<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
REGISTRATION NO. 333-43933
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
OCEAN ENERGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 72-1277752
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
OCEAN ENERGY, INC.
8440 JEFFERSON HIGHWAY, SUITE 420
BATON ROUGE, LOUISIANA 70809
(504) 927-1450
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
ROBERT K. REEVES
EXECUTIVE VICE PRESIDENT-ADMINISTRATION AND
GENERAL COUNSEL
OCEAN ENERGY, INC.
8440 JEFFERSON HIGHWAY, SUITE 420
BATON ROUGE, LOUISIANA 70809
(504) 927-1450
(Name, address, including zip code, and telephone number, including area code of
agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
JAMES M. PRINCE MICHAEL E. DILLARD, P.C.
ANDREWS & KURTH L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
600 TRAVIS, SUITE 4200 1700 PACIFIC AVENUE, SUITE 4100
HOUSTON, TEXAS 77002 DALLAS, TEXAS 75201-4675
(713) 220-4200 (214) 969-2800
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective and the
satisfaction or waiver of all other conditions to the Mergers, pursuant to the
Agreement and Plan of Merger, dated as of December 22, 1997, as amended by that
certain Amendment No. 1 thereto dated as of January 7, 1998, and that certain
Amendment No. 2 thereto dated as of February 20, 1998, described in the enclosed
Joint Proxy Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
[OCEAN ENERGY, INC. LOGO]
OCEAN ENERGY, INC.
8440 JEFFERSON HIGHWAY, SUITE 420
BATON ROUGE, LOUISIANA 70809
February 27, 1998
Dear Stockholder,
You are cordially invited to attend the Annual Meeting of Stockholders (the
"OEI Annual Meeting") of Ocean Energy, Inc. ("OEI") to be held at the Four
Seasons Hotel, 1300 Lamar Street, Houston, Texas on Friday, March 27, 1998, at
9:30 a.m., Houston time.
At the OEI Annual Meeting, you will be asked to approve a stock-for-stock
merger of United Meridian Corporation ("UMC") with OEI and certain related
transactions. In the merger transactions, each of the 22.9 million existing
shares of OEI Common Stock will be converted into 2.34 shares of common stock of
the combined company and each of the 35.8 million existing shares of UMC Common
Stock will be converted into 1.30 shares of common stock of the combined
company. The result will be a new Ocean Energy with approximately 100 million
shares outstanding; approximately 54 million shares (54%) to be held by OEI
stockholders and approximately 46 million shares (46%) to be held by UMC
stockholders.
The proposed mergers are subject to certain conditions, including the
approval of the stockholders of OEI and UMC, and will be consummated shortly
after such approvals are obtained and the other conditions to the mergers are
satisfied or waived.
FOR THE REASONS DETAILED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE
MERGERS ARE FAIR TO, AND IN THE BEST INTERESTS OF, OEI AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT OEI STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF
THE MERGERS AND RELATED MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
The merger will create one of the preeminent independent oil and gas
companies operating throughout the world. OEI's geographically concentrated,
high working interest producing properties and high impact shelf and deep water
exploration prospects in the Gulf of Mexico will be combined with UMC's high
impact growth prospects in West Africa and Asia and domestic long-lived oil and
gas reserves. The merger will result in a new, financially stronger company with
tremendous growth opportunities.
The attached Joint Proxy Statement/Prospectus describes the proposed
transaction more fully and includes other information about UMC and OEI.
In addition, at the OEI Annual Meeting, you will be asked separately (i) to
consider and approve the adoption of a proposed 1998 Long-Term Incentive Plan
(the "Plan") (which will only be adopted in the event the merger is approved and
effected), (ii) to elect two Class III directors to serve until the annual
stockholders' meeting in 2001 or until their successors have been duly elected
and qualified, and (iii) to ratify and approve the appointment of Arthur
Andersen LLP as OEI's independent auditors for the 1998 fiscal year. The
foregoing proposals, including the terms of the Plan and the nominees for
director, are described in the accompanying Joint Proxy Statement/Prospectus,
which you should read carefully. Your Board of Directors also recommends that
OEI stockholders vote in favor of the foregoing proposals.
To ensure your representation at the OEI Annual Meeting, please promptly
complete, sign and date the enclosed proxy and return it in the envelope
provided. If you plan to attend the OEI Annual Meeting, you may vote in person
at that time, even though you have previously turned in your proxy.
Sincerely,
James C. Flores
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
OCEAN ENERGY, INC.
8440 JEFFERSON HIGHWAY, SUITE 420
BATON ROUGE, LOUISIANA 70809
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
February 27, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "OEI
Annual Meeting") of Ocean Energy, Inc., a Delaware corporation ("OEI"), will be
held at the Four Seasons Hotel, 1300 Lamar Street, Houston, Texas on Friday,
March 27, 1998, at 9:30 a.m., Houston time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of December 22, 1997, as amended by
that certain Amendment No. 1 thereto dated as of January 7, 1998 and that
certain Amendment No. 2 thereto dated as of February 20, 1998 (the "Merger
Agreement"), among OEI Holding Corporation ("Newco"), United Meridian
Corporation ("UMC") and OEI, and to approve the other matters contemplated
thereby, including (i) the merger of Newco with and into OEI (the "Newco
Merger"), (ii) the merger of UMC with and into OEI (the "UMC Merger" and,
together with the Newco Merger, the "Mergers"), (iii) an amendment to
Section 4 of the Certificate of Incorporation of OEI to increase the number
of authorized shares of common stock, par value $0.01 per share, of OEI
("OEI Common Stock")to 250 million shares, and (iv) the issuance of shares
of common stock pursuant to the Merger Agreement;
2. To approve the adoption of the proposed 1998 Long-Term Incentive
Plan;
3. To elect two Class III directors to serve until the annual
stockholders' meeting in 2001 or until their successors have been duly
elected and qualified;
4. To ratify and approve the appointment of Arthur Andersen LLP as
OEI's independent auditors for the 1998 fiscal year; and
5. To consider and act upon any other matters which may properly come
before the OEI Annual Meeting or any adjournments or postponements thereof.
Only stockholders of record at the close of business on February 20, 1998,
are entitled to notice of and to vote at the OEI Annual Meeting or at any
adjournments or postponements thereof. A list of stockholders will be available
for examination at the offices of Andrews & Kurth L.L.P., 600 Travis, Suite
4200, Houston, Texas 77002 during normal business hours by any holder of OEI
Common Stock for any purpose relevant to the OEI Annual Meeting for a period of
10 days prior to the OEI Annual Meeting. Holders of OEI Common Stock are not
entitled to dissenters' appraisal rights under the Delaware General Corporation
Law in respect of the Mergers contemplated by the Merger Agreement.
By Order of the Board of Directors
Baton Rouge, Louisiana
February 27, 1998
---------------------
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE OEI ANNUAL MEETING,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE
BOARD OF DIRECTORS OF OEI, AND RETURN IT TO OEI IN THE PREADDRESSED ENVELOPE
PROVIDED FOR THAT PURPOSE. STOCKHOLDERS MAY REVOKE THEIR PROXY AT ANY TIME
BEFORE THE OEI ANNUAL MEETING BY WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A
SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE OEI ANNUAL MEETING AND VOTING IN
PERSON.
<PAGE> 4
[UNITED MERIDIAN CORPORATION LOGO]
UNITED MERIDIAN CORPORATION
1201 LOUISIANA, SUITE 1400
HOUSTON, TEXAS 77002
February 27, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"UMC Special Meeting") of United Meridian Corporation ("UMC") to be held at the
Four Seasons Hotel, 1300 Lamar Street, Houston, Texas on Friday, March 27, 1998,
at 10:30 a.m., Houston time.
At the UMC Special Meeting, you will be asked to approve a stock-for-stock
merger of UMC with Ocean Energy, Inc. ("OEI"). In the merger transactions, each
of the 35.8 million existing shares of UMC common stock will be converted into
1.30 shares of common stock of the combined company and each of the 22.9 million
existing shares of OEI common stock will be converted into 2.34 shares of common
stock of the combined company. The result will be a new Ocean Energy with
approximately 100 million shares outstanding; approximately 46 million shares
(46%) to be held by UMC stockholders and 54 million shares (54%) to be held by
OEI stockholders.
The proposed merger is subject to certain conditions, including the
approval of the stockholders of OEI and UMC, and will be consummated shortly
after such approvals are obtained and the other conditions to the merger are
satisfied or waived.
FOR THE REASONS DETAILED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, UMC AND ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT UMC STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AND THE RELATED MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
The merger will create one of the preeminent independent oil and gas
companies operating throughout the world. UMC's high impact growth prospects in
West Africa and Asia and domestic long-lived oil and gas reserves will be
combined with OEI's geographically concentrated, high working interest producing
properties and high impact shelf and deep water exploration prospects in the
Gulf of Mexico. The merger will result in a new, financially stronger company
with tremendous growth opportunities.
The attached Joint Proxy Statement/Prospectus describes the proposed
transaction more fully and includes other information about UMC and OEI.
To ensure your representation at the UMC Special Meeting, please promptly
complete, sign and date the enclosed proxy and return it in the envelope
provided. If you plan to attend the UMC Special Meeting, you may vote in person
at that time, even though you have previously turned in your proxy.
Sincerely,
John B. Brock
Chairman of the Board and
Chief Executive Officer
<PAGE> 5
UNITED MERIDIAN CORPORATION
1201 LOUISIANA, SUITE 1400
HOUSTON, TEXAS 77002
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 27, 1998
---------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "UMC
Special Meeting") of United Meridian Corporation, a Delaware corporation
("UMC"), will be held at the Four Seasons Hotel, 1300 Lamar Street, Houston,
Texas, on Friday, March 27, 1998, at 10:30 a.m., Houston time, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of December 22, 1997, as amended by
that certain Amendment No. 1 thereto dated as of January 7, 1998 and that
certain Amendment No. 2 thereto dated as of February 20, 1998 (the "Merger
Agreement"), among OEI Holding Corporation ("Newco"), UMC and Ocean Energy,
Inc. ("OEI"), and to approve the transactions contemplated thereby,
including the merger of UMC with and into OEI (the "UMC Merger"), pursuant
to which, each share of common stock, par value $0.01 per share, of UMC
("UMC Common Stock"), outstanding immediately prior to the effective time
of the UMC Merger will be converted into 1.30 shares of common stock, par
value $0.01 per share, of OEI and the separate existence of UMC will cease;
and
2. To consider and act upon any other matters which may properly come
before the UMC Special Meeting or any adjournments or postponements
thereof.
Only stockholders of record at the close of business on February 20, 1998,
are entitled to notice of and to vote at the UMC Special Meeting or at any
adjournments or postponements thereof. A list of such stockholders will be
available for examination at the offices of UMC during normal business hours by
any holder of UMC Common Stock for any purpose relevant to the UMC Special
Meeting for a period of 10 days prior to the UMC Special Meeting. Holders of UMC
Common Stock are not entitled to dissenters' appraisal rights under the Delaware
General Corporation Law in respect of the UMC Merger contemplated by the Merger
Agreement.
By Order of the Board of Directors
Houston, Texas
February 27, 1998
---------------------
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE UMC SPECIAL MEETING,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE
BOARD OF DIRECTORS OF UMC, AND RETURN IT TO UMC IN THE PREADDRESSED ENVELOPE
PROVIDED FOR THAT PURPOSE. STOCKHOLDERS MAY REVOKE THEIR PROXY AT ANY TIME
BEFORE THE UMC SPECIAL MEETING BY WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A
SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE UMC SPECIAL MEETING AND VOTING IN
PERSON.
<PAGE> 6
OCEAN ENERGY, INC.
AND
UNITED MERIDIAN CORPORATION
[OCEAN ENERGY, INC. LOGO] [UNITED MERIDAN CORPORATION LOGO]
JOINT PROXY STATEMENT
------------------------------
OCEAN ENERGY, INC.
PROSPECTUS
------------------------------
This Joint Proxy Statement/Prospectus is being furnished to holders of
common stock, par value $0.01 per share ("OEI Common Stock"), of Ocean Energy,
Inc., a Delaware corporation ("OEI"), in connection with the solicitation of
proxies by its Board of Directors (the "OEI Board") for use at the annual
meeting of stockholders of OEI to be held on March 27, 1998, or any adjournments
or postponements thereof (the "OEI Annual Meeting"), and to holders of common
stock, par value $0.01 per share ("UMC Common Stock"), of United Meridian
Corporation, a Delaware corporation ("UMC"), in connection with the solicitation
of proxies by its Board of Directors (the "UMC Board") for use at the special
meeting of stockholders of UMC to be held on March 27, 1998, or any adjournments
or postponements thereof (the "UMC Special Meeting" and, together with the OEI
Annual Meeting, the "Stockholders' Meetings"). At the Stockholders' Meetings,
stockholders of OEI and UMC will be asked to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger, dated as of December 22,
1997, as amended by an Amendment No. 1, dated as of January 7, 1998 and an
Amendment No. 2, dated as of February 20, 1998 (as amended, the "Merger
Agreement"), among OEI, UMC and OEI Holding Corporation, a Delaware corporation
("Newco") (one-half of the issued and outstanding capital stock of which is
owned by each of OEI and UMC), and the consummation of the other matters
contemplated by the Merger Agreement. In addition, at the OEI Annual Meeting,
stockholders of OEI will be asked to consider and vote upon proposals (i) to
approve the adoption of the proposed 1998 Long-Term Incentive Plan (the "Plan"),
(ii) to elect two Class III directors, and (iii) to ratify and approve the
selection of Arthur Andersen LLP as OEI's independent auditors for the 1998
fiscal year.
The Merger Agreement provides for (i) the merger of Newco with and into OEI
(the "Newco Merger"), and (ii) the subsequent merger of UMC with and into OEI
(the "UMC Merger" and, together with the Newco Merger, the "Mergers"), with OEI
being the corporation surviving each Merger ("New Ocean") under the name Ocean
Energy, Inc. Upon the Mergers becoming effective, each share of OEI Common Stock
issued and outstanding immediately prior to the effective time of the Newco
Merger (the "Old OEI Common Stock") will be converted into the right to receive
2.34 shares of common stock, par value $0.01 per share, of New Ocean (the "New
Ocean Common Stock"), and each share of UMC Common Stock issued and outstanding
immediately prior to the effective time of the UMC Merger (other than shares to
be canceled pursuant to the Merger Agreement) will be converted into the right
to receive 1.30 shares of New Ocean Common Stock. As a result, UMC stockholders
will own an aggregate of approximately 46 million, or 46%, of the outstanding
shares of New Ocean Common Stock, and OEI stockholders will own an aggregate of
approximately 54 million, or 54%, of the outstanding shares of New Ocean Common
Stock. Cash will be paid in lieu of any fractional shares of New Ocean Common
Stock. Upon consummation of the transactions contemplated by the Merger
Agreement, the separate existences of Newco and UMC will cease, New Ocean will
succeed to all of the assets, rights and liabilities of UMC and Newco, and
Section 4 of the Certificate of Incorporation of OEI shall be amended to
increase the number of authorized shares of OEI Common Stock to 250 million
shares. A copy of the Merger Agreement is attached hereto as Appendix A and is
incorporated herein by reference.
The consummation of the Mergers is subject to various conditions, including
approval by the stockholders of each of OEI and UMC and the receipt of required
regulatory approvals.
OEI has filed a registration statement on Form S-4 under the Securities Act
of 1933, as amended, covering the shares of New Ocean Common Stock, including
accompanying OEI preferred stock purchase rights (the "Rights"), that are
proposed to be issued in connection with the UMC Merger to holders of
outstanding shares of UMC Common Stock. This Joint Proxy Statement/Prospectus
also constitutes the prospectus of OEI with respect to shares of New Ocean
Common Stock to be issued in connection with the UMC Merger. For a description
of the New Ocean Common Stock and Rights, see "Description of New Ocean Capital
Stock."
The shares of New Ocean Common Stock that will be issued pursuant to the
UMC Merger, together with the accompanying Rights, will be authorized for
listing, subject to official notice of issuance, on the New York Stock Exchange,
Inc. (the "NYSE") prior to the effective time of the Mergers.
FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BEFORE VOTING
ON THE PROPOSALS DESCRIBED HEREIN AT THE STOCKHOLDERS' MEETINGS, SEE "RISK
FACTORS" BEGINNING ON PAGE 22.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of each of OEI and UMC on or about
February 27, 1998.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------
The date of this Joint Proxy Statement/Prospectus is February 27, 1998.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION..................................... 3
INCORPORATION OF DOCUMENTS BY REFERENCE................... 4
SUMMARY................................................... 5
The Transaction.......................................... 5
New Ocean -- The Combined Company........................ 5
Risk Factors............................................. 6
Shares Issuable in the Mergers........................... 6
The Companies............................................ 6
Ocean Energy, Inc...................................... 6
United Meridian Corporation............................ 6
OEI Holding Corporation................................ 7
The Stockholders' Meetings............................... 7
Date, Time and Place................................... 7
Purpose of the Stockholders' Meetings.................. 7
Record Dates; Shares Entitled to Vote.................. 7
Vote Required.......................................... 8
The Mergers and the Merger Agreement..................... 8
General................................................ 8
Consideration.......................................... 9
Exchange Agent; Procedures for Exchange of Stock
Certificates......................................... 9
Ownership of New Ocean Following the Mergers........... 9
Proposed Adoption of Integrated Incentive Plan......... 10
Reasons for the Mergers; Recommendation of the
Boards............................................... 10
Opinions of Financial Advisors......................... 10
Accounting Treatment................................... 10
Certain Material U.S. Federal Income Tax Consequences
of the Mergers....................................... 11
Board of Directors of New Ocean Following the
Mergers.............................................. 11
Regulatory Approvals................................... 11
Absence of Appraisal Rights............................ 11
Conditions Precedent to the Mergers.................... 11
Termination of the Merger Agreement.................... 12
The Stock Option Agreements.............................. 13
Comparison of Stockholder Rights......................... 13
Interests of Certain Persons in the Mergers.............. 13
Forward-Looking Statements or Information................ 14
Market Price and Dividend Information.................... 15
Summary Selected Historical Consolidated Financial and
Operating Data......................................... 16
Summary Historical Oil and Gas Reserve Information....... 18
Summary Unaudited Pro Forma Combined Financial and
Operating Data......................................... 19
Summary Pro Forma Oil and Gas Reserve Information........ 20
Comparative Per Share Data............................... 21
RISK FACTORS.............................................. 22
Integration of Operations................................ 22
Replacement of Reserves.................................. 22
Price Fluctuations and Volatile Nature of Markets........ 22
Substantial Capital Requirements......................... 22
Reliance on Estimates of Proved Reserves................. 23
Economic Risks of Oil and Gas Operations................. 23
Drilling Risks........................................... 24
Competition.............................................. 24
Government Regulations................................... 24
Foreign Operations....................................... 24
Tax Risks................................................ 25
Interests of Certain Persons in the Mergers.............. 25
THE STOCKHOLDERS' MEETINGS................................ 26
General.................................................. 26
Purpose of the Stockholders' Meetings.................... 26
Voting Securities and Record Dates....................... 27
Proxies.................................................. 27
THE COMPANIES............................................. 28
Ocean Energy, Inc........................................ 28
United Meridian Corporation.............................. 28
OEI Holding Corporation.................................. 29
THE MERGERS............................................... 29
General.................................................. 29
Consideration............................................ 29
New Ocean -- The Combined Company........................ 29
Ownership of New Ocean Following the Mergers............. 31
Background of the Mergers................................ 31
Reasons for the Mergers; Recommendations of the Boards... 34
Opinion of OEI's Financial Advisor....................... 37
Opinion of UMC's Financial Advisor....................... 43
Accounting Treatment..................................... 50
Certain Material U.S. Federal Income Tax Consequences of
the Mergers............................................ 50
Board of Directors of New Ocean Following the Mergers.... 51
Governmental and Regulatory Approvals.................... 51
Interests of Certain Persons in the Mergers.............. 51
Absence of Appraisal Rights.............................. 54
Stock Exchange Listing................................... 54
Delisting and Deregistration of UMC Common Stock......... 54
Certain Litigation....................................... 54
THE MERGER AGREEMENT...................................... 55
General.................................................. 55
Consideration............................................ 55
Exchange Agent; Procedures for Exchange of Stock
Certificates........................................... 56
No Fractional Shares..................................... 58
Governance of New Ocean After the Mergers................ 59
New Ocean Charter Documents and Bylaws................... 60
Representations and Warranties........................... 60
Conduct of Business Pending the Mergers.................. 60
No Solicitation.......................................... 63
Conditions Precedent to the Mergers...................... 64
Stock Options............................................ 65
Employee Benefits and Restricted Stock................... 65
Indemnification; Directors' and Officers' Insurance...... 66
Termination.............................................. 67
Termination Fees......................................... 67
Fees and Expenses........................................ 68
Amendments............................................... 68
Waiver................................................... 68
THE STOCK OPTION AGREEMENTS............................... 68
General.................................................. 69
Termination.............................................. 69
Certain Adjustments...................................... 70
Registration Rights...................................... 71
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGERS.............................................. 71
Tax Consequences to OEI, Newco and UMC................... 72
Tax Consequences to Holders of Merger Stock.............. 72
Backup Withholding....................................... 72
COMPARISON OF STOCKHOLDER RIGHTS.......................... 73
Authorized Capital Stock................................. 73
Directors................................................ 73
Stockholder Action by Written Consent; Special Meetings
of Stockholders........................................ 74
Charter Amendment........................................ 74
Amendment to Bylaws...................................... 75
Rights Plan.............................................. 75
State Takeover Legislation............................... 76
Liability of Directors; Indemnification of Directors and
Officers............................................... 77
Absence of Appraisal Rights.............................. 77
DESCRIPTION OF NEW OCEAN CAPITAL STOCK.................... 78
Authorized and Outstanding Capital Stock................. 78
New Ocean Common Stock................................... 78
New Ocean Preferred Stock................................ 79
Anti-Takeover Provisions................................. 80
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING
DATA..................................................... 81
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF OEI
AND UMC.................................................. 85
ADDITIONAL MATTERS TO BE CONSIDERED AT THE OEI ANNUAL
MEETING.................................................. 91
Election Of Directors.................................... 91
Approval of Auditors..................................... 98
Approval of 1998 Long-Term Incentive Plan................ 99
Security Ownership of Certain Beneficial Owners and
Management of OEI...................................... 104
EXPERTS................................................... 105
LEGAL MATTERS............................................. 105
STOCKHOLDER PROPOSALS..................................... 106
GLOSSARY OF CERTAIN OIL AND GAS TERMS..................... 107
APPENDICES:
A -- Agreement and Plan of Merger, as modified by
Amendment No. 1 and Amendment No. 2 thereto
B-1 -- Ocean Energy, Inc. Stock Option Agreement
B-2 -- United Meridian Corporation Stock Option Agreement
C -- Fairness Opinion of Lehman Brothers
D -- Fairness Opinion of Merrill Lynch
E -- 1998 Long-Term Incentive Plan
</TABLE>
2
<PAGE> 8
AVAILABLE INFORMATION
Each of OEI and UMC is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, at
prescribed rates. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements, and other information
regarding registrants (including OEI and UMC) that file electronically with the
Commission (at http://www.sec.gov). Each of the OEI Common Stock and UMC Common
Stock is listed on the NYSE and reports, proxy statements and other information
relating to each of OEI and UMC can be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement on Form S-4 (together with
all amendments, exhibits and schedules thereto, the "Registration Statement")
filed with the Commission by OEI under the Securities Act of 1933, as amended
(the "Securities Act"), certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is made to the
Registration Statement and the exhibits thereto for further information.
Exhibits to the Registration Statement that are omitted from this Joint Proxy
Statement/ Prospectus may also be obtained at the Commission's World Wide Web
site described above. Statements contained or incorporated by reference herein
concerning the provisions of any agreement or other document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and readers are referred to the copy so filed for more
detailed information, each such statement being qualified in its entirety by
such reference.
Each of OEI and UMC has supplied all information contained or incorporated
by reference in this Joint Proxy Statement/Prospectus relating to OEI and UMC,
respectively.
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE BY THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY OEI OR UMC. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/ PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH SOLICITATION.
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<PAGE> 9
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, as amended, heretofore filed by OEI (File No.
0-25058) with the Commission pursuant to the Exchange Act are incorporated
herein by reference and shall be deemed a part hereof:
1. the OEI Annual Report on Form 10-K for the year ended December 31,
1997;
2. the OEI Registration Statement on Form 8-A filed with respect to
the OEI Common Stock, as amended to date; and
3. the OEI Registration Statement on Form 8-A filed with respect to
the Rights, as amended to date.
The following documents heretofore filed by UMC (File No. 1-12088) with the
Commission pursuant to the Exchange Act are incorporated herein by reference and
shall be deemed a part hereof:
1. the UMC Annual Report on Form 10-K for the year ended December 31,
1997.
All reports and other documents filed by either OEI or UMC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Joint Proxy Statement/Prospectus and prior to the date of the OEI Annual
Meeting and the UMC Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the dates of filing of such
reports and documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein, or in any other subsequently filed document
that also is incorporated or deemed to be incorporated by reference herein,
modifies or supersedes the earlier statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
(OTHER THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF SHARES OF OEI COMMON STOCK OR UMC COMMON STOCK TO WHOM THIS
JOINT PROXY STATEMENT/PROSPECTUS IS SENT, UPON WRITTEN OR ORAL REQUEST, IN THE
CASE OF DOCUMENTS RELATING TO OEI, TO CORPORATE SECRETARY, OCEAN ENERGY, INC.,
8440 JEFFERSON HIGHWAY, SUITE 420, BATON ROUGE, LOUISIANA 70809, TELEPHONE (504)
927-1450, AND, IN THE CASE OF DOCUMENTS RELATING TO UMC, TO CORPORATE SECRETARY,
UNITED MERIDIAN CORPORATION, 1201 LOUISIANA, SUITE 1400, HOUSTON, TEXAS 77002,
TELEPHONE (713) 654-9110. IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE
APPLICABLE STOCKHOLDERS' MEETING, ANY SUCH REQUEST SHOULD BE RECEIVED NOT LATER
THAN MARCH 17, 1998.
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<PAGE> 10
SUMMARY
The following is only a summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained
elsewhere or incorporated by reference in this Joint Proxy Statement/Prospectus
and in the appendices hereto including, but not limited to, the Merger Agreement
set forth as Appendix A hereto. Unless otherwise defined, capitalized terms used
in this summary have the respective meanings ascribed to them elsewhere in this
Joint Proxy Statement/Prospectus. Stockholders of OEI and UMC are urged to
carefully read this Joint Proxy Statement/Prospectus and the appendices hereto,
and the documents incorporated by reference herein, in their entirety. Unless
the context otherwise requires, as used herein the term "UMC" refers to United
Meridian Corporation and its subsidiaries, the term "OEI" refers to Ocean
Energy, Inc. and its subsidiaries prior to the Mergers and the term "New Ocean"
refers to the combined company following the Mergers. Certain terms relating to
the oil and gas business are defined in the "Glossary of Certain Oil and Gas
Terms" section of this Joint Proxy Statement/Prospectus.
THE TRANSACTION
OEI and UMC have entered into the Merger Agreement that provides for a
stock-for-stock merger of the companies pursuant to which OEI stockholders will
receive 2.34 shares of New Ocean Common Stock for each of the 22.9 million
existing shares of Old OEI Common Stock and UMC stockholders will receive 1.30
shares of New Ocean Common Stock for each of the 35.8 million existing shares of
UMC Common Stock. The surviving corporation will be named Ocean Energy, Inc. and
will have capitalization of approximately 100 million shares of New Ocean Common
Stock issued and outstanding. As a result of the Mergers, current OEI
stockholders will own approximately 54% of the equity in New Ocean while current
UMC stockholders will own approximately 46%. See "-- Shares Issuable in the
Mergers." The Mergers are expected to qualify as tax-free transactions and are
subject to each company's stockholders' approval and certain other conditions.
The transaction is expected to be treated as a pooling of interests for
accounting purposes.
NEW OCEAN -- THE COMBINED COMPANY
The combination of OEI and UMC will create one of the largest independent
oil and gas companies that will be well positioned to execute a high growth
exploration and exploitation strategy. The following summarizes certain
strengths and attributes of the combined company:
- Expanded Proved Reserve Base and Geographic Diversity. The combination of
OEI and UMC will result in pro forma proved reserves of 271 million barrels of
oil equivalent ("MMBOE") as of December 31, 1997. New Ocean's pro forma proved
reserves will be geographically diversified with approximately 45% located in
the Gulf of Mexico/Gulf Coast region, 23% located in the Rocky Mountain/Mid
Continent region, 7% in Canada and 25% in Western Africa.
- Significant Production Growth. On a combined basis, New Ocean would have
had average production of approximately 117,000 barrels of oil equivalent per
day ("BOEPD") in December of 1997. For the four year period ended December 31,
1997, average annual production increased approximately 43% for OEI and 27% for
UMC. On a combined basis for the three years ended December 31, 1997, New
Ocean's production would have grown at an annual rate in excess of 30%.
- Stronger Financial Position. New Ocean will have a larger, stronger
capitalization base which should enhance funding sources and resource
procurement to explore and exploit the multiple prospects available to the
combined company. On a combined pro forma basis, New Ocean would have had
earnings before interest, taxes, depreciation, amortization and exploration
expense ("EBITDAX") of $398 million for the year ended December 31, 1997, an
EBITDAX to interest expense ratio for 1997 exceeding 8.0x and a debt-to-
capitalization ratio as of December 31, 1997 of 49%.
- Complementary Exploration and Exploitation Opportunities. The combination
of OEI and UMC will create a diversified portfolio of exploration and
exploitation opportunities that will merge large scale
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<PAGE> 11
prospects and exploitation in West Africa and other international exploratory
opportunities with substantial prospects in the Gulf of Mexico, including
deepwater projects and joint ventures with major oil companies such as Conoco,
Inc., Shell Offshore, Inc. and Mobil Corporation.
- Combination of Management and Technical Expertise. The Mergers will
combine two of the more technically advanced and successful exploration and
development groups in the industry, merging UMC's international experience with
OEI's Gulf of Mexico acumen. The management team of New Ocean will be led by
John B. Brock (current Chairman of the Board and Chief Executive Officer of UMC)
who will be Chairman of the Board of New Ocean and James C. Flores (current
Chairman of the Board, President and Chief Executive Officer of OEI) who will be
President and Chief Executive Officer of New Ocean as well as its largest
individual stockholder.
For more information concerning the results and effects of the combination of
OEI and UMC pursuant to the Mergers, see "The Mergers -- New Ocean -- The
Combined Company."
RISK FACTORS
Stockholders of OEI and UMC should refer to the information under "Risk
Factors" for a discussion of certain matters that should be considered in
connection with an evaluation of the proposals to be considered at their
respective Stockholders' Meetings.
SHARES ISSUABLE IN THE MERGERS
Pursuant to the Merger Agreement, the approximate number of shares of New
Ocean Common Stock to be issued to common stockholders of OEI and UMC, and the
resulting expected equity capitalization will be as follows:
<TABLE>
<CAPTION>
SHARES
OUTSTANDING
AS OF
DECEMBER 31, EXCHANGE NEW OCEAN %
STOCKHOLDER GROUP 1997 RATIO SHARES OUTSTANDING
----------------- ------------ -------- --------- -----------
(MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C>
OEI......................................... 22.9X 2.34 53.6 54
UMC......................................... 35.8X 1.30 46.5 46
----- ---
New Ocean................................... 100.1 100
===== ===
</TABLE>
THE COMPANIES
OCEAN ENERGY, INC.
OEI is an independent energy company engaged in the exploration,
development, acquisition and production of oil and gas. OEI has one of the most
active exploration and development programs in the Gulf of Mexico, which is
among the most prolific oil and gas producing regions in the United States.
OEI's activities are focused primarily in four geographically distinct
areas in the Gulf of Mexico region, consisting of OEI's holdings in the
Mississippi River Delta area, the Central Gulf of Mexico area, deepwater areas
of the Gulf of Mexico and onshore Louisiana.
UNITED MERIDIAN CORPORATION
UMC is a leading independent energy company engaged in the exploration,
development, production and acquisition of oil and gas in North America and
certain international regions. In North America, UMC's production is
concentrated in the Gulf Coast, Permian Basin, Midcontinent and Rocky Mountain
regions and in Western Canada. Internationally, UMC currently operates in the
West African oil and gas producing regions of Cote d'Ivoire and Equatorial
Guinea, has production sharing contracts ("PSCs") or petroleum
6
<PAGE> 12
concession agreements on five blocks in Pakistan and on one block in Bangladesh,
has been awarded a participation in a block in offshore Angola, and has two
applications pending for PSCs in an additional West African nation.
OEI HOLDING CORPORATION
Newco is a newly formed Delaware corporation that has not, to date,
conducted any activities other than those incident to its formation, its
execution of the Merger Agreement and related agreements, and its participation
in the preparation of this Joint Proxy Statement/Prospectus. One-half of the
issued and outstanding capital stock of Newco is owned by each of OEI and UMC.
As a result of the Newco Merger, Newco will cease to exist.
THE STOCKHOLDERS' MEETINGS
DATE, TIME AND PLACE
OEI
The OEI Annual Meeting will be held on Friday, March 27, 1998, at the Four
Seasons Hotel, 1300 Lamar Street, Houston, Texas, commencing at 9:30 a.m.
Houston time. See "The Stockholders' Meetings -- General."
UMC
The UMC Special Meeting will be held on Friday, March 27, 1998, at the Four
Seasons Hotel, 1300 Lamar Street, Houston, Texas, commencing at 10:30 a.m.
Houston time. See "The Stockholders' Meetings -- General."
PURPOSE OF THE STOCKHOLDERS' MEETINGS
OEI
The purpose of the OEI Annual Meeting is to consider and vote upon a
proposal (the "OEI Proposal") to adopt the Merger Agreement, approve the
Mergers, including certain amendments to the OEI Certificate, and approve the
other matters contemplated by the Merger Agreement. In addition, at the OEI
Annual Meeting, holders of OEI Common Stock will be asked to approve the
adoption of the Plan, to elect two Class III directors to serve until the annual
meeting of stockholders in 2001 or until their successors have been duly elected
and qualified, and to ratify and approve the appointment of Arthur Andersen LLP
as OEI's independent auditors for the 1998 fiscal year. The Plan will not be
adopted unless the Mergers are approved by \stockholders and consummated. See
"The Stockholders' Meetings -- Purpose of the Stockholders' Meetings."
UMC
The purpose of the UMC Special Meeting is to consider and vote upon a
proposal (the "UMC Proposal") to adopt the Merger Agreement and to approve the
UMC Merger and the other matters contemplated by the Merger Agreement. See "The
Stockholders' Meetings -- Purpose of the Stockholders' Meetings."
RECORD DATES; SHARES ENTITLED TO VOTE
OEI
Only holders of record of shares of OEI Common Stock at the close of
business on February 20, 1998 (the "OEI Record Date") are entitled to notice of
and to vote at the OEI Annual Meeting. On such date, there were 22,896,887
shares of OEI Common Stock outstanding. Each share of OEI Common Stock will be
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<PAGE> 13
entitled to one vote on each matter to be acted upon at the OEI Annual Meeting.
See "The Stockholders' Meetings -- Voting Securities and Record Dates."
UMC
Only holders of record of shares of UMC Common Stock at the close of
business on February 20, 1998 (the "UMC Record Date") are entitled to notice of
and to vote at the UMC Special Meeting. On such date, there were 35,793,991
shares of UMC Common Stock outstanding. Each share of UMC Common Stock will be
entitled to one vote on each matter to be acted upon at the UMC Special Meeting.
See "The Stockholders' Meetings -- Voting Securities and Record Dates."
VOTE REQUIRED
OEI
The presence, in person or by proxy, at the OEI Annual Meeting of the
holders of a majority of the shares of OEI Common Stock outstanding and entitled
to vote at the OEI Annual Meeting is necessary to constitute a quorum at the OEI
Annual Meeting. The affirmative vote of the holders of a majority of the
outstanding shares of OEI Common Stock is required to approve and adopt the OEI
Proposal. The affirmative vote of holders of a majority of the shares of OEI
Common Stock present and entitled to vote at the OEI Annual Meeting will be
required to approve the adoption of the Plan and ratify and approve the
selection of Arthur Andersen LLP as OEI's independent auditors for the 1998
fiscal year. The Class III directors will be elected by plurality vote of the
outstanding shares of OEI Common Stock. See "The Stockholders' Meetings --
Voting Securities and Record Dates -- OEI" and " -- Proxies."
UMC
The presence, in person or by proxy, at the UMC Special Meeting of the
holders of a majority of the shares of UMC Common Stock outstanding and entitled
to vote at the UMC Special Meeting is necessary to constitute a quorum at the
UMC Special Meeting. The affirmative vote of the holders of a majority of the
outstanding shares of UMC Common Stock is required to approve and adopt the UMC
Proposal. See "The Stockholders' Meetings -- Voting Securities and Record
Dates -- UMC" and " -- Proxies."
Security Ownership of Management
As of the OEI Record Date, the directors and executive officers of OEI
beneficially owned approximately 21.4% of the outstanding shares of OEI Common
Stock entitled to vote at the OEI Annual Meeting. As of the UMC Record Date, the
directors and executive officers of UMC beneficially owned approximately 0.9% of
the outstanding shares of UMC Common Stock entitled to vote at the UMC Special
Meeting. Upon consummation of the Mergers, the current directors and executive
officers of OEI and UMC will own 11.5% and 0.4%, respectively, of the
outstanding shares of New Ocean Common Stock. Each of the directors and
executive officers of OEI has advised OEI that he or she plans to vote or to
direct the vote of all shares of OEI Common Stock beneficially owned by him or
her and entitled to vote, FOR (i) the approval and adoption of the OEI Proposal,
(ii) the adoption of the Plan, (iii) the election of the Class III directors,
and (iv) the ratification and approval of the selection of Arthur Andersen LLP
as OEI's independent auditors for the 1998 fiscal year. Each of the directors
and executive officers of UMC has advised UMC that he or she plans to vote or to
direct the vote of all shares beneficially owned by him or her and entitled to
vote, FOR the approval and adoption of the UMC Proposal.
THE MERGERS AND THE MERGER AGREEMENT
GENERAL
The Merger Agreement provides that following the satisfaction or waiver of
the conditions set forth therein, the parties shall file a certificate of merger
(individually, a "Certificate of Merger" with respect to
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<PAGE> 14
each of the Mergers, and collectively with respect to both Mergers, the
"Certificates of Merger") executed in accordance with the relevant provisions of
the Delaware General Corporation Law (the "DGCL") and shall make all other
filings or recordings required under the DGCL in order to effect both Mergers.
The Newco Merger shall become effective at such time as is specified in the
Certificate of Merger for the Newco Merger, which time shall be at 3:00 p.m.
(Houston, Texas time) on the date of the closing (the "Closing") of the
transactions contemplated by the Merger Agreement (the "Newco Effective Time").
The UMC Merger shall become effective at such time as is specified in the
Certificate of Merger for the UMC Merger, which time shall be at 3:01 p.m.
(Houston, Texas time) on the date of the Closing (the "UMC Effective Time" or,
in some cases, the "Effective Time"). At the Newco Effective Time, Newco will be
merged with and into OEI, and, at the UMC Effective Time, UMC will be merged
with and into OEI, with New Ocean continuing as the surviving corporation in
each of the Mergers and the separate existences of Newco and UMC will cease. See
" -- Conditions Precedent to the Mergers."
CONSIDERATION
Upon consummation of the Mergers, (i) each share of Old OEI Common Stock
issued and outstanding immediately prior to the Newco Effective Time will be
converted into the right to receive 2.34 shares of New Ocean Common Stock (the
"OEI Exchange Ratio") and (ii) each share of UMC Common Stock issued and
outstanding immediately prior to the UMC Effective Time (other than shares to be
canceled pursuant to the Merger Agreement) will be converted into the right to
receive 1.30 shares of New Ocean Common Stock (the "UMC Exchange Ratio" and,
together with the OEI Exchange Ratio, the "Exchange Ratios"). Cash will be paid
in lieu of any fractional shares of New Ocean Common Stock. See "The Merger
Agreement -- Consideration" and "-- No Fractional Shares."
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF STOCK CERTIFICATES
Promptly after consummation of the Mergers, Harris Trust and Savings Bank
(the "Exchange Agent") will mail a letter of transmittal with instructions to
holders of record of Old OEI Common Stock and UMC Common Stock immediately
before the Effective Time for use in exchanging certificates representing shares
of Old OEI Common Stock and UMC Common Stock for certificates representing
shares of New Ocean Common Stock and cash in lieu of any fractional shares.
Certificates should not be surrendered by the holders of Old OEI Common Stock
and UMC Common Stock until stockholders have received a letter of transmittal
from the Exchange Agent. See "The Merger Agreement -- Exchange Agent; Procedures
for Exchange of Stock Certificates."
OWNERSHIP OF NEW OCEAN FOLLOWING THE MERGERS
The shares of New Ocean Common Stock issued to holders of Old OEI Common
Stock in the Newco Merger will constitute approximately 54% of all of the issued
and outstanding New Ocean Common Stock immediately after the Mergers and the
shares of New Ocean Common Stock issued to UMC stockholders in the UMC Merger
will constitute approximately 46% of all of the issued and outstanding New Ocean
Common Stock immediately after the Mergers. Approximately 100 million shares of
New Ocean Common Stock will be issued and outstanding immediately following the
Mergers.
Upon consummation of the Newco Merger, each outstanding and unexercised
option (each, an "OEI Stock Option") to purchase shares of Old OEI Common Stock
will be converted into an option to purchase the number of shares of New Ocean
Common Stock equal to the number of shares of Old OEI Common Stock that could
have been obtained upon exercise of such option prior to the Newco Effective
Time multiplied by the OEI Exchange Ratio, and the exercise price with respect
thereto will equal the exercise price under such OEI Stock Option divided by the
OEI Exchange Ratio.
Upon consummation of the UMC Merger, each outstanding and unexercised
option (each, a "UMC Stock Option") to purchase shares of UMC Common Stock will
be converted into an option to purchase the number of shares of New Ocean Common
Stock equal to the number of shares of UMC Common Stock that could have been
obtained upon exercise of such option prior to the UMC Effective Time multiplied
by the
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<PAGE> 15
UMC Exchange Ratio, and the exercise price with respect thereto will equal the
exercise price under such UMC Stock Option divided by the UMC Exchange Ratio.
PROPOSED ADOPTION OF INTEGRATED INCENTIVE PLAN
On February 18, 1998, the OEI Board adopted the Plan, subject to the
consummation of the Mergers and the approval of the Plan by the stockholders of
OEI. The Plan is designed to consolidate the approximately 540,000 shares of OEI
Common Stock that remain available for grant under OEI's 1996 Long-Term
Incentive Plan with the approximately 1,246,000 shares of UMC Common Stock that
remain available for grant under the UMC 1994 Outside Directors' Nonqualified
Stock Option Plan and the UMC 1994 Employee Nonqualified Stock Option Plan
(after giving effect to the Exchange Ratios). Accordingly, a maximum of
2,900,000 shares of authorized but unissued New Ocean Common Stock, subject to
certain adjustments, will initially be available for grant under the Plan.
Effective with the approval of the Plan and the consummation of the Mergers,
OEI's 1996 Long-Term Incentive Plan will be "frozen," such that no further
options or awards may be granted under it after that date, and no additional
grants will be made under either UMC plan thereafter. If the Mergers are not
consummated, the Plan will not be adopted. If the Mergers are consummated but
the Plan is not approved, OEI's 1996 Long-Term Incentive Plan will remain in
effect.
REASONS FOR THE MERGERS; RECOMMENDATION OF THE BOARDS
OEI
The OEI Board believes that the terms of the Mergers are fair to, and in
the best interests of, OEI stockholders and unanimously recommends that the
stockholders of OEI vote FOR adoption and approval of the OEI Proposal. The
recommendation of the OEI Board is based on a number of factors as described in
"The Mergers -- Reasons for the Mergers; Recommendations of the Boards."
UMC
The UMC Board believes that the terms of the UMC Merger are fair to, and in
the best interests of, UMC stockholders and unanimously recommends that the
stockholders of UMC vote FOR adoption and approval of the UMC Proposal. The
recommendation of the UMC Board is based on a number of factors as described in
"The Mergers -- Reasons for the Mergers; Recommendations of the Boards."
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the Mergers, each of the OEI Board and the UMC Board
(together, the "Boards") considered opinions from their respective financial
advisors relating to the fairness of the respective Exchange Ratios from a
financial point of view. OEI received a written opinion (the "OEI Fairness
Opinion") from its financial advisor, Lehman Brothers Inc. ("Lehman Brothers"),
to the effect that, as of the date of such opinion, and based upon and subject
to certain matters stated therein, from a financial point of view and in
relation to the UMC Exchange Ratio, the OEI Exchange Ratio offered to OEI's
stockholders in the Mergers was fair to such stockholders. UMC received a
separate written opinion (the "UMC Fairness Opinion") from its financial
advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
to the effect that, as of the date of such opinion, the UMC Exchange Ratio is
fair, from a financial point of view, to UMC's stockholders. The OEI Fairness
Opinion and the UMC Fairness Opinion are attached as Appendices C and D,
respectively, to this Joint Proxy Statement/Prospectus. Stockholders are
encouraged to read these opinions. See "The Mergers -- Opinion of OEI's
Financial Advisor" and "-- Opinion of UMC's Financial Advisor."
ACCOUNTING TREATMENT
The Mergers are intended to qualify for "pooling of interests" accounting
treatment under generally accepted accounting principles. See "The
Mergers -- Accounting Treatment."
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<PAGE> 16
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS
OEI has received an opinion of its tax counsel, Andrews & Kurth L.L.P.,
that the Mergers will qualify as reorganizations within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and UMC
has received an opinion of its tax counsel, Akin, Gump, Strauss, Hauer & Feld,
L.L.P., to the effect that the UMC Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code. Each of the formal opinions
are filed as exhibits to the Registration Statement, and the opinions themselves
are set forth under "Certain Material U.S. Federal Income Tax Consequences of
the Mergers." Consummation of the Mergers is conditioned upon, among other
things, the receipt by each company of a subsequent, confirming opinion dated as
of the Effective Time. While the Merger Agreement permits OEI and UMC to waive
this condition, neither company intends to do so.
The Mergers have been structured with the intention that each of them
qualify as a reorganization under Section 368(a) of the Code. Accordingly, no
gain or loss will be recognized by OEI, Newco, UMC, or any of their stockholders
(except to the extent that any of such stockholders receives cash in lieu of
fractional shares pursuant to the Mergers). The aggregate adjusted tax basis and
holding periods of the New Ocean Common Stock received by the OEI and UMC
stockholders will be the same as the adjusted tax basis and holding periods of
the shares exchanged therefor. The tax basis and holding periods of the assets
of Newco and UMC transferred to New Ocean in the Mergers will carry over to New
Ocean.
All stockholders of OEI and UMC should read carefully the discussion
regarding tax matters in "Certain Material U.S. Federal Income Tax Consequences
of the Mergers" and other sections of this Joint Proxy Statement/Prospectus.
Stockholders are urged to consult their own tax advisors as to the specific
consequences to them of the Mergers under U.S. federal, state, local, foreign or
any other applicable tax laws. See "Risk Factors" and "Certain Material U.S.
Federal Income Tax Consequences of the Mergers."
BOARD OF DIRECTORS OF NEW OCEAN FOLLOWING THE MERGERS
Immediately subsequent to consummation of the Mergers, the Board of
Directors of New Ocean (the "New Ocean Board") will initially consist of 14
members divided into three classes, seven of whom will be designated by the OEI
Board and seven of whom will be designated by the UMC Board. See "The
Mergers -- Board of Directors of New Ocean Following the Mergers" and
"-- Interests of Certain Persons in the Mergers."
REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), prohibits consummation of the Mergers until Premerger Notification
and Report Forms have been submitted and certain information has been furnished
to the United States Federal Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the specified waiting period requirements of the HSR Act have expired or
been terminated. Early termination of the required waiting period under the HSR
Act with respect to the Mergers was granted on January 20, 1998.
ABSENCE OF APPRAISAL RIGHTS
Under the DGCL, the stockholders of OEI and UMC are not entitled to
appraisal rights with respect to the Mergers. See "The Mergers -- Absence of
Appraisal Rights" and "Comparison of Stockholder Rights -- Absence of Appraisal
Rights."
CONDITIONS PRECEDENT TO THE MERGERS
The obligations of OEI and UMC to effect the Mergers are subject, among
other things, to the fulfillment or, where permissible, waiver of each of the
following: (i) the approval and adoption of the OEI Proposal by the requisite
vote of the stockholders of OEI (the "OEI Stockholders' Approval") and the
approval and adoption of the UMC Proposal by the requisite vote of the
stockholders of UMC (the "UMC Stockholders' Approval") will have been obtained
in accordance with applicable law; (ii) no statute, rule, regulation,
11
<PAGE> 17
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or enforced by any court or other tribunal or governmental body or
authority which prohibits the consummation of the Mergers substantially on the
terms contemplated by the Merger Agreement; (iii) the effectiveness of the
Registration Statement and the absence of a stop order suspending such
effectiveness; (iv) the approval for listing on the NYSE, subject only to
official notice of issuance, of the shares of New Ocean Common Stock issuable in
the Mergers; (v) expiration or termination of any waiting period applicable to
the consummation of the Mergers under the HSR Act, and the obtaining of all
other approvals required to be obtained by OEI and UMC, except where the failure
to obtain such approvals would not have a material adverse effect upon OEI or
UMC, as the case may be; (vi) OEI and UMC having received a confirming opinion
as of the Effective Time of Andrews & Kurth L.L.P. and Akin, Gump, Strauss,
Hauer & Feld, L.L.P., respectively, relating to certain tax matters; and (vii)
each of OEI and UMC having received from Arthur Andersen LLP a written opinion
dated the Effective Time to the effect that the transactions contemplated by the
Merger Agreement, including the Mergers, when effected in accordance with the
terms thereof, shall be accounted for in the consolidated financial statements
of New Ocean and its subsidiaries as a pooling transaction, and a copy of each
party's respective opinion having been delivered to the other. See "The Merger
Agreement -- Conditions Precedent to the Mergers."
The obligation of OEI to effect the Newco Merger and the UMC Merger is
subject to the fulfillment of certain additional conditions, including the
accuracy of the representations and warranties of UMC contained in the Merger
Agreement, the performance in all material respects of the obligations and
covenants of UMC under the Merger Agreement, the receipt of a certificate of the
Chairman of the Board and Chief Executive Officer or a Senior Vice President of
UMC certifying to such effect, and the execution by James C. Flores of an
employment agreement with New Ocean.
The obligation of UMC to effect the UMC Merger is also subject to the
fulfillment of certain additional conditions, including the accuracy of the
representations and warranties of OEI contained in the Merger Agreement, the
performance in all material respects of the obligations and covenants of OEI
under the Merger Agreement, the receipt of a certificate of the Chairman of the
Board, Chief Executive Officer and President or a Senior Vice President of OEI
certifying to such effect, and the execution by John B. Brock of an employment
agreement with New Ocean.
Prior to the Effective Time, the parties to the Merger Agreement may (i)
extend the time for the performance of any of the obligations or other acts of
the other parties thereto, (ii) waive any inaccuracies in the representations
and warranties of the other parties contained therein or in any documents
delivered pursuant thereto, and (iii) where permissible, waive compliance with
any of the agreements or conditions contained therein. See "The Merger
Agreement -- Conditions Precedent to the Mergers."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated by action of either the OEI Board or
the UMC Board and the Mergers abandoned at any time prior to the Effective Time,
whether before or after any approval of the matters presented in connection with
the Mergers by the respective stockholders of OEI and UMC, as follows: (i) by
the mutual written consent of OEI and UMC; (ii) by either OEI or UMC if the
Effective Time has not occurred on or before July 31, 1998; provided, that the
party seeking to so terminate the Merger Agreement has not breached in any
material respect its obligations under the Merger Agreement in any manner that
has proximately contributed to the failure to consummate the Mergers on or
before such date; (iii) by either OEI or UMC if (a) a statute, rule, regulation
or executive order has been enacted, entered or promulgated prohibiting the
consummation of the Mergers substantially on the terms contemplated by the
Merger Agreement or (b) an order, decree, ruling or injunction has been entered
permanently restraining, enjoining or otherwise prohibiting the consummation of
the Mergers substantially on the terms contemplated by the Merger Agreement and
such order, decree, ruling or injunction has become final and non-appealable;
provided, that the party seeking to so terminate the Merger Agreement has used
its reasonable best efforts to remove such injunction, order or decree; (iv) by
either OEI or UMC, if the OEI Stockholders' Approval or the UMC Stockholders'
Approval has not been obtained by reason of the failure to obtain the required
vote at a duly held meeting of stockholders or at any adjournment thereof; (v)
by either OEI, on the one hand, or
12
<PAGE> 18
UMC, on the other hand, if its Board determines in good faith that there is a
substantial probability that its stockholders will not approve and adopt the
Merger Agreement due to the existence of a Superior Proposal (as defined
therein) and if such terminating party has complied with certain notice
requirements; (vi) by either OEI, on the one hand, or UMC, on the other hand, if
the other party or any of its officers or directors has taken any of the actions
that would be prohibited by certain covenants of the Merger Agreement; or (vii)
by OEI or UMC if there shall have been a material breach by the other of any of
its representatives, warranties, covenants or agreements contained in the Merger
Agreement and such breach shall not have been cured within 30 days after notice
thereof shall have been received by the party alleged to be in breach.
Under certain circumstances in connection with the termination of the
Merger Agreement, UMC may be required to pay OEI a termination fee of $40
million. Under certain circumstances in connection with the termination of the
Merger Agreement, OEI may be required to pay UMC a termination fee of $40
million. See "The Merger Agreement -- Termination" and "-- Termination Fees."
THE STOCK OPTION AGREEMENTS
Pursuant to two Stock Option Agreements (the "Stock Option Agreements"),
each dated as of December 22, 1997, by and between OEI and UMC, OEI has granted
UMC an irrevocable option (the "UMC Option") to purchase 2,267,300 shares
(subject to adjustment for changes in capitalization) of OEI Common Stock
(representing approximately 9.9% of the outstanding OEI Common Stock on December
22, 1997), at $49 13/16 per share, and UMC has granted OEI an irrevocable option
(the "OEI Option" and, together with the UMC Option, the "Options") to purchase
3,543,000 shares (subject to adjustment for changes in capitalization) of UMC
Common Stock (representing approximately 9.9% of the outstanding UMC Common
Stock on December 22, 1997), at $32 3/16 per share, in the event of a
termination of the Merger Agreement under certain circumstances. The exercise of
each Option is subject to certain conditions set forth in the Stock Option
Agreements, including that the party exercising the Option be entitled to
receive a termination fee from the other party pursuant to the terms of the
Merger Agreement, and are limited so that the aggregate value that may be
received by UMC or OEI pursuant to the Stock Option Agreements and any
termination fee paid pursuant to the Merger Agreement shall not exceed $50
million. See "The Stock Option Agreements" and "The Merger
Agreement -- Termination." The Stock Option Agreements are attached as
Appendices B-1 and B-2 to this Joint Proxy Statement/Prospectus.
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the Mergers, shares of Old OEI Common Stock and UMC Common
Stock will be converted into the right to receive shares of New Ocean Common
Stock. If the Mergers are consummated and become effective pursuant to the terms
of the Merger Agreement, the rights of the former holders of the Old OEI Common
Stock and UMC Common Stock will be governed by the DGCL and the Certificate of
Incorporation of New Ocean and the bylaws of New Ocean as amended at the Newco
Effective Time. For a comparison of the material rights of the holders of Old
OEI Common Stock, UMC Common Stock and New Ocean Common Stock, see "Comparison
of Stockholder Rights."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendations of the Boards, OEI and UMC stockholders
should be aware that certain officers and directors of OEI and UMC have certain
interests in the Mergers that are in addition to the interests of stockholders
generally. For information regarding interests of certain officers and directors
of OEI and UMC separate from and in addition to their interests, respectively,
as stockholders of OEI or UMC generally, see "The Mergers -- Interests of
Certain Persons in the Mergers."
13
<PAGE> 19
FORWARD-LOOKING STATEMENTS OR INFORMATION
This Joint Proxy Statement/Prospectus includes or incorporates by reference
"forward-looking statements" within the meaning of Section 27A of the Securities
Act, Section 21E of the Exchange Act and the Private Securities Litigation
Reform Act of 1995 that are subject to risks and uncertainties. All statements
other than statements of historical fact included in this Joint Proxy
Statement/Prospectus, including, without limitation, statements under "Summary"
and "Risk Factors" regarding the financial position, business strategy
production and reserve growth, and other plans and objectives for future
operations of OEI or UMC are forward-looking statements. Although OEI and UMC
believe that the expectations reflected in such forward-looking statements are
reasonable, neither OEI nor UMC can assure that such expectations will prove to
have been correct. Forward-looking statements are subject to risks and
uncertainties and include information concerning cost savings from the Mergers,
integration of the businesses of OEI and UMC, general economic conditions and
possible or assumed future results of operations of OEI, UMC or New Ocean,
estimates of oil and gas production and reserves, drilling plans, future cash
flows, anticipated capital expenditures and management's strategies, plans and
objectives as set forth under "Summary -- New Ocean -- The Combined Company,"
"The Mergers -- New Ocean -- The Combined Company," "-- Background of the
Mergers," "-- Reasons for the Mergers; Recommendations of the Boards,"
"-- Opinion of OEI's Financial Advisor" and "-- Opinion of UMC's Financial
Advisor" and those preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions. The
following important factors, in addition to those discussed elsewhere in this
Joint Proxy Statement/Prospectus and in the documents which are incorporated
herein by reference, could affect the future results of the energy industry in
general, and OEI, UMC and/or New Ocean subsequent to the Mergers in particular,
and could cause those results to differ materially from those expressed in such
forward-looking statements: risks incident to the drilling and operation of oil
and gas wells; future production and development costs; the effect of existing
and future laws and regulatory actions; the political and economic climate in
the jurisdictions in which OEI or UMC conducts oil and gas operations; the
effect of changes in commodity prices, hedging activities and conditions in the
capital markets; a significant delay in the expected closing of the Mergers; and
competition from others in the energy industry. For additional information with
respect to these factors, see the respective Annual Reports on Form 10-K for the
year ended December 31, 1997 of each of OEI and UMC. Additional important
factors that could cause actual results to differ materially from expectations
of OEI and UMC are disclosed under "Risk Factors" and elsewhere in this Joint
Proxy Statement/Prospectus, including without limitation in conjunction with the
forward-looking statements. All written and verbal forward-looking statements
attributable to OEI or UMC or persons acting on behalf of OEI and UMC are
expressly qualified in their entirety by such factors.
14
<PAGE> 20
MARKET PRICE AND DIVIDEND INFORMATION
Each of the OEI Common Stock and the UMC Common Stock is listed and traded
on the NYSE under the symbols "OEI" and "UMC," respectively. The following table
sets forth the high and low trading prices per share of each of the OEI Common
Stock and the UMC Common Stock on the NYSE, and with respect to the OEI Common
Stock on the NASDAQ National Market prior to March 25, 1996, for the periods
indicated:
<TABLE>
<CAPTION>
OEI UMC
COMMON STOCK COMMON STOCK
------------ ------------
HIGH LOW HIGH LOW
---- ---- ---- ----
<S> <C> <C> <C> <C>
1996
First Quarter........................................ $18 3/4 $13 1/2 $25 7/8 $ 15
Second Quarter....................................... 36 3/8 17 7/8 36 1/4 23 1/8
Third Quarter........................................ 41 1/2 28 3/4 48 3/8 32 1/8
Fourth Quarter....................................... 54 3/8 38 3/8 53 1/2 43 7/8
1997
First Quarter........................................ $ 56 $ 38 $52 3/8 $28 3/8
Second Quarter....................................... 53 1/8 38 7/8 38 1/4 26 1/2
Third Quarter........................................ 70 1/8 41 1/4 42 1/4 29 1/4
Fourth Quarter....................................... 70 9/1 46 1/4 40 1/4 26
1998
First Quarter (through February 25, 1998)............ $49 5/1 $ 38 $29 1/4 $ 22
</TABLE>
On December 22, 1997, the last full trading day prior to the first public
announcement of the execution of the Merger Agreement, the reported high and low
sale prices per share and closing price per share of OEI Common Stock and UMC
Common Stock on the NYSE were as follows:
<TABLE>
<CAPTION>
DECEMBER 22, 1997
-------------------
HIGH LOW CLOSE
---- ---- -----
<S> <C> <C> <C>
OEI......................................................... $50 3/4 $ 49 $ 50
UMC......................................................... 32 3/8 31 1/4 32 1/4
</TABLE>
The ratio of average stock prices of OEI and UMC for the 60 trading days
prior to and including December 22, 1997 was approximately 1.8.
On February 25, 1998, the closing prices per share of OEI Common Stock and
UMC Common Stock as reported on the NYSE were $44 3/8 and $26 5/16,
respectively.
In light of the approximately 100 million share capitalization to be
outstanding as a result of the Mergers, the trading price of New Ocean Common
Stock following the Mergers should be different from the trading price of Old
OEI Common Stock prior to the Mergers. No assurance can be given as to the
market prices of Old OEI Common Stock or UMC Common Stock immediately prior to
the Effective Time or of New Ocean Common Stock after the Effective Time.
Because the Exchange Ratios are fixed in the Merger Agreement and neither OEI
nor UMC has the right to terminate the Merger Agreement based on changes in the
market price of Old OEI Common Stock or UMC Common Stock, the market value of
the shares of New Ocean Common Stock that holders of UMC Common Stock and Old
OEI Common Stock will receive upon consummation of the Mergers may vary
significantly from the market value of the shares of New Ocean Common Stock that
such holders would receive if the Mergers were consummated on the date of this
Joint Proxy Statement/Prospectus. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR SHARES OF OLD OEI COMMON STOCK AND UMC COMMON STOCK.
15
<PAGE> 21
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth summary selected historical consolidated
financial and operating data for OEI and UMC as of and for each of the three
years ended December 31, 1997. OEI utilizes the full cost method of accounting
and UMC utilizes the successful efforts method of accounting, and therefore the
financial data may not be directly comparable. Such data have been derived from,
and should be read in conjunction with, the audited consolidated financial
statements and other financial information contained in OEI's Annual Report on
Form 10-K for the year ended December 31, 1997, and the audited consolidated
financial statements and other financial information contained in UMC's Annual
Report on Form 10-K for the year ended December 31, 1997, including, in each
case, the notes thereto, all of which are incorporated by reference herein. See
"Available Information" and "Incorporation of Documents by Reference."
OCEAN ENERGY, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenue..................................................... $ 127,970 $ 188,451 $ 292,180
Production costs............................................ 40,047 47,098 67,902
General and administrative.................................. 11,312 16,154 19,137
Depreciation, depletion and amortization.................... 54,084 74,652 121,623
Interest expense............................................ 17,620 17,954 27,385
Net income before taxes and extraordinary item.............. 5,210 32,988 57,639
Income tax benefit (provision)(1)........................... 4,692 (12,037) (20,189)
Net income before extraordinary item........................ 9,902 20,951 37,450
Extraordinary loss on early extinguishment of debt, net of
taxes..................................................... -- -- 19,301
Net income.................................................. 9,902 20,951 18,149
Earnings per common share before extraordinary item(2)
Basic..................................................... $ 0.66 $ 1.13 $ 1.86
Diluted................................................... 0.66 1.09 1.79
Earnings per common share after extraordinary item(2)
Basic..................................................... $ 0.66 $ 1.13 $ 0.90
Diluted................................................... 0.66 1.09 0.87
BALANCE SHEET DATA (AT END OF PERIOD):
Oil and gas assets, net..................................... $ 179,944 $ 355,698 $ 722,666
Total assets................................................ 215,457 460,710 822,938
Long-term debt.............................................. 171,692 284,142 389,652
Stockholders' equity........................................ 19,976 105,153 305,272
OTHER FINANCIAL DATA:
EBITDAX(3).................................................. $ 77,645 $ 129,100 $ 208,322
Net cash provided by operating activities................... 59,489 126,753 173,622
Net cash used in investing activities....................... (77,699) (293,132) (465,428)
Net cash provided by financing activities................... 17,853 171,926 286,047
Capital expenditures........................................ 73,652 251,305 488,591
OPERATING DATA:
Sales Volumes:
Oil (Mbbls)............................................... 6,057 7,149 9,945
Gas (Mmcf)................................................ 12,393 18,720 38,916
MBOE...................................................... 8,123 10,269 16,431
BOEPD..................................................... 22,255 28,057 45,016
Average Prices(4):
Oil (per Bbl)............................................. $ 17.39 $ 21.58 $ 19.09
Gas (per Mcf)............................................. 1.82 2.79 2.63
Per BOE................................................... 15.75 20.10 17.79
Production costs (per BOE).................................. 4.93 4.59 4.13
Total proved reserves at end of period (MBOE)............... 48,363 75,002 108,396
</TABLE>
- ---------------
(1) OEI was formed as an S corporation under the Code and, as such, all income
taxes were the obligation of OEI's stockholders. Therefore, through the date
of the initial public offerings, no historical federal or state income tax
expense has been provided for in the financial statements. In conjunction
with the initial public offerings, OEI converted to a C corporation under
the Code. OEI recorded a deferred tax asset of $6.3 million, offset by a
valuation allowance of $6.3 million at December 31, 1994 and a deferred tax
asset of $4.7 million at December 31, 1995. As a result of the reversal of
the valuation allowance, OEI recorded a net income tax benefit of $4.7
million in the year ended December 31, 1995.
(2) If OEI had recognized a tax provision at statutory rates for the year ended
December 31, 1995, rather than an income tax benefit, basic and diluted
earnings per common share would have been $0.22 for such period.
(3) Earnings before interest, taxes, depreciation, depletion, amortization and
exploration expense (to the extent a company utilizes the successful efforts
method of accounting). EBITDAX is presented because it is a widely accepted
financial indicator of OEI's ability to service and incur debt. EBITDAX
should not be considered as an alternative to earnings (loss) as an
indicator of OEI's operating performance or to cash flows as a measure of
liquidity. EBITDAX may not be comparable to similarly titled measures
presented by other companies and could be misleading unless all companies
and analysts calculate them in the same fashion.
(4) Excludes results of hedging activities which decreased revenue recognized in
the 1995, 1996 and 1997 periods by $(0.5) million, $(18.7) million and
$(0.1) million, respectively. Including the effect of hedging activities,
OEI's average oil price per Bbl received was $17.27, $19.70 and $19.08 in
the years ended December 31, 1995, 1996 and 1997, respectively, and the
average gas price per Mcf received was $1.84 and $2.50 in the years ended
December 31, 1995 and 1996, respectively. OEI did not enter into any hedging
activities relating to gas during the year ended December 31, 1997.
16
<PAGE> 22
UNITED MERIDIAN CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER
UNIT AMOUNTS)
<S> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenue..................................................... $147,041 $236,404 $264,865
Production costs............................................ 42,891 51,298 56,492
Exploration, including dry holes and impairments............ 15,682 40,325 38,845
General and administrative.................................. 10,425 12,727 13,580
Depreciation, depletion and amortization.................... 53,942 84,979 96,418
Impairment of proved oil and gas properties(1).............. 8,317 -- --
Interest expense............................................ 17,945 22,811 21,749
Interest and other (income) expense......................... (375) 844 (1,681)
-------- -------- --------
Income (loss) before taxes.................................. (1,786) 23,420 39,462
Income tax benefit (provision).............................. 3,885 (6,016) (19,675)
-------- -------- --------
Net income.................................................. $ 2,099 $ 17,404 $ 19,787
======== ======== ========
Net income available to common stockholders(2).............. $ 615 $ 15,873 $ 19,787
Basic earnings per share of common stock:
Net income per common share(2)............................ $ 0.02 $ 0.53 $ 0.56
Diluted earnings per share of common stock:
Net income per common share(2)............................ $ 0.02 $ 0.51 $ 0.54
======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Property, plant and equipment, net.......................... $468,673 $524,189 $740,972
Total assets................................................ 578,450 718,293 885,025
Long-term debt, including current maturities................ 247,899 157,731 283,557
Stockholders' equity........................................ 212,312 432,236 459,399
OTHER FINANCIAL DATA:
EBITDAX(3).................................................. $ 93,725 $172,379 $194,793
Net cash provided by operating activities................... 46,006 83,434 165,788
Net cash used in investing activities....................... (82,708) (135,749) (337,986)
Net cash provided by financing activities................... 38,463 93,671 128,945
Capital expenditures(4)..................................... 160,827 185,901 357,361
OPERATING DATA:
Sales Volumes:
Oil (MBbls)............................................... 2,760 4,394 8,133
Gas (MMcf)................................................ 44,453 55,445 54,807
MBOE...................................................... 10,169 13,635 17,268
BOEPD..................................................... 27,860 37,254 47,310
Average Prices(5):
Oil (per Bbl)............................................. $ 16.13 $ 20.99 $ 17.87
Gas (per Mcf)............................................. 1.46 2.13 2.06
Per BOE................................................... 10.74 14.86 14.96
Production costs (per BOE).................................. 4.22 3.76 3.27
Total proved reserves at end of period (MBOE)............... 105,593 119,651 162,197
</TABLE>
- ---------------
(1) See notes to UMC's consolidated financial statements incorporated herein by
reference regarding UMC's policy for assessing the recoverability of proved
oil and gas properties. In 1995, UMC adopted SFAS 121, resulting in a
pre-tax impairment charge of $8.3 million.
(2) On July 25, 1996, all of the outstanding shares of Series F Convertible
Preferred Stock were converted into 1.845 million shares of UMC Common Stock
in accordance with the automatic conversion terms of such shares.
(3) Reflects income from operations plus depreciation, depletion and
amortization, impairment of proved oil and gas properties and exploration
expense of $15.7 million, $40.3 million and $38.8 million for the years
ended December 31, 1995, 1996 and 1997, respectively. EBITDAX is presented
because it is a widely accepted financial indicator of UMC's ability to
service and incur debt. EBITDAX should not be considered as an alternative
to earnings (loss) as an indicator of UMC's operating performance or to cash
flows as a measure of liquidity. EBITDAX may not be comparable to similarly
titled measures presented by other companies and could be misleading unless
all companies and analysts calculate them in the same manner.
(4) See consolidated statement of cash flows included in UMC's consolidated
financial statements incorporated herein by reference.
(5) Excludes results of hedging activities which increased (decreased) revenue
recognized in the 1995, 1996 and 1997 periods by $4.1 million, $(3.9)
million and $(1.2) million respectively. Including the effect of hedging
activities, UMC's average oil price per Bbl received was $16.35, $20.94 and
$17.87 in the years ended December 31, 1995, 1996 and 1997, respectively,
and the average gas price per Mcf received was $1.53, $2.07 and $2.04 in the
years ended December 31, 1995, 1996 and 1997, respectively.
17
<PAGE> 23
SUMMARY HISTORICAL OIL AND GAS RESERVE INFORMATION
The following table sets forth summary information with respect to OEI's
and UMC's proved oil and gas reserves as of December 31, 1997.
<TABLE>
<CAPTION>
BARREL OF OIL
CRUDE OIL NATURAL GAS EQUIVALENTS
(MBBLS) (MMCF) (MBOE)
--------- ----------- -------------
<S> <C> <C> <C>
NET PROVED RESERVES
OEI:
Developed............................................... 53,289 174,233 82,328
Undeveloped............................................. 15,493 63,451 26,068
------- -------- --------
Total........................................... 68,782 237,684 108,396
======= ======== ========
UMC:
Developed............................................... 34,069 410,414 102,472
Undeveloped............................................. 34,751 149,837 59,725
------- -------- --------
Total........................................... 68,820 560,251 162,197
======= ======== ========
</TABLE>
18
<PAGE> 24
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL AND OPERATING DATA
The following table sets forth summary unaudited pro forma combined
financial and operating data which are presented to give effect to the Mergers
under the pooling of interests method of accounting and to reflect the
conversion of UMC to the full cost method of accounting. The income statement
data for each of the three years ended December 31, 1997 assume that the Mergers
were consummated at the beginning of the earliest period presented. The balance
sheet data assume that the Mergers were consummated on December 31, 1997. The
unaudited pro forma combined financial data are not necessarily indicative of
the results of operations or the financial position which would have occurred
had the Mergers been consummated at the beginning of the earliest period
presented, nor are they necessarily indicative of future results of operations
or financial position. Additionally, the unaudited pro forma combined revenue
and expense data excludes non-recurring charges directly attributable to the
Mergers (currently estimated to range from $28 million to $32 million) which
will be charged to operations in the quarter in which the Mergers are
consummated. The unaudited balance sheet data have been adjusted for the assumed
after-tax impact of such non-recurring charges. The unaudited pro forma combined
financial data should be read in conjunction with the historical consolidated
financial statements of OEI and UMC, including the notes thereto, incorporated
by reference in this Joint Proxy Statement/Prospectus and the unaudited pro
forma combined financial statements contained elsewhere herein. See "Available
Information," "Incorporation of Documents by Reference" and "Unaudited Pro Forma
Combined Financial Statements of OEI and UMC."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenue................................................... $ 243,827 $ 395,834 $ 552,194
Production costs.......................................... 82,937 98,396 124,394
General and administrative................................ 21,737 28,881 32,717
Depreciation, depletion and amortization.................. 88,964 145,265 236,425
Interest expense.......................................... 35,565 40,765 49,134
Interest and other (income) expense....................... (677) 449 (3,187)
---------- ---------- ----------
Income before income taxes and extraordinary item......... 15,301 82,078 112,711
Income tax benefit (provision)............................ 4,064 (27,808) (45,796)
---------- ---------- ----------
Income before extraordinary item.......................... 19,365 54,270 66,915
Extraordinary loss on early extinguishment of debt, net of
taxes................................................... -- -- (19,301)
---------- ---------- ----------
Net income................................................ $ 19,365 $ 54,270 $ 47,614
========== ========== ==========
Earnings per share of common stock (basic):
Income before extraordinary item........................ $ 0.25 $ 0.64 $ 0.72
Extraordinary item...................................... -- -- (0.21)
---------- ---------- ----------
Net income.............................................. $ 0.25 $ 0.64 $ 0.51
========== ========== ==========
Earnings per share of common stock (diluted):
Income before extraordinary item........................ $ 0.24 $ 0.61 $ 0.69
Extraordinary item...................................... -- -- (0.20)
---------- ---------- ----------
Net income.............................................. $ 0.24 $ 0.61 $ 0.49
========== ========== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Oil and gas assets, net................................... $1,401,853
Total assets.............................................. 1,654,700
Long-term debt............................................ 672,298
Stockholders' equity...................................... 701,652
OTHER FINANCIAL DATA:
EBITDAX(1)................................................ $ 140,186 $ 272,458 $ 398,264
Net cash provided by operating activities................. 105,495 210,187 339,410
Net cash used in investing activities..................... (160,407) (428,881) (803,414)
Net cash provided by financing activities................. 56,316 265,597 414,992
OPERATING DATA:
Sales Volumes:
Oil (MBbls)............................................... 8,817 11,543 18,078
Gas (MMcf)................................................ 56,846 74,165 93,723
MBOE...................................................... 18,291 23,904 33,699
BOEPD..................................................... 50,112 65,311 92,326
Average Prices(2):
Oil (per Bbl)............................................. $ 17.08 $ 22.52 $ 18.54
Gas (per Mcf)............................................. 1.53 2.37 2.30
Per BOE................................................... 13.00 18.22 16.34
Production costs (per BOE).................................. 4.53 4.12 3.69
Total proved reserves at end of period (MBOE)............... 153,956 194,653 270,593
</TABLE>
19
<PAGE> 25
- ---------------
(1) Reflects income from operations plus depreciation, depletion and
amortization, impairment of proved oil and gas properties and exploration
expense (to the extent a company utilizes the successful efforts method of
accounting). EBITDAX is presented because it is a widely accepted financial
indicator of the combined company's ability to service and incur debt.
EBITDAX should not be considered as an alternative to earnings (loss) as an
indicator of UMC's operating performance or to cash flows as a measure of
liquidity. EBITDAX may not be comparable to similarly titled measures
presented by other companies and comparing such measures could be misleading
unless all companies and analysts calculate them in the same fashion.
(2) Excludes results of hedging activities which increased (decreased) revenue
recognized in the 1995, 1996 and 1997 periods by $3.6 million, $(22.6)
million and $(1.3) million, respectively. Including the effect of hedging
activities, the pro forma average oil price per Bbl received was $17.07,
$21.34 and $18.54, in the years ended December 31, 1995, 1996 and 1997,
respectively, and the average pro forma average gas price per Mcf received
was $1.60, $2.25 and $2.28 in the years ended December 31, 1995, 1996 and
1997, respectively.
SUMMARY PRO FORMA OIL AND GAS RESERVE INFORMATION
The following table sets forth summary information with respect to OEI's
and UMC's proved oil and gas reserves as of December 31, 1997.
<TABLE>
<CAPTION>
BARREL OF OIL
CRUDE OIL NATURAL GAS EQUIVALENTS
(MBBLS) (MMCF) (MBOE)
--------- ----------- -------------
<S> <C> <C> <C>
NET PROVED RESERVES
Developed............................................... 87,358 584,647 184,800
Undeveloped............................................. 50,244 213,288 85,793
------- -------- --------
Total........................................... 137,602 797,935 270,593
======= ======== ========
</TABLE>
20
<PAGE> 26
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data for OEI and
UMC and unaudited pro forma and equivalent pro forma combined per share data
after giving effect to the proposed Mergers on a pooling of interests basis at
the UMC Exchange Ratio of 1.30 shares of New Ocean Common Stock for each share
of UMC Common Stock and the OEI Exchange Ratio of 2.34 shares of New Ocean
Common Stock for each share of Old OEI Common Stock. Earnings (Loss) Per Share
is presented for each of the three years ended December 31, 1997. Book Value Per
Share is presented as of December 31, 1997. This data should be read in
conjunction with the selected historical consolidated financial data and the
unaudited pro forma combined financial statements included in this Joint Proxy
Statement/Prospectus and the separate historical consolidated financial
statements of OEI and UMC and the notes thereto incorporated by reference in
this Joint Proxy Statement/Prospectus. The unaudited pro forma combined
financial data are not necessarily indicative of the operating results or
financial position that would have occurred had the Mergers been consummated at
the beginning of the earliest period presented and should not be construed as
indicative of future operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Historical -- OEI
Earnings Per Share Before Extraordinary
Item -- Basic(a)(f)..................................... $ 0.66 $ 1.13 $ 1.86
Earnings Per Share -- Basic(a)(f)......................... 0.66 1.13 0.90
Earnings Per Share Before Extraordinary
Item -- Diluted(a)...................................... 0.66 1.09 1.79
Earnings Per Share -- Diluted(a)(f)....................... 0.66 1.09 0.87
Book Value Per Share(b)................................... 13.33
Historical -- UMC
Earnings Per Share -- Basic(a)............................ $ 0.02 $ 0.53 $ 0.56
Earnings Per Share -- Diluted(a).......................... 0.02 0.51 0.54
Book Value Per Share(b)................................... 12.83
Pro Forma Full Cost -- UMC(c)
Earnings Per Share -- Basic(a)............................ $ 0.18 $ 1.18 $ 0.76
Earnings Per Share -- Diluted(a).......................... 0.17 1.13 0.74
Book Value Per Share(b)................................... 11.30
Pro Forma Combined(d)
Earnings Per Share Before Extraordinary
Item -- Basic(c)........................................ $ 0.25 $ 0.64 $ 0.72
Earnings Per Share -- Basic(f)............................ 0.25 0.64 0.51
Earnings Per Share Before Extraordinary Item -- Diluted... 0.24 0.61 0.69
Earnings Per Share -- Diluted(f).......................... 0.24 0.61 0.49
Book Value Per Share...................................... 7.01
Equivalent Pro Forma -- OEI(e)
Earnings Per Share Before Extraordinary
Item -- Basic(d)........................................ $ 0.59 $ 1.50 $ 1.68
Earnings Per Share -- Basic(f)............................ 0.59 1.50 1.19
Earnings Per Share Before Extraordinary Item -- Diluted... 0.56 1.43 1.61
Earnings Per Share -- Diluted(f).......................... 0.56 1.43 1.15
Book Value Per Share...................................... 16.40
Equivalent Pro Forma -- UMC(e)
Earnings Per Share Before Extraordinary
Item -- Basic(d)........................................ $ 0.33 $ 0.83 $ 0.94
Earnings Per Share -- Basic(f)............................ 0.33 0.83 0.66
Earnings Per Share Before Extraordinary Item -- Diluted... 0.31 0.79 0.90
Earnings Per Share -- Diluted(f).......................... 0.31 0.79 0.64
Book Value Per Share...................................... 9.11
</TABLE>
- ---------------
(a) The Historical Earnings (Loss) Per Share is based upon the weighted average
number of common and common equivalent shares of OEI and UMC outstanding for
each period per Statement of Financial Accounting Standards (SFAS) No. 128.
(b) The Historical Book Value Per Share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding at the end of
each period.
(c) This amount represents UMC's per share amounts adjusted for UMC's use of the
full cost method of accounting. This information provides a comparison of
UMC per share data with equivalent pro forma data on the same basis of
accounting, which is more meaningful than a comparison to the historical UMC
amounts.
(d) Amounts are based upon the weighted average number of common and common
equivalent shares outstanding of OEI and UMC for each period at the Exchange
Ratio of 1.30 shares of New Ocean Common Stock for each share of UMC Common
Stock and 2.34 shares of New Ocean Common Stock for each share of Old OEI
Common Stock.
(e) The unaudited Equivalent Pro Forma per Common Share Data is calculated by
multiplying the Pro Forma Combined per Common Share Data by the Exchange
Ratio of 2.34 shares and 1.30 shares for OEI and UMC, respectively.
(f) If OEI had recognized a tax provision at statutory rates for the year ending
December 31, 1995, rather than an income tax benefit, earnings per common
share would have been $0.22 on a basic and diluted basis for the historical
period, $0.18 and $0.17 on a basic and diluted basis for the pro forma
combined period, $0.42 and $0.40, on a basic and diluted basis for the
equivalent pro forma -- OEI and $0.23 and $0.22 on a basic and diluted basis
for the equivalent pro forma -- UMC.
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<PAGE> 27
RISK FACTORS
Stockholders of OEI and UMC should carefully consider the following factors
together with the information provided elsewhere in this Joint Proxy
Statement/Prospectus. This Joint Proxy Statement/Prospectus contains
forward-looking statements which involve risks and uncertainties. Actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Joint Proxy Statement/Prospectus.
See "Summary -- Forward-Looking Statements or Information."
INTEGRATION OF OPERATIONS
The success of the Mergers will depend on the ability of management to
integrate the two companies that have previously operated independently. The
integration of the operations of OEI and UMC will require substantial attention
of management, and no assurance can be given that such integration may be
accomplished without encountering difficulties or experiencing the loss of key
employees, customers or suppliers, or that the benefits expected from such
integration will be realized. Any inability of management to integrate the
operations of the two companies in a timely and efficient manner would adversely
affect New Ocean's ability to realize the expected benefits of the Mergers,
including those described under "Summary -- New Ocean -- The Combined Company,"
"The Mergers -- New Ocean -- The Combined Company" and "The Mergers -- Reasons
for the Mergers; Recommendations of the Boards."
REPLACEMENT OF RESERVES
New Ocean's future success will depend upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of New Ocean will generally decline as reserves are depleted,
except to the extent that New Ocean conducts successful exploration or
development activities or acquires properties containing proved reserves, or
both. In order to increase reserves and production, New Ocean must undertake
development and exploration drilling and recompletion programs or undertake
other replacement activities, such as increasing its reserve base through
acquisitions of producing properties and by exploiting its existing properties.
There can be no assurance, however, that New Ocean's planned development and
exploration projects and acquisition activities will result in significant
additional reserves or that it will have success drilling productive wells at
low finding and development costs. Furthermore, while New Ocean's revenues may
increase if prevailing oil and gas prices increase significantly, its finding
costs for additional reserves could also increase.
PRICE FLUCTUATIONS AND VOLATILE NATURE OF MARKETS
New Ocean's results of operations will be highly dependent upon the prices
of and demand for oil and gas. Historically, the markets for oil and gas have
been volatile and are likely to continue to be volatile in the future.
