<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996
REGISTRATION NO. 333-00815
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
------------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DEVON ENERGY CORPORATION
DEVON FINANCING TRUST
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C>
OKLAHOMA 73-1474008
DELAWARE 73-6294711
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
20 NORTH BROADWAY, SUITE 1500
OKLAHOMA CITY, OKLAHOMA 73102-8260
(405) 235-3611
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
<TABLE>
<S> <C>
Copy to:
J. LARRY NICHOLS JERRY A. WARREN, ESQ.
PRESIDENT AND CHIEF EXECUTIVE OFFICER MCAFEE & TAFT A PROFESSIONAL CORPORATION
DEVON ENERGY CORPORATION TWO LEADERSHIP SQUARE, 10TH FL.
20 NORTH BROADWAY, SUITE 1500 211 N. ROBINSON
OKLAHOMA CITY, OKLAHOMA 73102-8260 OKLAHOMA CITY, OK 72102
(405) 235-3611 (405) 235-9621
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
reinvestment plans, please check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the Securities
Act Registration Statement Number of the earlier effective Registration
Statement for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE(1)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Securities of Devon
Financing Trust............................. 2,990,000 $52.00(2)(3) $155,480,000(2)(3) $53,614
6 1/2% Convertible Junior Subordinated
Debentures of Devon Energy Corporation...... (4) -- -- --
Common Stock of Devon Energy Corporation(5)... (6) -- -- --
Preferred Securities Guarantee................ (7) -- -- --
Total......................................... 2,990,000 100% 155,480,000 53,614
=================================================================================================================================
</TABLE>
(1) $25,862 of the registration fee was paid with the initial filing of this
Registration Statement.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act.
(3) Exclusive of accrued interest and distributions, if any.
(4) $149.5 million in aggregate principal amount of 6 1/2% Convertible Junior
Subordinated Debentures of Devon Energy Corporation were issued and sold to
Devon Financing Trust in connection with the issuance by the Trust of its
6 1/2% Convertible Preferred Securities. The Convertible Junior Subordinated
Debentures may be distributed, under certain circumstances, to holders of
the Convertible Preferred Securities for no additional consideration.
(5) Includes the Company's preferred stock purchase rights (the "Rights"). Prior
to the occurrence of certain events, the Rights will not be exercisable or
evidenced separately from Devon Common Stock. No additional consideration
will be received for the Rights.
(6) Such indeterminable number of shares of Devon Common Stock as may be
issuable upon conversion of the Convertible Preferred Securities registered
hereunder, including such shares as may be issued pursuant to anti-dilution
adjustments. No separate consideration will be received for the Devon Common
Stock.
(7) No separate consideration will be received for the Preferred Securities
Guarantee.
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<PAGE> 2
2,990,000 TRUST CONVERTIBLE PREFERRED SECURITIES
DEVON FINANCING TRUST
6 1/2% TRUST CONVERTIBLE PREFERRED SECURITIES
(Liquidation Amount $50 Per Convertible Preferred Security)
Guaranteed to the Extent Set Forth Herein by
DEVON ENERGY CORPORATION
------------------------
The Convertible Preferred Securities offered hereby represent preferred
undivided beneficial interests in the assets of Devon Financing Trust, a
statutory business trust formed under the laws of the State of Delaware ("Devon
Financing Trust" or the "Trust"). The Convertible Preferred Securities were
issued and sold (the "Original Offering") on July 3, 1996 (the "Original
Offering Date") to the Initial Purchaser (as defined herein) and were
simultaneously sold by the Initial Purchaser in transactions exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), in the United States to persons reasonably believed by the
Initial Purchaser of the Convertible Preferred Securities to be "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act), to
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) and outside the United States to non-U.S. persons
in off-shore transactions in reliance on Regulation S under the Securities Act.
Devon Energy Corporation, an Oklahoma corporation ("Devon" or the "Company"),
directly or indirectly owns all the common securities (the "Common Securities"
and, together with the Convertible Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of Devon Financing
Trust. Devon Financing Trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds of the sale thereof in 6 1/2% Convertible
Junior Subordinated Debentures (the "Convertible Debentures") of Devon in an
aggregate principal amount equal to the aggregate liquidation amount of Trust
Securities. The Convertible Debentures are unsecured, subordinated obligations
of Devon as described herein. Upon an event of default under the Declaration (as
defined herein), the holders of Convertible Preferred Securities will have a
preference over the holders of the Common Securities with respect to payments in
respect of distributions and payments upon redemption, liquidation and
otherwise.
The Convertible Preferred Securities, the Convertible Debentures, the Devon
Common Stock issuable upon conversion thereof and the associated Guarantee (as
defined below) (collectively, the "Offered Securities") may be offered and sold
from time to time by the holders named herein or in an accompanying supplement
to this Prospectus (the "Prospectus Supplement") or by their transferees,
pledgees, donees or successors pursuant to this Prospectus. The Offered
Securities may be sold by the Selling Holders (as defined herein) from time to
time directly to purchasers or through agents, underwriters or dealers. See
"Plan of Distribution." If required, the names of any such agents or
underwriters involved in the sale of the Offered Securities and the applicable
agent's commission, dealer's purchase price or underwriter's discount, if any,
will be set forth in a Prospectus Supplement. The Selling Holders will receive
all of the net proceeds from the sale of the Offered Securities and will pay all
underwriting discounts and selling commissions, if any, applicable to any such
sale. The Company is responsible for payment of certain other expenses incident
to the offer and sale of the Offered Securities. The Selling Holders and any
broker/dealers, agents or underwriters which participate in the distribution of
the Offered Securities may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commission received by them and any profit on the
resale of the Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for description of indemnification arrangements.
------------------------
Holders of the Convertible Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of 6 1/2% of the liquidation
amount of $50 per Convertible Preferred Security, accruing from the first date
that any Convertible Preferred Securities were issued and payable quarterly in
arrears on March 15, June 15, September 15 and December 15 of each year,
commencing September 15, 1996 ("distributions"). The payment of distributions
out of monies held by Devon Financing Trust and payments on liquidation of Devon
Financing Trust or the redemption of Convertible Preferred Securities, as set
forth below, are guaranteed by Devon (the "Guarantee") to the extent described
herein. The Guarantee covers payments of distributions and other payments on the
Convertible Preferred Securities only if and to the extent that Devon Financing
Trust has funds available therefor, which will not be the case unless Devon has
made corresponding payments of interest or principal or other payments on the
Convertible Debentures held by Devon Financing Trust. The Guarantee, when taken
together with Devon's obligations under the Convertible Debentures and the
Indenture (as defined herein) and its obligations under the Declaration,
including its liabilities to pay costs, expenses, debts and obligations of Devon
Financing Trust (other than with respect to the Trust Securities), provide a
full and unconditional guarantee of amounts due on the Convertible Preferred
Securities. See "Risk Factors -- Limitations of the Guarantee."
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN INFORMATION RELEVANT
TO AN INVESTMENT IN THE CONVERTIBLE PREFERRED SECURITIES.
------------------------
THE COMMON STOCK REGISTERED PURSUANT HERETO HAS BEEN APPROVED FOR LISTING
ON THE AMERICAN STOCK EXCHANGE SUBJECT TO OFFICIAL NOTICE OF ISSUANCE
------------------------
THESE SECURITIES 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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 11, 1996
<PAGE> 3
(continued from previous page)
The obligations of Devon under the Guarantee are subordinate and junior in
right of payment to all other liabilities of Devon and pari passu with the most
senior preferred stock issued, from time to time, if any, by Devon. The
obligations of Devon under the Convertible Debentures are subordinate and junior
in right of payment to all present and future Senior Indebtedness (as defined
herein) of Devon. The credit agreements (the "Credit Agreements") of Devon's
wholly-owned operating subsidiary, Devon Energy Corporation (Nevada) ("Devon
Nevada"), provide Devon with credit facilities aggregating $260 million. Devon's
guarantee of such indebtedness constitutes Senior Indebtedness of Devon. As of
August 9, 1996, Devon had on a consolidated basis available borrowing capacity
under the Credit Agreements of $260 million.
The Convertible Debentures purchased by the Trust on the Offering Date may
be distributed pro rata to holders of the Trust Securities in connection with
the dissolution of the Trust, upon the occurrence of certain events.
Each Convertible Preferred Security is convertible in the manner described
herein at the option of the holder, at any time beginning 90 days following the
first date that any Convertible Preferred Securities were issued and prior to
the Conversion Expiration Date (as defined herein), into shares of common stock,
par value $0.10 per share, of Devon ("Devon Common Stock"), at the rate of
1.6393 shares of Devon Common Stock for each Convertible Preferred Security
(equivalent to a conversion price of $30.50 per share of Devon Common Stock),
subject to adjustment in certain circumstances. See "Description of Convertible
Preferred Securities -- Conversion Rights."
The distribution rate and the distribution payment date and other payment
dates for the Convertible Preferred Securities correspond to the interest rate
and interest payment date and other payment dates of the Convertible Debentures,
which are the sole assets of the Trust. As a result, if principal and interest
are not paid on the Convertible Debentures, no amounts will be paid on the
Convertible Preferred Securities.
So long as Devon shall not be in default in the payment of interest on the
Convertible Debentures, Devon has the right to defer payments of interest on the
Convertible Debentures by extending the interest payment period on the
Convertible Debentures at any time for up to 20 consecutive quarters (each, an
"Extension Period"). If interest payments are so deferred, distributions will
continue to accumulate with interest thereon (to the extent permitted by
applicable law) at the distribution rate, compounded quarterly. During any
Extension Period, holders of Convertible Preferred Securities will be required
to include deferred interest income in their gross income for United States
federal income tax purposes in advance of receipt of the cash distributions with
respect to such deferred interest payments. There could be multiple Extension
Periods of varying lengths throughout the term of the Convertible Debentures.
See "Description of the Convertible Debentures -- Option to Extend Interest
Payment Period," "Risk Factors -- Delay of Interest Payments" and "United States
Federal Income Taxation -- Potential Extension of Interest Payment Period and
Original Issue Discount."
The Convertible Debentures are redeemable by Devon, in whole or in part,
from time to time, on or after June 18, 1999, at the prices set forth herein
(the "Redemption Price"), plus accrued and unpaid interest thereon to the date
fixed for redemption (the "Redemption Date"). In addition, in certain
circumstances upon the occurrence of a Special Event (as defined herein) the
Convertible Debentures may be redeemed by Devon at 100% of the principal amount
thereof plus accrued and unpaid interest thereon. If Devon redeems the
Convertible Debentures, the Trust must redeem Convertible Preferred Securities
having an aggregate liquidation amount equal to the aggregate principal amount
of the Convertible Debentures so redeemed. See "Description of the Convertible
Preferred Securities -- Mandatory Redemption." The outstanding Convertible
Preferred Securities will be redeemed when the Convertible Debentures mature on
June 15, 2026.
Upon the occurrence of a Special Event arising from a change in law or a
change in legal interpretation, unless the Convertible Debentures are redeemed
in the limited circumstances described herein, the Trust may be dissolved (with
the consent of Devon), with the result that the Convertible Debentures would be
distributed to the holders of the Convertible Preferred Securities, on a pro
rata basis, in lieu of any cash distribution. If Devon declines to consent to
such dissolution and distribution, Devon may incur an obligation to pay
additional interest. See "Description of the Convertible Preferred
Securities -- Special Event Distribution; Tax Event Redemption" and "Description
of the Convertible Debentures -- Additional Interest."
In the event of the involuntary dissolution, winding up or termination of
the Trust, the holders of the Convertible Preferred Securities will be entitled
to receive for each Convertible Preferred Security a liquidation amount of $50
plus accrued and unpaid distributions thereon (including interest thereon) to
the date of payment, unless, in connection with such dissolution, the
Convertible Debentures are distributed to the holders of the Convertible
Preferred Securities. See "Description of the Convertible Preferred
Securities -- Liquidation Distribution Upon Dissolution."
2
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the reporting 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
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the offices of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the following regional offices of the
Commission: Northwestern Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661; and 7 World Trade Center, Suite 1300, New York, NY 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates
or from the Commission's Web site which contains reports, proxy and information
statements and other information regarding registrants that file electronically
(Devon is an electronic filer) at http://www.sec.gov. The Company's common stock
is listed for trading on the American Stock Exchange and as such, such reports,
proxy statements and other information concerning the Company may also be
inspected at the office of the American Stock Exchange, 86 Trinity Place, New
York, NY 10006.
Devon has filed with the Commission a Registration Statement on Form S-3
(herein together with all amendments and exhibits thereto, called the
"Registration Statement") under the Securities Act with respect to the
securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth or incorporated by reference in the Registration
Statement and the exhibits and schedules relating thereto, certain portions of
which have been omitted as permitted by the Rules and Regulations of the
Commission. For further information with respect to Devon and the securities
offered by this Prospectus, reference is made to the Registration Statement and
the exhibits filed or incorporated as a part thereof, which are on file at the
offices of the Commission and may be obtained upon payment of the fee prescribed
by the Commission, or may be examined without charge at the offices of the
Commission or on the Commission's Web site. Statements contained in this
Prospectus as to the contents of any documents referred to are not necessarily
complete, and in each such instance, are qualified in all respects by reference
to the applicable documents filed with the Commission.
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of Convertible Preferred Securities because (i) all of the voting
securities of the Trust will be owned, directly or indirectly, by the Company, a
reporting company under the Exchange Act, (ii) the Trust has no independent
operations and exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of the Trust and investing the
proceeds thereof in the Convertible Debentures issued by the Company and (iii)
the Company's obligations described herein under the Declaration, the Guarantee,
the Convertible Debentures and the Indenture, taken together, constitute a full
and unconditional guarantee of payments due on the Convertible Preferred
Securities. See "Description of the Convertible Debentures" and "Description of
the Guarantee."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
(a) The Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders;
(b) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(c) The Company's Quarterly Reports on Form 10-Q for each of the quarters
ended March 31, 1996 and June 30, 1996;
(d) The Company's Current Report on Form 8-K dated December 18, 1995; and
(e) The Company's Registration Statement on Form 8-B filed on June 7, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Convertible Preferred
3
<PAGE> 5
Securities shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing such 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 Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or all
of the foregoing documents incorporated herein by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference into such documents). Requests for such documents should be directed
to Corporate Secretary, Devon Energy Corporation, 20 North Broadway, Suite 1500,
Oklahoma City, OK 73102-8260.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the caption "Risk Factors" and
elsewhere in this Prospectus or in the information incorporated by reference
herein may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act") and as such
may involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of Devon to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Some of the factors that may cause
such material differences are set forth herein under the caption "Risk Factors."
CERTAIN DEFINITIONS
As used in this document:
"Bbl" means barrel of oil.
"Bcf" means billion cubic feet of natural gas.
"Boe" means barrels of oil equivalent (converting natural gas at the rate
of 6 Mcf per Boe).
"Btu" means British Thermal Unit, a measure of heating value. The heating
value of an Mcf of natural gas is roughly equal to one million Btu.
"MBbls" means thousand barrels of oil.
"MBoe" means thousand barrels of oil equivalent.
"Mcf" means thousand cubic feet of natural gas.
"MMBbls" means million barrels of oil.
"MMBoe" means million barrels of oil equivalent.
"MMBtu" means million Btu.
"MMcf" means million cubic feet of natural gas.
"NGLs" means natural gas liquids.
"Oil" includes crude oil and condensate.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the detailed information appearing elsewhere in the Prospectus
or incorporated by reference herein.
THE COMPANY
GENERAL
Devon is an independent energy company engaged primarily in oil and gas
exploration, development and production, and in the acquisition of producing
properties. The Company owns interests in 900 oil and gas properties in 10
states. The majority of these properties are highly concentrated in five
operating areas: the Permian Basin in southeast New Mexico and west Texas; the
San Juan Basin in northwest New Mexico; the Rocky Mountain region in Wyoming;
the Mid-Continent region in Oklahoma and the Texas Panhandle; and the Gulf Coast
region of Louisiana. At December 31, 1995, Devon's estimated proved reserves
were 114.6 MMBoe, which are balanced between oil and NGLs (47%) and natural gas
(53%). The present value of pre-tax future net revenues discounted at 10% per
annum ("10% Present Value") of such reserves was $534.2 million. Devon ranks in
the top 20% of public energy companies in the United States, measured by oil and
gas reserves.
STRATEGY
Devon's primary objective is to build production, cash flow and earnings
per share by: (1) purchasing producing oil and gas properties, (2) exploring for
new oil and gas reserves and (3) optimizing production from existing oil and gas
properties.
During 1988, Devon expanded its capital base with its first issuance of
common stock to the public and began a substantial expansion program. Devon has
used a two-pronged strategy of acquiring producing properties and drilling to
develop new reserves. During the eight years ended December 31, 1995, Devon
consummated 15 significant acquisitions and drilled 605 new wells, 581 of which
were producers, resulting in reserve additions of 159.1 MMBoe. Capital costs
incurred to complete these activities totalled $535.0 million, for a finding and
development cost of $3.36 per Boe. Reserve additions and adjustments, minus
production and property sales, resulted in reserves increasing by a factor of
fourteen during the eight-year period.
The Company's objective, however, is to increase value per share, not
simply to increase total assets. Reserves have grown from 1.31 Boe per share at
year-end 1987 to 5.18 Boe per share at year-end 1995. During this same
eight-year period, net debt (long-term debt minus working capital) has remained
relatively low, never exceeding $1.33 per Boe, and only $1.17 per Boe at
year-end 1995.
The oil and gas industry is characterized by highly volatile product
prices. Devon's management believes that by (a) keeping debt levels low, (b)
concentrating its properties in a few core areas to achieve economies of scale,
(c) acquiring and developing high profit margin properties and (d) continually
disposing of high-cost, marginal and non-strategic properties, the Company can
maintain profitability, even during periods of low oil and/or gas prices. In
addition, the Company remains financially flexible to take advantage of
opportunities for acquisitions.
5
<PAGE> 7
THE OFFERING
The Issuer....................... Devon Energy Corporation, an Oklahoma
corporation, and Devon Financing Trust, a
Delaware business trust. The sole assets of
the Trust consist of the 6 1/2% Convertible
Junior Subordinated Debentures of Devon.
Securities Offered............... 2,990,000 6 1/2% Trust Convertible
Preferred Securities, 6 1/2% Convertible
Junior Subordinated Debentures, Devon
Common Stock issuable upon conversion, and
the associated Guarantee.
Selling Holders.................. The Convertible Preferred Securities were
originally issued by the Trust and sold by
the Initial Purchaser in transactions
exempt from registration under the
Securities Act to persons reasonably
believed to be "qualified institutional
buyers," "accredited investors," or
non-U.S. Persons in off-shore transactions.
These purchasers or their transferees,
pledgees, donees, or successors may from
time to time offer and sell, pursuant to
this Prospectus, the Offered Securities.
See "Selling Holders."
Distributions.................... Distributions on the Convertible Preferred
Securities began to accrue from July 3,
1996, the first date of issuance of any
Convertible Preferred Securities, and are
payable at the annual rate of 6 1/2% of the
liquidation amount of $50 per Convertible
Preferred Security. Subject to the
distribution deferral provisions described
below, distributions will be payable
quarterly in arrears on each March 15, June
15, September 15 and December 15,
commencing September 15, 1996. Because
distributions on the Convertible Preferred
Securities constitute interest for United
States federal income tax purposes,
corporate holders thereof will not be
entitled to a dividends-received deduction.
Distribution Deferral
Provisions....................... The ability of the Trust to pay
distributions on the Convertible Preferred
Securities is solely dependent on the
receipt of interest payments from Devon on
the Convertible Debentures. Devon has the
right at any time, and from time to time,
to defer the interest payments due on the
Convertible Debentures for successive
Extension Periods not exceeding 20
consecutive quarters each. During an
Extension Period, quarterly distributions
on the Convertible Preferred Securities
will be deferred by the Trust (but will
continue to accumulate quarterly and will
accrue interest) until the end of such
Extension Period. If a deferral of an
interest payment occurs, the holders of the
Convertible Preferred Securities will
continue to accrue income for United States
federal income tax purposes in advance of
any corresponding cash distribution. See
"Risk Factors -- Delay of Interest
Payments," "United States Federal Income
Taxation -- Potential Extension of Interest
Payment Period and Original Issue
Discount," "Description of the Convertible
Preferred Securities -- Distributions" and
"Description of the Convertible
Debentures -- Option to Extend Interest
Payment Period."
Rights Upon Deferral of
Distribution..................... During any period in which interest
payments on the Convertible Debentures are
deferred, interest will accrue on the
Convertible Debentures and quarterly
distributions will continue to accumulate
with interest thereon at the distribution
6
<PAGE> 8
rate, compounded quarterly. Devon has
agreed, among other things, not to declare
or pay any dividends on its capital stock
during any Extension Period. See "Risk
Factors -- Delay of Interest Payments" and
"Description of the Convertible
Debentures -- Option to Extend Interest
Payment Period."
Conversion into Devon Common
Stock............................ Each Convertible Preferred Security is
convertible at any time beginning 90 days
following July 3, 1996, the first date that
any Convertible Preferred Securities were
issued, and prior to the close of business
on the Business Day prior to the maturity
date of the Convertible Debentures (or, in
the case of Convertible Preferred
Securities called for redemption, prior to
the close of business on the Business Day
prior to the Redemption Date) at the option
of the holder into shares of Devon Common
Stock, at the rate of 1.6393 shares of
Devon Common Stock for each Convertible
Preferred Security, subject to adjustment
in certain circumstances. See "Description
of the Convertible Preferred
Securities -- Conversion Rights."
Liquidation Preference........... In the event of any liquidation of the
Trust, holders will be entitled to receive
$50 per Convertible Preferred Security plus
an amount equal to any accrued and unpaid
distributions thereon to the date of
payment, unless Convertible Debentures are
distributed to such holders. See
"Description of the Convertible Preferred
Securities -- Liquidation Distribution upon
Dissolution."
Redemption....................... The Convertible Debentures will be
redeemable for cash, at the option of the
Company, in whole or in part, from time to
time on or after June 18, 1999, at the
prices specified herein. Upon any
redemption of the Convertible Debentures,
the Convertible Preferred Securities will
be redeemed at the Redemption Price plus
accrued and unpaid distributions thereon.
