not reasonably be expected to have,
a Parent Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby.
Section 4.5 Reports and Financial Statements. Parent has previously
furnished the Company with true and complete copies of its (i) Annual Reports on
Form 10-K for the fiscal years ended December 31, 1995 and December 31, 1996, as
filed with the Securities and Exchange Commission (the "Commission"), (ii)
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, as filed
with the Commission, (iii) proxy statements related to all meetings of its
stockholders (whether annual or special) since December 31, 1995, and (iv) all
other reports or registration statements filed by Parent with the Commission
since December 31, 1995, except for preliminary material (in the case of clauses
(iii) and (iv) above) and except for registration statements on Form S-8
relating to employee benefit plans and annual reports on Form 11-K with respect
to such plans, which are all the documents that Parent was required to file with
the Commission since that date (the documents in clauses (i) through (iv) being
referred to herein collectively as the "Parent SEC Reports"). As of their
respective dates, the Parent SEC Reports complied as to form in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the Commission thereunder
applicable to such Parent SEC Reports. As of their respective dates, the Parent
SEC Reports did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Parent included in the Parent SEC Reports comply
as to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the Commission with respect thereto.
The financial statements included in the Parent SEC Reports: have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto);
present fairly, in all material respects, the financial position of Parent and
its subsidiaries as at the dates thereof and the results of their operations and
cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments, any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Exchange Act and the rules
promulgated thereunder; and are in all material respects in accordance with the
books of account and records of Parent and its subsidiaries. As of March 31,
1997, there was no basis for any claim or liability of any nature against Parent
or its subsidiaries, whether absolute, accrued, contingent or otherwise, which,
alone or in the aggregate, has
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had, or would reasonably be expected to have, a Parent Material Adverse Effect,
other than as reflected in the Parent SEC Reports.
Section 4.6 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Reports filed prior to the date of this Agreement, since March
31, 1997, Parent and its subsidiaries have operated their respective businesses
in the ordinary course of business consistent with past practice and there has
not been (i) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business) which, alone or in the aggregate, has had, or would reasonably be
expected to have, a Parent Material Adverse Effect; (ii) any damage, destruction
or loss, whether or not covered by insurance, which has had, or would reasonably
be expected to have, a Parent Material Adverse Effect; (iii) any declaration,
setting aside or payment of any dividend or distribution (whether in cash, stock
or property) with respect to the capital stock of the Company or any of its
subsidiaries (other than dividends or distributions between Parent and its
wholly owned subsidiaries and other than the Parent Quarterly Dividend; (iv) any
material change in Parent's accounting principles, practices or methods; (v) any
repurchase or redemption with respect to its capital stock; (vi) any stock
split, combination or reclassification of any of Parent's capital stock or the
issuance or authorization of any issuance of any other securities in respect of,
in lieu of or in substitution for, shares of Parent's capital stock; (vii) any
grant of or any amendment of the terms of any option to purchase shares of
capital stock of Parent other than pursuant to the stock option plans of Parent;
or (viii) any agreement (whether or not in writing), arrangement or
understanding to do any of the foregoing.
Section 4.7 Litigation. Except as disclosed in the Parent SEC Reports
filed prior to the date of this Agreement, there is no suit, action or
proceeding pending or, to the knowledge of Parent, threatened against Parent or
any of its subsidiaries which, alone or in the aggregate, has had or would
reasonably be expected to have, a Parent Material Adverse Effect, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Parent or any of its subsidiaries which, alone or
in the aggregate, has had, or would reasonably be expected to have, any such
Parent Material Adverse Effect.
Section 4.8 Employee Benefit Plans. (a) Section 4.8 of the Parent
Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other material employee benefit or
compensation arrangements or payroll practices, including, without limitation,
any such arrangements or payroll practices providing severance pay, sick leave,
vacation pay, salary continuation for disability, retirement benefits, deferred
compensation, bonus pay, incentive pay, stock options (including those held by
directors, employees, and consultants), hospitalization insurance, medical
insurance, life insurance, scholarships or tuition reimbursements, that are
maintained by Parent, any subsidiary of Parent or any Parent ERISA Affiliate (as
defined below) or to which Parent, any subsidiary of Parent or any Parent ERISA
Affiliate is obligated to contribute thereunder for current or former directors,
employees, independent contractors, consultants and leased employees of Parent,
any subsidiary of Parent or any Parent ERISA Affiliate (the "Parent Employee
Benefit Plans").
(b) None of the Parent Employee Benefit Plans is a "multiemployer plan", as
defined in Section 4001(a)(3) of ERISA (a "Multiemployer Plan"), and neither
Parent nor any Parent ERISA Affiliate presently maintains or has maintained such
a plan.
(c) Parent does not maintain or contribute to any plan or arrangement which
provides or has any liability to provide life insurance or medical or other
employee welfare benefits to any employee or former employee upon his retirement
or termination of employment, and Parent has never represented, promised or
contracted (whether in oral or written form) to any employee or former employee
that such benefits would be provided.
(d) The execution of, and performance of the transactions contemplated in,
this Agreement will not, either alone or upon the occurrence of subsequent
events, result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee. The only
severance agreements or severance policies applicable to Parent or its
subsidiaries in the event of a change of control of Parent are the agreements
and policies specifically referred to in Section 4.8 of the Parent Disclosure
Schedule. The Board of Directors of Parent has determined that the transactions
contemplated hereby do not constitute a change of control for purposes of
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any such agreement, plan, policy or stock option plan or program to the extent
Parent or its Board has discretion to make such determination under such
agreement, plan or policy and such Board shall not change such determination.
Such Board has also determined not to accelerate vesting of any stock options or
other benefits on account of the transactions contemplated hereby to the extent
such Board has discretion to make such determination and such Board shall not
change such determination.
(e) Each Parent Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been
determined to be exempt from federal income taxation under Section 501 of the
Code by the Internal Revenue Service (the "IRS"), and, to Parent's knowledge,
nothing has occurred with respect to the operation or organization of any such
Parent Employee Benefit Plan that would cause the loss of such qualification or
exemption or the imposition of any material liability, penalty or tax under
ERISA or the Code. With respect to any Parent Employee Benefit Plan or other
employee benefit plan which is a "defined benefit plan" within the meaning of
Section 3(35) of ERISA, (i) Parent has not incurred and is not reasonably likely
to incur any liability under Title IV of ERISA (other than for the payment of
premiums, all of which have been paid when due), (ii) Parent has not incurred
any accumulated funding deficiency within the meaning of Section 412 of the Code
and has not applied for or obtained a waiver of any minimum funding standard or
an extension of any amortization period under Section 412 of the Code, (iii) no
"reportable event" (as such term is defined in Section 4043 of ERISA but
excluding any event for which the provision for 30-day notice to the Pension
Benefit Guaranty Corporation has been waived by regulation) has occurred or is
expected to occur and (iv) since December 31, 1996, no material adverse change
in the financial condition of any such plan has occurred.
(f) (i) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Parent Employee Benefit Plans to any funds or trusts established thereunder
or in connection therewith have been made by the due date thereof, (ii) Parent
has complied in all material respects with any notice, reporting and
documentation requirements of ERISA and the Code, (iii) there are no pending
actions, claims or lawsuits which have been asserted, instituted or, to Parent's
knowledge, threatened, in connection with the Parent Employee Benefit Plans, and
(iv) the Parent Employee Benefit Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA and
the Code (including rules and regulations thereunder) and other applicable
federal and state laws and regulations.
For purposes of this Agreement, "Parent ERISA Affiliate" means any business
or entity which is a member of the same "controlled group of corporations,"
under "common control" or an "affiliated service group" with Parent within the
meanings of Sections 414 (b), (c) or (m) of the Code, or required to be
aggregated with Parent under Section 414(o) of the Code, or is under "common
control" with Parent, within the meaning of Section 4001(a)(14) of ERISA, or any
regulations promulgated or proposed under any of the foregoing Sections.
Section 4.9 Financial Advisor. Parent has received the opinion of Morgan
Stanley & Co. Incorporated, dated as of the date of this Agreement, to the
effect that the Exchange Ratio is fair from a financial point of view to the
holders of Parent Common Stock. Except for Morgan Stanley & Co. Incorporated, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent. Parent has previously delivered to the Company a copy of the engagement
letter executed on July 14, 1997 between Parent and Morgan Stanley & Co.
Incorporated.
Section 4.10 Compliance with Applicable Laws. Parent and each of its
subsidiaries holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary or appropriate for the
operation of its respective business, except for such permits, licenses,
variances, exemptions, orders and approvals the failure to hold which, alone or
in the aggregate, has not had, and would not reasonably be expected to have, a
Parent Material Adverse Effect (the "Parent Permits"). Parent and each of its
subsidiaries is in compliance with the terms of the Parent Permits, except for
any failure to comply which, alone or in the aggregate, has not had, and would
not reasonably be expected to have, a Parent Material Adverse Effect. Except as
disclosed in the Parent SEC Reports filed prior to the date of this Agreement,
the businesses of
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Parent and its subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for possible
violations which, alone or in the aggregate, have not had, and would not
reasonably be expected to have, a Parent Material Adverse Effect. To the actual
knowledge of the executive officers of Parent, during the past five years, none
of Parent's or any of its subsidiaries' officers, employees or agents, nor any
other person acting on behalf of any of them or Parent or any of its
subsidiaries, has, directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, governmental employee or other person
in violation of any law, ordinance or regulation of any Governmental Entity,
including, without limitation, the Foreign Corrupt Practices Act.
Section 4.11 Taxes. For the purposes of this Agreement, the term "Tax"
shall include all Federal, state, local, indian and foreign income, profits,
franchise, gross receipts, production, severance, payroll, sales, employment,
use, property, withholding, excise and other taxes, duties and assessments of
any nature whatsoever together with all interest, penalties and additions
imposed with respect to such amounts. Each of Parent and its subsidiaries has
filed all material Tax returns required to be filed by any of them and has paid
(or Parent has paid on its behalf), or has set up an adequate reserve for the
payment of, all Taxes required to be paid in respect of the periods covered by
such returns. The information contained in such Tax returns is true, complete
and accurate in all material respects. Neither Parent nor any subsidiary of
Parent is delinquent in the payment of any material Tax, assessment or
governmental charge, except where such delinquency has not had, or would not
reasonably be expected to have, a Parent Material Adverse Effect. No material
deficiencies for any taxes have been proposed, asserted or assessed against
Parent or any of its subsidiaries that have not been finally settled or paid in
full, and no requests for waivers of the time to assess any such Tax are
pending. None of Parent and its subsidiaries is obligated, or is reasonably
expected to be obligated, to make any payments, or is a party to any agreement
that on account of the transactions contemplated by this Agreement would
obligate it, or reasonably be expected to obligate it, to make any payments that
will not be deductible under Section 280G of the Code.
Section 4.12 Certain Agreements. Neither Parent nor any of its
subsidiaries is in default (or would be in default with notice or lapse of time,
or both) under any indenture, note, credit agreement, loan document, lease,
license, concession or other agreement, whether or not such default has been
waived, which default, alone or in the aggregate with other such defaults, has
had, or would reasonably be expected to have, a Parent Material Adverse Effect.
Section 4.13 Tax and Accounting Matters. To the actual knowledge of the
executive officers of Parent, Parent has not taken any action which would
prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code. Parent has received a letter from Coopers & Lybrand
L.L.P., a copy of which has previously been delivered to the Company, with
respect to the eligibility of Parent for "pooling of interests" accounting
treatment.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows (such
representations and warranties (as well as other provisions of this Agreement)
are qualified by the matters identified (with references to the appropriate
Section and, if applicable, subsection being qualified) on a disclosure schedule
(the "Company Disclosure Schedule") delivered by the Company to Parent prior to
execution of this Agreement):
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Maryland and has the corporate power to carry on its business as it is
now being conducted or currently proposed to be conducted. The Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified will not, alone or in the aggregate, have a
Company Material Adverse Effect. For the purposes of this Agreement, a "Company
Material Adverse Effect" means a material adverse effect on the business,
properties, assets, condition (financial or otherwise), liabilities or results
of operations
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of the Company and its subsidiaries taken as a whole, other than any effects
arising out of, resulting from or relating to changes in general economic or
financial conditions and other than the results of the Company's exploration
program. Complete and correct copies as of the date hereof of the charter and
By-laws of the Company have been delivered to Parent as part of the Company
Disclosure Schedule.
Section 5.2 Capitalization. The authorized stock of the Company consists
of 100,000,000 shares of Company Stock. As of June 30, 1997, 34,302,802 shares
of Company Stock were validly issued and outstanding, fully paid and
nonassessable and there have been no changes in such numbers of shares through
the date of this Agreement. As of the date of this Agreement, there are no
bonds, debentures, notes or other indebtedness issued or outstanding having the
right to vote on any matters on which the Company's shareholders may vote. As of
the date of this Agreement, there are no options, warrants, calls, convertible
securities or other rights, agreements or commitments presently outstanding
obligating the Company to issue, deliver or sell shares of its stock or debt
securities, or obligating the Company to grant, extend or enter into any such
option, warrant, call or other such right, agreement or commitment, and, except
for exercises thereof, there have been no changes in such numbers through the
date of this Agreement. After the Effective Time, the Surviving Corporation will
have no obligation to issue, transfer or sell any shares of stock of the Company
or the Surviving Corporation pursuant to any Company Employee Benefit Plan (as
defined in Section 5.8).
Section 5.3 Subsidiaries. Each subsidiary of the Company is a
corporation, partnership or other entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization (except where
the failure to be validly existing and in good standing would not be material to
the business of such subsidiary) and has the corporate or similar power to carry
on its business as it is now being conducted or currently proposed to be
conducted. Each subsidiary of the Company is duly qualified to do business, and
is in good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary except where the failure to be so qualified, when taken
together with all such failures, has not had, and would not reasonably be
expected to have, a Company Material Adverse Effect. Section 5.3 of the Company
Disclosure Schedule contains, with respect to each subsidiary of the Company,
its name and jurisdiction of organization and, with respect to each subsidiary
that is not wholly owned, the number of issued and outstanding shares of capital
stock or share capital and the number of shares of capital stock or share
capital owned by the Company or a subsidiary. All the outstanding shares of
capital stock or share capital of each subsidiary of the Company are validly
issued, fully paid and nonassessable, and those owned by the Company or by a
subsidiary of the Company are owned free and clear of any liens, claims or
encumbrances. There are no existing options, warrants, calls, convertible
securities or other rights, agreements or commitments of any character relating
to the issued or unissued capital stock or other securities of any of the
subsidiaries of the Company. Except as set forth in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, the Company does not
directly or indirectly own any interest in any other corporation, partnership,
joint venture or other business association or entity or have any obligation,
commitment or undertaking to acquire any such interest other than joint ventures
of the type customarily entered into in the oil and gas industry.
Section 5.4 Authority Relative to this Agreement. The Company has the
corporate power to enter into this Agreement and the Stock Option Agreement and
to carry out its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Stock Option Agreement and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
the Company's Board of Directors. Each of this Agreement and the Stock Option
Agreement constitutes a valid and binding obligation of the Company enforceable
in accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. Except for the approval of this Agreement
and the Stock Option Agreement and the transactions contemplated hereby and
thereby by the holders of two-thirds of the shares of Company Stock outstanding
and entitled to vote thereon as described in Section 3.6, no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the Stock Option Agreement and the transactions contemplated hereby and
thereby. The Company is not subject to or obligated under (i) any charter,
by-law, indenture or other loan or credit document provision or (ii) any
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other contract, license, franchise, permit, order, decree, concession, lease,
instrument, judgment, statute, law, ordinance, rule or regulation applicable to
the Company or any of its subsidiaries or their respective properties or assets
which would be breached or violated, or under which there would be a default
(with or without notice or lapse of time, or both), or under which there would
arise a right of termination, cancellation, modification or acceleration of any
obligation, or any right to payment or compensation, or the loss of a material
benefit, by its executing and carrying out this Agreement and the Stock Option
Agreement, other than, in the case of clause (ii) only, (A) any breaches,
violations, defaults, terminations, cancellations, modifications, accelerations,
rights to payment or compensation, or losses which, either alone or in the
aggregate, have not had, and would not reasonably be expected to have, a Company
Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby and (B) the laws and regulations referred to in the next
sentence. Except as required by the HSR Act, the Securities Act, the Exchange
Act, and the corporation, securities or blue sky laws or regulations of the
various states, no filing or registration with, or authorization, consent or
approval of, any Governmental Entity is necessary for the consummation by the
Company of the Merger or the other transactions contemplated by this Agreement
and the Stock Option Agreement, other than filings, registrations,
authorizations, consents or approvals the failure to make or obtain which has
not had, and would not reasonably be expected to have, a Company Material
Adverse Effect or prevent the consummation of the transactions contemplated
hereby.