Accordingly, the prices received by New Ocean for its oil and gas production are
dependent upon numerous factors which will be beyond its control. These factors
include, but are not limited to, the level of consumer product demand,
governmental regulations and taxes, the price and availability of alternative
fuels, the level of foreign imports of oil and gas, and the overall economic
environment. Any significant decline in prices for oil and gas could have a
material adverse effect on New Ocean's financial condition, results of
operations and quantities of reserves recoverable on an economic basis. Should
the industry experience significant price declines or other adverse market
conditions, New Ocean may not be able to generate sufficient cash flow from
operations to meet its obligations and make planned capital expenditures. In
order to manage its exposure to price risks in the sale of its oil and gas, New
Ocean from time to time will enter into energy price swap arrangements covering
a portion of its actual production volumes. The companies believe that New
Ocean's hedging strategies will be generally conservative in nature.
SUBSTANTIAL CAPITAL REQUIREMENTS
The companies expect to make substantial capital expenditures for the
acquisition, exploration and development of oil and gas reserves. Historically,
the companies have financed these expenditures primarily
22
<PAGE> 28
with proceeds from debt and equity financings, cash provided by operating
activities, asset sales and sales of partial interests in foreign concessions.
The companies believe that, after debt service, New Ocean will have sufficient
cash provided by operating activities, availability under its credit facility
and other debt financings to fund planned capital expenditures in 1998. If
revenues decrease as a result of lower oil and gas prices or otherwise, New
Ocean may have limited ability to expend the capital necessary to replace its
reserves or to maintain production at current levels, resulting in a decrease in
production over time. Where New Ocean is not the majority owner, it may have no
control over the timing or amount of capital expenditures associated with the
particular project. Additionally, capital expenditures associated with
international projects can be significantly greater than those typically
associated with OEI's domestic projects. If New Ocean is not able to fund its
capital expenditures, its interests in some of its properties may be reduced or
forfeited. If New Ocean's cash flow from operations is not sufficient to satisfy
its capital expenditure requirements, there can be no assurance that additional
debt or equity financing or other sources of capital will be available to meet
these requirements.
RELIANCE ON ESTIMATES OF PROVED RESERVES
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the companies.
OEI's and UMC's historical proved reserve information incorporated by reference
in this Joint Proxy Statement/Prospectus represents only estimates based on
reports prepared by independent petroleum engineers and, in the case of OEI, in
part by internal engineers, as of December 31, 1997.
Petroleum engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact manner.
Estimates of economically recoverable oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and gas
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected therefrom prepared by different engineers or by the same engineers at
different times may vary substantially. Actual production, revenues and
expenditures with respect to New Ocean's reserves will likely vary from
estimates, and such variances may be material.
The discounted future net cash flows incorporated by reference in this
Joint Proxy Statement/Prospectus should not be construed as the current market
value of the estimated oil and gas reserves attributable to OEI's or UMC's
properties. In accordance with applicable requirements of the Commission, the
estimated discounted future net cash flows from proved reserves are generally
based on prices and costs as of the date of the estimate, whereas actual future
prices and costs may be materially higher or lower. Actual future net cash flows
also will be affected by factors such as the amount and timing of actual
production, supply and demand for oil and gas, curtailments or increases in
consumption by gas purchasers and changes in governmental regulations or
taxation. The timing of actual future net cash flows from proved reserves, and
thus their actual present value, will be affected by the timing of both the
production and the incurrence of expenses in connection with development and
production of oil and gas properties. In addition, the 10% discount factor,
which is required by the Commission to be used to calculate discounted future
net cash flows for reporting purposes, is not necessarily the most appropriate
discount factor based on interest rates in effect from time to time and risks
associated with OEI, UMC or the oil and gas industry in general.
ECONOMIC RISKS OF OIL AND GAS OPERATIONS
The oil and gas operations of New Ocean will be subject to the economic
risks typically associated with exploration, development and production
activities, including the necessity of significant expenditures to locate and
acquire producing properties and to drill exploratory wells. In conducting
exploration and development activities, New Ocean may drill unsuccessful wells
and experience losses and, if oil and gas is discovered, there is no assurance
that such oil and gas can be economically produced or satisfactorily marketed.
There can be no
23
<PAGE> 29
assurance that new wells drilled by New Ocean will be productive or that it will
recover all or any portion of its investment. The presence of unanticipated
pressure or irregularities in formations, miscalculations or accidents may cause
New Ocean's exploration, development and production activities to be
unsuccessful, resulting in a total loss of its investment in such activities.
The cost of drilling, completing and operating wells is often uncertain. New
Ocean's drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which may be beyond its control, including title
problems, weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment and services.
DRILLING RISKS
The nature of the oil and gas business involves certain operating hazards
such as well blowouts, cratering, explosions, uncontrollable flows of oil, gas
or well fluids, fires, formations with abnormal pressures, pollution, releases
of toxic gas and other environmental hazards and risks, any of which could
result in substantial losses to New Ocean. In addition, New Ocean may be liable
for environmental damages caused by previous owners of property purchased by New
Ocean or its predecessors. As a result, substantial liabilities to third parties
or governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for exploration, development or acquisitions, or
result in loss of New Ocean's properties. Additionally, some of New Ocean's oil
and gas operations are located in an area that is subject to tropical weather
disturbances, some of which can be severe enough to cause substantial damage to
facilities and possibly interrupt production. In accordance with customary
industry practices, each of OEI and UMC maintains, and New Ocean will maintain,
insurance against some, but not all, of such risks and losses. The occurrence of
such an event not fully covered by insurance could have a material adverse
effect on the financial position and results of operations of New Ocean.
COMPETITION
New Ocean will operate in the highly competitive areas of oil and gas
exploration, development and production with other companies, many of which may
have substantially larger financial resources, staffs and facilities.
GOVERNMENT REGULATIONS
New Ocean's business will be subject to certain foreign, federal, state and
local laws and regulations relating to the exploration for, and the development,
production and transportation of, oil and gas, as well as environmental and
safety matters. Many of these laws and regulations have become more stringent in
recent years, often imposing greater liability on a larger number of potentially
responsible parties. Although OEI and UMC believe they are, and that New Ocean
will remain, in substantial compliance with all applicable laws and regulations,
the requirements imposed by such laws and regulations are frequently changed and
subject to interpretation, and the companies are unable to predict the ultimate
cost of compliance with these requirements or their effect on their or New
Ocean's operations. Under certain circumstances, the Minerals Management
Service, an agency of the U.S. Department of the Interior, may require any
company operations on federal leases to be suspended or terminated. Any such
suspensions, terminations or inability to meet applicable bonding requirements
could materially and adversely affect New Ocean's financial condition and
operations. Although significant expenditures may be required to comply with
governmental laws and regulations applicable to New Ocean, to date such
compliance has not had a material adverse effect on the earnings or competitive
position of OEI or UMC. It is possible that such regulations in the future may
add to the cost of operating offshore drilling equipment or may significantly
limit drilling activity.
FOREIGN OPERATIONS
New Ocean's international operations will initially be conducted in the
countries of Cote d'Ivoire, Equatorial Guinea and Angola in Western Africa and
in Pakistan and Bangladesh. Such operations are subject to political, economic
and other uncertainties, including, among others, risk of war, revolution,
border disputes, expropriation, renegotiation or modification of existing
contracts, import, export and transportation regulations and tariffs, taxation
policies, including royalty and tax increases and retroactive tax claims,
exchange controls, currency fluctuations and other uncertainties arising out of
foreign government sovereignty over New Ocean's international operations. New
Ocean's international operations may also be adversely affected by laws and
24
<PAGE> 30
policies of the United States affecting foreign trade, taxation and investment.
Furthermore, in the event of a dispute arising from international operations,
New Ocean may be subject to the exclusive jurisdiction of foreign courts or may
not be successful in subjecting foreign persons to the jurisdiction of courts in
the United States. On occasion, certain African countries, including Nigeria,
have asserted rights to land, including oil and gas properties, through border
disputes. If a country other than the one that granted New Ocean the PSC to
properties successfully asserted superior rights to such properties, New Ocean's
interests could be adversely affected. Certain regions of Africa and other
regions of the world have a history of political and economic instability. Such
instability could result in new governments or the adoption of new policies that
might assume a substantially more hostile attitude toward foreign investment. In
an extreme case, such a change could result in voiding pre-existing contracts
and/or expropriation of foreign-owned assets. Although UMC operates and New
Ocean will operate in countries that have relatively stable political and
economic environments, there can be no assurance that political, economic and
other uncertainties will not develop in the region or countries in which New
Ocean operates.
TAX RISKS
If the Newco Merger is consummated, but fails to qualify as a
reorganization within the meaning of Section 368(a) of the Code, each holder of
Old OEI Common Stock would recognize gain or loss in an amount equal to the
difference between the fair market value of the New Ocean Common Stock plus the
amount of any cash or other property received by such stockholder pursuant to
the Newco Merger and such stockholder's aggregate adjusted tax basis in its Old
OEI Common Stock exchanged therefor. If the UMC Merger is consummated, but fails
to qualify as a reorganization within the meaning of Section 368(a) of the Code,
(a) UMC would be treated as if it had sold its assets to OEI and would recognize
gain or loss in an amount equal to the difference between (i) the sum of (A) the
fair market value of the New Ocean Common Stock received by holders of UMC
Common Stock in the UMC Merger, (B) the amount of any cash or other property
received by holders of UMC Common Stock in the UMC Merger, and (C) the amount of
liabilities of UMC at the time of the UMC Merger, and (ii) UMC's aggregate
adjusted tax basis in its assets at the time of the UMC Merger, and (b) each UMC
stockholder would recognize gain or loss in an amount equal to the difference,
at the time of the UMC Merger, between the fair market value of the New Ocean
Common Stock plus the amount of any cash or other property received by such
stockholder in the UMC Merger and such stockholder's aggregate adjusted tax
basis in its UMC Common Stock exchanged therefor. It is a condition to the
consummation of the Mergers that OEI receive a confirming opinion of its counsel
to the effect that the Mergers will qualify as reorganizations within the
meaning of Section 368(a) of the Code and that UMC receive a confirming opinion
of its counsel to the effect that the UMC Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code; however, OEI
and UMC will not obtain an Internal Revenue Service ("IRS") ruling to that
effect. For a discussion of these and other material federal income tax
considerations in connection with the Mergers, see "Certain Material U.S.
Federal Income Tax Consequences of the Mergers."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain members of the OEI and UMC Boards (which have recommended that
their respective stockholders vote in favor of the proposals described in this
Joint Proxy Statement/Prospectus) have interests in the Mergers that are
separate from and may conflict with the interests of the stockholders generally.
See "The Mergers -- Interests of Certain Persons in the Mergers." These separate
interests are summarized below:
Composition of New Ocean Board. Messrs. Brock and Flores will serve as
members of the New Ocean Board. Certain other members of the current OEI Board
and UMC Board may be designated as members of the New Ocean Board.
Employment Agreements. Upon the Effective Time, Messrs. Brock and Flores
will enter into employment agreements with New Ocean which will extend for an
initial period of three years, subject to extension. Mr. Brock and Mr. Flores
will receive a base salary per year of $475,000 and $600,000, respectively, and
a maximum discretionary annual bonus of 200% of such executive's base salary in
effect during such year.
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<PAGE> 31
Mr. Dunlap has entered into an employment agreement with UMC which provides
for a severance payment upon termination of employment with UMC for good reason.
The severance payment consists of an aggregate amount equal to two times the sum
of (a) his base salary in effect upon such termination of employment and (b) his
bonus under UMC's compensation plan for the fiscal year preceding the fiscal
year of the termination of employment.
Additionally, thirteen officers of OEI have entered into employment
agreements with OEI which provide for the vesting of certain severance benefits
upon consummation of the Mergers. Also, the employment agreements provide for
severance payments upon termination for any reason other than misconduct or
disability after the Effective Time or upon the resignation by such officers
within 90 days after the Effective Time.
UMC Severance Agreements. Certain officers of UMC have entered into
severance agreements with UMC providing for certain benefits to such officers in
the event of termination of employment under specified circumstances within 24
months of a "change in control," which would be deemed to occur upon the
consummation of the UMC Merger.
Stock Options. Stock options held by certain officers and directors of OEI
and UMC under the OEI Option Plans and the UMC Option Plans, respectively, will
automatically become fully exercisable upon the consummation of the UMC Merger.
Directors' and Officers' Indemnification and Insurance. New Ocean will
indemnify each person who was prior to the Effective Time an officer, director
or employee of OEI, UMC or any of their subsidiaries with respect to service
prior to the Effective Time to the extent permitted by applicable law. For a
period of not less than three years following the Effective Time, New Ocean will
cause the directors' and officers' liability insurance coverage of OEI and UMC
to continue in effect for matters occurring on or prior to the Effective Time.
THE STOCKHOLDERS' MEETINGS
GENERAL
The OEI Annual Meeting will be held at 9:30 a.m. Houston time, on Friday,
March 27, 1998, at the Four Seasons Hotel, 1300 Lamar Street, Houston, Texas,
for the purpose set forth in the Notice of OEI Annual Meeting and as described
below. The UMC Special Meeting will be held at 10:30 a.m., Houston time, on
Friday, March 27, 1998, at the Four Seasons Hotel, 1300 Lamar Street, Houston,
Texas, for the purpose set forth in the Notice of UMC Special Meeting and as
described below. This Joint Proxy Statement/Prospectus is furnished in
connection with the solicitation by the OEI Board and the UMC Board of proxies
to be used at their respective Stockholders' Meeting and at any and all
adjournments or postponements of such Stockholders' Meeting. Any person
executing a proxy card may revoke it prior to its exercise by filing with the
Corporate Secretary of OEI or UMC, as the case may be, prior to or at the
applicable Stockholders' Meeting, at the address specified under the caption
"Available Information" in this Joint Proxy Statement/Prospectus, either an
instrument revoking the proxy or a duly executed proxy bearing a later date.
PURPOSE OF THE STOCKHOLDERS' MEETINGS
OEI
The purpose of the OEI Annual Meeting is to consider and vote upon the
proposal to adopt the Merger Agreement, approve the Mergers, approve certain
amendments to the OEI Certificate, and approve the other matters contemplated by
the Merger Agreement. In addition, at the OEI Annual Meeting holders of OEI
Common Stock will be asked to approve the adoption of the Plan, to elect James
C. Flores and Thomas D. Clark, Jr. as Class III directors to serve until the
annual meeting of stockholders in 2001 or until their successors have been duly
elected and qualified, and to ratify and approve the appointment of Arthur
Andersen LLP as OEI's independent auditors for the 1998 fiscal year. The Plan
will not be adopted unless the Mergers are approved by stockholders and
consummated.
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<PAGE> 32
UMC
The purpose of the UMC Special Meeting is to consider and vote upon the
proposal to adopt the Merger Agreement and to approve the UMC Merger and the
other matters contemplated by the Merger Agreement.
VOTING SECURITIES AND RECORD DATES
Only holders of record of shares of OEI Common Stock and UMC Common Stock
at the close of business on February 20, 1998 are entitled to notice of and to
vote at the OEI Annual Meeting and the UMC Special Meeting, respectively.
OEI
The presence, in person or by proxy, at the OEI Annual Meeting of the
holders of a majority of the shares of Old OEI Common Stock outstanding and
entitled to vote at the OEI Annual Meeting is necessary to constitute a quorum
at the OEI Annual Meeting. The affirmative vote of the holders of a majority of
the outstanding shares of Old OEI Common Stock is required to approve and adopt
the OEI Proposal. The affirmative vote of holders of a majority of the shares of
OEI Common Stock present and entitled to vote at the OEI Annual Meeting will be
required to approve the adoption of the Plan and ratify and approve the
selection of Arthur Andersen LLP as OEI's independent auditors for the 1998
fiscal year. The Class III directors will be elected by plurality vote of the
outstanding shares of Old OEI Common Stock. See "-- Proxies."
UMC
The presence, in person or by proxy, at the UMC Special Meeting of the
holders of a majority of the shares of UMC Common Stock outstanding and entitled
to vote at the UMC Special Meeting is necessary to constitute a quorum at the
UMC Special Meeting. The affirmative vote of the holders of a majority of the
outstanding shares of UMC Common Stock is required to approve and adopt the UMC
Proposal. See "-- Proxies."
PROXIES
All shares of Old OEI Common Stock and UMC Common Stock represented by
properly executed proxies received prior to or at the OEI Annual Meeting or UMC
Special Meeting, as the case may be, and not duly and timely revoked, will be
voted in accordance with the instructions indicated on such proxies. If no
instructions are indicated on a properly executed returned proxy, such proxies
will be voted FOR (A) in the case of shares of Old OEI Common Stock, (i) the
approval of the OEI Proposal, (ii) the adoption of the Plan, (iii) the election
of the duly nominated Class III directors, and (iv) the ratification and
approval of the selection of Arthur Andersen LLP as OEI's independent auditors
for the 1998 fiscal year, and (B) in the case of shares of UMC Common Stock, the
UMC Proposal. A properly executed proxy marked "ABSTAIN," although counted for
purposes of determining whether there is a quorum and for purposes of
determining the aggregate voting power and number of shares represented and
entitled to vote at the applicable Stockholders' Meeting, will not be voted.
Accordingly, a proxy marked "ABSTAIN" will have the effect of a vote against
each of the proposals described herein.
Shares represented by "broker non-votes" (i.e., shares held by brokers or
nominees which are represented at a meeting but with respect to which the broker
or nominee is not empowered to vote) will be counted for purposes of determining
whether there is a quorum at a Stockholders' Meeting. In accordance with NYSE
rules, however, brokers and nominees are precluded from exercising their voting
discretion with respect to the approval and adoption of either the OEI Proposal
or the UMC Proposal and thus, absent specific instructions from the beneficial
owner of such shares, are not empowered to vote such shares with respect to the
approval and adoption of such proposals. A "broker non-vote" or the failure to
be present in person or by proxy at the Stockholders' Meetings will have the
effect of a vote against the OEI Proposal or the UMC Proposal, as applicable,
but will not affect the outcome of the vote with respect to (i) the adoption of
the Plan, (ii) the
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election of the duly nominated Class III directors and (iii) the ratification
and approval of the selection of Arthur Andersen as OEI's independent auditors
for the 1998 fiscal year.
The OEI Board and the UMC Board are not currently aware of any business to
be acted upon at their respective Stockholders' Meeting other than as described
herein. If, however, other matters are properly brought before either
Stockholders' Meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have discretion to vote or act thereon according to
their judgment. Such adjournments may be for the purpose of soliciting
additional proxies. Neither OEI nor UMC currently intends to seek an adjournment
of its respective Stockholders' Meeting.
Any proxy given pursuant to this solicitation may be revoked at any time
before such proxy is voted. Attendance at the OEI Annual Meeting or the UMC
Special Meeting will not in and of itself constitute a revocation of a proxy.
The cost of soliciting proxies will be shared equally by OEI and UMC. In
addition to the use of the mail, arrangements will be made with brokerage houses
and other custodians, nominees and fiduciaries to send proxy material to
beneficial owners and OEI or UMC, as the case may be, will, upon request,
reimburse them for their reasonable expenses. OEI and UMC have retained
Georgeson & Company Inc. to aid in the solicitation of proxies and to verify
certain records related to the solicitation at a maximum fee of $14,000 plus
expenses. To the extent necessary in order to ensure sufficient representation
at its Stockholders' Meeting, OEI or UMC may request by telephone, telegram or
in person the return of proxy cards. The extent to which this will be necessary
depends entirely upon how promptly proxy cards are returned. Stockholders are
urged to send in their proxies without delay.
THE COMPANIES
OCEAN ENERGY, INC.
OEI is an independent energy company engaged in the exploration,
development, acquisition and production of oil and gas. OEI has one of the most
active exploration and development programs in the Gulf of Mexico, which is
among the most prolific oil and gas producing regions in the United States.
OEI's activities are focused primarily in four geographically distinct
areas in the Gulf of Mexico region, consisting of OEI's holdings in the
Mississippi River Delta area, the Central Gulf of Mexico area, deepwater areas
of the Gulf of Mexico and onshore Louisiana. OEI's operating leverage and
technical expertise have allowed the company to enter into several significant
industry joint ventures/alliances. These include (i) a 3-D seismic-oriented
joint venture with Shell Offshore, Inc. ("Shell") covering 240 square miles of
coastal and offshore regions of the Mississippi River Delta; (ii) an
exploitation alliance with Shell on 80 square miles of 3-D seismic covering the
South Pass 61 and 65 fields in the Gulf of Mexico; and (iii) a deepwater joint
venture with Conoco, Inc. ("Conoco") on 27 blocks covering six prospect areas
and over 200 square miles of 3-D seismic data.
OEI's principal executive offices are located at 8440 Jefferson Highway,
Suite 420, Baton Rouge, Louisiana 70809, and its telephone number is (504)
927-1450.
UNITED MERIDIAN CORPORATION
UMC is a leading independent energy company engaged in the exploration,
development, production and acquisition of oil and gas in North America and
certain international regions. In North America, UMC's production is
concentrated in the Gulf Coast, Permian Basin, Midcontinent and Rocky Mountain
regions and in Western Canada. Internationally, UMC currently operates in the
West African oil and gas producing regions of Cote d'Ivoire and Equatorial
Guinea, has PSCs or petroleum concession agreements on five blocks in Pakistan
and on one block in Bangledesh, has been awarded a participation in a block in
offshore Angola, and has two applications pending for PSCs in an additional West
African nation.
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UMC's principal executive offices are located at 1201 Louisiana, Suite
1400, Houston, Texas 77002, and its telephone number is (713) 654-9110.
OEI HOLDING CORPORATION
Newco is a newly formed Delaware corporation that has not, to date,
conducted any activities other than those incident to its formation, its
execution of the Merger Agreement and related agreements, and its participation
in the preparation of this Joint Proxy Statement/Prospectus. One-half of the
issued and outstanding capital stock of Newco is owned by each of OEI and UMC.
As a result of the Newco Merger, Newco will cease to exist.
THE MERGERS
GENERAL
The Merger Agreement provides that following the satisfaction or waiver of
the conditions set forth therein, the parties shall file Certificates of Merger
executed in accordance with the relevant provisions of the DGCL and shall make
all other filings or recordings required under the DGCL in order to effect both
Mergers. The Newco Merger shall become effective at the Newco Effective Time.
The UMC Merger shall become effective at the UMC Effective Time. At the Newco
Effective Time, Newco will be merged with and into OEI, and, at the UMC
Effective Time, UMC will be merged with and into OEI, with New Ocean continuing
as the surviving corporation and the separate existences of Newco and UMC will
cease.
CONSIDERATION
Upon consummation of the Mergers, (i) each share of Old OEI Common Stock
issued and outstanding immediately prior to the Newco Effective Time will be
converted into the right to receive 2.34 shares of New Ocean Common Stock and
(ii) each share of UMC Common Stock issued and outstanding immediately prior to
the UMC Effective Time (other than shares to be canceled pursuant to the Merger
Agreement) will be converted into the right to receive 1.30 shares of New Ocean
Common Stock. Cash will be paid in lieu of any fractional shares of New Ocean
Common Stock.
NEW OCEAN -- THE COMBINED COMPANY
The combination of OEI and UMC will create a stronger, better positioned
independent oil and gas company with a portfolio including many exploration and
exploitation opportunities that are high growth, providing the opportunity for
rapid increases in reserves and cash flows, as well as high impact, having a
significant positive impact on New Ocean if successful. As a result of the
Mergers, New Ocean will become one of the largest independent oil and gas
companies, with total proved reserves of approximately 271 million MMBOE as of
December 31, 1997, and combined average production of approximately 117,000
BOEPD in December of 1997. The larger scale provided by the combination will
allow New Ocean the financial flexibility necessary to retain a larger share of
the existing high impact exploration prospects contained in each company's
portfolio, and therefore a larger proportion of the related upside potential.
Acceleration of several of these projects is expected given the financial
strength provided by the increased size and diversification of a larger entity.
OEI and UMC believe that the larger scale will facilitate the securing of scarce
drilling rigs and other oil field services critical to exploration and
exploitation activities, especially in respect of the combined deepwater
operations.
The Mergers will combine UMC's high impact growth prospects in West Africa
and Asia and long-lived oil and gas reserves in North America with OEI's
geographically concentrated, high working interest producing properties,
including its unique operating infrastructure, and high impact shelf and
deepwater exploration prospects in the Gulf of Mexico. On a combined pro forma
basis for the three years ended December 31, 1997, New Ocean's production would
have grown at an average annual rate in excess of 30%, which would have made it
one of the fastest growing large independent oil and gas companies during that
period. In addition, OEI and UMC believe that UMC's proven capabilities in
acquiring international PSCs
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combined with OEI's acumen in acquiring high potential Gulf of Mexico properties
and prospects will provide New Ocean with additional growth opportunities in the
future. Because of each company's past success in establishing joint-venture
relationships with major oil companies such as Conoco, Shell and Mobil
Corporation, management of the companies believe that New Ocean will have an
enhanced position as the independent of choice for major companies seeking joint
venture partners for large domestic and international opportunities.
Both OEI and UMC have experienced significant growth in production over the
past four years. For the four-year period ended December 31, 1997, average
annual production increased approximately 43% for OEI and 27% for UMC. On a
combined basis, 1997 production would have averaged approximately 92,000 BOEPD
compared to approximately 65,000 BOEPD in 1996. On a combined basis, average
daily production for December 1997 would have been approximately 61,000 Bbls of
oil and 333 MMcf of gas per day, or a total of approximately 117,000 BOEPD.
Management of OEI and UMC expect New Ocean to grow annual production in 1998 by
approximately 30%, a rate consistent with the companies' combined growth plans.
OEI and UMC will greatly complement each other in terms of New Ocean's
reserve composition and geographic diversity, execution strategy for the
combined exploration and exploitation program, strong financial position and
superior management and technical prowess, providing benefits not available to
each company individually. In order to take maximum advantage of these benefits,
the two companies are presently developing plans to integrate their operations
immediately following the Mergers.
Reserve Composition and Geographic Diversity. New Ocean's pro forma proved
reserve base would have been approximately 271 MMBOE as of December 31, 1997.
The combined reserves are expected to be balanced approximately evenly between
oil and gas. Further, New Ocean's reserves will be well diversified
geographically, with approximately 45% located in the Gulf of Mexico/Gulf Coast
region, 23% located in the Rocky Mountain/Mid-Continent region, 7% located in
Canada, 15% located in Equatorial Guinea and 10% located in Cote d'Ivoire. The
balance provided between North American and international properties will lower
the overall risk profile of current production as well as the risk profile of
the exploration and development opportunities in the combined company. The
presence of this geographic balance, as well as the commodity balance between
oil and gas, will further diversify the revenue and cash flow sources for New
Ocean, while its proved reserve-to-annual production ratio will exceed seven
years based on year-end reserves and 1997 production. Pro forma for the Mergers,
in 1997 New Ocean would have replaced in excess of 330% of its production with
new proved reserves.
Operational Execution Strategy. The combination will allow management to
optimize each company's exploration and development programs to provide
accelerated growth opportunities, while effectively diversifying New Ocean's
exploration risk. Additionally, from an execution standpoint, the two companies'
respective exploration and exploitation programs largely complement each other
in that OEI's current portfolio contains multiple near-term domestic cash flow
generating prospects which will enhance and support longer term opportunities
including UMC's multiple international prospects as well as OEI's deepwater Gulf
of Mexico prospects. In 1998, New Ocean's operating capital budget is expected
to total between $550 and $600 million, allocated approximately two-thirds
domestically and one-third internationally. With this budget, New Ocean is
expected to drill approximately 140 exploration and 280 development wells in
1998. In the larger, riskier projects where the potential exists for large-scale
exploratory success, New Ocean will be able to retain a greater proportion of
the project than either company might otherwise have retained if the companies
had remained separate. In addition, management will look for growth
opportunities by accelerating high impact projects in each company's portfolio.
An example of this is New Ocean's potential acceleration of the deepwater
exploration of UMC's large acreage positions offshore West Africa.
Financial Position. New Ocean will have a larger, stronger capitalization
base which should enhance the funding sources available to explore and exploit
the multiple prospects available to the combined company. Pro forma for the
transaction, New Ocean would have had EBITDAX of $398 million for the year ended
December 31, 1997. Management of each company believes that New Ocean will have
adequate financial capacity to fund a growth-oriented capital expenditure
program for the foreseeable future. Pro forma for the
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transaction, New Ocean's debt-to-capitalization ratio as of December 31, 1997
would have been approximately 49% and the EBITDAX/interest expense ratio for the
year ended December 31, 1997 would have exceeded 8.0x. These strong credit
statistics, combined with the enlarged, more diversified critical mass of proved
reserves, should benefit stockholders in the form of higher credit ratings and
lower financing costs. Combined total debt at December 31, 1997 consisted of
three issues of subordinated long-term debt totaling $510 million in aggregate
principal amount and $157 million of outstanding debt under revolving credit
facilities. At December 31, 1997, the companies collectively had $500 million of
committed availability under their revolving credit lines, with $338 million of
unused capacity. Preliminary discussions have taken place with respect to a new
combined company senior revolving credit facility of $500 to $600 million. New
Ocean's increased size and presence in the worldwide capital markets should make
available new forms of cost effective financing.
Superior Management and Technical Prowess. The Mergers combine two of the
more technically advanced and successful exploration and development groups in
the industry. John B. Brock (current Chairman of the Board and Chief Executive
Officer of UMC) will be Chairman of the Board of New Ocean, while James C.
Flores (current Chairman of the Board, President and Chief Executive Officer of
OEI) will be President and Chief Executive Officer. James L. Dunlap, as Vice
Chairman and Chairman of United Meridian International Corporation, and James E.
Smitherman III, as Executive Vice President -- International, will continue to
oversee international operations. Richard G. Zepernick, Jr. will manage the
United States and Canada operations as Executive Vice President -- North
America. Technically, New Ocean's expertise will be well balanced geographically
with UMC's international and on-shore North American technical expertise
complementing OEI's Gulf of Mexico technical prowess. Jonathan M. Clarkson,
Executive Vice President -- Chief Financial Officer, Robert L. Belk, Executive
Vice President -- Administration, and Robert K. Reeves, Executive Vice
President -- General Counsel, will oversee financial, administrative and legal
functions of New Ocean. In addition, New Ocean will draw on the best and
brightest members of both senior and mid-management teams providing significant
depth and experience.
OWNERSHIP OF NEW OCEAN FOLLOWING THE MERGERS
The shares of New Ocean Common Stock issued to holders of Old OEI Common
Stock in the Newco Merger will constitute approximately 54% of all of the issued
and outstanding New Ocean Common Stock after the Mergers and the shares of New
Ocean Common Stock issued to UMC stockholders in the UMC Merger will constitute
approximately 46% of all of the issued and outstanding New Ocean Common Stock
after the Merger. Approximately 100 million shares of New Ocean Common Stock
will be issued and outstanding following the Mergers.
Upon consummation of the Newco Merger, each outstanding and unexercised OEI
Stock Option will be converted into an option to purchase the number of shares
of New Ocean Common Stock equal to the number of shares of Old OEI Common Stock
that could have been obtained upon exercise of such Option prior to the Newco
Effective Time multiplied by the OEI Exchange Ratio, and the exercise price with
respect thereto will equal the exercise price under such OEI Stock Option
divided by the OEI Exchange Ratio.
Upon consummation of the UMC Merger, each outstanding and unexercised UMC
Option will be converted into an option to purchase the number of shares of New
Ocean Common Stock equal to the number of shares of UMC Common Stock that could
have been obtained upon exercise of such Option prior to the UMC Effective Time
multiplied by the UMC Exchange Ratio, and the exercise price with respect
thereto will equal the exercise price under such UMC Stock Option divided by the
UMC Exchange Ratio.
BACKGROUND OF THE MERGERS
From time to time, management of each of OEI and UMC have internally
reviewed and evaluated merger and acquisition opportunities in the oil and gas
exploration and production business. As part of its ongoing strategic planning
process, UMC requested in early 1997 that a review of strategic combinations be
performed by several investment banks, including Merrill Lynch. Representatives
of Merrill Lynch (including
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a former representative of Merrill Lynch now employed by Lehman Brothers)
provided UMC with a review of publicly available and internally generated
information and analyses of combinations of UMC and several companies, including
an analysis of a possible strategic combination of OEI and UMC. After review of
other strategic combination possibilities (including analyses by other
investment banks), UMC management concluded that, at that time, OEI was the most
attractive candidate for a strategic combination with UMC because of the fit
with UMC's current operations and the similarities in size and projected growth
in production, reserves and financial measures, including cash flow. On March
24, 1997, at the request of UMC, representatives of Merrill Lynch met with
officers of OEI to discuss the possibility of a strategic combination of UMC and
OEI.
At a regularly scheduled meeting of the UMC Board held on March 26, 1997,
representatives of Merrill Lynch made a presentation regarding a possible
combination of UMC and OEI, including a report which reviewed (i) the current
oil and gas financial and merger and acquisition environment at that time; (ii)
the operations and financial performance of OEI; (iii) the operations and
financial performance of UMC; and (iv) the operating and financial effects of
the potential combination. On or around April 3, 1997, representatives of
Merrill Lynch met again with officers of OEI to discuss OEI and UMC combination
possibilities. On April 9, 1997, Mr. Brock met with Mr. Flores in Lafayette,
Louisiana to discuss the possible benefits and challenges associated with a
strategic combination of the two companies.
On April 16 and 17, 1997, management of OEI and UMC and representatives of
Merrill Lynch had a series of meetings to review the respective businesses,
operations and prospects of the two companies. In connection with these
meetings, UMC and OEI entered into a mutual confidentiality agreement.
At a breakfast meeting on April 17, 1997, Mr. Brock introduced Mr. Flores
to certain members of the UMC Board.
On April 23, 1997, Mr. Brock and representatives of Merrill Lynch met with
Mr. Flores, to discuss the parameters of a possible strategic combination
proposal.
However, in early May, Mr. Brock and Mr. Flores mutually determined on a
telephone call that discussions concerning any proposed business combination of
OEI and UMC should be terminated because of the inability to agree on the
substantive terms of a proposed transaction that could be recommended to their
respective Board of Directors at such time. One of the primary issues involved
several pending OEI operational initiatives which were expected to be realized
in the near future. As such initiatives had not yet been fully realized, it was
Mr. Brock's view that UMC would be unwilling to fully credit such initiatives at
that time in any valuation of OEI. As of such date, no formal proposal had been
considered by either the UMC Board or the OEI Board. As part of their normal
strategic planning processes, OEI and UMC continued to review merger and
acquisition possibilities.
In September 1997, Mr. Flores and Mr. Brock had several telephone
conversations regarding the possible exchange of updated company information.
Such exchanges, however, did not occur, and further discussions terminated after
Mr. Flores and Mr. Brock expressed fundamental concerns regarding the ability to
reach acceptable terms for a strategic combination proposal at such time.
On September 24, 1997, the UMC Board reviewed merger and acquisition
activity in the oil and gas industry which had increased significantly compared
to recent periods. The UMC Board was also informed of the results of the
September discussions between Messrs. Brock and Flores concerning a possible
strategic combination of UMC and OEI. At this meeting, the UMC Board also
generally considered certain other potential combinations and determined not to
pursue any such combinations in light of the lack of a strategic fit and the
potential dilution in UMC's projected growth rates. Additionally, while UMC had
not received any indications of interest from third parties regarding a possible
acquisition of UMC, the UMC Board at this meeting considered whether it would be
advisable to attempt a sale of the company at that time. It was concluded that
it would be highly unlikely to capture the long-term value of the company in a
current sale and, therefore, that such a course would not be in the best
interests of UMC stockholders. In light of the determination by the UMC Board
that the interests of the UMC stockholders would be best served by not selling
UMC at that time, the UMC Board determined not to attempt to sell UMC.
On November 19, 1997, the UMC Board again reviewed merger and acquisition
activity in the oil and gas industry and generally considered certain potential
combinations. Additionally, while UMC had not received
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any indications of interest from third parties regarding a possible acquisition
of UMC, the UMC Board at this meeting again considered whether it would be
advisable to attempt a sale of the company at that time. It was concluded that
it would be difficult if not impossible to capture the long-term value of the
company in a current sale and, therefore, that such a course would not be in the
best interests of UMC stockholders.
After reviewing several recent announcements by OEI, including third
quarter results, the results of an OEI stock offering and the consequent
improvement in the OEI balance sheet, the alliances with Shell in the Delta Area
and South Pass properties, and other development successes, on November 21,
1997, Mr. Brock contacted Mr. Flores to express his renewed interest in pursuing
a possible business combination between the companies. As a result, Messrs.
Brock and Flores agreed that the respective Chief Financial Officers of the two
companies should meet to discuss certain financial aspects of each company to
better evaluate the financial ramifications of a business combination. After
these conversations, UMC and OEI entered into discussions with Merrill Lynch and
Lehman Brothers, respectively, regarding their possible engagement as financial
advisors in evaluating any business combination proposals.
On December 4, 1997, representatives of UMC, OEI, Merrill Lynch and Lehman
Brothers met to discuss potential strategic benefits of a proposed business
combination and to exchange certain financial and operating data. After the
meeting, UMC engaged Merrill Lynch, and OEI engaged Lehman Brothers, to act as
their respective financial advisors in evaluating any proposed business
combination of the two companies.
On December 5, 6, 8 and 9, 1997, Messrs. Brock and Flores discussed
organizational, financial and structural issues with respect to a possible
transaction, the relative strengths of the two companies and the synergies of a
combined entity. During these discussions, Messrs. Brock and Flores discussed
possible exchange ratios in the context of an "at the market, no premium, merger
of equals" based upon recent average historical stock prices as well as other
financial and operating measures. Pursuant to these discussions, Messrs. Brock
and Flores indicated that they could potentially recommend to their respective
boards of directors an exchange ratio for the proposed business combination of
1.8 to 1.0. This ratio was acceptable to both chairmen on the basis of current
and projected financial and operating data, and was also the approximate ratio
of the respective company's average stock prices for the preceding 20, 30 and 60
day periods. At this time, the companies also discussed the possibility of a
combined capitalization of 100 million shares, to be achieved through the use of
the two exchange ratios of 2.34 and 1.30, which would equate to the 1.8 to 1.0
ratio.
On December 9, 1997, UMC delivered a preliminary draft of a merger
agreement and related documents prepared by its counsel to OEI and its counsel.
At a regularly scheduled meeting of the OEI Board held on December 10,
1997, the OEI Board initially discussed a possible business combination with
UMC. At the meeting, Lehman Brothers made a preliminary informational
presentation regarding the current environment in the oil and gas industry, an
overview of both OEI and UMC's assets and the merits of a strategic combination.
The meeting was adjourned pending a call to reconvene the meeting to further
discuss a possible merger proposal.
On December 11, 1997, representatives of UMC, OEI and their respective
counsel and financial advisors engaged in initial discussions of the draft
Merger Agreement and other related documents.
During the days of December 12 through 22, 1997, representatives of the two
companies, including their respective financial advisers, counsel and
accountants, held numerous due diligence meetings covering properties and
prospects, engineering, financial, legal, tax and accounting matters and held
numerous additional meetings to complete their respective factual
investigations, to resolve open issues and to finalize the documentation
relating to the Mergers. On December 18, 1997, the OEI Board reconvened its
meeting by telephone conference call to review results of the due diligence
investigation of UMC, to discuss the status of merger negotiations and to
discuss the possibility of, and reasons for, adoption of a shareholder rights
plan.
On December 21, 1997, the OEI Board reconvened its meeting at its corporate
offices. At this meeting, management of OEI and OEI's counsel presented a
detailed discussion of the terms and structure of the proposed Mergers and
related transactions. In addition, at such meeting, Lehman Brothers made a
presentation regarding the proposed Mergers, copies of which were provided to
members of the OEI Board prior to the meeting. The presentation included a
summary of: (i) the terms and structure of the Mergers;
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(ii) the due diligence conducted with regard to UMC; (iii) an expected timetable
for completion of the Mergers; (iv) considerations supporting Lehman Brothers'
opinion to the OEI Board as summarized under "-- Opinion of OEI's Financial
Advisor"; and (v) the factors described under "-- Reasons for the Mergers;
Recommendations of the Boards -- Reasons for the Mergers -- OEI." Lehman
Brothers also delivered its oral opinion to the OEI Board (subsequently
confirmed in writing as of December 22, 1997) to the effect that as of such date
and based upon and subject to certain matters stated therein, from a financial
point of view and in relation to the UMC Exchange Ratio, the OEI Exchange Ratio
offered to OEI's stockholders in the Mergers was fair to such stockholders. The
OEI Board discussed the factors described under "-- Reasons for the Mergers;
Recommendations of the Boards -- Reasons for the Merger -- OEI." At this
meeting, Lehman Brothers and OEI's counsel made a presentation regarding a
proposal to adopt a preferred stock shareholder rights plan. Lehman Brothers'
presentation outlined its recommendation that adoption of a preferred stock
shareholder rights plan would enhance the OEI Board's ability to promote the
interests of all shareholders in the event of an unsolicited offer to acquire
the company or engage in a merger transaction or accumulation of a substantial
block of company stock by a holder or group of holders. Lehman Brothers'
presentation also included an overview of other shareholder rights plans and an
analysis of the recommended exercise price for the proposed OEI preferred stock
shareholder rights plan.
On December 22, 1997 the UMC Board held a meeting at which management of
UMC presented a detailed discussion of the UMC Merger, and Merrill Lynch
presented its opinion that, as of such date, the UMC Exchange Ratio is fair,
from a financial point of view, to the holders of UMC Common Stock. As
preparation for that meeting, Merrill Lynch provided members of the UMC Board a
report which reviewed (i) the current oil and gas environment at that time; (ii)
the operations and financial performance of UMC; (iii) the operations and
financial performance of OEI; (iv) the strategic rationale for the proposed
combination of UMC and OEI; (v) the proposed structure of a combination of UMC
and OEI at that time; (vi) projected financial and operating data for UMC and
OEI; and (vii) the operating and financial effects of the proposed combination.
After such presentations and a discussion and consideration of the factors
described under "-- Reasons for the Mergers; Recommendations of the
Boards -- Reasons for the Merger -- UMC," the UMC Board approved the proposed
business combination and authorized the officers of UMC to execute the
definitive Merger Agreement and related documents.
Also on December 22, 1997, the OEI Board reconvened its continued meeting
and, in consideration of the factors described under "-- Reasons for the
Mergers; Recommendations of the Boards -- Reasons for the Merger -- OEI,"
approved the proposed business combination and authorized the officers of OEI to
execute the definitive Merger Agreement and related documents. The OEI Board
also adopted the proposed preferred stock shareholder rights plan described
under "Comparison of Stockholder Rights -- Rights Plans -- OEI Rights Plan."
Immediately prior to the execution of the Merger Agreement, (i) each of Mr.
Flores and the Flores Family Limited Partnership (the "OEI Principal
Stockholders") entered into an Agreement to Vote and Proxy with UMC pursuant to
which each OEI Principal Stockholder has agreed to, among other things, grant a
proxy and vote in favor of the Mergers all of the shares of OEI Common Stock
either owned by such stockholder or for which it has the power to vote or direct
the vote, and (ii) Mr. Brock entered into an Agreement to Vote and Proxy with
OEI pursuant to which he has agreed to, among other things, grant a proxy to
vote in favor of the UMC Merger all of the shares of UMC Common Stock owned by
him.
Following the December 22 board meetings, UMC and OEI executed the Merger
Agreement and the Stock Option Agreements.
On December 23, 1997, the parties publicly announced that they had entered
into a definitive agreement to effect a strategic combination.
REASONS FOR THE MERGERS; RECOMMENDATIONS OF THE BOARDS
Reasons for the Merger -- OEI
At its continued meeting held on December 21 and 22, 1997, the OEI Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby. The OEI Board believes that the terms of the Mergers are fair to, and
in the best interests of, OEI stockholders and unanimously recommends that the
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stockholders of OEI vote FOR adoption and approval of the Merger Agreement and
the transactions contemplated thereby.
In reaching its determination, the OEI Board consulted with OEI's
management, as well as its financial and legal advisors, and considered the
following material factors:
(i) the strategic fit between OEI and UMC, including: the match of
OEI's concentrated domestic operations, reserves and exploration
opportunities with UMC's international operations, reserves and exploration
potential; the complementary management teams and internal cultures; and
the complementary mix of geological, engineering and production expertise;
(ii) the fact that the Mergers would diversify OEI's reserves and
exploration opportunities geographically, reducing its present Gulf of
Mexico focus while adding new core exploration and development areas
domestically and internationally with significant exploration
opportunities;
(iii) the fact that the addition of UMC's properties would increase
OEI's reserve life index;
(iv) the continued involvement of key members of OEI management in the
management of the combined company, including James C. Flores as President
and Chief Executive Officer and equal board representation;
(v) OEI management's belief that OEI's operational and technological
expertise in the exploration and exploitation of oil and gas properties
should substantially enhance the value of UMC's exploration projects and
provide additional opportunities within UMC's existing assets;
(vi) New Ocean would be among the largest independent energy
companies, which OEI management believes would provide benefits including
greater leverage with suppliers of various oil field services, greater
financial strength and growth opportunities and the potential for market
valuations comparable to other large independents;
(vii) the proposed combination is expected to allow future production
growth at levels consistent with OEI's plans for future production;
(viii) the preliminary pro forma financial condition, results of
operations and other financial information of New Ocean;
(ix) the fact that New Ocean after the Mergers would be more widely
held, providing stockholders with a more liquid market for their shares,
would have a broader mix of institutional stockholders and would likely
receive greater attention from financial analysts and institutional
investors; New Ocean should also benefit from better credit ratings, more
flexible financing terms and lower financing costs;
(x) the expected accounting treatment of the Mergers as a pooling of
interests;
(xi) the structure of the Mergers, which would permit the holders of
Old OEI Common Stock to exchange all of their shares for shares of OEI
Common Stock in a transaction generally intended to be tax-free for federal
income tax purposes except to the extent of cash received in lieu of
fractional shares of Old OEI Common Stock;
(xii) the oral opinion to the OEI Board (subsequently confirmed in
writing as of December 22, 1997) to the effect that as of such date and
based upon and subject to certain matters stated therein, from a financial
point of view and in relation to the UMC Exchange Ratio, the OEI Exchange
Ratio offered to OEI's stockholders in the Mergers was fair to such
stockholders. See "-- Opinion of OEI's Financial Advisor" for a discussion
of Lehman Brothers' opinion, which is subject to certain limitations,
qualifications and assumptions. A copy of the Lehman Brothers opinion is
included as Appendix C hereto and should be read carefully and in its
entirety.
In reaching the determination that the Mergers, the Merger Agreement and
the transactions contemplated thereby are advisable and fair to and in the best
interests of OEI and its stockholders, the OEI Board also considered a number of
additional factors, including its discussions with OEI's management concerning
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the results of OEI's investigation of UMC, the strategic, operational and
financial opportunities available to OEI in the normal course of its business
compared to those that might be available following the Mergers, the historical
and current market prices of OEI Common Stock and UMC Common Stock and the
proposed structure of the transaction and the other terms of the Merger
Agreement and related agreements.
The OEI Board also considered certain risks and potential disadvantages
associated with the Mergers, including the risk that the operations of the two
companies may not be successfully integrated, the risk that anticipated positive
synergies will not be realized to the degree anticipated, the risk that the
business combination might not be completed as a result of a failure to satisfy
the conditions to the Merger Agreement and other matters described under "Risk
Factors" and "Summary -- Forward-Looking Statements or Information." In the
judgment of the OEI Board, the potential benefits of the Mergers outweigh these
considerations.
The foregoing discussion of the information and factors that were given
weight by the OEI Board is not intended to be exhaustive, but it is believed to
include all material factors considered by the OEI Board. In view of the variety
of factors considered in connection with its evaluation of the proposed Mergers
and the terms of the Merger Agreement, the OEI Board did not deem it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its conclusion, and individual directors may have
given different weights to different factors. After considering all such
factors, at its meeting held on December 10, 1997, which meeting was adjourned
and reconvened on each of December 18, 21 and 22, 1997, the OEI Board
unanimously approved the Mergers, the Merger Agreement and the transactions
contemplated thereby. See "-- Background of the Mergers."
THE OEI BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF OEI VOTE
"FOR" ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
In considering the recommendation of the OEI Board with respect to the
Mergers, the Merger Agreement and the transactions contemplated thereby, OEI
stockholders should be aware that certain officers and directors of OEI have
certain interests in the proposed Mergers that are different from and in
addition to the interests of OEI stockholders generally. The OEI Board was aware
of these interests and considered them in approving the Mergers and Merger
Agreement. See "-- Interests of Certain Persons in the Mergers."
Reasons for the Merger -- UMC
At a meeting on December 22, 1997, the UMC Board unanimously approved the
Merger Agreement and the transactions contemplated thereby. The UMC Board
believes that the terms of the UMC Merger are fair to, and in the best interests
of, UMC stockholders and unanimously recommends that the stockholders of UMC
vote FOR adoption and approval of the Merger Agreement and the transactions
contemplated thereby.
In reaching its determination, the UMC Board consulted with its management,
as well as its financial and legal advisors, and considered a number of factors
including the following:
(i) the view of the UMC Board that the Mergers will allow New Ocean to
take advantage of both companies strengths in exploration and exploitation
and create new opportunities for strategic expansion;
(ii) UMC's management's belief that the Mergers will diversify and
lower New Ocean's risk profile and at the same time enable it to retain a
greater portion of large-scale exploration and development projects;
(iii) UMC's management's belief that the Mergers will facilitate and
minimize financial risks in securing scarce drilling rigs and other oil
field services;
(iv) the view of the UMC Board that the combination was consistent
with UMC's long-term growth strategy, and will allow stockholders to
continue ownership of UMC in a much larger entity;
(v) the view of the UMC Board that New Ocean will benefit from better
credit ratings, more flexible financing terms, greater stock liquidity and
lower financing costs;
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(vi) the view of the UMC Board that UMC is not sacrificing its own
individual potential growth rate merely to become larger;
(vii) the fact that both UMC and OEI possess numerous internal growth
opportunities and new growth opportunities will be created through the
combination;
(viii) the view of the UMC Board that the Mergers will combine two oil
and gas companies with complementary management teams, internal cultures,
operating expertise, asset portfolios and financial attributes;
(ix) the fact that New Ocean will have a balanced and concentrated
international and domestic reserves base, with interests in oil and gas
producing properties in most of the major domestic oil and gas basins and
interests in several of the most attractive international hydrocarbon
producing regions;
(x) the oral presentation made by Merrill Lynch to the UMC Board at
its December 22, 1997 meeting and the oral opinion of Merrill Lynch
(subsequently confirmed in writing as of December 22, 1997) to the effect
that, as of such date and subject to the assumptions, limitations and
qualifications set forth therein, the UMC Exchange Ratio is fair to the
stockholders of UMC from a financial point of view;
(xi) the continued involvement of key members of UMC management in the
management of New Ocean, including John B. Brock as Chairman of the Board
and equal board representation;
(xii) the expected accounting treatment of the Mergers as a pooling of
interests;
(xiii) the structure of the Mergers, which would permit the holders of
UMC Common Stock to exchange all of their shares for shares of New Ocean
Common Stock in a transaction generally intended to be tax-free for federal
income tax purposes except to the extent of cash received in lieu of
fractional shares of UMC Common Stock;
(xiv) UMC management's belief that New Ocean will be better able to
withstand price volatility in commodities than UMC on a stand-alone basis;
(xv) potential consolidation savings resulting from the proposed
combination;
(xvi) the more favorable commodity prices achieved by OEI in view of
the location of its reserves;
(xvii) the terms of the Merger Agreement; and
(xviii) the opportunity for UMC's stockholders to participate in the
ownership of New Ocean and benefit from the economies of scale created by
the Mergers without having incurred a merger premium.
In reaching the determination that the Merger Agreement and the
transactions contemplated thereby were fair to and in the best interests of UMC
and its stockholders, the UMC Board also considered a number of additional
factors, including its discussions with UMC's management concerning the results
of UMC's investigation of OEI, the strategic, operational and financial
opportunities available to UMC in the normal course of its business compared to
those that might be available following the Mergers, the historical and current
market prices of UMC Common Stock and OEI Common Stock and the proposed
structure of the transaction and the other terms of the Merger Agreement and
related agreements.
In view of the variety of factors considered in connection with its
evaluation of the Mergers, the UMC Board did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination.
THE UMC BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF UMC VOTE
"FOR" ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINION OF OEI'S FINANCIAL ADVISOR
On December 5, 1997, OEI engaged Lehman Brothers to act as its financial
advisor in connection with the Mergers. OEI instructed Lehman Brothers, in its
role as a financial advisor, to evaluate the fairness, from a
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financial perspective, to OEI's stockholders of the OEI Exchange Ratio offered
to such stockholders in the Mergers in relation to the UMC Exchange Ratio, and
in such regard, to conduct such investigations as Lehman Brothers deemed
appropriate for such purposes. On December 21, 1997, Lehman Brothers delivered
its oral opinion to the OEI Board (subsequently confirmed in writing as of
December 22, 1997) to the effect that as of such date and based upon and subject
to certain matters stated therein, from a financial point of view and in
relation to the UMC Exchange Ratio, the OEI Exchange Ratio offered to OEI's
stockholders in the Mergers was fair to such stockholders.
THE FULL TEXT OF THE OEI FAIRNESS OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, FACTORS CONSIDERED AND LIMITATIONS UPON THE REVIEW UNDERTAKEN BY LEHMAN
BROTHERS IN RENDERING ITS OPINION, IS INCLUDED AS APPENDIX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING IS
A SUMMARY OF OEI FAIRNESS OPINION AND THE METHODOLOGY LEHMAN BROTHERS USED TO
RENDER ITS FAIRNESS OPINION.
No limitations were imposed by OEI on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. Lehman Brothers was not requested to and did not make any
recommendation to the OEI Board as to the form or amount of the consideration to
be received by OEI's stockholders in the Mergers, which was determined through
arm's-length negotiations between the parties. In arriving at its opinion,
Lehman Brothers did not ascribe a specific range of values to OEI but made its
determination as to the fairness of the OEI Exchange Ratio to be offered to
OEI's stockholders in the Mergers on the basis of the financial and comparative
analyses described below. Lehman Brothers' opinion is for the use and benefit of
the OEI Board and was rendered to the OEI Board in connection with its
consideration of the Mergers. Lehman Brothers' opinion does not constitute a
recommendation to any stockholder of OEI as to how the stockholders of OEI
should vote with respect to the Mergers. Lehman Brothers was not requested to
opine as to, and its opinion does not address, OEI's underlying business
decision to proceed with or effect the Mergers. Lehman Brothers also expressed
no opinion as to the prices at which shares of New Ocean Common Stock actually
will trade following consummation of the Mergers and Lehman Brothers' opinion
should not be viewed as providing any assurance that the market value of the
shares of New Ocean Common Stock to be held by stockholders of OEI after the
Mergers will be in excess of the market value of the shares of Old OEI Common
Stock owned by such stockholders at any time prior to announcement or
consummation of the Mergers.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1) a
draft of the Merger Agreement dated December 19, 1997, the related Stock Option
Agreements and stockholder agreements and the specific terms of the Mergers,
including provisions therein relating to corporate governance and management of
New Ocean following the Mergers; (2) such publicly available information
concerning OEI and UMC that Lehman Brothers believed to be relevant to its
analysis, including, without limitation, each of the periodic reports and proxy
statements filed by OEI and UMC since January 1, 1997 and the Prospectus dated
November 12, 1997 of OEI (including the audited and unaudited financial
statements included in such reports, statements and prospectus); (3) financial
and operating information with respect to the respective businesses, operations
and prospects of OEI and UMC as furnished to Lehman Brothers by OEI and UMC,
respectively, including financial projections based on the respective business
plans of OEI and UMC and, in particular, (A) certain estimates of proved and
non-proved reserves, as well as the reports of independent reserve engineers and
company engineers, (B) projected annual production of such reserves in certain
domestic and international areas and (C) amounts and timing of the cost savings
expected to result from the Mergers; (4) a trading history of Old OEI Common
Stock from December 3, 1996 to December 19, 1997 and a comparison of that
trading history with those of other companies that Lehman Brothers deemed
relevant, including UMC; (5) a trading history of the UMC Common Stock from
December 3, 1996 to December 19, 1997 and a comparison of that trading history
with those of other companies that Lehman Brothers deemed relevant, including
OEI; (6) a comparison of the historical financial results and present financial
condition of OEI with those of other companies that Lehman Brothers deemed
relevant; (7) a comparison of the historical financial results and present
financial condition of UMC with those of other companies that Lehman Brothers
deemed relevant; and (8) a comparison of the financial terms of the Mergers with
the financial terms of certain other transactions that Lehman Brothers deemed
relevant. In addition, Lehman Brothers (i) had
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discussions with the senior managements of OEI and UMC concerning their
respective businesses, operations, assets, financial conditions and prospects
and the cost savings and strategic benefits expected by the managements of OEI
and UMC to result from a combination of the businesses of OEI and UMC, (ii) had
discussions with the independent public accountants of OEI and UMC related to
the audited financial statements of OEI and UMC and their reports thereon and
other matters relating to the accounting for the Mergers, (iii) had discussions
with the reserve engineers of OEI and UMC and (iv) undertook such other studies,
analyses and investigations as Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information and further relied upon the assurances of managements of OEI
and UMC that they were not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections of OEI, UMC and New Ocean following the consummation of the Mergers
(including the cost savings expected to result from a combination of the
businesses), upon advice of OEI and UMC, Lehman Brothers assumed that such
projections had been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the managements of OEI and UMC,
respectively, as to the future financial performance of OEI, UMC and New Ocean,
and that each of OEI and UMC would perform, and New Ocean will perform,
substantially in accordance with such projections. In arriving at its opinion,
Lehman Brothers did not conduct a physical inspection of the properties and
facilities of OEI or UMC and did not make or obtain any evaluations or
appraisals of the assets or liabilities of OEI or UMC. In addition, Lehman
Brothers was not authorized to solicit, and did not solicit, any indications of
interest from any third party with respect to the purchase of all or a part of
OEI's business. Upon advice of OEI and its legal and accounting advisors, Lehman
Brothers assumed that the Mergers will qualify (i) for pooling-of-interests
accounting treatment and (ii) as a reorganization within the meaning of Section
368(a) of the Code and therefore as a tax-free transaction to the stockholders
of OEI. Lehman Brothers' opinion necessarily is based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion letter.
In connection with rendering its opinion, Lehman Brothers performed certain
financial, comparative and other analyses as described below. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial and comparative analysis and the application
of those methods to the particular circumstances, and therefore such an opinion
is not readily susceptible to summary description. Furthermore, in arriving at
the OEI Fairness Opinion, Lehman Brothers did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Lehman Brothers believes that its analyses must be considered as a
whole and that considering any portion of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the opinion. In
performing its analyses, Lehman Brothers made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of OEI or UMC. Any estimates
contained in the analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
Valuation Analyses
Lehman Brothers prepared valuations of both OEI and UMC. The valuations of
the separate businesses were analyzed without any consideration of any cost
savings or operating synergies resulting from the Mergers. In determining
valuation, Lehman Brothers used the following methodologies: net asset valuation
analysis ("NAV Analysis"), comparable acquisition analysis, comparable company
analysis, going concern analysis and historical common stock trading analysis.
Each of these methodologies was used to generate a reference enterprise value
range for both OEI and UMC. The enterprise value range for each company was
adjusted for appropriate on and off balance sheet assets and liabilities to
arrive at a common equity value range (in aggregate dollars and dollars per
common share) for each company. The per share equity value ranges were
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then used to evaluate the OEI Exchange Ratio and the UMC Exchange Ratio
(conversion of each outstanding share of Old OEI Common Stock into the right to
receive 2.34 shares of New Ocean Common Stock and conversion of each outstanding
share of UMC Common Stock into the right to receive 1.3 shares of New Ocean
Common Stock) (together the "Exchange Ratios in the Transaction"). The Exchange
Ratios in the Transaction is the relative equivalent of having each outstanding
share of Old OEI Common Stock converted into 1.8 shares of New Ocean Common
Stock and each outstanding share of UMC Common Stock converted into one share of
New Ocean Common Stock (the "Relative Exchange Ratio"). The implied exchange
ratio ranges derived using the various valuation methodologies described above
all supported the conclusion that, from a financial point of view and in
relation to the UMC Exchange Ratio, the OEI Exchange Ratio offered to the OEI
stockholders in the Mergers is fair to such stockholders. Lehman Brothers
compared all implied exchange ratio ranges to the Relative Exchange Ratio. The
various valuation analyses are summarized below:
NAV Analysis. Lehman Brothers estimated the present value of the future
after-tax cash flows that OEI could be expected to generate from OEI's proved,
probable and possible reserves as of January 1, 1998 based on reserve,
production and production cost estimates and a range of discount rates, all as
provided by OEI management and discussed with UMC management. Lehman Brothers
added to such estimated values for proved, probable and possible reserves
assessments of the historical value of certain other assets and liabilities of
OEI, including certain exploration and exploitation prospects, other land and
acreage, seismic inventory, net operating loss carryforwards, working capital
and the market value of debt under three oil and gas price scenarios ("Case I,"
"Case II," and "Case III," collectively, the "Pricing Scenarios"). These
assessments were made by Lehman Brothers based on information provided by OEI's
management and on various industry benchmarks and assumptions provided by and
discussed with UMC management.
Lehman Brothers estimated the present value of the future after-tax cash
flows that UMC could be expected to generate from proved, probable and possible
reserves as of January 1, 1998 based on reserve, production and production cost
estimates and a range of discount rates, all as provided by UMC management and
discussed with OEI management. Lehman Brothers added to such estimated values
for proved, probable and possible reserves assessments of the value of certain
other assets and liabilities of UMC, including certain exploration and
exploitation prospects, other land and acreage, seismic inventory, net operating
loss carryforwards, working capital and the market value of debt under the
Pricing Scenarios. These assessments were made by Lehman Brothers based on
information provided by UMC's management and on various industry benchmarks and
assumptions provided by and discussed with OEI management.
The oil price forecasts in the Pricing Scenarios were based on NYMEX WTI
oil prices. Adjustments were made to the oil price forecasts to reflect location
and quality differentials. In Case I, the unadjusted WTI oil price per Bbl for
the year 1998 was assumed to be $20.00 and was assumed to remain at that price
thereafter without any escalation. In Case II, the unadjusted WTI oil price per
Bbl for the years 1998 to 2002 was assumed to be $19.25 and was assumed to
escalate at 4% per annum thereafter. In Case III, the unadjusted WTI oil prices
per Bbl for the years 1998 to 2002 were assumed to be $20.00, $21.00, $22.00,
$23.00 and $24.00, respectively, and were assumed to escalate at 4% per annum
thereafter.
The gas price forecasts in the Pricing Scenarios were based on NYMEX (Henry
Hub, Louisiana delivery) price forecasts from which adjustments were made for
location and quality differentials. In addition, adjustments to the forecasted
NYMEX prices were made to reflect the value per Mcf of gas. NYMEX gas price
quotations are stated in heating value equivalents per MMBtu. In Case I, the
unadjusted gas price per MMBtu for the year 1998 was assumed to be $2.00 and was
assumed to remain at that price thereafter without any escalation. In Case II,
the unadjusted gas price per MMBtu for the years 1998 to 2002 was assumed to be
$2.25 and was assumed to escalate at 4% per annum thereafter. In Case III, the
unadjusted gas prices per MMBtu for the years 1998 to 2002 were assumed to be
$2.30, $2.40, $2.50, $2.60 and $2.70, respectively, and were assumed to escalate
at 4% per annum thereafter.
The NAV Analysis resulted in implied Relative Exchange Ratio ranges for
Case I, Case II and Case III of 1.4 to 1.8, 1.6 to 2.0 and 1.9 to 2.4,
respectively.
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Comparable Acquisition Analysis. With respect to OEI, Lehman Brothers
reviewed certain publicly available information on selected Gulf of Mexico
exploration and production company transactions which were announced from June
of 1997 to November of 1997 including, but not limited to, Sonat Inc./Zilkha
Energy Company, Comstock Resources, Inc./Bois d'Arc Resources, Kelley Oil and
Gas Corporation/ SCANA Petroleum Resources, Inc., Meridian Resource
Corporation/Cairn Energy USA, Inc. and Louis Dreyfus Natural Gas Corp./American
Exploration Company. For each transaction, Lehman Brothers calculated an
enterprise transaction value multiple based on proved oil and gas reserves. The
enterprise transaction value ranges were applied to OEI's proved reserves and
adjusted for the market value of total debt less cash and cash equivalents to
calculate an implied range of equity value.
With respect to UMC, Lehman Brothers reviewed certain publicly available
information on selected domestic and international exploration and production
company transactions which were announced from December of 1996 to December of
1997 including, but not limited to, Sonat Inc./Zilkha Energy Company, Chesapeake
Energy Corporation/Hugoton Energy Corporation, Burlington Resources
Inc./Louisiana Land and Exploration Company, Parker & Parsley Petroleum
Company/Mesa, Inc., Texaco Inc./Monterey Resources, Inc., Pioneer Natural
Resources Company/Chauvco Resources Ltd. and Canadian Occidental Petroleum
Ltd./Wascana Energy Inc. For each transaction, Lehman Brothers calculated an
enterprise transaction value multiple based on proved oil and gas reserves.
Lehman Brothers added to such estimated reserve values assessments of the value
of UMC's international exploration and development opportunities and other land
and acreage. The resultant enterprise value range for UMC was adjusted for the
market value of total debt less cash and cash equivalents to calculate an
implied range of equity value.
The comparable acquisition analysis resulted in an implied Relative
Exchange Ratio range of 1.7 to 1.9. However, because the market conditions,
rationale and circumstances surrounding each of the transactions analyzed were
specific to each transaction and because of the inherent differences between the
businesses, operations and prospects of OEI and UMC and the companies involved
in the comparable transactions analyzed, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, and accordingly, also made qualitative judgments concerning
differences between the characteristics of these transactions and the Mergers
that would affect the equity values of OEI and UMC and such other companies.
Comparable Company Trading Analysis. With respect to OEI, Lehman Brothers
reviewed the public stock market trading multiples for selected exploration and
production companies with a focus in the Gulf of Mexico, including Forcenergy
Inc, Houston Exploration Company, Newfield Exploration Company, Noble
Affiliates, Inc., PETSEC Energy Inc., Pogo Producing Company and Stone Energy
Corporation. Using publicly available information, Lehman Brothers calculated
and analyzed the common equity market value multiples of certain projected
financial criteria (such as net income and discretionary cash flow) and the
adjusted capitalization multiples of certain historical and projected financial
criteria (such as EBITDA and proved reserves of oil and gas equivalent barrels).
The adjusted capitalization of each company was obtained by adding long-term
debt to the sum of the market value of its common equity, the value of its
preferred stock (market value if publicly traded, liquidation value if not) and
the book value of any minority interest minus the cash balance.
With respect to UMC, Lehman Brothers reviewed the public stock market
trading multiples for selected large capitalization exploration and production
companies with significant international assets, including Anadarko Petroleum
Corporation, Apache Corporation, Burlington Resources Inc., Enron Oil & Gas
Company, Oryx Energy Company, Pioneer Natural Resources Company, Seagull Energy
Corporation and Union Texas Petroleum Holdings, Inc. Using publicly available
information, Lehman Brothers calculated and analyzed the common equity market
value multiples of certain projected financial criteria (such as net income and
discretionary cash flow) and the adjusted capitalization multiples of certain
historical and projected financial criteria (such as EBITDA and proved reserves
of oil and gas equivalent barrels). The adjusted capitalization of each company
was obtained by adding long-term debt to the sum of the market value of its
common equity, the value of its preferred stock (market value if publicly
traded, liquidation value if not) and the book value of any minority interest
minus the cash balance.
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This methodology yielded an implied Relative Exchange Ratio range of 1.7 to
1.8. However, because of the inherent differences between the businesses,
operations and prospects of OEI and UMC and the businesses, operations and
prospects of the companies included in the comparable company groups, Lehman
Brothers believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the analysis, and accordingly, also made
qualitative judgments concerning differences between the financial and operating
characteristics of OEI and UMC and companies in the comparable company groups
that would affect the public trading values of OEI and UMC and such comparable
companies.
Going Concern Analysis. Lehman Brothers prepared an after-tax cash flow
model for both OEI and UMC utilizing information and projections provided by
both companies. With respect to the after-tax cash flow of OEI, Lehman Brothers
used discount rates of 10% to 15% and terminal value EBITDA multiples of 5.0 to
7.0. The discount rates were based on Lehman Brothers' review of the financial
terms of similar transactions in the sector of exploration and production
companies with a focus in the Gulf of Mexico. The terminal value multiples were
selected based on the trading multiples of similar publicly traded companies and
the multiples from recent acquisitions of similar assets and companies. With
respect to the after-tax cash flow of UMC, Lehman Brothers used discount rates
of 10% to 15% and terminal value EBITDA multiples of 6.0 to 8.0. The discount
rates were based on Lehman Brothers' review of the financial terms of similar
transactions in the sector of exploration and production companies with an
international portfolio of assets. The terminal value multiples were selected
based on the current trading multiples of similar publicly traded companies and
the multiples from recent acquisitions of similar companies.
This methodology yielded valuations for OEI and UMC that imply a Relative
Exchange Ratio of 1.8.
Historical Common Stock Trading Analysis. Lehman Brothers reviewed the
daily historical closing prices of Old OEI Common Stock and UMC Common Stock for
the period from December 3, 1996 to December 19, 1997. Lehman Brothers analyzed
the ratio of the December 19, 1997 closing share price for OEI to the
corresponding closing share price of UMC. In addition, Lehman Brothers reviewed
the ratio of the closing share prices for OEI and UMC based on 10-day, 20-day,
30-day and 60-day averages, respectively, as of December 19, 1997. This analysis
implied an Relative Exchange Ratio of 1.8.
Contribution Analysis
Lehman Brothers analyzed the relative EBITDA and discretionary cash flow
contributions of OEI and UMC to New Ocean based on projected financial data and
assuming no cost savings or synergies for the years 1997 to 2000. The analysis
indicated that OEI will contribute approximately 53% to 58% of New Ocean's
annual EBITDA and 52% to 60% of New Ocean's annual discretionary cash flow for
the years 1997 to 2000. OEI stockholders will receive approximately 54% of New
Ocean's equity.
Pro Forma Merger Consequences Analysis
Lehman Brothers prepared a pro forma merger model which incorporates OEI's
and UMC's financial projections based on certain assumptions for the years 1998
through 2000 as well as the companies' estimates of future cost savings and
synergies resulting from the Mergers. Lehman Brothers then compared the earnings
and discretionary cash flow of OEI on a standalone basis to the earnings and
discretionary cash flow attributable to OEI's interest in pro forma New Ocean.
Lehman Brothers is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. The OEI
Board selected Lehman Brothers because of its expertise, reputation and
familiarity with OEI and because its investment banking professionals have
substantial experience in transactions comparable to the Mergers.
Lehman Brothers has previously rendered certain financial advisory and
investment banking services to OEI, for which it has received customary
compensation, including co-lead managing OEI's common stock offering in November
1997 and co-managing OEI's high-yield debt offering in June 1997. Pursuant to
the
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terms of an engagement letter agreement, dated December 5, 1997, between Lehman
Brothers and OEI, (a) OEI paid Lehman Brothers an initial financial advisory fee
of $100,000, (b) OEI paid a fee of $200,000 upon delivery of the fairness
opinion and (c) OEI has agreed to pay an additional fee of $7,700,000 upon the
successful completion of the Mergers. In addition, OEI has agreed to reimburse
Lehman Brothers for its reasonable expenses (including, without limitation,
professional and legal fees and disbursements) incurred in connection with its
engagement, and to indemnify Lehman Brothers and certain related persons against
certain liabilities in connection with its engagement, including certain
liabilities that may arise under the federal securities laws. Lehman Brothers
also has performed various investment banking services for UMC in the past and
has received customary fees for such services.
In the ordinary course of its business, Lehman Brothers actively trades in
the debt and equity securities of OEI and UMC for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
OPINION OF UMC'S FINANCIAL ADVISOR
UMC retained Merrill Lynch to act as its exclusive financial advisor in
connection with the Mergers. On December 22, 1997, Merrill Lynch rendered its
oral opinion to the UMC Board, later confirmed in writing, in the UMC Fairness
Opinion, that, as of such date and based upon and subject to the factors and
assumptions set forth therein, the UMC Exchange Ratio was fair from a financial
point of view to holders of UMC Common Stock.
THE FULL TEXT OF THE UMC FAIRNESS OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS APPENDIX D HERETO AND IS
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE UMC FAIRNESS OPINION SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. STOCKHOLDERS OF UMC ARE URGED TO
READ SUCH OPINION IN ITS ENTIRETY. THE UMC FAIRNESS OPINION WAS PROVIDED TO THE
UMC BOARD FOR ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE UMC EXCHANGE RATIO TO HOLDERS OF UMC COMMON STOCK
AND DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY UMC TO ENGAGE IN
THE MERGERS AND DOES NOT CONSTITUTE A RECOMMENDATION TO UMC'S STOCKHOLDERS AS TO
HOW SUCH STOCKHOLDERS SHOULD VOTE ON THE APPROVAL OF THE MERGERS OR ANY MATTER
RELATED THERETO.
Merrill Lynch has consented to the use of Appendix D containing the UMC
Fairness Opinion, in this Joint Proxy Statement/Prospectus, and to the
references to Merrill Lynch under the headings "Summary" and "The Mergers" in
this Joint Proxy Statement/Prospectus. In giving such consent, Merrill Lynch
does not admit that it comes within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission promulgated thereunder, nor does Merrill Lynch admit that it is
an expert with respect to any part of the Registration Statement in which this
Joint Proxy Statement/ Prospectus is included, within the meaning of the term
"experts" as used in the Securities Act or the rules and regulations of the
Commission promulgated thereunder.
The UMC Exchange Ratio was determined through an analysis by the Chairmen
of both UMC and OEI of current and projected financial and operating data and
was also the approximate ratio of the respective Company's average stock price
for the preceding 20, 30 and 60 day periods, in addition to negotiations between
OEI and UMC, and after substantial analysis and consideration was authorized by
the UMC Board.
The summary set forth below does not purport to be a complete description
of the analyses underlying the UMC Fairness Opinion or the presentation made by
Merrill Lynch to the UMC Board. The preparation of a fairness opinion is a
complex and analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Merrill Lynch did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Merrill
Lynch believes that its analyses must be considered as a whole and
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that selecting portions of its analyses, without considering all of its
analyses, would create an incomplete view of the process underlying the UMC
Fairness Opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, OEI or UMC. Any estimates contained in the analyses performed by Merrill
Lynch are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. In addition, the requirement for the
delivery of the UMC Fairness Opinion was among several factors taken into
consideration by the UMC Board in making its determination to approve the Merger
Agreement. Consequently, the Merrill Lynch analyses described below should not
be viewed as determinative of the decision of the UMC Board or UMC's management
with respect to the fairness of the UMC Exchange Ratio.
In arriving at the UMC Fairness Opinion, Merrill Lynch, among other things:
(i) reviewed the Annual Reports, Forms 10-K and related financial information
for UMC for the three years ended December 31, 1996 and for OEI for the two
years ended December 31, 1996 and the Forms 10-Q and the related unaudited
financial information for UMC and OEI for the quarterly periods ending March 31,
1997, June 30, 1997 and September 30, 1997; (ii) reviewed certain historical
reserve reports as of December 31, 1996 and certain projected reserve reports as
of December 31, 1997 (the "UMC Reserve Reports") prepared by UMC and by UMC's
independent petroleum engineers ("UMC's Petroleum Engineers"); (iii) reviewed
certain reserve reports as of December 31, 1996 and certain projected reserve
reports as of December 31, 1997 (the "OEI Reserve Reports" and together with the
UMC Reserve Reports, the "Reserve Reports") prepared by OEI and OEI's
independent petroleum engineers ("OEI's Petroleum Engineers" and together with
UMC's Petroleum Engineers, the "Petroleum Engineers"); (iv) reviewed certain
information, including financial forecasts, relating to the business, earnings,
cash flow, assets, liabilities and prospects of OEI and UMC, furnished by OEI
and UMC, respectively; (v) conducted discussions with members of senior
management of OEI and UMC concerning their respective businesses and prospects
before and after giving effect to the Mergers; (vi) conducted discussions with
representatives of the independent public accountants of OEI and UMC related to
the audited financial statements of OEI and UMC and their reports thereon and
other matters related to the accounting for the Mergers; (vii) reviewed the
market prices and valuation multiples for OEI Common Stock and UMC Common Stock
and compared them with those of certain publicly traded companies that Merrill
Lynch deemed to be relevant; (viii) reviewed the results of operations of OEI
and UMC and compared them with those of certain publicly traded companies that
Merrill Lynch deemed to be relevant; (ix) compared the proposed financial terms
of the Mergers with the financial terms of certain other transactions which
Merrill Lynch deemed to be relevant; (x) reviewed the potential pro forma impact
of the Mergers; (xi) reviewed a draft of the Merger Agreement dated December 19,
1997; and (xii) reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary.
In preparing the UMC Fairness Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch or publicly available or discussed with or reviewed
by or for Merrill Lynch, and Merrill Lynch did not assume any responsibility for
independently verifying such information, did not undertake an independent
evaluation or appraisal of any of the assets or liabilities of OEI or UMC and
was not furnished with any such evaluation or appraisal other than the Reserve
Reports. In addition, Merrill Lynch did not conduct any physical inspection of
the properties or facilities of OEI or UMC. With respect to the financial
forecast information furnished to or discussed with Merrill Lynch by OEI or UMC,
Merrill Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgments of OEI's or UMC's management as to
the expected future financial performance of OEI or UMC, as the case may be. In
addition, Merrill Lynch assumed that the Reserve Reports had been reasonably
prepared and reflected the best currently available estimates and judgments of
OEI and UMC and their respective Petroleum Engineers and their respective
reserves, future hydrocarbon production volume and associated costs. Merrill
Lynch further assumed that the Mergers will be
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accounted for as poolings of interests under generally accepted accounting
principles and that they will qualify as tax-free reorganizations for U.S.
federal income tax purposes. Further, Merrill Lynch assumed that UMC will adopt
full-cost accounting principles with respect to its oil and gas operations and
that any write-downs associated therewith have been reasonably prepared and
reflect the best currently available estimates and judgment of the managements
of OEI and UMC.
The UMC Fairness Opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated on the date of such
opinion. Merrill Lynch was not authorized by UMC or the UMC Board to solicit,
nor did it solicit, third-party indications of interest for the acquisition of
all or any part of UMC. In addition, Merrill Lynch was not asked to consider,
and the UMC Fairness Opinion does not in any manner address, the price at which
shares of New Ocean will actually trade following consummation of the Mergers.
UMC did not impose any limitations on the scope of Merrill Lynch's analyses.
The following is a brief summary of the material analyses performed by
Merrill Lynch in connection with its preparation of the UMC Fairness Opinion.
Financial and Reserve Forecasts
Both OEI and UMC provided Merrill Lynch their respective forecasted
financial and reserve performance based upon two distinct energy price
scenarios: (i) Flat Case and (ii) Base Case (the "Energy Price Scenarios"). The
oil price forecasts were based on the price per Bbl for WTI crude and the gas
price forecasts were based on Henry Hub gas prices and on a standard heating
value of one MMBtu per 1,000 cubic feet of gas. Adjustments were made to the oil
and gas price forecasts to reflect location and quality differentials. In the
Flat Case, the unadjusted oil price per Bbl and the unadjusted gas price per Mcf
for the year 1998 were assumed to be $20.00 and $2.00, respectively, and were
assumed to remain at those prices thereafter. In the Base Case, the unadjusted
oil prices per Bbl for the years 1998 to 2002 were assumed to be $20.00, $21.00,
$22.00, $23.00 and $24.00, respectively, and were assumed to escalate at 4% per
annum thereafter. The unadjusted oil prices were capped at $50.00 per Bbl. In
the Base Case, the unadjusted gas prices per Mcf for the years 1998 to 2002 were
assumed to be $2.30, $2.40, $2.50, $2.60 and $2.70, respectively, and were
assumed to escalate at 4% per annum thereafter. The unadjusted gas prices were
capped at $5.00 per Mcf. Production forecasts and associated production costs
were supplied by OEI and UMC for proved, probable and possible reserves.
Operating expenses and maintenance capital expenditures necessary to lift and
produce the proved, probable and possible reserves estimated in the Reserve
Reports were assumed to not increase in the Flat Case and to increase at a rate
of 4% per annum in the Base Case. The NGL price forecasts were based on
approximately 70% of the oil price forecast and were adjusted for the
transportation and quality of UMC's NGLs. The NGL volumes and prices per Bbl
assumed in the Flat Case and the Base Case had only a minor impact on the
Merrill Lynch analyses.
Contribution Analysis
Using Base Case projections for both OEI ("OEI Base Case") and UMC ("UMC
Base Case") for the years 1997 through 2001, Merrill Lynch compared the relative
projected levels of EBITDA, discretionary cash flow and production for each
company during this period as well as the relative level of estimated proved
reserves as of December 31, 1997. The relative levels of EBITDA, production and
reserves were used to develop implied enterprise value contributions. Before any
adjustment for the relative levels of each company's debt, Merrill Lynch
estimated that UMC's implied enterprise value contribution to the combined
company is 47.6%, 42.6%, 41.8% and 46.7% based on projected EBITDA in 1997,
1998, 1999 and 2000, respectively, 50.9%, 46.8%, 46.1% and 49.3% based on
projected production in 1997, 1998, 1999 and 2000, respectively, 56.8% based on
estimated proved reserves at December 31, 1997, and 49.8% based on the net
present value of the proved reserves under the Flat Case. The relative levels of
EBITDA, production and reserves used to develop implied enterprise value
contributions, were then used to derive implied equity value contributions by
subtracting each company's respective level of net debt. Relative levels of
discretionary cash flow were also used to develop implied equity market value
contributions. Merrill Lynch estimated that UMC's implied equity market value
contribution to the combined company is 49.1%, 42.6%, 41.6% and 47.9% based on
projected EBITDA in 1997, 1998, 1999 and 2000, respectively, 47.6%, 40.7%, 40.2%
and 45.6% based on
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projected discretionary cash flow in 1997, 1998, 1999 and 2000, respectively,
53.2%, 48.0%, 47.1% and 51.2% based on projected production in 1997, 1998, 1999
and 2000, respectively, 60.8% based on estimated proved reserves at December 31,
1997, and 51.8% based on the net present value of the proved reserves under the
Flat Case.
UMC Comparable Company Trading Analysis
Merrill Lynch reviewed and compared certain financial information, ratios
and public market multiples relating to the UMC Base Case to corresponding
financial information, ratios and public market multiples for seven publicly
traded corporations in the oil and gas exploration, development and production
industry: Anadarko Petroleum Company, Apache Corporation, Burlington Resources,
Inc., Enron Oil & Gas Company, Pogo Producing Company, Union Texas Petroleum
Holdings, Inc., and Vintage Petroleum, Inc. (collectively, the "UMC Selected
Companies"). The UMC Selected Companies were chosen because they are publicly
traded companies with financial and operating characteristics which Merrill
Lynch deemed to be similar to those of UMC. Merrill Lynch calculated various
financial ratios for the UMC Selected Companies and compared them to those of
the UMC Base Case. The ratios for the UMC Selected Companies were based on
publicly available information, including estimates provided by Merrill Lynch
research and the Institutional Brokers Estimate System ("IBES"). Merrill Lynch
calculated the following financial ratios: (i) equity market value multiples of
(a) 1997 estimated discretionary cash flow ("DCF") and (b) 1998 estimated DCF
and (ii) enterprise value (defined as market value of common equity plus book
value of debt less cash) multiples of (a) 1997 estimated EBITDA, (b) 1998
estimated EBITDA, (c) proved reserves as of December 31, 1996 and (d) the value
of future net cash flows from proved reserves before taxes discounted at 10% as
filed with the Commission ("Pre-Tax SEC-10") at December 31, 1996.
For the UMC Selected Companies, the highest, lowest and mean equity market
value multiples of 1997 estimated DCF (except for one non-meaningful ratio) were
11.4x, 4.9x and 7.2x and of 1998 estimated DCF were 8.6x, 5.1x and 6.0x. The
highest, lowest and mean enterprise value multiples of 1997 estimated EBITDA
(except for one non-meaningful ratio) were 11.4x, 4.1x and 7.2x and of 1998
estimated EBITDA were 9.1x, 4.3x and 5.9x. The high, low and mean enterprise
value per BOE of proved reserves were $11.24, $5.20 and $7.22 and the high, low
and mean enterprise value multiple of Pre-Tax SEC-10 were 1.34x, 0.68x and
0.87x. Such analysis indicated that, with respect to UMC, equity enterprise
value multiples for 1997 estimated DCF range from 5.5x to 7.0x and from 4.5x to
6.0x for 1998 estimated DCF. Further, such analysis indicated that, with respect
to UMC, enterprise value multiples of 1997 estimated EBITDA range from 6.0x to
7.0x, enterprise value multiples of 1998 estimated EBITDA range from 4.5x to
5.5x, and price per BOE of proved reserves range from $6.00 to $9.00. In
addition, such analysis indicated that, with respect to UMC, enterprise value
multiples for 1997 Pre-Tax SEC-10 range from 0.80x to 1.20x. From the enterprise
value ranges implied by these multiple ranges, Merrill Lynch determined a
composite enterprise value range for UMC under this method of $1,200 million to
$1,450 million for the UMC Base Case, or an equity market value range of $914
million to $1,164 million.
