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PROXY STATEMENT/PROSPECTUS Table of Contents
INDEX TO CIMAREX ENERGY CO. COMBINED FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on August 2, 2002

Registration No. 333-87948



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


AMENDMENT NO. 2
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


CIMAREX ENERGY CO.
(Exact name of registrant as specified in its charter)

Delaware   1311   45-0466694
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

Cimarex Energy Co.
1579 East 21st Street
Tulsa, Oklahoma 74114
(918) 742-5531
(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)

Steven R. Mackey, Esq.
Cimarex Energy Co.
Vice President and Secretary
1579 East 21st Street
Tulsa, Oklahoma 74114
(918) 742-5531
(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies to:

C. Kevin Barnette, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, NW
Washington, DC 20005
(202) 371-7000
  Bonnie Greaves, Esq.
Shearman & Sterling
Broadgate West
9 Appold Street
London, EC2A 2AP
United Kingdom
(011 44) 20 7655-5000
  Thomas A. Richardson, Esq.
Holme Roberts & Owen LLP
1700 Lincoln Street,
Suite 4100
Denver, Colorado 80203
(303) 861-7000

        Approximate date of commencement of proposed sale to the public:    As soon as practicable after this registration statement becomes effective and upon consummation of the merger described in the enclosed proxy statement/prospectus.

        If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o


        The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.




        The information contained in this proxy statement/prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer of sale is not permitted.

[Key Production Letterhead]

[                        ], 2002

Fellow Stockholder:

        We invite you to attend a special meeting of stockholders of Key Production Company, Inc. to be held on [                        ] [    ], 2002 at [            ], Mountain Daylight Time, at [                                    ]. At the special meeting, you will be asked to consider and vote upon a proposal to adopt the merger agreement entered into among Key, Helmerich & Payne and Cimarex.

        If the merger agreement is adopted and the merger consummated, the combined company, named Cimarex Energy Co., will be a new publicly traded exploration and production company. Cimarex will apply to list its common stock on the New York Stock Exchange. As a Key stockholder, you will be entitled to receive one share of common stock of Cimarex in exchange for each share of Key common stock that you own and cash instead of any fractional shares you would otherwise receive in the merger.

        The Key board of directors has determined the merger is fair and in the best interests of Key and its stockholders and the merger agreement is advisable. The Key board of directors has unanimously approved the merger agreement and recommends that the Key stockholders vote "for" the adoption of the merger agreement.

        All stockholders are invited to attend the special meeting. Your participation at the special meeting, in person or in proxy, is important. Even if you only own a few shares, we want your shares to be represented at the meeting. The merger of Key with Cimarex cannot be completed without the approval of the holders of a majority of the outstanding shares of common stock of Key. Whether or not you expect to attend the special meeting in person, please complete, sign, date and promptly return the enclosed proxy card in the enclosed postage-prepaid envelope. Stockholders of record also have the option of voting via the Internet or by telephone. Specific instructions on how to vote via the Internet or by telephone are included on the proxy card. Each proxy is revocable and will not affect your right to vote in person in the event you attend the special meeting.

        The proxy statement/prospectus that accompanies this letter contains detailed information about the proposed merger and we urge you to read it carefully. In particular, you should read the "Risk Factors" section beginning on page    for a description of various risks you should consider in evaluating the proposed merger. You may also obtain additional information about Key, Helmerich & Payne and Cimarex from documents that each has filed with the Securities and Exchange Commission.

        Thank you and we look forward to seeing you at the meeting.

    Sincerely yours,



 

 
    /s/ F.H. Merelli
F.H. Merelli
Chairman, President and Chief Executive Officer

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the new shares of Cimarex Energy Co. common stock to be issued in the merger or determined that this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

        This proxy statement/prospectus is dated                        , 2002, and is first being mailed to stockholders on or about                        , 2002.


[Key Production Letterhead]

Denver, Colorado
[                        ], 2002


Notice of Special Meeting of Stockholders

To the Stockholders of Key Production Company, Inc.

        A special meeting of holders of common stock of Key Production Company, Inc. will be held on [                        ], [                        ], 2002 at [            ], Mountain Daylight Time, at [                                    ] to consider and vote upon the adoption of the Agreement and Plan of Merger, dated as of February 23, 2002, among Helmerich & Payne, Inc., Helmerich & Payne Exploration and Production Co., Mountain Acquisition Co. and Key Production Company, Inc., which provides for the merger of Key with Helmerich & Payne's oil and gas exploration and production and gas marketing business and to transact any other business that may properly come before the special meeting.

        The board of directors of Key has determined that owners of record of Key's common stock at the close of business on [                        ], 2002 are entitled to notice of, and have the right to vote at, the Key special meeting and any adjournment or postponement of the meeting.

        The Key board of directors has determined the merger is fair and in the best interests of Key and its stockholders and the merger agreement is advisable. The Key board of directors has unanimously approved the merger agreement and recommends that the Key stockholders vote "for" the adoption of the merger agreement.

    By Order of the Board of Directors
of Key Production Company, Inc.



 

 
    /s/ Barbara L. Schaller
Barbara L. Schaller
Corporate Secretary





Your Vote is Important.
Whether or Not You Plan to Attend the Special Meeting,
Please Complete, Sign, Date and Return Your Proxy Card




REFERENCES TO ADDITIONAL INFORMATION

        This proxy statement/prospectus incorporates important business and financial information about Key Production Company, Inc. that it has filed with the Securities and Exchange Commission and that is not included in or delivered with this proxy statement/prospectus. This information is available at the Internet web site that the SEC maintains at http://www.sec.gov, as well as from other sources. See "Where You Can Find More Information" on page     .

        You may obtain, without charge, copies of these documents by requesting them in writing or by telephone as follows:

    Strategic Stock Surveillance, LLC
331 Madison Avenue
New York, New York 10017
    Toll Free: 1-866-KEYVOTE
      (1-866-539-8683)

 

 

Or alternatively from:

 

 

Key Production Company, Inc.
Attention: Sharon M. Pope, Assistant Corporate Secretary
707 Seventeenth Street, Suite 3300
Denver, Colorado 80202
    Facsimile: (303) 295-3494
    Telephone: (303) 295-3995

        In order for you to receive timely delivery of the documents in advance of the Key Production Company, Inc. special meeting, we should receive your request no later than [                            ,] 2002.