Section 5.5 Reports and Financial Statements. The Company has previously
furnished Parent with true and complete copies of its (i) Annual Reports on Form
10-K for the fiscal years ended December 31, 1995 and December 31, 1996, as
filed with the Commission, (ii) Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, as filed with the Commission, (iii) proxy statements
related to all meetings of its shareholders (whether annual or special) since
December 31, 1995 and (iv) all other reports or registration statements filed by
the Company with the Commission since December 31, 1995, except for preliminary
material (in the case of clauses (iii) and (iv) above) and except for
registration statements on Form S-8 relating to employee benefit plans and
annual reports on Form 11-K with respect to such plans, which are all the
documents that the Company was required to file with the Commission since that
date (the documents in clauses (i) through (iv) being referred to herein
collectively as the "Company SEC Reports"). As of their respective dates, the
Company SEC Reports complied as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the Commission thereunder applicable to such
Company SEC Reports. As of their respective dates, the Company SEC Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of the Company and MaraLou Netherlands Partnership ("NLP") included
in the Company SEC Reports comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto. The financial statements included in the
Company SEC Reports: have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto); present fairly, in all material respects, the
financial position of the Company and its subsidiaries, or NLP and its
subsidiaries, as the case may be, as at the dates thereof and the results of
their operations and cash flows for the periods then ended subject, in the case
of the unaudited interim financial statements, to normal year-end adjustments
and any other adjustments described therein and the fact that certain
information and notes have been condensed or omitted in accordance with the
Exchange Act and the rules promulgated thereunder; and are in all material
respects in accordance with the books of account and records of the Company and
its subsidiaries, or NLP and its subsidiaries, as the case may be. As of March
31, 1997, there was no basis for any claim or liability of any nature against
the Company or any of its subsidiaries, whether absolute, accrued, contingent or
otherwise, which, alone or in the aggregate, has had, or would reasonably be
expected to have, a Company Material Adverse Effect, other than as reflected in
the Company SEC Reports.
Section 5.6 Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Reports filed prior to the date of this Agreement, since March
31, 1997, the Company and its subsidiaries have operated their respective
businesses in the ordinary course of business consistent with past practice and
there has not been (i) any transaction, commitment, dispute or other event or
condition (financial or otherwise) of
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any character (whether or not in the ordinary course of business) which, alone
or in the aggregate, has had, or would reasonably be expected to have, a Company
Material Adverse Effect; (ii) any damage, destruction or loss, whether or not
covered by insurance, which has had, or would reasonably be expected to have, a
Company Material Adverse Effect; (iii) any declaration, setting aside or payment
of any dividend or distribution (whether in cash, stock or property) with
respect to the stock of the Company or any of its subsidiaries (other than
dividends or distributions between the Company and its wholly owned subsidiaries
and other than the Company Quarterly Dividend; (iv) any material change in the
Company's accounting principles, practices or methods; (v) any repurchase or
redemption with respect to its stock; (vi) any stock split, combination or
reclassification of any of the Company's stock or the issuance or authorization
of any issuance of any other securities in respect of, in lieu of or in
substitution for, shares of the Company's stock; (vii) any grant of or any
amendment of the terms of any option to purchase shares of stock of the Company
other than pursuant to the Option Plans; (viii) any granting by the Company or
any of its subsidiaries to any director, officer or employee of the Company or
any of its subsidiaries of (A) any increase in compensation (other than in the
case of employees in the ordinary course of business consistent with past
practice), (B) any increase in severance or termination pay, or (C) acceleration
of compensation or benefits; (ix) any entry by the Company or any of its
subsidiaries into any employment, severance, bonus or termination agreement with
any director, officer or employee of the Company or any of its subsidiaries; or
(x) any agreement (whether or not in writing), arrangement or understanding to
do any of the foregoing.
Section 5.7 Litigation. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement, there is no suit, action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries which, alone or in the aggregate, has had or
would reasonably be expected to have, a Company Material Adverse Effect, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company or any of its subsidiaries which,
alone or in the aggregate, has had, or would reasonably be expected to have, any
such Company Material Adverse Effect.
Section 5.8 Employee Benefit Plans. (a) Section 5.8 of the Company
Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other material employee benefit or
compensation arrangements or payroll practices, including, without limitation,
any such arrangements or payroll practices providing severance pay, sick leave,
vacation pay, salary continuation for disability, retirement benefits, deferred
compensation, bonus pay, incentive pay, stock options (including those held by
Directors, employees, and consultants), hospitalization insurance, medical
insurance, life insurance, scholarships or tuition reimbursements, that are
maintained by the Company, any subsidiary of the Company or any Company ERISA
Affiliate (as defined below) or to which the Company, any subsidiary of the
Company or any Company ERISA Affiliate is obligated to contribute thereunder for
current or former directors, employees, independent contractors, consultants and
leased employees of the Company, any subsidiary of the Company or any Company
ERISA Affiliate (the "Company Employee Benefit Plans").
(b) None of the Company Employee Benefit Plans is a "multiemployer plan",
as defined in Section 4001(a)(3) of ERISA (a "Multiemployer Plan"), and neither
the Company nor any Company ERISA Affiliate presently maintains or has
maintained such a plan.
(c) The Company does not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance or medical or
other employee welfare benefits to any employee or former employee upon his
retirement or termination of employment, and the Company has never represented,
promised or contracted (whether in oral or written form) to any employee or
former employee that such benefits would be provided.
(d) The execution of, and performance of the transactions contemplated in,
this Agreement will not, either alone or upon the occurrence of subsequent
events, result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee. The only
severance agreements or severance policies applicable to the Company or its
subsidiaries in the event of a change of control of the Company are the
agreements and policies specifically referred to in Section 5.8 of the Company
Disclosure Schedule. The Board of Directors of
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the Company has determined that the transactions contemplated hereby do not
constitute a change of control for purposes of any such agreement, plan, policy
or stock option plan or program to the extent the Company or its Board has
discretion to make such determination under such agreement, plan or policy and
such Board shall not change such determination. Such Board has also determined
not to accelerate vesting of any stock options or other benefits on account of
the transactions contemplated hereby to the extent such Board has discretion to
make such determination and such Board shall not change such determination.
(e) Each Company Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been
determined to be exempt from federal income taxation under Section 501 of the
Code by the IRS, and, to the Company's knowledge, nothing has occurred with
respect to the operation or organization of any such Company Employee Benefit
Plan that would cause the loss of such qualification or exemption or the
imposition of any material liability, penalty or tax under ERISA or the Code.
With respect to any Company Employee Benefit Plan or other employee benefit plan
which is a "defined benefit plan" within the meaning of Section 3(35) of ERISA,
(i) the Company has not incurred and is not reasonably likely to incur any
liability under Title IV of ERISA (other than for the payment of premiums, all
of which have been paid when due), (ii) the Company has not incurred any
accumulated funding deficiency within the meaning of Section 412 of the Code and
has not applied for or obtained a waiver of any minimum funding standard or an
extension of any amortization period under Section 412 of the Code, (iii) no
"reportable event" (as such term is defined in Section 4043 of ERISA but
excluding any event for which the provision for 30-day notice to the Pension
Benefit Guaranty Corporation has been waived by regulation) has occurred or is
expected to occur and (iv) since December 31, 1996, no material adverse change
in the financial condition of any such plan has occurred.
(f) (i) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Company Employee Benefit Plans to any funds or trusts established thereunder
or in connection therewith have been made by the due date thereof, (ii) the
Company has complied in all material respects with any notice, reporting and
documentation requirements of ERISA and the Code, (iii) there are no pending
actions, claims or lawsuits which have been asserted, instituted or, to the
Company's knowledge, threatened, in connection with the Company Employee Benefit
Plans, and (iv) the Company Employee Benefit Plans have been maintained, in all
material respects, in accordance with their terms and with all provisions of
ERISA and the Code (including rules and regulations thereunder) and other
applicable federal and state laws and regulations.
For purposes of this Agreement, "Company ERISA Affiliate" means any
business or entity which is a member of the same "controlled group of
corporations," under "common control" or an "affiliated service group" with the
Company within the meanings of Sections 414 (b), (c) or (m) of the Code, or
required to be aggregated with the Company under Section 414(o) of the Code, or
is under "common control" with the Company, within the meaning of Section
4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of
the foregoing Sections.
Section 5.9 Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by the requisite vote of all directors present
(a) determined that the Merger is advisable and fair to and in the best
interests of the Company and its stockholders, (b) approved the Merger in
accordance with the provisions of Section 3-105 of the MGCL and approved the
Merger and the transactions contemplated by this Agreement and the Stock Option
Agreement for purposes of Subtitle 6 of Title 3 of the MGCL, (c) recommended the
approval of this Agreement and the Merger by the holders of the Company Stock
and directed that the Merger be submitted for consideration by the Company's
stockholders at the meeting of stockholders contemplated by Section 3.6 and (d)
taken all necessary steps to ensure that a Distribution Date (as defined in the
Company Rights Agreement) has not occurred and will not occur as a result of the
execution and delivery of this Agreement, the consummation of the Merger and the
other transactions contemplated hereby, nor will the Company Rights Agreement
otherwise be applicable or any redemption payment or other fees be payable in
respect thereof.
Section 5.10 Financial Advisors. The Company has received the opinions of
Dillon, Read & Co. Inc. ("Dillon Read") and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") to the effect
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that, as of the date hereof, the Exchange Ratio is fair from a financial point
of view to the holders of Company Stock. Except for Dillon Read and Merrill
Lynch, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company has previously delivered to Parent copies
of the engagement letters, dated July 10, 1997 and July 1, 1997, from Dillon
Read and Merrill Lynch to the Company.
Section 5.11 Compliance with Applicable Laws. The Company and each of its
subsidiaries holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary or appropriate for the
operation of its respective business, except for such permits, licenses,
variances, exemptions, orders and approvals the failure to hold which, alone or
in the aggregate, has not had, and would not reasonably be expected to have a
Company Material Adverse Effect (the "Company Permits"). The Company and each of
its subsidiaries is in compliance in all material respects with the terms of the
Company Permits, except for any failure to comply which, alone or in the
aggregate, has not had, and would not reasonably be expected to have, a Company
Material Adverse Effect. Except as disclosed in the Company SEC Reports filed
prior to the date of this Agreement, the businesses of the Company and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
alone or in the aggregate have not had, and would not reasonably be expected to
have, a Company Material Adverse Effect. To the actual knowledge of the
executive officers of the Company, during the past five years, none of the
Company's or any of its subsidiaries' officers, employees or agents, nor any
other person acting on behalf of any of them or the Company or any of its
subsidiaries, has, directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, governmental employee or other person
in violation of any law, ordinance or regulation of any Governmental Entity,
including, without limitation, the Foreign Corrupt Practices Act.
Section 5.12 Taxes. Each of the Company and its subsidiaries has filed
all material Tax returns required to be filed by any of them and has paid (or
the Company has paid on its behalf), or has set up an adequate reserve for the
payment of, all Taxes required to be paid in respect of the periods covered by
such returns. The information contained in such Tax returns is true, complete
and accurate in all material respects. Neither the Company nor any subsidiary of
the Company is delinquent in the payment of any material Tax, assessment or
governmental charge, except where such delinquency has not had, or would not
reasonably be expected to have, a Company Material Adverse Effect. No material
deficiencies for any taxes have been proposed, asserted or assessed against the
Company or any of its subsidiaries that have not been finally settled or paid in
full, and no requests for waivers of the time to assess any such Tax are
pending. None of the Company and its subsidiaries is obligated, or is reasonably
expected to be obligated, to make any payments, or is a party to any agreement
that on account of the transactions contemplated by this Agreement would
obligate it, or reasonably be expected to obligate it, to make any payments that
will not be deductible under Section 280G of the Code.
Section 5.13 Certain Agreements. Neither the Company nor any of its
subsidiaries is in default (or would be in default with notice or lapse of time,
or both) under any indenture, note, credit agreement, loan document, lease,
license, concession or other agreement including, but not limited to, any
Company Benefit Plan, whether or not such default has been waived, which
default, alone or in the aggregate with other such defaults, has had, or would
reasonably be expected to have, a Company Material Adverse Effect.
Section 5.14 Tax and Accounting Matters. To the actual knowledge of the
executive officers of the Company, the Company has not taken any action which
would prevent the Merger from constituting a reorganization within the meaning
of Section 368(a) of the Code. The Company has received a letter from KPMG Peat
Marwick LLP, a copy of which has previously been delivered to Parent, with
respect to the eligibility of the Company for "pooling of interests" accounting
treatment.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the Company
as follows:
Section 6.1 Organization. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland. Sub has
not engaged in any business since it was incorporated other than in connection
with its organization and the transactions contemplated by this Agreement.
Section 6.2 Capitalization. The authorized capital stock of Sub consists
of 1,000 shares of common stock, par value $.0l per share, 1,000 shares of which
are validly issued and outstanding, fully paid and nonassessable and are
directly owned by Parent free and clear of all liens, claims and encumbrances.
Section 6.3 Authority Relative to this Agreement. Sub has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and sole shareholder, and no other corporate proceedings on the part
of Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. Except as disclosed in Section 4.3 of the Parent Disclosure
Schedule or as required by the HSR Act, the Securities Act, the Exchange Act and
the corporation, securities or blue sky laws or regulations of the various
states, no filing or registration with, or authorization, consent or approval
of, any Governmental Entity is necessary for the consummation by Sub of the
Merger or the transactions contemplated by this Agreement, other than filings,
registrations, authorizations, consents or approvals the failure to make or
obtain which would not prevent the consummation of the transactions contemplated
hereby.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Business by the Company Pending the Merger. Prior
to the Effective Time, unless Parent shall otherwise agree in writing or except
as otherwise required by this Agreement:
(i) the Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause its subsidiaries to, use their reasonable efforts to preserve intact
their present business organizations and preserve their relationships with
customers, suppliers and others having business dealings with them to the
end that their goodwill and on-going businesses shall be unimpaired at the
Effective Time. The Company shall, and shall cause its subsidiaries to, (a)
maintain insurance coverages and its books, accounts and records in the
usual manner consistent with past practice; (b) comply in all material
respects with all laws, ordinances and regulations of Governmental Entities
applicable to the Company and its subsidiaries; (c) maintain and keep its
material properties and equipment in good repair, working order and
condition, ordinary wear and tear excepted; (d) maintain its material
concessions in full force and effect and not take any action or fail to
take any action which would constitute a material breach or default
thereunder; and (e) perform in all material respects its obligations under
all material contracts and commitments to which it is a party or by which
it is bound;
(ii) the Company shall not and shall not propose or agree to (A) sell
or pledge or agree to sell or pledge any capital stock owned by it in any
of its subsidiaries, (B) amend its charter or By-laws, (C) split, combine
or reclassify its outstanding stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of stock of the Company, or declare, set aside,
authorize or pay any dividend or other distribution payable in cash, stock
or property (other than the Company Quarterly Dividend), or (D) directly or
indirectly redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of Company stock;
(iii) the Company shall not, nor shall it permit any of its
subsidiaries to, (A) issue, deliver or sell or agree to issue, deliver or
sell any additional shares of, or rights of any kind to acquire any shares
of, its
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respective stock of any class, any indebtedness having the right to vote on
any matter on which the Company's stockholders may vote or any option,
rights or warrants to acquire, or securities convertible into, exercisable
for or exchangeable for, shares of stock other than issuances, deliveries
or sales of Company Stock pursuant to obligations outstanding as of the
date of this Agreement under the Company Employee Benefit Plans; (B)
acquire, lease or dispose or agree to acquire, lease or dispose of any
capital assets or any other assets other than in the ordinary course of
business; (C) incur additional indebtedness or encumber or grant a security
interest in any asset or enter into any other material transaction other
than in each case in the ordinary course of business; (D) acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof; or (E) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(iv) the Company shall not, nor shall it permit any of its
subsidiaries to, except as required to comply with applicable law and
except as provided in Section 8.5 hereof, enter into any new (or amend any
existing) Company Employee Benefit Plan or any new (or amend any existing)
employment, severance or consulting agreement, grant any general increase
in the compensation of current or former directors, officers or employees
(including any such increase pursuant to any bonus, pension, profit-sharing
or other plan or commitment) or grant any increase in the compensation
payable or to become payable to any director, officer or employee, except
in any of the foregoing cases in accordance with pre-existing contractual
provisions or in the ordinary course of business consistent with past
practice;
(v) the Company shall not, nor shall it permit any of its subsidiaries
to, take or cause to be taken any action, whether before or after the
Effective Time, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the
meaning of Section 368(a) of the Code; and
(vi) the Company shall not, nor shall it permit any of its
subsidiaries to, amend, modify, terminate, waive or permit to lapse any
material right of first refusal, preferential right, right of first offer,
or any other material right of the Company or any of its subsidiaries.