None of the UMC Selected Companies is identical to UMC. Accordingly, an
analysis of the results of the foregoing is not purely mathematical. Rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the UMC Selected Companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
UMC Comparable Acquisition Analysis
Merrill Lynch analyzed the financial terms, to the extent publicly
available, of 16 selected corporate acquisition transactions in the energy
industry which were announced during the last twelve months which, in Merrill
Lynch's judgment, were generally comparable to the transaction contemplated by
the Mergers ("Going Concern Approach"). Selected transactions included, (listed
according to seller/buyer) Zilkha Energy Corporation/Sonat Inc., Hugoton Energy
Corporation/Chesapeake Energy Corporation, Coda Energy, Inc./Belco Oil & Gas
Corp., DLB Oil and Gas, Inc./Chesapeake Energy Corporation, Chauvco Resources
Ltd./Pioneer Natural Resources Company, Monterey Resources., Inc./Texaco Inc.,
Stampeder
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Exploration Ltd./Gulf Canada Resources Ltd., The Louisiana Land and Exploration
Company/Burlington Resources Inc., Cairn Energy USA, Inc./The Meridian Resource
Corporation, Edisto Resources Corporation and Convest Energy
Corporation/Forcenergy, Inc, American Exploration Company/Louis Dreyfus Natural
Gas Corp., McFarland Energy, Inc./Monterey Resources, Inc., Ashland
Exploration/Statoil, Greenhill Petroleum/Mesa, Inc., Parker & Parsley Petroleum
Company/Mesa, Inc. and Belden & Blake Energy Company/Texas Pacific Group (the
"Comparable Acquisitions"). Merrill Lynch reviewed the prices paid in the
Comparable Acquisitions in terms of (i) equity market value as a multiple of
latest twelve months ("LTM") DCF, (ii) enterprise value as a multiple of LTM
EBITDA and (iii) enterprise value per BOE of proved reserves. Such analysis
indicated that (i) the relevant range for UMC of equity market value as a
multiple of LTM DCF was from 7.0x to 8.5x, (ii) the relevant range for UMC of
enterprise value as a multiple of LTM EBITDA was from 7.0x to 9.0x, and (iii)
the relevant range for UMC of enterprise value per BOE of proved reserves was
from $7.50 to $9.50 per BOE (the "UMC Relevant Comparable Acquisition
Multiples"). Merrill Lynch then applied the UMC Relevant Comparable Acquisition
Multiples to the corresponding UMC financial measures and UMC Base Case
estimated future performance and derived a theoretical range of enterprise
values for UMC of $1,300 million to $1,700 million, or equity market values of
$1,014 million to $1,414 million.
Merrill Lynch is of the view that no transaction reviewed was identical to
the Mergers and that, accordingly, an analysis of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of UMC that could affect the acquisition
value of the companies to which it was being compared.
UMC Net Asset Value Analysis
Using a discounted cash flow analysis, Merrill Lynch calculated the present
value of the after-tax future cash flows that UMC could be expected to generate
after January 1, 1998 based on (i) the UMC Flat Case and (ii) the UMC Base Case
projections. The after-tax cash flows were discounted at rates ranging from 8%
to 10% for proved reserves in North America, from 12% to 15% for proved reserves
in Equatorial Guinea and Cote d'Ivoire and from 15% to 20% for probable and
possible reserves. Exploratory reserves were adjusted for probability, or
risked, by multiplying the reserves by 5% and applying values of $1.50 to $2.00
per Bbl for such reserves.
Merrill Lynch estimated UMC's enterprise value by adding (i) the discounted
after-tax cash flows generated by UMCs proved, probable and possible reserves as
estimated by UMC management plus (ii) UMC's exploratory reserves as estimated by
UMC management and risk-adjusted and multiplied by $1.50 to $2.00 per Bbl, (iii)
UMC's undeveloped acreage and (iv) other assets (including seismic, net
operating loss carryforward and working capital). From this analysis Merrill
Lynch arrived at a range of enterprise values for UMC of (i) $1,100 million to
$1,250 million for the UMC Flat Case and (ii) $1,250 million to $1,450 million
for the UMC Base Case or equity market values of (i) $814 million to $964
million for the UMC Flat Case and (ii) $964 million to $1,164 million for the
UMC Base Case.
UMC Corporate Discounted Cash Flow Analysis
Using a discounted cash flow methodology, Merrill Lynch calculated a range
of enterprise values for UMC based on the UMC Base Case projections. In
addition, Merrill Lynch based its discounted cash flow methodology calculations
on a range of terminal EBITDA multiples of 4.0x to 6.0x and a range of discount
rates of 10% to 15%. The relevant range of enterprise values for UMC resulting
from the analysis was $1,150 million to $1,600 million or an equity market value
of $864 million to $1,314 million.
OEI Comparable Company Trading Analysis
Merrill Lynch reviewed and compared certain financial information, ratios
and public market multiples relating to OEI to corresponding financial
information, ratios and public market multiples for six publicly traded
corporations in the oil and gas exploration, development and production
industry: Enserch Exploration, Inc., Forcenergy Inc, Newfield Exploration
Company, Noble Affiliates, Inc., Oryx Energy Company and
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Vastar Resources, Inc. (collectively, the "OEI Selected Companies"). The OEI
Selected Companies were chosen because they are publicly traded companies with
financial and operating characteristics which Merrill Lynch deemed to be similar
to those of OEI. Merrill Lynch calculated various financial ratios for the OEI
Selected Companies and compared them to those of the OEI Base Case. The ratios
for the OEI Selected Companies were based on publicly available information,
including estimates provided by Merrill Lynch research and IBES. Merrill Lynch
calculated the following financial ratios: (i) equity market value multiples of
(a) 1997 estimated DCF and (b) 1998 estimated DCF and (ii) enterprise value
multiples of (a) 1997 estimated EBITDA, (b) 1998 estimated EBITDA, (c) proved
reserves as of December 31, 1996 and (d) Pre-Tax SEC-10 at December 31, 1996.
For the OEI Selected Companies, the highest, lowest and mean equity market
value multiples of 1997 estimated DCF (excluding one non-meaningful ratio) were
7.0x, 3.8x and 5.0x and of 1998 estimated DCF were 7.0x, 3.7x and 5.0x. The
highest, lowest and mean enterprise value multiples of 1997 estimated EBITDA
were 7.5x, 4.2x and 5.7x and of 1998 estimated EBITDA were 6.9x, 4.1x and 5.4x.
The high, low and mean enterprise value per BOE of proved reserves were $16.19,
$6.15 and $9.49 and the high, low and mean enterprise value multiples of Pre-Tax
SEC-10 were 1.19x, 0.69x and 0.89x. Such analysis indicated that, with respect
to OEI, equity market value multiples for 1997 estimated DCF range from 5.0x to
6.5x, and from 4.5x to 5.5x for 1998 estimated DCF. Further such analyses
indicate that, with respect to OEI, enterprise value multiples for 1997
estimated EBITDA range from 6.0x to 7.5x, 1998 estimated EBITDA range from 4.5x
to 6.0x and per BOE of proved reserves range from $8.50 to $13.50. In addition,
such analysis indicated that, with respect to OEI, enterprise value multiples
for Pre-Tax SEC-10 range from 0.80x to 1.40x. From the enterprise value ranges
implied by these multiple ranges, Merrill Lynch determined a composite
enterprise value range for OEI under this method of $1,400 million to $1,800
million for the OEI Base Case or an equity market value range of $1,011 million
to $1,411 million.
None of the OEI Selected Companies is identical to OEI. Accordingly, an
analysis of the results of the foregoing is not purely mathematical. Rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the OEI Selected Companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
OEI Comparable Acquisition Analysis
Merrill Lynch reviewed the prices paid in the Comparable Acquisitions in
terms of (i) equity market value as a multiple of LTM DCF, (ii) enterprise value
as a multiple of LTM EBITDA and (iii) enterprise value per BOE of proved
reserves. Such analysis indicated that (i) the relevant range for OEI of equity
market value as a multiple of LTM DCF was from 7.0x to 8.5x, (ii) the relevant
range for OEI of enterprise value as a multiple of LTM EBITDA was from 7.0x to
9.0x, and (iii) the relevant range for OEI of enterprise value per BOE of proved
reserves was from $6.00 to $9.00 per BOE ("OEI Relevant Comparable Acquisition
Multiples"). Merrill Lynch then applied the OEI Relevant Comparable Acquisition
Multiples to the corresponding OEI financial measures and OEI Base Case
estimated future performance and derived a theoretical range of enterprise
values for OEI of $1,500 million to $1,900 million or equity market values of
$1,111 million to $1,511 million.
Merrill Lynch is of the view that no transaction reviewed was identical to
the Mergers and that, accordingly, an analysis of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of OEI that could affect the acquisition
value of the companies to which it was being compared.
OEI Net Asset Value Analysis
Using a discounted cash flow analysis, Merrill Lynch calculated the present
value of the after-tax future cash flows that OEI could be expected to generate
after January 1, 1998 based on (i) the OEI Flat Case and (ii) the OEI Base Case
projections. The after-tax cash flows were discounted at rates ranging from 8%
to 10% for proved reserves. Probable and possible reserves were each adjusted
for probability, or risked, by multiplying
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the reserves by 50% and 20% for probable and possible reserves, respectively.
Risked probable reserves were then discounted at 15% to 20% and risked possible
reserves were discounted at 20%. Exploratory reserves were adjusted for
probability, or risked, by multiplying the reserves by 10% and applying values
of $1.50 to $2.00 per Bbl for such reserves.
Merrill Lynch estimated OEI's enterprise value by adding (i) the discounted
after-tax cash flows generated by OEI's proved, probable and possible reserves
as estimated by OEI management plus (ii) OEI's exploratory reserves as estimated
by OEI management and risk-adjusted and multiplied by $1.50 to $2.00 per Bbl and
(iii) other assets (including undeveloped acreage, unevaluated assets and
working capital). From this analysis Merrill Lynch arrived at a range of
enterprise values for OEI of (i) $1,200 million to $1,350 million for the OEI
Flat Case and (ii) $1,300 million to $1,600 million for the OEI Base Case or
equity market values of (i) $811 million to $961 million for the OEI Flat Case
and (ii) $911 million to $1,211 million for the OEI Base Case.
OEI Corporate Discounted Cash Flow Analysis
Using a discounted cash flow methodology, Merrill Lynch calculated a range
of enterprise values for OEI based on the OEI Base Case projections. In
addition, Merrill Lynch based its discounted cash flow methodology calculations
on a range of EBITDA multiples of 4.0x to 6.0x and a range of discount rates of
10% to 15%. The relevant range of enterprise values for OEI resulting from the
analysis was $1,400 million to $1,850 million or equity market values of $1,011
million to $1,461 million.
Common Stock Trading Analysis
Using closing stock prices for UMC and OEI at December 17, 1997 as well as
average closing stock prices for both companies for the periods 5, 10, 15, 20,
25, 30, 35, 40, 45, 50, 55 and 60 days prior to December 17, 1997, Merrill Lynch
derived equity market valuations for UMC and OEI based on each of these stock
prices. The relative levels of such equity market valuations were then used to
derive implied levels of UMC equity market value contribution to New Ocean
ranging between 45.2% and 46.8%.
Preliminary Valuation Comparison
Using the enterprise values derived through the UMC Comparable Company
Trading Analysis, the UMC Comparable Acquisition Analysis, the UMC Net Asset
Value Analysis, the UMC Corporate Discounted Cash Flow Analysis, the OEI
Comparable Company Trading Analysis, the OEI Comparable Acquisition Analysis,
the OEI Net Asset Value Analysis and the OEI Corporate Discounted Cash Flow
Analysis, as well as the Contribution Analysis and the Common Stock Trading
Analysis, Merrill Lynch derived ranges of UMC's implied equity market value
contribution to New Ocean. After adjusting the enterprise values derived in the
above analyses for net debt of $286.4 million and $388.9 million at UMC and OEI,
respectively, Merrill Lynch derived ranges of implied UMC equity market value
contribution to New Ocean of 40.2% to 52.7% on a Contribution Analysis basis,
46.0% to 47.4% on a Comparable Company Trading Analysis basis, 47.6% to 48.3% on
a Comparable Acquisition Analysis basis, 49.0% to 51.4% on a Net Asset Value
Analysis, 45.9% to 47.3% on a Corporate DCF Analysis basis and 45.2% to 46.8% on
a Common Stock Trading Analysis basis. Such ranges of UMC equity market value
contribution to New Ocean were then converted into ranges of implied UMC
Exchange Ratios and such implied UMC Exchange Ratios were compared to the UMC
Exchange Ratio of 1.3x. These implied UMC Exchange Ratios ranged from 1.13x to
1.47x on a Contribution Analysis basis, 1.29x to 1.32x on a Comparable Company
Trading Analysis basis, 1.33x to 1.35x on a Comparable Acquisition Analysis
basis, 1.37x to 1.44x on a Net Asset Value Analysis basis, 1.28x to 1.32x on a
Corporate DCF Analysis basis and 1.26x to 1.31x on a Common Stock Trading
Analysis basis.
Merger Consequences
For both the UMC Base Case and OEI Base Case, Merrill Lynch analyzed the
respective contributions of each of UMC and OEI to the estimated earnings and
DCF of New Ocean giving effect to the Mergers on a
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pro forma basis for the years 1997, 1998, 1999 and 2000 and analyzed the
increase or decrease in earnings per share and discretionary cash flow per
current UMC share resulting from the Mergers. Based on the foregoing the
analysis indicated that the Mergers would (i) increase estimated earnings per
current UMC share by 46.9% in 1997 on a pro forma basis and 80.9%, 48.9% and
7.3% in 1998, 1999 and 2000, respectively, and (ii) decrease estimated DCF per
current UMC share by 3.8% in 1997 and increase DCF per current UMC share by
12.2%, 13.9% and 5.0% in 1998, 1999 and 2000, respectively.
Merrill Lynch Financial Advisor Fee
Pursuant to a letter agreement dated December 4, 1997 between UMC and
Merrill Lynch (the "Letter Agreement"), UMC has agreed to pay Merrill Lynch a
fee of $8,000,000, if, during the period Merrill Lynch is retained by UMC or
within one year thereafter, (i) an Acquisition Transaction (as defined in the
Letter Agreement) is consummated with OEI or, (ii) UMC or a UMC Affiliate (as
defined in the Letter Agreement) enters into an agreement with OEI which
subsequently results in an Acquisition Transaction, payable in cash upon the
closing of such Acquisition Transaction. If UMC (including a UMC Affiliate)
receives or becomes entitled to receive a Break-up Fee (as defined in the Letter
Agreement) resulting from, or as a result of, the termination of any agreement
entered into by UMC (including a UMC Affiliate) and OEI the effect of which is
to effect an Acquisition Transaction, UMC has agreed to pay Merrill Lynch the
lesser of 20% of any such Break-up Fee or $2,500,000, payable in cash
immediately following receipt by UMC (including any UMC Affiliate) of any such
Break-up Fee. UMC has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including reasonable fees and disbursements of its legal
counsel. Additionally, UMC agreed to indemnify Merrill Lynch and certain related
persons for certain liabilities related to or arising out of its engagement,
including liabilities under federal securities laws.
UMC retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Merrill Lynch has in the past
provided financial advisory and/or financing services to OEI and UMC, including
co-lead managing OEI's common stock offering in November 1997 and lead-managing
OEI's high yield debt offering in June 1997 and was the dealer manager on a
related debt tender offer, and may continue to do so and has received, and may
receive, fees for the rendering of such services. In the ordinary course of its
business, Merrill Lynch and its affiliates may actively trade the debt and
equity securities of OEI and UMC (and anticipate trading after the Mergers in
the securities of New Ocean) for their own accounts and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
ACCOUNTING TREATMENT
Prior to entering into the Merger Agreement, each of OEI and UMC reviewed
relevant data and consulted their respective independent accounting firms to
determine the appropriate accounting method for the Mergers under Accounting
Principles Board Opinion No. 16 ("APB 16"). Based upon that review and
consultation, OEI and UMC intend to account for the Mergers as a pooling of
interests in accordance with APB 16.
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS
OEI has received an opinion of its tax counsel, Andrews & Kurth L.L.P.,
that the Mergers will qualify as reorganizations within the meaning of Section
368(a) of the Code, and UMC has received an opinion of its tax counsel, Akin,
Gump, Strauss, Hauer & Feld, L.L.P., to the effect that the UMC Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Code.
Each of the formal opinions are filed as exhibits to the Registration Statement,
and the opinions themselves are set forth under "Certain Material U.S. Federal
Income Tax Consequences of the Mergers." Consummation of the Mergers is
conditioned upon, among other things, the receipt by each company of a
subsequent, confirming opinion dated as of the Effective Time. While the Merger
Agreement permits OEI and UMC to waive this condition, neither company intends
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to do so. In the event that such condition is waived by either company, OEI and
UMC intend to recirculate this Joint Proxy Statement/Prospectus and resolicit
their respective shareholders with respect to the OEI Proposal and the UMC
Proposal. See "Risk Factors" and "Certain Material U.S. Federal Income Tax
Consequences of the Mergers."
BOARD OF DIRECTORS OF NEW OCEAN FOLLOWING THE MERGERS
Immediately subsequent to consummation of the Mergers, the New Ocean Board
will consist of 14 members divided into three classes, seven of whom will be
designated by the OEI Board (the "OEI Director Nominees") and seven of whom will
be designated by the UMC Board (the "UMC Director Nominees"). See "-- Interests
of Certain Persons in the Mergers." Immediately following the Effective Time,
John B. Brock, currently the Chairman of the Board and Chief Executive Officer
of UMC, shall be the Chairman of the Board of New Ocean, and James C. Flores,
currently the Chairman of the Board, Chief Executive Officer and President of
OEI, shall be the President and Chief Executive Officer of New Ocean. The
committees of the New Ocean Board immediately subsequent to the UMC Effective
Time shall contain an equal number of OEI Director Nominees and UMC Director
Nominees and the composition of such committees (including chairmen thereof)
will be designated prior to the UMC Effective Time, provided, however, that if
at any time prior to the UMC Effective Time any director nominee designated as a
member of a committee shall be unable to serve as a member of a committee
(including as a chairman of any committee) at the UMC Effective Time, the
respective Board that designated such individual as provided herein (or in the
case of Messrs. Brock and Flores, the respective Board on which they presently
serve) shall designate another individual to serve in such individual's place.
OEI and UMC expect to designate the respective OEI director Nominees (other than
James C. Flores) and UMC Director Nominees (other than John B. Brock) prior to
the UMC Effective Time. See "The Merger Agreement -- Governance of New Ocean
After the Mergers."
GOVERNMENTAL AND REGULATORY APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Mergers may not be consummated until the following steps have been taken: (i)
Premerger Notification and Report Forms have been submitted and certain
information has been furnished to the FTC and the Antitrust Division; and (ii)
required waiting periods have expired or terminated.
OEI and UMC have agreed, pursuant to the Merger Agreement, to use their
best efforts to file or cause to be filed with the FTC and the Antitrust
Division such notifications as are required to be filed under the HSR Act and
the rules and regulations promulgated thereunder, and to respond as promptly as
practicable to any requests for additional information made by either the FTC or
the Antitrust Division. Accordingly, OEI and UMC each filed Premerger
Notification and Report Forms with the FTC and the Antitrust Division, on
January 9, 1998. Early termination of the statutory waiting period was granted
on January 20, 1998.
At any time before or after the consummation of the Mergers and
notwithstanding the expiration or termination of the HSR Act waiting period, any
federal or state antitrust authorities could take action under the antitrust
laws as they deem necessary or desirable in the public interest. Such action
could include seeking to enjoin the consummation of the Mergers or seeking
divestiture of all or part of the assets of OEI or UMC. Private parties may also
seek to take legal action under the antitrust laws, if circumstances permit.
If the Antitrust Division, or any other federal or state antitrust
authority, were to challenge one or both of the Mergers, the consummation of the
Mergers could be postponed beyond July 31, 1998, in which event, either OEI or
UMC may terminate the Merger Agreement, pursuant to its terms, at any time
thereafter. See "The Merger Agreement -- Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendation of the Boards with respect to the
Mergers, stockholders of OEI and UMC should be aware that certain officers and
directors of OEI and UMC have the following interests in the Mergers that are
separate from and in addition to their interests as stockholders of OEI and UMC
generally.
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The Boards were aware of these interests and took them into account in approving
the Merger Agreement and the transactions contemplated thereby.
Composition of New Ocean Board
The Merger Agreement provides that immediately subsequent to the Effective
Time, the New Ocean Board will consist of 14 members, seven of whom will be
designated by the OEI Board and seven of whom will be designated by the UMC
Board. John B. Brock will serve on the New Ocean Board as its Chairman and James
C. Flores will continue as a director and the President and Chief Executive
Officer of New Ocean. It is expected that certain other members of the current
OEI Board and UMC Board will be designated as members of the New Ocean Board.
Employment Agreements
Each of John B. Brock and James C. Flores (the "New Ocean Executives") will
be employed by New Ocean after the Effective Time pursuant to an employment
agreement dated as of the Effective Time between New Ocean and each of Mr. Brock
and Mr. Flores (together, the "New Ocean Employment Agreements"). Pursuant to
their respective New Ocean Employment Agreement, after the Effective Time, Mr.
Brock will serve as Chairman of the Board of New Ocean and Mr. Flores will serve
as President and Chief Executive Officer of New Ocean, each for an initial
period of three years, which may be subsequently extended. Mr. Brock's base
salary will be $475,000 per year, and Mr. Flores' base salary will be $600,000
per year. In addition, each New Ocean Employment Agreement entitles the New
Ocean Executive to a maximum discretionary annual bonus of 200% of such
executive's base salary in effect during such year. Each New Ocean Executive's
employment with New Ocean also entitles such executive to participate in all
incentive compensation plans and to receive all fringe benefits and perquisites
offered by New Ocean to any of its senior executive officers on a basis at least
as favorable to such executive as may be provided or offered to any other senior
executive officer of New Ocean. Each New Ocean Employment Agreement is
terminable by either party to such agreement in certain circumstances, including
each New Ocean Executive's respective right to voluntarily terminate his
employment at any time with or without good reason. Each New Ocean Executive is
entitled to termination payments and acceleration of unvested options as a
result of termination under certain circumstances.
James L. Dunlap is a party to an employment agreement with UMC, dated as of
October 9, 1996 ("Dunlap Employment Agreement"), providing for a three-year
employment period. Pursuant to the Dunlap Employment Agreement, if Mr. Dunlap
terminates his employment for "good reason" (as defined below) at any time
during the term of such agreement, (i) Mr. Dunlap shall receive as severance
compensation in an amount equal to two times the sum of (a) his base salary in
effect as of the date of such termination and (b) his bonus under UMC's
incentive compensation plan for the fiscal year preceding the fiscal year in
which the date of termination occurs and (ii) all unvested options granted to
Mr. Dunlap shall be automatically accelerated. For purposes of the Dunlap
Employment Agreement, "good reason" includes, among other things, the
termination by Mr. Dunlap of his employment with UMC if UMC undertakes any
action which results in a material diminution in the position, duties or status
of Mr. Dunlap with UMC (which would be deemed to occur for purposes of the
Dunlap Employment Agreement upon the consummation of the UMC Merger). Mr.
Dunlap's base salary in 1997 was $350,000.
Each of thirteen officers of OEI, including all executive officers of OEI
other than James C. Flores, are parties to employment agreements with OEI. These
agreements provide for an automatically renewing three year term that either
such officer or OEI may at any time affirmatively elect to cease renewal of such
term. Under these agreements, each officer will have certain severance benefits
vest upon the consummation of the Mergers and related transactions. Generally,
in the event any of these officers are terminated for any reason other than
misconduct or disability after the Effective Time, or such officer elects to
resign within 90 days of the Effective Time, the officer will be entitled to a
severance payment equal to the sum of his annual base salary in effect
immediately prior to the employee's termination (plus the average annual bonus
paid during the most recent two years) multiplied by the number of whole and
partial years of remaining employment
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term (i.e., a maximum of three years). In addition, certain health, disability
and accident insurance benefits during the remaining employment term of the
agreement.
UMC Severance Agreements
Eleven executive officers of UMC (collectively, the "UMC Executives") are
parties to Severance Protection Agreements with UMC, each dated December 20,
1997 (as amended through the date hereof, collectively, the "UMC Severance
Agreements"), providing for certain benefits to each UMC Executive in the event
that a "change of control" (which would be deemed to occur for purposes of the
UMC Severance Agreements upon the consummation of the UMC Merger) occurs during
the three-year period after the execution of such agreement. Pursuant to the UMC
Severance Agreements, if any UMC Executive's employment with UMC is terminated
within 24 months following a change of control by (a) UMC for cause or
disability, (b) by reason of such executive's death or (c) by such executive
other than for good reason, UMC will pay to such executive in a single lump sum
cash payment an amount equal to all amounts of compensation, any unreimbursed
expenses and any vacation pay that have been earned or accrued through the date
of such termination but have not been paid as of such date ("Accrued
Compensation"). If any UMC Executive's employment with UMC is terminated within
24 months following a change of control (or, in certain cases, within six months
prior to a change of control) for any reason other than as set forth in the
prior sentence, each such executive is entitled to receive a single lump sum
cash payment in an amount equal to the sum of (i) his or her Accrued
Compensation, (ii) an amount determined by multiplying 3.0 times the sum of (a)
such executive's annual base salary in effect as of the date of the change of
control or, if greater, any time thereafter and (b) such executive's "Bonus
Amount," which is the greater of (x) the target annual bonus payable to such
executive under UMC's Annual Incentive Plan in respect of the fiscal year during
which such executive's employment is terminated or (y) the bonus paid or payable
under UMC's Annual Incentive Plan in respect of the fiscal year ended prior to
the date in which such executive's employment was terminated, and (iii) certain
benefits for a period of 24 months following such executive's termination of
employment or as long as such plan or benefits allow. Based on current
compensation levels, the total cash payments which could be incurred if all
eleven executives were terminated as a result of a change in control is $8.4
million. Relative to the UMC Merger, UMC anticipates approximately half of this
executive group receiving payments under the agreements over the next two years
ranging from $2.3 million to $3.7 million.
Notwithstanding the foregoing, in the event of a change of control that is
intended to be treated as a "pooling of interests" under generally accepted
accounting principles (a "Pooling Transaction"), UMC shall rescind the UMC
Severance Agreements and, subject to certain limitations contained therein, will
not make any payments thereunder if such action is necessary by UMC in order to
assure that the Pooling Transaction will qualify as such. Pursuant to the Merger
Agreement, a condition to the consummation of the Mergers is that the UMC Merger
shall be treated as a "pooling of interests" under generally accepted accounting
principles.
The UMC Severance Agreements also provide that if any payments to one of
the UMC Executives will be subject to any excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), a "gross-up" payment
will be made to place such executive in the same net after-tax position as would
have been the case if no excise tax had been payable.
Stock Options
The UMC Merger constitutes a change of control for purposes of the OEI
Option Plans and UMC Option Plans (each, as defined herein). Upon a change of
control, as defined within such plans, stock options held by officers and
directors automatically become fully exercisable notwithstanding any vesting or
exercisability provisions. Certain officers and directors of OEI and UMC hold
stock options granted under the OEI Option Plans and the UMC Option Plans,
respectively.
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Directors' and Officers' Indemnification and Insurance
Pursuant to the Merger Agreement, from and after the Effective Time, New
Ocean will indemnify, defend and hold harmless officers, directors and employees
of OEI and UMC and its subsidiaries who were such at any time prior to the
Effective Time from and against all losses, expenses, claims, damages or
liabilities arising out of the transactions contemplated by the Merger Agreement
to the fullest extent permitted or required under applicable law, and advance
expenses to such indemnified parties subject to a customary reimbursement
agreement. All indemnification rights of such officers, directors and employees
which exist prior to the Effective Time will survive the Mergers and New Ocean
will maintain in effect for not less than three years after the Effective Time,
the current policies of directors' and officers' liability insurance with
respect to matters occurring on or prior to the Effective Time. See "The Merger
Agreement -- Indemnification; Directors' and Officers' Insurance."
ABSENCE OF APPRAISAL RIGHTS
Under the DGCL, the stockholders of OEI and UMC are not entitled to
appraisal rights with respect to the Mergers. See "Comparison of Stockholder
Rights -- Absence of Appraisal Rights."
STOCK EXCHANGE LISTING
The New Ocean Common Stock to be issued in the Mergers has been approved
for listing on the NYSE, subject to official notice of issuance, and will trade
on the NYSE under the symbol "OEI."
DELISTING AND DEREGISTRATION OF UMC COMMON STOCK
If the UMC Merger is consummated, the UMC Common Stock will be delisted
from the NYSE and designated under the Exchange Act.
CERTAIN LITIGATION
OEI has been named as a defendant in two purported class action lawsuits
described below filed by alleged stockholders of UMC against the UMC directors
and OEI alleging, among other things, breaches of the duties of the UMC
directors to the stockholders of UMC in connection with the approval of the
Merger Agreement, pursuant to which UMC would be merged with and into OEI. No
specific damages have been alleged against OEI in the pleadings. OEI and UMC
believe that the lawsuits are without merit and intend to defend vigorously the
actions.
On December 29, 1997, a class action complaint (Newman v. Carson, et. al.,
Civil Action No. 16109-NC) was filed in the Court of Chancery of the State of
Delaware, by a person claiming to represent the stockholders of UMC against UMC,
each of its directors and OEI. The complaint alleges, among other things, that
(i) the UMC Board breached their fiduciary duties in considering and approving
the Merger Agreement, (ii) the consideration offered to UMC stockholders for the
sale of control of UMC is inadequate because the intrinsic value of UMC Common
Stock is materially in excess of the amount offered for those securities in the
UMC Merger giving due consideration to, among other things, anticipated
operating results, proven reserves and profitability of OEI, and (iii) the UMC
Board approved the proposed merger without taking steps to accurately ascertain
UMC's market value. The complaint states that OEI was named as defendant to
permit the court to grant complete relief.
Among other things, the complaint seeks to (i) preliminary and permanently
enjoin the UMC Merger; (ii) require the UMC directors to maximize stockholder
value by placing UMC up for auction and/or to conduct a "market-check"; (iii)
require the defendants to make a full and fair disclosure of all material facts
to the class members before the consummation of the UMC Merger; (iv) rescind the
UMC Merger should it be consummated prior to the resolution of the lawsuit;
and/or (v) recover unspecified damages and costs from the UMC directors for
their alleged breach of their fiduciary duties. Management of UMC and OEI
believe that the complaint is without merit and intend to vigorously defend the
action.
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On January 9, 1998, a second class action lawsuit (Robert E. Ross and Betsy
S. Ross v. John B. Brock, et al., Cause No. 98-00845) was filed in the 164th
Judicial District Court of Harris County, Texas, by purported stockholders of
UMC against the UMC directors and OEI in connection with the UMC Merger. To
date, with one exception, the allegations of plaintiffs and relief sought in
this Texas lawsuit are substantively identical to the allegations set forth in
the Delaware case. In the Texas case, however, plaintiffs have asserted a
separate claim against OEI for aiding and abetting the alleged breach of duties
to UMC stockholders by the UMC directors.
THE MERGER AGREEMENT
GENERAL
The following description of the Merger Agreement is qualified in its
entirety by reference to the complete text of the Merger Agreement, which is
incorporated herein by reference and a copy of which is annexed to this Joint
Proxy Statement/Prospectus as Appendix A.
The Merger Agreement provides that following the satisfaction or waiver of
the conditions set forth therein, the parties shall file the Certificates of
Merger executed in accordance with the relevant provisions of the DGCL and shall
make all other filings or recordings required under the DGCL in order to effect
both Mergers. The Newco Merger shall become effective at such time as is
specified in the Certificate of Merger for the Newco Merger, which time shall be
at 3:00 p.m. (Houston, Texas time) on the date of the Closing. The UMC Merger
shall become effective at such time as specified in the Certificate of Merger
for the UMC Merger, which time shall be at 3:01 p.m. (Houston, Texas time) on
the date of the Closing. At the Newco Effective Time, Newco will be merged with
and into OEI, and, at the UMC Effective Time, UMC will be merged with and into
OEI, with the result that the separate existences of Newco and UMC will cease.
There can be no assurance, however, that the required regulatory approvals will
be obtained, or that the other conditions to the Mergers will be satisfied, by
such date. See "-- Conditions Precedent to the Mergers."
On January 7, 1998, and February 20, 1998, the parties entered into an
Amendment No. 1 and an Amendment No. 2, respectively, to the Merger Agreement to
make certain technical revisions.
CONSIDERATION
Newco Merger
Upon consummation of the Newco Merger each share of Old OEI Common Stock
issued and outstanding immediately prior to the Newco Effective Time shall be
converted into the right to receive 2.34 fully paid and nonassessable shares of
New Ocean Common Stock (the "Newco Merger Consideration"). Notwithstanding the
foregoing, holders of Old OEI Common Stock otherwise entitled to fractional
shares of New Ocean Common Stock will be entitled to receive, from the Exchange
Agent in accordance with the Merger Agreement, a cash payment in lieu of such
fractional shares, representing (i) such holders' proportionate interests, if
any, in the net proceeds from the sale by the Exchange Agent in one or more
transactions (which sale transactions shall be made at such times in such manner
and on such terms as the Exchange Agent shall determine in its sole judgment) on
behalf of all such holders of the aggregate of the fractional shares of New
Ocean Common Stock which would otherwise have been issued or (ii) at OEI's
election, an amount equal to the product obtained by multiplying (a) the
fractional interest to which such holder would otherwise be entitled to by (b)
the closing price for a share of New Ocean Common Stock as reported on the NYSE
on the Closing Date. Each issued and outstanding share of common stock, par
value $0.01 per share, of Newco shall be automatically canceled and retired and
shall cease to exist.
All such shares of Old OEI Common Stock converted as provided in the
preceding paragraph will no longer be outstanding and will automatically be
canceled and retired and will cease to exist, and each holder of a certificate
or certificates which immediately prior to the Effective Time represented
outstanding shares of Old OEI Common Stock (the "OEI Stock Certificates") shall
cease to have any rights with respect thereto, except the right to receive, if
applicable, (i) certificates ("New Stock Certificates") representing the number
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of whole shares of New Ocean Common Stock into which such shares have been
converted, (ii) certain dividends and other distributions, and (iii) cash in
lieu of fractional shares of New Ocean Common Stock, in each case without
interest.
As of the Newco Effective Time, by virtue of the Newco Merger and without
any action on the part of Newco, OEI or the holders of any securities of Newco
or OEI, each share of Old OEI Common Stock that is owned by OEI or UMC, or by a
direct or indirect wholly-owned subsidiary of OEI or UMC, shall automatically be
canceled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor. Each share of Series A Junior Participating
Preferred Stock, par value $0.01 per share ("OEI Junior Preferred Stock"), of
OEI issued and outstanding immediately prior to the Newco Effective Time shall
remain unchanged as a result of the Newco Merger.
UMC Merger
Upon consummation of the UMC Merger, each share of UMC Common Stock issued
and outstanding immediately prior to the UMC Effective Time (other than shares
to be canceled pursuant to the Merger Agreement) shall be converted into the
right to receive 1.30 fully paid and nonassessable shares of New Ocean Common
Stock (the "UMC Merger Consideration"). Notwithstanding the foregoing, holders
of UMC Common Stock otherwise entitled to fractional shares of New Ocean Common
Stock will be entitled to receive, from the Exchange Agent in accordance with
the Merger Agreement, a cash payment in lieu of such fractional shares,
representing (i) such holders' proportionate interests, if any, in the net
proceeds from the sale by the Exchange Agent in one or more transactions (which
sale transactions shall be made at such times in such manner and on such terms
as the Exchange Agent shall determine in its sole judgment) on behalf of all
such holders of the aggregate of the fractional shares of New Ocean Common Stock
which would otherwise have been issued or (ii) at OEI's election, an amount
equal to the product obtained by multiplying (a) the fractional interest to
which such holder would otherwise be entitled to by (b) the closing price for a
share of New Ocean Common Stock as reported on the NYSE on the Closing Date.
All such shares of UMC Common Stock converted as provided in the preceding
paragraph will no longer be outstanding and will automatically be canceled and
retired and will cease to exist, and each holder of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of UMC Common Stock (the "UMC Stock Certificates" and,
together with the OEI Stock Certificates, the "Stock Certificates") shall cease
to have any rights with respect thereto, except the right to receive, if
applicable, (i) New Stock Certificates representing the number of whole shares
of New Ocean Common Stock into which such shares have been converted, (ii)
certain dividends and other distributions, and (iii) cash in lieu of fractional
shares of New Ocean Common Stock, in each case without interest.
As of the UMC Effective Time, by virtue of the UMC Merger and without any
action on the part of UMC or the holders of any securities of UMC, each share of
UMC Common Stock that is owned by OEI or UMC, or by a direct or indirect wholly
owned subsidiary of OEI or UMC, shall automatically be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor. Each share of New Ocean Common Stock and each share of OEI Junior
Preferred Stock issued and outstanding immediately prior to the UMC Effective
Time shall remain unchanged as a result of the UMC Merger.
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF STOCK CERTIFICATES
As of the Effective Time, New Ocean shall enter into an agreement with the
Exchange Agent, pursuant to which New Ocean will deposit with the Exchange
Agent, for the benefit of the holders of the Stock Certificates, New Stock
Certificates representing the number of whole shares of New Ocean Common Stock
issuable pursuant to the Merger Agreement in exchange for outstanding shares of
Old OEI Common Stock or UMC Common Stock, as the case may be. Such shares of New
Ocean Common Stock, together with any dividends or distributions with respect
thereto with a record date after the Effective Time, any Excess Shares (as
hereinafter defined) and any cash (including cash proceeds from the sale of the
Excess Shares) payable in lieu of any fractional shares of New Ocean Common
Stock are hereinafter referred to as the "Exchange
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Fund." The Exchange Agent will deliver New Stock Certificates upon the surrender
for exchange of the Stock Certificates.
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to each record holder of a Stock Certificate a packet of
information about exchanging Stock Certificates for the property described
below. The packet will include a form of letter of transmittal for the record
holder to use to transmit the Stock Certificates to the Exchange Agent, which
letter of transmittal will specify that delivery will be effected, and risk of
loss and title to the Stock Certificates will pass, only upon actual delivery
thereof to the Exchange Agent and will be in such form and have such other
provisions as OEI and UMC reasonably specify, and instructions for use in
effecting the surrender of the Stock Certificates. Upon surrender for
cancellation to the Exchange Agent of Stock Certificates held by any record
holder, together with such letter of transmittal duly executed and such other
documents as are reasonably required by the Exchange Agent, such holder will be
entitled to receive in exchange therefor: (i) a New Stock Certificate
representing the number of whole shares of New Ocean Common Stock, if any, into
which the shares of Old OEI Common Stock or UMC Common Stock, as applicable,
represented by the surrendered Stock Certificate(s) have been converted at the
Effective Time; (ii) cash in lieu of any fractional share of New Ocean Common
Stock (see "-- No Fractional Shares"); and (iii) the dividends and other
distributions described in the next paragraph. All Stock Certificates so
surrendered will be canceled. All shares of New Ocean Common Stock issued upon
the surrender for exchange of any Stock Certificate in accordance with the terms
of the Merger Agreement (including the cash paid in respect of any such
fractional share or of any such dividends or distributions) will be deemed to
have been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Old OEI Common Stock or UMC Common Stock, as the case may be,
represented by such surrendered Stock Certificate; provided, however, that OEI
is obligated to pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been authorized or made by OEI
or UMC on such shares of Old OEI Common Stock or UMC Common Stock, as the case
may be, which remain unpaid at the Effective Time.
No dividends or other distributions with respect to New Ocean Common Stock
with a record date after the Effective Time will be paid to the holder of any
unsurrendered Stock Certificate with respect to the shares of New Ocean Common
Stock represented thereby, and no cash payment in lieu of fractional shares will
be paid to any such holder pursuant to the Merger Agreement, and all such
dividends, other distributions and cash in lieu of fractional shares of New
Ocean Common Stock will be paid by New Ocean to the Exchange Agent and will be
included in the Exchange Fund, in each case until the surrender of such Stock
Certificate in accordance with the exchange procedures set forth in the Merger
Agreement. Subject to the effect of applicable escheat or similar laws,
following surrender of any such Stock Certificate there will be paid to the
holder of the Stock Certificate representing whole shares of New Ocean Common
Stock issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
New Ocean Common Stock and the amount of any cash payable in lieu of a
fractional share of New Ocean Common Stock to which such holder is entitled
pursuant to the Merger Agreement and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and with a payment date subsequent to
such surrender payable with respect to such whole shares of New Ocean Common
Stock. New Ocean will make available to the Exchange Agent cash for these
purposes.
If after the Effective Time, Stock Certificates are presented to either New
Ocean or the Exchange Agent for any reason, they will be canceled and exchanged
as described in the three preceding paragraphs, except as otherwise provided by
law. There will be no further registration of transfers on the stock transfer
books of New Ocean of the shares of Old OEI Common Stock and UMC Common Stock
which were outstanding immediately prior to the Effective Time.
Any portion of the Exchange Fund that remains undistributed to the holders
of the Stock Certificates for six months after the Effective Time will be
delivered to New Ocean upon demand, and any holders of the Stock Certificates
who have not theretofore complied with the exchange provisions of the Merger
Agreement may thereafter look only to New Ocean for payment of their claim for
Newco Merger Consideration or UMC
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Merger Consideration, as the case may be, any cash in lieu of fractional shares
of New Ocean Common Stock and any dividends or distributions with respect to New
Ocean Common Stock.
None of Newco, OEI, UMC or the Exchange Agent will be liable to any person
in respect of any shares of New Ocean Common Stock (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Stock Certificate has not been surrendered prior to seven
years after the Effective Time (or immediately prior to such earlier date on
which any Newco Merger Consideration or UMC Merger Consideration, any cash
payable to the holder of such Stock Certificate pursuant to the Merger Agreement
or any dividends or distributions payable to the holder of such Stock
Certificate would otherwise escheat to or become the property of any
governmental body or authority) any such Newco Merger Consideration or UMC
Merger Consideration or cash, dividends or distributions in respect of such
Stock Certificate will, to the extent permitted by applicable law, become the
property of New Ocean, free and clear of all claims or interest of any person
previously entitled thereto.
The Exchange Agent will invest any cash included in the Exchange Fund, as
directed by New Ocean, on a daily basis. Any interest and other income resulting
from such investments will be paid to New Ocean.
STOCKHOLDERS OF OEI AND UMC SHOULD NOT FORWARD STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD, NOR SHOULD THEY FORWARD STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED THE PACKET OF INFORMATION DESCRIBED ABOVE,
INCLUDING THE LETTER OF TRANSMITTAL.
NO FRACTIONAL SHARES
No New Stock Certificates or scrip representing fractional shares of New
Ocean Common Stock will be issued upon the surrender of Stock Certificates for
exchange; no New Ocean dividend or other distribution will relate to any such
fractional shares; and no such fractional shares will entitle the owner thereof
to any voting or other rights of a stockholder of New Ocean. In lieu of any such
fractional shares, each holder of shares of Old OEI Common Stock and UMC Common
Stock who would otherwise have been entitled thereto upon the surrender of Stock
Certificates for exchange will be paid cash (as described below).
As promptly as practicable following the Effective Time, the Exchange Agent
will determine the excess of (i) the number of whole shares of New Ocean Common
Stock delivered to the Exchange Agent by OEI pursuant to the Merger Agreement
over (ii) the aggregate number of whole shares of New Ocean Common Stock to be
distributed to holders of Old OEI Common Stock and UMC Common Stock pursuant to
the Merger Agreement (such excess being herein called the "Excess Shares").
Following the Effective Time, the Exchange Agent will, on behalf of former
stockholders of UMC, if any, and OEI, sell the Excess Shares at then prevailing
prices on the NYSE, all in the manner provided for in the Merger Agreement (as
described in the paragraph immediately below).
The sale of the Excess Shares by the Exchange Agent will be executed on the
NYSE through one or more member firms of the NYSE and will be executed in round
lots to the extent practicable. The Exchange Agent will use reasonable efforts
to complete the sale of the Excess Shares as promptly following the Effective
Time as, in the Exchange Agent's sole judgment, is practicable consistent with
obtaining the best execution of such sales in light of prevailing market
conditions. Until the net proceeds of such sale or sales have been distributed
to the holders of Old OEI Common Stock and UMC Common Stock, the Exchange Agent
will hold such proceeds in trust for the holders of Old OEI Common Stock and UMC
Common Stock (the "Common Shares Trust"). New Ocean will pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
and compensation of the Exchange Agent incurred in connection with such sale of
the Excess Shares. The Exchange Agent will determine the portion of the Common
Shares Trust to which each holder of Old OEI Common Stock and UMC Common Stock
is entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Common Shares Trust by a fraction, the numerator of which will be
the amount of the fractional share interest to which such holder of Old OEI
Common Stock or UMC Common Stock is entitled (after taking into account all
shares of Old OEI Common Stock or UMC Common Stock held at the Effective Time by
such holder) and the denominator of which will
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be the aggregate amount of fractional share interests to which all holders of
Old OEI Common Stock and UMC Common Stock are entitled.
Notwithstanding the provisions of the Merger Agreement described in the two
preceding paragraphs, OEI may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the making
of the payments above contemplated, to pay each holder of Old OEI Common Stock
or UMC Common Stock an amount in cash equal to the product obtained by
multiplying (i) the fractional share interest to which such holder (after taking
into account all shares of Old OEI Common Stock or UMC Common Stock held at the
Effective Time by such holder) would otherwise be entitled by (ii) the closing
price per share of New Ocean Common Stock as reported on the NYSE Composite
Transactions Tape (as reported in The Wall Street Journal or, if not reported
thereby, any other authoritative source) on the closing date of the Mergers.
As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Old OEI Common Stock and UMC Common Stock with
respect to any fractional share interest, the Exchange Agent will make available
such amounts to such holders of Old OEI Common Stock and UMC Common Stock,
subject to and in accordance with the Merger Agreement. See "-- Exchange Agent;
Procedures for Exchange of Stock Certificates."
GOVERNANCE OF NEW OCEAN AFTER THE MERGERS
Immediately subsequent to the UMC Effective Time, the New Ocean Board shall
have 14 members and shall be divided into three classes, Class I, Class II and
Class III, with the term of Class I expiring at New Ocean's first annual meeting
following the Effective Time, the term of Class II expiring at New Ocean's
second annual meeting following the Effective Time and the term of Class III
expiring at New Ocean's third annual meeting following the Effective Time. The
OEI Board will select the OEI Director Nominees, including James C. Flores, from
among the current members of the OEI Board. The UMC Board will select the UMC
Director Nominees, including John B. Brock, from among the current members of
the UMC Board. If the individuals so selected consent to serve as directors,
such individuals shall be elected as directors of New Ocean, effective as of the
UMC Effective Time, for a term expiring at New Ocean's next annual meeting of
stockholders following the Effective Time at which the term of the class to
which such director belongs expires, subject to being renominated as a director
at the discretion of the New Ocean Board. Each class shall consist of an equal,
or near equal as possible, number of directors; provided, however, that (i)
James C. Flores shall be designated by the OEI Board as a Class III director and
shall serve as President and Chief Executive Officer as of the UMC Effective
Time until the earlier of his resignation or removal or until his successor is
duly elected and qualified in accordance with the bylaws of New Ocean in effect
subsequent to the UMC Effective Time (the "New Ocean Bylaws") and (ii) John B.
Brock shall be designated by the UMC Board as a Class III director and shall
serve as Chairman of the Board as of the UMC Effective Time until the earlier of
his resignation or removal or until his successor is duly elected and qualified
in accordance with the New Ocean Bylaws. If at any time prior to the UMC
Effective Time any OEI Director Nominee or UMC Director Nominee shall be unable
to serve as a director at the UMC Effective Time, the respective Board that
designated such individual as provided herein shall designate another individual
to serve in such individual's place; provided that in the event John B. Brock is
unable to serve as Chairman of the New Ocean Board, James C. Flores shall serve
as Chairman of the New Ocean Board as of the Effective Time until his successor
is duly elected and qualified in accordance with the New Ocean Bylaws; provided,
further, in the event James C. Flores is unable to serve as President and Chief
Executive Officer, John B. Brock shall serve as President and Chief Executive
Officer as of the Effective Time until his successor is duly elected and
qualified in accordance with the New Ocean Bylaws.
The committees of the New Ocean Board immediately subsequent to the UMC
Effective Time shall contain an equal number of OEI Director Nominees and UMC
Director Nominees and the composition of such committees (including chairmen
thereof) will be designated prior to the UMC Effective Time, provided, however,
that if at any time prior to the UMC Effective Time any director nominee
designated as a member of a committee shall be unable to serve as a member of a
committee (including as a chairman of any committee) at the UMC Effective Time,
the respective Board that designated such individual as provided herein (or in
the
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case of Messrs. Brock and Flores, the respective Board on which they presently
serve) shall designate another individual to serve in such individual's place.
The chairman of each of the Finance and Audit Committees of the New Ocean Board
immediately subsequent to the UMC Effective Time shall be UMC Director Nominees
and the chairman of each of the Nominating and Compensation Committees of the
New Ocean Board immediately subsequent to the UMC Effective Time shall be OEI
Director Nominees.
Immediately following the Effective Time, John B. Brock, currently the
Chairman of the Board and Chief Executive Officer of UMC, shall be the Chairman
of the Board of New Ocean, and James C. Flores, currently the Chairman of the
Board and Chief Executive Officer of OEI, shall be the Chief Executive Officer
and President of New Ocean.
NEW OCEAN CHARTER DOCUMENTS AND BYLAWS
The Certificate of Merger for the Newco Merger shall provide that at the
Newco Effective Time, the introductory paragraph to Section 4 of the OEI
Certificate of Incorporation (the "OEI Certificate") shall be amended to
increase the authorized shares of OEI capital stock to 260 million shares
consisting of 10 million shares of OEI Preferred Stock and 250 million shares of
New Ocean Common Stock (as amended, the "New Ocean Certificate"). At the Newco
Effective Time, (i) Sections 13 and 14 of Article III of the bylaws of OEI (the
"OEI Bylaws") will be amended to create certain committees of the New Ocean
Board and set forth their respective powers and authority, (ii) Article V of the
OEI Bylaws will be amended to specify certain officers of New Ocean and their
respective duties, and (iii) Article VIII of the OEI Bylaws will be amended to
require the vote of no less than two-thirds of the New Ocean Board to alter,
amend or repeal the bylaws set forth in Sections 13 and 14 of Article III and
Section 15 of Article V. At the UMC Effective Time, the New Ocean Certificate
and New Ocean Bylaws, as in effect immediately prior to the UMC Effective Time,
shall remain unchanged until thereafter changed or amended as provided therein
or by applicable law.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of OEI
and UMC relating, among other things, to the following: (i) their organization,
existence, good standing, corporate power and similar corporate matters; (ii)
their capitalization; (iii) their authorization, execution, delivery and
performance and the enforceability of the Merger Agreement and related matters;
(iv) the absence of conflicts, violations and defaults under their certificate
or articles of incorporation and bylaws and certain other agreements and
documents; (v) the documents and reports filed with the Commission and the
accuracy and completeness of the information contained therein; (vi) the absence
of undisclosed liabilities; (vii) compliance with laws, ordinances, regulations
and permitting requirements; (viii) environmental matters; (ix) insurance; (x)
employee benefit and labor matters; (xi) the absence of certain material changes
or events since December 31, 1996; (xii) pending or threatened investigations or
litigation; (xiii) material contracts; (xiv) the Registration Statement and this
Joint Proxy Statement/Prospectus and the accuracy and completeness of the
information contained therein and herein; (xv) the inapplicability of their
stockholder rights plans to the Mergers; (xvi) the lack of ownership of the
stock of other entities; (xvii) tax matters; (xviii) the receipt of fairness
opinions from financial advisors; (xix) the OEI Stockholders' Approval and the
UMC Stockholders' Approval; (xx) intellectual property; (xxi) hedging; (xxii)
brokers; (xxiii) applicability of Section 203 of the DGCL; and (xxiv) certain
acts that may affect the accounting treatment of the Mergers. All
representations and warranties of OEI and UMC expire at the Effective Time.
CONDUCT OF BUSINESS PENDING THE MERGERS
Each of OEI and UMC has agreed that during the period from the date of the
Merger Agreement through the Effective Time or the date on which the Merger
Agreement terminates in accordance with its terms (the "Termination Date"),
except as otherwise agreed to in writing by the other parties to, or permitted
by, the Merger Agreement, it will, and will cause each of its subsidiaries (each
a "Subsidiary" and collectively, the "Subsidiaries") to, conduct its business
operations according to their ordinary and usual course of business in
substantially the same manner as conducted prior to the date of the Merger
Agreement, use its commercially reasonable best efforts, and cause each of its
Subsidiaries to use its commercially reasonable best efforts, to preserve intact
its business organizations, keep available the services of its current
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officers and other employees and preserve its relationships with those persons
having business dealings with it and its Subsidiaries to the end that its
goodwill and ongoing business will not be impaired.
Without limiting the generality of the foregoing, and except as otherwise
agreed to by the parties to, or permitted by, the Merger Agreement, each of OEI
and UMC has agreed that it will not: (i) and will not (except in the ordinary
course of business consistent with past practice) permit any of its Subsidiaries
that is not wholly owned to: (A) declare, authorize or pay any dividends on or
make any distribution with respect to its outstanding shares of capital stock;
(B) split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock; or (C) repurchase, redeem or
otherwise acquire, or permit any of its Subsidiaries to purchase, redeem or
otherwise acquire, any shares of its capital stock, except as required by the
terms of its securities outstanding on the date of the Merger Agreement or as
contemplated by any existing employee benefit plan; (ii) propose or adopt any
amendments to its corporate charter or bylaws; and (iii) will not permit any of
its Subsidiaries which constitute "significant subsidiaries" under Rule 405
promulgated by the Commission under the Securities Act ("Significant
Subsidiaries") to, issue, deliver or sell or authorize or propose to issue,
deliver or sell, any shares of their capital stock of any class or other voting
securities or any securities convertible into such shares (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), except, in the case of OEI, as specifically set forth in
Section 4.2 of the Merger Agreement and the disclosure schedule relating thereto
and, in the case of UMC, except as specifically set forth in Section 5.2 of the
Merger Agreement and the disclosure schedule relating thereto.
Except as otherwise agreed to by the parties to, or permitted by, the
Merger Agreement, each of OEI and UMC has agreed that it will not: (i) and it
will not permit any of its Subsidiaries to, acquire or agree to acquire by
merging or consolidating with, or by purchasing any equity interest in or any of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
other than any such acquisition or acquisitions having a purchase price not
exceeding $50,000,000 in the aggregate; (ii) other than: (A) as may be necessary
or required by law to consummate the transactions contemplated by the Merger
Agreement; or (B) sales, leases, encumbrances or other dispositions in the
ordinary course of business consistent with past practice that are not material,
individually or in the aggregate, and it will not permit any of its Subsidiaries
to, sell, lease, encumber or otherwise dispose of, or agree to sell, lease
(whether such lease is an operating or capital lease), encumber or otherwise
dispose of, any of its material assets; (iii) and it will not permit any of its
Subsidiaries to, (A) incur any indebtedness for borrowed money (except (w)
intercompany debt, (x) indebtedness incurred to finance any transactions or
capital or other expenditures permitted by the Merger Agreement and regular
borrowings under credit facilities made in the ordinary course of its cash
management practices, (y) refinancings of existing debt, and (z) immaterial
borrowings that, in each such case, permit prepayment of such debt without
penalty (other than LIBOR breakage costs), and, in the case of UMC indebtedness
incurred by (a) Lion GPL, S.A. in connection with the Lion Liquid Propane Gas
Extraction Plant, (b) UMC Equatorial Guinea Corporation in connection with Block
B and any guarantees thereof and (c) Havre Pipeline Company L.L.C.) or guarantee
any such indebtedness or issue or sell any debt securities or warrants or rights
to acquire any of its debt securities or the debt securities of any of its
Subsidiaries or guarantee any debt securities of others, (B) except in the
ordinary course of business, enter into any material lease (whether such lease
is an operating or capital lease) or create any material mortgages, liens,
security interests or other encumbrances on its property or the property of any
of its Subsidiaries in connection with any indebtedness thereof, (C) make or
commit to make aggregate capital expenditures in excess of an amount equal to
the aggregate capital expenditures budgeted by such party for the fiscal years
ending December 31, 1997 as set forth in the capital expenditure budgets (the
"Budgets") each party has delivered to the other party, less any budgeted
capital expenditures expended prior to the date of the Merger Agreement, or (D)
make or commit to make aggregate capital expenditures in excess of an amount
equal to the sum of (y) the aggregate capital expenditures budgeted by each for
the year ended December 31, 1998, as set forth in the Budgets, plus (z) capital
expenditures (not otherwise included in budgeted capital expenditures) that may
be incurred in connection with acquisitions permitted by the Merger Agreement;
(iv) and will not permit any of its Subsidiaries to, except (A) in the ordinary
course of business consistent with past practice or (B) as otherwise provided in
the Merger Agreement, enter into or amend any
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employment, severance or similar agreements or arrangements with any of their
respective directors or executive officers, enter into, adopt or amend any
bonus, deferred compensation, stock purchase, stock option, pension, retirement
or other employee benefit plan, program, agreement or arrangement or grant any
increases in the compensation of any of its directors, officers or employees,
except increases to employees who are not directors or officers made in the
ordinary course of business and in accordance with past practice; provided,
however, that OEI and UMC will not be precluded from paying or reimbursing any
of its respective directors, officers or employees relocation expenses; (v) and
will not permit any of its Significant Subsidiaries to, except as otherwise
permitted or contemplated by the Merger Agreement, authorize, recommend, propose
or announce an intention to adopt a plan of complete or partial liquidation or
dissolution; (vi) and will not permit any of its Subsidiaries to, enter into any
agreement or arrangement with any of their respective Affiliates (as such term
is defined in Rule 405 under the Securities Act, an "Affiliate"), other than
with its wholly owned Subsidiaries, on terms less favorable to it or its
Subsidiary, as the case may be, than could be reasonably expected to have been
obtained with an unaffiliated third party on an arm's-length basis; (vii) and
will not permit any of its Subsidiaries to, take any actions which would, or
would be reasonably likely to, prevent accounting for the Mergers in accordance
with the pooling of interests method of accounting under the requirements of APB
16; (viii) and will not permit any of its Subsidiaries to (A) make or rescind
any material express or deemed election relating to all federal, state, local
and foreign taxes, and other assessments of a similar nature, however imposed,
including interest, penalties and additions thereto ("Taxes"), unless it is
reasonably expected that such action will not have an OEI Material Adverse
Effect or a UMC Material Adverse Effect (as used herein a "Material Adverse
Effect," with respect to either of OEI or UMC, shall mean any event,
circumstance, condition, development or occurrence causing, resulting in or
having a material adverse effect on the condition (financial or otherwise),
business, assets, properties or results of operations of, respectively, OEI or
UMC and their respective Subsidiaries), including elections for any and all
joint ventures, partnerships, limited liability companies, working interests or
other investments where it has the capacity to make such binding election, (B)
settle or compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, except where
such settlement or compromise will not have an OEI Material Adverse Effect or a
UMC Material Adverse Effect, or (C) change in any material respect any of its
methods of reporting income or deductions for federal income tax purposes from
those employed in the preparation of its federal income tax returns that have
been filed for prior taxable years, except as may be required by applicable law
or except for changes that are reasonably expected not to have an OEI Material
Adverse Effect or a UMC Material Adverse Effect; (ix) and will not permit any of
its Subsidiaries to, agree, in writing or otherwise, to take any of the
foregoing actions or take any action which would (A) make any representation or
warranty in the Merger Agreement untrue or incorrect or (B) result in any of the
conditions to the Mergers set forth in the Merger Agreement not being satisfied;
and (x) in the case of UMC's 1994 Nonqualified Stock Option Plan or 1994 Outside
Directors' Nonqualified Stock Option Plan (collectively, the "UMC Option
Plans"), provide notice of the UMC Merger to the optionees thereunder more than
15 days prior to the UMC Effective Time.
Each of OEI and UMC also has agreed that, upon reasonable notice and
subject to legal restrictions applicable to it, it will afford, during normal
business hours during the period prior to the earlier of the Effective Time or
the Termination Date, to one another's accountants, counsel, employees, officers
and other authorized representatives full and complete access to its and its
Subsidiaries' properties, books, contracts, commitments and records (including,
but not limited to, tax returns) and any report, schedule or other document
filed or received by it pursuant to the requirements of federal or state
securities laws, and OEI and UMC each will use its reasonable best efforts to
cause its representatives to furnish promptly to one another such additional
financial and operating data and other information as to its and its
Subsidiaries' respective businesses and properties as the other or its duly
authorized representatives may from time to time reasonably request; provided,
however, that neither OEI nor UMC nor any of their respective Subsidiaries will
be required to disclose information to the other that would violate applicable
laws or regulations. All confidential information obtained by OEI or UMC, as the
case may be, will be kept confidential pursuant to the Confidentiality Agreement
between such parties dated April 16, 1997.
Each of OEI and UMC further has agreed that they will together, or pursuant
to an allocation of responsibility to be agreed upon between them: (i) prepare
and file with the Commission, as soon as is
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reasonably practicable, this Joint Proxy Statement/Prospectus, and will use
their reasonable best efforts to have this Joint Proxy Statement/Prospectus
cleared by the Commission under the Exchange Act and the Registration Statement
declared effective by the Commission under the Securities Act as promptly as
possible after such filing; (ii) cooperate with one another in order to lift any
injunctions or remove any other impediment to the consummation of the
transactions contemplated in the Merger Agreement; and (iii) cooperate with one
another in obtaining opinions of Andrews & Kurth L.L.P., counsel to OEI, and
Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to UMC, dated as of the
Effective Time, concerning certain tax matters related to the Mergers.
OEI shall: (i) promptly prepare to file with the Commission the
Registration Statement; (ii) as soon as is reasonably practicable take all
actions as may be required under state blue sky or securities laws in connection
with the issuance of shares of New Ocean Common Stock in the UMC Merger and as
contemplated by the Merger Agreement; and (iii) promptly prepare and file with
the NYSE and such other stock exchanges as shall be agreed upon listing
applications covering the shares of New Ocean Common Stock issuable in the UMC
Merger or upon exercise of OEI and UMC stock options, warrants, conversion
rights or other rights or vesting or payment of other OEI and UMC equity-based
awards and use its reasonable best efforts to obtain, prior to the Effective
Time, approval for the listing of such New Ocean Common Stock, subject only to
official notice of issuance.
Each of OEI and UMC have agreed to cause this Joint Proxy
Statement/Prospectus to be mailed to each of their stockholders, in each case as
promptly as practicable after the Registration Statement is declared effective
under the Securities Act. In addition, each of OEI and UMC have agreed to, as
soon as practicable following the date of the Merger Agreement, duly call, give
notice of, convene and hold a meeting of its stockholders for the purpose of
obtaining the OEI Stockholders' Approval and the UMC Stockholders' Approval and
to, through its Board, recommend to its stockholders the adoption of the Merger
Agreement, the Newco Merger or the UMC Merger, as applicable, and the other
transactions contemplated by the Merger Agreement. Both OEI and UMC agreed that,
subject to each of their rights to terminate the Merger Agreement, each of their
obligations to call a meeting of their stockholders shall not be affected by the
commencement, public proposal, public disclosure or communication to OEI or UMC
of any Takeover Proposal (as defined below) with respect to OEI or UMC. Each of
OEI and UMC has agreed to use their best efforts to hold their stockholders
meetings on the same date and as soon as practicable after the date of the
Merger Agreement. Further, each of OEI and UMC have agreed to cause Newco to
adopt the Merger Agreement and to take all additional actions as may be
necessary to cause Newco to effect the transactions contemplated thereby.
NO SOLICITATION
The Merger Agreement provides that OEI and UMC will not, nor will they
authorize or permit any of their respective directors or officers (or employees
in the case of UMC) or any investment banker, financial advisor, attorney,
accountant or other representative retained by it to, directly or indirectly
through another person, (i) solicit, initiate or encourage (including by way of
furnishing information), or take any other action designed to facilitate, any
inquiries or the making of any proposal which constitutes any Takeover Proposal
or (ii) participate in any discussions or negotiations regarding any Takeover
Proposal; provided, however, that if, the OEI Board or the UMC Board determines
in good faith, after consultation with outside counsel, that it is necessary to
do so in order to comply with its fiduciary duties to its stockholders under
applicable law, each of OEI and UMC may, in response to a Superior Proposal (as
defined below) which was not solicited by it, subject to providing at least one
business day's prior written notice of its decision to do so to the other party,
and complying with certain other provisions of the Merger Agreement (x) furnish
information with respect to it and its Subsidiaries to any person making a
Superior Proposal pursuant to a customary confidentiality agreement and (y)
participate in discussions or negotiations regarding such Superior Proposal.
A "Takeover Proposal," with respect to either of OEI or UMC, means any
inquiry, proposal or offer (or any improvement, restatement, amendment, renewal
or reiteration thereof) from any person relating to (i) any direct or indirect
acquisition or purchase of a business or assets that (A) constitutes 25% or more
of the net revenues, net income or assets of OEI or UMC and their respective
Subsidiaries, taken as a whole, or
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(B) is reasonably expected to result in the receipt of cash, securities and/or
property having a value of at least $400 million, (ii) the direct or indirect
acquisition of a substantial portion of shares of any class of equity securities
of OEI or UMC or their respective Subsidiaries, (iii) any tender offer or
exchange offer that if consummated would result in any person beneficially
owning a substantial portion of any class of equity securities of OEI or UMC or
their respective Subsidiaries, or (iv) any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving OEI or UMC or their respective Subsidiaries, other than the
transactions contemplated by the Merger Agreement. A "Superior Proposal," with
respect to either of OEI or UMC, means any Takeover Proposal which the OEI Board
or UMC Board determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be more favorable to
such party's stockholders than the Newco Merger or the UMC Merger, as
applicable, and for which financing, to the extent required, is then committed
or as to which the OEI Board or UMC Board has received a "highly confident
letter" from a nationally recognized investment bank or financial institution.
Except as expressly permitted by the Merger Agreement, neither the OEI
Board nor the UMC Board nor any committee thereof will (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to the other
party, the approval or recommendation by such Board or such committee of the
Mergers or the Merger Agreement, (ii) approve or recommend, or propose publicly
to approve or recommend, any Takeover Proposal, or (iii) cause such party to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Takeover Proposal. Notwithstanding the
foregoing, in the event that the OEI Board or the UMC Board, respectively,
determines in good faith that there is a substantial probability that the
adoption of the Merger Agreement by the stockholders of OEI or UMC will not be
obtained due to the existence of a Superior Proposal, the OEI Board or UMC Board
may terminate the Merger Agreement, but only at a time that is after the third
business day following the other party's receipt of written notice advising such
other party that the Board of such party is prepared to accept a Superior
Proposal, specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal. The terminating party
must pay a fee in the amount of $40 million (the "Termination Fee") to the
non-terminating party upon such termination. See "-- Termination" and
" -- Termination Fees."
CONDITIONS PRECEDENT TO THE MERGERS
The respective obligations of each party to effect the Mergers are subject,
among other things, to the fulfillment or waiver of the following conditions at
or prior to the Effective Time: (i) the OEI Stockholders' Approval and the UMC
Stockholders' Approval will have been obtained all in accordance with applicable
law; (ii) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other tribunal or governmental body or authority which prohibits the
consummation of the Mergers substantially on the terms contemplated by the
Merger Agreement; (iii) the effectiveness of the Registration Statement and the
absence of a stop order suspending such effectiveness; (iv) the approval for
listing on the NYSE, subject only to official notice of issuance, of the shares
of New Ocean Common Stock issuable in the UMC Merger; (v) expiration or
termination of any waiting period applicable to the consummation of the Mergers
under the HSR Act, and the obtaining of all other approvals required to be
obtained by OEI and UMC, except where the failure to obtain such approvals would
not have an OEI Material Adverse Effect or a UMC Material Adverse Effect, as the
case may be; (vi) OEI and UMC having received a confirming opinion as of the
Effective Time of Andrews & Kurth L.L.P. and Akin, Gump, Strauss, Hauer & Feld,
L.L.P., respectively, relating to certain tax matters and (vii) receipt by each
of OEI and UMC of a written opinion from Arthur Andersen LLP dated the Effective
Time concerning the accounting effect of the transaction contemplated by the
Merger Agreement. See "The Mergers -- Certain Material U.S. Federal Income Tax
Consequences of the Mergers."
The obligation of OEI to effect the Newco Merger and the UMC Merger is also
subject to the fulfillment or waiver of the following additional conditions: (i)
the representations and warranties of UMC contained in the Merger Agreement
being true and correct in all material respects (and in all respects with regard
to the representations and warranties that are qualified as to materiality) as
of the Effective Time with the same effect as though made as of the Effective
Time except (A) for changes specifically permitted by the terms of
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the Merger Agreement, (B) that the accuracy of representations and warranties
that by their terms speak as of the date of the Merger Agreement or some other
date will be determined as of such date and (C) where any such failure of the
representations and warranties in the aggregate to be true and correct in all
respects would not have a UMC Material Adverse Effect; (ii) UMC having performed
in all material respects all obligations and having complied with all covenants
required by the Merger Agreement to be performed or complied with by it prior to
the Effective Time, (iii) delivery of certain certificates to OEI, (iv) the
execution by James C. Flores of an employment agreement with New Ocean, and (v)
completion of certain other actions and execution of additional agreements in
accordance with the terms of the Merger Agreement.
The obligation of UMC to effect the UMC Merger is also subject to the
fulfillment or waiver of the following additional conditions: (i) the
representations and warranties of OEI contained in the Merger Agreement being
true and correct in all material respects (and in all respects with regard to
the representations and warranties that are qualified as to materiality) as of
the Effective Time with the same effect as though made as of the Effective Time
except (A) for changes specifically permitted by the terms of the Merger
Agreement, (B) that the accuracy of representations and warranties that by their
terms speak as of the date of the Merger Agreement or some other date will be
determined as of such date and (C) where any such failure of the representations
and warranties in the aggregate to be true and correct in all respects would not
have an OEI Material Adverse Effect; (ii) OEI having performed in all material
respects all obligations and having complied with all covenants required by the
Merger Agreement to be performed or complied with by it prior to the Effective
Time, (iii) delivery of certain certificates to UMC, (iv) all necessary actions
to designate the directors and executive officers of New Ocean shall have been
taken, (v) the execution by John B. Brock of an employment agreement with New
Ocean, and (vi) completion of certain other actions and execution of additional
agreements in accordance with the terms of the Merger Agreement.
STOCK OPTIONS
Simultaneously with the Newco Merger, to the extent that the holders of
such options so elect, each outstanding OEI Stock Option (and related stock
appreciation right ("OEI SAR"), if any) to purchase or acquire a share of Old
OEI Common Stock under any employee incentive or benefit plans, programs or
arrangements and non-employee director plans presently maintained by OEI ("OEI
Option Plans") will be converted into an option (together with a related stock
appreciation right of OEI, if applicable) to purchase the number of shares of
New Ocean Common Stock equal to 2.34 times the number of shares of Old OEI
Common Stock which could have been obtained prior to the Newco Effective Time
upon the exercise of each such option, at an exercise price per share equal to
the exercise price for each such share of Old OEI Common Stock subject to an
option (and related OEI SAR, if any) under the OEI Option Plans divided by 2.34.
The other terms of each such option and OEI SAR, and the plans under which they
were issued, will continue to apply in accordance with their terms, including
any provisions providing for acceleration.
Simultaneously with the UMC Merger, (i) to the extent that the holders of
such options so elect, each outstanding UMC Stock Options (and related stock
appreciation right ("UMC SAR"), if any) to purchase or acquire a share of UMC
Common Stock under the UMC Option Plans will be converted into an option
(together with a related stock appreciation right of UMC, if applicable) to
purchase the number of shares of New Ocean Common Stock equal to 1.30 times the
number of shares of UMC Common Stock which could have been obtained prior to the
UMC Effective Time upon the exercise of each such option, at an exercise price
per share equal to the exercise price for each such share of UMC Common Stock
subject to an option (and related UMC SAR, if any) under the UMC Option Plans
divided by 1.30, and all references in each such option (and related UMC SAR, if
any) to UMC shall be deemed to refer to New Ocean, where appropriate, and (ii)
New Ocean shall assume the obligations of UMC under the UMC Option Plans. The
other terms of each such UMC Stock Option and UMC SAR, and the plans under which
they were issued, will continue to apply in accordance with their terms,
including any provisions providing for acceleration.
EMPLOYEE BENEFITS AND RESTRICTED STOCK
Simultaneously with the UMC Merger, each outstanding award (including
restricted stock, phantom stock, stock equivalents and stock units) (each, an
"Award") under any employee incentive or benefit plans,
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programs or arrangements and non-employee director plans presently maintained by
UMC which provide for grants of equity-based awards shall be amended or
converted into a similar instrument of New Ocean, in each case with such
adjustments to the terms of such Awards as are appropriate to preserve the value
inherent in such Awards with no detrimental effects on the holders thereof. The
other terms of each Award, and the plans or agreements under which they were
issued, shall continue to apply in accordance with their terms, including any
provisions providing for acceleration. With respect to any restricted stock
awards as to which the restrictions shall have lapsed on or prior to the UMC
Effective Time in accordance with the terms of the applicable plans or award
agreements, shares of such previously restricted stock shall be converted in
accordance with the conversion provisions of the Merger Agreement.
UMC has agreed that each of its employee incentive or benefit plans,
programs and arrangements and non-employee director plans will be amended, to
the extent necessary and appropriate, to reflect the transactions contemplated
by the Merger Agreement, including, but not limited to, the conversion of shares
of UMC Common Stock held or to be awarded or paid pursuant to such benefit
plans, programs or arrangements into shares of New Ocean Common Stock on a basis
consistent with the transactions contemplated by the Merger Agreement; provided
that any present employees of UMC will be credited for their services with UMC
and its predecessor entities in connection with such amendments. At the UMC
Effective Time, New Ocean shall automatically assume the Severance Protection
Agreements between UMC and certain employees of UMC and its subsidiaries.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
OEI has agreed to indemnify, defend and hold harmless each person who is
now, or has been at any time prior to the date of the Merger Agreement or who
becomes prior to the Effective Time, an officer or director of OEI, UMC or Newco
or any of their Subsidiaries or an employee of OEI or UMC or any of their
Subsidiaries who acts as a fiduciary under certain benefit plans of OEI and UMC
(the "Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorneys' fees), liabilities or judgments or amounts that are paid
in settlement with the approval of the indemnifying party (which approval shall
not be unreasonably withheld) of or in connection with any threatened or actual
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer, or such employee of OEI or UMC or any Subsidiary of such
party whether pertaining to any matter existing or occurring at or prior to the
Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("Indemnified Liabilities"), including all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to the Merger Agreement or the transactions contemplated thereby,
in each case to the fullest extent permitted under applicable law (and OEI will
pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted by law).
Without limiting the foregoing, in the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Parties (whether
arising before or after the Effective Time), (i) the Indemnified Parties may
retain counsel reasonably satisfactory to them and OEI, and OEI shall pay all
fees and expenses of such counsel for the Indemnified Parties, and (ii) OEI will
use all commercially reasonable efforts to assist in the vigorous defense of any
such matter, provided, that no party shall be liable for any settlement effected
without its written consent, which consent shall not be unreasonably withheld.
Any Indemnified Party wishing to claim indemnification under the Merger
Agreement, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify OEI, but the failure so to notify shall not relieve
a party from any liability that it may have under the Merger Agreement, except
to the extent such failure materially prejudices such party. The Indemnified
Parties as a group may retain only one law firm to represent them with respect
to each such matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more Indemnified Parties. The parties agree that the rights to indemnification,
including provisions relating to advances of expenses incurred in defense of any
action or suit, existing in favor of the Indemnified Parties in the charter and
bylaws of OEI and UMC with respect to matters occurring through the Effective
Time, shall survive the Mergers and shall continue in full force and effect for
a period of six years from the Effective Time; provided, however, that all
rights to indemnification in respect of any Indemnified Liabilities asserted or
made within such period shall continue until the disposition of such Indemnified
Liabilities. The provisions of the Merger
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Agreement will not limit or impair the rights of the Indemnified Parties arising
under any indemnification or other agreements to which they are a party, the
charter, bylaws or other organizational documents of OEI, UMC and their
Subsidiaries or applicable laws.
For three years from the Effective Time, New Ocean shall maintain in effect
OEI's and UMC's current directors' and officers' liability insurance policy (the
"Liability Policies") covering those persons who are currently covered by the
Liability Policies; provided, however, that in no event shall New Ocean be
required to expend in any one year an amount in excess of 150% of the annual
premiums currently paid by OEI or UMC for such insurance, and, provided,
further, that if the annual premiums of such insurance coverage exceed such
amount, New Ocean will be obligated to obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
In the event that OEI or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then, in each such case, proper provisions shall be made so that the successors
and assigns of OEI shall assume the obligations set forth in the two preceding
paragraphs.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any approval of the matters presented in
connection with the Mergers by the respective stockholders of OEI and UMC: (i)
by the mutual written consent of OEI and UMC; (ii) by either OEI or UMC if the
Effective Time has not occurred on or before July 31, 1998; provided, that the
party seeking to so terminate the Merger Agreement has not breached in any
material respect its obligations under the Merger Agreement in any manner that
has proximately contributed to the failure to consummate the Mergers on or
before such date; (iii) by either OEI or UMC if (a) a statute, rule, regulation
or executive order has been enacted, entered or promulgated prohibiting the
consummation of the Mergers substantially on the terms contemplated by the
Merger Agreement or (b) an order, decree, ruling or injunction has been entered
permanently restraining, enjoining or otherwise prohibiting the consummation of
the Mergers substantially on the terms contemplated by the Merger Agreement and
such order, decree, ruling or injunction has become final and non-appealable;
provided, that the party seeking to so terminate the Merger Agreement has used
its reasonable best efforts to remove such injunction, order or decree; (iv) by
either OEI or UMC, if the OEI Stockholders' Approval or the UMC Stockholders'
Approval have not been obtained by reason of the failure to obtain the required
vote at a duly held meeting of stockholders or of any adjournment thereof; (v)
by either OEI, on the one hand, or UMC, on the other hand, if the OEI Board or
the UMC Board determines in good faith that there is a substantial probability
that its stockholders will not approve and adopt the Merger Agreement due to the
existence of a Superior Proposal and if such terminating party has complied with
certain notice requirements, the provisions relating to the payment of the
Termination Fee and the reimbursement of certain transaction expenses; (vi) by
either OEI, on the one hand, or UMC, on the other hand, if the other party or
any of its officers and directors has taken any of the actions that would be
prohibited by the covenant described under "-- No Solicitation" above; or (vii)
by OEI or UMC if there shall have been a material breach by the other of any of
its representations, warranties, covenants or agreements contained in the Merger
Agreement and such breach shall not have been cured within 30 days after notice
thereof shall have been received by the party alleged to be in breach.
TERMINATION FEES
Each of OEI and UMC is liable to the other for the Termination Fee of $40
million if the Merger Agreement is terminated under certain circumstances.
In general, the Termination Fee is payable by OEI if: (i) UMC terminates
the Merger Agreement due to OEI's breach of its covenant not to solicit or
negotiate the acquisition by a third party of stock or assets of OEI; (ii)
either party terminates the Merger Agreement due to failure to obtain the
necessary stockholders' approvals or to consummate the Mergers prior to July 31,
1998, and OEI has received a Takeover Proposal
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and the UMC stockholders have not voted to disapprove the Mergers; provided, no
Termination Fee is payable unless within 12 months of the termination OEI or any
of its Subsidiaries consummates any Takeover Proposal; or (iii) OEI terminates
the Merger Agreement because it has received a Superior Proposal, and the OEI
Board determines in good faith that there is a substantial probability that the
OEI stockholders will not approve the Mergers.
In general, the Termination Fee is payable by UMC if: (i) OEI terminates
the Merger Agreement due to UMC's breach of its covenant not to solicit or
negotiate the acquisition by a third party of stock or assets of UMC; (ii)
either party terminates the Merger Agreement due to failure to obtain the
necessary stockholder approvals or to consummate the Mergers prior to July 31,
1998, and UMC has received a Takeover Proposal and the OEI stockholders have not
voted to disapprove the UMC Merger; provided, no Termination Fee is payable
unless within 12 months of the termination UMC or any of its Subsidiaries
consummates any Takeover Proposal; or (iii) UMC terminates the Merger Agreement
because it has received a Superior Proposal, and the UMC Board determines in
good faith that there is a substantial probability that the UMC stockholders
will not approve the Mergers.
The Merger Agreement further provides that if one party should fail to pay
any Termination Fee due, the defaulting party must pay the costs and expenses in
connection with any action taken to collect payment, together with interest on
the amount of the Termination Fee.
FEES AND EXPENSES
Except for (i) the filing fee in connection with any HSR Act filing, (ii)
the commissions and other out-of-pocket transaction costs, including the
expenses and compensation of the Exchange Agent, incurred in connection with the
sale of Excess Shares, (iii) the expenses incurred in connection with the
printing and mailing of this Joint Proxy Statement/Prospectus, (iv) all transfer
taxes, and (v) any other expenses that were agreed to be shared equally by the
parties prior to their incurrence, OEI and UMC will each pay its own costs and
expenses in connection with the Merger Agreement and the transactions
contemplated thereby, whether or not the Mergers are consummated.
Notwithstanding the foregoing, pursuant to a termination under certain
circumstances, the terminating party may be required to reimburse certain
expenses of the non-terminating party, such reimbursement not to exceed $3
million.
AMENDMENTS
At any time before or after approval of the matters presented in connection
with the Mergers by the respective stockholders of OEI and UMC and prior to the
Effective Time, the Merger Agreement may be amended or supplemented in writing
by OEI and UMC with respect to any of the terms contained in the Merger
Agreement, except, that following approval by the stockholders of OEI and UMC
there may be no amendment or change to the provisions of the Merger Agreement
with respect to the Exchange Ratios nor any amendment or change not permitted
under applicable law without further approval by the stockholders of OEI and
UMC.
WAIVER
The Merger Agreement permits OEI and UMC at any time prior to the Effective
Time, to: (i) extend the time for the performance of any of the obligations or
other acts of the other party; (ii) waive any inaccuracies in the
representations and warranties of the other party contained therein or in any
document delivered pursuant thereto; and (iii) waive compliance with any of the
agreements or conditions of the other party contained therein, in each case
pursuant to a written instrument.
THE STOCK OPTION AGREEMENTS
The following summary of the terms of the Stock Option Agreements is
qualified in its entirety by reference to the Stock Option Agreements, which are
incorporated herein by reference and attached as Appendices B-1 and B-2 to this
Joint Proxy Statement/Prospectus. Certain defined terms used in the description
of the Stock Option Agreements below which are not otherwise defined in this
Joint Proxy
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Statement/Prospectus and which are defined in the Stock Option Agreements shall
have the respective meanings set forth therein.
GENERAL
Immediately following the execution and delivery of the Merger Agreement,
UMC and OEI entered into the Stock Option Agreements pursuant to which OEI
granted UMC the UMC Option to purchase 2,267,300 shares (subject to adjustment
for changes in capitalization) of OEI Common Stock (the "OEI Option Shares") at
an exercise price of $49 13/16 per share (the "UMC Option Purchase Price"),
representing 9.9% of the number of shares of OEI Common Stock issued and
outstanding on December 22, 1997, and UMC granted OEI the OEI Option to purchase
3,543,000 shares (subject to adjustment for changes in capitalization) of UMC
Common Stock (the "UMC Option Shares" and, together with the OEI Option Shares,
the "Option Shares") at an exercise price of $32 3/16 per share (the "OEI Option
Purchase Price" and, together with the UMC Option Purchase Price, the "Purchase
Price"), representing 9.9% of the number of shares of UMC Common Stock issued
and outstanding on December 22, 1997. Each of the UMC Option and the OEI Option
becomes exercisable only if the holder thereof could be entitled to the
Termination Fee under the Merger Agreement (a "Purchase Event"), see "The Merger
Agreement -- Termination" and "--Termination Fees." The Stock Option Agreements
were executed as an inducement to the parties to enter into the Merger Agreement
and are intended, together with the Termination Fee payable as described under
"The Merger Agreement -- Termination Fees," to compensate one of the parties in
the event that the Merger Agreement is terminated under certain circumstances.