The Convertible Preferred Securities will
not have a stated maturity date, although
they will be subject to mandatory
redemption upon the repayment of the
Convertible Debentures at their stated
maturity (June 15, 2026), upon
acceleration, earlier redemption or
otherwise. See "Description of the
Convertible Preferred Securities --
Mandatory Redemption" and "Description of
the Convertible Debentures -- Redemption at
the Option of Devon."
Guarantee........................ Devon has irrevocably and unconditionally
guaranteed, to the extent set forth herein,
the payment in full of (i) distributions on
the Convertible Preferred Securities to the
extent the Trust has funds available
therefor, (ii) the amount payable upon
redemption of the Convertible Preferred
Securities to the extent the Trust has
funds available therefor and (iii)
generally, the liquidation preference of
the Convertible Preferred Securities to the
extent the Trust has assets available for
distribution to holders of Convertible
Preferred Securities. The Guarantee is
unsecured, subordinate and junior to all
other liabilities of Devon and will rank
pari passu in right of payments with the
most senior preferred stock issued, from
time to time, if any, by Devon.
Voting Rights.................... Generally, holders of the Convertible
Preferred Securities will not have any
voting rights. However, if an Indenture
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<PAGE> 9
Event of Default (as defined herein) occurs
and is continuing, the holders of 25% of
the aggregate liquidation amount of the
Convertible Preferred Securities may direct
the Institutional Trustee (as defined
herein) to declare the principal of and
interest on the Convertible Debentures
immediately due and payable. If (i) the
Institutional Trustee fails to enforce its
rights under the Convertible Debentures or
(ii) Devon defaults under the Guarantee
with respect to the Convertible Preferred
Securities, a record holder of the
Convertible Preferred Securities may
institute a legal proceeding directly
against Devon to enforce the Institutional
Trustee's rights without first instituting
any legal proceeding against the
Institutional Trustee. See "Description of
the Convertible Preferred
Securities -- Voting Rights."
Special Event Distribution; Tax
Event Redemption................. Upon the occurrence of a Special Event (as
defined herein), Devon may cause the Trust
to be dissolved and cause the Convertible
Debentures to be distributed to the holders
of the Convertible Preferred Securities. In
the case of a Tax Event (as defined
herein), Devon may elect to cause the
Convertible Preferred Securities to remain
outstanding and pay Additional Interest (as
defined herein), if any, on the Convertible
Debentures. In certain circumstances upon
the occurrence of a Tax Event, the
Convertible Debentures may be redeemed by
Devon at 100% of the principal amount
thereof plus accrued and unpaid interest
thereon. See "Description of the
Convertible Preferred Securities -- Special
Event Distribution; Tax Event Redemption."
Convertible Junior Subordinated
Debentures of Devon.............. The Convertible Debentures will mature on
June 15, 2026, and bear interest at the
rate of 6 1/2% per annum, payable quarterly
in arrears. The Convertible Debentures will
have provisions with respect to interest,
optional redemption and conversion into
Devon Common Stock and certain other terms
substantially similar or analogous to those
of the Convertible Preferred Securities.
See "Description of the Convertible
Debentures" and "Risk
Factors -- Subordinate Ranking of
Obligations Under the Guarantee and
Convertible Debentures."
Form, Denomination and
Registration..................... Convertible Preferred Securities may be
represented by a single, permanent global
security in fully registered form deposited
with the trustee and custodian for, and
registered in the name of a nominee of, DTC
(as defined herein) or purchasers may
receive definitive certificates for their
securities.
Use of Proceeds.................. The Selling Holders will receive all of the
proceeds from the sale of the Offered
Securities. Neither Devon nor the Trust
will receive any proceeds from the sale of
the Offered Securities.
8
<PAGE> 10
RISK FACTORS
Prospective purchasers of Convertible Preferred Securities should carefully
review the information contained elsewhere in this Prospectus and should
particularly consider the following matters. Certain statements set forth below
under this caption constitute "forward-looking statements" within the meaning of
the Reform Act. See "Special Note Regarding Forward-Looking Statements" on page
5 for additional factors relating to such statements.
MARKET CONDITIONS AND VOLATILITY OF OIL AND GAS PRICES
The revenues generated by Devon are highly dependent upon the prices of oil
and gas. The currently volatile energy market makes it difficult to estimate
future prices for oil and natural gas. Since January, 1990 Texas Gulf Coast
natural gas index prices have fluctuated between a high of $2.61 per MMBtu in
May, 1993 and a low of $0.98 per MMBtu in February, 1992. During the same
period, posted prices for West Texas Intermediate crude oil fluctuated between a
high of $33.61 per Bbl in October, 1990 and a low of $12.86 per Bbl in December,
1993.
When oil or natural gas prices become unacceptably low, the Company may
elect to curtail production in various areas. For example, during July and
August 1991, and during February and March 1992, the Company curtailed
production from one of its largest properties, the Northeast Blanco Unit in
northwest New Mexico. While Devon does not anticipate curtailing production in
the near future, it is possible for this to occur from time to time. Extended or
wide-spread curtailment of production as a result of low prices could have a
material adverse impact on the revenues of the Company.
Extended periods of low prices for either oil or gas could also affect the
Company's ability or willingness to continue or complete its planned drilling
program. A delay or cancellation of future drilling and development projects
may, in turn, result in downward adjustments to estimated reserves and/or future
net revenues.
During 1995 approximately 36% of Devon's total production was San Juan
Basin coal seam gas, and coal seam gas revenues from the San Juan Basin were 25%
of Devon's total revenues. Because such a significant portion of Devon's total
production and revenue is produced from this one basin, Devon benefits or
suffers disproportionately when events occur or factors exist that are specific
to this one region. Region-specific factors include transportation and
processing costs, availability of transportation capacity and natural gas supply
and demand in the areas where the gas is sold.
Two region-specific factors currently affect coal seam gas produced from
the San Juan Basin. First, this gas has a high carbon dioxide content and must
be transported to a plant to have the carbon dioxide removed before it is sold.
As a result, the net wellhead price received for this gas is substantially less
than the price received for gas from other areas. This is a permanent
circumstance that will always lower the price of coal seam gas produced in the
San Juan Basin.
Second, due to pipeline availability, the primary market for gas production
from the San Juan Basin is California. Both demand for natural gas in California
and the supply of gas available from the San Juan Basin directly affect the
price offered for San Juan Basin gas. If demand is high in California in
relationship to demand in other parts of the country, then the price for San
Juan Basin gas at the mainline is generally higher than gas that can only be
delivered to other parts of the country, such as gas delivered to the Texas Gulf
Coast. Conversely, if demand is low in California, then the price for San Juan
Basin gas will generally be lower than gas that can be sold to other markets.
For example, for the years ended December 31, 1992, 1993 and 1994, San Juan
Basin mainline gas prices averaged $0.04 less, $0.14 less and $0.14 less,
respectively, than the average Texas Gulf Coast mainline prices. During most of
1995, demand for natural gas in California was weak and the supply of gas from
the San Juan Basin was increasing, causing San Juan Basin gas to sell at a
larger discount to gas that could be delivered to higher demand areas of the
United States. For 1995, San Juan Basin mainline gas prices averaged $0.36 less
than the average Texas Gulf Coast gas price. Through May, 1996 California demand
has remained weak and San Juan Basin gas supply has again increased causing San
Juan Basin mainline prices to average $0.84 per MMBtu less than average Texas
Gulf Coast gas prices. Future
9
<PAGE> 11
differentials will depend upon market conditions which are, in turn, dependent
upon weather conditions, economic factors, the availability of gas and gas
substitutes and other factors over which Devon has no control.
UNCERTAINTY IN ESTIMATED RESERVES AND FUTURE NET REVENUES
Estimates of Devon's proved reserves and future net revenues included and
incorporated by reference herein are based on engineering reports prepared by
LaRoche & Associates, independent petroleum engineers ("LaRoche"), and Devon's
internal staff of engineers. There are numerous uncertainties inherent in
estimating quantities and values of proved gas and oil reserves and in
projecting future rates of production and net revenues and the timing of
development expenditures, including uncertainties relating to reservoir
engineering, pricing and both operating and regulatory constraints. In addition
certain events, including production, purchases and sales of properties, results
of further drilling and changes in planned drilling and development could result
in increases or decreases of estimated proved reserve quantities or estimates of
future net revenues. The estimates of future net revenues included and
incorporated by reference herein reflect oil and gas prices as of the date of
the relevant reserve report. However, there can be no assurance that the prices
used to estimate future net revenue will be realized. Accordingly, reserve
estimates are often different from the quantities of natural gas and oil
ultimately recovered. Any downward adjustment in its reserves could adversely
affect Devon's future prospects and the market value of its securities.
BUSINESS RISKS
Devon's prospects for growth and profitability depend upon its ability to
replace present reserves and production through exploration, development and
acquisitions. Without successful acquisition and/or drilling ventures, Devon's
proved reserves will decline as oil and gas are produced. There can be no
assurance that Devon's exploration, development and acquisition activities will
result in significant additional reserves or that Devon will continue to be able
to drill, complete and operate productive wells at acceptable costs. Devon's
operations are also subject to various risks and uncertainties relating to
producing and selling oil and gas. Drilling may be curtailed, delayed or
canceled as a result of many factors, including title problems, inability to
obtain required drilling permits, weather conditions, shortages of experienced
labor, shortages of or delays in delivery of equipment, as well as the financial
instability of well operators, major working interest owners and well servicing
companies. The availability of a ready market for oil and gas depends on
numerous factors beyond Devon's control, including the demand for and supply of
oil and gas, the proximity of natural gas reserves to pipelines, the capacity of
such pipelines, fluctuation in seasonal demand and the effects of inclement
weather and government regulation. New gas wells may be shut in for lack of a
market until a gas pipeline or gathering system with available capacity is
extended into that area.
OPERATING HAZARDS AND UNINSURED RISKS
Devon is subject to all risks normally incident to the exploration for and
production of oil and gas, including, but not limited to, unintentional releases
and discharges of oil, gas, brine or well fluids into the environment, fires,
pollution and other environmental risks. Any of these could result in damage or
destruction of oil and gas wells, formations or production facilities or cause
damage or injury to property and persons. Various federal, state and local laws
and regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment or human health, may
affect the operations of Devon and could subject the Company to production
curtailments and/or additional expenses, including capital expenditures, for
compliance or liability for noncompliance. Although Devon carries insurance
which it believes is in accordance with customary industry practices, it is not
fully insured against all risks. The occurrence of an event not fully covered by
insurance could have a material adverse effect on the financial condition and
operations of Devon.
GOVERNMENTAL REGULATION
The oil and gas business is regulated by certain federal, state and local
laws and regulations relating to the development, production, marketing and
transmission of oil and gas, as well as environmental and safety matters. There
is no assurance that laws and regulations enacted in the future or changes to
existing laws and
10
<PAGE> 12
regulations will not increase the cost of compliance or otherwise adversely
affect Devon's exploration for and production and marketing of oil and natural
gas. Regulatory authorities in the various states have authority to limit the
production from the Company's properties.
FINANCIAL REPORTING IMPACT OF OIL AND GAS ACCOUNTING
Devon follows the full cost method of accounting for its oil and gas
properties. Under such method, the net book value of such properties, less
related deferred income taxes, may not exceed a calculated "ceiling." The
ceiling is the estimated after-tax future net revenues from proved oil and gas
properties, discounted at 10% per year. In calculating future net revenues,
prices and costs in effect at the time of the calculation are held constant
indefinitely, except for changes which are fixed and determinable by existing
contracts. The net book value is compared to the ceiling on a quarterly and
yearly basis. The excess, if any, of the net book value above the ceiling is
required to be written off as an expense.
Under the Commission's full cost accounting rules, any expense recorded as
a result of the full cost ceiling calculation may not be reversed even though
higher oil and gas prices may increase the ceiling applicable to future periods.
There is no assurance that future price decreases will not result in reductions
in the carrying value of Devon's oil and gas properties.
COMPETITION
The oil and gas business is highly competitive. Devon encounters
competition by major integrated and independent oil and gas companies in
acquiring properties, contracting for drilling equipment and securing trained
personnel. Intense competition occurs with respect to marketing, particularly of
natural gas. Many competitors have resources that substantially exceed those of
Devon.
SUBORDINATE RANKING OF OBLIGATIONS UNDER THE GUARANTEE AND CONVERTIBLE
DEBENTURES
Devon's obligations under the Guarantee are subordinate and junior in right
of payment to all liabilities of Devon and pari passu in right of payment with
the most senior preferred stock issued, from time to time, if any, by Devon. The
obligations of Devon under the Convertible Debentures are subordinate and junior
in right of payment to all present and future Senior Indebtedness (as defined
herein) of Devon. No payment of principal (including redemption payments, if
any), premium, if any, or interest on the Convertible Debentures may be made if
(i) any Senior Indebtedness of Devon is not paid when due and any applicable
grace period with respect to such default has ended with such default not having
been cured or waived or ceasing to exist or (ii) the maturity of any Senior
Indebtedness has been accelerated because of a default. Devon also may not make
any payment upon or in respect of the Convertible Debentures if (i) a default in
the payment of the principal of, premium, if any, interest or other obligations
in respect of Senior Indebtedness occurs and is continuing beyond any applicable
period of grace or (ii) any non-payment default occurs and is continuing with
respect to the Credit Agreements that permits the lenders to accelerate the
maturity of the loans made thereunder and the Debt Trustee (as defined herein)
receives a notice of such default (a "Payment Blockage Notice") from Devon or
other person permitted to give such notice under the Indenture. Payments on the
Convertible Debentures may and shall be resumed (a) in case of a payment
default, upon the date on which such default is cured or waived and (b) in case
of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received. No new period of payment blockage may be
commenced pursuant to a Payment Blockage Notice unless and until (i) 365 days
have elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium, if any,
and interest on the Convertible Debentures that have come due have been paid in
full in cash. No nonpayment default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice. There are no terms in the
Convertible Preferred Securities, the Convertible Debentures or the Guarantee
that limit Devon's ability to incur additional indebtedness, including
indebtedness that ranks senior to the Convertible Debentures and the Guarantee,
or to grant security interests to secure outstanding or new indebtedness. As of
August 9, 1996,
11
<PAGE> 13
Devon had available borrowing capacity under its credit facilities of $260
million. See "Description of the Guarantee -- Status of the Guarantee" and
"Description of the Convertible Debentures -- Subordination."
LIMITATIONS OF THE GUARANTEE
The Guarantee Trustee (as defined herein) holds the Guarantee for the
benefit of the holders of the Convertible Preferred Securities. Under the
Guarantee, Devon guarantees payments to the holders of the Convertible Preferred
Securities to the extent of the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on the Convertible Preferred
Securities to the date of the payment to the extent the Trust has funds
available therefor or (b) the amount of assets of the Trust remaining available
for distribution to holders of the Convertible Preferred Securities in
liquidation of the Trust. Because the Guarantee is limited by the amount of the
funds in the Trust, if Devon were to default on its obligation to pay amounts
payable on the Convertible Debentures, the Trust would lack available funds for
the payment of distributions or amounts payable on redemption of the Convertible
Preferred Securities or otherwise, and, in such event, holders of the
Convertible Preferred Securities would not be able to rely upon the Guarantee
for payment of such amounts. Instead, holders of the Convertible Preferred
Securities would rely on the enforcement (1) by the Institutional Trustee of its
rights as registered holder of the Convertible Debentures against Devon pursuant
to the terms of the Convertible Debentures or (2) by such holder of its right of
Direct Action against Devon as described below to enforce payments on the
Convertible Debentures. See "Description of the Guarantee -- Events of Default."
The Declaration (as defined herein) provides that each holder of Convertible
Preferred Securities, by acceptance thereof, agrees to the provisions of the
Guarantee, including the subordination provisions thereof, and the Indenture.
LIMITATION OF ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CONVERTIBLE PREFERRED
SECURITIES.
If (i) Devon Financing Trust fails to pay distributions in full on the
Convertible Preferred Securities (other than pursuant to a deferral) or (ii) a
Declaration Event of Default (as defined herein) occurs and is continuing, then
the holders of Convertible Preferred Securities would rely on the enforcement by
the Institutional Trustee of its rights as a holder of the Convertible
Debentures against Devon. In addition, the holders of a majority in liquidation
amount of the Convertible Preferred Securities will have the right to direct the
time, method, and place of conducting any proceeding for any remedy available to
the Institutional Trustee or to direct the exercise of any trust or power
conferred upon the Institutional Trustee under the Declaration, including the
right to direct the Institutional Trustee to exercise the remedies available to
it as a holder of the Convertible Debentures. If the Institutional Trustee fails
to enforce its rights under the Convertible Debentures, a holder of Convertible
Preferred Securities may institute a legal proceeding directly against Devon to
enforce the Institutional Trustee's rights under the Convertible Debentures
without first instituting any legal proceeding against the Institutional Trustee
or any other person or entity. Notwithstanding the foregoing, if a Declaration
Event of Default has occurred and is continuing and such event is attributable
to the failure of Devon to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), then a holder of Convertible
Preferred Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the Convertible
Debentures having a principal amount equal to the aggregate liquidation amount
of the Convertible Preferred Securities of such holder (a "Direct Action") on or
after the respective due date specified in the Convertible Debentures. In
connection with such Direct Action, Devon will be subrogated to the rights of
such holders of Convertible Preferred Securities under the Declaration to the
extent of any payment made by Devon to such holder of Convertible Preferred
Securities in such Direct Action. The holders of Convertible Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of Convertible Debentures. See "Description of the Convertible
Preferred Securities -- Declaration Events of Default."
DELAY OF INTEREST PAYMENTS
So long as Devon shall not be in default in the payment of interest on the
Convertible Debentures, Devon has the right under the Indenture to defer
payments of interest on the Convertible Debentures by extending
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<PAGE> 14
the interest payment period at any time, and from time to time, on the
Convertible Debentures. As a consequence of such an extension, quarterly
distributions on the Convertible Preferred Securities would be deferred by the
Trust during any such Extension Period. Prior to the termination of any such
Extension Period, Devon may further extend such Extension Period; provided, that
such Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond the maturity of
the Convertible Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, Devon may commence a new Extension Period,
subject to the above requirements. See "Description of the Convertible Preferred
Securities -- Distributions" and "Description of the Convertible
Debentures -- Option to Extend Interest Payment Period."
Should Devon exercise its right to defer payments of interest by extending
the interest payment period, each holder of Convertible Preferred Securities
will continue to accrue income (as original issue discount ("OID")) in respect
of the deferred and compounded interest allocable to its Convertible Preferred
Securities for United States federal income tax purposes, which will be
allocated but not distributed, to holders of record of Convertible Preferred
Securities. As a result, each such holder of Convertible Preferred Securities
will recognize income for United States federal income tax purposes in advance
of the receipt of cash and will not receive the cash from Devon Financing Trust
related to such income if such holder disposes of its Convertible Preferred
Securities prior to the record date for the date on which distributions of such
amounts are made. Devon has no current intention of exercising its right to
defer payments of interest by extending the interest payment period of the
Convertible Debentures. However, should Devon determine to exercise such right
in the future, the market price of the Convertible Preferred Securities is
likely to be materially adversely affected. A holder that disposes of its
Convertible Preferred Securities during an Extension Period, therefore, might
not receive the same return on its investment as a holder that continues to hold
its Convertible Preferred Securities. In addition, as a result of the existence
of Devon's right to defer interest payments, the market price of the Convertible
Preferred Securities (which represent an undivided beneficial interest in the
Convertible Debentures) may be more volatile than other OID securities that do
not have such interest deferral rights. See "United States Federal Income
Taxation -- Potential Extension of Interest Payment Period and Original Issue
Discount."
ADVERSE CONSEQUENCES OF PROPOSED TAX LEGISLATION
On March 19, 1996, as a part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would treat as equity for United States
federal income tax purposes instruments with a maximum term of more than 20
years which are not shown as indebtedness on the consolidated balance sheet of
the issuer.
On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr.
and House Ways and Means Committee Chairman Bill Archer issued a joint statement
(the "Joint Statement") indicating their intent that certain legislative
proposals initiated by the Clinton Administration, including the Proposed
Legislation, if adopted by either of the tax-writing committees of Congress,
would have an effective date that is no earlier than the date of "appropriate
Congressional action." Based upon the Joint Statement, it is anticipated that if
the Proposed Legislation were enacted, such legislation would not apply to the
Convertible Debentures if they are issued prior to the date of any "appropriate
Congressional actions." There can be no assurances that any proposed legislation
enacted after the date hereof will not otherwise adversely affect the tax
treatment of the Convertible Debentures. If legislation is enacted that
adversely affects the tax treatment of the Convertible Debentures, such
legislation could result in the distribution of the Convertible Debentures to
holders of the Convertible Preferred Securities or, in certain circumstances,
the redemption of such securities by the Company and the distribution of the
resulting cash in redemption of the Convertible Preferred Securities. See
"Description of the Convertible Preferred Securities -- Special Event
Distribution; Tax Event Redemption."
SPECIAL EVENT DISTRIBUTION; TAX EVENT REDEMPTION
Upon the occurrence of a Special Event (as defined herein), Devon Financing
Trust could be dissolved (with the consent of Devon), except in the limited
circumstance described below, with the result that the
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<PAGE> 15
Convertible Debentures would be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. In certain
circumstances, Devon would have the right to redeem the Convertible Debentures,
in whole or in part, in lieu of a distribution of the Convertible Debentures by
the Trust, in which event the Trust would redeem the Trust Securities on a pro
rata basis to the same extent as the Convertible Debentures are redeemed by
Devon. See "Description of the Convertible Preferred Securities -- Special Event
Distribution; Tax Event Redemption."
Under current United States federal income tax law, a distribution of
Convertible Debentures upon the dissolution of Devon Financing Trust would not
be a taxable event to holders of the Convertible Preferred Securities. Upon
occurrence of a Special Event, however, a dissolution of Devon Financing Trust
in which holders of the Convertible Preferred Securities receive cash would be a
taxable event to such holders. See "United States Federal Income
Taxation -- Receipt of Convertible Debentures or Cash Upon Liquidation of the
Trust."