Section 7.2 Conduct of Business by Parent Pending the Merger. Prior to
the Effective Time, unless the Company shall otherwise agree in writing or
except as otherwise required by this Agreement:
(i) Parent shall, and shall cause its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and shall, and shall
cause its subsidiaries to, use their reasonable efforts to preserve intact
their present business organizations and preserve their relationships with
customers, suppliers and others having business dealings with them to the
end that their goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Parent shall, and shall cause its subsidiaries to, (a)
maintain insurance coverages and its books, accounts and records in the
usual manner consistent with past practice; (b) comply in all material
respects with all laws, ordinances and regulations of Governmental Entities
applicable to Parent and its subsidiaries; (c) maintain and keep its
material properties and equipment in good repair, working order and
condition, ordinary wear and tear expected; (d) maintain its material
concessions in full force and effect and not take any action or fail to
take any action which would constitute a material breach or default
thereunder; and (e) perform in all material respects its obligations under
all material contracts and commitments to which it is a party or by which
it is bound;
(ii) Parent shall not and shall not propose or agree to (A) sell or
pledge or agree to sell or pledge any capital stock owned by it in any of
its subsidiaries, (B) amend its Certificate of Incorporation or By-laws,
(C) split, combine or reclassify its outstanding capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of Parent, or
declare, set aside, authorize or pay any dividend or other distribution
payable in cash, stock or property (other than the Parent Quarterly
Dividend), or (D) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of
Parent capital stock;
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(iii) except in connection with acquisitions of assets or businesses
that are primarily engaged in the same business as that conducted by Parent
and its subsidiaries as of the date of this Agreement and any financing
transactions or issuances of securities related thereto which, in each
case, do not require the approval of the stockholders of Parent, Parent
shall not, and shall not permit any of its subsidiaries to, (A) issue,
deliver or sell or agree to issue, deliver or sell any additional shares
of, or rights of any kind to acquire any shares of, its respective capital
stock of any class, any indebtedness having the right to vote on any matter
on which Parent's stockholders may vote or any options, rights or warrants
to acquire, or securities convertible into, exercisable for or exchangeable
for, shares of capital stock other than issuances, deliveries or sales of
Parent securities under Parent Employee Benefit Plans; (B) acquire, lease
or dispose or agree to acquire, lease or dispose of any capital assets or
any other assets other than in the ordinary course of business; (C) incur
additional indebtedness or encumber or grant a security interest in any
asset or enter into any other material transaction other than in each case
in the ordinary course of business; (D) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof; or (E) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(iv) Parent shall not, nor shall it permit any of its subsidiaries to,
take or cause to be taken any action, whether before or after the Effective
Time, which would disqualify the Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code; and
(v) Parent shall not, nor shall it permit any of its subsidiaries to,
amend, modify, terminate, waive or permit to lapse any material right of
first refusal, preferential right, right of first offer, or any other
material right of Parent or any of its subsidiaries.
Section 7.3 Conduct of Business of Sub. During the period from the date
of this Agreement to the Effective Time, Sub shall not engage in any activities
of any nature except as provided in or contemplated by this Agreement.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access and Information. Each of the Company and Parent and
their respective subsidiaries shall afford to the other and to the other's
accountants, counsel and other representatives reasonable access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period prior to the Effective Time to all of its properties,
books, contracts, commitments, records and personnel, subject to existing
confidentiality obligations, and, during such period, each shall furnish
promptly to the other (i) a copy of each report, schedule and other document
filed or received by it pursuant to the requirements of federal or state
securities laws, and (ii) all other information concerning its business,
properties and personnel as the other may reasonably request. Each of the
Company and Parent shall hold, and shall cause their respective employees,
agents and representatives to hold, in confidence all such information in
accordance with the terms of the Confidentiality Agreement dated May 22, 1997
between Parent and the Company.
Section 8.2 Registration Statement/Proxy Statement. Parent and the
Company shall cooperate and promptly prepare, and Parent shall file with the
Commission as soon as practicable, a Registration Statement on Form S-4 (the
"Form S-4") under the Securities Act, with respect to the Parent Common Stock
issuable in the Merger, portions of which Registration Statement shall also
serve as the joint proxy statement of Parent and Company with respect to the
meetings of stockholders of Parent and the Company contemplated by Section 3.6
(the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder. Parent shall use all reasonable
efforts, and the Company will cooperate with Parent, to have the Form S-4
declared effective by
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the Commission as promptly as practicable after the filing thereof (including
without limitation, responding to any comments received from the Commission with
respect thereto) and to keep the Form S-4 effective as long as is necessary to
consummate the Merger. Each of Parent and the Company shall, as promptly as
practicable, provide to the other copies of any written comments received from
the Commission with respect to the Proxy Statement/Prospectus or the Form S-4
and advise the other of any oral comments with respect to the Proxy
Statement/Prospectus or the Form S-4 received from the Commission. Parent shall
use its best efforts to obtain, prior to the effective date of the Form S-4, all
necessary state securities law or "Blue Sky" permits or approvals required to
carry out the transactions contemplated by the Merger Agreement and will pay all
expenses incident thereto. Parent agrees that none of the information supplied
or to be supplied by Parent for inclusion or incorporation by reference in the
Form S-4 or the Proxy Statement/Prospectus (i) in the case of the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meetings of stockholders of Parent and
the Company contemplated by Section 3.6, or (ii) in the case of the Form S-4 and
each amendment or supplement thereto, at the time it is filed or becomes
effective, will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company agrees that none of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in the
Form S-4 or the Proxy Statement/Prospectus (i) in the case of the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meetings of stockholders of Parent and
the Company contemplated by Section 3.6, or, (ii) in the case of the Form S-4 or
any amendment or supplement thereto, at the time it is filed or becomes
effective, will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. For purposes of the foregoing, it is understood and agreed that
information concerning or related to Parent will be deemed to have been supplied
by Parent and information concerning or related to the Company shall be deemed
to have been supplied by the Company. No amendment or supplement to the Proxy
Statement/Prospectus will be made by Parent or the Company without the approval
of the other party. Parent will advise the Company, promptly after it receives
notice thereof, of the time when the Form S-4 has become effective or any
supplement or amendment has been filed, the issuance of any stop order, or the
suspension of the qualification of Parent Common Stock issuable in connection
with the Merger for offering or sale in any jurisdiction.
Section 8.3 Compliance with the Securities Act and Pooling
Requirements. (a) At least 30 days prior to the Effective Time, the Company
shall deliver to Parent a list of names and addresses of those persons who were,
in the Company's reasonable judgment, at the record date for the Company
Meeting, "affiliates" (each such person, an "Affiliate") of the Company within
the meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act. The Company shall use all reasonable efforts to deliver or cause
to be delivered to Parent, prior to the Effective Time, from each of the
Affiliates of the Company identified in the foregoing list, an Affiliate Letter
in the form attached hereto as Exhibit B-1 (an "Affiliate Letter"). Parent shall
be entitled to place legends as specified in such Affiliate Letters on the
certificates evidencing any Parent Common Stock to be received by such
Affiliates pursuant to the terms of the Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of such Affiliate Letters.
(b) At least 30 days prior to the Effective Time, Parent shall deliver to
the Company a list of names and addresses of those persons who were, in Parent's
reasonable judgment, at the record date for the Parent Meeting, "affiliates"
(each such person, an "Affiliate") of Parent within the meaning of Rule 145 of
the rules and regulations promulgated under the Securities Act. Parent shall use
all reasonable efforts to deliver or cause to be delivered to the Company, prior
to the Effective Time, from each of the Affiliates of Parent identified in the
foregoing list, an Affiliate Letter in the form attached hereto as Exhibit B-2.
(c) Parent and the Company shall prior to the Effective Time (i) rescind
their respective stock repurchase programs and the authorizations therefor and
(ii) publicly announce such rescissions in the same manner in which they
publicly announced the repurchase programs.
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(d) Each of Parent and the Company shall use commercially reasonable
efforts to cause the Merger to qualify for "pooling of interests" accounting
treatment. The Company shall request, and shall use commercially reasonable
efforts to obtain, a letter from KPMG Peat Marwick LLP, dated the date of
Closing, with respect to the eligibility of the Company for "pooling of
interests" accounting treatment. Parent shall request, and shall use
commercially reasonable efforts to obtain, a letter from Coopers & Lybrand
L.L.P., dated the date of Closing, to the effect that the Merger qualifies for
"pooling of interests" accounting treatment if consummated in accordance with
this Agreement; provided that the delivery of such letters shall not be a
condition to the Closing.
Section 8.4 Stock Exchange Listing. Parent shall use its best efforts to
list on the NYSE, upon official notice of issuance, the Parent Common Stock to
be issued pursuant to the Merger.
Section 8.5 Employee Matters. As of the Effective Time, the employees of
the Company and each subsidiary shall continue employment with the Surviving
Corporation and the subsidiaries, respectively, in the same positions and at the
same level of wages and/or salary and without having incurred a termination of
employment or separation from service; provided, however, except as may be
specifically required by applicable law or any contract, the Surviving
Corporation and the subsidiaries shall not be obligated to continue any
employment relationship with any employee for any specific period of time.
Except with respect to the Option Plans to be assumed by the Parent as provided
by Section 3.5(a) hereto, as of the Effective Time, the Surviving Corporation
shall be the sponsor of the Company Employee Benefit Plans sponsored by the
Company immediately prior to the Effective Time, and Parent shall cause the
Surviving Corporation and the subsidiaries to satisfy all obligations and
liabilities under such Company Employee Benefit Plans; provided, however, that,
except as hereafter provided in this Section 8.5 or in the Company Disclosure
Schedule, nothing contained in this Agreement shall limit or restrict the
Surviving Corporation's right on or after the Effective Time to amend, modify or
terminate any of the Company Employee Benefit Plans. To the extent any employee
benefit plan, program or policy of Parent, the Surviving Corporation, or their
affiliates is made available to any person who is an employee of the Company or
any of its subsidiaries immediately prior to the Effective Time: (i) service
with the Company and the subsidiaries by any employee prior to the Effective
Time shall be credited for eligibility and vesting purposes and for purposes of
qualifying for any additional benefits tied to periods of service (such as
higher rates of matching contributions and eligibility for early retirement)
under such plan, program or policy, but not for benefit accrual purposes; and
(ii) with respect to any welfare benefit plans to which such employees may
become eligible, Parent shall cause such plans to provide credit for any
co-payments or deductibles by such employees and waive all pre-existing
condition exclusions and waiting periods, other than limitations or waiting
periods that have not been satisfied under any welfare plans maintained by the
Company and the subsidiaries for their employees prior to the Effective Time.
The Company and Parent agree to the employee matters set forth in the Company
Disclosure Schedule.
Section 8.6 Indemnification. (a) From and after the Effective Date, the
Surviving Corporation and Parent shall indemnify, defend and hold harmless the
officers, directors and employees of the Company and its subsidiaries who were
such at any time prior to the Effective Time (the "Indemnified Parties") from
and against all losses, expenses, claims, damages or liabilities arising out of
the transactions contemplated by this Agreement to the fullest extent permitted
or required under applicable law, and the Indemnified Parties shall be advanced
expenses subject to a customary reimbursement agreement. All rights to
indemnification existing in favor of the directors, officers or employees of the
Company as provided in the Company's charter or By-laws, as in effect as of the
date hereof, with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect thereafter. The
Surviving Corporation shall maintain in effect for not less than six years after
the Effective Time the current policies of directors' and officers' liability
insurance maintained by the Company with respect to matters occurring on or
prior to the Effective Time; provided, however, that the Surviving Corporation
may substitute therefor policies of at least the same coverage (with carriers
comparable to the Company's existing carriers) containing terms and conditions
which are no less advantageous to the Indemnified Parties; and provided,
further, that the Surviving Corporation shall not be required in order to
maintain or procure such coverage to pay an annual premium in excess of 300% of
the current annual premium paid by the Company for its existing coverage (the
"Cap"); and provided, further, that if equivalent coverage cannot be obtained,
or can be obtained only by paying an
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annual premium in excess of the Cap, the Surviving Corporation shall only be
required to obtain as much coverage as can be obtained by paying an annual
premium equal to the Cap.
(b) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Agreement is
commenced, whether before or after the Effective Time, the parties hereto agree
to cooperate and use their respective reasonable efforts to vigorously defend
against and respond thereto.
Section 8.7 HSR Act. The Company and Parent shall use their best efforts
to file as soon as practicable notifications under the HSR Act in connection
with the Merger and the transactions contemplated hereby, and to respond as
promptly as practicable to any inquiries received from the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") for additional information or documentation.
Section 8.8 Additional Agreements. (a) Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using all commercially
reasonable efforts to obtain all necessary waivers, consents and approvals, to
effect all necessary registrations and filings and to lift any injunction to the
Merger (and, in such case, to proceed with the Merger as expeditiously as
possible).
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Parent, the Company and the Surviving Corporation
shall take all such necessary action.
(c) Following the Effective Time, Parent shall use its best efforts to
conduct the business and otherwise act, and shall cause the Surviving
Corporation to use its best efforts to conduct its business and otherwise act,
in a manner which would not jeopardize the characterization of the Merger as a
reorganization within the meaning of Section 368(a) of the Code and which would
not disqualify the Merger as a "pooling of interests" for accounting purposes.