In addition, as discussed below, certain aspects of the Stock Option Agreements
may discourage other persons from considering or proposing a business
combination with OEI and UMC. The terms of the Stock Option Agreements are the
result of arms' length negotiations between OEI and UMC with respect to the
conditions to the exercise of the respective Options and the maximum value
receivable by OEI or UMC pursuant to the Stock Option Agreements and the
Termination Fee. The exercise price of each of the Options is equivalent to the
value of the OEI Common Stock receivable by holders of UMC Common Stock pursuant
to the Merger valued as of the execution of the Merger Agreement, based upon the
closing price of the OEI Common Stock on the trading day immediately preceding
the execution of the Merger Agreement and the Stock Option Agreements. The
Options are exercisable only under certain circumstances in the event of
termination of the Merger Agreement. In the analysis undertaken by each of
Merrill Lynch and Lehman Brothers in rendering its fairness opinion, each such
financial advisor considered a broad range of factors and information as
described in "The Mergers -- Opinion of UMC's Financial Advisor" and "-- Opinion
of OEI's Financial Advisor," including the terms of the Merger Agreement and the
Stock Option Agreements. However, the fairness opinion of each of Merrill Lynch
and Lehman Brothers addresses the fairness of the Exchange Ratio from a
financial point of view to the respective stockholders, and does not express any
opinion on any other aspect of the Merger or the terms of the Merger Agreement
or the Stock Option Agreements.
Certain aspects of the Stock Option Agreements (including the fact that the
exercise of the UMC Option or the OEI Option would render the granting party
ineligible for "pooling of interests" accounting treatment for a period of two
years) may have the effect of discouraging persons who might now or prior to the
Effective Time be interested in acquiring all of or a significant interest in,
or otherwise effecting a business combination with OEI or UMC, from considering
or proposing such a transaction, even if such persons were prepared to offer to
pay consideration to stockholders of OEI or UMC which had a higher value than
the shares of OEI Common Stock to be received per share of UMC Common Stock
pursuant to the Merger Agreement.
TERMINATION
Each of the UMC Option and the OEI Option will terminate upon the earliest
to occur of (i) the Effective Time, (ii) 18 months after the first occurrence of
a Purchase Event and (iii) termination of the Merger Agreement in accordance
with its terms prior to the occurrence of a Purchase Event, unless the grantee
of an Option has the right to receive a Termination Fee following such
termination upon the occurrence of certain events, in which case such Option
shall not terminate until the later of (x) six months following the time such
Termination Fee becomes payable and (y) the expiration of the period in which
the grantee has such right to receive a Termination Fee. Notwithstanding the
termination of such Option, the
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grantee will be entitled to purchase the applicable Option Shares if it has
exercised its Option in accordance with the terms thereof prior to the
termination of such Option and the termination of such Option shall not affect
any rights under the Stock Option Agreement pursuant to which such Option was
granted which by their terms do not terminate or expire prior to or as of such
termination.
CERTAIN ADJUSTMENTS
In the event of any change in OEI Common Stock or UMC Common Stock by
reason of a stock dividend, split-up, reverse stock split, merger,
recapitalization, combination, exchange of shares, or similar transaction, the
type and number of shares or securities subject to the respective Options, and
the Purchase Price therefor, will be adjusted appropriately, and proper
provision will be made in the agreements governing such transaction, so that the
grantee will receive upon exercise of its Option the number and class of shares
or other securities or property that such grantee would have received in respect
of the Option Shares if the Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
In the event that the issuer of an Option enters into an agreement (i) to
consolidate with or merge into any person, other than the grantee of such Option
or one of its subsidiaries, and the issuer will not be the continuing or
surviving corporation in such consolidation or merger, (ii) to permit any
person, other than the grantee or one of its subsidiaries, to merge into the
issuer and issuer will be the continuing or surviving corporation, but in
connection with such merger, the shares of the issuer's common stock outstanding
immediately prior to the consummation of such merger will be changed into or
exchanged for stock or other securities of issuer or any other person or cash or
any other property, or the shares of the issuer's common stock outstanding
immediately prior to the consummation of such merger will, after such merger,
represent less than 50% of the outstanding voting securities of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than the grantee or one of its subsidiaries, then,
and in each such case, the agreement governing such transaction should make
proper provision so that the UMC Option or the OEI Option, as the case may be,
will, upon the consummation of any such transaction and upon the terms and
conditions set forth therein, be converted into, or exchanged for, an option
with identical terms appropriately adjusted to acquire the number and class of
shares or other securities or property that the grantee would have received in
respect of OEI Common Stock or UMC Common Stock, as the case may be, if the
applicable Option had been exercised immediately prior to such consolidation,
merger, sale, or transfer, or the record date therefor, as applicable.
If, prior to the termination of the UMC Option or the OEI Option, the
issuer of such Option in accordance with the immediately preceding paragraph,
enters into any agreement (x) pursuant to which all outstanding shares of the
issuer's common stock are to be purchased for, or converted into the right to
receive in whole or in part (other than in respect of fractional shares) cash or
(y) with respect to any transaction described in clauses (i), (ii) and (iii) of
the preceding paragraph (each of (x) and (y), a "Transaction"), the issuer
covenants that proper provision will be made in such agreement to provide that,
if the UMC Option or the OEI Option, as the case may be, has not previously been
exercised, then upon the consummation of the Transaction (which in the case of a
Transaction involving a tender offer will be when shares of the issuer's common
stock are accepted for payment), the grantee will have the right, at its
election, by not less than two business days' prior written notice to the
issuer, to receive in exchange for the cancellation of the respective Option an
amount in cash equal to the Spread (as defined below). For purposes of the Stock
Option Agreements, the term "Spread" means the number of Option Shares with
respect to such Stock Option Agreement multiplied by the excess of (A) the
closing sales price per share of the issuer's common stock on the principal
securities exchange or quotation system on which such stock is then listed or
traded, as reported by The Wall Street Journal on the day immediately prior to
the consummation of such Transaction, over (B) the Purchase Price with respect
to such Stock Option Agreement. Notwithstanding the foregoing, the amount of the
Spread, when added to any Termination Fee paid or payable to the grantee, will
not exceed $50 million. See "The Merger Agreement -- Termination Fees."
Following exercise of the UMC Option or the OEI Option by UMC or OEI,
respectively, in the event that the grantee sells, pledges or otherwise disposes
of (including, without limitation, by merger or exchange) any of the Option
Shares (a "Sale"), then: (i) any Termination Fee due and payable by the issuer
following
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such time will be reduced by an amount, if any, equal to the excess of (1) the
total of (A) such Termination Fee and (B) the excess of (w) the aggregate
amounts received (whether in cash, securities or otherwise) by the grantee in
all such Sales, over (x) the aggregate Purchase Price for the Option Shares sold
in such Sales (such excess in this sub-clause (B) being the "Offset Amounts")
over (2) $50 million; (ii) if the issuer has paid to the grantee such
termination fee prior to the Sale, then the grantee will immediately remit to
the issuer, as additional Purchase Price for such Option Shares, the excess, if
any, of (y) the total of such Termination Fee and the Offset Amounts of all
Sales over (z) $50 million, and (iii) if a Sale or Sales occurred prior to the
payment of any Termination Fee to the grantee by the issuer, and the aggregate
amount received (whether in cash, securities or otherwise) by the grantee in
such Sale exceeded $50 million, then the grantee will remit to the issuer the
aggregate amount received in excess of $50 million and deliver to the issuer for
cancellation any remaining OEI Option Shares or UMC Option Shares, as the case
may be, owned by the grantee.
Notwithstanding anything to the contrary in the Stock Option Agreements or
the Merger Agreement, in no event will the aggregate of any Termination Fee, all
Offset Amounts and the Spread with respect to a Stock Option Agreement exceed
$50 million.
REGISTRATION RIGHTS
Pursuant to the Stock Option Agreements, each of UMC and OEI also has the
right on not more than two occasions to require the other party to register any
portion of the OEI Option Shares and the UMC Option Shares, respectively, under
the Securities Act within two years after the date of exercise of its Option, if
such registration is necessary in order to permit the sale or other disposition
of any or all of such Option Shares.
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS
The following sets forth the opinion of Andrews & Kurth L.L.P. as to the
material U.S. federal income tax consequences of the Mergers, including the tax
consequences of the receipt of New Ocean Common Stock by a holder of Merger
Stock (together, UMC Common Stock and Old OEI Common Stock are referred to as
"Merger Stock") pursuant to the Mergers. The following also sets forth the
opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., to the extent that such
opinion describes the material U.S. federal income tax consequences of the UMC
Merger to holders of UMC Common Stock. Akin, Gump, Strauss, Hauer & Feld, L.L.P.
has not opined with respect to the Newco Merger. This summary only applies to
U.S. Holders (as defined below) who hold shares of Merger Stock as capital
assets and does not deal with special classes of investors, such as insurance
companies, tax-exempt organizations, financial institutions, dealers in
securities, foreign persons, persons who acquired shares of Merger Stock
pursuant to an exercise of employee stock options or rights or otherwise as
compensation, persons that hold shares of Merger Stock as part of a position in
a "straddle" or as part of a "hedging" or "conversion" transaction for U.S.
federal income tax purposes, and persons with a "functional currency" other than
the U.S. dollar. Furthermore, the following discussion addresses only certain
U.S. federal income tax matters and does not consider any state, local or
foreign tax consequences of the Mergers.
A "U.S. Holder" means a holder of shares of Merger Stock who is (i) a
citizen or resident of the United States, (ii) a corporation or partnership
created in or organized under the laws of the United States or any state thereof
(including the District of Columbia), (iii) an estate the income of which is
subject to U.S. federal income tax regardless of its source, or (iv) a trust if
(x) a U.S. court can exercise primary supervision over the administration of
such trust, and one or more U.S. persons have the authority to control all of
the substantial decisions of such trust or (y) such trust was in existence on
August 20, 1996 and properly elects to continue to be treated as a United States
person.
This discussion is based on current law and future legislative, judicial or
administrative changes or interpretations, which may be retroactive and could
alter or modify the statements set forth herein. FURTHER, IT IS A CONDITION TO
THE CONSUMMATION OF THE MERGERS THAT UMC RECEIVE A SUBSEQUENT, CONFIRMING
OPINION OF ITS TAX COUNSEL, AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., DATED AS
OF THE EFFECTIVE TIME, THAT THE UMC
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MERGER WILL QUALIFY AS A REORGANIZATION WITHIN THE MEANING OF SECTION 368(A) OF
THE CODE, AND THAT OEI RECEIVE A SUBSEQUENT, CONFIRMING OPINION OF ITS TAX
COUNSEL, ANDREWS & KURTH L.L.P., DATED AS OF THE EFFECTIVE TIME, THAT THE
MERGERS WILL QUALIFY AS REORGANIZATIONS WITHIN THE MEANING OF SECTION 368(A) OF
THE CODE. WHILE THE MERGER AGREEMENT PERMITS OEI AND UMC TO WAIVE THIS
CONDITION, NEITHER COMPANY INTENDS TO DO SO. In the event that such condition is
waived by either company, OEI and UMC intend to recirculate this Joint Proxy
Statement/Prospectus to disclose such waiver and the implications thereof, and
to resolicit their respective shareholders with respect to the OEI Proposal and
the UMC Proposal.
In rendering these opinions, Akin, Gump, Strauss, Hauer & Feld, L.L.P. and
Andrews & Kurth L.L.P. have assumed (i) that the Mergers generally will be
consummated as contemplated by this Joint Proxy Statement/Prospectus, and (ii)
that such firms will receive customary representations of facts from OEI and UMC
at the Effective Time (upon which they may rely).
Neither UMC nor OEI will request any ruling from the IRS as to the U.S.
federal income tax consequences of the Mergers. Opinions of counsel are not
binding on the IRS or the courts, and the IRS and the courts are not precluded
from taking contrary positions.
EACH HOLDER OF SHARES OF MERGER STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
TAX CONSEQUENCES TO OEI, NEWCO AND UMC
OEI, Newco, and UMC will not recognize gain or loss as a result of the
Mergers. OEI's aggregate adjusted tax basis in the assets received from UMC will
be the same as UMC's aggregate adjusted tax basis in its assets. The holding
period of the assets received by OEI pursuant to the UMC Merger will include the
periods for which UMC held its assets. Further, OEI will not recognize gain as a
result of the issuance of shares of OEI Common Stock or the payment of cash or
other property to stockholders of OEI and UMC.
TAX CONSEQUENCES TO HOLDERS OF MERGER STOCK
A U.S. Holder of Merger Stock will not recognize gain or loss on the
exchange of such Merger Stock for New Ocean Common Stock pursuant to the
Mergers, except to the extent that such U.S. Holder receives cash in lieu of
fractional shares of New Ocean Common Stock. Such holder's aggregate adjusted
tax basis in the shares of New Ocean Common Stock received in the Mergers will
equal such holder's adjusted tax basis in the shares of Merger Stock surrendered
in exchange therefor, less the portion of such basis, if any, allocable to
fractional shares. The holding period of the shares of New Ocean Common Stock
received by each holder of Merger Stock in the Mergers (including any fractional
share interest) will include the holding period of the Merger Stock surrendered
in exchange therefor.
No fractional shares of New Ocean Common Stock will be issued pursuant to
the Mergers. A U.S. Holder of Merger Stock who, pursuant to the Mergers,
receives cash in lieu of fractional shares of New Ocean Common Stock will be
treated as having received such fractional shares of New Ocean Common Stock
pursuant to the Mergers and then as having received cash in a redemption of such
fractional shares of New Ocean Common Stock. Under Section 302 of the Code,
provided that such deemed redemption is "substantially disproportionate" with
respect to such U.S. Holder or is not "essentially equivalent to a dividend"
after giving effect to the constructive ownership rules of the Code, such U.S.
Holder generally will recognize capital gain or loss on such deemed redemption
equal to the difference between the amount of cash received and such U.S.
Holder's adjusted tax basis in the fractional shares of New Ocean Common Stock
deemed to have been issued.
BACKUP WITHHOLDING
Generally, any payments received with respect to fractional shares will be
subject to backup withholding of 31% unless a U.S. Holder (i) is a corporation
or comes within certain other exempt categories or
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(ii) provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. Holder receiving payments
for fractional shares who does not provide OEI with its correct taxpayer
identification number may be subject to penalties imposed by the IRS. OEI has
provided a Substitute Form W-9 to holders of Merger Stock in conjunction with
this Joint Proxy Statement/Prospectus which such holders may use to provide
their correct taxpayer identification numbers. U.S. Holders should consult their
own tax advisors as to their qualification for exemption from withholding and
the procedure for obtaining such exemption.
COMPARISON OF STOCKHOLDER RIGHTS
Upon consummation of the Mergers, the holders of Old OEI Common Stock and
UMC Common Stock upon exchange of their respective shares of stock will become
holders of New Ocean Common Stock, and their rights as such will be governed by
the DGCL, the New Ocean Certificate and the New Ocean Bylaws as in effect at the
Effective Time. The following is a comparison of the material rights of the
holders of Old OEI Common Stock, UMC Common Stock and New Ocean Common Stock.
The following summary does not purport to be a complete statement of the
provisions affecting, and the differences between, the rights of holders of Old
OEI Common Stock, UMC Common Stock and New Ocean Common Stock. This summary is
qualified in its entirety by reference to the DGCL, the New Ocean Certificate
and the New Ocean Bylaws, the OEI Certificate and the OEI Bylaws, and UMC's
Restated Certificate of Incorporation (the "UMC Certificate") and bylaws (the
"UMC Bylaws").
AUTHORIZED CAPITAL STOCK
The OEI Certificate authorizes 100,000,000 shares of OEI Common Stock and
10,000,000 shares of OEI preferred stock, par value $0.01 per share ("OEI
Preferred Stock"), in one or more series and with such voting powers and
designations, preferences, limitations and relative rights as may be designated
by the OEI Board, of which 2,000,000 shares are designated as OEI Junior
Preferred Stock. Upon the consummation of the Newco Merger, the authorized
capital stock of OEI will increase to 260,000,000 shares, of which 250,000,000
shares will be common stock and 10,000,000 shares will be preferred stock. The
Mergers will have no further effect on the number of authorized shares of the
capital stock of OEI. See "Description of New Ocean Capital Stock."
The UMC Certificate authorizes 46,000,000 shares of UMC Common Stock and
32,000,000 shares of UMC preferred stock, par value $0.01 per share ("UMC
Preferred Stock"), in one or more series and with such voting powers and
designations, preferences, limitations and relative rights as may be designated
by the UMC Board, of which 450,000 are designated as Series A Junior Preferred
Stock, par value $0.01 per share.
DIRECTORS
Number and Term
The OEI Certificate provides that the number of directors comprising the
OEI Board shall not be less than two persons nor more than 15 persons and shall
be fixed from time to time by the OEI Board. The OEI Board currently consists of
seven directors and will be increased to 14 directors immediately subsequent to
the Effective Time. The OEI Board is divided into three classes of directors as
equal in number as possible. The directors of each class are elected for
three-year terms, with the terms of the three classes staggered so that
directors from a single class are elected at each annual meeting of
stockholders. These provisions will remain unchanged as a result of the Mergers.
The UMC Certificate provides for the UMC Board, which currently consists of 12
directors, to be classified in the same manner as the OEI Board.
Removal
The OEI Certificate provides that a director may be removed only for cause
and only upon the affirmative vote of the holders of a majority of the
outstanding capital stock of OEI. The OEI Bylaws further provide that the sole
method for removal of a director for cause is the following: at any annual
meeting of the stockholders
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of OEI or at any special meeting of the stockholders of OEI, the notice of which
shall state that the removal of a director is among the purposes of the meeting,
the affirmative vote of the holders of at least 66 2/3% of the combined voting
power of the outstanding shares of voting stock, voting together as a single
class, may remove the director for cause. These provisions will remain unchanged
as a result of the Mergers. The UMC Bylaws provide that any director or the
entire UMC Board may be removed, with cause, by a majority of shares entitled to
vote at an election of directors, if notice is provided.
Vacancy
Any vacancy in the OEI Board shall be filled by the majority vote of the
remaining directors. The UMC Bylaws provide that vacancies may be filled by a
majority of the directors then in office, though less than a quorum, and the
directors so chosen shall hold office until their successors are duly elected
and qualified.
STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS OF STOCKHOLDERS
Section 228 of the DGCL states that unless otherwise provided in a
certificate of incorporation, any stockholder action may be taken without a
meeting if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes which would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote were present and voted. The OEI Certificate
and OEI Bylaws provide that no action required or permitted to be taken at an
annual or special meeting of stockholders may be taken by written consent. These
provisions will remain unchanged as a result of the Mergers. The UMC Certificate
does not prohibit stockholder action by written consent and the UMC Bylaws
provide for actions to be taken by its stockholders by written consent in
conformance with Section 228, provided that written notice is given to
stockholders whose consent has not been obtained in writing.
The OEI Certificate provides that annual or special meetings of
stockholders may be called only by the Chairman of the Board and shall be called
within ten days after receipt of the written request of the OEI Board, pursuant
to a resolution approved by a majority of the whole OEI Board. The UMC Bylaws
also provide that special meetings of stockholders may be called by the Chairman
of the Board, the Vice Chairman or the President and may be called by the
President or Secretary at the request in writing of a majority of the UMC Board
or stockholders owning capital stock of UMC representing one-third of the votes
of all capital stock of UMC entitled to vote thereat.
CHARTER AMENDMENT
Under the DGCL, a proposed amendment to the certificate of incorporation
requires a resolution adopted by the board of directors and, unless otherwise
provided in the certificate of incorporation, the affirmative vote of the
holders of a majority of the outstanding stock entitled to vote thereon and (if
applicable) the affirmative vote of the holders of a majority of the outstanding
stock of each class entitled to vote thereon as a class. If any such amendment
would adversely affect the rights of any holders of shares of a class of stock,
the vote of the holders of a majority of all outstanding shares of the class,
voting as a class, is also necessary to authorize such amendment.
The OEI Certificate requires certain supermajority votes. The affirmative
vote of the holders of at least 75% of the then outstanding shares entitled to
vote thereon and the affirmative vote of the holders of at least 75% of the then
outstanding shares of each class of stock of the corporation voting separately
as a class shall be required to adopt any amendment to the OEI Certificate
regarding: (i) the creation, issuance, redemption and governance of rights to
purchase capital stock or other securities of OEI; (ii) amendments to the OEI
Bylaws; (iii) the liquidation or dissolution of OEI; (iv) indemnification of
directors, officers, agents and employees; (v) certain provisions concerning
stockholders' meetings; (vi) the number, power, removal and election of
directors; and (vii) the vote required to amend the OEI Certificate. The
affirmative vote of the holders of at least a majority of the then outstanding
shares entitled to vote thereon and the affirmative vote of the holders of at
least a majority of the then outstanding shares of each class of stock of the
corporation voting separately as a class shall be required to adopt any
amendment to the OEI Certificate regarding: (i) the name of the
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corporation; (ii) the name and address of OEI's registered agent; (iii) the
nature and purpose of the corporation's business; (iv) OEI's capitalization and
the relative rights and powers of stockholders; (v) preemptive purchase rights;
(vi) the election of directors by written ballot; (vii) the location of
stockholders' meetings; and (viii) the availability of the corporation's books
and records. The foregoing provisions of the OEI Certificate will remain
unchanged by the Mergers. The UMC Certificate is silent regarding amendment
thereof.
AMENDMENT TO BYLAWS
The OEI Certificate and the OEI Bylaws provide that the OEI Board may make,
alter, amend or repeal the OEI Bylaws without the consent or vote of the
stockholders, but any such action regarding the OEI Bylaws taken by the OEI
Board may also be altered, amended, or repealed by the stockholders at any
meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding shares entitled to vote thereon, provided notice that
an amendment is to be considered and acted upon is inserted in the notice or
waiver of notice of such meeting. These provisions will remain unchanged as a
result of the Mergers. The UMC Certificate provides that the UMC Board is
expressly authorized to make, alter or repeal the UMC Bylaws. The UMC Bylaws
confer the same powers on the stockholders.
RIGHTS PLAN
OEI Rights Plan
OEI has entered into the OEI Rights Agreement with Harris Trust and Savings
Bank as the rights agent (as amended, the "OEI Rights Agreement"). Pursuant to
the OEI Rights Agreement, rights (each, an "OEI Right") attach to each share of
OEI Common Stock outstanding and entitle the registered holder to purchase from
OEI one one-hundredth of a share of OEI Junior Preferred Stock at a purchase
price of $240 (the "OEI Purchase Price"), subject to adjustment. Each share of
OEI Common Stock outstanding has attached thereto one OEI Right. Pursuant to the
OEI Rights Agreement, the OEI Rights will be automatically adjusted (as
adjusted, the "Adjusted OEI Rights") in the Newco Merger such that the total
number of OEI Rights outstanding immediately after the Newco Merger will be
approximately equal to the total number outstanding immediately before the Newco
Merger. An Adjusted OEI Right will attach to shares of New Ocean Common Stock
received in exchange for shares of UMC Common Stock in the UMC Merger.
The OEI Rights will separate from the OEI Common Stock upon the earlier of
(A) 10 days following a public announcement that a person or group of affiliated
or associated persons (other than (i) OEI or any subsidiary of OEI or any
employee benefit plan of OEI or (ii) James C. Flores, his spouse, lineal
descendants and ascendants, heirs, executors or other legal representatives and
any trusts established for the benefit of the foregoing, or any other person or
entity in which the foregoing persons or entities are at the time of
determination the direct record and beneficial owners of all outstanding voting
securities (the "Flores Stockholders") provided, however, that in the event
James C. Flores and all other Flores stockholders shall at any time cease to
collectively beneficially own 15% or more of the Common Stock, then all such
stockholders shall cease to be so excepted) (an "OEI Acquiring Person") has
acquired or obtained the right to acquire beneficial ownership of 15% or more of
the outstanding shares of OEI Common Stock (the "OEI Stock Acquisition Date")
and (B) 10 business days (or such later date as may be determined by action of
the OEI Board prior to the time a person becomes an Acquiring Person) following
the commencement of, or the announcement of an intention to make, a tender offer
or exchange offer that would result in a person or group beneficially owning 15%
or more of such outstanding shares of OEI Common Stock (the date of any such
event, the "OEI Distribution Date"). Until the OEI Distribution Date (or earlier
redemption or expiration of the OEI Rights), (i) the OEI Rights will be
evidenced by OEI Common Stock certificates and will be transferred with and only
with OEI Common Stock certificates, (ii) OEI Common Stock certificates will
contain a notation incorporating the OEI Rights Agreement by reference and (iii)
the transfer of any certificates representing outstanding OEI Common Stock
outstanding will also constitute the transfer of the OEI Rights associated with
OEI Common Stock represented by such certificate.
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In the event that, at any time following the OEI Stock Acquisition Date,
(A) OEI is acquired in a merger or other business combination transaction or (B)
50% or more of OEI's consolidated assets or earning power is sold, each holder
of an OEI Right will thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the OEI Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the OEI
Right. In the event that any person or group of affiliated or associated persons
becomes an OEI Acquiring Person, each holder of an OEI Right, other than OEI
Rights beneficially owned by the OEI Acquiring Person or a transferee thereof
(which will thereafter be void), will thereafter have the right to receive upon
exercise of the OEI Right that number of shares of OEI Common Stock (or, under
certain circumstances, cash, other equity securities or property of OEI) having
a market value of two times the exercise price of the OEI Right.
At any time prior to the earlier to occur of (i) 5:00 p.m., Houston, Texas
time on the 10th day after the person or group has become an OEI Acquiring
Person or (ii) the expiration of the OEI Rights, the Company may redeem the OEI
Rights in whole, but not in part, at a price of $0.001 per OEI Right (the
"Redemption Price"); provided, that (i) if the OEI Board authorizes redemption
on or after the time a person becomes an Acquiring Person, then such
authorization must be by Board Approval (as hereinafter defined) and (ii) the
period for redemption may, upon Board Approval, be extended by amending the OEI
Rights Agreement. The term "Board Approval" means the approval of a majority of
the directors of the OEI. Immediately upon any redemption of the OEI Rights
described in this paragraph, the right to exercise the OEI Rights will terminate
and the only right of the holders of OEI Rights will be to receive the
Redemption Price.
The OEI Rights are not exercisable until the OEI Distribution Date and will
expire at the close of business on December 22, 2007 unless earlier redeemed by
OEI. Until an OEI Right is exercised, the holder of the OEI Rights, as such,
will have no rights as a stockholder of OEI, including the right to vote or to
receive dividends. Subject to certain exceptions, any of the provisions of the
OEI Rights Agreement may be amended by the OEI Board prior to the OEI
Distribution Date.
Pursuant to the OEI Rights Agreement, the OEI Rights are inapplicable to
the Merger and the other transactions contemplated by the Merger Agreement.
The above summary of the OEI Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the terms and
conditions of the OEI Rights Agreement. See "Available Information."
STATE TAKEOVER LEGISLATION
Section 203 of the DGCL generally prohibits a Delaware corporation from
engaging in a "Business Combination" (defined as a variety of transactions,
including mergers, asset sales, issuance of stock and other transactions
resulting in a financial benefit to the Interested Stockholder) with an
"Interested Stockholder" (defined generally as a person that is the beneficial
owner of 15% or more of a corporation's outstanding voting stock) for a period
of three years following the date that such person became an Interested
Stockholder unless:
(i) prior to the date such person became an Interested Stockholder,
the board of directors of the corporation approved either the Business
Combination or the transaction that resulted in the stockholder's becoming
an Interested Stockholder;
(ii) upon consummation of the transaction that resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding stock held by directors who
are also officers of the corporation and employee stock ownership plans
that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
(iii) on or subsequent to the date such person became an Interested
Stockholder, the Business Combination is approved by the board of directors
of the corporation and authorized at a meeting of stockholders, and not by
written consent, by the affirmative vote of the holders of at least 66 2/3%
of the outstanding voting stock of the corporation not owned by the
Interested Stockholder.
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A corporation may adopt an amendment to its certificate of incorporation or
bylaws expressly electing not to be governed by Section 203 of the DGCL if, in
addition to any other vote required by law, such amendment is approved by the
affirmative vote of a majority of the shares entitled to vote. However, such
amendment generally will not be effective until 12 months after adoption of such
amendment and will not apply to a business combination with an Interested
Stockholder who was such on or prior to the adoption of the amendment.
Neither OEI nor UMC has opted out of Section 203 of the DGCL.
LIABILITY OF DIRECTORS; INDEMNIFICATION OF DIRECTORS AND OFFICERS
The OEI Certificate provides for the elimination of personal monetary
liability of directors for breaches of fiduciary duties as a director to the
fullest extent permissible under DGCL. The OEI Certificate excludes from
coverage the following: (i) any breach of the director's duty of loyalty to the
corporation or its stockholders; (ii) acts or omissions not in good faith that
involve intentional misconduct or knowing violations of law; (iii) violations of
Section 174 of the DGCL, which relates to unlawful dividends, stock purchases,
or redemptions; and (iv) any transaction from which the director received an
improper benefit. The UMC Certificate provides for the elimination of personal
monetary liability of directors for breaches of fiduciary duties as a director
to the fullest extent permissible under DGCL.
Under the DGCL, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
The DGCL permits indemnification of expenses (including attorneys' fees) in
the case of actions or suits by or in right of the corporation (including
derivative actions), except that no indemnification may be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability and in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. A director or officer who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's indemnification
provisions must be indemnified by the corporation for reasonable expenses
incurred in connection therewith, including attorneys' fees.
The OEI Certificate and the OEI Bylaws provide, in substance, that each
person made a party or threatened to be made a party to any type of proceeding,
by reason of the fact that he or she is or was a director or officer of OEI or
is or was serving at the request of OEI as a director, officer, employee or
agent of another corporation, will be indemnified and held harmless by OEI to
the full extent permitted by the DGCL, against all expense, liability, loss,
judgments and fines actually and reasonably incurred by such person in
connection therewith. In certain cases, the indemnified party will be entitled
to the advancement of certain expenses relating to indemnification. The
foregoing provisions of the OEI Certificate and OEI Bylaws will remain unchanged
by the Mergers. The UMC Certificate and the UMC Bylaws contain provisions that
are substantively identical to those found in the OEI Certificate and the OEI
Bylaws.
ABSENCE OF APPRAISAL RIGHTS
Under the DGCL, except as otherwise provided by the DGCL, stockholders have
the right to demand and receive payment in cash of the fair value of their stock
(as appraised pursuant to judicial proceedings) in
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<PAGE> 83
the event of a merger or consolidation in lieu of the consideration such
stockholder would otherwise receive in such transaction. However, except as
otherwise provided by the DGCL, stockholders do not have such appraisal rights
if they hold shares or depository receipts that are listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 stockholders and if, among other
things, the consideration they receive for their shares consists of (i) shares
of stock of the corporation surviving or resulting from such merger or
consolidation or depository receipts in respect thereof, (ii) shares of stock or
depository receipts in respect thereof of any other corporation which at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders, (iii) cash in
lieu of fractional shares of the corporations described in clause (i) or (ii) of
this sentence, or (iv) any combination of shares of stock and cash in lieu of
fractional shares described in the foregoing clauses (i), (ii) and (iii).
The OEI Common Stock and the UMC Common Stock are listed on the NYSE. The
New Ocean Common Stock will be listed on the NYSE.
DESCRIPTION OF NEW OCEAN CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The New Ocean Certificate, as amended at the Effective Time, will provide
that the authorized capital stock of New Ocean will consist of (i) 250,000,000
shares of New Ocean Common Stock, (ii) 8,000,000 shares of OEI Preferred Stock,
which will not have been issued or designated as to a series by the OEI Board at
the Effective Time (the "New Ocean Preferred Stock"), and (iii) 2,000,000 shares
of OEI Junior Preferred Stock designated by the OEI Board in connection with the
adoption by the OEI Board, concurrently with the authorization of the Merger
Agreement, of a stockholder rights plan pursuant to which a preferred share
purchase right has been declared payable as a dividend on all outstanding shares
of OEI Common Stock, which rights will be issued pursuant to the OEI Rights
Agreement. As of December 31, 1997, 22,896,787 shares of OEI Common Stock were
issued and outstanding, 100 shares were held as treasury stock and 3,623,955
shares were reserved for issuance upon exercise of options under employee
incentive or benefit plans, programs or arrangements and non-employee director
plans maintained by OEI. All of the aforesaid outstanding shares of capital
stock have been validly issued, are fully paid and non-assessable, and are free
of preemptive rights. It is anticipated that approximately 100.1 million shares
of New Ocean Common Stock and no shares of New Ocean Preferred Stock will be
issued and outstanding immediately after completion of the Mergers. The
following summary is qualified in its entirety by reference to the OEI
Certificate and OEI Bylaws, which are included as exhibits to the Registration
Statement of which this Joint Proxy Statement/Prospectus is part, as each is
amended pursuant to the terms of the Merger Agreement.
NEW OCEAN COMMON STOCK
Liability for Future Calls or to Assessments
All outstanding shares of OEI Common Stock are fully paid and
non-assessable. Upon the issuance of the Merger Consideration in accordance with
the terms of the Merger Agreement, the shares of New Ocean Common Stock so
issued will be fully paid and non-assessable. The Transfer Agent and Registrar
for the OEI Common Stock is Harris Trust and Savings Bank.
Restrictions on Dividends
Each share of New Ocean Common Stock will have an equal and ratable right
to receive dividends when, as and if declared by the New Ocean Board out of
assets legally available therefor, subject to any dividend obligations of New
Ocean to the holders of any New Ocean Preferred Stock then outstanding.
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<PAGE> 84
Other
Holders of New Ocean Common Stock will have no preemptive, subscription,
conversion or redemption rights and will not be subject to further calls or
assessments of New Ocean. There will be no sinking fund provisions applicable to
the New Ocean Common Stock. Each share of New Ocean Common Stock will be
entitled to one vote in the election of directors and on all other matters
submitted to a vote of stockholders. Holders of New Ocean Common Stock will have
no right to cumulate their votes in the election of directors. As of February
12, 1998, there were approximately 163 record holders of OEI Common Stock.
The OEI Board is currently divided into three classes of directors serving
staggered three-year terms, with the number of directors in each class to be as
nearly equal as possible. A staggered board of directors makes it more difficult
for stockholders to change the majority of directors and instead promotes
continuity of existing management. The OEI Bylaws include provisions that
establish procedures for director nominations by stockholders and for the
presentation by stockholders of matters to be considered at stockholder
meetings. Subject to compliance with applicable law, immediately prior to the
Effective Time but after the approval by the requisite vote of OEI stockholders
and UMC stockholders of the Merger Agreement, the Mergers and the transactions
contemplated thereby, UMC (acting through the UMC Board) and OEI (acting through
the OEI Board) shall each be entitled to designate seven persons to be members
of the New Ocean Board. Upon consummation of the Mergers, each of the committees
of the New Ocean Board will include an equal, or as near as equal as possible,
number of directors designated by OEI and an equal, or as near as equal as
possible, number of directors designated by UMC. See "The Merger
Agreement -- Governance of New Ocean after the Mergers."
In the event of a liquidation, dissolution or winding up of New Ocean, the
holders of New Ocean Common Stock will be entitled to share equally and ratably
in the assets available for distribution upon payment of all liabilities, and
subject to any prior rights of any holders of New Ocean Preferred Stock that at
the time may be outstanding.
NEW OCEAN PREFERRED STOCK
The New Ocean Board will be authorized to issue from time to time, without
stockholder authorization, in one or more designated series, shares of New Ocean
Preferred Stock with such voting rights, if any, dividends, dividend rates,
preferences, limitations and other relative rights as the New Ocean Board may
determine. In some circumstances, the New Ocean Board could authorize and issue
blank-check preferred stock to have the effect of preventing a merger, tender
offer or other takeover attempts which the New Ocean Board opposes.
Junior Preferred Stock
In connection with the adoption of the OEI Rights Agreement, on December
22, 1997, OEI's Board designated 2,000,000 shares of OEI's authorized but
unissued OEI Preferred Stock. Upon consummation of the Mergers, an Adjusted OEI
Right will attach to each share of New Ocean Common Stock into which shares of
Old OEI Common Stock and UMC Common Stock are converted, and the terms of the
OEI Junior Preferred Stock described below will remain unchanged. The terms of
the OEI Junior Preferred Stock are such that one share of OEI Junior Preferred
Stock will be approximately equivalent to 100 shares of OEI Common Stock. Each
1/100th of one share of OEI Junior Preferred Stock (a "Preferred Share
Fraction") has a minimum preferential quarterly dividend rate of $0.01 per
Preferred Share Fraction but is, in any event, entitled to a dividend equal to
the per share dividend declared on the OEI Common Stock. In the event of
liquidation, the holder of a Preferred Share Fraction will receive a preferred
liquidation payment equal to the greater of $0.01 per Preferred Share Fraction
or the per share amount paid in respect of a share of OEI Common Stock. In
addition, each Preferred Share Fraction will have one vote, voting together with
the OEI Common Stock. The holders of Preferred Share Fractions, voting as a
separate class, are entitled to elect two directors if dividends on the OEI
Junior Preferred Stock are in arrears for six fiscal quarters. Each Preferred
Share Fraction that may be acquired upon exercise of the OEI Rights will be
nonredeemable and subordinate to any other shares of preferred stock that may be
issued by OEI.
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<PAGE> 85
Pursuant to the OEI Rights Agreement, OEI Rights have been issued to the
holders of OEI Common Stock, but such OEI Rights have not yet become exercisable
or transferable apart from the certificate for the OEI Common Stock, and no
shares of OEI Junior Preferred Stock have been issued.
ANTI-TAKEOVER PROVISIONS
Certificate of Incorporation
As described above, the New Ocean Certificate will authorize New Ocean
Preferred Stock to be issued from time to time in one or more series, and the
New Ocean Board, without further approval of the stockholders, is authorized to
fix the voting rights, if any, the dividend rates, preferences, limitations and
relative rights applicable to each series of New Ocean Preferred Stock. The
purpose of authorizing the New Ocean Board to determine such rights,
preferences, privileges, and restrictions is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of New Ocean Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of the holders of New Ocean Common Stock, and, under certain
circumstances, make it more difficult for a third party to gain control of New
Ocean.
As also described above, the New Ocean Certificate provides for the New
Ocean Board to be divided into three classes of directors serving staggered
three-year terms, with the number of directors in each class to be as nearly
equal as possible. The DGCL provides that directors serving on staggered boards
may be removed from office by the stockholders only for cause.
Section 203 of the DGCL
For a description of Section 203 of the DGCL see "Comparison of Stockholder
Rights -- State Takeover Legislation."
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<PAGE> 86
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth selected historical consolidated financial
and operating data for OEI and UMC as of and for each of the five years ended
December 31, 1997. OEI utilizes the full cost method of accounting and UMC
utilizes the successful efforts method of accounting, and therefore the
financial data may not be directly comparable. Such data have been derived from,
and should be read in conjunction with, the audited consolidated financial
statements and other financial information contained in OEI's Annual Report on
Form 10-K for the year ended December 31, 1997 and the audited consolidated
financial statements and other financial information contained in UMC's Annual
Report on Form 10-K for the year ended December 31, 1997 including, in each
case, the notes thereto, all of which are incorporated by reference herein. See
"Available Information" and "Incorporation of Documents by Reference."
OCEAN ENERGY, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
-------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenues.................................................... $ 47,483 $ 75,395 $127,970 $188,451 $292,180
Production costs............................................ 19,201 30,324 40,047 47,098 67,902
General and administrative.................................. 5,032 10,351 11,312 16,154 19,137
Depreciation, depletion and amortization.................... 20,140 36,459 54,084 74,652 121,623
Interest expense............................................ 1,055 4,507 17,620 17,954 27,385
Loss on production payment repurchase and refinancing(1).... -- 16,681 -- -- --
Net income (loss) before taxes and extraordinary item....... 2,227 (22,179) 5,210 32,988 57,639
Income tax benefit (provision)(2)........................... -- -- 4,692 (12,037) (20,189)
Net income (loss) before extraordinary item................. 2,227 (22,179) 9,902 20,951 37,450
Extraordinary loss on early extinguishment of debt, net of
taxes..................................................... -- -- -- -- 19,301
Net income (loss)........................................... 2,227 (22,179) 9,902 20,951 18,149
Earnings per common share before extraordinary item(3)
Basic..................................................... $ 0.18 $ (2.06) $ 0.66 $ 1.13 $ 1.86
Diluted................................................... 0.18 (2.06) 0.66 1.09 1.79
Earnings per common share after extraordinary item(3)
Basic..................................................... $ 0.18 $ (2.06) $ 0.66 $ 1.13 $ 0.90
Diluted................................................... 0.18 (2.06) 0.66 1.09 0.87
BALANCE SHEET DATA (AT END OF PERIOD):
Oil and gas assets, net..................................... $122,374 $ 160,311 $179,944 $355,698 $722,666
Total assets................................................ 131,613 181,344 215,457 460,710 822,938
Long-term debt.............................................. 13,448 154,039 171,692 284,142 389,652
Deferred revenue on production payments(4).................. 108,784 -- -- -- --
Stockholders' equity........................................ (825) 9,703 19,976 105,153 305,272
OTHER FINANCIAL DATA:
EBITDAX(5).................................................. $ 23,422 $ 35,855 $ 77,645 $129,100 $208,322
Net cash provided by (used in) operating activities(6)...... 103,112 (115,485) 59,489 126,753 173,622
Net cash used in investing activities....................... (100,741) (46,607) (77,699) (293,132) (465,428)
Net cash provided by (used in) financing activities......... (2,400) 162,462 17,853 171,926 286,047
Capital expenditures(7)..................................... 123,600 74,477 73,652 251,305 488,591
OPERATING DATA:
Sales Volumes:
Oil (Mbbls)............................................... 2,850 4,286 6,057 7,149 9,945
Gas (Mmcf)................................................ 3,704 7,234 12,393 18,720 38,916
MBOE...................................................... 3,467 5,492 8,123 10,269 16,431
BOEPD..................................................... 9,499 15,047 22,255 28,057 45,016
AVERAGE PRICES(8):
Oil (per Bbl)............................................. $ 13.82 $ 14.24 $ 17.39 $ 21.58 $ 19.09
Gas (per Mcf)............................................. 1.81 1.76 1.82 2.79 2.63
Per BOE................................................... 13.30 13.42 15.75 20.10 17.79
Production costs (per BOE).................................. 5.54 5.52 4.93 4.59 4.13
</TABLE>
- ---------------
(1) The amount shown for the year ended December 31, 1994 represents primarily
the excess of the purchase price of certain non-recourse volumetric
production payments over the book value of the production payment liability
as of December 7, 1994.
(2) OEI was formed as an S corporation under the Code and, as such, all income
taxes were the obligation of OEI's stockholders. Therefore, through the date
of the initial public offerings, no historical federal or state income tax
expense has been provided for in the financial statements. In conjunction
with the initial public offerings, OEI converted to a C corporation under
the Code. OEI recorded a deferred tax asset of
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<PAGE> 87
$6.3 million, offset by a valuation allowance of $6.3 million at December
31, 1994 and a deferred tax asset of $4.7 million at December 31, 1995. As a
result of the reversal of the valuation allowance, OEI recorded a net income
tax benefit of $4.7 million in the year ended December 31, 1995.
(3) If OEI had recognized a tax provision at statutory rates for the year ended
December 31, 1995, rather than an income tax benefit, basic and diluted
earnings per common share would have been $0.22 for such period.
(4) Amounts represent deferred revenues recognized from the sale of production
payments.
(5) Earnings before interest, taxes, depreciation, depletion, amortization and
exploration expense (to the extent a company uses the successful efforts
method of accounting). EBITDAX has not been reduced for the recognition of
noncash revenues associated with production payments. EBITDAX is presented
because it is a widely accepted financial indicator of OEI's ability to
service and incur debt. EBITDAX should not be considered as an alternative
to earnings (loss) as an indicator of OEI's operating performance or to cash
flows as a measure of liquidity. EBITDAX may not be comparable to similarly
titled measures presented by other companies and could be misleading unless
all companies and analysts calculate them in the same fashion.
(6) Cash flow from operating activities in 1993 includes $95.7 million from the
sale of production payments. Cash flow from operating activities for the
year ended December 31, 1994 was reduced by $123.6 million related to the
repurchase of production payments.
(7) Includes $115.5 million in the year ended December 31, 1993 related to the
acquisition of the East Bay Complex, $117.6 million in the year ended
December 31, 1996 related to the acquisition of the Central Gulf Properties
and $55.9 million and $59.9 million in the year ended December 31, 1997
related to the Main Pass Acquisition and the South Pass Properties,
respectively.
(8) Excludes results of hedging activities which increased (decreased) revenue
recognized in the 1993, 1994, 1995, 1996 and 1997 periods by $1.2 million,
$1.7 million, $(0.5) million, $(18.7) million and $(0.1) million,
respectively. Including the effect of hedging activities, OEI's average oil
price per Bbl received was $14.23, $14.56, $17.27, $19.70 and $19.08 in the
years ended December 31, 1993, 1994, 1995, 1996 and 1997, respectively, and
the average gas price per Mcf received was $1.81, $1.84 and $2.50 in the
years ended December 31, 1994, 1995 and 1996, respectively. OEI did not
enter into any hedging activities relating to gas during the year ended
December 31, 1993 or 1997.
82
<PAGE> 88
UNITED MERIDIAN CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993(1) 1994(1) 1995 1996 1997
-------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenue..................................................... $ 82,318 $ 97,817 $147,041 $236,404 $264,865
Production costs............................................ 30,539 36,938 42,891 51,298 56,492
Exploration, including dry holes and impairments............ 6,811 16,187 15,682 40,325 38,845
General and administrative.................................. 8,097 12,504 10,425 12,727 13,580
Depreciation, depletion and amortization.................... 35,938 50,727 53,942 84,979 96,418
Impairment of proved oil and gas properties(2).............. 10,051 94,793 8,317 -- --
Interest expense............................................ 6,532 9,040 17,945 22,811 21,749
Interest and other (income) expense......................... (2,102) 141 (375) 844 (1,681)
-------- --------- -------- -------- --------
Income (loss) before taxes and cumulative effect of changes
in accounting principles.................................. (13,548) (122,513) (1,786) 23,420 39,462
Income tax benefit (provision).............................. 6,305 41,524 3,885 (6,016) (19,675)
-------- --------- -------- -------- --------
Income (loss) before cumulative effect of changes in
accounting principles..................................... (7,243) (80,989) 2,099 17,404 19,787
Cumulative effect of changes in accounting principles, net
of tax.................................................... (3,543) -- -- -- --
-------- --------- -------- -------- --------
Net income (loss)........................................... $(10,786) $ (80,989) $ 2,099 $ 17,404 $ 19,787
======== ========= ======== ======== ========
Net income (loss) available to common stockholders(3)....... $(12,284) $ (80,989) $ 615 $ 15,873 $ 19,787
Basic earnings per share of common stock:
Income (loss) before cumulative effect of changes in
accounting principles................................... $ (0.75) $ (3.47) $ 0.02 $ 0.53 $ 0.56
Cumulative effect of changes in accounting principles..... (0.31) -- -- -- --
-------- --------- -------- -------- --------
Net income (loss) per common share(3)..................... $ (1.06) $ (3.47) $ 0.02 $ 0.51 $ 0.56
======== ========= ======== ======== ========
Diluted earnings per share of common stock:
Income (loss) before cumulative effect of changes in
accounting principles................................... $ (0.75) $ (3.47) $ 0.02 $ 0.51 $ 0.54
Cumulative effect of changes in accounting principles..... (0.31) -- -- -- --
-------- --------- -------- -------- --------
Net income (loss) per common share(3)..................... $ (1.06) $ (3.47) $ 0.02 $ 0.51 $ 0.54
======== ========= ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Property, plant and equipment, net........................ $291,723 $ 424,930 $468,673 $524,189 $740,972
Total assets.............................................. 343,223 511,214 578,450 718,293 885,025
Long-term debt, including current maturities.............. 92,149 239,634 247,899 157,731 283,557
Stockholders' equity...................................... 189,672 171,438 212,312 432,236 459,399
OTHER FINANCIAL DATA:
EBITDAX(4).................................................. $ 43,682 $ 48,375 $ 93,725 $172,379 $194,793
Net cash provided by operating activities................... 42,174 43,564 46,006 83,434 165,788
Net cash used in investing activities....................... (172,554) (180,160) (82,708) (135,749) (337,986)
Net cash provided by financing activities................... 129,341 147,926 38,463 93,671 128,945
Capital expenditures(5)..................................... 175,786 182,536 160,827 185,901 357,361
OPERATING DATA:
Sales Volumes:
Oil (Mbbls)............................................... 1,298 1,778 2,760 4,394 8,133
Gas (Mmcf)................................................ 29,608 39,669 44,453 55,445 54,807
MBOE...................................................... 6,233 8,390 10,169 13,635 17,268
BOEPD..................................................... 17,077 22,986 27,860 37,254 47,310
Average Prices(6):
Oil (per Bbl)............................................. $ 15.31 $ 14.97 $ 16.13 $ 20.99 $ 17.87
Gas (per Mcf)............................................. 2.09 1.72 1.46 2.13 2.06
BOE (per BOE)............................................. 13.11 11.30 10.74 14.86 14.96
Production costs (per BOE).................................. 4.90 4.40 4.22 3.76 3.27
</TABLE>
- ---------------
(1) UMC made significant acquisitions in 1993 and 1994. See notes to UMC's
consolidated financial statements incorporated herein by reference.
(2) See notes to UMC's consolidated financial statements incorporated herein by
reference regarding UMC's policy for assessing the recoverability of proved
oil and gas properties. In 1993, UMC recorded a total pre-tax charge of
$15.4 million against earnings, $10.1 million of which applied to 1993 and
$3.5 million which applied to periods prior to 1993, net of a deferred tax
benefit of $1.8 million and in 1994 a pre-tax
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<PAGE> 89
charge against earnings of $94.8 million. In 1995, UMC adopted SFAS 121,
resulting in a pre-tax impairment charge of $8.3 million.
(3) On July 25, 1996, all of the outstanding shares of Series F Convertible
Preferred Stock were converted into 1.845 million shares of UMC Common Stock
in accordance with the automatic conversion terms of such shares.
(4) Reflects income from operations plus depreciation, depletion and
amortization, impairment of proved oil and gas properties and exploration
expense of $6.8 million, $16.2 million, $15.7 million, $40.3 million and
$38.8 million for the years ended December 31, 1993, 1994, 1995, 1996 and
1997, respectively. EBITDAX is presented because it is a widely accepted
financial indicator of UMC's ability to service and incur debt. EBITDAX
should not be considered as an alternative to earnings (loss) as an
indicator of UMC's operating performance or to cash flows as a measure of
liquidity. EBITDAX may not be comparable to similarly titled measures
presented by other companies and could be misleading unless all companies
and analysts calculate them in the same manner.
(5) See consolidated statement of cash flows included in UMC's consolidated
financial statements incorporated herein by reference.
(6) Excludes results of hedging activities which increased (decreased) revenue
recognized in the 1993, 1994, 1995, 1996 and 1997 periods by $(1.4) million,
$(0.4) million, $4.1 million $(3.9) million and $(1.2) million,
respectively. Including the effect of hedging activities, UMC's average oil
price per barrel of oil (Bbl) received was $15.00, $16.35, $20.94 and $17.87
in the years ended December 31, 1994, 1995, 1996 and 1997, respectively. UMC
had no oil hedging activities for the year ended December 31, 1993.
Including the effect of hedging activities, UMC's average gas price per Mcf
received was $2.04, $1.71, $1.53, $2.07 and $2.04 in the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, respectively.
84
<PAGE> 90
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF OEI AND UMC
The following tables set forth unaudited pro forma combined financial data
which are presented to give effect to the Mergers under the pooling of interests
method of accounting and to reflect the conversion of UMC to the full cost
method of accounting. The income statement data for each of the three years in
the period ended December 31, 1997 assume that the Mergers were consummated at
the beginning of the earliest period presented. The balance sheet data assume
that the Mergers were consummated on December 31, 1997. The unaudited pro forma
combined financial data are not necessarily indicative of the results of
operations or the financial position which would have occurred had the Mergers
been consummated at the beginning of the earliest period presented, nor are they
necessarily indicative of future results of operations or financial position.
Additionally, the unaudited pro forma combined statements of income exclude
non-recurring charges directly attributable to the Mergers (currently estimated
to range from $28 million to $32 million) which will be charged to operations in
the quarter in which the Mergers are consummated. The unaudited pro forma
combined balance sheet has been adjusted for the assumed after-tax impact of
such non-recurring charges. The unaudited pro forma combined financial data
should be read in conjunction with the historical consolidated financial
statements of OEI and UMC, including the notes thereto, incorporated by
reference in this Joint Proxy Statement/Prospectus. See "Available Information"
and "Incorporation of Documents by Reference."
85
<PAGE> 91
UMC AND OEI
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------
PRO FORMA
COMBINING PRO FORMA
OEI UMC ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue................................................. $292,180 $264,865 $ (4,851)(a) $552,194
Production costs........................................ 67,902 56,492 124,394
Exploration, including dry holes and impairments........ -- 38,845 (38,845)(a) --
General and administrative.............................. 19,137 13,580 32,717
Depreciation, depletion and amortization................ 121,623 96,418 22,011(a) 236,425
(3,627)(b)
Interest expense........................................ 27,385 21,749 49,134
Interest and other (income) expense..................... (1,506) (1,681) (3,187)
-------- -------- --------
Income before taxes..................................... 57,639 39,462 112,711
Income tax provision.................................... (20,189) (19,675) (5,932)(c) (45,796)
-------- -------- --------
Income before extraordinary item........................ 37,450 19,787 66,915
Extraordinary item...................................... (19,301) -- (19,301)
-------- -------- --------
Net income.............................................. $ 18,149 $ 19,787 $ 47,614
======== ======== ========
Earnings per share of common stock (basic):
Before extraordinary item............................... $ 1.86 $ 0.56 $ 0.72
Extraordinary item...................................... (0.96) -- (0.21)
-------- -------- --------
Net income per common share.................... $ 0.90 $ 0.56 $ 0.51
======== ======== ========
Weighted average common shares outstanding.............. 20,106 35,590 93,315
======== ======== ========
Earnings per share of common stock (diluted):
Before extraordinary item............................... $ 1.79 $ 0.54 $ 0.69
Extraordinary item...................................... (0.92) -- (0.20)
-------- -------- --------
Net income per common share.................... $ 0.87 $ 0.54 $ 0.49
======== ======== ========
Weighted average common shares outstanding, including
common share equivalents.............................. 20,934 36,662 96,646
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
86
<PAGE> 92
UMC AND OEI
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------
PRO FORMA
COMBINING PRO FORMA
OEI UMC ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue................................................. $188,451 $236,404 $(29,021)(a) $395,834
Production costs........................................ 47,098 51,298 98,396
Exploration, including dry holes and impairments........ -- 40,325 (40,325)(a) --
General and administrative.............................. 16,154 12,727 28,881
Depreciation, depletion and amortization................ 74,652 84,979 (20,263)(a) 145,265
5,897(b)
Interest expense........................................ 17,954 22,811 40,765
Interest and other (income) expense..................... (395) 844 449
-------- -------- --------
Income before taxes..................................... 32,988 23,420 82,078
Income tax provision.................................... (12,037) (6,016) (9,755)(c) (27,808)
-------- -------- --------
Net income.............................................. 20,951 17,404 54,270
Dividends paid on preferred stock....................... -- (1,531) (1,531)
-------- -------- --------
Net income available to common stockholders............. $ 20,951 $ 15,873 $ 52,739
======== ======== ========
Earnings per share of common stock (basic):
Net income per common share.................... $ 1.13 $ 0.53 $ 0.64
======== ======== ========
Weighted average common shares outstanding.............. 18,601 30,120 82,682
======== ======== ========
Earnings per share of common stock (diluted):
Net income per common share.................... $ 1.09 $ 0.51 $ 0.61
======== ======== ========
Weighted average common shares outstanding, including
common share equivalents.............................. 19,251 31,428 85,904
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
87
<PAGE> 93
UMC AND OEI
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
PRO FORMA
COMBINING PRO FORMA
OEI UMC ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue..................................... $127,970 $147,041 $(31,184)(a) $243,827
Production costs............................ 40,046 42,891 82,937
Exploration, including dry holes and
impairments............................... -- 15,682 (15,682)(a) --
General and administrative.................. 11,312 10,425 21,737
Depreciation, depletion and amortization.... 54,084 53,942 (14,146)(a) 88,964
(4,916)(b)
Impairment of proved oil and gas
properties................................ -- 8,317 (8,317)(a) --
Interest expense............................ 17,620 17,945 35,565
Interest and other (income) expense......... (302) (375) (677)
-------- -------- --------
Income (loss) before taxes.................. 5,210 (1,786) 15,301
Income tax benefit (provision).............. 4,692 3,885 (4,513)(c) 4,064
-------- -------- --------
Net income.................................. 9,902 2,099 19,365
Dividends paid on preferred stock........... -- (1,484) (1,484)
-------- -------- --------
Net income available to common
stockholders.............................. $ 9,902 $ 615 $ 17,881
======== ======== ========
Earnings per share of common stock (basic):
Net income per common share............... $ 0.66 $ 0.02 $ 0.25
======== ======== ========
Weighted average common shares
outstanding............................... 15,043 27,935 71,516
======== ======== ========
Earnings per share of common stock
(diluted):
Net income per common share............... $ 0.66 $ 0.02 $ 0.24
======== ======== ========
Weighted average common shares outstanding,
including common share equivalents........ 15,115 29,259 73,406
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
88
<PAGE> 94
UMC AND OEI
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------------------
PRO FORMA
COMBINING PRO FORMA
OEI UMC ADJUSTMENTS COMBINED
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets.............................. $ 50,658 $ 108,164 $ 158,822
Property and equipment, at cost............. 1,045,025 1,161,553 $ 73,729(a) 2,280,307
Accumulated depreciation, depletion and
amortization.............................. (315,587) (420,581) (126,992)(a) (863,160)
--------- ---------- ----------
Property and equipment, net................. 729,438 740,972 1,417,147
Other assets................................ 42,842 35,889 78,731
--------- ---------- ----------
Total Assets...................... $ 822,938 $ 885,025 $1,654,700
========= ========== ==========
Current liabilities......................... $ 114,167 $ 106,712 32,000(d) $ 252,879
Long-term debt.............................. 389,652 282,646 672,298
Deferred credits and other liabilities...... 13,847 36,268 (17,744)(a) 27,871
(4,500)(d)
Stockholders' equity........................ 305,272 459,399 (35,519)(a) 701,652
(27,500)(d)
--------- ---------- ----------
Total Liabilities and
Stockholders' Equity............ $ 822,938 $ 885,025 $1,654,700
========= ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
89
<PAGE> 95
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS
(a) Adjustments relate to UMC's conversion to full cost method of
accounting for oil and gas properties to conform to OEI's presentation.
These adjustments relate primarily to the capitalization of exploration
expenses, the elimination of gains on the sales of properties, the
change in methodology for determination of impairment of properties from
that prescribed by SFAS 121 for successful efforts compared to the more
restrictive full cost ceiling test as mandated by Regulation S-X 4-10,
and the change in methodology for the computation of depreciation,
depletion and amortization (DD&A). Under the successful efforts method
of accounting, capitalized leasehold costs and tangible/intangible costs
of drilling and completing wells are depreciated and depleted by the
units-of-production method using total proved and proved developed
reserves, respectively, on a property-by-property basis. Under the full
cost method, DD&A of oil and gas properties, including an estimate of
future development costs of proved properties, is computed by the
units-of-production method using total proved reserves on a
country-by-country basis.
(b) To reflect the impact on property impairment and depreciation,
depletion, and amortization as if both companies had been combined as of
January 1, 1994.
(c) To reflect the income tax effect of the adjustments in the pro forma
combined financial statements at an effective tax rate of approximately
38%.
(d) Retained earnings is adjusted to reflect estimated expenses of the
transaction net of related tax effects, the majority of which will be
incurred upon consummation of the Merger.
PRO FORMA NET INCOME PER COMMON SHARE
The pro forma weighted average common shares outstanding have been computed
by adjusting the historical weighted average common shares outstanding of UMC
and OEI at a conversion ratio of 1.30 and 2.34, respectively.
90
<PAGE> 96
ADDITIONAL MATTERS TO BE CONSIDERED AT THE OEI ANNUAL MEETING
ELECTION OF DIRECTORS
General
The OEI Certificate and the OEI Bylaws provide that the number of directors
on the OEI Board shall be fixed from time to time by the OEI Board but shall not
be less than two nor more than fifteen persons. The OEI Certificate divides the
OEI Board into three (3) classes, designated as Class I, Class II and Class III.
Each class of directors is to be elected to serve a three-year term and is to
consist, so far as possible, of one-third of the number of directors required at
the time to constitute a full OEI Board. If the number of directors is not
evenly divided into thirds, the OEI Board shall determine which class or classes
shall have one extra director. The OEI Board presently consists of eight
directors, three in Class I, three in Class II and two in Class III, whose terms
of office expire with the 1999, 2000 and 1998 annual meetings, respectively, and
until their successors are elected and qualified.
The term of office of each of the current Class III Directors expires at
the time of the OEI Annual Meeting, or as soon thereafter as their successors
are elected and qualified. Messrs. Clark and Flores have been nominated to serve
an additional three-year term as Class III Directors. Each of the nominees has
consented to be named in this Joint Proxy Statement/Prospectus and to serve as a
director if elected.
It is the intention of the persons named in the accompanying proxy card to
vote for the election of both nominees named below unless a stockholder has
withheld such authority. The affirmative vote of holders of a plurality of the
OEI Common Stock present in person or by proxy at the OEI Annual Meeting and
entitled to vote is required for election of the nominees.
If, at the time of or prior to the OEI Annual Meeting, any of the nominees
should be unable or decline to serve, the discretionary authority provided in
the proxy may be used to vote for a substitute or substitutes designated by the
OEI Board. The OEI Board has no reason to believe that any substitute nominee or
nominees will be required. No proxy will be voted for a greater number of
persons than the number of nominees named herein.
If the OEI Proposal is approved and the Mergers are consummated, the
members of the Board of Directors of New Ocean will be elected, effective as of
the Effective Time, in the manner described in "The Merger
Agreement -- Governance of New Ocean After the Mergers."
Nominees -- Class III Directors (Terms Expiring At The 2001 Annual Meeting)
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James C. Flores........................ 38 Chairman of the OEI Board,
President and Chief Executive
Officer
Thomas D. Clark, Jr.................... 56 Director
</TABLE>
James C. Flores has served as Chairman of the Board of OEI since its
inception in 1992 and as President and Chief Executive Officer since July 1995.
From 1985 to 1992, Mr. Flores served as Vice President of FloRuxco, Inc., an oil
and gas exploration company.
Thomas D. Clark, Jr. has been the Dean of the College of Business
Administration at Louisiana State University in Baton Rouge, Louisiana since
August 1995. Prior to his current position at Louisiana State University, Mr.
Clark was employed with Florida State University in Tallahassee where he held a
variety of positions since 1984, including Professor and Chairman of the
Department of Information and Management Services and Director of the Center for
Information Systems Research. Mr. Clark became a director of OEI in May 1997.
THE OEI BOARD RECOMMENDS THAT OEI STOCKHOLDERS VOTE FOR THE ELECTION OF
EACH OF THE ABOVE-NAMED NOMINEES.
91
<PAGE> 97
Directors Remaining In Office
<TABLE>
<CAPTION>
NAME AGE POSITION CLASS
---- --- -------- -----
<S> <C> <C> <C>
Richard G. Zepernick, Jr............... 37 Executive Vice President --
Exploration & Production
and Director I
Robert L. Belk......................... 49 Executive Vice President &
Chief Financial Officer,
Treasurer and Director I
Charles F. Mitchell, M.D............... 49 Director I
Lodwrick M. Cook....................... 69 Director II
William W. Rucks, IV................... 40 Director II
Milton J. Womack....................... 71 Director II
</TABLE>
Richard G. Zepernick, Jr. has been with OEI since its inception, presently
serving as Executive Vice President -- Exploration & Production. Mr. Zepernick
became a director of OEI in September 1994. From June 1992 until May 1993, Mr.
Zepernick served as Senior Vice President and Secretary of OEI. From 1985 to
1992, Mr. Zepernick served as General Manager of FloRuxco, Inc.
Robert L. Belk presently serves as Executive Vice President & Chief
Financial Officer and Treasurer of OEI. From 1993 to June 1997, he served at
Senior Vice President, Chief Financial Officer and Treasurer. Mr. Belk became a
director of OEI in September 1994. Prior to joining OEI, Mr. Belk worked in
public accounting for H.J. Lowe & Company from 1988 to 1993. Mr. Belk is a
Certified Public Accountant.
Charles F. Mitchell, M.D. is an otolaryngologist and plastic surgeon who
has operated a private practice in Baton Rouge, Louisiana since 1978. He is also
a Clinical Assistant Professor at the Louisiana State University Medical School
in New Orleans and Clinical Instructor at the University Medical Center in
Lafayette, Louisiana. Dr. Mitchell became a director of OEI in January 1995.
Lodwrick M. Cook is Vice Chairman and Managing Director of Pacific Capital
Group, Inc. Mr. Cook retired as Atlantic Richfield Company's (ARCO) Chief
Executive Officer and Chairman of the Board in 1994 and 1995 respectively. Prior
to his retirement, Mr. Cook held various management and executive positions with
ARCO, where he began his career in 1956. He became a director of OEI in December
1997.
William W. Rucks, IV has served as a Director of OEI since its inception.
Mr. Rucks is a private venture capital investor. He served as President and Vice
Chairman of the OEI Board from July 1995 until September 1996 and as President,
Chief Executive Officer and a Director of OEI from its inception in 1992 until
July 1995. From 1985 to 1992, Mr. Rucks served as President of FloRuxco, Inc.
Prior thereto, Mr. Rucks worked as a petroleum landman with Union Oil Company of
California in its Southwest Louisiana District, serving as Area Land Manager
from 1981 to 1984.
Milton J. Womack has owned and operated a general contracting firm in Baton
Rouge, Louisiana since 1955. Mr. Womack is Chairman of the Board of Union
Planters Bank of Louisiana, serves as a member of the Louisiana State University
Board of Supervisors and is a director of Union Planters Corporation. Mr. Womack
became a director of OEI in January 1995.
Committees Of The OEI Board
The OEI Board has three standing committees, the membership and functions
of which are described below:
Audit Committee. The members of the Audit Committee are Messrs. Womack
and Mitchell. The Audit Committee's functions include making
recommendations concerning the engagement of independent auditors,
reviewing with the independent auditors the plan and results of the
auditing engagement, approving professional services provided by the
independent auditors and reviewing the adequacy of OEI's internal
accounting controls.
92
<PAGE> 98
Compensation Committee. The members of the Compensation Committee are
Messrs. Womack and Mitchell. The Compensation Committee's functions include
a general review of OEI's compensation and benefit plans to ensure that
they meet corporate objectives. In addition, the Compensation Committee
reviews the Chief Executive Officer's recommendations on (i) compensation
of all officers of OEI, (ii) granting of awards under OEI's stock option
and other benefit plans, and (iii) adopting and changing major compensation
policies and practices of OEI. The Compensation Committee reports its
recommendations to the whole OEI Board for approval. The Compensation
Committee also administers OEI's 1994 Long-Term Incentive Plan and OEI's
1996 Long-Term Incentive Plan.
Nominating Committee. The members of the Nominating Committee are
Messrs. Womack and Mitchell. The Nominating Committee investigates and
studies the qualifications of potential nominees for directors of OEI and
makes recommendations to the OEI Board with respect to the nomination of
persons to serve as directors of OEI. The Nominating Committee will
consider suggestions from stockholders of OEI for nominees to serve as
directors, provided such proposals are submitted in writing to the
Secretary of OEI at 8440 Jefferson Highway, Suite 420, Baton Rouge,
Louisiana 70809.
In the event the OEI Proposal is adopted and the Mergers are consummated,
the committees of the New Ocean Board will be revised as described in "The
Merger Agreement -- Governance of New Ocean After the Mergers."
Information Regarding Meetings
During 1997, the Audit Committee had three meetings, the Compensation
Committee had one meeting, the Nominating Committee had two meetings and the OEI
Board had four meetings, one of which was held over four different days. During
1997, each member of the OEI Board attended 75% or more of the meetings of the
OEI Board and the committees of which he was a member.
Director Compensation
Directors of OEI who are not employees of OEI were paid an annual retainer
of $40,000 and $1,500 for each OEI Board or committee meeting attended, plus
reasonable travel and related expenses incurred to attend such meetings during
1997. Employee directors receive no additional compensation for attending OEI
Board or committee meetings. Pursuant to the 1996 Long-Term Incentive Plan, each
non-employee director is awarded, at the time of election or reelection as a
director, options to purchase 2,000 shares of OEI Common Stock at the fair
market value on the date of such grant, if available. Each director in office
immediately following each annual meeting of stockholders, not otherwise
entitled to receive an option pursuant to the discretionary provisions of the
1996 Long-Term Incentive Plan, receives options to purchase 2,000 shares of OEI
Common Stock.
93
<PAGE> 99
Executive Compensation
The following table summarizes certain information regarding aggregate cash
compensation, stock option and restricted stock awards and other compensation
earned by OEI's Chief Executive Officer and each of the four other most highly
compensated executive officers of OEI for services rendered in all capacities to
OEI during 1995, 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- -------------------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
--------------------------- ------ -------- -------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
James C. Flores 1997 $450,000 $400,000 -- 100,000 $9,500(2)
Chairman of the Board 1996 $450,000 $405,375 -- -- $9,500(2)
and Chief Executive Officer 1995 $450,000 $252,185 -- 75,000 $9,240(2)
Richard G. Zepernick, Jr. 1997 $250,000 $225,000 -- -- $9,500(2)
Executive Vice President -- 1996 $250,000 $350,000 $125,625(3) 220,000 $9,500(2)
Exploration & Production 1995 $250,000 $242,602 $ 55,271(4) 160,000 $7,782(2)
Robert L. Belk 1997 $229,167 $225,000 -- 50,000 $9,500(2)
Executive Vice President, 1996 $200,000 $209,438 -- 50,000 $9,500(2)
Chief Financial 1995 $200,000 $111,950 40,000 $9,240(2)
Officer and Treasurer
Robert K. Reeves 1997 $229,167 $225,000 -- 50,000 $9,500(2)
Executive Vice President -- 1996 $200,000 $202,745 -- 25,000 $9,500(2)
Administration, General 1995 $200,000 $106,697 -- 40,000 $9,240(2)
Counsel and Secretary
David J. Morgan 1997 $229,167 $225,000 -- 50,000 $9,500(2)
Executive Vice President -- 1996 $180,000 $200,000 -- 25,000 $9,500(2)
Geology 1995 $130,000 $ 60,000 -- 50,000 $5,790(2)
</TABLE>
- ---------------
(1) During the years ended December 31, 1995, 1996 and 1997, perquisites for
each individual named in the Summary Compensation Table, except for the
amounts set forth for Mr. Zepernick for the years ended December 31, 1995
and 1996, aggregated less than 10% of the total annual salary and bonus
reported for such individual in the Summary Compensation Table, or $50,000,
if lower.
(2) Represents OEI's matching contributions under OEI's Retirement Savings Plan.
(3) Includes $43,683 in moving expenses paid by OEI and a $64,668 reimbursement
during the fiscal year for the payment of taxes.
(4) Includes $46,247 in moving expenses paid by OEI.
94
<PAGE> 100
Stock Options
The following table sets forth information concerning the grant of stock
options under OEI's 1996 Long-Term Incentive Plan to the executive officers
named in the Summary Compensation Table during fiscal 1997.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
GRANTED FISCAL 1997 SHARE DATE 5% 10%
---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James C. Flores.............. 100,000 8.46% $48.50 6/17/07 $3,050,139 $7,729,651
Richard G. Zepernick, Jr..... -- -- -- -- -- --
Robert L. Belk............... 50,000 4.23 48.50 6/17/07 1,525,069 3,864,825
Robert K. Reeves............. 50,000 4.23 48.50 6/17/07 1,525,069 3,864,825
David J. Morgan.............. 50,000 4.23 48.50 6/17/07 1,525,069 3,864,825
</TABLE>
- ---------------
(1) The Commission requires disclosure of the potential realizable value or
present value of each grant. The disclosure assumes the options will be held
for the full ten-year term prior to exercise. Such options may be exercised
prior to the end of such ten-year term. The actual value, if any, an
executive officer may realize will depend upon the excess of the stock price
over the exercise price on the date the option is exercised. There is no
assurance that the stock price will appreciate at the rates shown in the
table.
Option Exercises And Holdings
The following table sets forth information concerning option exercises and
the value of unexercised options held by the executive officers of OEI named in
the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN 1997
AND OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBERED SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS HELD AT THE-MONEY OPTIONS, HELD AT
ACQUIRED DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ON VALUE --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Flores............... -- $ -- 200,000 125,000 $7,456,250 $ 887,500
Richard G. Zepernick, Jr...... 50,000 2,493,750 221,500 220,000 7,931,812 4,330,000
Robert L. Belk................ 16,667 831,267 66,665 96,668 2,305,361 1,423,376
Robert K. Reeves.............. -- -- 74,999 80,001 2,699,133 948,366
David J. Morgan............... 26,666 611,036 40,000 83,334 1,483,912 1,066,688
</TABLE>
- ---------------
(1) Computed based on the difference between aggregate fair market and aggregate
exercise price. The fair market value of OEI Common Stock on December 31,
1997 was $47 7/8 based on the average of the high and low sales prices on
the New York Stock Exchange on such date.
Report Of The Compensation Committee Of The OEI Board
The Compensation Committee of the OEI Board (the "Compensation Committee")
currently consists of Messrs. Womack and Mitchell, neither of whom are officers
or employees of OEI. The Compensation Committee was formed on January 18, 1995.
The committee is responsible for evaluating the performance of management,
determining the compensation for certain executive officers of OEI, and
administering OEI's 1994 Long-Term Incentive Plan and 1996 Long-Term Incentive
Plan, under which stock-related grants and awards may be made to employees of
OEI. The Compensation Committee has furnished the following report on executive
compensation for 1997.
95
<PAGE> 101
OEI has developed a compensation policy which is designed to attract and
retain key executives responsible for the success of OEI and motivate management
to enhance long-term stockholder value. The annual compensation package of
executive officers primarily consists of (i) a cash salary which reflects the
responsibilities relating to the position and individual performance, (ii)
variable performance awards payable in cash or stock and tied to the
individual's or OEI's achievement of certain goals or milestones, and (iii)
long-term stock based incentive awards which strengthen the mutuality of
interest between the executive officers and OEI's stockholders.
In determining the level and position of compensation for each of OEI's
executive officers, the Compensation Committee took into account various
qualitative and quantitative indicators of corporate and individual performance.
Although no specific target has been established, the Compensation Committee
generally seeks to set salaries at the median to high end of the range in
comparison to peer group companies. In setting such salaries, the Compensation
Committee considers its peer group to be certain companies in the exploration
and production industry with market capitalizations similar to that of OEI. In
order to assist the Compensation Committee in making compensation decisions, in
1995 OEI retained a national compensation consulting firm. The consulting firm
prepared a national compensation report which the Compensation Committee
utilized in determining salaries and bonuses. In addition, in evaluating the
performance of management, the Compensation Committee also takes into
consideration such factors as successful acquisitions, implementation of
capitalization goals, drilling results, production and operating costs. In
addition, the Compensation Committee recognizes performance and achievements
that are more difficult to quantify, such as the successful supervision of major
corporate projects, demonstrated leadership ability, and contributions to the
industry and community development.
Base compensation is established by the OEI Board and reviewed annually.
When establishing or reviewing base compensation levels for each executive
officer, the OEI Board, in accordance with its general compensation policy,
considers numerous factors, including the responsibilities relating to the
position, the qualifications of the executive, and the relevant experience the
individual brings to OEI, strategic goals for which the executive has
responsibility and compensation levels of comparable companies. No predetermined
weights are given to any one of such factors. The salaries for each of the
executive officers in 1997, including the Chairman of the Board and Chief
Executive Officer, were determined based upon the foregoing factors.
In addition to each executive officer's base compensation, the OEI Board
may award cash bonuses and/or grant awards under OEI's stock option plan to
chosen executive officers depending on the extent to which certain personal and
corporate performance goals are achieved. Such goals are the same as discussed
above. As a result of the levels of increases in production, reserves, cash
flow, net earnings and the OEI Common Stock price, the Compensation Committee
authorized cash bonuses to each of the executive officers, including the
Chairman of the Board and Chief Executive Officer, and made stock option grants
to certain of the executive officers.
Since OEI has not yet exceeded the $1,000,000 salary and bonus compensation
threshold, the Compensation Committee has not yet adopted a policy with respect
to the limitation under the Code that generally limits OEI's ability to deduct
compensation in excess of $1,000,000 to a particular executive officer in any
year. The Compensation Committee, in consultation with the OEI Board, may adopt
a policy if OEI exceeds such amount of salary and bonus.
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this Joint Proxy Statement/Prospectus into
any filing under the Securities Act or under the Exchange Act, except to the
extent that OEI specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
The foregoing report is given by the following members of the Compensation
Committee of the OEI Board.
Milton J. Womack
Charles F. Mitchell, M.D.
96
<PAGE> 102
Performance Chart
The following performance chart compares the performance of the OEI Common
Stock to the NYSE Market Index and a peer group index consisting of public
companies with a Standard Industrial Classification ("SIC") Code for Crude
Petroleum and Natural Gas (1311), OEI's SIC Code, for the period beginning
December 1, 1994 and ending December 31, 1997. The SIC Code for Crude Petroleum
and Natural Gas includes approximately 180 issuers, such as Apache Corporation,
Burlington Resources, Newfield Exploration, UMC, Noble Affiliates, Inc. and Pogo
Producing. The graph assumes that the value of the investment in the OEI Common
Stock and each index was $100 at December 1, 1994 and that all dividends were
reinvested. The OEI Common Stock began trading on the NASDAQ National Market on
December 1, 1994, and was moved to the New York Stock Exchange on March 25,
1996. Prior to December 1, 1994, there was no market in OEI's stock and,
accordingly, five year data is unavailable.
COMPARISON OF TWENTY-FIVE MONTH CUMULATIVE TOTAL RETURN
AMONG OCEAN ENERGY, INC., NYSE MARKET INDEX
AND PEER GROUP INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NYSE MARKET
(FISCAL YEAR COVERED) OCEAN ENERGY, INC. INDEX SIC CODE 1311
<S> <C> <C> <C>
12/01/94 100.00 100.00 100.00
12/31/94 105.00 100.19 99.54
12/31/95 145.00 129.91 109.47
12/31/96 532.50 156.49 145.56
12/31/97 493.13 205.88 147.54
</TABLE>
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Joint Proxy Statement/Prospectus into any filing under the Securities Act
or under the Exchange Act, except to the extent that OEI specifically
incorporates this graph by reference, and shall not otherwise be deemed filed
under such acts.
There can be no assurance that OEI's stock performance will continue into
the future with the same or similar trends depicted in the graph above. OEI will
not make or endorse any predictions as to future stock performance.
Compensation Committee Interlocks And Insider Participation
During fiscal 1997, no executive officer of OEI served as (i) a member of
the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the
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<PAGE> 103
entire board of directors) of another entity, one of whose executive officers
served on the OEI Board, or (ii) a director of another entity, one of whose
executive officers served on the OEI Board or its subsidiaries.
During fiscal 1997, no member of the Compensation Committee (or board
committee performing equivalent functions) (i) was an officer or employee of
OEI, (ii) was formerly an officer of OEI or (iii) had any business relationship
or conducted any transactions with OEI, other than the relationship disclosed
under "-- Certain Relationships and Other Transactions" involving Mr. Womack's
position as Chairman of the Board of Union Planters Bank ("UPB").
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires OEI's directors and officers,
and persons who own more than 10% of the OEI Common Stock, to file initial
reports of ownership and reports of changes in ownership (Forms 3, 4, and 5) of
OEI Common Stock with the Commission and NYSE. Officers, directors and greater
than 10% stockholders are required by SEC regulation to furnish OEI with copies
of all such forms that they file.
To OEI's knowledge, based solely on OEI's review of the copies of such
reports received by OEI and on written representations by certain reporting
persons that no reports on Form 5 were required, OEI believes that during the
fiscal year ended December 31, 1997, all Section 16(a) filing requirements
applicable to its officers, directors and 10% stockholders were complied with,
except that one transaction involving the exercise of employee stock options by
Mr. Morgan (an exempt transaction under Section 16(b) of the Exchange Act) was
reported late.
Employment Agreements
OEI has entered into employment contracts with each of Messrs. Zepernick,
Belk, Reeves, Morgan and others. The contracts with Messrs. Zepernick, Belk,
Reeves and Morgan are for continuous three-year terms and provide for annual
salaries of $250,000 each, plus other employee benefits. In the event of a
change of control of OEI, such employees may be entitled to the then remaining
benefits under the agreements.
Certain Relationships And Other Transactions
Simultaneously with OEI's acquisition of its Main Pass 69, South Pass 24
and South Pass 27 fields, and in consideration of its efforts in consummating
the acquisition of such fields, Sable Minerals, Inc. ("Sable"), was granted a
non-cost bearing overriding royalty averaging 0.9% net revenue interest in the
fields by the owner of a minority interest in such fields. Sable is a
corporation owned by James C. Flores as a holding company with other Flores
family oil and gas, security and ranching assets. The royalty interest was
reserved out of and burdens only such minority interest, which was acquired by
OEI in December 1994. During 1997, $1,473,929 was paid to Sable with respect to
such interest.
During 1997, OEI paid the father of Mr. Flores $107,952 for various
geological consulting services.
Union Planters Bank ("UPB") is a lender under the syndicate of banks
involved in OEI's revolving credit facility. Mr. Womack is Chairman of the Board
of UPB.
APPROVAL OF AUDITORS
The OEI Board has appointed the firm of Arthur Andersen LLP as OEI's
independent public accountants for the fiscal year ending December 31, 1998,
subject to ratification by OEI's stockholders. Arthur Andersen LLP has served as
OEI's independent public accountants since November 1993. If the Mergers are
consummated, it is expected that Arthur Andersen LLP will continue to serve as
New Ocean's independent public accountants for the fiscal year ending December
31, 1998. Representatives of Arthur Andersen LLP are expected to be present at
the OEI Annual Meeting and will have an opportunity to make a statement, if they
desire to do so, and to respond to appropriate questions from those attending
the meeting.
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The affirmative vote of holders of a majority of the shares of OEI Common
Stock entitled to vote in person or by proxy at the 1998 OEI Annual Meeting is
required to ratify the appointment of Arthur Andersen LLP as OEI's independent
public accountants for fiscal 1998.
THE OEI BOARD RECOMMENDS THAT STOCKHOLDERS OF OEI VOTE "FOR" RATIFICATION
OF ARTHUR ANDERSEN LLP'S APPOINTMENT, AND PROXIES EXECUTED AND RETURNED WILL BE
SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
APPROVAL OF 1998 LONG-TERM INCENTIVE PLAN
General
On February 18, 1998, the OEI Board adopted the Plan, subject to the
consummation of the Mergers and the approval of the Plan by the stockholders of
OEI. The Plan is designed to consolidate the approximately 540,000 shares of OEI
Common Stock that remain available for grant under OEI's 1996 Long-Term
Incentive Plan with the approximately 1,246,000 shares of UMC Common Stock that
remain available for grant under the UMC 1994 Outside Directors' Nonqualified
Stock Option Plan and the UMC 1994 Employee Nonqualified Stock Option Plan
(after giving effect to the Exchange Ratios). Accordingly, a maximum of
2,900,000 shares of authorized but unissued New Ocean Common Stock, subject to
certain adjustments, will initially be available for grant under the Plan.
Effective with the approval of the Plan and the consummation of the Mergers,
OEI's 1996 Long-Term Incentive Plan will be "frozen," such that no further
options or awards may be granted under it after that date, and no additional
grants will be made under either UMC plan thereafter. If the Mergers are not
consummated, the Plan will not be adopted. If the Mergers are consummated but
the Plan is not approved, OEI's 1996 Long-Term Incentive Plan will remain in
effect.
