-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gm0eNn/O0XJqrli0y5wnlfqQb/oGY4E3Lu6tm3N5tdvwb6sLUhhQM4g/4eTKkFjO n3XTD8A3yo+zNjqcni2B7g== /in/edgar/work/20000731/0000898822-00-000530/0000898822-00-000530.txt : 20000921 0000898822-00-000530.hdr.sgml : 20000921 ACCESSION NUMBER: 0000898822-00-000530 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000714 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANADARKO PETROLEUM CORP CENTRAL INDEX KEY: 0000773910 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 760146568 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-08968 FILM NUMBER: 681700 BUSINESS ADDRESS: STREET 1: 17001 NORTHCHASE DR CITY: HOUSTON STATE: TX ZIP: 77060-2141 BUSINESS PHONE: 2818751101 MAIL ADDRESS: STREET 1: P O BOX 1330 STREET 2: P O BOX 1330 CITY: HOUSTON STATE: TX ZIP: 77251-1330 8-K 1 0001.txt CURRENT REPORT ON FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): July 14, 2000 ANADARKO PETROLEUM CORPORATION -------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 1-8968 76-0146568 - ----------------------- ----------- ------------------ (State of Incorporation) (Commission (IRS Employer File Number) Identification No.) 17001 Northchase Drive, Houston, Texas 77060-2141 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (281) 875-1101 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On July 14, 2000, Dakota Merger Corp., a Utah corporation ("Merger Sub") and a wholly owned subsidiary of Anadarko Petroleum Corporation, a Delaware corporation ("Anadarko"), merged (the "Merger") with and into Union Pacific Resources Group Inc., a Utah corporation ("UPR"), pursuant to an Agreement and Plan of Merger, dated as of April 2, 2000 (the "Merger Agreement"). Pursuant to the Merger Agreement, each share of common stock, no par value, of UPR ("UPR Common Stock") issued and outstanding, other than UPR shares held by UPR, which were canceled and retired, was converted into 0.455 shares of Anadarko common stock, par value $0.10 per share ("Anadarko Common Stock"). UPR stockholders who would otherwise receive fractional shares of Anadarko Common Stock instead were entitled to receive a cash payment for their fractional share interest. The Merger Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K, is incorporated by reference. Anadarko will account for the transaction as a purchase. Anadarko and UPR mailed a definitive joint proxy statement/prospectus (the "Joint Proxy Statement/Prospectus") to their respective stockholders on or about June 1, 2000, which sets forth certain information regarding the Merger, Anadarko, UPR and Merger Sub, including, but not limited to, the manner of the Merger, the nature of any material relationships between UPR and Anadarko or any of Anadarko's affiliates, any director or officer of Anadarko, or any associate of any such director or officer, the nature of UPR's business and Anadarko's intended use of the assets acquired in the Merger. Excerpts from the cover page and pages 1, 4 to 6, 8 to 9, 26, 52 to 56, 59 to 60 and 75 of the Joint Proxy Statement/Prospectus, which are filed as Exhibit 20.1 to this Current Report on Form 8-K, are incorporated by reference. ITEM 5. OTHER EVENTS. In connection with the Merger, Anadarko's Restated Certificate of Incorporation was amended to increase the maximum size of the Board of Directors of Anadarko (the "Anadarko Board") from nine to 15 members and increase the authorized number of shares of Anadarko Common Stock from 300,000,000 to 450,000,000. Pursuant to the Merger Agreement, George Lindahl III and four others who were independent directors of the former UPR will be named to the Anadarko Board. On July 14, 2000, Anadarko filed a Certificate of Amendment of its Restated Certificate of Incorporation with the Delaware Secretary of State, which Certificate of Amendment is filed as Exhibit 4.1 to this Current Report on Form 8-K and is incorporated by reference. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Businesses Acquired The (A) audited Consolidated Statements of Income and Comprehensive Income, audited Consolidated Statements of Cash Flows and audited Consolidated Statements of Changes in Shareholders' Equity of UPR for the years ended December 31, 1999, 1998 and 1997; (B) -2- audited Consolidated Statements of Financial Position of UPR as of December 31, 1999 and 1998; and (C) accompanying Notes to Consolidated Financial Statements of UPR are filed as Exhibit 99.1 to this Current Report on Form 8-K and are incorporated by reference. The (A) unaudited Condensed Consolidated Statements of Income and Comprehensive Income and unaudited Condensed Consolidated Statements of Cash Flows of UPR for the three months ended March 31, 2000 and 1999; (B) unaudited Condensed Consolidated Statements of Financial Position of UPR as of March 31, 2000 and December 31, 1999; and (C) accompanying Notes to Condensed Consolidated Financial Statements of UPR are filed as Exhibit 99.2 to this Current Report on Form 8-K and are incorporated by reference. (b) Pro Forma Financial Information The (A) Unaudited Pro Forma Condensed Combined Statements of Income for the year ended December 31, 1999 and for the three months ended March 31, 2000; (B) Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2000; and (C) accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are filed as Exhibit 20.2 to this Current Report on Form 8-K and are incorporated by reference. -3- (c) Exhibits Exhibit Description ------- ----------- 2.1 Agreement and Plan of Merger, dated as of April 2, 2000, by and among Anadarko Petroleum Corporation, Dakota Merger Corp. and Union Pacific Resources Group Inc. 4.1 Certificate of Amendment of Anadarko's Restated Certificate of Incorporation. 20.1 Excerpts from the cover page and pages 1, 4 to 6, 8 to 9, 26, 52 to 56, 59 to 60 and 75 of the Joint Proxy Statement/Prospectus, which was first mailed to UPR stockholders on or about June 1, 2000. 20.2 Unaudited Pro Forma Condensed Combined Financial Statements of UPR, excerpted from pages 77 through 83 of the Joint Proxy Statement/Prospectus, which was first mailed to UPR stockholders on or about June 1, 2000. 23.1 Consent of Arthur Andersen LLP, dated July 28, 2000. 23.2 Consent of Deloitte & Touche LLP, dated July 28, 2000. 99.1 Audited Annual Financial Statements of UPR, excerpted from pages 40 through 73 of the UPR Annual Report on Form 10-K for the year ended December 31, 1999 and filed with the Commission on March 27, 2000. 99.2 Unaudited Interim Financial Statements of UPR, excerpted from pages 2 through 10 of the UPR Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and filed with the Commission on May 15, 2000. -4- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: July 28, 2000 ANADARKO PETROLEUM CORPORATION By: /s/ MICHAEL E. ROSE ---------------------------------- Name: Michael E. Rose Title: Sr. Vice President and Chief Financial Officer -5- EXHIBIT INDEX Exhibit Description ------- ----------- 2.1 Agreement and Plan of Merger, dated as of April 2, 2000, by and among Anadarko Petroleum Corporation, Dakota Merger Corp. and Union Pacific Resources Group Inc. 4.1 Certificate of Amendment of Anadarko's Restated Certificate of Incorporation. 20.1 Excerpts from the cover page and pages 1, 4 to 6, 8 to 9, 26, 52 to 56, 59 to 60 and 75 of the Joint Proxy Statement/Prospectus, which was first mailed to UPR stockholders on or about June 1, 2000. 20.2 Unaudited Pro Forma Condensed Combined Financial Statements of UPR, excerpted from pages 77 through 83 of the Joint Proxy Statement/Prospectus, which was first mailed to UPR stockholders on or about June 1, 2000. 23.1 Consent of Arthur Andersen LLP, dated July 28, 2000. 23.2 Consent of Deloitte & Touche LLP, dated July 28, 2000. 99.1 Audited Annual Financial Statements of UPR, excerpted from pages 40 through 73 of the UPR Annual Report on Form 10-K for the year ended December 31, 1999 and filed with the Commission on March 27, 2000. 99.2 Unaudited Interim Financial Statements of UPR, excerpted from pages 2 through 10 of the UPR Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and filed with the Commission on May 15, 2000. -6- EX-2.1 2 0002.txt AGREEMENT AND PLAN OF MERGER EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER AMONG ANADARKO PETROLEUM CORPORATION ("Anadarko"), DAKOTA MERGER CORP. a wholly owned direct subsidiary of Anadarko ("Subcorp"), and UNION PACIFIC RESOURCES GROUP INC. ("UPR") April 2, 2000 TABLE OF CONTENTS PAGE ---- AGREEMENT AND PLAN OF MERGER............................................... 1 PRELIMINARY STATEMENTS..................................................... 1 AGREEMENT.................................................................. 1 ARTICLE I. THE MERGER..................................................... 1 1.1 THE MERGER......................................................... 1 1.2 EFFECTIVE TIME..................................................... 1 1.3 EFFECTS OF THE MERGER.............................................. 2 1.4 ARTICLES OF INCORPORATION AND BY-LAWS.............................. 2 1.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION................ 2 1.6 ADDITIONAL ACTIONS................................................. 2 ARTICLE II. CONVERSION OF SECURITIES...................................... 2 2.1 CONVERSION OF CAPITAL STOCK........................................ 2 2.2 EXCHANGE RATIO; FRACTIONAL SHARES; ADJUSTMENTS..................... 2 2.3 EXCHANGE OF CERTIFICATES........................................... 3 (a) EXCHANGE AGENT............................................ 3 (b) EXCHANGE PROCEDURES....................................... 3 (c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.......... 4 (d) NO FURTHER OWNERSHIP RIGHTS IN UPR COMMON STOCK........... 4 (e) TERMINATION OF EXCHANGE FUND.............................. 4 (f) NO LIABILITY.............................................. 4 (g) INVESTMENT OF EXCHANGE FUND............................... 5 (h) WITHHOLDING RIGHTS........................................ 5 2.4 TREATMENT OF STOCK OPTIONS......................................... 5 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF ANADARKO AND SUBCORP.................................................................. 6 3.1 ORGANIZATION AND STANDING.......................................... 6 3.2 SUBSIDIARIES AND INVESTMENTS....................................... 6 3.3 CORPORATE POWER AND AUTHORITY...................................... 6 3.4 CAPITALIZATION OF ANADARKO AND SUBCORP............................. 7 3.5 CONFLICTS; CONSENTS AND APPROVAL................................... 7 3.6 BROKERAGE AND FINDER'S FEES........................................ 8 3.7 REORGANIZATION..................................................... 8 3.8 NO MATERIAL ADVERSE CHANGE......................................... 8 3.9 ANADARKO SEC DOCUMENTS............................................. 8 3.10 TAXES.............................................................. 9 3.11 COMPLIANCE WITH LAW................................................ 10 3.12 REGISTRATION STATEMENT; JOINT PROXY STATEMENT...................... 10 3.13 LITIGATION......................................................... 11 3.14 ANADARKO EMPLOYEE BENEFIT PLANS.................................... 11 3.15 CONTRACTS.......................................................... 14 3.16 LABOR MATTERS...................................................... 14 3.17 UNDISCLOSED LIABILITIES............................................ 14 3.18 PERMITS; COMPLIANCE................................................ 14 3.19 ENVIRONMENTAL MATTERS.............................................. 14 3.20 OPINION OF FINANCIAL ADVISOR....................................... 15 3.21 BOARD RECOMMENDATION; REQUIRED VOTE................................ 15 3.22 STATE TAKEOVER LAWS; RIGHTS AGREEMENT.............................. 15 i PAGE ---- ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF UPR......................... 16 4.1 ORGANIZATION AND STANDING.......................................... 16 4.2 SUBSIDIARIES AND INVESTMENTS....................................... 16 4.3 CORPORATE POWER AND AUTHORITY...................................... 16 4.4 CAPITALIZATION OF UPR.............................................. 17 4.5 CONFLICTS; CONSENTS AND APPROVALS.................................. 17 4.6 BROKERAGE AND FINDER'S FEES........................................ 18 4.7 REORGANIZATION..................................................... 18 4.8 NO MATERIAL ADVERSE CHANGE......................................... 18 4.9 UPR SEC DOCUMENTS.................................................. 18 4.10 TAXES.............................................................. 18 4.11 COMPLIANCE WITH LAW................................................ 19 4.12 REGISTRATION STATEMENT; JOINT PROXY STATEMENT...................... 20 4.13 LITIGATION......................................................... 20 4.14 UPR EMPLOYEE BENEFIT PLANS......................................... 20 4.15 CONTRACTS.......................................................... 23 4.16 LABOR MATTERS...................................................... 23 4.17 UNDISCLOSED LIABILITIES............................................ 23 4.18 PERMITS; COMPLIANCE................................................ 23 4.19 ENVIRONMENTAL MATTERS.............................................. 23 4.20 OPINION OF FINANCIAL ADVISOR....................................... 24 4.21 BOARD RECOMMENDATION; REQUIRED VOTE................................ 24 4.22 STATE TAKEOVER LAWS; RIGHTS AGREEMENT.............................. 24 ARTICLE V. COVENANTS OF THE PARTIES....................................... 24 5.1 MUTUAL COVENANTS................................................... 24 (a) HSR ACT FILINGS; REASONABLE EFFORTS; NOTIFICATION......... 24 (b) TAX-FREE TREATMENT........................................ 26 (c) PUBLIC ANNOUNCEMENTS...................................... 26 (d) FARMOUTS.................................................. 26 5.2 COVENANTS OF ANADARKO.............................................. 26 (a) ANADARKO STOCKHOLDERS MEETING............................. 26 (b) PREPARATION OF REGISTRATION STATEMENT..................... 26 (c) CONDUCT OF ANADARKO'S OPERATIONS.......................... 27 (d) NO SOLICITATION........................................... 29 (e) INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE....... 30 (f) NYSE LISTING.............................................. 31 (g) ACCESS.................................................... 31 (h) BOARD OF DIRECTORS OF ANADARKO............................ 31 (i) SUBSEQUENT FINANCIAL STATEMENTS........................... 31 (j) EMPLOYEES AND EMPLOYEE BENEFITS........................... 31 5.3 COVENANTS OF UPR................................................... 32 (a) UPR STOCKHOLDERS MEETING.................................. 32 (b) INFORMATION FOR THE REGISTRATION STATEMENT AND PREPARATION OF JOINT PROXY STATEMENT.................... 32 (c) CONDUCT OF UPR'S OPERATIONS............................... 33 (d) NO SOLICITATION........................................... 35 (e) AFFILIATES OF UPR......................................... 36 (f) ACCESS.................................................... 36 (g) SUBSEQUENT FINANCIAL STATEMENTS........................... 36 ii PAGE ---- ARTICLE VI. CONDITIONS.................................................... 36 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY........................ 36 6.2 CONDITIONS TO OBLIGATIONS OF UPR................................... 37 6.3 CONDITIONS TO OBLIGATIONS OF ANADARKO AND SUBCORP.................. 38 ARTICLE VII. TERMINATION AND AMENDMENT.................................... 38 7.1 TERMINATION BY MUTUAL CONSENT...................................... 38 7.2 TERMINATION BY UPR OR ANADARKO..................................... 38 7.3 TERMINATION BY ANADARKO............................................ 39 7.4 TERMINATION BY UPR................................................. 39 7.5 EFFECT OF TERMINATION.............................................. 40 7.6 AMENDMENT.......................................................... 41 7.7 EXTENSION; WAIVER.................................................. 41 ARTICLE VIII. MISCELLANEOUS............................................. 41 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................... 41 8.2 NOTICES............................................................ 41 8.3 INTERPRETATION..................................................... 42 8.4 COUNTERPARTS....................................................... 42 8.5 ENTIRE AGREEMENT................................................... 43 8.6 THIRD-PARTY BENEFICIARIES.......................................... 43 8.7 GOVERNING LAW...................................................... 43 8.8 CONSENT TO JURISDICTION; VENUE..................................... 43 8.9 SPECIFIC PERFORMANCE............................................... 43 8.10 ASSIGNMENT......................................................... 43 8.11 EXPENSES........................................................... 43 iii AGREEMENT AND PLAN OF MERGER This Agreement and Plan of Merger (this "AGREEMENT") is made and entered into as of the 2nd day of April, 2000, by and among Anadarko Petroleum Corporation, a Delaware corporation ("ANADARKO"), Dakota Merger Corp., a Utah corporation and a wholly owned subsidiary of Anadarko ("SUBCORP"), and Union Pacific Resources Group Inc., a Utah corporation ("UPR"). PRELIMINARY STATEMENTS A. The Board of Directors of Anadarko has determined that the merger of Subcorp with and into UPR, with UPR as the surviving corporation (the "MERGER"), pursuant to which each share of UPR Common Stock (as defined in Section 4.4) outstanding at the Effective Time (as defined in Section 1.2) will be converted into the right to receive Anadarko Common Shares (as defined in Section 3.4(a)) as more fully provided herein, is consistent with and in furtherance of the long-term business strategy of Anadarko and Anadarko desires to combine its businesses with the businesses operated by UPR. B. The Board of Directors of UPR has determined that the Merger is consistent with and in furtherance of the long-term business strategy of UPR and UPR desires to combine its businesses with the businesses operated by Anadarko and for the holders of shares of UPR Common Stock ("UPR STOCKHOLDERS") to have a continuing equity interest in the combined Anadarko/UPR businesses through the ownership of Anadarko Common Shares. C. The parties intend that the Merger constitute a tax-free "reorganization" within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "CODE"). D. The respective Boards of Directors of Anadarko, Subcorp and UPR have determined the Merger in the manner contemplated herein to be desirable and in the best interests of their respective shareholders, and, by resolutions duly adopted, have approved and adopted this Agreement. AGREEMENT Now, therefore, in consideration of these premises and the mutual and dependent promises hereinafter set forth, the parties hereto agree as follows: ARTICLE I. THE MERGER 1.1 THE MERGER. Upon the terms and subject to the conditions hereof, and in accordance with the provisions of the Utah Revised Business Corporation Act (the "UBCA"), Subcorp shall be merged with and into UPR at the Effective Time. As a result of the Merger, the separate corporate existence of Subcorp shall cease and UPR shall continue its existence under the laws of the State of Utah. UPR, in its capacity as the corporation surviving the Merger, is hereinafter sometimes referred to as the "SURVIVING CORPORATION." 1.2 EFFECTIVE TIME. As promptly as possible on the Closing Date (as defined below), the parties hereto shall cause the Merger to be consummated by filing with the Division of Corporations and Commercial Code of the State of Utah (the "UTAH DIVISION") articles of merger (the "ARTICLES OF MERGER") in such form as is required by and executed in accordance with Section 16-10a-1105 of the UBCA. The Merger shall become effective (the "EFFECTIVE TIME") when the Articles of Merger have been filed with the Utah Division or at such later time as shall be agreed upon by Anadarko and UPR and specified in the Articles of Merger. Prior to the filing referred to in this Section 1.2, a closing (the "CLOSING") shall be held at the principal business offices of Anadarko, or such other place as the parties hereto may agree as soon as practicable (but in any event within three business days) following the date upon which all conditions set forth in Article VI have been satisfied or waived, or at such other date as Anadarko and UPR may agree; provided, that the conditions set forth in Article VI have been satisfied or 1 waived at or prior to such date. The date on which the Closing takes place is referred to herein as the "CLOSING DATE." 1.3 EFFECTS OF THE MERGER. From and after the Effective Time, the Merger shall have the effects set forth in Section 16-10a-1106 of the UBCA. 1.4 ARTICLES OF INCORPORATION AND BY-LAWS. The Articles of Merger shall provide that at the Effective Time (i) the Articles of Incorporation of the Surviving Corporation as in effect immediately prior to the Effective Time shall be amended as of the Effective Time so as to contain the provisions, and only the provisions, contained immediately prior thereto in the Articles of Incorporation of Subcorp, except for Article I thereof, which shall continue to read "The name of the corporation is 'UNION PACIFIC RESOURCES GROUP INC.' ", and (ii) the By-laws of Subcorp in effect immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation; in each case, until amended in accordance with the UBCA. 1.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. From and after the Effective Time, the officers of UPR shall be the officers of the Surviving Corporation and the directors of Subcorp shall be the directors of the Surviving Corporation, in each case, until their respective successors are duly elected and qualified. On or prior to the Closing Date, UPR shall deliver to Anadarko evidence satisfactory to Anadarko of the resignations of the directors of UPR, such resignations to be effective as of the Effective Time. 1.6 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances in law or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of UPR, or (b) otherwise carry out the provisions of this Agreement, UPR and its officers and directors shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances in law and to take all acts necessary, proper or desirable to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Corporation and otherwise to carry out the provisions of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of UPR or otherwise to take any and all such action. ARTICLE II. CONVERSION OF SECURITIES 2.1 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of Anadarko, Subcorp or UPR or their respective shareholders: (a) Each share of common stock of Subcorp ("SUBCORP COMMON STOCK") issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation. Such newly issued shares shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation. (b) Subject to the other provisions of this Article II, each share of UPR Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into and represent a number of Anadarko Common Shares equal to the Exchange Ratio. (c) Each share of capital stock of UPR held by UPR shall be cancelled and retired and no payment shall be made in respect thereof. 2.2 EXCHANGE RATIO; FRACTIONAL SHARES; ADJUSTMENTS. (a) The "EXCHANGE RATIO" shall be equal to 0.4550. (b) No certificates for fractional Anadarko Common Shares shall be issued as a result of the conversion provided for in Section 2.1(b) and such fractional share interests will not entitle the owner 2 thereof to vote or have any rights of an Anadarko Stockholder (as defined in Section 3.3) or a holder of Anadarko Common Shares. (c) In lieu of any such fractional Anadarko Common Shares, the holder of a certificate previously evidencing UPR Common Stock, upon presentation of such fractional interest represented by an appropriate certificate for UPR Common Stock to the Exchange Agent (as defined in Section 2.3(a)) pursuant to Section 2.3, shall be entitled to receive a cash payment therefor in an amount equal to the value (determined with reference to the closing price of Anadarko Common Shares as reported on the New York Stock Exchange ("NYSE") Composite Tape ("NYSE Composite Tape") on the last full trading day immediately prior to the Closing Date) of such fractional interest. Such payment with respect to fractional shares is merely intended to provide a mechanical rounding off of, and is not a separately bargained for, consideration. If more than one certificate representing shares of UPR Common Stock shall be surrendered for the account of the same holder, the number of Anadarko Common Shares for which certificates have been surrendered shall be computed on the basis of the aggregate number of shares represented by the certificates so surrendered. (d) In the event that, prior to the Effective Time, Anadarko shall declare a stock dividend or other distribution payable in Anadarko Common Shares or securities convertible into Anadarko Common Shares, or effect a stock split, reclassification, combination or other change with respect to Anadarko Common Shares, the Exchange Ratio set forth in this Section 2.2 shall be adjusted to reflect such dividend, distribution, stock split, reclassification, combination or other change. 2.3 EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. Promptly following the Effective Time, Anadarko shall deposit with ChaseMellon Shareholder Services, L.L.C. or such other exchange agent as may be designated by Anadarko (the "EXCHANGE AGENT"), for the benefit of UPR Stockholders, for exchange in accordance with this Section 2.3, certificates representing Anadarko Common Shares issuable pursuant to Section 2.1 in exchange for outstanding shares of UPR Common Stock and shall from time-to-time deposit cash in an amount reasonably expected to be paid pursuant to Section 2.2 (such Anadarko Common Shares and cash, together with any dividends or distributions with respect thereto, the "EXCHANGE FUND"). (b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates (the "CERTIFICATES") that immediately prior to the Effective Time represented outstanding shares of UPR Common Stock whose shares were converted into the right to receive Anadarko Common Shares pursuant to Section 2.1(b), (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 customary provisions as Anadarko may reasonably specify) and (ii) instructions for effecting the surrender of the Certificates in exchange for certificates representing Anadarko Common Shares. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with a duly executed letter of transmittal, the holder of such Certificate shall be entitled to receive in exchange therefor (i) a certificate or certificates representing that whole number of Anadarko Common Shares which such holder has the right to receive pursuant to Section 2.1 in such denominations and registered in such names as such holder may request and (ii) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, which such holder has the right to receive pursuant to the provisions of this Article II, after giving effect of any required withholding tax. The shares represented by the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or accrued on the cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, payable to holders of shares of UPR Common Stock. In the event of a transfer of ownership of shares of UPR Common Stock that is not registered on the transfer records of UPR, a certificate representing the proper number of Anadarko Common Shares, together with a check for the cash to be paid in lieu of fractional shares, if any, and unpaid 3 dividends and distributions, if any, may be issued to such transferee if the Certificate representing such shares of UPR Common Stock held by such transferee is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. 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 surrender a certificate representing Anadarko Common Shares and cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, as provided in this Article II. 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 Anadarko, the posting by such person of a bond in such reasonable amount as Anadarko may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will deliver in exchange for such lost, stolen or destroyed Certificate, a certificate representing the proper number of Anadarko Common Shares, together with a check for the cash to be paid in lieu of fractional shares, if any, with respect to the shares of UPR Common Stock formerly represented thereby, and unpaid dividends and distributions on Anadarko Common Shares, if any, as provided in this Article II. (c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared or made after the Effective Time with respect to Anadarko Common Shares having a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate, and no cash payment in lieu of fractional shares shall be paid to any such holder, until the holder shall surrender such Certificate as provided in this Section 2.3. Subject to the effect of Applicable Laws (as defined in Section 3.11), following surrender of any such Certificate, there shall be paid to the holder of the certificates representing whole Anadarko Common Shares 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 payable with respect to such whole Anadarko Common Shares and not paid, less the amount of any withholding taxes that may be required thereon, and (ii) at the appropriate payment date subsequent to surrender, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole Anadarko Common Shares, less the amount of any withholding taxes which may be required thereon. (d) NO FURTHER OWNERSHIP RIGHTS IN UPR COMMON STOCK. All Anadarko Common Shares issued upon surrender of Certificates in accordance with the terms hereof (including any cash paid pursuant to this Article II) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of UPR Common Stock represented thereby, and, as of the Effective Time, the stock transfer books of UPR shall be closed and there shall be no further registration of transfers on the stock transfer books of UPR of shares of UPR Common Stock outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Section 2.3. Certificates surrendered for exchange by any person constituting an "affiliate" of UPR for purposes of Rule 145(c) under the Securities Act of 1933, as amended (together with the rules and regulations thereunder, the "Securities Act"), shall not be exchanged until Anadarko has received written undertakings from such person in the form attached as Exhibit A to this Agreement. (e) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund that remains undistributed to UPR Stockholders six months after the date of the mailing required by Section 2.3(b) shall be delivered to Anadarko, upon demand thereby, and holders of Certificates previously representing shares of UPR Common Stock who have not theretofore complied with this Section 2.3 shall thereafter look only to Anadarko for payment of any claim to Anadarko Common Shares, cash in lieu of fractional shares thereof, or dividends or distributions, if any, in respect thereof. (f) NO LIABILITY. None of Anadarko, the Surviving Corporation or the Exchange Agent shall be liable to any person in respect of any shares of UPR Common Stock (or dividends or distributions 4 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 Certificates shall not have been surrendered prior to seven years after the Effective Time (or immediately prior to such earlier date on which any cash, any cash in lieu of fractional shares or any dividends or distributions with respect to whole shares of UPR Common Stock in respect of such Certificate would otherwise escheat to or become the property of any Governmental Authority (as defined in Section 3.4(d)), any such cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by Applicable Laws, become the property of Anadarko, free and clear of all claims or interest of any person previously entitled thereto. (g) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any cash included in the Exchange Fund, as directed by Anadarko, on a daily basis. Any interest and other income resulting from such investments shall be paid to Anadarko upon termination of the Exchange Fund pursuant to Section 2.3(e). (h) WITHHOLDING RIGHTS. Each of the Surviving Corporation and Anadarko shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of UPR Common Stock such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Surviving Corporation or Anadarko, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of UPR Common Stock in respect of which such deduction and withholding was made by the Surviving Corporation or Anadarko, as the case may be. 2.4 TREATMENT OF STOCK OPTIONS. (a) Prior to the Effective Time, Anadarko and UPR shall take all such actions as may be necessary to cause each unexpired and unexercised outstanding option granted or issued under stock option plans of UPR in effect on the date hereof (each, a "UPR OPTION") to be automatically converted at the Effective Time into an option (a "ANADARKO EXCHANGE OPTION") to purchase that number of Anadarko Common Shares equal to the number of shares of UPR Common Stock subject to the UPR Option immediately prior to the Effective Time (without regard to any actual restrictions on exerciseability) multiplied by the Exchange Ratio (and rounded to the nearest share), with an exercise price per share equal to the exercise price per share that existed under the corresponding UPR Option divided by the Exchange Ratio (and rounded to the nearest cent), and with other terms and conditions that are the same as the terms and conditions of such UPR Option immediately before the Effective Time PROVIDED, that Anadarko shall equitably adjust the applicable performance target under any UPR Option that contains performance targets; PROVIDED FURTHER that, with respect to any UPR Option that is an "incentive stock option" within the meaning of Section 422 of the Code, the foregoing conversion shall be carried out in a manner satisfying the requirements of Section 424(a) of the Code. (b) In connection with the issuance of Anadarko Exchange Options, Anadarko shall (i) reserve for issuance the number of Anadarko Common Shares that will become subject to Anadarko Exchange Options pursuant to this Section 2.4 and (ii) from and after the Effective Time, upon exercise of Anadarko Exchange Options, make available for issuance all Anadarko Common Shares covered thereby, subject to the terms and conditions applicable thereto. (c) Anadarko agrees to use its reasonable efforts to file with the Securities and Exchange Commission (the "COMMISSION") within 30 days after the Closing Date a registration statement on Form S-8 or other appropriate form under the Securities Act to register Anadarko Common Shares issuable upon exercise of the Anadarko Exchange Options and to use its reasonable efforts to cause such registration statement to remain effective until the exercise or expiration of such options and rights. Prior to the Effective Time, the Board of Directors of Anadarko, or an appropriate committee 5 of non-employee directors thereof, shall adopt a resolution consistent with the interpretive guidance of the Commission so that the acquisition by any officer or director of Anadarko who may become a covered person of UPR for purposes of Section 16 of the Securities Exchange Act of 1934, as amended (together with the rules and regulations thereunder, the "EXCHANGE ACT") and the rules and regulations thereunder ("SECTION 16") of Anadarko Common Shares or options to acquire Anadarko Common Shares pursuant to this Agreement and the Merger shall be an exempt transaction for purposes of Section 16. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF ANADARKO AND SUBCORP In order to induce UPR to enter into this Agreement, Anadarko and Subcorp hereby represent and warrant to UPR that the statements contained in this Article III are true, correct and complete. 3.1 ORGANIZATION AND STANDING. Each of Anadarko and Subcorp is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation with full corporate power and authority to own, lease, use and operate its properties and to conduct its business as and where now owned, leased, used, operated and conducted. Each of Anadarko and Subcorp, and each subsidiary of Anadarko, is duly qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases or operates, requires it to so qualify, except where the failure to be so qualified or in good standing in such jurisdiction would not have a Material Adverse Effect (as defined in Section 8.3) on Anadarko or Subcorp, as the case may be. Anadarko is not in default in the performance, observance or fulfillment of any provision of the Anadarko Restated Certificate of Incorporation, as amended (the "ANADARKO CERTIFICATE"), or the Anadarko By-Laws, as amended (the "ANADARKO BY-LAWS"), and Subcorp is not in default in the performance, observance or fulfillment of any provisions of its Articles of Incorporation or By-laws. Anadarko has heretofore furnished to UPR a complete and correct copy of (i) the Anadarko Certificate and the Anadarko By-Laws, each as in effect as of the date of this Agreement, and (ii) the Articles of Incorporation of Subcorp and the By-laws of Subcorp. 3.2 SUBSIDIARIES AND INVESTMENTS. Anadarko does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other entity or enterprise, except for the subsidiaries, as set forth in Section 3.2 to the disclosure schedule delivered by Anadarko to UPR and dated the date hereof (the "ANADARKO DISCLOSURE SCHEDULE"), Anadarko owns, directly or indirectly, each of the outstanding shares of capital stock (or other ownership interests having by their terms ordinary voting power to elect a majority of directors or others performing similar functions with respect to such subsidiary) of each of Anadarko's subsidiaries. Each of the outstanding shares of capital stock of each of Anadarko's subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned, directly or indirectly, by Anadarko free and clear of all liens, pledges, security interests, claims or other encumbrances. There are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale or transfer of any securities of any subsidiary of Anadarko, nor are there outstanding any securities that are convertible into or exchangeable for any shares of capital stock of any subsidiary of Anadarko, and neither Anadarko nor any subsidiary of Anadarko has any obligation of any kind to issue any additional securities or to pay for or repurchase any securities of any subsidiary of Anadarko or any predecessor thereof. 3.3 CORPORATE POWER AND AUTHORITY. Each of Anadarko and Subcorp has all requisite corporate power and authority to enter into and deliver this Agreement, subject to approval of the issuance of Anadarko Common Shares issuable in the Merger and the transactions contemplated hereby by the holders of Anadarko Common Shares (the "ANADARKO STOCKHOLDERS") (the "SHARE ISSUANCE"), to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by Anadarko and Subcorp have been duly authorized by all necessary corporate action on the part of each of Anadarko and Subcorp, subject to approval by the Anadarko Stockholders of the Share Issuance. This 6 Agreement has been duly executed and delivered by each of Anadarko and Subcorp, and constitutes the legal, valid and binding obligation of each of Subcorp and Anadarko enforceable against each of them in accordance with its terms. 3.4 CAPITALIZATION OF ANADARKO AND SUBCORP. (a) As of March 31, 2000, Anadarko's authorized capital stock consisted solely of (A) 300,000,000 shares of common stock, $0.10 par value ("ANADARKO COMMON SHARES"), of which (i) 130,079,024 shares were issued and outstanding, (ii) no shares were issued and held in treasury (which does not include Anadarko Common Shares reserved for issuance as set forth in clause (iii)), (iii) 26,106,400 shares were reserved for issuance upon the exercise or conversion of options, warrants or convertible securities granted or issuable by Anadarko and (iv) 25,885,726 Anadarko Common Shares were reserved for future issuance under the Stock Option Agreement dated April 2, 2000, between UPR and Anadarko (the "ANADARKO STOCK OPTION AGREEMENT"), and (B) 2,000,000 shares of Preferred Stock, $1.00 par value, of which (i) 200,000 shares of 5.46% Series B Cumulative Preferred Stock were issued and outstanding and (ii) 200,000 shares have been designated as Series C Junior Participating Preferred Stock were reserved for issuance pursuant to the rights issued under the Agreement, dated as of October 29, 1998, between Anadarko and the Chase Manhattan Bank, as rights agent (the "ANADARKO RIGHTS AGREEMENT"). Each outstanding share of Anadarko capital stock is, and all Anadarko Common Shares to be issued in connection with the Merger will be, duly authorized and validly issued, fully paid and nonassessable, and each outstanding share of Anadarko capital stock has not been, and all Anadarko Common Shares to be issued in connection with the Merger will not be, issued in violation of any preemptive or similar rights. As of the date hereof, other than as set forth in the first sentence hereof, in Section 3.4 to the Anadarko Disclosure Schedule or as contemplated by the Anadarko Stock Option Agreement, there are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale, repurchase, transfer or registration by Anadarko of any equity securities of Anadarko, nor are there outstanding any securities that are convertible into or exchangeable for any shares of capital stock of Anadarko and Anadarko has no obligation of any kind to issue any additional securities. The issuance and sale of all of the shares of capital stock described in this Section 3.3(a) have been in compliance with federal and state securities laws. The Anadarko Common Shares (including those Anadarko Common Shares to be issued in the Merger) are registered under the Exchange Act. Other than pursuant to the Anadarko Stock Option Agreement, Anadarko has not agreed to register any securities under the Securities Act or under any state securities law or granted registration rights to any person or entity (which rights are currently exercisable). (b) Subcorp's authorized capital stock consists solely of 1,000 shares of Subcorp Common Stock, of which, as of the date hereof, 100 shares were issued and outstanding and none were reserved for issuance. As of the date hereof, all of the outstanding shares of Subcorp Common Stock are owned free and clear of any liens, claims or encumbrances by Anadarko. 3.5 CONFLICTS; CONSENTS AND APPROVAL. Neither the execution and delivery of this Agreement by Anadarko or Subcorp, or the Anadarko Stock Option Agreement by Anadarko, nor the consummation of the transactions contemplated hereby will: (a) conflict with, or result in a breach of any provision of the Anadarko Certificate or the Anadarko By-laws or the Articles of Incorporation or By-laws of Subcorp; (b) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event that, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Anadarko or any of its subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, 7 contract, undertaking, agreement, lease or other instrument or obligation to which Anadarko or any of its subsidiaries is a party; (c) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Anadarko or any of its subsidiaries or any of their respective properties or assets; or (d) require any action or consent or approval of, or review by, or registration or filing by Anadarko or any of its affiliates with, any third party or any local, domestic, foreign or multi-national court, arbitral tribunal, administrative agency or commission or other governmental or regulatory body, agency, instrumentality or authority (a "GOVERNMENTAL AUTHORITY"), other than (i) approval by the Anadarko Stockholders of the Share Issuance, (ii) authorization for inclusion of the Anadarko Common Shares to be issued in the Merger and the transactions contemplated hereby on the NYSE, subject to official notice of issuance, (iii) actions required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (together with the rules and regulations thereunder, the "HSR ACT"), (iv) registrations or other actions required under federal and state securities laws as are contemplated by this Agreement, or (v) consents or approvals of any Governmental Authority set forth in Section 3.5 to the Anadarko Disclosure Schedule; except in the case of clauses (b), (c) and (d) for any of the foregoing that would not, individually or in the aggregate, have a Material Adverse Effect on Anadarko or a material adverse effect on the ability of the parties hereto to consummate the transactions contemplated hereby. 3.6 BROKERAGE AND FINDER'S FEES. Except as set forth in Section 3.6 to the Anadarko Disclosure Schedule, neither Anadarko nor any stockholder, director, officer or employee thereof has incurred or will incur on behalf of Anadarko any financial advisory, brokerage, finder's or similar fee in connection with the transactions contemplated by this Agreement. Copies of all agreements relating to such obligations have been provided to UPR. 3.7 REORGANIZATION. To the knowledge of Anadarko and Subcorp, neither Anadarko nor Subcorp, nor any of their affiliates has taken or agreed to take any action that (without giving effect to any actions taken or agreed to be taken by UPR or any of its affiliates) would prevent the Merger from constituting a "reorganization" qualifying under the provisions of Section 368(a) of the Code. 3.8 NO MATERIAL ADVERSE CHANGE. Except as disclosed in the Anadarko SEC Documents filed prior to the date of this Agreement, since January 1, 2000, there has been no material adverse change in the business, assets, liabilities, results of operations, financial condition or prospects of Anadarko and its subsidiaries taken as a whole, or any event, occurrence or development that would reasonably be expected to have a Material Adverse Effect on Anadarko or a material adverse effect on the ability of Anadarko to consummate the transactions contemplated hereby. 3.9 ANADARKO SEC DOCUMENTS. Anadarko has timely filed with the Commission all forms, reports, schedules, statements and other documents required to be filed by it since January 1, 1997 under the Exchange Act or the Securities Act (such documents, as supplemented and amended since the time of filing, collectively, the "ANADARKO SEC DOCUMENTS"). The Anadarko SEC Documents, including, without limitation, any financial statements or schedules included therein, at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively and, in the case of any Anadarko SEC Document amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing) (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be. The financial statements of Anadarko included in the Anadarko SEC Documents at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively, and, in the case of any Anadarko SEC Document amended or superseded by a filing prior to the date of this Agreement, then on 8 the date of such amending or superseding filing) complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto, were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the Commission), and fairly present (subject, in the case of unaudited statements, to normal, recurring audit adjustments) the consolidated financial position of Anadarko and its consolidated subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. No subsidiary of Anadarko is subject to the periodic reporting requirements of the Exchange Act or required to file any form, report or other document with the Commission, the NYSE, any other stock exchange or any other comparable Governmental Authority. 3.10 TAXES. (a) Anadarko and its subsidiaries have duly filed all material federal, state, local and foreign income, franchise, excise, real and personal property and other Tax Returns (as defined below) (including, but not limited to, those filed on a consolidated, combined or unitary basis) required to have been filed by Anadarko or its subsidiaries prior to the date hereof. All of the foregoing Tax Returns and reports are true and correct (except for such inaccuracies that are, individually or in the aggregate, immaterial), and Anadarko and its subsidiaries have within the time and manner prescribed by Applicable Law paid or, prior to the Effective Time, will pay all Taxes (as defined below), interest and penalties required to be paid in respect of the periods covered by such returns or reports or otherwise due to any federal, state, foreign, local or other taxing authority. Except as set forth in Section 3.10 to the Anadarko Disclosure Schedule, neither Anadarko nor any of its subsidiaries have any material liability for any Taxes in excess of the amounts so paid or reserves so established and neither Anadarko nor any of its subsidiaries is delinquent in the payment of any material Tax. Except as set forth in Section 3.10 to the Anadarko Disclosure Schedule, neither Anadarko nor any of its subsidiaries has requested or filed any document having the effect of causing any extension of time within which to file any returns in respect of any fiscal year which have not since been filed. No deficiencies for any material Tax have been proposed in writing, asserted or assessed (tentatively or definitely), in each case, by any taxing authority, against Anadarko or any of its subsidiaries for which there are not adequate reserves. Neither Anadarko nor any of its subsidiaries is the subject of any currently ongoing Tax audit except for those that are, individually or in the aggregate, immaterial. There are no pending requests for waivers of the time to assess any material Tax, other than those made in the ordinary course and for which payment has been made or there are adequate reserves. Except as set forth in Section 3.10 to the Anadarko Disclosure Schedule, neither Anadarko nor any of its subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. There are no liens with respect to material Taxes upon any of the properties or assets, real or personal, tangible or intangible of Anadarko or any of its subsidiaries (other than liens for Taxes not yet due). To the knowledge of Anadarko, no claim has ever been made in writing by an authority in a jurisdiction where none of Anadarko and its subsidiaries files Tax Returns that Anadarko or any of its subsidiaries is or may be subject to taxation by that jurisdiction. Neither Anadarko nor any of its subsidiaries has filed an election under Section 341(f) of the Code to be treated as a consenting corporation. (b) Except as set forth in Section 3.10 to the Anadarko Disclosure Schedule, neither Anadarko nor any of its subsidiaries is obligated by any contract, agreement or other arrangement to indemnify any other person with respect to material Taxes. Except as set forth in Section 3.10 to the Anadarko Disclosure Schedule, neither Anadarko nor any of its subsidiaries are now or have ever been a party to or bound by any agreement or arrangement (whether or not written and including, without limitation, any arrangement required or permitted by law) binding Anadarko or any of its subsidiaries that (i) requires Anadarko or any of its subsidiaries to make any Tax payment to or for the account of any other person, (ii) affords any other person the benefit of any net operating loss, net capital loss, investment Tax credit, foreign Tax credit, charitable deduction or any other credit or Tax attribute 9 which could reduce Taxes (including, without limitation, deductions and credits related to alternative minimum Taxes) of Anadarko or any of its subsidiaries, or (iii) requires or permits the transfer or assignment of income, revenues, receipts or gains to Anadarko or any of its subsidiaries, from any other person. (c) Anadarko and its subsidiaries have withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party. (d) Neither Anadarko nor any of its subsidiaries is responsible for any material Taxes of any other person (other than that of Anadarko and its subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee, by contract, or otherwise. (e) Neither Anadarko nor any of its subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement (or will constitute such a corporation in the two years prior to the date of the Effective Time) or (ii) in a distribution which otherwise constitutes part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger. (f) "TAX RETURNS" means returns, reports and forms required to be filed with any Governmental Authority of the United States or any other jurisdiction responsible for the imposition or collection of Taxes. (g) "TAXES" means (i) all taxes (whether federal, state, local or foreign) based upon or measured by income and any other tax whatsoever, including, without limitation, gross receipts, profits, sales, use, occupation, value added, AD VALOREM, transfer, franchise, withholding, payroll, employment, excise, or property taxes, together with any interest or penalties imposed with respect thereto and (ii) any obligations under any agreements or arrangements with respect to any taxes described in clause (i) above. 