There can be no assurance as to the market prices for the Convertible
Preferred Securities or the Convertible Debentures that may be distributed in
exchange for Convertible Preferred Securities if a dissolution or liquidation of
the Trust were to occur. Accordingly, the Convertible Preferred Securities that
an investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, or the Convertible Debentures that a holder of Convertible
Preferred Securities may receive on dissolution and liquidation of the Trust,
may trade at a discount to the price that the investor paid to purchase the
Convertible Preferred Securities offered hereby. Because holders of Convertible
Preferred Securities may receive Convertible Debentures upon the occurrence of a
Special Event, prospective purchasers of Convertible Preferred Securities are
also making an investment decision with regard to the Convertible Debentures and
should carefully review all the information regarding the Convertible Debentures
contained herein. See "Description of the Convertible Preferred
Securities -- Special Event Distribution; Tax Event Redemption" and "Description
of the Convertible Debentures -- General."
ABSENCE OF VOTING RIGHTS
Generally, holders of the Convertible Preferred Securities do not have any
voting rights with respect to Devon's governance, nor are they entitled to vote
to appoint, remove or replace, or to increase or decrease the number of, DFT
Trustees (as defined herein), which voting rights are vested exclusively in the
holder of the Common Securities. See "Description of the Convertible Preferred
Securities -- Voting Rights."
TRADING PRICE
The Convertible Preferred Securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest with respect to the
underlying Convertible Debentures. A holder who disposes of Convertible
Preferred Securities between record dates for payments of distributions thereon
will be required to include accrued but unpaid interest on the Convertible
Debentures through the date of disposition in income as ordinary income (i.e.,
OID), and to add such amount to the adjusted tax basis in the holder's pro rata
share of the underlying Convertible Debentures deemed disposed of. To the extent
the selling price is less than the holder's adjusted tax basis (which will
include, in the form of OID, all accrued but unpaid interest), a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes. See "United States Federal Income Taxation -- Potential Extension of
Interest Payment Period and Original Issue Discount" and "-- Sales of
Convertible Preferred Securities."
ABSENCE OF PUBLIC MARKET FOR THE CONVERTIBLE PREFERRED SECURITIES ON RESALE
Although the Initial Purchaser currently makes a market in the Convertible
Preferred Securities, it is not obligated to do so and may discontinue such
market making at any time without notice. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. Accordingly, there can be no assurance that any market for the
Convertible Preferred Securities will develop or, if one does develop, that it
will be maintained. If an active market for the Convertible Preferred Securities
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<PAGE> 16
fails to be sustained, the trading price of such Convertible Preferred
Securities could be materially adversely affected.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Certificate of Incorporation and
By-laws may inhibit changes in control of the Company not approved by the
Company's Board of Directors. These provisions include (i) a classified Board of
Directors, (ii) a prohibition on stockholder action through written consents and
(iii) the authority of the Board to issue without stockholder approval preferred
stock with such terms as the Board may determine. The Company will also be
afforded the protections of the Company's Certificate of Incorporation and the
Oklahoma General Corporation Act, which limit business combinations with a
shareholder who is the beneficial owner of 15% or more of the Devon Common Stock
in certain circumstances. In addition, the Company has adopted a share rights
plan which has certain anti-takeover effects. The rights plan will cause
substantial dilution to a person or group that attempts to acquire the Company
in a manner which causes the rights to become exercisable. See "Description of
Capital Stock."
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust is treated as a subsidiary of
Devon and, accordingly, the accounts of the Trust will be included in the
consolidated financial statements of Devon. The Convertible Preferred Securities
will be presented as a separate line item in the consolidated balance sheet of
Devon entitled "Company-obligated mandatorily redeemable convertible preferred
securities of Devon Financing Trust holding solely 6 1/2% convertible junior
subordinated debentures of Devon," and appropriate disclosures about the
Convertible Preferred Securities, the Guarantee and the Convertible Debentures
will be included in the notes to the Company's consolidated financial
statements. For financial reporting purposes, Devon will record distributions
payable on the Convertible Preferred Securities as a charge to earnings in
Devon's consolidated statement of operations.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges (a) for each of the five years ended December 31, 1995
and for the six months ended June 30, 1996 on an historical basis and (b) for
the year ended December 31, 1995 and the three months ended June 30, 1996 as
adjusted for the Original Offering.
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
Actual(1)..................................... -- 7.97 8.24 4.80 4.54 5.29
As Adjusted(2)................................ 3.09 5.07
</TABLE>
- ---------------
(1) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of earnings before income taxes and cumulative effect of
accounting change, plus fixed charges; and (ii) fixed charges consist of
interest expense incurred, amortization of debt expense relating to any
indebtedness, and one-third of rental expense estimated to be attributable
to interest. Fixed charges were in excess of earnings in 1991 in the amount
of $21.1 million. This was caused by the $25 million non-cash reduction in
the carrying value of oil and gas properties in 1991.
(2) The "as adjusted" ratios are calculated using adjusted amounts of earnings
and fixed charges under the assumption that the proceeds from the Original
Offering were applied toward Devon's long-term debt outstanding at the
beginning of the periods shown. The adjusted amounts of fixed charges are
calculated using the annual distribution rate of 6 1/2% on the Convertible
Preferred Securities.
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<PAGE> 17
DEVON FINANCING TRUST
Devon Financing Trust is a statutory business trust formed under Delaware
law pursuant to (i) the Declaration of Trust, dated as of June 26, 1996, as
amended by the Amended and Restated Declaration of Trust dated as of July 3,
1996 (the "Declaration") executed by Devon, as sponsor (the "Sponsor"), and the
trustees of Devon Financing Trust (the "DFT Trustees") and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
June 26, 1996. Devon owns, directly or indirectly, all of the Common Securities
of the Trust, which have an aggregate liquidation amount equal to 3% of the
total capital of Devon Financing Trust. Devon Financing Trust exists for the
exclusive purposes of (i) issuing the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Convertible Debentures and (iii)
engaging in only those other activities necessary or incidental thereto.
Pursuant to the Declaration, the number of DFT Trustees is currently five.
Three of the DFT Trustees (the "Regular Trustees") are persons who are employees
or officers of or who are affiliated with Devon. The fourth trustee is a
financial institution that maintains its principal place of business in the
state of Delaware (the "Delaware Trustee"). The fifth Trustee (the
"Institutional Trustee") is a financial institution that is unaffiliated with
Devon and will serve as institutional trustee under the Declaration and as
indenture trustee for the purposes of compliance with the provisions of the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Bank of
New York, a New York banking corporation, currently serves as the Institutional
Trustee and will continue to serve as the Institutional Trustee until removed or
replaced by the holder of the Common Securities. The Bank of New York acts as
trustee (the "Guarantee Trustee") under the Guarantee and as Debt Trustee (as
defined herein) under the Indenture. The Bank of New York (Delaware), an
affiliate of the Institutional Trustee, currently acts as Delaware Trustee. See
"Description of the Convertible Preferred Securities -- Voting Rights."
The Institutional Trustee holds title to the Convertible Debentures for the
benefit of the holders of the Trust Securities, and the Institutional Trustee
has the power to exercise all rights, powers and privileges under the Indenture
as the holder of the Convertible Debentures. In addition, the Institutional
Trustee maintains exclusive control of a segregated non-interest bearing bank
account (the "Property Account") to hold all payments made in respect of the
Convertible Debentures for the benefit of the holders of the Trust Securities.
The Institutional Trustee makes payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Guarantee Trustee holds the Guarantee
for the benefit of the holders of the Convertible Preferred Securities. Devon,
as the direct or indirect holder of all the Common Securities, has the right to
appoint, remove or replace any DFT Trustee and to increase or decrease the
number of DFT Trustees. Devon pays all fees and expenses related to Devon
Financing Trust and the offering of the Trust Securities. See "Description of
the Convertible Debentures -- Miscellaneous."
The rights of the holders of the Convertible Preferred Securities,
including economic rights, rights to information and voting rights, are set
forth in the Declaration and the Delaware Business Trust Act (the "Trust Act").
The Declaration, the Indenture and the Guarantee also incorporate by reference
the terms of the Trust Indenture Act. The Declaration, the Indenture and the
Guarantee will be qualified under the Trust Indenture Act.
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<PAGE> 18
DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES
The Convertible Preferred Securities were issued pursuant to the terms of
the Declaration. The Declaration incorporates by reference terms of the Trust
Indenture Act. The Declaration will be qualified under the Trust Indenture Act.
The Institutional Trustee, The Bank of New York, acts as indenture trustee for
the Convertible Preferred Securities under the Declaration for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Convertible Preferred Securities include those stated in the Declaration and
those made part of the Declaration by the Trust Indenture Act. The following
summary of the material terms and provisions of the Convertible Preferred
Securities is subject to, and qualified in its entirety by reference to, the
Declaration, the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorized the Regular Trustees to issue, on behalf of the
Trust, the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities are owned, directly or
indirectly, by Devon. The Common Securities rank pari passu, and payments will
be made thereon on a pro rata basis, with the Convertible Preferred Securities,
except that upon the occurrence and during the continuance of a Declaration
Event of Default, the rights of the holders of the Common Securities to receive
payment of periodic distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Convertible
Preferred Securities. The Declaration does not permit the issuance by the Trust
of any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Institutional
Trustee holds the Convertible Debentures purchased by the Trust for the benefit
of the holders of the Trust Securities. The payment of distributions out of
money held by the Trust, and payments upon redemption of the Convertible
Preferred Securities or liquidation of the Trust, are guaranteed by Devon to the
extent described under "Description of the Guarantee." The Guarantee is held by
The Bank of New York, the Guarantee Trustee, for the benefit of the holders of
the Convertible Preferred Securities. The Guarantee does not cover payment of
distributions when the Trust does not have sufficient available funds to pay
such distributions. In such event, the remedy of a holder of Convertible
Preferred Securities is to vote to direct the Institutional Trustee to enforce
the Institutional Trustee's rights under the Convertible Debentures or, in
certain limited circumstances, to take Direct Action. See "-- Voting Rights" and
"-- Declaration Events of Default."
DISTRIBUTIONS
Distributions on the Convertible Preferred Securities are fixed at a rate
per annum of 6 1/2% of the stated liquidation amount of $50 per Convertible
Preferred Security. Distributions in arrears for more than one quarter will
accrue interest thereon at the distribution rate, compounded quarterly. The term
"distribution" as used herein includes any such interest payable unless
otherwise stated. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Convertible Preferred Securities will be cumulative,
will accrue from the first date that any Convertible Preferred Securities are
issued, and will be payable quarterly in arrears on March 15, June 15, September
15 and December 15 of each year, commencing September 15, 1996, when, as and if
available for payment. Distributions will be made by the Institutional Trustee,
except as otherwise described below.
So long as Devon shall not be in default in the payment of interest on the
Convertible Debentures, Devon has the right under the Indenture to defer
payments of interest on the Convertible Debentures by extending the interest
payment period from time to time on the Convertible Debentures, which, if
exercised, would defer quarterly distributions on the Convertible Preferred
Securities (though such distributions would continue to accumulate with interest
thereon at the distribution rate, compounded quarterly, since interest would
continue to accrue on the Convertible Debentures) during any such Extension
Period. Such right to extend the interest payment period for the Convertible
Debentures is limited to a period not exceeding 20 consecutive quarters and such
period may not extend beyond the maturity of the Convertible Debentures. In the
event that Devon exercises this right, then (a) Devon shall not declare or pay
dividends on, make distributions with respect to,
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<PAGE> 19
or redeem, purchase or acquire, or make a liquidation payment with respect to,
any of its capital stock (other than (i) purchases or acquisitions of shares of
Devon Common Stock in connection with the satisfaction by Devon of its
obligations under any employee benefit plans, (ii) as a result of a
reclassification of Devon capital stock or the exchange or conversion of one
class or series of Devon's capital stock for another class or series of Devon
capital stock or (iii) the purchase of fractional interests in shares of Devon's
capital stock pursuant to the conversion or exchange provisions of such Devon
capital stock or the security being converted or exchanged for Devon capital
stock,) (b) Devon shall not make any payment of interest, principal or premium,
if any, on or repay, repurchase or redeem any debt securities issued by Devon
that rank pari passu with or junior to the Convertible Debentures and (c) Devon
shall not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee). Prior to the termination of any such Extension
Period, Devon may further extend the interest payment period; provided, that
such Extension Period, together with all such previous and further extensions,
may not exceed 20 consecutive quarters or extend beyond the maturity of the
Convertible Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, Devon may commence a new Extension Period,
subject to the above requirements. See "Description of the Convertible
Debentures -- Interest" and "-- Option to Extend Interest Payment Period." If
distributions are deferred, the deferred distributions and accrued interest
thereon shall be paid to holders of record of the Convertible Preferred
Securities as they appear on the books and records of the Trust on the record
date next following the termination of such deferral period.
Distributions on the Convertible Preferred Securities must be paid on the
dates payable to the extent that the Trust has funds available for the payment
of such distributions. The Trust's funds available for distribution to the
holders of the Convertible Preferred Securities will be limited to payments
received from Devon on the Convertible Debentures. See "Description of the
Convertible Debentures." The payment of distributions out of monies held by the
Trust is guaranteed by Devon to the extent set forth under "Description of the
Guarantee."
Distributions on the Convertible Preferred Securities will be payable to
the holders thereof as they appear on the books and records of the Trust on the
relevant record dates, which will be fifteen days prior to the relevant payment
dates. Such distributions will be paid through the Institutional Trustee who
will hold amounts received in respect of the Convertible Debentures for the
benefit of the holders of the Trust Securities. Subject to any applicable laws
and regulations and the provisions of the Declaration, each such payment will be
made as described under "-- Form, Denomination and Registration" below. In the
event that any date on which distributions are to be made on the Convertible
Preferred Securities is not a Business Day, then payment of the distributions
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such record date. A "Business Day"
shall mean any day other than Saturday, Sunday or any other day on which banking
institutions in New York City are permitted or required by any applicable law to
close.
CONVERSION RIGHTS
General. The Convertible Preferred Securities are convertible at any time
beginning 90 days following July 3, 1996 through the close of business on the
Business Day prior to the maturity date of the Convertible Debentures (or, in
the case of Convertible Preferred Securities called for redemption, prior to the
close of business on the Business Day prior to the Redemption Date) (the
"Conversion Expiration Date"), at the option of the holders thereof and in the
manner described below, into shares of Devon Common Stock at an initial
conversion rate of 1.6393 shares of Devon Common Stock for each Convertible
Preferred Security (equivalent to a conversion price of $30.50 per share of
Devon Common Stock), subject to adjustment as described under "-- Conversion
Price Adjustments -- General" below.
The terms of the Convertible Preferred Securities provide that a holder of
a Convertible Preferred Security wishing to exercise its conversion right shall
surrender such Convertible Preferred Security, together with an irrevocable
conversion notice, to the Institutional Trustee, as conversion agent (the
"Conversion Agent") which shall, on behalf of such holder, exchange such
Convertible Preferred Security for a portion of
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<PAGE> 20
the Convertible Debentures and immediately convert an equivalent amount of
Convertible Debentures into Devon Common Stock. Holders may obtain copies of the
required form of the conversion notice from the Conversion Agent. Additional
procedures for converting book-entry Convertible Preferred Securities into
shares of Devon Common Stock are described below under "-- Form, Denomination
and Registration."
Accrued distributions will not be paid on the Convertible Preferred
Securities that are converted, provided, however, that if any Convertible
Preferred Security is converted on or after a record date for payment of
distributions thereon, the distributions payable on the related payment date
with respect to such Convertible Preferred Security shall be distributed to the
holder, despite such conversion; provided further, that if a Redemption Date
falls between such record date and the related distribution payment date, the
amount of such payment shall include distributions accrued to, but excluding,
such Redemption Date. Except as provided in the immediately preceding sentence,
neither the Trust nor Devon shall make any payment, allowance or adjustment for
accumulated and unpaid distributions, whether or not in arrears, on converted
Convertible Preferred Securities. Devon will make no payment or allowance for
distributions on the shares of Devon Common Stock issued upon such conversion,
except to the extent that such shares of Devon Common Stock are held of record
on the record date for any such distributions.
No fractional shares of Devon Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by Devon
in cash based on the current market price of Devon Common Stock on the date such
Convertible Preferred Securities are surrendered for conversion.
Conversion Price Adjustments -- General. The initial conversion price of
$30.50 per share of Devon Common Stock is subject to adjustment (under formulae
set forth in the Indenture) in certain events, including (i) the issuance of
shares of Devon Common Stock as a dividend or a distribution with respect to
Devon Common Stock, (ii) certain subdivisions and combinations of Devon Common
Stock, (iii) the issuance to all holders of Devon Common Stock of certain rights
or warrants entitling them to subscribe for or purchase shares of Devon Common
Stock, (iv) the distribution to all holders of Devon Common Stock of shares of
capital stock (other than Devon Common Stock) or evidences of indebtedness of
Devon or of assets (including securities, but excluding those rights, warrants,
dividends and distributions referred to above or paid in cash), (v)
distributions consisting of cash, excluding any quarterly cash dividend on Devon
Common Stock to the extent that the aggregate cash dividend per share of Devon
Common Stock in any quarter does not exceed the greater of (x) the amount per
share of Devon Common Stock of the next preceding quarterly dividend on Devon
Common Stock to the extent that such preceding quarterly dividend did not
require an adjustment of the conversion rate pursuant to this clause (v) (as
adjusted to reflect subdivisions or combinations of Devon Common Stock), and (y)
3.75% of the average of the daily Closing Prices (as defined in the Indenture)
of Devon Common Stock during the ten consecutive Trading Days (as defined in the
Indenture) immediately prior to the date of declaration of such dividend, and
excluding any dividend or distribution in connection with the liquidation,
dissolution or winding-up of Devon, (vi) payment to holders of Devon Common
Stock in respect of a tender or exchange offer by Devon or any subsidiary for
Devon Common Stock to the extent that the cash and value of any other
consideration included in such payment per share of Devon Common Stock exceeds
the Current Market Price (as defined in the Indenture) per share of Common Stock
on the Trading Day next succeeding the last date on which tenders or exchanges
may be made pursuant to such tender or exchange offer; and (vii) payment in
respect of a tender offer or exchange offer by a person other than Devon or any
subsidiary of Devon in which, as of the closing date of the offer, the Board of
Directors is not recommending rejection of the offer. If an adjustment is
required to be made as set forth in clause (v) above as a result of a
distribution that is a quarterly dividend, such adjustment would be based upon
the amount by which such distribution exceeds the amount of the quarterly cash
dividend permitted to be excluded pursuant to such clause (v). If an adjustment
is required to be made based upon the full amount of the distribution that is
not a quarterly dividend, such adjustment would be based upon the full amount of
the distribution. The adjustment referred to in clause (vii) above will only be
made (A) if the tender offer or exchange offer is for an amount that increases
that person's ownership of Devon Common Stock to more than 25% of the total
shares of Devon Common Stock outstanding and (B) if the cash and value of any
other consideration included in such payment per share of Devon Common Stock
exceeds the Current Market Price per share of Devon Common Stock on the Business
Day next succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer. The adjustment referred to in clause
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<PAGE> 21
(vii) above will not be made, however, if, as of the closing of the offer, the
offering documents with respect to such offer disclose a plan or an intention to
cause Devon to engage in a consolidation or merger of Devon or a sale of all or
substantially all of Devon's assets. The Convertible Debentures provide for
corresponding anti-dilution adjustments.
Devon from time to time may to the extent permitted by law reduce the
conversion price of the Convertible Debentures (and thus the conversion price of
the Convertible Preferred Securities) by any amount for any period of at least
20 days, in which case Devon shall give at least 15 days' notice of such
reduction, if the Devon Board of Directors has made a determination that such
reduction would be in the best interests of Devon, which determination shall be
conclusive. Devon may, at its option, make such reductions in the conversion
price, in addition to those set forth above, as the Devon Board of Directors
deems advisable to avoid or diminish any income tax to holders of Devon Common
Stock resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. See "United
States Federal Income Taxation -- Adjustment of Conversion Price."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least one percent (1%) in the conversion
price then in effect; provided, however, that any adjustment that would not be
required to be made shall be carried forward and taken into account in any
subsequent adjustment. If any action would require adjustment of the conversion
price pursuant to more than one of the provisions described above, only one
adjustment shall be made and such adjustment shall be the amount of adjustment
that has the highest absolute value to the holder of the Convertible Preferred
Securities. Except as stated above, the conversion price will not be adjusted
for the issuance of Devon Common Stock or any securities convertible into or
exchangeable for Devon Common Stock or carrying the right to purchase any of the
foregoing.
Conversion Price Adjustments -- Merger, Consolidation or Sale of Assets of
Devon. If any transaction shall occur (including without limitation (i) any
recapitalization or reclassification of shares of Devon Common Stock (other than
a change in par value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination of Devon Common
Stock), (ii) any consolidation or merger of Devon with or into another person or
any merger of another person into Devon (other than a merger that does not
result in a reclassification, conversion, exchange or cancellation of Devon
Common Stock), (iii) any sale or transfer of all or substantially all of the
assets of Devon, or (iv) any compulsory share exchange) pursuant to which either
shares of Devon Common Stock shall be converted into the right to receive other
securities, cash or other property, or, in the case of a sale or transfer of all
or substantially all of the assets of Devon, the holders of Devon Common Stock
shall be entitled to receive other securities, cash or other property, then
appropriate provision shall be made so that the holder of each Convertible
Preferred Security then outstanding shall have the right thereafter to convert
such Convertible Preferred Security only into:
(x) in the case of any such transaction that does not constitute a
Common Stock Fundamental Change (as defined below) and subject to funds
being legally available for such purpose under applicable law at the time
of such conversion, the kind and amount of the securities, cash or other
property that would have been receivable upon such recapitalization,
reclassification, consolidation, merger, sale, transfer or share exchange
by a holder of the number of shares of Devon Common Stock issuable upon
conversion of such Convertible Preferred Security immediately prior to such
recapitalization, reclassification, consolidation, merger, sale, transfer
or share exchange, after giving effect, in the case of any Non-Stock
Fundamental Change (as defined below), to any adjustment in the conversion
price in accordance with clause (i) of the following paragraph, and
(y) in the case of any such transaction that constitutes a Common
Stock Fundamental Change, common stock of the kind received by holders of
Devon Common Stock as a result of such Common Stock Fundamental Change in
an amount determined in accordance with clause (ii) of the following
paragraph.