The purpose of the Plan will be to promote the interests of New Ocean by
encouraging employees of New Ocean, its Subsidiaries and affiliated entities and
directors to acquire or increase their equity interest in OEI and to provide a
means whereby employees may develop a sense of proprietorship and personal
involvement in the development and financial success of New Ocean and encourage
them to remain with and devote their best efforts to the business of New Ocean,
thereby advancing the interests of New Ocean and its stockholders. The Plan is
also contemplated to enhance the ability of New Ocean, its Subsidiaries and
affiliated entities to attract and retain the services of individuals who are
essential for the growth and profitability of New Ocean. The terms of the Plan
are described below, and the Plan is set forth in its entirety as Appendix E
hereto.
The Plan will provide for the grant of stock options (the "Plan Options")
to purchase 25,000 shares of New Ocean Common Stock to each person who is a
non-employee director of New Ocean on the effective date of the Plan or who is
elected or appointed as a non-employee director of the New Ocean Board for the
first time after the effective date of the Plan, as of the effective date of the
Plan or the date of his or her election or appointment, as applicable, and
without the exercise of the discretion of any person or persons (an "Initial
Grant"). As of the date of the annual meeting of the stockholders of New Ocean
in each year after 1998 that the Plan is in effect, each non-employee director
who is in office immediately after such meeting and who is not then entitled to
receive an Initial Grant shall receive, without the exercise of the discretion
of any person or persons, Plan Options exercisable for 3,000 shares of New Ocean
Common Stock (an "Annual Grant").
The proceeds from the sale by New Ocean of the New Ocean Common Stock
pursuant to the exercise of options will be used for New Ocean's general
corporate purposes. Other than the automatic annual Plan Option grants to
non-employee directors described below (which are subject to the limitation of
the number of shares of New Ocean Common Stock available under the Plan), it is
not possible to determine at this time the number of shares of New Ocean Common
Stock covered by awards that may be granted in the future to any employee,
director or group thereof (each, an "Optionee").
Exercisability
Initial Grants will be exercisable as to 50% of the shares covered thereby
on the date of grant and will become exercisable for the remaining 50% on the
first annual meeting following its date of grant. Annual Grants will become
exercisable for 33 1/3% of the shares covered thereby on the first annual
meeting following
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<PAGE> 105
the date of the grant, and thereafter for an additional 33 1/3% of the shares
covered thereby on each of the second and third annual meetings following the
date of grant. The purchase price of shares covered under a Plan Option granted
to a non-employee director will be the fair market value of a share on the date
of grant. To the extent that the right to exercise a Plan Option has accrued and
is in effect, the Plan Option may be exercised in full and at one time or in
part from time to time by giving written notice, signed by the Optionee
exercising the Plan Option, to New Ocean, stating the number of shares with
respect to which the Plan Option is being exercised, accompanied by payment in
full for such shares, which payment may be in cash, already owned shares, a
"cashless-broker" exercise (through procedures approved by New Ocean) or any
combination thereof, having a fair market value on the exercise date equal to
the relevant exercise price in which payment of the exercise price with respect
thereto may be made or deemed to have been made; provided, however, that (i) no
Plan Option will be exercisable after 10 years from the date on which it was
granted, and (ii) there will be no such exercise at any one time for fewer than
100 shares or for all of the remaining shares then purchasable by the Optionee
exercising the Plan Option, if fewer than 100 shares. Each Plan Option will
expire 10 years from the date of grant thereof, subject to earlier termination
as follows: Plan Options, to the extent exercisable as of the date the director
Optionee ceases to serve as director of New Ocean, must be exercised within 3
months of such date unless such event results from death, disability or
retirement, in which case all outstanding Plan Options held by such director may
be exercised in full by the Optionee, the Optionee's legal representative, heir,
or devisee, as the case may be, within two years from the date of death,
disability or retirement; provided, however, that no such event shall extend the
normal expiration date of such Plan Options. Plan Options not exercisable on
termination as provided above will automatically be cancelled on termination.
Transferability of Plan Options
Plan Options may be transferred by the Optionee to one or more permitted
transferees (the "Transferees"); provided that (i) there may be no consideration
for such transfer, (ii) the Optionee (or such Optionee's estate or
representative) will remain obligated to satisfy all employment tax and other
withholding tax obligations associated with the exercise of the Plan Options,
(iii) the Optionee will notify New Ocean in writing that such transfer has
occurred, the identity and address of the Transferee and the relationship of the
Transferee to the Optionee, and (iv) such transfer will be effected pursuant to
transfer documents approved from time to time by the Compensation Committee. The
term "permitted transferees" will mean one or more of the following: (i) any
member of the Optionee's immediate family; (ii) a trust established for the
exclusive benefit of one or more members of such immediate family; (iii) a
partnership in which such immediate family members are the only partners; or
(iv) any other person permitted by the Committee. The term "immediate family" is
defined for such purpose as spouses, children, stepchildren and grandchildren,
including relationships arising from adoption.
To the extent a transferred Plan Option is not fully exercisable as of the
date of transfer thereof, the Optionee will specify in the transfer document
whether and to what extent the transferred Plan Options (if less than all of the
Plan Options held by the Optionee) are exercisable, subject to any limitations
on exercisability. Furthermore, to the extent the Optionee transfers Plan
Options that are not exercisable as of the date of transfer and such Plan
Options are less than all of the Plan Options held by the Optionee, the Optionee
will specify in the transfer documents, subject to any limitations on
exercisability, when the transferred Plan Options become exercisable, as Plan
Options under the Plan generally become exercisable subsequent to such transfer.
Transferees may not further assign or transfer the transferred Plan Option
otherwise than by will or the laws of descent and distribution. Following any
permitted transfer, any such Plan Options will continue to be subject to all of
the terms and conditions of the Plan as were applicable immediately prior to
transfer.
Eligibility
Other than Plan Options granted to non-employee directors pursuant to the
Plan, any employee of New Ocean and its affiliates will be eligible to be
designated as a Plan participant. However, no employee may receive Plan Options
and/or stock appreciation rights during the term of the Plan that, in the
aggregate, are with respect to more than 33 1/3% of all shares that may be made
subject to awards under the Plan and not more
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<PAGE> 106
than 20% of the available shares under the Plan may be used for Restricted
Stock, Performance Awards, Phantom Shares and Bonus Shares under the Plan.
Subject to the provisions of the Plan, the Compensation Committee will have
the authority to determine the employees to whom Plan Options or other awards
will be granted, the number of shares to be covered by each Plan Option or such
other awards and the amounts and all other terms, conditions, and limitations
related to each type of such award.
Administration
The Plan will be administered by the Compensation Committee. All decisions
as to interpretation and application of the Plan, or as to Plan Options granted
thereunder, will be subject to determination by the Compensation Committee,
which determination is final and binding.
The New Ocean Board may amend, alter, suspend, discontinue or terminate the
Plan without the consent of any stockholder, participant, other holder or
beneficiary of an award, or other person; provided, however, no such amendment,
alteration, suspension, discontinuation, or termination will be made that would
increase the total number of shares available for awards under the Plan without
the approval of the stockholders of New Ocean. Unless the term of the Plan has
been extended or earlier terminated, the Plan will terminate on the tenth
anniversary of its effective date.
Federal Income Tax Consequences With Respect to Plan Options
The following summary is based on the applicable provisions of the Code as
currently in effect and the income tax regulations thereunder. The Plan will not
be qualified under Section 401(a) of the Code.
Nonqualified Stock Options. No federal income tax will be imposed on the
Optionee upon the grant of a nonqualified stock option (a "Nonqualified Stock
Option"). Upon the exercise of a Nonqualified Stock Option, the Optionee will
generally be treated as receiving compensation taxable as ordinary income in the
year of exercise, in an amount equal to the excess of the fair market value of
the shares of New Ocean Common Stock at the time of exercise over the exercise
price paid for such shares of New Ocean Common Stock. Upon a subsequent
disposition of the shares of New Ocean Common Stock received upon exercise of a
Nonqualified Stock Option, any difference between the fair market value of the
shares of New Ocean Common Stock at the time of exercise and the amount realized
on the disposition would be treated as long-term, mid-term or short-term capital
gain or loss, depending on the holding period of the shares. Upon an Optionee's
exercise of a Nonqualified Stock Option, New Ocean may claim a deduction for
compensation paid at the same time and in the same amount as income is
recognized by the Optionee, if and to the extent that New Ocean satisfies in a
timely manner the applicable Form W-2 or Form 1099 reporting requirements, the
amount is an ordinary expense and satisfies the test of reasonable compensation.
Incentive Stock Options. No federal income tax will be imposed on the
Optionee upon the grant of an incentive stock option (an "Incentive Stock
Option"). If the Optionee does not dispose of shares acquired pursuant to his
exercise of an Incentive Stock Option within two years from the date the Plan
Option was granted or within one year after the shares were transferred to him
(the "Holding Period"), except for the item of tax adjustment described below
under "Alternative Minimum Tax," no income would be recognized by the Optionee
by reason of his exercise of the Plan Option, and the difference between the
Plan Option price and the amount realized upon a subsequent disposition of the
shares of New Ocean Common Stock would be treated as a long-term or mid-term
capital gain or loss. In such event, New Ocean would not be entitled to any
deduction in connection with the grant or exercise of the Plan Option or the
disposition of the shares of New Ocean Common Stock so acquired.
If, however, an Optionee disposes of shares of New Ocean Common Stock
acquired pursuant to his exercise of an Incentive Stock Option before the
Holding Period has expired, the Optionee would be treated as having received, at
the time of disposition, compensation taxable as ordinary income. In such event,
and upon satisfaction of applicable Form W-2 or Form 1099 reporting
requirements, New Ocean may claim a deduction for compensation paid at the same
time and in the same amount as compensation is treated as being received
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<PAGE> 107
by the Optionee. The amount treated as compensation would be the excess of the
fair market value of the shares of New Ocean Common Stock at the time of
exercise (or, in the case of a sale in which a loss, if sustained, would be
recognized, the amount realized on the sale, if less) over the Plan Option
price; any amount realized in excess of the fair market value of the shares of
New Ocean Common Stock at the time of exercise would be treated as long-term,
mid-term or short-term capital gain, depending on the holding period of the
shares of New Ocean Common Stock.
Alternative Minimum Tax. The excess of the fair market value of shares of
New Ocean Common Stock acquired upon exercise of an Incentive Stock Option over
the exercise price paid for such shares would be an adjustment to alternative
minimum taxable income for the Optionee's taxable year in which such exercise
occurs (unless the shares of New Ocean Common Stock are disposed of in the same
taxable year).
Payment of Plan Option Price in Shares. In the case of a Nonqualified Stock
Option, if the Plan Option price is paid by the delivery of shares of New Ocean
Common Stock previously acquired by the Optionee having a fair market value
equal to the Plan Option price ("Previously Acquired Shares"), gain or loss
would not be recognized on the exchange of the Previously Acquired Shares for a
like number of shares of New Ocean Common Stock pursuant to such an exercise of
the Plan Option, and the Optionee's basis in the number of shares of New Ocean
Common Stock received equal to the Previously Acquired Shares would be the same
as his basis in the Previously Acquired Shares. In addition, the Optionee would
generally be treated as receiving compensation taxable as ordinary income in the
year of exercise equal to fair market value at the time of exercise of the
shares of New Ocean Common Stock received in excess of the number of Previously
Acquired Shares, and the Optionee's basis in such excess shares of New Ocean
Common Stock would generally be equal to their fair market value at the time of
exercise.
In the case of an Incentive Stock Option, the federal income tax
consequences to the Optionee of the payment of the Plan Option price with
Previously Acquired Shares will depend on the nature of the Previously Acquired
Shares. If the Previously Acquired Shares were acquired through the exercise of
an Incentive Stock Option or an option granted under an employee stock purchase
plan ("Statutory Option") and if such Previously Acquired Shares are being
transferred prior to the expiration of the applicable minimum statutory holding
period, the transfer would be treated as a disqualifying disposition of the
Previously Acquired Shares. If the Previously Acquired Shares were acquired
other than pursuant to the exercise of a Statutory Option, or were acquired
pursuant to the exercise of a Statutory Option but have been held for the
applicable minimum statutory holding period, no gain or loss should be
recognized on the exchange of the Previously Acquired Shares. In either case,
(i) the Optionee's basis in the number of shares of New Ocean Common Stock
acquired equal to the number of Previously Acquired Shares would be the same as
his basis in the Previously Acquired Shares, increased by any income recognized
to the Optionee upon the disqualifying disposition of the Previously Acquired
Shares, (ii) the Optionee's basis in the shares of NEW Ocean Common Stock
acquired in excess of the number of Previously Acquired shares would be zero and
(iii) the other Incentive Stock Option rules would apply.
Tax Consequences to Non-U.S. Optionees. An Optionee who is a non-U.S.
resident or citizen and who receives options in connection with the performance
of services for New Ocean or any U.S. parent or subsidiary will be subject to a
30% withholding tax (or a lower treaty rate, if applicable), on any income that
would occur as a result of exercising such Optionee's Plan Options. The amount
and timing of such income would be determined in the same manner as described
above. An employee who is a non-U.S. resident or citizen and who receives Plan
Options in connection with the performance of services for any non-U.S. parent
or subsidiary of New Ocean will not be subject to U.S. income tax upon exercise
of such Optionee's Plan Options. Consequently, there is no U.S. income tax
withholding.
Parachute Tax Consequences. In the event that the acceleration of vesting
or any payment, distribution or issuance of stock is subject to the golden
parachute 20% excise tax pursuant to Section 4999(a) of the Code, the
participant whose benefit is subject to such tax will be entitled to receive a
gross-up payment from New Ocean so that the amount of the "net" benefit received
by such participant will equal the amount of the benefit that would have been
received in the absence of a golden parachute tax. Section 280G of the Code
prevents the deductibility by New Ocean of amounts subject to the excise tax
under Code Section 4999.
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Income Tax Consequences of a Permitted Transfer
The following summary is based upon an interpretation of present federal
income tax laws and regulations as of the date hereof. This summary is not
intended to cover all aspects of federal tax law (such as federal estate and
gift tax law) or any state or local tax law that may be applicable to the Plan.
Optionees and Transferees are urged to consult with their own tax advisors to
determine the tax consequences that would pertain to such person's particular
circumstances.
Option Transfers. An Optionee who transfers a Nonqualified Stock Option to
a permitted transferee will not recognize income at the time of the transfer.
Instead, the Optionee will generally recognize ordinary compensation income at
such time that the Transferee exercises the Nonqualified Stock Option in an
amount equal to the excess of the fair market value of the shares on the date of
exercise over the amount paid for such Nonqualified Stock Option by the
Optionee. New Ocean will generally be entitled to claim a federal income tax
deduction at such time and in the same amount that the Optionee realizes
ordinary income. In the event the Transferee exercises the Nonqualified Stock
Option after the death of the Optionee, any such ordinary income will be
recognized by the estate of the Optionee.
Withholding Taxes. In general, upon the exercise of a Nonqualified Stock
Option the Optionee will be required to pay to New Ocean his applicable
withholding taxes with respect to the compensation income realized or to make
other arrangements satisfactory to New Ocean for the payment of such taxes.
The affirmative vote of a majority of the shares of Common Stock present
and entitled to vote in person or by proxy at the 1998 Annual Meeting of
Stockholders is required to ratify and approve the 1998 Long-Term Incentive
Plan.
THE OEI BOARD RECOMMENDS THAT STOCKHOLDERS OF OEI VOTE "FOR" RATIFICATION
AND APPROVAL OF THE 1998 LONG-TERM INCENTIVE PLAN, AND PROXIES EXECUTED AND
RETURNED WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF OEI
At the close of business on February 20, 1998, the record date for the
determination of stockholders of OEI entitled to receive notice of, and to vote
at, the OEI Annual Meeting or any adjournments thereof, 22,896,887 shares of OEI
Common Stock were outstanding.
The table below sets forth, as of February 20, 1998, certain information
with respect to the shares of OEI Common Stock beneficially owned by (i) each
person known by OEI to own beneficially five percent or more of the OEI Common
Stock, (ii) each director and director nominee of OEI, (iii) each of the
executive officers of OEI named under "-- Election of Directors -- Executive
Compensation," and (iv) all directors, director nominees and executive officers
of OEI as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
------------------------ -------------------------- ----------------
<S> <C> <C>
James C. Flores.......................................... 4,871,259(2) 21.09%
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
FMR Corp................................................. 2,256,500(3) 9.86%
82 Devonshire Street
Boston, Massachusetts 02109
Strong Capital Management, Inc........................... 1,409,760(4) 6.16%
100 Heritage Reserve
Monomonee Falls, Wisconsin 53051
Robert L. Belk........................................... 68,640(5) *
Thomas D. Clark, Jr...................................... -- *
Lodwrick M. Cook......................................... -- *
Charles F. Mitchell...................................... 7,666(6) *
William W. Rucks, IV..................................... 201,607(7) *
Milton J. Womack......................................... 5,799(6) *
Richard G. Zepernick, Jr................................. 222,522(8) *
Robert K. Reeves......................................... 76,664(9) *
David J. Morgan.......................................... 57,400(10) *
All directors, director nominees and executive officers
as a group (13 persons)................................ 5,785,182(11) %24.33
</TABLE>
- ---------------
* Represents less than 1%.
(1) Unless otherwise indicated, each of the stockholders designated above has
sole voting and investment power with respect to the securities shown to be
owned by such stockholder.
(2) Does not include 7,246 shares of OEI Common Stock beneficially owned by
certain trusts for children of James C. Flores, for which Mr. Flores
disclaims beneficial ownership. John V. Flores, the brother of James C.
Flores, has sole voting and investment power with respect to such trusts.
Includes 200,000 shares subject to currently exercisable stock options
granted by OEI. Includes 1,600,000 shares subject to a currently
exercisable call option and irrevocable proxy from Mr. Rucks.
(3) The following information is based on a Schedule 13G/A dated February 11,
1998 with respect to beneficial ownership as of December 31, 1997. FMR
Corp. is the parent holding company of Fidelity Management & Research
Company ("Fidelity") and Fidelity Management Trust Company ("FMTC"). Edward
C. Johnson III is Chairman of FMR Corp. FMR Corp. has sole voting power
with respect to 880,900 shares and sole dispositive power with respect to
2,256,500 shares. Of such shares, Fidelity is the beneficial owner of
1,311,900 shares as a result of acting as investment adviser to several
investment companies (the "Funds"). Mr. Johnson, FMR Corp., through its
control of Fidelity, and the
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Funds each has sole power to dispose of the 1,311,900 shares owned by the
Funds. Neither FMR Corp. nor Mr. Johnson has voting power of the shares
owned directly by the Funds, which power resides with the Funds' boards of
trustees. In addition, FMTC is the beneficial owner of 867,700 shares as a
result of its serving as investment manager of institutional account(s),
and Mr. Johnson and FMR Corp. each has sole dispositive power over such
shares through their control of FMTC. Mr. Johnson and FMR Corp. have sole
voting power over 557,900 shares and no voting power over 63,700 shares
through their control of FMTC. Members of Mr. Johnson's family are the
predominant owners of the voting stock of FMR Corp., representing
approximately 49% of the FMR Corp. voting power. Mr. Johnson owns 12% and
Abigail Johnson owns 24.5% of the aggregate outstanding voting stock of FMR
Corp. Through their ownership of voting stock and the execution of a
stockholders' voting agreement with other holders of the voting stock,
members of the Johnson family may be deemed, under the Investment Company
Act of 1940, to form a controlling group with respect to FMR Corp.
(4) The following information is based on a Schedule 13G dated February 13,
1997 with respect to beneficial ownership as of December 31, 1996. Strong
Capital Management, Inc. ("SCM") is an investment advisor registered under
Section 203 of the Investment Advisers Act of 1940. Richard S. Strong is
Chairman of the Board and the principal stockholder of SCM. SCM has sole
voting power with respect to 1,194,850 shares and sole dispositive power
with respect to 1,409,760 shares. SCM has been granted discretionary
dispositive power over its clients securities and in some instances has
voting power over such securities. Any and all discretionary authority
which has been delegated to SCM may be revoked in whole or in part at any
time. Mr. Strong reports beneficial ownership of the same securities
beneficially owned by SCM as a result of his position and stock ownership
in SCM.
(5) Includes 1,000 shares owned by Mr. Belk's children under the Uniform Gifts
to Minor Act for which Mr. Belk disclaims beneficial ownership and 66,665
shares subject to currently exercisable stock options granted by OEI.
(6) Includes 1,666 shares subject to currently exercisable stock options
granted by OEI.
(7) Does not include 1,600,000 shares subject to a currently exercisable call
option and irrevocable proxy held by Mr. Flores.
(8) Includes 221,500 shares subject to currently exercisable stock options
granted by OEI.
(9) Includes 74,999 shares subject to currently exercisable stock options
granted by OEI.
(10) Includes 40,000 shares subject to currently exercisable stock options
granted by OEI.
(11) Includes 880,121 shares subject to currently exercisable stock options
granted by OEI.
EXPERTS
The audited financial statements of OEI incorporated by reference in this
Joint Proxy Statement/Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and have been incorporated herein in reliance upon the authority of
said firm as experts in giving said report.
The audited financial statements of UMC incorporated by reference in this
Joint Proxy Statement/ Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and have been incorporated herein in reliance upon the authority of
said firm as experts in giving said report.
Representatives of Arthur Andersen LLP will be present at the OEI Annual
Meeting with the opportunity to make a statement if they desire to do so and to
respond to appropriate questions.
LEGAL MATTERS
The validity of the New Ocean Common Stock offered hereby will be passed
upon by Andrews & Kurth L.L.P. In addition, Andrews & Kurth L.L.P. and Akin,
Gump, Strauss, Hauer & Feld, L.L.P. have delivered opinions to OEI and UMC
respectively, as to certain tax matters.
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STOCKHOLDER PROPOSALS
Any proposal of a stockholder intended to be presented at the 1999 Annual
Meeting of Stockholders of OEI (or of New Ocean, if the Mergers are consummated)
must be received at OEI's principal executive offices no later than November 27,
1998, if the proposal is to be considered for inclusion in OEI's proxy statement
relating to such meeting. In addition, OEI has adopted bylaw provisions which
require that nominations of persons for election to the Board of Directors and
the proposal of business by stockholders at an annual meeting of stockholders
must fulfill certain requirements which include the requirement that notice of
such nominations or proposals must be delivered to the Secretary of OEI not less
than 80 days prior to the annual meeting of stockholders; provided, however,
that in the event that less than 90 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders of OEI, notice by the
stockholder of the nomination or proposal to be timely must be so received not
later than the close of business on the tenth day following the date on which
such notice of the date of the annual meeting of stockholders was mailed or such
public disclosure made.
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GLOSSARY OF CERTAIN OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and this Joint Proxy Statement/Prospectus. Unless
otherwise indicated in this Joint Proxy Statement/Prospectus, natural gas
volumes are stated at the legal pressure base of the state or area in which the
reserves are located and at 60 degrees Fahrenheit. BOEs are determined using the
ratio of six Mcf of natural gas to one Bbl of oil.
"Bbl" means a barrel of 42 U.S. gallons of oil.
"Bcf" means billion cubic feet of natural gas.
"BOE" means barrels of oil equivalent.
"BOEPD" means barrels of oil equivalent per day.
"Btu" or "British Thermal Unit" means the quantity of heat required to
raise the temperature of one pound of water by one degree Fahrenheit.
"Bbtu" means one billion British Thermal Units.
"Completion" means the installation of permanent equipment for the
production of oil or gas.
"Condensate" means a hydrocarbon mixture that becomes liquid and separates
from natural gas when the gas is produced and is similar to crude oil.
"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"Exploration drilling" is undertaken to find and produce oil or gas
reserves not classified as proved, to find a new reservoir in a field previously
found to be productive of oil or gas in another reservoir or to extend a known
reservoir.
"Exploration well" means a well drilled to find commercially productive
hydrocarbons in an unproved area or to extend significantly a known oil or
natural gas reservoir.
"MBbls" means thousands of barrels of oil.
"Mcf" means thousand cubic feet of natural gas.
"MMBbls" means millions of barrels of oil.
"MBOE" means a thousand barrels of oil equivalent.
"Mcfe" means a thousand cubic feet equivalent, which is determined using
the ratio of one barrel of crude oil, condensate or natural gas liquids to six
Mcf of natural gas so that 1/6 of a barrel of crude oil, condensate or natural
gas liquids is referred to as one thousand cubic feet of natural gas equivalent
or one Mcfe.
"MMBOE" means million barrels of oil equivalent.
"MMBtu" means one million British Thermal Units.
"MMcf" means million cubic feet of natural gas.
"Net" when used with respect to acres or wells, refers to gross acres or
wells multiplied, in each case, by the percentage working interest owned.
"NGL" means natural gas liquids.
"NYMEX" means New York Mercantile Exchange.
"Oil" means crude oil or condensate.
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"Project" means a proposal to add a producing completion of oil or gas. A
proposal may vary in range from work authorized to be performed to proposals
that are founded in geologic and engineering principles yet require further
research before funds are authorized.
"Proved reserves" means the estimated quantities of crude oil, natural gas,
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
i. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
ii. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for
the engineering analysis on which the project or program was based.
iii. Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids that may be recovered from oil shales, coal, gilsonite
and other such sources.
"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously completed.
"Reserves" means proved reserves.
"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.
"WTI" means West Texas Intermediate crude oil.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
OEI HOLDING CORPORATION,
UNITED MERIDIAN CORPORATION,
AND
OCEAN ENERGY, INC.
DATED AS OF DECEMBER 22, 1997
As Modified by Amendment No. 1 to Agreement
and Plan of Merger dated as of January 7, 1998, and
Amendment No. 2 to Agreement and Plan of Merger
dated as of February 20, 1998
<PAGE> 115
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 22, 1997 (this
"Agreement"), by and among OEI HOLDING CORPORATION, a Delaware corporation
("Newco"), UNITED MERIDIAN CORPORATION, a Delaware corporation ("UMC"), and
OCEAN ENERGY, INC. a Delaware corporation ("OEI").
RECITALS
WHEREAS, UMC and OEI have determined to engage in a strategic business
combination; and
WHEREAS, (i) Newco is a newly formed corporation organized and existing
under the laws of the State of Delaware, one-half of the issued and outstanding
capital stock of which is owned by each of UMC and OEI; (ii) UMC is a
corporation organized and existing under the laws of the State of Delaware; and
(iii) OEI is a corporation organized and existing under the laws of the State of
Delaware; and
WHEREAS, the Board of Directors of each of UMC and OEI have approved and
declared fair to and advisable and in the best interests of their respective
stockholders that each of UMC, OEI and Newco combine pursuant to the Mergers (as
hereinafter defined) upon the terms and subject to the conditions provided in
this Agreement; and
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Mergers and also to prescribe
various conditions to the Mergers; and
WHEREAS, for federal income tax purposes, it is intended that the mergers
contemplated hereby constitute transactions described in Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the
transactions contemplated by this Agreement will be accounted for as a "pooling
of interests" (a "Pooling Transaction") in accordance with United States
generally accepted accounting principles ("GAAP") and the rules, regulations and
interpretations of the Securities and Exchange Commission (the "SEC"); and
WHEREAS, immediately following the execution and delivery of this
Agreement, UMC and OEI will enter into a stock option agreement (the "OEI Stock
Option Agreement"), pursuant to which OEI will grant UMC the option (the "OEI
Option") to purchase shares of OEI Common Stock (as hereinafter defined), upon
the terms and subject to the conditions set forth therein; and
WHEREAS, immediately following the execution and delivery of this
Agreement, UMC and OEI will enter into a stock option agreement (the "UMC Stock
Option Agreement" and, together with the OEI Stock Option Agreement, the "Option
Agreements"), pursuant to which UMC will grant OEI the option (the "UMC Option")
to purchase shares of UMC Common Stock (as hereinafter defined), upon the terms
and subject to the conditions set forth therein.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
ARTICLE I
THE MERGERS
Section 1.1 The Newco Merger. (a) Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
General Corporation Law (the "DGCL"), Newco shall merge with and into OEI (the
"Newco Merger") at the Newco Effective Time (as defined herein), and (i) each
outstanding share of common stock, par value $0.01 per share, of Newco ("Newco
Common Stock") shall be automatically canceled and retired, (ii) each share of
OEI Common Stock issued and outstanding immediately prior to the Newco Effective
Time ("Old OEI Common Stock") shall be converted into a right to receive 2.34
shares of OEI Common Stock (as defined in Section 4.2) and (iii) each share of
OEI Junior
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Preferred (as defined in Section 4.2) issued and outstanding immediately prior
to the Newco Effective Time, if any, shall remain issued and outstanding and
unchanged as a result of the Newco Merger. OEI shall be the surviving
corporation in the Newco Merger (the "Newco Surviving Corporation"). From and
after the Newco Effective Time, the identity and separate existence of Newco
shall cease.
(b) In connection with the Newco Merger, OEI shall take such actions as may
be necessary to reserve sufficient shares of OEI Common Stock prior to the Newco
Merger to permit the issuance of shares of OEI Common Stock (i) to the holders
of Old OEI Common Stock in accordance with the terms of the Agreement and (ii)
upon the exercise of options ("OEI Stock Options") to purchase or acquire shares
of OEI Common Stock under employee incentive or benefit plans, programs or
arrangements and non-employee director plans presently maintained by OEI ("OEI
Option Plans") outstanding at the Newco Effective Time.
Section 1.2 The UMC Merger. (a) Upon the terms and subject to the
conditions set forth in this Agreement and in accordance with the DGCL, UMC
shall merge with and into OEI (the "UMC Merger," and together with the Newco
Merger, the "Mergers") at the UMC Effective Time (as defined herein), and (i)
each outstanding share of UMC Common Stock (as defined in Section 5.2) shall be
converted into a right to receive 1.30 shares of OEI Common Stock and (ii) each
share of OEI Common Stock issued and outstanding immediately prior to the UMC
Effective Time and each share of OEI Junior Preferred issued and outstanding
immediately prior to the UMC Effective Time, if any, shall remain issued and
outstanding and unchanged as a result of the UMC Merger. OEI shall be the
surviving corporation in the UMC Merger (the "UMC Surviving Corporation" and,
together with the Newco Surviving Corporation, the "Surviving Corporations").
From and after the UMC Effective Time, the identity and separate existence of
UMC shall cease.
(b) In connection with the UMC Merger, OEI shall take such actions as may
be necessary to reserve sufficient shares of OEI Common Stock prior to the UMC
Merger to permit the issuance of shares of OEI Common Stock (i) to the holders
of UMC Common Stock as of the UMC Effective Time in accordance with the terms of
this Agreement and (ii) upon the exercise of UMC Stock Options (as defined in
Section 6.5(a)) to be assumed by OEI in accordance with Section 6.5 hereof.
Section 1.3 Closing. The closing of the Mergers (the "Closing") will take
place at such time and on such date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VII, unless another time or
date is agreed to by the parties hereto. The Closing will be held at such
location as is agreed to by the parties hereto.
Section 1.4 Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger (individually, a "Certificate of Merger" with respect to
each of the Mergers, and collectively with respect to both Mergers, the
"Certificates of Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the DGCL
in order to effect both Mergers. The Newco Merger shall become effective at such
time as is specified in the Certificate of Merger for the Newco Merger, which
time shall be at 3:00 p.m. (Houston, Texas time) on the date of the Closing (the
"Newco Effective Time"). The UMC Merger shall become effective at such time as
is specified in the Certificate of Merger for the UMC Merger, which time shall
be at 3:01 p.m. (Houston, Texas time) on the date of the Closing (the "UMC
Effective Time" or, in some cases, the "Effective Time").
Section 1.5 Effects of the Mergers.
(a) DGCL. Each of the Mergers shall have the effects set forth in Section
259 of the DGCL.
(b) Charter Documents. The Certificate of Merger for the Newco Merger shall
provide that at the Newco Effective Time, the introductory paragraph to Section
4 of the certificate of incorporation of OEI shall be amended and restated in
its entirety as set forth in EXHIBIT G hereto. At the Newco Effective Time,
Sections 13 and 14 of Article III of the Amended and Restated Bylaws of OEI (the
"OEI Bylaws") shall be amended and restated in their entirety as set forth on
EXHIBIT A-1 hereto, and Articles V and VIII of the OEI Bylaws shall be amended
and restated as set forth in EXHIBIT A-2 hereto. At the UMC Effective Time, the
certificate of incorporation and bylaws of OEI, as in effect immediately prior
to the UMC Effective Time,
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shall be the certificate of incorporation and bylaws, respectively, of OEI until
thereafter changed or amended as provided therein or by applicable law.
Section 1.6 Directors and Officers. The directors and officers designated
in accordance with Sections 3.1 and 3.2 shall, from and after the UMC Effective
Time, be the directors and officers of OEI, and, subject to the provisions of
Sections 3.1 and 3.2, such directors and officers shall serve until their
respective successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with OEI's certificate
of incorporation and bylaws.
ARTICLE II
EFFECT OF THE MERGERS ON THE STOCK OF
UMC, NEWCO AND OEI; EXCHANGE OF CERTIFICATES
Section 2.1 Effect of the Newco Merger. As of the Newco Effective Time, by
virtue of the Newco Merger and without any action on the part of OEI, Newco or
the holders of any securities of OEI or Newco:
(a) Cancellation of Newco Common Stock. Each issued and outstanding share
of Newco Common Stock shall be automatically canceled and retired and shall
cease to exist.
(b) Conversion of Old OEI Common Stock. Subject to Section 2.3(e), each
issued and outstanding share of Old OEI Common Stock shall be converted into the
right to receive 2.34 (the "Newco Exchange Ratio") fully paid and nonassessable
shares of OEI Common Stock (the "Newco Merger Consideration"). As of the Newco
Effective Time, all such shares of Old OEI Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate or certificates which immediately prior
to the Newco Effective Time represented outstanding shares of Old OEI Common
Stock (the "Old OEI Certificates") shall cease to have any rights with respect
thereto, except the right to receive (i) certificates ("OEI Certificates")
representing the number of whole shares of OEI Common Stock into which such
shares have been converted, (ii) certain dividends and other distributions in
accordance with Section 2.3(c), and (iii) cash in lieu of fractional shares of
Old OEI Common Stock in accordance with Section 2.3(e), without interest.
(c) Treatment of OEI Junior Preferred. Each share of OEI Junior Preferred
issued and outstanding immediately prior to the Newco Effective Time, if any,
shall remain issued and outstanding and unchanged as a result of the Newco
Merger.
Section 2.2 Effect of the UMC Merger. As of the UMC Effective Time, by
virtue of the UMC Merger and without any action on the part of UMC, OEI or the
holders of any securities of UMC or OEI:
(a) Cancellation of Treasury Stock and OEI Owned Stock. Each share of UMC
Common Stock that is owned by UMC or by OEI, or by a direct or indirect
wholly-owned subsidiary of UMC or OEI, shall automatically be canceled and
retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(b) Cancellation of Treasury Stock and UMC Owned Stock. Each share of Old
OEI Common Stock that is owned by OEI or by UMC, or by a direct or indirect
wholly-owned subsidiary of OEI or UMC, shall automatically be canceled and
retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(c) Conversion of UMC Common Stock. Subject to Section 2.3(e), each issued
and outstanding share of UMC Common Stock (other than shares to be canceled in
accordance with Section 2.2(a) shall be converted into the right to receive 1.30
(the "UMC Exchange Ratio") fully paid and nonassessable shares of OEI Common
Stock (the "UMC Merger Consideration"). As of the UMC Effective Time, all such
shares of UMC Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate or certificates which immediately prior to such Effective Time
represented outstanding shares of UMC Common Stock (the "UMC Certificates" and,
together with the OEI Certificates, the "Certificates") shall cease to have any
rights with respect thereto, except the right to receive
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(i) OEI Certificates, (ii) certain dividends and other distributions in
accordance with Section 2.3(c), and (iii) cash in lieu of fractional shares of
OEI Common Stock in accordance with Section 2.3(e), without interest.
(d) Treatment of OEI Common Stock and OEI Junior Preferred. Each share of
OEI Common Stock issued and outstanding immediately prior to the UMC Effective
Time (including shares into which Old OEI Common Stock was converted pursuant to
the Newco Merger, but excluding shares to be canceled in accordance with Section
2.2(b)) and each share of OEI Junior Preferred issued and outstanding
immediately prior to the UMC Effective Time, if any, shall remain issued and
outstanding and unchanged as a result of the UMC Merger.
Section 2.3 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, OEI shall enter into an
agreement with such bank or trust company as may be designated by UMC and OEI
(the "Exchange Agent"), which shall provide that OEI shall deposit with the
Exchange Agent as of the Effective Time, for the benefit of the holders of
shares of UMC Common Stock and Old OEI Common Stock, for exchange in accordance
with this Article II, through the Exchange Agent, OEI Certificates representing
the number of whole shares of OEI Common Stock issuable pursuant to Section 2.1
in exchange for outstanding shares of Old OEI Common Stock and issuable pursuant
to Section 2.2 in exchange for outstanding shares of UMC Common Stock (such
shares of OEI Common Stock, together with any dividends or distributions with
respect thereto with a record date after the Effective Time, any Excess Shares
(as defined in Section 2.3(e)) and any cash (including cash proceeds from the
sale of the Excess Shares) payable in lieu of any fractional shares of OEI
Common Stock being hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate whose shares were converted into the Newco Merger Consideration,
pursuant to Section 2.1, or the UMC Merger Consideration, pursuant to Section
2.2 (collectively, the "Merger Consideration") (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as UMC
and OEI may reasonably specify), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor an OEI Certificate
representing that number of whole shares of OEI Common Stock which such holder
has the right to receive pursuant to the provisions of this Article II, certain
dividends or other distributions in accordance with Section 2.3(c) and cash in
lieu of any fractional shares in accordance with Section 2.3(e), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of UMC Common Stock not registered in the transfer records
of UMC or of Old OEI Common Stock not registered in the transfer records of OEI,
an OEI Certificate representing the proper number of shares of OEI Common Stock
may be issued to a person other than the person in whose name the Certificate so
surrendered is registered if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such issuance
shall pay any transfer or other non-income taxes required by reason of the
issuance of shares of OEI Common Stock to a person other than the registered
holder of such Certificate or establish to the satisfaction of OEI that such tax
has been paid or is not applicable. Until surrendered as contemplated by this
Section 2.3, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender OEI Certificates
representing the number of whole shares of OEI Common Stock into which the
shares of UMC Common Stock or Old OEI Common Stock formerly represented by such
Certificate have been converted, certain dividends or other distributions in
accordance with Section 2.3(c) and cash in lieu of any fractional shares in
accordance with Section 2.3(e). No interest will be paid or will accrue on any
cash payable to holders of Certificates pursuant to the provisions of this
Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to OEI Common Stock with a record date after the
Effective Time shall be paid to the holder of any
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unsurrendered Certificate with respect to the shares of OEI Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.3(e), and all such dividends,
other distributions and cash in lieu of fractional shares of OEI Common Stock
shall be paid by OEI to the Exchange Agent and shall be included in the Exchange
Fund, in each case until the surrender of such Certificate in accordance with
this Article II. Subject to the effect of applicable escheat or similar laws,
following surrender of any such Certificate there shall be paid to the holder of
the OEI Certificate representing whole shares of OEI Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of OEI Common
Stock and the amount of any cash payable in lieu of a fractional share of OEI
Common Stock to which such holder is entitled pursuant to Section 2.3(e) and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and with a payment date subsequent to such surrender payable with
respect to such whole shares of OEI Common Stock. OEI shall make available to
the Exchange Agent cash for these purposes.
(d) No Further Ownership Rights in UMC Common Stock and Old OEI Common
Stock. All shares of OEI Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article II (including any cash
paid pursuant to this Article II) shall be deemed to have been issued (and paid)
in full satisfaction of all rights pertaining to the shares of UMC Common Stock
and Old OEI Common Stock theretofore represented by such Certificates, subject,
however, to OEI's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
authorized or made by UMC on such shares of UMC Common Stock or by OEI on such
shares of Old OEI Common Stock, as the case may be, which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of OEI of the shares of UMC Common Stock or Old OEI Common
Stock, as the case may be, which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to OEI
or the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No OEI Certificates or scrip representing
fractional shares of OEI Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of OEI shall relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of OEI.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent will determine the excess of (A) the number of whole shares of OEI Common
Stock delivered to the Exchange Agent by OEI pursuant to Section 2.3(a) over (B)
the aggregate number of whole shares of OEI Common Stock to be distributed to
holders of UMC Common Stock and Old OEI Common Stock pursuant to Section 2.3(b)
(such excess being herein called the "Excess Shares"). Following the Effective
Time, the Exchange Agent will, on behalf of former stockholders of UMC, if any,
and OEI, sell the Excess Shares at then-prevailing prices on the New York Stock
Exchange, Inc. (the "NYSE"), all in the manner provided in Section 2.3(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be executed
on the NYSE through one or more member firms of the NYSE and will be executed in
round lots to the extent practicable. The Exchange Agent will use reasonable
efforts to complete the sale of the Excess Shares as promptly following the
Effective Time as, in the Exchange Agent's sole judgment, is practicable
consistent with obtaining the best execution of such sales in light of
prevailing market conditions. Until the net proceeds of such sale or sales have
been distributed to the holders of UMC Common Stock and Old OEI Common Stock,
the Exchange Agent will hold such proceeds in trust for the holders of UMC
Common Stock and Old OEI Common Stock (the "Common Shares Trust"). OEI will pay
all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. The Exchange Agent will
determine the portion of the Common Shares Trust to which each holder of UMC
Common Stock and Old OEI Common Stock is entitled, if any, by multiplying the
amount of the aggregate net proceeds comprising the Common Shares Trust by a
fraction, the numerator of which is the amount of the fractional share interest
to which such holder of UMC Common Stock or Old OEI
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Common Stock is entitled (after taking into account all shares of UMC Common
Stock or Old OEI Common Stock held at the Effective Time by such holder) and the
denominator of which is the aggregate amount of fractional share interests to
which all holders of UMC Common Stock and Old OEI Common Stock are entitled.
(iv) Notwithstanding the provisions of Section 2.3(e)(ii) and (iii), OEI
may elect at its option, exercised prior to the Effective Time, in lieu of the
issuance and sale of Excess Shares and the making of the payments hereinabove
contemplated, to pay each holder of UMC Common Stock or Old OEI Common Stock an
amount in cash equal to the product obtained by multiplying (A) the fractional
share interest to which such holder (after taking into account all shares of UMC
Common Stock or Old OEI Common Stock held at the Effective Time by such holder)
would otherwise be entitled by (B) the closing price for a share of OEI Common
Stock as reported on the NYSE Composite Transactions Tape (as reported in The
Wall Street Journal, or, if not reported thereby, any other authoritative
source) on the Closing Date, and, in such case, all references herein to the
cash proceeds of the sale of the Excess Shares and similar references will be
deemed to mean and refer to the payments calculated as set forth in this Section
2.3(e)(iv).
(v) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of UMC Common Stock and Old OEI Common Stock with
respect to any fractional share interests, the Exchange Agent will make
available such amounts to such holders of UMC Common Stock and Old OEI Common
Stock subject to and in accordance with the terms of Section 2.3(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to OEI upon demand, and any holders of the
Certificates who have not theretofore complied with this Article II shall
thereafter look only to OEI for payment of their claim for Merger Consideration,
any cash in lieu of fractional shares of OEI Common Stock and any dividends or
distributions with respect to OEI Common Stock.
(g) No Liability. None of Newco, UMC, OEI or the Exchange Agent shall be
liable to any person in respect of any shares of OEI Common Stock (or dividends
or distributions with respect thereto) or cash from the Exchange Fund in each
case delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificate shall not have been
surrendered prior to seven years after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration, any cash payable to the
holder of such Certificate pursuant to this Article II or any dividends or
distributions payable to the holder of such Certificate would otherwise escheat
to or become the property of any governmental body or authority) any such Merger
Consideration or cash, dividends or distributions in respect of such Certificate
shall, to the extent permitted by applicable law, become the property of OEI,
free and clear of all claims or interest of any person previously entitled
thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by OEI, on a daily basis. Any
interest and other income resulting from such investments shall be paid to OEI.
(i) Lost, Stolen or Destroyed Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by OEI, the posting by such person of a bond in such reasonable amount
as OEI may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration and, if
applicable, any cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of OEI Common Stock deliverable in respect thereof,
pursuant to this Agreement.
ARTICLE III
GOVERNANCE
Section 3.1 Board of Directors of OEI Subsequent to Effective
Time. Immediately subsequent to the UMC Effective Time, the Board of Directors
of OEI shall have 14 members and shall be divided into three
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classes, Class I, Class II and Class III, with the term of Class I expiring at
OEI's first annual meeting following the Effective Time, the term of Class II
expiring at OEI's second annual meeting following the Effective Time and the
term of Class III expiring at OEI's third annual meeting following the Effective
Time. Prior to the UMC Effective Time, (i) the Board of Directors of OEI shall
select from among the current members of the Board of Directors of OEI seven
individuals (the "OEI Director Nominees") for nomination as directors of OEI,
which nominees shall include James C. Flores, and (ii) the Board of Directors of
UMC shall select from among the current members of the Board of Directors of UMC
seven individuals (the "UMC Director Nominees") for nomination as directors of
OEI, which nominees shall include John B. Brock. If an individual so selected
consents to serve as a director, such individual shall be elected as a director
of OEI, effective as of the UMC Effective Time, for a term expiring at OEI's
next annual meeting of stockholders following the Effective Time at which the
term of the class to which such director belongs expires, subject to being
renominated as a director at the discretion of OEI's Board of Directors. Each
class shall consist of an equal, or as near as equal as possible, number of
directors (as provided in OEI's certificate of incorporation and the DGCL) and
the specific designation of UMC Director Nominees and OEI Director Nominees to a
particular class shall be determined by UMC and OEI prior to the UMC Effective
Time; provided, however, that (i) James C. Flores shall be designated by the
Board of Directors of OEI as a Class III Director and shall serve as President
and Chief Executive Officer as of the UMC Effective Time until the earlier of
his resignation or removal or until his successor is duly elected and qualified
in accordance with the Bylaws of OEI in effect subsequent to the UMC Effective
Time and (ii) John B. Brock shall be designated by the Board of Directors of UMC
as a Class III Director and shall serve as Chairman of the Board as of the UMC
Effective Time until the earlier of his resignation or removal or until his
successor is duly elected and qualified in accordance with the Bylaws of OEI in
effect subsequent to the UMC Effective Time. If at any time prior to the UMC
Effective Time, any UMC Director Nominee or OEI Director Nominee shall be unable
to serve as a director at the UMC Effective Time, the respective Board of
Directors that designated such individual as provided herein shall designate
another individual to serve in such individual's place; provided that in the
event John Brock is unable to serve as Chairman of the Board, James C. Flores
shall serve as Chairman of the Board as of the Effective Time until his
successor is duly elected and qualified in accordance with the Bylaws of OEI in
effect subsequent to the UMC Effective Time; provided, further, in the event
James C. Flores is unable to serve as President and Chief Executive Officer,
John Brock shall serve as President and Chief Executive Officer of the Company
as of the Effective Time until his successor is duly elected and qualified in
accordance with the Bylaws of OEI in effect subsequent to the UMC Effective
Time.
Section 3.2 Board Committees and Executive Officers. The committees of the
Board of Directors of OEI immediately subsequent to the UMC Effective Time shall
contain an equal number of UMC Director Nominees and OEI Director Nominees and
the composition of such committees (including chairmen thereof) shall be as
designated prior to the UMC Effective Time until the earlier of the resignation
or removal of any individual so designated or until their respective successors
are duly elected and qualified, as the case may be, it being agreed that if at
any time prior to the UMC Effective Time any director nominee designated as a
member of a committee shall be unable to serve as a member of a committee
(including as a chairman of any committee) at the UMC Effective Time, the
respective Board of Directors that designated such individual as provided herein
(or in the case of Messrs. Brock and Flores, the respective Board of Directors
on which they presently serve) shall designate another individual to serve in
such individual's place. The chairman of each of the Finance and Audit
Committees of the Board of Directors of OEI immediately subsequent to the UMC
Effective Time shall be UMC Director Nominees and the chairman of each of the
Nominating and Compensation Committees of the Board of Directors of OEI
immediately subsequent to the UMC Effective Time shall be OEI Director Nominees.
Subsequent to the UMC Effective Time, those individuals set forth on EXHIBIT B
hereto shall be executive officers of OEI having the titles and positions set
forth opposite their respective names on such Exhibit until the earlier of the
resignation or removal of any such individual or until their respective
successors are duly elected and qualified, as the case may be. Prior to the UMC
Effective Time, OEI and UMC may mutually agree to designate additional
individuals to serve as executive officers of OEI subsequent to the UMC
Effective Time. Subject to Section 3.1, if any executive officer set forth on
EXHIBIT B or designated in accordance with this Section 3.2 ceases to be a
full-time employee of either OEI or UMC (or otherwise declines to serve in such
designated capacity) at or before the UMC Effective Time,
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OEI and UMC will agree upon another person to serve in such person's stead or
agree to leave such office vacant through the UMC Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF OEI
Except as set forth on the Disclosure Schedule (the "OEI Disclosure
Schedule") included in the letter and delivered by OEI to UMC prior to the
execution of this Agreement, OEI represents and warrants to UMC as follows:
Section 4.1 Organization and Qualification.
(a) OEI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. OEI is duly qualified to do
business as a foreign corporation and is in good standing in the jurisdictions
set forth in Section 4.1(a) of the OEI Disclosure Schedule, which includes each
jurisdiction in which the character of OEI's properties owned or leased by it or
the nature of its business makes such qualification necessary, except in
jurisdictions, if any, where the failure to be so qualified would not,
individually or in the aggregate, result in an OEI Material Adverse Effect (as
defined in Section 4.1(c)). OEI has all requisite corporate power and authority
to own, use or lease its properties and to carry on its business as it is now
being conducted. OEI has made available to UMC a complete and correct copy of
its certificate of incorporation and bylaws, each as amended to date, and OEI's
certificate of incorporation and bylaws as so delivered are in full force and
effect. OEI is not in default in the performance, observation or fulfillment of
any provision of its certificate of incorporation or bylaws.
(b) Section 4.1(b) of the OEI Disclosure Schedule lists the name and
jurisdiction of organization of each Subsidiary (as defined in Section 4.1(c))
of OEI and the jurisdictions in which each such Subsidiary is qualified or holds
licenses to do business as a foreign corporation or other organization as of the
date hereof. Each of OEI's Subsidiaries is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, is duly
qualified to do business as a foreign entity and is in good standing in the
jurisdictions set forth in Section 4.1(b) of the OEI Disclosure Schedule, which
includes each jurisdiction in which the character of such Subsidiary's
properties owned or leased by it or the nature of its business makes such
qualification necessary, except in jurisdictions, if any, where the failure to
be so qualified would not, individually or in the aggregate, result in an OEI
Material Adverse Effect. Each of OEI's Subsidiaries has all requisite corporate
(or other organizational) power and authority to own, use or lease its
properties and to carry on its business as it is now being conducted. OEI has
made available to UMC a complete and correct copy of the certificate of
incorporation and bylaws (or similar organizational documents) of each of OEI's
Subsidiaries, each as amended to date, and the certificate of incorporation and
bylaws (or similar organizational documents) as so delivered are in full force
and effect. No Subsidiary of OEI is in default in any material respect in the
performance, observation or fulfillment of any provision of its certificate of
incorporation or bylaws (or similar organizational documents). Other than OEI's
Subsidiaries, OEI does not beneficially own or control, directly or indirectly,
any class of equity or similar securities of any corporation or other
organization, whether incorporated or unincorporated.
(c) For purposes of this Agreement, (i) an "OEI Material Adverse Effect"
shall mean any event, circumstance, condition, development or occurrence
causing, resulting in or having a material adverse effect on the condition
(financial or otherwise), business, assets, properties or results of operations
of OEI and its Subsidiaries taken as a whole; and (ii) "Subsidiary" shall mean,
with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (A) at least a majority of the
securities or other interests having by their terms voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
beneficially owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries, or (B) such
party or any Subsidiary of such party is a general partner of a partnership or a
manager of a limited liability company.
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Section 4.2 Capitalization.
(a) As of the date hereof, the authorized capital stock of OEI consists of
(i) 100,000,000 shares of common stock, par value $.01 per share ("OEI Common
Stock"), of which 22,896,787 shares are issued and outstanding as of the date of
this Agreement, 100 shares are held as treasury shares, and 3,023,955 shares are
reserved for issuance upon exercise of options under OEI Stock Plans and (ii)
10,000,000 shares of preferred stock, par value $.01 per share, which have not
yet been issued or designated as to a series by the Board of Directors of OEI;
provided that 2,000,000 of such shares have been or will be designated by OEI as
"Series A Junior Participating Preferred Stock" (the "OEI Junior Preferred") in
connection with the adoption by the Board of Directors of OEI, concurrently with
the authorization of this Agreement, of a stockholder rights plan (the "OEI
Rights Plan") pursuant to which a preferred share purchase right (an "OEI
Right") has been or will be declared payable as a dividend on all outstanding
shares of OEI Common Stock, which Rights will be issued pursuant to a OEI Rights
Agreement of even date with this Agreement between OEI and Harris Trust and
Savings Bank (the "OEI Rights Agreement"). All of the aforesaid outstanding
shares of capital stock have been validly issued, are fully paid and
nonassessable, and are free of preemptive rights. Except as described above,
including pursuant to the OEI Rights Plan, as of the date hereof, there are no
shares of capital stock or other equity securities of OEI outstanding and no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, shares of any capital stock of OEI, or contracts, commitments,
understandings, or arrangements by which OEI is or may become bound to issue
additional shares of its capital stock (other than previously reserved shares
described above) or options, warrants or rights to purchase or acquire any
shares of its capital stock.
(b) Except as set forth in Section 4.2(b) of the OEI Disclosure Schedule,
OEI is, directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock or other equity securities, as the case may
be, of each of OEI's Subsidiaries, there are no irrevocable proxies with respect
to any such shares, and no equity securities of any Subsidiary of OEI are or may
become required to be issued by reason of any options, warrants, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable or exercisable for, shares
of any capital stock of any Subsidiary of OEI, and there are no contracts,
commitments, understandings or arrangements by which OEI or any Subsidiary of
OEI is or may be bound to either sell any outstanding securities of any
Subsidiary or issue additional shares of capital stock of any Subsidiary of OEI
or securities convertible into or exchangeable or exercisable for any such
shares. Except as set forth in Section 4.2(b) of the OEI Disclosure Schedule,
all of such shares so owned by OEI are validly issued, fully paid and
nonassessable and are owned by it free and clear of any liens, mortgages,
pledges, security interests, encumbrances, claims or charges of any kind
(collectively, "Liens"). There are not as of the date hereof and there will not
be at the Effective Time any stockholder agreements, voting trusts or other
agreements or understandings to which OEI is a party or by which it is bound
relating to the voting of any shares of the capital stock of OEI that will limit
in any way the solicitation of proxies by or on behalf of OEI from, or the
casting of votes by, the stockholders of OEI with respect to the Mergers. There
are no restrictions on OEI to vote the stock of any of its Subsidiaries.
Section 4.3 Authority. The Board of Directors of OEI has approved the
Newco Merger, the UMC Merger and this Agreement, and declared the Newco Merger,
the UMC Merger and this Agreement to be in the best interests of the
stockholders of OEI. The Board of Directors of OEI has taken all necessary
corporate action to approve the transactions contemplated by the Agreement to
Vote and Proxy dated as of the date hereof between UMC and each of James C.
Flores and the Flores Family Limited Partnership (the "OEI Proxies") pursuant to
Section 203(a) of the DGCL. The directors of OEI have advised OEI and Newco that
they intend to vote or cause to be voted all of the shares of OEI Common Stock
beneficially owned by them and their affiliates in favor of approval of the
Mergers and this Agreement. OEI has full corporate power and authority to
execute and deliver this Agreement and the other agreements contemplated hereby
(the "Ancillary Agreements") to which OEI is or will be a party and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Ancillary Agreements to which
OEI is or will be a party and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by OEI's Board of
Directors, and no other corporate proceedings on the part of OEI are necessary
to authorize this Agreement and the Ancillary Agreements to
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which OEI is or will be a party or to consummate the transactions contemplated
hereby or thereby, other than the approval of this Agreement, the Newco Merger
and the UMC Merger by its stockholders as contemplated by Section 6.3(c). This
Agreement has been, and the Ancillary Agreements to which OEI is or will be a
party are, or upon execution and delivery will be, duly and validly executed and
delivered by OEI and, assuming the due authorization, execution and delivery
hereof and thereof by the other parties hereto and thereto, constitute, or upon
execution and delivery will constitute, valid and binding obligations of OEI
enforceable against OEI in accordance with their respective terms, except as
such enforceability may be subject to the effects of bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting the rights of
creditors generally and of general principles of equity (the "Enforceability
Exception").
Section 4.4 Consents and Approvals; No Violation. Except as set forth in
Section 4.4 of the OEI Disclosure Schedule, the execution and delivery of this
Agreement and the Ancillary Agreements do not, and the consummation of the
transactions contemplated hereby and thereby and compliance with the provisions
hereof and thereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any Lien,
security interest, charge or encumbrance upon any of the properties or assets of
OEI or any of its Subsidiaries under, any provision of (a) the certificate of
incorporation or bylaws of OEI or any provision of the comparable charter or
organization documents of any of its Subsidiaries, (b) any material loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license which OEI or any of its
Subsidiaries is a party or by which OEI or any of its Subsidiaries or any of
their respective properties or assets may be bound or (c) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to OEI or any of
its Subsidiaries or any of their respective properties or assets, other than in
the case of clause (b) or (c), any such conflicts, violations, defaults,
terminations, cancellations, accelerations, Liens, security interests, charges
or encumbrances that, individually or in the aggregate, would not result in an
OEI Material Adverse Effect, materially impair the ability of OEI to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby. No filing or registration with, or authorization, consent
or approval of, any domestic (Federal and state), foreign or supranational
court, commission, governmental body, regulatory agency, authority or tribunal
(a "Governmental Authority") is required by or with respect to OEI or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
OEI or the consummation by OEI of the transactions contemplated hereby, except
for (a) the filing with the SEC of the Joint Proxy Statement/Prospectus and such
reports in connection, or in compliance, with the provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Securities Act of
1933, as amended (the "Securities Act") and the rules and regulations of the SEC
thereunder as may be required in connection with this Agreement and the
transactions contemplated hereby and the obtaining from the SEC of such orders
as may be required, (b) the filing of the Certificates of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which OEI or any of its Subsidiaries is
qualified to do business, (c) such filings and consents as may be required under
any environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Mergers or the
transactions contemplated by this Agreement, (d) such filings as may be required
in connection with applicable taxes, (e) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the corporation, takeover or "Blue Sky" laws of various states, (f) such filings
and approvals as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and (g) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made would not, individually or
in the aggregate, have an OEI Material Adverse Effect, materially impair the
ability of OEI to perform its obligations hereunder or prevent the consummation
of any of the transactions contemplated hereby.
Section 4.5 OEI SEC Reports. OEI has filed with the SEC, and has
heretofore made available to UMC true and complete copies of, each form,
registration statement, report, schedule, proxy or information statement and
other document (including exhibits and amendments thereto, but excluding
preliminary materials), including without limitation its Annual Reports to
Stockholders incorporated by reference in certain of such reports, which OEI was
required to file with the SEC since December 31, 1994, and prior to or
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on the date of this Agreement under the Securities Act or the Exchange Act
(collectively, the "OEI SEC Reports"). As of the respective dates such OEI SEC
Reports were filed or, if any such OEI SEC Reports were amended, as of the date
such amendment was filed, each of the OEI SEC Reports, including without
limitation any financial statements or schedules included therein, (a) complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act, as the case may be, and the applicable rules and
regulations promulgated thereunder, and (b) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.6 OEI Financial Statements. Each of the audited consolidated
financial statements and unaudited consolidated interim financial statements of
OEI (including any related notes and schedules) included (or incorporated by
reference) in the OEI SEC Reports (collectively, the "OEI Financial Statements")
have been prepared from, and are in accordance with, the books and records of
OEI and its consolidated Subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated in the notes thereto
and subject, in the case of quarterly financial statements, to normal and
recurring year-end adjustments) and fairly present, in conformity with GAAP
applied on a consistent basis (except as may be indicated in the notes thereto),
the consolidated financial position of OEI and its consolidated Subsidiaries as
of the date thereof and the consolidated results of operations and cash flows
(and changes in financial position, if any) of OEI and its consolidated
Subsidiaries for the periods presented therein (subject to normal year-end
adjustments, none of which are material, and the absence of financial footnotes
in the case of any unaudited interim financial statements).
Section 4.7 Absence of Undisclosed Liabilities. Except as disclosed in the
OEI SEC Reports, as of the date hereof, there are no liabilities of OEI or any
of its Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that are reasonably likely to
have an OEI Material Adverse Effect, other than: (a) liabilities adequately
provided for on the balance sheet of OEI dated as of December 31, 1996
(including the notes thereto), contained in OEI's Annual Report on Form 10-K for
the year ended December 31, 1996; (b) financial liabilities and contractual
obligations incurred in the ordinary course of business subsequent to December
31, 1996; and (c) liabilities under this Agreement.
Section 4.8 Absence of Certain Changes. Except as disclosed in the OEI SEC
Reports, as contemplated by this Agreement, as set forth in Section 4.8 of the
OEI Disclosure Schedule or as disclosed in OEI Financial Statements, since
December 31, 1996, (a) OEI and its Subsidiaries have conducted their business in
all material respects in the ordinary course consistent with past practices, (b)
there has not been any change or development, or combination of changes or
developments that, individually or in the aggregate, would have an OEI Material
Adverse Effect, (c) there has not been any declaration, setting aside or payment
of any dividend or other distribution with respect to any shares of capital
stock of OEI, or any repurchase, redemption or other acquisition by OEI or any
of its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, OEI or any of its Subsidiaries,
(d) there has not been any amendment of any term of any outstanding security of
OEI or any of its Subsidiaries, (e) there has not been any change in any method
of accounting or accounting practice by OEI or any of its Subsidiaries, except
for any such change required by reason of a concurrent change in GAAP, (f) there
has not been any material change in any tax method, practice or election by OEI
or any of its Subsidiaries and (g) there has not been any other transaction,
commitment, dispute or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) that is reasonably
likely to have an OEI Material Adverse Effect, except for general economic
changes and changes that may affect the industries of OEI and its Subsidiaries
generally.
Section 4.9 No Default. Neither OEI nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any term, condition
or provision of (a) the certificate of incorporation or bylaws of OEI or the
comparable charter or organizational documents of any of its Subsidiaries, (b)
any loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license to which OEI or
any
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of its Subsidiaries is now a party or by which OEI or any of their respective
properties or assets is bound or (c) any order, writ, injunction, decree,
statute, rule or regulation applicable to OEI or any of its Subsidiaries, except
in the case of (b) and (c) for defaults or violations which in the aggregate
would not have an OEI Material Adverse Effect.
Section 4.10 Taxes. Except as otherwise disclosed in Section 4.10 of the
OEI Disclosure Schedule (and for matters that would not be an OEI Material
Adverse Effect, individually or in the aggregate):
(a) OEI and each of its Subsidiaries have timely filed (or have had timely
filed on their behalf) or will file or cause to be timely filed, all Tax Returns
(as defined in Section 4.10(j)) required by applicable law to be filed by, with
respect to, or include any of them prior to or as of the Closing Date. All such
Tax Returns and amendments thereto are or will be true, complete and correct in
all material respects.
(b) OEI and each of its Subsidiaries have paid (or have had paid on their
behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Closing Date, an adequate
accrual for the payment of all material Taxes (as defined in Section 4.10(j))
for which OEI or any of its Subsidiaries could be held liable with respect to
any period ending prior to or as of the Closing Date.
(c) No Audit (as defined in Section 4.10(j)) by a Tax Authority (as defined
in Section 4.10(j)) is pending or, to the knowledge of OEI, threatened with
respect to any Tax Returns filed by, or Taxes due from, OEI or any Subsidiary.
No issue has been raised by any Tax Authority in any Audit of OEI or any of its
Subsidiaries that if raised with respect to any other period not so audited
could be expected to result in a material proposed deficiency for any period not
so audited. No material deficiency or adjustment for any Taxes has been
threatened, proposed, asserted or assessed against OEI or any of its
Subsidiaries. There are no Liens for Taxes upon the assets of OEI or any of its
Subsidiaries, except Liens for current Taxes not yet delinquent.
(d) Neither OEI nor any of its Subsidiaries has given or been requested to
give any waiver of statutes of limitations relating to the payment of Taxes or
have executed powers of attorney with respect to Tax matters, which will be
outstanding as of the Closing Date.
(e) Prior to the date hereof, OEI and its Subsidiaries have disclosed, and
provided or made available to UMC true and complete copies of, all material Tax
sharing, Tax indemnity, or similar agreements to which OEI or any of its
Subsidiaries is a party, is bound by, or has any obligation or liability for
Taxes.
(f) Neither OEI nor any of its Subsidiaries has filed a consent under
section 341(f) of the Code concerning collapsible corporations. Neither OEI nor
any of its Subsidiaries has made any material payments, is obligated to make any
material payments, or is a party to any agreement that under certain
circumstances could obligate it to make any material payments that will not be
deductible under sections 162(m), 263, or 280G of the Code. Neither OEI nor any
of its Subsidiaries has been a United States real property holding corporation
within the meaning of section 897(c)(2) of the Code during the applicable period
specified in section 897(c)(1)(A)(ii) of the Code. Neither OEI nor any of its
Subsidiaries (i) has been a member of an Affiliated Group filing a consolidated
federal Tax Return (other than a group the common parent of which was OEI) or
(ii) has any liability for the Taxes of any person (other than any of OEI and
its Subsidiaries) under Treasury Regulation section 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, by
contract or otherwise.
(g) Neither OEI nor any of its Subsidiaries has agreed to or is required to
make any adjustment pursuant to section 481(a) of the Code (or any predecessor
provision), and there is no application pending with any taxing authority
requesting permission for any changes in any accounting method of OEI or any of
its Subsidiaries. The Internal Revenue Service has not proposed any such
adjustment or change in accounting method with respect to OEI or any of its
Subsidiaries.
(h) Neither OEI nor any of its Subsidiaries has been or is in violation (or
with notice or lapse of time or both, would be in violation) of any applicable
law relating to the payment or withholding of Taxes. OEI and its Subsidiaries
have duly and timely withheld from employee salaries, wages and other
compensation and paid
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over to the appropriate taxing authorities all amounts required to be so
withheld and paid over for all periods under all applicable laws.
(i) The unpaid Taxes of OEI and its Subsidiaries (i) did not, as of the
most recent fiscal month end included in OEI Financial Statements, exceed by any
material amount the reserve for Tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the face of the most recent balance sheet included in OEI
Financial Statements (rather than in any notes thereto) and (ii) will not exceed
by any material amount that reserve as adjusted for operations and transactions
through the Effective Time in accordance with the past custom and practice of
OEI and its Subsidiaries in filing their Tax Returns.
(j) As used in this Agreement, (i) "Audit" shall mean any audit, assessment
of Taxes, other examination by any Tax Authority, proceeding or appeal of such
proceeding relating to Taxes; (ii) "Taxes" shall mean all Federal, state, local
and foreign taxes, and other assessments of a similar nature (whether imposed
directly or through withholding), including any interest, additions to tax, or
penalties applicable thereto; (iii) "Tax Authority" shall mean the Internal
Revenue Service and any other domestic or foreign Governmental Authority
responsible for the administration of any Taxes; (iv) "Tax Returns" shall mean
all Federal, state, local and foreign tax returns, declarations, statements,
reports, schedules, forms and information returns and any amended Tax Return
relating to Taxes; and (v) "Affiliated Group" means any affiliated group within
the meaning of section 1504(a) of the Code or any similar group defined under a
similar provision of state, local or foreign law.
Section 4.11 Litigation. Except as disclosed in the OEI SEC Reports or
Section 4.11 of the OEI Disclosure Schedule, as of the date of this Agreement,
there is no suit, claim, action, proceeding, arbitration or investigation
pending or, to the knowledge of OEI, threatened against or directly affecting
OEI, any of its Subsidiaries or any of the directors or officers of OEI or any
of its Subsidiaries in their capacity as such by or before any court,
Governmental Authority or any arbitrator of any kind ("OEI Litigation"), and
neither OEI nor its Subsidiaries is aware of any facts that are likely to give
rise to any OEI Litigation, that (in any case) could reasonably be expected to
have an OEI Material Adverse Effect or could reasonably be expected to
materially adversely affect OEI's ability to consummate the transactions
contemplated by this Agreement, if adversely determined. Neither OEI nor any of
its Subsidiaries, nor any officer, director or employee of OEI or any of its
Subsidiaries, has been permanently or temporarily enjoined by any order,
judgment, injunction or decree of any court or any other Governmental Authority
from engaging in or continuing any conduct or practice in connection with the
business, assets or properties of OEI or such Subsidiary nor, to the knowledge
of OEI, is OEI, any Subsidiary or any officer, director or employee of OEI or
its Subsidiaries under investigation by any Governmental Authority. Except as
disclosed in the OEI SEC Reports or Section 4.11 of the OEI Disclosure Schedule,
there is not in existence any order, judgment, injunction or decree of any court
or other tribunal against OEI or any of its Subsidiaries that is reasonably
likely to have an OEI Material Adverse Effect or is reasonably expected to
materially adversely affect OEI's ability to perform its obligations under this
Agreement or to consummate the transactions contemplated hereby. Notwithstanding
the foregoing, no representation or warranty in this Section 4.11 is made with
respect to Environmental Laws (as defined in Section 4.13(a)), which are covered
exclusively by the provisions set forth in Section 4.13.
Section 4.12 Employee Benefit Plans; ERISA.
(a) Section 4.12(a) of the OEI Disclosure Schedule contains a true and
complete list of the written and oral plans, policies and arrangements of any
type (including but not limited to plans described in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
currently sponsored, maintained or contributed to by OEI or any trade or
business, whether or not incorporated, which together with OEI would be deemed a
"single employer" within the meaning of section 414(b), (c) or (m) of the Code
or section 4001(b)(1) of ERISA (an "OEI ERISA Affiliate"), which provide
compensation, insurance or other coverage, or any other benefits to the
employees, independent contractors or non-employee directors of OEI or any
Subsidiary of OEI ("OEI Benefit Plans").
(b) With respect to each OEI Benefit Plan: (i) if intended to qualify under
section 401(a) or 401(k) of the Code, such plan satisfies the requirements of
such sections, has received a favorable determination letter
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from the Internal Revenue Service with respect to its qualification, and its
related trust has been determined to be exempt from tax under section 501(a) of
the Code and, to the knowledge of OEI, nothing has occurred since the date of
such letter to adversely affect such qualification or exemption; (ii) each such
plan has been administered in substantial compliance with its terms and
applicable law; (iii) neither OEI nor any OEI ERISA Affiliate has engaged in,
and OEI and each OEI ERISA Affiliate do not have any knowledge of any person
that has engaged in, any transaction or acted or failed to act in any manner
that would subject OEI or any OEI ERISA Affiliate to any liability for a breach
of fiduciary duty under ERISA that could reasonably be expected to result in an
OEI Material Adverse Effect; (iv) no disputes are pending or, to the knowledge
of OEI or any OEI ERISA Affiliate, threatened; (v) neither OEI nor any OEI ERISA
Affiliate has engaged in, and OEI and each OEI ERISA Affiliate do not have any
knowledge of any person that has engaged in, any transaction in violation of
section 406(a) or (b) of ERISA for which no exemption exists under section
4975(c)(2) of the Code or section 4975(d) of the Code that could reasonably be
expected to result in an OEI Material Adverse Effect; (vi) there have been no
"reportable events" within the meaning of section 4043 of ERISA for which the 30
day notice requirement of ERISA has not been waived by the Pension Benefit
Guaranty Corporation (the "PBGC"); (vii) all contributions due have been made on
a timely basis (within, where applicable, the time limit established under
section 302 of ERISA or section 412 of the Code); (viii) no notice of intent to
terminate such plan has been given under section 4041 of ERISA and no proceeding
has been instituted under section 4042 of ERISA to terminate such plan; and (ix)
except for defined benefit plans, such plan may be terminated on a prospective
basis without any continuing liability for benefits other than benefits accrued
to the date of such termination. All contributions made or required to be made
under any OEI Benefit Plan meet the requirements for deductibility under the
Code, and all contributions which are required and which have not been made have
been properly recorded on the books of OEI or an OEI ERISA Affiliate.
(c) No OEI Benefit Plan is a "multiemployer plan" (as defined in section
4001(a)(3) of ERISA) or a "multiple employer plan" (as described in section
413(c) of the Code), and, except as provided in Section 4.12(c) of the OEI
Disclosure Schedule, no OEI Benefit Plan is or was subject to section 302 of
ERISA or section 412 of the Code. No event has occurred with respect to OEI or
an OEI ERISA Affiliate in connection with which OEI could be subject to any
liability, Lien or encumbrance with respect to any OEI Benefit Plan or any
employee benefit plan described in section 3(3) of ERISA maintained, sponsored
or contributed to by an OEI ERISA Affiliate under ERISA or the Code. Except as
provided in Part 6 of Title I of ERISA, no welfare plan (as defined in section
3(1) of ERISA) provides any benefits to any retiree or former employee or
service provider of OEI.
(d) Except as set forth in Section 4.12(d) of the OEI Disclosure Schedule,
no employees of OEI or any of its Subsidiaries are covered by any severance plan
or similar arrangement.
Section 4.13 Environmental Matters. Except as set forth in (i) Section
4.13 of the OEI Disclosure Schedule or (ii) the OEI SEC Reports:
(a) The businesses of OEI and its Subsidiaries have been and are operated
in compliance with all Federal, state and local environmental protection, health
and safety or similar laws, statutes, ordinances, restrictions, licenses, rules,
regulations, permit conditions and legal requirements, including without
limitation the Federal Clean Water Act, Safe Drinking Water Act, Resource
Conservation & Recovery Act, Clean Air Act, Comprehensive Environmental
Response, Compensation and Liability Act, Emergency Planning and Community Right
to Know Act, Oil Pollution Act of 1990, and the Toxic Substances Control Act,
each as amended and currently in effect (collectively, "Environmental Laws").
(b) Neither OEI nor any of its Subsidiaries has caused or allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any chemicals,
pollutants, contaminants, wastes, solid wastes, toxic substances, hazardous
substances, hazardous wastes, petroleum, petroleum products or any substance
regulated under any Environmental Law ("Hazardous Substances") at any of its
properties or facilities, except in material compliance with all Environmental
Laws or except as would not result in an OEI Material Adverse Effect, and, to
OEI's knowledge, no generation, manufacture, processing, distribution, use,
treatment, handling, storage, discharge, release,
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disposal, transport or handling of any Hazardous Substances has occurred at any
property or facility owned, leased or operated by OEI or any of its Subsidiaries
except in material compliance with all Environmental Laws.
(c) Neither OEI nor any of its Subsidiaries has received any written notice
from any Governmental Authority or other third party or, to the knowledge of
OEI, any other communication alleging or concerning any violation by OEI or any
of its Subsidiaries of, or responsibility or liability of OEI or any of its
Subsidiaries under, any Environmental Law or for personal injuries and/or
property damages. There are no pending, or to the knowledge of OEI, threatened,
claims, suits, actions, proceedings or investigations with respect to the
businesses or operations of OEI or any of its Subsidiaries alleging or
concerning any violation of or responsibility or liability under any
Environmental Law or alleging personal injuries and/or property damages, nor
does OEI have any knowledge of any fact or condition that could give rise to
such a claim, suit, action, proceeding or investigation.
(d) OEI and its Subsidiaries are in possession of and in material
compliance with all approvals, permits, licenses, registrations and similar type
authorizations from all Governmental Authorities under all Environmental Laws
with respect to the operation of the businesses of OEI and its Subsidiaries;
there are no pending or, to the knowledge of OEI, threatened, actions,
proceedings or investigations seeking to modify, revoke or deny renewal of any
of such approvals, permits, licenses, registrations and authorizations; and OEI
does not have knowledge of any fact or condition that is reasonably likely to
give rise to any action, proceeding or investigation to modify, revoke or deny
renewal of any of such approvals, permits, licenses, registrations and
authorizations. No notice to, approval of, or authorization or consent from any
Governmental Authority is necessary for the transfer of or modification to any
approval, permit, license, registration or authorization, and the consummation
of the transactions contemplated by this Agreement will not violate, alter,
impair or invalidate, in any respect, any approval, permit, license,
registration or authorization.
(e) Without in any way limiting the generality of the foregoing, (i) none
of the off-site locations where OEI or any of its Subsidiaries has transported,
released, discharged, stored, disposed or arranged for the disposal of Hazardous
Substances is listed on CERCLIS or the NPL or, to the knowledge of OEI, is the
subject of pending or threatened claims, suits, actions, proceedings or
investigations by any Governmental Authority or other third party, (ii) to OEI's
knowledge, all underground storage tanks owned or operated by OEI or any of its
Subsidiaries are in compliance with Environmental Laws, and there have been no
releases of Hazardous Substances from such underground storage tanks, (iii) to
the knowledge of OEI, there is no asbestos contained in or forming part of any
equipment, building, building component, structure or office space owned or
leased by OEI, and (iv) no polychlorinated biphenyls ("PCBs") or PCB-containing
items are used or stored at any property owned, leased or operated by OEI or any
of its Subsidiaries.
Section 4.14 Compliance with Applicable Laws. Except as set forth in
Section 4.14 of the OEI Disclosure Schedule or as disclosed in the OEI SEC
Reports, neither OEI nor any of its Subsidiaries has received notice of any
revocation or modification of any Federal, state, local or foreign governmental
license, certification, tariff, permit, authorization or approval, the
revocation or modification of which would have an OEI Material Adverse Effect.
The conduct of the business of each of OEI and its Subsidiaries complies with
all statutes, laws, regulations, ordinances, rules, judgments, orders, decrees
or arbitration awards applicable hereto, except for violations or failures to
comply, if any, that, individually or in the aggregate, would not have an OEI
Material Adverse Effect. Notwithstanding the foregoing, no representation or
warranty in this Section 4.14 is made with respect to Environmental Laws, which
are covered exclusively by the provisions set forth in Section 4.13.
Section 4.15 Insurance. Section 4.15 of the OEI Disclosure Schedule lists
each of the insurance policies relating to OEI or its Subsidiaries which are
currently in effect. OEI has provided UMC with a true, complete and correct copy
of each such policy or the binder therefor. With respect to each such insurance
policy or binder, none of OEI, any of its Subsidiaries or any other party to the
policy is in breach or default thereunder (including with respect to the payment
of premiums or the giving of notices), and OEI does not know of any occurrence
or any event which (with notice or the lapse of time or both) would constitute
such a breach or default or permit termination, modification or acceleration
under the policy, except for such
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breaches or defaults which, individually or in the aggregate, would not result
in an OEI Material Adverse Effect. Section 4.15 of the OEI Disclosure Schedule
describes any self-insurance arrangements affecting OEI or its Subsidiaries. The
insurance policies listed in Section 4.15 of the OEI Disclosure Schedule include
all policies which are required in connection with the operation of the
businesses of OEI and its Subsidiaries as currently conducted by applicable laws
and all agreements relating to OEI and its Subsidiaries.
Section 4.16 Labor Matters; Employees.
(a) Except as set forth in Section 4.16(a) of the OEI Disclosure Schedule,
(i) there is no labor strike, dispute, slowdown, work stoppage or lockout
actually pending or, to the knowledge of OEI, threatened against or affecting
OEI or any of its Subsidiaries and, during the past five years, there has not
been any such action, (ii) none of OEI or any of its Subsidiaries is a party to
or bound by any collective bargaining or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to a material number of employees of OEI or
any of its Subsidiaries, (iii) no material number of the employees of OEI or any
of its Subsidiaries are represented by any labor organization and none of OEI or
any of its Subsidiaries have any knowledge of any current union organizing
activities among a material number of employees of OEI or any of its
Subsidiaries nor does any question concerning representation exist concerning
such employees, (iv) OEI and its Subsidiaries have each at all times been in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work and
occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, ordinance or regulation, (v) there is no material unfair labor practice
charge or complaint against any of OEI or any of its Subsidiaries pending or, to
the knowledge of OEI, threatened before the National Labor Relations Board or
any similar state or foreign agency, (vi) there is no material grievance or
arbitration proceeding arising out of any collective bargaining agreement or
other grievance procedure relating to OEI or any of its Subsidiaries, and (vii)
neither the Occupational Safety and Health Administration, the Department of
Labor, the Equal Employment Opportunity Commission nor any corresponding state
agency has threatened to file any citation, and there are no pending citations,
relating to OEI or any of its Subsidiaries.
(b) Except as set forth in Section 4.16(b) of the OEI Disclosure Schedule,
since the enactment of the Worker Adjustment and Retraining Notification Act of
1988 ("WARN Act"), none of OEI or any of its Subsidiaries has effectuated (i) a
"plant closing" (as defined in the WARN Act) affecting any site of employment or
one or more facilities or operating units within any site of employment or
facility of OEI or any of its Subsidiaries, or (ii) a "mass layoff" (as defined
in the WARN Act) affecting any site of employment or facility of OEI or any of
its Subsidiaries, nor has OEI or any of its Subsidiaries been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law, that could
reasonably be expected to have an OEI Material Adverse Effect. The Mergers are
not anticipated to result in any "plant closing" or "mass layoff" which would
require any action to comply with the WARN Act.
(c) Except as disclosed in Section 4.11 of the OEI Disclosure Schedule and
for matters which would not have an OEI Material Adverse Effect, there is no
suit, claim, action, proceeding or investigation regarding any labor or
employment matter pending or threatened against or directly affecting OEI, any
of its Subsidiaries or any of the directors or officers of OEI or any of its
Subsidiaries in their capacity as such by or before any administrative agency,
court, Governmental Authority or any arbitrator of any kind, that could
reasonably be expected to have an OEI Material Adverse Effect, if adversely
determined.
Section 4.17 Beneficial Ownership of UMC Common Stock. As of the date
hereof, neither OEI nor its Subsidiaries "beneficially owns" (as defined in Rule
13d-3 under the Exchange Act) any of the outstanding UMC Common Stock or any of
UMC's outstanding debt securities.
Section 4.18 Permits. Immediately prior to the Effective Time and except
for approvals that are ministerial in nature and are customarily obtained from
Governmental Authorities after the Effective Time in connection with
transactions of the same nature as are contemplated hereby ("Customary
Post-Closing Consents"), OEI or its Subsidiaries will hold all of the permits,
licenses, certificates, consents, approvals, entitlements, plans, surveys,
relocation plans, environmental impact reports and other authorizations of
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Governmental Authorities ("Permits") required or necessary to construct, run,
own, operate, use and maintain its properties and conduct its operations as
presently conducted, except for such Permits, the lack of which, individually or
in the aggregate, would not have an OEI Material Adverse Effect; provided,
however, that notwithstanding the foregoing, no representation or warranty in
this Section 4.18 is made with respect to Permits issued pursuant to
Environmental Laws, which are covered exclusively by the provisions set forth in
Section 4.13. OEI is in compliance with the terms of its Permits, except where
the failure to comply would not have an OEI Material Adverse Effect.
Section 4.19 Material Contracts.
(a) Set forth in Section 4.19(a) of the OEI Disclosure Schedule is a list
of each contract, lease, indenture, agreement, arrangement or understanding to
which OEI or any of its Subsidiaries is subject that is of a type that would be
required to be included as an exhibit to a Form S-1 Registration Statement
pursuant to the rules and regulations of the SEC if such a registration
statement was filed by OEI (collectively, the "OEI Material Contracts").
(b) Except as set forth in Section 4.19(a) or 4.19(b) of the OEI Disclosure
Schedule, the Oil and Gas Interests (as defined herein) of OEI and its
Subsidiaries are not subject to (i) any instrument or agreement evidencing or
related to indebtedness for borrowed money, whether directly or indirectly, or
(ii) any agreement not entered into in the ordinary course of business in which
the amount involved is in excess of $500,000. With respect to the Oil and Gas
Interests of OEI and its Subsidiaries, (i) all OEI Material Contracts are in
full force and effect and are the valid and legally binding obligations of the
parties thereto and are enforceable in accordance with their respective terms;
(ii) no party to any OEI Material Contract is in material breach or default with
respect to its obligations thereunder, including with respect to payments or
otherwise; (iii) no party to any OEI Material Contract has given notice of any
action to terminate, cancel, rescind or procure a judicial reformation thereof;
and (iv) no OEI Material Contract contains any provision that prevents OEI or
any of its Subsidiaries from owning, managing and operating the Oil and Gas
Interests of OEI and its Subsidiaries in accordance with historical practices.