3.11 COMPLIANCE WITH LAW. Anadarko is in compliance, and at all times since January 1, 1997 has been in compliance, with all applicable laws, statutes, orders, rules, regulations, policies or guidelines promulgated, or judgments, decisions or orders entered by any Governmental Authority (collectively, "APPLICABLE LAWS") relating to Anadarko or its business or properties, except where the failure to be in compliance with such Applicable Laws, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Anadarko. Except as set forth in Section 3.11 to the Anadarko Disclosure Schedule, to the knowledge of Anadarko, no investigation or review by any Governmental Authority with respect to Anadarko or its subsidiaries is pending or threatened, nor has any Governmental Authority indicated in writing an intention to conduct the same, other than those the outcome of which would not reasonably be expected to have a Material Adverse Effect on Anadarko. 3.12 REGISTRATION STATEMENT; JOINT PROXY STATEMENT. None of the information provided by Anadarko for inclusion in the registration statement on Form S-4 (such registration statement as amended, supplemented or modified, the "REGISTRATION STATEMENT") to be filed with the Commission by Anadarko under the Securities Act, including the prospectus relating to Anadarko Common Shares to be issued in the Merger (as amended, supplemented or modified, the "PROSPECTUS") and the joint proxy statement and form of proxies relating to the vote of UPR Stockholders with respect to the Merger and the vote of Anadarko Stockholders with respect to the Share Issuance (as amended, supplemented or modified, the "JOINT PROXY STATEMENT"), at the time the Registration Statement becomes effective or, in the case of the Joint Proxy Statement, at the date of mailing and at the date of the UPR Stockholders Meeting (as defined in Section 5.3(a)) or the Anadarko Stockholders Meeting (as defined in Section 5.2(a)) to consider the Merger and the transactions contemplated thereby, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make 10 the statements therein, in light of the circumstances under which they are made, not misleading. The Registration Statement and Joint Proxy Statement, except for such portions thereof that relate only to UPR or its subsidiaries, will each comply as to form in all material respects with the provisions of the Securities Act and the Exchange Act. 3.13 LITIGATION. Except as set forth in Section 3.13 to the Anadarko Disclosure Schedule, there is no suit, claim, action, proceeding, hearing, notice of violation, demand letter or investigation (an "ACTION") pending or, to the knowledge of Anadarko (or its executive officers or directors), threatened against Anadarko or any executive officer or director of Anadarko that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Anadarko or a material adverse effect on the ability of Anadarko to consummate the transactions contemplated hereby. Anadarko is not subject to any outstanding order, writ, injunction or decree that, individually or in the aggregate, insofar as can be reasonably foreseen, would have a Material Adverse Effect on Anadarko or a material adverse effect on the ability of Anadarko to consummate the transactions contemplated hereby. 3.14 ANADARKO EMPLOYEE BENEFIT PLANS. (a) For purposes of this Agreement, the following terms have the definitions given below: "ANADARKO CONTROLLED GROUP LIABILITY" means any and all liabilities (i) under Title IV of ERISA, (ii) under section 302 of ERISA, (iii) under sections 412 and 4971 of the Code, (iv) as a result of a failure to comply with the continuation coverage requirements of section 601 et seq. of ERISA and section 4980B of the Code, and (v) under corresponding or similar provisions of foreign laws or regulations, other than such liabilities that arise solely out of, or relate solely to, the Anadarko Employee Benefit Plans listed in Section 3.14 of the Anadarko Disclosure Schedule. "ANADARKO EMPLOYEE BENEFIT PLANS" means any Anadarko Employee Benefit Plans, program, policy, practices, or other arrangement providing benefits to any current or former employee, officer or director of Anadarko or any of its subsidiaries or any beneficiary or dependent thereof that is sponsored or maintained by Anadarko or any of its subsidiaries or to which Anadarko or any of its subsidiaries contributes or is obligated to contribute, whether or not written, including without limitation any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA) and any bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, change of control or fringe benefit plan, program or agreement. "ANADARKO EMPLOYMENT AGREEMENT" means a contract, offer letter or agreement of Anadarko or any subsidiary with or addressed to any individual who is rendering or has rendered services thereto as an employee or consultant pursuant to which Anadarko or any subsidiary has any actual or contingent liability or obligation to provide compensation and/or benefits in consideration for past, present or future services. "ANADARKO MATERIAL EMPLOYMENT AGREEMENT" means an Anadarko Employment Agreement pursuant to which Anadarko or any subsidiary has or could have any obligation to provide compensation and/or benefits (including without limitation severance pay or benefits) in an amount or having a value in excess of $100,000 per year or $500,000 in the aggregate. "ANADARKO PLAN" means any Anadarko Employee Benefit Plans other than a Multiemployer Plan. "ERISA AFFILIATE" means, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same "controlled group" as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA. 11 "MULTIEMPLOYER PLAN" means any "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA. "WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as those terms are defined in Part I of Subtitle E of Title IV of ERISA. (a) Section 3.14(a) to the Anadarko Disclosure Schedule includes a complete list of all material Anadarko Employee Benefit Plans and all Anadarko Material Employment Agreements. (b) With respect to each Anadarko Plan, Anadarko has delivered or made available to UPR a true, correct and complete copy of: (i) each writing constituting a part of such Anadarko Plan, including without limitation all plan documents, employee communications, benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current summary plan description and any material modifications thereto, if any (in each case, whether or not required to be furnished under ERISA); (iv) the most recent annual financial report, if any; (v) the most recent actuarial report, if any; and (vi) the most recent determination letter from the Internal Revenue Service, if any. Anadarko has delivered or made available to UPR a true, complete and correct copy of each Anadarko Material Employment Agreement. Except as specifically provided in the foregoing documents delivered or made available to UPR, there are no amendments to any Anadarko Plan or Anadarko Material Employment Agreement that have been adopted or approved nor has Anadarko or any of its subsidiaries undertaken to make any such amendments or to adopt or approve any new Anadarko Plan or Anadarko Material Employment Agreement. (c) Section 3.14(c) to the Anadarko Disclosure Schedule identifies each Anadarko Plan that is intended to be a "qualified plan" within the meaning of Section 401(a) of the Code ("ANADARKO QUALIFIED PLANS"). The Internal Revenue Service has issued a favorable determination letter with respect to each Anadarko Qualified Plan and the related trust that has not been revoked, and there are no circumstances and, to the knowledge of Anadarko, no events have occurred that could adversely affect the qualified status of any Anadarko Qualified Plan or the related trust. Section 3.14(c) to the Anadarko Disclosure Schedule identifies each Anadarko Plan which is intended to meet the requirements of Code Section 501(c)(9), and each such plan meets such requirements. (d) All material contributions required to be made to any Anadarko Plan by applicable law or regulation or by any plan document or other contractual undertaking, and all material premiums due or payable with respect to insurance policies funding any Anadarko Plan, for any period through the date hereof have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, either (i) have been fully reflected on the financial statements included in the Anadarko SEC Documents, or (ii) items omitted from the Anadarko SEC Documents could not reasonably be expected to have a Material Adverse Effect on Anadarko. Each Anadarko Employee Benefit Plan that is an employee welfare benefit plan under Section 3(1) of ERISA is either (i) funded through an insurance company contract and is not a "welfare benefit fund" with the meaning of Section 419 of the Code or (ii) unfunded. (e) Except as set forth in Section 3.13(e) to the Anadarko Disclosure Schedule, with respect to each Anadarko Employee Benefit Plan, Anadarko and its subsidiaries have complied, and are now in compliance, in all material respects, with all provisions of ERISA, the Code and all laws and regulations applicable to such Anadarko Employee Benefit Plans and each Anadarko Employee Benefit Plan has been administered in all material respects in accordance with its terms. There is not now, nor, to the knowledge of Anadarko, do any circumstances currently exist that could give rise to, any requirement for the posting of security with respect to an Anadarko Plan or the imposition of any lien on the assets of Anadarko or any of its subsidiaries under ERISA or the Code. 12 (f) With respect to each Anadarko Plan that is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code: (i) there does not exist any accumulated funding deficiency within the meaning of Section 412 of the Code or Section 302 of ERISA, whether or not waived; (ii) no reportable event within the meaning of Section 4043(c) of ERISA for which the 30-day notice requirement has not been waived has occurred, and the consummation of the transactions contemplated by this agreement will not result in the occurrence of any such reportable event; (iii) all premiums to the Pension Benefit Guaranty Corporation (the "PBGC") have been timely paid in full; (iv) no liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is expected to be incurred by Anadarko or any of its subsidiaries; and (v) the PBGC has not instituted proceedings to terminate any such Anadarko Plan and, to Anadarko's knowledge, no condition exists that presents a risk that such proceedings will be instituted or which would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any such Anadarko Plan. (g) (i) No Anadarko Employee Benefit Plan is a Multiemployer Plan or a plan that has two or more contributing sponsors at least two of whom are not under common control, within the meaning of Section 4063 of ERISA (a "MULTIPLE EMPLOYER PLAN"); (ii) none of Anadarko and its subsidiaries nor any of their respective ERISA Affiliates has, at any time during the last six years, contributed to or been obligated to contribute to any Multiemployer Plan or Multiple Employer Plan; and (iii) none of Anadarko and its subsidiaries nor any of their respective ERISA Affiliates has incurred any material Withdrawal Liability that has not been satisfied in full. With respect to each Anadarko Plan that is a Multiemployer Plan: (i) if Anadarko or any of its subsidiaries or any of their respective ERISA Affiliates were to experience a withdrawal or partial withdrawal from such plan, no material Withdrawal Liability would be incurred; and (ii) none of Anadarko and its subsidiaries, nor any of their respective ERISA Affiliates has received any notification, nor does Anadarko have any knowledge, that any such Anadarko Plan is in reorganization, has been terminated, is insolvent, or may reasonably be expected to be in reorganization, to be insolvent, or to be terminated. (h) There does not now exist, nor, to the knowledge of Anadarko, do any circumstances exist that could reasonably be expected to result in, any material Anadarko Controlled Group Liability that would be a liability of Anadarko or any of its subsidiaries following the Closing. Without limiting the generality of the foregoing, neither Anadarko nor any of its subsidiaries, nor any of their respective ERISA Affiliates, has engaged in any transaction described in Section 4069 or Section 4204 or 4212 of ERISA. (i) Section 3.14(i) to the Anadarko Disclosure Schedule sets forth a list of each Anadarko Employment Agreement under which the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby could (either alone or in conjunction with any other event) result in, cause the accelerated vesting, funding or delivery of, or materially increase the amount or value of, any payment or benefit to any employee, officer or director of Anadarko or any of its subsidiaries, or could limit the right of Anadarko or any of its subsidiaries to amend, merge, terminate or receive a reversion of assets from any Anadarko Employee Benefit Plan or related trust or any Anadarko Material Employment Agreement or related trust. (j) None of Anadarko and its subsidiaries nor, to the knowledge of Anadarko, any other person, including any fiduciary, has engaged in any "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA), which could subject any of the Anadarko Employee Benefit Plans or their related trusts, Anadarko, any of its subsidiaries or any person that Anadarko or any of its subsidiaries has an obligation to indemnify, to any material tax or material penalty imposed under Section 4975 of the Code or Section 502 of ERISA. (k) Except as set forth in Section 3.14(k) to the Anadarko Disclosure Schedule, there are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations which have been asserted or instituted, and to Anadarko's knowledge, no set of circumstances exists which may reasonably give rise to a claim or lawsuit, against the Anadarko 13 Plans, any fiduciaries thereof with respect to their duties to the Anadarko Plans or the assets of any of the trusts under any of the Anadarko Plans which could reasonably be expected to result in any material liability of Anadarko or any of its subsidiaries to the PBGC, the Department of Treasury, the Department of Labor, any Multiemployer Plan, any Anadarko Plan or any participant in an Anadarko Plan. (l) Anadarko, its subsidiaries and each member of their respective business enterprises have in all material respects complied with the Worker Adjustment and Retraining Notification Act and in all material respects, with all similar state, local and foreign laws. (m) All Anadarko Employee Benefit Plans subject to the laws of any jurisdiction outside of the United States (i) have been maintained in accordance with all applicable requirements, (ii) if they are intended to qualify for special tax treatment, meet all requirements for such treatment, and (iii) if they are intended to be funded and/or book-reserved are funded and/or book-reserved in all material respects, as appropriate, based upon reasonable actuarial assumptions. 3.15 CONTRACTS. All written or oral contracts, agreements, guarantees, leases and executory commitments other than Anadarko Plans to which Anadarko or its subsidiaries is a party or by which its assets are bound which are material to Anadarko (each an "ANADARKO CONTRACT"), are valid and binding obligations of Anadarko and, to the knowledge of Anadarko, the valid and binding obligation of each other party thereto except such Anadarko Contracts that if not so valid and binding would not, individually or in the aggregate, have a Material Adverse Effect on Anadarko. Neither Anadarko nor, to the knowledge of Anadarko, any other party thereto is in violation of or in default in respect of, nor has there occurred an event or condition that with the passage of time or giving of notice (or both) would constitute a default under or permit the termination of, any such Anadarko Contract except such violations or defaults under or terminations that, individually or in the aggregate, would not have a Material Adverse Effect on Anadarko. 3.16 LABOR MATTERS. Anadarko does not have any labor contracts or collective bargaining agreements with any persons employed by Anadarko or any persons otherwise performing services primarily for Anadarko. There is no labor strike, dispute or stoppage pending or, to the knowledge of Anadarko, threatened against Anadarko, and Anadarko has not experienced any labor strike, dispute or stoppage or other material labor difficulty involving its employees since January 1, 1998. To the knowledge of Anadarko, since January 1, 1998, no campaign or other attempt for recognition has been made by any labor organization or employees with respect to employees of Anadarko or any of its subsidiaries. 3.17 UNDISCLOSED LIABILITIES. Except (i) as and to the extent disclosed or reserved against on the balance sheet of Anadarko as of December 31, 1999 included in the Anadarko SEC Documents, or (ii) as incurred after the date thereof in the ordinary course of business consistent with prior practice and not prohibited by this Agreement, Anadarko does not have any liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise and whether due or to become due, that, individually or in the aggregate, have had or would reasonably be expected to have a Material Adverse Effect on Anadarko. 3.18 PERMITS; COMPLIANCE. Anadarko is in possession of all material franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "ANADARKO PERMITS"), and there is no Action pending or, to the knowledge of Anadarko, threatened regarding any of the Anadarko Permits. Anadarko is not in conflict with, or in default or violation of any of the Anadarko Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect on Anadarko. 3.19 ENVIRONMENTAL MATTERS. Except as disclosed in the Anadarko SEC Documents, (i) the properties, operations and activities of Anadarko and its subsidiaries are in compliance with all applicable Environmental Laws (as defined below) and all past noncompliance of Anadarko or any Anadarko subsidiary with any Environmental Laws or Environmental Permits (as defined below), has been resolved without any pending, ongoing or future obligation, cost or liability; (ii) Anadarko and its subsidiaries and 14 the properties and operations of Anadarko and its subsidiaries are not subject to any existing, pending or, to the knowledge of Anadarko, threatened Action by or before any court or Governmental Authority under any Environmental Law; (iii) except as allowed by Environmental Permits or Environmental Laws, there has been no release of any hazardous substance, pollutant or contaminant into the environment by Anadarko or its subsidiaries or in connection with their properties or operations; and (iv) except as allowed by Environmental Permits or Environmental Laws, there has been no exposure of any person or property to any hazardous substance, pollutant or contaminant in connection with the properties, operations and activities of Anadarko and its subsidiaries, in each case, other than those matters that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Anadarko. The term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to pollution, or protection of human health from Hazardous Materials (as defined below) or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or industrial, toxic or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, injunctions, judgments, licenses, notices, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder. "ENVIRONMENTAL PERMIT" means any permit, approval, license or other authorization required under or issued pursuant to any applicable Environmental Law. 3.20 OPINION OF FINANCIAL ADVISOR. Anadarko has received the written opinion of Credit Suisse First Boston Corporation, its financial advisor (the "ANADARKO FINANCIAL ADVISOR"), to the effect that, as of the date of this Agreement, the Exchange Ratio is fair to Anadarko from a financial point of view. Anadarko has heretofore provided copies of such opinion to UPR and such opinion has not been withdrawn or revoked or modified in any material respect. 3.21 BOARD RECOMMENDATION; REQUIRED VOTE. The Board of Directors of Anadarko, at a meeting duly called and held, has by unanimous vote of those directors present (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, and the Anadarko Stock Option Agreement and the transactions contemplated thereby, taken together, are fair to and in the best interests of Anadarko and the Anadarko Stockholders, and (ii) resolved to recommend that the Anadarko Stockholders approve and authorize the Share Issuance and the Anadarko Board Amendment (as defined in Section 5.2(h)) (the "ANADARKO BOARD RECOMMENDATION"). The affirmative vote of holders of a majority of the Anadarko Common Shares present and voting at the Anadarko Stockholders Meeting to approve the Share Issuance and the affirmative vote of holders of 80% of the outstanding Anadarko Common Shares to approve the Anadarko Board Amendment are the only votes of the Anadarko Stockholders necessary to adopt this Agreement and approve the transactions contemplated hereby. 3.22 STATE TAKEOVER LAWS; RIGHTS AGREEMENT. Prior to the execution of this Agreement, the Board of Directors of Anadarko has taken all action necessary to exempt under or make not subject to any state takeover law or state law that purports to limit or restrict business combinations or the ability to acquire or vote shares: (i) the execution of this Agreement, and the Anadarko Stock Option Agreement, (ii) the Merger and (iii) the transactions contemplated hereby and by the Anadarko Stock Option Agreement. The Anadarko Rights Agreement has been amended so that UPR is exempt from the definition of "ACQUIRING PERSON" contained in the Anadarko Rights Agreement and no "SHARES ACQUISITION DATE" or "DISTRIBUTION DATE" (as such terms are defined in the Anadarko Rights Agreement) will occur as a result of the execution of the Anadarko Stock Option Agreement or the acquisition or transfer of Anadarko Common Shares by UPR pursuant to the Anadarko Stock Option Agreement. Copies of all such amendments to the Anadarko Rights Agreement have been previously provided to UPR. 15 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF UPR In order to induce Subcorp and Anadarko to enter into this Agreement, UPR hereby represents and warrants to Anadarko and Subcorp that the statements contained in this Article IV are true, correct and complete, subject to, in each of the following representations to the specified section of the disclosure schedule delivered by UPR to Anadarko and dated the date hereof (the "UPR DISCLOSURE SCHEDULE") PROVIDED that items listed in any Section to the UPR Disclosure Schedule shall apply only to the corresponding section of this Agreement (except to the extent that there is a specific cross-reference to another section of the UPR Disclosure Schedule). 4.1 ORGANIZATION AND STANDING. UPR is a corporation duly organized, validly existing and in good standing under the laws of the State of Utah with full corporate power and authority to own, lease, use and operate its properties and to conduct its business as and where now owned, leased, used, operated and conducted. Each of UPR and each subsidiary of UPR is duly qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases or operates requires it to so qualify, except where the failure to be so qualified or in good standing in such jurisdiction would not have a Material Adverse Effect on UPR. UPR is not in default in the performance, observance or fulfillment of any provision of its Amended and Restated Articles of Incorporation (the "UPR ARTICLES"), or its By-laws, as in effect on the date hereof (the "UPR BYLAWS"). UPR has heretofore furnished to Anadarko a complete and correct copy of the UPR Articles and the UPR Bylaws. 4.2 SUBSIDIARIES AND INVESTMENTS. UPR does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other entity or enterprise, except for its subsidiaries and other entities, in each case set forth in Section 4.2 to the UPR Disclosure Schedule. Section 4.2 of the UPR Disclosure Schedule specifically identifies each of UPR's "significant subsidiaries" as defined in Rule 1-02(w) of Regulation S-X (the subsidiaries so identified the "SIGNIFICANT SUBSIDIARIES"). UPR owns, directly or indirectly, each of the outstanding shares of capital stock (or other ownership interests having by their terms ordinary voting power to elect a majority of directors or others performing similar functions with respect to such subsidiary) of each of UPR's Significant Subsidiaries. Each of the outstanding shares of capital stock of each of UPR's Significant Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned, directly or indirectly, by UPR free and clear of all liens, pledges, security interests, claims or other encumbrances. With respect to UPR's subsidiaries other than the Significant Subsidiaries, to the extent the outstanding shares of capital stock of each of such Subsidiaries are not (i) duly authorized, validly issued, fully paid and nonassessable, or (ii) owned, directly or indirectly, by UPR free and clear of all liens, pledges, security interests, claims or other encumbrances, there is not, and there could not reasonably be expected to be, any material impact on the business and operations of UPR and its subsidiaries taken as a whole. There are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale or transfer of any securities of any subsidiary of UPR, nor are there outstanding any securities that are convertible into or exchangeable for any shares of capital stock of any subsidiary of UPR, and neither UPR nor any subsidiary of UPR has any obligation of any kind to issue any additional securities or to pay for or repurchase any securities of any subsidiary of UPR or any predecessor thereof. 4.3 CORPORATE POWER AND AUTHORITY. UPR has all requisite corporate power and authority to enter into and deliver this Agreement, to perform its obligations hereunder and, subject to authorization of the Merger and the transactions contemplated hereby by UPR Stockholders, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by UPR have been duly authorized by all necessary corporate action on the part of UPR, subject to authorization of the Merger and the transactions contemplated hereby by UPR Stockholders. This Agreement has been duly executed and delivered by UPR and constitutes the legal, valid and binding obligation of UPR enforceable against it in accordance with its terms. 16 4.4 CAPITALIZATION OF UPR. As of March 31, 2000, UPR's authorized capital stock consisted solely of (a) 400,000,000 shares of common stock ("UPR COMMON STOCK"), of which (i) 251,952,336 shares were issued and outstanding, (ii) 4,277,293 shares were issued and held by UPR (which does not include shares of UPR Common Stock reserved for issuance set forth in clause (iii) below), (iii) 11,194,329 shares were reserved for issuance upon the exercise of outstanding UPR Options, and (iv) 50,138,515 shares of UPR Common Stock were reserved for future issuance under the Stock Option Agreement dated April 2, 2000 between Anadarko and UPR (the "UPR STOCK OPTION AGREEMENT"); and (b) 100,000,000 shares of preferred stock, of which (i) none was issued and outstanding, and (ii) 3,000,000 shares have been designated as Series A Junior Participating Preferred Stock reserved for issuance pursuant to the rights issued under the UPR Rights Agreement (as defined in Section 4.22). Since March 31, 2000, UPR has not issued any additional shares of capital stock except for the issuance of UPR Common Stock in connection with the exercise of UPR Options and the issuance of UPR Common Stock in respect of awards outstanding on the date of this Agreement under the Executive Deferred Compensation Plan and the Deferred Compensation Plan for the Board of Directors. Each outstanding share of UPR capital stock is duly authorized and validly issued, fully paid and nonassessable, and has not been issued in violation of any preemptive or similar rights. Other than as set forth in the first sentence hereof or as contemplated by the UPR Stock Option Agreement, there are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale, repurchase or transfer of any securities of UPR, nor are there outstanding any securities which are convertible into or exchangeable for any shares of capital stock of UPR, and neither UPR nor any subsidiary of UPR has any obligation of any kind to issue any additional securities or to pay for or repurchase any securities of UPR or any predecessor. The issuance and sale of all of the shares of capital stock described in this Section 4.4 have been in compliance with federal and state securities laws and the UPR Common Stock is registered under the Exchange Act. UPR has previously provided Anadarko with a schedule setting forth the number of shares of each class (including the number of shares issuable upon exercise of UPR Options and the exercise price and the grant date with respect thereto) held by all holders of options to purchase UPR capital stock. Other than pursuant to the UPR Stock Option Agreement, UPR has not agreed to register any securities under the Securities Act or under any state securities law or granted registration rights to any person or entity; copies of all such agreements have previously been provided to Anadarko. 4.5 CONFLICTS; CONSENTS AND APPROVALS. Neither the execution and delivery of this Agreement or the UPR Stock Option Agreement by UPR, nor the consummation of the transactions contemplated hereby or thereby will: (a) conflict with, or result in a breach of any provision of, the UPR Articles or the UPR Bylaws; (b) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event that, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of UPR or any of its subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligation to which UPR or any of its subsidiaries is a party; (c) violate any order, writ, injunction, decree, statute, rule or regulation applicable to UPR or any of its subsidiaries or any of their respective properties or assets; or (d) require any action or consent or approval of, or review by, or registration or filing by UPR or any of its affiliates with, any third party or any Governmental Authority, other than (i) authorization of the Merger and the transactions contemplated hereby by UPR Stockholders, (ii) actions required by the HSR Act, (iii) registrations or other actions required under federal and state securities laws as are contemplated by this Agreement and (iv) consents or approvals of any Governmental Authority; 17 except in the case of clauses (b), (c) and (d) for any of the foregoing that would not, individually or in the aggregate, have a Material Adverse Effect on UPR or a material adverse effect on the ability of the parties hereto to consummate the transaction contemplated hereby. 4.6 BROKERAGE AND FINDER'S FEES. Except for UPR's obligations to Goldman, Sachs & Co. and Simmons & Company (the "UPR FINANCIAL ADVISORS") (copies of all agreements relating to such obligations having previously been provided to Anadarko), neither UPR nor any stockholder, director, officer or employee thereof, has incurred or will incur on behalf of UPR, any financial advisory, brokerage, finder's or similar fee in connection with the transactions contemplated by this Agreement. 4.7 REORGANIZATION. To the knowledge of UPR, neither UPR nor any of its affiliates has taken or agreed to take any action that (without giving effect to any actions taken or agreed to be taken by Anadarko or any of its affiliates) would prevent the Merger from constituting a "reorganization" qualifying under the provisions of Section 368(a) of the Code. 4.8 NO MATERIAL ADVERSE CHANGE. As disclosed in the UPR SEC Documents filed prior to the date of this Agreement, since January 1, 2000, there has been no material adverse change in the business, assets, liabilities, results of operations, financial condition or prospects of UPR and its subsidiaries taken as a whole, or any event, occurrence or development that would reasonably be expected to have a Material Adverse Effect on UPR or a material adverse effect on the ability of UPR to consummate the transactions contemplated hereby. 4.9 UPR SEC DOCUMENTS. UPR has timely filed with the Commission all forms, reports, schedules, statements and other documents required to be filed by it since January 1, 1997 under the Exchange Act or the Securities Act (such documents, as supplemented and amended since the time of filing, collectively, the "UPR SEC DOCUMENTS"). The UPR SEC Documents, including, without limitation, any financial statements or schedules included therein, at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively and, in the case of any UPR SEC Document amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing) (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be. The financial statements of UPR included in the UPR SEC Documents at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively, and, in the case of any UPR SEC Document amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing) complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto, were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the Commission), and fairly present (subject, in the case of unaudited statements, to normal, recurring audit adjustments) the consolidated financial position of UPR and its consolidated subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. No subsidiary of UPR is subject to the periodic reporting requirements of the Exchange Act or required to file any form, report or other document with the Commission, the NYSE, any other stock exchange or any other comparable Governmental Authority. 4.10 TAXES. (a) UPR and its subsidiaries have duly filed all material federal, state, local and foreign income, franchise, excise, real and personal property and other Tax Returns (including, but not limited to, those filed on a consolidated, combined or unitary basis) required to have been filed by UPR or its subsidiaries prior to the date hereof. All of the foregoing Tax Returns and reports are true and correct (except for such inaccuracies that are, individually or in the aggregate, immaterial), and UPR and its subsidiaries have within the time and manner prescribed by Applicable Law paid or, prior to the 18 Effective Time, will pay all Taxes, interest and penalties required to be paid in respect of the periods covered by such returns or reports or otherwise due to any federal, state, foreign, local or other taxing authority. Neither UPR nor any of its subsidiaries have any material liability for any Taxes in excess of the amounts so paid or reserves so established and neither UPR nor any of its subsidiaries is delinquent in the payment of any material Tax. Neither UPR nor any of its subsidiaries has requested or filed any document having the effect of causing any extension of time within which to file any returns in respect of any fiscal year which have not since been filed. No deficiencies for any material Tax have been proposed in writing, asserted or assessed (tentatively or definitely), in each case, by any taxing authority, against UPR or any of its subsidiaries for which there are not adequate reserves. Neither UPR nor any of its subsidiaries is the subject of any currently ongoing Tax audit except for those that are, individually or in the aggregate, immaterial. There are no pending requests for waivers of the time to assess any material Tax, other than those made in the ordinary course and for which payment has been made or there are adequate reserves. Neither UPR nor any of its subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. There are no liens with respect to material Taxes upon any of the properties or assets, real or personal, tangible or intangible of UPR or any of its subsidiaries (other than liens for Taxes not yet due). To the knowledge of UPR, no claim has ever been made in writing by an authority in a jurisdiction where none of UPR and its subsidiaries files Tax Returns that UPR or any of its subsidiaries is or may be subject to taxation by that jurisdiction. Neither UPR nor any of its subsidiaries has filed an election under Section 341(f) of the Code to be treated as a consenting corporation. (b) Neither UPR nor any of its subsidiaries is obligated by any contract, agreement or other arrangement to indemnify any other person with respect to material Taxes. Neither UPR nor any of its subsidiaries are now or have ever been a party to or bound by any agreement or arrangement (whether or not written and including, without limitation, any arrangement required or permitted by law) binding UPR or any of its subsidiaries that (i) requires UPR or any of its subsidiaries to make any Tax payment to or for the account of any other person, (ii) affords any other person the benefit of any net operating loss, net capital loss, investment Tax credit, foreign Tax credit, charitable deduction or any other credit or Tax attribute which could reduce Taxes (including, without limitation, deductions and credits related to alternative minimum Taxes) of UPR or any of its subsidiaries, or (iii) requires or permits the transfer or assignment of income, revenues, receipts or gains to UPR or any of its subsidiaries, from any other person. (c) UPR and its subsidiaries have withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party. (d) Neither UPR nor any of its subsidiaries is responsible for any material Taxes of any other person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee, by contract, or otherwise. (e) Neither UPR nor any of its subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement (or will constitute such a corporation in the two years prior to the date of the Effective Time) or (ii) in a distribution which otherwise constitutes part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger. 4.11 COMPLIANCE WITH LAW. UPR is in compliance, and at all times since January 1, 1997 has been in compliance, with all Applicable Laws relating to UPR or its business or properties, except where the failure to be in compliance with such Applicable Laws, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on UPR. To the knowledge of UPR, no investigation or review by any Governmental Authority with respect to UPR is pending or threatened, nor 19 has any Governmental Authority indicated in writing an intention to conduct the same, other than those the outcome of which would not reasonably be expected to have a Material Adverse Effect on UPR. 4.12 REGISTRATION STATEMENT; JOINT PROXY STATEMENT. None of the information provided by UPR for inclusion in the Registration Statement at the time it becomes effective and, in the case of the Joint Proxy Statement, at the date of mailing and at the date of the UPR Stockholders Meeting or the Anadarko Stockholders Meeting, will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Registration Statement and Joint Proxy Statement, except for such portions thereof that relate only to Anadarko or its subsidiaries, will each comply as to form in all material respects with the provisions of the Securities Act and the Exchange Act. 4.13 LITIGATION. There is no Action pending or, to the knowledge of UPR, threatened against UPR or any executive officer or director of UPR that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on UPR or a material adverse effect on the ability of UPR to consummate the transactions contemplated hereby. UPR is not subject to any outstanding order, writ, injunction or decree that, individually or in the aggregate, insofar as can be reasonably foreseen, would have a Material Adverse Effect on UPR or a material adverse effect on the ability of UPR to consummate the transactions contemplated hereby. 4.14 UPR EMPLOYEE BENEFIT PLANS (a) For purposes of this Agreement, the following terms have the definitions given below: "UPR CONTROLLED GROUP LIABILITY" means any and all liabilities (i) under Title IV of ERISA, (ii) under section 302 of ERISA (iii) under sections 412 and 4971 of the Code, (iv) as a result of a failure to comply with the continuation coverage requirements of section 601 et seq. of ERISA and section 4980B of the Code, and (v) under corresponding or similar provisions of foreign laws or regulations, other than such liabilities that arise solely out of, or relate solely to, the UPR Employee Benefit Plans listed in Section 4.14 of the UPR Disclosure Schedule. "UPR EMPLOYEE BENEFIT PLAN" means any UPR Employee Benefit Plan, program, policy, practices, or other arrangement providing benefits to any current or former employee, officer or director of UPR or any of its subsidiaries or any beneficiary or dependent thereof that is sponsored or maintained by UPR or any of its subsidiaries or to which UPR or any of its subsidiaries contributes or is obligated to contribute, whether or not written, including without limitation any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA) and any bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, change of control or fringe benefit plan, program or agreement. "UPR EMPLOYMENT AGREEMENT" means a contract, offer letter or agreement of UPR or any subsidiary with or addressed to any individual who is rendering or has rendered services thereto as an employee or consultant pursuant to which UPR or any subsidiary has any actual or contingent liability or obligation to provide compensation and/or benefits in consideration for past, present or future services. "UPR MATERIAL EMPLOYMENT AGREEMENT" means an UPR Employment Agreement pursuant to which UPR or any subsidiary has or could have any obligation to provide compensation and/or benefits (including without limitation severance pay or benefits) in an amount or having a value in excess of $100,000 per year or $500,000 in the aggregate. "UPR PLAN" means any UPR Employee Benefit Plan other than a Multiemployer Plan. 20 (a) Section 4.14(a) to the UPR Disclosure Schedule includes a complete list of all material UPR Employee Benefit Plans and all UPR Material Employment Agreements. (b) With respect to each UPR Plan, UPR has delivered or made available to Anadarko a true, correct and complete copy of: (i) each writing constituting a part of such UPR Plan, including without limitation all plan documents, employee communications, benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current summary plan description and any material modifications thereto, if any (in each case, whether or not required to be furnished under ERISA); (iv) the most recent annual financial report, if any; (v) the most recent actuarial report, if any; and (vi) the most recent determination letter from the Internal Revenue Service, if any. UPR has delivered or made available to Anadarko a true, complete and correct copy of each UPR Material Employment Agreement. Except as specifically provided in the foregoing documents delivered or made available to Anadarko, there are no amendments to any UPR Plan or UPR Material Employment Agreement that have been adopted or approved. (c) Section 4.14(c) to the UPR Disclosure Schedule identifies each UPR Plan that is intended to be a "qualified plan" within the meaning of Section 401(a) of the Code ("UPR QUALIFIED PLANS"). The Internal Revenue Service has issued a favorable determination letter with respect to each UPR Qualified Plan and the related trust that has not been revoked, or such a letter will be timely applied for, and, to the knowledge of UPR, there are no circumstances and no events have occurred that could adversely affect the qualified status of any UPR Qualified Plan or the related trust. Section 4.14(c) to the UPR Disclosure Schedule identifies each UPR Plan which is intended to meet the requirements of Code Section 501(c)(9), and each such plan meets such requirements. (d) All material contributions required to be made to any UPR Plan by applicable law or regulation or by any plan document or other contractual undertaking, and all material premiums due or payable with respect to insurance policies funding any UPR Plan, for any period through the date hereof have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, either (i) have been fully reflected on the financial statements included in the UPR SEC Documents, or (ii) items omitted from the UPR SEC Documents could not reasonably be expected to have a Material Adverse Effect on UPR. Each UPR Employee Benefit Plan that is an employee welfare benefit plan under Section 3(1) of ERISA is either (i) funded through an insurance company contract and is not a "welfare benefit fund" with the meaning of Section 419 of the Code or (ii) unfunded. (e) With respect to each UPR Employee Benefit Plan, UPR and its subsidiaries have complied, and are now in compliance, in all material respects, with all provisions of ERISA, the Code and all laws and regulations applicable to such UPR Employee Benefit Plans and each UPR Employee Benefit Plan has been administered in all material respects in accordance with its terms. There is not now, nor, to the knowledge of UPR, do any circumstances currently exist that could give rise to, any requirement for the posting of security with respect to a UPR Plan or the imposition of any lien on the assets of UPR or any of its subsidiaries under ERISA or the Code. (f) With respect to each UPR Plan that is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code: (i) there does not exist any accumulated funding deficiency within the meaning of Section 412 of the Code or Section 302 of ERISA, whether or not waived; (ii) no reportable event within the meaning of Section 4043(c) of ERISA for which the 30-day notice requirement has not been waived has occurred, and the consummation of the transactions contemplated by this agreement will not result in the occurrence of any such reportable event; (iii) all premiums to the PBGC have been timely paid in full; (iv) no liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is expected to be incurred by UPR or any of its subsidiaries; and (v) the PBGC has not instituted proceedings to terminate any such UPR Plan and, to UPR's knowledge, no condition exists that presents a risk that such proceedings will be instituted 21 or which would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any such UPR Plan. (g) (i) No UPR Employee Benefit Plan is a Multiemployer Plan or a Multiple Employer Plan; (ii) none of UPR and its subsidiaries nor any of their respective ERISA Affiliates has, at any time during the last six years, contributed to or been obligated to contribute to any Multiemployer Plan or Multiple Employer Plan; and (iii) none of UPR and its subsidiaries nor any of their respective ERISA Affiliates has incurred any material Withdrawal Liability that has not been satisfied in full. With respect to each UPR Plan that is a Multiemployer Plan: (i) if UPR or any of its subsidiaries or any of their respective ERISA Affiliates were to experience a withdrawal or partial withdrawal from such plan, no material Withdrawal Liability would be incurred; and (ii) none of UPR and its subsidiaries, nor any of their respective ERISA Affiliates has received any notification, nor does UPR have any knowledge that any such UPR Plan is in reorganization, has been terminated, is insolvent, or may reasonably be expected to be in reorganization, to be insolvent, or to be terminated. (h) There does not now exist, nor, to the knowledge of UPR, do any circumstances exist that could reasonably be expected to result in, any material UPR Controlled Group Liability that would be a liability of UPR or any of its subsidiaries following the Closing. Without limiting the generality of the foregoing, neither UPR nor, to the knowledge of UPR any of its subsidiaries, nor any of their respective ERISA Affiliates, has engaged in any transaction described in Section 4069 or Section 4204 or 4212 of ERISA. (i) Section 4.14(i) to the UPR Disclosure Schedule sets forth a list of each UPR Employee Benefit Plan or UPR Employment Agreement under which the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby could (either alone or in conjunction with any other event) result in, cause the accelerated vesting, funding or delivery of, or materially increase the amount or value of, any payment or benefit to any employee, officer or director of UPR or any of its subsidiaries, or could limit the right of UPR or any of its subsidiaries to amend, merge, terminate or receive a reversion of assets from any UPR Employee Benefit Plan or related trust or any UPR Material Employment Agreement or related trust. (j) None of UPR and its subsidiaries nor, to the knowledge of UPR, any other person, including any fiduciary, has engaged in any "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA), which could subject any of the UPR Employee Benefit Plans or their related trusts, UPR, any of its subsidiaries or any person that UPR or any of its subsidiaries has an obligation to indemnify, to any material tax or material penalty imposed under Section 4975 of the Code or Section 502 of ERISA. (k) There are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations which have been asserted or instituted, and to UPR's knowledge, no set of circumstances exists which may reasonably give rise to a claim or lawsuit, against the UPR Plans, any fiduciaries thereof with respect to their duties to the UPR Plans or the assets of any of the trusts under any of the UPR Plans which could reasonably be expected to result in any material liability of UPR or any of its subsidiaries to the PBGC, the Department of Treasury, the Department of Labor, any Multiemployer Plan, any UPR Plan or any participant in a UPR Plan. (l) UPR, its subsidiaries and each member of their respective business enterprises have, in all material respects, complied with the Worker Adjustment and Retraining Notification Act and, in all material respects, all similar state, local and foreign laws. (m) All UPR Employee Benefit Plans subject to the laws of any jurisdiction outside of the United States (i) have been maintained in accordance with all applicable requirements, (ii) if they are intended to qualify for special tax treatment, meet all requirements for such treatment, and (iii) if they are intended to be funded and/or book-reserved are funded and/or book-reserved in all material respects, as appropriate, based upon reasonable actuarial assumptions. 