PROXY STATEMENT/PROSPECTUS

Table of Contents

 
QUESTIONS AND ANSWERS ABOUT THE MERGER

SUMMARY
  The Companies
  The Merger
  Conditions to the Completion of the Merger
  Termination of the Merger
  Termination Fee and Expenses
  Amended Certificate of Incorporation and By-Laws
  Opinion of Key's Financial Advisor
  Ancillary Agreements
  Stock Ownership of Management
  Interests of Certain Persons in the Merger
  Regulatory Matters
  Material United States Federal Income Tax Consequences of the Merger

SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
  Sources of Information
  How We Prepared the Unaudited Pro Forma Combined Financial Information
  Merger Related Expenses
  Selected Consolidated Financial Data of Key
  Selected Consolidated Financial Data of Cimarex
  Selected Unaudited Combined Condensed Pro Forma Financial Data of Cimarex
  Comparative Per Share Data
  Comparative Stock Price and Dividends

RISK FACTORS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

THE MERGER
  Background of the Merger
  Reasons for the Merger; Recommendation of the Key Board of Directors
  Opinion of Key's Financial Advisor
  Stock Exchange Listing
  Material United States Federal Income Tax Consequences of the Merger
  Federal Securities Laws Consequences of the Merger
  Accounting Treatment
  Regulatory Matters
  Appraisal and Dissenters' Rights
  Key Rights Plan

THE KEY SPECIAL MEETING
  Purpose, Time and Place
  Recommendation of the Key Board of Directors
  Record Date; Stock Entitled to Vote; Quorum
  Votes Required
  Voting by Proxy
  Interests of Certain Key and Cimarex Directors and Executive Officers in the Merger

i


  Stock Ownership of Management and Certain Stockholders
  Appraisal and Dissenters' Rights

CIMAREX
  Market for Oil and Gas
  Competition
  Title to Oil and Gas Properties
  Governmental Regulation in the Oil and Gas Industry
  Regulatory Controls
  Federal Income Taxation
  Environmental Laws
  Natural Gas Marketing
  Employees
  Properties
  Management's Discussion And Analysis of Cimarex

THE MERGER AGREEMENT
  The Merger
    Structure of the Merger
    Effective Time of the Merger
    Merger Consideration
    Cancellation of Certain Shares
    Procedure for Surrender of Certificates; Fractional Shares
    Treatment of Key Stock Option Plans
    Treatment of Key Restricted Stock
    Certificate of Incorporation; By-laws; Directors and Officers
    Board of Directors
  Representations and Warranties
  Covenants
    No Solicitation
    Board of Directors Covenant to Call Stockholders' Meeting and to Recommend the Merger
    Operations of Helmerich & Payne (in regard to the Cimarex business), Cimarex and Key Pending Closing
    Commercially Reasonable Efforts, Further Assurances
    Employee Benefits Plans
    Directors' and Officers' Indemnification
  Additional Covenants
    Rights Plans
    Transition Services Agreement
    Internal Revenue Service Ruling
    Litigation Defense
    Accounting Matters
  Conditions to the Completion of the Merger
  Termination of the Merger Agreement
    Right to Terminate
    Termination Fees and Expenses
  Amendments and Waiver

THE DISTRIBUTION AGREEMENT
  Summary of the Transactions
  General

ii


  Contribution of the Exploration and Production Assets and Assumption of Liabilities
  Spin-off
  Representations and Warranties
  Indemnification
  Conditions to the Spin-off

ANCILLARY AGREEMENTS
  Tax Sharing Agreement
    Preparation and Filing of Tax Returns
    Liability for Taxes
    Distribution Taxes and Deconsolidation
    Continuing Covenants
    Miscellaneous
  Employee Benefits Agreement
  Transition Services Agreement

MANAGEMENT OF CIMAREX
  Directors and Executive Officers
  Current Directors and Executive Officers of Cimarex
  Cimarex Board of Directors
  Committees of the Cimarex Board of Directors
  Compensation of Directors
  Officer and Director Indemnification
  Executive Compensation
  Employment Agreements and Change in Control Arrangements with Named Executive Officers
  Security Ownership of Certain Beneficial Owners and Management

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION

DESCRIPTION OF CIMAREX CAPITAL STOCK
  Capital Stock
  Shareholder Rights Plan

COMPARISON OF THE RIGHTS OF KEY'S STOCKHOLDERS BEFORE AND AFTER THE MERGER

EXPERTS

LEGAL MATTERS

SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS

GLOSSARY OF OIL AND NATURAL GAS TERMS

WHERE YOU CAN FIND MORE INFORMATION

INCORPORATION BY REFERENCE

INDEX TO THE CIMAREX ENERGY CO. CONSOLIDATED FINANCIAL STATEMENTS

ANNEX A

Agreement of Plan and Merger

ANNEX B

Merrill Lynch & Co. Fairness Opinion to the Key Board of Directors

iii



ANNEX C

Distribution Agreement

ANNEX D

Tax Sharing Agreement

ANNEX E

Amended and Restated Certificate of Incorporation of Cimarex Energy Co.

ANNEX F

Form of Cimarex Energy Co. By-Laws

PART II—INFORMATION NOT REQUIRED IN PROSPECTUS

iv



QUESTIONS AND ANSWERS ABOUT THE MERGER

        Q:    Please briefly describe the proposed merger and related transactions.

        A:    Helmerich & Payne will consolidate its oil and gas exploration and production and gas marketing business under one company and will spin off that company to Helmerich & Payne's stockholders. The company to be spun off is named Cimarex Energy Co. Key will merge with a newly formed subsidiary of Cimarex and become a new wholly owned subsidiary of Cimarex. When the merger is complete, approximately 34.75% of the Cimarex common stock will be held by former stockholders of Key and approximately 65.25% of Cimarex common stock will be held by stockholders of Helmerich & Payne, each on a diluted basis.

        Q:    What am I being asked to vote upon?

        A:    You are being asked to adopt the merger agreement entered into among Key, Helmerich & Payne and Cimarex.

        Q:    What will I receive in the merger for my Key stock?

        A:    If the merger is completed, as a Key stockholder, you will receive one share of common stock of Cimarex in exchange for each share of Key common stock that you own. You will receive only whole shares of Cimarex common stock. You will receive cash instead of any fractional shares you would otherwise receive in the merger.

        Q:    Does the Key board of directors support the merger?

        A:    Yes. The Key board of directors has determined the merger is fair and in the best interests of Key and its stockholders and the merger agreement is advisable. The Key board of directors has unanimously approved the merger agreement and recommends that the Key stockholders vote "for" the adoption of the merger agreement.

        A more detailed description of the background and reasons for the merger is described under "The Merger" beginning on page     .

        Q:    Are there risks that I should consider in deciding whether to vote on the merger?

        A:    Yes. In evaluating the merger, you should read the "Risk Factors" beginning on page     for a description of various risks you should carefully consider in evaluating the proposed merger.

        Q:    Can I dissent and require appraisal of my shares of Key common stock?

        A:    No. Stockholders are not entitled to dissenters' rights or appraisal rights in connection with the merger.

        Q:    What vote is required to adopt the merger agreement?

        A:    For the merger to occur, the holders of a majority of outstanding Key common stock must adopt the merger agreement. Key stockholders will have one vote for each share of Key common stock owned by them. Helmerich & Payne stockholders are not required to approve the spin-off or the merger.

        Q:    Will Key's shares of common stock continue to be traded on the New York Stock Exchange after the merger is completed?

        A:    No. If the merger is completed, Key's shares of common stock will no longer be listed for trading on the New York Stock Exchange.

        Q:    Where will the Cimarex common stock be listed?

        A:    We will apply to list the shares of Cimarex common stock on the New York Stock Exchange.

1


        Q:    Who will be the senior executive officers of Cimarex?