For purposes of this Agreement "Oil and Gas Interests" means direct and indirect
interests in and rights with respect to oil, gas, mineral, and related
properties and assets of any kind and nature, direct or indirect, including
working, leasehold and mineral interests and operating rights and royalties,
overriding royalties, production payments, net profit interests and other
nonworking interests and nonoperating interests; all interests in rights with
respect to oil, condensate, gas, casinghead gas and other liquid or gaseous
hydrocarbons (collectively, "Hydrocarbons") and other minerals or revenues
therefrom, all contracts in connection therewith and claims and rights thereto
(including all oil and gas leases, operating agreements, unitization and pooling
agreements and orders, division orders, transfer orders, mineral deeds, royalty
deeds, oil and gas sales, exchange and processing contracts and agreements, and
in each case, interests thereunder), surface interests, fee interests,
reversionary interests, reservations, and concessions; all easements, rights of
way, licenses, permits, leases, and other interests associated with, appurtenant
to, or necessary for the operation of any of the foregoing; and all interests in
equipment and machinery (including wells, well equipment and machinery), oil and
gas production, gathering, transmission, treating, processing, and storage
facilities (including tanks, tank batteries, pipelines, and gathering systems),
pumps, water plants, electric plants, gasoline and gas processing plants,
refineries, and other tangible personal property and fixtures associated with,
appurtenant to, or necessary for the operation of any of the foregoing.
(c) As of the date of this Agreement, except as set forth in Section
4.19(c) of the OEI Disclosure Schedule, with respect to authorizations for
expenditures executed on or after January 1, 1997, (i) there are no material
outstanding calls for payments that are due or that OEI or its Subsidiaries are
committed to make that have not been made; (ii) there are no material operations
with respect to which OEI or its Subsidiaries have become a non-consenting
party; and (iii) there are no commitments for the material expenditure of funds
for drilling or other capital projects other than projects with respect to which
the operator is not required under the applicable operating agreement to seek
consent.
(d) Except as set forth in Section 4.19(d) of the OEI Disclosure Schedule,
(i) there are no express contractual obligations to engage in continuous
development operations in order to maintain any producing
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material Oil and Gas Interest of OEI or any of its Subsidiaries in force and
effect; (ii) there are no provisions applicable to the material Oil and Gas
Interests of OEI or any of its Subsidiaries which increase the royalty
percentage of the lessor thereunder; and (iii) none of the material Oil and Gas
Interests of OEI or any of its Subsidiaries are limited by terms fixed by a
certain number of years (other than primary terms under oil and gas leases).
Section 4.20 Required Stockholder Vote or Consent. The affirmative vote of
the holders of no greater than a majority of the outstanding shares of OEI
Common Stock is required to (a) adopt this Agreement and approve the Newco
Merger and the UMC Merger, (b) approve the benefit plans to be adopted by OEI
and/or the amendments to existing benefit plans of OEI to be adopted in
accordance with Section 6.17 (to the extent OEI and UMC determine such
stockholder approval is required and advisable) and (c) approve the other
matters contemplated hereby (the "OEI Stockholders' Approval"). No other vote of
the holders of any class or series of OEI's capital stock is required by law,
the certificate of incorporation or bylaws of OEI or otherwise to adopt this
Agreement and approve the Mergers and the other matters contemplated hereby.
Section 4.21 Joint Proxy Statement/Prospectus; Registration
Statement. None of the information supplied or to be supplied by OEI for
inclusion or incorporation by reference in (a) the Joint Proxy
Statement/Prospectus relating to the OEI Stockholders Meeting and the UMC
Stockholders Meeting (in each case, as defined herein) (also constituting the
prospectus in respect of OEI Common Stock into which shares of Old OEI Common
Stock and UMC Common Stock will be converted) (the "Joint Proxy
Statement/Prospectus"), to be filed by OEI and UMC with the SEC, and any
amendments or supplements thereto, or (b) the Registration Statement on Form S-4
(the "Registration Statement") to be filed by OEI with the SEC in connection
with the Mergers and the issuance of OEI Common Stock in connection therewith,
and any amendments or supplements thereto, will, at the respective times such
documents are filed, and, in the case of the Joint Proxy Statement/Prospectus,
at the time the Joint Proxy Statement/Prospectus or any amendment or supplement
thereto is first mailed to stockholders of OEI and UMC, at the time such
stockholders vote on approval and adoption of this Agreement and at the
Effective Time, and, in the case of the Registration Statement, when it becomes
effective under the Securities Act, contain, in the case of the Joint Proxy
Statement/Prospectus, any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading and, in the case of the Registration Statement, any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. If at
any time prior to the Effective Time any event with respect to OEI, its officers
and directors or any of its Subsidiaries shall occur which is required to be
described in an amendment of, or a supplement to, the Joint Proxy
Statement/Prospectus or the Registration Statement, such event shall be so
described, and such amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the stockholders of OEI and UMC. The
Registration Statement will comply (with respect to OEI) as to form in all
material respects with the provisions of the Securities Act, and the Joint Proxy
Statement/Prospectus will comply (with respect to OEI) as to form in all
material respects with the provisions of the Exchange Act.
Section 4.22 Intellectual Property. OEI and its Subsidiaries own, or are
licensed or otherwise have the right to use, all patents, patent rights,
trademarks, rights, trade names, trade name rights, service marks, service mark
rights, copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs (collectively, "Intellectual
Property") currently used in the conduct of the business of OEI and its
Subsidiaries, except where the failure to so own or otherwise have the right to
use such Intellectual Property would not, individually or in the aggregate, have
an OEI Material Adverse Effect. No person has notified either OEI or any of its
Subsidiaries that their use of the Intellectual Property infringes on the rights
of any person, subject to such claims and infringements as do not, individually
or in the aggregate, give rise to any liability on the part of OEI and its
Subsidiaries that could have an OEI Material Adverse Effect, and, to OEI's
knowledge, no person is infringing on any right of OEI or any of its
Subsidiaries with respect to any such Intellectual Property. No claims are
pending or, to OEI's knowledge, threatened that OEI or any of its Subsidiaries
is infringing or otherwise adversely affecting the rights of any person with
regard to any Intellectual Property.
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Section 4.23 Hedging. Section 4.23 of the OEI Disclosure Schedule sets
forth for the periods shown obligations of OEI and each of its Subsidiaries for
the delivery of Hydrocarbons attributable to any of the properties of OEI or any
of its Subsidiaries in the future on account of prepayment, advance payment,
take-or-pay or similar obligations without then or thereafter being entitled to
receive full value therefor. Except as set forth in Section 4.23 of the OEI
Disclosure Schedule, as of the date of this Agreement, neither OEI nor any of
its Subsidiaries is bound by futures, hedge, swap, collar, put, call, floor,
cap, option or other contracts that are intended to benefit from or reduce or
eliminate the risk of fluctuations in the price of commodities, including
Hydrocarbons, or securities.
Section 4.24 Brokers. No broker, finder or investment banker (other than
Lehman Brothers Inc., the fees and expenses of which will be paid by OEI) is
entitled to any brokerage, finder's fee or other fee or commission payable by
OEI or any of its Subsidiaries in connection with the transactions contemplated
by this Agreement based upon arrangements made by and on behalf of OEI or any of
its Subsidiaries. True and correct copies of all agreements and engagement
letters currently in effect with Lehman Brothers Inc. (the "OEI Engagement
Letters") have been provided to UMC.
Section 4.25 Tax-Free Reorganization and Pooling. Neither OEI nor, to the
knowledge of OEI, any of its affiliates has taken or agreed to take any action
or failed to take any action which action or failure (without giving effect to
any actions or failures to act by UMC or any of its affiliates) would prevent
the Mergers and the other transactions contemplated herein from being treated
for financial accounting purposes as a Pooling Transaction or would prevent the
Mergers from constituting reorganizations within the meaning of section
368(a)(1)(A) of the Code.
Section 4.26 Section 203 of the DGCL Not Applicable. The Board of
Directors of OEI has approved the Newco Merger, the UMC Merger, this Agreement,
the OEI Option, the OEI Proxies and the transactions contemplated hereby and
thereby, and such approval is sufficient to render inapplicable to the Mergers
and the other transactions contemplated hereby the restrictions contained in
Section 203 of the DGCL.
Section 4.27 Opinion of Financial Advisor. The Board of Directors of OEI
has received an opinion from Lehman Brothers Inc., dated the date of this
Agreement, to the effect that, as of such date and subject to the assumptions
and other matters set forth therein, the Newco Exchange Ratio, in relation to
the UMC Exchange Ratio, is fair, from a financial point of view, to the holders
of Old OEI Common Stock.
Section 4.28 OEI Rights Plan. Under the terms of the OEI Rights Plan, the
transactions contemplated by this Agreement will not cause any person to become
an Acquiring Person or cause a Distribution Date or Stock Acquisition Date (as
each such term is defined in the OEI Rights Plan) to occur or cause the rights
to be issued pursuant to the OEI Rights Plan to become exercisable.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF UMC
Except as set forth on the Disclosure Schedule (the "UMC Disclosure
Schedule," together with the OEI Disclosure Schedule, the "Disclosure
Schedule"), included in the letter and delivered by UMC to OEI prior to the
execution of this Agreement UMC represents and warrants to OEI as follows:
Section 5.1 Organization and Qualification.
(a) UMC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. UMC is duly qualified to do
business as a foreign corporation and is in good standing in the jurisdictions
set forth in Section 5.1(a) of the UMC Disclosure Schedule, which includes each
jurisdiction in which the character of UMC's properties owned or leased by it or
the nature of its business makes such qualification necessary, except in
jurisdictions, if any, where the failure to be so qualified would not,
individually or in the aggregate, result in a UMC Material Adverse Effect (as
defined in Section 5.1(c)). UMC has all requisite corporate power and authority
to own, use or lease its properties and to carry on its business as it is now
being conducted. UMC has made available to OEI a complete and correct copy of
its certificate of incorporation and bylaws, each as amended to date, and UMC's
certificate of incorporation and
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bylaws as so delivered are in full force and effect. UMC is not in default in
the performance, observation or fulfillment of any provision of its certificate
of incorporation or bylaws.
(b) Section 5.1(b) of the UMC Disclosure Schedule lists the name and
jurisdiction of organization of each Subsidiary of UMC and the jurisdictions in
which each such Subsidiary is qualified or holds licenses to do business as a
foreign corporation or other organization as of the date hereof. Each of UMC's
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, is duly qualified to do business as a
foreign entity and is in good standing in the jurisdictions set forth in Section
5.1(b) of the UMC Disclosure Schedule, which includes each jurisdiction in which
the character of such Subsidiary's properties owned or leased by it or the
nature of its business makes such qualification necessary, except in
jurisdictions, if any, where the failure to be so qualified would not,
individually or in the aggregate, result in a UMC Material Adverse Effect. Each
of UMC's Subsidiaries has all requisite corporate (or other organizational)
power and authority to own, use or lease its properties and to carry on its
business as it is now being conducted. UMC has made available to OEI a complete
and correct copy of the certificate of incorporation and bylaws (or similar
organizational documents) of each of UMC's Subsidiaries, each as amended to
date, and the certificate of incorporation and bylaws (or similar organizational
documents) as so delivered are in full force and effect. No Subsidiary of UMC is
in default in any material respect in the performance, observation or
fulfillment of any provision of its certificate of incorporation or bylaws (or
similar organizational documents). Other than UMC's Subsidiaries, UMC does not
beneficially own or control, directly or indirectly, any class of equity or
similar securities of any corporation or other organization, whether
incorporated or unincorporated.
(c) For purposes of this Agreement, a "UMC Material Adverse Effect" shall
mean any event, circumstance, condition, development or occurrence causing,
resulting in or having a material adverse effect on the condition (financial or
otherwise), business, assets, properties or results of operations of UMC and its
Subsidiaries, taken as a whole.
Section 5.2 Capitalization.
(a) As of the date hereof, the authorized capital stock of UMC consists of
(i) 45,000,000 shares of common stock, of which par value $0.01 per share ("UMC
Common Stock"), of which 35,792,891 shares are issued and outstanding as of the
date of this Agreement, none are held as treasury shares, a sufficient number
are reserved for issuance upon conversion of shares of Series B Nonvoting Common
Stock, par value $.01 per share (the "UMC Series B Common"), in accordance with
the terms of UMC's certificate of incorporation, as amended, 583,749 are
reserved for issuance upon exercise of options under UMC's 1987 Nonqualified
Stock Option Plan, 3,124,263 are reserved for issuance upon exercise of options
under UMC's 1994 Nonqualified Stock Option Plan, and 247,000 are reserved for
issuance upon exercise of options under UMC's 1994 Outside Directors'
Nonqualified Stock Option Plan (collectively, the "UMC Option Plans"); (ii)
1,000,000 shares of UMC Series B Common, of which, as of the date of this
Agreement, none are issued and outstanding and none are held as treasury shares;
(iii) 450,000 shares of Series A Junior Preferred Stock, par value $.01 per
share, of which, as of the date of this Agreement, none are issued and
outstanding, none are held as treasury shares and all of which are reserved for
issuance upon exercise of rights under the Rights Agreement, dated February 13,
1996, between UMC and ChaseMellon Shareholder Services, L.L.C. (the "UMC Rights
Plan"); and (iv) 32,000,000 shares of Preferred Stock, par value $.01 per share,
which have not yet been issued or designated as to a series by the Board of
Directors of UMC. All of the aforesaid outstanding shares of capital stock have
been validly issued, are fully paid and nonassessable, and are free of
preemptive rights. Except as described above, as of the date hereof, there are
no shares of capital stock or other equity securities of UMC outstanding and no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, shares of any capital stock of UMC, or contracts, commitments,
understandings, or arrangements by which UMC is or may become bound to issue
additional shares of its capital stock (other than the previously reserved
shares described above) or options, warrants or rights to purchase or acquire
any shares of its capital stock.
(b) Except as set forth in Section 5.2(b) of the UMC Disclosure Schedule,
UMC is, directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock or other equity securities, as the case may
be, of each Subsidiary of UMC, there are no irrevocable proxies with respect to
any
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such shares, and no equity securities of any Subsidiary of UMC are or may become
required to be issued by reason of any options, warrants, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable or exercisable for, shares of any
capital stock of any Subsidiary of UMC, and there are no contracts, commitments,
understandings or arrangements by which UMC or any Subsidiary of UMC is or may
be bound to either sell any outstanding securities of any Subsidiary or issue
additional shares of capital stock of any Subsidiary of UMC or securities
convertible into or exchangeable or exercisable for any such shares. Except as
set forth in Section 5.2(b) of the UMC Disclosure Schedule, all of such shares
so owned by UMC are validly issued, fully paid and nonassessable and are owned
by it free and clear of all Liens. There are not as of the date hereof and there
will not be at the Effective Time any stockholder agreements, voting trusts or
other agreements or understandings to which UMC is a party or by which it is
bound relating to the voting of any shares of the capital stock of UMC that will
limit in any way the solicitation of proxies by or on behalf of UMC from, or the
casting of votes by, the stockholders of UMC with respect to the Merger. There
are no restrictions on UMC to vote the stock of any of its Subsidiaries.
Section 5.3 Authority. The Board of Directors of UMC has approved the UMC
Merger and this Agreement, and declared the UMC Merger and this Agreement to be
in the best interests of the stockholders of UMC. The Board of Directors of UMC
has taken all necessary corporate action to approve the transactions
contemplated by the Agreement to Vote and Proxy dated as of the date hereof
between OEI and John B. Brock (the "UMC Proxy") pursuant to Section 203(a) of
the DGCL. The directors of UMC have advised UMC and Newco that they intend to
vote or cause to be voted all of the shares of UMC Common Stock beneficially
owned by them and their affiliates in favor of approval of the UMC Merger and
this Agreement. UMC has full corporate power and authority to execute and
deliver this Agreement and the Ancillary Agreements to which it is or will be a
party and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Ancillary
Agreements to which it is or will be a party and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by UMC's Board of Directors, and no other corporate proceedings on
the part of UMC are necessary to authorize this Agreement or the Ancillary
Agreements to which UMC is or will be a party or to consummate the transactions
contemplated hereby or thereby, other than the approval of this Agreement and
the UMC Merger by its stockholders as contemplated by Section 6.3(c). This
Agreement has been, and the Ancillary Agreements to which UMC is or will be a
party are, or upon execution and delivery will be, duly and validly executed and
delivered by UMC and, assuming the due authorization, execution and delivery
hereof and thereof by the other parties hereto and thereto, constitute, or upon
execution and delivery will constitute, valid and binding obligations of UMC
enforceable against UMC in accordance with their respective terms, except for
the Enforceability Exception.
Section 5.4 Consents and Approvals; No Violation. Except as set forth in
Section 5.4 of the UMC Disclosure Schedule, the execution and delivery of this
Agreement and the Ancillary Agreements do not, and the consummation of the
transactions contemplated hereby and thereby and compliance with the provisions
hereof and thereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any Lien,
security interest, charge or encumbrance upon any of the properties or assets of
UMC or any of its Subsidiaries under, any provision of (a) the certificate of
incorporation or bylaws of UMC or any provision of the comparable charter or
organization documents of any of its Subsidiaries, (b) any material loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license which UMC or any of its
Subsidiaries is a party or by which UMC or any of its Subsidiaries or any of
their respective properties or assets may be bound or (c) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to UMC or any of
its Subsidiaries or any of their respective properties or assets, other than in
the case of clause (b) or (c), any such conflicts, violations, defaults,
terminations, cancellations, accelerations, Liens, security interests, charges
or encumbrances that, individually or in their aggregate, would not result in a
UMC Material Adverse Effect, materially impair the ability of UMC to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby. No filing or registration with, or authorization, consent
or approval of any Governmental Authority is required by or with
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respect to UMC or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by UMC or the consummation by UMC of the transactions
contemplated hereby, except for (a) the filing with the SEC of the Joint Proxy
Statement/Prospectus, the Registration Statement and such reports in connection,
or in compliance, with the provisions of the Exchange Act and the Securities Act
and the rules and regulations of the SEC thereunder as may be required in
connection with this Agreement and the transactions contemplated hereby and the
obtaining from the SEC of such orders as may be required, (b) the filing of the
Certificates of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which UMC
or any of its Subsidiaries is qualified to do business, (c) such filings and
consents as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Mergers or the transactions contemplated by this Agreement, (d)
such filings as may be required in connection with applicable taxes, (e) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under the corporation, takeover or "Blue Sky"
laws of various states, (f) such filings and approvals as may be required under
the HSR Act, and (g) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a UMC Material Adverse
Effect, materially impair the ability of UMC to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 5.5 UMC SEC Reports. UMC has filed with the SEC, and has
heretofore made available to OEI true and complete copies of, each form,
registration statement, report, schedule, proxy or information statement and
other document (including exhibits and amendments thereto, but excluding
preliminary materials), including without limitation its Annual Reports to
Stockholders incorporated by reference in certain of such reports, which UMC was
required to file with the SEC since December 31, 1994, and prior to or on the
date of this Agreement under the Securities Act or the Exchange Act
(collectively, the "UMC SEC Reports"). As of the respective dates such UMC SEC
Reports were filed or, if any such UMC SEC Reports were amended, as of the date
such amendment was filed, each of the UMC SEC Reports, including without
limitation any financial statements or schedules included therein, (a) complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act, as the case may be, and the applicable rules and
regulations promulgated thereunder, and (b) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 5.6 UMC Financial Statements. Each of the audited consolidated
financial statements and unaudited consolidated interim financial statements of
UMC (including any related notes and schedules) included (or incorporated by
reference) in the UMC SEC Reports (collectively, the "UMC Financial Statements")
have been prepared from, and are in accordance with, the books and records of
UMC and its consolidated Subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated in the notes thereto
and subject, in the case of quarterly financial statements, to normal and
recurring year-end adjustments) and fairly present, in conformity with GAAP
applied on a consistent basis (except as may be indicated in the notes thereto),
the consolidated financial position of UMC and its consolidated Subsidiaries as
of the date thereof and the consolidated results of operations and cash flows
(and changes in financial position, if any) of UMC and its consolidated
Subsidiaries for the periods presented therein (subject to normal year-end
adjustments, none of which are material, and the absence of financial footnotes
in the case of any unaudited interim financial statements).
Section 5.7 Absence of Undisclosed Liabilities. Except as disclosed in the
UMC SEC Reports, as of the date hereof, there are no liabilities of UMC or any
of its Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that are reasonably likely to
have a UMC Material Adverse Effect, other than: (a) liabilities adequately
provided for on the balance sheet of UMC dated as of December 31, 1996
(including the notes thereto), contained in UMC's Annual Report on Form 10-K for
the year ended December 31, 1996; (b) financial liabilities and contractual
obligations
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incurred in the ordinary course of business subsequent to December 31, 1996; and
(c) liabilities under this Agreement.
Section 5.8 Absence of Certain Changes. Except as disclosed in the UMC SEC
Reports, as contemplated by this Agreement, as set forth in Section 5.8 of the
UMC Disclosure Schedule or as disclosed in UMC Financial Statements, since
December 31, 1996, (a) UMC and its Subsidiaries have conducted their business in
all material respects in the ordinary course consistent with past practices, (b)
there has not been any change or development, or combination of changes or
developments that, individually or in the aggregate, would have a UMC Material
Adverse Effect, (c) there has not been any declaration, setting aside or payment
of any dividend or other distribution with respect to any shares of capital
stock of UMC or any repurchase, redemption or other acquisition by UMC or any of
its Subsidiaries of any outstanding shares of capital stock or other securities
of, or other ownership interests in, UMC or any of its Subsidiaries, (d) there
has not been any amendment of any term of any outstanding security of UMC or any
of its Subsidiaries, (e) there has not been any change in any method of
accounting or accounting practice by UMC or any of its Subsidiaries, except for
any such change required by reason of a concurrent change in GAAP, (f) there has
not been any material change in any tax method, practice or election by UMC or
any of its Subsidiaries and (g) there has not been any other transaction,
commitment, dispute or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) that is reasonably
likely to have a UMC Material Adverse Effect, except for general economic
changes and changes that may affect the industries of UMC and its Subsidiaries
generally.
Section 5.9 No Default. Neither UMC nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any term, condition
or provision of (a) the certificate of incorporation or bylaws of UMC or the
comparable charter or organizational documents of any of its Subsidiaries, (b)
any loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license to which UMC or
any of its Subsidiaries is now a party or by which UMC or any of its
Subsidiaries or any of their respective properties or assets is bound or (c) any
order, writ, injunction, decree, statute, rule or regulation applicable to UMC
or any of its Subsidiaries, except in the case of (b) and (c) for defaults or
violations which in the aggregate would not have a UMC Material Adverse Effect.
Section 5.10 Taxes. Except as otherwise disclosed in Section 5.10 of the
UMC Disclosure Schedule (and for matters that would not be a UMC Material
Adverse Effect, individually or in the aggregate):
(a) UMC and each of its Subsidiaries have timely filed (or have had timely
filed on their behalf) or will file or cause to be timely filed, all Tax Returns
required by applicable law to be filed by, with respect to, or include any of
them prior to or as of the Closing Date. All such Tax Returns and amendments
thereto are or will be true, complete and correct in all material respects.
(b) UMC and each of its Subsidiaries have paid (or have had paid on their
behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Closing Date, an adequate
accrual for the payment of all Taxes for which UMC or any of its Subsidiaries
could be held liable with respect to any period ending prior to or as of the
Closing Date.
(c) No Audit by a Tax Authority is pending, to the knowledge of UMC, or
threatened with respect to any Tax Returns filed by, or Taxes due from, UMC or
any Subsidiary. No issue has been raised by any Tax Authority in any Audit of
UMC or any of its Subsidiaries that if raised with respect to any other period
not so audited could be expected to result in a material proposed deficiency for
any period not so audited. No material deficiency or adjustment for any Taxes
has been threatened, proposed, asserted or assessed against UMC or any of its
Subsidiaries. There are no Liens for Taxes upon the assets of UMC or any of its
Subsidiaries, except Liens for current Taxes not yet delinquent.
(d) Neither UMC nor any of its Subsidiaries has given or been requested to
give any waiver of statutes of limitations relating to the payment of Taxes or
have executed powers of attorney with respect to Tax matters, which will be
outstanding as of the Closing Date.
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(e) Prior to the date hereof, UMC and its Subsidiaries have disclosed, and
provided or made available to OEI true and complete copies of, all material Tax
sharing, Tax indemnity, or similar agreements to which UMC or any of its
Subsidiaries is a party, is bound by, or has any obligation or liability for
Taxes.
(f) Neither UMC nor any of its Subsidiaries has filed a consent under
section 341(f) of the Code concerning collapsible corporations. Neither UMC nor
any of its Subsidiaries has made any material payments, is obligated to make any
material payments, or is a party to any agreement that under certain
circumstances could obligate it to make any material payments that will not be
deductible under sections 162(m), 263, or 280G of the Code. Neither UMC nor any
of its Subsidiaries has been a United States real property holding corporation
within the meaning of section 897(c)(2) of the Code during the applicable period
specified in section 897(c)(1)(A)(ii) of the Code. Neither UMC nor any of its
Subsidiaries (i) has been a member of an Affiliated Group filing a consolidated
federal Tax Return (other than a group the common parent of which was UMC) or
(ii) has any liability for the taxes of any person (other than any of UMC and
its Subsidiaries) under Treasury Regulation section 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, by
contract or otherwise.
(g) Neither UMC nor any of its Subsidiaries has agreed to or is required to
make any adjustment pursuant to section 481(a) of the Code (or any predecessor
provision), and there is no application pending with any taxing authority
requesting permission for any changes in any accounting method of UMC or any of
its Subsidiaries. The Internal Revenue Service has not proposed any such
adjustment or change in accounting method with respect to UMC or any of its
Subsidiaries.
(h) Neither UMC nor any of its Subsidiaries has been or is in violation (or
with notice or lapse of time or both, would be in violation) of any applicable
law relating to the payment or withholding of Taxes. UMC and its Subsidiaries
have duly and timely withheld from employee salaries, wages and other
compensation and paid over to the appropriate taxing authorities all amounts
required to be so withheld and paid over for all periods under all applicable
laws.
(i) The unpaid Taxes of UMC and its Subsidiaries (i) did not, as of the
most recent fiscal month end included in UMC Financial Statements, exceed by any
material amount the reserve for Tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the face of the most recent balance sheet included in UMC
Financial Statements (rather than in any notes thereto) and (ii) will not exceed
by any material amount that reserve as adjusted for operations and transactions
through the Effective Time in accordance with the past custom and practice of
UMC and its Subsidiaries in filing their Tax Returns.
Section 5.11 Litigation. Except as disclosed in the UMC SEC Reports or
Section 5.11 of the UMC Disclosure Schedule, as of the date of this Agreement,
there is no suit, claim, action, proceeding, arbitration, or investigation
pending or, to the knowledge of UMC, threatened against or directly affecting
UMC, any of its Subsidiaries or any of the directors or officers of UMC or any
of its Subsidiaries in their capacity as such by or before any court,
Governmental Authority or any arbitrator of any kind ("UMC Litigation"), and
neither UMC nor its Subsidiaries is aware of any facts that are likely to give
rise to any UMC Litigation, that (in any case) could reasonably be expected to
have a UMC Material Adverse Effect or could reasonably be expected to materially
adversely affect UMC's ability to consummate the transactions contemplated by
this Agreement, if adversely determined. Neither UMC nor any of its
Subsidiaries, nor any officer, director or employee of UMC or any of its
Subsidiaries, has been permanently or temporarily enjoined by any order,
judgment, injunction or decree of any court or any other Governmental Authority
from engaging in or continuing any conduct or practice in connection with the
business, assets or properties of UMC or such Subsidiary nor, to the knowledge
of UMC, is UMC, any Subsidiary or any officer, director or employee of UMC or
its Subsidiaries under investigation by any Governmental Authority. Except as
disclosed in the UMC SEC Reports or Section 5.11 of the UMC Disclosure Schedule,
there is not in existence any order, judgment, injunction or decree of any court
or other tribunal against UMC or any of its Subsidiaries that is reasonably
likely to have a UMC Material Adverse Effect or is reasonably expected to
materially adversely affect UMC's ability to perform its obligations under this
Agreement or to consummate the transactions contemplated hereby.
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Notwithstanding the foregoing, no representation or warranty in this Section
5.11 is made with respect to Environmental Laws, which are covered exclusively
by the provisions set forth in Section 5.13.
Section 5.12 Employee Benefit Plans; ERISA.
(a) Section 5.12(a) of the UMC Disclosure Schedule contains a true and
complete list of the written and oral plans, policies and arrangements of any
type (including but not limited to plans described in section 3(3) of ERISA),
currently sponsored, maintained or contributed to by UMC or any trade or
business, whether or not incorporated, which together with UMC would be deemed a
"single employer" within the meaning of section 414(b), (c) or (m) of the Code
or section 4001(b)(1) of ERISA (a "UMC ERISA Affiliate"), which provide
compensation, insurance or other coverage, or any other benefits to the
employees, independent contractors or non-employee directors of UMC or any
Subsidiary of UMC ("UMC Benefit Plans").
(b) With respect to each UMC Benefit Plan: (i) if intended to qualify under
section 401(a) or 401(k) of the Code, such plan satisfies the requirements of
such sections, has received a favorable determination letter from the Internal
Revenue Service with respect to its qualification, and its related trust has
been determined to be exempt from tax under section 501(a) of the Code and, to
the knowledge of UMC, nothing has occurred since the date of such letter to
adversely affect such qualification or exemption; (ii) each such plan has been
administered in substantial compliance with its terms and applicable law; (iii)
neither UMC nor any UMC ERISA Affiliate has engaged in, and UMC and each UMC
ERISA Affiliate do not have any knowledge of any person that has engaged in, any
transaction or acted or failed to act in any manner that would subject UMC or
any UMC ERISA Affiliate to any liability for a breach of fiduciary duty under
ERISA that could reasonably be expected to result in a UMC Material Adverse
Effect; (iv) no disputes are pending, or, to the knowledge of UMC or any UMC
ERISA Affiliate, threatened; (v) neither UMC nor any UMC ERISA Affiliate has
engaged in, and UMC and each UMC ERISA Affiliate do not have any knowledge of
any person that has engaged in, any transaction in violation of section 406(a)
or (b) of ERISA for which no exemption exists under section 4975(c)(1) of the
Code or section 4975(d) of the Code that could reasonably be expected to result
in a UMC Material Adverse Effect; (vi) there have been no "reportable events"
within the meaning of section 4043 of ERISA for which the 30 day notice
requirement of ERISA has not been waived by the PBGC; (vii) all contributions
due have been made on a timely basis (within, where applicable, the time limit
established under section 302 of ERISA or section 412 of the Code); (viii) no
notice of intent to terminate such plan has been given under section 4041 of
ERISA and no proceeding has been instituted under section 4042 of ERISA to
terminate such plan; and (ix) except for defined benefit plans, such plan may be
terminated on a prospective basis without any continuing liability for benefits
other than benefits accrued to the date of such termination. All contributions
made or required to be made under any UMC Benefit Plan meet the requirements for
deductibility under the Code, and all contributions which are required and which
have not been made have been properly recorded on the books of UMC or a UMC
ERISA Affiliate.
(c) No UMC Benefit Plan is a "multiemployer plan" (as defined in section
4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning of
section 413(c) of the Code), and except as provided in Section 5.12(c) of the
UMC Disclosure Schedule, no UMC Benefit Plan is or was subject to section 302 of
ERISA or section 412 of the Code. No event has occurred with respect to UMC or a
UMC ERISA Affiliate in connection with which UMC could be subject to any
liability, Lien or encumbrance with respect to any UMC Benefit Plan or any
employee benefit plan described in section 3(3) of ERISA maintained, sponsored
or contributed to by a UMC ERISA Affiliate under ERISA or the Code. Except as
provided in Part 6 of Title I of ERISA, no welfare plan (as defined in section
3(1) of ERISA) provides any benefits to any retiree or former employee or
service provider of UMC.
(d) Except as set forth in Section 5.12(d) of the UMC Disclosure Schedule,
no employees of UMC or any of its Subsidiaries are covered by any severance plan
or similar arrangement.
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Section 5.13 Environmental Matters. Except as set forth in (i) Section
5.13 of the UMC Disclosure Schedule or (ii) the UMC SEC Reports:
(a) The businesses of UMC and its Subsidiaries have been and are operated
in compliance with all Environmental Laws.
(b) Neither UMC nor any of its Subsidiaries has caused or allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any Hazardous Substances
at any of its properties or facilities, except in material compliance with all
Environmental Laws or except as would not result in a UMC Material Adverse
Effect, and, to UMC's knowledge, no generation, manufacture, processing,
distribution, use, treatment, handling, storage, discharge, release, disposal,
transport or handling of any Hazardous Substances has occurred at any property
or facility owned, leased or operated by UMC or any of its Subsidiaries except
in material compliance with all Environmental Laws.
(c) Neither UMC nor any of its Subsidiaries has received any written notice
from any Governmental Authority or other third party or, to the knowledge of
UMC, any other communication alleging or concerning any violation by UMC or any
of its Subsidiaries of, or responsibility or liability of UMC or any of its
Subsidiaries under, any Environmental Law or for personal injuries and/or
property damages. There are no pending, or to the knowledge of UMC, threatened,
claims, suits, actions, proceedings or investigations with respect to the
businesses or operations of UMC or any of its Subsidiaries alleging or
concerning any violation of or responsibility or liability under any
Environmental Law or alleging personal injuries and/or property damages, nor
does UMC have any knowledge of any fact or condition that could give rise to
such a claim, suit, action, proceeding or investigation.
(d) UMC and its Subsidiaries are in possession of and in material
compliance with all approvals, permits, licenses, registrations and similar type
authorizations from all Governmental Authorities under all Environmental Laws
with respect to the operation of the businesses of UMC and its Subsidiaries;
there are no pending or, to the knowledge of UMC, threatened, actions,
proceedings or investigations seeking to modify, revoke or deny renewal of any
of such approvals, permits, licenses registrations and authorizations; and UMC
does not have knowledge of any fact or condition that is reasonably likely to
give rise to any action, proceeding or investigation to modify, revoke or deny
renewal of any of such approvals, permits, licenses, registrations and
authorizations. No notice to, approval of, or authorization or consent from any
Governmental Authority is necessary for the transfer of or modification to any
approval, permit, license, registration or authorization, and the consummation
of the transactions contemplated by this Agreement will not violate, alter,
impair or invalidate, in any respect, any approval, permit, license,
registration or authorization.
(e) Without in any way limiting the generality of the foregoing, (i) none
of the off-site locations where UMC or any of its Subsidiaries has transported,
released, discharged, stored, disposed or arranged for the disposal of Hazardous
Substances is listed on CERCLIS or the NPL or, to the knowledge of UMC, is the
subject of pending or threatened claims, suits, actions, proceedings or
investigations by any Governmental Authority or other third party, (ii) to UMC's
knowledge, all underground storage tanks owned or operated by UMC or any of its
Subsidiaries are in compliance with Environmental Laws, and there have been no
releases of Hazardous Substances from such underground storage tanks, (iii) to
the knowledge of UMC, there is no asbestos contained in or forming part of any
equipment, building, building component, structure or office space owned or
leased by UMC and (iv) no PCBs or PCB-containing items are used or stored at any
property owned, leased or operated by UMC or any of its Subsidiaries.
Section 5.14 Compliance with Applicable Laws. Except as set forth in
Section 5.14 of the UMC Disclosure Schedule or as disclosed in the UMC SEC
Reports, neither UMC nor any of its Subsidiaries has received notice of any
revocation or modification of any Federal, state, local or foreign governmental
license, certification, tariff, permit, authorization or approval, the
revocation or modification of which would have a UMC Material Adverse Effect.
The conduct of the business of each of UMC and its Subsidiaries complies with
all statutes, laws, regulations, ordinances, rules, judgments, orders, decrees
or arbitration awards applicable hereto, except for violations or failures to
comply, if any, that, individually or in the aggregate, would not have a UMC
Material Adverse Effect. Notwithstanding the foregoing, no representation or
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warranty in this Section 5.14 is made with respect to Environmental Laws, which
are covered exclusively by the provisions set forth in Section 5.13.
Section 5.15 Insurance. Section 5.15 of the UMC Disclosure Schedule lists
each of the insurance policies relating to UMC or its Subsidiaries which are
currently in effect. UMC has provided OEI with a true, complete and correct copy
of each such policy or the binder therefor. With respect to each such insurance
policy or binder, none of UMC, any of its Subsidiaries or any other party to the
policy is in breach or default thereunder (including with respect to the payment
of premiums or the giving of notices), and UMC does not know of any occurrence
or any event which (with notice or the lapse of time or both) would constitute
such a breach or default or permit termination, modification or acceleration
under the policy, except for such breaches or defaults which, individually or in
the aggregate, would not result in a UMC Material Adverse Effect. Section 5.15
of the UMC Disclosure Schedule describes any self-insurance arrangements
affecting UMC or its Subsidiaries. The insurance policies listed in Section 5.15
of the UMC Disclosure Schedule include all policies which are required in
connection with the operation of the businesses of UMC and its Subsidiaries as
currently conducted by applicable laws and all agreements relating to UMC and
its Subsidiaries.
Section 5.16 Labor Matters; Employees.
(a) Except as set forth in Section 5.16(a) of the UMC Disclosure Schedule,
(i) there is no labor strike, dispute, slowdown, work stoppage or lockout
actually pending or, to the knowledge of UMC, threatened against or affecting
UMC or any of its Subsidiaries and, during the past five years, there has not
been any such action, (ii) none of UMC or any of its Subsidiaries is a party to
or bound by any collective bargaining or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to a material number of employees of UMC or
any of its Subsidiaries, (iii) no material number of the employees of UMC or any
of its Subsidiaries are represented by any labor organization and none of UMC or
any of its Subsidiaries have any knowledge of any current union organizing
activities among a material number of employees of UMC or any of its
Subsidiaries nor does any question concerning representation exist concerning
such employees, (iv) UMC and its Subsidiaries have each at all times been in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work and
occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, ordinance or regulation, (v) there is no material unfair labor practice
charge or complaint against any of UMC or any of its Subsidiaries pending or, to
the knowledge of UMC, threatened before the National Labor Relations Board or
any similar state or foreign agency, (vi) there is no material grievance or
arbitration proceeding arising out of any collective bargaining agreement or
other grievance procedure relating to UMC or any of its Subsidiaries, and (vii)
neither the Occupational Safety and Health Administration, the Department of
Labor, the Equal Employment Opportunity Commission nor any corresponding state
agency has threatened to file any citation, and there are no pending citations,
relating to UMC or any of its Subsidiaries.
(b) Except as set forth in Section 5.16(b) of the UMC Disclosure Schedule,
since the enactment of the WARN Act, none of UMC or any of its Subsidiaries has
effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any
site of employment or one or more facilities or operating units within any site
of employment or facility of UMC or any of its Subsidiaries, or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of UMC or any of its Subsidiaries, nor has UMC or any of its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law, in each case that could reasonably be expected to
have a UMC Material Adverse Effect. The UMC Merger is not anticipated to result
in any "plant closing" or "mass layoff" which would require any action to comply
with the WARN Act.
(c) Except as disclosed in Section 5.11 of the UMC Disclosure Schedule and
for matters which would not have a UMC Material Adverse Effect, there is no
suit, claim, action, proceeding or investigation regarding any labor or
employment matter pending or threatened against or directly affecting UMC, any
of its Subsidiaries or any of the directors or officers of UMC or any of its
Subsidiaries in their capacity as such by or
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before any administrative agency, court, Governmental Authority or any
arbitrator of any kind, that could reasonably be expected to have a UMC Material
Adverse Effect, if adversely determined.
Section 5.17 Beneficial Ownership of OEI Common Stock. As of the date
hereof, neither UMC nor its Subsidiaries beneficially owns any of the
outstanding OEI Common Stock or any of OEI's outstanding debt securities.
Section 5.18 Permits. Immediately prior to the Effective Time and except
for Customary Post-Closing Consents, UMC or its Subsidiaries will hold all of
the Permits required or necessary to construct, run, operate, use and maintain
their properties and conduct their operations as presently conducted, except for
such Permits, the lack of which, individually or in the aggregate, would not
have a UMC Material Adverse Effect; provided, however, that notwithstanding the
foregoing, no representation or warranty in this Section 5.18 is made with
respect to Permits issued pursuant to Environmental Laws, which are covered
exclusively by the provisions set forth in Section 5.13. UMC is in compliance
with the terms of its Permits, except where the failure to comply would not have
a UMC Material Adverse Effect.
Section 5.19 Material Contracts.
(a) Set forth in Section 5.19(a) of the UMC Disclosure Schedule is a list
of each contract, lease, indenture, agreement, arrangement or understanding to
which UMC or any of its Subsidiaries is subject that is of a type that would be
required to be included as an exhibit to a Form S-1 Registration Statement
pursuant to the rules and regulations of the SEC if such a registration
statement was filed by UMC (collectively, the "UMC Material Contracts").
(b) Except as set forth in Section 5.19(a) or 5.19(b) of the UMC Disclosure
Schedule, the Oil and Gas Interests of UMC and its Subsidiaries are not subject
to (i) any instrument or agreement evidencing or related to indebtedness for
borrowed money, whether directly or indirectly, or (ii) any agreement not
entered into in the ordinary course of business in which the amount involved is
in excess of $500,000. With respect to the Oil and Gas Interests of UMC and its
Subsidiaries, (i) all UMC Material Contracts are in full force and effect and
are the valid and legally binding obligations of the parties thereto and are
enforceable in accordance with their respective terms; (ii) no party to any UMC
Material Contract is in material breach or default with respect to its
obligations thereunder, including with respect to payments or otherwise; (iii)
no party to any UMC Material Contract has given notice of any action to
terminate, cancel, rescind or procure a judicial reformation thereof; and (iv)
no UMC Material Contract contains any provision that prevents UMC or any of its
Subsidiaries from owning, managing and operating the Oil and Gas Interests of
UMC and its Subsidiaries in accordance with historical practices.
(c) As of the date of this Agreement, except as set forth in Section
5.19(c) of the UMC Disclosure Schedule, with respect to authorizations for
expenditures executed on or after January 1, 1997, (i) there are no material
outstanding calls for payments that are due or that UMC or its Subsidiaries are
committed to make that have not been made; (ii) there are no material operations
with respect to which UMC or its Subsidiaries have become a non-consenting
party; and (iii) there are no commitments for the material expenditure of funds
for drilling or other capital projects other than projects with respect to which
the operator is not required under the applicable operating agreement to seek
consent.
(d) Except as set forth in Section 5.19(d) of the UMC Disclosure Schedule,
(i) there are no express contractual obligations to engage in continuous
development operations in order to maintain any producing material Oil and Gas
Interest of UMC or any of its Subsidiaries in force and effect; (ii) there are
no provisions applicable to the material Oil and Gas Interests of UMC or any of
its Subsidiaries which increase the royalty percentage of the lessor thereunder;
and (iii) none of the material Oil and Gas Interests of UMC or any of its
Subsidiaries are limited by terms fixed by a certain number of years (other than
primary terms under oil and gas leases).
Section 5.20 Required Stockholder Vote or Consent. The affirmative vote of
the holders of no greater than a majority of the outstanding shares of UMC
Common Stock is required to adopt this Agreement and approve the UMC Merger and
the other transactions contemplated hereby (the "UMC Stockholders' Approval").
No other vote of the holders of any class or series of UMC's capital stock is
required by law, the
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certificate of incorporation or bylaws of UMC or otherwise to adopt this
Agreement and approve the UMC Merger and the other transactions contemplated
hereby.
Section 5.21 Joint Proxy Statement/Prospectus; Registration
Statement. None of the information supplied or to be supplied by UMC for
inclusion or incorporation by reference in (a) the Joint Proxy
Statement/Prospectus to be filed by OEI and UMC with the SEC, and any amendments
or supplements thereto, or (b) the Registration Statement to be filed by OEI
with the SEC in connection with the Mergers and the issuance of OEI Common Stock
in connection therewith, and any amendments or supplements thereto, will, at the
respective times such documents are filed, and, in the case of the Joint Proxy
Statement/ Prospectus, at the time the Joint Proxy Statement/Prospectus or any
amendment or supplement thereto is first mailed to stockholders of OEI and UMC,
at the time such stockholders vote on approval and adoption of this Agreement
and at the Effective Time, and, in the case of the Registration Statement, when
it becomes effective under the Securities Act, contain, in the case of the Joint
Proxy Statement/Prospectus, any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading and, in the case of the Registration Statement, any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
If at any time prior to the Effective Time any event with respect to UMC, its
officers and directors or any of its Subsidiaries shall occur which is required
to be described in an amendment of, or a supplement to, the Joint Proxy
Statement/Prospectus or the Registration Statement, such event shall be so
described, and such amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the stockholders of OEI and UMC. The
Registration Statement will comply (with respect to UMC) as to form in all
material respects with the provisions of the Securities Act, and the Joint Proxy
Statement/ Prospectus will comply (with respect to UMC) as to form in all
material respects with the provisions of the Exchange Act.
Section 5.22 Intellectual Property. UMC and its Subsidiaries own, or are
licensed or otherwise have the right to use all Intellectual Property currently
used in the conduct of the business of UMC and its Subsidiaries, except where
the failure to so own or otherwise have the right to use such Intellectual
Property would not, individually or in the aggregate, have a UMC Material
Adverse Effect. No person has notified either UMC or any of its Subsidiaries
that their use of the Intellectual Property infringes on the rights of any
person, subject to such claims and infringements as do not, individually or in
the aggregate, give rise to any liability on the part of UMC and its
Subsidiaries that could have a UMC Material Adverse Effect, and, to UMC's
knowledge, no person is infringing on any right of UMC or any of its
Subsidiaries with respect to any such Intellectual Property. No claims are
pending or, to UMC's knowledge, threatened that UMC or any of its Subsidiaries
is infringing or otherwise adversely affecting the rights of any person with
regard to any Intellectual Property.
Section 5.23 Hedging. Section 5.23 of the UMC Disclosure Schedule sets
forth for the periods shown obligations of UMC and each of its Subsidiaries for
the delivery of Hydrocarbons attributable to any of the properties of UMC or any
of its Subsidiaries in the future on account of prepayment, advance payment,
take-or-pay or similar obligations without then or thereafter being entitled to
receive full value therefor. Except as set forth in Section 5.23 of the UMC
Disclosure Schedule, as of the date of this Agreement, neither UMC nor any of
its Subsidiaries is bound by futures, hedge, swap, collar, put, call, floor,
cap, option or other contracts that are intended to benefit from or reduce or
eliminate the risk of fluctuations in the price of commodities, including
Hydrocarbons, or securities.
Section 5.24 Brokers. No broker, finder or investment banker (other than
Merrill Lynch, Pierce, Fenner & Smith Incorporated, the fees and expenses of
which will be paid by UMC) is entitled to any brokerage, finder's fee or other
fee or commission payable by UMC or any of its Subsidiaries in connection with
the transactions contemplated by this Agreement based upon arrangements made by
and on behalf of UMC or any of its Subsidiaries. True and correct copies of all
agreements and engagement letters currently in effect with Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "UMC Engagement Letters") have been
provided to OEI.
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Section 5.25 Tax-Free Reorganization and Pooling. Neither UMC nor, to the
knowledge of UMC, any of its affiliates has taken or agreed to take any action
or failed to take any action which action or failure (without giving effect to
any actions or failures to act by OEI or any of its affiliates) would prevent
the Mergers and the other transactions contemplated herein from being treated
for financial accounting purposes as a Pooling Transaction or would prevent the
Mergers from constituting reorganizations within the meaning of section
368(a)(1)(A) of the Code.
Section 5.26 Section 203 of the DGCL Not Applicable. The Board of
Directors of UMC has approved the UMC Merger, this Agreement, the UMC Option,
the UMC Proxy and the transactions contemplated hereby and thereby, and such
approval is sufficient to render inapplicable to the UMC Merger and the other
transactions contemplated hereby the restrictions contained in Section 203 of
the DGCL.
Section 5.27 Opinion of Financial Advisor. The Board of Directors of UMC
has received an opinion from Merrill Lynch, Pierce, Fenner & Smith Incorporated,
dated the date of this Agreement, to the effect that, as of such date, and
subject to the assumptions and other matters set forth therein, the UMC Exchange
Ratio is fair, from a financial point of view, to the holders of UMC Common
Stock.
Section 5.28 UMC Rights Plan. Under the terms of the UMC Rights Plan, the
transactions contemplated by this Agreement will not cause any person to become
an Acquiring Person or cause a Distribution Date or Stock Acquisition Date (as
each such term is defined in the UMC Rights Plan) to occur or cause the rights
issued pursuant to the UMC Rights Plan to become exercisable.
ARTICLE VI
COVENANTS AND AGREEMENTS
It is further agreed as follows:
Section 6.1 Conduct of Business by OEI and UMC. From and after the date
hereof and prior to the Effective Time or the date, if any, on which this
Agreement is earlier terminated pursuant to Section 8.1 (the "Termination
Date"), and except as may be agreed in writing by the other parties hereto or as
may be permitted pursuant to this Agreement:
(a) Except as set forth in Section 6.1 of the OEI Disclosure Schedule, OEI:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their ordinary and usual course of business in
substantially the same manner as heretofore conducted, and shall use all
commercially reasonable efforts to preserve intact its present business
organization, keep available the services of its current officers and employees
and endeavor to preserve relationships with customers, suppliers and others
having business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect at the Effective Time;
(ii) shall not, and it shall not permit any of its Subsidiaries to, acquire
or agree to acquire by merging or consolidating with, or by purchasing any
equity interest in or any of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization or
division thereof, other than any such acquisition or acquisitions having a
purchase price not exceeding $50,000,000 in the aggregate;
(iii) shall not, other than: (A) as may be necessary or required by law to
consummate the transactions contemplated hereby or (B) sales, leases,
encumbrances or other dispositions in the ordinary course of business consistent
with past practice that are not material, individually or in the aggregate, to
OEI and its Subsidiaries taken as a whole, and it shall not permit any of its
Subsidiaries to, sell, lease, encumber or otherwise dispose of, or agree to
sell, lease (whether such lease is an operating or capital lease), encumber or
otherwise dispose of, any of its material assets;
(iv) shall not, and shall not permit any of its Subsidiaries to, (A) incur
any indebtedness for borrowed money (except (w) intercompany debt, (x)
indebtedness incurred to finance any transactions or capital or other
expenditures permitted by this Agreement and regular borrowings under credit
facilities made in the ordinary course of OEI's cash management practices, (y)
refinancings of existing debt and (z) immaterial
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borrowings that, in each such case, permit prepayment of such debt without
penalty (other than LIBOR breakage costs)) or guarantee any such indebtedness or
issue or sell any debt securities or warrants or rights to acquire any debt
securities of OEI or any of its Subsidiaries or guarantee any debt securities of
others, (B) except in the ordinary course of business, enter into any material
lease (whether such lease is an operating or capital lease) or create any
material mortgages, Liens, security interests or other encumbrances on the
property of OEI or any of its Subsidiaries in connection with any indebtedness
thereof, (C) make or commit to make aggregate capital expenditures in excess of
an amount equal to the aggregate capital expenditures budgeted by OEI for the
fiscal years ending December 31, 1997 as set forth in the capital expenditure
budgets delivered to UMC, less any budgeted capital expenditures expended prior
to the date of this Agreement, or (D) make or commit to make aggregate capital
expenditures in excess of an amount equal to the sum of (y) the aggregate
capital expenditures budgeted by OEI for the fiscal year ending December 31,
1998, as set forth in the capital expenditure budgets delivered to UMC, plus (z)
capital expenditures (not otherwise included in budgeted capital expenditures)
that may be incurred in connection with acquisitions permitted by this
Agreement;
(v) shall not, and shall not (except in the ordinary course of business
consistent with past practice) permit any of its Subsidiaries that is not wholly
owned to: (A) declare, authorize or pay any dividends on or make any
distribution with respect to its outstanding shares of capital stock, (B) split,
combine or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of OEI's capital stock, or (C) repurchase, redeem or
otherwise acquire, or permit any of its Subsidiaries to purchase, redeem or
otherwise acquire, any shares of its capital stock, except as required by the
terms of its securities outstanding on the date hereof or as contemplated by any
existing employee benefit plan;
(vi) shall not, and shall not permit any of its Subsidiaries to, except (A)
in the ordinary course of business consistent with past practice or (B) as
otherwise provided in this Agreement, enter into or amend any employment,
severance or similar agreements or arrangements with any of their respective
directors or executive officers, enter into, adopt or amend any bonus, deferred
compensation, stock purchase, stock option, pension, retirement or other
employee benefit plan, program, agreement or arrangement ("Plan") or grant any
increases in the compensation of any of its directors, officers or employees,
except increases to employees who are not directors or officers made in the
ordinary course of business and in accordance with past practice; provided,
however, that nothing in this Section 6.1(a)(vi) shall prevent OEI or its
Subsidiaries from paying or reimbursing, to the extent necessary, any of its
respective directors, officers or employees relocation expenses;
(vii) shall not, and shall not permit any of its Significant Subsidiaries
to, except as otherwise permitted or contemplated by this Agreement, authorize,
recommend, propose or announce an intention to adopt a plan of complete or
partial liquidation or dissolution;
(viii) shall not, nor shall it permit any of its Subsidiaries to, enter
into any agreement or arrangement with any of their respective Affiliates (as
such term is defined in Rule 405 under the Securities Act, an "Affiliate"),
other than with its wholly owned Subsidiaries, on terms less favorable to it or
its Subsidiary, as the case may be, than could be reasonably expected to have
been obtained with an unaffiliated third party on an arm's-length basis;
(ix) shall not propose or adopt any amendments to its certificate of
incorporation or by-laws;
(x) shall not, and shall not permit any of its Significant Subsidiaries to,
issue, deliver or sell or authorize or propose to issue, deliver or sell, any
shares of their capital stock of any class or other voting securities or any
securities convertible into such shares (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise), except as specifically set forth in Section 4.2 and except pursuant
to the OEI Rights Plan;
(xi) shall not, and shall not permit any of its Subsidiaries to, take any
actions which would, or would be reasonably likely to, prevent accounting for
the Mergers in accordance with the pooling of interests method of accounting
under the requirements of Opinion No. 16 "Business Combinations" of the
Accounting Principles
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Board of the American Institute of Certified Public Accountants, as amended by
applicable pronouncements by the Financial Accounting Standards Board ("APB No.
16");
(xii) shall not, and shall not permit any of its Subsidiaries to (A) make
or rescind any material express or deemed election relating to Taxes unless it
is reasonably expected that such action will not have an OEI Material Adverse
Effect, including elections for any and all joint ventures, partnerships,
limited liability companies, working interests or other investments where it has
the capacity to make such binding election, (B) settle or compromise any
material claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes, except where such
settlement or compromise will not have an OEI Material Adverse Effect, or (C)
change in any material respect any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income Tax Returns that have been filed for prior
taxable years, except as may be required by applicable law or except for changes
that are reasonably expected not to have an OEI Material Adverse Effect; and
(xiii) shall not, and shall not permit any of its Subsidiaries to, agree,
in writing or otherwise, to take any of the foregoing actions or take any action
which would (A) make any representation or warranty in Article IV hereof untrue
or incorrect or (B) result in any of the conditions to the Mergers set forth in
Article VII not being satisfied.
(b) Except as set forth in Section 6.1 of the UMC Disclosure Schedule, UMC:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their ordinary and usual course of business in
substantially the same manner as heretofore conducted, and shall use all
commercially reasonable efforts to preserve intact its present business
organization, keep available the services of its current officers and employees
and endeavor to preserve relationships with customers, suppliers and others
having business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect at the Effective Time;
(ii) shall not, and it shall not permit any of its Subsidiaries to, acquire
or agree to acquire by merging or consolidating with, or by purchasing any
equity interest in or any of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization or
division thereof, other than any such acquisition or acquisitions having a
purchase price not exceeding $50,000,000 in the aggregate;
(iii) shall not, other than: (A) as may be necessary or required by law to
consummate the transactions contemplated hereby or (B) sales, leases,
encumbrances or other dispositions in the ordinary course of business consistent
with past practice that are not material, individually or in the aggregate, to
UMC and its Subsidiaries taken as a whole, and it shall not permit any of its
Subsidiaries to, sell, lease, encumber or otherwise dispose of, or agree to
sell, lease (whether such lease is an operating or capital lease), encumber or
otherwise dispose of, any of its material assets;
(iv) shall not, and shall not permit any of its Subsidiaries to, (A) incur
any indebtedness for borrowed money (except (t) intercompany debt, (u)
indebtedness incurred by Lion GPL, S.A. in connection with the Lion Liquid
Propane Gas Extraction Plant, (v) indebtedness incurred to finance any
transactions or capital or other expenditures permitted by this Agreement and
regular borrowings under credit facilities made in the ordinary course of UMC's
cash management practices, (w) refinancings of existing debt, (x) immaterial
borrowings that, in each such case, permit prepayment of such debt without
penalty (other than LIBOR breakage costs), (y) for indebtedness incurred by UMC
Equatorial Guinea Corporation in connection with Block B and any guarantees
thereof and (z) for indebtedness incurred by Havre Pipeline Company L.L.C.) or
guarantee any such indebtedness or issue or sell any debt securities or warrants
or rights to acquire any debt securities of UMC or any of its Subsidiaries or
guarantee any debt securities of others, (B) except in the ordinary course of
business, enter into any material lease (whether such lease is an operating or
capital lease) or create any material mortgages, Liens, security interests or
other encumbrances on the property of UMC or any of its Subsidiaries in
connection with any indebtedness thereof, (C) make or commit to make aggregate
capital expenditures in excess of an amount equal to the aggregate capital
expenditures budgeted by UMC for the fiscal years ending December 31, 1997 as
set forth in the capital expenditure budgets delivered to OEI, less any budgeted
capital expenditures expended prior to the date of this Agreement, or (D) make
or commit to
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make aggregate capital expenditures in excess of an amount equal to the sum of
(y) the aggregate capital expenditures budgeted by UMC for the fiscal year
ending December 31, 1998, as set forth in the capital expenditure budgets
delivered to OEI, plus (z) capital expenditures (not otherwise included in
budgeted capital expenditures) that may be incurred in connection with
acquisitions permitted by this Agreement;
(v) shall not, and shall not (except in the ordinary course of business
consistent with past practice) permit any of its Subsidiaries that is not wholly
owned to: (A) declare, authorize or pay any dividends on or make any
distribution with respect to their outstanding shares of capital stock, (B)
split, combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of UMC's capital stock; or (C) repurchase, redeem or
otherwise acquire, or permit any of its Subsidiaries to purchase, redeem or
otherwise acquire, any shares of its capital stock, except as required by the
terms of its securities outstanding on the date hereof or as contemplated by any
existing employee benefit plan;
(vi) shall not, and shall not permit any of its Subsidiaries to, except (A)
in the ordinary course of business consistent with past practice or (B) as
otherwise provided in this Agreement, enter into or amend any Plan or grant any
increases in the compensation of any of its directors, officers or employees,
except increases to employees who are not directors or officers made in the
ordinary course of business and in accordance with past practice; provided,
however, the foregoing shall not prohibit the payment of bonuses under the UMC
Incentive Compensation Plan; provided, further, that nothing in this Section
6.1(b)(vi) shall prevent UMC or its Subsidiaries from paying or reimbursing, to
the extent necessary, any of its respective directors, officers or employees
relocation expenses;
(vii) shall not, and shall not permit any of its Significant Subsidiaries
to, except as otherwise permitted or contemplated by this Agreement, authorize,
recommend, propose or announce an intention to adopt a plan of complete or
partial liquidation or dissolution;
(viii) shall not, nor shall it permit any of its Subsidiaries to, enter
into any agreement or arrangement with any of their respective Affiliates, other
than with its wholly owned Subsidiaries, on terms less favorable to it or its
Subsidiary, as the case may be, than could be reasonably expected to have been
obtained with an unaffiliated third party on an arm's-length basis.
(ix) shall not propose or adopt any amendments to its certificate of
incorporation or by-laws;
(x) shall not, and shall not permit any of its Significant Subsidiaries to,
issue, deliver or sell or authorize or propose to issue, deliver or sell, any
shares of their capital stock of any class or other voting securities or any
securities convertible into such shares (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise), except as specifically set forth in Section 5.2 and except pursuant
to the UMC Rights Plan;
(xi) shall not, and shall not permit any of its Subsidiaries to, take any
actions which would, or would be reasonably likely, to, prevent accounting for
the Mergers in accordance with the pooling of interests method of accounting
under the requirements of APB No. 16;
(xii) shall not, and shall not permit any of its Subsidiaries to (A) make
or rescind any material express or deemed election relating to Taxes unless it
is reasonably expected that such action will not have a UMC Material Adverse
Effect, including elections for any and all joint ventures, partnerships,
limited liability companies, working interests or other investments where it has
the capacity to make such binding election, (B) settle or compromise any
material claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes, except where such
settlement or compromise will not have a UMC Material Adverse Effect, or (C)
change in any material respect any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income Tax Returns that have been filed for prior
taxable years, except as may be required by applicable law or except for changes
that are reasonably expected not to have a UMC Material Adverse Effect;
(xiii) shall not, and shall not permit any of its Subsidiaries to, agree,
in writing or otherwise, to take any of the foregoing actions or take any action
which would (A) make any representation or warranty in Article V
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hereof untrue or incorrect or (B) result in any of the conditions to the Mergers
set forth in Article VII not being satisfied; and
(xiv) shall not, under any of the UMC Option Plans, provide notice of the
UMC Merger to the optionees thereunder more than 15 days prior to the UMC
Effective Time.
Notwithstanding any other provision of this Agreement and the Ancillary
Agreements, including, but not limited to, Sections 6.1(b)(iii), (v) and (viii)
of this Agreement, nothing in this Agreement or in the Ancillary Agreements
shall:
(1) to the extent that such restriction would constitute a breach of
Section 10.19 of UMC's Indenture governing its 10.375% Senior Subordinated
Notes due 2005, restrict the right or ability of UMC's Subsidiaries to (a)
pay dividends or make other distributions to UMC and its Subsidiaries, (b)
pay any indebtedness owed to UMC or any of its Subsidiaries, (c) make an
investment in UMC or any of its Subsidiaries, or (d) transfer any property
to UMC or any of its Subsidiaries; or
(2) to the extent that such prohibition, restriction or requirement
would constitute a breach of Section 9.14 or Section 9.18 of the Global
Credit Agreement among UMC, UMC Petroleum Corporation and the agents and
lenders parties thereto, (a) in any way prohibit or restrict the granting,
conveying, creation or imposition of any Lien on any property of UMC or any
of its Subsidiaries, or require the consent of or notice to any other
person or entity in connection therewith, or (b) restrict payments from the
Subsidiaries of UMC Petroleum Corporation to UMC Petroleum Corporation or
Subsidiaries of UMC to UMC.
Section 6.2 Investigation. Upon reasonable notice, each of OEI and UMC
shall afford to one another and to one another's officers, employees,
accountants, counsel and other authorized representatives full and complete
access during normal business hours, throughout the period prior to the earlier
of the Effective Time or the date of termination of this Agreement, to its and
its Subsidiaries' properties, contracts, commitments, books, and records
(including but not limited to Tax Returns) and any report, schedule or other
document filed or received by it pursuant to the requirements of federal or
state securities laws and shall use their reasonable best efforts to cause their
respective representatives to furnish promptly to one another such additional
financial and operating data and other information as to its and its
Subsidiaries' respective businesses and properties as the other or its duly
authorized representatives may from time to time reasonably request. The parties
hereby agree that each of them will treat any such information in accordance
with the Confidentiality Agreement, dated as of April 16, 1997, between OEI and
UMC (the "Confidentiality Agreement"). Notwithstanding any provision of this
Agreement to the contrary, no party shall be obligated to make any disclosure in
violation of applicable laws or regulations, including any such laws or
regulations.
Section 6.3 Cooperation. (a) OEI and UMC shall together, or pursuant to an
allocation of responsibility to be agreed upon between them:
(i) prepare and file with the SEC as soon as is reasonably practicable the
Joint Proxy Statement/ Prospectus and use their reasonable best efforts to have
the Joint Proxy Statement/Prospectus cleared by the SEC under the Exchange Act
and the Registration Statement declared effective by the SEC under the
Securities Act as promptly as possible after such filing;
(ii) cooperate with one another in order to lift any injunctions or remove
any other impediment to the consummation of the transactions contemplated
herein; and
(iii) cooperate with one another in obtaining opinions of Andrews & Kurth
L.L.P., counsel to OEI, and Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel
to UMC, dated as of the Effective Time, to the effect that the Newco Merger and
the UMC Merger, respectively, will constitute transactions described in Section
368(a) of the Code. In connection therewith, each of OEI and UMC shall deliver
to Andrews & Kurth L.L.P. and Akin, Gump, Strauss, Hauer & Feld, L.L.P.
customary representation letters in form and substance reasonably satisfactory
to such counsel and OEI and UMC shall use their reasonable best efforts to
obtain any representation letters drafted by their counsel from their respective
appropriate stockholders and
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shall deliver any such letters obtained to Andrews & Kurth L.L.P. and Akin,
Gump, Strauss, Hauer & Feld, L.L.P. (the representation letters referred to in
this sentence are collectively, the "Tax Certificates").
(b) Subject to the limitations contained in Section 6.2, OEI and UMC shall
each furnish to one another and to one another's counsel all such information as
may be required in order to effect the foregoing actions and each represents and
warrants to the other that no information furnished by it in connection with
such actions or otherwise in connection with the consummation of the
transactions contemplated by this Agreement will contain any untrue statement of
a material fact or omit to state a material fact required to be stated in order
to make any information so furnished, in light of the circumstances under which
it is so furnished, not misleading.
(c)(i) OEI shall cause the Joint Proxy Statement/Prospectus to be mailed to
OEI's stockholders, and UMC shall cause the Joint Proxy Statement/Prospectus to
be mailed to UMC's stockholders, in each case as promptly as practicable after
the Registration Statement is declared effective under the Securities Act.
(ii) OEI shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "OEI Stockholders Meeting") for the purpose of obtaining the
OEI Stockholders' Approval and shall, through its Board of Directors, recommend
to its stockholders the adoption of this Agreement and the approval of (A) the
Newco Merger and the UMC Merger, (B) the benefit plans to be adopted by OEI
and/or the amendments to existing benefit plans of OEI to be adopted in
accordance with Section 6.17 (to the extent OEI and UMC determine such
stockholder approval is required or advisable) and (C) the other matters
contemplated hereby. Without limiting the generality of the foregoing but
subject to its rights to terminate this Agreement pursuant to Section 6.9(b),
OEI agrees that its obligations pursuant to the first sentence of this Section
6.3(c)(ii) shall not be affected by the commencement, public proposal, public
disclosure or communication to OEI of any OEI Takeover Proposal (as defined in
Section 6.9(a)). The OEI Stockholders Meeting shall also be OEI's annual meeting
of stockholders for 1998, and OEI shall elect directors at such meeting.
(iii) UMC shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "UMC Stockholders Meeting") for the purpose of obtaining the
UMC Stockholders' Approval and shall, through its Board of Directors, recommend
to its stockholders the adoption of this Agreement, the UMC Merger and the other
transactions contemplated hereby. Without limiting the generality of the
foregoing but subject to its rights to terminate this Agreement pursuant to
Section 6.10(b), UMC agrees that its obligations pursuant to the first sentence
of this Section 6.3(c)(iii) shall not be affected by the commencement, public
proposal, public disclosure or communication to UMC of any UMC Takeover Proposal
(as defined in Section 6.10(a)).
(iv) Each of UMC and OEI will use their best efforts to hold the OEI
Stockholders Meeting and the UMC Stockholders Meeting on the same date and as
soon as practicable after the date hereof.
(v) Each of UMC and OEI shall cause Newco to adopt this Agreement, approve
the Newco Merger and take all additional actions as may be necessary to cause
Newco to effect the transactions contemplated hereby.
(vi) OEI shall (A) promptly prepare to file with the SEC the Registration
Statement on Form S-4 under the Securities Act with respect to the OEI Common
Stock issuable in the Mergers; (B) as soon as is reasonably practicable, take
all such action as may be required under state blue sky or securities laws in
connection with the issuance of shares of OEI Common Stock in the UMC Merger and
as contemplated by this Agreement; and (C) promptly prepare and file with the
NYSE and such other stock exchanges as shall be agreed upon listing applications
covering the shares of OEI Common Stock issuable in the UMC Merger or upon
exercise of OEI and UMC stock options, warrants, conversion rights or other
rights or vesting or payment of other OEI and UMC equity-based awards and use
its reasonable best efforts to obtain, prior to the Effective Time, approval for
the listing of such OEI Common Stock, subject only to official notice of
issuance.
Section 6.4 Affiliate Agreements. (a) OEI shall, as soon as practicable,
deliver to UMC a list (reasonably satisfactory to counsel for UMC), setting
forth the names and addresses of all persons who will be, at the time of the OEI
Stockholders Meeting, in OEI's reasonable judgment, "affiliates" of OEI for
purposes of Rule 145 under the Securities Act or under applicable SEC accounting
releases with respect to
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pooling of interests accounting treatment. OEI shall furnish such information
and documents as UMC may reasonably request for the purpose of reviewing such
list. OEI shall use its reasonable best efforts to cause each person who is
identified as an "affiliate" in the list furnished pursuant to this Section 6.4
to execute a written agreement on or prior to the mailing of the Joint Proxy
Statement/Prospectus, in substantially the form of EXHIBIT C hereto.
(b) UMC shall, as soon as practicable, deliver to OEI a list (reasonably
satisfactory to counsel for OEI) setting forth the names and addresses of all
persons who will be, at the time of the UMC Stockholders Meeting, in UMC's
reasonable judgment, "affiliates" of UMC for purposes of Rule 145 under the
Securities Act or under applicable SEC accounting releases with respect to
pooling of interests accounting treatment. UMC shall furnish such information
and documents as OEI may reasonably request for the purpose of reviewing such
list. UMC shall use its reasonable best efforts to cause each person who is
identified as an "affiliate" in the list furnished pursuant to this Section 6.4
to execute a written agreement on or prior to the mailing of the Joint Proxy
Statement/Prospectus, in substantially the form of EXHIBIT D hereto.
Section 6.5 Employee Stock Options, Incentive and Benefit Plans. (a)
Simultaneously with the UMC Merger, (i) to the extent that the holders of such
options so elect, each outstanding option ("UMC Stock Options") (and related
stock appreciation right ("UMC SAR"), if any) to purchase or acquire a share of
UMC Common Stock under UMC Option Plans shall be converted into an option
(together with a related stock appreciation right of UMC, if applicable) to
purchase the number of shares of OEI Common Stock equal to 1.30 times the number
of shares of UMC Common Stock which could have been obtained prior to the
Effective Time upon the exercise of each such option, at an exercise price per
share equal to the exercise price for each such share of UMC Common Stock
subject to an option (and related UMC SAR, if any) under the UMC Option Plans
divided by 1.30, and all references in each such option (and related UMC SAR, if
any) to UMC shall be deemed to refer to OEI, where appropriate, and (ii) OEI
shall assume the obligations of UMC under the UMC Option Plans. The other terms
of each such option and UMC SAR, and the plans under which they were issued,
shall continue to apply in accordance with their terms, including any provisions
providing for acceleration.
(b) Simultaneously with the UMC Merger, each outstanding award (including
restricted stock, phantom stock, stock equivalents and stock units) ("UMC
Award") under any employee incentive or benefit plans, programs or arrangements
and non-employee director plans presently maintained by UMC which provide for
grants of equity-based awards shall be amended or converted into a similar
instrument of OEI, in each case with such adjustments to the terms of such UMC
Awards as are appropriate to preserve the value inherent in such UMC Awards with
no detrimental effects on the holders thereof. The other terms of each UMC
Award, and the plans or agreements under which they were issued, shall continue
to apply in accordance with their terms, including any provisions providing for
acceleration. With respect to any restricted stock awards as to which the
restrictions shall have lapsed on or prior to the Effective Time in accordance
with the terms of the applicable plans or award agreements, shares of such
previously restricted stock shall be converted in accordance with the provisions
of Section 2.2(c).
(c) UMC agrees that its employee incentive or benefit plans, programs and
arrangements and non-employee director plans shall be amended, to the extent
necessary and appropriate, to reflect the transactions contemplated by this
Agreement, including, but not limited to the conversion of shares of UMC Common
Stock held or to be awarded or paid pursuant to such benefit plans, programs or
arrangements into shares of OEI Common Stock on a basis consistent with the
transactions contemplated by this Agreement; provided that any present employees
of UMC shall be credited for their service with UMC and its predecessor entities
in connection with such amendments. The actions to be taken by UMC pursuant to
this Section 6.5(c) shall include the submission by UMC of the amendments to the
plans, programs or arrangements referred to herein to its stockholders at the
UMC Meeting, if such submission is determined to be necessary or advisable by
counsel to UMC; provided, however, that such approval shall not be a condition
to the consummation of the UMC Merger. At the UMC Effective Time, OEI shall
automatically assume the Severance Protection Agreements between UMC and certain
employees of UMC and its Subsidiaries.
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(d) Simultaneously with the Newco Merger, to the extent that the holders of
such options so elect, each outstanding OEI Stock Option (and related stock
appreciation right ("OEI SAR"), if any) to purchase or acquire a share of Old
OEI Common Stock under OEI Option Plans shall be converted into an option
(together with a related stock appreciation right of OEI, if applicable) to
purchase the number of shares of OEI Common Stock equal to 2.34 times the number
of shares of Old OEI Common Stock which could have been obtained prior to the
Newco Effective Time upon the exercise of each such option, at an exercise price
per share equal to the exercise price for each such share of OEI Common Stock
subject to an option (and related OEI SAR, if any) under the OEI Option Plans
divided by 2.34. The other terms of each such option and OEI SAR, and the plans
under which they were issued, shall continue to apply in accordance with their
terms, including any provisions providing for acceleration.
Section 6.6 Filings; Other Action. Subject to the terms and conditions
herein provided, OEI and UMC shall (a) promptly make their respective filings
and thereafter make any other required submissions under the HSR Act, (b) use
reasonable efforts to cooperate with one another in (i) determining whether any
filings are required to be made with, or consents, permits, authorizations or
approvals are required to be obtained from, any third party or other
governmental or regulatory bodies or authorities of federal, state, local and
foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby and (ii) timely making all such filings and timely seeking all such
consents, permits, authorizations or approvals, and (c) use reasonable efforts
to take, or cause to be taken, all other actions and do, or cause to be done,
all other things necessary, proper or advisable to consummate and make effective
the transactions contemplated hereby, including, without limitation, taking all
such further action as reasonably may be necessary to resolve such objections,
if any, as the Federal Trade Commission, the Antitrust Division of the
Department of Justice, state antitrust enforcement authorities or competition
authorities of any other nation or other jurisdiction or any other person may
assert under relevant antitrust or competition laws with respect to the
transactions contemplated hereby and to ensure that it is a "poolable entity"
eligible to participate in a transaction to be accounted for under the pooling
of interests method of accounting.
Section 6.7 Further Assurances. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers of OEI and UMC shall take all such necessary
action.
Section 6.8 Takeover Statute. If any "fair price," "moratorium," "control
share acquisition" or other form of anti-takeover statute or regulation shall
become applicable to the transactions contemplated hereby, each of OEI and UMC
and the members of their respective Boards of Directors shall grant such
approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby.
Section 6.9 No Solicitation by OEI. (a) OEI shall not, nor shall it
authorize or permit any of its directors or officers or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
to, directly or indirectly through another person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any proposal which
constitutes an OEI Takeover Proposal (as defined below) or (ii) participate in
any discussions or negotiations regarding an OEI Takeover Proposal; provided,
however, that if the Board of Directors of OEI determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to OEI's stockholders under applicable law, OEI
may, in response to an OEI Superior Proposal (as defined in Section 6.9(b))
which was not solicited by it or which did not otherwise result from a breach of
this Section 6.9(a), and subject to providing at least one business day's prior
written notice of its decision to take such action to UMC (the "OEI Notice") and
compliance with Section 6.9(c), (x) furnish information with respect to OEI and
its Subsidiaries to any person making an OEI Superior Proposal pursuant to a
customary confidentiality agreement (as determined by OEI after consultation
with its outside counsel) and (y) participate in discussions or negotiations
regarding such OEI Superior Proposal. For purposes of this Agreement, "OEI
Takeover Proposal" means any inquiry, proposal or offer (or any improvement,
restatement, amendment, renewal or reiteration thereof) from any person relating
to
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(i) any direct or indirect acquisition or purchase of a business or assets that
(A) constitutes 25% or more of the net revenues, net income or assets of OEI and
its Subsidiaries, taken as a whole, or (B) is reasonably expected to result in
the receipt of cash, securities and/or property having a value of at least $400
million, (ii) the direct or indirect acquisition of a substantial portion of
shares of any class of equity securities of OEI or any of its Subsidiaries,
(iii) any tender offer or exchange offer that if consummated would result in any
person beneficially owning a substantial portion of any class of equity
securities of OEI or any of its Subsidiaries or (iv) any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving OEI or any of its Subsidiaries, other than the
transactions contemplated by this Agreement. OEI shall be permitted to deliver
only one OEI Notice with respect to each person making an OEI Superior Proposal.
(b) Except as expressly permitted by this Section 6.9, neither the Board of
Directors of OEI nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to UMC, the approval
or recommendation by such Board of Directors or such committee of the Mergers or
this Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any OEI Takeover Proposal, or (iii) cause OEI or any of its
Subsidiaries to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "OEI Acquisition
Agreement") related to any OEI Takeover Proposal. Notwithstanding the foregoing,
in the event that the Board of Directors of OEI determines in good faith that
there is a substantial probability that the adoption of this Agreement by
holders of OEI Common Stock will not be obtained due to the existence of an OEI
Superior Proposal, the Board of Directors of OEI may (subject to this and the
following sentences) terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause OEI to enter into any OEI Acquisition
Agreement with respect to any OEI Superior Proposal), but only at a time that is
after the third business day following UMC's receipt of written notice advising
UMC that the Board of Directors of OEI is prepared to accept an OEI Superior
Proposal, specifying the material terms and conditions of such OEI Superior
Proposal and identifying the person making such OEI Superior Proposal. For
purposes of this Agreement, an "OEI Superior Proposal" means any OEI Takeover
Proposal which the Board of Directors of OEI determines in its good faith
judgment (based on the advice of a financial advisor of nationally recognized
reputation) to be more favorable to OEI's stockholders than the Mergers and for
which financing, to the extent required, is then committed or as to which the
Board of Directors of OEI has received a "highly confident letter" from a
nationally recognized investment bank or financial institution.
(c) In addition to the obligations of OEI set forth in paragraphs (a) and
(b) of this Section 6.9, OEI shall immediately advise UMC orally and in writing
of any request for information or of any OEI Takeover Proposal, the material
terms and conditions of such request or OEI Takeover Proposal and the identity
of the person making such request or OEI Takeover Proposal. OEI will keep Newco
reasonably informed of the status and details (including amendments or proposed
amendments) of any such request or OEI Takeover Proposal.
(d) Nothing contained in this Section 6.9 shall prohibit OEI from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to OEI's
stockholders if, in the good faith judgment of the Board of Directors of OEI,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however, that
neither OEI nor its Board of Directors nor any committee thereof shall withdraw
or modify, or propose publicly to withdraw or modify, its position with respect
to this Agreement, the Newco Merger, the UMC Merger, the issuance of OEI Common
Stock in connection with the UMC Merger, or approve or recommend, or propose
publicly to approve or recommend, an OEI Takeover Proposal.
Section 6.10 No Solicitation by UMC. (a) UMC shall not, nor shall it
permit any of its Subsidiaries to, nor shall it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
Subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any proposal
which constitutes a UMC Takeover Proposal (as defined below) or (ii) participate
in any discussions or negotiations regarding a UMC Takeover Proposal; provided,
however, that if the Board of Directors of UMC determines in
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good faith, after consultation with outside counsel, that it is necessary to do
so in order to comply with its fiduciary duties to UMC's stockholders under
applicable law, UMC may, in response to a UMC Superior Proposal (as defined in
Section 6.10(b)) which was not solicited by it or which did not otherwise result
from a breach of this Section 6.10(a), and subject to providing at least one
business day's prior written notice of its decision to take such action to OEI
(the "UMC Notice") and compliance with Section 6.10(c), (x) furnish information
with respect to UMC and its Subsidiaries to any person making a UMC Superior
Proposal pursuant to a customary confidentiality agreement (as determined by UMC
after consultation with its outside counsel) and (y) participate in discussions
or negotiations regarding such UMC Superior Proposal. For purposes of this
Agreement, "UMC Takeover Proposal" means any inquiry, proposal or offer (or any
improvement, restatement, amendment, renewal or reiteration thereof) from any
person relating to (i) any direct or indirect acquisition or purchase of a
business or assets that (A) constitutes 25% or more of the net revenues, net
income or assets of UMC and its Subsidiaries, taken as a whole, or (B) is
reasonably expected to result in the receipt of cash, securities and/or property
having a value of at least $400 million, (ii) the direct or indirect acquisition
of a substantial portion of shares of any class of equity securities of UMC or
any of its Subsidiaries, (iii) any tender offer or exchange offer that if
consummated would result in any person beneficially owning a substantial portion
of any class of equity securities of UMC or any of its Subsidiaries or (iv) any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving UMC or any of its Subsidiaries,
other than the transactions contemplated by this Agreement. UMC shall be
permitted to deliver only one UMC Notice with respect to each person making a
UMC Superior Proposal.
(b) Except as expressly permitted by this Section 6.10, neither the Board
of Directors of UMC nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to UMC, the approval
or recommendation by such Board of Directors or such committee of the UMC Merger
or this Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any UMC Takeover Proposal, or (iii) cause UMC or any of its
Subsidiaries to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, a "UMC Acquisition
Agreement") related to any UMC Takeover Proposal. Notwithstanding the foregoing,
in the event that the Board of Directors of UMC determines in good faith that
there is a substantial probability that the adoption of this Agreement by
holders of UMC Common Stock will not be obtained due to the existence of a UMC
Superior Proposal, the Board of Directors of UMC may (subject to this and the
following sentences) terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause UMC to enter into any UMC Acquisition
Agreement, with respect to any UMC Superior Proposal), but only at a time that
is after the third business day following OEI's receipt of written notice
advising OEI that the Board of Directors of UMC is prepared to accept a UMC
Superior Proposal, specifying the material terms and conditions of such UMC
Superior Proposal and identifying the person making such UMC Superior Proposal.
For purposes of this Agreement, a "UMC Superior Proposal" means any UMC Takeover
Proposal which the Board of Directors of UMC determine in its good faith
judgment (based on the advice of a financial adviser of nationally recognized
reputation) to be more favorable to UMC's stockholders than the UMC Merger and
for which financing, to the extent required, is then committed or as to which
the Board of Directors of UMC has received a "highly confident letter" from a
nationally recognized investment bank or financial institution.
(c) In addition to the obligations of UMC set forth in paragraphs (a) and
(b) of this Section 6.10, UMC shall immediately advise OEI orally and in writing
of any request for information or of any UMC Takeover Proposal, the material
terms and conditions of such request or UMC Takeover Proposal and the identity
of the person making such request or UMC Takeover Proposal. UMC will keep OEI
reasonably informed of the status and details (including amendments or proposed
amendments) of any such request or UMC Takeover Proposal.
(d) Nothing contained in this Section 6.10, shall prohibit UMC from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to UMC's
stockholders if, in the good faith judgment of the Board of Directors of UMC,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however, that
neither UMC nor its Board of Directors nor any committee thereof
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shall withdraw or modify, or propose publicly to withdraw or modify, its
position with respect to this Agreement, the UMC Merger, the issuance of OEI
Common Stock in connection with the UMC Merger, or approve or recommend, or
propose publicly to approve or recommend, a UMC Takeover Proposal.
Section 6.11 Public Announcements. OEI and UMC will consult with and
provide each other the opportunity to review and comment upon any press release
prior to the issuance of any press release relating to this Agreement or the
transactions contemplated herein and shall not issue any such press release
without the other party's consent except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange.
Section 6.12 Indemnification and Insurance.