Section 8.9 No Shop. Each of Parent and the Company agrees (a) that
neither it nor any of its subsidiaries shall, and it shall direct and use its
best efforts to cause its officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its subsidiaries) not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction (other than, in the case of Parent, any
acquisitions of assets or businesses that are primarily engaged in the same
business as that conducted by Parent and its subsidiaries as of the date of this
Agreement and any financing transactions or issuances of securities related
thereto which, in each case, do not require approval by the stockholders of
Parent), involving, or any purchase of all or any significant portion of the
assets or any equity securities of, such party and its subsidiaries, taken as a
whole (any such proposal or offer being hereinafter referred to as an
"Alternative Proposal"), or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
person relating to an Alternative Proposal, or release any third party from any
obligations under any existing standstill agreement or arrangement, or enter
into any agreement with respect to an Alternative Proposal, or otherwise
facilitate any effort or attempt to make or implement an Alternative Proposal;
(b) that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and it will take the necessary steps to
inform the individuals or entities referred to above of the obligations
undertaken in this Section 8.9; and (c) that it will notify the other party
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it. Notwithstanding the foregoing,
each of Parent and the Company may, directly or indirectly, furnish information
and access to, and may participate in discussions and negotiate with, any
corporation, partnership, person or other entity, if such corporation,
partnership, person or other entity has submitted a written proposal to the
Board of Directors of such party relating to an Alternative Proposal which the
Board of Directors of such party believes is superior from a financial point of
view to the
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Merger and is reasonably likely to be consummated and the Board of Directors of
such party, having received a written opinion of legal counsel relating thereto,
determines in its good faith judgment that failing to take such action would
constitute a breach of such Board of Directors' fiduciary duty to its
stockholders imposed by law. Such Board of Directors shall provide a copy of any
such written proposal to the other party immediately after receipt thereof and
thereafter keep the other party promptly advised of any development with respect
thereto and any revision of the terms of such Alternative Proposal. Nothing
herein shall prevent the respective Boards of Directors of each of Parent and
the Company from taking, and disclosing to its respective stockholders, a
position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange
Act with regard to any tender offer, provided, further, that the Board of
Directors of any party hereto shall not recommend that the stockholders of such
party tender their shares in connection with any such tender offer unless such
Board of Directors, having received a written opinion of legal counsel relating
thereto, determines in its good faith judgment that failing to take such action
would constitute a breach of such Board of Directors' fiduciary duty to its
stockholders imposed by law. Nothing in this Section 8.9 shall (x) permit Parent
or the Company to terminate this Agreement (except as specifically provided in
Article 10 hereof), (y) permit Parent or the Company to enter into any agreement
with respect to an Alternative Proposal during the term of this Agreement (it
being agreed that during the term of this Agreement, neither Parent nor the
Company shall enter into any agreement with any person that provides for, or in
any way facilitates, an Alternative Proposal (other than a confidentiality
agreement in customary form)), or (z) affect any other obligation of Parent or
the Company under this Agreement.
Section 8.10 Advice of Changes; SEC Filings The Company shall confer on a
regular basis with Parent on operational matters. Parent and the Company shall
promptly advise each other orally and in writing of any change or event that has
had, or could reasonably be expected to have, a Company Material Adverse Effect
or a Parent Material Adverse Effect, as the case may be. The Company and Parent
shall promptly provide each other (or their respective counsel) copies of all
filings made by such party with the SEC or any other Governmental Entity in
connection with this Agreement and the transactions contemplated hereby other
than any filing by the Company pursuant to the HSR Act.
Section 8.11 Company and Parent Rights Agreements; State Takeover
Statutes; Certain Agreements (a) The Board of Directors of the Company shall
take all further action (in addition to that referred to in Section 5.10)
reasonably requested by Parent in order to render the capital stock purchase
rights (the "Company Rights") issued pursuant to the Amended and Restated Rights
Agreement, dated as of May 9, 1996, between the Company and First Chicago Trust
Company of New York, as rights agent (the "Company Rights Agreement"),
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement. Except as provided above with respect
to the Merger and the other transactions contemplated by this Agreement and the
Stock Option Agreement, the Company and its Board of Directors shall not (i)
amend the Company Rights Agreement or (ii) take any action with respect to, or
make any determination under, the Company Rights Agreement, including a
redemption of the Company Rights or any action to facilitate an Alternative
Proposal in respect of the Company or (iii) take any action to render any state
takeover statute inapplicable to any Alternative Proposal or (iv) amend, modify,
terminate or waive any rights under any confidentiality, standstill or
non-disclosure agreement.
(b) Parent and its Board of Directors shall not (i) amend the Parent Rights
Agreement or (ii) take any action with respect to, or make any determination
under, the Parent Rights Agreement, including a redemption of the Parent Rights
or any action to facilitate an Alternative Proposal in respect of Parent or
(iii) take any action to render any state takeover statute inapplicable to any
Alternative Proposal or (iv) amend, modify, terminate or waive any rights under
any confidentiality, standstill or non-disclosure agreement.
Section 8.12 Certain Appointments. (a) As of the Effective Time, Parent
shall take all necessary action such that the Board of Directors of Parent shall
consist of not more than 12 persons, one of whom shall be H. Leighton Steward,
Chairman of the Board of Directors of the Company, and two of whom shall be
designated by Mr. Steward (subject to the approval of Parent, which shall not be
unreasonably withheld) from among the present members of the Board of Directors
of the Company, and the remainder of whom shall be designated by Parent.
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(b) Mr. Steward shall as of the Effective Time serve as Vice Chairman of
the Board of Directors of Parent and Chairman of the Executive Committee of the
Board of Directors of Parent pursuant to an employment agreement attached hereto
as Exhibit C.
Section 8.13 Transition Team. Parent and the Company shall create a
special transition team which shall be headed jointly by one person designated
by Parent and one person designated by the Company and be composed of personnel
from each of Parent and the Company. The transition team shall facilitate the
strategic alliance of Parent and the Company during the period from the date
hereof to the Effective Time and shall report on its work to the Chief Executive
Officer of each of Parent and the Company.
ARTICLE IX
CONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall have been
approved and adopted by the requisite vote of the holders of the Company Stock
and the issuance of the Parent Common Stock pursuant to this Agreement shall
have been approved by the requisite vote of the holders of the Parent Common
Stock, in each case as provided in Section 3.6.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) The Form S-4 shall have become effective in accordance with the
provisions of the Securities Act. No stop order suspending the effectiveness of
the Form S-4 shall have been issued by the Commission and remain in effect and
all necessary approvals under state securities laws relating to the issuance or
trading of the Parent Common Stock to be issued to stockholders of the Company
in connection with the Merger shall have been obtained.
(d) No preliminary or permanent injunction or other order by any federal or
state court in the United States of competent jurisdiction which prevents the
consummation of the Merger shall have been issued and remain in effect (each
party agreeing to use all commercially reasonable efforts to have any such
injunction lifted).
(e) The Parent Common Stock to be issued to Company stockholders in
connection with the Merger shall have been approved for listing on the NYSE,
subject only to official notice of issuance.
Section 9.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) Parent and Sub shall have performed in all material respects their
agreements contained in this Agreement required to be performed on or prior to
the Effective Time, and the representations and warranties of Parent and Sub
contained in this Agreement shall be true in all material respects when made and
on and as of the Effective Time as if made on and as of such date (except to the
extent they relate to a particular date), except as expressly contemplated or
permitted by this Agreement, and the Company shall have received a certificate
of the President and Chief Executive Officer or a Vice President of each of
Parent and Sub to that effect.
(b) The Company shall have received an opinion in the form attached hereto
as Exhibit D, dated the Effective Time, from Cahill Gordon & Reindel, based upon
certificates from the Company in the form attached hereto as Exhibit F and
Parent in the form attached hereto as Exhibit G, to the effect that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Code. In rendering such opinion, such counsel may receive and rely upon
representations of fact contained in certificates as specified in the preceding
sentence.
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Section 9.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Effective Time, and the representations and warranties of the Company
contained in this Agreement shall be true in all material respects when made and
on and as of the Effective Time as if made on and as of such date (except to the
extent they relate to a particular date), except as expressly contemplated or
permitted by this Agreement, and Parent and Sub shall have received a
certificate of the President and Chief Executive Officer or a Vice President of
the Company to that effect.
(b) Parent and Sub shall have received an opinion in the form attached
hereto as Exhibit E, dated the Effective Time, from White & Case, based upon
certificates from the Company in the form attached hereto as Exhibit F and
Parent in the form attached hereto as Exhibit G, to the effect that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Code. In rendering such opinion, such counsel may receive and rely upon
representations of fact contained in certificates as specified in the preceding
sentence.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, before or after approval by the stockholders of the Company or Parent, by
the mutual consent of Parent and the Company.
Section 10.2 Termination by Either Parent or the Company. This Agreement
may be terminated and the Merger may be abandoned by action of the Board of
Directors of either Parent or the Company if (a) the Merger shall not have been
consummated by January 31, 1998, or (b) the approval of the Company's
stockholders required by Section 3.6 shall not have been obtained at a meeting
duly convened therefor or at any adjournment or postponement thereof, or (c) the
approval of Parent's stockholders required by Section 3.6 shall not have been
obtained at a meeting duly convened therefor or at any adjournment or
postponement thereof, or (d) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable;
provided, that the party seeking to terminate this Agreement pursuant to clause
(d) above shall have used all commercially reasonable efforts to remove such
injunction, order or decree; and provided, in the case of a termination pursuant
to clause (a) above, that the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the failure to consummate the Merger.
Section 10.3 Other Termination Rights. (a) This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, by action of the Board of Directors of Parent, (i) if the Board of
Directors of the Company shall have withdrawn or modified in a manner adverse to
Parent its approval or recommendation of this Agreement or the Merger or shall
have recommended an Alternative Proposal with respect to the Company to the
Company s stockholders or (ii) Parent shall have received an Alternative
Proposal which the Board of Directors of Parent believes is superior from a
financial point of view to the Merger and is reasonably likely to be consummated
and the Board of Directors, having received a written opinion of legal counsel
relating thereto, in the exercise of its good faith judgment as to its fiduciary
duties to its stockholders imposed by law determines that such termination is
required.
(b) This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, by action of the Board of Directors of the
Company, (i) if the Board of Directors of Parent shall have withdrawn or
modified in a manner adverse to the Company its approval or recommendation of
this Agreement or shall have recommended an Alternative Proposal with respect to
Parent to Parent's stockholders
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or (ii) the Company shall have received an Alternative Proposal which the Board
of Directors of the Company believes is superior from a financial point of view
to the Merger and is reasonably likely to be consummated and the Board of
Directors of the Company, having received a written opinion of legal counsel
relating thereto, in the exercise of its good faith judgment as to its fiduciary
duties to its stockholders imposed by law determines that such termination is
required.
Section 10.4 Effect of Termination and Abandonment. (a) In the event that
(w) any person shall have made an Alternative Proposal with respect to the
Company and thereafter this Agreement is terminated by either party pursuant to
Section 10.2(b) and within 12 months thereafter any Alternative Proposal with
respect to the Company shall have been consummated, (x) the Board of Directors
of the Company shall have withdrawn or modified in a manner adverse to Parent
its approval or recommendation to the Company's stockholders by reason of an
Alternative Proposal with respect to the Company and Parent shall have
terminated this Agreement pursuant to Section 10.3(a)(i) and within 12 months
thereafter any Alternative Proposal with respect to the Company shall have been
consummated, (y) the Board of Directors of the Company shall have recommended an
Alternative Proposal with respect to the Company to the Company's stockholders
and Parent shall have terminated this Agreement pursuant to Section 10.3(a)(i)
or (z) the Company shall have terminated this Agreement pursuant to Section
10.3(b)(ii), then, in any such case, the Company shall in no event later than
(i) the date of consummation of such Alternative Proposal, in the case of a
termination described in clause (w) or (x), or (ii) two days after such
termination, in the case of a termination described in clause (y) or (iii)
concurrently with such termination, in the case of a termination described in
clause (z), pay Parent a fee of $80,000,000 (a "Termination Fee"), which amount
shall be payable by wire transfer of same day funds, and shall promptly
reimburse Parent for all substantiated out-of-pocket costs and expenses incurred
by Parent in connection with this Agreement and the transactions contemplated
hereby, including, without limitation, costs and expenses of accountants,
attorneys and financial advisors, up to an aggregate of $8,000,000. The Company
acknowledges that the agreements contained in this Section 10.4(a) are an
integral part of the transactions contemplated in this Agreement, and that,
without these agreements, Parent and Sub would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant to
this Section 10.4(a), and, in order to obtain such payment, Parent or Sub
commences a suit which results in a judgment against the Company for the fee and
expenses set forth in this Section 10.4(a), the Company shall pay to Parent its
costs and expenses (including attorneys' fees) in connection with such suit.
(b) In the event that (w) any person shall have made an Alternative
Proposal with respect to Parent and thereafter this Agreement is terminated by
either party pursuant to Section 10.2(c) and within 12 months thereafter any
Alternative Proposal with respect to Parent shall have been consummated, (x) the
Board of Directors of Parent shall have withdrawn or modified in a manner
adverse to the Company its approval or recommendation to Parent's stockholders
by reason of an Alternative Proposal with respect to Parent and the Company
shall have terminated this Agreement pursuant to Section 10.3(b)(i) and within
12 months thereafter any Alternative Proposal with respect to Parent shall have
been consummated, (y) the Board of Directors of Parent shall have recommended an
Alternative Proposal with respect to Parent to Parent's stockholders and the
Company shall have terminated this Agreement pursuant to Section 10.3(b)(i) or
(z) Parent shall have terminated this Agreement pursuant to Section 10.3(a)(ii),
then, in any such case, Parent shall in no event later than (i) the date of
consummation of such Alternative Proposal, in the case of a termination
described in clause (w) or (x), or (ii) two days after such termination, in the
case of a termination described in clause (y) or (iii) concurrently with such
termination, in the case of a termination described in clause (z), pay the
Company a fee of $150,000,000 (a "Parent Termination Fee"), which amount shall
be payable by wire transfer of same day funds, and shall promptly reimburse the
Company for all substantiated out-of-pocket costs and expenses incurred by the
Company in connection with this Agreement and the transactions contemplated
hereby, including, without limitation, costs and expenses of accountants,
attorneys and financial advisors, up to an aggregate of $8,000,000. Parent
acknowledges that the agreements contained in this Section 10.4(b) are an
integral part of the transactions contemplated in this Agreement, and that,
without these agreements, the Company would not enter into this Agreement;
accordingly, if Parent fails to promptly pay the amount due pursuant to this
Section 10.4(b), and, in order to obtain such payment, the Company commences a
suit which results in a judgment against the Company for the fee and expenses
set
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forth in this Section 10.4(b), Parent shall pay to the Company its costs and
expenses (including attorneys' fees) in connection with such suit.
(c) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article X, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
10.4 and Section 11.3 and except for the provisions of Sections 8.9, 8.11, 11.5,
11.6, 11.7, 11.9, 11.11, 11.12 and 11.14. Moreover, in the event of termination
of this Agreement pursuant to Section 10.2 or 10.3, nothing herein shall
prejudice the ability of the non-breaching party from seeking damages from any
other party for any breach of this Agreement, including without limitation,
attorneys' fees and the right to pursue any remedy at law or in equity.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Non-Survival of Representations, Warranties and
Agreements. All representations and warranties set forth in this Agreement
shall terminate at the Effective Time. All covenants and agreements set forth in
this Agreement shall survive in accordance with their terms.
Section 11.2 Notices. All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
The Louisiana Land and Exploration Company
909 Poydras Street
New Orleans, Louisiana 70112
Attention: General Counsel
Telecopy No.: (504) 566-6296
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Kenneth W. Orce, Esq.
Telecopy No.: (212) 269-5420
If to Parent or Sub:
Burlington Resources Inc.
5051 Westheimer
Houston, Texas 77056
Attention: Executive Vice President, Law and Administration
Telecopy No.: (713) 624-9605
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
Telecopy No.: (212) 859-4000
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or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
Section 11.3 Fees and Expenses. Whether or not the Merger is consummated,
except as provided in Section 10.4 and Section 8.2, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses, whether or
not the Merger is consummated except as expressly provided herein and except
that (a) the filing fee in connection with the HSR Act filing, (b) the filing
fees in connection with the filing of the Form S-4 and Proxy
Statement/Prospectus with the Commission and (c) the expenses of printing and
mailing the Form S-4 and the Proxy Statement/Prospectus, shall be shared equally
by the Company and Parent.
Section 11.4 Publicity. So long as this Agreement is in effect, Parent,
Sub and the Company agree to consult with each other in issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Agreement, and none of them shall issue any
press release or make any public statement prior to such consultation, except as
may be required by law or by obligations pursuant to any listing agreement with
any national securities exchange.