        A:    Mr. F.H. Merelli, the current Chairman, President and Chief Executive Officer of Key, will become the Chairman, Chief Executive Officer and President of Cimarex. Steven R. Shaw, the current Vice President of Exploration and Production of Helmerich & Payne, will be the Executive Vice President of Cimarex. Paul Korus, the current Chief Financial Officer of Key, will be Vice President and Chief Financial Officer of Cimarex.

        Q:    Who will be the directors of Cimarex?

        A:    If the merger is completed, Key will designate four directors and Helmerich & Payne will designate five directors to the Cimarex board. The Chairman of the Cimarex board will be Mr. F.H. Merelli, the current Chairman, President and Chief Executive Officer of Key.

        Q:    When do you expect to complete the spin-off and the merger?

        A:    If the merger agreement is adopted by the stockholders of Key, then Key, Helmerich & Payne and Cimarex expect to complete the spin-off and the merger as soon as possible after the satisfaction (or waiver, where permissible) of the conditions to the spin-off and the merger. We currently anticipate that the merger will be completed during the third calendar quarter of 2002.

        Q:    What should I do now?

        A:    You should mail your signed and dated proxy card(s) in the enclosed envelope or vote via telephone or via the Internet by following the instructions on your proxy card as soon as possible so that your shares of Key common stock will be represented and voted at the Key special meeting. If you plan to attend the special meeting, please be sure to obtain an admission card.

        Q:    Do I need to send in my share certificate(s) now?

        A:    No. Do not send in your share certificate(s) now. Do not send in your share certificate(s) with your proxy card(s). If the merger is completed, Key will send you a letter describing how to exchange your share certificate(s).

        Q:    If I am not going to attend the special meeting, should I return my proxy card(s)?

        A:    Yes. Returning your proxy card(s) ensures that your shares of Key common stock will be represented at the Key special meeting, even if you are unable to or do not attend.

        Q:    How do I vote my shares of Key common stock if they are held in the name of a bank, broker or other fiduciary?

        A:    Your bank, broker or other fiduciary will vote your shares of Key common stock with respect to the merger only if you provide written instructions to them on how to vote, so it is important that you provide them with instructions. If you do not provide them with instructions, under the rules of the New York Stock Exchange, they will not be authorized to vote with respect to the merger. If you wish to vote in person at the meeting and hold your shares of Key common stock in the name of a bank, broker or other fiduciary, you must contact your bank, broker or other fiduciary and request a legal proxy. You must bring this legal proxy to the meeting in order to vote in person. Shares of Key common stock held by a broker, bank or other fiduciary that are not voted because the customer has not provided instructions to the broker, bank or other fiduciary will have the same effect as a vote "against" the proposal.

        Q:    Can I change my vote after I mail my proxy card(s)?

        A:    Yes. If you are a record holder, you can change your vote by:

2


        If your shares of Key common stock are held in the name of a bank, broker or other fiduciary and you have directed such person(s) to vote your shares of Key common stock, you should instruct such person(s) to change your vote or obtain a legal proxy to do so yourself.

        Q:    What if I do not vote, or abstain from voting, or do not instruct my broker to vote my shares of Key common stock?

        A:    If you do not vote, it will have the same effect as a vote against the merger. Abstentions and broker non-votes will also have the effect of votes against the merger.

        If you sign your proxy card but do not indicate how you want to vote, your shares of Key common stock will be voted for the merger.

        Q:    Who can answer my questions?

        A:    If you have any questions regarding the special meeting or need assistance in voting your shares of Key common stock, please contact our proxy solicitor:

    Strategic Stock Surveillance, LLC
331 Madison Avenue
New York, New York 10017
    Toll Free: 1-866-KEYVOTE
(1-866-539-8683)

 

 

All other questions should be directed to:

 

 

Key Production Company, Inc.
Attention: Sharon M. Pope, Assistant Corporate Secretary
707 Seventeenth Street
Suite 3300
Denver, Colorado 80202
    Facsimile: (303) 295-3494
    Telephone: (303) 295-3995

        Q:    Where can I find more information about Key?

        A:    You can find more information about Key from various sources described under "Where You Can Find More Information" on page     .

3




SUMMARY

        This summary highlights material information from this proxy statement/prospectus. To better understand the proposed merger, you should read this entire proxy statement/prospectus carefully, as well as those additional documents to which we refer you. In addition, we incorporate by reference important information about Key into this proxy statement/prospectus. You may obtain the information incorporated by reference into this proxy statement/prospectus by following the instructions under "Where You Can Find More Information" on page     . We have included page references in parentheses at various points in this summary to direct you to a more detailed description of the topics presented.

        For an explanation of oil and gas abbreviations and terms used in this proxy statement/prospectus, see "Glossary of Oil and Natural Gas Terms" on page     .


The Companies

Cimarex Energy Co.
1579 East 21st Street
Tulsa, Oklahoma 74114
(918) 742-5531

        Cimarex Energy Co. is a wholly owned subsidiary of Helmerich & Payne, Inc. that holds the assets relating to the oil and gas exploration and production and gas marketing business of Helmerich & Payne. Cimarex Energy Co. was formerly known as Helmerich & Payne Exploration and Production Co. We refer to Cimarex Energy Co. as "Cimarex" throughout this proxy statement/prospectus and the oil and gas exploration and production and gas marketing business of Helmerich & Payne as the "Cimarex business". Cimarex conducts exploration and development activities primarily in Louisiana, Oklahoma, Texas and the Hugoton Field of western Kansas. Other production operations and exploration acreage are located in the Rocky Mountain area, New Mexico, Alabama, Michigan and Mississippi. As of December 31, 2001, Cimarex had estimated proved reserves of approximately 213.2 Bcf of gas and 5.31 MMBbls of oil, or an aggregate of 245 Bcfe. More than 98% of the proved reserves of Cimarex are classified as proved developed. Cimarex owns approximately 181,903 net acres of developed leases and 146,071 net acres of undeveloped leases, the bulk of which are in Texas, Louisiana, Kansas and Oklahoma. Cimarex also owns working interests in 4,451 (655.84 net) oil and gas wells located primarily in those same states.

Key Production Company, Inc.
707 Seventeenth Street
Suite 3300
Denver, Colorado 80202
(303) 295-3995

        Key Production Company, Inc. is an independent natural gas and crude oil exploration and production company engaged in the exploration, development, acquisition and production of oil and gas in the continental United States. We will refer to Key Production Company, Inc. as "Key" throughout this proxy statement/prospectus. Key conducts exploration and development activities primarily in the Anadarko Basin of Oklahoma, the Hardeman Basin of north Texas, the Laredo field in south Texas, the Mississippi Salt Basin, south Louisiana and northern California. Other production operations and exploration acreage are located in Wyoming and other Rocky Mountain states. As of December 31, 2001, Key had estimated proved reserves of approximately 92.0 Bcf of gas and 9.2 MMBbls of oil, or an aggregate of 147.3 Bcfe. Roughly 62% of Key's proved reserves are gas and 38% are oil. More than 99% of Key's proved reserves are classified as proved developed. Key owns approximately 177,000 net acres of developed leases and 104,000 net acres of undeveloped leases, the bulk of which are in Wyoming, Mississippi, Texas, California and Oklahoma. Key also owns working interests in 2,267 (376 net) oil and gas wells located primarily in those same states.