(a) From and after the Effective Time, OEI shall indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of OEI
or any of its Subsidiaries or an employee of OEI or any of its Subsidiaries who
acts as a fiduciary under any OEI Benefit Plans (the "OEI Indemnified Parties")
against all losses, claims, damages, costs, expenses (including attorneys'
fees), liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director, officer, or such
employee of OEI or any Subsidiary whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to, or at or after, the Effective Time ("OEI Indemnified Liabilities"),
including all OEI Indemnified Liabilities based in whole or in part on, or
arising in whole or in part out of, or pertaining to this Agreement or the
transactions contemplated hereby, in each case to the fullest extent permitted
under applicable law (and OEI will pay expenses in advance of the final
disposition of any such action or proceeding to each OEI Indemnified Party to
the fullest extent permitted by law). Without limiting the foregoing, in the
event any such claim, action, suit, proceeding or investigation is brought
against any OEI Indemnified Parties (whether arising before or after the
Effective Time), (i) the OEI Indemnified Parties may retain counsel reasonably
satisfactory to them and OEI, and OEI shall pay all fees and expenses of such
counsel for the OEI Indemnified Parties; and (ii) OEI will use all commercially
reasonable efforts to assist in the vigorous defense of any such matter,
provided that no party shall be liable for any settlement effected without its
written consent, which consent shall not be unreasonably withheld. Any OEI
Indemnified Party wishing to claim indemnification under this Section 6.12(a),
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify OEI, but the failure so to notify shall not relieve a party from
any liability that it may have under this Section 6.12(a), except to the extent
such failure materially prejudices such party. The OEI Indemnified Parties as a
group may retain only one law firm to represent them with respect to each such
matter unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more OEI
Indemnified Parties. The parties agree that the rights to indemnification,
including provisions relating to advances of expenses incurred in defense of any
action or suit, existing in favor of the OEI Indemnified Parties in the charter
and bylaws of OEI with respect to matters occurring through the Effective Time,
shall survive the Mergers and shall continue in full force and effect for a
period of six years from the Effective Time; provided, however, that all rights
to indemnification in respect of any OEI Indemnified Liabilities asserted or
made within such period shall continue until the disposition of such OEI
Indemnified Liabilities. The foregoing provisions of this Section 6.12(a) shall
not limit or impair the rights of the OEI Indemnified Parties arising under any
indemnification or other agreements to which they are a party, the charter,
bylaws or other organizational documents of OEI and its Subsidiaries or
applicable laws.
(b) For three years from the Effective Time, OEI shall maintain in effect
its current directors' and officers' liability insurance policy (the "OEI
Policy") covering those persons who are currently covered by the OEI Policy (a
copy of which has been heretofore delivered to UMC); provided, however, that in
no event shall OEI be required to expend in any one year an amount in excess of
150% of the annual premiums currently paid by OEI for such insurance, and,
provided, further, that if the annual premiums of such insurance coverage exceed
such amount, OEI shall be obligated to obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
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(c) From and after the Effective Time, OEI shall indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective time, an officer or director of
Newco, UMC or any of its Subsidiaries or an employee of UMC or any of its
Subsidiaries who acts as a fiduciary under any UMC Benefit Plans (the "UMC
Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorneys' fees), liabilities or judgments or amounts that are paid
in settlement with the approval of the indemnifying party (which approval shall
not be unreasonably withheld) of or in connection with any threatened or actual
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer, or such employee of UMC or any Subsidiary whether pertaining
to any matter existing or occurring at or prior to the Effective Time and
whether asserted or claimed prior to, or at or after, the Effective Time ("UMC
Indemnified Liabilities"), including all UMC Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, or pertaining to
this Agreement or the transactions contemplated hereby, in each case to the
fullest extent permitted under applicable law (and OEI will pay expenses in
advance of the final disposition of any such action or proceeding to each UMC
Indemnified Party to the fullest extent permitted by law). Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any UMC Indemnified Parties (whether arising
before or after the Effective Time), (i) the UMC Indemnified Parties may retain
counsel reasonably satisfactory to them and OEI, and OEI shall pay all fees and
expenses of such counsel for the UMC Indemnified Parties; and (ii) OEI will use
all commercially reasonable efforts to assist in the vigorous defense of any
such matter, provided that no party shall be liable for any settlement effected
without its written consent, which consent shall not be unreasonably withheld.
Any UMC Indemnified Party wishing to claim indemnification under this Section
6.12(c), upon learning of any such claim, action, suit, proceeding or
investigation, shall notify OEI, but the failure so to notify shall not relieve
a party from any liability that it may have under this Section 6.12(c), except
to the extent such failure materially prejudices such party. The UMC Indemnified
Parties as a group may retain only one law firm to represent them with respect
to each such matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more UMC Indemnified Parties. The parties agree that the rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the UMC Indemnified
Parties in the charter and bylaws of UMC with respect to matters occurring
through the Effective Time, shall survive the UMC Merger and shall continue in
full force and effect for a period of six years from the Effective Time;
provided, however, that all rights to indemnification in respect of any UMC
Indemnified Liabilities asserted or made within such period shall continue until
the disposition of such UMC Indemnified Liabilities. The foregoing provisions of
this Section 6.12(c) shall not limit or impair the rights of the UMC Indemnified
Parties arising under any indemnification or other agreements to which they are
a party, the charter, bylaws or other organizational documents of UMC and its
Subsidiaries or applicable laws.
(d) For three years from the Effective Time, OEI shall maintain in effect
UMC's directors' and officers' liability insurance policy (the "UMC Policy"),
which policy UMC shall obtain prior to the Effective Time and which policy shall
be substantially similar to the OEI Policy, covering those persons who are
covered by the UMC Policy and persons who are directors of OEI; provided,
however, that in no event shall OEI be required to expend in any one year an
amount in excess of 150% of the annual premiums to be paid by UMC for such
insurance, and, provided, further, that if the annual premiums of such insurance
coverage exceed such amount, OEI shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount.
(e) In the event that OEI or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then, in each such case, proper provisions shall be made so that the
successors and assigns of OEI shall assume the obligations set forth in this
Section 6.12. The provisions of this Section 6.12 are intended to be for the
benefit of, and shall be enforceable by, the parties hereto and each person
entitled to indemnification or insurance coverage or expense advancement
pursuant to this Section 6.12, his heirs and representatives.
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Section 6.13 Accountants' "Comfort" Letters. OEI and UMC will each use
reasonable best efforts to cause to be delivered to each other letters from
their respective independent accountants, dated a date within two business days
before the date of the Registration Statement, in form reasonably satisfactory
to the recipient and customary in scope for comfort letters delivered by
independent accountants in connection with registration statements on Form S-4
under the Securities Act.
Section 6.14 Additional Reports. OEI and UMC shall each furnish to the
other copies of any reports of the type referred to in Sections 4.5, 4.6, 5.5
and 5.6 which it files with the SEC on or after the date hereof and (ii) any
other filings made by such party or its Subsidiaries with any Governmental
Authority in connection with this Agreement and the transactions contemplated
hereby, and each of OEI and UMC, as the case may be, represents and warrants
that as of the respective dates thereof, such reports will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein, in light of the
circumstances under which they were made, not misleading. Any unaudited
consolidated interim financial statements included in such reports (including
any related notes and schedules) will fairly present the financial position of
OEI and its consolidated Subsidiaries or UMC and its consolidated Subsidiaries,
as the case may be, as of the dates thereof and the results of operations and
changes in financial position or other information included therein for the
periods or as of the date then ended (subject, where appropriate, to normal
year-end adjustments), in each case in accordance with past practice and GAAP
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto).
Section 6.15 Advice of Changes. OEI and UMC, as the case may be, shall
confer on a regular basis with each other, report on operational matters and
promptly advise each other orally and in writing of any change or event having,
or which, insofar as can reasonably be foreseen, could have an OEI Material
Adverse Effect or UMC Material Adverse Effect, as the case may be.
Section 6.16 Stockholder Litigation. Each of OEI and UMC shall give the
other the reasonable opportunity to participate in the defense of any litigation
against OEI or UMC, as applicable, and its directors relating to the
transactions contemplated by this Agreement and the Option Agreements.
Section 6.17 OEI Benefit Plans. Prior to the mailing to the stockholders
of the Joint Proxy Statement/ Prospectus, but to become effective immediately
after the Effective Time, OEI shall adopt new employee benefit plans (and/or
amend existing employee benefit plans) having terms and conditions acceptable to
OEI and UMC.
Section 6.18 Indenture Matters. OEI and UMC shall, and shall cause their
respective Subsidiaries to, take all actions that are necessary or appropriate
in order for OEI, certain of OEI's Subsidiaries and certain of UMC's
Subsidiaries, as applicable, to assume or guarantee by supplemental indenture
the indentures for the outstanding publicly-held notes of UMC and OEI referred
to in the UMC SEC Reports and the OEI SEC Reports.
Section 6.19 New Bank Credit Facility. OEI and UMC shall use their
reasonable best efforts, and shall cooperate, to obtain as promptly as
practicable commitments from financing sources to refinance on an unsecured
basis the existing bank credit facilities of UMC, OEI and their respective
Subsidiaries (excluding, in the case of UMC, Havre Pipeline Company L.L.C.).
Section 6.20 Place of Business. As soon as practicable after the Effective
Time, the executive offices and corporate headquarters of OEI shall be relocated
to the current offices of UMC in Houston, Texas.
ARTICLE VII
CONDITIONS TO THE MERGERS
Section 7.1 Conditions to Each Party's Obligation to Effect the Mergers.
The respective obligations of each party to effect the Mergers shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions:
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(a) The OEI Stockholders' Approval and the UMC Stockholders' Approval shall
have been obtained all in accordance with applicable law.
(b) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other tribunal or governmental body or authority which prohibits the
consummation of the Mergers substantially on the terms contemplated hereby. In
the event any order, decree or injunction shall have been issued, each party
shall use its reasonable efforts to remove any such order, decree or injunction.
(c) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act and no stop order suspending such
effectiveness shall have been issued and remain in effect.
(d) The shares of OEI Common Stock issuable in the UMC Merger shall have
been approved for listing on the NYSE, subject only to official notice of
issuance.
(e) Any applicable waiting period under the HSR Act shall have expired or
been terminated and any other OEI Required Approvals and UMC Required Approvals
shall have been obtained, except where the failure to obtain such other OEI
Required Approvals and UMC Required Approvals would not have a Material Adverse
Effect on OEI or UMC, as the case may be.
(f) UMC shall have received an opinion of its tax counsel, Akin, Gump,
Strauss, Hauer & Feld, L.L.P., in form and substance reasonably satisfactory to
it, and dated as of the Effective Time, to the effect that the UMC Merger will
constitute a transaction described in Section 368(a) of the Code. OEI shall have
received an opinion of its tax counsel, Andrews & Kurth L.L.P., in form and
substance reasonably satisfactory to it, and dated as of the Effective Time, to
the effect that the Mergers will constitute transactions described in Section
368(a) of the Code. In rendering such opinions, Akin, Gump, Strauss, Hauer &
Feld, L.L.P. and Andrews & Kurth L.L.P. may require delivery of and rely upon
the Tax Certificates.
(g) Each of UMC and OEI shall have received from Arthur Andersen LLP a
written opinion dated the Effective Time to the effect that the transactions
contemplated by this Agreement, including the Mergers, when effected in
accordance with the terms hereof, shall be accounted for in the consolidated
financial statements of OEI and its Subsidiaries as a Pooling Transaction, and a
copy of each party's respective opinion shall have been delivered to the other.
Section 7.2 Conditions to Obligations of OEI to Effect the Mergers. The
obligation of OEI to effect the Newco Merger and the UMC Merger is further
subject to the conditions that (a) the representations and warranties of UMC
contained herein that are qualified as to materiality shall be true and correct
in all respects and each of the representations and warranties of UMC contained
herein that are not so qualified shall be true and correct in all material
respects as of the Effective Time with the same effect as though made as of the
Effective Time except (i) for changes specifically permitted by the terms of
this Agreement, (ii) that the accuracy of representations and warranties that by
their terms speak as of the date of this Agreement or some other date will be
determined as of such date and (iii) where any such failure of the
representations and warranties in the aggregate to be true and correct in all
respects would not have a UMC Material Adverse Effect, (b) UMC shall have
performed in all material respects all obligations and complied with all
covenants required by this Agreement to be performed or complied with by it
prior to the Effective Time, (c) UMC shall have delivered to OEI a certificate,
dated the Effective Time and signed by its Chairman of the Board and Chief
Executive Officer or a Senior Vice President, certifying to both such effects,
(d) OEI shall have received from each person named in the UMC list referred to
in Section 6.4(b) an executed copy of an agreement as provided in such Section
and (e) Mr. James C. Flores shall have entered into an employment agreement with
OEI substantially in the form attached hereto as EXHIBIT E.
Section 7.3 Conditions to Obligations of UMC to Effect the UMC Merger. The
obligation of UMC to effect the UMC Merger is further subject to the conditions
that (a) the representations and warranties of OEI contained herein that are
qualified as to materiality shall be true and correct in all respects and each
of the representations and warranties of OEI contained herein that are not so
qualified shall be true and correct in all material respects as of the Effective
Time with the same effect as though made as of the Effective Time except (i) for
changes specifically permitted by the terms of this Agreement, (ii) that the
accuracy of
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representations and warranties that by their terms speak as of the date of this
Agreement or some other date will be determined as of such date and (iii) where
any such failure of the representations and warranties in the aggregate to be
true and correct in all respects would not have an OEI Material Adverse Effect,
(b) OEI shall have performed in all material respects all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Effective Time, (c) OEI shall have delivered to
UMC a certificate, dated the Effective Time and signed by its Chairman of the
Board, Chief Executive Officer and President or a Senior Vice President,
certifying to both such effects, (d) UMC shall have received from each person
named in the OEI list referred to in Section 6.4(a) an executed copy of an
agreement as provided in such Section, (e) all necessary actions to effect the
provisions of Sections 3.1 and 3.2 shall have been taken and (f) Mr. John B.
Brock shall have entered into an employment agreement with OEI substantially in
the form attached hereto as EXHIBIT F.
ARTICLE VIII
TERMINATION, WAIVER, AMENDMENT AND CLOSING
Section 8.1 Termination or Abandonment. This Agreement may be terminated
at any time prior to the Effective Time, whether before or after any approval of
the matters presented in connection with the Mergers by the respective
stockholders of OEI and UMC:
(a) by the mutual written consent of OEI and UMC;
(b) by either UMC or OEI if the Effective Time shall not have occurred on
or before July 31, 1998; provided, that the party seeking to terminate this
Agreement pursuant to this Section 8.1(b) shall not have breached in any
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the failure to consummate the Mergers on or
before such date;
(c) by either UMC or OEI if (i) a statute, rule, regulation or executive
order shall have been enacted, entered or promulgated prohibiting the
consummation of the Mergers substantially on the terms contemplated hereby or
(ii) an order, decree, ruling or injunction shall have been entered permanently
restraining, enjoining or otherwise prohibiting the consummation of the Mergers
substantially on the terms contemplated hereby and such order, decree, ruling or
injunction shall have become final and non-appealable; provided, that the party
seeking to terminate this Agreement pursuant to this Section 8.1(c)(ii) shall
have used its reasonable best efforts to remove such injunction, order or
decree;
(d) by either UMC or OEI, if the approvals of the stockholders of either
UMC or OEI contemplated by this Agreement shall not have been obtained by reason
of the failure to obtain the required vote at a duly held meeting of
stockholders or at any adjournment thereof;
(e) by UMC in accordance with Section 6.10(b); provided that, in order for
the termination of this Agreement pursuant to this paragraph (e) to be deemed
effective, UMC shall have complied with all provisions contained in Section
6.10, including the notice provisions therein, with applicable requirements,
including the payment of the Termination Fee, of Section 8.3 and with the
requirements of Section 9.2(b);
(f) by UMC, if OEI or any of its directors or officers shall participate in
discussion or negotiations in breach of Section 6.9;
(g) by OEI in accordance with Section 6.9(b); provided that, in order for
the termination of this Agreement pursuant to this paragraph (g) to be deemed
effective, OEI shall have complied with all provisions of Section 6.9, including
the notice provisions therein, with applicable requirements, including the
payment of the Termination Fee, of Section 8.3 and with the requirements of
Section 9.2(b);
(h) by OEI, if UMC or any of its directors or officers shall participate in
discussions or negotiations in breach of Section 6.10; or
(i) by OEI or UMC if there shall have been a material breach by the other
of any of its representations, warranties, covenants or agreements contained in
this Agreement and such breach shall not have been cured within 30 days after
notice thereof shall have been received by the party alleged to be in breach.
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Section 8.2 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 8.1, this Agreement shall terminate (except for
the provisions of Sections 6.2, 8.3 and 9.2), and there shall be no other
liability on the part of UMC or OEI to the other except liability arising out of
a willful and material breach of this Agreement or as provided for in the
Confidentiality Agreement.
Section 8.3 Termination Fee. (a) In the event that (i) after the date
hereof and prior to the OEI Stockholders Meeting an OEI Takeover Proposal shall
have been made known to OEI or any of its Subsidiaries or shall have been made
directly to its stockholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make an OEI Takeover
Proposal and thereafter this Agreement is terminated by either UMC or OEI
pursuant to Section 8.1(b) or 8.1(d) (provided that the basis for such
termination is that the OEI Stockholders' Approval shall not have been obtained
and provided, further, that the UMC stockholders shall not have voted to
disapprove this Agreement) or (ii) this Agreement is terminated (A) by OEI
pursuant to Section 8.1(g) or (B) by UMC pursuant to Section 8.1(f), then OEI
shall promptly, but in no event later than two days after the date of such
termination, pay UMC a fee equal to $40 million (the "Termination Fee"), payable
by wire transfer of same day funds; provided, however, that no Termination Fee
shall be payable to UMC in any circumstance in which UMC stockholders vote to
disapprove this Agreement and provided further, that no Termination Fee shall be
payable to UMC pursuant to clause (i) of this paragraph (a) or pursuant to a
termination by UMC pursuant to Section 8.1(f) unless and until within 12 months
of such termination OEI or any of its Subsidiaries consummates any OEI Takeover
Proposal, in which event the Termination Fee shall be payable upon such
consummation. OEI acknowledges that the agreements contained in this Section
8.3(a) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, UMC would not enter into this Agreement;
accordingly, if OEI fails promptly to pay the amount due pursuant to this
Section 8.3(a), and, in order to obtain such payment, UMC commences a suit which
results in a judgment against OEI for the fee set forth in this Section 8.3(a),
OEI shall pay to UMC its costs and expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the amount of
the fee at the prime rate of The Chase Manhattan Bank in effect on the date such
payment was required to be made.
(b) In the event that (i) after the date hereof and prior to the UMC
Stockholders Meeting a UMC Takeover Proposal shall have been made known to UMC
or any of its Subsidiaries or shall have been made directly to its stockholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make a UMC Takeover Proposal and thereafter this Agreement
is terminated by either UMC or OEI pursuant to Section 8.1(b) or 8.1(d)
(provided that the basis for such termination is that the UMC Stockholders'
Approval shall not have been obtained and provided, further, that the OEI
stockholders shall not have voted to disapprove this Agreement) or (ii) this
Agreement is terminated (A) by UMC pursuant to Section 8.1(e) or (B) by OEI
pursuant to Section 8.1(h), then UMC shall promptly, but in no event later than
two days after the date of such termination, pay OEI the Termination Fee,
payable by wire transfer of same day funds; provided, however, that no
Termination Fee shall be payable to OEI in any circumstance in which OEI
stockholders vote to disapprove this Agreement and provided further, that no
Termination Fee shall be payable to OEI pursuant to clause (i) of this paragraph
(b) or pursuant to a termination by OEI pursuant to Section 8.1(h) unless and
until within 12 months of such termination UMC or any of its Subsidiaries
consummates any UMC Takeover Proposal, in which event the Termination Fee shall
be payable upon such consummation. UMC acknowledges that the agreements
contained in this Section 8.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, OEI would
not enter into this Agreement; accordingly, if UMC fails promptly to pay the
amount due pursuant to this Section 8.3(b), and, in order to obtain such
payment, OEI commences a suit which results in a judgment against UMC for the
fee set forth in this Section 8.3(b), UMC shall pay to OEI its costs and
expenses (including attorneys' fees and expenses) in connection with such suit,
together with interest on the amount of the fee at the prime rate of The Chase
Manhattan Bank in effect on the date such payment was required to be made.
Section 8.4 Amendment or Supplement. At any time before or after approval
of the matters presented in connection with the Mergers by the respective
stockholders of OEI and UMC and prior to the Effective Time, this Agreement may
be amended or supplemented in writing by OEI and UMC with respect to any of
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the terms contained in this Agreement; provided, however that following approval
by the stockholders of OEI and UMC there shall be no amendment or change to the
provisions hereof with respect to the conversion ratio of shares of Old OEI
Common Stock or UMC Common Stock into shares of OEI Common Stock as provided
herein nor any amendment or change not permitted under applicable law, without
further approval by the stockholders of OEI and UMC.
Section 8.5 Extension of Time, Waiver, Etc. At any time prior to the
Effective Time, any party may:
(a) extend the time for the performance of any of the obligations or acts
of the other party;
(b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto; or
(c) subject to the proviso of Section 8.4, waive compliance with any of the
agreements or conditions of the other party contained herein.
Notwithstanding the foregoing, no failure or delay by OEI or UMC in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.1 No Survival of Representations and Warranties. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Mergers,
except for the agreements set forth in Article II and Article III, the
agreements of "affiliates" of OEI and UMC to be delivered pursuant to Section
6.4, the provisions of Sections 6.5, 6.11, 6.12 and 6.20 and this Article IX.
Section 9.2 Expenses. (a) Whether or not the Mergers are consummated, all
Expenses (as defined herein) shall be paid by the party incurring such Expenses,
except that (i) the filing fee in connection with any HSR Act filing, (ii) the
commissions and other out-of-pocket transaction costs, including the Expenses
and compensation of the Exchange Agent, incurred in connection with the sale of
Excess Shares, (iii) the Expenses incurred in connection with the printing and
mailing of the Joint Proxy Statement/Prospectus, (iv) all transfer taxes and (v)
any other Expenses that were agreed to be shared by the parties prior to their
incurrence shall be shared equally by OEI and UMC.
(b) Notwithstanding the foregoing, in the event that this Agreement is
terminated (A) by OEI pursuant to Section 8.1(g) or (B) by UMC pursuant to
Section 8.1(e), then the terminating party shall reimburse the non-terminating
party for all Expenses incurred by such party, such reimbursement not to exceed
$3 million. As used in this Agreement, "Expenses" shall include all reasonable
out-of-pocket expenses (including, without limitations, all reasonable fees and
expenses of counsel, accountants, investment bankers experts and consultants to
a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparations, negotiations,
execution and performance of this Agreement and the Option Agreements, the
preparation, printing, filing and mailing of the Registration Statement, the
Joint Proxy Statement/Prospectus, the solicitation of stockholder approvals,
requisite HSR Act filings and all other matters related to the consummation of
the transactions contemplated hereby and thereby.
Section 9.3 Counterparts; Effectiveness. This Agreement may be executed in
two or more counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered (by telecopy or otherwise) to the other
parties.
Section 9.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of laws thereof.
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Section 9.5 Notices. All notices and other communications hereunder shall
be in writing (including telecopy or similar writing) and shall be effective (a)
if given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section 9.5 and the appropriate telecopy confirmation is
received or (b) if given by any other means, when delivered at the address
specified in this Section 9.5:
To UMC:
United Meridian Corporation
1201 Louisiana
Suite 1400
Houston, Texas 77002
Attention: Chairman and Chief Executive Officer
Telecopy: (713) 653-5024
copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Attention: Michael E. Dillard, P.C.
Telecopy: (214) 969-4343
To OEI:
Ocean Energy, Inc.
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Attention: Chairman and Chief Executive Officer
Telecopy: (504) 927-1109
copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: John F. Wombwell
Telecopy: (713) 220-4285
Section 9.6 Assignment; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
Section 9.7 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
Section 9.8 Enforcement of Agreement. The parties hereto agree that money
damages or other remedy at law would not be sufficient or adequate remedy for
any breach or violation of, or a default under, this Agreement by them and that
in addition to all other remedies available to them, each of them shall be
entitled to the fullest extent permitted by law to an injunction restraining
such breach, violation or default or threatened breach, violation or default and
to any other equitable relief, including, without limitation, specific
performance, without bond or other security being required.
Section 9.9 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the Confidentiality Agreement and the Option Agreements constitute
the entire agreement, and supersede all other prior agreements and
understandings, both written and oral, between the parties, or any of them, with
respect to the
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subject matter hereof and thereof and except for the provisions of Section 6.5
and 6.12 hereof, is not intended to and shall not confer upon any person other
than the parties hereto any rights or remedies hereunder.
Section 9.10 Headings. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 9.11 Definitions. References in this Agreement to "Significant
Subsidiaries" shall mean Subsidiaries (as defined in Section 4.1(c)) which
constitute "significant subsidiaries" under Rule 405 promulgated by the SEC
under the Securities Act. References in this Agreement (except as specifically
otherwise defined) to "affiliates" shall mean, as to any person, any other
person which, directly or indirectly, controls, or is controlled by, or is under
common control with, such person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of management or policies of a person, whether
through the ownership of securities or partnership of other ownership interests,
by contract or otherwise. References in the Agreement to "person" shall mean an
individual, a corporation, a partnership, an association, a trust or any other
entity or organization, including, without limitation, a governmental body or
authority. Notwithstanding the foregoing, Newco shall not be deemed to be an
"affiliate" or a "subsidiary" of either UMC or OEI.
Section 9.12 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
OEI HOLDING CORPORATION
By: /s/ JOHN B. BROCK
------------------------------------
Name: John B. Brock
Title: Chairman
UNITED MERIDIAN CORPORATION
By: /s/ JOHN B. BROCK
------------------------------------
Name: John B. Brock
Title: Chairman and Chief Executive
Officer
OCEAN ENERGY, INC.
By: /s/ JAMES C. FLORES
------------------------------------
Name: James C. Flores
Title:Chairman, President and Chief
Executive Officer
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EXHIBIT A-1
TO THE MERGER AGREEMENT
AMENDMENTS TO ARTICLE III OF OEI BYLAWS
COMMITTEES OF DIRECTORS
Section 13.
(a) In addition to the committees set forth in Section 14(a) of this
Article III, the Board of Directors may, by resolution passed by a two-thirds
vote of the entire Board of Directors, designate one or more additional
committees, with each such committee consisting of one or more directors of the
Corporation and having such powers and authority as the Board of Directors shall
designate by such resolutions. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation
(except pursuant to a resolution relating to the issuance of capital stock
pursuant to Section 151 of Title 8 of the Delaware General Corporation Law);
adopting an agreement of merger or consolidation; recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets; recommending to the stockholders the
dissolution of the Corporation or a revocation of a dissolution; or amending the
bylaws of the Corporation and, unless the resolution, certificate of
incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such members as may be determined from time
to time by resolution adopted by the Board of Directors.
(b) Any modification to the powers and authority of any committee shall
require the adopting of a resolution by a two-thirds vote of the entire Board of
Directors.
(c) All acts done by any committee within the scope of its powers and
authority pursuant to these Bylaws and the resolutions adopted by the Board of
Directors in accordance with the terms hereof shall be deemed to be, and may be
certified as being, done or conferred under authority of the Board of Directors.
The Secretary or any Assistant Secretary is empowered to certify that any
resolutions duly adopted by any such committee is binding upon the Corporation
and to execute and deliver such certifications from time to time as may be
necessary or proper to conduct of the business of the Corporation.
(d) Regular meetings of committees shall be held at such times as may be
determined by resolution of the Board of Directors or the committee in question
and no notice shall be required for any regular meeting other than such
resolution. A special meeting of any committee shall be called by resolution of
the Board of Directors, or by the Secretary or an Assistant Secretary upon the
request of the chairman or a majority of the members of any committee. Notice of
special meetings shall be given to each member of the committee in the same
manner as that provided for in Article IV, Section 1 of these Bylaws.
(e) Each committee shall keep regular minutes of its meeting and report the
same to the Board of Directors.
Section 14.
(a) The Corporation shall have four standing committees: the finance
committee, the nominating committee, the audit committee and the compensation
committee.
(1) The finance committee shall have those powers and
authority as are delegated to it from time to time pursuant to a
resolution passed by a two-thirds vote of the total number of directors
fixed by the Board of Directors pursuant to Article III, Section 1 of
these Bylaws which the Corporation would have if there were not
vacancies (the "entire Board of Directors").
(2) The nominating committee shall have the following
exclusive powers and authority: (i) evaluating and recommending director
candidates to the Board of Directors, (ii) recommending
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director compensation and benefits philosophy for the Corporation, (iii)
reviewing individual director performance as issues arise and (iv)
periodically reviewing the Corporation's corporate governance profile.
(3) The audit committee shall have the following powers and
authority: (i) employing independent public accountants to audit the
books of account, accounting procedures and financial statements of the
Corporation and to perform such other duties from time to time as the
audit committee may prescribe, (ii) receiving the reports and comments
of the Corporation's internal auditors and of the independent public
accountants employed by the committee and to take such action with
respect thereto as may seem appropriate, (iii) requesting the
Corporation's consolidated subsidiaries and affiliated companies to
employ independent public accountants to audit their respective books of
account, accounting procedures and financial statements, (iv) requesting
the independent public accountants to furnish to the compensation
committee the certifications required under any present or future stock
option, incentive compensation or employee benefit plan of the
Corporation, (v) reviewing the adequacy of internal financial controls,
(vi) approving the accounting principles employed in financial
reporting, (vii) approving the appointment or removal of the
Corporation's general auditor, and (viii) reviewing the accounting
principles employed in financial reporting. None of the members of the
audit committee shall be an officer or full-time employee of the
Corporation or of any subsidiary or affiliate of the Corporation.
(4) The compensation committee shall have the following powers
and authority: (i) determining and fixing the compensation for all
senior officers of the Corporation and those of its subsidiaries that
the compensation committee shall from time to time consider appropriate,
as well as all employees of the Corporation and its subsidiaries
compensated at a rate in excess of such amount per annum as may be fixed
or determined from time to time by the Board of Directors, (ii)
performing the duties of the committees of the Board of Directors
provided for in any present or future stock option, incentive
compensation or employee benefit plan of the Corporation or, if the
compensation committee shall so determine, any such plan of any
subsidiary and (iii) reviewing the operations of and policies pertaining
to any present or future stock option, incentive compensation or
employee benefit plan of the Corporation or any subsidiary that the
compensation committee shall from time to time consider appropriate.
(b) The Board of Directors may elect a secretary of any such committee. If
the Board of Directors does not elect such a secretary, the committee shall do
so. The secretary of any committee need not be a member of the committee, but
shall be selected from a member of the staff of the office of the Secretary of
the Corporation, unless otherwise provided by the Board of Directors or the
committee, as applicable.
(c) Each member of any committee of the Board of Directors shall hold
office until such member's successor is elected and has qualified, unless such
member sooner dies, resigns or is removed. The number of directors which shall
constitute any committee shall be determined by resolution adopted by the Board
of Directors.
(d) The Board of Directors may remove a director from a committee or change
the chairmanship of a committee by resolution adopted by the Board of Directors,
provided that a resolution to remove John Brock or James C. Flores from a
committee or the chairmanship of a committee shall require a two-thirds vote of
the entire Board of Directors.
(e) The Board of Directors may designate one or more directors as alternate
members of any committee to fill any vacancy on a committee and to fill a vacant
chairmanship of a committee, occurring as a result of a member or chairman
leaving the committee, whether through death, resignation, removal or otherwise.
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EXHIBIT A-2
TO THE MERGER AGREEMENT
AMENDMENTS TO ARTICLES V AND VIII OF OEI BYLAWS
ARTICLE V
OFFICERS
GENERAL
Section 1. The officers of the Corporation shall be elected by the Board
of Directors and shall consist of a Chairman of the Board; a President and Chief
Executive Officer (which shall be the same person holding both such offices);
and may also consist of a Chief Operating Officer; a Chief Financial Officer;
one or more vice presidents; a secretary; one or more assistant secretaries; a
treasurer; one or more assistant treasurers; a controller; and such other
officers as in the judgment of the Board of Directors may be necessary or
desirable.
Section 2. All officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective offices, subject to
the specific provisions of this Article V. Such officers shall also have powers
and duties as from time to time may be conferred by the Board of Directors or
any committee thereof.
Section 3. Any number of officers may be held by the same person, unless
otherwise prohibited by law, the certificate of incorporation or these Bylaws.
The officers of the Corporation need not be stockholders or directors of the
Corporation.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed from time to time by the Board of Directors.
ELECTION AND TERM OF OFFICE
Section 5. Subject to Section 15 of this Article V, the elected officers
of the Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
15 of this Article V, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign or be removed.
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall be a member of the Board of
Directors and shall be an officer of the Corporation. The Chairman of the Board,
if present, shall preside at all meetings of the Board of Directors.
VICE CHAIRMAN OF THE BOARD
Section 7. The Vice Chairman of the Board shall be a member of the Board
of Directors and shall be an officer of the Corporation. The Vice Chairman of
the Board shall have such duties and powers as shall be assigned to him from
time to time by the President and Chief Executive Officer of the Corporation.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Section 8. Subject to the penultimate sentence of this Section, the
offices of President and Chief Executive Officer shall be held by a single
individual who is a member of the Board of Directors and such person shall be an
officer of the Corporation. The President and Chief Executive Officer shall
supervise, coordinate and manage the Corporation's business and activities and
supervise, coordinate and manage its operating expenses and capital allocation,
shall make recommendations as to compensation and benefits to the Compensation
Committee of the Board of Directors with respect to the employees of the
Corporation and its
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subsidiaries, shall have general authority to exercise all the powers necessary
for the President and Chief Executive Officer of the Corporation and shall
perform such other duties and have such other powers as may be prescribed by the
Board of Directors or these Bylaws, all in accordance with basic policies as
established by and subject to the oversight of the Board of Directors. In the
absence or disability of the Chairman of the Board, the duties of the Chairman
of the Board shall be performed and the Chairman of the Board's authority may be
exercised by the President and Chief Executive Officer, and in the event the
President and Chief Executive Officer is absent or disabled, such duties shall
be performed and such authority may be exercised by a director designated for
this purpose by the Board of Directors. Notwithstanding the foregoing, the Board
of Directors may designate the Chief Operating Officer, if one is so designated
by the Board of Directors, as President of the Corporation provided that the
duties and authority of the Chief Executive Officer are not materially
diminished. The Vice Chairman and all executive vice presidents shall report
directly to the Chief Executive Officer or such other officer of the Corporation
that the President and Chief Executive Officer may designate.
CHIEF FINANCIAL OFFICER
Section 9. The Chief Financial Officer shall have responsibility for the
financial affairs of the Corporation and shall exercise supervisory
responsibility for the performance of the duties of the Treasurer and the
Controller. The Chief Financial Officer shall perform such other duties and have
such other powers as may be prescribed by the Board of Directors or these
Bylaws, all in accordance with basic policies as established by and subject to
the oversight of the Board of the Directors, the Chairman and Chief Executive
Officer and the President and Chief Operating Officer.
THE EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE PRESIDENTS
Section 10. In the absence of the president or in the event of his
inability or refusal to act, an executive vice president or, in the absence of
an executive vice president, a senior vice president or a vice president (in
either case in the order determined by the Board of Directors, or, if there be
no such determination, then in the order of their election), shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions imposed upon the president. The executive vice
presidents, senior vice presidents and vice presidents shall perform such other
duties and have such other powers as the president or Board of Directors may
from time to time prescribe.
THE SECRETARY AND THE ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the Corporation, if any such seal be adopted by
resolution of the Board of Directors, and he, or an assistant secretary, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing
thereof by his signature.
Section 12. The assistant secretary (or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors, or, if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
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THE TREASURER AND ASSISTANT TREASURER
Section 13. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the president and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as treasurer
and of the financial condition of the Corporation.
Section 14. The assistant treasurer (or, if there shall be more than one,
the assistant treasurers in the order determined by the Board of Directors, or,
if there be no such determination, then in the order of their election) shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
CERTAIN ACTIONS
Section 15. Notwithstanding anything to the contrary contained in these
Bylaws, the removal of the current Chairman of the Board and President and Chief
Executive Officer as of [DATE OF THE EFFECTIVE TIME], or any material
modification to either of their respective roles, duties or authority shall
require a two-thirds vote of the entire Board of Directors.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered, amended or repealed, or new bylaws
may be adopted by the affirmative vote of a majority of the entire Board of
Directors at any meeting and without the consent or vote of the stockholders;
provided, however, that the affirmative vote of no less than two-thirds of the
entire Board of Directors is required to alter, amend or repeal the bylaws set
forth in Article III, Sections 13 and 14, Article V, Section 15 and this
proviso. These Bylaws may be altered, amended or repealed, or new bylaws may be
adopted by the stockholders at any regular meeting of the stockholders or at any
special meeting of the stockholders, if notice of such alteration, amendment,
repeal or adoption of new bylaws is contained in the notice of such meeting, by
the holders of at least 66-2/3% of the total voting power of all shares of stock
of the Corporation entitled to vote in the election of directors, considered for
purposes of this Article VIII as one class.
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EXHIBIT B
TO THE MERGER AGREEMENT
CERTAIN EXECUTIVE OFFICERS OF OEI
FOLLOWING THE EFFECTIVE TIME
CERTAIN OFFICERS
At the Effective Time, the following persons shall be designated as
officers of OEI to serve in their indicated capacity:
<TABLE>
<S> <C>
John B. Brock Chairman
James C. Flores President and Chief Executive Officer
James Dunlap Vice Chairman
Robert L. Belk Executive Vice President -- Administration
Executive Vice President -- Chief Financial
Jonathan M. Clarkson Officer
Robert K. Reeves Executive Vice President and General Counsel
James Smitherman Executive Vice President -- International
Richard G. Zepernick, Jr. Executive Vice President -- North America
</TABLE>
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EXHIBIT C
TO THE MERGER AGREEMENT
[Affiliate's Name and Address]
, 199
Ocean Energy, Inc.
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Attention: President and Chief Executive Officer
Ladies and Gentlemen:
I have been advised that, as of the date of this letter, I may be deemed to
be an "affiliate" of Ocean Energy, Inc., a Delaware corporation ("OEI"), as that
term is defined for purposes of Rule 145(c) and (d) promulgated by the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act"). Pursuant to the terms of the Agreement and
Plan of Merger, dated as of December 22, 1997, among OEI Holding Corporation, a
Delaware corporation ("Newco"), United Meridian Corporation, a Delaware
corporation ("UMC"), and OEI, (i) Newco will be merged with and into OEI and
(ii) UMC will be merged with and into OEI (the merger listed in clause (i) above
being referred to herein as the "Merger" and such agreement being referred to
herein as the "Merger Agreement"). As a result of the Merger, I may receive
shares of common stock, par value $.01 per share, of OEI (the "OEI Common
Stock") in exchange for shares of OEI Common Stock issued and outstanding
immediately prior to the Merger ("Old OEI Common Stock").
I hereby represent and warrant to, and covenant and agree with, OEI that:
1. I will not make any sale, transfer or other disposition of any OEI
Common Stock I may receive as a result of the Merger in violation of the
Securities Act or the rules and regulations of the SEC promulgated thereunder.
2. I will not make any sale, transfer or other disposition of Old OEI
Common Stock owned by me from the date that is 30 days prior to the Effective
Time (as defined in the Merger Agreement) and I will not make any sale, transfer
or other disposition of any shares of OEI Common Stock I may receive as a result
of the Merger until after such time as results covering at least 30 days of
combined operations of Newco, OEI and UMC have been published by OEI, in the
form of a quarterly earnings report, an effective registration statement filed
with the SEC, a report to the SEC on Form 10-K, 10-Q, or 8-K, or any other
public filing or announcement which includes the results of at least 30 days of
combined operations. OEI shall notify the "affiliates" of the publication of
such results.
3. I have read this letter and the Merger Agreement and have discussed
their requirements and other applicable limitations on my ability to sell,
transfer or otherwise dispose of the Old OEI Common Stock owned by me and the
OEI Common Stock I may receive as a result of the Merger, to the extent I
believed necessary, with my counsel or counsel for OEI.
4. I have been advised that the issuance of OEI Common Stock pursuant to
the Merger has been registered under the Securities Act on a Registration
Statement on Form S-4. I have also been advised, however, that, to the extent I
am considered an "affiliate" of OEI at the time the Merger Agreement is
submitted for a vote of the stockholders of OEI, any public offering or sale by
me of any shares of OEI Common Stock that I receive pursuant to the Merger will,
under current law, require either (a) the further registration under the
Securities Act of any shares of OEI Common Stock to be sold by me, (b)
compliance with Rule 145 under the Securities Act, or (c) the availability of
another exemption from such registration under the Securities Act.
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5. I understand that stop transfer instructions will be given to OEI's
transfer agent with respect to shares of OEI Common Stock received by me
pursuant to the Merger and that a legend substantially as follows will be placed
on the certificates for the shares of OEI Common Stock issued to me pursuant to
the Merger.
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
REGISTERED HOLDER HEREOF AND OEI HOLDING CORPORATION, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF OEI HOLDING
CORPORATION.
I also understand that, unless the transfer by me of my OEI Common Stock
has been registered under the Securities Act or is a sale made in conformity
with the provisions of Rule 145, OEI reserves the right to put the following
legend on the certificates issued to my transferee:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT APPLIES. THE SHARES
HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
It is understood and agreed that the legends set forth in this Paragraph 4
shall be removed by delivery of substitute certificates without such legends if
such legends are not required for purposes of the Securities Act or this
Agreement. It is understood and agreed that such legends referred to above will
be removed if (a) one year shall have elapsed from the date the undersigned
acquired the OEI Common Stock received in the Merger and the provisions of Rule
145(d)(2) are then available to the undersigned, (b) two years shall have
elapsed from the date the undersigned acquired the OEI Common Stock received in
the Merger and the provisions of Rule 145(d)(3) are then applicable to the
undersigned, or (c) OEI has received either an opinion of counsel, which opinion
and counsel shall be reasonably satisfactory to OEI, or a "no action" letter
obtained from the staff of the SEC, to the effect that the restrictions imposed
by Rule 145 under the Securities Act no longer apply to the undersigned. Prior
to any transfer of any of the OEI Common Stock, I will give written notice to
OEI of my intention to effect such offer, sale or transfer, describing the
proposed transaction in sufficient detail to enable OEI and its counsel to
determine that the proposed transaction will not violate the Securities Act.
6. I have no present intention, plan or arrangement to offer, sell or
transfer, or otherwise make any disposition of, the OEI Common Stock received in
the Merger.
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Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of OEI as described in the first paragraph of this
letter or as a waiver of any rights I may have to object to any claim that I am
such an affiliate on or after the date of this letter.
Sincerely,
------------------------------------
Print Name:
------------------------------------
Accepted on the day
of , 199
OCEAN ENERGY, INC.
By:
- ----------------------------------------
Name:
- ----------------------------------------
Title:
- ----------------------------------------
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EXHIBIT D
TO THE MERGER AGREEMENT
[Affiliate's Name and Address]
, 199
Ocean Energy, Inc.
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Attention: President and Chief Executive Officer
Ladies and Gentlemen:
I have been advised that, as of the date of this letter, I may be deemed to
be an "affiliate" of United Meridian Corporation., a Delaware corporation
("UMC"), as that term is defined for purposes of Rule 145(c) and (d) promulgated
by the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of December 22, 1997, among OEI Holding
Corporation, a Delaware corporation ("Newco"), Ocean Energy, Inc., a Delaware
corporation ("OEI"), and UMC, (i) Newco will be merged with and into OEI and
(ii) UMC will be merged with and into OEI (the merger listed in clause (ii)
above being referred to herein as the "Merger" and such agreement being referred
to herein as the "Merger Agreement"). As a result of the Merger, I may receive
shares of common stock, par value $.01 per share, of OEI (the "OEI Common
Stock") in exchange for shares of common stock, par value $.01 per share, of UMC
("UMC Common Stock").
I hereby represent and warrant to, and covenant and agree with, OEI that:
1. I will not make any sale, transfer or other disposition of any OEI
Common Stock I may receive as a result of the Merger in violation of the
Securities Act or the rules and regulations of the SEC promulgated thereunder.
2. I will not make any sale, transfer or other disposition of UMC Common
Stock owned by me from the date that is 30 days prior to the Effective Time (as
defined in the Merger Agreement) and I will not make any sale, transfer or other
disposition of any shares of OEI Common Stock I may receive as a result of the
Merger until after such time as results covering at least 30 days of combined
operations of Newco, OEI and UMC have been published by OEI, in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Form 10-K, 10-Q, or 8-K, or any other public filing
or announcement which includes the results of at least 30 days of combined
operations. OEI shall notify the "affiliates" of the publication of such
results.
3. I have read this letter and the Merger Agreement and have discussed
their requirements and other applicable limitations on my ability to sell,
transfer or otherwise dispose of the UMC Common Stock owned by me and the OEI
Common Stock I may receive as a result of the Merger, to the extent I believed
necessary, with my counsel or counsel for UMC.
4. I have been advised that the issuance of OEI Common Stock pursuant to
the Merger has been registered under the Securities Act on a Registration
Statement on Form S-4. I have also been advised, however, that, to the extent I
am considered an "affiliate" of UMC at the time the Merger Agreement is
submitted for a vote of the stockholders of UMC, any public offering or sale by
me of any shares of OEI Common Stock that I receive pursuant to the Merger will,
under current law, require either (a) the further registration under the
Securities Act of any shares of OEI Common Stock to be sold by me, (b)
compliance with Rule 145 under the Securities Act, or (c) the availability of
another exemption from such registration under the Securities Act.
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5. I understand that stop transfer instructions will be given to OEI's
transfer agent with respect to shares of OEI Common Stock received by me
pursuant to the Merger and that a legend substantially as follows will be placed
on the certificates for the shares of OEI Common Stock issued to me pursuant to
the Merger.
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
REGISTERED HOLDER HEREOF AND OEI HOLDING CORPORATION, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF OEI HOLDING CORPORATION.
I also understand that, unless the transfer by me of my OEI Common Stock
has been registered under the Securities Act or is a sale made in conformity
with the provisions of Rule 145, OEI reserves the right to put the following
legend on the certificates issued to my transferee:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH
RULE 145 PROMULGATED UNDER THE SECURITIES ACT APPLIES. THE SHARES HAVE
BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT.
It is understood and agreed that the legends set forth in this Paragraph 4
shall be removed by delivery of substitute certificates without such legends if
such legends are not required for purposes of the Securities Act or this
Agreement. It is understood and agreed that such legends referred to above will
be removed if (a) one year shall have elapsed from the date the undersigned
acquired the OEI Common Stock received in the Merger and the provisions of Rule
145(d)(2) are then available to the undersigned, (b) two years shall have
elapsed from the date the undersigned acquired the OEI Common Stock received in
the Merger and the provisions of Rule 145(d)(3) are then applicable to the
undersigned, or (c) OEI has received either an opinion of counsel, which opinion
and counsel shall be reasonably satisfactory to OEI, or a "no action" letter
obtained from the staff of the SEC, to the effect that the restrictions imposed
by Rule 145 under the Securities Act no longer apply to the undersigned. Prior
to any transfer of any of the OEI Common Stock, I will give written notice to
OEI of my intention to effect such offer, sale or transfer, describing the
proposed transaction in sufficient detail to enable OEI and its counsel to
determine that the proposed transaction will not violate the Securities Act.
6. I have no present intention, plan or arrangement to offer, sell or
transfer, or otherwise make any disposition of, the OEI Common Stock received in
the Merger.
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Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of UMC as described in the first paragraph of this
letter or as a waiver of any rights I may have to object to any claim that I am
such an affiliate on or after the date of this letter.
Sincerely,
------------------------------------
Print Name:
------------------------------
Accepted on the day
of , 199
OCEAN ENERGY, INC.
By:
-----------------------------------------------------
Name:
----------------------------------------------------
Title:
----------------------------------------------------
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EXHIBIT E
TO THE MERGER AGREEMENT
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective as of
[date of the Effective Time] (the "Effective Date") by and between Ocean Energy,
Inc., a Delaware corporation ("Company"), and James C. Flores ("Employee").
WHEREAS, the Company employs Employee and desires to continue such
employment relationship and Employee desires to continue such employment;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties, and agreements contained herein, and for other valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Employment. The Company hereby employs Employee, and Employee hereby
accepts employment by the Company, on the terms and conditions set forth in this
Agreement.
2. Term of Employment. Subject to the provisions for earlier termination
provided in the Agreement, the term of this Agreement (the "Term") shall
commence on the Effective Date and shall terminate on the third anniversary of
the Effective Date; provided, however, commencing on the Effective Date and on
each day thereafter, the Term shall automatically be extended one additional day
unless the Board of Directors of the Company (the "Board") shall give written
notice to Employee that the Term shall cease to be so extended as of a specified
future date, in which event the Agreement shall terminate on the third
anniversary of the specified future date. Notwithstanding any provision of this
Agreement to the contrary, termination of this Agreement shall not alter or
impair any rights or benefits of Employee (or Employee's estate or
beneficiaries) that have arisen under this Agreement on or prior to such
termination.
3. Employee's Duties. During the Term, Employee shall serve as the Chief
Executive Officer and President of the Company, with such customary duties and
responsibilities as may from time to time be assigned to him by the Board,
provided that such duties are at all times consistent with the duties of such
positions. Employee shall report directly to the Board. All other employees of
the Company shall report to Employee.
Employee agrees to devote his full attention and time during normal
business hours to the business and affairs of the Company and to use reasonable
best efforts to perform faithfully and efficiently such duties and
responsibilities. Notwithstanding the foregoing, during the Term Employee may
engage in the following activities so long as they do not interfere in any
material respect with the performance of Employee's duties and responsibilities
hereunder: (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach on a part-time
basis at educational institutions, and (iii) manage his personal investments;
provided, however, in no event shall the conduct of any of such activities by
Employee be deemed to materially interfere with Employee's duties hereunder
until Employee has been notified in writing thereof by the Board and given a
reasonable period in which to cure such interference.
The Company agrees to use its reasonable best efforts to cause Employee to
be elected or appointed, or re-elected or re-appointed, as a director of the
Company at all times during the Term.
4. Base Compensation. For services rendered by Employee under this
Agreement the Company shall pay to Employee a base salary ("Base Compensation")
of $600,000 per annum payable in accordance with the Company's customary payroll
practice for its senior executive officers. The amount of Base Compensation
shall be reviewed periodically by the Board and may be increased from time to
time as the Board may deem appropriate. Base Compensation, as in effect at any
time, may not be decreased.
5. Annual Bonus. In addition to his Base Compensation, Employee shall be
eligible to receive each year during the Term, a cash incentive payment in an
amount equal to 200% of Employee's Base Compensation
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(the "Target Bonus"). The amount of the Target Bonus earned for any year shall
be determined by the Compensation Committee of the Board based on Employee's
individual performance and the performance by the Company.
6. Other Benefits. Employee shall be entitled to participate in all
incentive compensation plans and to receive all fringe benefits and perquisites
offered by the Company to any of its senior executive officers, including,
without limitation, participation in the various employee benefit plans or
programs provided to the employees of the Company in general, subject to the
regular eligibility requirements with respect to each of such benefit plans or
programs, and such other benefits or prerequisites as may be approved by the
Board during the Term, all on a basis at least as favorable to Employee as may
be provided or offered to any other senior executive officer of the Company.
In addition, and not in limitation of the foregoing, Employee shall be
entitled to the following:
(a) Business Expenses. The Company shall reimburse Employee for all
business expenses reasonably incurred by Employee in the performance of his
duties. It is understood that Employee is authorized to incur reasonable
business expenses for promoting the business of the Company, including
reasonable expenditures for travel, lodging, meals and client or business
associate entertainment. Request for reimbursement for such expenses must
be accompanied by appropriate documentation.
(b) Automobile. The Company shall either provide Employee with an
automobile of a make and model selected by Employee or promptly reimburse
Employee in full for his cost of leasing or purchasing an automobile. In
addition, the Company shall pay or reimburse Employee for all reasonable
costs and expenses associated with the use, maintenance, insurance and
repair of such automobile.
(c) Clubs. The Company shall reimburse Employee for the cost and
expenses (including initiation fees, assessments and annual dues) of such
social clubs and business clubs as Employee determines, in his good faith
opinion, to be helpful or appropriate to the performance of his duties.
(d) Relocation Expenses. In conjunction with Employee's relocation of
his principal residence to the greater Houston, Texas metropolitan area,
the Company shall reimburse Employee for all out-of-pocket expenses
involved in such move, including, without limitation, packing and transport
of personal, family, and household goods and vehicles by suitable service
providers, for any brokerage fees for the sale or purchase of any
residences, of any loss of economic value occasioned by the timing of the
sale or by Employee's inability to recover monies invested in any personal
residence sold, temporary housing costs in suitable alternative housing,
all utility severance and hook-up costs, and any other relocation expenses,
all such sums to be grossed-up for the impact of any federal, state or
local taxes levied against Employee for such portions of such reimbursement
as shall be taxable and non-deductible to Employee.
7. Termination. This Agreement may be terminated prior to the end of its
Term as set forth below.
(a) Resignation. Employee may resign his position at any time. In the event
of such resignation, except in the case of resignation for Good Reason (as
defined below), Employee shall not be entitled to further compensation pursuant
to this Agreement.
(b) Death. If Employee's employment is terminated due to his death, this
Agreement shall terminate and the Company shall have no obligations to his legal
representatives with respect to this Agreement other than the payment of any
compensation which had accrued hereunder at the date of Employee's death.
(c) Discharge.
(i) The Company may terminate this Agreement and Employee's employment for
any reason deemed sufficient by the Company upon notice as provided in Section
10. However, in the event that Employee's employment is terminated during the
Term by the Company for any reason other than his Misconduct or Disability (as
such terms are defined below), then, subject to Section 7(h) below: (A) within
five business days of the Date of Termination, the Company shall pay to Employee
a lump sum amount in cash equal to three times the sum of (1) Employee's Base
Compensation and (2) Employee's Target Bonus; (B) for the
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36-month period after such Date of Termination the Company, at its sole expense,
shall continue to provide or arrange to provide Employee (and Employee's
dependents) with health insurance benefits no less favorable than the health
plan benefits provided by the Company (or any successor) during such 36-month
period to any senior executive officer of the Company; provided, further, to the
extent the coverage or benefits received are taxable to Employee, the Company
shall make Employee "whole" on a net after tax basis; and (C) on the Date of
Termination all then outstanding Company stock-based awards of Employee, whether
under this Agreement, a Company stock plan or otherwise, shall become
immediately exercisable and payable in full, as the case may be, with any
performance goals associated therewith being deemed to have been achieved at the
maximum levels. Notwithstanding anything in this Agreement to the contrary, if
any payment to Employee in respect of a Company stock-based award would give
rise to a short-swing profit liability to Employee under Section 16(b) of the
Securities Exchange Act of 1934, then both the payment and the entitlement to
payment thereof shall automatically be deferred until the earliest date at which
the payment of such benefit would not result in a short-swing profit liability
to Employee.
(ii) Notwithstanding the foregoing provisions of this Section 7, in the
event Employee is terminated because of Misconduct, the Company shall have no
obligations pursuant to this Agreement after the Date of Termination. As used
herein, "Misconduct" means (a) the willful and continued failure by Employee to
substantially perform his duties with the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a Notice of Termination
by Employee for Good Reason), after a written demand for substantial performance
is delivered to Employee by the Board, which demand specifically identifies the
manner in which the Board believes that Employee has not substantially performed
his duties, or (b) the willful engaging by Employee in conduct which is
demonstrably and materially injurious to the Company, monetarily or otherwise.
For purposes hereof, no act, or failure to act, on Employee's part shall be
deemed "willful" unless done, or omitted to be done, by Employee not in good
faith and without reasonable belief that Employee's action or omission was in
the best interest of the Company. Notwithstanding the foregoing, Employee shall
not be deemed to have been terminated for Misconduct unless and until there
shall have been delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the entire membership of the
Board at a meeting of the Board called and held for such purpose, finding that
in the good faith opinion of the Board Employee was guilty of conduct set forth
above and specifying the particulars thereof in detail.
(d) Disability.
(i) If Employee shall have been absent from the full-time performance of
Employee's duties with the Company for six consecutive months as a result of
Employee's incapacity due to physical or mental illness, as determined by
Employee's physician, and within 30 days after written Notice of Termination is
given by the Company Employee shall not have returned to the full-time
performance of Employee's duties, Employee's employment may be terminated by the
Company for "Disability", provided Employee is entitled to and receiving
benefits under an insured long term disability plan of the Company. Thereafter,
Employee shall not be entitled to further compensation pursuant to this
Agreement.
(ii) If Employee fails during any period during the Term to perform
Employee's full-time duties with the Company as a result of incapacity due to
physical or mental illness, as determined by Employee's physician, Employee
shall continue to receive his Base Compensation, less any amount payable to
Employee under a Company disability plan, and all other compensation and
benefits during such period until this Agreement is terminated.
(e) Resignation for Good Reason. Employee shall be entitled to terminate
his employment for Good Reason as defined herein. If Employee terminates his
employment for Good Reason, Employee shall be entitled to the compensation and
benefits provided in Paragraph 7(c)(i) hereof. "Good Reason" shall mean (1) the
breach of any of the Company's obligations under this Agreement without
Employee's express written consent or (2) the occurrence of any of the following
circumstances, as the case may be, without Employee's
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express written consent unless such breach or circumstances are fully corrected
prior to the Date of Termination specified in the Notice of Termination pursuant
to Subsection 7(f) given in respect thereof:
(i) the assignment by the Board to Employee of any duties that, in the good
faith opinion of Employee, are inconsistent with Employee's positions with the
Company, or an adverse alteration (as determined in good faith by Employee) in
the nature or status of Employee's office, title, responsibilities, including
reporting responsibilities, or the conditions of Employee's employment from
those in effect immediately prior to such alteration;
(ii) the failure by the Company to continue in effect any compensation plan
in which Employee participates that is material to Employee's total compensation
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue Employee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable to Employee, both in
terms of the amount of benefits provided and the level of Employee's
participation relative to other participants;
(iii) the taking of any action by the Company which would directly or
indirectly materially reduce or deprive Employee of any material fringe benefit
then enjoyed by Employee;
(iv) the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement, as contemplated in
Section 12 hereof;
(v) the relocation of the Company's principal executive offices outside the
greater Houston, Texas metropolitan area, or the Company's requiring Employee to
relocate anywhere other than the location of the Company's principal executive
offices, except for required travel on the Company's business to an extent
substantially consistent with Employee's past business travel obligations; or
(vi) any purported termination of Employee's employment that is not
effected pursuant to a Notice of Termination satisfying the requirements of
Subsection (f) hereof, which purported termination shall not be effective for
purposes of this Agreement.
Employee's right to terminate employment pursuant to this subsection shall
not be affected by Employee's incapacity due to physical or mental illness. In
addition, Employee's continued employment following any event, act or omission,
regardless of the length of such continued employment, shall not constitute
Employee's consent to, or a waiver of Employee's rights with respect to, such
event, act or omission constituting a Good Reason circumstance hereunder.
(f) Notice of Termination. Any purported termination of Employee's
employment by the Company or by Employee shall be communicated by written Notice
of Termination to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall set forth in reasonable detail the reason for termination of
Employee's employment, or in the case of resignation for Good Reason, said
notice must specify in reasonable detail the basis for such resignation. No
purported termination which is not effected pursuant to this Section 7(f) shall
be effective.
(g) Date of Termination, Etc. "Date of Termination" shall mean the date
specified in the Notice of Termination. Either party may, within 15 days after
any Notice of Termination is given, provide notice to the other party pursuant
to Section 10 hereof that a dispute exists concerning the termination.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay Employee his full Base Compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, Base Compensation) and
continue Employee as a participant in all compensation, benefit and insurance
plans in which Employee was participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved in accordance with
Section 16 hereof, but in no event past the expiration date of this Agreement.
Any payments and benefits provided during such period of dispute shall not
reduce any other payments or benefits due Employee under this Agreement nor
shall Employee be liable to repay the Company for such payments and benefits if
it is finally determined the Employee is not entitled to payments under the
other provisions of this Agreement following Employee's termination of
employment.
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(h) Mitigation. Employee shall not be required to mitigate the amount of
any payment or benefit provided for in this Section 7 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation or benefit earned by
Employee as a result of employment by another employer, self-employment
earnings, by retirement benefits, by offset against any amount claimed to be
owing by Employee to the Company, or otherwise, except that any cash severance
amount payable to Employee pursuant to a Company maintained severance plan or
policy for employees in general shall reduce the amount otherwise payable to
Employee pursuant to Section 7(c)(i)(A).
(i) Gross-Up of Parachute Payments. If, during the Term, any payment,
including without limitation any imputed income, made or benefit provided to or
on behalf of Employee, including any accelerated vesting or any deferred
compensation or other award, in connection with a "change in control" of the
Company, whether or not made or provided pursuant to this Agreement, results in
Employee being subject to the excise tax imposed by section 4999 of the Internal
Revenue Code of 1986, as amended (or any successor or similar provision), the
Company shall pay Employee an additional amount of cash (the "Additional
Amount") such that the net amount of all payments and benefits received by
Employee after paying all applicable taxes thereon, including on such Additional
Amount, shall be equal to the net after-tax amount of payments and benefits that
Employee would have received if section 4999 were not applicable.
8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit Employee's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any of its
affiliated companies and for which Employee may qualify, nor shall anything
herein limit or otherwise adversely affect such rights as Employee may have
under any stock option or other agreements with the Company or any of its
affiliated companies.
9. Assignability. The obligations of Employee hereunder are personal and
may not be assigned or delegated by him or transferred in any manner whatsoever,
nor are such obligations subject to involuntary alienation, assignment or
transfer. The Company shall have the right to assign this Agreement and to
delegate all rights, duties and obligations hereunder, either in whole or in
part, to any parent, affiliate, successor or subsidiary organization or company
of the Company, provided that no such assignment or delegation shall relieve the
Company of its duties and obligations hereunder nor affect the rights of
Employee hereunder.
10. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by overnight
courier or by facsimile with confirmation of receipt or on the third business
day after being mailed by United States registered mail, return receipt
requested, postage prepaid, addressed to the Company at its principal office
address and facsimile number, directed to the attention of the Board with a copy
to the Secretary of the Company, and to Employee at Employee's residence address
and facsimile number on the records of the Company or to such other address as
either party may have furnished to the other in writing in accordance herewith
except that notice of change of address shall be effective only upon receipt.
11. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
12. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and assets of the Company ("Successor") or any corporation which
becomes the ultimate parent corporation of the Company or any such Successor
("Ultimate Parent") to expressly assume and agree in writing satisfactory to the
Employee to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such written agreement prior to the
effectiveness of any such succession or creation of the parent corporation
relationship shall be a breach of this Agreement and shall entitle Employee to
compensation and benefits from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession (or creation of the parent corporation relationship)
becomes effective shall be deemed the Date of Termination.
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As used in this Agreement, including, without limitation, in Section 3, the term
"Company" shall include any Successor and Ultimate Parent which executes and
delivers the Agreement as provided for in this Section 12 or which otherwise
becomes bound by all terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of Employee hereunder shall inure to the
benefit of and be enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
13. Indemnification. During the Term and for a period of six years
thereafter, the Company shall cause Employee to be covered by and named as an
insured under any policy or contract of insurance obtained by it to insure its
directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Company or service in
other capacities at the request of the Company. The coverage provided to
Employee pursuant to this Section 8 shall be of a scope and on terms and
conditions at least as favorable as the most favorable coverage provided to any
other officer or director of the Company (or any successor).
In addition, to the maximum extent permitted under applicable law, during
the Term and for a period of six years thereafter, the Company shall indemnify
Employee against and hold Employee harmless from any costs, liabilities, losses
and exposures for Employee's services as an employee, officer and director of
the Company (or any successor).
14. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Employee and such officer as may be specifically
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or in compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. This Agreement is an integration of the parties
agreement; no agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Texas.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Arbitration. Employee shall be permitted (but not required) to elect
that any dispute or controversy arising under or in connection with this
Agreement be settled by arbitration in the city in which Employee resides at
such time in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. All legal fees and costs incurred by Employee in connection
with the resolution of any dispute or controversy under or in connection with
this Agreement shall be paid by the Company as bills for such services are
presented by Employee to the Company.
17. Prior Employment Agreement. This Agreement supersedes and replaces in
full any existing employment agreement (written or oral) between the parties.
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IN WITNESS WHEREOF, the parties have executed this Agreement on
, 1998, effective for all purposes as provided above.
OCEAN ENERGY, INC.
By: ------------------------------------
Name: ----------------------------------
Chairman of the Compensation
Committee of the Board
EMPLOYEE
----------------------------------------
James C. Flores
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EXHIBIT F
TO THE MERGER AGREEMENT
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective as of
[date of the Effective Time] (the "Effective Date") by and between Ocean Energy,
Inc., a Delaware corporation ("Company"), and John B. Brock ("Employee").
WHEREAS, the Company employs Employee and desires to continue such
employment relationship and Employee desires to continue such employment;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties, and agreements contained herein, and for other valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Employment. The Company hereby employs Employee, and Employee hereby
accepts employment by the Company, on the terms and conditions set forth in this
Agreement.
2. Term of Employment. Subject to the provisions for earlier termination
provided in the Agreement, the term of this Agreement (the "Term") shall
commence on the Effective Date and shall terminate on the third anniversary of
the Effective Date; provided, however, commencing on the Effective Date and on
each day thereafter, the Term shall automatically be extended one additional day
unless the Board of Directors of the Company (the "Board") shall give written
notice to Employee that the Term shall cease to be so extended as of a specified
future date, in which event the Agreement shall terminate on the third
anniversary of the specified future date. Notwithstanding any provision of this
Agreement to the contrary, termination of this Agreement shall not alter or
impair any rights or benefits of Employee (or Employee's estate or
beneficiaries) that have arisen under this Agreement on or prior to such
termination.
3. Employee's Duties. During the Term, Employee shall assume and discharge
the responsibilities of the Chairman of the Board, as well as such other
responsibilities as may be assigned to him by the Board; provided that such
duties are at all times consistent with the duties of such positions.
Employee agrees to devote his full attention and time during normal
business hours to the business and affairs of the Company and to use reasonable
best efforts to perform faithfully and efficiently such duties and
responsibilities. Notwithstanding the foregoing, during the Term, Employee may
engage in the following activities so long as they do not interfere in any
material respect with the performance of Employee's duties and responsibilities
hereunder: (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach on a part-time
basis at educational institutions, and (iii) manage his personal investments;
provided, however, in no event shall the conduct of any of such activities by
Employee be deemed to materially interfere with Employee's duties hereunder
until Employee has been notified in writing thereof by the Board and given a
reasonable period in which to cure such interference.
The Company agrees to use its reasonable best efforts to cause Employee to
be elected or appointed, or re-elected or re-appointed, as a director of the
Company at all times during the Term.
4. Base Compensation. For services rendered by Employee under this
Agreement the Company shall pay to Employee a base salary ("Base Compensation")
of $475,000 per annum payable in accordance with the Company's customary payroll
practice for its senior executive officers. The amount of Base Compensation
shall be reviewed periodically by the Board and may be increased from time to
time as the Board may deem appropriate. Base Compensation, as in effect at any
time, may not be decreased.
5. Annual Bonus. In addition to his Base Compensation, Employee shall be
eligible to receive each year during the Term, a cash incentive payment in an
amount equal to 200% of Employee's Base Compensation (the "Target Bonus"). The
amount of the Target Bonus earned for any year shall be determined by the
Compensation Committee of the Board based on Employee's individual performance
and the performance by the Company.
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6. Other Benefits. Employee shall be entitled to participate in all
incentive compensation plans and to receive all fringe benefits and perquisites
offered by the Company to any of its senior executive officers, including,
without limitation, participation in the various employee benefit plans or
programs provided to the employees of the Company in general, subject to the
regular eligibility requirements with respect to each of such benefit plans or
programs, and such other benefits or prerequisites as may be approved by the
Board during the Term, all on a basis at least as favorable to Employee as may
be provided or offered to any other senior executive officer of the Company.
7. Termination. This Agreement may be terminated prior to the end of its
Term as set forth below.
(a) Resignation. Employee may resign his position at any time. In the event
of such resignation, except in the case of resignation for Good Reason (as
defined below), Employee shall not be entitled to further compensation pursuant
to this Agreement.
(b) Death. If Employee's employment is terminated due to his death, this
Agreement shall terminate and the Company shall have no obligations to his legal
representatives with respect to this Agreement other than the payment of any
compensation which had accrued hereunder at the date of Employee's death.
(c) Discharge.
(i) The Company may terminate this Agreement and Employee's employment for
any reason deemed sufficient by the Company upon notice as provided in Section
10. However, in the event that Employee's employment is terminated during the
Term by the Company for any reason other than his Misconduct or Disability (as
such terms are defined below), then, subject to Section 7(h) below: (A) within
five business days of the Date of Termination, the Company shall pay to Employee
a lump sum amount in cash equal to three times the sum of (1) Employee's Base
Compensation and (2) Employee's Target Bonus; (B) for the 36-month period after
such Date of Termination the Company, at its sole expense, shall continue to
provide or arrange to provide Employee (and Employee's dependents) with health
insurance benefits no less favorable than the health plan benefits provided by
the Company (or any successor) during such 36-month period to any senior
executive officer of the Company; provided, further, to the extent the coverage
or benefits received are taxable to Employee, the Company shall make Employee
"whole" on a net after tax basis; and (C) on the Date of Termination all then
outstanding Company stock-based awards of Employee, whether under this
Agreement, a Company stock plan or otherwise, shall become immediately
exercisable and payable in full, as the case may be, with any performance goals
associated therewith being deemed to have been achieved at the maximum levels.
Notwithstanding anything in this Agreement to the contrary, if any payment to
Employee in respect of a Company stock-based award would give rise to a
short-swing profit liability to Employee under Section 16(b) of the Securities
Exchange Act of 1934, then both the payment and the entitlement to payment
thereof shall automatically be deferred until the earliest date at which the
payment of such benefit would not result in a short-swing profit liability to
Employee.
(ii) Notwithstanding the foregoing provisions of this Section 7, in the
event Employee is terminated because of Misconduct, the Company shall have no
obligations pursuant to this Agreement after the Date of Termination. As used
herein, "Misconduct" means (a) the willful and continued failure by Employee to
substantially perform his duties with the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a Notice of Termination
by Employee for Good Reason), after a written demand for substantial performance
is delivered to Employee by the Board, which demand specifically identifies the
manner in which the Board believes that Employee has not substantially performed
his duties, or (b) the willful engaging by Employee in conduct which is
demonstrably and materially injurious to the Company, monetarily or otherwise.
For purposes hereof, no act, or failure to act, on Employee's part shall be
deemed "willful" unless done, or omitted to be done, by Employee not in good
faith and without reasonable belief that Employee's action or omission was in
the best interest of the Company. Notwithstanding the foregoing, Employee shall
not be deemed to have been terminated for Misconduct unless and until there
shall have been delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the entire membership of the
Board at a meeting of the Board called and held for such purpose, finding that
in the good faith opinion of the Board Employee was guilty of conduct set forth
above and specifying the particulars thereof in detail.
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(d) Disability.
(i) If Employee shall have been absent from the full-time performance of
Employee's duties with the Company for six consecutive months as a result of
Employee's incapacity due to physical or mental illness, as determined by
Employee's physician, and within 30 days after written Notice of Termination is
given by the Company Employee shall not have returned to the full-time
performance of Employee's duties, Employee's employment may be terminated by the
Company for "Disability", provided Employee is entitled to and receiving
benefits under an insured long term disability plan of the Company. Thereafter,
Employee shall not be entitled to further compensation pursuant to this
Agreement.
(ii) If Employee fails during any period during the Term to perform
Employee's full-time duties with the Company as a result of incapacity due to
physical or mental illness, as determined by Employee's physician, Employee
shall continue to receive his Base Compensation, less any amount payable to
Employee under a Company disability plan, and all other compensation and
benefits during such period until this Agreement is terminated.
(e) Resignation for Good Reason. Employee shall be entitled to terminate
his employment for Good Reason as defined herein. If Employee terminates his
employment for Good Reason, Employee shall be entitled to the compensation and
benefits provided in Paragraph 7(c)(i) hereof. "Good Reason" shall mean (1) the
breach of any of the Company's obligations under this Agreement without
Employee's express written consent or (2) the occurrence of any of the following
circumstances, as the case may be, without Employee's express written consent
unless such breach or circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination pursuant to Subsection 7(f)
given in respect thereof:
(i) the assignment by the Board to Employee of any duties that, in the good
faith opinion of Employee, are inconsistent with Employee's positions with the
Company, or an adverse alteration (as determined in good faith by Employee) in
the nature or status of Employee's office, title, responsibilities, including
reporting responsibilities, or the conditions of Employee's employment from
those in effect immediately prior to such alteration;
(ii) the failure by the Company to continue in effect any compensation plan
in which Employee participates that is material to Employee's total compensation
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue Employee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable to Employee, both in
terms of the amount of benefits provided and the level of Employee's
participation relative to other participants;
(iii) the taking of any action by the Company which would directly or
indirectly materially reduce or deprive Employee of any material fringe benefit
then enjoyed by Employee;
(iv) the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement, as contemplated in
Section 12 hereof;
(v) the relocation of the Company's principal executive offices outside the
greater Houston, Texas metropolitan area, or the Company's requiring Employee to
relocate anywhere other than the location of the Company's principal executive
offices, except for required travel on the Company's business to an extent
substantially consistent with Employee's past business travel obligations; or
(vi) any purported termination of Employee's employment that is not
effected pursuant to a Notice of Termination satisfying the requirements of
Subsection (f) hereof, which purported termination shall not be effective for
purposes of this Agreement.
Employee's right to terminate employment pursuant to this subsection shall
not be affected by Employee's incapacity due to physical or mental illness. In
addition, Employee's continued employment following any event, act or omission,
regardless of the length of such continued employment, shall not constitute
Employee's consent to, or a waiver of Employee's rights with respect to, such
event, act or omission constituting a Good Reason circumstance hereunder.
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(f) Notice of Termination. Any purported termination of Employee's
employment by the Company or by Employee shall be communicated by written Notice
of Termination to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall set forth in reasonable detail the reason for termination of
Employee's employment, or in the case of resignation for Good Reason, said
notice must specify in reasonable detail the basis for such resignation. No
purported termination which is not effected pursuant to this Section 7(f) shall
be effective.
(g) Date of Termination, Etc. "Date of Termination" shall mean the date
specified in the Notice of Termination. Either party may, within 15 days after
any Notice of Termination is given, provide notice to the other party pursuant
to Section 10 hereof that a dispute exists concerning the termination.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay Employee his full Base Compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, Base Compensation) and
continue Employee as a participant in all compensation, benefit and insurance
plans in which Employee was participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved in accordance with
Section 16 hereof, but in no event past the expiration date of this Agreement.
Any payments and benefits provided during such period of dispute shall not
reduce any other payments or benefits due Employee under this Agreement nor
shall Employee be liable to repay the Company for such payments and benefits if
it is finally determined the Employee is not entitled to payments under the
other provisions of this Agreement following Employee's termination of
employment.
(h) Mitigation. Employee shall not be required to mitigate the amount of
any payment or benefit provided for in this Section 7 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation or benefit earned by
Employee as a result of employment by another employer, self-employment
earnings, by retirement benefits, by offset against any amount claimed to be
owing by Employee to the Company, or otherwise, except that any cash severance
amount payable to Employee pursuant to a Company maintained severance plan or
policy for employees in general shall reduce the amount otherwise payable to
Employee pursuant to Section 7(c)(i)(A).
(i) Gross-Up of Parachute Payments. If, during the Term, any payment,
including without limitation any imputed income, made or benefit provided to or
on behalf of Employee, including any accelerated vesting or any deferred
compensation or other award, in connection with a "change in control" of the
Company, whether or not made or provided pursuant to this Agreement, results in
Employee being subject to the excise tax imposed by section 4999 of the Internal
Revenue Code of 1986, as amended (or any successor or similar provision), the
Company shall pay Employee an additional amount of cash (the "Additional
Amount") such that the net amount of all payments and benefits received by
Employee after paying all applicable taxes thereon, including on such Additional
Amount, shall be equal to the net after-tax amount of payments and benefits that
Employee would have received if section 4999 were not applicable.
8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit Employee's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any of its
affiliated companies and for which Employee may qualify, nor shall anything
herein limit or otherwise adversely affect such rights as Employee may have
under any stock option or other agreements with the Company or any of its
affiliated companies.
9. Assignability. The obligations of Employee hereunder are personal and
may not be assigned or delegated by him or transferred in any manner whatsoever,
nor are such obligations subject to involuntary alienation, assignment or
transfer. The Company shall have the right to assign this Agreement and to
delegate all rights, duties and obligations hereunder, either in whole or in
part, to any parent, affiliate, successor or subsidiary organization or company
of the Company, provided that no such assignment or delegation shall relieve the
Company of its duties and obligations hereunder nor affect the rights of
Employee hereunder.
10. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by overnight
courier or by facsimile with confirmation of receipt or on the third business
day after being mailed by United States registered mail, return receipt
requested, postage prepaid, addressed to the Company at its principal office
address and facsimile number, directed to the attention of the Board with a copy
to the
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Secretary of the Company, and to Employee at Employee's residence address and
facsimile number on the records of the Company or to such other address as
either party may have furnished to the other in writing in accordance herewith
except that notice of change of address shall be effective only upon receipt.
11. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
12. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and assets of the Company ("Successor") or any corporation which
becomes the ultimate parent corporation of the Company or any such Successor
("Ultimate Parent") to expressly assume and agree in writing satisfactory to the
Employee to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such written agreement prior to the
effectiveness of any such succession or creation of the parent corporation
relationship shall be a breach of this Agreement and shall entitle Employee to
compensation and benefits from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession (or creation of the parent corporation relationship)
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, including, without limitation, in Section 3, the term "Company" shall
include any Successor and Ultimate Parent which executes and delivers the
Agreement as provided for in this Section 12 or which otherwise becomes bound by
all terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of Employee hereunder shall inure to the
benefit of and be enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
13. Indemnification. During the Term and for a period of six years
thereafter, the Company shall cause Employee to be covered by and named as an
insured under any policy or contract of insurance obtained by it to insure its
directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Company or service in
other capacities at the request of the Company. The coverage provided to
Employee pursuant to this Section 8 shall be of a scope and on terms and
conditions at least as favorable as the most favorable coverage provided to any
other officer or director of the Company (or any successor).
In addition, to the maximum extent permitted under applicable law, during
the Term and for a period of six years thereafter, the Company shall indemnify
Employee against and hold Employee harmless from any costs, liabilities, losses
and exposures for Employee's services as an employee, officer and director of
the Company (or any successor).
14. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Employee and such officer as may be specifically
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or in compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. This Agreement is an integration of the parties
agreement; no agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Texas.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Arbitration. Employee shall be permitted (but not required) to elect
that any dispute or controversy arising under or in connection with this
Agreement be settled by arbitration in the city in which Employee resides at
such time in accordance with the rules of the American Arbitration Association
then in effect.
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Judgment may be entered on the arbitrator's award in any court having
jurisdiction. All legal fees and costs incurred by Employee in connection with
the resolution of any dispute or controversy under or in connection with this
Agreement shall be paid by the Company as bills for such services are presented
by Employee to the Company.
17. Prior Employment Agreement. This Agreement supersedes and replaces in
full any existing employment agreement (written or oral) between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on ,
1998, effective for all purposes as provided above.
OCEAN ENERGY, INC.
By: ------------------------------
Name: ----------------------------
Chairman of the Compensation
Committee of the Board
EMPLOYEE
----------------------------------
John B. Brock
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APPENDIX B-1
OCEAN ENERGY, INC.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 22, 1997 (the "Agreement"),
between OCEAN ENERGY, INC., a Delaware corporation ("Issuer"), and UNITED
MERIDIAN CORPORATION, a Delaware corporation ("Grantee").
RECITALS
WHEREAS, Issuer, Grantee and OEI Holding Corporation, a Delaware
corporation ("Newco"), have entered into an Agreement and Plan of Merger, dated
as of the date hereof (the "Merger Agreement"; defined terms used but not
otherwise defined herein have the meanings set forth in the Merger Agreement),
providing for, among other things, the merger of (i) Newco with Issuer and (ii)
Grantee with Issuer;
WHEREAS, as a condition and inducement to Grantee's willingness to enter
into the Merger Agreement and the UMC Option Agreement (as defined below),
Grantee has requested that Issuer agree, and Issuer has agreed, to grant Grantee
the Option (as defined below); and
WHEREAS, as a condition and inducement to Issuer's willingness to enter
into the Merger Agreement and this Agreement, Issuer has requested that Grantee
agree, and Grantee has agreed to, grant Issuer an option to purchase shares of
Grantee's common stock on substantially the same terms as the Option (the "UMC
Option Agreement").
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 2,267,300 (as adjusted as set forth herein) shares (the "Option Shares")
of Common Stock, par value $0.01 per share ("Issuer Common Stock"), of Issuer at
a purchase price of $49 13/16 (as adjusted as set forth herein) per Option Share
(the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise the Option, in whole but
not in part, at any one time after the occurrence of any event as a result of
which Grantee is entitled to receive the Termination Fee pursuant to the Merger
Agreement (a "Purchase Event"); provided, however, that except as provided in
the last sentence of this Section 2(a), the Option shall terminate and be of no
further force and effect upon the earliest to occur of (A) the Effective Time,
(B) 18 months after the first occurrence of a Purchase Event, and (C)
termination of the Merger Agreement in accordance with its terms prior to the
occurrence of a Purchase Event, unless Grantee has the right to receive a
Termination Fee following such termination upon the occurrence of certain
events, in which case the Option shall not terminate until the later of (x) six
months following the time such Termination Fee becomes payable and (y) the
expiration of the period in which Grantee has such right to receive a
Termination Fee. Notwithstanding the termination of the Option, Grantee shall be
entitled to purchase the Option Shares if it has exercised the Option in
accordance with the terms hereof prior to the termination of the Option, and the
termination of the Option will not affect any rights hereunder which by their
terms do not terminate or expire prior to or as of such termination.
(b) In the event that Grantee wishes to exercise the Option, it will send
to Issuer a written notice (an "Exercise Notice"; the date of which being herein
referred to as the "Notice Date") to that effect, which Exercise Notice shall
specify the number of Option Shares, if any, Grantee wishes to purchase pursuant
to this Section 2(b), the denominations of the certificate or certificates
evidencing the Option Shares which Grantee wishes to purchase pursuant to this
Section 2(b) and a date not earlier than three business days nor later than 20
business days from the Notice Date for the closing of such purchase (an "Option
Closing Date"); provided, however, that (i) if a closing of the purchase and
sale pursuant to the Option (an "Option Closing") cannot be consummated by
reason of any applicable judgment, decree, order, law or regulation, the period
of time that
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otherwise would run pursuant to this sentence shall run instead from the date on
which such restriction on consummation related to such Option Closing has
expired or been terminated and (ii) without limiting the foregoing, if prior
notification to or approval of any regulatory authority is required in
connection with any such purchase, Grantee and Issuer shall promptly file the
required notice or application for approval and shall cooperate in the
expeditious filing of such notice or application, and the period of time that
otherwise would run pursuant to this sentence with respect to any Option
Closing, shall run instead from the date on which, as the case may be, (A) any
required notification period has expired or been terminated or (B) any required
approval has been obtained, and in either event, any requisite waiting period
has expired or been terminated. Any Option Closing will be at an agreed location
and time in New York, New York on the applicable Option Closing Date or at such
later date as may be necessary so as to comply with the provisions of this
Section 2(b).
3. Payment and Delivery of Certificates. (a) At any Option Closing, Grantee
will pay to Issuer in immediately available funds by wire transfer to a bank
account designated in writing by Issuer an amount equal to the Purchase Price
multiplied by the number of Option Shares.
(b) At any Option Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such Option Closing, which Option Shares will be free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever. If at the time of
issuance of Option Shares pursuant to an exercise of the Option hereunder,
Issuer shall have issued and outstanding rights under a shareholder rights plan
or similar securities, then each Option Share issued pursuant to such exercise
will also represent such a corresponding right with terms substantially the same
as and at least as favorable to Grantee as are provided under any Issuer
shareholder rights agreement or any similar agreement then in effect.
(c) Certificates for the Option Shares delivered at an Option Closing shall
have typed or printed thereon a restrictive legend which will read substantially
as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
It is understood and agreed that the reference to restrictions arising under the
Securities Act in the above legend will be removed by delivery of substitute
certificate(s) without such reference if such Option Shares have been registered
pursuant to the Securities Act, such Option Shares have been sold in reliance on
and in accordance with Rule 144 under the Securities Act or Grantee has
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act.
4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Corporate Authorization. Issuer has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer, and no other
corporate proceedings on the part of Issuer are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Issuer, and assuming this
Agreement constitutes a valid and binding agreement of Grantee, this
Agreement constitutes a valid and binding agreement of Issuer, enforceable
against Issuer in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable
remedies).