Section 11.5 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with 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 provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 11.6 Assignment; Binding Effect. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement; provided that
the Indemnified Parties shall be third-party beneficiaries of Parent's agreement
contained in Section 8.6 hereof.
Section 11.7 Entire Agreement. This Agreement, the Exhibits, the Company
Disclosure Schedule, the Parent Disclosure Schedule, the Confidentiality
Agreement dated May 22, 1997, between the Company and Parent and any documents
delivered by the parties in connection herewith and therewith constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement shall
be binding upon any party hereto unless made in writing and signed by all
parties hereto.
Section 11.8 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
before or after approval of matters presented in connection with the Mergers by
the stockholders of the Company and Parent, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, without regard
to its rules of conflict of laws.
EACH OF THE PARTIES HERETO (I) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL
JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF MARYLAND OR ANY
MARYLAND STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II) AGREES THAT IT
SHALL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR
OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (III) AGREES THAT IT SHALL NOT
BRING ANY ACTION RELATING TO THIS
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AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN ANY COURT
OTHER THAN A FEDERAL COURT SITTING IN THE STATE OF MARYLAND OR A MARYLAND STATE
COURT.
Section 11.10 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
Section 11.11 Headings and Table of Contents. Headings of the Articles
and Sections of this Agreement and the Table of Contents are for the convenience
of the parties only, and shall be given no substantive or interpretive effect
whatsoever.
Section 11.12 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
Section 11.13 Waivers. At any time prior to the Effective Time, the
parties hereto, by or pursuant to action taken by their respective Boards of
Directors, may (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any documents delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 11.14 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
Section 11.15 Subsidiaries. As used in this Agreement, the word
"subsidiary" when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner; provided that, in the case of the Company, the term
"subsidiary" shall in all events include NLP and its subsidiaries.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunder duly authorized all as of
the date first written above.
BURLINGTON RESOURCES INC.
By: /s/ BOBBY S. SHACKOULS
------------------------------------
Name: Bobby S. Shackouls
Title: Chairman, Chief Executive
Officer and President
BR ACQUISITION CORPORATION
By: /s/ JOHN E. HAGALE
------------------------------------
Name: John E. Hagale
Title: Executive Vice President and
Chief Financial Officer
THE LOUISIANA LAND AND EXPLORATION
COMPANY
By: /s/ H. LEIGHTON STEWARD
------------------------------------
Name: H. Leighton Steward
Title: Chairman Chief Executive
Officer and President
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EXHIBIT A
FORM OF CHARTER
OF
THE LOUISIANA LAND AND EXPLORATION COMPANY
THIS IS TO CERTIFY THAT:
FIRST: The name of the corporation (which is hereinafter called the
"Corporation") is:
The Louisiana Land and Exploration Company
SECOND: The Corporation is formed for the purpose of carrying on any
lawful business.
THIRD: The address of the principal office of the Corporation in this
State is c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street,
Baltimore, Maryland 21202, Attention: James J. Hanks, Jr.
FOURTH: The name and address of the resident agent of the Corporation is
James J. Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard
Street, Baltimore, Maryland 21202. The resident agent is a citizen of and
resides in the State of Maryland.
FIFTH: The total number of shares of stock which the Corporation has
authority to issue is 1,000 shares, $.01 par value per share, all of one class.
The aggregate par value of all authorized shares having a par value is $10.00.
SIXTH: The Corporation shall have a board of one director unless the
number is increased or decreased in accordance with the Bylaws of the
Corporation. However, the number of directors shall never be less than the
minimum number required by the Maryland General Corporation Law.
SEVENTH: (a) The Corporation reserves the right to make any amendment of
the charter, now or hereafter authorized by law, including any amendment which
alters the contract rights, as expressly set forth in the charter, of any shares
of outstanding stock.
(b) The Board of Directors of the Corporation may authorize the issuance
from time to time of shares of its stock of any class, whether now or hereafter
authorized, or securities convertible into shares of its stock of any class,
whether now or hereafter authorized, for such consideration as the Board of
Directors may deem advisable, subject to such restrictions or limitations, if
any, as may be set forth in the bylaws of the Corporation.
(c) The Board of Directors of the Corporation may, by articles
supplementary, classify or reclassify any unissued stock from time to time by
setting or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of the stock.
EIGHTH: No holder of shares of stock of any class shall have any
preemptive right to subscribe to or purchase any additional shares of any class,
or any bonds or convertible securities of any nature; provided, however, that
the Board of Directors may, in authorizing the issuance of shares of stock of
any class, confer any preemptive right that the Board of Directors may deem
advisable in connection with such issuance.
NINTH: To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors and officers, no director or
officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment nor repeal of this
Article, nor the adoption or amendment of any other provision of the charter or
bylaws inconsistent with this Article, shall apply to or affect in any respect
the applicability of the preceding sentence with respect to any act or failure
to act which occurred prior to such amendment, repeal or adoption.
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EXHIBIT B-1
FORM OF AFFILIATE LETTER ADDRESSED
TO BURLINGTON RESOURCES INC.
, 1997
Burlington Resources Inc.
5051 Westheimer
Suite 1400
Houston, Texas 77056
Ladies and Gentlemen:
The undersigned, a holder of shares of capital stock, par value $.15 per
share (the "Company Stock"), of The Louisiana Land and Exploration Company, a
Maryland corporation (the "Company"), has been advised that as of the date
hereof, the undersigned may be deemed to be an "affiliate" of the Company, as
the term "affiliate" is (i) defined for purposes of paragraph (c) and (d) of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), and/or (ii) used in and for purposes of
Accounting Series Releases 130 and 135, as amended, of the Commission.
The undersigned has been further advised that pursuant to the terms of the
Agreement and Plan of Merger dated as of July 16, 1997 (the "Merger Agreement")
among the Company, Burlington Resources Inc., a Delaware corporation ("Parent"),
and BR Acquisition Corporation, a Maryland corporation and wholly owned
subsidiary of Parent ("Merger Sub"), Merger Sub will be merged with and into the
Company (the "Merger") and that as a result of the Merger, the undersigned may
receive shares of Parent Common Stock (as defined in the Merger Agreement) in
exchange for shares of Company Stock owned by the undersigned.
1. The undersigned represents, warrants and covenants to Parent that in the
event the undersigned receives any Parent Common Stock as a result of the
Merger, the undersigned:
A. Shall not make any sale, transfer or other disposition of the
Parent Common Stock in violation of the Act or the Rules and Regulations.
B. Has read carefully this letter and discussed applicable
limitations upon the ability of the undersigned to sell, transfer or
otherwise dispose of the Parent Common Stock to the extent the undersigned
believed necessary with counsel of the undersigned or counsel for the
Company.
C. Has been advised that the issuance of the Parent Common Stock to
the undersigned pursuant to the Merger will be registered with the
Commission under the Act on a Registration Statement on Form S-4. However,
the undersigned has also been advised that, since at the time the Merger
will be submitted for a vote of the stockholders of Parent, the undersigned
may be deemed to have been an affiliate of the Company and the distribution
by the undersigned of the Parent Common Stock has not been registered under
the Act, the undersigned may not sell, transfer or otherwise dispose of the
Parent Common Stock issued to the undersigned in the Merger unless (i) such
sale, transfer or other disposition has been registered under the Act, (ii)
such sale, transfer or other disposition is made in conformity with the
volume and other limitations of Rule 145 promulgated by the Commission
under the Act, or (iii) in the opinion of counsel reasonably acceptable to
Parent, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
D. Understands that Parent is under no obligation to register the
sale, transfer or other disposition of the Parent Common Stock by the
undersigned or on behalf of the undersigned under the Act or to take any
other action necessary in order to make compliance with an exemption from
such registration available.
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<PAGE> 118
E. Also understands that Parent may give stop transfer instructions
to Parent's transfer agent with respect to the Parent Common Stock and that
Parent reserves the right to place on the certificates for the Parent
Common Stock issued to the undersigned, or any substitutions therefor, a
legend stating in substance:
"The securities represented by this certificate have been issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933
applies and may only be sold or otherwise transferred in compliance with
the requirements of Rule 145 or pursuant to a registration statement under
said Act or an exemption from such registration."
F. Also understands that unless the transfer by the undersigned of
Parent Common Stock of the undersigned has been registered under the Act or
is a sale made in conformity with the provisions of Rule 145, Parent
reserves the right to put the following legend on the certificates issued
to transferees of the undersigned:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired from a person
who received such shares in a transaction to which Rule 145 promulgated
under the Securities Act of 1933 applies. The securities have been acquired
by the holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of Securities Act of 1933 and may
not be sold, pledged or otherwise transferred except in accordance with an
exemption from the registration requirements of the Securities Act of
1933."
G. The undersigned further represents to and covenants with Parent
that from the date that is 30 days prior to the Effective Time (as defined
in the Merger Agreement) the undersigned will not sell, transfer or
otherwise dispose of shares of Company Stock held by the undersigned and
that the undersigned will not sell, transfer or otherwise dispose of any
shares of Parent Common Stock received by the undersigned in the Merger or
other shares of Parent Common Stock until after such time as results
covering at least 30 days of combined operations of Parent and the Company
have been published by Parent, in the form of a quarterly earnings report,
an effective registration statement filed with the Commission, a report to
the Commission on Form 10-K, 10-Q, or 8-K, or any other public filing or
announcement which includes the results of at least 30 days of combined
operations. Parent shall notify the undersigned of the publication of such
results.
H. Execution of this letter should not be considered an admission on
the part of the undersigned that the undersigned is an affiliate of the
Company as described in the first paragraph of this letter, nor as a waiver
of any rights the undersigned may have to object to any claim that the
undersigned is such an affiliate on or after the date of this letter.
2. By Parent's acceptance of this letter, Parent hereby agrees with the
undersigned as follows:
A. For so long as and to the extent necessary to permit the
undersigned to sell the Parent Common Stock pursuant to Rule 145 and, to
the extent applicable, Rule 144 under the Act, Parent shall (a) use its
reasonable best efforts to (i) file, on a timely basis, all reports and
data required to be filed with the Commission by it pursuant to Section 13
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and (ii) furnish to the undersigned upon request a written statement as to
whether Parent has complied with such reporting requirements during the 12
months preceding any proposed sale of the Parent Common Stock by the
undersigned under Rule 145, and (b) otherwise use its reasonable efforts to
permit such sales pursuant to Rule 145 and Rule 144. Parent has filed all
reports required to be filed with the Commission under Section 13 of the
Exchange Act during the preceding 12 months.
B. It is understood and agreed that certificates with any legends set
forth in paragraphs E and F above will be substituted by delivery of
certificates without such legend if (i) one year shall have elapsed from
the date the undersigned acquired the Parent Common Stock received in the
Merger and the provisions of Rule 145(d)(2) are then available to the
undersigned, (ii) two years shall have elapsed from the date the
undersigned acquired the Parent Common Stock received in the Merger and the
provisions of Rule 145(d)(3) are then applicable to the undersigned, or
(iii) Parent has received either an opinion of counsel, which opinion and
counsel shall be reasonably satisfactory to Parent, or a "no-
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<PAGE> 119
action" letter obtained by the undersigned from the staff of the
Commission, to the effect that the restrictions imposed by Rule 144 and
Rule 145 under the Act no longer apply to the undersigned.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
ACCEPTED:
BURLINGTON RESOURCES INC.
By:
-------------------------------
Name:
Title:
Dated:
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<PAGE> 120
EXHIBIT B-2
FORM OF AFFILIATE LETTER ADDRESSED TO
THE LOUISIANA LAND AND EXPLORATION COMPANY
, 1997
The Louisiana Land and Exploration Company
909 Poydras Street
New Orleans, Louisiana 70112
Ladies and Gentlemen:
The undersigned, a holder of shares of common stock, par value $.01 per
share (the "Parent Common Stock"), of Burlington Resources Inc., a Delaware
corporation (the "Company"), has been advised that as of the date hereof, the
undersigned may be deemed to be an "affiliate" of Parent, as the term
"affiliate" is (i) defined for purposes of paragraph (c) and (d) of Rule 145 of
the Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), and/or (ii) used in and for purposes of Accounting Series
Releases 130 and 135, as amended, of the Commission.
The undersigned has been further advised that pursuant to the terms of the
Agreement and Plan of Merger dated as of July 16, 1997 (the "Merger Agreement")
among Parent, BR Acquisition Corporation, a Maryland corporation and wholly
owned subsidiary of Parent ("Merger Sub"), and The Louisiana Land and
Exploration Company, a Maryland corporation (the "Company"), Merger Sub will be
merged with and into the Company (the "Merger").
The undersigned represents to and covenants with the Company that from the
date that is 30 days prior to the Effective Time (as defined in the Merger
Agreement) the undersigned will not sell, transfer or otherwise dispose of
shares of Company Stock (as defined in the Merger Agreement) held by the
undersigned and will not sell, transfer or otherwise dispose of any shares of
Parent Common Stock until after such time as results covering at least 30 days
of combined operations of Parent and the Company have been published by Parent,
in the form of a quarterly earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K, 10-Q, or
8-K, or any other public filing or announcement which includes the results of at
least 30 days of combined operations. Parent shall notify the "affiliates" of
the publication of such results.
Execution of this letter should not be considered an admission on the part
of the undersigned that the undersigned is an "affiliate" of Parent as described
in the first paragraph of this letter, nor as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after date of this letter.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
ACCEPTED:
THE LOUISIANA LAND
AND EXPLORATION COMPANY
By:
------------------------------
Name:
Title:
Dated:
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<PAGE> 121
EXHIBIT C
, 1997
Mr. H. Leighton Steward
909 Poydras Street
New Orleans, Louisiana 70112
Dear Leighton,
This letter constitutes your Employment Agreement with Burlington Resources
Inc. (the "Company") when accepted by you in the space provided below. Reference
is hereby made to the Agreement and Plan of Merger dated as of July 16, 1997
among the Company, The Louisiana Land and Exploration Company ("LL&E") and BR
Acquisition Corporation (the "Merger Agreement").
1. POSITION AND TERM. The Company agrees to employ you and you agree to
act as its Vice Chairman of the Board of Directors of the Company (the "Board")
during the period commencing at the Effective Time of the Merger, as those terms
are defined in the Merger Agreement, and continuing through December 1, 1999.
The Company will amend its By-laws to provide that the position of Vice Chairman
of the Board will constitute an officer position within the Company. For at
least so long as you serve as Vice Chairman, you will also serve as Chairman of
the Executive Committee of the Board.
2. BASE SALARY. Your minimum salary will be $450,000 per annum or such
higher rate as may be fixed from time to time by the Board.
3. STOCK OPTIONS. You shall participate in the Company's 1993 Stock
Incentive Plan in accordance with the Company's normal option grant process as
to amounts and timing and options granted thereunder shall be at an option price
per share equal to 100% of the fair market value of such stock on such date of
grant and become exercisable on the first anniversary of such date of grant;
provided, however, that the second grant to you of stock options shall in no
event become exercisable later than November 30, 1999.
4. INCENTIVE COMPENSATION, LONG-TERM INCENTIVES AND OTHER BENEFITS. You
will participate with other senior executives of the Company in compensation and
benefit plans in effect from time to time including the Incentive Compensation
Plan, the Stock Incentive Plan, the Performance Share Unit Plan, the Deferred
Compensation Plan, the Supplemental Benefits Plan, the Key Executive Severance
Protection Plan and any other plan or perquisites available to other executives
at your level of responsibility in the Company, including a company automobile
and company-provided country and luncheon club memberships but not including the
Senior Executive Survivor Plan. You will also participate in health, retirement,
survivor and disability plans available to all employees of the Company. You
understand that the Company may amend, modify or terminate these plans at any
time. You shall also be entitled to receive $50,000 per year, payable in monthly
installments, as a housing allowance and such amount shall be paid to you
whether or not you incur any housing expenses. For purposes of computing all
benefits (other than Incentive Compensation) that are tied to the level of your
compensation, your salary shall be treated as the greater of your actual salary
hereunder or your actual annual salary rate from LL&E immediately before the
effective date of this agreement.