22 (o) The UPR Employees Thrift Plan (the "ESOP") and the UPR TRASOP (the "TRASOP") are each "employee stock ownership plans" within the meaning of Section 4975(e)(7) of the Code. Each loan under which the ESOP is a borrower (each, a "LOAN") meets the requirements of Section 4975(d)(3) of the Code. The Securities of UPR that were acquired with such Loans are in each case pledged as collateral for the Loan with which they were acquired, except to the extent they have been released from such pledge and allocated to the accounts of participants in the ESOP in accordance with the requirements of Treasury Regulations Sections 54.4975-7 and 54.4975-11. The TRASOP has no outstanding indebtedness. 4.15 CONTRACTS. All written or oral contracts, agreements, guarantees, leases and executory commitments other than UPR Plans to which UPR or its subsidiaries is a party or by which its assets are bound which are material to UPR (each a "UPR CONTRACT"), are valid and binding obligations of UPR and, to the knowledge of UPR, the valid and binding obligation of each other party thereto except such UPR Contracts that if not so valid and binding would not, individually or in the aggregate, have a Material Adverse Effect on UPR. Neither UPR nor, to the knowledge of UPR, any other party thereto is in violation of or in default in respect of, nor has there occurred an event or condition that with the passage of time or giving of notice (or both) would constitute a default under or permit the termination of, any such UPR Contract except such violations or defaults under or terminations that, individually or in the aggregate, would not have a Material Adverse Effect on UPR. Set forth in Section 4.15 to the UPR Disclosure Schedule is the amount of the annual premium currently paid by UPR for its directors' and officers' liability insurance. 4.16 LABOR MATTERS. UPR does not have any labor contracts or collective bargaining agreements with any persons employed by UPR or any persons otherwise performing services primarily for UPR. There is no labor strike, dispute or stoppage pending or, to the knowledge of UPR, threatened against UPR, and UPR has not experienced any labor strike, dispute or stoppage or other material labor difficulty involving its employees since January 1, 1998. To the knowledge of UPR, since January 1, 1998, no campaign or other attempt for recognition has been made by any labor organization or employees with respect to employees of UPR or any of its subsidiaries. 4.17 UNDISCLOSED LIABILITIES. Except (i) as and to the extent disclosed or reserved against on the balance sheet of UPR as of December 31, 1999 included in the UPR SEC Documents, or (ii) as incurred after the date thereof in the ordinary course of business consistent with prior practice and not prohibited by this Agreement, UPR does not have any liabilities or obligations of any nature, whether, absolute, accrued, contingent or otherwise and whether due or to become due, that, individually or in the aggregate, have had or would reasonably be expected to have a Material Adverse Effect on UPR. 4.18 PERMITS; COMPLIANCE. UPR is in possession of all material franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "UPR Permits"), and there is no Action pending or, to the knowledge of UPR, threatened regarding any of the UPR Permits. UPR is not in conflict with, or in default or violation of any of the UPR Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect on UPR. 4.19 ENVIRONMENTAL MATTERS. Except as disclosed in the UPR SEC Documents, (i) the properties, operations and activities of UPR and its subsidiaries are in compliance with all applicable Environmental Laws and all past noncompliance of UPR or any UPR subsidiary with any Environmental Laws or Environmental Permits, has been resolved without any pending, ongoing or future obligation, cost or liability; (ii) UPR and its subsidiaries and the properties and operations of UPR and its subsidiaries are not subject to any existing, pending or, to the knowledge of UPR, threatened Action by or before any court or Governmental Authority under any Environmental Law; (iii) except as allowed by Environmental Permits or Environmental Laws, there has been no release of any hazardous substance, pollutant or contaminant into the environment by UPR or its subsidiaries or in connection with their properties or operations; and (iv) except as allowed by Environmental Permits or Environmental Laws, there has been 23 no exposure of any person or property to any hazardous substance, pollutant or contaminant in connection with the properties, operations and activities of UPR and its subsidiaries, in each case, other than those matters that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on UPR. 4.20 OPINION OF FINANCIAL ADVISOR. UPR has received the written opinion of Goldman, Sachs & Co., to the effect that, as of the date of this Agreement, the Exchange Ratio is fair to the UPR Stockholders from a financial point of view. UPR has heretofore provided copies of such opinions to Anadarko and such opinions have not been withdrawn or revoked or modified. 4.21 BOARD RECOMMENDATION; REQUIRED VOTE. The Board of Directors of UPR, at a meeting duly called and held, has by unanimous vote of those directors present (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, and the UPR Stock Option Agreement and the transactions contemplated thereby, taken together, are fair to and in the best interests of the UPR Stockholders, and (ii) resolved to recommend that the holders of the shares of UPR Common Stock approve this Agreement and the transactions contemplated herein, including the Merger (the "UPR BOARD RECOMMENDATION"). The affirmative vote of holders of a majority of the outstanding shares of UPR Common Stock to approve the Merger is the only vote of the holders of any class or series of UPR Common Stock necessary to adopt the Agreement and approve the transactions contemplated hereby. 4.22 STATE TAKEOVER LAWS; RIGHTS AGREEMENT. Prior to the execution of this Agreement, the Board of Directors of UPR has taken all action necessary to exempt under or make not subject to any state takeover law or state law that purports to limit or restrict business combinations or the ability to acquire or vote shares: (i) the execution of this Agreement, and the UPR Stock Option Agreement, (ii) the Merger and (iii) the transactions contemplated hereby and by the UPR Stock Option Agreement. The Amended and Restated Rights Agreement, dated as of December 1, 1998 (the "UPR RIGHTS AGREEMENT"), between UPR and Harris Trust and Savings Bank, as Rights Agent, has been amended so that Anadarko and Subcorp are each exempt from the definition of "Acquiring Person" contained in the UPR Rights Agreement, no "Stock Acquisition Date" or "Distribution Date" or "Triggering Event" (as such terms are defined in the UPR Rights Agreement) will occur as a result of the execution of this Agreement or the UPR Stock Option Agreement or the consummation of the Merger pursuant to this Agreement or the acquisition or transfer of shares of UPR Common Stock by Anadarko pursuant to the UPR Stock Option Agreement and the UPR Rights Agreement will expire immediately prior to the Effective Time, and the UPR Rights Agreement, as so amended, has not been further amended or modified. Copies of all such amendments to the UPR Rights Agreement have been previously provided to Anadarko. ARTICLE V. COVENANTS OF THE PARTIES The parties hereto agree that: 5.1 MUTUAL COVENANTS. (a) HSR ACT FILINGS; REASONABLE EFFORTS; NOTIFICATION. (i) Each of Anadarko and UPR shall (A) make or cause to be made the filings required of such party or any of its subsidiaries or affiliates under the HSR Act with respect to the transactions contemplated hereby as promptly as practicable and in any event within fifteen business days after the date of this Agreement, (B) comply at the earliest practicable date with any request under the HSR Act for additional information, documents, or other materials received by such party or any of its subsidiaries from the Federal Trade Commission or the Department of Justice or any other Governmental Authority in respect of such filings or such transactions, and (C) cooperate with the other party in connection with any such filing (including, with respect to the party making a filing, providing copies of all such documents to 24 the non-filing party and its advisors prior to filing (other than documents containing confidential business information that shall be shared only with outside counsel to the non-filing party)). Each party shall use its reasonable efforts to furnish to each other all information required for any application or other filing to be made pursuant to any Applicable Law in connection with the Merger and the other transactions contemplated by this Agreement. Each party shall promptly inform the other party of any substantive communication with, and any proposed understanding, undertaking, or agreement with, any Governmental Authority regarding any such filings or any such transaction. The parties hereto will consult and cooperate with one another, in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto in connection with proceedings under or relating to the HSR Act or other Antitrust Laws. (ii) Each of Anadarko and UPR shall use its reasonable efforts to resolve such objections, if any, as may be asserted by any Governmental Authority with respect to the transaction contemplated by this Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other federal, state or foreign statutes, rules, regulations, orders, decrees, administrative or judicial doctrines or other laws that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, "ANTITRUST LAWS"). In connection therewith, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any Antitrust Law, each of Anadarko and UPR shall cooperate and use its reasonable efforts vigorously to contest and resist any such action or proceeding, including any legislative, administrative or judicial action, and to have vacated, lifted, reversed, or overturned any decree, judgment, injunction or other order whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents, or restricts consummation of the Merger or any other transactions contemplated by this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, nothing in this Section 5.1(a) shall limit a party's right to terminate this Agreement pursuant to Article VII, so long as such party has up to then complied in all material respects with its obligations under this Section 5.1(a). Each of Anadarko and UPR shall use all reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to such transactions as promptly as possible after the execution of this Agreement. (iii) Each of the parties hereto agrees to use its reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties hereto in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including (A) the obtaining of all other necessary actions or nonactions, waivers, consents, licenses, permits, authorizations, orders and approvals from Governmental Authorities and the making of all other necessary registrations and filings (including other filings with Governmental Authorities, if any), (B) the obtaining of all consents, approvals or waivers from third parties related to or required in connection with the Merger that are necessary to consummate the Merger and the transactions contemplated by this Agreement or required to prevent a Material Adverse Effect on Anadarko or UPR from occurring prior to or after the Effective Time, (C) the preparation of the Joint Proxy Statement, the Prospectus and the Registration Statement, and (D) the execution and delivery of any additional instruments necessary to consummate the transaction contemplated by, and to fully carry out the purposes of, this Agreement. (iv) Notwithstanding anything to the contrary in this Agreement, (A) neither Anadarko nor any of its subsidiaries shall be required to hold separate (including by trust or otherwise) or to divest any of their respective businesses or assets, or to take or agree to take any action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect on 25 Anadarko and its subsidiaries taken as a whole or a material adverse effect on the business, assets, liabilities, results of operations, financial condition or prospects of Anadarko combined with the Surviving Corporation after the Effective Time, (B) prior to the Effective Time, neither UPR nor its subsidiaries shall be required to hold separate (including by trust or otherwise) or to divest any of their respective businesses or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect on UPR and its subsidiaries taken as a whole, (C) neither Anadarko nor UPR nor their respective subsidiaries shall be required to take any action that could reasonably be expected to substantially impair the overall benefits expected, as of the date hereof, to be realized from consummation of the Merger and (D) neither Anadarko nor UPR shall be required to waive any of the conditions to the Merger set forth in Article VI as they apply to such party. (b) TAX-FREE TREATMENT. Each of the parties shall use its reasonable efforts to cause the Merger to constitute a "reorganization" under Section 368(a) of the Code and to cooperate with one another in obtaining an opinion to UPR from Morgan Lewis & Bockius LLP, counsel to UPR, as provided for in Section 6.1(g), including, but not limited to, making such filings and maintaining such records as are required by Treasury Regulation Section 1.368-3. (c) PUBLIC ANNOUNCEMENTS. The initial press release concerning the Merger and the transactions contemplated hereby shall be a joint press release. Unless otherwise required by Applicable Laws or requirements of the NYSE (and, in that event, only if time does not permit), at all times prior to the earlier of the Effective Time or termination of this Agreement pursuant to Section 7.1, Anadarko and UPR shall consult with each other before issuing any press release with respect to the Merger and the transactions contemplated thereby and shall not issue any such press release prior to such consultation. (d) FARMOUTS. Except as set forth below, neither Anadarko nor UPR shall enter into any farmouts except farmouts in accordance with the guidelines for farmouts or similar transactions jointly developed by their respective Chief Executive Officers. Prior to the time such guidelines are established, neither Anadarko nor UPR shall enter into any farmouts without first consulting with the other party. 5.2 COVENANTS OF ANADARKO. (a) ANADARKO STOCKHOLDERS MEETING. Anadarko shall take all action in accordance with the federal securities laws, the Delaware General Corporation Law, the Anadarko Certificate and the Anadarko By-laws, necessary to duly call, give notice of, convene and hold a special meeting of Anadarko Stockholders (the "ANADARKO STOCKHOLDERS MEETING") to be held on the earliest practical date determined in consultation with UPR, and to obtain the consent and approval of Anadarko Stockholders with respect to the Share Issuance, the Anadarko Board Amendment and the transactions contemplated hereby. Anadarko shall take all lawful action to solicit the approval of the Share Issuance and the Anadarko Board Amendment by the Anadarko Stockholders and the Board of Directors of Anadarko shall recommend approval of the Share Issuance and the Anadarko Board Amendment by the Anadarko Stockholders (to the extent not previously withdrawn pursuant to Section 5.2(d)). (b) PREPARATION OF REGISTRATION STATEMENT. Anadarko shall, as soon as is reasonably practicable, prepare the Joint Proxy Statement for filing with the Commission and shall file the Joint Proxy Statement. Consistent with the timing for the Anadarko Stockholders Meeting and the UPR Stockholders Meeting as determined by Anadarko after consultation with UPR, Anadarko shall prepare and file the Registration Statement with the Commission as soon as is reasonably practicable following clearance of the Joint Proxy Statement by the Commission and shall use its reasonable efforts to have the Registration Statement declared effective by the Commission as promptly as practicable and to maintain the effectiveness of the Registration Statement through the Effective Time. If, at any time prior to the Effective Time, Anadarko shall obtain knowledge of any information 26 pertaining to Anadarko contained in or omitted from the Registration Statement that would require an amendment or supplement to the Registration Statement or the Joint Proxy Statement, Anadarko will so advise UPR in writing and will promptly take such action as shall be required to amend or supplement the Registration Statement and/or the Joint Proxy Statement. Anadarko shall promptly furnish to UPR all information concerning it as may be required for supplementing the Joint Proxy Statement. Anadarko shall cooperate with UPR in the preparation of the Joint Proxy Statement in a timely fashion and shall use its reasonable efforts to assist UPR in clearing the Joint Proxy Statement with the Staff of the Commission. Consistent with the timing of the Anadarko Stockholders Meeting and the UPR Stockholder Meeting, Anadarko shall use all reasonable efforts to mail at the earliest practicable date to Anadarko Stockholders the Joint Proxy Statement, which Joint Proxy Statement shall include all information required under Applicable Law to be furnished to Anadarko Stockholders in connection with the Share Issuance and shall include the Anadarko Board Recommendation to the extent not previously withdrawn in compliance with Section 5.2(d) and the written opinion of the Anadarko Financial Advisor described in Section 3.21. Anadarko shall also take such other reasonable actions (other than qualifying to do business in any jurisdiction in which it is not so qualified) required to be taken under any applicable state securities laws in connection with the issuance of Anadarko Common Shares in the Merger. No filing of, or amendment or supplement to, the Registration Statement or to the Joint Proxy Statement will be made by Anadarko without providing UPR the opportunity to review and comment thereon. Anadarko will advise UPR, promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of Anadarko Common Shares issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the Commission for amendment of the Joint Proxy Statement or the Registration Statement or comments thereon and responses thereto or requests by the Commission for additional information. (c) CONDUCT OF ANADARKO'S OPERATIONS. Anadarko shall conduct its operations in the ordinary course except as expressly contemplated by this Agreement and the transactions contemplated hereby and shall use all reasonable efforts to maintain and preserve its business organization and its material rights and franchises and to retain the services of its officers and key employees and maintain relationships with customers, suppliers, lessees, joint venture partners, licensees and other third parties, and to maintain all of its operating assets in their current condition (normal wear and tear excepted), to the end that their goodwill and ongoing business shall not be impaired in any material respect. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, Anadarko shall not, except as otherwise expressly contemplated by this Agreement and the transactions contemplated hereby or as set forth in Section 5.2(c) to the Anadarko Disclosure Schedule, without the prior consent of the Chief Executive Officer of UPR (which consent shall not be unreasonably withheld): (i) do or effect any of the following actions with respect to its securities: (A) adjust, split, combine or reclassify its capital stock, (B) make, declare or pay any dividend (other than regular quarterly dividends on Anadarko Common Shares of $0.05 per share with record and payment dates consistent with past practice) or distribution on, or, directly or indirectly, redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, (C) grant any person any right or option to acquire any shares of its capital stock, (D) issue, deliver or sell or agree to issue, deliver or sell any additional shares of its capital stock or any securities or obligations convertible into or exchangeable or exercisable for any shares of its capital stock or such securities (except pursuant to the exercise of Anadarko Options that are outstanding as of the date hereof), or (E) enter into any agreement, understanding or arrangement with respect to the sale, voting, registration or repurchase of its capital stock; (ii) directly or indirectly sell, transfer, lease, pledge, mortgage, encumber or otherwise dispose of any of its property or assets other than: (A) dispositions of oil, gas and other minerals 27 in the ordinary course of business, consistent with past practice, (B) pledges, mortgages or encumbrances in the ordinary course of business, consistent with past practice, or (C) sales, leases or dispositions with a total value not to exceed $50 million individually or in the aggregate, it being understood that sub-clauses (A), (B) and (C) do not apply to farmouts; (iii) except to the extent contemplated by this Agreement, make or propose any changes in the Anadarko Certificate or the Anadarko By-laws; (iv) merge or consolidate with any other person (other than mergers among wholly owned subsidiaries of Anadarko and mergers between Anadarko and its wholly owned subsidiaries); (v) acquire a material amount of assets or capital stock of any other person (other than acquisition of assets in the ordinary course of business, consistent with past practice with a total value not to exceed $25 million individually, or in the aggregate); (vi) amend or modify, or propose to amend or modify, the Anadarko Rights Agreement, as amended as of the date hereof; (vii) incur, create, assume or otherwise become liable for any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity, other than in the ordinary course of business, consistent with past practice, which in no event shall exceed $200 million in the aggregate; (viii) except as may be required by Applicable Law or by the terms of Anadarko Plans or Anadarko Employment Agreements in effect as of the date hereof, enter into or modify any employment, severance, termination or similar agreements or arrangements with, or grant any bonuses, salary increases, severance or termination pay to, any officer, director, consultant or employee, or otherwise increase, fund or accelerate the funding of any compensation or benefits provided to any officer, director, consultant or employee, contribute any assets to any grantor trust, or grant, reprice, or accelerate the exercise or payment of any Anadarko Options or other equity-based awards other than any payment of bonuses or increases in salary that are both consistent with the past practice of Anadarko and not material; (ix) enter into, adopt or amend any Anadarko Employee Benefit Plan or Anadarko Employment Agreement, except as may be required by Applicable Law, other than amendments in the ordinary course, consistent with past practice that do not increase, reduce or accelerate benefits, make payout options more favorable to participants, or otherwise result in any increased cost to Anadarko; (x) take any action that could give rise to a right to severance benefits pursuant to any change in control agreement; (xi) change any method or principle of accounting in a manner that is inconsistent with past practice except to the extent required by United States generally accepted accounting principles as advised by Anadarko's regular independent accountants; (xii) settle any Actions, whether now pending or hereafter made or brought involving, individually an amount in excess of $1 million, or in the aggregate, an amount in excess of $20 million; (xiii) modify, amend or terminate, or waive, release or assign any material rights or claims with respect to any confidentiality agreement to which Anadarko is a party; (xiv) enter into any confidentiality agreements or arrangements other than in the ordinary course of business consistent with past practice (other than as permitted, in each case, by Section 5.2(d)); 28 (xv) write up, write down or write off the book value of any assets, individually or in the aggregate, in excess of $5 million except for depreciation and amortization and provisions (E.G., surrendered leases) in accordance with generally accepted accounting principles consistently applied or as otherwise required by generally accepted accounting principles; (xvi) incur or commit to any capital expenditures not included in the dollar limits of the Anadarko Capital Budget as in effect on the date of this Agreement (a copy of which included in Section 5.2(c) to the Anadarko Disclosure Schedule); (xvii) make any payments in respect of policies of directors' and officers' liability insurance (premiums or otherwise) other than premiums paid in respect of its current policies and renewals thereof at the same policy limits; (xviii) take any action to exempt or make not subject to the provisions of any state takeover law or state law that purports to limit or restrict business combinations or the ability to acquire or vote shares, any person or entity (other than UPR or its subsidiaries) or any action taken thereby, which person, entity or action would have otherwise been subject to the restrictive provisions thereof and not exempt therefrom; (xix) take any action that would likely result in the representations and warranties set forth in Article III becoming false or inaccurate in any material respect; (xx) enter into or carry out any other transaction other than in the ordinary and usual course of business; (xxi) permit or cause any subsidiary to do any of the foregoing or agree or commit to do any of the foregoing; (xxii) except as otherwise required by law, make any material Tax election, settle or compromise any material Tax claim, file any Tax Return (other than in a manner consistent with past practice) or change any method of Tax accounting; or (xxiii) agree in writing or otherwise to take any of the foregoing actions. (d) NO SOLICITATION. Anadarko agrees that, during the term of this Agreement, it shall not, and shall not authorize or permit any of its subsidiaries or any of its or its subsidiaries' directors, officers, employees, agents or representatives, directly or indirectly, to solicit, initiate, encourage or facilitate, or furnish or disclose non-public information in furtherance of, any inquiries or the making of any proposal with respect to any recapitalization, merger, consolidation or other business combination involving Anadarko, or any acquisition of 15% or more of the capital stock (other than upon exercise of Anadarko Options that are outstanding as of the date hereof) or 30% or more of the assets of Anadarko and its subsidiaries, taken as a whole, in a single transaction or a series of related transactions, or any combination of the foregoing (an "ANADARKO COMPETING TRANSACTION"), or negotiate, explore or otherwise engage in discussions with any person (other than UPR, Subcorp or their respective directors, officers, employees, agents and representatives) with respect to any Anadarko Competing Transaction or enter into any agreement, arrangement or understanding requiring it to abandon, terminate or fail to consummate the Merger or any other transactions contemplated by this Agreement; PROVIDED that, at any time prior to the approval of the Share Issuance by the Anadarko Stockholders, Anadarko may furnish information to, and engage in discussions with, any party who delivers a written proposal for an Anadarko Competing Transaction which was not solicited or encouraged after the date of this Agreement in violation of this Agreement if and so long as the Board of Directors of Anadarko determines in good faith by resolution duly adopted after consultation with its outside counsel (who may be its regularly engaged outside counsel) that the failure to take such action would reasonably be expected to constitute a breach of its fiduciary duties under Applicable Law and determines that such a proposal is, after consulting with the Anadarko Financial Advisor, more favorable to Anadarko Stockholders from a financial point of view than the transactions contemplated by this Agreement (including any adjustment to the terms 29 and conditions proposed by UPR in response to such Anadarko Competing Transaction) (an "ANADARKO SUPERIOR PROPOSAL"); PROVIDED, FURTHER, that prior to furnishing information to, or engaging in discussions with, any party pursuant to the foregoing proviso, Anadarko shall have received an executed agreement from such party in the same form as the Confidentiality Agreement (other than Section 8 thereof which shall be waived for UPR under the Confidentiality Agreement upon the execution of such agreement). Anadarko will immediately cease all existing activities, discussions and negotiations with any parties conducted heretofore with respect to any proposal for an Anadarko Competing Transaction and request the return of all confidential information regarding Anadarko provided to any such parties prior to the date hereof pursuant to the terms of any confidentiality agreements or otherwise. In the event that prior to the approval of the Share Issuance by the Anadarko Stockholders, the Board of Directors of Anadarko receives an Anadarko Superior Proposal that was not solicited or encouraged after the date of this Agreement in violation of this Agreement, and the Board of Directors of Anadarko determines in good faith by resolution duly adopted after consultation with its outside counsel (who may be its regularly engaged outside counsel) that the failure to take such action would reasonably be expected to constitute a breach of its fiduciary duties under Applicable Law, the Board of Directors of Anadarko may (subject to this and the following sentences) withdraw, modify or change, in a manner adverse to UPR, the Anadarko Board Recommendation and/or comply with Rule 14e-2 promulgated under the Exchange Act with respect to an Anadarko Competing Transaction, PROVIDED that it gives UPR three business days' prior written notice of its intention to do so (PROVIDED that the foregoing shall in no way limit or otherwise affect UPR's right to terminate this Agreement pursuant to Section 7.4(b)). Any such withdrawal, modification or change of the Anadarko Board Recommendation shall not change the approval of the Board of Directors of Anadarko for purposes of causing any state takeover statute or other state law to be inapplicable to the transactions contemplated hereby, including the Merger or the Anadarko Stock Option Agreement or change the obligation of Anadarko to present the Share Issuance for approval at a duly called Anadarko Stockholders Meeting on the earliest practicable date determined in consultation with UPR. From and after the execution of this Agreement, Anadarko shall promptly (but in any event within one calendar day) advise UPR in writing of the receipt, directly or indirectly, of any inquiries, discussions, negotiations, or proposals relating to an Anadarko Competing Transaction (including the specific terms thereof and the identity of the other party or parties involved) and promptly furnish to UPR a copy of any such written proposal in addition to any information provided to or by any third party relating thereto. In addition, Anadarko shall promptly (but in any event within one calendar day) advise UPR, in writing, if the Board of Directors of Anadarko shall make any determination as to any Anadarko Competing Transaction as contemplated by the proviso to the first sentence of this Section 5.2(d). (e) INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (i) From and after the Effective Time, Anadarko shall cause the Surviving Corporation to indemnify and hold harmless (including providing funding therefor) the present and former officers and directors of UPR in respect of acts or omissions occurring prior to the Effective Time to the extent provided under the UPR Articles or the UPR Bylaws, and (ii) Anadarko shall use all reasonable best efforts to cause the Surviving Corporation or Anadarko to obtain and maintain in effect for a period of six years after the Effective Time policies of directors' and officers' liability insurance at no cost to the beneficiaries thereof with respect to acts or omissions occurring prior to the Effective Time with substantially the same coverage and containing substantially similar terms and conditions as existing policies; PROVIDED, HOWEVER, that neither the Surviving Corporation nor Anadarko shall be required to pay an aggregate premium for such insurance coverage in excess of 200% of the amount set forth in Section 4.15 to the UPR Disclosure Schedule; PROVIDED, FURTHER, that if the annual premiums of such insurance coverage exceed such amount, Anadarko shall be obligated to obtain a policy with the best coverage available, in the reasonable judgment of the Board of Directors of Anadarko, for a cost not exceeding such amount. 30 (f) NYSE LISTING. Anadarko shall use its reasonable efforts to cause the Anadarko Common Shares issuable pursuant to the Merger (including pursuant to Anadarko Exchange Options) to be approved for listing on the NYSE, subject to official notice of issuance, prior to the Effective Time. (g) ACCESS. Anadarko shall permit representatives of UPR to have access at all reasonable times to Anadarko's premises, properties, books, records, contracts, documents, customers and suppliers. Information obtained by UPR pursuant to this Section 5.2 shall be subject to the provisions of the confidentiality agreement between Anadarko and UPR dated February 22, 2000 (the "CONFIDENTIALITY AGREEMENT"), which agreement remains in full force and effect. No investigation conducted pursuant to this Section 5.2 shall affect or be deemed to modify any representation or warranty made in this Agreement. (h) BOARD OF DIRECTORS OF ANADARKO. At the Anadarko Stockholders Meeting, Anadarko shall take all action necessary in accordance with Applicable Law, the Anadarko Certificate and the Anadarko By-Laws to have the Anadarko Stockholders consider and vote upon an amendment to the Anadarko Certificate to increase the size of the Board of Directors of Anadarko to at least 13 members (the "ANADARKO BOARD AMENDMENT"). In the event that the Anadarko Board Amendment is approved, then the Board of Directors of Anadarko shall take all action necessary immediately following the Effective Time to elect as directors of Anadarko Mr. CEO, and four other independent directors who are currently members of the Board of Directors of UPR as may be mutually agreed by the Chief Executive Officer of Anadarko and the Chief Executive Officer of UPR prior to the Effective Time. In the event that the Anadarko Stockholders do not approve the Anadarko Board Amendment, the Board of Directors of Anadarko shall take all action necessary immediately following the Effective Time to elect as directors of Anadarko Mr. George Lindahl III, and two other independent directors who are currently members of the Board of Directors of UPR as may be mutually agreed by the Chief Executive Officer of Anadarko and the Chief Executive Officer of UPR prior to the Effective Time. The former UPR directors elected as directors of Anadarko shall be appointed among Classes I, II and III with a minimum of one director per Class. (i) SUBSEQUENT FINANCIAL STATEMENTS. Anadarko shall consult with UPR prior to making publicly available its financial results for any period after the date of this Agreement and prior to filing any Anadarko SEC Documents after the date of this Agreement. (j) EMPLOYEES AND EMPLOYEE BENEFITS. (A) From and after the Effective Time, the Surviving Corporation shall assume and honor all UPR Plans and UPR Employment Agreements in accordance with their terms as in effect immediately before the Effective Time, subject to any amendment or termination thereof that may be permitted by such terms. Until at least the first anniversary of the Effective Time (the "BENEFITS TRANSITION PERIOD"), Anadarko shall provide, or shall cause to be provided, to individuals who are, immediately before the Effective Time, employees of UPR and its subsidiaries who are not subject to collective bargaining (the "UPR EMPLOYEES"), employee benefits, other than equity-based benefits, that are, in the aggregate, comparable to the benefits, other than equity-based benefits, provided to UPR Employees under the UPR Plans immediately before the Effective Time (the "UPR BENEFITS"). Following the end of the Benefits Transition Period, or, at its discretion, prior to the end of the Benefits Transition Period, in lieu of the UPR Benefits, Anadarko shall provide, or cause to be provided, to UPR employees, employee benefits that are in the aggregate comparable to those provided, to similarly situated employees of Anadarko. The foregoing shall not be construed to prevent the termination of employment of any UPR Employee or the amendment or termination of any particular UPR Employee Benefit Plan to the extent permitted by its terms as in effect immediately before the Effective Time. (B) For all purposes under the employee benefit plans of Anadarko and its affiliates (including the Surviving Corporation) providing benefits to any UPR Employees after the Effective Time (the "NEW PLANS"), each UPR Employee shall be credited with his or her years of service with UPR and its subsidiaries before the Effective Time, to the same extent as such UPR Employee was entitled, before the 31 Effective Time, to credit for such service under any similar UPR Employee Benefit Plans, except for purposes of benefit accrual under defined benefit pension plans and except as would result in a duplication of benefits. In addition, and without limiting the generality of the foregoing: (i) each UPR Employee shall be immediately eligible to participate, without any waiting time, in any and all New Plans to the extent coverage under such New Plan replaces coverage under a comparable UPR Employee Benefit Plan in which such UPR Employee participated immediately before the Effective Time (such plans, collectively, the "OLD PLANS"); and (ii) for purposes of each New Plan providing medical, dental, pharmaceutical and/or vision benefits to any UPR Employee, Anadarko shall cause all pre-existing condition exclusions and actively-at-work requirements of such New Plan to be waived for such employee and his or her covered dependents, and Anadarko shall cause any eligible expenses incurred by such employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the date such employee's participation in the corresponding New Plan begins to be taken into account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan. (C) Without limiting the generality of the foregoing, following the Effective Time, and until such time as Anadarko shall otherwise determine, the ESOP shall continue in effect holding the Anadarko Common Shares that it receives in the Merger, and the Loans shall continue to remain outstanding and be repaid in accordance with their terms. 5.3 COVENANTS OF UPR. (a) UPR STOCKHOLDERS MEETING. UPR shall take all action in accordance with the federal securities laws, the UBCA and the UPR Articles and the UPR Bylaws necessary to duly call, give notice of, convene and hold a special meeting of UPR Stockholders (the "UPR STOCKHOLDERS MEETING") to be held on the earliest practicable date determined in consultation with Anadarko to consider and vote upon approval of the Merger, this Agreement and the transactions contemplated hereby. UPR shall take all lawful actions to solicit the approval of the Merger, this Agreement and the transactions contemplated hereby, by the UPR Stockholders, and the Board of Directors of UPR shall recommend approval of the Merger, this Agreement and the transactions contemplated hereby by the UPR Stockholders (to the extent not previously withdrawn pursuant to Section 5.3(d)). (b) INFORMATION FOR THE REGISTRATION STATEMENT AND PREPARATION OF JOINT PROXY STATEMENT. UPR shall promptly furnish Anadarko with all information concerning it as may be required for inclusion in the Joint Proxy Statement and the Registration Statement. UPR shall cooperate with Anadarko in the preparation of the Joint Proxy Statement and the Registration Statement in a timely fashion and shall use all reasonable efforts to assist Anadarko in having the Registration Statement declared effective by the Commission as promptly as practicable consistent with the timing for the Anadarko Stockholders Meeting and the UPR Stockholders Meeting as determined by Anadarko after consultation with UPR. If, at any time prior to the Effective Time, UPR obtains knowledge of any information pertaining to UPR that would require any amendment or supplement to the Registration Statement or the Joint Proxy Statement, UPR shall so advise Anadarko and shall promptly furnish Anadarko with all information as shall be required for such amendment or supplement and shall promptly amend or supplement the Registration Statement and/or Joint Proxy Statement. UPR shall use all reasonable efforts to cooperate with Anadarko in the preparation and filing of the Joint Proxy Statement with the Commission. Consistent with the timing for the Anadarko Stockholders Meeting and the UPR Stockholders Meeting as determined by Anadarko after consultation with UPR, UPR shall use all reasonable efforts to mail at the earliest practicable date to UPR Stockholders the Joint Proxy Statement, which shall include all information required under Applicable Law to be furnished to UPR Stockholders in connection with the Merger and the transactions contemplated thereby and shall include the UPR Board Recommendation to the extent not previously withdrawn in compliance with Section 5.3(d) and the written opinion of Goldman, Sachs & Co. described in Section 4.21. 32 (c) CONDUCT OF UPR'S OPERATIONS. UPR shall conduct its operations in the ordinary course except as expressly contemplated by this Agreement and the transactions contemplated hereby and shall use all reasonable efforts to maintain and preserve its business organization and its material rights and franchises and to retain the services of its officers and key employees and maintain relationships with customers, suppliers, lessees, joint venture partners, licensees and other third parties, and to maintain all of its operating assets in their current condition (normal wear and tear excepted), to the end that their goodwill and ongoing business shall not be impaired in any material respect. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, UPR shall not, except as otherwise expressly contemplated by this Agreement and the transactions contemplated hereby or as set forth in Section 5.3(c) to the UPR Disclosure Schedule, without the prior consent of the Chief Executive Officer of Anadarko (which consent shall not be unreasonably withheld): (i) do or effect any of the following actions with respect to its securities: (A) adjust, split, combine or reclassify its capital stock, (B) make, declare or pay any dividend (other than regular quarterly dividends on UPR Common Stock of $0.05 per share with record and payment dates consistent with past practice) or distribution on, or, directly or indirectly, redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, (C) grant any person any right or option to acquire any shares of its capital stock, (D) issue, deliver or sell or agree to issue, deliver or sell any additional shares of its capital stock or any securities or obligations convertible into or exchangeable or exercisable for any shares of its capital stock or such securities (except pursuant to the exercise of UPR Options that are outstanding as of the date hereof), or (E) enter into any agreement, understanding or arrangement with respect to the sale, voting, registration or repurchase of its capital stock; (ii) directly or indirectly sell, transfer, lease, pledge, mortgage, encumber or otherwise dispose of any of its property or assets other than: (A) dispositions of oil, gas and other minerals in the ordinary course of business, consistent with past practice, (B) pledges, mortgages, encumbrances in the ordinary course of business consistent with past practice, or (c) sales, leases or dispositions with a total value not to exceed $50 million individually or in the aggregate, it being understood that sub-clauses (A), (B) and (C) do not apply to farmouts; (iii) make or propose any changes in the UPR Articles or the UPR Bylaws; (iv) merge or consolidate with any other person (other than mergers among wholly owned subsidiaries of UPR and mergers between UPR and its wholly owned subsidiaries); (v) acquire a material amount of assets or capital stock of any other person; (other than acquisitions of assets in the ordinary course of business, consistent with past practice with a total value not to exceed $25 million individually or in the aggregate); (vi) amend or modify, or propose to amend or modify, the UPR Rights Agreement, as amended as of the date hereof; (vii) incur, create, assume or otherwise become liable for any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity, other than in the ordinary course of business, consistent with past practice, which in no event shall exceed $200 million in the aggregate; (viii) except as may be required by Applicable Law or by the terms of UPR Plans or UPR Employment Agreements that are in effect as of the date hereof, enter into or modify any employment, severance, termination or similar agreements or arrangements with, or grant any bonuses, salary increases, severance or termination pay to, any officer, director, consultant or employee, or otherwise increase, fund or accelerate the funding of any compensation or benefits provided to any officer, director, consultant or employee, contribute any assets to any grantor 33 trust, or grant, reprice, or accelerate the exercise or payment of any UPR Options or other equity-based awards, other than any payment of bonuses or increases in salary that are both consistent with the past practice of UPR and are not material; (ix) enter into, adopt or amend any UPR Employee Benefit Plan or UPR Employment Agreement, except as may be required by Applicable Law, other than amendments in the ordinary course consistent with past practice that do not increase, reduce or accelerate benefits, make payout options more favorable to participants, or otherwise result in any increased cost to UPR; PROVIDED, HOWEVER, that UPR may amend its Supplemental Pension Plan for Exempt Salaried Employees to add a lump sum distribution option if the cost of such distribution option is determined in a manner consistent with the actuarial assumptions set forth in Section 5.3(c)(ix) of the UPR Disclosure Schedule; (x) take any action that could give rise to a right to severance benefits pursuant to any Change in Control Agreement; (xi) change any method or principle of accounting in a manner that is inconsistent with past practice except to the extent required by United States generally accepted accounting principles as advised by UPR's regular independent accountants; (xii) settle any Actions, whether now pending or hereafter made or brought involving, individually an amount in excess of $1 million or in the aggregate, an amount in excess of $20 million; (xiii) modify, amend or terminate, or waive, release or assign any material rights or claims with respect to any confidentiality agreement to which UPR is a party; (xiv) enter into any confidentiality agreements or arrangements other than in the ordinary course of business consistent with past practice (other than as permitted, in each case, by Section 5.3(d)); (xv) write up, write down or write off the book value of any assets, individually or in the aggregate, in excess of $5 million except for depreciation and amortization and provision (E.G., surrendered leases) in accordance with generally accepted accounting principles consistently applied utilizing successful efforts accounting or as otherwise required by generally accepted accounting principles; (xvi) incur or commit to any capital expenditures not included within the dollar limits of the UPR Capital Budget as in effect on the date of this Agreement (a copy of which included in Section 5.3(c) to the UPR Disclosure Schedule); (xvii) make any payments in respect of policies of directors' and officers' liability insurance (premiums or otherwise) other than premiums paid in respect of its current policies and renewals thereof at the same policy limits; (xviii) take any action to exempt or make not subject to the provisions of any state takeover law or state law that purports to limit or restrict business combinations or the ability to acquire or vote shares, any person or entity (other than Anadarko or its subsidiaries) or any action taken thereby, which person, entity or action would have otherwise been subject to the restrictive provisions thereof and not exempt therefrom; (xix) take any action that would likely result in the representations and warranties set forth in Article IV becoming false or inaccurate in any material respect; (xx) enter into or carry out any other transaction other than in the ordinary and usual course of business; (xxi) permit or cause any subsidiary to do any of the foregoing or agree or commit to do any of the foregoing; 34 (xxii) except as otherwise required by law, make any material Tax election, settle or compromise any material Tax claim, file any Tax Return (other than in a manner consistent with past practice) or change any method of Tax accounting; or (xxiii) agree in writing or otherwise to take any of the foregoing actions. (d) NO SOLICITATION. UPR agrees that, during the term of this Agreement, it shall not, and shall not authorize or permit any of its subsidiaries or any of its or its subsidiaries' directors, officers, employees, agents or representatives, directly or indirectly, to solicit, initiate, encourage or facilitate, or furnish or disclose non-public information in furtherance of, any inquiries or the making of any proposal with respect to any recapitalization, merger, consolidation or other business combination involving UPR, or any acquisition of 15% or more of the capital stock (other than upon exercise of UPR Options that are outstanding as of the date hereof) or 30% or more of the assets of UPR and its subsidiaries, taken as a whole, in a single transaction or a series of related transactions, or any combination of the foregoing (a "UPR COMPETING TRANSACTION"), or negotiate, explore or otherwise engage in discussions with any person (other than Anadarko, Subcorp or their respective directors, officers, employees, agents and representatives) with respect to any UPR Competing Transaction or enter into any agreement, arrangement or understanding requiring it to abandon, terminate or fail to consummate the Merger or any other transactions contemplated by this Agreement; PROVIDED that, at any time prior to the approval of the Merger by the UPR Stockholders, UPR may furnish information to, and engage in discussions with, any party who delivers a written proposal for a UPR Competing Transaction which was not solicited or encouraged after the date of this Agreement in violation of this Agreement if and so long as the Board of Directors of UPR determines in good faith by resolution duly adopted after consultation with its outside counsel (who may be its regularly engaged outside counsel) that the failure to take such action would reasonably be expected to constitute a breach of its fiduciary duties under Applicable Law and determines that such a proposal is, after consulting with the UPR Financial Advisors, more favorable to UPR Stockholders from a financial point of view than the transactions contemplated by this Agreement (including any adjustment to the terms and conditions proposed by Anadarko in response to such UPR Competing Transaction) (a "UPR SUPERIOR PROPOSAL"); PROVIDED, FURTHER, that prior to furnishing information to, or engaging in discussions with, any party pursuant to the foregoing proviso, UPR shall have received an executed agreement from such party in the same form as the Confidentiality Agreement (other than Section 8 thereof which shall be waived for Anadarko under the Confidentiality Agreement upon the execution of such agreement). UPR will immediately cease all existing activities, discussions and negotiations with any parties conducted heretofore with respect to any proposal for a UPR Competing Transaction and request the return of all confidential information regarding UPR provided to any such parties prior to the date hereof pursuant to the terms of any confidentiality agreements or otherwise. In the event that prior to the approval of the Merger by the UPR Stockholders the Board of Directors of UPR receives a UPR Superior Proposal that was not solicited or encouraged after the date of this Agreement in violation of this Agreement, and the Board of Directors of UPR determines in good faith by resolution duly adopted after consultation with its outside counsel (who may be its regularly engaged outside counsel) that the failure to take such action would reasonably be expected to constitute a breach of its fiduciary duties under Applicable Law, the Board of Directors of UPR may (subject to this and the following sentences) withdraw, modify or change, in a manner adverse to Anadarko, the UPR Board Recommendation and/or comply with Rule 14e-2 promulgated under the Exchange Act with respect to a UPR Competing Transaction, PROVIDED that it gives Anadarko three business days' prior written notice of its intention to do so (PROVIDED that the foregoing shall in no way limit or otherwise affect Anadarko's right to terminate this Agreement pursuant to Section 7.3(b)). Any such withdrawal, modification or change of the UPR Board Recommendation shall not change the approval of the Board of Directors of UPR for purposes of causing any state takeover statute or other state law to be inapplicable to the transactions contemplated hereby, including the Merger or the UPR Stock Option Agreement or change the obligation of UPR to present the Merger for approval at a duly called UPR Stockholders Meeting on the earliest practicable date determined in 35 consultation with Anadarko. From and after the execution of this Agreement, UPR shall promptly (but in any event within one calendar day) advise Anadarko in writing of the receipt, directly or indirectly, of any inquiries, discussions, negotiations, or proposals relating to a UPR Competing Transaction (including the specific terms thereof and the identity of the other party or parties involved) and promptly furnish to Anadarko a copy of any such written proposal in addition to any information provided to or by any third party relating thereto. In addition, UPR shall promptly (but in any event within one calendar day) advise Anadarko, in writing, if the Board of Directors of UPR shall make any determination as to any UPR Competing Transaction as contemplated by the proviso to the first sentence of this Section 5.3(d). (e) AFFILIATES OF UPR. UPR shall cause each such person who may be at the Effective Time or was on the date hereof an "affiliate" of UPR for purposes of Rule 145 under the Securities Act, to execute and deliver to Anadarko no less than 30 days prior to the date of the UPR Stockholders Meeting, the written undertakings in the form attached hereto as Exhibit A (the "UPR AFFILIATE LETTER"). No later than 45 days prior to such date, UPR, after consultation with its outside counsel, shall provide Anadarko with a letter (reasonably satisfactory to outside counsel to Anadarko) specifying all of the persons or entities who, in UPR's opinion, may be deemed to be "affiliates" of UPR under the preceding sentence. The foregoing notwithstanding, Anadarko shall be entitled to place legends as specified in the UPR Affiliate Letter on the certificates evidencing any of the Anadarko Common Shares to be received by (i) any such "affiliate" of UPR specified in such letter or (ii) any person Anadarko reasonably identifies (by written notice to UPR) as being a person who may be deemed an "affiliate" for purposes of Rule 145 under the Securities Act, pursuant to the terms of this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for the Anadarko Common Shares, consistent with the terms of the UPR Affiliate Letter, regardless of whether such person has executed the UPR Affiliate Letter and regardless of whether such person's name appears on the letter to be delivered pursuant to the preceding sentence. (f) ACCESS. UPR shall permit representatives of Anadarko to have access at all reasonable times to UPR's premises, properties, books, records, contracts, documents, customers and suppliers. Information obtained by Anadarko pursuant to this Section 5.3(f) shall be subject to the provisions of the Confidentiality Agreement, which agreement remains in full force and effect. No investigation conducted pursuant to this Section 5.3(f) shall affect or be deemed to modify any representation or warranty made in this Agreement. (g) SUBSEQUENT FINANCIAL STATEMENTS. UPR shall consult with Anadarko prior to making publicly available its financial results for any period after the date of this Agreement and prior to filing any UPR SEC Documents after the date of this Agreement. ARTICLE VI. CONDITIONS 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of UPR, Anadarko and Subcorp to consummate the Merger shall be subject to the satisfaction of the following conditions: (a) (i) This Agreement, the Merger and the transactions contemplated hereby shall have been approved and adopted by the UPR Stockholders in the manner required by any Applicable Law, and (ii) the Share Issuance shall have been approved by the Anadarko Stockholders in the manner required by any Applicable Law and the applicable rules of the NYSE. (b) Any applicable waiting periods under the HSR Act relating to the Merger and the transactions contemplated by this Agreement shall have expired or been terminated and any other approvals of any Governmental Authority shall have been obtained. (c) No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit or enjoin the consummation of the Merger or the transactions contemplated by 36 this Agreement or limiting the ownership or operation by Anadarko, UPR or any of their respective subsidiaries of any material portion of the business or assets of Anadarko or UPR. (d) There shall not be pending any Action instituted by any Governmental Authority challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement. (e) The Commission shall have declared the Registration Statement effective under the Securities Act, and no stop order or similar restraining order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for such purpose shall be pending before or threatened by the Commission or any state securities administrator. (f) The Anadarko Common Shares to be issued in the Merger (including pursuant to Anadarko Exchange Options) shall have been approved for listing on the NYSE, subject to official notice of issuance. (g) UPR shall have received the opinion of Morgan Lewis & Bockius LLP, dated on or prior to the effective date of the Registration Statement, to the effect that (i) the Merger will constitute a reorganization under section 368(a) of the Code, and (ii) UPR, Anadarko and Subcorp will each be a party to that reorganization. In rendering such opinion, counsel shall be entitled to rely on customary representation letters of UPR, Anadarko, Subcorp and others, in form and substance reasonably satisfactory to such counsel. 6.2 CONDITIONS TO OBLIGATIONS OF UPR. The obligations of UPR to consummate the Merger and the transactions contemplated hereby shall be subject to the fulfillment of the following conditions unless waived by UPR: (a) Each of the representations and warranties of each of Anadarko and Subcorp set forth in Article III (other than the representations and warranties of Anadarko set forth in Section 3.4) shall be true and correct in all respects (but without regard to any materiality qualifications or references to Material Adverse Effect contained in any specific representation or warranty) on the date of this Agreement and on and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties made as of a specified date, the accuracy of which will be determined as of the specified date), unless the failure or failures of representations and warranties to be true and correct in all respects, individually and taken together with all other such failures, would not reasonably be expected to have a Material Adverse Effect on Anadarko. The representations and warranties of Anadarko set forth in Section 3.4 of this Agreement shall be true and correct in all respects (other than de minimis variations) on the date of this Agreement and on and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties made as of a specified date, the accuracy of which will be determined as of the specified date). (b) Each of Anadarko and Subcorp shall have performed in all material respects all obligations and agreements and shall have complied in all material respects with all covenants to be performed and complied with by it hereunder at or prior to the Effective Time. (c) Each of Anadarko and Subcorp shall have furnished UPR with a certificate dated the Closing Date signed on behalf of it by the Chairman or President to the effect that the conditions set forth in Sections 6.2(a) and (b) have been satisfied. (d) At any time after the date of this Agreement, there shall not have been any one or more events or occurrences that individually or in the aggregate has had or is likely to have a Material Adverse Effect on Anadarko. 37 6.3 CONDITIONS TO OBLIGATIONS OF ANADARKO AND SUBCORP. The obligations of Anadarko and Subcorp to consummate the Merger and the other transactions contemplated hereby shall be subject to the fulfillment of the following conditions unless waived by Anadarko: (a) Each of the representations and warranties of UPR set forth in Article IV (other than the representations and warranties of UPR set forth in Section 4.4) shall be true and correct in all respects (but without regard to any materiality qualifications or references to Material Adverse Effect contained in any specific representation or warranty) on the date of this Agreement and on and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties made as of a specified date, the accuracy of which will be determined as of the specified date), unless the failure or failures of representations and warranties to be true and correct in all respects, individually and taken together with all other such failures, would not reasonably be expected to have a Material Adverse Effect on UPR. The representations and warranties of UPR set forth in Section 4.4 of this Agreement shall be true and correct in all respects (other than de minimis variations) on the date of this Agreement and on and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties made as of a specified date, the accuracy of which will be determined as of the specified date). (b) UPR shall have performed in all material respects all obligations and agreements and shall have complied in all material respects with all covenants to be performed and complied with by it hereunder at or prior to the Effective Time. (c) UPR shall have furnished Anadarko with a certificate dated the Closing Date signed on its behalf by its Chairman or President to the effect that the conditions set forth in Sections 6.3(a) and (b) have been satisfied. (d) The agreement referred to in Section 6.3 to the Anadarko Disclosure Schedule shall be in full force and effect and shall not have been terminated. (e) At any time after the date of this Agreement, there shall not have been any one or more events or occurrences that individually or in the aggregate has had or is likely to have a Material Adverse Effect on UPR. ARTICLE VII. TERMINATION AND AMENDMENT 7.1 TERMINATION BY MUTUAL CONSENT. This Agreement maybe terminated at any time prior to the Effective Time by the mutual written consent of Anadarko and UPR. 7.2 TERMINATION BY UPR OR ANADARKO. This Agreement may be terminated by action of the Board of Directors of UPR or of Anadarko if: (a) the Merger shall not have been consummated by December 31, 2000; provided, however, that in the event that Section 6.1(b), Section 6.1(c) or Section 6.1(d), or any combination thereof, are the only conditions that are not satisfied or capable of being immediately satisfied as a result of any action by any Governmental Authority pursuant to any Antitrust Laws, such December 31, 2000 date shall be extended for a period not to exceed the lesser of 90 days or the fifth business day after the entrance by the court in which such litigation is pending of its decision (whether or not subject to appeal or rehearing) in such litigation; and provided, further, that the right to terminate this Agreement pursuant to this clause (a) shall not be available to any party whose failure or whose affiliate's failure to perform or observe in any material respect any of its obligations under this Agreement in any manner shall have been the cause of, or resulted in, the failure of the Merger to occur on or before such date; or 38 (b) the Anadarko Stockholders Meeting (including adjournments and postponements) for the purpose of approving the Share Issuance shall have been held and such stockholder approval shall not have been obtained; or (c) the UPR Stockholders Meeting (including adjournments and postponements) for the purpose of approving this Agreement and the Merger shall have been held and such stockholder approval shall not have been obtained; or (d) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and non-appealable; provided, however, that the party seeking to terminate this Agreement pursuant to this clause (d) shall have complied with Section 5.1(a) and with respect to other matters not covered by Section 5.1(a) shall have used its commercially reasonable best efforts to remove such injunction, order or decree. 7.3 TERMINATION BY ANADARKO. This Agreement may be terminated prior to the Effective Time, by action of the Board of Directors of Anadarko after consultation with its legal advisors, if (a) (i) there has been a breach by UPR of any representation, warranty, covenant or agreement set forth in this Agreement or if any representation or warranty of UPR shall have become untrue, in either case such that the conditions set forth in Section 6.3(a) would not be satisfied and (ii) such breach is not curable, or, if curable, is not cured within 45 days after written notice of such breach is given to UPR by Anadarko; provided, however, that the right to terminate this Agreement pursuant to this Section 7.3(a) shall not be available to Anadarko if it, at such time, is in material breach of any representation, warranty, covenant or agreement set forth in this Agreement such that the condition set forth in Section 6.2(a) shall not be satisfied; or (b) the Board of Directors of UPR shall have withdrawn or modified, in a manner adverse to Anadarko, its approval or recommendation of this Agreement or the Merger or recommended a UPR Competing Transaction, or resolved to do so. 7.4 TERMINATION BY UPR. This Agreement may be terminated at any time prior to the Effective Time, by action of the Board of Directors of UPR after consultation with its legal advisors, if: (a) (i) there has been a breach by Anadarko or Subcorp of any representation, warranty, covenant or agreement set forth in this Agreement or if any representation or warranty of Anadarko or Subcorp shall have become untrue, in either case such that the conditions set forth in Section 6.2(a) would not be satisfied and (ii) such breach is not curable, or, if curable, is not cured within 45 days after written notice of such breach is given by UPR to Anadarko; provided, however, that the right to terminate this Agreement pursuant to this Section 7.4(a) shall not be available to UPR if it, at such time, is in material breach of any representation, warranty, covenant or agreement set forth in this Agreement such that the conditions set forth in Section 6.3(a) shall not be satisfied; or (b) the Board of Directors of Anadarko shall have withdrawn or modified, in a manner adverse to UPR, its approval or recommendation of Share Issuance or recommended a proposal relating to an Anadarko Competing Transaction, or resolved to do so. 39 7.5 EFFECT OF TERMINATION. (a) If this Agreement is terminated (i) after the public announcement of a proposal relating to a UPR Competing Transaction, by Anadarko or UPR pursuant to Section 7.2(c); or (ii) after the public announcement or receipt by UPR's Board of Directors of a proposal relating to a UPR Competing Transaction, by Anadarko pursuant to Section 7.3(b); then UPR shall pay Anadarko a fee of $25 million (subject to reduction pursuant to Section 9 of the UPR Stock Option Agreement) at the time of such termination in cash by wire transfer to an account designated by Anadarko. In addition, if within one year after such termination, UPR enters into a definitive agreement with respect to a UPR Acquisition (as hereinafter defined) or a UPR Acquisition is consummated, then upon the consummation of such UPR Acquisition, UPR shall pay Anadarko an additional fee of $100 million (subject to reduction pursuant to Section 9 of the UPR Stock Option Agreement) at the time of such consummation in cash by wire transfer to an account designated by Anadarko. For purposes of this Agreement, "UPR ACQUISITION" means (i) consummation of the UPR Competing Transaction giving rise to the termination described in Section 7.5(a)(i) or 7.5(a)(ii), (ii) a consolidation, exchange of shares or merger of UPR with any person, other than Anadarko or one of its subsidiaries, and, in the case of a merger, in which UPR shall not be the continuing or surviving corporation, (iii) a merger of UPR with a person, other than Anadarko or one of its subsidiaries, in which UPR shall be the continuing or surviving corporation but the then outstanding shares of UPR Common Stock shall be changed into or exchanged for stock or other securities of UPR or any other person or cash or any other property or the shares of UPR Common Stock outstanding immediately before such merger shall after such merger represent less than 50% of the voting stock of UPR outstanding immediately after the merger, (iv) the acquisition of beneficial ownership of 50% or more of the voting stock of UPR by any person (as such term is used under Section 13(d) of the Exchange Act), or (v) a sale, lease or other transfer of 50% or more of the assets of UPR to any person, other than Anadarko or one of its subsidiaries. (b) If this Agreement is terminated (i) after the public announcement of a proposal relating to an Anadarko Competing Transaction, by Anadarko or UPR pursuant to Section 7.2(b); or (ii) after the public announcement or receipt by Anadarko's Board of Directors of a proposal relating to an Anadarko Competing Transaction, by UPR pursuant to Section 7.4(b); then Anadarko shall pay UPR a fee of $25 million (subject to reduction pursuant to Section 9 of the Anadarko Stock Option Agreement) at the time of such termination in cash by wire transfer to an account designated by UPR. In addition, if within one year after such termination, Anadarko enters into a definitive agreement with respect to an Anadarko Acquisition or an Anadarko Acquisition is consummated, then upon the consummation of such Anadarko Acquisition, Anadarko shall pay UPR an additional fee of $100 million (subject to reduction pursuant to Section 9 of the Anadarko Stock Option Agreement) at the time of such consummation in cash by wire transfer to an account designated by UPR. For purposes of this Agreement, "ANADARKO ACQUISITION" means (i) consummation of the Anadarko Competing Transaction giving rise to the termination described in Section 7.5(b)(i) or 7.5(b)(ii), (ii) a consolidation, exchange of shares or merger of Anadarko with any person, other than UPR or one of its subsidiaries, and, in the case of a merger, in which Anadarko shall not be the continuing or surviving corporation, (iii) a merger of Anadarko with a person, other than UPR or one of its Subsidiaries, in which Anadarko shall be the continuing or surviving corporation but the then outstanding Anadarko Common Shares shall be changed into or exchanged for stock or other securities of Anadarko or any other person or cash or any other property or the Anadarko Common Shares outstanding immediately before such merger shall after such merger represent less than 50% of the voting stock of Anadarko outstanding immediately after the merger, (iv) the acquisition of beneficial ownership of 50% or more of the voting stock of Anadarko 40 by any person (as such term is used under Section 13(d) of the Exchange Act), or (v) a sale, lease or other transfer of 50% or more of the assets of Anadarko to any person, other than UPR or one of its subsidiaries. (c) In the event of the termination of this Agreement pursuant to Section 7.1, Section 7.2, Section 7.3 or Section 7.4, this Agreement, except for the provisions of the second sentence of each of Section 5.2(g) and Section 5.3(f) and the provisions of Sections 7.5 and 8.11, shall become void and have no effect, without any liability on the part of any party or its directors, officers or stockholders. Notwithstanding the foregoing, nothing in this Section 7.5 shall relieve any party to this Agreement of liability for a material breach of any provision of this Agreement and PROVIDED, FURTHER, HOWEVER, that if it shall be judicially determined that termination of this Agreement was caused by an intentional breach of this Agreement, then, in addition to other remedies at law or equity for breach of this Agreement, the party so found to have intentionally breached this Agreement shall indemnify and hold harmless the other parties for their respective out-of-pocket costs, fees and expenses of their counsel, accountants, financial advisors and other experts and advisors as well as fees and expenses incident to negotiation, preparation and execution of this Agreement and related documentation and shareholders' meetings and consents. 7.6 AMENDMENT. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after adoption of this Agreement by UPR Stockholders, but after any such approval, no amendment shall be made which by law requires further approval or authorization by the UPR Stockholders without such further approval or authorization. Notwithstanding the foregoing, this Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 7.7 EXTENSION; WAIVER. At any time prior to the Effective Time, Anadarko (with respect to UPR) and UPR (with respect to Anadarko and Subcorp) by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of such party, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. ARTICLE VIII. MISCELLANEOUS 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties made herein by the parties hereto shall not survive the Effective Time. This Section 8.1 shall not limit any covenant or agreement of the parties hereto, which by its terms contemplates performance after the Effective Time or after the termination of this Agreement. 8.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or dispatched by a nationally recognized overnight courier service to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Anadarko or Subcorp: Anadarko Petroleum Corporation 17001 Northchase Drive Houston, Texas 77060 Attention: J. Stephen Martin Telecopy No.: (281) 874-3296 41 with a copy to: Daniel A. Neff, Esq. David A. Katz, Esq. Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Telecopy No.: (212) 403-2000 (b) if to UPR: UPR UPR Plaza, 777 Main Street Fort Worth, Texas 76102 Attention: Kerry R. Brittain Telecopy No.: (817) 321-7026 with a copy to: Howard L. Shecter, Esq. Morgan Lewis & Bockius LLP 101 Park Avenue New York, New York 10178 Telecopy No: (212) 309-6273 8.3 INTERPRETATION. When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. The headings and the table of contents contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When a reference is made in this Agreement to UPR, such reference shall be deemed to include any and all subsidiaries of UPR, individually and in the aggregate, except for Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.8, 4.10, 4.19, 4.20, 4.21 and 4.22. When a reference is made in this Agreement to Anadarko, such reference shall be deemed to include any and all subsidiaries of Anadarko, individually and in the aggregate, except for Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.8, 3.10, 3.19, 3.20, 3.21 and 3.22. For purposes of any provision of this Agreement, references to "KNOWLEDGE" with respect to Anadarko shall be deemed to be to the actual knowledge of persons listed in Section 8.3 to the Anadarko Disclosure Schedule, and references to "KNOWLEDGE" with respect to UPR shall be deemed to be to the actual knowledge of persons listed in Section 8.3 to the UPR Disclosure Schedule. For the purposes of any provision of this Agreement, a "MATERIAL ADVERSE EFFECT" with respect to any party shall be deemed to occur if the aggregate consequences of all breaches and inaccuracies of covenants and representations of such party under this Agreement, when read without any exception or qualification for a material adverse effect, are reasonably likely to have a material adverse effect on the business, assets, liabilities, results of operations, financial condition or prospects of such party and its subsidiaries taken as a whole, other than any change, circumstance or effect relating to (x) the economy or financial markets in general, or (y) the price of oil or gas. For purposes of this Agreement, a "SUBSIDIARY" when used with respect to any party means any corporation or other organization, incorporated or unincorporated, (i) of which such party or another subsidiary of such party is a general partner or (ii) 50% or more of the securities or other interests of which having by their terms ordinary voting power to elect at least 50% of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or one or more of its subsidiaries (or if there are no such voting securities or interests, 50% or more of the equity interests of which is directly or indirectly owned or controlled by such party or one or more of its subsidiaries). 8.4 COUNTERPARTS. This Agreement may be executed in counterparts, which together shall constitute one and the same Agreement. The parties may execute more than one copy of the Agreement, each of which shall constitute an original. 42 8.5 ENTIRE AGREEMENT. This Agreement (including the documents and the instruments referred to herein), the Anadarko Stock Option Agreement, the UPR Stock Option Agreement and the Confidentiality Agreement constitute the entire agreement among the parties and supersede all prior agreements and understandings, agreements or representations by or among the parties, written and oral, with respect to the subject matter hereof and thereof. 8.6 THIRD-PARTY BENEFICIARIES. Except for the agreement set forth in Section 5.2(e), nothing in this Agreement, express or implied, is intended or shall be construed to create any third-party beneficiaries. 8.7 GOVERNING LAW. Except to the extent that the laws of the jurisdiction of organization of any party hereto, or any other jurisdiction, are mandatorily applicable to the Merger or to matters arising under or in connection with this Agreement, this Agreement shall be governed by the laws of the State of Delaware. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined in any state or federal court sitting in the City of Wilmington, Delaware. 8.8 CONSENT TO JURISDICTION; VENUE. (a) Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the state courts of Delaware and to the jurisdiction of the United States District Court for the District of Delaware, for the purpose of any action or proceeding arising out of or relating to this Agreement and each of the parties hereto irrevocably agrees that all claims in respect to such action or proceeding may be heard and determined exclusively in any Delaware state or federal court sitting in the City of Wilmington, Delaware. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Each of the parties hereto irrevocably consents to the service of any summons and complaint and any other process in any other action or proceeding relating to the Merger, on behalf of itself or its property, by the personal delivery of copies of such process to such party. Nothing in this Section 8.8 shall affect the right of any party hereto to serve legal process in any other manner permitted by law. 8.9 SPECIFIC PERFORMANCE. The transactions contemplated by this Agreement are unique. Accordingly, each of the parties acknowledges and agrees that, in addition to all other remedies to which it may be entitled, each of the parties hereto is entitled to a decree of specific performance, provided such party is not in material default hereunder. 8.10 ASSIGNMENT. 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, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 8.11 EXPENSES. Subject to the provisions of Section 7.5, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby and thereby shall be paid by the party incurring such expenses, except that those expenses incurred in connection with filing, printing and mailing the Registration Statement and the Joint Proxy Statement (including filing fees related thereto) will be shared equally by Anadarko and UPR. 43 IN WITNESS WHEREOF, Anadarko, Subcorp and UPR have signed this Agreement as of the date first written above. ANADARKO PETROLEUM CORPORATION By: /s/ ROBERT J. ALLISON ---------------------------------- Name: Robert J. Allison Title: CHAIRMAN AND CHIEF EXECUTIVE OFFICER DAKOTA MERGER CORP. By: /s/ ROBERT J. ALLISON ---------------------------------- Name: Robert J. Allison Title: CHAIRMAN UNION PACIFIC RESOURCES GROUP INC. By: /s/ GEORGE LINDAHL, III ---------------------------------- Name: George Lindahl, III Title: CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER 44 EX-4.1 3 0003.txt CERTIFICATE OF AMENDMENT EXHIBIT 4.1 CERTIFICATE OF AMENDMENT OF ANADARKO PETROLEUM CORPORATION RESTATED CERTIFICATE OF INCORPORATION Anadarko Petroleum Corporation (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify that: (i) The amendments set forth below to the Corporation's Restated Certificate of Incorporation previously filed in the Office of the Secretary of State of Delaware on August 29, 1986, as amended, have been duly adopted by the Board of Directors of the Corporation, and the Board has declared said amendments to be advisable and called a meeting of the stockholders of the Corporation for consideration thereof. (ii) Thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendments. (iii) The first paragraph of Article Fourth thereof is amended and restated to read as follows: "FOURTH. The total number of shares which the Corporation shall have authority to issue is 452,000,000 shares, of which (a) 2,000,000 shares shall be Preferred Stock, issuable in series, of the par value of $1.00 per share and (b) 450,000,000 shares shall be Common Stock, of the par value of $0.10 per share." (iv) Article Seventh thereof is amended and restated to read as follows: "SEVENTH. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than six nor more than fifteen directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At a special meeting of stockholders held on August 27, 1986, Class I directors were elected for a term ending at the 1987 Annual Meeting of Stockholders, Class II directors were elected for a term ending at the 1988 Annual Meeting of Stockholders and Class III directors were elected for a term ending at the 1989 Annual Meeting of Stockholders, in each case effective as of the date of filing of this Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. At each Annual Meeting of Stockholders beginning in 1987, successors to the class of directors whose term expires at that Annual Meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the Annual Meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause." (v) These amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Anadarko Petroleum Corporation has caused this certificate to be signed by J. Stephen Martin, its authorized officer, this 13th day of July, 2000. Anadarko Petroleum Corporation /s/ J. Stephen Martin --------------------------- Name: J. Stephen Martin Title: Vice President EX-20.1 4 0004.txt QUESTIONS AND ANSWERS ABOUT THE MERGER EXHIBIT 20.1 Filed Pursuant to Rule 424(b)(3) Registration No. 333-38108 [ANADARKO LOGO] [UNION PACIFIC RESOURCES LOGO] MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT Anadarko Petroleum Corporation and Union Pacific Resources Group Inc. have agreed on a merger transaction involving our two companies. Before we can complete the merger, we must obtain the approval of our companies' stockholders. We are sending you this joint proxy statement/prospectus to ask you to vote in favor of the merger transaction and related matters. In the merger, a subsidiary of Anadarko will merge with and into Union Pacific Resources. As a result, Union Pacific Resources will become a wholly owned subsidiary of Anadarko, and stockholders of Union Pacific Resources will be entitled to receive 0.455 of an Anadarko common share in return for each Union Pacific Resources common share they currently own. Outstanding Anadarko common shares will remain unchanged in the merger. The Anadarko common shares, including the Anadarko common shares issued to stockholders of Union Pacific Resources as a result of the merger, will continue to be listed on the New York Stock Exchange under the trading symbol "APC." Union Pacific Resources will hold a special meeting of its stockholders instead of its annual meeting to consider and vote on the merger proposal. Anadarko will hold a special meeting of its stockholders to consider and vote on four proposals related to the merger. The first proposal is to approve the issuance of Anadarko common shares in the merger. The second proposal is to increase the maximum size of the Anadarko board of directors from nine to 15 directors. The third proposal is to increase the authorized number of Anadarko common shares from 300,000,000 to 450,000,000. The fourth proposal is to amend Anadarko's 1999 stock incentive plan. Completion of the merger requires Union Pacific Resources stockholder approval of the merger proposal and Anadarko stockholder approval of the first proposal. YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your special meeting, please take the time to vote by completing the enclosed proxy card and mailing it to us or, in the case of Anadarko stockholders, you may also vote by following the Internet or telephone instructions on the proxy card. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote FOR each of the proposals presented. If you neither return your card nor vote by Internet or telephone, or if you do not instruct your broker how to vote any shares held for you in "street name," your shares will not be voted at your special meeting. The dates, times and places of the stockholders' meetings are as follows: FOR ANADARKO STOCKHOLDERS: FOR UNION PACIFIC RESOURCES STOCKHOLDERS: Thursday, July 13, 2000 Thursday, July 13, 2000 2:00 p.m., local time 10:00 a.m., local time The Wyndham Hotel, Greenspoint Fort Worth Club 12400 Greenspoint Drive 306 West 7th Street, 12th Floor Houston, Texas Fort Worth, Texas This joint proxy statement/prospectus gives you detailed information about the merger we are proposing, and it includes our merger agreement as Annex A. You can get more information about our companies from publicly available documents we have filed with the Securities and Exchange Commission. We encourage you to read carefully this entire document, including all its annexes, and WE ESPECIALLY ENCOURAGE YOU TO READ THE SECTION ON "RISK FACTORS" BEGINNING ON PAGE 19. We enthusiastically support this compelling combination of two successful oil and gas exploration and production companies, and we join with the members of our boards of directors in recommending that you vote FOR the merger and all of the related proposals. /s/ ROBERT J. ALLISON, JR. /s/ GEORGE LINDAHL III Robert J. Allison, Jr. George Lindahl III Chairman and Chief Executive Officer Chairman, President and Chief Anadarko Petroleum Corporation Executive Officer Union Pacific Resources Group Inc. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED MAY 31, 2000, AND IS BEING FIRST MAILED TO STOCKHOLDERS ON OR ABOUT JUNE 1, 2000. This document incorporates important business and financial information about Anadarko and Union Pacific Resources that is not included in or delivered with this document. This information is available without charge to stockholders upon written or oral request at the applicable company's address and telephone number listed on page 4. To obtain timely delivery, stockholders must request the information no later than July 6, 2000. QUESTIONS AND ANSWERS ABOUT THE MERGER Q: WHAT WILL HAPPEN IN THE MERGER? A: In the merger, Union Pacific Resources will become a wholly owned subsidiary of Anadarko. Union Pacific Resources stockholders will become Anadarko stockholders and will own approximately 47% of the Anadarko common shares that are outstanding after the merger. Current Anadarko stockholders will own the remaining approximately 53%. Q: WHY ARE ANADARKO AND UNION PACIFIC RESOURCES PROPOSING THE MERGER? A: Our companies are proposing the merger because we expect as a combined company to grow reserves, production, cash flow and earnings faster and beyond the levels either company could achieve individually. We believe our companies have complementary skills, and we seek to combine Anadarko's strength in oil and gas exploration with Union Pacific Resources' industry-leading oil and gas drilling and completion technology. In addition, the combined company will hold significant lease acreage positions and have significant opportunities in most of the high-potential basins of North America, as well as in select international locations. Finally, the combined company will have the cash flow and the financial strength to fund the opportunities we have in our new portfolio, which is more robust and well-balanced than either company's individual portfolio. Q: WHAT WILL HAPPEN TO UNION PACIFIC RESOURCES COMMON SHARES IN THE MERGER? A: Union Pacific Resources stockholders will receive 0.455 of an Anadarko common share for each Union Pacific Resources common share they own. Union Pacific Resources stockholders also will receive cash in place of any fractional shares. The Anadarko common shares received in the merger will be listed on the New York Stock Exchange under the ticker symbol "APC." Q: WHAT WILL HAPPEN TO ANADARKO COMMON SHARES IN THE MERGER? A: Nothing. Each Anadarko common share outstanding will remain outstanding as an Anadarko common share. 1 QUESTIONS AND ANSWERS ABOUT THE MERGER UNION PACIFIC RESOURCES GROUP INC. 777 Main Street Fort Worth, Texas 76102 (817) 321-6000 Union Pacific Resources, one of the largest independent oil and gas companies in North America, is engaged primarily in the exploration for and the development and production of natural gas, natural gas liquids and crude oil in several major producing basins in the United States, Canada, Guatemala, Venezuela and other international areas. As of December 31, 1999, Union Pacific Resources had 951 million energy equivalent barrels of proved reserves, 58% of which were represented by natural gas reserves. Of total proved reserves, 56% were located in the United States and 28% were located in Canada. In addition, Union Pacific Resources engages in the hard minerals business through nonoperated joint ventures and royalty interests in several coal and trona (natural soda ash) mines located on lands within and adjacent to its land grant holdings in Wyoming. The land grant consists of land in Colorado, Wyoming and Utah, where Union Pacific Resources has fee ownership of the mineral rights under approximately 7.9 million acres. Union Pacific Resources also held as of December 31, 1999 leasehold interests in more than 17 million gross acres worldwide. During 1999, over 68% of the revenues, 44% of fixed assets and 56% of proved reserves of Union Pacific Resources were generated or located in the United States. 4 SUMMARY THE MERGER (PAGE 31) The merger agreement is attached as Annex A to this document. Please carefully read the merger agreement. The merger agreement is the legal document that governs the merger. GENERAL We propose a merger transaction in which Union Pacific Resources will merge with Dakota Merger Corp., a wholly owned subsidiary of Anadarko created for the purpose of effecting the merger. After the merger, Union Pacific Resources will be a wholly owned subsidiary of Anadarko and Union Pacific Resources stockholders will become Anadarko stockholders. EXCHANGE OF COMMON SHARES (PAGE 59) When we complete the merger, Union Pacific Resources common shares will be converted into Anadarko common shares. UNION PACIFIC RESOURCES STOCKHOLDERS. Each Union Pacific Resources common share will automatically be converted into 0.455 of an Anadarko common share. The total number of Anadarko common shares received, therefore, will be equal to the number of Union Pacific Resources common shares owned multiplied by 0.455, with cash being paid in place of any fractional shares. Union Pacific Resources stockholders will own approxi- 5 SUMMARY mately 47% of the Anadarko common shares outstanding after the merger. ANADARKO STOCKHOLDERS. Each Anadarko common share will remain issued and outstanding as one Anadarko common share. Anadarko stockholders will own approximately 53% of the Anadarko common shares outstanding after the merger. UNION PACIFIC RESOURCES STOCK OPTIONS (PAGE 60) When we complete the merger, stock options to purchase Union Pacific Resources common shares granted to Union Pacific Resources employees and directors under Union Pacific Resources' stock option plans that are outstanding and not yet exercised immediately before completing the merger will become options to purchase Anadarko common shares. The number of common shares subject to such stock options and the exercise price of such stock options will be adjusted according to the exchange ratio. MANAGEMENT AND OPERATIONS AFTER THE MERGER (PAGE 64) After the merger, the Anadarko board of directors will continue to manage the business of Anadarko, which then will include the business of Union Pacific Resources as a wholly owned subsidiary. The company will continue to be called "Anadarko Petroleum Corporation" and will be headquartered in Houston, Texas. The merger agreement requires Anadarko to take all steps necessary to have Anadarko stockholders consider and vote upon an amendment to Anadarko's restated certificate of incorporation to increase the maximum size of the Anadarko board of directors to at least 13 directors. If the proposed amendment to increase the maximum size of the board to 15 directors is approved by the holders of 80% of the outstanding Anadarko common shares, the Anadarko board of directors will take all action necessary, immediately following the completion of the merger, to elect as Anadarko directors George Lindahl III, Chairman, President and Chief Executive Officer of Union Pacific Resources, and four others who are currently independent directors of Union Pacific Resources and who are mutually agreed upon by the chief executive officers of Anadarko and Union Pacific Resources. If this amendment is not approved by the holders of 80% of the outstanding Anadarko common shares, the Anadarko board of directors will take all action necessary, immediately following the completion of the merger, to elect as Anadarko directors Mr. Lindahl and two others who are currently independent directors of Union Pacific Resources and who are mutually agreed upon by the chief executive officers of Anadarko and Union Pacific Resources. If the maximum size of the Anadarko board of directors is not increased, two current directors of Anadarko would have to resign to make room for the new directors. 6 SUMMARY ACCOUNTING TREATMENT (PAGE 56) The merger will be treated as a "purchase" for accounting purposes. Therefore, the purchase price will be allocated to the assets and liabilities of Union Pacific Resources based on their estimated fair market values at the date of acquisition, and any excess of the purchase price over such fair market values will be accounted for as goodwill. INTERESTS OF CERTAIN PEOPLE IN THE MERGER THAT ARE DIFFERENT FROM YOUR INTERESTS (PAGE 52) Some of Union Pacific Resources' directors and executive officers have interests in the merger that are different from Union Pacific Resources stockholders' interests: - All unvested outstanding stock options (other than performance-based options) that Union Pacific Resources has granted to its directors will become exercisable upon approval of the merger by Union Pacific Resources stockholders. Any options not exercised before the merger will be converted into options to purchase Anadarko common shares, with appropriate adjustments to reflect the exchange ratio. Any director who is not asked to serve as a member of the Anadarko board of directors will be entitled to exercise the options at any time during the five-year period following the director's departure from the Union Pacific Resources board of directors or the remaining term of the option, whichever is less. - Union Pacific Resources' executive officers are each covered by change-in-control agreements that generally become operative 8 SUMMARY upon approval of the merger by Union Pacific Resources stockholders. At such time, all unvested outstanding options (other than performance-based options) that Union Pacific Resources has granted to its executive officers will become exercisable and, if not exercised before the merger, will be converted into options to purchase Anadarko common shares with appropriate adjustments to reflect the exchange ratio. Also, at such time, all restrictions on restricted shares (other than performance-based restrictions, if any) will lapse and be deemed fully satisfied. If, after the merger, and unless waived by the executive, an executive (a) is terminated by Anadarko or the surviving corporation within a three-year period without "cause," (b) terminates employment for "good reason" or (c) terminates employment for any reason during a 30-day period beginning on the first anniversary of the merger, the executive is entitled to certain change-in-control benefits. - As a condition to Anadarko's obligation to complete the merger, Mr. Lindahl has entered into a three-year employment agreement with Anadarko under which he will serve as Vice Chairman of Anadarko commencing on the effective date of the merger and, in lieu of his current change-in-control benefits, will be entitled to equity-based compensation and other benefits. - Under the merger agreement, Anadarko will take all steps necessary to have Anadarko stockholders consider and vote upon an amendment to Anadarko's restated certificate of incorporation to increase the maximum size of the Anadarko board of directors to at least 13 directors. If Anadarko stockholders approve the amendment, five current Union Pacific Resources directors, including Mr. Lindahl, will become Anadarko directors. Otherwise, three current Union Pacific Resources directors, including Mr. Lindahl, will become Anadarko directors. Some of Anadarko's directors and executive officers have interests in the merger that are different from Anadarko stockholders' interests: - All unvested outstanding options of Anadarko directors become exercisable upon a change in control. The merger will constitute a change in control under Anadarko's stock plans. - Anadarko's executive officers are covered by change-in-control agreements with benefits and other provisions similar to those pertaining to Union Pacific Resources executive officers. The merger will constitute a change in control under these agreements. In connection with the merger, Anadarko expects to obtain assurances from the Anadarko executive officers that they will not treat the merger as a change in control under the agreement. - Under Anadarko's stock plans, upon a change in control, unvested options held by Anadarko's executive officers become exercisable and restrictions on executives' restricted shares lapse. Additional interests of Union Pacific Resources and Anadarko directors and executive officers are described elsewhere in this document. For more information, please see pages 52 through 56. Our boards of directors knew about these interests, and considered them, in approving the merger and recommending that our stockholders approve the merger transaction. 9 SUMMARY
SHARES BENEFICIALLY OWNED BY ANADARKO AND UNION PACIFIC RESOURCES DIRECTORS AND EXECUTIVE OFFICERS AS OF THE RECORD DATE ANADARKO SPECIAL MEETING UNION PACIFIC RESOURCES SPECIAL MEETING ------------------------ --------------------------------------- Anadarko directors and executive officers Union Pacific Resources directors and beneficially own 5,168,867 Anadarko common executive officers beneficially own 4,515,241 shares, including outstanding options. Union Pacific Resources common shares, These shares represent approximately 4% of including outstanding options. These shares the Anadarko common shares outstanding as represent approximately 1.3% of the Union of the record date. Pacific Resources common shares outstanding as of the record date. These individuals have indicated that they intend to vote their Anadarko common shares These individuals have indicated that they in favor of the Anadarko proposals. intend to vote their Union Pacific Resources common shares in favor of the merger proposal.