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<PAGE> 22
The company formed by such consolidation or resulting from such merger or that
acquires assets or that acquires Devon's shares, as the case may be, shall make
provisions in its certificate or articles of incorporation or other constituent
document to establish such right. Such certificate or articles of incorporation
or other constituent document shall provide for adjustments that, for events
subsequent to the effective date of such certificate or articles of
incorporation or other constituent documents, shall be as nearly equivalent as
may be practicable to the relevant adjustments provided for in the preceding
paragraphs and in this paragraph.
Notwithstanding any other provision in the preceding paragraphs to the
contrary, if any Fundamental Change (as defined below) occurs, then the
conversion price in effect will be adjusted immediately after such Fundamental
Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the conversion
price of the Convertible Preferred Securities immediately following such
Non-Stock Fundamental Change shall be the lower of (A) the conversion price
in effect immediately prior to such Non-Stock Fundamental Change, but after
giving effect to any other prior adjustments effected pursuant to the
preceding paragraphs, and (B) the product of (1) the greater of the
Applicable Price (as defined below) and the then applicable Reference
Market Price (as defined below) and (2) a fraction, the numerator of which
is $50 and the denominator of which is (x) the amount of the redemption
price for one Convertible Preferred Security if the redemption date were
the date of such Non-Stock Fundamental Change (or, for the twelve-month
periods commencing June 15, 1996, June 15, 1997 and June 15, 1998, the
product of 106.50%, 105.85% and 105.20%, respectively, times $50) plus (y)
any then-accrued and unpaid distributions on one Convertible Preferred
Security; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of Convertible Preferred Securities immediately following such Common
Stock Fundamental Change shall be the conversion price in effect
immediately prior to such Common Stock Fundamental Change, but after giving
effect to any other prior adjustments effected pursuant to the preceding
paragraphs, multiplied by a fraction, the numerator of which is the
Purchaser Stock Price (as defined below) and the denominator of which is
the Applicable Price; provided, however, that in the event of a Common
Stock Fundamental Change in which (A) 100% of the value of the
consideration received by a holder of Devon Common Stock is common stock of
the successor, acquiror or other third party (and cash, if any, paid with
respect to any fractional interests in such common stock resulting from
such Common Stock Fundamental Change) and (B) all of the Devon Common Stock
shall have been exchanged for, converted into or acquired for, common stock
of the successor, acquiror or other third party (and any cash with respect
to fractional interests), the conversion price of the Convertible Preferred
Securities immediately following such Common Stock Fundamental Change shall
be the conversion price in effect immediately prior to such Common Stock
Fundamental Change multiplied by a fraction, the numerator of which is one
(1) and the denominator of which is the number of shares of common stock of
the successor, acquiror or other third party received by a holder of one
share of Devon Common Stock as a result of such Common Stock Fundamental
Change.
Depending upon whether a Fundamental Change is a Non-Stock Fundamental
Change or a Common Stock Fundamental Change, a holder may receive significantly
different consideration upon conversion. In the event of a Non-Stock Fundamental
Change, the holder has the right to convert Convertible Preferred Securities
into the kind and amount of the shares of stock and other securities or property
or assets (including cash), except as otherwise provided above, as is determined
by the number of shares of Devon Common Stock receivable upon conversion at the
conversion price as adjusted in accordance with clause (i) of the preceding
paragraph. However, in the event of a Common Stock Fundamental Change in which
less than 100% of the value of the consideration received by a holder of Devon
Common Stock is common stock of the successor, acquiror or other third party, a
holder of a Convertible Preferred Security who converts such share following the
Common Stock Fundamental Change will receive consideration in the form of such
common stock only, whereas a holder who converted such share prior to the Common
Stock Fundamental Change would have received consideration in the form of such
common stock as well as any other securities or assets (which may
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<PAGE> 23
include cash) issuable upon conversion of such Convertible Preferred Security
immediately prior to such Common Stock Fundamental Change.
The term "Applicable Price" means (i) in the event of a Non-Stock
Fundamental Change in which the holders of Devon Common Stock receive only cash,
the amount of cash received by a holder of one share of Devon Common Stock and
(ii) in the event of any other Fundamental Change, the average of the daily
Closing Price (as defined in the Indenture) for one share of Devon Common Stock
during the 10 Trading Days immediately prior to the record date for the
determination of the holders of Devon Common Stock entitled to receive cash,
securities, property or other assets in connection with such Fundamental Change
or, if there is no such record date, prior to the date upon which the holders of
Devon Common Stock shall have the right to receive such cash, securities,
property or other assets, but the adjustment shall be based upon the
consideration that the holders of Devon Common Stock received in the transaction
or event as a result of which more than 50% of the Devon Common Stock shall have
been exchanged for, converted into or acquired for, or shall constitute solely
the right to receive, such cash, securities, property or other assets.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of Devon) of the consideration received by holders of Devon Common
Stock consists of common stock that, for the 10 Trading Days immediately prior
to such Fundamental Change, has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on The Nasdaq National Market; provided, however, that a Fundamental
Change shall not be a Common Stock Fundamental Change unless either (i) Devon
continues to exist after the occurrence of such Fundamental Change and the
outstanding Convertible Preferred Securities continue to exist as outstanding
Convertible Preferred Securities, or (ii) not later than the occurrence of such
Fundamental Change, the outstanding Convertible Preferred Securities are
converted into or exchanged for shares of convertible preferred stock or
debentures of a corporation succeeding to the business of Devon, which
convertible preferred stock has powers, preferences and relative, participating,
optional or other rights, and qualifications, limitations and restrictions
substantially similar to those of the Convertible Preferred Securities and which
debentures have terms substantially similar to those of the Convertible
Debentures.
The term "Fundamental Change" means the occurrence of any transaction or
event or series of transactions or events pursuant to which all or substantially
all of the Devon Common Stock shall be exchanged for, converted into, acquired
for or shall constitute solely the right to receive cash, securities, property
or other assets (whether by means of an exchange offer, liquidation, tender
offer, consolidation, merger, combination, reclassification, recapitalization or
otherwise); provided, however, in the case of any such series of transactions or
events, for purposes of adjustment of the conversion price, such Fundamental
Change shall be deemed to have occurred when substantially all of the Devon
Common Stock shall have been exchange for, converted into or acquired for, or
shall constitute solely the right to receive, such cash, securities, property or
other assets.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the daily Closing Price for one share of the
common stock received by holders of Devon Common Stock (determined as provided
in the Declaration) in such Common Stock Fundamental Change during the 10
Trading Days immediately prior to the date fixed for the determination of the
holders of Devon Common Stock entitled to receive such common stock or, if there
is no such date, prior to the date upon which the holders of Devon Common Stock
shall have the right to receive such common stock.
The term "Reference Market Price" shall initially mean $16.50 (which is an
amount equal to 66 2/3% of the reported last sale price for Devon Common Stock
on the American Stock Exchange on June 26, 1996) and, in the event of any
adjustment to the conversion price other than as a result of a Fundamental
Change, the Reference Market Price shall also be adjusted so that the ratio of
the Reference Market Price to the conversion price after giving effect to any
such adjustment shall always be the same as the ratio of the initial Reference
Market Price to the initial conversion price of $30.50 per share.
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<PAGE> 24
MANDATORY REDEMPTION
The Convertible Debentures will mature on June 15, 2026, and may be
redeemed, in whole or in part, at any time on or after June 18, 1999, or at any
time in certain circumstances upon the occurrence of a Special Event (as defined
below). Upon the repayment of the Convertible Debentures, whether at maturity or
upon redemption, the proceeds from such repayment or payment shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Convertible
Debentures so repaid or redeemed at the appropriate Redemption Price (expressed
as percentages of the principal amount of the Convertible Debentures) set forth
below, together with accrued and unpaid interest on the Convertible Debentures
to, but excluding, the redemption date, if redeemed during the 12-month period
beginning June 15 of the applicable year; provided, that holders of Trust
Securities shall be given not less than 30 nor more than 60 days notice of such
redemption. See "Description of the Convertible Debentures -- Redemption at the
Option of Devon." In the event that fewer than all of the outstanding
Convertible Preferred Securities are to be redeemed, the Convertible Preferred
Securities will be redeemed pro rata as described under "-- Form, Denomination
and Registration" below.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999................................................................. 104.55%
2000................................................................. 103.90
2001................................................................. 103.25
2002................................................................. 102.60
2003................................................................. 101.95
2004................................................................. 101.30
2005................................................................. 100.65
2006 and thereafter.................................................. 100.00
</TABLE>
SPECIAL EVENT DISTRIBUTION; TAX EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of independent tax counsel experienced in such matters (a "Dissolution Tax
Opinion") to the effect that as a result of (a) any amendment to, clarification
of, or change (including any announced prospective change) in the laws, or any
regulations thereunder, of the United States or any political subdivision or
taxing authority thereof or therein, (b) any judicial decision, official
administrative pronouncement, ruling, regulatory procedure, notice or
announcement, including any notice or announcement of intent to adopt such
procedures or regulations (an "Administrative Action"), or (c) any amendment to,
clarification of, or change in the official position or the interpretation of
such Administrative Action or judicial decision that differs from the
theretofore generally accepted position, in each case, by any legislative body,
court, governmental authority or regulatory body, irrespective of the manner in
which such amendment, clarification or change is made known, which amendment,
clarification, or change is effective or such pronouncement or decision is
announced, in each case, on or after the date of this Prospectus, there is the
creation by such change in tax law of more than an insubstantial risk that (i)
the Trust is or will be subject to United States federal income tax with respect
to income accrued or received on the Convertible Debentures, (ii) the Trust is,
or will be subject to more than a de minimis amount of taxes, duties or other
governmental charges, or (iii) interest paid in cash by Devon to the Trust on
the Convertible Debentures is not, or will not be, deductible, in whole or in
part, by Devon for United States federal income tax purposes. Notwithstanding
the foregoing, a Tax Event shall not include any change in tax law that requires
Devon for United States federal income tax purposes to defer taking a deduction
for any original issue discount ("OID") that accrues with respect to the
Convertible Debentures until the interest payment related to such OID is paid by
the Company in cash; provided, that such change in tax law does not create more
than an insubstantial risk that Devon will be prevented from taking a deduction
for OID accruing with respect to the Convertible Debentures at a date that is no
later than the date the interest payment related to such OID is actually paid by
Devon in cash.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of independent counsel experienced in such matters to the
effect that, as a result of the occurrence of a change in
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law or regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority on or after the date of this Prospectus (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
If, at any time, a Tax Event or an Investment Company Event (each, a
"Special Event") shall occur and be continuing, the Trust may with the consent
of Devon, except in the limited circumstances described below, be dissolved with
the result that Convertible Debentures with an aggregate principal amount equal
to the aggregate stated liquidation amount of, with an interest rate identical
to the distribution rate of, and accrued and unpaid interest equal to accrued
and unpaid distributions on, the Trust Securities, would be distributed to the
holders of the Trust Securities in liquidation of such holders' interest in the
Trust on a pro rata basis within 90 days following the occurrence of the Special
Event; provided, that such dissolution and distribution shall be conditioned on
(i) the Regular Trustees' receipt of an opinion of independent tax counsel
experienced in such matters (a "No Recognition Opinion"), which opinion may rely
on published revenue rulings of the Internal Revenue Service, to the effect that
the holders of the Trust Securities will not recognize any gain or loss for
United States federal income tax purposes as a result of such dissolution and
distribution of Convertible Debentures, (ii) Devon or the Trust being unable to
avoid such Tax Event within such 90 day period by taking some ministerial action
or pursuing some other reasonable measure that will have no adverse effect on
the Trust, Devon or the holders of the Trust Securities and (iii) Devon's prior
written consent to such dissolution and distribution. If Devon declines to
consent to the dissolution and distribution, Devon may incur an obligation to
pay Additional Interest. See "Description of the Convertible
Debentures -- Additional Interest." Furthermore, if after receipt of a
Dissolution Tax Opinion by the Regular Trustees (i) Devon has received an
opinion (a "Redemption Tax Opinion") of nationally recognized independent tax
counsel experienced in such matters that, as a result of a Tax Event, there is
more than an insubstantial risk that Devon would be precluded from deducting the
interest on the Convertible Debentures for United States federal income tax
purposes even after the Convertible Debentures were distributed to the holders
of Trust Securities in liquidation of such holders' interests in the Trust as
described above, or (ii) the Regular Trustees shall have been informed by such
tax counsel that it cannot deliver a No Recognition Opinion to the Trust, Devon
shall have the right, upon not less than 30 nor more than 60 days notice, to
redeem the Convertible Debentures, in whole or in part, at 100% of the principal
amount thereof plus accrued and unpaid interest thereon for cash within 90 days
following the occurrence of such Tax Event. Following such redemption, Trust
Securities with an aggregate liquidation amount equal to the aggregate principal
amount of the Convertible Debentures so redeemed shall be redeemed by the Trust
at the liquidation amount thereof plus accrued and unpaid distributions thereon
to the redemption date on a pro rata basis; provided, however, that if at the
time there is available to Devon or the Trust the opportunity to eliminate,
within such 90 day period, the Tax Event by taking some ministerial action, such
as filing a form or making an election or pursuing some other similar reasonable
measure that will have no adverse effect on the Trust, Devon or the holders of
the Trust Securities, Devon or the Trust will pursue such measure in lieu of
redemption.
After the date for any distribution of Convertible Debentures upon
dissolution of the Trust, (i) the Trust Securities will no longer be deemed to
be outstanding, (ii) certificates representing Trust Securities will be deemed
to represent Convertible Debentures having an aggregate principal amount equal
to the aggregate stated liquidation amount of, with an interest rate identical
to the distribution rate of, and accrued and unpaid interest (including Compound
Interest) equal to accrued and unpaid distributions on such Trust Securities
until such certificates are presented to Devon or its agent for transfer or
reissuance.
Devon is a holding company whose operations are conducted through direct
and indirect wholly-owned subsidiaries, and the ability of Devon to redeem the
Convertible Debentures and, therefore, of the Trust to redeem the Convertible
Preferred Securities will be dependent on Devon's subsidiaries' ability to pay
dividends to Devon in sufficient amounts.
There can be no assurance as to the market price for the Convertible
Debentures which may be distributed in exchange for Trust Securities if a
dissolution and liquidation of the Trust were to occur.
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Accordingly, the Convertible Debentures that the investor may subsequently
receive on dissolution and liquidation of the Trust may trade at a discount to
the price of the Trust Securities exchanged.
REDEMPTION PROCEDURES FOR REDEMPTION BY THE TRUST
The Trust may not redeem fewer than all of the outstanding Convertible
Preferred Securities unless all accrued and unpaid distributions have been paid
on all Convertible Preferred Securities for all quarterly distribution periods
terminating on or prior to the date of redemption.
In the event of any redemption in part, the Trust shall not be required to
(i) issue, register the transfer of or exchange any Convertible Preferred
Securities during a period beginning at the opening of business 15 days before
any selection for redemption of Convertible Preferred Securities and ending at
the close of business on the earliest date in which the relevant notice of
redemption is deemed to have been given to all holders of Convertible Preferred
Securities to be so redeemed or (ii) register the transfer of or exchange any
Convertible Preferred Securities so selected for redemption, in whole or in
part, except for the unredeemed portion of any Convertible Preferred Securities
being redeemed in part.
If the Trust gives a notice of redemption in respect of Convertible
Preferred Securities (which notice will be irrevocable), then, by 12:00 noon,
New York City time, on the redemption date, provided that Devon has paid to the
Institutional Trustee a sufficient amount of cash in connection with the related
redemption of the Convertible Debentures, the Trust will irrevocably deposit
with the Depositary funds sufficient to pay the amount payable on redemption of
all book-entry certificates and will give the Depositary irrevocable
instructions and authority to pay such amount in respect of Convertible
Preferred Securities represented by the Global Certificates (as defined herein)
and will irrevocably deposit with the paying agent for the Convertible Preferred
Securities funds sufficient to pay such amount in respect of any certificated
Convertible Preferred Securities and will give such paying agent irrevocable
instructions and authority to pay such amount to the holders of certificated
Convertible Preferred Securities upon surrender of their certificates. If notice
of redemption shall have been given and funds deposited as required, then,
immediately prior to the close of business on the redemption date, distributions
will cease to accrue and all rights of holders of such Convertible Preferred
Securities so called for redemption will cease, except the right of the holders
of such Convertible Preferred Securities to receive the Redemption Price plus
accrued and unpaid distributions on the convertible Preferred Securities to be
redeemed, but without interest on such Redemption Price. In the event that any
date fixed for redemption of Convertible Preferred Securities is not a Business
Day, then payment of the Redemption Price payable on such date will be made on
the next succeeding day that is a Business Day (without any interest or other
payment in respect of any such delay) except that, if such Business Day falls in
the next calendar year, such payment will be made on the immediately preceding
Business Day. In the event that payment of the Redemption Price in respect of
Convertible Preferred Securities is improperly withheld or refused and not paid
either by the Trust, or by Devon pursuant to the Guarantee, distributions on
such Convertible Preferred Securities will continue to accrue at the then
applicable rate from the original redemption date to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Convertible Preferred
Securities are to be redeemed, the Convertible Preferred Securities will be
redeemed pro rata.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), Devon or its subsidiaries may at any
time, and from time to time, purchase outstanding Convertible Preferred
Securities by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Convertible Preferred Securities will be entitled to receive out of the
assets of the Trust, after satisfaction of liabilities to creditors,
distributions in an amount equal to the aggregate of the stated liquidation
amount of $50 per Convertible Preferred Security plus accrued and unpaid
distributions thereon to the date of payment (the "Liquidation Distribution"),
unless, in
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connection with such Liquidation, Convertible Debentures in an aggregate stated
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid distributions on, the Convertible Preferred
Securities have been distributed on a pro rata basis to the holders of the
Convertible Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Convertible Preferred Securities shall be paid on a pro rata basis.
The holders of the Common Securities will be entitled to receive distributions
upon any such dissolution pro rata with the holders of the Convertible Preferred
Securities, except that if a Declaration Event of Default has occurred and is
continuing, the Convertible Preferred Securities shall have a preference over
the Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on June 25,
2036, the expiration of the term of the Trust, (ii) upon the bankruptcy of Devon
or the holder of the Common Securities, (iii) upon the filing of a certificate
of dissolution or its equivalent with respect to the holder of the Common
Securities or Devon, the filing of a certificate of cancellation with respect to
the Trust after obtaining the consent of the holders of at least a majority in
liquidation amount of the Trust Securities affected thereby voting together as a
single class to file such certificate of cancellation, or the revocation of the
charter of the holder of the Common Securities or Devon and the expiration of 90
days after the date of revocation without a reinstatement thereof, (iv) upon the
distribution of Convertible Debentures upon the occurrence of a Special Event,
(v) upon the entry of a decree of a judicial dissolution of the holder of the
Common Securities, Devon or the Trust, (vi) upon the redemption of all the Trust
Securities or (vii) upon the distribution of Devon Common Stock to all holders
of Convertible Preferred Securities upon conversion of all outstanding
Convertible Preferred Securities.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Convertible Preferred
Securities have been cured, waived or otherwise eliminated. Until such
Declaration Events of Default with respect to the Convertible Preferred
Securities have been so cured, waived, or otherwise eliminated, the
Institutional Trustee will be deemed to be acting solely on behalf of the
holders of the Convertible Preferred Securities and only the holders of the
Convertible Preferred Securities will have the right to direct the Institutional
Trustee with respect to certain matters under the Declaration, and therefore the
Indenture.
If the Institutional Trustee fails to enforce its rights under the
Convertible Debentures any holder of Convertible Preferred Securities may
institute a legal proceeding against Devon to enforce the Institutional
Trustee's rights under the Convertible Debentures. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of Devon to pay interest or principal
on the Convertible Debentures on the date such interest or principal is
otherwise payable (or in the case of redemption, the redemption date), then a
holder of Convertible Preferred Securities may institute a Direct Action for
payment on or after the respective due date specified in the Convertible
Debentures. In connection with such Direct Action, Devon will be subrogated to
the rights of such holders of Convertible Preferred Securities under the
Declaration to the extent of any payment made by Devon to such holder of
Convertible Preferred Securities in such Direct Action. The holders of
Convertible Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures.
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Convertible Debentures will have the right
under the Indenture to declare the principal of and interest on the Convertible
Debentures to be immediately due and payable. Devon and the Trust are each
required to file annually with the Institutional Trustee an officer's
certificate as to its compliance with all conditions and covenants under the
Declaration.
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VOTING RIGHTS
Except as described herein, under the Trust Act and under the Trust
Indenture Act, and as otherwise required by law and the Declaration, the holders
of the Convertible Preferred Securities have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of the next
paragraph, the holders of a majority in aggregate liquidation amount of the
Convertible Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Institutional
Trustee, or direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration, including the right to direct the
Institutional Trustee, as holder of the Convertible Debentures, to (i) exercise
the remedies available under the Indenture with respect to the Convertible
Debentures, (ii) waive any past Indenture Event of Default that is waivable
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Convertible Debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture or
the Convertible Debentures where such consent shall be required; provided,
however, that if an Indenture Event of Default has occurred and is continuing
then, the holders of 25% of the aggregate liquidation amount of the Convertible
Preferred Securities may direct the Institutional Trustee to declare the
principal of and interest on the Convertible Debentures immediately due and
payable; provided, further, that, where a consent or action under the Indenture
would require the consent or action of holders of more than a majority in
principal amount of the Convertible Debentures (a "Super-Majority") affected
thereby, only the holders of at least such Super-Majority in aggregate
liquidation amount of the Convertible Preferred Securities may direct the
Institutional Trustee to give such consent or take such action.