Your maximum bonus opportunity under the Incentive Compensation Plan will
be 100% of base salary. Annual bonuses are determined by the Compensation and
Nominating Committee of the Board (the "Compensation Committee") based on
Company and individual performance. All plans referenced in this section are
plans of the Company.
5. SEVERANCE BENEFIT. If your employment is terminated by the Company for
any reason before December 1, 1999 other than as a result of your death,
permanent disability or for Cause, or is initiated by you for Good Reason, the
Company will pay you within 10 days after the date of termination an amount
equal to the product of the number of whole and partial months remaining from
the date of your termination until December 1, 1999, times your then current
monthly base salary. The terms Cause and Good Reason are defined in the Key
Executive Severance Protection Plan.
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<PAGE> 122
6. COORDINATION WITH OTHER PLANS. If your termination entitles you to
benefits under the Key Executive Severance Protection Plan, you may elect to
receive the benefits payable under Section 5 of this agreement in lieu of those
benefits. If you elect to receive the benefits under this agreement, you will
nevertheless be eligible to receive the additional benefits related to the
gross-up payment for excise taxes under Article 6 of that plan.
7. TERMINATION AGREEMENT. The Company agrees that it shall pay or cause
to be paid to you the benefits described in the Termination Agreement dated
March 13, 1996 between you and LL&E (the "Termination Agreement") if (i) you are
terminated by the Company on any grounds whatsoever except for "cause" during
the "Protection Period" or if you terminate your employment with the Company
voluntarily within the "Protection Period" (it being acknowledged that there has
been a significant change in the nature or scope of your duties and/or
responsibilities for the purposes of the Termination Agreement) or (ii) your
employment with the Company terminates by reason of your death during the
"Protection Period", or (iii) you become disabled during the "Protection Period"
under circumstances entitling you to disability benefits under the Company's
long-term disability plan or under Social Security. Terms in quotation marks in
this Section 7 shall have the meaning set forth in the Termination Agreement.
The benefits provided under this Section 7 shall be in addition to any other
benefits to which you may be entitled under the plans of the Company. You
acknowledge and agree that you shall not become a participant in the Company's
Executive Survivor Benefit Plan and hereby waive any benefits to which you would
otherwise become entitled under such plan.
8. NON-DISCLOSURE. As an officer of the Company, you will have access to
and continue to receive and develop confidential and proprietary information and
trade secrets pertaining to the business of the Company and its affiliates,
including, without limitation, reports, maps, data (including geologic and
seismic data and interpretations thereof), plans, and contracts. As part of the
consideration for this agreement and in return for receiving access to such
confidential information, you agree to keep all such confidential and
proprietary information confidential. In particular, you agree that you will not
divulge, communicate or otherwise disclose any confidential information
furnished to you or obtained or developed by you while employed by the Company
to any person, firm, corporation or entity other than to an authorized
representative of the Company. You agree that if your employment with the
Company is terminated, you will not discuss the Company's business, operations,
plans, strategies, personnel or business relationships or agreements with the
press or with any of the Company's current or prospective customers or suppliers
or with any other person with which the Company has business relationships.
9. NON-COMPETITION. In order to enforce your obligations under Section 8
and in consideration for the benefits of employment described in this agreement,
you agree to the covenant not to compete in this Section 9. You agree and
acknowledge that this covenant not to compete is ancillary to your commitment as
set forth in Section 8 to refrain from disclosing such confidential information.
If you initiate the termination of your employment with the Company other than
for Good Reason during the term of this agreement, you agree that you will not
for a period of two years after your termination be employed by, consult with,
provide advice or information to, otherwise perform services for, own, manage,
operate, join, control or participate in the ownership of more than 5% of the
voting power of equity securities of, management, operation or control of any
Competitor (as defined in this agreement) unless released by the Company from
such obligation in writing with respect to a specific situation, it being
understood that your serving as a director of a public entity will not be in
violation of the foregoing provision, provided that you are not at such time
serving as a director of the Company, and, provided further, that your
obligations under Section 8 will continue to be in effect during any such
service. A Competitor is defined as any entity (i) that is engaged in exploring
for and producing oil and natural gas in Louisiana, Montana, New Mexico, North
Dakota, Oklahoma, Texas or federal or state waters in the Gulf of Mexico or in
the oil and gas marketing business in the mainland United States and (ii) whose
assets associated with such oil and gas business exceed $50 million.
10. NON-INTERFERENCE. For a period ending two years after you terminate
employment with the Company, you agree not to solicit, directly or indirectly,
any officer or employee of the Company to leave and work for any other employer.
During this same period, you agree not to suggest to others that they approach
or solicit any officers or employees of the Company with respect to potential
employment elsewhere.
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<PAGE> 123
11. SEVERABILITY AND ENFORCEMENT. It is the desire of the parties hereto
that this agreement be enforced to the maximum extent permitted by law, and
should any provision contained herein be held unenforceable, the parties hereby
agree and consent that such provision will be reformed to make it a valid and
enforceable provision to the maximum extent permitted by law. Any provision
hereof not capable of such reformation and determined to be prohibited by or
unenforceable under applicable law of any jurisdiction will as to such
jurisdiction be deemed ineffective and deleted from this agreement without
affecting any other provision of this agreement.
In the event of a breach by you of any of the provisions of Sections 8, 9
or 10, you understand and agree that the Company may, in addition to any other
rights or remedies existing in its favor, apply to any court of law or equity of
competent jurisdiction for specific performance and injunctive or other relief
in order to enforce or prevent any violations of such provisions.
You understand and agree that this agreement is being executed by the
Company on behalf of itself and each of its affiliates, and that all rights of
the Company under this agreement and all of your obligations and duties under
this agreement will inure to the benefit of and may be enforced by the Company
or any of its affiliates.
If the above correctly sets forth our agreement, please sign the original
and return it to me. Please retain a copy for your records.
Very truly yours,
BURLINGTON RESOURCES INC.
--------------------------------------
By
Its
ACCEPTED and AGREED TO
this day of , 1997
- ----------------------
H. Leighton Steward
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<PAGE> 124
EXHIBIT D
[FORM OF CAHILL GORDON & REINDEL TAX OPINION]
Dated the Effective Time of the Merger
The Louisiana Land and Exploration Company
909 Poydras Street
New Orleans, Louisiana 70160
Ladies and Gentlemen:
We have acted as counsel to The Louisiana Land and Exploration Company, a
Maryland corporation ("Company"), in connection with the merger (the "Merger")
of BR Acquisition Corporation, a Maryland corporation ("Sub"), with and into the
Company, pursuant to the Agreement and Plan of Merger by and among Burlington
Resources Inc., a Delaware corporation ("Parent"), Sub and the Company, dated as
of July 16, 1997 (the "Merger Agreement"). Any capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Merger Agreement
or, if not defined therein, in the Joint Proxy Statement/ Prospectus (the "Proxy
Statement") that is included in the Registration Statement on Form S-4 (the
"Registration Statement," Registration No. 33- ) covering the registration of
Parent Common Stock under the Securities Act of 1933, as amended (the "Act"), as
filed by Parent with the Securities and Exchange Commission (the "SEC") on
, 1997.
For purposes of this opinion, we have relied, with your consent, upon the
accuracy and completeness of the statements and representations contained in (i)
the Officer's Certificate of each of Parent and the Company attached hereto,
(ii) the Merger Agreement and (iii) the Proxy Statement, which statements and
representations we have not verified. We have also assumed that the Merger will
be consummated in accordance with the Merger Agreement and as described in the
Proxy Statement.
Based upon and subject to the forgoing, we are of the opinion that, for
federal income tax purposes:
1. The Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Each of the Parent, Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized by the stockholders of the
Company on the exchange of their shares of Company Stock for shares of
Parent Common Stock.
4. The basis of the shares of Parent Common Stock to be received by
the stockholders of the Company (including any fractional share interest to
which they may be entitled) will be the same as the basis of the shares of
the Company Stock surrendered in exchange therefor.
5. The holding period of the shares of Parent Common Stock to be
received by the stockholders of the Company (including any fractional share
interest to which they may be entitled) will include the holding period of
the shares of the Company Stock surrendered in exchange therefor, provided
the shares of Company Stock are held at the Effective Time as capital
assets in the hands of the stockholders of the Company.
6. A stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will be treated as if the
fractional share were distributed as part of the exchange and then redeemed
by Parent, with the cash being received in full payment for the fractional
share.
This opinion letter is intended only for the use of the Company in
connection with the transactions contemplated in the Merger Agreement. This
opinion may not be relied upon for any other purpose or by any other person for
any purpose, in each case without our prior written consent.
Very truly yours,
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<PAGE> 125
EXHIBIT E
[FORM OF WHITE & CASE TAX OPINION]
Dated the Effective
Time of the Merger
Burlington Resources Inc.
BR Acquisition Corporation
5051 Westheimer
Houston, Texas 77056
Ladies and Gentlemen:
We have acted as tax counsel to Burlington Resources Inc., a Delaware
corporation (the "Parent"), in connection with the proposed merger (the
"Merger") of BR Acquisition Corporation, a Maryland corporation and a
wholly-owned subsidiary of the Parent ("Sub"), with and into The Louisiana Land
and Exploration Company, a Maryland corporation (the "Company"), upon the terms
and conditions set forth in the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of July 16, 1997, by and among Parent, Sub and the
Company.
For purposes of the opinion set forth below, we have relied, with the
consent of Parent upon the accuracy and completeness of the statements and
representations contained, respectively, in the certificates of the officers of
Parent and the Company. Any capitalized term used and not defined herein has the
meaning given to such term in the Merger Agreement, or if not defined therein,
in the Joint Proxy Statement/Prospectus of Parent and the Company which is part
of the Registration Statement on Form S-4 (No. ) of Parent relating to
the proposed Merger (the "Joint Proxy Statement/Prospectus").
We have also assumed, with your consent, that (i) the transactions
contemplated by the Merger Agreement will be consummated in accordance with the
provisions of the Merger Agreement and as described in the Joint Proxy
Statement/Prospectus, (ii) the representations and warranties set forth in the
Merger Agreement are true and correct, and (iii) the Merger will qualify as a
merger under the applicable laws of the State of Maryland.
Based upon and subject to the foregoing, and upon our analysis of the
Internal Revenue Code of 1986, as amended (the "Code"), and the decisions,
regulations and rulings thereunder in effect on the date hereof (all of which
are subject to change which may be retroactive), we are of the opinion that, for
federal income tax purposes:
(1) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code;
(2) Parent, Sub and the Company will each be a party to the
reorganization within the meaning of Section 368(b) of the Code;
(3) No gain or loss will be recognized by the stockholders of the
Company upon the exchange of their shares of the Company Stock for shares
of Parent Common Stock;
(4) The basis of the shares of Parent Common Stock to be received by
the stockholders of the Company (including any fractional share interest to
which they may be entitled) will be the same as the basis of the shares of
Company Stock surrendered in exchange therefor;
(5) The holding period of the shares of Parent Common Stock to be
received by the Company stockholders for their Company Stock (including any
fractional share interest to which they may be entitled) will include the
holding period of the Company Stock exchange therefor, provided that the
Company Stock is held by the Company stockholders as a capital asset at the
Effective Time; and
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(6) A Company stockholder who receives cash in lieu of fractional
shares of Parent Common Stock will be treated as having received such
fractional shares of Parent Common Stock pursuant to the Merger and then as
having received such cash in a redemption of such fractional shares by
Parent.
This opinion does not address the various state, local and foreign tax
consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequences of the Merger except as
specifically set forth herein, and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
Very truly yours,
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EXHIBIT F
[COMPANY LETTERHEAD]
, 1997
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
White & Case
1155 Avenue of the Americas
New York, NY 10036
Ladies and Gentlemen:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of July 16,
1997, by and among The Louisiana Land and Exploration Company, a Maryland
corporation (the "Company"), Burlington Resources Inc., a Delaware corporation
(the "Parent"), and BR Acquisition Corporation, a Maryland corporation and a
wholly-owned subsidiary of Parent ("Sub"), I certify that to the best of my
knowledge and belief, after due inquiry and investigation, as follows (any
capitalized terms used but not defined herein shall have the meaning given to
such term in the Merger Agreement):
1. There is no plan or intention on the part of the stockholders of the
Company that own 5 percent or more of Company Stock, and to the best of the
knowledge of the Company, there is no plan or intention on the part of the
remaining stockholders of the Company to sell, exchange or otherwise dispose of,
reduce the risk of loss (by short sale, equity swap or otherwise) of the holding
of, or enter into any arrangement with respect to the sale, exchange or other
disposition of (each of the foregoing, a "disposition"), a number of shares of
Parent Common Stock received in the Merger in exchange for such Company Stock
that would reduce the Company stockholders' ownership of Parent Common Stock to
a number of shares having a value, as of the Effective Time of the Merger, of
less than 50 percent of the value of all of the formerly outstanding Company
Stock immediately prior to the Effective Time of the Merger. For purposes of
this representation, shares of Company Stock exchanged by holders of Company
Stock for cash in lieu of fractional shares of Parent Common Stock will be
treated as outstanding Company Stock immediately prior to the Effective Time.
Moreover, for purposes of this representation, shares of Company Stock held by
stockholders of the Company, and shares of Parent Common Stock received by
Company stockholders in the Merger, and otherwise sold, redeemed or disposed of
prior or subsequent to the Effective Time of the Merger (in contemplation
thereof or as part of a plan therewith) will be considered in making this
representation.
2. Following the Effective Time of the Merger, the Company will hold at
least 90 percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets held immediately prior to
the Merger. For purposes of this representation, amounts used by the Company to
pay reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by the Company immediately preceding or in
contemplation of the Merger, will be included as assets of the Company
immediately prior to the Merger.
3. No assets of the Company have been sold, transferred or otherwise
disposed of which would prevent the Company from continuing the historic
business of the Company or from using a significant portion of the Company's
historic business assets in a business following the Merger.
4. The Company and the stockholders of the Company have paid and will pay
their respective expenses, if any, incurred in connection with the Merger,
except in the case of transfer taxes for which stockholders are liable, which
shall be paid by Parent. The Company has not agreed to assume, nor will it
directly or indirectly assume, any expense or other liability, whether fixed or
contingent, of any stockholders of the Company.
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5. There is no intercorporate indebtedness existing between Parent and the
Company, or between Sub and the Company, that was issued, acquired, or will be
settled, at a discount.
6. In the Merger, shares of Company capital stock representing at least 80
percent of the total combined voting power of all classes of Company capital
stock entitled to vote and at least 80 percent of the total number of shares of
all other classes of Company capital stock outstanding immediately prior to the
Effective Time of the Merger will be exchanged solely for Parent Common Stock.
For purposes of this representation, shares of Company Stock exchanged for cash
or other property originating with Parent will be treated as outstanding capital
stock of the Company at the Effective Time of the Merger.
7. The Company has no obligation to issue additional shares of its stock
after the Effective Time that would result in Parent no longer owning directly
shares of Company capital stock representing at least 80 percent of the total
combined voting power of all classes of Company capital stock entitled to vote
and at least 80 percent of the total number of shares of all other classes of
Company capital stock.
8. At the Effective Time of the Merger, except as otherwise provided in
Section 5.2 of the Louisiana Land and Exploration Company Disclosure Schedule,
the Company will not have outstanding any warrants, options, convertible
securities or any other type of right pursuant to which any person could acquire
capital stock in the Company.
9. The Company is not an investment company as defined in section
368(a)(2)(f)(iii) and (iv) of the Internal Revenue Code of 1986, as amended (the
"Code").
10. At the Effective Time of the Merger, the total fair market value of
the assets of the Company will exceed the sum of its liabilities, plus the
amount of liabilities, if any, to which the assets are subject.