(b) Authorized Stock. Issuer has taken all necessary corporate and
other action to authorize and reserve and, subject to the expiration or
termination of any required waiting period under the HSR Act, to
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permit it to issue, and, at all times from the date hereof until the
obligation to deliver Option Shares upon the exercise of the Option
terminates, shall have reserved for issuance, upon exercise of the Option,
shares of Issuer Common Stock necessary for Grantee to exercise the Option,
and Issuer will take all necessary corporate action to authorize and
reserve for issuance all additional shares of Issuer Common Stock or other
securities which may be issued pursuant to Section 6 upon exercise of the
Option. The shares of Issuer Common Stock to be issued upon due exercise of
the Option, including all additional shares of Issuer Common Stock or other
securities which may be issuable upon exercise of the Option or any other
securities which may be issued pursuant to Section 6, upon issuance
pursuant hereto, will be duly and validly issued, fully paid and
nonassessable and will be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including
without limitation any preemptive rights of any stockholder of Issuer.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Corporate Authorization. Grantee has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Grantee, and no other
corporate proceedings on the part of Grantee are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by Grantee, and assuming this
Agreement constitutes a valid and binding agreement of Issuer, this
Agreement constitutes a valid and binding agreement of Grantee, enforceable
against Grantee in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable
remedies).
(b) Purchase Not for Distribution. Any Option Shares or other
securities acquired by Grantee upon exercise of the Option will not be
transferred or otherwise disposed of except in a transaction registered, or
exempt from registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event of any
changes in Issuer Common Stock by reason of a stock dividend, stock split,
reverse stock split, merger, recapitalization, combination, exchange of shares,
or similar transaction, the type and number of shares or securities subject to
the Option, and the Purchase Price therefor, shall be adjusted appropriately,
and proper provision shall be made in the agreements governing such transaction,
so that Grantee shall receive upon exercise of the Option the number and class
of shares or other securities or property that Grantee would have received with
respect to Issuer Common Stock if the Option had been exercised immediately
prior to such event or the record date therefor, as applicable.
(b) Without limiting the parties' relative rights and obligations under the
Merger Agreement, in the event that the Issuer enters into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and Issuer shall not be the continuing or surviving corporation in
such consolidation or merger, (ii) to permit any person, other than Grantee or
one of its subsidiaries, to merge into Issuer and Issuer shall be the continuing
or surviving corporation, but in connection with such merger, the shares of
Issuer Common Stock outstanding immediately prior to the consummation of such
merger shall be changed into or exchanged for stock or other securities of
Issuer or any other person or cash or any other property, or the shares of
Issuer Common Stock outstanding immediately prior to the consummation of such
merger will, after such merger represent less than 50% of the outstanding voting
securities of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and condition set forth
herein, be converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities or property that Grantee would have received in respect of Issuer
Common Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale, or transfer, or the record date therefor, as
applicable.
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(c) If, prior to the termination of the Option in accordance with Section
2, Issuer enters into any agreement (x) pursuant to which all outstanding shares
of Issuer Common Stock are to be purchased for, or converted into the right to
receive in whole or in part (other than in respect of fractional shares) cash or
(y) with respect to any transaction described in clauses (i), (ii) and (iii) of
Section 6(b) (each of (x) and (y), a "Transaction"), the Issuer covenants that
proper provision shall be made in such agreement to provide that, if the Option
shall not theretofore have been exercised, then upon the consummation of the
Transaction (which in the case of a Transaction involving a tender offer shall
be when shares of Issuer Common Stock are accepted for payment), Grantee shall
have the right, at its election, by not less than two business days' prior
written notice to Issuer, to receive in exchange for cancellation of the
remaining Option an amount in cash equal to the Spread. For purposes of this
Agreement, the term "Spread" means the number of Option Shares multiplied by the
excess of (A) the closing sales price per share of Issuer Common Stock on the
principal securities exchange or quotation system on which Issuer Common Stock
is then listed or traded, as reported by The Wall Street Journal, on the day
immediately prior to the consummation of such Transaction, over (B) the Purchase
Price. Notwithstanding the foregoing, the amount of the Spread, when added to
any Termination Fee paid or payable to Grantee, shall not exceed $50 million.
(d) Following exercise of the Option by Grantee, in the event that Grantee
sells, pledges or otherwise disposes of (including, without limitation, by
merger or exchange) any of the Option Shares (a "Sale"), then;
(i) any Termination Fee due and payable by Issuer following such time
shall be reduced by an amount, if any, equal to the excess of (1) the total
of (A) the Termination Fee and (B) the excess of (w) the aggregate amounts
received (whether in cash, securities or otherwise) by Grantee in all such
Sales, over (x) the aggregate Purchase Price of the Option Shares sold in
such Sales (such excess in this sub-clause (B) being the "Offset Amounts")
over (2) $50 million;
(ii) if Issuer has paid to Grantee the Termination Fee prior to a
Sale, then Grantee shall immediately remit to Issuer, as additional
Purchase Price for the Option Shares, the excess, if any, of (y) the total
of the Termination Fee and the Offset Amounts of all Sales over (z) $50
million; and
(iii) if a Sale or Sales occur prior to the payment of the Termination
Fee to Grantee by Issuer, and the aggregate amount received (whether in
cash, securities or otherwise) by Grantee in such Sales exceeds $50
million, Grantee shall remit to Issuer the aggregate amount received in
excess of $50 million and deliver to Issuer for cancellation any remaining
Option Shares owned by Grantee.
(e) Notwithstanding anything to the contrary in this Agreement or the
Merger Agreement, in no event shall the aggregate of any Termination Fee, all
Offset Amounts and the Spread exceed $50 million, and to the extent such items
would otherwise exceed $50 million, Grantee, at its sole election, shall either
(i) reduce the number of Option Shares subject to the Option, (ii) deliver to
Issuer for cancellation Option Shares previously purchased by Grantee, (iii) pay
cash to issuer or (iv) take a combination of any of the foregoing actions.
7. Registration Rights. Issuer shall, if requested by Grantee at any time
and from time to time within two years after the date of the exercise of an
Option, as expeditiously as possible prepare and file up to two registration
statements under the Securities Act if such registration is necessary in order
to permit the sale or other disposition of any or all securities that have been
acquired by Grantee upon exercise of the Option in accordance with the intended
method of sale or other disposition stated by Grantee, including a "shelf"
registration statement under Rule 415 under the Securities Act or any successor
provision, and Issuer shall use its best efforts to qualify such securities
under any applicable state securities laws. Grantee agrees to use reasonable
efforts to cause, and to cause any underwriters of any sale or other disposition
to cause, any sale or other disposition pursuant to such registration statement
to be effected on a widely distributed basis. Issuer shall use reasonable
efforts to cause each such registration statement to become effective, to obtain
all consents or waivers of other parties which are required therefor, and to
keep such registration statement effective for such period not in excess of 90
calendar days from the day such registration statement first becomes effective
as may be reasonably necessary to effect such sale or other disposition. The
obligations of Issuer hereunder to file a registration statement and to maintain
its effectiveness may be suspended for one or more periods of time not exceeding
90 calendar days in the aggregate if the Board of Directors of Issuer shall have
determined that the filing of such registration statement or the maintenance of
its effectiveness would
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require premature disclosure of material nonpublic information that would
materially and adversely affect Issuer. Any registration statement prepared and
filed under this Section 7, and any sale covered thereby, shall be at Issuer's
expense except for underwriting discounts or commissions, brokers' fees and the
fees and disbursements of Grantee's counsel related thereto. Grantee shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If, during the time periods
referred to in the first sentence of this Section 7, Issuer effects a
registration under the Securities Act of Issuer Common Stock for its own account
or for any other stockholders of Issuer (other than on Form S-4 or Form S-8, or
any successor form), it shall allow Grantee the right to participate in such
registration, and such participation will not affect the obligation of Issuer to
effect demand registration statements for Grantee under this Section 7; provided
that, if the managing underwriters of such offering advise Issuer in writing
that in their opinion the number of shares of Issuer Common Stock requested to
be included in such registration exceeds the number which can be sold in such
offering, priority shall be given to the securities intended to be included
therein by the Issuer for its own account and, thereafter, Issuer will include
the securities requested to be included therein by Grantee pro rata with the
securities intended to be included therein by other security holders of the
Issuer. In connection with any registration pursuant to this Section 7, Issuer
and Grantee shall provide each other and any underwriter of the offering with
customary representations, warranties, covenants, indemnification, and
contribution in connection with such registration. The registration rights set
forth in this Section 7 are subject to any other registration rights in effect
on the date hereof.
8. Listing. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE (or any other national
securities exchange or national securities quotation system), Issuer, upon the
request of Grantee, shall promptly file an application to list the shares of
Issuer Common Stock or other securities to be acquired upon exercise of the
Option on the NYSE (and any such other national securities exchange or national
securities quotation system) and shall use reasonable efforts to obtain approval
of such listing as promptly as practicable.
9. Loss or Mutilation. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer shall execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed, or mutilated shall at any time
be enforceable by anyone.
10. Miscellaneous. (a) Expenses. Except as otherwise provided herein or in
the Merger Agreement, each of the parties hereto will pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Amendment. This Agreement may not be amended, except by an instrument
in writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive any
provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement, the UMC
Option Agreement, the Merger Agreement (including the documents and instruments
attached thereto as exhibits or schedules or delivered in connection therewith)
and the Confidentiality Agreement (i) constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement, and
(ii) except as provided in Section 9.9 of the Merger Agreement, are not intended
to confer upon any person other than the parties hereto any rights or remedies.
(e) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
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(f) Notices. All notices, requests, claims, demands, and other
communications under this Agreement must be in writing and will be deemed given
if delivered personally, telecopied (which is confirmed), or sent by overnight
courier (providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
To Issuer:
Ocean Energy, Inc.
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Attention: Chairman and Chief Executive Officer
Telecopy: (504) 927-1109
copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: John F. Wombwell
Telecopy: (713) 220-4285
To Grantee:
United Meridian Corporation
1201 Louisiana, Suite 1400
Houston, Texas 77002
Attention: Chairman and Chief Executive Officer
Telecopy: (713) 653-5024
copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Attention: Michael E. Dillard, P.C.
Telecopy: (214) 969-4343
(g) Assignment. Neither this Agreement, the Option nor any of the rights,
interests, or obligations under this Agreement may be assigned, transferred or
delegated, in whole or in part, by operation of law or otherwise, by Issuer or
Grantee without the prior written consent of the other. Any assignment, transfer
or delegation in violation of the preceding sentence will be void. Subject to
the first and second sentences of this Section 10(g), this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and permitted assigns.
(h) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(i) Enforcement. THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR AND
THAT THE PARTIES WOULD NOT HAVE ANY ADEQUATE REMEDY AT LAW IN THE EVENT THAT ANY
OF THE PROVISIONS OF THIS AGREEMENT WERE NOT PERFORMED IN ACCORDANCE WITH THEIR
SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS ACCORDINGLY AGREED THAT THE
PARTIES WILL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF
THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS
AGREEMENT IN ANY FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OR IN DELAWARE
STATE COURT, THE FOREGO-
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ING BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR
IN EQUITY. IN ADDITION, EACH OF THE PARTIES HERETO (A) CONSENTS TO SUBMIT ITSELF
TO THE PERSONAL JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF
DELAWARE OR ANY DELAWARE STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (B) AGREES
THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION
OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (C) AGREES THAT IT WILL NOT
BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING
IN THE STATE OF DELAWARE OR A DELAWARE STATE COURT.
(j) Counterparts; Effectiveness. This Agreement may be executed in two or
more counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument, and shall
become effective when one or more counterparts have been signed by each of the
parties and delivered (by telecopy or otherwise) to the other parties.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
OCEAN ENERGY, INC.
By: /s/ JAMES C. FLORES
------------------------------------
Name: James C. Flores
Title: Chairman of the Board,
President, and
Chief Executive Officer
UNITED MERIDIAN CORPORATION
By: /s/ JOHN B. BROCK
------------------------------------
Name: John B. Brock
Title: Chairman of the Board and
Chief Executive Officer
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<PAGE> 196
APPENDIX B-2
UNITED MERIDIAN CORPORATION
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 22, 1997 (the "Agreement"),
between UNITED MERIDIAN CORPORATION, a Delaware corporation ("Issuer"), and
OCEAN ENERGY, INC., a Delaware corporation ("Grantee").
RECITALS
WHEREAS, Issuer, Grantee and OEI Holding Corporation, a Delaware
corporation ("Newco"), have entered into an Agreement and Plan of Merger, dated
as of the date hereof (the "Merger Agreement"; defined terms used but not
otherwise defined herein have the meanings set forth in the Merger Agreement),
providing for, among other things, the merger of (i) Newco with Grantee and (ii)
Issuer with Grantee;
WHEREAS, as a condition and inducement to Grantee's willingness to enter
into the Merger Agreement and the OEI Option Agreement (as defined below),
Grantee has requested that Issuer agree, and Issuer has agreed, to grant Grantee
the Option (as defined below); and
WHEREAS, as a condition and inducement to Issuer's willingness to enter
into the Merger Agreement and this Agreement, Issuer has requested that Grantee
agree, and Grantee has agreed to, grant Issuer an option to purchase shares of
Grantee's common stock on substantially the same terms as the Option (the "OEI
Option Agreement").
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 3,543,000 (as adjusted as set forth herein) shares (the "Option Shares")
of common stock, par value $0.01 per share ("Issuer Common Stock"), of Issuer at
a purchase price of $32 3/16 (as adjusted as set forth herein) per Option Share
(the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise the Option, in whole but
not in part, at any one time after the occurrence of any event as a result of
which Grantee is entitled to receive the Termination Fee pursuant to the Merger
Agreement (a "Purchase Event"); provided, however, that except as provided in
the last sentence of this Section 2(a), the Option shall terminate and be of no
further force and effect upon the earliest to occur of (A) the Effective Time,
(B) 18 months after the first occurrence of a Purchase Event, and (C)
termination of the Merger Agreement in accordance with its terms prior to the
occurrence of a Purchase Event, unless Grantee has the right to receive a
Termination Fee following such termination upon the occurrence of certain
events, in which case the Option shall not terminate until the later of (x) six
months following the time such Termination Fee becomes payable and (y) the
expiration of the period in which Grantee has such right to receive a
Termination Fee. Notwithstanding the termination of the Option, Grantee shall be
entitled to purchase the Option Shares if it has exercised the Option in
accordance with the terms hereof prior to the termination of the Option, and the
termination of the Option will not affect any rights hereunder which by their
terms do not terminate or expire prior to or as of such termination.
(b) In the event that Grantee wishes to exercise the Option, it will send
to Issuer a written notice (an "Exercise Notice"; the date of which being herein
referred to as the "Notice Date") to that effect, which Exercise Notice shall
specify the number of Option Shares, if any, Grantee wishes to purchase pursuant
to this Section 2(b), the denominations of the certificate or certificates
evidencing the Option Shares which Grantee wishes to purchase pursuant to this
Section 2(b) and a date not earlier than three business days nor later than 20
business days from the Notice Date for the closing of such purchase (an "Option
Closing Date"); provided, however, that (i) if a closing of the purchase and
sale pursuant to the Option (an "Option Closing") cannot be consummated by
reason of any applicable judgment, decree, order, law or regulation, the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which such restriction on
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<PAGE> 197
consummation related to such Option Closing has expired or been terminated and
(ii) without limiting the foregoing, if prior notification to or approval of any
regulatory authority is required in connection with any such purchase, Grantee
and Issuer shall promptly file the required notice or application for approval
and shall cooperate in the expeditious filing of such notice or application, and
the period of time that otherwise would run pursuant to this sentence with
respect to any Option Closing, shall run instead from the date on which, as the
case may be, (A) any required notification period has expired or been terminated
or (B) any required approval has been obtained, and in either event, any
requisite waiting period has expired or been terminated. Any Option Closing will
be at an agreed location and time in New York, New York on the applicable Option
Closing Date or at such later date as may be necessary so as to comply with the
provisions of this Section 2(b).
3. Payment and Delivery of Certificates. (a) At any Option Closing, Grantee
will pay to Issuer in immediately available funds by wire transfer to a bank
account designated in writing by Issuer an amount equal to the Purchase Price
multiplied by the number of Option Shares.
(b) At any Option Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such Option Closing, which Option Shares will be free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever. If at the time of
issuance of Option Shares pursuant to an exercise of the Option hereunder,
Issuer shall have issued and outstanding rights under a shareholder rights plan
or similar securities, then each Option Share issued pursuant to such exercise
will also represent such a corresponding right with terms substantially the same
as and at least as favorable to Grantee as are provided under any Issuer
shareholder rights agreement or any similar agreement then in effect.
(c) Certificates for the Option Shares delivered at an Option Closing shall
have typed or printed thereon a restrictive legend which will read substantially
as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
It is understood and agreed that the reference to restrictions arising under the
Securities Act in the above legend will be removed by delivery of substitute
certificate(s) without such reference if such Option Shares have been registered
pursuant to the Securities Act, such Option Shares have been sold in reliance on
and in accordance with Rule 144 under the Securities Act or Grantee has
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act.
4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Corporate Authorization. Issuer has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer, and no other
corporate proceedings on the part of Issuer are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Issuer, and assuming this
Agreement constitutes a valid and binding agreement of Grantee, this
Agreement constitutes a valid and binding agreement of Issuer, enforceable
against Issuer in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable
remedies).
(b) Authorized Stock. Issuer has taken all necessary corporate and
other action to authorize and reserve and, subject to the expiration or
termination of any required waiting period under the HSR Act, to permit it
to issue, and, at all times from the date hereof until the obligation to
deliver Option Shares upon the exercise of the Option terminates, shall
have reserved for issuance, upon exercise of the Option,
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<PAGE> 198
shares of Issuer Common Stock necessary for Grantee to exercise the Option,
and Issuer will take all necessary corporate action to authorize and
reserve for issuance all additional shares of Issuer Common Stock or other
securities which may be issued pursuant to Section 6 upon exercise of the
Option. The shares of Issuer Common Stock to be issued upon due exercise of
the Option, including all additional shares of Issuer Common Stock or other
securities which may be issuable upon exercise of the Option or any other
securities which may be issued pursuant to Section 6, upon issuance
pursuant hereto, will be duly and validly issued, fully paid and
nonassessable and will be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including
without limitation any preemptive rights of any stockholder of Issuer.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Corporate Authorization. Grantee has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Grantee, and no other
corporate proceedings on the part of Grantee are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by Grantee, and assuming this
Agreement constitutes a valid and binding agreement of Issuer, this
Agreement constitutes a valid and binding agreement of Grantee, enforceable
against Grantee in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable
remedies).
(b) Purchase Not for Distribution. Any Option Shares or other
securities acquired by Grantee upon exercise of the Option will not be
transferred or otherwise disposed of except in a transaction registered, or
exempt from registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event of any
changes in Issuer Common Stock by reason of a stock dividend, stock split,
reverse stock split, merger, recapitalization, combination, exchange of shares,
or similar transaction, the type and number of shares or securities subject to
the Option, and the Purchase Price therefor, shall be adjusted appropriately,
and proper provision shall be made in the agreements governing such transaction,
so that Grantee shall receive upon exercise of the Option the number and class
of shares or other securities or property that Grantee would have received with
respect to Issuer Common Stock if the Option had been exercised immediately
prior to such event or the record date therefor, as applicable.
(b) Without limiting the parties' relative rights and obligations under the
Merger Agreement, in the event that the Issuer enters into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and Issuer shall not be the continuing or surviving corporation in
such consolidation or merger, (ii) to permit any person, other than Grantee or
one of its subsidiaries, to merge into Issuer and Issuer shall be the continuing
or surviving corporation, but in connection with such merger, the shares of
Issuer Common Stock outstanding immediately prior to the consummation of such
merger shall be changed into or exchanged for stock or other securities of
Issuer or any other person or cash or any other property, or the shares of
Issuer Common Stock outstanding immediately prior to the consummation of such
merger will, after such merger represent less than 50% of the outstanding voting
securities of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and condition set forth
herein, be converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities or property that Grantee would have received in respect of Issuer
Common Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale, or transfer, or the record date therefor, as
applicable.
(c) If, prior to the termination of the Option in accordance with Section
2, Issuer enters into any agreement (x) pursuant to which all outstanding shares
of Issuer Common Stock are to be purchased for, or converted into the right to
receive in whole or in part (other than in respect of fractional shares) cash or
(y)
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with respect to any transaction described in clauses (i), (ii) and (iii) of
Section 6(b) (each of (x) and (y), a "Transaction"), the Issuer covenants that
proper provision shall be made in such agreement to provide that, if the Option
shall not theretofore have been exercised, then upon the consummation of the
Transaction (which in the case of a Transaction involving a tender offer shall
be when shares of Issuer Common Stock are accepted for payment), Grantee shall
have the right, at its election, by not less than two business days' prior
written notice to Issuer, to receive in exchange for cancellation of the
remaining Option an amount in cash equal to the Spread. For purposes of this
Agreement, the term "Spread" means the number of Option Shares multiplied by the
excess of (A) the closing sales price per share of Issuer Common Stock on the
principal securities exchange or quotation system on which Issuer Common Stock
is then listed or traded, as reported by The Wall Street Journal, on the day
immediately prior to the consummation of such Transaction, over (B) the Purchase
Price. Notwithstanding the foregoing, the amount of the Spread, when added to
any Termination Fee paid or payable to Grantee, shall not exceed $50 million.
(d) Following exercise of the Option by Grantee, in the event that Grantee
sells, pledges or otherwise disposes of (including, without limitation, by
merger or exchange) any of the Option Shares (a "Sale"), then;
(i) any Termination Fee due and payable by Issuer following such time
shall be reduced by an amount, if any, equal to the excess of (1) the total
of (A) the Termination Fee and (B) the excess of (w) the aggregate amounts
received (whether in cash, securities or otherwise) by Grantee in all such
Sales, over (x) the aggregate Purchase Price of the Option Shares sold in
such Sales (such excess in this sub-clause (B) being the "Offset Amounts")
over (2) $50 million;
(ii) if Issuer has paid to Grantee the Termination Fee prior to a
Sale, then Grantee shall immediately remit to Issuer, as additional
Purchase Price for the Option Shares, the excess, if any, of (y) the total
of the Termination Fee and the Offset Amounts of all Sales over (z) $50
million; and
(iii) if a Sale or Sales occur prior to the payment of the Termination
Fee to Grantee by Issuer, and the aggregate amount received (whether in
cash, securities or otherwise) by Grantee in such Sales exceeds $50
million, Grantee shall remit to Issuer the aggregate amount received in
excess of $50 million and deliver to Issuer for cancellation any remaining
Option Shares owned by Grantee.
(e) Notwithstanding anything to the contrary in this Agreement or the
Merger Agreement, in no event shall the aggregate of any Termination Fee, all
Offset Amounts and the Spread exceed $50 million, and to the extent such items
would otherwise exceed $50 million, Grantee, at its sole election, shall either
(i) reduce the number of Option Shares subject to the Option, (ii) deliver to
Issuer for cancellation Option Shares previously purchased by Grantee, (iii) pay
cash to issuer or (iv) take a combination of any of the foregoing actions.
7. Registration Rights. Issuer shall, if requested by Grantee at any time
and from time to time within two years after the date of the exercise of an
Option, as expeditiously as possible prepare and file up to two registration
statements under the Securities Act if such registration is necessary in order
to permit the sale or other disposition of any or all securities that have been
acquired by Grantee upon exercise of the Option in accordance with the intended
method of sale or other disposition stated by Grantee, including a "shelf"
registration statement under Rule 415 under the Securities Act or any successor
provision, and Issuer shall use its best efforts to qualify such securities
under any applicable state securities laws. Grantee agrees to use reasonable
efforts to cause, and to cause any underwriters of any sale or other disposition
to cause, any sale or other disposition pursuant to such registration statement
to be effected on a widely distributed basis. Issuer shall use reasonable
efforts to cause each such registration statement to become effective, to obtain
all consents or waivers of other parties which are required therefor, and to
keep such registration statement effective for such period not in excess of 90
calendar days from the day such registration statement first becomes effective
as may be reasonably necessary to effect such sale or other disposition. The
obligations of Issuer hereunder to file a registration statement and to maintain
its effectiveness may be suspended for one or more periods of time not exceeding
90 calendar days in the aggregate if the Board of Directors of Issuer shall have
determined that the filing of such registration statement or the maintenance of
its effectiveness would require premature disclosure of material nonpublic
information that would materially and adversely affect Issuer. Any registration
statement prepared and filed under this Section 7, and any sale covered thereby,
shall be at Issuer's expense except for underwriting discounts or commissions,
brokers' fees and the fees and
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disbursements of Grantee's counsel related thereto. Grantee shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If, during the time periods referred to in the
first sentence of this Section 7, Issuer effects a registration under the
Securities Act of Issuer Common Stock for its own account or for any other
stockholders of Issuer (other than on Form S-4 or Form S-8, or any successor
form), it shall allow Grantee the right to participate in such registration, and
such participation will not affect the obligation of Issuer to effect demand
registration statements for Grantee under this Section 7; provided that, if the
managing underwriters of such offering advise Issuer in writing that in their
opinion the number of shares of Issuer Common Stock requested to be included in
such registration exceeds the number which can be sold in such offering,
priority shall be given to the securities intended to be included therein by the
Issuer for its own account and, thereafter, Issuer will include the securities
requested to be included therein by Grantee pro rata with the securities
intended to be included therein by other security holders of the Issuer. In
connection with any registration pursuant to this Section 7, Issuer and Grantee
shall provide each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification, and contribution in
connection with such registration. The registration rights set forth in this
Section 7 are subject to any other registration rights in effect on the date
hereof.
8. Listing. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE (or any other national
securities exchange or national securities quotation system), Issuer, upon the
request of Grantee, shall promptly file an application to list the shares of
Issuer Common Stock or other securities to be acquired upon exercise of the
Option on the NYSE (and any such other national securities exchange or national
securities quotation system) and shall use reasonable efforts to obtain approval
of such listing as promptly as practicable.
9. Loss or Mutilation. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer shall execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed, or mutilated shall at any time
be enforceable by anyone.
10. Miscellaneous. (a) Expenses. Except as otherwise provided herein or in
the Merger Agreement, each of the parties hereto will pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Amendment. This Agreement may not be amended, except by an instrument
in writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive any
provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement, the OEI
Option Agreement, the Merger Agreement (including the documents and instruments
attached thereto as exhibits or schedules or delivered in connection therewith)
and the Confidentiality Agreement (i) constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement, and
(ii) except as provided in Section 9.9 of the Merger Agreement, are not intended
to confer upon any person other than the parties hereto any rights or remedies.
(e) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
(f) Notices. All notices, requests, claims, demands, and other
communications under this Agreement must be in writing and will be deemed given
if delivered personally, telecopied (which is confirmed), or sent by overnight
courier (providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
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To Issuer:
United Meridian Corporation
1201 Louisiana, Suite 1400
Houston, Texas 77002
Attention: Chairman and Chief Executive Officer
Telecopy: (713) 653-5024
copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Attention: Michael E. Dillard, P.C.
Telecopy: (214) 969-4343
To Grantee:
Ocean Energy, Inc.
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Attention: Chairman and Chief Executive Officer
Telecopy: (504) 927-1109
copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: John F. Wombwell
Telecopy: (713) 220-4285
(g) Assignment. Neither this Agreement, the Option nor any of the rights,
interests, or obligations under this Agreement may be assigned, transferred or
delegated, in whole or in part, by operation of law or otherwise, by Issuer or
Grantee without the prior written consent of the other. Any assignment, transfer
or delegation in violation of the preceding sentence will be void. Subject to
the first and second sentences of this Section 10(g), this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and permitted assigns.
(h) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(i) Enforcement. THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR AND
THAT THE PARTIES WOULD NOT HAVE ANY ADEQUATE REMEDY AT LAW IN THE EVENT THAT ANY
OF THE PROVISIONS OF THIS AGREEMENT WERE NOT PERFORMED IN ACCORDANCE WITH THEIR
SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS ACCORDINGLY AGREED THAT THE
PARTIES WILL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF
THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS
AGREEMENT IN ANY FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OR IN DELAWARE
STATE COURT, THE FOREGOING BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY
ARE ENTITLED AT LAW OR IN EQUITY. IN ADDITION, EACH OF THE PARTIES HERETO (A)
CONSENTS TO SUBMIT ITSELF TO THE PERSONAL JURISDICTION OF ANY FEDERAL COURT
LOCATED IN THE STATE OF DELAWARE OR ANY DELAWARE STATE COURT IN THE EVENT ANY
DISPUTE ARISES OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, (B) AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH
PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT,
AND (C) AGREES THAT IT WILL NOT BRING ANY ACTION RELATING TO THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY
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THIS AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING IN THE STATE OF
DELAWARE OR A DELAWARE STATE COURT.
(j) Counterparts; Effectiveness. This Agreement may be executed in two or
more counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument, and shall
become effective when one or more counterparts have been signed by each of the
parties and delivered (by telecopy or otherwise) to the other parties.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
UNITED MERIDIAN CORPORATION
By: /s/ JOHN B. BROCK
------------------------------------
Name: John B. Brock
Title: Chairman of the Board and
Chief Executive Officer
OCEAN ENERGY, INC.
By: /s/ JAMES C. FLORES
------------------------------------
Name: James C. Flores
Title: Chairman of the Board,
President, and Chief Executive
Officer
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APPENDIX C
[LEHMAN BROTHERS LOGO]
December 22, 1997
Board of Directors
Ocean Energy, Inc.
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Members of the Board:
We understand that Ocean Energy, Inc. (the "Company"), United Meridian
Corporation ("UMC") and OEI Holding Corporation, a newly formed Delaware
corporation owned equally by the Company and UMC ("Newco"), are considering
entering into an Agreement and Plan of Merger (the "Agreement") pursuant to
which each of UMC and Newco will merge with and into the Company (together, the
"Merger"), with the Company being the surviving corporation in the Merger ("New
Ocean"). Upon effectiveness of the Merger (a) each outstanding share of common
stock of the Company ("Company Common Stock") will be converted into the right
to receive 2.34 shares of the common stock of New Ocean (the "Company Exchange
Ratio") and (b) each outstanding share of common stock of UMC ("UMC Common
Stock") will be converted into the right to receive 1.3 shares of the common
stock of New Ocean (the "UMC Exchange Ratio"). The terms and conditions of the
Merger are set forth in more detail in the draft of the Agreement dated December
19, 1997.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the Company Exchange Ratio to be offered to such
stockholders in the Merger in relation to the UMC Exchange Ratio. We have not
been requested to opine as to, and our opinion does not in any manner address,
the Company's underlying business decision to proceed with or effect the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) a draft of the
Agreement dated December 19, 1997, the related Stock Option Agreements and
Stockholder Agreements and the specific terms of the Merger, including
provisions therein relating to corporate governance and management of New Ocean
following the Merger; (2) such publicly available information concerning the
Company and UMC that we believe to be relevant to our analysis, including,
without limitation, each of the periodic reports and proxy statements filed by
the Company and UMC since January 1, 1997 and the Prospectus dated November 12,
1997 of the Company (including the audited and unaudited financial statements
included in such reports, statements and prospectus); (3) financial and
operating information with respect to the respective businesses, operations and
prospects of the Company and UMC as furnished to us by the Company and UMC,
respectively, including financial projections based on the respective
LOGO
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business plans of the Company and UMC and, in particular, (A) certain estimates
of proved and non-proved reserves, as well as the reports of independent reserve
engineers and company engineers, (B) projected annual production of such
reserves in certain domestic and international areas and (C) amounts and timing
of the cost savings expected to result from the Merger; (4) a trading history of
the Company Common Stock from December 3, 1996 to the present and a comparison
of that trading history with those of other companies that we deemed relevant,
including UMC; (5) a trading history of the UMC Common Stock from December 3,
1996 to the present and a comparison of that trading history with those of other
companies that we deemed relevant, including the Company; (6) a comparison of
the historical financial results and present financial condition of the Company
with those of other companies that we deemed relevant; (7) a comparison of the
historical financial results and present financial condition of UMC with those
of other companies that we deemed relevant; and (8) a comparison of the
financial terms of the Merger with the financial terms of certain other
transactions that we deemed relevant. In addition, we have (i) had discussions
with the senior managements of the Company and UMC concerning their respective
businesses, operations, assets, financial conditions and prospects and the cost
savings and strategic benefits expected by the managements of the Company and
UMC to result from a combination of the businesses of the Company and UMC, (ii)
had discussions with the independent auditors and reserve engineers of the
Company and UMC and (iii) undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of managements of the Company and UMC
that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of the Company, UMC and New Ocean following the consummation of the Merger
(including the cost savings expected to result from a combination of the
businesses), upon advice of the Company and UMC, we have assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the managements of the Company
and UMC, respectively, as to the future financial performance of the Company,
UMC and New Ocean, and that each of the Company and UMC would perform, and New
Ocean will perform, substantially in accordance with such projections. In
arriving at our opinion, we have not conducted a physical inspection of the
properties and facilities of the Company or UMC and have not made or obtained
any evaluations or appraisals of the assets or liabilities of the Company or
UMC. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's business. Upon advice of the Company
and its legal and accounting advisors, we have assumed that the Merger will
qualify (i) for pooling-of-interests accounting treatment and (ii) as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and therefore as a tax-free transaction to the stockholders
of the Company. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
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In addition, we express no opinion as to the prices at which shares of
common stock of New Ocean actually will trade following consummation of the
Merger and this opinion should not be viewed as providing any assurance that the
market value of the shares of common stock of New Ocean to be held by
stockholders of the Company after the Merger will be in excess of the market
value of the shares of Company Common Stock owned by such stockholders at any
time prior to announcement or consummation of the Merger.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view and in relation to the UMC
Exchange Ratio, the Company Exchange Ratio to be offered to the stockholders of
the Company in the Merger is fair to such stockholders.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a substantial portion of which
is contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company in the past and have received customary compensation
for such services. In the ordinary course of our business, we actively trade in
the debt and equity securities of the Company and UMC for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Merger. This opinion is not intended to be and does not
constitute a recommendation to any stockholder of the Company as to how the
stockholders of the Company should vote with respect to the Merger.
Very truly yours,
LEHMAN BROTHERS
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APPENDIX D
Investment Banking
Corporate and
Institutional
Client Group
One Houston Center
1221 McKinney
Suite 2700
Houston, Texas 77010
713 759 2500
FAX 713 759 2580
[MERRILL LYNCH LOGO]
December 22, 1997
United Meridian Corporation
1201 Louisiana, Suite 1400
Houston, Texas 77002
Attention: John B. Brock
Chairman and Chief Executive Officer
Gentlemen:
You have informed us that Purple (the "Company"), Gold ("Gold") and a newly
formed corporation, one-half of the issued and outstanding capital stock of
which is owned by each of Purple and Gold ("Newco"), propose to enter into an
agreement and plan of merger dated as of December 22, 1997 (the "Agreement")
pursuant to which (1) Newco shall merge with and into Gold (the "Newco Merger")
and (2) Purple shall merge with and into Gold (the "Purple Merger" and together
with the Newco Merger, the "Mergers"). In the Newco Merger, each outstanding
share of the common stock, par value $.01 per share, of Newco shall be
automatically cancelled and retired. Gold shall be the surviving corporation of
the Newco Merger. As a result of the Newco Merger, each share of Gold common
stock, par value $.01 per share issued and outstanding immediately prior to the
Newco Merger (the "Old Gold Common Stock") shall be converted into the right to
receive 2.34 shares of common stock, par value $.01 per share of Gold ("Gold
Common Stock"). In the Purple Merger, each outstanding share of the common
stock, par value $.01 per share, of Purple ("Company Common Stock") shall be
converted into the right to receive 1.30 shares (the "Company Conversion Ratio")
of Gold Common Stock. Gold shall be the surviving corporation in the Purple
Merger.
You have asked us whether, in our opinion, the Company Conversion Ratio is
fair from a financial point of view to the holders of the Company Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Annual Reports, Forms 10-K and related financial
information for the Company for the three years ended December 31, 1996 and
for Gold for the two years ended December 31, 1996 and the Forms 10-Q and
the related unaudited financial information for the Company and Gold for
the quarterly periods ending March 31, 1997, June 30, 1997 and September
30, 1997;
(2) Reviewed certain historical reserve reports as of December 31,
1996 and certain projected reserve reports as of December 31, 1997 (the
"Company Reserve Reports") prepared by the Company and by the Company's
independent petroleum engineers (the "Company's Petroleum Engineers");
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[MERRILL LYNCH LOGO]
(3) Reviewed certain reserve reports as of December 31, 1996 and
certain projected reserve reports as of December 31, 1997 (the "Gold
Reserve Reports" and together with the Company Reserve Reports, the
"Reserve Reports") prepared by Gold and Gold's independent petroleum
engineers ("Gold's Petroleum Engineers" and together with the Company's
Petroleum Engineers, the "Petroleum Engineers");
(4) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of Gold and the Company, furnished to us by Gold and the Company,
respectively;
(5) Conducted discussions with members of senior management of Gold
and the Company concerning their respective businesses and prospects before
and after giving effect to the Mergers;
(6) Conducted discussions with representatives of Arthur Andersen &
Co., the independent certified public accountants for the Company and Gold;
(7) Reviewed the market prices and valuation multiples for Old Gold
Common Stock and the Company Common Stock and compared them with those of
certain publicly traded companies that we deemed to be relevant;
(8) Reviewed the results of operations of Gold and the Company and
compared them with those of certain companies that we deemed to be
relevant;
(9) Compared the proposed financial terms of the Mergers with the
financial terms of certain other transactions which we deemed to be
relevant;
(10) Reviewed the potential pro forma impact of the Mergers;
(11) Reviewed a draft of the Agreement dated December 19, 1997; and
(12) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us or
publicly available or discussed with or reviewed by or for us, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of Gold or the Company or been furnished with any such evaluation or
appraisal other than the Reserve Reports. In addition, we have not conducted any
physical inspection of the properties or facilities of Gold or the Company. With
respect to the financial forecast information furnished to or discussed with us
by Gold or the Company, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the
management of Gold or the Company as to the expected future financial
performance of Gold or the Company, as the case may be. In addition, we have
assumed that the Reserve Reports have been reasonably prepared and reflect the
best currently available estimates and judgments of Gold and the Company and
their respective Petroleum Engineers as to their respective reserves, their
future hydrocarbon production volume and associated costs. We have further
assumed that the Mergers will be accounted for as poolings-of-interests under
generally accepted accounting principles and that the Mergers will qualify as
tax-free reorganizations for U.S. federal income tax purposes. Further, we have
assumed that Purple will adopt full-cost accounting principles with respect to
its oil and gas operations and that any write-downs associated therewith have
been reasonably prepared and reflect the best currently available estimates and
judgment of the management of Purple and Gold. We have also assumed that the
final form of the Agreement will be substantially in the form of the last draft
reviewed by us.
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[MERRILL LYNCH LOGO]
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof.
We are acting as financial advisor to the Company in connection with the
Mergers and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Mergers. In
addition, the Company has agreed to indemnify us for certain liabilities arising
out of our engagement. We have, in the past, provided financial advisory and
financing services to Gold and/or its affiliates and to the Company and/or its
affiliates and have received fees for the rendering of such services. In
addition, in the ordinary course of our business, we may actively trade the
Company Common Stock and other securities of the Company, as well as Gold Common
Stock and other securities of Gold, for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Mergers, and does not constitute a recommendation
to any stockholder as to how such stockholder should vote on the proposed
Mergers.
We are not expressing any opinion herein as to the prices at which the Gold
Common Stock will trade following the consummation of the Mergers.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Company Conversion Ratio is fair from a financial
point of view to the holders of the Company Common Stock.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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APPENDIX E
OCEAN ENERGY, INC.
1998 LONG-TERM INCENTIVE PLAN
Section 1. Purpose of the Plan. The Ocean Energy, Inc. 1998 Long-Term
Incentive Plan (the "Plan") is intended to promote the interests of Ocean
Energy, Inc., a Delaware corporation (the "Company"), by encouraging employees
of the Company, its subsidiaries and affiliated entities and Directors (as
defined below) to acquire or increase their equity interest in the Company and
to provide a means whereby employees may develop a sense of proprietorship and
personal involvement in the development and financial success of the Company,
and to encourage them to remain with and devote their best efforts to the
business of the Company thereby advancing the interests of the Company and its
stockholders. The Plan is also contemplated to enhance the ability of the
Company, its subsidiaries and affiliated entities to attract and retain the
services of individuals who are essential for the growth and profitability of
the Company.
Section 2. Definitions. As used in the Plan, the following terms shall
have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or through one or
more intermediaries, is controlled by the Company and (ii) any entity in
which the Company has a significant equity interest, as determined by
the Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Performance Award, Phantom Shares, Bonus Shares or Cash Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Bonus Shares" shall mean an award of Shares granted pursuant to Section
6(e) of the Plan.
"Cash Award" shall mean an award payable in cash granted pursuant to
Section 6(g) of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations thereunder.
"Committee" shall mean the Compensation Committee of the Board.
"Director" shall mean a member of the Board who is not also an Employee.
"Employee" shall mean any employee of the Company or an Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean, with respect to Shares, the closing
price of a Share quoted on the Composite Tape, or if the Shares are not
listed on the New York Stock Exchange, on the principal United States
securities exchange registered under the Exchange Act on which such
stock is listed, or if the Shares are not listed on any such stock
exchange, the last sale price, or if none is reported, the highest
closing bid quotation on the National Association of Securities Dealers,
Inc., Automated Quotations System or any successor system then in use on
the Date of Grant, or if none are available on such day, on the next
preceding day for which are available, or if no such quotations are
available, the fair market value on the date of grant of a Share as
determined in good faith by the Board. In the event the Shares are not
publicly traded at the time a determination of its fair market value is
required to be made hereunder, the determination of fair market value
shall be made in good faith by the Committee.
"Incentive Stock Option" or "ISO" shall mean an option granted under
Section 6(a) of the Plan that is intended to qualify as an "incentive
stock option" under Section 422 of the Code or any successor provision
thereto.
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"Non-Qualified Stock Option" or "NQO" shall mean an option granted under
Sections 6(a) or 6(h) of the Plan that is not intended to be an
Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" shall mean any individual granted an Award under the Plan.
"Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
"Person" shall mean individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or
political subdivision thereof or other entity.
"Phantom Shares" shall mean an Award of the right to receive Shares
issued at the end of a Restricted Period which is granted pursuant to
Section 6(f) of the Plan.
"Restricted Period" shall mean the period established by the Committee
with respect to an Award during which the Award either remains subject
to forfeiture or is not exercisable by the Participant.
"Restricted Stock" shall mean any Share, prior to the lapse of
restrictions thereon, granted under Section 6(c) of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect
from time to time.
"SEC" shall mean the Securities and Exchange Commission, or any
successor thereto.
"Shares" or "Common Shares" or "Common Stock" shall mean the common
stock of the Company, $0.01 par value, and such other securities or
property as may become the subject of Awards of the Plan.
"Stock Appreciation Right" or "Right" shall mean any right to receive
the appreciation of Shares granted under Section 6(b) of the Plan.
"Substitute Award" shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by (i) a company
acquired by the Company or one or more of its Affiliates, or (ii) a
company with which the Company or one or more of its Affiliates
combines. To the extent reasonably practical, as determined by the
Committee in its sole discretion, Substitute Awards shall contain the
same terms and conditions as the award they replace.
Section 3. Administration. The Plan shall be administered by the
Committee. A majority of the Committee shall constitute a quorum, and the acts
of the members of the Committee who are present at any meeting thereof at which
a quorum is present, or acts unanimously approved by the members of the
Committee in writing, shall be the acts of the Committee. Subject to the terms
of the Plan and applicable law, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
full power and authority to: (i) designate Participants; (ii) determine the type
or types of Awards to be granted to an eligible Employee; (iii) determine the
number of Shares to be covered by, or with respect to which payments, rights, or
other matters are to be calculated in connection with, Awards; (iv) determine
the terms and conditions of any Award; (v) determine whether, to what extent,
and under what circumstances Awards may be settled or exercised in cash, Shares,
other securities, other Awards or other property, or canceled, forfeited, or
suspended and the method or methods by which Awards may be settled, exercised
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (ix) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations, and
other decisions under or with respect to the Plan or any Award shall be within
the sole
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discretion of the Committee, may be made at any time and shall be final,
conclusive, and binding upon all Persons, including the Company, any Affiliate,
any Participant, any holder or beneficiary of any Award, any stockholder and any
Employee.
Section 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(c)
and below, the number of Shares with respect to which Awards may be granted
under the Plan shall be 2,900,000. If any Shares covered by an Award granted
under the Plan, or to which such an Award relates, are forfeited, or if an Award
otherwise terminates or is canceled without the delivery of Shares or of other
consideration, then the Shares covered by such Award, or to which such Award
relates, or the number of Shares otherwise counted against the aggregate number
of Shares with respect to which Awards may be granted, to the extent of any such
forfeiture, termination or cancellation, shall again be, or shall become, Shares
with respect to which Awards may be granted. Further, (i) to the extent an Award
is exercised through the Participant's delivery of Shares, the number of Shares
available for Awards (other than Incentive Stock Options) under the Plan shall
be increased by the number of Shares so delivered and (ii) Shares underlying
Substitute Awards shall not be counted against the number of Shares available
for Awards under the Plan (other than Incentive Stock Options), but only to the
extent such provision(s) would not cause the Plan to violate Section 422(b)(1)
of the Code or Section 162(m)(4)(C) of the Code.
(b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
(c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
(or other securities or property) with respect to which Awards may be granted,
(ii) the number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award or, if deemed appropriate, make provision for a cash payment to the holder
of an outstanding Award; provided, in each case, that with respect to Awards of
Incentive Stock Options and Awards intended to qualify as performance based
compensation under Section 162(m)(4)(C) of the Code, no such adjustment shall be
authorized to the extent that such authority would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such Award to fail to so qualify
under Section 162(m) of the Code, as the case may be, or any successor
provisions thereto; and provided, further, that the number of Shares subject to
any Award denominated in Shares shall always be a whole number.
Section 5. Eligibility. Other than Awards granted to Directors pursuant to
Section 6(h) of the Plan, any Employee shall be eligible to be designated a
Participant. However, no Employee may receive Options and/or Stock Appreciation
Rights during the term of the Plan that, in the aggregate, are with respect to
more than 33-1/3% of all Shares that may be made subject to Awards under the
Plan. Further, Restricted Stock, Performance Awards, Phantom Shares and Bonus
Shares paid in Shares may not, in the aggregate, exceed 20% of all Shares that
may be the subject of Awards under the Plan.
Section 6. Awards.
(a) Options. Subject to the provisions of the Plan, the Committee shall
have the authority to determine the Employees to whom Options shall be granted,
the number of Shares to be covered by each Option, the purchase price therefor
and the conditions and limitations applicable to the exercise of the Option,
including the following terms and conditions and such additional terms and
conditions, as the Committee shall determine, that are not inconsistent with the
provisions of the Plan.
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(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee at the time each Option is
granted, but shall not be less than the Fair Market Value of a Share on
such date, unless such Option is a Substitute Award.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, and
the method or methods by which, and the form or forms (which may include,
without limitation, cash, already-owned Shares, outstanding Awards, Shares
that would otherwise be acquired upon exercise of the Option, a
"cashless-broker" exercise (through procedures approved by the Company),
other securities or other property, or any combination thereof, having a
Fair Market Value on the exercise date equal to the relevant exercise
price) in which payment of the exercise price with respect thereto may be
made or deemed to have been made.
(iii) Incentive Stock Options. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision, and any
regulations promulgated thereunder. Incentive Stock Options may be granted
only to employees of the Company and its subsidiaries, within the meaning
of Section 424(f) of the Code.
(iv) Expiration. Each Option shall expire ten (10) years from the
date of grant thereof, and, unless provided otherwise in the Award
Agreement, shall be subject to earlier termination as follows: Options, to
the extent exercisable as of the date a Participant ceases to be an
Employee, must be exercised within three (3) months of such date unless
such event results from death, disability or retirement, in which case all
outstanding Options held by such Participant may be exercised in full by
the optionee, the optionee's legal representative, heir or devisee, as the
case may be, within two (2) years from the date of the Participant's death,
disability or retirement; provided, however, that no such event shall
extend the expiration date of an Option beyond the 10th anniversary of its
date of grant. Options that are not exercisable on termination of
employment shall be automatically canceled on termination of employment.
For purposes hereof, (x) "disability" means the Participant is receiving
benefits under a long-term disability plan of the Company or, if the
Company does not maintain such a plan, a determination by the Committee,
upon the basis of medical evidence satisfactory to it, that the Participant
is totally disabled, whether due to a physical or mental condition, such
that he is expected to be unable to continue his employment for a
continuous period of 12 or more months, and (y) "retirement" means a
termination of employment on or after the Participant has reached age 65
or, with the consent of the Committee, on or after reaching age 55.
(b) Stock Appreciation Rights. Subject to the provisions of the Plan, the
Committee shall have the authority to determine the Employees to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by each
Stock Appreciation Right Award, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. A Stock Appreciation Right may
be granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to another Award. A Stock Appreciation Right granted
in tandem with or in addition to another Award may be granted either at the same
time as such other Award or at a later time.
(i) Grant Price. The grant price of a Stock Appreciation Right shall
be determined by the Committee on the date of grant, but shall not be less
than the Fair Market Value of a Share on such date, unless such Stock
Appreciation Right is a Substitute Award.
(ii) Other Terms and Conditions. Subject to the terms of the Plan and
any applicable Award Agreement, the Committee shall determine, at or after
the grant of a Stock Appreciation Right, the term, methods of exercise,
methods of settlement, and any other terms and conditions of any Stock
Appreciation Right. Any such determination by the Committee may be changed
by the Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as
well as Stock Appreciation Rights granted or exercised thereafter. The
Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it shall deem appropriate.
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(iii) Expiration. Each Right shall expire ten (10) years from the
date of grant thereof, or, if granted in tandem with another Award, upon
the expiration of such tandem Award, if earlier, and, unless provided
otherwise in the Award Agreement, shall be subject to earlier termination
as follows: Rights, to the extent exercisable as of the date a Participant
ceases to be an Employee, must be exercised within three (3) months of such
date unless such event results from death, disability or retirement, in
which case all outstanding Rights held by such Participant may be exercised
in full by the Participant, the Participant's legal representative, heir or
devisee, as the case may be, within two (2) years from the date of the
Participant's death, disability or retirement; provided, however, that no
such event shall extend the expiration date of an Right beyond the 10th
anniversary of its date of grant. Rights that are not exercisable on
termination of employment shall be automatically canceled on termination of
employment. For purposes hereof, "disability" and "retirement" shall have
their respective meanings as set forth in Section 6(a)(iv).
(c) Restricted Stock. Subject to the provisions of the Plan, the Committee
shall have the authority to determine the Employees to whom Restricted Stock
shall be granted, the number of Shares of Restricted Stock to be granted to each
such Participant, the duration of the Restricted Period during which, and the
conditions, including performance criteria, if any, under which, the Restricted
Stock may be forfeited to the Company, and the other terms and conditions of
such Awards.
(i) Dividends. Dividends paid on Restricted Stock may be paid
directly to the Participant, may be subject to risk of forfeiture and/or
transfer restrictions during any period established by the Committee or
sequestered and held in a bookkeeping cash account (with or without
interest) or reinvested on an immediate or deferred basis in additional
shares of Common Stock, which credit or shares may be subject to the same
restrictions as the underlying Award or such other restrictions, all as
determined by the Committee in its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in such
manner as the Committee shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate or
certificates. In the event any stock certificate is issued in respect of
Restricted Stock granted under the Plan, such certificate shall be
registered in the name of the Participant and shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to
such Restricted Stock.
(iii) Forfeiture and Restrictions Lapse. Except as otherwise
determined by the Committee or the terms of the Award that granted the
Restricted Stock, upon termination of a Participant's employment (as
determined under criteria established by the Committee) for any reason
during the applicable Restricted Period, all Restricted Stock shall be
forfeited by the Participant and re-acquired by the Company. The Committee
may, when it finds that a waiver would be in the best interests of the
Company and not cause such Award, if it is intended to qualify as
performance based compensation under Section 162(m) of the Code, to fail to
so qualify under Section 162(m) of the Code, waive in whole or in part any
or all remaining restrictions with respect to such Participant's Restricted
Stock. Unrestricted Shares, evidenced in such manner as the Committee shall
deem appropriate, shall be issued to the holder of Restricted Stock
promptly after the applicable restrictions have lapsed or otherwise been
satisfied.
(iv) Transfer Restrictions. During the Restricted Period, Restricted
Stock will be subject to the limitations on transfer as provided in Section
6(i)(iii).
(d) Performance Awards. The Committee shall have the authority to
determine the Employees who shall receive a Performance Award, which shall be
denominated as a cash amount at the time of grant and confer on the Participant
the right to receive payment of such Award, in whole or in part, upon the
achievement of such performance goals during such performance periods as the
Committee shall establish with respect to the Award.
(i) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount of
any payment or transfer to be made pursuant to any Performance Award.
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(ii) Payment of Performance Awards. Performance Awards may be paid
(in cash and/or in Shares, in the sole discretion of the Committee) in a
lump sum or in installments following the close of the performance period,
in accordance with procedures established by the Committee with respect to
such Award.
(e) Bonus Shares. The Committee shall have the authority, in its
discretion, to grant Bonus Shares to eligible Employees. Each Bonus Share shall
constitute a transfer of an unrestricted Share to the Participant, without other
payment therefor, as additional compensation for the Participant's services to
the Company.
(f) Phantom Shares. The Committee shall have the authority to grant Awards
of Phantom Shares to eligible Employees upon such terms and conditions as the
Committee may determine.
(i) Terms and Conditions. Each Phantom Share Award shall constitute
an agreement by the Company to issue or transfer a specified number of
Shares or pay an amount of cash equal to a specified number of Shares, or a
combination thereof to the Participant in the future, subject to the
fulfillment during the Restricted Period of such conditions, including
performance objectives, if any, as the Committee may specify at the date of
grant. During the Restricted Period, the Participant shall not have any
right to transfer any rights under the subject Award, shall not have any
rights of ownership in the Phantom Shares and shall not have any right to
vote such shares.
(ii) Dividends. Any Phantom Share award may provide that any or all
dividends or other distributions paid on Shares during the Restricted
Period be credited in a cash bookkeeping account (without interest) or that
equivalent additional Phantom Shares be awarded, which account or shares
may be subject to the same restrictions as the underlying Award or such
other restrictions as the Committee may determine.
(g) Cash Awards. The Committee shall have the authority to determine the
Employees to whom Cash Awards shall be granted, the amount, and the terms or
conditions, if any, as additional compensation for the Employee's services to
the Company or its Affiliates. A Cash Award may be granted (simultaneously or
subsequently) separately or in tandem with another Award and may entitle a
Participant to receive a specified amount of cash from the Company upon such
other Award becoming taxable to the Participant, which cash amount may be based
on a formula relating to the anticipated taxable income associated with such
other Award and the payment of the Cash Award.
(h) Granting of Options to Directors. Each individual who serves as a
Director on the effective date of the Plan or who is elected or appointed as a
Director for the first time after such date shall receive, as of the effective
date of the Plan or the date of his or her election or appointment as a Director
for the first time after such date, whichever is applicable, and without the
exercise of the discretion of any person or persons, a Non-Qualified Stock
Option (an "Initial Grant") exercisable for 25,000 Shares (subject to adjustment
in the same manner as provided in Section 7 hereof with respect to Shares
subject to Options then outstanding). As of the date of the annual meeting of
the stockholders of the Company ("Annual Meeting") in each year after 1998 that
the Plan is in effect, each Director who is in office immediately after such
meeting and who is not then entitled to receive an Initial Grant pursuant to the
preceding provisions of this Section 6(h) shall receive, without the exercise of
the discretion of any person or persons, a Non-Qualified Stock Option
exercisable for 3,000 Shares (an "Annual Grant") (subject to adjustment in the
same manner as provided in Section 7 hereof with respect to shares of Stock
subject to Options then outstanding).
(i) Other Terms and Conditions. The following provisions are
applicable to Options granted pursuant to this Section 6(h):
A. Subject to the following provisions, (1) an Initial Grant shall
become exercisable for 50% of the Shares covered thereby on the date of
grant, and for the remaining 50% thereof on the first Annual Meeting
following its date of grant and (2) an Annual Grant shall become
exercisable for 33 1/3% of the Shares covered thereby on the first
Annual Meeting following the date of grant, and thereafter, for an
additional 33 1/3% of the Shares covered thereby on each of the second
and third Annual Meetings following the date of grant.
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B. The purchase price of a Share covered under an Option granted
under this Section 6(h) shall be the Fair Market Value of a Share on the
date of grant.
C. To the extent that the right to exercise an Option has accrued
and is in effect, the Option may be exercised in full at one time or in
part from time to time by giving written notice, signed by the optionee
exercising the Option, to the Company, stating the number of Shares with
respect to which the Option is being exercised, accompanied by payment
in full for such Shares, which payment may be in cash, already-owned
Shares, a "cashless-broker" exercise (through procedures approved by the
Company), or any combination thereof, having a Fair Market Value on the
exercise date equal to the relevant exercise price in which payment of
the exercise price with respect thereto may be made or deemed to have
been made; provided however, that (i) no Option shall be exercisable
after ten (10) years from the date on which it was granted, and (ii)
there shall be no such exercise at any one time for fewer than one
hundred (100) Shares or for all of the remaining Shares then purchasable
by the optionee exercising the Option, if fewer than one hundred (100)
Shares.
D. Each Option shall expire ten (10) years from the date of grant
thereof, subject to earlier termination as follows: Options, to the
extent exercisable as of the date a Director optionee ceases to serve as
a director of the Company, must be exercised within three (3) months of
such date unless such event results from death, or disability or
retirement, as such disability or retirement is determined by the
Committee, in which case all outstanding Options held by such Director
may be exercised in full by the optionee, the optionee's legal
representative, heir or devisee, as the case may be, within two (2)
years from the date of death, disability or retirement; provided,
however, that no such event shall extend the normal expiration date of
such Options. Options not exercisable on termination as provided above
shall be automatically canceled on termination.
E. Upon exercise of the Option, delivery of a certificate for fully
paid and nonassessable Shares shall be made at the corporate office of
the Company to the optionee exercising the Option either at such time
during ordinary business hours after fifteen (15) days but not more than
thirty (30) days from the date of receipt of the notice by the Company
as shall be designated in such notice, or at such time, place and manner
as may be agreed upon by the Company and the optionee exercising the
Option.
(ii) Number of Available Shares. In the event that the number of
Shares available for grants under the Plan is insufficient to make all
grants provided for in this Section 6(h) hereby made on the applicable
date, then all Directors who are entitled to a grant on such date shall
share ratably in the number of Shares then available for grant under the
Plan, and shall have no right to receive a grant with respect to the
deficiencies in the number of available Shares and the grants under this
Section 6(h) shall terminate.
(i) General.
(i) Awards May Be Granted Separately or Together. Awards to Employees
may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for any other Award granted
under the Plan or any award granted under any other plan of the Company or
any Affiliate. Awards granted in addition to or in tandem with other Awards
or awards granted under any other plan of the Company or any Affiliate may
be granted either at the same time as or at a different time from the grant
of such other Awards or awards.
(ii) Forms of Payment by Company Under Awards. Subject to the terms
of the Plan and of any applicable Award Agreement, payments or transfers to
be made by the Company or an Affiliate upon the grant, exercise or payment
of an Award may be made in such form or forms as the Committee shall
determine, including, without limitation, cash, Shares, other securities,
other Awards or other property, or any combination thereof, and may be made
in a single payment or transfer, in installments, or on a deferred basis,
in each case in accordance with rules and procedures established by the
Committee. Such
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rules and procedures may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred
payments.
(iii) Limits on Transfer of Awards.
(A) Except as provided in (C) below, each Award, and each right
under any Award, shall be exercisable only by the Participant during the
Participant's lifetime, or, if permissible under applicable law, by the
Participant's guardian or legal representative or by a transferee
receiving such Award pursuant to a qualified domestic relations order (a
"QDRO") as determined by the Committee.
(B) Except as provided in (C) below, no Award and no right under
any such Award may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by
will or by the laws of descent and distribution (or, in the case of
Restricted Stock, to the Company) or pursuant to a QDRO and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate.
(C) Notwithstanding anything in the Plan to the contrary, except
to the extent specifically provided otherwise by the Committee is an
Award Agreement, Non-qualified Stock Options may be transferred by the
optionee to one or more permitted transferees; provided that (i) there
may be no consideration given for such transfer, (ii) the optionee (or
such optionee's estate or representative) shall remain obligated to
satisfy all employment tax and other withholding tax obligations
associated with the exercise of the transferred Options, (iii) the
optionee shall notify the Company in writing that such transfer has
occurred, the identity and address of the permitted transferee and the
relationship of the permitted transferee to the optionee, and (iv) such
transfer shall be effected pursuant to transfer documents approved from
time to time by the Company. Any permitted transferee may not further
assign or transfer the transferred Option otherwise than by will or the
laws of descent and distribution. Following any permitted transfer, any
such Options shall continue to be subject to the same terms and
conditions as were applicable to the Option immediately prior to the
transfer, provided that the term "optionee" as used in the Plan shall be
deemed to refer also to each permitted transferee where required by the
context. A transferred Option may only be exercised by a transferee to
the same extent such Option could, at such time, be exercised by the
optionee "but for" such transfer. The term "permitted transferees" shall
mean one or more of the following: (i) any member of the optionee's
immediately family; (ii) a trust established for the exclusive benefit
of one or more members of such immediately family; (iii) a partnership
in which such immediately family members are the only partners; or (iv)
any other person approved from time to time by the Committee. The term
"immediate family" is defined for such purpose as spouses, children,
stepchildren and grandchildren, including relationships arising from
adoption.
(iv) Term of Awards. The term of each Award (other than pursuant to
Section 6(h)) shall be for such period as may be determined by the
Committee; provided, that in no event shall the term of any Award exceed a
period of ten (10) years from the date of its grant.
(v) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations, and other requirements of the
SEC, any stock exchange upon which such Shares or other securities are then
listed, and any applicable Federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(vi) Consideration for Grants. Awards may be granted for no cash
consideration or for such consideration as the Committee determines
including, without limitation, such minimal cash consideration as may be
required by applicable law.
(vii) Delivery of Shares or other Securities and Payment by
Participant of Consideration. No Shares or other securities shall be
delivered pursuant to any Award until payment in full of any amount
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required to be paid pursuant to the Plan or the applicable Award Agreement
is received by the Company, including without limitation, all applicable
withholding taxes. Such payment may be made by such method or methods and
in such form or forms as the Committee shall determine, including, without
limitation, cash, Shares, other securities, other Awards or other property,
withholding of Shares, cashless exercise with simultaneous sale, or any
combination thereof; provided that the combined value, as determined by the
Committee, of all cash and cash equivalents and the Fair Market Value of
any such Shares or other property so tendered to the Company, as of the
date of such tender, is at least equal to the full amount required to be
paid pursuant to the Plan or the applicable Award Agreement to the Company.
(viii) Performance Criteria and Payment Limits. Where necessary, the
Committee shall establish performance goals applicable to those Awards the
payment of which is intended by the Committee to qualify as
"performancebased compensation" as described in Section 162(m)(4)(C) of the
Code. Until changed by the Committee, the performance goals shall be based
upon the attainment of such target levels of net income, cash flows,
reserve additions or revisions, acquisitions, total capitalization, total
or comparative shareholder return, assets, exploration successes,
production volumes, findings and development costs, costs reductions and
savings, reportable incidents in safety or environmental matters, return on
equity, profit margin or sales, and/or earnings per share as may be
specified by the Committee. Which factor or factors to be used with respect
to any grant, and the weight to be accorded thereto if more than one factor
is used, shall be determined by the Committee at the time of grant. The
maximum amount of compensation that may be paid to any Participant with
respect to any single Performance Award or Cash Award in any calendar year
shall be $1.5 million. With respect to any Restricted Stock Award, Phantom
Stock Award, or Cash Award granted in tandem with, and expressed as a
percentage of, a Share-denominated Award which is intended to qualify as
"performance-based compensation", the maximum payment to any Participant
with respect to such Award in any calendar year shall be an amount (in cash
and/or in Shares) equal to the Fair Market Value of the number of Shares
subject to such Award.
Section 7. Amendment and Termination. Except to the extent prohibited by
applicable law and unless otherwise expressly provided in an Award Agreement or
in the Plan:
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of any stockholder,
Participant, other holder or beneficiary of an Award, or other Person;
provided, however, notwithstanding any other provision of the Plan or any
Award Agreement, without the approval of the stockholders of the Company no
such amendment, alteration, suspension, discontinuation, or termination
shall be made that would (i) increase the total number of Shares available
for Awards under the Plan, except as provided in Section 4(c) of the Plan;
(ii) increase the class of eligible Participants; or (iii) amend the
eligibility requirements for Awards under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Award theretofore granted
(other than Awards granted under Section 6(h)), provided no change, other
than pursuant to Section 7(c), in any Award shall reduce the benefit to
Participant without the consent of such Participant. Notwithstanding the
foregoing, with respect to any Award intended to qualify as
performance-based compensation under Section 162(m) of the Code, no
adjustment shall be authorized to the extent such adjustment would cause
the Award to fail to so qualify.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(c) of the Plan) affecting the
Company, any Affiliate, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
Notwithstanding the foregoing, with respect to any Award intended to
qualify as performance-based compensation under Section 162(m) of the Code,
no adjustment shall be authorized to the extent such adjustment would cause
the Award to fail to so qualify.
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<PAGE> 218
Section 8. Change in Control. Notwithstanding any other provision of this
Plan to the contrary, in the event of a Change in Control of the Company, all
outstanding Awards granted prior to the date of the Change in Control
automatically shall become fully vested on such Change in Control, all
restrictions, if any, with respect to such Awards shall lapse, and all
performance criteria, if any, with respect to such Awards shall be deemed to
have been met in full (at the maximum performance level). For purposes of this
Plan, a "Change in Control" shall be deemed to occur:
(i) if any person (as such term is used in sections 13(d) and 14(d)(2)
of the Exchange Act), other than the Company, any parent corporation or
subsidiary corporation of the Company or any employee benefit plan of the
Company or any such entity, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities,
(ii) upon the first purchase of the Company's common stock pursuant to
a tender or exchange offer (other than a tender or exchange offer made by
the Company),
(iii) on the date of consummation of a merger, consolidation,
recapitalization, reorganization, sale or disposition of all or a
substantial portion of the Company's assets, or the issuance of shares of
stock of the Company in connection with the acquisition of the stock or
assets of another entity, provided, however, that a Change in Control shall
not occur under this clause (iii) if consummation of the transaction would
result in at least 66 2/3% of the total voting power represented by the
voting securities of the Company (or, if not the Company, the entity that
succeeds to all or substantially all of the Company's business) outstanding
immediately after such transaction being beneficially owned (within the
meaning of Rule 13d-3 promulgated pursuant to the Exchange Act) by at least
66 2/3% of the holders of outstanding voting securities of the Company
immediately prior to the transaction, with the voting power of each such
continuing holder relative to other such continuing holders not
substantially altered in the transaction, or
(iv) if, during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board cease for any reason
to constitute at least a majority thereof, unless the election or
nomination for the election by the Company's stockholders of each new
director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
Section 9. Parachute Tax Gross-Up. To the extent that the grant, payment,
or acceleration of vesting or payment, whether in cash or stock, of any Award
made to a Participant under the Plan is subject to an excise tax under Section
4999(a) of the Code, or any similar or successor provision (a "Parachute Tax"),
the Company shall pay such Participant an additional amount of cash (the
"Grossup Amount") such that the "net" after-tax benefit received by the
Participant, after paying all applicable Parachute Taxes with respect to such
Awards (including those on the Gross-up Amount) and any federal or state taxes
on the Gross-up Amount, shall be equal to the net after-tax benefit that such
Participant would have received if such Parachute Tax had not been applicable.
Section 10. General Provisions.
(a) No Rights to Awards. No Employee, Participant or other Person
shall have any claim to be granted any Award, and there is no obligation
for uniformity of treatment of Employees, Participants, or holders or
beneficiaries of Awards. The terms and conditions of Awards need not be the
same with respect to each recipient.
(b) Withholding. The Company or any Affiliate is authorized to
withhold from any Award, from any payment due or transfer made under any
Award or under the Plan or from any compensation or other amount owing to a
Participant the amount (in cash, Shares, other securities, Shares that
would otherwise be issued pursuant to such Award, other Awards or other
property) of any applicable taxes payable in respect of an Award, its
exercise, the lapse of restrictions thereon, or any payment or transfer
under an Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. Any Participant who is subject to Rule 16b-3 may
direct the Company to withhold Shares or may tender Shares to the Company
to satisfy his tax withholding obligations.
E-10
<PAGE> 219
(c) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate. Further, the Company or an Affiliate may at
any time dismiss a Participant from employment, free from any liability or
any claim under the Plan, unless otherwise expressly provided in the Plan
or in any Award Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable Federal
law.
(e) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or
if it cannot be construed or deemed amended without, in the determination
of the Committee, materially altering the intent of the Plan or the Award,
such provision shall be stricken as to such jurisdiction, Person or Award
and the remainder of the Plan and any such Award shall remain in full force
and effect.
(f) Other Laws. The Committee may refuse to issue or transfer any
Shares or other consideration under an Award if, acting in its sole
discretion, it determines that the issuance of transfer or such Shares or
such other consideration might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the Exchange
Act, and any payment tendered to the Company by a Participant, other holder
or beneficiary in connection with the exercise of such Award shall be
promptly refunded to the relevant Participant, holder or beneficiary.
(g) No Trust or Fund Created. Neither the Plan nor the Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Award, such right shall be no greater than the right of any general
unsecured creditor of the Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid
or transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be cancelled, terminated, or otherwise
eliminated.
(i) Headings. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
Section 11. Effective Date of the Plan. The Plan shall be effective as of
the date of its approval by the Board, provided the Plan is subsequently
approved by the stockholders of the Company within 12 months thereafter.
Section 12. Effectiveness and Term of the Plan. The Plan shall become
effective on the Effective Time, as such term is defined in the Agreement and
Plan of Merger, dated as of December 22, 1997, as amended, by and among the
Company, United Meridian Corporation, and OEI Holding Corporation, subject to
the approval of the Plan by the stockholders of the Company. No Award shall be
granted under the Plan after the tenth anniversary of the date the Plan was
adopted by the Board or approved by the stockholders, whichever is earlier.
However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award theretofore granted may, and the authority of the
Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under any such
Award shall, extend beyond such date.
E-11
<PAGE> 220
[FORM OF OCEAN ENERGY, INC. PROXY]
OCEAN ENERGY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS MARCH 27, 1998
P The undersigned hereby constitutes and appoints James C. Flores, Robert L.
Belk and Robert K. Reeves and each or any of them, his true and lawful
R attorneys and proxies with full power of substitution, for and in the name,
place and stead of the undersigned, to attend the Annual Meeting of
O Stockholders of Ocean Energy, Inc. (the "Company") to be held at the Four
Seasons Hotel, 1300 Lamar Street, Houston, Texas on Friday, March 27, 1998
X at 9:30 a.m. Houston Time, and any adjournment(s) thereof, with all powers
the undersigned would possess if personally present and to vote thereat, as
Y provided on the reverse side of this card, the number of shares the
undersigned would be entitled to vote if personally present. In accordance
with their discretion, said attorneys and proxies are authorized to vote
upon such other business as may properly come before the meeting or any
adjournment thereof.
Every properly signed proxy will be voted in accordance with the
specifications made on the reverse side of this card. If not otherwise
specified, this proxy will be voted for proposals 1, 2, 3 and 4. All prior
proxies are hereby revoked.
See Reverse Side
<PAGE> 221
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--- ---
OCEAN ENERGY, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. Approval and adoption of the For Against Abstain 3. Ratification of the appointment For Against Abstain
Agreement and Plan of Merger, [ ] [ ] [ ] of Arthur Andersen LLP as the [ ] [ ] [ ]
dated as of December 22, 1997 independent auditors of the
as amended by Amendments No. 1 Company for the fiscal year 1998.
and 2, among the Company,
United Meridian Corporation
And OEI Holding Corporation. 4. Ratification and For Against Abstain
approval of the Ocean [ ] [ ] [ ]
Energy, Inc. 1998
2. Election of Directors For All Long-Term Incentive Plan.
Nominees: James C. Flores For Withheld Except
Thomas D. Clark, Jr. [ ] [ ] [ ]
___________________
Nominee Exception
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
[_] Check if Change of Address. full title as such.
Signature _________________________________ Date _____________________, 1998
Signature _________________________________ Date _____________________, 1998
---- ----
</TABLE>
<PAGE> 222
[UNITED MERIDIAN CORPORATION LOGO APPEARS HERE]
FORM OF PROXY
UNITED MERIDIAN CORPORATION
1201 Louisiana, Suite 1400, Houston, TX 77002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John B. Brock, Jonathan M. Clarkson and John
J. Patton as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated on the
reverse side, all the shares of Series A Voting Common Stock of United
Meridian Corporation held of record by the undersigned on February 20, 1998,
at the special meeting of stockholders to be held on March 27, 1998 or any
adjournment thereof.
<PAGE> 223
<TABLE>
<CAPTION>
[reverse]
<S> <C> <C> <C>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY Please mark
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE your votes as [X]
VOTED "FOR" PROPOSALS 1 AND 2. indicated in
this example
A VOTE "FOR" PROPOSALS 1 AND 2 IS RECOMMENDED BY THE BOARD OF DIRECTORS.
FOR AGAINST ABSTAIN
Item 1- Proposal to adopt the Agreement and Plan of Merger, dated as of December
22, 1997, as amended by that certain Amendment No. 1 thereto dated as of [ ] [ ] [ ]
January 7, 1998 and that certain Amendment No. 2 thereto dated as of
February 20, 1998 (the "Merger Agreement"), among OEI Holding [ ] [ ] [ ]
Corporation, United Meridian Corporation ("UMC") and Ocean Energy, Inc.
("OEI"), and to approve the merger of UMC with and into OEI and the
other transactions contemplated by the Merger Agreement.
Item 2- In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the special meeting.
INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in the
space provided below.)
- --------------------------------------------------------
Please sign exactly as name appears below. When
shares are held by joint tenants, both should sign.
When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
DATED ___________________________________, 1998
_______________________________________________
SIGNATURE
------------------------------------------------
SIGNATURE
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
</TABLE>
<PAGE> 224
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding inferred to in subsections (a) and (b) of Section 145
or in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys; fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
Section 7(d) of the OEI Certificate, as amended at the Effective Time, will
state that:
"A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
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<PAGE> 225
General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended. Any repeal
or modification of this Section by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on
the personal liability of a director of the Corporation existing at the
time of such repeal or modification."
Section 7(c) of the OEI Certificate and Article IX of the OEI Bylaws, each
as amended at the Effective Time, will further provide that OEI shall indemnify
its officers and directors to the fullest extent permitted by the DGCL. Pursuant
to such provision, OEI has entered into agreements with its officers and
directors which provide for indemnification of such persons.
OEI maintains insurance coverage providing directors and officers with
indemnification, subject to certain exclusions and to the extent not otherwise
indemnified by OEI, against loss (including expenses incurred in the defense of
actions, suits or proceeds in connection therewith) arising from any negligent
act, error, omission or breach of duty while acting in their capacity as
directors and officers of OEI. The policies also reimburse OEI for liability
incurred in the indemnification of its directors and officers.
OEI has entered into indemnification agreements with its directors and
certain executive officers which provide for indemnification of such persons to
the fullest extent allowed by Delaware law.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of December 22,
1997 among Newco, UMC and OEI (incorporated by reference
to Exhibit 2.1 to United Meridian Corporation's Current
Report on Form 8-K filed on December 23, 1997).
*2.2 -- Amendment No. 1 to Agreement and Plan of Merger, dated as
of January 7, 1997, among Newco, UMC and OEI.
*2.3 -- Amendment No. 2 to Agreement and Plan of Merger, dated as
of February 20, 1998, among Newco, UMC and OEI.
3.1 -- Certificate of Incorporation of OEI (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-84308)).
3.2 -- Amendment to Certificate of Incorporation of OEI
(incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997).
3.3 -- Amended and Restated Bylaws of OEI (incorporated by
reference to Exhibit 3.3 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997).
4.1 -- Rights Agreement, dated as of December 22, 1997, between
OEI and Harris Trust and Savings Bank, as Rights Agent
(incorporated by reference to Exhibit 1 to the
Registrant's Form 8-A filed on December 23, 1997).
4.2 -- First Amendment to Rights Agreement, dated as of February
20, 1998, between OEI and Harris Trust and Savings Bank,
as Rights Agent (incorporated by reference to Exhibit 4.7
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
*5.1 -- Opinion of Andrews & Kurth L.L.P. regarding legality of
the securities to be registered.
*8.1 -- Opinion of Andrews & Kurth L.L.P. regarding tax matters.
*8.2 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
regarding tax matters.
23.1 -- Consents of Andrews & Kurth L.L.P. (included in the
opinions filed as Exhibits 5.1 and 8.1 to this
Registration Statement).
</TABLE>
II-2
<PAGE> 226
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in the opinion filed as Exhibit 8.2 to this
Registration Statement).
**23.3 -- Consent of Independent Public Accountants -- OEI.
**23.4 -- Consent of Independent Public Accountants -- UMC.
**23.5 -- Consent of Netherland, Sewell & Associates, Inc. -- OEI.
**23.6 -- Consent of Netherland, Sewell & Associates, Inc. -- UMC.
**23.7 -- Consent of McDaniel & Associates Consultants,
Ltd. -- UMC.
**23.8 -- Consent of Ryder Scott Company -- UMC.
*24.1 -- Powers of Attorney (included in the signature pages of
this Registration Statement).
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof;
(2) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report,
to security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Exchange Act; and, where interim financial information
required to be presented by Article 3 of Regulation S-X is not set forth in
the prospectus, to deliver, or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information;
(3) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(4) That every prospectus: (i) that is filed pursuant to paragraph (3)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining
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<PAGE> 227
any liability under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(5) To respond to requests for information that is incorporated by
reference into this Joint Proxy Statement/Prospectus pursuant to Items 4,
10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request; and
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
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<PAGE> 228
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 2 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Baton Rouge, State of Louisiana, on
February 26, 1998.
OCEAN ENERGY, INC.
By: /s/ JAMES C. FLORES*
----------------------------------
James C. Flores
Chairman of the Board, President
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, AS AMENDED, THIS
AMENDMENT NO. 2 TO THIS REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON FEBRUARY 26, 1998.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ JAMES C. FLORES* Chairman of the Board of Directors, President
- ----------------------------------------------------- and Chief Executive Officer (Principal
James C. Flores Executive Officer)
/s/ ROBERT L. BELK* Executive Vice President, Chief Financial
- ----------------------------------------------------- Officer, Treasurer and Director (Principal
Robert L. Belk Financial and Accounting Officer)
/s/ RICHARD G. ZEPERNICK, JR.* Executive Vice President -- Exploration &
- ----------------------------------------------------- Production and Director
Richard G. Zepernick, Jr.
/s/ THOMAS D. CLARK* Director
- -----------------------------------------------------
Thomas D. Clark
/s/ LODWRICK M. COOK* Director
- -----------------------------------------------------
Lodwrick M. Cook
/s/ CHARLES F. MITCHELL* Director
- -----------------------------------------------------
Charles F. Mitchell
/s/ WILLIAM W. RUCKS, IV* Director
- -----------------------------------------------------
William W. Rucks, IV
/s/ MILTON J. WOMACK* Director
- -----------------------------------------------------
Milton J. Womack
* By: /s/ ROBERT K. REEVES
-----------------------------------------------
Robert K. Reeves
(pursuant to a power of attorney filed with
this Registration Statement on January 8, 1998)
</TABLE>
II-5
<PAGE> 229
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of December 22,
1997 among Newco, UMC and OEI (incorporated by reference
to Exhibit 2.1 to United Meridian Corporation's Current
Report on Form 8-K filed on December 23, 1997).
*2.2 -- Amendment No. 1 to Agreement and Plan of Merger, dated as
of January 7, 1997, among Newco, UMC and OEI.
*2.3 -- Amendment No. 2 to Agreement and Plan of Merger, dated as
of February 20, 1998, among Newco, UMC and OEI.
3.1 -- Certificate of Incorporation of OEI (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-84308)).
3.2 -- Amendment to Certificate of Incorporation of OEI
(incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997).
3.3 -- Amended and Restated Bylaws of OEI (incorporated by
reference to Exhibit 3.3 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997).
4.1 -- Rights Agreement, dated as of December 22, 1997, between
OEI and Harris Trust and Savings Bank, as Rights Agent
(incorporated by reference to Exhibit 1 to the
Registrant's Form 8-A filed on December 23, 1997).
4.2 -- First Amendment to Rights Agreement, dated as of February
20, 1998, between OEI and Harris Trust and Savings Bank,
as Rights Agent (incorporated by reference to Exhibit 4.7
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
*5.1 -- Opinion of Andrews & Kurth L.L.P. regarding legality of
the securities to be registered.
*8.1 -- Opinion of Andrews & Kurth L.L.P. regarding tax matters.
*8.2 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
regarding tax matters.
23.1 -- Consents of Andrews & Kurth L.L.P. (included in the
opinions filed as Exhibits 5.1 and 8.1 to this
Registration Statement).
23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in the opinion filed as Exhibit 8.2 to this
Registration Statement).
**23.3 -- Consent of Independent Public Accountants -- OEI.
**23.4 -- Consent of Independent Public Accountants -- UMC.
**23.5 -- Consent of Netherland, Sewell & Associates, Inc. -- OEI.
**23.6 -- Consent of Netherland, Sewell & Associates, Inc. -- UMC.
**23.7 -- Consent of McDaniel & Associates Consultants,
Ltd. -- UMC.
**23.8 -- Consent of Ryder Scott Company -- UMC.
*24.1 -- Powers of Attorney (included in the signature pages of
this Registration Statement).
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 16,
1998 included in the Ocean Energy, Inc. Form 10-K for the year ended December
31, 1997, and to all references to our Firm included in this registration
statement.
/s/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 26, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 9, 1998
included in the United Meridian Corporation Form 10-K for the year ended
December 31, 1997, and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
February 26, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the reference to our firm and to our report effective
December 31, 1995; December 31, 1996; and December 31, 1997, in the Annual
Report on Form 10-K of Ocean Energy, Inc., incorporated by reference into the
Joint Proxy Statement/Prospectus constituting part of the Registration Statement
on Form S-4 of Ocean Energy, Inc. to be filed with the Securities and Exchange
Commission on or about February 26, 1998.
NETHERLAND, SEWELL & ASSOCIATES, INC.
/s/ FREDERIC D. SEWELL
---------------------------------------
Frederic D. Sewell
President
Dallas, Texas
February 26, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC.
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our reports dated February 10, 1998, February 18, 1998,
and February 19, 1998, that were utilized in aggregate as a basis for United
Meridian Corporation's Form 10-K/A for the year ended December 31, 1997, and to
all references to our Firm included in this Registration Statement. We also
consent to the reference to such reports in the Form 10-K/A for the year ending
December 31, 1997.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ DANNY D. SIMMONS
------------------------------------
Danny D. Simmons
Senior Vice President
Houston, Texas
February 26, 1998
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT PETROLEUM RESERVE ENGINEERS
Dear Sirs:
We consent to the incorporation by reference in this Registration Statement on
Form S-4 and to the reference in Form 10-K/A of portions of our reports entitled
"UMC Petroleum Corporation, Evaluation of Certain Interests in the State of
Montana, SEC Parameters, as of January 1, 1998", dated February 3, 1998; and
"UMC Resources Canada Ltd., Evaluation of Oil & Gas Reserves, SEC Parameters, as
of January 1, 1998", dated January 27, 1998, (the "Reports") and to our having
evaluated the Corporations' interest in oil and gas reserves. We also consent to
the reference of our firm under the caption "Experts".
Sincerely,
MCDANIEL & ASSOCIATES CONSULTANTS LTD.
/s/ W.C. SETH
- ------------------------
W.C. Seth, P. Eng.
President & Managing Director
Calgary, Alberta
Dated: February 20, 1998
<PAGE> 1
EXHIBIT 23.8
CONSENT OF RYDER SCOTT COMPANY
We consent to the incorporation by reference in the Registration Statement
on Form S-4 of our reserve report and all schedules, exhibits, and attachments
thereto and to any reference made to us on Form S-4 as a result of such
incorporation. We further consent to the reference to our report in the Form
10-K/A for the year ending December 31, 1997.
Sincerely,
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Denver, Colorado
February 27, 1998