26 THE SPECIAL MEETINGS INTERESTS OF CERTAIN PERSONS IN THE MERGER UNION PACIFIC RESOURCES DIRECTORS AND EXECUTIVE OFFICERS. In considering the recommendation of the Union Pacific Resources board of directors with respect to the merger, Union Pacific Resources stockholders and Anadarko stockholders should be aware that some Union Pacific Resources directors and executive officers have interests in the merger that are different from the interests of Union Pacific Resources stockholders generally: - DIRECTOR STOCK OPTIONS. All unvested outstanding stock options that Union Pacific Resources has granted to its directors will become exercisable upon approval of the merger by Union Pacific Resources stockholders, other than options that become exercisable upon the attainment of performance targets which, at the time the stockholders approve the merger, have not been met. The options that will become exercisable represent the right to purchase 376,833 Union Pacific Resources common shares. Under the merger agreement, all outstanding options to purchase Union Pacific Resources common shares that are not exercised before the completion of the merger will be converted into options to purchase Anadarko common shares, with appropriate adjustments to reflect the exchange ratio. As a result of an amendment to the 1995 Directors Stock Incentive Plan approved by the Union Pacific Resources board on April 2, 2000, any director who is not asked to serve as a member of the Anadarko board will be entitled to exercise the options at any time during the five-year period following the director's departure from the board or the remaining term of the option, whichever is shorter. - DEFERRED COMPENSATION PLANS. Under Union Pacific Resources' Executive Deferred Compensation Plan and Deferred Compensation Plan for the Board of Directors, executive officers and directors may defer receipt of amounts payable to them as compensation before they earn or receive those amounts. For those participants who commit to defer compensation into the plans' stock unit accounts for a specified period, the company contributes to their accounts an additional 25% of the amounts they so defer. The plans generally provide that if a participant's employment or service is terminated (for reasons other than death, disability, or for executives' retirement) within one year of a company contribution, the participant will forfeit that contribution. If a participant is terminated within two years of a change in control, however, the participant will not have to forfeit the company's most recent contribution. The stock units, including the right to receive distributions in Union Pacific Resources common shares, upon completion of the merger will be converted into similar rights with respect to Anadarko common shares, with appropriate adjustments to reflect the exchange ratio. 52 THE MERGER - CHANGE-IN-CONTROL AGREEMENTS. Union Pacific Resources' executive officers are each covered by individual change-in-control agreements that generally become operative upon approval of the merger by Union Pacific Resources stockholders. In connection with the execution of the merger agreement, the board approved and the company entered into supplemental change-in-control agreements that modified the pre-existing change-in-control benefits to place such benefits in relative overall parity with the change-in-control benefits payable to similarly-situated Anadarko executives. Upon approval of the merger by Union Pacific Resources stockholders, the change-in-control agreements provide for automatic vesting of all unvested stock options and elimination of all remaining forfeiture provisions on restricted shares, other than options or restricted shares (if any) subject to performance targets that at the time the stockholders approve the merger have not been met. This provision will cover a total of 860,666 Union Pacific Resources common shares, including option grants with respect to 760,000 shares approved by the compensation committee of the board of Union Pacific Resources, effective March 30, 2000. In addition, the agreements provide that if, during the three-year period following stockholder approval of the merger, an executive officer other than Mr. Lindahl (1) is terminated by Anadarko or the surviving corporation without "cause," (2) terminates employment for "good reason" or (3) terminates employment for any reason during a 30-day period beginning on the first anniversary of the merger, the executive is entitled to the following benefits: - A lump-sum payment of (a) 2.9 times the executive's base salary, (b) 2.9 times a "bonus factor" equal to the greater of the highest annual bonus the executive earned in the three years before the merger and the annual bonus that the executive earned in the year before the year of termination, and (c) a pro rata bonus based on the number of months elapsed in the fiscal year of the merger; - 36 months of additional age and benefit credit under the company's supplemental pension plan, 36 months' worth of additional matching contributions under the company's qualified and nonqualified thrift plans, calculated as if the executive had continued with the company for such period, and a guaranteed account value under the supplemental thrift plan equal to the greater of the value at the date of termination or at the date of the merger; - 36 months of health, life, disability and accident coverage; - Upon such termination, all unvested options shall become exercisable and all restrictions on restricted shares shall lapse or be deemed fully satisfied, unless otherwise expressly waived by the executive officer, and all options then held by the executive shall be exercisable for five years following the termination or the remaining term of such option, whichever is shorter; - Financial planning services for three years after termination at a cost not to exceed $7,500 annually; - Outplacement services at a cost not to exceed $100,000; - Additional benefits matching any benefits that Anadarko might grant to a similarly situated Anadarko executive in connection with the merger and payable to the Union Pacific Resources executive only under circumstances that such additional benefits would be paid to the Anadarko executive; and - An additional payment to the extent necessary to make the executive whole for any excise tax imposed as a result of receiving "excess parachute payments." Mr. Lindahl also has a change-in-control agreement. His benefits are the same as those described above except that his lump-sum payment is (a) three times his base salary, and (b) three times a "bonus factor" equal to the greater of the highest annual bonus he earned in the three years before the merger and the annual bonus that he earned in the year before the year of termination. 53 THE MERGER If each of Union Pacific Resources' seven executive officers were terminated "without cause" or were to terminate employment for "good reason" immediately after the effective time of the merger, we estimate that the aggregate amount of cash severance payable to the executives upon the terminations (before required tax withholdings) would be approximately $19.7 million. This estimate assumes that the merger occurred on April 2, 2000 and that the price of a Union Pacific Resources common share immediately before the merger was $17.60. Union Pacific Resources has established so-called "rabbi trusts" for purposes of providing payments under the change-in-control agreements and certain deferred compensation plans that include executive officers and directors and is obligated to transfer to the rabbi trusts sufficient funds to satisfy such payment obligations to executive officers and directors. Since entering into the merger agreement, Anadarko and Union Pacific Resources have engaged in discussions with a number of executive officers and other senior management employees of Union Pacific Resources concerning their continued service with the combined company after the merger and their waiver of rights under their change-in-control agreements which would result from the merger. Anadarko expects that those executive officers and senior management employees who commit to remain with the combined company and agree to waive their rights under such agreements would receive payment from Anadarko in the form of Anadarko common shares having a value equal to the aggregate cash severance amount which would be paid (exclusive of the amount attributable to the pro rata bonus for the year of the merger and before required tax withholdings) if their employment were to terminate, other than for cause, following the merger. In consideration of their waivers, such executives and other senior management employees would also receive grants of options to purchase Anadarko common shares. - CONTINUED EMPLOYMENT WITH ANADARKO. It is a condition to Anadarko's obligation to complete the merger that Mr. Lindahl execute a three-year employment agreement under which he will serve as Vice Chairman of Anadarko after the merger, and Mr. Lindahl has entered into such an agreement. The principal terms of the employment agreement with Mr. Lindahl include the following: (a) guaranteed annual cash compensation of at least $1,500,000; (b) an equity grant of 125,000 Anadarko shares of restricted stock that vests over the term of the agreement, 125,000 unrestricted Anadarko common shares, and options to acquire 500,000 Anadarko common shares at fair market value on the date of grant, which options vest over the term of the agreement; (c) retirement benefits determined under the Anadarko Retirement Restoration Plan based on termination of employment at age 57 with 17 years of credited service and a minimum final average pay of $1,500,000, with such benefit offset by certain amounts payable under other Anadarko and Union Pacific Resources retirement plans; (d) an additional payment, if Anadarko terminates Mr. Lindahl's employment without cause or if Mr. Lindahl resigns for good reason, to make Mr. Lindahl whole for any excise tax imposed with respect to any payment or distribution made under the agreement; (e) an agreement by Mr. Lindahl not to compete with Anadarko for the shorter of one year following the date of his termination or the three years following the effective date of the agreement; and (f) severance and other benefits in the event of Mr. Lindahl's separation from service with Anadarko in connection with a change of control of Anadarko following the merger. The employment agreement between Mr. Lindahl and Anadarko has been executed, but will not take effect unless the merger is consummated. If the employment agreement is made effective, the change-in-control agreement between Mr. Lindahl and Union Pacific Resources will terminate. - DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. Under the merger agreement, after the completion of the merger, Anadarko will cause Union Pacific Resources to indemnify the present and former officers and directors of Union Pacific Resources in respect of acts or omissions occurring before the completion of the merger to the extent provided under the Union Pacific Resources charter and bylaws. In addition, Anadarko shall use all reasonable best efforts to cause Union Pacific Resources to maintain, for a period of six years, policies of directors' and officers' liability insurance with respect to acts or omissions occurring before the completion of the merger. These policies will be comparable to those currently maintained by Union Pacific Resources. However, neither Union Pacific Resources nor Anadarko will be required to pay an aggregate 54 THE MERGER premium for this coverage in excess of 200% of the annual premiums that Union Pacific Resources currently pays. - ANADARKO BOARD OF DIRECTORS. Under the merger agreement, Anadarko will take all steps necessary to have Anadarko stockholders consider and vote upon an amendment to Anadarko's restated certificate of incorporation to increase the maximum size of the Anadarko board of directors to at least 13 directors. As discussed under "Proposed Amendments to Anadarko's Restated Certificate of Incorporation -- Maximum Board Size Proposal," Anadarko is proposing to increase the maximum size of the board of directors to 15 members. If this amendment is approved by the holders of 80% of the outstanding Anadarko common shares, the Anadarko board of directors will take all action necessary, immediately following the completion of the merger, to elect as Anadarko directors Mr. Lindahl and four other individuals who are currently independent directors of the Union Pacific Resources board of directors, as may be mutually agreed by the chief executive officers of Anadarko and Union Pacific Resources. If this amendment is not approved by the holders of 80% of the outstanding Anadarko common shares, the Anadarko board of directors will take all action necessary, immediately following the completion of the merger, to elect as Anadarko directors Mr. Lindahl and two other individuals who are currently independent directors of the Union Pacific Resources board of directors, as may be mutually agreed by the chief executive officers of Anadarko and Union Pacific Resources. The Union Pacific Resources board of directors was aware of these interests and took them into account in approving the merger and recommending that the Union Pacific Resources stockholders approve the merger. Union Pacific Resources directors and executive officers beneficially owned, as of the record date, approximately 1.3% of the outstanding Union Pacific Resources common shares, including Union Pacific Resources common shares subject to outstanding stock options. ANADARKO DIRECTORS AND EXECUTIVE OFFICERS. In considering the recommendation of the Anadarko board of directors with respect to the merger, Union Pacific Resources stockholders and Anadarko stockholders should be aware that some Anadarko directors and executive officers have interests in the merger that are different from the interests of Anadarko stockholders generally: - STOCK OPTIONS AND OTHER EQUITY-BASED AWARDS. All outstanding unvested stock options that Anadarko has granted to its directors vest upon a change in control. These stock options represent the right to purchase 45,000 Anadarko common shares. Under Anadarko's stock plans, upon a change in control, 3,028,000 unvested options held by Anadarko's executive officers become exercisable and restrictions on 73,125 shares of executives' restricted stock lapse. The merger will constitute a change in control under the plans providing for these stock options and shares of restricted stock. - CHANGE-IN-CONTROL ARRANGEMENTS. Anadarko's executive officers are covered by change-in-control agreements with benefits and other provisions similar to those in the Union Pacific Resources change-in-control agreements described above. The merger will constitute a change of control under these agreements. If the employment of each of Anadarko's 18 executive officers were to terminate after the merger, other than for "cause," we estimate that the aggregate amount of cash severance payable upon the terminations (exclusive of amounts attributable to certain retirement and deferred compensation benefits and before required tax withholdings) would be approximately $39 million. In connection with the merger, Anadarko expects to obtain assurance from the Anadarko officers that they will not treat the merger as a change in control under these agreements. Since entering into the merger agreement, Anadarko has engaged in discussions with these executives to the effect that in consideration of the executives' waiver of their rights in connection with the merger, Anadarko would make payment to each such executive in the form of Anadarko common shares having a value equal to the aggregate cash severance amount that would be paid (exclusive of amounts attributable to certain retirement and deferred compensation benefits and before required 55 THE MERGER tax withholdings) if the executive's employment were to terminate, other than for cause, following the merger. The Anadarko board of directors was aware of these interests and took them into account in approving the merger. Anadarko directors and executive officers beneficially owned, as of the record date, approximately 4% of outstanding Anadarko common shares, including those Anadarko common shares subject to outstanding stock options. ACCOUNTING TREATMENT The merger will be treated as a "purchase" for accounting purposes. Therefore, the purchase price will be allocated to Union Pacific Resources' assets and liabilities based on their estimated fair market values at the completion of the merger. Any excess of the purchase price over these fair market values will be accounted for as goodwill. 56 THE MERGER THE MERGER AGREEMENT THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS DOCUMENT AND IS INCORPORATED IN THIS DOCUMENT BY REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT. YOU SHOULD CAREFULLY READ THE MERGER AGREEMENT BECAUSE IT, AND NOT THIS DOCUMENT, IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER. THE MERGER At the effective time of the merger, Dakota Merger Corp. will merge with and into Union Pacific Resources, which will be the surviving corporation in the merger and become a wholly owned subsidiary of Anadarko. The closing date of the merger will occur as soon as practicable, and in any event within three business days following the date on which all conditions to the merger have been satisfied or waived, unless we agree on another time. As promptly as possible on the closing date of the merger, we will file articles of merger with the Division of Corporations and Commercial Code of the State of Utah. The effective time of the merger will be the time we file the articles of merger with the Division of Corporations and Commercial Code or at a later time as we may agree and specify in the articles of merger. We currently anticipate that we will complete the merger shortly after the Union Pacific Resources and Anadarko special meetings, assuming our respective stockholders approve the merger and the share issuance at these special meetings and all other conditions to the merger have been satisfied or waived. MERGER CONSIDERATION EXCHANGE RATIO. At the effective time of the merger, each Union Pacific Resources common share issued and outstanding immediately before the effective time of the merger (other than Union Pacific Resources common shares held by Union Pacific Resources, which will be canceled and retired) will be converted into 0.455 of an Anadarko common share. FRACTIONAL SHARES. Certificates for fractional Anadarko common shares will not be issued in the merger. Union Pacific Resources stockholders who would otherwise receive fractional shares will, instead, be entitled to receive a cash payment equal to the value of these fractional share interests. EXCHANGE PROCEDURES As soon as reasonably practicable after the effective time of the merger, an exchange agent will mail a letter of transmittal to each holder of record of Union Pacific Resources stock certificates. This letter of transmittal must be used in surrendering Union Pacific Resources stock certificates to the exchange agent for cancellation. Upon surrender of a Union Pacific Resources stock certificate for cancellation, together with a duly executed letter of transmittal, the holder of such Union Pacific Resources stock certificate will be entitled to receive in exchange (a) an Anadarko certificate representing the whole number of Anadarko common shares that the holder has the right to receive, (b) a check representing the amount of cash payable in lieu of any fractional Anadarko common shares, if any, and (c) unpaid dividends and distributions, if any, that the holder has the right to receive pursuant to the merger agreement, after giving effect to any required withholding tax. UNION PACIFIC RESOURCES STOCKHOLDERS SHOULD NOT SEND IN THEIR UNION PACIFIC RESOURCES STOCK CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL. After the effective time of the merger, each Union Pacific Resources stock certificate, until surrendered and exchanged, will represent only the right to receive a certificate representing Anadarko common shares and cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any. Holders of Union Pacific Resources stock certificates will not be entitled to receive any dividends or other distributions declared or made by Anadarko having a record date on or after the effective time of the merger until the Union Pacific Resources stock certificates are surrendered. Subject to applicable law, 59 THE MERGER AGREEMENT following surrender of the Union Pacific Resources stock certificates, such dividends and distributions, if any, will be paid without interest and less the amount of any required withholding taxes. TREATMENT OF UNION PACIFIC RESOURCES STOCK OPTIONS Before the effective time of the merger, Anadarko and Union Pacific Resources will take all necessary actions to cause each unexpired and unexercised outstanding stock option granted or issued under Union Pacific Resources stock option plans in effect on the date of the merger agreement to be converted at the effective time of the merger into a stock option to acquire Anadarko common shares, with appropriate adjustments to reflect the exchange ratio of 0.455 of an Anadarko common share for each Union Pacific Resources common share. Anadarko will equitably adjust the applicable performance target under any Union Pacific Resources stock option that contains performance targets and, with respect to "incentive stock options," carry out such conversion in compliance with section 424(a) of the Internal Revenue Code. Anadarko will use its reasonable efforts to file with the SEC within 30 days after the closing date of the merger a registration statement to register Anadarko common shares issuable upon exercise of these stock options to acquire Anadarko common shares, and to use its reasonable efforts to cause this registration statement to remain effective until the exercise or expiration of these stock options. 60 THE MERGER AGREEMENT BUSINESS OF UNION PACIFIC RESOURCES Union Pacific Resources is engaged primarily in the exploration for and the development and production of natural gas, natural gas liquids and crude oil. At the end of 1999, Union Pacific Resources had proved reserves of 402 million barrels of crude oil, condensate and natural gas liquids and 3.3 trillion cubic feet of natural gas. Union Pacific Resources' exploration and development operations are organized into four primary business operating areas. - U.S. ONSHORE OPERATIONS. These operations are composed of Union Pacific Resources' oil and gas activities that are concentrated in the land grant area of Colorado, Wyoming and Utah; the Coastal Plain of Texas and Louisiana; the Austin Chalk trend in Texas and Louisiana; the East Texas area; and the West Texas area. U.S. onshore operations accounted for 43% of Union Pacific Resources' 1999 total capital expenditures, 49% of its proved reserves and 59% of its producing property sales volumes. Over 70% of the proved reserves in the United States is natural gas. - U.S. OFFSHORE OPERATIONS. These operations are composed of Union Pacific Resources' oil and gas properties in the Gulf of Mexico. This operating area accounted for 13% of the 1999 capital expenditures, 7% of proved reserves, and 7% of producing property sales volumes. - CANADIAN OPERATIONS. These operations are composed of properties in Western Canada and were primarily acquired by Union Pacific Resources as part of its 1998 acquisition of Norcen Energy Resources Limited for a cash price of $2.6 billion. These operations provide a commodity mix of 38% crude oil and natural gas liquids and 62% natural gas. Approximately 46% of Canadian oil production is heavy oil. In 1999, the Canadian operations accounted for 29% of capital expenditures, 28% of proved resources and 21% of producing property sales volumes. - OTHER INTERNATIONAL OPERATIONS. These operations are concentrated in Latin America, primarily in Guatemala and Venezuela. Other less significant international oil and gas interests include six fields in Argentina, two non-operated offshore producing properties in Australia, a producing interest in a non-operated property in Egypt and an exploitation interest in Brazil with potential exploration upside. In the aggregate, in 1999 these international operations accounted for 15% of capital expenditures, 16% of proved reserves, and 13% of producing property sales volumes. Union Pacific Resources' mineral segment contributed significantly to Union Pacific Resources' operating revenues in 1999 ($117.8 million) by exploiting the hard minerals portion of Union Pacific Resources' fee mineral interests in the land grant through non-operated joint venture and royalty arrangements in coal, trona and industrial mineral mines. In general, Union Pacific Resources reinvests the cash flow from its hard minerals operations into its oil and gas business segment. Since 1998, Union Pacific Resources has made significant asset sales of its non-strategic properties, including the $1.36 billion sale of its gathering, processing and marketing business segment to Duke Energy Field Services, Inc. in March 1999. The proceeds from the asset sales generally have been used to pay down the debt incurred from the acquisition of Norcen Energy Resources Limited. Union Pacific Resources had 2,223 employees as of February 29, 2000. Union Pacific Resources' headquarters are located at 777 Main Street, Fort Worth, Texas 76102, its telephone number is (817) 321-6000, and its website is http://www.upr.com. Additional information concerning Union Pacific Resources is included in documents filed by Union Pacific Resources with the SEC, which are incorporated by reference into this document. See "Where You Can Find More Information." 75 THE COMPANIES EX-20.2 5 0005.txt ANADARKO FINANCIAL STATEMENTS EXHIBIT 20.2 NEW ANADARKO PETROLEUM CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements, including the notes thereto, of Anadarko and Union Pacific Resources, which are incorporated by reference in this document. The unaudited pro forma financial statements are presented for illustration purposes only, in accordance with the assumptions set forth below, and are not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed. Nor is it necessarily indicative of future operating results or the financial position of the combined enterprise. The unaudited pro forma condensed combined financial statements do not reflect any adjustments to conform accounting practices, other than to conform Union Pacific Resources' accounting for oil and gas activities to the full-cost method of accounting, or to reflect any cost savings or other synergies anticipated as a result of the merger or any future merger related expenses. 77 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NEW ANADARKO PETROLEUM CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1999
UNION PACIFIC PRO FORMA PRO FORMA ANADARKO RESOURCES ADJUSTMENTS COMBINED -------- ------------- ----------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) REVENUES Gas sales................................ $357,530 $ 854,933 $ -- $1,212,463 Oil and condensate sales................. 249,666 504,933 -- 754,599 Natural gas liquid sales................. 88,039 113,386 -- 201,425 Minerals................................. -- 120,494 -- 120,494 Other.................................... 5,869 133,726 (92,663)(a) 46,932 -------- ---------- --------- ---------- Total............................... 701,104 1,727,472 (92,663) 2,335,913 -------- ---------- --------- ---------- COSTS AND EXPENSES Operating expenses....................... 141,719 668,491 (249,960)(b) 383,256 (176,994)(c) Administrative and general............... 102,946 86,928 63,654 (c) 207,520 (46,008)(d) Minerals................................. -- (2,797) 2,797 (c) -- Depreciation, depletion and amortization........................... 218,091 827,710 (827,710)(e) 978,690 760,599 (f) Other taxes.............................. 35,407 -- 110,543 (c) 145,950 Restructuring charge..................... -- 11,375 -- 11,375 Impairments related to international properties............................. 24,000 -- -- 24,000 Amortization of goodwill................. -- -- 52,530 (g) 52,530 -------- ---------- --------- ---------- Total............................... 522,163 1,591,707 (310,549) 1,803,321 -------- ---------- --------- ---------- Operating Income......................... 178,941 135,765 217,886 532,592 OTHER INCOME (EXPENSE)................... -- 31,722 -- 31,722 INTEREST EXPENSE......................... 74,124 218,658 (167,565)(h) 125,217 -------- ---------- --------- ---------- Income (Loss) Before Income Taxes........ 104,817 (51,171) 385,451 439,097 INCOME TAXES............................. 62,238 (140,348) 145,480 (i) 67,370 -------- ---------- --------- ---------- NET INCOME FROM CONTINUING OPERATIONS.... $ 42,579 $ 89,177 $ 239,971 $ 371,727 Preferred stock dividends................ 10,920 -- -- 10,920 -------- ---------- --------- ---------- NET INCOME FROM CONTINUING OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS....... $ 31,659 $ 89,177 $ 239,971 $ 360,807 -------- ---------- --------- ---------- Earnings per share -- basic.............. $ 0.25 $ 1.51 Earnings per share -- diluted............ $ 0.25 $ 1.50 -------- ---------- AVERAGE SHARES OUTSTANDING............... 125,187 113,459 (j) 238,646 AVERAGE SHARES OUTSTANDING -- DILUTED.... 125,906 113,862 (k) 239,768 -------- --------- ----------
See accompanying notes to unaudited pro forma condensed combined financial statements. 78 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NEW ANADARKO PETROLEUM CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME QUARTER ENDED MARCH 31, 2000
UNION PACIFIC PRO FORMA PRO FORMA ANADARKO RESOURCES ADJUSTMENTS COMBINED -------- ------------- ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Gas sales................................. $102,143 $243,674 $ -- $345,817 Oil and condensate sales.................. 101,751 188,311 -- 290,062 Natural gas liquids sales................. 41,602 47,852 -- 89,454 Minerals.................................. -- 37,516 -- 37,516 Other..................................... 1,555 4,949 (168)(a) 6,336 -------- -------- --------- -------- Total................................ 247,051 522,302 (168) 769,185 -------- -------- --------- -------- COSTS AND EXPENSES Operating expenses........................ 42,939 138,205 (25,157)(b) 106,501 (49,486)(c) Administrative and general................ 30,086 18,803 13,700 (c) 52,391 (10,198)(d) Minerals.................................. -- 540 (540)(c) -- Depreciation, depletion and amortization............................ 57,308 176,230 (176,230)(e) 237,606 180,298 (f) Other taxes............................... 11,321 -- 36,326 (c) 47,647 Amortization of goodwill.................. -- -- 13,132 (g) 13,132 -------- -------- --------- -------- Total................................ 141,654 333,778 (18,155) 457,277 -------- -------- --------- -------- Operating Income.......................... 105,397 188,524 17,987 311,908 OTHER INCOME (EXPENSE).................... -- (14,839) -- (14,839) INTEREST EXPENSE.......................... 21,094 48,925 (37,862)(h) 32,157 -------- -------- --------- -------- Income Before Income Taxes................ 84,303 124,760 55,849 264,912 INCOME TAXES.............................. 42,504 32,049 21,424 (i) 95,977 -------- -------- --------- -------- NET INCOME FROM CONTINUING OPERATIONS..... $ 41,799 $ 92,711 $ 34,425 $168,935 Preferred stock dividends................. 2,730 -- -- 2,730 -------- -------- --------- -------- NET INCOME FROM CONTINUING OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS........ $ 39,069 $ 92,711 $ 34,425 $166,205 -------- -------- --------- -------- Earnings per share -- basic............... $ 0.31 $ 0.69 Earnings per share -- diluted............. $ 0.30 $ 0.68 -------- -------- AVERAGE SHARES OUTSTANDING................ 128,046 113,459 (j) 241,505 AVERAGE SHARES OUTSTANDING -- DILUTED..... 131,464 113,862 (k) 245,326 -------- --------- --------
See accompanying notes to unaudited pro forma condensed combined financial statements. 79 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NEW ANADARKO PETROLEUM CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 2000
UNION PACIFIC PRO FORMA PRO FORMA ANADARKO RESOURCES ADJUSTMENTS COMBINED ---------- ------------- ------------ ----------- (IN THOUSANDS) ASSETS Current assets..................... $ 322,726 $ 470,102 $ 40,000 (l) $ 832,828 ---------- ----------- ------------ ----------- Properties and equipment........... 6,095,154 11,084,333 (11,084,333)(m) 14,416,354 8,321,200 (n) Less accumulated depreciation, depletion and amortization....... 2,287,451 5,670,830 (5,670,830)(m) 2,287,451 ---------- ----------- ------------ ----------- Net properties and equipment....... 3,807,703 5,413,503 2,907,697 12,128,903 ---------- ----------- ------------ ----------- Deferred charges................... 89,412 175,887 52,000 (o) 317,299 Goodwill........................... -- -- 1,050,593 (p) 1,050,593 ---------- ----------- ------------ ----------- Total......................... $4,219,841 $ 6,059,492 $ 4,050,290 $14,329,623 ========== =========== ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities................ $ 297,165 $ 549,553 $ 193,700 (l) $ 1,175,344 134,926 (q) Long-term debt..................... 1,573,217 2,606,073 (203,000)(r) 3,976,290 Deferred income taxes.............. 614,997 1,334,818 1,120,471 (s) 3,070,286 Deferred credits................... 147,833 548,537 (283,400)(t) 412,970 Preferred stock.................... 200,000 -- -- 200,000 Stockholders' equity............... 1,386,629 1,020,511 3,087,593 (u) 5,494,733 ---------- ----------- ------------ ----------- Total......................... $4,219,841 $ 6,059,492 $ 4,050,290 $14,329,623 ========== =========== ============ =========== CAPITALIZATION RATIOS Long-term debt..................... 50% 72% 41% Stockholders' equity............... 50% 28% 59%