4



Mountain Acquisition Co.
c/o Cimarex Energy Co.
1579 East 21st Street
Tulsa, Oklahoma 74114
(918) 742-5531

        Mountain Acquisition Co. is a wholly owned subsidiary of Cimarex. Mountain Acquisition Co. was organized on February 14, 2002 for the purposes of merging with Key in the merger. It has not carried on any activities other than in connection with the merger agreement. We will refer to Mountain Acquisition Co. as "Mountain Acquisition" throughout this proxy statement/prospectus.


The Merger (page     )

        Prior to the merger, Helmerich & Payne will transfer and contribute the assets and liabilities of the Cimarex business to Cimarex pursuant to the terms of a distribution agreement. The distribution agreement is attached as Annex C to this proxy statement/prospectus. See "The Distribution Agreement" beginning on page    . Immediately prior to the merger, Helmerich & Payne will spin off Cimarex by distributing all of the shares of Cimarex common stock to Helmerich & Payne stockholders on a pro rata basis. Mountain Acquisition will then be merged with and into Key in accordance with the terms of the merger agreement, with the result that Key will become a wholly owned subsidiary of Cimarex. The merger agreement is attached as Annex A to this proxy statement/prospectus. See "The Merger Agreement" beginning on page    .

        Following the merger, Cimarex will:


Conditions to the Completion of the Merger (page     )

        The merger will be completed only if certain conditions, including the following, are satisfied (or waived in certain cases):

5



Termination of the Merger (page     )

        Helmerich & Payne and Key may mutually agree to terminate the merger agreement without completing the merger. In addition, either party may terminate the merger agreement if:

        In addition, Key may terminate the merger agreement if it receives a proposal to acquire Key that Key's board of directors determines in good faith to be more favorable to Key's stockholders than the merger.

        Also, Helmerich & Payne may terminate the merger agreement if Key's board of directors withdraws or modifies its approval of the merger to Key's stockholders.


Termination Fee and Expenses (page     )

        Key must pay Helmerich & Payne a termination fee of $10 million and out-of-pocket fees and expenses of up to $2 million if Key terminates the merger agreement to accept a proposal that Key's board of directors determines in good faith to be more favorable to Key's stockholders than the merger. In addition, Key must pay Helmerich & Payne a termination fee of $10 million and reimbursement of out-of-pocket fees and expenses of up to $2 million if the merger agreement is terminated for certain other reasons. See "The Merger Agreement—Termination Fees and Expenses" on page    .


Amended Certificate of Incorporation and By-Laws (page     )

        If the merger is completed, the certificate of incorporation and by-laws of Cimarex will be in the forms attached as Annex E and Annex F, respectively, to this proxy statement/prospectus. Those certificate of incorporation and by-laws differ from Key's current articles and by-laws as described in "Comparison of the Rights of Key's Stockholders Before and After the Merger" beginning on page     .


Opinion of Key's Financial Advisor (page     )

        Merrill Lynch & Co, Key's financial advisor, has delivered to the Key board of directors a written opinion that, as of February 23, 2002, based upon and subject to the factors and assumptions set forth in the opinion and taking into account the shares of Cimarex common stock to be distributed to Helmerich & Payne stockholders in the spin-off, the exchange ratio in the merger was fair from a financial point of view to the Key stockholders. This opinion is attached as Annex B to this proxy statement/prospectus.


Ancillary Agreements (page     )

        In connection with the merger, Helmerich & Payne and Cimarex have entered into a distribution agreement that provides for the transfer of the Cimarex business to Cimarex. Also, Helmerich & Payne and Cimarex have entered into a tax sharing agreement relating to the allocation of certain tax liabilities. The tax sharing agreement is attached as Annex D to this proxy statement/prospectus. See "Ancillary Agreements—Tax Sharing Agreement" beginning on page    . In addition, Helmerich & Payne and Cimarex have entered into an employee benefits agreement defining the benefits for the employees of Cimarex after the spin-off (including Key employees following the merger and

6



Helmerich & Payne employees who are transferred to Cimarex in connection with the spin-off). See "Ancillary Agreements—Employee Benefits Agreement" beginning on page     . Finally, Helmerich & Payne and Cimarex have agreed that prior to the merger they will enter into a transition services agreement under which Helmerich & Payne will provide services to Cimarex for a period of time following the merger.


Stock Ownership of Management (page             )

        At the close of business on March 31, 2002, directors and executive officers of Key and their affiliates as a group beneficially owned and were entitled to vote approximately 1,255,181 shares of Key common stock (including options exercisable for shares of common stock), representing approximately 8.4% of the shares of Key common stock outstanding on that date (including shares represented by such options). All of the directors and executive officers of Key that are entitled to vote at the Key special meeting have indicated that they intend to vote their shares of Key common stock in favor of adoption of the merger agreement.


Interests of Certain Persons in the Merger (page             )

        When considering the recommendations of the Key board of directors, you should be aware that the directors and executive officers of Key and Cimarex have interests and arrangements that may be different from your interests as stockholders, including:

7



Regulatory Matters (page     )

        Helmerich & Payne has obtained a private letter ruling from the Internal Revenue Service to the effect that the contribution and transfer of the assets and liabilities of the Cimarex business to Cimarex and the spin-off by Helmerich & Payne of all the shares of Cimarex common stock to the holders of Helmerich & Payne common stock, generally will be treated as a tax-free transaction for U.S. federal income tax purposes.

        None of the parties is aware of any other material governmental or regulatory approval required for the completion of the merger, other than the effectiveness of the registration statement of which this proxy statement/prospectus is a part and compliance with applicable corporate law of the State of Delaware.


Material United States Federal Income Tax Consequences of the Merger (page     )

        It is expected that the merger will generally be tax-free to the stockholders of Key for U.S. federal income tax purposes, except for cash received in lieu of fractional shares. We encourage you to consult your own tax advisor for a full understanding of the tax consequences of the merger to you.

8



SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

Sources of Information

        We are providing the following selected consolidated financial data of Cimarex and selected consolidated financial data of Key, to help you in your analysis of the financial aspects of the merger and related transactions. We derived this information from the audited and unaudited financial statements for Cimarex and from the audited and unaudited financial statements of Key for the periods presented. You should read this information in conjunction with the financial information included or incorporated by reference in this proxy statement/prospectus. See "Where You Can Find More Information" beginning on page    , "Index to Cimarex Energy Co. Financial Statements" on page F-1 and "Unaudited Pro Forma Combined Condensed Financial Information" beginning on page    .


How We Prepared the Unaudited Pro Forma Combined Condensed Financial Information

        The unaudited pro forma combined condensed financial information is presented to show you how Cimarex might have looked if Cimarex had been an independent company and combined with Key for the periods presented. We did not adjust the pro forma financial information for estimated general and administrative expense savings and operational efficiencies that may be realized as a result of the merger or one-time costs and expenses necessary to achieve such savings and efficiencies. We prepared the pro forma financial information using the purchase method of accounting, with Cimarex treated as the acquiror. See "The Merger—Accounting Treatment" beginning on page    .