11. The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
12. Neither the Company nor any of the Company's subsidiaries has acquired
any shares of Company Stock in contemplation of the Merger, or otherwise as part
of a plan of which the Merger is part.
13. None of the compensation received by any stockholder-employee of the
Company in respect of periods at or prior to the Effective Time represents
separate consideration for, or is allocable to, any of their Company Stock. None
of the Parent Common Stock that will be received by Company stockholder-
employees in the Merger will be separate consideration for or allocable to any
employment agreement or arrangement. The compensation paid to any
stockholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
14. Company Stock will be surrendered pursuant to the Merger in an arm's
length exchange, and Parent Common Stock received in exchange therefor
represents the sole bargained-for consideration therefor.
15. The total cash consideration that will be paid in the Merger to
stockholders of the Company in lieu of fractional shares of Parent Common Stock
will not exceed 5 percent of the total consideration that will be issued in the
Merger to the Company stockholders in exchange for their shares of Company
Stock.
16. The facts relating to the Merger pursuant to the Merger Agreement, as
described in the Merger Agreement, the Proxy Statement/Prospectus, and as stated
herein are, insofar as such facts pertain to the Company, true, correct and
complete in all material respects.
17. The Company will not take, and the Company is not aware of any plan or
intention of Company stockholders to take, any position on any Federal, state or
local income or franchise tax return, or take any other tax reporting position,
that is inconsistent with the treatment of the Merger as a reorganization within
the meaning of section 368(a) of the Code, unless otherwise required by a
"determination" (as defined in section 1313(a)(1) of the Code) or by applicable
state or local income or franchise tax law.
18. The Merger Agreement represents the entire understanding of the
Company, Parent and Sub with respect to the Merger.
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19. [ ] mutual funds have advised the Securities and Exchange
Commission ("SEC") that each is a greater-than-5 percent shareholder of the
Company and in the aggregate such mutual funds have advised that they own [ ]
percent of the Company Stock. Except possibly for the aforementioned mutual
funds, there are no other stockholders of the Company that own more than 5
percent of the Company Stock. The statements in this paragraph are based solely
on the Company's review of available filings pursuant to Rule 13d-1 of the SEC.
THE LOUISIANA LAND AND EXPLORATION
COMPANY
By:
--------------------------------------
Title
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EXHIBIT G
[PARENT LETTERHEAD]
, 1997
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
White & Case
1155 Avenue of the Americas
New York, NY 10036
Ladies and Gentlemen:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of July 16,
1997, by and among The Louisiana Land and Exploration Company, a Maryland
corporation (the "Company"), Burlington Resources Inc., a Delaware corporation
(the "Parent"), and BR Acquisition Corporation, a Maryland corporation and a
wholly-owned subsidiary of Parent ("Sub"), I certify that to the best of my
knowledge and belief, after due inquiry and investigation, as follows (any
capitalized terms used but not defined herein shall have the meaning given to
such term in the Merger Agreement):
1. Prior to the Merger, Parent will own directly all of the capital stock
of Sub.
2. Parent has no plan or intention, following the Merger, to reacquire any
of the Parent Common Stock issued in the Merger. After the Merger, no dividends
or distributions will be made to the former Company stockholders by Parent other
than regular, normal dividends or distributions made to all holders of Parent
Common Stock
3. Parent has no plan or intention, following the Merger, to liquidate the
Company, to merge the Company with or into another corporation, to sell or
otherwise dispose of any of the stock of the Company, or to cause the Company to
sell or otherwise dispose of any of the Company's assets, except for (i)
dispositions of such assets made in the ordinary course of business, (ii)
dispositions of such assets which, in the aggregate, are not material to the
exploration and production business of the Company, or (iii) transfers of assets
to a subsidiary of the Company; provided, however, that Parent may transfer
assets or stock of the Company as permitted by Section 368(a)(2)(C) of the
Internal Revenue Code of 1986, as amended (the "Code") and applicable Treasury
Regulations.
4. Sub is a corporation newly formed for the purpose of participating in
the Merger and at no time prior to the Effective Time of the Merger has had
assets (other than nominal assets contributed upon the formation of Sub, which
assets will be held by the Company following the Merger) or business operations.
Sub will have no liabilities assumed by the Company, and will not transfer to
the Company any assets subject to liabilities in the Merger.
5. Following the Merger, Parent intends to cause the Company to continue
its historic business or use a significant portion of its historic business
assets in a business.
6. Parent and Sub have paid and will pay their respective expenses, if
any, incurred in connection with the Merger. Neither Parent not Sub has agreed
to assume, nor will it directly or indirectly assume, any expense or other
liability, whether fixed or contingent, of any stockholder of the Company.
7. Parent has no plan or intention to cause the Company to issue
additional shares of its stock after the Effective Time that would result in
Parent no longer owning directly shares of Company capital stock representing at
least 80 percent of the total combined voting power of all classes of Company
capital stock entitled to vote and at least 80 percent of the total number of
shares of all other classes of Company capital stock.
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8. There is no intercorporate indebtedness existing between Parent and the
Company, or between Sub and the Company, that was issued, acquired, or will be
settled, at a discount.
9. Company Stock will be surrendered pursuant to the Merger in an arm's
length exchange, and the Parent Common Stock received in exchange therefor
represents the sole bargained-for consideration therefor.
10. Except in the Merger, neither Parent nor Sub has acquired or prior to
the Merger will acquire, or has owned in the past five years, any shares of
capital stock of the Company.
11. Neither Parent nor Sub is an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
12. Any cash payments to be made to stockholders of the Company in lieu of
fractional shares of Parent Common Stock that would otherwise be issued to such
stockholders in the Merger are solely for the purpose of saving Parent the
expense and inconvenience of issuing and transferring fractional shares of
Parent Common Stock, and do not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
stockholders of the Company in lieu of fractional shares of Parent Common Stock
will not exceed 5 percent of the total consideration that will be issued in the
Merger to the Company stockholders in exchange for their shares of Company
Stock.
13. None of the compensation received or to be received by any
stockholder-employee of the Company in respect of periods after the Effective
Time represents separate consideration for, or is allocable to, any of their
Company Stock. None of the Parent Common Stock that will be received by Company
stockholder-employees in the Merger will be separate consideration for or
allocable to any employment agreement or arrangement. The compensation paid to
any stockholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
14. No stock of Sub has been or will be issued to stockholders of the
Company in the Merger.
15. The facts relating to the Merger pursuant to the Merger Agreement, as
described in the Merger Agreement, the Proxy Statement/Prospectus, and as stated
herein are, insofar as such facts pertain to Parent and Sub, true, correct and
complete in all material respects.
16. Neither Parent nor Sub will take any position on any Federal, state or
local income or franchise tax return, or take any other tax reporting position,
that is inconsistent with the treatment of the Merger as a reorganization within
the meaning of section 368(a) of the Code, unless otherwise required by a
"determination" (as defined in section 1313(a)(1) of the Code) or by applicable
state or local income or franchise tax law.
17. The Merger Agreement represents the entire understanding of the
Company, Parent and Sub with respect to the Merger.
BURLINGTON RESOURCES INC.
By:
------------------------------------
Title
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APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 16, 1997 (this "Agreement"), by
and between The Louisiana Land and Exploration Company, a Maryland corporation
(the "Company"), and Burlington Resources Inc., a Delaware corporation
("Parent").
RECITALS
A. The Company, Parent and BR Acquisition Corporation, a Maryland
corporation ("Merger Sub"), have entered into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), providing for, among other
things, the merger of Merger Sub with and into the Company as the surviving
corporation in the Merger.
B. As a condition and inducement to Parent's willingness to enter into the
Merger Agreement, Parent has requested that the Company agree, and the Company
has agreed, to grant Parent the Option.
C. Terms not defined herein shall have the meanings set forth in the
Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein the
Company and Parent agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
the Company hereby grants to Parent an irrevocable option (the "Option") to
purchase up to 5,145,000 (as adjusted as set forth herein) shares (the "Option
Shares") of the Company's capital stock, par value $.15 per share ("Company
Stock"), at a purchase price of $70.34 (as adjusted as set forth herein) per
Option Share (the "Purchase Price").
2. Exercise of Option. (a) Parent may exercise the Option, in whole but
not in part, at any one time after the occurrence of any event as a result of
which Parent is entitled to receive the Termination Fee pursuant to the Merger
Agreement (a "Purchase Event"); provided, however, that except as provided in
the last sentence of this Section 2(a), the Option shall terminate and be of no
further force and effect upon the earliest to occur of (A) the Effective Time,
(B) 18 months after the first occurrence of a Purchase Event and (C) termination
of the Merger Agreement in accordance with its terms prior to the occurrence of
a Purchase Event, unless Parent has the right to receive a Termination Fee
following such termination upon the occurrence of certain events, in which case
the Option shall not terminate until the later of (x) six months following the
time such Termination Fee becomes payable and (y) the expiration of the period
in which Parent has such right to receive a Termination Fee. Notwithstanding the
termination of the Option, Parent shall be entitled to purchase the Option
Shares if it has exercised the Option in accordance with the terms hereof prior
to the termination of the Option and the termination of the Option shall not
affect any rights hereunder which by their terms do not terminate or expire
prior to or as of such termination.
(b) In the event that Parent wishes to exercise the Option, it shall send
to the Company a written notice (the date of which being herein referred to as
the "Notice Date") to that effect which notice also specifies a date not earlier
than three business days nor later than 20 business days from the Notice Date
for the closing of such purchase (the "Option Closing Date"); provided, however,
that (i) if the closing of the purchase and sale pursuant to the Option (the
"Option Closing") cannot be consummated by reason of any applicable judgment,
decree, order, law or regulation, the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which such
restriction on consummation has expired or been terminated and (ii) without
limiting the foregoing, if prior notification to or approval of any regulatory
authority is required in connection with such purchase, Parent and the Company
shall promptly file the required notice or application for approval and shall
cooperate in the expeditious filing of such notice or application, and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which, as the case may be, (A) any required
notification period has expired or been terminated or (B) any required approval
has been obtained, and in either event, any requisite waiting period has expired
or been terminated. The place of the Option Closing shall be at the offices of
Fried, Frank, Harris, Shriver &
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Jacobson, One New York Plaza, New York, New York, and the time of the Option
Closing shall be 10:00 a.m. (Eastern Time) on the Option Closing Date.
3. Payment and Delivery of Certificates. (a) At the Option Closing,
Parent shall pay to the Company in immediately available funds by wire transfer
to a bank account designated in writing by the Company an amount equal to the
Purchase Price multiplied by the number of Option Shares.
(b) At the Option Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), the Company shall deliver to Parent
a certificate or certificates representing the Option Shares to be purchased at
the Option Closing, which Option Shares shall be free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever. If at the time of
issuance of the Option Shares pursuant to the exercise of the Option hereunder,
the Company shall not have redeemed the Company Rights, or shall have issued any
similar securities, then each Option Share issued pursuant to such exercise
shall be accompanied by a corresponding Company Right or new rights with terms
substantially the same as and at least as favorable to Parent as are provided
under the Company Rights Agreement or any similar agreement then in effect.
(c) Certificates for the Option Shares delivered at the Option Closing
shall have typed or printed thereon a restrictive legend which shall read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE."
It is understood and agreed that the foregoing legend shall be removed by
delivery of substitute certificate(s) without such legend upon the sale of the
Option Shares pursuant to a registered public offering or Rule 144 under the
Securities Act or any other sale as a result of which such legend is no longer
required.
4. Adjustment upon Changes in Capitalization, Etc. (a) In the event of
any change in Company Stock by reason of a stock dividend, split-up, merger,
recapitalization, combination, exchange of shares, or similar transaction, the
type and number of shares or securities subject to the Option, and the Purchase
Price therefor, shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction, so that Parent shall receive
upon exercise of the Option the number and class of shares or other securities
or property that Parent would have received in respect of Company Stock if the
Option had been exercised immediately prior to such event or the record date
therefor, as applicable.
(b) Without limiting the parties' relative rights and obligations under the
Merger Agreement, in the event that the Company enters into an agreement (i) to
consolidate with or merge into any person, other than Parent or one of its
subsidiaries, and the Company shall not be the continuing or surviving
corporation in such consolidation or merger, (ii) to permit any person, other
than Parent or one of its subsidiaries, to merge into the Company and the
Company shall be the continuing or surviving corporation, but in connection with
such merger, the shares of Company Stock outstanding immediately prior to the
consummation of such merger shall be changed into or exchanged for stock or
other securities of the Company or any other person or cash or any other
property, or the shares of Company Stock outstanding immediately prior to the
consummation of such merger shall, after such merger, represent less than 50% of
the outstanding voting securities of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Parent or one of its subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provision so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
with identical terms appropriately adjusted to acquire the number and class of
shares or other securities or property that Parent would have received in
respect of Company Stock if the Option had been exercised immediately prior to
such consolidation, merger, sale, or transfer, or the record date therefor, as
applicable.
(c) If, prior to the termination of the Option in accordance with Section
2, the Company enters into any agreement (x) pursuant to which all outstanding
shares of Company Stock are to be purchased for, or converted into the right to
receive in whole or in part (other than in respect of fractional shares) cash or
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(y) with respect to any transaction described in clauses (i), (ii) and (iii) of
paragraph (b) (each of (x) and (y), a "Transaction"), the Company covenants that
proper provision shall be made in such agreement to provide that, if the Option
shall not theretofore have been exercised, then upon the consummation of the
Transaction (which in the case of a Transaction involving a tender offer shall
be when shares of Company Stock are accepted for payment), Parent shall have the
right, at its election, by not less than two business days' prior written notice
to the Company, to receive in exchange for the cancellation of the Option an
amount in cash equal to the Spread. For purposes of this Agreement, the term
"Spread" means the number of Option Shares multiplied by the excess of (A) the
closing sales price per share of Company Stock on the principal securities
exchange or quotation system on which the Company Stock is then listed or
traded, as reported by The Wall Street Journal, on the day immediately prior to
the consummation of such Transaction, over (B) the Purchase Price.
Notwithstanding the foregoing, the amount of the Spread, when added to any
Termination Fee paid or payable to Parent, shall not exceed $120 million.
(d) Following exercise of the Option by Parent, in the event that Parent
sells, pledges or otherwise disposes of (including, without limitation, by
merger or exchange) any of the Option Shares (a "Sale"), then:
(i) any Termination Fee due and payable by the Company following such
time shall be reduced by an amount, if any, equal to the excess of (1) the
total of (A) the Termination Fee and (B) the excess of (w) the aggregate
amounts received (whether in cash, securities or otherwise) by Parent in
all such Sales, over (x) the aggregate Purchase Price of the Option Shares
sold in such Sales (such excess in this sub-clause (B) being the "Offset
Amounts") over (2) $120 million; and
(ii) if the Company has paid to Parent the Termination Fee prior to
the Sale, then Parent shall immediately remit to the Company, as additional
Purchase Price for the Option Shares, the excess, if any, of (y) the total
of the Termination Fee and the Offset Amounts of all Sales over (z) $120
million.
(e) Notwithstanding anything to the contrary in this Agreement or the
Merger Agreement, in no event shall the aggregate of any Termination Fee, all
Offset Amounts and the Spread exceed $120 million.
5. Listing. If Company Stock or any other securities to be acquired upon
exercise of the Option are then listed on the NYSE (or any other national
securities exchange or national securities quotation system), the Company, upon
the request of Parent, shall promptly file an application to list the shares of
Company Stock or other securities to be acquired upon exercise of the Option on
the NYSE (and any such other national securities exchange or national securities
quotation system) and shall use reasonable efforts to obtain approval of such
listing as promptly as practicable.
6. Loss or Mutilation. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, the Company shall execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not the Agreement so lost, stolen, destroyed, or mutilated shall at
any time be enforceable by anyone.