See accompanying notes to unaudited pro forma condensed combined financial statements. 80 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NEW ANADARKO PETROLEUM CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (a) To record the pro forma reversal of historical Union Pacific Resources gains and losses related to the sale of oil and gas properties to conform to the full-cost method of accounting for oil and gas activities. (b) To record the pro forma capitalization of historical Union Pacific Resources exploration expense to conform to the full-cost method of accounting for oil and gas activities. (c) To reclassify certain amounts in Union Pacific Resources historical financial statements to conform to Anadarko's presentation. (d) To record the pro forma capitalization of Union Pacific Resources exploration and development overhead costs to conform to the full-cost method of accounting for oil and gas activities. (e) To record the reversal of historical Union Pacific Resources depreciation, depletion and amortization expense recorded in accordance with the successful efforts method of accounting for oil and gas activities and the reversal of historical Union Pacific Resources impairment of oil and gas properties recorded in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." (f) To record pro forma depreciation, depletion and amortization expense (i) in accordance with the full-cost method of accounting for oil and gas activities and (ii) on the estimated fair value of the depreciable and depletable assets. Full-cost ceiling tests were performed on the combined basis resulting in no incremental impairment of oil and gas properties for the periods presented. (g) To record the pro forma amortization of goodwill, which will be amortized over a period of 20 years. (h) To record pro forma capitalization of interest on significant investments in unevaluated properties and major development projects and to adjust Union Pacific Resources historical interest expense to reflect the estimated fair value of historical debt pursuant to the purchase method of accounting, including the reversal of amortization of historical debt issuance costs. (i) To record income tax expense on the pro forma adjustments based on the applicable statutory tax rates. (j) To reflect the issuance of Anadarko common stock pursuant to the merger agreement. (k) To reflect the issuance of Anadarko common stock pursuant to the merger agreement and common stock equivalents related to stock options issued in accordance with the merger agreement. (l) To record the estimated fair value of derivatives and other current liabilities in accordance with the purchase method of accounting. (m) To reverse historical Union Pacific Resources property and equipment balances and the related accumulated depreciation, depletion and amortization. (n) To record the estimated pro forma allocation of the purchase price of the acquisition of Union Pacific Resources, including estimated merger costs, to properties and equipment in accordance with the 81 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NEW ANADARKO PETROLEUM CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) purchase method of accounting. The following is a calculation and allocation of the purchase price to the assets acquired and liabilities assumed based on their relative fair values. CALCULATION OF PURCHASE PRICE (IN THOUSANDS EXCEPT SHARES) Estimated number of shares of common stock to be issued..... 113,459,310 Average of Anadarko common stock price five days before and after the merger announcement............................. $ 35.58 ------------ Fair value of estimated common stock to be issued........... $ 4,036,667 Add: Fair value of vested Union Pacific Resources employee stock options to be assumed by Anadarko................... 71,437 ------------ 4,108,104 Add: Estimated merger related costs (See note (q)).......... 134,926 ------------ Purchase Price.............................................. $ 4,243,030 ============ ALLOCATION OF PURCHASE PRICE (IN THOUSANDS) Current assets.............................................. $ 510,102 Properties and equipment.................................... 8,321,200 Deferred charges............................................ 227,887 Goodwill.................................................... 1,050,593 Current liabilities......................................... 878,179 Long-term debt.............................................. 2,403,073 Deferred income taxes....................................... 2,455,289 Deferred credits............................................ 265,137 ------------ Stockholders' equity........................................ $ 4,108,104 ============ The purchase price allocation is subject to changes in: - the number of actual shares issued; - the fair value of Union Pacific Resources working capital and other assets and liabilities on the effective date; and - the actual merger costs incurred. These items will not be known until the effective date of the merger. Management does not believe the final purchase price allocation will differ materially from the estimated purchase price allocation. (o) To record the reversal of the capitalized debt issuance costs related to Union Pacific Resources historical long-term debt and record deferred charges at fair value pursuant to the purchase method of accounting. (p) To record goodwill associated with the acquisition of Union Pacific Resources pursuant to the purchase method of accounting. Goodwill will be amortized over a period of 20 years. (q) To record the liabilities associated with estimated merger related costs, consisting primarily of bankers' and other professional fees, as well as costs associated with relocation and severance of Union Pacific Resources employees and closing the Union Pacific Resources office in Fort Worth, Texas. (r) To adjust historical Union Pacific Resources long-term debt to the estimated fair value using the purchase method of accounting. 82 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NEW ANADARKO PETROLEUM CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (s) To record the pro forma deferred income tax effect of the fair value adjustments related to the merger in accordance with the purchase method of accounting. (t) To adjust the historical Union Pacific Resources deferred credits to estimated fair value in accordance with the purchase method of accounting. (u) To record the pro forma adjustments to stockholders' equity in accordance with the purchase method of accounting. The adjustment amount is calculated as follows (in thousands): Fair value of estimated common stock to be issued, as calculated in note (n) above.............................. $4,036,667 Add: Fair value of vested Union Pacific Resources employee stock options to be assumed by Anadarko................... 71,437 ---------- 4,108,104 Less: Union Pacific Resources historical stockholders' equity.................................................... 1,020,511 ---------- Adjustment to stockholders' equity.......................... $3,087,593 ========== 83 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS EX-23.1 6 0006.txt CONSENT OF IND. PUBLIC ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use in this Form 8-K and to the incorporation by reference into the following previously filed registration statements of our report dated March 3, 2000 included in Union Pacific Resources Group Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999. It should be noted that we have not audited any financial statements of Union Pacific Resources Group Inc. subsequent to December 31, 1999 or performed any audit procedures subsequent to the date of our report. (a) Forms S-8 and S-3, Anadarko Employee Savings Plan (No. 33-8643). (b) Forms S-8 and S-3, Anadarko Petroleum Corporation 1987 Stock Option Plan (No. 33-22134). (c) Forms S-8 and S-3, Anadarko Petroleum Corporation 1988 Stock Option Plan for Non-Employee Directors (No. 33-30384). (d) Form S-8, Anadarko Petroleum Corporation 1993 Stock Incentive Plan (No. 33-54485). (e) Form S-3, Anadarko Petroleum Corporation Dividend Reinvestment and Stock Purchase Plan (No. 333-65915). (f) Form S-8, Anadarko Petroleum Corporation 1998 Director Stock Plan (No. 333-78301). (g) Form S-8, Anadarko Petroleum Corporation 1999 Stock Incentive Plan (No. 333-78303). (h) Form S-3, Anadarko Petroleum Corporation Registration Statement for $1 billion of Debt Securities, Preferred Stock and Common Stock (No. 333-76127). /s/ Arthur Anderson LLP - ----------------------- Fort Worth, TX July 28, 2000 EX-23.2 7 0007.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the inclusion in the following registration statements of Anadarko Petroleum Corporation of our report dated January 26, 1998, relating to the audited consolidated statement of income and comprehensive income, changes in shareholders' equity, and cash flows of Union Pacific Resources Group Inc. for the year ended December 31, 1997, which report appears in the December 31, 1999 annual report on Form 10-K of Union Pacific Resources Group Inc., excerpts of which appears in this Current Report on Form 8-K. (a) Forms S-8 and S-3, Anadarko Employee Savings Plan (No. 33-8643). (b) Forms S-8 and S-3, Anadarko Petroleum Corporation 1987 Stock Option Plan (No. 33-22134). (c) Forms S-8 and S-3, Anadarko Petroleum Corporation 1988 Stock Option Plan for Non-Employee Directors (No. 33-30384). (d) Form S-8, Anadarko Petroleum Corporation 1993 Stock Incentive Plan (No. 33-54485). (e) Form S-3, Anadarko Petroleum Corporation Dividend Reinvestment and Stock Purchase Plan (No. 333-65915). (f) Form S-8, Anadarko Petroleum Corporation 1998 Director Stock Plan (No. 333-78301). (g) Form S-8, Anadarko Petroleum Corporation 1999 Stock Incentive Plan (No. 333-78303). (h) Form S-3, Anadarko Petroleum Corporation Registration Statement for $1 billion of Debt Securities, Preferred Stock and Common Stock (No. 333-76127). /s/ Deloitte & Touche LLP - ------------------------- Dallas, TX July 28, 2000 EX-99.1 8 0008.txt ANUAL FINANCIAL STATEMENTS EXHIBIT 99.1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Union Pacific Resources Group Inc. Fort Worth, Texas We have audited the accompanying consolidated statements of financial position of Union Pacific Resources Group Inc. (a Utah Corporation) and subsidiaries ("the Company") as of December 31, 1999 and 1998, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. We have also audited the adjustments related to discontinued operations described in Note 3 that were applied to restate the 1997 financial statements. In our opinion, such adjustments are appropriate and have been properly applied. ARTHUR ANDERSEN LLP Fort Worth, Texas March 3, 2000 40 INDEPENDENT AUDITORS' REPORT To the Board of Directors Union Pacific Resources Group Inc. Fort Worth, Texas We have audited the accompanying consolidated statements of income, changes in shareholders' equity and cash flows of Union Pacific Resources Group Inc. ("the Company") for the year ended December 31, 1997, (which have been restated and are no longer presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Fort Worth, Texas January 26, 1998 41 UNION PACIFIC RESOURCES GROUP INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ---------- ----------- ---------- (MILLIONS, EXCEPT PER SHARE AMOUNTS) Operating revenues: Producing properties...................................... $1,473.3 $ 1,537.4 $1,293.5 Other oil and gas revenues................................ 133.7 162.5 84.7 Minerals (Note 14)........................................ 120.5 141.1 139.8 -------- --------- -------- Total operating revenues.......................... 1,727.5 1,841.0 1,518.0 -------- --------- -------- Operating expenses: Production................................................ 400.6 444.3 300.8 Exploration............................................... 267.9 339.0 204.7 Minerals (Note 14)........................................ (2.8) 3.5 3.4 Depreciation, depletion and amortization (Note 6)......... 827.7 2,125.6 504.0 General and administrative................................ 86.9 104.8 71.2 Restructuring charge (Note 4)............................. 11.4 17.0 -- -------- --------- -------- Total operating expenses.......................... 1,591.7 3,034.2 1,084.1 -------- --------- -------- Operating income (loss)..................................... 135.8 (1,193.2) 433.9 Other income (expense) -- net (Note 16)..................... 31.7 (45.3) 24.5 Interest expense (Notes 3 and 9)............................ (218.7) (249.8) (39.5) -------- --------- -------- Income (loss) from continuing operations before income taxes..................................................... (51.2) (1,488.3) 418.9 Income tax expense (benefit) (Note 8)....................... (140.4) (605.2) 115.8 -------- --------- -------- Income (loss) from continuing operations, before extraordinary items....................................... 89.2 (883.1) 303.1 Gain on sale of discontinued operations -- net of tax....... 157.0 -- -- Income (loss) from discontinued operations -- net of tax.... (23.8) (15.6) 29.9 -------- --------- -------- Income (loss) from discontinued operations (Note 3)......... 133.2 (15.6) 29.9 Extraordinary gain from early extinguishment of debt -- net of tax (Note 9)........................................... 3.4 -- -- -------- --------- -------- Net income (loss)........................................... $ 225.8 $ (898.7) $ 333.0 -------- --------- -------- Comprehensive income -- net of tax: (Note 15) Foreign currency translation adjustments.................. $ 22.5 $ (67.1) $ (5.3) Minimum pension liability................................. (6.0) (3.9) (1.0) -------- --------- -------- Comprehensive income (loss)................................. $ 242.3 $ (969.7) $ 326.7 ======== ========= ======== Earnings (loss) per share -- basic and diluted: (Note 15) Continuing operations..................................... $ 0.36 $ (3.57) $ 1.21 Discontinued operations................................... 0.54 (0.06) 0.12 Extraordinary item........................................ 0.01 -- -- -------- --------- -------- Total............................................. $ 0.91 $ (3.63) $ 1.33 -------- --------- -------- Weighted average shares outstanding -- diluted.............. 249.2 247.7 250.9 Cash dividends per share.................................... $ 0.20 $ 0.20 $ 0.20
The accompanying accounting policies and notes to the Consolidated Financial Statements are an integral part of these statements. 42 UNION PACIFIC RESOURCES GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 1999 AND 1998 ASSETS
1999 1998 --------- --------- (MILLIONS OF DOLLARS) Current assets: Cash and temporary investments............................ $ 123.7 $ 8.8 Accounts receivable (net of allowance for doubtful accounts of $8.5 million in 1999 and $9.8 million in 1998).................................................. 304.4 261.0 Inventories............................................... 54.7 64.6 Other current assets...................................... 13.1 107.0 --------- --------- Total current assets.............................. 495.9 441.4 --------- --------- Properties: (Note 6) Cost...................................................... 11,006.6 11,078.2 Accumulated depreciation, depletion and amortization...... (5,535.6) (4,984.9) --------- --------- Total properties.................................. 5,471.0 6,093.3 Intangible and other assets................................. 180.0 180.8 Net assets of discontinued operations (Note 3).............. -- 926.9 --------- --------- Total assets...................................... $ 6,146.9 $ 7,642.4 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 285.0 $ 270.5 Accrued taxes payable..................................... 68.6 64.9 Short-term debt (Note 9).................................. 2.3 853.8 Other current liabilities (Note 14)....................... 185.8 157.5 --------- --------- Total current liabilities......................... 541.7 1,346.7 --------- --------- Long-term debt (Note 9)..................................... 2,797.3 3,744.9 Deferred income taxes (Note 8).............................. 1,326.8 1,291.6 Retiree benefits obligations (Note 11)...................... 142.5 142.9 Other long-term liabilities (Notes 12, 13 and 14)........... 401.1 388.1 Shareholders' equity (see page 45).......................... 937.5 728.2 --------- --------- Total liabilities and shareholders' equity........ $ 6,146.9 $ 7,642.4 ========= =========
The accompanying accounting policies and notes to the Consolidated Financial Statements are an integral part of these statements. 43 UNION PACIFIC RESOURCES GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 --------- --------- --------- (MILLIONS OF DOLLARS) Cash provided by operations: Net income................................................ $ 225.8 $ (898.7) $ 333.0 (Income) loss from discontinued operations (Note 3)..... (133.2) 15.6 (29.9) Gain on extinguishment of debt -- net of tax............ (3.4) -- -- --------- --------- --------- Income (loss) from continuing operations.................. 89.2 (883.1) 303.1 Non-cash charges to income: Depreciation, depletion and amortization................ 827.7 2,125.6 504.0 Deferred income tax (benefit) (Note 8).................. 1.4 (659.3) 110.9 Surrendered lease amortization.......................... 172.5 185.9 85.6 (Gains) losses on sales of assets -- net................ (148.0) (139.9) (18.8) Other non-cash charges (credits) -- net................. (86.2) 194.7 (96.2) Exploratory expenditures.................................. 44.1 115.2 76.9 Changes in current assets and liabilities................. 94.8 92.0 (109.3) --------- --------- --------- Cash provided by operations........................ 995.5 1,031.1 856.2 --------- --------- --------- Investing activities: Capital and exploratory expenditures (Note 7)............. (428.2) (1,194.5) (1,188.4) Acquisition of Norcen (Note 2)............................ -- (2,634.3) -- Proceeds from sale of discontinued operations (Note 3).... 1,359.1 -- -- Proceeds from sales of assets (Note 3).................... 281.3 436.6 37.3 Proceeds from sale of investments......................... -- 48.4 -- Cash provided (used) by discontinued operations........... (203.6) 50.4 (221.8) Other investing activities -- net......................... -- -- (17.7) --------- --------- --------- Cash provided (used) by investing activities....... 1,008.6 (3,293.4) (1,390.6) --------- --------- --------- Financing activities: Dividends paid............................................ (49.6) (49.6) (50.0) Repayment of debt......................................... (2,295.5) -- -- Proceeds from long-term debt issuance (Note 9)............ 500.0 1,025.0 -- Other debt financing -- net............................... -- 1,294.5 559.6 Repurchase of common stock................................ (12.6) (26.7) (52.3) Reissuance of treasury stock.............................. 3.3 -- -- Other financings -- net (Note 9).......................... (34.8) (39.2) 30.4 --------- --------- --------- Cash provided (used) by financing activities....... (1,889.2) 2,204.0 487.7 --------- --------- --------- Net change in cash and temporary investments................ 114.9 (58.3) (46.7) Balance at beginning of year................................ 8.8 67.1 113.8 --------- --------- --------- Balance at end of year...................................... $ 123.7 $ 8.8 $ 67.1 ========= ========= ========= Changes in current assets and liabilities: Accounts receivable....................................... $ (37.2) $ 215.8 $ (33.2) Inventories............................................... 9.9 (17.8) (1.5) Other current assets...................................... 98.3 3.2 21.6 Accounts payable.......................................... 40.8 (153.4) (21.4) Accrued taxes payable..................................... (55.2) 3.5 (73.4) Other current liabilities................................. 38.2 40.7 (1.4) --------- --------- --------- Total.............................................. $ 94.8 $ 92.0 $ (109.3) ========= ========= ========= Supplemental cash flow disclosure: Interest paid: Continuing operations................................... $ 227.5 $ 216.0 $ 42.7 Discontinued operations................................. 7.4 21.1 13.6 Income taxes paid (recovered): Continuing operations................................... (95.5) 81.0 121.0 Discontinued operations................................. -- (35.0) 8.7
The accompanying accounting policies and notes to the Consolidated Financial Statements are an integral part of these statements. 44 UNION PACIFIC RESOURCES GROUP INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ------ ------- -------- (MILLIONS OF DOLLARS) Common stock, no par value; authorized 400,000,000 shares: 251,951,140 shares issued and outstanding at December 31, 1999 250,685,204 shares issued and outstanding at December 31, 1998 251,888,575 shares issued and outstanding at December 31, 1997 Balance at beginning and end of year...................... $ -- $ -- $ -- ------ ------- -------- Paid-in surplus (Note 15): Balance at beginning of year.............................. 992.6 991.2 872.9 Conversion, award, forfeiture and appreciation of retention shares........................................ 13.6 0.5 5.1 Issuance of ESOP shares................................... -- -- 107.3 Release of ESOP shares.................................... (11.8) -- -- Exercise of stock options................................. 3.3 0.6 5.5 Other..................................................... 1.1 0.3 0.4 ------ ------- -------- Balance at end of year.................................... 998.8 992.6 991.2 ------ ------- -------- Retained earnings: Balance at beginning of year.............................. 9.1 957.4 674.4 Net income (loss)......................................... 225.8 (898.7) 333.0 ------ ------- -------- Total.............................................. 234.9 58.7 1,007.4 Dividends declared on common stock........................ (49.6) (49.6) (50.0) ------ ------- -------- Balance at end of year.................................... 185.3 9.1 957.4 ------ ------- -------- Unearned compensation (Note 15): Balance at beginning of year.............................. (6.0) (11.8) (17.5) Conversion, award, forfeiture and amortization of retention shares -- net................................. 3.5 5.8 5.7 ------ ------- -------- Balance at end of year.................................... (2.5) (6.0) (11.8) ------ ------- -------- ESOP (Note 15): Balance at beginning of year.............................. (95.7) (102.0) -- Issuance of ESOP shares................................... -- -- (107.3) Release of ESOP shares.................................... 16.2 6.3 5.3 ------ ------- -------- Balance at end of year............................. (79.5) (95.7) (102.0) ------ ------- -------- Treasury stock (Note 15): Balance at beginning of year.............................. (82.5) (55.8) (3.5) Treasury stock repurchased or reissued, at cost -- net.... (9.3) (26.7) (52.3) ------ ------- -------- Balance at end of year: 4,276,989 shares at December 31, 1999 3,666,913 shares at December 31, 1998 2,379,625 shares at December 31, 1997............................ (91.8) (82.5) (55.8) ------ ------- -------- Comprehensive income: Deferred foreign exchange adjustment (Note 15): Balance at beginning of year............................ (84.4) (17.3) (12.0) Foreign currency translation adjustment................. 22.5 (67.1) (5.3) ------ ------- -------- Balance at end of year.................................. (61.9) (84.4) (17.3) ------ ------- -------- Minimum pension liability (Note 11) Balance at beginning of year............................ (4.9) (1.0) -- Minimum pension liability adjustment.................... (6.0) (3.9) (1.0) ------ ------- -------- Balance at end of year.................................. (10.9) (4.9) (1.0) ------ ------- -------- Total Comprehensive income......................... (72.8) (89.3) (18.3) ------ ------- -------- Total shareholders' equity......................... $937.5 $ 728.2 $1,760.7 ====== ======= ========
The accompanying accounting policies and notes to the Consolidated Financial Statements are an integral part of these statements. 45 UNION PACIFIC RESOURCES GROUP INC. BUSINESS SEGMENT INFORMATION AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 -------- --------- -------- (MILLIONS OF DOLLARS) Revenues(a): Exploration and production................................ $1,607.0 $ 1,699.9 $1,378.2 Minerals.................................................. 120.5 141.1 139.8 -------- --------- -------- Total revenues.................................... $1,727.5 $ 1,841.0 $1,518.0 ======== ========= ======== Depreciation, depletion and amortization: Exploration and production................................ $ 816.0 $ 2,115.8 $ 499.3 Minerals.................................................. 5.5 4.1 0.9 Corporate................................................. 6.2 5.7 3.8 -------- --------- -------- Total depreciation, depletion and amortization.... $ 827.7 $ 2,125.6 $ 504.0 ======== ========= ======== Operating income (loss): Exploration and production................................ $ 122.5 $(1,199.2) $ 373.4 Minerals.................................................. 117.8 133.5 135.5 Corporate(b).............................................. (104.5) (127.5) (75.0) -------- --------- -------- Total operating income (loss)..................... $ 135.8 $(1,193.2) $ 433.9 ======== ========= ======== Fixed assets -- net: Exploration and production................................ $5,367.4 $ 5,988.8 $2,827.1 Minerals.................................................. 7.4 10.2 14.1 Corporate................................................. 96.2 94.3 59.9 -------- --------- -------- Total fixed assets -- net......................... $5,471.0 $ 6,093.3 $2,901.1 ======== ========= ======== Capital and exploratory expenditures: Exploration and Production................................ $ 423.1 $ 3,796.2 $1,172.6 Minerals.................................................. -- 0.1 1.4 Corporate................................................. 5.1 32.5 14.4 -------- --------- -------- Total capital and exploratory expenditures........ $ 428.2 $ 3,828.8 $1,188.4 ======== ========= ========
GEOGRAPHIC INFORMATION
1999 1998 1997 -------- --------- -------- (MILLIONS OF DOLLARS) Revenues(a): United States............................................. $1,182.9 $ 1,455.9 $1,477.2 Canada.................................................... 332.1 259.0 28.9 Other international....................................... 212.5 126.1 11.9 -------- --------- -------- Total revenues.................................... $1,727.5 $ 1,841.0 $1,518.0 ======== ========= ======== Fixed assets -- net: United States............................................. $2,389.6 $ 2,965.2 $2,800.9 Canada.................................................... 1,918.8 1,854.0 89.8 Other international....................................... 1,162.6 1,274.1 10.4 -------- --------- -------- Total fixed assets -- net......................... $5,471.0 $ 6,093.3 $2,901.1 ======== ========= ========
- --------------- (a) 1999, 1998 and 1997 revenues include income from equity affiliates of $78.5 million, $89.7 million and $74.4 million, respectively for the Minerals segment. (b) Segment operating loss for the Corporate segment consists primarily of general and administrative expense and restructuring charge. The Company's reportable segments are strategic business units or an aggregation of business units with similar operations and management objectives. The reportable segments are managed separately because each segment requires different operational assets, technology and management strategies. This information should be read in conjunction with the accompanying accounting policies and notes to the Consolidated Financial Statements. 46 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The Consolidated Financial Statements include the accounts of Union Pacific Resources Group Inc. (a Utah Corporation) and subsidiaries (collectively, the "Company"), including its principal operating subsidiary Union Pacific Resources Company ("UPRC"). The Company accounts for investments in affiliated companies (20% to 50% owned) on the equity method of accounting. The Company also consolidates its pro-rata share of oil and gas joint ventures. All significant intercompany transactions are eliminated. The Consolidated Financial Statements for previous periods include certain reclassifications that were made to conform to the current presentation. Such reclassifications have no effect on previously reported net income. Refer to the accompanying notes to the financial statements for additional disclosure of the Company's significant accounting policies. As a result of the disposition of the Company's gathering, processing and marketing ("GPM") business segment, the GPM business segment has been accounted for as a discontinued operation. GPM results of operations have been excluded from continuing operations in the Consolidated Statements of Income and Cash Flows. GPM net assets have been segregated from continuing operations in the accompanying statements of financial position and reported as net assets of discontinued operations (See Note 3). Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each reporting period. Management believes its estimates and assumptions are reasonable; however, such estimates and assumptions are subject to a number of risks and uncertainties which may cause actual results to differ materially from the Company's estimates. Significant estimates underlying these financial statements include the estimated quantities of proved oil and gas reserves and the related present value of estimated future net cash flows therefrom (see Supplementary Information beginning on page 74). Cash and Temporary Investments. Temporary investments are stated at cost which approximates fair market value, and consist of investments with original maturities of three months or less. Inventories. Inventories consist primarily of hydrocarbon volumes and materials and supplies, carried on a first-in first-out basis at the lower of cost or market. At December 31, 1999 and 1998 hydrocarbon inventory was $13.5 million and $11.0 million, respectively, while materials and supplies inventory was $41.1 million and $53.6 million, respectively. Oil and Gas Properties. Oil and gas properties are accounted for using the successful efforts method. Under this method, exploration costs (drilling costs of unsuccessful exploration wells, geological and geophysical costs, non-producing leasehold amortization and delay rentals) are charged to expense when incurred. Costs to develop producing properties, including drilling costs and applicable leasehold acquisition costs, are capitalized. Costs to drill exploratory wells that result in additions to reserves are also capitalized. Depreciation, depletion and amortization of producing properties, including depreciation of well and support equipment and amortization of related lease costs, are determined by using a unit of production method based upon estimated proved reserves. Provisions for depreciation of property and equipment other than producing properties are computed principally on the straight-line method based on estimated service lives, which range from two to 15 years. Potential impairment of producing properties is assessed annually on a field-by-field basis. Significant unproved properties are not amortized, but are monitored for impairment and assessed annually in detail. Aggregated acquisition costs of individual insignificant unproved properties are amortized from the date of acquisition on a composite basis, which considers past success experience and average lease life (see Note 6). 47 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Costs of future site restoration, dismantlement and abandonment for producing properties are accrued as part of depreciation, depletion and amortization expense for tangible equipment by assuming no salvage value in the calculation of the unit of production rate. Additional costs are accrued for offshore and Canadian wells based on internal engineering estimates using the unit of production method with a charge to depreciation, depletion and amortization expense. The balance of the abandonment accrual at December 31, 1999 and 1998 was $75.0 million and $62.1 million, respectively. Gains or losses on retired, sold or abandoned properties that constitute part of an amortization base are deferred by charging or crediting the investment, net of proceeds, to accumulated depreciation, depletion and amortization unless such non-recognition would significantly affect the unit of production rate. Gains or losses from the disposition of other properties are recognized currently. Gains and losses from the sale of operating assets are recognized in other oil and gas revenues. Gains included in other oil and gas revenues were $148.0 million, $139.9 million and $18.8 million in 1999, 1998 and 1997, respectively. Gains and losses from all other dispositions are recorded in other income. Goodwill. Intangible and other assets include goodwill of $68.6 million for intangible value acquired from business combinations prior to 1971. Such goodwill is not being amortized because it is considered to have continuing value over an indefinite period. The value of goodwill is evaluated annually to determine whether any potential impairment exists. Revenue Recognition. Sales from producing wells are recognized on the entitlement method of accounting which defers recognition of sales when, and to the extent that, deliveries to customers exceed the Company's net revenue interest in production. Similarly, when deliveries are below the Company's net revenue interest in production, sales are recorded to reflect the full net revenue interest. The Company's gas imbalance liability at December 31, 1999 and 1998 was $5.5 million and $5.2 million, respectively. Natural gas and crude oil marketing revenue is included in other oil and gas revenue and recorded net of the cost of product purchased. Recently issued accounting standards. The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 137, which defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. SFAS No. 133 requires that all derivatives be recognized on the balance sheet and measured at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge and be eligible for special accounting treatment. However, the special accounting treatment afforded hedge transactions may delay the recognition of a portion of the gain or loss on the derivative, which would later be recorded concurrent with the gain or loss on the item being hedged. For derivatives not designated as hedges, gains or losses are recognized in earnings in the period of change. The impact of the statement on the Company will depend upon price volatility and the level of open derivative positions at the end of a reporting period. The Company plans to adopt SFAS No. 133 for the first quarter 2001 and is currently evaluating the effects of this pronouncement. Adoption will require the Company to begin recording unrealized gains and losses in the Consolidated Statement of Financial Position and in the Consolidated Statement of Comprehensive Income. 1. NATURE OF OPERATIONS The Company is an independent oil and gas company engaged primarily in the exploration for and the development and production of natural gas and crude oil in several major basins in the United States, Canada, Guatemala, Venezuela and other international areas. The Company markets all of its crude oil production together with significant volumes of crude oil produced by others. In 1998, the Company marketed a substantial portion of its natural gas and natural gas liquids ("NGLs"); however, in 1999 the Company entered into a long-term natural gas sales agreement to sell a substantial portion of its domestic natural gas and NGLs to Duke (hereinafter defined) (see Notes 3 and 5). The Company also engages in the hard 48 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) minerals business through non-operated joint ventures and royalty arrangements in several coal, trona (natural soda ash) and industrial mineral mines. The Company's results of operations are largely dependent on the difference between the prices received for its hydrocarbon products and the cost to find, develop, produce and market such resources. Hydrocarbon prices are subject to fluctuations in response to changes in supply, market uncertainty and a variety of factors beyond the control of the Company. These factors include worldwide political instability, the foreign supply of crude oil and natural gas, the price of foreign imports, the level of consumer demand and the price and availability of alternative fuels. The Company manages a portion of the operating risk relating to hydrocarbon price volatility through hedging activities (see Note 5). 2. ACQUISITIONS Norcen Energy Resources Limited. On January 25, 1998, the Company and Union Pacific Resources Inc. ("UPRI"), an Alberta corporation and a wholly-owned subsidiary of the Company, entered into a pre-acquisition agreement ("Pre-acquisition Agreement") with Norcen Energy Resources Limited ("Norcen"). Under the Pre-acquisition Agreement, the Company and UPRI agreed to make an offer (the "Tender Offer") for up to 100% of the common shares of Norcen, subject to certain conditions. On March 3, 1998, the Company announced the closing of the Tender Offer. In total, 95.5% of the outstanding common shares of Norcen were tendered at a purchase price of U.S. $13.65 per share. On March 5, 1998, the Company and UPRI completed the compulsory acquisition of the remaining common shares outstanding which were not tendered. (The closing of the Tender Offer and completion of the compulsory acquisition is referred to as the "Norcen Acquisition.") The aggregate cash purchase price for the Norcen Acquisition, including non-recurring transaction costs of $28.1 million, was $2.634 billion. In addition, UPRI assumed the long-term debt obligations of Norcen. Norcen operations primarily consisted of crude oil and natural gas exploration and development operations in western Canada, the Gulf of Mexico, Guatemala and Venezuela. The Company funded the purchase price of the Norcen Acquisition through the issuance of commercial paper, supported by a U.S. $2.7 billion 364-Day Competitive Advance/Revolving Credit Agreement dated March 2, 1998. In accordance with Accounting Principles Board Opinion No. 16, "Business Combinations," the Norcen Acquisition was accounted for as a purchase effective March 3, 1998. The following table represents the allocation of the total purchase price of the assets acquired and liabilities assumed, based upon their fair values on the date of the Norcen Acquisition and pushed down to the acquired Company. In accordance with SFAS No. 109 "Accounting for Income Taxes", a deferred tax liability was recognized for the differences between the allocated values and the tax bases of the acquired assets and liabilities.
MARCH 1998 --------------------- (MILLIONS OF DOLLARS) Working capital............................................. $ 114.4 Property, plant and equipment............................... 4,931.2 Other assets................................................ 228.2 Long-term debt.............................................. (1,012.0) Deferred taxes.............................................. (1,495.7) Other non-current liabilities............................... (131.8) --------- Total purchase price.............................. $ 2,634.3 =========
49 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents unaudited pro forma Condensed Consolidated Statements of Income of the Company for the twelve months ended December 31, 1998 and 1997, as though the Norcen Acquisition had occurred on January 1, 1997. Certain adjustments were made to the financial information to conform to the accounting policies and financial statement presentation of the Company.
YEARS ENDED DECEMBER 31, ---------------------------- 1998 1997 ------------ ----------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Revenues.................................................... $ 1,940.8 $2,169.3 Costs and expenses.......................................... 3,165.2 1,810.4 --------- -------- Operating income (loss)..................................... (1,224.4) 358.9 Interest expense............................................ (284.3) (240.1) Other income (expense) -- net............................... (45.3) 24.5 --------- -------- Income (loss) before income taxes........................... (1,554.0) 143.3 Income tax (benefit) expense................................ (629.4) (24.5) --------- -------- Income (loss) from continuing operations.................... $ (924.6) $ 118.8 ========= ======== Earnings (loss) per share -- basic and diluted Continuing operations................................................ $ (3.73) $ 0.47
The unaudited pro forma condensed consolidated information presented above is not necessarily indicative of the results of operations which would have occurred had the Norcen Acquisition been consummated on January 1, 1997, nor is it necessarily indicative of future results of operations. Norcen Summarized Financial Information. As a result of the Norcen Acquisition, and the amalgamation of Norcen with UPRI, UPRI assumed the obligations of Norcen, including the public debt obligations of Norcen (the "Debt Securities"). The Debt Securities include 6.8% Debentures due July 2, 2002, in the aggregate principal amount of $250 million, 7 3/8% Debentures due May 15, 2006, in the aggregate principal amount of $250 million, and 7.8% Debentures due July 2, 2008, in the aggregate principal amount of $150 million, each of which have been fully and unconditionally guaranteed by the Company. The following table presents summarized financial information for UPRI (as successor to Norcen) as of and for the year ended December 31, 1999 and the two months ended February 28, 1998, and ten months ended December 31, 1998. This summarized financial information is being provided pursuant to Section G of Topic 1 of Staff Accounting Bulletin No. 53 -- "Financial Statement Requirements in Filings Involving the Guarantee of Securities by a Parent." The Company will continue to provide such summarized financial information for UPRI as long as the Debt Securities remain outstanding.