The Institutional Trustee shall notify all holders of the Convertible
Preferred Securities of any notice of default received from the Debt Trustee
with respect to the Convertible Debentures. Such notice shall state that such
Indenture Event of Default also constitutes a Declaration Event of Default.
Except with respect to directing the time, method and place of conducting a
proceeding for a remedy, the Institutional Trustee shall not take any of the
actions described in clauses (i), (ii) or (iii) above unless the Institutional
Trustee has obtained an opinion of tax counsel to the effect that, as a result
of such action, the Trust will not be classified as other than a grantor trust
for United States federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Institutional
Trustee shall request the direction of the holders of the Trust Securities with
respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed by a majority
in liquidation amount of the Trust Securities voting together as a single class;
provided, however, that where a consent under the Indenture would require the
consent of a Super-Majority, the Institutional Trustee may only give such
consent at the direction of the holders of at least the proportion in
liquidation amount of the Trust Securities which the relevant Super-Majority
represents of the aggregate principal amount of the Convertible Debentures
outstanding. The Institutional Trustee shall be under no obligation to take any
such action in accordance with the directions of the holders of the Trust
Securities unless the Institutional Trustee has obtained an opinion of
independent tax counsel experienced in such matters to the effect that for the
purposes of United States federal income tax the Trust will not be classified as
other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Convertible Preferred
Securities may be given at a separate meeting of holders of Convertible
Preferred Securities convened for such purpose, at a meeting of all of the
holders of Trust Securities or pursuant to written consent. The Regular Trustees
will cause a notice of any meeting at which holders of Convertible Preferred
Securities are entitled to vote, or of any matter upon which action by written
consent of such holders is to be taken, to be mailed to each holder of record of
Convertible Preferred Securities. Each such notice will include a statement
setting forth the following information: (i) the date of such meeting or the
date by which such action is to be taken; (ii) a description of any resolution
proposed for adoption at such meeting on which such holders are entitled to vote
or of such
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matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of
Convertible Preferred Securities will be required for the Trust to redeem and
cancel Convertible Preferred Securities or distribute Convertible Debentures in
accordance with the Declaration.
Notwithstanding that holders of Convertible Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Convertible Preferred Securities that are owned at such time by Devon or
any entity directly controlling or controlled by, or under direct or indirect
common control with, Devon, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Convertible
Preferred Securities were not outstanding.
The procedures by which holders of Convertible Preferred Securities may
exercise their voting rights are described below. See "-- Form, Denomination and
Registration."
Holders of the Convertible Preferred Securities have no rights to appoint
or remove the Regular Trustees, who may be appointed, removed or replaced solely
by Devon as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee), provided
that, if any proposed amendment provides for, or the Regular Trustees otherwise
propose to effect, (i) any action that would adversely affect the powers,
preferences or special rights of the Trust Securities, whether by way of
amendment to the Declaration or otherwise or (ii) the dissolution, winding-up or
termination of the Trust other than pursuant to the terms of the Declaration,
then the holders of the Trust Securities voting together as a single class will
be entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a least a majority in
liquidation amount of the Trust Securities affected thereby; provided that, if
any amendment or proposal referred to in clause (i) above would adversely affect
only the Convertible Preferred Securities or the Common Securities, then only
the affected class will be entitled to vote on such amendment or proposal and
such amendment or proposal shall not be effective except with the approval of a
majority in liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" that is required to be registered under the 1940 Act.
PROPOSED TAX LEGISLATION
On March 19, 1996, as a part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed the Proposed Legislation that, among
other things, would treat as equity for United States federal income tax
purposes instruments with a maximum term of more than 20 years which are not
shown as indebtedness on the consolidated balance sheet of the issuer. The
Proposed Legislation, in its current proposed form, would appear to be
applicable to the Convertible Preferred Securities.
On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr.
and House Ways and Means Committee Chairman Bill Archer issued the Joint
Statement indicating their intent that certain legislative proposals initiated
by the Clinton Administration, including the Proposed Legislation, if adopted by
either of the tax-writing committees of Congress, would have an effective date
no earlier than the date of "appropriate Congressional actions." Based upon the
Joint Statement, it is anticipated that if the Proposed Legislation were
enacted, such legislation would not apply to the Convertible Debentures if they
are issued prior to the date of any "appropriate Congressional action." There
can be no assurance that any proposed legislation enacted after the date hereof
will not otherwise adversely affect the tax treatment of the Convertible
Debentures.
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If legislation is enacted which adversely affects the tax treatment of the
Convertible Debentures, such legislation could result in the distribution of the
Convertible Debentures to holders of the Convertible Preferred Securities or, in
certain circumstances, the redemption of such securities by the Company and the
distribution of the resulting cash in redemption of the Convertible Preferred
Securities. See "Description of the Convertible Preferred Securities -- Special
Event Distribution; Tax Redemption."
MERGERS, CONSOLIDATIONS OR AMALGAMATION
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by a Trust organized as such
under the laws of any State; provided, that (i) such successor entity either (x)
expressly assumes all of the obligations of the Trust under the Trust Securities
or (y) substitutes for the Convertible Preferred Securities other securities
have substantially the same terms as the Trust Securities (the "Successor
Securities"), so long as the Successor Securities rank the same as the Trust
Securities rank with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) Devon expressly acknowledges a trustee of such
successor entity possessing the same powers and duties as the Institutional
Trustee as the holder of the Convertible Debentures, (iii) such merger,
consolidation, amalgamation or replacement does not cause the Convertible
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (iv) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the holders' interest in the new entity), (v) such successor entity
has a purpose identical to that of the Trust, (vi) prior to such merger,
consolidation, amalgamation or replacement, Devon has received an opinion of
independent counsel to the Trust experienced in such matters to the effect that:
(A) such merger, consolidation, amalgamation or replacement does not adversely
affect the rights, preferences and privileges of the holders of the Trust
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the new entity),
(B) following such merger, consolidation, amalgamation or replacement, neither
the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act and (C) following such merger,
consolidation, amalgamation or replacement, the Trust (or such successor entity)
will continue to be classified as a grantor trust for United States federal
income tax purposes and (vii) Devon guarantees the obligations of such successor
entity under the Successor Securities at least to the extent provided by the
Guarantee and the Common Securities Guarantee. Notwithstanding the foregoing,
the Trust shall not, except with the consent of holders of 100% in liquidation
amount of the Trust Securities, consolidate, amalgamate, merge with or into, or
be replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as other than a grantor trust for United States federal
income tax purposes.
REGISTRATION RIGHTS
Devon and the Trust (together, the "Registrants") entered into a
registration rights agreement with the Initial Purchaser (the "Registration
Rights Agreement") pursuant to which the Registrants, at Devon's expense, would,
for the benefit of the holders, (i) file with the Commission the Shelf
Registration Statement covering resale of the Registrable Securities within 90
days after the latest date of original issuance of the Convertible Preferred
Securities, (ii) use their best efforts to cause the Shelf Registration
Statement to become effective promptly and (iii) use their best efforts to keep
the Shelf Registration Statement effective until the earlier of (a) the sale
pursuant to the Shelf Registration Statement or Rule 144 under the Securities
Act of all the Registrable Securities and (b) the expiration of the holding
period applicable to sales of Registrable Securities under Rule 144(k) under the
Securities Act, or any successor provision. The Registrants will be permitted to
suspend the use of the prospectus which is a part of the Shelf Registration
Statement for a period not to exceed 30 days in any three month period or two
periods not to exceed an aggregate of 60 days in any 12-month period under
certain circumstances relating to pending corporate
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developments, public filings with the Commission and similar events. Devon
agreed to pay liquidated damages to holders of Registrable Securities who have
requested to sell pursuant to the Shelf Registration Statement if the Shelf
Registration Statement is not timely filed or if the prospectus is unavailable
for periods in excess of those permitted above until such time as the Shelf
Registration Statement is filed or the prospectus is again made available, as
the case may be. The Company has further agreed, if such failure to file or
unavailability continues for an additional thirty-day period, to pay liquidated
damages to all holders of Registrable Securities, whether or not any such holder
has requested to sell pursuant to the Shelf Registration Statement, until such
time as the Shelf Registration Statement is filed or the prospectus is again
made available, as the case may be. A holder who sells Registrable Securities
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling stockholder in the related prospectus, deliver a prospectus
to purchasers and be bound by those provisions of the Registration Rights
Agreement that are applicable to such holder (including indemnification
provisions).
Devon agreed in the Registration Rights Agreement to use its best efforts
to cause the Devon Common Stock issuable upon conversion of the Convertible
Securities to be listed on the American Stock Exchange (or such other national
securities exchange on which the Devon Common Stock may be listed at such time)
upon effectiveness of the Shelf Registration Statement.
The summary herein of certain provisions of the Registration Rights
Agreement is subject to, and is qualified in its entirety by reference to, all
the provisions of the Registration Rights Agreement, a copy of which is
available upon request to Devon or the Initial Purchaser.
FORM, DENOMINATION AND REGISTRATION
Convertible Preferred Securities were issued in fully registered form,
without coupons.
Global Convertible Preferred Securities; Book-Entry Form.
Holders of Convertible Preferred Securities registered hereunder may take
physical delivery of the securities in definitive form or the securities may be
evidenced by a global Convertible Preferred Security (the "Global Security")
which will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York ("DTC") and registered in the name of Cede & Co. ("Cede"), as
DTC's nominee.
Distributions on the Global Security will be made to Cede, the nominee for
DTC, as the registered owner of the Global Security by wire transfer of
immediately available funds. None of Devon, the Trust or any Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DTC's practice is to credit Participants' accounts on the relevant payment
date with payments in amounts proportionate to their respective beneficial
interests in the Convertible Preferred Securities represented by the Global
Security as shown on the records of DTC (adjusted as necessary so that such
payments are made with respect to whole Convertible Preferred Securities only),
unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by Participants to owners of beneficial interests in
Convertible Preferred Securities represented by the Global Security held through
such Participants will be the responsibility of such Participants, as is now the
case with securities held for the accounts of customers registered in "street
name."
Beneficial holders of Convertible Preferred Securities who desire to
convert them into Underlying Common Stock should contact their brokers or other
Participants or Indirect Participants to obtain information on procedures,
including proper forms and cut-off times, for submitting such request. Because
DTC can only act on behalf of Participants, who in turn act on behalf of
Indirect Participants, the ability of a person having a beneficial interest in
the Convertible Preferred Securities represented by the Global Security to
pledge such interest to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interest, may be affected
by the lack of a physical certificate evidencing such interest.
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None of Devon, the Trust or any Trustee (or any registrar, paying agent or
conversion agent) will have any responsibility for the performance by DTC or
their Participants or indirect participants of their respective obligations
under the rules and procedures governing their operations. DTC has advised Devon
and the Trust that it will take any action permitted to be taken by a holder of
Convertible Preferred Securities (including, without limitation, the
presentation of Convertible Preferred Securities for conversion) only at the
direction of one or more Participants to whose account with DTC interests in the
Global Security are credited.
DTC has advised Devon and the Trust as follows: DTC is a limited purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations such as the Initial Purchaser. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the Global Security.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and Indirect Participants to beneficial
owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements that may be in effect from time to time. Redemption
notices shall be sent to Cede & Co. If less than all of the Convertible
Preferred Securities are being redeemed, DTC will reduce the amount of the
interest of each Participant in such Convertible Preferred Securities in
accordance with its procedures.
Although voting with respect to the Convertible Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor Cede will
itself consent or vote with respect to Convertible Preferred Securities. Under
its usual procedures, DTC would mail an Omnibus Proxy to the Trust as soon as
possible after the record date. The Omnibus Proxy assigns Cede consenting or
voting rights to those Participants to whose accounts the Convertible Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy). Devon and the Trust believe that the arrangements among DTC,
the Participants and Indirect Participants, and beneficial owners will enable
the beneficial owners to exercise rights equivalent in substance to the rights
that can be directly exercised by a holder of a beneficial interest in the
Trust.
DTC may discontinue providing its services as securities depositary with
respect to the Convertible Preferred Securities at any time by giving reasonable
notice to the Trust. Under such circumstances, in the event that a successor
securities depositary is not obtained, certificates for the Convertible
Preferred Securities are required to be printed and delivered. Additionally, the
Regular Trustees (with the consent of Devon) may decide to discontinue use of
the system of book-entry transfers through DTC (or any successor depositary)
with respect to the Convertible Preferred Securities. In that event,
certificates for the Convertible Preferred Securities will be printed and
delivered.
Holders of Convertible Preferred Securities evidenced by the Global
Security may request that any beneficial interest in the Convertible Preferred
Securities be exchanged for certificated securities in definitive form pursuant
to the requirements of DTC for such an exchange.
Holders may request that any certificated Convertible Preferred Securities
they hold in definitive registered form be exchanged for interests in the
applicable Global Security. Certificated Convertible Preferred Securities may be
issued in exchange for Convertible Preferred Securities represented by a Global
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Security if a depositary is unwilling or unable to continue as a depositary for
the Global Security as set forth above.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with
respect to the Trust Securities and after the curing of any defaults that may
have occurred, has undertaken to perform only such duties as are specifically
set forth in the Declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Institutional Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at the
request of any holder of Convertible Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The holders of Convertible Preferred Securities
will not be required to offer such indemnity in the event such holders, by
exercising their voting rights, direct the Institutional Trustee to take any
action it is empowered to take under the Declaration following a Declaration
Event of Default. The Institutional Trustee also serves as trustee under the
Guarantee and the Indenture.
Conversion Agent, Paying Agent, Registrar and Transfer Agent.
The Institutional Trustee acts as Registrar, Transfer Agent, Conversion
Agent and Paying Agent for the Convertible Preferred Securities.
Registration of transfers of Convertible Preferred Securities will be
effected without charge by or on behalf of the Trust, but upon payment (with the
giving of such indemnity as the Trust or Devon may require) in respect of any
tax or other government charges that may be imposed in relation to it.
The Trust is not be required to register or cause to be registered the
transfer of Convertible Preferred Securities after such Convertible Preferred
Securities have been called for redemption.
GOVERNING LAW
The Declaration and the Convertible Preferred Securities are governed by,
and construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or characterized as other than a grantor trust for
United States federal income tax purposes. Devon is authorized and directed to
conduct its affairs so that the Convertible Debentures will be treated as
indebtedness of Devon for United States federal income tax purposes. In this
connection, Devon and the Regular Trustees are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of the Trust or
the certificate of incorporation of Devon, that each of Devon and the Regular
Trustees determine in their discretion to be necessary or desirable to achieve
such end, as long as such action does not adversely affect the interests of the
holders of the Convertible Preferred Securities or vary the terms thereof.
Holders of the Convertible Preferred Securities have no preemptive rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee which
was executed and delivered by Devon for the benefit of the holders from time to
time of Convertible Preferred Securities. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Guarantee. The Guarantee incorporates by
reference the terms of the Trust Indenture Act. The Guarantee will be qualified
under the Trust Indenture Act. The Bank of New York, as the Guarantee Trustee,
holds the Guarantee for the benefit of the holders of the Convertible Preferred
Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, Devon has agreed
to pay in full to the holders of the Convertible Preferred Securities (except to
the extent paid by the Trust), as and when due, regardless of any defense, right
of set off or counterclaim which the Trust may have or assert, the following
payments (the "Guarantee Payments"), without duplication: (i) any accrued and
unpaid distributions that are required to be paid on the Convertible Preferred
Securities to the extent the Trust has funds available therefor, (ii) the
Redemption Price plus accrued and unpaid distributions, with respect to any
Convertible Preferred Securities called for redemption by the Trust, to the
extent the Trust has funds available therefor and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Convertible Debentures to the holders of
Convertible Preferred Securities or the redemption of all the Convertible
Preferred Securities), the lesser of (a) the aggregate of the liquidation amount
and all accrued and unpaid distributions on the Convertible Preferred Securities
to the date of payment to the extent the Trust has funds available therefor and
(b) the amount of assets of the Trust remaining available for distribution to
holders of Preferred Securities upon the liquidation of the Trust. The holders
of a majority in liquidation amount of the Preferred Securities have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Guarantee. Any holder of
Convertible Preferred Securities may directly institute a legal proceeding
against Devon to enforce the obligations of the Guarantor under the Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity. If Devon were to default on its
obligation to pay amounts payable on the Convertible Debentures, the Trust would
lack available funds for the payment of distributions or amounts payable on
redemption of the Convertible Preferred Securities or otherwise, and in such
event holders of the Convertible Preferred Securities would not be able to rely
upon the Guarantee for payment of such amounts. Instead, a holder of the
Convertible Preferred Securities would be required to rely on the enforcement
(1) by the Institutional Trustee of its rights, as registered holder of the
Convertible Debentures, against Devon pursuant to the terms of the Convertible
Debentures or (2) by such holder of Convertible Preferred Securities of its
right against Devon to enforce payments on Convertible Debentures. See
"Description of the Convertible Debentures." The Declaration provides that each
holder of Convertible Preferred Securities, by acceptance thereof, agrees to the
provisions of the Guarantee, including the subordination provisions thereof, and
the Indenture.
The Guarantee does not apply to any payment of distributions or Redemption
Price, or to payments upon the dissolution, winding-up or termination of the
Trust, except to the extent the Trust shall have funds available therefor. If
Devon does not make interest payments on the Convertible Debentures, the Trust
will not pay distributions on the Convertible Preferred Securities and will not
have funds available therefor. See "Description of the Convertible Debentures."
The Guarantee, when taken together with Devon's obligations under the
Convertible Debentures, the Indenture and the Declaration, including its
obligations to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust Securities) provides a full and unconditional
guarantee on a subordinated basis by Devon of payments due on the Convertible
Preferred Securities.
Devon also agreed separately to irrevocably and unconditionally guarantee
the obligations of the Trust with respect to the Common Securities (the "Common
Securities Guarantee") to the same extent as the Guarantee, except that upon the
occurrence and during the continuation of a Declaration Event of Default,
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holders of Convertible Preferred Securities shall have priority over holders of
Common Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF DEVON
In the Guarantee, Devon has covenanted that, so long as any Convertible
Preferred Securities remain outstanding, if (i) the Company has exercised its
option to defer interest payments on the Convertible Debentures by extending the
interest payment period and such extension shall be continuing, (ii) the Company
shall be in default with respect to its payment or other obligations under the
Guarantee or (iii) there shall have occurred and be continuing any event that,
with the giving of notice would constitute a Declaration Event of Default, then
the Company (a) shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than (i) purchases or acquisitions
of shares of Devon Common Stock in connection with the satisfaction by Devon of
its obligations under any employee benefit plans, (ii) as a result of a
reclassification of Devon's capital stock or the exchange or conversion of one
class or series of Devon's capital stock for another class or series of Devon's
capital stock or, (iii) the purchase of fractional interests in shares of
Devon's capital stock pursuant to the conversion or exchange provisions of such
capital stock of Devon or the security being converted or exchanged for capital
stock of Devon) or make any guarantee payments with respect to the foregoing and
(b) shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities (including guarantees) of the
Company that rank pari passu with or junior to the Convertible Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Convertible Preferred Securities (in which case no vote
will be required), the Guarantee may be amended only with the prior approval of
the holders of at least a majority in liquidation amount of all the outstanding
Convertible Preferred Securities. The manner of obtaining any such approval of
holders of the Convertible Preferred Securities will be as set forth under
"Description of the Convertible Preferred Securities -- Voting Rights." All
guarantees and agreements contained in the Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of Devon and shall inure to the
benefit of the holders of the Convertible Preferred Securities then outstanding.
Except in connection with any permitted merger or consolidation of Devon with or
into another entity or any permitted sale, transfer or lease of Devon's assets
to another entity as described under "Description of the Convertible
Debentures -- Certain Covenants," the Company may not assign its rights or
delegate its obligations under the Guarantee without the prior approval of the
holders of at least a majority of the aggregate stated liquidation amount of the
Convertible Preferred Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Convertible Preferred
Securities upon (i) full payment of the Redemption Price and accrued and unpaid
distributions with respect to all Convertible Preferred Securities, (ii) upon
distribution of the Convertible Debentures held by the Trust to the holders of
the Convertible Preferred Securities, (iii) upon liquidation of the Trust or
(iv) upon the distribution of Company Common Stock to such holder in respect of
the conversion of such holder's Convertible Securities into Devon Common Stock
and will terminate completely upon full payment of the amounts payable in
accordance with the Declaration.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon (a) the failure of
Devon to perform any of its payment or other obligations thereunder or (b) if
applicable, the failure by Devon to deliver Devon Common Stock upon an
appropriate election by the holder or holders of Convertible Preferred
Securities to convert the Convertible Preferred Securities into shares of the
Devon Common Stock.
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The holders of a majority in liquidation amount of Convertible Preferred
Securities relating to the Guarantee have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Convertible Preferred
Securities. If the Guarantee Trustee fails to enforce the Guarantee, any holder
of Convertible Preferred Securities relating to such Guarantee may institute a
legal proceeding directly against Devon to enforce the Guarantee Trustee's
rights under the Guarantee, without first instituting a legal proceeding against
the Trust, the Guarantee Trustee or any other person or entity. Notwithstanding
the foregoing, if Devon has failed to make a guarantee payment, a holder of
Convertible Preferred Securities may directly institute a proceeding against
Devon for enforcement of the Guarantee for such payment. Devon waives any right
or remedy to require that any action be brought first against the Trust or any
other person or entity before proceeding directly against Devon.
STATUS OF THE GUARANTEE
The Guarantee constitutes an unsecured obligation of Devon and ranks (i)
subordinate and junior in right of payment to all other liabilities of Devon,
(ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by Devon and with any guarantee now or hereafter entered into
by Devon in respect of any preferred or preference stock of any affiliate of
Devon, and (iii) senior to Devon Common Stock. The terms of the Convertible
Preferred Securities provide that each holder of Convertible Preferred
Securities issued by the Trust by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee relating thereto.