7. Registration Rights. The Company shall, if requested by Parent at any
time and from time to time within two years after the date of exercise of the
Option, as expeditiously as possible prepare and file up to two registration
statements under the Securities Act if such registration is necessary in order
to permit the sale or other disposition of any or all securities that have been
acquired by exercise by Parent of the Option, in accordance with the intended
method of sale or other disposition stated by Parent, including a "shelf"
registration statement under Rule 415 under the Securities Act or any successor
provision; and the Company shall use its best efforts to qualify such securities
under any applicable state securities laws. Parent agrees to use reasonable
efforts to cause, and to cause any underwriters of any sale or other disposition
to cause, any sale or other disposition pursuant to such registration statement
to be effected on a widely distributed basis. The Company shall use reasonable
efforts to cause each such registration statement to become effective, to obtain
all consents or waivers of other parties which are required therefor, and to
keep such registration statement effective for such period not in excess of 90
calendar days from the day such registration statement first
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becomes effective as may be reasonably necessary to effect such sale or other
disposition. The obligations of the Company to file a registration statement and
to maintain its effectiveness may be suspended for one or more periods of time
not exceeding 90 calendar days in the aggregate with respect to any registration
statement if the Board of Directors of the Company shall have determined that
the filing of such registration statement or the maintenance of its
effectiveness would require disclosure of nonpublic information that would
materially and adversely affect the Company. Any registration statement prepared
and filed under this Section, and any sale covered thereby, shall be at the
Company's expense except for underwriting discounts or commission, brokers' fees
and the fees and disbursements of Parent's counsel related thereto. Parent shall
provide all information reasonably requested by the Company for inclusion in any
registration statement to be filed hereunder. If, during the time periods
referred to in the first sentence of this Section, the Company effects a
registration under the Securities Act of the Company's equity securities for its
own account or for any other of its stockholders (other than on Form S-4 or Form
S-8, or any successor form), it shall allow Parent the right to participate in
such registration; provided that, if the managing underwriters of such offering
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, priority shall be given to the securities intended to be
included therein by the Company for its own account and, thereafter, the Company
shall include the securities requested to be included therein by Parent pro rata
with the securities intended to be included therein by other stockholders of the
Company. In connection with any registration pursuant to this Section, Parent
and the Company shall provide each other and any underwriter of the offering
with customary representations, warranties, covenants, indemnification, and
contribution in connection with such registration.
8. Miscellaneous.
(a) Fees and Expenses. Except as otherwise provided in the Merger
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be borne by the party incurring such
expenses.
(b) Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ITS RULES
OF CONFLICT OF LAWS.
(d) Notices. All notices or other communications under this Agreement
shall be in writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by cable, telegram, telex or other
standard form of telecommunications, or by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to the Company:
The Louisiana Land and Exploration Company
909 Poydras Street
New Orleans, Louisiana 70112
Attention: General Counsel
Telecopy No.: (504) 566-6296
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Kenneth W. Orce, Esq
Telecopy No.: (212) 269-5420
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If to Parent:
Burlington Resources Inc.
5051 Westheimer
Houston, Texas 77056
Attention: Executive Vice President, Law and Administration
Telecopy No.: (713) 624-9605
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
Telecopy No.: (212) 859-4000
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
(e) Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
(f) Further Assurances. In the event of any exercise of the Option by
Parent, the Company and Parent shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(g) ENFORCEMENT. THE PARTIES HERETO AGREE THAT IRREPARABLE DAMAGE WOULD
OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT
PERFORMED IN ACCORDANCE WITH 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 PROVISIONS HEREOF IN ANY COURT OF THE UNITED STATES OR ANY STATE
HAVING JURISDICTION, THIS BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY
ARE ENTITLED AT LAW OR IN EQUITY. EACH OF THE PARTIES HERETO (I) CONSENTS TO
SUBMIT ITSELF TO THE PERSONAL JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE
STATE OF MARYLAND OR ANY MARYLAND STATE COURT IN THE EVENT ANY DISPUTE ARISES
OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT,
(II) AGREES THAT IT SHALL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL
JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (III)
AGREES THAT IT SHALL NOT BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A
FEDERAL COURT SITTING IN THE STATE OF MARYLAND OR A MARYLAND STATE COURT.
(h) Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
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IN WITNESS WHEREOF, the Company and Parent have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first written above.
THE LOUISIANA LAND AND EXPLORATION
COMPANY
By: /s/ H. LEIGHTON STEWARD
------------------------------------
Name: H. Leighton Steward
Title: Chairman, Chief Executive
Officer and President
BURLINGTON RESOURCES INC.
By: /s/ BOBBY S. SHACKOULS
------------------------------------
Name: Bobby S. Shackouls
Title: Chairman, Chief Executive
Officer and President
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APPENDIX C
FAIRNESS OPINION OF MORGAN STANLEY & CO. INCORPORATED
July 16, 1997
Board of Directors
Burlington Resources Inc.
5051 Westheimer
Houston, TX 77056
Members of the Board:
We understand that The Louisiana Land & Exploration Company ("LL&E" or the
"Company"), Burlington Resources Inc. ("BR"), and BR Acquisition Corporation, a
wholly owned subsidiary of BR ("Acquisition Sub"), propose to enter into an
Agreement and Plan of Merger, substantially in the form of the draft dated July
15, 1997 (the "Merger Agreement"), which provides, among other things, for the
merger (the "Merger") of Acquisition Sub with and into LL&E. Pursuant to the
Merger, LL&E will become a wholly owned subsidiary of BR and each outstanding
share of capital stock, par value $0.15 per share, of LL&E (the "Company
Stock"), other than shares held in treasury or held by BR or any affiliate of
BR, will be converted into 1.525 (the "Exchange Ratio") shares of common stock,
par value $0.01 per share, of BR ("BR Common Stock"). The terms and conditions
of the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to BR.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and BR;
(ii) reviewed certain internal financial statements and other financial
and operating data, including internal reserve estimates and certain
financial forecasts, concerning the Company prepared by the
management of the Company;
(iii) discussed the past and current operations and financial condition
and the prospects of the Company, including information relating to
certain strategic, financial and operational benefits anticipated
from the Merger, with senior executives of the Company;
(iv) analyzed certain internal financial statements and other financial
operating data, including internal reserve estimates and certain
financial forecasts, concerning BR prepared by the management of BR;
(v) discussed the past and current operations and financial condition and
the prospects of BR, including information relating to certain
strategic, financial and operational benefits anticipated from the
Merger, with senior executives of BR, and analyzed the pro forma
impact of the Merger on BR's cash flow per share, earnings per share,
consolidated capitalization and financial ratios;
(vi) reviewed the reported prices and trading activity for the Company
Stock and BR Common Stock;
(vii) compared the financial performance of the Company and the prices and
trading activity of the Company Stock with that of certain other
comparable publicly-traded companies and their securities;
(viii) compared the financial performance of BR and the prices and trading
activity of BR Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
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(x) participated in discussions and negotiations among representatives of
the Company and BR and their financial and legal advisors;
(xi) reviewed the draft Merger Agreement, including exhibits thereto, and
certain related documents; and
(xii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial forecasts, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company and
BR, respectively. We have not made any independent valuation or appraisal of the
assets or liabilities of the Company or BR, nor have we been furnished with any
such appraisals. With respect to the reserve estimates referred to in (ii) and
(iv) above, we are not experts in the engineering evaluation of oil and gas
properties and, with your consent, have relied solely upon the internal reserve
estimates of the Company and BR, respectively. We have relied as to all legal
matters on advice of counsel to BR. In addition, we assumed that the Merger
would be consummated in accordance with the terms set forth in the Merger
Agreement.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
this opinion. We are expressing no opinion herein as to the prices at which the
Company Stock or BR Common Stock will trade at any time. Our opinion does not
constitute an opinion or recommendation to any shareholder of the Company or BR
as to how such stockholder should vote at the shareholder meetings held in
connection with the Merger.
It is understood that this letter is for the information of the Board of
Directors of BR and may not be used for any other purpose without our prior
written consent.
We have acted as financial advisor to the Board of Directors of BR in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for BR and have provided financial
advisory services for LL&E and have received fees for the rendering of these
services.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to BR.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ STEPHEN R. MUNGER
------------------------------------
Stephen R. Munger
Managing Director
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APPENDIX D
FAIRNESS OPINION OF DILLON, READ & CO. INC.
July 16, 1997
Board of Directors
The Louisiana Land and Exploration Company
909 Poydras Street
New Orleans, Louisiana 70112
Gentlemen:
We understand that The Louisiana Land and Exploration Company ("Louisiana
Land" or the "Company") is considering a transaction whereby BR Acquisition
Corporation ("BR Sub"), a wholly owned subsidiary of Burlington Resources Inc.
("Burlington"), will be merged with and into Louisiana Land pursuant to the
terms of an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
July 16, 1997, among Louisiana Land, Burlington and BR Sub, as a result of which
Louisiana Land will become a wholly owned subsidiary of Burlington (the
"Transaction"). Pursuant to the Transaction, each outstanding share of Louisiana
Land's capital stock, par value $0.15 per share ("Louisiana Land Common Stock"),
will be converted into 1.525 shares (the "Exchange Ratio") of Burlington's
common stock, par value $0.01 per share ("Burlington Common Stock"). The terms
and conditions of the Transaction are more fully set forth in the Merger
Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair,
from a financial point of view, to the shareholders of Louisiana Land.
Dillon, Read & Co. Inc. ("Dillon Read") has acted as financial advisor to
Louisiana Land in connection with the Transaction and will receive a fee for its
services, a significant portion of which is contingent upon the consummation of
the Transaction. In addition, the Company has agreed to indemnify Dillon Read
for certain liabilities arising out of its engagement. Dillon Read has provided
investment banking services to Louisiana Land unrelated to the Transaction and
has received customary fees for the rendering of such services. In addition, in
the ordinary course of its business, Dillon Read trades the securities of the
Company and of Burlington for its own account and for the accounts of customers,
and it may at any time hold a long or short position in such securities.
In arriving at our opinion, we have, among other things (i) reviewed the
Merger Agreement, (ii) reviewed certain publicly available business and
historical financial information relating to Louisiana Land and Burlington,
including the audited financial statements included in the Annual Reports on
Form 10-K for Louisiana Land and Burlington as of December 31, 1996 and the
unaudited financial statements included in the Quarterly Reports on Form 10-Q as
of March 31, 1997 for Louisiana Land and Burlington, (iii) reviewed and
performed analyses based on certain financial information and other data
relating to the business and prospects of Louisiana Land that was prepared by
the management of the Company, including financial projections based on the
Company's business plan and, in particular, (A) certain estimates of the proved,
probable and possible reserves, (B) projected annual production of such
reserves, (C) exploration successes and related production in certain domestic
and international areas and (D) amounts and timing of the cost savings and
related expenses and synergies expected to result from the Merger ("Expected
Synergies"), (iv) reviewed certain financial information and other data relating
to the business and prospects of Burlington that was prepared by the management
of Burlington, including financial projections based on Burlington's business
plan and, in particular, (A) certain estimates of the proved reserves and (B)
projected annual production of such reserves, (v) considered the pro forma per
share effects of the Transaction on the Company's and Burlington's current and
prospective earnings and cash flow per share, (vi) reviewed publicly available
financial and stock market data with respect to certain other companies in lines
of business we believe to be generally comparable to those of the Company and
Burlington, (vii) compared the financial terms of the Transaction with the
financial terms of certain other selected transactions, (viii) reviewed the
historical market prices and trading volumes of the Louisiana Land Common Stock
and the Burlington
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Common Stock, (ix) conducted discussions with selected members of the senior
managements of the Company and Burlington and participated in certain
discussions and negotiations among representatives of Louisiana Land and
Burlington and their financial advisors and legal advisors, and (x) conducted
such other financial studies, analyses and investigations, and considered such
other information, as we deemed necessary or appropriate.
In connection with our review, we have not independently verified any of
the foregoing information and have relied on its being complete and accurate in
all material respects. In addition, we have not made any evaluation or appraisal
of any of the assets or liabilities (contingent or otherwise) of Louisiana Land
or Burlington, nor have we been furnished with any such evaluation or appraisal
other than the valuation assessments discussed above. With respect to the
financial projections referred to above, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of Louisiana Land's and Burlington's managements as to the future
financial performance of each company. With respect to the Expected Synergies,
we have assumed that they have also been reasonably prepared on bases reflecting
the best currently available estimates and judgments of Louisiana Land's
management. We have further assumed that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes. Further, our opinion is
based on economic, monetary and market conditions existing on the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company or its Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder as to how such shareholder should vote on the proposed Merger.
We are not expressing any opinion herein as to the prices at which the
Burlington Common Stock will trade following the announcement or consummation of
the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the shareholders of the Company from
a financial point of view.
Very truly yours,
DILLON, READ & CO. INC.
By: /s/ WILLIAM O. HILTZ
Managing Director
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<PAGE> 142
APPENDIX E
FAIRNESS OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
July 16, 1997
Board of Directors
The Louisiana Land and Exploration Company
909 Poydras Street
New Orleans, LA 70112
Members of the Board of Directors:
The Louisiana Land and Exploration Company (the "Company"), Burlington
Resources Inc. ("Burlington") and BR Acquisition Corporation, a wholly owned
subsidiary of Burlington (the "Merger Sub"), propose to enter into an Agreement
and Plan of Merger, dated as of July 16, 1997 (the "Agreement"), pursuant to
which Merger Sub will be merged with the Company in a transaction (the "Merger")
in which each outstanding share of the Company's capital stock, par value $.15
per share (the "Company Shares"), will be converted into the right to receive
1.525 shares (the "Exchange Ratio") of the common stock of Burlington, par value
$.01 per share (the "Burlington Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the holders of the Company Shares. In arriving at
the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company and Burlington that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of the
Company and Burlington, furnished to us by the Company and Burlington,
respectively, including certain estimates of the Company's proved, probable
and possible reserves, the projected annual production of such reserves and
exploration successes and related production in certain domestic and
international areas and certain estimates of Burlington's proved reserves
and projected annual production of such reserves (the "Projected Reserve
Developments"), as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the Merger (the
"Expected Synergies") furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company and
Burlington concerning the matters described in clauses (1) and (2) above,
as well as their respective businesses and prospects before and after
giving effect to the Merger;
(4) Reviewed the market prices and valuation multiples for the Company Shares
and the Burlington Shares and compared them with those of certain publicly
traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and Burlington and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(7) Participated in certain discussions and negotiations among representatives
of the Company and Burlington and their financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed a draft, dated July 16, 1997, of the Agreement; and
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(10) Reviewed such other financial studies and analyses and took into account
such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or Burlington or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct, nor have we conducted, any physical inspection of the properties or
facilities of the Company or Burlington. With respect to the financial forecast
information, the Projected Reserve Developments and the Expected Synergies
furnished to or discussed with us by the Company or Burlington, we have assumed
that they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's or Burlington's management as to the
expected future financial performance, the Projected Reserve Developments and
the Expected Synergies of the Company or Burlington, as the case may be. We have
further assumed that the Merger will qualify as a tax-free reorganization for
U.S. federal income tax purposes. We have also assumed that the final form of
the Agreement will be substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Company has agreed to indemnify us for certain liabilities arising out of
our engagement. In addition, in the ordinary course of our business, we may
actively trade the Company Shares as well as the Burlington Shares for our own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder as to how such shareholder should vote on the proposed Merger.
We are not expressing any opinion herein as to the prices at which the
Burlington Shares will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the holders of the Company Shares.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
--------------------------------------------
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[BURLINGTON RESOURCES INC. LOGO] [LOUISIANA LAND AND EXPLORATION LOGO]
- --------------------------------
BURLINGTON RESOURCES INC.
AND
THE LOUISIANA LAND AND EXPLORATION COMPANY
JOINT PROXY STATEMENT/
PROSPECTUS
SEPTEMBER 15, 1997
The Information Agent Is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
(800) 769-5414