YEAR ENDED UNAUDITED DECEMBER 31, TEN MONTHS TWO MONTHS 1999 ENDED ENDED --------------------- DECEMBER 31, FEBRUARY 28, 1998(a) 1998(b) -------------------- -------------------- (MILLIONS OF (MILLIONS OF (MILLIONS OF DOLLARS) DOLLARS) DOLLARS) Summarized Statement of Income Information: Operating revenues................... $343.0 $ 357.2 $104.0 Operating income (loss).............. (13.0) (784.5) 4.0 Net income (loss).................... $ 12.0 $(508.3)(c) $(30.0)(d) 50 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) AT DECEMBER 31, 1999 AT DECEMBER 31, 1998 -------------------- -------------------- (MILLIONS OF DOLLARS) Summarized Statement of Financial Position Information: Current assets........................................ $ 40.5 $ 53.7 Non-current assets.................................... 1,844.8 1,882.3 Current liabilities................................... 83.9 279.8 Non-current liabilities and equity.................... $1,801.4 $1,656.2
- --------------- (a) Results for UPRI as of and for the ten months ended December 31, 1998, include adjustments to reflect U.S. GAAP and the successful efforts method of accounting. Adjustments to reflect the application of the purchase method of accounting for the Norcen Acquisition are included effective March 3, 1998. (b) Results for Norcen as of and for the two months ended February 28, 1998 have not been restated in accordance with U.S. generally accepted accounting principles ("GAAP") and reflect the full cost method of accounting for oil and gas operations. (c) Results reflect the impairment and write-down of certain oil and gas properties. (d) Net loss includes $40 million in costs incurred by Norcen in connection with the Norcen Acquisition which were not reimbursed by the Company. 3. DIVESTITURES Deleveraging Program. In 1998, the Company commenced a deleveraging program which was designed to reduce the Company's debt. The deleveraging program, which was initiated following the completion of the Norcen Acquisition, included the sale of non-strategic properties and assets. The completed sales undertaken as part of the Company's deleveraging program include the following:
NON-STRATEGIC PROPERTIES OPERATING AREA SALES PRICE - ------------------------ -------------- --------------------- (MILLIONS OF DOLLARS) 1998 Denver-Julesburg Basin...................................... U.S. Onshore $ 41 Matagorda Island Blocks..................................... U.S. Offshore 158 Rockies Package............................................. U.S. Onshore 46 Eugene Island Blocks........................................ U.S. Offshore 8 Canadian Package............................................ Canada 145 Superior Propane............................................ Canada 48 ---- 1998 Total................................................ $446 ---- 1999 Caroline -- Swan Hill....................................... Canada $108 South Texas Package(a)...................................... U.S. Onshore 138 East Texas Package.......................................... U.S. Onshore 18 Rockies Package............................................. U.S. Onshore 10 Project Orange.............................................. Other 25 ---- 1999 Total................................................ 299 ---- Total............................................. $745 ====
- --------------- (a) As a result of the sale of the South Texas Package, the Company recorded a fully reserved $20.6 million note receivable included in other current assets. If the note is collected, the Company will record $20.6 million in additional proceeds and gain on the South Texas sale. Discontinued Operations. In November 1998, the Company entered into a Merger and Purchase Agreement ("Agreement") with Duke Energy Field Services, Inc. ("Duke") to sell its GPM business segment for $1.36 billion in cash. On March 31, 1999, the Company closed on the sale (the "GPM 51 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Disposition"). The GPM Disposition consisted primarily of the Company's pipelines, gathering systems, natural gas processing plants and natural gas and NGL marketing assets and operations. These operations included interests in nineteen natural gas processing plants (together with approximately 7,200 miles of pipelines that support these processing plants), as well as two non-operated NGL fractionation plants. The Company retained its crude oil marketing business. The Company recorded a $157.0 million after-tax gain on the GPM Disposition, including $108.3 million for accrued taxes payable. Summarized information relating to discontinued results of operations, excluding the after-tax gain on the GPM Disposition are as follows:
YEARS ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------- ------- (MILLIONS OF DOLLARS) Operating revenues....................................... $ 21.5 $ 340.0 $ 406.7 Operating expenses....................................... (29.7) (263.4) (281.3) Depreciation depletion and amortization.................. (20.4) (77.6) (64.1) ------ ------- ------- Operating income (loss).................................. (28.6) (1.0) 61.3 Other income (expense) -- net............................ -- -- (0.2) Interest expense (a)..................................... (8.0) (21.1) (13.6) ------ ------- ------- Income (loss) before taxes............................... (36.6) (22.1) 47.5 Income tax (benefit) expense............................. (12.8) (6.5) 17.6 ------ ------- ------- Net income (loss) from discontinued operations........... $(23.8) $ (15.6) $ 29.9 ====== ======= =======
- --------------- (a) The Company allocated interest expense to the GPM business segment based on the ratio of net assets of discontinued operations to total Company net assets, excluding $3.6 billion of debt associated with the Norcen Acquisition. Summarized information relating to net assets of discontinued operations are as follows:
AT DECEMBER 31, 1998 --------------------- (MILLIONS OF DOLLARS) Current Assets: Cash and temporary investments............................ $ 5.7 Accounts receivable -- net................................ 152.8 Inventories............................................... 46.8 Other current assets...................................... 5.2 -------- Total current assets.............................. 210.5 Properties -- net of accumulated depreciation............. 851.3 Intangible and other assets............................... 154.8 -------- Total assets...................................... $1,216.6 ======== Current Liabilities: Accounts payable.......................................... $ 158.0 Advance payment(a)........................................ 126.7 Other current liabilities................................. 2.0 -------- Total current liabilities......................... 286.7 Other long-term liabilities............................... 3.0 -------- Total liabilities................................. $ 289.7 ======== Net assets of discontinued operations............. $ 926.9 ========
52 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - --------------- (a) In June 1998, the Company entered into a third-party forward sales arrangement covering a total of 567 MMcf of gas per day. At the time of the arrangement, the Company received $250 million and became obligated to deliver gas from October 1998 through March 1999. The Company recorded the obligation associated with this transaction as an advance payment included in net assets of discontinued operations. This current liability was amortized and recorded on the Consolidated Statement of Income as part of discontinued operations, as the gas was delivered over the remaining term of the contract. 4. RESTRUCTURING CHARGES During the first quarter of 1999, the Company reorganized its operating groups, announced workforce reductions for its Canadian and U.S. operations and established an early retirement program. As a result of these actions, the Company recorded a $14.5 million restructuring charge. The charge included $7.3 million for severance costs and excess office space commitments, an additional $4.2 million liability for pension and other postretirement benefits in connection with the early retirement program and a $3.0 million valuation allowance for specialty drilling equipment and supplies no longer required for cancelled drilling programs. Payments of $7.2 million were made for severance and office lease costs. The pension and other postretirement liabilities are included in the balance of the Company's liabilities for those items (see Note 11). The valuation allowance for specialty drilling equipment and supplies was recorded to the inventory accounts. During 1998, the Company announced a workforce reduction for its domestic operations and implemented programs to reduce overhead and other costs. The $17.0 million restructuring charge included $7.6 million for workforce reductions of approximately 140 U.S. employees, $5.0 million for a drilling rig commitment and $4.4 million for excess office space commitments. At December 31, 1998, $14.6 million of the reserve remained. During 1999, net payments of $8.1 million were made and $3.1 million of the rig commitment charge was reversed as a result of favorable settlement negotiations. At December 31, 1999, the $3.4 million remaining reserve represents excess office space commitments net of sublease rentals. 5. FINANCIAL INSTRUMENTS Hedging. The Company has established policies and procedures for managing risk within its organization, including internal controls and governance by a risk management committee. The level of risk assumed by the Company is based on its objectives and earnings, and its capacity to manage risk. Limits are established for each major category of risk, with exposures monitored and managed by Company management and reviewed semi-annually by the risk management committee. Major categories of the Company's risk are defined as follows: Commodity Price Risk -- Non-Trading Activities. The Company uses derivative financial instruments for non-trading purposes in the normal course of business to manage and reduce risks associated with contractual commitments, price volatility and other market variables. These instruments are generally put in place to limit risk of adverse price movements; however, these same instruments usually limit future gains from favorable price movements. Risk management activities are generally accomplished pursuant to exchange-traded contracts or over-the-counter swaps and options. Recognition of realized gains/losses and option premium payments/receipts relating to non-trading activities are deferred in the Consolidated Statement of Income until the underlying physical product is sold. Unrealized gains/losses are not recorded. Margin deposits, deferred gains/losses and net premiums are included in other current assets or liabilities in the Consolidated Statement of Financial Position. The cash flow impact is reflected in cash flows provided by operations in the Consolidated Statement of Cash Flows. Utilization of the Company's hedging program may result in crude oil and natural gas prices varying from market prices. As a result of the hedging program, revenues in 1999, 1998 and 1997 were $178.1 million, $9 million and $86 million lower, respectively than if the hedging program had not been in effect. Since these transactions were hedges on production, these impacts were also reflected in the average sales price of the associated products. 53 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Commodity Price Risk -- Trading Activities. The Company periodically enters into financial contracts in conjunction with market-making or trading activities with the objective of achieving profits through successful anticipation of movements in commodity prices and changes in other market variables. Market- making positions are marked-to-market and gains and losses are immediately included as revenue in the Consolidated Statement of Income. In addition, the fair value of unsettled positions is immediately included in the Consolidated Statement of Financial Position as a current asset or current liability. As of December 31, 1999 and 1998, there were no transactions in place which would materially affect the results of operations or financial condition of the Company. Interest Rate Swaps. The Company periodically enters into rate swaps and contracts to hedge certain interest rate transactions. As of December 31, 1999 and 1998, there were no interest rate contracts outstanding which would materially affect the results of operations or financial condition of the Company. During 1998, the Company entered into rate lock contracts to hedge interest rates related to a contemplated bond issuance. The bonds were not issued and the Company recognized a $14.3 million pre-tax loss in 1998 associated with these contracts. Foreign Currency. The financial statements of foreign subsidiaries, except those subsidiaries located in countries which have highly inflationary economies, utilize the local currency as their functional currency. The financial statements of foreign subsidiaries located in countries which have highly inflationary economies utilize the U.S. dollar as their functional currency. Monetary assets and liabilities denominated in a currency other than the functional currency are remeasured into the functional currency with the corresponding gains/ losses included in the Consolidated Statement of Income. The financial statements of those foreign subsidiaries which do not utilize the U.S. dollar as their functional currency are translated into the U.S. dollar. Assets and liabilities are translated at the current exchange rate, while revenues and expenses are translated at the average exchange rate for the reporting period. Translation gains/losses are not included in the Consolidated Statement of Income but are recorded in a separate section of shareholders' equity. The Company's Canadian subsidiary's functional currency is the Canadian dollar. Generally, the functional currency of the Company's other foreign subsidiaries is the U.S. dollar. At December 31, 1999, the Company's Canadian subsidiary had outstanding $650 million of fixed-rate notes and debentures denominated in U.S. dollars. During 1999, the Company recognized a $38.0 million pretax non-cash gain associated with remeasurement of this debt and a $46.5 million pretax non-cash loss during 1998. The potential foreign currency remeasurement impact on earnings from a five percent change in the year-end Canadian exchange rate would be approximately $32 million. Two of the Company's Latin American subsidiaries had foreign deferred tax liabilities denominated in the local currency. At December 31, 1999 and 1998, Venezuela had a $131.6 million and $159.6 million liability, respectively and Guatemala had a $34.1 million and $58.0 million liability, respectively. During 1999 and 1998, the Company recognized after-tax deferred tax benefits associated with the remeasurement of the deferred tax liabilities of $20.4 million and $15.2 million in Venezuela, and $8.9 million and $7.3 million in Guatemala, respectively. The potential foreign currency remeasurement impact on net earnings from a five percent change in the year-end Latin American exchange rates would be approximately $9 million. The Company may periodically enter into foreign currency contracts to hedge specific currency exposures from commercial transactions. As a result of the Norcen Acquisition, the Company acquired foreign currency forward exchange contracts with maturities through October 2000, and recorded a $15.5 million deferred liability representing the fair value of these contracts. These contracts were deemed to be hedges of UPRI's future U.S. dollar denominated hydrocarbon sales. This deferred liability will be amortized over the contract terms. The unrecognized loss on foreign currency contracts at December 31, 1999, excluding the $1.4 million remaining unamortized deferred liability, was $2.9 million. 54 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concentrations of Credit Risk. Credit risk is the risk of loss as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. Because the loss can occur at some point in the future, a potential exposure is added to the current replacement value to arrive at a total expected credit exposure. The Company has established methodologies to establish limits, monitor and report creditworthiness and concentrations of credit to reduce such credit risk. At December 31, 1999, the Company's largest credit risk associated with any single counterparty, represented by the net fair value of open contracts with such counterparty, was $7.1 million. Financial instruments which subject the Company to concentrations of credit risk consist principally of trade receivables and short-term cash investments. The Company places its temporary excess cash investments in high quality short-term instruments through several high-credit-quality financial institutions. A significant portion of the Company's trade receivables relate to customers in the oil and gas industry, and, as such, the Company is directly affected by the economy of that industry. The Company derives a substantial portion of its revenues from international operations in Canada and Latin America. With the exception of one large customer, described below, the credit risk associated with trade receivables is minimized by the Company's large customer base and ongoing procedures to monitor the creditworthiness of customers. The Company generally requires no collateral from its customers. Historically, the Company has not experienced significant losses on trade receivables. In connection with the GPM Disposition, the Company entered into a long-term sales agreement with Duke. The long-term sales agreement obligates the Company to sell the majority of its domestic natural gas and existing NGL production to Duke through March 2004. Prices received for the natural gas and NGLs will be tied to the current market price for each product. As a result, a significant portion of the Company's credit risk will be with a single customer. Duke is currently considered a good credit risk; however, periodic credit evaluations will continue and will be performed more often if circumstances dictate. The agreement with Duke provides for a parental guaranty to cover its obligations under the agreements and the Company has the right to demand a letter of credit and/or other assurances under certain circumstances. During 1999, sales to Duke accounted for 31% of the Company's consolidated revenues and 38% of United States revenues. Approximately 25% of the Company's trade receivables outstanding at December 31, 1999 were due from Duke which exposes the Company to a concentration of credit risk. Performance Risk. Performance risk results when a counterparty fails to fulfill its contractual obligations with respect to commodity pricing or volume commitments. Typically, such risk obligations are defined within the trading agreements. The Company utilizes its credit risk methodology to manage performance risk. 6. PROPERTIES Major property classifications were as follows:
AS OF DECEMBER 31, --------------------- 1999 1998 --------- --------- (MILLIONS OF DOLLARS) Producing properties........................................ $ 9,738.3 $ 9,429.9 Non-producing properties.................................... 983.3 1,241.5 Construction in progress.................................... 84.3 143.4 Other....................................................... 200.7 263.4 --------- --------- Total............................................. $11,006.6 $11,078.2 ========= =========
55 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Accumulated depreciation, depletion and amortization by major property classifications were as follows:
AS OF DECEMBER 31, --------------------- 1999 1998 --------- --------- (MILLIONS OF DOLLARS) Producing properties........................................ $5,160.0 $4,642.1 Non-producing properties.................................... 273.2 233.1 Other....................................................... 102.4 109.7 -------- -------- Total............................................. $5,535.6 $4,984.9 ======== ========
Based upon the Company's analysis of expected future net cash flows from its crude oil and natural gas properties, certain properties were deemed to be impaired due to lower hydrocarbon prices and/or downward revisions in reserve estimates. As a result of its analysis, the Company adjusted the net book value of such properties to their fair value with a charge to depreciation, depletion and amortization of $70.6 million in 1999 for exploration and production properties primarily located in the U.S. Onshore area and uranium properties. During 1998, the Company adjusted the net book value of properties with a $1.2 billion charge, primarily on properties acquired in the Norcen Acquisition. Fixed asset additions included capitalized interest of $0.4 million and $0.9 million in 1999 and 1998, respectively. 7. CAPITAL AND EXPLORATORY EXPENDITURES Capital and exploratory expenditures include the following:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 -------- ---------- ---------- (MILLIONS OF DOLLARS) Capital expenditures: Producing properties.................................. $345.1 $3,056.9 $ 773.3 Non-producing properties.............................. 21.0 506.6 200.7 Exploratory drilling.................................. 12.9 117.5 121.7 Other................................................. 5.1 32.6 15.8 ------ -------- -------- Total capital expenditures.................... 384.1 3,713.6 1,111.5 Exploratory expenditures: Expensed geological and geophysical costs............. 19.5 63.1 35.2 Expensed dry hole costs............................... 24.6 52.1 41.7 ------ -------- -------- Total exploratory expenditures................ 44.1 115.2 76.9 ------ -------- -------- Total capital and exploratory expenditures.... $428.2 $3,828.8 $1,188.4 ====== ======== ========
8. INCOME TAXES Deferred taxes are established for all temporary differences between the book and tax bases of assets and liabilities. In addition, deferred tax balances must be adjusted to reflect tax rates that will be in effect in the years in which the temporary differences are expected to reverse. Non-U.S. subsidiaries compute taxes at rates in effect in the various countries. Earnings of these subsidiaries may also be subject to additional income and withholding taxes when they are distributed as dividends. Deferred tax liabilities are not recognized on profits that are expected to be permanently reinvested by the local subsidiaries and thus not considered available for distribution to the parent Company. The Company has undistributed earnings of its 100% owned foreign subsidiaries that arose in 1999 and prior years. 56 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income (loss) from continuing operations before taxes is as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 -------- ----------- -------- (MILLIONS OF DOLLARS) Domestic................................................. $(45.2) $ (239.7) $405.9 Foreign.................................................. (6.0) (1,248.6) 13.0 ------ --------- ------ Total.......................................... $(51.2) $(1,488.3) $418.9 ====== ========= ======
Components of income tax expense (benefit), from continuing operations, were as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 --------- --------- -------- (MILLIONS OF DOLLARS) Current: U.S. Federal........................................... $(151.4) $ 43.2 $ (0.4) U.S. state............................................. 2.2 6.8 5.1 Foreign................................................ 7.4 4.1 0.2 ------- ------- ------ Total current.................................. (141.8) 54.1 4.9 ------- ------- ------ Deferred: U.S. Federal........................................... 82.4 (155.7) 113.4 U.S. state............................................. (2.7) 3.4 (2.5) Foreign................................................ (78.3) (507.0) -- ------- ------- ------ Total deferred................................. 1.4 (659.3) 110.9 ------- ------- ------ Total income tax expense (benefit)............. $(140.4) $(605.2) $115.8 ======= ======= ======
Deferred tax liabilities (assets), were as follows:
AS OF DECEMBER 31, --------------------- 1999 1998 --------- --------- (MILLIONS OF DOLLARS) Excess tax over book items, including depreciation and exploration costs......................................... $1,369.0 $1,528.2 State taxes -- net.......................................... 12.1 (15.0) Long-term liabilities....................................... 116.3 (19.6) Alternative minimum tax..................................... (79.8) (72.6) Pension and other retirement benefits....................... (47.2) (52.6) Net operating losses........................................ (91.3) (93.1) Other....................................................... 47.7 16.3 -------- -------- Net deferred tax liability........................ $1,326.8 $1,291.6 ======== ========
57 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation between U.S. statutory and consolidated effective tax rates is as follows:
FOR THE YEARS ENDED DECEMBER 31, ------------------- 1999 1998 1997 ----- ---- ---- U.S. statutory Federal tax rate............................. 35.0% 35.0% 35.0% Section 29 credits.......................................... 35.1 1.1 (4.3) State taxes-- net........................................... (8.2) (0.4) 1.3 Foreign rate differentials.................................. -- 1.8 -- Foreign currency remeasurement.............................. 98.7 1.5 -- Non-tax effected foreign expense............................ (48.4) -- -- Non-taxable entity.......................................... 15.3 1.0 -- Tax settlements............................................. 78.3 -- (1.5) Reserve adjustments......................................... 28.7 -- -- Tax return reconciliation adjustments....................... 34.1 -- -- Other....................................................... 7.0 0.6 (1.9) ----- ---- ---- Effective tax rate........................................ 275.6% 40.6% 28.6% ===== ==== ====
The Company generates Section 29 tax credits from the sale of certain fuels produced from non-conventional sources. Fuels qualifying for the credit must be produced from a well drilled or a facility placed in service after December 31, 1979, and before January 1, 1993, and must be sold before January 1, 2003. The Company generated $17.9 million, $16.4 million and $18.8 million of Section 29 tax credits in 1999, 1998 and 1997, respectively. The Federal tax law provides for the use of these credits against regular Federal income tax liability. Accordingly, the Company utilized $6.9 million of Section 29 tax credits on its 1998 tax return. It is anticipated that all of the 1999 Section 29 tax credits along with some of the prior year credits will be recognized in the Company's 1999 tax return. The Company recognized favorable tax adjustments relating to prior year Federal tax returns in the amount of $17.4 million for 1999 and $4 million for 1998. While the operations of the Company in Guatemala are subject to local income taxes, no liability has arisen in recent years since sufficient unrecovered costs, carried forward from previous years, have been available to offset current taxable income. Guatemalan tax benefits, which can be carried forward indefinitely, were $57.6 million at December 31, 1999. Other domestic subsidiary net operating losses in existence at the time of the Norcen Acquisition were merged with the Company when those subsidiaries were dissolved. The Company plans to utilize the losses in 2000 or a future year. On September 1, 1999, the Company and its former parent, Union Pacific Corporation ("UPC"), settled certain outstanding issues pertaining to the allocation of all Federal and state tax liabilities, including interest, for the tax years 1968 through 1982. This settlement was made pursuant to the Tax Allocation Agreement entered into as of October 6, 1995, between the Company and UPC. This settlement resulted in the receipt by the Company from UPC on September 3, 1999, of $29 million (including $20.5 million of interest income recorded in other income) in full and final settlement of all amounts owed to or by UPR with respect to tax years 1968 through 1982. The tax settlement with UPC enabled the Company to reevaluate its deferred tax reserves, and as a result, the Company recorded $11.9 million of deferred tax benefits related to the tax years covered by the settlement. The Company and UPC also agreed to suspend settlement rights under the Tax Allocation Agreement with respect to post-1982 tax years until July 1, 2001. UPC has informed the Company that all material deficiencies prior to 1986 have been settled with the Internal Revenue Service ("IRS"). UPC is negotiating with the IRS Appeals Office concerning 1986 through 1989. The IRS has completed its examination of the Company's returns for 1990 through 1994; however, their audit remains open until resolution of the UPC issues. The IRS has initiated steps to begin the process of examining the Company's 58 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) records for 1995 through 1998. The Company believes it has adequately provided for Federal and state income taxes. In 1997, Norcen received a reassessment from Canadian tax authorities in the amount of $81.1 million concerning the deductibility of certain expenses and foreign exchange losses claimed for income tax purposes during the period 1989 through 1993. In spite of Norcen's disagreement and appeal, the reassessment was fully funded in 1997. As a result of the Norcen Acquisition, the Company valued this issue at $17.0 million, net of any valuation allowance, as part of the purchase price allocation. On March 8, 1999, UPRI entered into an agreement with Canadian tax authorities to settle these claims out of court. Under the terms of the settlement, the Company received a refund of approximately $54.6 million dollars. The Company recorded $7.1 million of interest to other income and a $27.9 million deferred income tax benefit related to the refund. 9. DEBT The total debt of the Company is summarized below:
AS OF DECEMBER 31, INTEREST --------------------- RATE 1999 1998 -------- --------- --------- (MILLIONS OF DOLLARS) Commercial Paper and Bankers' Acceptances (Average of 5.55% and 5.98% at December 31, 1999 and 1998, respectively)......................................... $ 135.1 $2,351.9 Debentures due July 2, 2002............................. 6.800% 250.0 250.0 Notes due May 15, 2005.................................. 6.500% 200.0 200.0 Debentures due May 15, 2006............................. 7.375% 250.0 250.0 Notes due October 15, 2006.............................. 7.000% 200.0 200.0 Notes due May 15, 2008.................................. 6.750% 169.5 200.0 Debentures due July 2, 2008............................. 7.800% 150.0 150.0 Notes due April 15, 2009................................ 7.300% 176.0 -- Debentures due May 15, 2018............................. 7.050% 200.0 200.0 Debentures due October 15, 2026......................... 7.500% 200.0 200.0 Debentures due May 15, 2028............................. 7.150% 395.0 425.0 Debentures due April 15, 2029........................... 7.950% 290.0 -- Debentures due November 1, 2096......................... 7.500% 150.0 150.0 Capital lease obligations (Note 10)..................... 16.0 17.4 (Discount) Premium on notes and debentures -- net....... 18.0 4.4 -------- -------- Total debt.................................... 2,799.6 4,598.7 Less: current portion......................... 2.3 853.8 -------- -------- Total long-term debt.......................... $2,797.3 $3,744.9 ======== ========
At year-end 1998, the Company had three debt facilities totaling an aggregate of U.S. $2.5 billion. These facilities were comprised of a $1.0 billion 364-Day Competitive Advance/Revolving Credit Agreement (the "Bridge Facility"), a $750 million 364-Day Competitive Advance/Revolving Credit Agreement and a $750 million Competitive Advance/Revolving Credit Agreement ("Long-Term Facility") expiring in October 2003. In April 1999, the Company issued $500 million of notes and debentures comprised of $200 million 7.3% Notes due April 2009 and the $300 million 7.95% Debentures due April 2029. The notes and debentures were issued under the Company's existing $1.0 billion shelf registration statement, of which $500 million remains available. 59 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the first half of 1999, commercial paper, supported in part by the Company's Bridge Facility, was repaid using proceeds from property sales, proceeds from the sale of the GPM business segment and the issuance of the long-term notes and debentures. The Bridge Facility was terminated in April 1999. The $750 million 364-Day Competitive Advance/Revolving Credit Agreement expired in October 1999, leaving the Company with the Long-Term Facility at year-end 1999. The Long-Term Facility contains a covenant stipulating that the ratio of consolidated debt to consolidated EBITDAX -- the sum of operating income (before adjustments for income taxes, interest expense or extraordinary gains or losses), depreciation, depletion and amortization and exploration expenses -- cannot exceed 3.25:1.00. The Long-Term Facility also places other restrictions on the Company regarding the creation of liens, incurrence of additional indebtedness by subsidiaries, transactions with affiliates, sales of stock of Union Pacific Resources Company (a wholly-owned subsidiary of the Company) and certain mergers, consolidations and asset sales. The Company was in compliance with the covenant provisions at year-end 1999 and 1998. The 2005, 2008 and 2009 notes and the 2018, 2028 and 2029 debentures are redeemable as a whole or in part, at the option of the Company at any time. The redemption price is equal to the greater of (i) 100% of the principal amount of the Debt Securities to be redeemed or (ii) the sum of the present values of the remaining scheduled payments thereon, discounted to the redemption date on a semi-annual basis at the Treasury Rate, plus a stated basis point spread and accrued interest on the principal amount being redeemed to the redemption date. There are no other notes or debentures redeemable prior to maturity. None of the Company's notes and debentures are subject to a sinking fund requirement. At December 31, 1999, the Company had an effective shelf registration statement on file with the Securities and Exchange Commission that would permit the Company or certain identified subsidiaries to offer up to $500 million in debt, equity and/or other securities. During 1999, the Company purchased on the open market and retired long-term debt with a face value of $94.5 million at a discount prior to maturity. The retirement of long-term debt due to the repurchases resulted in an extraordinary gain of $3.4 million, net of $1.8 million of tax. The gain on the retirement was classified as a gain from an extraordinary item on the Consolidated Statement of Income. At December 31, 1999, $135.1 million of commercial paper and bankers acceptances was classified as long-term. This classification reflects the Company's intent and ability to maintain these borrowings on a long-term basis, supported by the Long-Term Facility through the issuance of additional commercial paper and/or new term financings. Debt maturities through 2004, excluding capital leases, are $135.1 million of bankers acceptances due in 2000 and $250 million of Debentures due July 2, 2002. The fair value of the Company's long-term debt, excluding commercial paper and bankers acceptances, debt discount/premium and capital lease obligations was $2,467 million at December 31, 1999 and $2,088 million at December 31, 1998. The fair value was estimated using quoted market prices. These fair values were trading at a discount to the face value of 93.8% at both December 31, 1999 and 1998. As a result of the Norcen Acquisition, the Company recorded a $31.5 million debt premium, representing the excess of the fair value over the carrying value of the debt acquired. The $25.2 million remaining debt premium, net of $7.2 million in debt discount related to prior debt issuances, are being amortized over the life of the debt term. The Company has guaranteed a portion of the OCI Wyoming, L.P debt facility. At December 31, 1999, OCI Wyoming, L.P. had an outstanding debt facility balance of $30 million, of which the Company has guaranteed $14.7 million. The Company's portion of the debt is reflected in the balance for investment in affiliate on the Consolidated Statement of Financial Position. The Company utilizes letters of credit to support certain financing instruments, performance contracts and insurance policies. The fair value of the letters of credit at December 31, 1999 and 1998 was $41.3 million and $58.6 million, respectively. 60 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. LEASE COMMITMENTS The Company leases several office buildings, certain production platforms and other property under operating leases. The Company also maintains a capital lease for furniture and walls in its Fort Worth offices. Future minimum lease payments for operating and capital leases with initial non-cancelable lease terms in excess of one year as of December 31, 1999, were as follows:
AS OF DECEMBER 31, 1999 ---------------------------- CAPITAL OPERATING LEASES LEASES TOTAL ------- --------- ------ (MILLIONS OF DOLLARS) 2000...................................................... $ 2.8 $ 46.9 $ 49.7 2001...................................................... 2.9 44.4 47.3 2002...................................................... 2.9 42.6 45.5 2003...................................................... 2.9 32.2 35.1 2004...................................................... 6.6 3.9 10.5 Later years............................................... 0.8 6.9 7.7 ----- ------ ------ Total future minimum lease payments....................... 18.9 $176.9 $195.8 ====== ====== Less: amounts representing interest....................... (2.9) ----- Present value of minimum capital lease obligations........ 16.0 ----- Less: Short-term portion of capital lease obligations..... (2.3) ----- Long-term portion of capital lease obligations............ $13.7 =====
Rent expense, net of sublease income, for operating leases with terms exceeding one month was $60.2 million in 1999, $59.8 million in 1998, and $19.2 million in 1997. Sublease income for the next five years will be $30.5 million in 2000, $29.8 million in 2001, $29.8 million in 2002, $28.5 million in 2003 and $0.4 million in 2004. Capital leases included in corporate fixed assets were $17.4 million and $18.1 million at December 31, 1998 and 1999, respectively. 11. RETIREMENT PLANS The Company provides pension, health care and life insurance benefits to all eligible retirees in the U.S. and pension benefits to all eligible retirees in Canada. No such pension or other benefits are provided to employees of other foreign subsidiaries. U.S. Pension Benefits. Pension benefits for U.S. employees are based on years of service and compensation during the last years of employment. Contributions to the plans are calculated on the Projected Unit Credit actuarial funding method and are not less than the minimum funding standards set forth in the Employees Retirement Income Security Act of 1974, as amended. The portion of the funded plan's assets held in fixed-income and short-term securities was approximately 33% and 32% as of December 31, 1999 and 1998, respectively, with the remainder primarily in equity securities. Curtailments and Termination of Benefits. During 1999, the Company announced reductions in force, a voluntary retirement incentive program ("VRIP") and the sale of the GPM business segment. The separations due to these programs triggered curtailment accounting and termination benefit accounting as a result of the VRIP. The Company recognized curtailment gains of $11.4 million, offset by costs of the termination of benefits of $10.5 million. These separations caused a slight reduction in the Company's retiree benefits obligations due to reduced expected future benefits for the employees affected by these programs. Other U.S. Postretirement Benefits. Postretirement health and life insurance benefits are provided to all eligible U.S. retirees. The Company does not currently pre-fund health care and life insurance benefit costs. 61 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Canadian Pension Benefits. Benefits provided under the Canadian defined benefit plan are based on years of service and highest compensation over a specified number of consecutive years. The provisions under the defined benefit plan were modified to provide employees with a defined contribution plan option, which has been retroactively elected by substantially all active employees. Under the defined contribution plan, the Company matches a stated percentage of employee contributions to the plan. Both the defined benefit payments and the defined contribution Company match obligation are paid from assets held in trust. The Company will make contributions to the plans, if necessary, to maintain adequate assets in trust. Contributions are not expected to be necessary for several years. The following pension credits and funded status are based on historical actuarial valuations.
U.S. PENSION OTHER CANADIAN BENEFITS U.S. BENEFITS PENSION BENEFITS --------------- ------------- ----------------- 1999 1998 1999 1998 1999 1998 ------ ------ ----- ----- ------- ------- (MILLIONS OF DOLLARS) Change in benefit obligation: Benefit obligation at beginning of year..... $221.0 $202.6 $40.4 $42.9 $ 25.6 $ -- Acquisition................................. -- -- -- -- -- 26.1 Service cost................................ 5.1 6.1 0.7 1.0 -- 0.1 Interest cost............................... 15.3 14.3 2.8 3.0 1.8 1.4 Curtailments................................ (10.1) -- (1.3) -- -- -- Termination benefits........................ 9.5 -- 1.0 -- -- -- Plan amendments............................. 12.3 2.4 -- (5.4) -- -- Actuarial (gain) loss....................... (4.7) 12.6 (2.9) 0.1 0.2 (0.2) Benefits paid............................... (19.4) (17.0) (2.7) (1.2) (2.7) (1.8) ------ ------ ----- ----- ------ ------ Benefit obligation at end of year........... $229.0 $221.0 $38.0 $40.4 $ 24.9 $ 25.6 ====== ====== ===== ===== ====== ====== Change in plan assets: Fair value of plan assets at beginning of year...................................... $269.7 $240.9 $ -- $ -- $ 47.7 $ -- Acquisition................................. -- -- -- -- -- 50.3 Actual return on plan assets................ 32.4 40.0 -- -- 3.5 -- Employer contribution(a).................... 2.3 5.8 2.7 1.2 0.2 -- Benefits paid(b)............................ (19.4) (17.0) (2.7) (1.2) (3.6) (2.6) Foreign currency exchange rate gain......... -- -- -- -- 2.9 -- ------ ------ ----- ----- ------ ------ Fair value of plan assets at end of year.... $285.0 $269.7 $ -- $ -- $ 50.7 $ 47.7 ====== ====== ===== ===== ====== ====== Plan assets (over) under benefit obligation................................ $(56.0) $(48.7) $38.0 $40.4 $(25.8) $(22.1) Unamortized net transition asset............ 13.2 15.8 -- -- -- -- Unrecognized prior service gain (cost)...... (18.9) (9.0) 6.0 8.0 -- -- Unrecognized net gain....................... 121.2 105.1 24.9 25.1 (3.2) (1.9) ------ ------ ----- ----- ------ ------ Net amount recognized....................... $ 59.5 $ 63.2 $68.9 $73.5 $(29.0) $(24.0) ====== ====== ===== ===== ====== ======
- --------------- (a) Represents payments relating to unfunded plans. In addition, the Company periodically settles a portion of the unfunded supplemental pension plan benefit obligations through the purchase of annuities. (b) $0.9 million and $0.8 million of Canadian pension benefits paid in 1999 and 1998 respectively, represent payments to fund the defined contribution Company match. 62 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. PENSION U.S. OTHER CANADIAN BENEFITS BENEFITS PENSION BENEFITS -------------- ------------- ----------------- 1999 1998 1999 1998 1999 1998 ------ ----- ----- ----- ------- ------- (MILLIONS OF DOLLARS) Amounts recognized in the Statement of Financial Position consist of: Prepaid benefit cost....................... $ -- $ -- $ -- $ -- $(29.0) $(24.0) Accrued benefit liability.................. 76.0 72.0 68.9 73.5 Intangible asset........................... (5.6) (3.9) -- -- -- -- Accumulated other comprehensive income..... (10.9) (4.9) -- -- -- -- ------ ----- ----- ----- ------ ------ Net amount recognized........................ $ 59.5 $63.2 $68.9 $73.5 $(29.0) $(24.0) ====== ===== ===== ===== ====== ====== Weighted-average assumptions as of December 31 Discount rate................................ 7.75% 7.0% 7.75% 7.0% 7.25% 6.5% Expected return on plan assets............... 9.0% 9.0% -- -- 7.25% 6.5% Rate of compensation increase................ 5.75% 5.0% -- -- 5.75% 5.0%
For measurement purposes, a 7.2% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate was assumed to gradually decrease to 5% in 2005 and remain at that level thereafter.