The Guarantee constitutes a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the guarantor to enforce its rights under the guarantee without instituting a
legal proceeding against any other person or entity).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, has undertaken to perform only such duties as are specifically
set forth in the Guarantee and, after default with respect to the Guarantee,
shall exercise the same degree of care as a prudent man would exercise in the
conduct of his own affairs. Subject to such provision, the Guarantee Trustee is
under no obligation to exercise any of the powers vested in it by the Guarantee
at the request of any holder of Convertible Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
GOVERNING LAW
The Guarantee is governed by, and construed in accordance with, the laws of
the State of New York.
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DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of the specific terms of the Convertible
Debentures in which the Trust invested the proceeds from the issuance and sale
of the Trust Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to the
Indenture, dated as of July 3, 1996, as supplemented by the First Supplemental
Indenture dated as of July 3, 1996 (together, the "Indenture"), between Devon
and The Bank of New York, as Trustee (the "Debt Trustee"), a copy of which may
be obtained from Devon upon request. Certain capitalized terms used herein are
defined in the Indenture. The Indenture will be qualified under the Trust
Indenture Act.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Convertible Debentures may be
distributed to the holders of the Trust Securities in liquidation of the Trust.
See "Description of the Convertible Preferred Securities -- Special Event
Distribution; Tax Event Redemption."
GENERAL
The Convertible Debentures were issued as unsecured debt under the
Indenture. The Convertible Debentures were limited in aggregate principal amount
to approximately $154.1 million, such amount being the sum of the aggregate
stated liquidation of the Convertible Preferred Securities and the capital
contributed by Devon in exchange for the Common Securities (the "Devon Payment")
($149.5 million principal amount of such Convertible Debentures which relate to
the aggregated stated liquidation of the Convertible Preferred Securities are
being registered hereby).
The Convertible Debentures are not subject to a sinking fund provision. The
entire principal amount of the Convertible Debentures will mature and become due
and payable, together with any accrued and unpaid interest thereon including
compound interest and Additional Interest (as defined herein), if any, on June
15, 2026.
If Convertible Debentures are distributed to holders of Convertible
Preferred Securities in liquidation of such holders' interests in the Trust,
such Convertible Debentures will initially be issued in the same form as the
Convertible Preferred Securities that such Convertible Debentures replace. Under
certain limited circumstances, Convertible Debentures may be issued in
certificated form in exchange for a Global Security. See "Book-Entry and
Settlement" below. In the event that Convertible Debentures are issued in
certificated form, such Convertible Debentures will be in denominations of $50
and integral multiples thereof and may be transferred or exchanged at the
offices described below. Payments on Convertible Debentures issued as a Global
Security will be made to DTC, a successor depositary or, in the event that no
depositary is used, to a Paying Agent for the Convertible Debentures. With
respect to Convertible Debentures issued in certificated form, principal and
interest will be payable, the transfer of the Convertible Debentures will be
registrable and Convertible Debentures will be exchangeable for Convertible
Debentures of other denominations of a like aggregate principal amount at the
corporate trust office of the Institutional Trustee at 101 Barclay Street, 21st
floor, New York, New York, 10286; provided that payment of interest may be made
at the option of Devon by check mailed to the address of the holder entitled
thereto or by wire transfer to an account appropriately designated by the holder
entitled thereto. Notwithstanding the foregoing, so long as the holder of any
Convertible Debenture is the Institutional Trustee, the payment of principal and
interest on such Convertible Debenture will be made at such place and to such
account as may be designated by the Institutional Trustee.
The Indenture does not contain provisions that afford holders of the
Convertible Debentures protection in the event of a highly leveraged transaction
involving Devon that would adversely affect such holders.
INTEREST
Each Convertible Debenture shall bear interest at the rate of 6 1/2% per
annum from July 3, 1996, payable quarterly in arrears on March 15, June 15,
September 15 and December 15 of each year (each an "Interest Payment Date"),
commencing September 15, 1996, to the person in whose name such Convertible
Debenture is registered, subject to certain exceptions, 15 days prior to such
Interest Payment Date.
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The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed per 30-day
month. In the event that any date on which interest is payable on the
Convertible Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, then
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as Devon shall not be in default in the payment of interest on the
Convertible Debentures, Devon shall have the right at any time, and from time to
time, during the term of the Convertible Debentures to defer payments of
interest by extending the interest payment period for a period not exceeding 20
consecutive quarters, at the end of which Extension Period, Devon shall pay all
interest then accrued and unpaid (including any Additional Interest, as herein
defined) together with interest thereon compounded quarterly at the rate
specified for the Convertible Debentures to the extent permitted by applicable
law ("Compound Interest"); provided that during any such Extension Period, (a)
Devon shall not declare or pay dividends on, make any distribution with respect
to, or redeem, purchase, acquire or make a liquidation payment with respect to
any of its capital stock (other than (i) purchases or acquisitions of shares of
Devon Common Stock in connection with the satisfaction by Devon of its
obligations under any employee benefit plans, (ii) as a result of a
reclassification of Devon capital stock or the exchange or conversion of one
class or series of Devon's capital stock for another class or series of Devon
capital stock or (iii) the purchase of fractional interests in shares of Devon's
capital stock pursuant to the conversion or exchange provisions of such Devon
capital stock or the security being converted or exchanged for Devon capital
stock), (b) Devon shall not make any payment of interest, principal or premium,
if any, on or repay, repurchase or redeem any debt securities issued by Devon
that rank pari passu with or junior to the Convertible Debentures and (c) Devon
shall not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee). Prior to the termination of any such Extension
Period, Devon may further defer payments of interest by extending the interest
payment period; provided, however, that, such Extension Period, including all
such previous and further extensions, may not exceed 20 consecutive quarters or
extend beyond the maturity of the Convertible Debentures. Upon the termination
of any Extension Period and the payment of all amounts then due, Devon may
commence a new Extension Period, subject to the terms set forth in this section.
No interest during an Extension Period, except at the end thereof, shall be due
and payable. Devon has no present intention of exercising its right to defer
payments of interest by extending the interest payment period on the Convertible
Debentures. If the Institutional Trustee shall be the sole holder of the
Convertible Debentures, Devon shall give the Regular Trustees and the
Institutional Trustee notice of its selection of such Extension Period one
Business Day prior to the earlier of (i) the date distributions on the
Convertible Preferred Securities are payable or (ii) the date the Regular
Trustees are required to give notice to any applicable self-regulatory
organization or to holders of the Convertible Debentures of the record or
payment date of such related interest payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, Devon will pay as additional interest ("Additional Interest") such
additional amounts as shall be required so that the net amounts received and
retained by the Trust after paying any such taxes, duties, assessments or other
governmental charges will be not less than the amounts the Trust would have
received had no such taxes, duties, assessments or other governmental charges
been imposed.
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PROPOSED TAX LEGISLATION
Please refer to discussion above under the heading "Description of the
Convertible Preferred Securities -- Proposed Tax Legislation."
SUBORDINATION
The Indenture provides that the Convertible Debentures are subordinated and
junior in right of payment to all Senior Indebtedness of Devon. No payment of
principal (including redemption payments, if any), premium, if any, or interest
on the Convertible Debentures may be made (i) if any Senior Indebtedness of
Devon is not paid when due and any applicable grace period with respect to such
default has ended and such default has not been cured or waived or ceased to
exist or (ii) if the maturity of any Senior Indebtedness of Devon has been
accelerated because of a default. Devon also may not make any payment upon or in
respect of the Convertible Debentures if (i) a default in the payment of the
principal of, premium, if any, interest or other obligations in respect of
Senior Indebtedness occurs and is continuing beyond any applicable period of
grace or (ii) any nonpayment default occurs and is continuing with respect to
the Credit Agreements that permits the lenders to accelerate the maturity of the
loans made thereunder and the Debt Trustee receives a notice of such default (a
"Payment Blockage Notice") from Devon or other person permitted to give such
notice under the Indenture. Payments on the Convertible Debentures may and shall
be resumed (a) in case of a payment default, upon the date on which such default
is cured or waived and (b) in case of a nonpayment default, the earlier of the
date on which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received. No new period
of payment blockage may be commenced pursuant to a Payment Blockage Notice
unless and until (i) 365 days have elapsed since the initial effectiveness of
the immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Convertible Debentures that have
come due have been paid in full in cash. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
Upon any distribution of assets of Devon to creditors upon any dissolution,
winding-up, liquidation or reorganization, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other proceedings, all principal,
premium, if any, and interest due or to become due on all Senior Indebtedness of
Devon must be paid in full before the holders of Convertible Debentures are
entitled to receive or retain any payment. Upon satisfaction of all claims of
all Senior Indebtedness then outstanding, the rights of the holders of the
Convertible Debentures will be subrogated to the rights of the holders of Senior
Indebtedness of Devon to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Convertible Debentures are paid in
full.
The term "Senior Indebtedness" means, with respect to Devon, (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor, for money borrowed under any credit agreements, notes, guarantees or
similar documents and (B) indebtedness evidenced by securities, debentures,
bonds or other similar instruments issued by such obligor, (ii) all capital
lease obligations of such obligor, (iii) all obligations of such obligor issued
or assumed as the deferred purchase price of property, all conditional sale
obligations of such obligor and all obligations of such obligor under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement on any letter of credit, bankers' acceptance, security purchase
facility or similar credit transaction, (v) all obligations of such obligor
(contingent or otherwise) with respect to an interest rate or other swap, cap or
collar agreements, oil or gas commodity hedge transactions or other similar
instruments or agreements or foreign currency hedge, exchange, purchase or
similar instruments or agreements, (vi) all obligations of the types referred to
in clauses (i) through (v) above of other persons for the payment of which such
obligor is responsible or liable as obligor, guarantor or otherwise and (vii)
all obligations of the types referred to in clauses (i) through (vi) above of
other persons secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor), whether outstanding
on the date of the Indenture or thereafter created, incurred, assumed,
guaranteed or in effect guaranteed by such obligor, except for (1) any such
indebtedness that is by its terms subordinated to or pari passu with the
Convertible Debentures and (2) any indebtedness between or among such obligor or
its affiliates, including all other debt
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securities and guarantees in respect of those debt securities, issued to any
trust, or a trustee of such trust, partnership or other entity affiliated with
Devon that is a financing vehicle of Devon (a "financing entity") in connection
with the issuance by such financing entity of Convertible Preferred Securities
or other securities that rank pari passu with, or junior to, the Convertible
Preferred Securities. Such Senior Indebtedness shall continue to be Senior
Indebtedness and be entitled to the benefits of the subordination provisions
irrespective of any deferrals, renewals, extensions or refundings of, or
amendments, modifications, supplements or waivers of any term of such Senior
Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by Devon. Devon's operations are conducted through its direct
and indirect wholly-owned subsidiaries which have credit facilities totaling
$260 million. Indebtedness under these facilities is effectively senior to the
Convertible Debentures. As of August 9, 1996, no debt was outstanding under the
credit facilities, leaving all $260 million available.
CERTAIN COVENANTS
In the Indenture, Devon has covenanted that, so long as any Convertible
Debentures are outstanding, if (i) there shall have occurred any event that
would constitute an Event of Default, (ii) Devon shall be in default with
respect to its payment of any obligations under the Guarantee, or (iii) Devon
shall have given notice of its election to defer interest payments on the
Convertible Debentures by extending the interest payment period and such period,
or any extension thereof, shall be continuing, then Devon (a) shall not declare
or pay dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
other than (i) purchases or acquisitions of shares of Common Stock in connection
with the satisfaction by the Company of its obligations under any employee
benefit plans, (ii) as a result of a reclassification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class of series of the Company's capital stock or,
(iii) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock of
the Company or the security being converted or exchanged for Devon capital
stock) or make any guarantee payments with respect to the foregoing, and (b)
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities (including guarantees), issued
by Devon that rank pari passu with or junior to the Convertible Debentures.
Devon has agreed (i) to directly or indirectly maintain 100% ownership of
the Trust Common Securities; provided, however, that any permitted successor of
Devon under the Indenture may succeed to Devon's ownership of such Trust Common
Securities, (ii) to use its reasonable efforts to cause the Trust (x) to remain
a statutory business trust, except in connection with the distribution of
Convertible Debentures to the holders of Trust Securities in liquidation of the
Trust, the redemption of all of the Trust Securities of the Trust, or certain
mergers, consolidations or amalgamations, each as permitted by the Declaration,
and (y) to continue to be classified as a grantor trust for United States
federal income tax purpose and (iii) to use its reasonable efforts to cause each
holder of Trust Securities to be treated as owning an undivided beneficial
interest in the Convertible Debentures.
Devon may not merge or consolidate or sell or convey all or substantially
all of its assets unless the successor corporation (if other than Devon) is a
domestic corporation and assumes Devon's obligations on the Convertible
Debentures and under the Indenture, and unless after giving effect to such
transaction Devon or the successor corporation would not be in default under the
Indenture.
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<PAGE> 41
REDEMPTION AT THE OPTION OF DEVON
Devon shall have the right to redeem the Convertible Debentures, in whole
or in part, from time to time, on or after June 18, 1999, upon not less than 30
nor more than 60 days notice, at the following prices (expressed as percentages
of the principal amount of the Convertible Debentures) together with accrued and
unpaid interest, including Compound Interest (as defined herein) to, but
excluding, the redemption date, if redeemed during the 12-month period beginning
June 15:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999................................................................. 104.55%
2000................................................................. 103.90
2001................................................................. 103.25
2002................................................................. 102.60
2003................................................................. 101.95
2004................................................................. 101.30
2005................................................................. 100.65
</TABLE>
and 100% if redeemed on or after June 15, 2006.
If Convertible Debentures are redeemed on any March 15, June 15, September
15, or December 15, accrued and unpaid interest shall be payable to holders of
record on the relevant record date.
Devon shall also have the right to redeem the Convertible Debentures at any
time in certain circumstances upon the occurrence of a Special Event as
described under "Description of the Convertible Preferred Securities -- Special
Event Distribution; Tax Event Redemption" at 100% of the principal amount
thereof together with accrued and unpaid interest (including compound interest)
to the redemption date.
So long as the corresponding Convertible Preferred Securities are
outstanding, the proceeds from the redemption of the Convertible Debentures will
be used to redeem Convertible Preferred Securities.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures are convertible into Devon Common Stock at the
option of the holders of the Convertible Debentures at any time beginning 90
days following the first date that any Convertible Preferred Securities were
issued and prior to the close of business on the Business Day prior to the
maturity date of the Convertible Debentures (or, in the case of Convertible
Debentures called for redemption, the close of business on the Business Day
prior to the Redemption Date) at an initial conversion rate of 1.6393 shares of
Devon Common Stock for each Convertible Debenture (equivalent to a conversion
price of $30.50 per share of Devon Common Stock), subject to adjustment as
described under "Description of the Convertible Preferred
Securities -- Conversion Rights." The Trust has agreed not to convert
Convertible Debentures held by it except pursuant to a notice of conversion
delivered to the Conversion Agent by a holder of Convertible Preferred
Securities. Upon surrender of a Convertible Preferred Security to the Conversion
Agent for conversion, the Trust will distribute Convertible Debentures to the
Conversion Agent on behalf of the holder of the Convertible Preferred Securities
so converted, whereupon the Conversion Agent will convert such Convertible
Debentures to Devon Common Stock on behalf of such holder. Devon's delivery to
the holders of the Convertible Debentures (through the Conversion Agent) of the
fixed number of shares of Devon Common Stock into which the Convertible
Debentures are convertible (together with the cash payment, if any, in lieu of
fractional shares) will be deemed to satisfy Devon's obligation to pay the
principal amount of the Convertible Debentures so converted, and the accrued and
unpaid interest thereon attributable to the period from the last date to which
interest has been paid or duly provided for; provided, however, that if any
Convertible Debenture is converted on or after a record date for payment of
interest, the interest payable on the related interest payment date with respect
to such Convertible Debenture shall be paid to the Trust (which will distribute
such interest to the converting holder) or other holder of Convertible
Debentures, as the case may be, despite such conversion; provided further, that
if a Redemption Date falls between such record date and the related interest
payment date, the amount of such payment shall include interest accrued to, but
excluding, such Redemption Date.
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<PAGE> 42
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Convertible Debentures: (i) failure for 30 days to pay
interest on the Convertible Debentures, including any Additional Interest,
Compounded Interest and Liquidated Damages in respect thereof, when due;
provided that a valid extension of an interest payment period will not
constitute a default in the payment of interest (including any Additional
Interest, Compounded Interest or Liquidated Damages) for this purpose; or (ii)
failure to pay principal of or premium, if any, on the Convertible Debentures
when due whether at maturity, upon redemption, by declaration or otherwise; or
(iii) failure by Devon to deliver shares of Devon Common Stock upon an election
by a holder of Convertible Preferred Securities to convert such Convertible
Preferred Securities; (iv) failure to observe or perform any other covenant
contained in the Indenture for 90 days after notice to Devon by the Debt Trustee
or by the holders of not less than 25% in aggregate outstanding principal amount
of the Convertible Debentures; (v) the dissolution, winding up or termination of
the Trust, except in connection with the distribution of Convertible Debentures
to the holders of Convertible Preferred Securities in liquidation of the Trust
upon the redemption of all outstanding Convertible Preferred Securities and in
connection with certain mergers, consolidations or amalgamations permitted by
the Declaration; or (vi) certain events in bankruptcy, insolvency or
reorganization of Devon.
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Convertible Debentures, will have
the right to declare the principal of and the interest on the Convertible
Debentures (including any Compound Interest and Additional Interest, if any) and
any other amounts payable under the Indenture to be forthwith due and payable
and to enforce its other rights as a creditor with respect to the Convertible
Debentures. An Indenture Event of Default also constitutes a Declaration Event
of Default. The holders of Convertible Preferred Securities in certain
circumstances have the right to direct the Institutional Trustee to exercise its
rights as the holder of the Convertible Debentures. See "Description of the
Convertible Preferred Securities -- Declaration Events of Default" and
"-- Voting Rights." Notwithstanding the foregoing, if an Event of Default has
occurred and is continuing and such event is attributable to the failure of
Devon to pay interest or principal on the Convertible Debentures on the date
such interest or principal is otherwise payable (or in the case of redemption,
the redemption date), then a holder of Convertible Preferred Securities may
institute a Direct Action for payment on or after the respective due date
specified in the Convertible Debentures. Notwithstanding any payments made to
such holder of Convertible Preferred Securities by Devon in connection with a
Direct Action, Devon shall remain obligated to pay the principal of or interest
on the Convertible Debentures held by the Trust or the Institutional Trustee of
the Trust, and Devon shall be subrogated to the rights of the holder of such
Convertible Preferred Securities with respect to payments on the Convertible
Preferred Securities to the extent of any payments made by Devon to such holder
in any Direct Action. The holders of Convertible Preferred Securities will not
be able to exercise directly any other remedy available to the holders of the
Convertible Debentures.
The Indenture contains provisions permitting the holders of a majority in
aggregate principal amount of the Convertible Debentures, on behalf of all of
the holders of the Convertible Debentures, to waive any past default in the
performance of any of the covenants contained in the Indenture, except a default
in the payment of the principal of or premium, if any, or interest on any of the
Convertible Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Convertible Preferred Securities in connection
with the involuntary or voluntary dissolution, winding-up or liquidation of the
Trust as a result of the occurrence of a Special Event, the Convertible
Debentures will be issued in the same form as the Convertible Preferred
Securities that such Convertible Debentures replace. Except under the limited
circumstances described below, Convertible Debentures represented by a Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Convertible Debentures in definitive form. The Global Securities described above
may not be transferred except by DTC to a nominee of DTC or by a nominee of DTC
to DTC or another nominee of DTC or to successor depositary or its nominee.
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<PAGE> 43
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in a Global
Security.
Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to receive physical delivery of Convertible
Debentures in definitive form and will not be considered the holders (as defined
in the Indenture) thereof for any purpose under the Indenture, and no Global
Security representing Convertible Debentures shall be exchangeable, except for
another Global Security of like denomination and tenor to be registered in the
name of DTC or its nominee or to a successor depositary or its nominee.
Accordingly, each beneficial owner must rely on the procedures of DTC or if such
person is not a Participant, on the procedures of the Participant through which
such person owns its interest to exercise any rights of a holder under the
Indenture.
THE DEPOSITARY
If Convertible Debentures are distributed to holders of Convertible
Preferred Securities in liquidation of such holders' interests in the Trust and
a global security is issued, DTC will act as securities depositary for the
Convertible Debentures represented by such global security. For a description of
DTC and the specific terms of the depositary arrangements, see "Description of
the Convertible Preferred Securities -- Form, Denomination and
Registration -- Global Convertible Preferred Securities; Book-Entry Form." As of
the date of this Prospectus, the description therein of DTC's book-entry system
and DTC's practices as they relate to purchases, transfers, notices and payments
with respect to the Convertible Preferred Securities apply in all material
respects to any debt obligations represented by one or more global securities
held by DTC. Devon may appoint a successor to DTC or any successor depositary in
the event DTC or such successor depositary is unable or unwilling to continue as
a depositary for such global securities.
None of Devon, the Trust, the Institutional Trustee, any paying agent and
any other agent of Devon or the Debt Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a global security for such Convertible
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Convertible Debentures
registered in the names of persons other than DTC or its nominee only if (i) DTC
notifies Devon that it is unwilling or unable to continue as a depositary for
such Global Security and no successor depositary shall have been appointed, (ii)
DTC, at any time, ceases to be a clearing agency registered under the Exchange
Act when DTC is required to be so registered to act as such depositary and no
successor depositary shall have been appointed, (iii) Devon, in its sole
discretion, determines that such Global Security shall be so exchangeable or
(iv) there shall have occurred an Event of Default with respect to such
Convertible Debentures. Any Global Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for Convertible Debentures registered
in such names as DTC shall direct. It is expected that such instructions will be
based upon directions received by DTC from its Participants with respect to
ownership of beneficial interests in such Global Security.
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Debt
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Convertible Debentures, to modify
the Indenture or the rights of the holders of Convertible Debentures; provided,
however, that no such modification may, without the consent of the holder of
each outstanding Convertible Debenture affected thereby, (i) extend the stated
maturity of the Convertible Debentures or reduce the principal amount thereof,
or reduce the rate or extend the time for payment of interest thereon, or reduce
any premium payable upon the redemption thereof, or adversely affect the right
to convert Convertible Debentures or the subordination provisions of the
Indenture, or (ii) reduce the percentage in aggregate principal amount of
outstanding Convertible Debentures, the holders of which are required to consent
to any such supplemental indenture.