        If Cimarex had been an independent company and the companies had been combined in the past, they might have performed differently. You should not rely on the pro forma financial information as an indication of the financial position or results of operations that Cimarex would have reported if the spin-off and merger had taken place earlier or of the future results that Cimarex will achieve after the merger. See "Unaudited Pro Forma Combined Condensed Financial Information" beginning on page    .


Merger Related Expenses

        Cimarex estimates that it will incur fees and expenses totaling approximately $4.2 million in connection with the merger and related transactions, which have been included in calculating the purchase price. Key estimates that it will incur fees and expenses totaling approximately $4.6 million in connection with the merger and related transactions, which have not been included in calculating the purchase price. After the merger, Cimarex may incur additional charges and expenses relating to integrating the operations of Key and Cimarex. We did not adjust the pro forma information for these additional charges and expenses.


Selected Consolidated Financial Data of Key

        Key prepared the selected historical consolidated financial data in the table below using the consolidated financial statements of Key. The selected historical consolidated financial data of Key as of March 31, 2002 and 2001 and as of December 31, 2001 and 2000 and for the three months ended March 31, 2002 and 2001 and for each of the years in the three-year period ended December 31, 2001, should be read in conjunction with the consolidated financial statements, related notes and other financial information incorporated by reference in this proxy statement/prospectus. The historical consolidated balance sheet data as of December 31, 1999, 1998 and 1997 and operating results for the

9



years ended December 31, 1998 and 1997 have been derived from audited financial statements not incorporated by reference in this proxy statement/prospectus.

 
  Three Months Ended March 31, (Unaudited)
  As of and for the Years Ended December 31,
 
  2002
  2001
  2001
  2000
  1999
  1998
  1997
 
  (In thousands, except per share and proved reserves data)

OPERATING RESULTS:                                          
  Revenues   $ 16,365   $ 39,771   $ 108,885   $ 99,820   $ 56,258   $ 37,783   $ 42,151
  Income (loss) before cumulative effect of change in accounting method(1)     (2,109 )   14,930     (3,617 )   27,995     6,804     4,595     9,696
  Net income (loss)     (2,109 )   13,105     (5,442 )   27,995     6,804     4,595     9,696
  Income (loss) per share before cumulative effect of change in accounting method(1):                                          
    Basic     (0.15 )   1.07     (0.26 )   2.32     0.59     0.40     0.84
    Diluted     (0.15 )   1.03     (0.26 )   2.23     0.56     0.38     0.80
  Net income (loss) per share:                                          
    Basic     (0.15 )   0.94     (0.39 )   2.32     0.59     0.40     0.84
    Diluted     (0.15 )   0.91     (0.39 )   2.23     0.56     0.38     0.80
  Cash dividends declared per share                            
BALANCE SHEET DATA:                                          
  Total assets     213,701     257,304     217,668     244,154     176,857     166,295     130,647
  Total debt, including current portion     34,000     32,000     34,000     44,000     60,000     60,000     35,000
  Stockholders' equity     132,563     151,981     134,227     138,087     76,873     69,681     64,911
OTHER FINANCIAL DATA                                          
  Oil and gas capital expenditures     7,176     24,766     73,658     88,118     34,456     55,429     44,625
  Proved Reserves:                                          
    Oil (MBbls)                 9,215     9,276     9,220     7,022     6,213
    Gas (Mmcf)                 91,978     98,214     79,351     82,956     69,543
    Total Equivalent (Mmcfe)                 147,270     153,870     134,671     125,088     106,821

(1)
Effective January 1, 2001, Key changed its method of amortizing capitalized costs from the future gross revenue method to the units-of-production method. The cumulative effect of the change calculated as of January 1, 2001, was to increase net loss by $1.8 million, net of income taxes of $1.1 million, or $0.13 per diluted share.

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Selected Consolidated Financial Data of Cimarex

        The following selected historical financial data of Cimarex as of September 30, 2001 and 2000 and the three years ended September 30, 2001 should be read in conjunction with the consolidated Cimarex financial statements and notes thereto appearing elsewhere in this proxy statement/prospectus. The consolidated statement of operations data for the years ended September 30, 1998 and 1997 and the consolidated balance sheet data as of September 30, 1999, 1998 and 1997 have been derived from unaudited financial statements not presented herein. The consolidated statement of operations data for the six months ended March 31, 2002 and 2001 and the consolidated balance sheet data as of March 31, 2002 and 2001 have been derived from unaudited consolidated financial statements. In the opinion of management, the unaudited interim financial statement as of March 31, 2002 and 2001 and for the six months ended March 31, 2002 and 2001 include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial position and operating results for the unaudited periods. Operating results for the six months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the entire year ending September 30, 2002.

 
  Six Months Ended March 31 (Unaudited)
  As of and for the Years Ended September 30,
 
  2002
  2001
  2001
  2000
  1999
  1998
  1997
 
  (In Thousands, except per share and proved reserves data)

OPERATING RESULTS:                                          
  Revenues   $ 73,372   $ 192,616   $ 317,053   $ 237,484   $ 146,902   $ 152,280   $ 177,833
  Net income     7,673     60,058     35,253     57,386     23,559     30,260     37,850
  Basic income per share(1)     0.29     2.26     1.33     2.16     0.89     1.14     1.42
  Cash dividends declared per share                            

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Total assets     253,572     311,679     246,212     286,090     234,929     215,407     193,628
  Long-term debt                            
  Shareholder's equity     179,276     210,679     166,795     192,972     172,664     161,768     137,637

OTHER FINANCIAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Oil and gas capital expenditures     26,095     48,004     104,975     73,821     55,933     55,569     45,869
  Proved Reserves                                          
    Oil (MBbls)                 5,932     6,305     4,834     4,761     5,805
    Gas (Mmcf)                 216,337     262,498     239,620     251,626     263,236
    Total Equivalent (MMcfe)                 251,927     300,329     268,623     280,194     298,068

(1)
Net income per share for all periods is calculated based on the 26,591,321 shares of Cimarex common stock to be issued to Helmerich & Payne stockholders pursuant to the distribution agreement.

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Selected Unaudited Combined Condensed Pro Forma Financial Data of Cimarex

        The following selected unaudited pro forma combined condensed financial information has been prepared to reflect the merger. This unaudited pro forma combined condensed financial information is based on the historical financial statements of Cimarex and Key, all of which are included in or incorporated by reference in this proxy statement/prospectus and the estimates and assumptions set forth in the Notes to the Unaudited Combined Condensed Pro Forma Financial Statements of Cimarex beginning on page    . The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the merger as if it had occurred on March 31, 2002. The Unaudited Pro Forma Combined Condensed Statement of Operations for the six-months ended March 31, 2002 and the year ended September 30, 2001 gives effect to the merger as if it occurred on October 1, 2000.

        Cimarex's fiscal year ends on September 30 and Key's fiscal year ends on December 31. The financial information presented by Key for the six-month period ended March 31, 2002, has been compiled by the management of Key. Results of Key for the three-month period ended December 31, 2001 are included in the Unaudited Pro Forma Combined Condensed Statements of Operations for both the six-month period ended March 31, 2002 and the year ended December 31, 2001.