CANADIAN U.S. PENSION BENEFITS U.S. OTHER BENEFITS PENSION ------------------------ ------------------- ------------- 1999 1998 1997 1999 1988 1997 1999 1998 ------ ------ ------ ----- ---- ---- ----- ----- (MILLIONS OF DOLLARS) Service cost-benefits earned during the period........................................ $ 5.1 $ 6.1 $ 5.5 $ 0.7 $1.0 $0.8 $ -- $ 0.1 Interest cost on the projected benefit obligation.................................... 15.3 14.3 13.4 2.8 3.0 3.3 1.8 1.4 Expected return on plan assets.................. (19.0) (18.6) (17.1) -- -- -- (3.6) (2.7) Amortization of net transition asset............ (2.6) (2.1) (2.0) -- -- -- -- -- Amortization of unrecognized prior service gain (cost)........................................ 1.2 1.2 1.2 (0.6) (0.8) (0.8) -- -- Amortization of unrecognized net gain........... (2.3) (4.1) (4.9) (1.0) (1.7) (1.6) -- -- Settlement/curtailment/termination benefits..... 0.9 -- -- (3.7) -- -- -- -- ------ ------ ------ ----- ---- ---- ----- ----- (Benefit) charge to operations................ $ (1.4) $ (3.2) $ (3.9) $(1.8) $1.5 $1.7 $(1.8) $(1.2) ====== ====== ====== ===== ==== ==== ===== ===== Other comprehensive income...................... $ 6.0 $ 3.9 $ 1.0 $ -- $-- $-- $ -- $ -- ====== ====== ====== ===== ==== ==== ===== =====
Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefit plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1 PERCENTAGE 1 PERCENTAGE POINT INCREASE POINT DECREASE -------------- -------------- (MILLIONS OF DOLLARS) Effect on total of service and interest cost components.... $0.4 $(0.3) Effect on postretirement benefit obligation................ 3.5 (3.1)
12. ENVIRONMENTAL EXPOSURE Environmental expenditures related to treatment or cleanup are expensed when incurred, while environmental expenditures which extend the life of the property or prevent future contamination are capitalized in accordance with generally accepted accounting principles. Liabilities for these expenditures are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated, based on 63 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) current law and existing technologies. Environmental accruals are recorded at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. The Company generates and disposes of hazardous and non-hazardous waste in its current operations as well as formerly owned operations and is subject to increasingly stringent Federal, state, local, provincial and international environmental regulations. The Company has identified seven sites currently subject to environmental response actions or on the Superfund National Priorities List or state superfund lists, at which it is or may be liable for remediation costs associated with alleged contamination or for violation of environmental requirements. Certain Federal legislation imposes joint and several liability for the remediation of various sites; consequently, the Company's ultimate environmental liability may include costs relating to other parties in addition to costs relating to its own activities at each site. In addition, the Company is or may be liable for certain environmental remediation matters involving existing or former facilities. In March 1994, the Company sold its interest in the Wilmington, California field and the Harbor Cogeneration Plant to the Port of Long Beach, California. As part of the Wilmington sales agreement, the Company agreed to participate with the Port of Long Beach in funding environmental remediation and site preparation, as specified by the Port of Long Beach, up to a maximum of $105.5 million. As a result, a provision of $50.5 million for future environmental costs and $55.0 million for future site preparation costs was established ($87.8 million in total remaining at December 31, 1999) and is categorized as other current liabilities and long-term liabilities (see Note 14). As of December 31, 1999 and 1998, liabilities totaling $65.2 million and $74.7 million, respectively, had been accrued for future costs of all sites where the Company's obligation is probable and where such costs reasonably can be estimated; however, the ultimate cost could be lower or higher. This accrual includes future costs for remediation and restoration of sites, as well as for ongoing monitoring costs, but excludes any anticipated recoveries from third parties. The accrual also includes $34.1 million for the obligation to participate in the remediation of the Wilmington field properties. Cost estimates were based on information available for each site, financial viability of other Potentially Responsible Parties ("PRPs") and existing technology, laws and regulations. The Company believes that it has accrued adequately for its share of costs at sites subject to joint and several liabilities. The ultimate liability for remediation is difficult to determine with certainty because of the number of PRPs involved, site-specific cost sharing arrangements with other PRPs, the degree of contamination by various wastes, the scarcity and quality of volumetric data related to many of the sites and the speculative nature of remediation costs. Anticipated payments of environmental liabilities at December 31, 1999, which will be funded by cash generated by operations, are as follows: AT DECEMBER 31, 1999 --------------------- (MILLIONS OF DOLLARS) 2000...................................................... $17.0 2001...................................................... 13.2 2002...................................................... 12.5 2003...................................................... 10.0 2004...................................................... 8.0 Thereafter................................................ 4.5 ----- Total........................................... $65.2 ===== The Company also is involved in reducing emissions, spills and migration of hazardous materials. Remediation of identified sites and control of environmental exposures required spending of $11.6 million in 1999 and $17.0 million in 1998. In 2000, the Company anticipates spending a total of $19 million for remediation, control and prevention. Based on current rules and regulations, management does not expect 64 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) future environmental obligations to have a material impact on the results of operations, cash flows or financial condition of the Company. 13. COMMITMENTS AND CONTINGENCIES The Company was a party to several long-term firm gas transportation agreements that supported the gas marketing program within the GPM business segment which was sold to Duke. Most of the GPM business segment's firm long-term transportation contracts were transferred to Duke in the GPM Disposition. As part of the GPM Disposition, the Company and Duke agreed that the Company will keep Duke whole on certain transportation contracts ("keep-whole agreement"). The Company will pay Duke if transportation market values fall below the contract transportation rates, while Duke agreed to pay the Company if the market value exceeds the contract transportation rates. This keep-whole agreement will be in effect until the earlier of (i) each contract's expiration date, or (ii) March 2009. Transportation contracts transferred to Duke in the GPM Disposition and included in the keep-whole agreement with Duke relate to various pipelines. The significant contracts covered by the keep-whole agreement include: (i) an agreement with Texas Gas Transmission Corporation for a transportation rate of $0.331 per MMBtu for 90 MMBtud of gas from Carthage, Texas to Lebanon, Ohio expiring October 31, 2008; (ii) an agreement with Pacific Gas Transmission ("PGT") for a transportation rate of $0.328 per MMBtu for 25 MMBtud of gas from Kingsgate, British Columbia to the California/Oregon border expiring October 31, 2023; and (iii) a second agreement with PGT expiring October 31, 2023 for 106 MMBtud of which 47 MMBtud will expire on October 31, 2007. The keep-whole agreement excludes 45 MMBtud of the PGT amount through October 31, 2002 then 20 MMBtud through the end of the contract. The Company retained a contract with Kern River Gas Transportation Company ("Kern River") which expires on May 31, 2007. Under the transportation agreement, the Company has the right to transport 75 MMcfd of gas on the Kern River system. The current transportation rate is $0.69 per Mcf. This rate can change based on Kern River's cost of service and upon rate regulation policies of the FERC. The Company is a party to an additional agreement under which it may acquire in 2001, at its option, an additional 25 MMcfd of transportation rights on the Kern River system beginning in 2002. As a result of the GPM Disposition, the Company entered into an agreement whereby Duke would operate and handle volume nominations related to the Company's contract with Kern River. Currently, Duke is utilizing the Company's volume transportation rights under the Kern River contract and paying the Company market rates. Included in the Consolidated Statements of Financial Position of the Company is a reserve for the estimated fair value of the difference between the total rate under the firm transportation agreements and estimated market rates through March 2009. The reserve, which is included in other current liabilities and other long-term liabilities, was $43.8 million and $81.8 million at December 31, 1999 and $17.5 million and $71.2 million at December 31, 1998, respectively. The Company may adjust its reserve based on changes in current quoted future market rates or estimated long-term rates. Such adjustments could be significant. Management believes its reserves are adequate; however, at December 31, 1999, if the Company had used quoted future market rates at December 31, 1999 to estimate the long-term portion of the reserve discounted at 10%, the Company would have recorded an additional reserve of $41.3 million for the firm transportation commitment period. 65 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Anticipated discounted and undiscounted payments for firm transportation commitment at December 31, 1999, which will be funded by cash generated by operations, are as follows:
UNDISCOUNTED DISCOUNTED ------------ ---------- (MILLIONS OF DOLLARS) 2000.................................................. $ 43.8 $ 43.8 2001.................................................. 17.0 14.8 2002.................................................. 15.6 12.3 2003.................................................. 17.8 12.8 2004.................................................. 24.4 15.9 Thereafter............................................ 50.0 26.0 ------ ------ Total....................................... $168.6 $125.6 ====== ======
In February 2000, the Company entered into a $70 million contract with Noble Drilling (U.S.) Inc. for the services of a semisubmersible drilling rig designed for operations in water depths up to 5,000 feet. Under this agreement, the Company has a commitment to use the rig for 15 months over a five-year period commencing January 1, 2000. In connection with the disposition of significant pipeline, refining and producing property assets, the Company has made certain representations and warranties relating to the assets sold (covering, among other matters, the condition and capabilities of certain assets and compliance with environmental and other laws) and provided certain indemnities with respect to liabilities associated with such assets. The Company has been advised of possible claims which may be asserted by the purchasers of certain disposed assets for alleged breaches of representations and warranties and under certain indemnities. Certain claims related to compliance with environmental laws remain pending. In addition, as some of the representations, warranties, and indemnities related to some of the disposed assets have not expired, further claims may be made against the Company. While no assurance can be given as to the ultimate outcome of these claims, the Company does not expect these matters to have a material adverse effect on its results of operations, cash flows or consolidated financial condition. The Company, through one of its affiliates, is a party to a lease agreement ("base lease") for the leveraged lease financing of the Corpus Christi West Plant Refinery ("West Plant") with an initial term expiring December 31, 2003, and successive renewal periods lasting through January 31, 2011. At the conclusion of the initial term of the base lease, any renewal period or January 31, 2011, the Company has the right to purchase the West Plant at the fair market sales value. In connection with the sale by the Company of its refining business in 1987 and 1989, the West Plant was subleased to CITGO Petroleum Corporation ("CITGO") with sublease payments during the initial term equal to the Company's base lease payments and during any renewal period equal to the lesser of the base lease rental, which will be tied to the fair market rental value, or $5 million annually. Additionally, CITGO has the option under the sublease to purchase the West Plant from the Company at the conclusion of the initial term or any renewal term at the fair market sales value, or on January 31, 2011 at a nominal price. If the fair market rental value of the base lease during any renewal term exceeds CITGO's maximum obligation under the sublease, or if CITGO purchases the West Plant on January 31, 2011 and the fair market sales value of the West Plant is greater than the purchase amount specified in the sublease, the Company will be obligated to pay the excess amounts. The Company is unable at this time to determine the fair market rental value or the fair market sales value of the West Plant, but will periodically evaluate the potential effect of the obligation. There are lawsuits pending against the Company and certain of its subsidiaries which are described in Part I, Item 3 -- "Legal Proceedings" in this Annual Report on Form 10-K. The Company intends to defend vigorously against these lawsuits as well as any similar lawsuits. In the opinion of management of the 66 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company, the outcome of these matters should not have a materially adverse effect on results of operations, cash flows or consolidated financial condition. The Company is a defendant in a number of lawsuits and is involved in governmental proceedings arising in the ordinary course of business, including, but not limited to, royalty claims, contract claims and environmental claims. The Company has also been named as a defendant in various personal injury claims, including numerous claims by employees of third party contractors alleging exposure to asbestos and asbestos-containing materials while working at the Corpus Christi refinery, which the Company sold in segments in 1987 and 1989. While the Company's management cannot predict the outcome of such litigation and other proceedings, management does not expect these matters to have a materially adverse effect on the consolidated results of operations, financial condition or cash flows of the Company. 14. OTHER CURRENT AND LONG-TERM LIABILITIES Other current liabilities include the following:
AS OF DECEMBER 31 ---------------------- 1999 1998 --------- --------- (MILLIONS OF DOLLARS) Interest payable............................................ $ 40.6 $ 35.7 Short-term firm transportation commitments (Note 13)........ 43.8 17.5 Environmental (Note 12)..................................... 16.9 17.7 Dividends................................................... 12.4 12.4 Other....................................................... 72.1 74.2 ------ ------ Total other current liabilities................... $185.8 $157.5 ====== ======
Other long-term liabilities include the following:
AS OF DECEMBER 31 ---------------------- 1999 1998 --------- --------- (MILLIONS OF DOLLARS) Long-term firm transportation commitments (Note 13)......... $ 81.8 $ 71.2 Abandonment provision....................................... 70.7 58.1 Wilmington field site preparation........................... 53.7 53.7 Environmental (Note 12)..................................... 48.3 57.2 Equity investment -- Black Butte(a)......................... 38.6 37.8 Deferred compensation....................................... 19.6 25.9 Litigation and contingencies (Note 13)...................... 25.5 23.4 Deferred revenue............................................ 15.8 9.4 Other....................................................... 47.1 51.4 ------ ------ Total other long-term liabilities................. $401.1 $388.1 ====== ======
- --------------- (a) Black Butte The Company has a 50% ownership interest in Black Butte Coal Company and R-K Leasing Company ("Black Butte"), partnerships which operate a surface coal mine complex in southwestern Wyoming. The 67 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company accounts for these partnerships under the equity method of accounting. Summarized financial information for Black Butte is as follows:
AS OF AND FOR YEARS ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------- ------- (MILLIONS OF DOLLARS) Current assets............................................. $ 26.9 $ 30.4 Non-current assets......................................... 16.5 26.2 Current liabilities........................................ 18.4 21.0 Non-current liabilities and equity......................... 25.0 35.7 Sales...................................................... $216.1 $254.5 $159.7 Operating income........................................... 148.4 183.4 112.4 Partners' income........................................... 149.0 183.2 113.6 Cash distributions to partners -- net...................... 80.5 98.5 65.8
During 1999 and 1998, Black Butte's sales to its largest customer under a coal supply contract accounted for $73.4 million and $79.3 million of the Company's consolidated operating income, respectively. This coal supply contract will terminate by the end of 2000. Although Black Butte continues to seek new buyers for its low-sulfur coal, its mining costs are considerably higher than the mining costs for competing supplies. The Company does not expect to be able to replace the operating income currently received under the contract with incremental coal sales after 2000. In addition, Black Butte provides an accrual for reclamation of mined properties, based on the estimated cost of restoration of such properties in compliance with laws governing strip mining. Accrued reclamation costs for Black Butte as of December 31, 1999 and 1998 were $54.6 million and $52.0 million, respectively, of which the Company's share is $27.3 million and $26 million, respectively. Anticipated cash expenditures for this reclamation liability are expected to be incurred in years beginning after 2004. A supplier of coal to Black Butte has been assessed by the Minerals Management Service of the United States Department of the Interior for underpayment of royalties and the State of Montana Department of Revenue for underpayment of production taxes related to coal previously sold to Black Butte. The supplier is contesting these claims; however, should the claims be successful, the supplier will claim reimbursement from Black Butte. In 1998, the Courts ruled in favor of the State of Montana. The supplier is appealing to the Montana State Supreme Court, however, the Company recorded $15.2 million as its proportionate share of the Montana Department of Revenue assessment related to coal production taxes. The Company's proportionate share of the liability for underpaid royalties and interest to the Minerals Management Service of the United States Department of the Interior, if any, could range from zero to $6.7 million. 15. SHAREHOLDERS' EQUITY Stock Option and Retention Stock Plans. Pursuant to the Company's stock option and retention stock plans, 11,062,582 and 5,999,439 shares of Common Stock were available for grant to employees and directors at the end of December 31, 1999 and 1998, respectively. In May 1999, the Company's shareholders approved a 7.5 million increase in the number of shares available for grants and awards to employees and directors. Shares may either be granted as options to purchase Common Stock or as awards of retention stock. Options to purchase Common Stock under the plans are generally granted with an exercise price equal to the fair market value at the date of grant and are exercisable for a period of up to 10 years from grant date. Option grants have been made to directors, officers and employees and vest over periods up to 10 years from the grant date. Retention stock is awarded under the plans to eligible employees, subject to forfeiture if employment 68 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) terminates during the prescribed retention period, generally one to five years from grant, subject to accelerated vesting in some situations. In the first quarter of 1999, options covering 1,171,439 shares of Company common stock were granted to directors, officers and certain non-officer executives of the Company, each with an exercise price of $9.44 per share, a one-year vesting period and a ten-year term. In addition, 1,474,439 shares of retention stock were awarded to officers and certain non-officer executives with a vesting schedule of one-third per year over a three-year period commencing on the first anniversary of the award date, subject to accelerated vesting upon the achievement of certain Company common stock price objectives. These stock price objectives were achieved in April and May 1999, resulting in the acceleration of vesting of all such shares of retention stock. Of the Company's $17.0 million compensation expense in 1999 that was recorded for retention stock, $14.8 million was recorded in connection with the vesting of the January 1999 retention stock awards. The status of the Company's stock-based compensation programs is as follows:
WEIGHTED COMPANY AVERAGE SHARES EXERCISE PRICE ---------- -------------- Stock options: Balance at December 31, 1996................................ 5,216,074 $19.97 Granted................................................... 1,111,750 25.63 Exercised................................................. (351,723) 16.05 Expired/surrendered....................................... (91,615) 24.75 ---------- Balance at December 31, 1997................................ 5,884,486 21.20 Granted................................................... 2,951,375 17.01 Exercised................................................. (57,487) 9.49 Expired/surrendered....................................... (207,635) 15.18 ---------- Balance at December 31, 1998................................ 8,570,739 19.84 Granted................................................... 2,459,900 12.28 Exercised................................................. (271,999) 12.24 Expired/surrendered....................................... (1,818,375) 18.27 ---------- Balance at December 31, 1999................................ 8,940,265 18.32 ========== Exercisable December 31: 1997...................................................... 3,853,035 $18.72 1998...................................................... 4,496,736 19.93 1999...................................................... 4,925,741 20.47
REGULAR ---------- Retention stock: Unvested at December 31, 1996............................... 1,204,562 Awarded................................................... 209,114 Vested.................................................... (376,295) Forfeited, surrendered and other.......................... (34,693) ---------- Unvested at December 31, 1997............................... 1,002,688 Awarded................................................... 45,580 Vested.................................................... (531,951) Forfeited, surrendered and other.......................... (19,200) ---------- Unvested at December 31, 1998............................... 497,117 Awarded................................................... 1,792,257 Vested.................................................... (1,764,776) Forfeited, surrendered and other.......................... (188,194) ---------- Unvested at December 31, 1999............................... 336,404 ========== 69 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Weighted-average fair value on the dates of option grants and retention share awards:
RETENTION OPTIONS(A) SHARES(B) ---------- --------- 1997........................................................ $8.74 $25.63 1998........................................................ 7.00 17.01 1999........................................................ 7.05 10.09
- --------------- (a) Calculated in accordance with the Black-Scholes option pricing model, using the following weighted average assumptions:
1999 1998 1997 ------- ------- ------- Expected volatility......................................... 61% 51% 28% Expected dividend yield..................................... 1.59% 2.25% 0.8% Expected weighted average option term....................... 8 years 5 years 4 years Risk-free rate of return.................................... 6.4% 4.6% 5.7%
(b) Represents market value on grant date. Options to purchase Common Stock were as follows:
AS OF DECEMBER 31, 1999 -------------------------------------------------------- OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER OF YEARS TO EXERCISE NUMBER OF EXERCISE RANGE OF EXERCISE PRICES SHARES EXPIRATION PRICE SHARES PRICE - ------------------------ --------- ---------- -------- --------- -------- $ 8.79 -- $15.78................. 3,687,117 5.9 $13.58 1,518,420 $14.97 $17.04 -- $20.94................. 2,936,389 3.4 17.74 1,612,450 18.32 $22.50 -- $29.44................. 2,316,759 6.1 26.62 1,794,871 27.06 --------- --------- $ 8.79 -- $29.44................. 8,940,265 5.1 18.32 4,925,741 20.47 ========= =========
Since the Company applies the intrinsic value method in accounting for its stock option and retention stock plans, it generally records no compensation cost for its stock option plans. This method calculates compensation expense on the measurement date (usually the date of grant or award) as the excess of the current market price of the underlying common stock of the Company over the amount the employee is required to pay for the shares, if any. The expense is recognized over the vesting period of the grant or award. Compensation cost recognized relating to retention stock was $17.0 million, $6.5 million and $11.6 million in 1999, 1998 and 1997, respectively. Approximately $14.8 million of the $17.0 million 1999 compensation costs was related to the vesting of the January 1999 retention stock awards. If compensation cost for the Company's stock option plan had been determined based on the fair value at the grant dates for awards under the plan, the Company's net income would have been reduced by $26.7 million in 1999, $13.8 million in 1998 and $8.0 million in 1997. Basic and diluted earnings per share would have been reduced by $0.11 per share in 1999, $0.06 per share in 1998 and $0.03 per share in 1997. 70 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Earnings Per Share. Basic earnings per share ("EPS") excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The reconciliation between basic earnings per share and diluted earnings per share is as follows:
AVERAGE PER INCOME SHARES SHARE --------------------- ---------- ------ (MILLIONS OF DOLLARS) (MILLIONS) FOR THE YEAR ENDED DECEMBER 31, 1999 Basic EPS Net income.................................... $ 225.8 249.0 $ 0.91 Less: Income from discontinued operations..... 133.2 -- 0.54 Income from extraordinary gain.......... 3.4 -- 0.01 ------- ------ Income from continuing operations available to common shareholders........................ 89.2 -- 0.36 Effect of dilutive options...................... -- 0.2 -- ------- ----- ------ Diluted EPS Income from continuing operations available to Common shareholders plus assumed conversion................................. $ 89.2 249.2 $ 0.36 ======= ===== ====== FOR THE YEAR ENDED DECEMBER 31, 1998 Basic EPS Net loss...................................... $(898.7) 247.7 $(3.63) Less: Loss from discontinued operations....... (15.6) -- (0.06) ------- ------ Loss from continuing operations available to common shareholders........................ (883.1) -- (3.57) Effect of dilutive options (a).................. -- -- -- ------- ----- ------ Diluted EPS Loss from continuing operations available to Common shareholders plus assumed conversion................................. $(883.1) 247.7 $(3.57) ======= ===== ====== FOR THE YEAR ENDED DECEMBER 31, 1997 Basic EPS Net Income.................................... $ 333.0 250.1 $ 1.33 Less: income from discontinued operations..... 29.9 -- 0.12 ------- ------ Income from continuing operations available to common shareholders........................ 303.1 -- 1.21 Effect of dilutive options...................... -- 0.8 -- ------- ----- ------ Diluted EPS Income from continuing operations available to Common shareholders plus assumed conversion................................. $ 303.1 250.9 $ 1.21 ======= ===== ======
- --------------- (a) Options outstanding, as discussed above, have been excluded from the 1998 calculation of diluted earnings per share due to anti-dilution. 71 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Employee Stock Ownership Plan. Effective January 2, 1997, the Company instituted an employee stock ownership plan ("ESOP") for eligible U.S. employees. The ESOP purchased 3.7 million shares or $107.3 million of newly issued common stock (the "ESOP Shares") from the Company, to be used to fund the Company's matching obligation under its 401(k) Thrift Plan. All domestic regular employees of the Company are eligible to participate in the ESOP. The ESOP Shares, which are held in trust, were purchased with the proceeds from a 30-year loan from the Company. Such shares were pledged as collateral for the loan. As loan payments are made, shares are released from collateral, based on the proportion of debt service paid. Scheduled principal and interest requirements are $5.9 million annually and will be funded with dividends paid on the unallocated ESOP Shares and with cash contributions from the Company. Principal or interest prepayments may be made to ensure that the Company's minimum matching obligation is met. Shares held by the ESOP are included in the computation of earnings per share as such ESOP Shares are released from collateral. Releases of ESOP Shares will be allocated to participants' accounts and will be charged to compensation expense at the fair market value of the shares on the date of the employer match. Dividends on allocated ESOP Shares will be recorded as a reduction of retained earnings; dividends on unallocated ESOP Shares will be recorded as a reduction of the principal or accrued interest on the loan. As of December 31, 1999, allocated and unallocated shares in the ESOP were 958,472 and 2,741,528, respectively. As of December 31, 1998, allocated and unallocated shares were 483,216 and 3,216,784, respectively. The fair value of unallocated ESOP shares at December 31, 1999 and 1998 was $35.0 million and $29.2 million, respectively. During 1999, 1998 and 1997, compensation cost related to the allocation of ESOP shares to participants' accounts was $4.4 million, $6.3 million and $5.3 million, respectively. Preferred Stock and Shareholder Rights. The Company has 100 million shares of no-par-value preferred stock authorized, none of which are outstanding. On October 28, 1996, the Company's Board of Directors designated 3,000,000 of the authorized preferred shares as non-redeemable Series A Junior Participating Preferred Shares (the "Series A Preferred Stock"). Upon issuance, each one-hundredth of a share of the Series A Preferred Stock will have dividend and voting rights approximately equal to those of one share of the Company's common stock. In addition, on October 28, 1996, the Board of Directors adopted a shareholder rights plan with a "flip-in" threshold of 15% to ensure that all shareholders of the Company receive fair value for their Common Stock in the event of any proposed takeover of the Company and to guard against the use of coercive tactics to gain control of the Company without offering fair value to the Company's shareholders ("Rights Agreement"). Under the Rights Agreement, the Company declared a dividend of one right ("Right") for each outstanding share of common stock to shareholders of record on November 7, 1996. Under certain limited conditions as defined in the Rights Agreement, each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock at $135 subject to adjustment. The Rights are not exercisable until the Distribution Date (as defined in the Rights Agreement) which will occur upon the earlier of (i) ten days following a public announcement that an Acquiring Person (as defined in the Rights Agreement) has acquired beneficial ownership of 15% or more of the Company's outstanding Common Stock (the "Stock Acquisition Date") or (ii) ten business days following the commencement of a tender offer or exchange offer that would result in a person or group owning 15% or more of the Company's outstanding Common Stock. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company without conditioning the offer on a substantial number of Rights being redeemed. In the event that at any time following the Stock Acquisition Date certain events occur as defined in the Rights Agreement, each holder of a Right, except the Acquiring Person, will thereafter have the right to receive, upon exercise, Company Common Stock or common stock of the acquiring company, as the case may be, having a value equal to two times the exercise price of the Right. 72 UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Rights should not interfere with any merger or other business combination approved by the Company since the Board of Directors may, at its option, at any time prior to the close of business on the earlier of the tenth day following the Stock Acquisition Date or October 28, 2006, redeem all but not less than all of the then outstanding Rights at $0.01 per Right. The Rights expire on October 28, 2006, and do not have voting power or dividend privileges. During 1999, the Company repurchased 869,681 shares at a cost of $12.6 million primarily in connection with the Company's retention stock program. Also during 1999, the Company reissued 259,605 shares of repurchased stock for $3.3 million to settle deferred compensation liabilities for several former executives. During 1998, the Company repurchased 837,500 shares at a cost of $18.6 million and 449,788 shares at a cost of $8.1 million, in connection with the Company's retention stock and options, respectively. Other Comprehensive Income. The Company's other comprehensive income is as follows:
TAX BEFORE-TAX BENEFIT NET-OF-TAX AMOUNT (EXPENSE) AMOUNT ---------- ----------- ---------- (MILLIONS OF DOLLARS) 1999 Foreign currency translation adjustment................ $ 49.6 $(27.1) $ 22.5 Minimum pension liability adjustment................... (6.0) -- (6.0) ------- ------ ------ Other comprehensive income............................. $ 43.6 $(27.1) $ 16.5 ======= ====== ====== 1998 Foreign currency translation adjustment................ $(149.6) $ 82.5 $(67.1) Minimum pension liability adjustment................... (3.9) -- (3.9) ------- ------ ------ Other comprehensive income (loss)...................... $(153.5) $ 82.5 $(71.0) ======= ====== ======
16. OTHER INCOME -- NET Other income (expense) -- net consists of the following:
FOR THE YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ (MILLIONS OF DOLLARS) Foreign currency gain (loss) -- net (Note 5)............... $ 44.2 $(35.5) $ -- Firm transportation contract valuation..................... (43.4) -- -- Interest income............................................ 30.5 11.1 4.4 Insurance settlement proceeds.............................. -- 3.3 10.0 Excess reserve releases.................................... -- -- 23.0 Gain (loss) on sales of investment......................... -- (1.4) 7.2 Pennzoil acquisition costs(a).............................. -- (2.0) (17.8) Interest rate lock cost (Note 5)........................... -- (14.3) -- Other -- net............................................... 0.4 (6.5) (2.3) ------ ------ ------ Total other income -- net........................ $ 31.7 $(45.3) $ 24.5 ====== ====== ======
- --------------- (a) Related to cost incurred with the unsuccessful takeover attempt of Pennzoil Company. 73 EX-99.2 9 0009.txt INTERIM FINANCIAL STATEMENTS EXHIBIT 99.2 UNION PACIFIC RESOURCES GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Three Months Ended March 31, 2000 and 1999 (Millions, except per share amounts) (Unaudited)
Three Months Ended March 31, ---------------------------- 2000 1999 ----------- ----------- Operating revenues: Exploration and production ........................................... $ 479.8 $ 319.0 Other oil and gas revenues ........................................... 5.0 63.9 ---------- ---------- Total oil and gas operations ................................... 484.8 382.9 Minerals ............................................................. 37.5 32.2 ---------- ---------- Total operating revenues ....................................... 522.3 415.1 ---------- ---------- Operating expenses: Production ........................................................... 107.9 90.5 Exploration .......................................................... 30.3 51.6 Minerals ............................................................. 0.6 0.4 Depreciation, depletion and amortization ............................. 176.2 183.2 General and administrative ........................................... 18.8 15.6 Restructuring charge ................................................. -- 14.5 ---------- ---------- Total operating expenses .................................. 333.8 355.8 ---------- ---------- Operating income ......................................................... 188.5 59.3 Other income (expense) - net ............................................. (14.8) 11.4 Interest expense ......................................................... (48.9) (64.3) ---------- ---------- Income from continuing operations before income taxes .................... 124.8 6.4 Income tax benefit (expense) ............................................. (32.1) 35.9 ---------- ---------- Income from continuing operations ........................................ 92.7 42.3 Discontinued operations: Loss from discontinued operations - net of tax ....................... -- (23.8) Gain on sale of discontinued operations - net of tax ................. -- 157.0 ---------- ---------- Total income from discontinued operations ............................ -- 133.2 Extraordinary gain from early extinguishment of debt - net of tax (Note 5) 2.9 -- ---------- ---------- Net income ............................................................... $ 95.6 $ 175.5 ========== ========== Comprehensive income - net of tax: Foreign currency translation adjustments ............................. (2.1) (35.3) ---------- ---------- Comprehensive income ..................................................... $ 93.5 $ 140.2 ========== ========== Earnings per share - basic and diluted: Continuing operations ................................................ $ 0.37 $ 0.17 Discontinued operations .............................................. -- 0.54 Extraordinary item ................................................... 0.01 -- ---------- ---------- Total ................................................................ $ 0.38 $ 0.71 Weighted average shares outstanding - basic .............................. 249.3 248.6 Weighted average shares outstanding - diluted ............................ 249.4 248.7 Cash dividends per share ................................................. $ 0.05 $ 0.05
See the notes to the condensed consolidated financial statements (unaudited). -2- UNION PACIFIC RESOURCES GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION At March 31, 2000 and December 31, 1999 (Millions of dollars)
March 31, December 31, 2000 1999 ---------- ---------- (Unaudited) ASSETS Current assets: Cash and temporary investments ..................... $ 65.6 $ 123.7 Accounts receivable - net .......................... 326.7 304.4 Inventories ........................................ 53.3 54.7 Other current assets ............................... 24.5 13.1 ---------- ---------- Total current assets ......................... 470.1 495.9 ---------- ---------- Properties (successful efforts method): Cost ............................................... 11,084.3 11,006.6 Accumulated depreciation, depletion and amortization (5,670.8) (5,535.6) ---------- ---------- Total properties - net ....................... 5,413.5 5,471.0 Intangible and other assets ............................ 175.9 180.0 ---------- ---------- Total assets ........................................... $ 6,059.5 $ 6,146.9 ========== ==========
See the notes to the condensed consolidated financial statements (unaudited). -3- UNION PACIFIC RESOURCES GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION At March 31, 2000 and December 31, 1999 (Millions of dollars)
March 31, December 31, 2000 1999 ------------- ------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ..................................... $ 279.7 $ 285.0 Accrued taxes payable ................................ 96.2 68.6 Short-term debt ...................................... 2.3 2.3 Other current liabilities ............................ 171.4 185.8 ------------- ------------- Total current liabilities ....................... 549.6 541.7 ------------- ------------- Long-term debt (Note 5) ................................... 2,606.1 2,797.3 Deferred income taxes ..................................... 1,334.8 1,326.8 Other long-term liabilities ............................... 548.5 543.6 Shareholders' equity: Common stock, no par value; Authorized -- 400,000,000 Issued and outstanding-- 251,952,336 and 251,951,140 -- -- Paid-in surplus ...................................... 996.4 998.8 Treasury stock, at cost: Shares--4,277,293 and 4,276,989 .................. (91.8) (91.8) Retained earnings .................................... 268.5 185.3 Unearned employee stock ownership plan ............... (75.8) (79.5) Unearned compensation ................................ (1.9) (2.5) Accumulated other comprehensive income: Deferred foreign exchange adjustment ............. (64.0) (61.9) Minimum pension contra equity .................... (10.9) (10.9) ------------- ------------- Total accumulated other comprehensive income .... (74.9) (72.8) ------------- ------------- Total shareholders' equity ................. 1,020.5 937.5 ------------- ------------- Total liabilities and shareholders' equity ................ $ 6,059.5 $ 6,146.9 ============= =============
See the notes to the condensed consolidated financial statements (unaudited). -4- UNION PACIFIC RESOURCES GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2000 and 1999 (Millions of dollars) (Unaudited)
Three Months Ended March 31, 2000 1999 ------------ ------------ Cash provided by operations: Net income .......................................... $ 95.6 $ 175.5 Less income from discontinued operations ....... -- (133.2) Less gain on extinguishment of debt - net of tax (2.9) -- ------------ ------------ Income from continuing operations ................... 92.7 42.3 Non-cash charges to income: Depreciation, depletion and amortization ......... 176.2 183.2 Deferred income taxes ............................ 5.4 (21.3) Other non-cash charges - net ..................... 45.6 6.9 Changes in current assets and liabilities ........... (5.4) 10.6 ------------ ------------ Cash provided by operations ................... 314.5 221.7 ------------ ------------ Investing activities: Capital and exploratory expenditures ................ (155.2) (110.8) Proceeds from sales of assets ....................... 5.3 200.2 Proceeds from sale of discontinued operations ....... -- 1,359.1 Cash used by discontinued operations ................ (2.6) (169.5) ------------ ------------ Cash provided (used) by investing activities .. (152.5) 1,279.0 ------------ ------------ Financing activities: Dividends paid ...................................... (12.4) (12.4) Repayment of debt ................................... (190.2) (1,472.9) Other financing - net ............................... (17.5) 147.1 ------------ ------------ Cash used by financing activities ............. (220.1) (1,338.2) ------------ ------------ Net change in cash and temporary investments ............ (58.1) 162.5 Cash at beginning of period ............................. 123.7 8.8 ------------ ------------ Cash at end of period ................................... $ 65.6 $ 171.3 ============ ============
See the notes to the condensed consolidated financial statements (unaudited). -5- UNION PACIFIC RESOURCES GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. RESPONSIBILITIES FOR FINANCIAL STATEMENTS The Condensed Consolidated Financial Statements of Union Pacific Resources Group Inc. and subsidiaries ("UPR" or the "Company") have been prepared by management, are unaudited and reflect all adjustments (including normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and operating results of the Company for the interim periods. However, these condensed statements do not include all of the information and footnotes required by generally accepted accounting principles to be included in a full set of financial statements. The report of Arthur Andersen LLP commenting on their review accompanies the Condensed Consolidated Financial Statements and is included in Part I, Item 1, in this report. The Condensed Consolidated Statement of Financial Position at December 31, 1999 is derived from audited financial statements. The Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results for the full year ending December 31, 2000. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for each reporting period. Management believes its estimates and assumptions are reasonable; however, such estimates and assumptions are also subject to a number of risks and uncertainties which may cause actual results to differ materially. 2. BUSINESS SEGMENT INFORMATION
Three Months Ended March 31, ------------------------------- 2000 1999 ---------- ---------- (Millions of dollars) Revenues: Exploration and production ........................................ $ 484.8 $ 382.9 Minerals .......................................................... 37.5 32.2 ---------- ---------- Total ............................................................ $ 522.3 $ 415.1 ========== ========== Operating income: Exploration and production ........................................ $ 172.0 $ 59.1 Minerals .......................................................... 37.0 31.8 Corporate (a) ..................................................... (20.5) (31.6) ---------- ---------- Total ...................................................... $ 188.5 $ 59.3 ========== ==========
-6-
At March 31, At December 31, 2000 1999 ------------ ------------ (Millions of dollars) Fixed assets (net of accumulated DD&A): Exploration and production .......................................... $ 5,317.1 $ 5,367.4 Minerals ............................................................ 7.4 7.4 Corporate ........................................................... 89.0 96.2 ------------ ------------ Total ................................................................. $ 5,413.5 $ 5,471.0 ============ ============
(a) Operating income for the Corporate segment consists of general and administrative expense and DD&A expense on Corporate fixed assets, and in 1999 includes $14.5 million related to a restructuring charge. 3. NORCEN SUMMARIZED FINANCIAL INFORMATION In March 1998, the Company and Union Pacific Resources Inc. ("UPRI"), an Alberta corporation and a wholly-owned subsidiary of the Company, acquired Norcen Energy Resources Limited ("Norcen") for $2.6 billion (the "Norcen Acquisition"). In 1998, as a result of the Norcen Acquisition, UPRI assumed and unconditionally guaranteed the public debt obligations of Norcen. The following table presents summarized financial information for UPRI (as successor to Norcen) as of and for the three months ended March 31, 2000 and March 31, 1999. This summarized financial information is being provided pursuant to Section G of Topic 1 of Staff Accounting Bulletin No. 53 - "Financial Statement Requirements in Filings Involving the Guarantee of Securities by a Parent." The Company will continue to provide such summarized financial information for UPRI for as long as the debt securities remain outstanding and guaranteed by UPRI.
Three Months Ended March 31, 1999 ---------------------------------- (Millions of dollars) Summarized Statement of Income Information: Operating revenues .................................................. $ 110.6 $ 121.1 Operating income .................................................... 31.8 50.6 Net income .......................................................... 4.5 58.9 At March 31, 2000 At December 31, 1999 -------------------- --------------------- Summarized Statement of Financial Position Information: Current assets ...................................................... $ 40.9 $ 40.5 Non-current assets .................................................. 1,760.6 1,844.8 Current liabilities ................................................. 96.6 83.9 Non-current liabilities and equity .................................. 1,704.9 1,801.4
4. COMMITMENTS AND CONTINGENCIES The Company is subject to federal, state, provincial and local environmental laws and regulations and currently is participating in the investigation and remediation of a number of sites. Where the remediation costs can reasonably be determined, and where such remediation is probable, the Company has recorded a liability. The Company does not expect future environmental obligations to have a material impact on the consolidated results of operations, financial condition or cash flows of the Company. -7- In connection with the disposition of significant plant, pipeline, refining and producing property assets, the Company has made certain representations and warranties related to the assets sold (covering, among other matters, the condition and capabilities of certain assets and compliance with environmental and other lawsuits) and provided certain indemnities with respect to liabilities associated with such assets. The Company has been advised of possible claims which may be asserted by the purchasers of certain disposed assets for alleged breaches of representations and warranties under certain indemnities. Certain claims related to compliance with environmental laws remain pending. In addition, as some of the representations, warranties and indemnities related to some of the disposed assets have not expired, further claims may be made against the Company. While no assurance can be given as to the ultimate outcome of these claims, the Company does not expect these matters to have a material adverse effect on its consolidated results of operations, financial condition or cash flows. The Company is a defendant in a number of lawsuits and is involved in governmental proceedings arising in the ordinary course of business, including but not limited to, royalty claims, contract claims and environmental claims. The Company has also been named as a defendant in various personal injury claims, including numerous claims by employees of third party contractors alleging exposure to asbestos and asbestos containing materials while working at the Corpus Christi refinery, which the Company sold in segments in 1987 and 1989. The Company also has entered into commitments and provided guarantees for specific financial and contractual obligations of its subsidiaries and affiliates. While the Company's management cannot predict the outcome of any litigation and other proceedings, the Company does not expect these lawsuits, commitments or guarantees to have a material adverse effect on the consolidated results of operations, financial condition or cash flows of the Company. 5. DEBT During the first quarter 2000, the Company purchased on the open market and retired long-term debt with a face value of $100.0 million at a discount prior to maturity. The retirement of long-term debt due to the repurchases resulted in an extraordinary gain of $2.9 million, net of $1.5 million of tax. The gain on the retirement was classified as a gain from an extraordinary item on the Condensed Consolidated Statement of Income. Additionally, during the first quarter 2000, the Company repaid $90.4 million of Bankers' Acceptances. 6. SUBSEQUENT EVENTS On April 2, 2000, UPR, Anadarko Petroleum Corporation, a Delaware corporation ("Anadarko"), and Dakota Merger Corp., a Utah corporation and wholly-owned subsidiary of Anadarko ("Subcorp"), entered into an Agreement and Plan of Merger, dated as of April 2, 2000 (the "Merger Agreement"), pursuant to which Subcorp will merge with and into UPR, and UPR will become a wholly-owned subsidiary of Anadarko. Under the Merger Agreement UPR shareholders will receive 0.4550 Anadarko common shares for each UPR common share. The merger transaction between UPR and Subcorp is subject to regulatory approval, as well as approval by both the UPR and Anadarko shareholders. In connection with the execution of the Merger Agreement, UPR and Anadarko entered into a Stock Option Agreement, dated as of April 2, 2000 (the "UPR Stock Option Agreement"), pursuant to which UPR granted Anadarko an option, exercisable under certain circumstances specified in the UPR Stock Option Agreement, to purchase up to 50,138,515 shares of UPR Common Stock (approximately 19.9% of the outstanding shares of UPR Common Stock, without giving effect to the exercise of the option) at the purchase price stated in the UPR Stock Option Agreement. -8- In connection with the execution of the Merger Agreement, Anadarko and UPR also entered into a Stock Option Agreement, dated as of April 2, 2000 (the "Anadarko Stock Option Agreement"), pursuant to which Anadarko granted UPR an option, exercisable under certain circumstances specified in the Anadarko Stock Option Agreement, to purchase up to 25,886,726 shares of common stock, par value $0.10 per share, of Anadarko (approximately 19.9% of the outstanding Anadarko common stock, without giving effect to the exercise of the option) at the purchase price stated in the Anadarko Stock Option Agreement. In connection with the Merger Agreement, effective as of April 2, 2000, UPR and Harris Trust and Savings Bank, as Rights Agent, amended the Amended and Restated Rights Agreement, dated as of December 1, 1998, between UPR and the Rights Agent (the "Rights Agreement"), providing that each of Anadarko, Subcorp, and their affiliates shall not be deemed an "Acquiring Person" as defined in the Rights Agreement with respect to, and that no "Stock Acquisition Date", "Distribution Date", or "Triggering Event" will occur as a result of the execution of the Merger Agreement, the execution of the UPR Stock Option Agreement, the consummation of the transactions contemplated by the Merger Agreement, including, without limitation, the merger, the acquisition of beneficial ownership or transfer of Common Stock pursuant to the UPR Stock Option Agreement, or the announcement of any of the foregoing transactions, and that the Rights Agreement will expire immediately prior to the Effective Time of the Merger (as defined in the Merger Agreement). A supplier of coal to Black Butte Coal Company and R-K Leasing Company ("Black Butte") has been assessed by the Minerals Management Service of the United States Department of the Interior for underpayment of royalties and by the State of Montana Department of Revenue for underpayment of production taxes related to coal previously sold to Black Butte. The supplier contested these claims. In 1998, the Courts ruled in favor of the State of Montana. The supplier appealed to the Montana State Supreme Court. On May 9, 2000, the Montana State Supreme Court reversed the decision by the Montana Thirteenth Judicial District Court, which had affirmed the assessment made by the State Tax Appeal Board against the Supplier, and dismissed the assessment. The State of Montana has ten days to request a rehearing by the Montana Supreme Court. Through the first quarter of 2000, the Company had recorded $15.4 million as its proportionate share of the Montana Department of Revenue assessment related to coal production taxes. Status involving the Minerals Management Service assessment has not changed. -9- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Union Pacific Resources Group Inc. We have reviewed the accompanying condensed consolidated statement of financial position of Union Pacific Resources Group Inc. (a Utah corporation) and subsidiaries as of March 31, 2000, and the related condensed consolidated statements of income and comprehensive income and the condensed consolidated statements of cash flows for the three month periods ended March 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the statement of financial position of Union Pacific Resources Group Inc. as of December 31, 1999, and, in our report dated March 3, 2000, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 1999, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Fort Worth, Texas April 26, 2000 -10- -----END PRIVACY-ENHANCED MESSAGE-----