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<PAGE> 44
In addition, the Company and the Debt Trustee may execute, without the
consent of any holder of Convertible Debentures, any supplemental indenture to
cure any ambiguities, comply with the Trust Indenture Act and for certain other
customary purposes.
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default, has undertaken to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Debt Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Debt Trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debt Trustee reasonably believes that repayment
or adequate indemnity is not reasonably assured to it.
The Indenture also contains limitations on the right of the Debt Trustee,
as a creditor of Devon, to obtain payment of claims in certain cases or to
realize on certain property received in respect of any such claim as security or
otherwise. In addition, the Debt Trustee may be deemed to have a conflicting
interest and may be required to resign as Debt Trustee if at the time of a
default under the Indenture it is a creditor of Devon. The Company may from time
to time maintain deposit accounts and conduct its banking transactions with the
Debt Trustee in the ordinary course of business.
GOVERNING LAW
The Indenture and the Convertible Debentures are governed by, and construed
in accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Indenture provides that Devon will pay all fees and expenses related to
(i) the offering of the Trust Securities and the Convertible Debentures, (ii)
the organization, maintenance and dissolution of the Trust, (iii) the retention
of the DFT Trustees and (iv) the enforcement by the Institutional Trustee of the
rights of the holders of the Convertible Preferred Securities. The payment of
such fees and expenses will be fully and unconditionally guaranteed by Devon.
Devon has the right at all times to assign any of its respective rights or
obligations under the Indenture to a direct or indirect wholly-owned subsidiary
of Devon; provided that, in the event of any such assignment, Devon will remain
liable for all of their respective obligations. Subject to the foregoing, the
Indenture will be binding upon and inure to the benefit of the parties thereto
and their respective successors and assigns. The Indenture provides that it may
not otherwise be assigned by the parties thereto.
EFFECT OF OBLIGATIONS UNDER THE
CONVERTIBLE DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the
Convertible Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Convertible Debentures will be equal to the
sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Convertible
Debentures will match the distribution rate and distribution and other payment
dates for the Convertible Preferred Securities; (iii) Devon shall pay, and the
Trust shall not be obligated to pay, directly or indirectly, all costs,
expenses, debt, and obligations of the Trust (other than with respect to the
Trust Securities); and (iv) the Declaration further provides that the DFT
Trustees shall not
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<PAGE> 45
take or cause or permit the Trust to, among other things, engage in any activity
that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Convertible Preferred Securities (to the extent funds
therefor are available) are guaranteed by Devon as and to the extent set forth
under "Description of the Guarantee" herein. If Devon does not make interest
payments on the Convertible Debentures purchased by the Trust, it is expected
that the Trust will not have sufficient funds to pay distributions on the
Convertible Preferred Securities. The Guarantee is a full guarantee on a
subordinated basis with respect to the Convertible Preferred Securities issued
by the Trust from the time of its issuance but does not apply to any payment of
distributions unless and until the Trust has sufficient funds for the payment of
such distributions. The Guarantee covers the payment of distributions and other
payments on the Convertible Preferred Securities only if and to the extent that
Devon has made a payment of interest or principal on the Convertible Debentures
held by the Trust as its sole asset. The Guarantee, when taken together with
Devon's obligations under the Convertible Debentures, the Indenture and the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
provides a full and unconditional guarantee of amounts on the Convertible
Preferred Securities.
If Devon fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby a holder of the Convertible Preferred Securities,
using the procedures described in "Description of the Convertible Preferred
Securities -- Voting Rights," may direct the Institutional Trustee to enforce
its rights under the Convertible Debentures. Notwithstanding the foregoing, in
such circumstances a holder of Convertible Preferred Securities may institute a
Direct Action for payment on or after the respective due date specified in the
Convertible Debentures. In connection with such Direct Action, Devon will be
subrogated to the rights of such holder of Convertible Preferred Securities
under the Declaration to the extent of any payment made by Devon to such holder
of Convertible Preferred Securities in such Direct Action. Devon, under the
Guarantee, acknowledges that the Guarantee Trustee shall enforce the Guarantee
on behalf of the holders of the Convertible Preferred Securities. If Devon fails
to make payments under the Guarantee, the Guarantee provides a mechanism whereby
the holders of the Convertible Preferred Securities may direct the Guarantee
Trustee to enforce its rights thereunder. Any holder of Convertible Preferred
Securities may institute a legal proceeding directly against Devon to enforce
such holder's right to receive payment under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of Devon consists of 120,000,000 shares of
Common Stock, par value $.10 per share, and 3,000,000 shares of preferred stock,
par value $1.00 per share.
COMMON STOCK
As of August 9, 1996, there were 22,130,896 shares of Devon Common Stock
outstanding held of record by approximately 1,000 stockholders. Holders of Devon
Common Stock are entitled to receive dividends out of funds legally available
therefor when and if declared by the Board of Directors. Subject to the rights
of the holders of any outstanding shares of preferred stock, holders of Devon
Common Stock are entitled to cast one vote for each share held of record on all
matters submitted to a vote of stockholders. They are not entitled to cumulative
voting rights for the election of directors. Except pursuant to the Rights
Agreement (as defined herein), the Devon Common Stock has no preemptive,
conversion or other rights to subscribe for or purchase any securities of Devon.
The Devon Common Stock has no redemption or sinking fund provisions. Upon
liquidation or dissolution of Devon, the holders of Devon Common Stock are
entitled to share ratably in any of Devon's assets that remain after payment or
provision for payment to creditors and holders of preferred stock. All
outstanding shares of Devon Common Stock are fully paid and non-assessable, and
the shares of Devon
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<PAGE> 46
Common Stock issued upon conversion of the Convertible Preferred Securities will
be fully paid and non-assessable.
PREFERRED STOCK
The preferred stock may be issued in one or more series. Devon's Board of
Directors is authorized to establish attributes of such series which may
include, but are not limited to, the designation and number of shares
constituting each series, dividend rates payable (cumulative or non-cumulative),
voting rights, redemptions, conversion or preference rights, and any other
rights and qualifications, preferences and limitations or restrictions on shares
of such series. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Devon without any further vote or
action by the stockholders and may adversely affect the voting and other rights
of the holders of Devon Common Stock. The specific terms of a particular series
of preferred stock will be described in a certificate of designation relating to
that series. No shares of preferred stock are outstanding and at present the
Company has no plans to issue any of the preferred stock. The Board of Directors
has designated 300,000 shares of preferred stock as Series A Junior
Participating Preferred Stock (the "Series A Preferred Stock") in connection
with the Rights Agreement.
SHARE RIGHTS PLAN
Under the Rights Agreement dated April 17, 1995 (the "Rights Agreement"),
holders of Devon Common Stock have one right with respect to each share of Devon
Common Stock held. The certificates representing outstanding shares of Devon
Common Stock also evidence one right for each share. Currently the rights trade
with the shares of Devon Common Stock. Upon the occurrence of certain events
generally associated with an unsolicited takeover attempt of the Company or
certain transactions involving a change of control, the rights will be
distributed, will become exercisable and will be tradable separately from the
Devon Common Stock.
The rights have certain anti-takeover effects. They will cause substantial
dilution to a person or group that attempts to acquire the Company in a manner
which causes the rights to become exercisable. The Company believes, however,
that the rights should neither affect any prospective offeror willing to
negotiate with the Board of Directors of the Company nor interfere with any
merger or other business combination approved by the Board of Directors of the
Company. The rights may be redeemed by the Board of Directors for $0.01 per
right. The terms of the Rights Agreement may be amended by the Board of
Directors of the Company without the consent of the holders of the Devon Common
Stock or the rights.
BUSINESS COMBINATION PROVISIONS
The Oklahoma General Corporation Act and the Company's Certificate of
Incorporation have provisions placing limitations on business combinations with
a shareholder who is the beneficial owner of 15% or more of the Devon Common
Stock or any affiliate of such beneficial owner (an "interested shareholder")
for a period of three years from the date a person becomes an interested
shareholder. The effect of these provisions is to limit unsolicited takeover
attempts or certain transactions involving a change of control. Such business
combinations are permitted, however, under certain circumstances, including
super-majority shareholder approval.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe.
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<PAGE> 47
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain material United States federal income
tax consequences pertaining to the purchase, ownership, disposition, and
conversion of Convertible Preferred Securities. Unless otherwise stated, this
summary deals only with Convertible Preferred Securities held as capital assets
by holders who purchased the securities upon original issuance. This summary
does not deal with special classes of holders such as banks, thrifts, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or persons which hold
the Convertible Preferred Securities as other than a capital asset. This summary
does not address the tax consequences to persons which have a functional
currency other than the U.S. Dollar or the tax consequences to shareholders,
partners, or beneficiaries of a holder of Convertible Preferred Securities.
Further, this summary does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government which may be applicable to the Convertible Preferred
Securities. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change, possibly on a retroactive basis.
CLASSIFICATION OF CONVERTIBLE DEBENTURES
The Company intends to take the position that the Convertible Debentures
will be classified for United States federal income tax purposes as indebtedness
of the Company under current law, and, by acceptance of a Convertible Preferred
Security, each holder covenants to treat the Convertible Debentures as
indebtedness and the Convertible Preferred Securities as evidence of an indirect
beneficial ownership interest in the Convertible Debentures. No assurance can be
given, however, that such position of the Company will not be challenged by the
Internal Revenue Service (the "Service") or, if challenged, that such a
challenge will not be successful. The remainder of this discussion assumes that
the Convertible Debentures will be classified as indebtedness of the Company for
United States federal income tax purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Convertible Preferred Securities,
McAfee & Taft A Professional Corporation, special counsel to the Company and the
Trust, will render its opinion generally to the effect that, under then current
law and assuming full compliance with the terms of the Declaration and Indenture
(and certain other documents), and based on certain facts and assumptions
contained in such opinion, the Trust will be classified for United States
federal income tax purposes as a grantor trust and not as an association taxable
as a corporation. Accordingly, for United States federal income tax purposes,
each holder of Convertible Preferred Securities generally will be considered to
be the owner of an undivided interest in the Convertible Debentures, and each
holder will be required to include in its gross income any original issue
discount accrued with respect to its allocable share of those Convertible
Debentures.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Because the Company has the option, under the terms of the Convertible
Debentures, to defer payments of interest by extending interest payment periods
for up to 20 quarters, interest on the Convertible Debentures will be reportable
as "original issue discount." Holders of debt instruments issued with OID must
include that discount in income on an economic accrual basis regardless of their
method of tax accounting, and without regard to whether such accrual causes
amounts to be included in income prior to the receipt of cash attributable to
the interest. Generally, all of a holder's taxable interest income with respect
to the Convertible Debentures will be accounted for as OID. Actual payments and
distributions of stated interest will not, however, be separately reported as
includable in taxable income. The amount of OID which accrues in any quarter
will approximately equal the amount of the interest which accrues on the
Convertible Debentures in that quarter at the stated interest rate. In the event
the interest payment period is extended, holders will continue to accrue OID
approximately equal to the amount of the interest payment due at the end of the
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<PAGE> 48
extended interest payment period on an economic accrual basis over the length of
the extended interest payment.
Because interest on the Convertible Preferred Securities will constitute
OID, corporate holders of Convertible Preferred Securities will not be entitled
to a dividends-received deduction with respect to any income recognized with
respect to the Convertible Preferred Securities.
MARKET DISCOUNT AND BOND PREMIUM
Holders of the Convertible Preferred Securities other than a holder who
purchased the Convertible Preferred Securities upon original issuance may be
considered to have acquired their undivided interests in the Convertible
Debentures with "market discount" or "acquisition premium" as such terms are
defined for United States federal income tax purposes. Such holders are advised
to consult their tax advisors as to the income tax consequences associated with
the acquisition, ownership, and disposition of the Convertible Preferred
Securities.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Convertible Preferred Securities -- Special Event Distribution; Tax
Redemption," Convertible Debentures may be distributed to holders in exchange
for the Convertible Preferred Securities and in liquidation of the Trust. Under
current law, such a distribution to holders, for United States federal income
tax purposes, would be treated as a nontaxable event to each holder, and each
holder would receive an aggregate tax basis in the Convertible Debentures equal
to such holder's aggregate tax basis in its Convertible Preferred Securities. A
holder's holding period in the Convertible Debentures so received in liquidation
of the Trust would include the period during which the Convertible Preferred
Securities were held by such holder. If, however, the related Special Event is a
Tax Event which results in the Trust being treated as an association taxable as
a corporation, the distribution would likely constitute a taxable event to
holders of the Convertible Preferred Securities, in which event the Company
could, at its option, redeem the Convertible Debentures and distribute the
resulting cash in liquidation of the Trust.
Under certain circumstances described herein (see "Description of the
Convertible Preferred Securities"), the Convertible Debentures may be redeemed
for cash and the proceeds of such redemption distributed to holders in
redemption of their Convertible Preferred Securities. Under current law, such a
redemption would, for United States federal income tax purposes, constitute a
taxable disposition of the redeemed Convertible Preferred Securities, and a
holder would recognize gain or loss as if it had sold such redeemed Convertible
Preferred Securities for cash. See "-- Sales of Convertible Preferred
Securities" below.
SALES OF CONVERTIBLE PREFERRED SECURITIES
A holder which sells Convertible Preferred Securities will recognize gain
or loss equal to the difference between the amount realized on the sale of the
Convertible Preferred Securities and the holder's adjusted tax basis in such
Convertible Preferred Securities. A holder's adjusted tax basis in the
Convertible Preferred Securities generally will be equal to its initial purchase
price increased by OID previously includable in such holder's gross income to
the date of disposition and decreased by payments received on the Convertible
Preferred Securities to the date of disposition. Such gain or loss will be a
capital gain or loss and will be long-term gain or loss if the Convertible
Preferred Securities have been held for more than one year at the time of sale.
The Convertible Preferred Securities may trade at a price which does not
accurately reflect the value of accrued but unpaid interest with respect to the
underlying Convertible Debentures. A holder which disposes of or converts its
Convertible Preferred Securities between record dates for payments of
distribution thereon will be required to include in its income, as ordinary
income, the accrued but unpaid interest on the Convertible Debentures through
the date of disposition or conversion, and to add such amount to its adjusted
tax basis in its pro rata share of the underlying Convertible Debentures which
will be deemed disposed of or converted. To the extent the selling price is less
than the holder's adjusted tax basis (which basis will include, in the form of
47
<PAGE> 49
OID, all accrued but unpaid interest), a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
CERTAIN NON-U.S. HOLDERS
For purposes of this discussion, the term "Non-U.S. Holder" refers to any
corporation, individual, partnership, estate, or trust which is, for United
States tax purposes, treated as a foreign corporation, a non-resident alien
individual, or a non-resident fiduciary of a foreign estate or trust.
Under present United States federal income tax law, interest on the
Convertible Debentures and the Convertible Preferred Securities, including OID,
will generally be classified as "portfolio interest" to a Non-U.S. Holder of a
Convertible Preferred Security provided such interest is not effectively
connected with the conduct of a trade or business within the United States by
the holder. As a result, payments by the Trust or any of its paying agents of
stated interest to any holder of a Convertible Preferred Security who or which
is a Non-U.S. Holder will not be subject to withholding of United States federal
income tax provided:
(a) the beneficial owner of the Convertible Preferred Security does
not actually or constructively (including by virtue of its interest in the
underlying Convertible Debentures) own 10% or more of the total combined
voting power of all classes of stock of Devon entitled to vote, which
ownership is determined after the application of certain attribution rules;
(b) the beneficial owner of the Convertible Preferred Security is not
a controlled foreign corporation which is related to Devon through stock
ownership; and
(c) either (i) the beneficial owner of the Convertible Preferred
Security or (ii) a securities clearing organization, a bank, or other
financial institution which holds customers' securities in the ordinary
course of its trade or business and which holds the Convertible Preferred
Security in such capacity certifies to the Trust or its agent, under
penalties of perjury, that it is not a United States person, or in the case
of an individual, is neither a citizen nor a resident of the United States,
and provides the owner's name and address to the Trust or its agent.
Devon, by reason of its ownership of interests in oil and gas properties
located in the United States is classified as a "United States real property
holding corporation" for United States tax purposes. As a result, capital gain
income realized by a Non-U.S. Holder upon the disposition of a Convertible
Preferred Security will, except as set forth below, be treated as income
effectively connected with the conduct of a trade or business within the United
States and will be taxed at regular United States capital gains rates. A Non-
U.S. Holder will generally be subject to withholding of United States federal
income tax in an amount equal to 10% of the amount realized on the disposition
of a Convertible Preferred Security. A Non-U.S. Holder may request the Service
to determine the maximum amount of tax which would be owing as a result of such
disposition and the maximum amount required to be withheld will not exceed the
sum of (i) such liability and (ii) any unsatisfied prior withholding tax
liabilities caused by prior foreign ownership with respect to the transferred
securities.
Stock which is regularly traded on an established securities market
("Publicly Traded Stock"), such as shares of Devon Common Stock, will only be
treated as stock of a United States real property holding corporation with
respect to a person who, at any time during the shorter of (i) that period after
June 18, 1980 in which the person held such stock or (ii) the 5-year period
ending on the date of the disposition of such stock, held more than 5 percent of
such class of stock (a "5 Percent Shareholder"). Capital gain produced by the
disposition of Publicly Traded Stock will, therefore, except in the case of a
disposition by a 5 Percent Shareholder, not be subject to United States income
tax if not effectively connected with the conduct of a trade or business within
the United States by the holder. Generally no withholding is required on a
disposition of Publicly Traded Stock, unless such stock is effectively connected
with the conduct of a trade or business within the United States by the holder.
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<PAGE> 50
If a Non-U.S. Holder is treated as receiving a deemed dividend as a result
of an adjustment of the conversion price of the Convertible Debentures, as
described below under the heading "Adjustment of Conversion Price," such deemed
dividend will be subject to United States federal withholding tax at a 30% (or
lower treaty) rate. Should the Trust be classified as an association taxable as
a corporation for United States federal income tax purposes, distributions made
in liquidation of the Trust would also be subject to various withholding
requirements.
Non-U.S. Holders are encouraged to contact their tax advisors concerning
the possible tax implications to such holders associated with the ownership and
disposition of United States Real Property Interests, including Convertible
Preferred Securities or shares of Devon Common Stock.
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed the Proposed Legislation which, among
other things, would treat as equity for United States federal income tax
purposes instruments with a maximum term of more than 20 years which are not
shown as indebtedness on the consolidated balance sheet of the issuer. The
Proposed Legislation, in its current form, would appear to be applicable to the
Convertible Preferred Securities.
On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr.,
and House Ways and Means Committee Chairman Bill Archer issued the Joint
Statement indicating their intent that certain legislative proposals initiated
by the Clinton Administration, including the Proposed Legislation, if adopted by
either of the tax-writing committees of Congress, would have an effective date
no earlier than the date of "appropriate Congressional action." Based on the
Joint Statement, it is anticipated that if the Proposed Legislation were
enacted, such legislation would not apply to the Convertible Debentures if they
are issued prior to the date of any "appropriate Congressional action." There
can be no assurance that any proposed legislation enacted after the date hereof
will not otherwise adversely affect the tax treatment of the Convertible
Debentures. If legislation is enacted which adversely affects the tax treatment
of the Convertible Debentures, such legislation could result in the distribution
of the Convertible Debentures to holders of the Convertible Preferred Securities
or, in certain limited circumstances, the redemption of such securities by the
Company and the distribution of the resulting cash in redemption of the
Convertible Preferred Securities. See "Description of the Convertible Preferred
Securities -- Special Event Distribution; Tax Redemption."
CONVERSION OF CONVERTIBLE PREFERRED SECURITIES INTO COMMON STOCK
A holder will not recognize gain or loss upon the conversion, through the
Conversion Agent, of Convertible Preferred Securities for a proportionate share
of the Convertible Debentures held by the Trust.
A holder will not recognize income, gain, or loss upon the conversion,
through the Conversion Agent, of Convertible Debentures into Company Common
Stock. A holder will, however, recognize gain upon the receipt of cash in lieu
of a fractional share of Company Common Stock equal to the amount of cash
received less the holder's tax basis in such fractional share. A holder's tax
basis in the Company Common Stock received upon exchange and conversion should
generally be equal to the holder's tax basis in the Convertible Preferred
Securities delivered to the Conversion Agent for exchange less the basis
allocated to any fractional share for which cash is received, and a holder's
holding period in the Company Common Stock received upon exchange and conversion
should generally begin on the date the holder acquired the Convertible Preferred
Securities delivered to the Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Convertible Preferred Securities as having received a constructive
distribution from the Company in the event the conversion ratio of the
Convertible Debentures is adjusted if (i) as a result of such adjustment, the
proportionate interest (measured by the quantum of Devon Common Stock into or
for which the Convertible Debentures are convertible or exchangeable) of the
holder's Convertible Preferred Securities in the assets or earnings and profits
of the Company is increased, and (ii) the adjustment is not made pursuant to a
bona fide,
49
<PAGE> 51
reasonable, antidilution formula. An adjustment in the conversion ratio would
not be considered made pursuant to such formula if the adjustment is made to
compensate for certain taxable distributions with respect to the Devon Common
Stock. Thus, under certain circumstances, a reduction in the conversion price of
the holders may result in deemed dividend income to holders to the extent of the
current or accumulated earnings and profits of the Company. Holders of the
Convertible Preferred Securities would be required to include their allocable
share of such deemed dividend income in gross income but would not receive any
cash related thereto.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, income on the Convertible Preferred Securities will be reported
to holders on Forms 1099, which forms should be mailed to holders of Convertible
Preferred Securities by January 31 following each calendar year.
Payments made on, and proceeds from the sale of, the Convertible Preferred
Securities may be subject to a "backup" withholding tax of 31% unless the holder
complies with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF THE
CONVERTIBLE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS.