        Expected cost savings resulting from operating synergies and the elimination of merger related costs have not been reflected as adjustments to the historical data. The cost savings are expected to result from the consolidation of the corporate headquarters of Cimarex and Key and rationalization of capital spending. Cimarex estimates that it will incur approximately $4.2 million in fees and expenses associated with the merger. Key estimates that it will incur fees and expenses of approximately $4.6 million, which are being expensed as incurred by Key. There are no arrangements to have Helmerich & Payne or Cimarex reimburse any of Key's merger-related costs.

        The Unaudited Pro Forma Combined Condensed Financial Information is for illustrative purposes only. The financial results may have been different had Cimarex been an independent company and had the companies always been combined. You should not rely on the Unaudited Pro Forma Combined Condensed Financial Information as being indicative of the historical results that would have been achieved had the merger occurred in the past or the future financial results that the combined company will achieve after the merger.

        In addition, the purchase price allocation is preliminary and will be finalized following the closing of the merger. The final purchase price allocation will be determined after closing based on the actual fair value of current assets, current liabilities, indebtedness, long-term liabilities, proven and unproven oil and gas properties, identifiable intangible assets and the final number of shares of Cimarex common stock issued for Key's outstanding shares of common stock and stock options that are outstanding at closing. We are continuing to evaluate all of these items; accordingly, the final purchase price may differ in material respects from that presented in the Unaudited Pro Forma Combined Condensed Balance Sheet.

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        The earnings per share calculations assumes that Cimarex had 26,591,321 shares of common stock outstanding.

 
  As of and for the
Six Months Ended
March 31, 2002

  For the Year Ended
September 30, 2001

 
  (In Thousands, except per share and proved reserve data)

OPERATING RESULTS:            
  Revenues   $ 107,658   $ 426,106
  Income before cumulative effect of change in accounting method   $ 8,419   $ 112
  Earnings per share before cumulative effect of change in accounting method            
    Basic   $ 0.21   $
    Diluted   $ 0.21   $

BALANCE SHEET DATA:

 

 

 

 

 

 
  Total assets   $ 598,461      
  Long-term debt, including current portion   $ 38,200      
  Stockholders' equity   $ 410,974      

PROVED RESERVES (as of December 31, 2001):

 

 

 

 

 

 
  Oil (MBbls)     14,524      
  Gas (MMcf)     305,162      
  Equivalent (MMcfe)     392,305      
  Percentage of proved developed     98.6%      


Comparative Per Share Data

        The following table presents historical per share data for Cimarex and Key individually and on a pro forma basis after giving effect to the merger. The merger of Key with a subsidiary of Cimarex has been accounted for using the purchase method of accounting. The combined pro forma per share data of the combined company was derived from the Unaudited Pro Forma Combined Condensed Financial Information as presented beginning on page    . The assumptions related to the preparation of the Unaudited Pro Forma Combined Condensed Financial Information are described beginning at page    . Cimarex's fiscal year ends on September 30, 2001. Key has included the results of its quarter ended December 31, 2001 in the historical and pro forma results for both the six months ended March 31, 2002 and the year ended December 31, 2001. The data presented below should be read in conjunction with the historical consolidated financial statements of Key that have been incorporated by reference in this proxy statement/prospectus and in conjunction with the historical consolidated financial statements of Cimarex presented elsewhere in this proxy statement/prospectus.

        The equivalent pro forma income (loss) per share and book value per share information for Key are the same amounts as for Cimarex combined pro forma because the exchange ratio for Key common stock is one share of Cimarex common stock for one share of Key common stock.

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        The pro forma combined per share data may not be indicative of the operating results of financial position that would have occurred if the merger had been consummated at the beginning of the periods indicated, and may not be indicative of future operation results of financial position.

 
  Cimarex
  Key
 
  Historical
  Combined
Pro Forma

  Historical
  Equivalent
Pro Forma

Earnings (loss) per share—                        
  Six months ended March 31, 2002(4)                        
    Basic   $ 0.29   $ 0.21   $ (2.22 ) $ 0.21
   
 
 
 
    Diluted   $ 0.29   $ 0.21   $ (2.22 ) $ 0.21
   
 
 
 
  Year ended September 30, 2001(1,2,4)                        
    Basic   $ 1.33   $   $ (0.26 ) $
   
 
 
 
    Diluted   $ 0.29   $   $ (0.26 ) $
   
 
 
 
Book Value per share—As of March 31, 2002(3)   $ 6.74   $ 10.10   $ 9.41   $ 10.10
   
 
 
 
Cash dividends declared per common share   $   $   $   $

(1)
Key's historical amounts are based on its results of operations for the year ended December 31, 2001.

(2)
All amounts presented for Key are before the cumulative effect of change in accounting method for depletion recorded as of the beginning of the year ended December 31, 2001. The impact of the cumulative effect of accounting adjustment was an increase to the loss for the year ended December 31, 2001 by $1.8 million, net of tax, or $0.13 per share.

(3)
Book value per share calculation assumes that Cimarex had 26,591,321 shares of common stock outstanding and Key had 14,080,468 shares of common stock outstanding as of March 31, 2002.

(4)
Cimarex's historical earnings (loss) per share calculation assumes Cimarex had 26,591,321 shares of common stock outstanding.


Comparative Stock Price and Dividends

        Cimarex was incorporated as a wholly owned subsidiary of Helmerich & Payne in February 2002. There is no established public trading market for the shares of Cimarex common stock and it is not expected that a public trading market will be established until the distribution of Cimarex common stock to existing Helmerich & Payne stockholders in connection with the spin-off.

        The shares of Key common stock are currently traded on the New York Stock Exchange under the symbol "KP". The closing price of the Key common stock on Friday, February 22, 2002, the last trading day prior to the announcement of the execution of the merger agreement, was $15.65.

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        The following table sets forth the intra-day high and low sales prices of shares of Key common stock, as reported on the New York Stock Exchange, for the periods referred to below.

 
  Key Common Stock
   
 
  High
  Low
  Dividends
2000                  
First Quarter   $ 13.94   $ 6.94   $
Second Quarter     20.94     11.63    
Third Quarter     24.81     13.25    
Fourth Quarter     33.75     20.50    

2001

 

 

 

 

 

 

 

 

 
First Quarter     33.00     18.60    
Second Quarter     22.98     15.31    
Third Quarter     16.75     10.95    
Fourth Quarter     17.73     10.85    

2002

 

 

 

 

 

 

 

 

 
First Quarter     19.50     14.66    
Second Quarter     21.97     16.82    
Third Quarter (through August 1)     19.50     15.17      

        Holders of Key common stock should obtain current market quotations for Key common stock. The market price of Key common stock could vary at any time before the merger.

        Key has not paid any dividends for the fiscal years 2000 and 2001 or during the fiscal year 2002 to date and it anticipates that it will not pay any dividends in 2002. Cimarex has not paid any dividends for the fiscal year 2002 to date and it anticipates that it will not pay any dividends in 2002.