50
<PAGE> 52
SELLING HOLDERS
The Convertible Preferred Securities were originally issued by the Trust
and sold by Morgan Stanley & Co. Incorporated (the "Initial Purchaser"), in
transactions exempt from the registration requirements of the Securities Act, to
persons reasonably believed by such Initial Purchaser to be "qualified
institutional buyers" (as defined in Rule 144A of the Securities Act), to
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3), or
(7) under the Securities Act) or outside the United States to non-U.S. persons
in off-shore transactions in reliance on regulations under the Securities Act.
These purchasers, or their transferees, pledges, donees or successors (the
"Selling Holders") may from time to time offer and sell pursuant to this
Prospectus any or all of the Convertible Preferred Securities, the Convertible
Subordinated Debentures, Devon Common Stock issued upon conversion of the
Convertible Preferred Securities, and the associated Guarantee.
The Offered Securities have been registered pursuant to the Registration
Rights Agreement which provides that the Company file a registration statement
with regard to the Offered Securities within ninety (90) days of the Original
Offering Date and keep such registration statement effective until the earlier
of (i) the sale pursuant to the Shelf Registration Statement or Rule 144(a)
under the Securities Act of all the Registrable Securities, and (ii) the
expiration of the holding period applicable to sales of Registrable Securities
under Rule 144(k) under the Securities Act, or any successor provision. Although
none of the Selling Holders have advised the Company that they currently intend
to sell all or any of the Offered Securities pursuant to this Prospectus, the
Selling Holders may choose to sell the Offered Securities from time to time upon
notice to Devon and the Trust. See "Plan of Distribution."
Prior to any use of this Prospectus in connection with an offering of the
Offered Securities, this Prospectus will be supplemented to set forth the name
and number of shares beneficially owned by the Selling Holder intending to sell
such Offered Securities, and the number of Offered Securities to be offered. The
Prospectus Supplement will also disclose whether any Selling Holder selling in
connection with such Prospectus Supplement has held any position or office with,
been employed by or otherwise has a material relationship with, Devon or any of
its affiliates during the three (3) years prior to the date of the Prospectus
Supplement.
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at the prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
This sale of the Offered Securities may be effectuated in transactions (which
may involve crosses or block transactions) (i) on any national securities
exchange or quotation service on which the Offered Securities may be listed or
quoted at the time of sale, (ii) in the over-the-counter market, (iii) in
transactions otherwise than on such exchanges or in the over-the-counter market,
or (iv) through the writing and exercise of options. At the time a particular
offering of the Offered Securities is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount of the
type of Offered Securities being offered and the terms of the offering,
including the name or names of any underwriters, broker/dealers or agents, any
discounts, commissions and other terms constituting compensation from the
Selling Holders and any discounts, commissions or concessions allowed or
reallowed to paid to broker/dealers. To comply with the securities laws of
certain jurisdictions, if applicable, the Offered Securities will be offered or
sold in such
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<PAGE> 53
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions the Offered Securities may not be offered or
sold unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification is available
and is complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and rules and regulations thereunder, which provisions may limit
the timing of purchases and sales of any of the Offered Securities by the
Selling Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Rights Agreement, the Company shall pay all
expenses of the registration of the Offered Securities including, without
limitation, commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company and the Trust, jointly and severally
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith. The
Company and the Trust will be indemnified by the Selling Holders severally
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith.
LEGAL MATTERS
The validity of the Offered Securities and certain United States federal
income taxation matters will be passed upon for Devon and Devon Financing Trust
by McAfee and Taft A Professional Corporation, Oklahoma City, Oklahoma.
EXPERTS
The consolidated financial statements of Devon and its subsidiaries as of
December 31, 1993, 1994, and 1995, and for each of the years in the three-year
period ended December 31, 1995, and the statement of revenues and direct
operating expenses of the Worland Properties for the year ended December 31,
1994, have been incorporated by reference herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, also incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the 1993 consolidated financial statements of
Devon refers to a change in the method of accounting for income taxes.
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======================================================
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE ISSUER OR ANY OF THEIR AGENTS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THE ISSUER SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Special Note Regarding Forward-Looking
Statements.......................... 4
Certain Definitions................... 4
Prospectus Summary.................... 5
Risk Factors.......................... 9
Accounting Treatment.................. 15
Ratio of Earnings to Fixed Charges.... 15
Devon Financing Trust................. 16
Description of the Convertible
Preferred Securities................ 17
Description of the Guarantee.......... 33
Description of the Convertible
Debentures.......................... 36
Effect of Obligations Under the
Convertible Debentures and the
Guarantee........................... 43
Description of Capital Stock.......... 44
United States Federal Income
Taxation............................ 46
Selling Holders....................... 51
Plan of Distribution.................. 51
Legal Matters......................... 52
Experts............................... 52
</TABLE>
======================================================
======================================================
DEVON FINANCING TRUST
2,990,000
TRUST CONVERTIBLE PREFERRED SECURITIES
6 1/2% TRUST CONVERTIBLE PREFERRED SECURITIES
(LIQUIDATION AMOUNT $50 PER
CONVERTIBLE PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET
FORTH HEREIN BY
DEVON ENERGY CORPORATION
[DEVON LOGO]
Dated September 11, 1996.
======================================================
<PAGE> 55
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the distribution of the Offered
Securities (all of which shall be paid by the Registrant) being registered
hereunder (other than underwriting discounts) are set forth in the following
table (all amounts except the SEC registration fee are estimated):
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 53,614
Accounting Fees and Expenses.............................................. $ 5,000
Legal Fees and Expenses................................................... $ 53,000
Printing Expenses......................................................... $ 32,000
Miscellaneous............................................................. $ 1,386
--------
Total........................................................... $145,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Oklahoma General Corporation Act, under which the Registrant is
incorporated, permits indemnification against expenses, including attorneys,
fees, actually and reasonably incurred by such persons in connection with the
defense of any action, suit or proceeding in which such a person is a party by
reason of his being of having been a director, employee or agent of the
Registrant, or of any corporation, partnership, joint venture, Trust or other
enterprise in which he served as such at the request of the Registrant, provided
that he acted in good faith and then 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, and provided further (if the threatened, pending or completed action
or suit is by or in the right of the corporation) that he shall not have been
adjudged to be liable for the negligence or misconduct in the performance of his
duty to the Corporation (unless the court determines that indemnity would
nevertheless be proper under the circumstances). Article Ninth of Registrant's
Certificate of Incorporation provides for the elimination of the directors'
liability for monetary damages for a breach of certain fiduciary duties and for
indemnification of directors, officers, employees or agents of Devon as
permitted by the Oklahoma General Corporation Act. These provisions cannot be
amended without the affirmative vote of the holders of at least eighty percent
(80%) of the outstanding shares entitled to vote. Under Devon's Certificate of
Incorporation, even though Devon's directors stand in a fiduciary relationship
to Devon, they are not liable to stockholders of Devon for damages for breach of
any such fiduciary duty, except that a director will be personably liable for
(i) acts or omissions not in good faith or which involve intentional misconduct
or annoying violation of law, (ii) the payment of dividends or redemption or
purchase of stock in violation of the Oklahoma General Corporation Act, (iii)
any breach of the duty of loyalty to Devon or its stockholders, or (iv) any
transaction from which the director derived an improper personal benefit.
Article Thirteenth of the Registrant's Certificate of Incorporation, also
provides for indemnification of the Registrant's directors and officers. Such
article also permits the Registrant to purchase and maintain insurance on behalf
of the Registrant's directors and officers against any liability arising out of
their status as such, whether or not Registrant would have the power to
indemnify him against such liability. These provisions may be sufficiently
brought to indemnify such persons for liabilities arising out of the Securities
Act of 1933.
Indemnification of Trustees of the Trust. The Amended and Restated
Declaration of Trust (the "Declaration") provides for full indemnification of
any Trustee, affiliate of any regular Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives or agents of the
Trust or its affiliates (each an "Indemnified Person") by Devon in connection
with any act or omission performed or omitted by such Indemnified Person in good
faith on behalf of the Trust and in a manner such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by the Declaration or by law. The Declaration further provides that, to
the fullest extent permitted by applicable law expenses (including legal fees)
incurred by an Indemnified Person in defending any claim, demand, action, suit
or proceeding, shall from time to time, be advanced by Devon prior to the filing
and disposition of such claim, demand, action, suit or proceeding upon receipt
by or an undertaking by or on behalf of the Indemnified Person to repay such
amount if it shall be determined that the Indemnified Person is not entitled to
be indemnified for the underlying cause of action as authorized by the
Declaration.
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The Selling Holders will be indemnified by Devon and the Trust, jointly and
severally, against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection
therewith. Devon and the Trust will be indemnified by the Selling Holders
severally against certain civil liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in connection therewith.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
4.1 -- Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Registrant's Registration Statement on Form 8-B filed
on June 7, 1995).
4.2 -- Rights Agreement between Registrant and the First National Bank of
Boston (incorporated herein by reference to Exhibit 4.2 to
Registrant's Registration Statement on Form 8-B filed on June 7,
1995).
4.3 -- Certificate of Incorporation of Registrant (incorporated herein by
reference to Exhibit B to Registrant's definitive proxy statement for
its 1995 Annual Meeting of Shareholders filed on April 21, 1995).
4.4 -- Bylaws of Registrant (incorporated herein by reference to Exhibit 3.2
to Registrant's Registration Statement on Form 8-B filed on June 7,
1995).
4.5 -- Certificate of Trust of Devon Financing Trust.
4.6 -- Amended and Restated Declaration of Trust of Devon Financing Trust
dated as of July 3, 1996 by J. Larry Nichols, H. Allen Turner,
William T. Vaughn, The Bank of New York (Delaware) and The Bank of
New York as Trustees and Devon Energy Corporation as Sponsor.
4.7 -- Indenture dated as of July 3, 1996, between Devon Energy Corporation
and The Bank of New York.
4.8 -- First Supplemental Indenture dated as of July 3, 1996, between Devon
Energy Corporation and The Bank of New York.
4.9 -- Forms of 6 1/2% Preferred Convertible Securities (included as Exhibit
A-1 to Exhibit 4.6 above).
4.10 -- Form of 6 1/2% Convertible Junior Subordinated Debentures (included
in Exhibit 4.8 above).
4.11 -- Preferred Securities Guarantee Agreement dated July 3, 1996 between
Devon Energy Corporation, as Guarantor, and the Bank of New York, as
Preferred Guarantee Trustee.
4.12 -- Certificate of Designations of Series A Junior Participating
Preferred Stock of Registrant (incorporated herein by reference to
Exhibit 3.3 to Registrant's Registration Statement on Form 8-B filed
on June 7, 1995).
5.1 -- Opinion of McAfee & Taft A Professional Corporation as to the
legality of the Devon Energy Corporation Common Stock, 6 1/2%
Convertible Junior Subordinated Debentures, the 6 1/2% Convertible
Preferred Securities and Preferred Securities Guarantee being
registered hereby and as to certain tax matters.*
8.1 -- Opinion of McAfee & Taft A Professional Corporation as to certain tax
matters (included in Exhibit 5.1)*
10.1 -- Registration Rights Agreement dated July 3, 1996, by and among Devon
Energy Corporation, Devon Financing Trust and Morgan Stanley & Co.
Incorporated.
12.1 -- Computation of Ratio of Earnings to Fixed Charges*
23.1 -- Consent of KPMG Peat Marwick, LLP
</TABLE>
II-2
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
23.2 -- Consent of LaRoche & Associates*
23.3 -- Consent of McAfee & Taft A Professional Corporation (included as part
of Exhibit 5.1 and incorporated herein by reference).*
24. -- Powers of Attorney
25.1 -- Form T-1 Statement of Eligibility Under the Trust Indenture Act of
1939, as amended, of the Bank of New York, as Trustee under the
6 1/2% Convertible Subordinated Debentures Indenture.
25.2 -- Form T-1 Statement of Eligibility Under the Trust Indenture Act of
1939, as amended, of the Bank of New York, as Institutional Trustee
under the Amended and Restated Declaration of Trust.
25.3 -- Form T-1 Statement of Eligibility Under the Trust Indenture Act of
1939, as amended, of the Bank of New York, as Preferred Guarantee
Trustee under the Preferred Securities Guarantee Agreement.
</TABLE>
- ---------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
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Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Devon has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Oklahoma City,
State of Oklahoma, on September 10, 1996.
DEVON ENERGY CORPORATION
By: *
-------------------------------
J. Larry Nichols, President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
* Chairman of the Board and )
--------------------------------- Director )
John W. Nichols )
)
* President, Chief Executive )
--------------------------------- Officer and Director )
J. Larry Nichols )
)
* Executive Vice President )
--------------------------------- and Director )
H.R. Sanders, Jr. )
)
)
* Vice President -- Finance )
--------------------------------- and Chief Financial )
William T. Vaughn Officer )
)
* Controller )
--------------------------------- )- September 10, 1996
Danny J. Heatly )
)
* Director )
--------------------------------- )
Thomas F. Ferguson )
)
* Director )
)
--------------------------------- )
David M. Garvin )
)
* Director )
--------------------------------- )
Michael E. Gellert )
*By /s/ H. ALLEN TURNER
---------------------------------
Attorney-in-fact
</TABLE>
II-5
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Devon Financing
Trust has duly caused this amendment to the Registration Statement to be signed
on its behalf of the undersigned, thereunto duly authorized, in the City of
Oklahoma City, State of Oklahoma, on September 10, 1996.
DEVON FINANCING TRUST
By: /s/ H. ALLEN TURNER
------------------------------
H. Allen Turner, Trustee
By: /s/ WILLIAM T. VAUGHN
------------------------------
William T. Vaughn, Trustee
II-6
<PAGE> 61
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------- ---------------------- ------------
<S> <C> <C>
4.1 -- Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Registrant's Registration Statement on Form 8-B filed
on June 7, 1995).
4.2 -- Rights Agreement between Registrant and the First National Bank of
Boston (incorporated herein by reference to Exhibit 4.2 to
Registrant's Registration Statement on Form 8-B filed on June 7,
1995).
4.3 -- Certificate of Incorporation of Registrant (incorporated herein by
reference to Exhibit B to Registrant's definitive proxy statement for
its 1995 Annual Meeting of Shareholders filed on April 21, 1995).
4.4 -- Bylaws of Registrant (incorporated herein by reference to Exhibit 3.2
to Registrant's Registration Statement on Form 8-B filed on June 7,
1995).
4.5 -- Certificate of Trust of Devon Financing Trust.
4.6 -- Amended and Restated Declaration of Trust of Devon Financing Trust
dated as of July 3, 1996 by J. Larry Nichols, H. Allen Turner,
William T. Vaughn, The Bank of New York (Delaware) and The Bank of
New York as Trustees and Devon Energy Corporation as Sponsor.
4.7 -- Indenture dated as of July 3, 1996, between Devon Energy Corporation
and The Bank of New York.
4.8 -- First Supplemental Indenture dated as of July 3, 1996, between Devon
Energy Corporation and The Bank of New York.
4.9 -- Forms of 6 1/2% Preferred Convertible Securities (included as Exhibit
A-1 to Exhibit 4.6 above).
4.10 -- Form of 6 1/2% Convertible Junior Subordinated Debentures (included
in Exhibit 4.8 above).
4.11 -- Preferred Securities Guarantee Agreement dated July 3, 1996 between
Devon Energy Corporation, as Guarantor, and the Bank of New York, as
Preferred Guarantee Trustee.
4.12 -- Certificate of Designations of Series A Junior Participating
Preferred Stock of Registrant (incorporated herein by reference to
Exhibit 3.3 to Registrant's Registration Statement on Form 8-B filed
on June 7, 1995).
5.1 -- Opinion of McAfee & Taft A Professional Corporation as to the
legality of the Devon Energy Corporation Common Stock, 6 1/2%
Convertible Junior Subordinated Debentures, the 6 1/2% Convertible
Preferred Securities and Preferred Securities Guarantee being
registered hereby and as to certain tax matters.*
8.1 -- Opinion of McAfee & Taft A Professional Corporation as to certain tax
matters (included in Exhibit 5.1)*
10.1 -- Registration Rights Agreement dated July 3, 1996, by and among Devon
Energy Corporation, Devon Financing Trust and Morgan Stanley & Co.
Incorporated.
12.1 -- Computation of Ratio of Earnings to Fixed Charges*
23.1 -- Consent of KPMG Peat Marwick, LLP
23.2 -- Consent of LaRoche & Associates*
23.3 -- Consent of McAfee & Taft A Professional Corporation (included as part
of Exhibit 5.1 and incorporated herein by reference).*
24. -- Powers of Attorney
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<S> <C> <C>
25.1 -- Form T-1 Statement of Eligibility Under the Trust Indenture Act of
1939, as amended, of the Bank of New York, as Trustee under the
6 1/2% Convertible Subordinated Debentures Indenture.
25.2 -- Form T-1 Statement of Eligibility Under the Trust Indenture Act of
1939, as amended, of the Bank of New York, as Institutional Trustee
under the Amended and Restated Declaration of Trust.
25.3 -- Form T-1 Statement of Eligibility Under the Trust Indenture Act of
1939, as amended, of the Bank of New York, as Preferred Guarantee
Trustee under the Preferred Securities Guarantee Agreement.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 5.1
[M&T LETTERHEAD]
September 10, 1996
Devon Energy Corporation
20 North Broadway
Suite 1500
Oklahoma City, Oklahoma 73102-8260
Ladies and Gentlemen:
Reference is made to your Amendment No. 2 to Registration Statement on
Form S-3 (Registration No. 333-00815). Unless otherwise defined herein,
capitalized terms used herein are defined as set forth in the above-mentioned
Registration Statement.
We have examined the records of Devon Energy Corporation (the
"Company") and of Devon Financing Trust (the "Trust"), have attended meetings
of the Company's Board of Directors and made such other investigations as we
have deemed appropriate in order to express the opinions set forth herein.
Based on the foregoing, we are of the opinion that:
1. The 6-1/2% Convertible Junior Subordinated Debentures
("Subordinated Debentures") and the Preferred Securities Guarantee
("Guarantee"), as issued, are valid and binding obligations of the Company and
each are enforceable against the Company, each in accordance with their terms.
2. The 6-1/2% Convertible Preferred Securities ("Preferred
Securities") have been legally issued, fully paid and are nonassessable by the
Trust.
3. The Common Stock when issued upon the conversion of the
Subordinated Debentures or the Preferred Securities will be legally issued,
fully paid and nonassessable by the Company.
The opinions expressed herein as to the valid, binding and enforceable
nature and the Subordinated Debentures and the Guarantee are subject to the
exceptions that (i) enforcement may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of creditors
rights generally, and (ii) enforcement as subject to general principals of
equity (regardless of whether enforcement is considered a proceeding in equity
or at law).
We hereby consent to the inclusion of this opinion as an exhibit to the
above Registration Statement and to the reference to our firm under the caption
"Legal Matters" and "United States Federal Income Taxation" in the Prospectus
comprising a part of such Registration Statement.
Very truly yours,
McAFEE & TAFT A PROFESSIONAL
CORPORATION
<PAGE> 1
EXHIBIT 12.1
DEVON ENERGY CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six
Months
Year Ended December 31, Ended
--------------------------------------------------------------------- June 30,
1991 1992 1993 1994 1995 1996
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes and
cumulative effect of change in
accounting principle per consolidated
statements of operations ............. $(21,144,443) 19,485,817 25,960,772 21,356,711 25,621,899 21,630,314
Add:
Interest expense ..................... 2,208,782 2,644,063 3,421,742 5,438,911 7,051,142 4,942,080
Estimated interest factor of operating
lease payments ..................... 177,165 153,384 162,518 173,923 182,129 99,672
------------ ---------- ---------- ---------- ---------- ----------
Earnings (loss), as adjusted(A)......... $(18,758,496) 22,283,264 29,545,032 26,969,545 32,855,170 26,672,066
============ ========== ========== ========== ========== ==========
Fixed charges:
Interest costs incurred............... 2,208,782 2,644,063 3,421,742 5,438,911 7,051,142 4,942,080
Estimated interest factor of operating
lease payments...................... 177,165 153,384 162,518 173,923 182,129 99,672
------------ ---------- ---------- ---------- ---------- ----------
Total fixed charges(B).................. $ 2,385,947 2,797,447 3,584,260 5,612,834 7,233,271 5,041,752
============ ========== ========== ========== ========== ==========
Ratio of earnings to fixed
charges(A)+(B)........................ -- 7.97 8.24 4.80 4.54 5.29
============ ========== ========== ========== ========== ==========
Amount of fixed charges in excess of
earnings(B-A)......................... $ 21,144,443 -- -- -- -- --
============ ========== ========== ========== ========== ==========
</TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AS ADJUSTED FOR THE CONVERTIBLE PREFERRED SECURITIES OFFERING
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1995 1996
----------- ----------
<S> <C> <C>
Earnings as adjusted (as calculated above)(1)................................. $32,855,170 26,672,066
=========== ==========
Fixed charges (as shown above)................................................ 7,233,271 5,041,752
Reduction of interest expense as a result of use of funds received from
Convertible Preferred Securities issued to retire long-term debt............ (6,475,748) (4,766,363)
Distribution requirements on the Convertible Preferred Securities............. 9,717,500 4,858,750
Amortization of costs incurred in connection with the Convertible Preferred
Securities offering......................................................... 166,167 83,083
----------- ----------
Fixed charges adjusted for the Convertible Preferred Securities offering...... $10,641,190 5,257,222
=========== ==========
Ratio of earnings to fixed charges adjusted for the Convertible Preferred
Securities offering......................................................... 3.09 5.07
=========== ==========
</TABLE>
- --------
(1) Earnings for the year 1995 do not include assumed interest earnings on the
excess of funds received from the issuance of the Convertible Preferred
Securities above the average long-term debt outstanding during the year.
Such excess was approximately $47.4 million.
<PAGE> 1
EXHIBIT 23.2
ENGINEER'S CONSENT
We consent to the use of our appraisal reports for Devon Energy Corporation
included herein and incorporated herein by reference.
LaROCHE & ASSOCIATES
By /s/ WILLIAM E. LaROCHE
----------------------
William E. LaRoche
President
September 9, 1996