15




RISK FACTORS

        Stockholders of Key voting in favor of the merger will be choosing to invest in Cimarex common stock and to combine the business of Key with Cimarex.

        In addition to the other information that we have included and incorporated by reference in this proxy statement/prospectus, you should carefully read and consider the following factors in determining whether to vote to adopt the merger agreement at the Key special meeting.

        The market value of the shares of Cimarex common stock that you receive in the merger may be less than the value of your shares of Key common stock.

        If the merger is completed, each share of Key common stock will be converted into one share of Cimarex common stock. The exchange ratio is a fixed ratio that will not be adjusted as a result of any increase or decrease in the market price of either shares of Key common stock or Cimarex common stock. The value of the Cimarex common stock that you receive in the merger will depend on the public trading price of Cimarex common stock. However, the Cimarex common stock will not trade publicly until the spin-off and the merger are completed. As a result, at the time of the Key special meeting, you will not know the market value of the Cimarex common stock that you will receive in the merger. The market price of the Cimarex common stock you will receive in the merger may be less than the market price of Key common stock on the date of this proxy statement/prospectus or on the date of the Key special meeting.

        The market value of Cimarex common stock could decline if large amounts of Cimarex common stock are sold following the spin-off and merger.

        Historically, Helmerich & Payne has been operated as a combined contract drilling and oil and gas exploration and production company. In contrast, following the spin-off and merger, Cimarex will operate as a stand-alone oil and gas exploration and production company. Stockholders of Helmerich & Payne who chose to invest in a combined contract drilling and oil and gas exploration and production company may not wish to continue to invest in a stand-alone oil and gas exploration and production company. As a result, such stockholders may seek to sell the shares of Cimarex common stock received in the spin-off. If, following the spin-off and merger, large amounts of Cimarex common stock are sold, the price of Cimarex common stock could decline.

        If Cimarex fails to realize the anticipated benefits of the merger stockholders may receive lower returns than they expect.

        The success of the merger will depend, in part, on the ability of Cimarex to realize the anticipated growth opportunities from combining the business of Key with Cimarex. Even if Cimarex is able to successfully combine the two business operations, it may not be possible to realize the full benefits of the proved reserves and enhanced growth of production volume and other benefits that are currently expected to result from the merger, or realize these benefits within the time frame that is currently expected. The benefits of the merger may be offset by operating losses relating to changes in commodity prices, or in oil and gas industry conditions, or by risks and uncertainties relating to the combined company's exploratory prospects, or an increase in operating or other costs or other difficulties. If Cimarex fails to realize the anticipated benefits of the merger, stockholders may receive lower returns on Cimarex stock than they expect.

        If Cimarex is unable to secure a new credit facility, its ability to fund future capital expenditures could be jeopardized and alternative financing arrangements might adversely affect its future growth or earnings.

        If Cimarex's business does not generate cash flow from operations in amounts sufficient to enable it to fund its liquidity needs it will require financing from other sources. Cimarex is currently in negotiations with a lead arranger to procure a $400 million secured revolving credit facility. Cimarex

16



management expects that this facility would close shortly following the completion of the merger. In the event that Cimarex is unable to secure a new credit facility, Cimarex could have to adopt one or more alternatives, such as reducing or delaying planned expenses and capital expenditures, selling assets, restructuring debt, or obtaining additional equity or debt financing or joint venture partners. These alternatives could have an adverse effect on Cimarex's future growth or earnings.

        In order to preserve the tax-free treatment of the spin-off, Cimarex will be required to abide by potentially significant restrictions which could limit its ability to undertake certain corporate actions (such as the issuance of its common shares) that otherwise could be advantageous.

        Helmerich & Payne has obtained a private letter ruling from the Internal Revenue Service to the effect that the spin-off will be treated as a tax-free transaction to Helmerich & Payne and its stockholders for U.S. federal income tax purposes by reason of its qualification under sections 355 and 368 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). The merger is conditioned on the receipt and continued validity of the private letter ruling. Notwithstanding the receipt of a private letter ruling, certain actions taken (and certain omissions) by Helmerich & Payne or Cimarex (or their respective stockholders) after the spin-off could render the spin-off taxable on a retroactive basis.

        The tax sharing agreement entered into by Helmerich & Payne and Cimarex imposes ongoing restrictions on Helmerich & Payne and Cimarex to ensure that applicable statutory requirements under the Internal Revenue Code and applicable Treasury regulations continue to be met so that the spin-off remains tax-free to Helmerich & Payne and its stockholders. As a result of these restrictions, the ability of Cimarex to engage in certain transactions, such as the redemption of its common stock, the issuance of equity securities and the utilization of its stock as currency in an acquisition, will be limited for a period of two years following the spin-off. These restrictions may reduce the ability of Cimarex to engage in certain business transactions that otherwise might be advantageous to Cimarex and its stockholders and could have a negative impact on its business and stockholder value. If the spin-off became taxable, Helmerich & Payne would be expected to recognize a substantial amount of income, which would result in a material amount of taxes. Depending on the circumstances, the tax sharing agreement allocates to Helmerich & Payne or Cimarex all, or a portion of, any tax liability resulting from the spin-off being taxable. Any such taxes allocated to Cimarex would be expected to be material to Cimarex.

        If Cimarex undergoes a change of control during the two-year period following the spin-off, or if the actions of Cimarex cause the spin-off to be taxable, Cimarex would be required to indemnify Helmerich & Payne for any resulting tax liabilities, which could negatively impact Cimarex's financial condition and future operations.

        Helmerich & Payne or Cimarex may incur a material liability in respect of U.S. federal income taxes that may become payable as a result of a change of control of Cimarex. In particular, if a change of control of Cimarex occurs as a result of a plan or series of related transactions that includes the spin-off, the distribution of the shares of Cimarex common stock may become taxable to Helmerich & Payne. Under section 355(e) of the Internal Revenue Code, any issuance or acquisition of the stock of Cimarex within two years following the spin-off will be presumed to be part of such a plan unless Helmerich & Payne or Cimarex were able to rebut the presumption that the issuance or acquisition was part of the spin-off plan. A change of control that results in tax under section 355(e) of the Internal Revenue Code generally will occur if, within the four-year period ending two years after the spin-off, a 50% or greater interest in Cimarex is acquired. As a result of the merger, an approximate 34.75% interest in Cimarex will be treated as already having been acquired.

        If Helmerich & Payne or Cimarex (or their respective stockholders) takes or permits an action to be taken (or omits to take an action) that causes the spin-off to become taxable, the relevant corporation generally will be required to bear the cost of the resulting tax liability to the extent that the

17



liability results from the actions or omissions of that corporation (or its stockholders). Furthermore, under the terms of the tax sharing agreement, if any issuance or acquisition of stock of Cimarex triggers a tax, Cimarex generally would be required to indemnify Helmerich & Payne for the amount of such tax. Finally, if the spin-off were to become taxable under circumstances where neither Helmerich & Payne nor Cimarex (nor their respective stockholders) had caused the transaction to become taxable, such as in the case of a retroactive change of law, Cimarex generally would be required to indemnify Helmerich & Payne for 34.75% of the resulting tax liability and Helmerich & Payne generally would be required to bear 65.25% of the liability. Payment of such amounts by Cimarex or both Helmerich & Payne and Cimarex could cause the business, financial condition and operating results of Cimarex to suffer.

        The Cimarex certificate of incorporation, by-laws and the Cimarex shareholders' rights plan have provisions that could discourage an unsolicited corporate takeover and could prevent stockholders from realizing a premium on their investment.

        The certificate of incorporation and by-laws of Cimarex will provide, among other things, for a classified board of directors with staggered terms, restrict the ability of stockholders to take action by written consent and prevent stockholders from calling a meeting of the stockholders. In addition, the Delaware General Corporation Law imposes restrictions on business combinations with interested parties. Cimarex also has adopted a shareholders' rights plan. The shareholders' rights plan, the certificate of incorporation and the by-laws may have the effect of delaying, deferring or preventing a change in control of Cimarex, even if the change in control might be beneficial to the Cimarex stockholders.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This proxy statement/prospectus, including information incorporated by reference into this proxy statement/prospectus, contains forward-looking statements. Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by those forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking terms such as "believes," "expects", "may", "will", "should", "could", "seek", "intends", "plans", "estimates", "anticipates" or other comparable terms.

        Forward-looking statements are based on expectations that Key and Cimarex believe are reasonable, but neither Key nor Cimarex can give assurance that such expectations will prove correct. Actual results may differ materially following the completion of the merger from those expressed in the forward-looking statements. Readers are cautioned not to put undue reliance on forward-looking statements. Key and Cimarex disclaim any intent or obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.

19



THE MERGER

        The discussion in this proxy statement/prospectus of the merger and the principal terms of the merger agreement is subject to and qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement/prospectus as Annex A and is incorporated by reference into this proxy statement/prospectus.


Background of the Merger

        On November 14, 2000, Helmerich & Payne publicly announced that it had retained Petrie Parkman & Co. to act as its financial advisor to identify companies as possible candidates to enter into a business combination transaction with its oil and gas exploration and production business. It was specifically contemplated that a successful transaction could lead, among other things, to the establishment of Cimarex as a separate public entity. Following Helmerich & Payne's November 14, 2000 announcement, in the remainder of 2000 and in January 2001, Helmerich & Payne and Petrie Parkman contacted nine parties to ascertain their interest in a potential transaction involving the Cimarex business.

        As part of this process, in November 2000, Hans Helmerich, President and Chief Executive Officer of Helmerich & Payne, authorized Petrie Parkman to contact Key to arrange a meeting to discuss a possible business combination of Key and the Cimarex business. On November 22, 2000, a representative of Petrie Parkman contacted Mr. F.H. Merelli, Chairman and Chief Executive Officer of Key, to inquire whether Key would be interested in exploring the possibility of such a transaction and, on that day and the next, representatives of Petrie Parkman engaged in preliminary discussions with Mr. Merelli.

        In January 2001, Key retained Merrill Lynch & Co. as its financial advisor in connection with a possible business combination transaction between Key and the Cimarex business. On January 16, 2001, representatives of Helmerich & Payne and Petrie Parkman met with representatives of Key and Merrill Lynch to provide general information about the Cimarex business and to discuss Key's possible interest in a business combination. The discussions were exploratory in nature. Largely because of then-current capital market conditions, the companies elected not to pursue further negotiations at that time.

        Through the remainder of 2001 and in early 2002, Helmerich & Payne continued to explore strategic alternatives for the Cimarex business, including, but not limited to, possible combinations with other industry participants. By early 2002, representatives of Helmerich & Payne and Petrie Parkman contacted or received inquiries from 24 other parties, including the nine other parties previously contacted, regarding a potential transaction involving the Cimarex business. Representatives of Helmerich & Payne and Petrie Parkman met with nine parties other than Key to further discuss interest in a potential business combination with the Cimarex business. After review and discussion of the potential merits of a business combination with these parties, Helmerich & Payne executed confidentiality agreements with five parties other than Key with whom there was sufficient mutual interest to continue discussions (Companies A, B, C, D and E). In February 2001 through September 2001, Helmerich & Payne conducted due diligence reviews with Companies A, B, C, D and E. Discussions were suspended with Companies A and C after the due diligence reviews because the strategic fit between Companies A and C and the Cimarex business was determined to be less than originally anticipated. Helmerich & Payne entered into negotiations with Companies B, D and E regarding the potential terms of a business combination involving the Cimarex business. Discussions with Companies B and D were subsequently terminated because, among other things, Helmerich & Payne was unable to reach agreement with either Company B or D on the pro forma ownership of the combined entity. Discussions with Company E were subsequently terminated because, among other things, Helmerich & Payne and Company E were unable to reach agreement on various tax issues with respect to the proposed spin-off of Cimarex in connection with the potential business combination.

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During the course of the discussions noted above, Helmerich & Payne did not receive any written offers regarding a potential business combination involving the Cimarex business. Following the January 2001 meeting with Key, apart from informal inquiries from time to time by Key to Helmerich & Payne regarding its plans for the Cimarex business, there were no contacts between the executive officers of Key and Helmerich & Payne until October 2001.

        On October 25, 2001, a representative of Petrie Parkman contacted Mr. Merelli to propose another meeting between Key and Helmerich & Payne. On October 29, 2001, Mr. Helmerich and other representatives of Helmerich & Payne, together with representatives of Petrie Parkman, met with Mr. Merelli to discuss the two respective companies' business objectives and whether a business combination would be in the best interests of stockholders of the two companies. At this meeting, Mr. Merelli and Mr. Helmerich agreed that a small group of senior management from each of Key and Helmerich & Payne should meet to further consider the fit between the two businesses and possible transaction structures. On November 5, 2001, the parties executed a confidentiality agreement.

        On November 14, 2001, Mr. Helmerich and Douglas E. Fears, Chief Financial Officer of Helmerich & Payne met with Mr. Merelli and Paul Korus, Vice President and Chief Financial Officer of Key, to discuss the potential benefits and the structure of a business combination transaction. Based on those discussions, it was agreed that the parties would begin a due diligence review of, among other things, their respective proved reserves and other assets. Also on November 14, 2001, Skadden, Arps, Slate, Meagher & Flom LLP, Helmerich & Payne's counsel, distributed drafts of the principal agreements relating to the proposed transaction, including a distribution agreement and a merger agreement, to Key, Merrill Lynch, Shearman & Sterling and Holme Roberts & Owen LLP, Key's counsel. Thereafter, the parties and their respective advisors commenced the negotiation of the definitive transaction agreements.

        On November 28, 2001, Mr. Merelli, Mr. Korus, several other representatives of Key's management and technical teams and representatives of Merrill Lynch met with representatives of Helmerich & Payne's management and representatives of Petrie Parkman to review the proved reserves and other assets of Cimarex. On the following day, the same parties met to review Key's proved reserves and other assets and business operations. During the months of December 2001 and January 2002, the parties and their respective advisors continued reciprocal business, engineering, tax, accounting and legal due diligence.

        On December 6, 2001, the board of directors of Key held a special meeting at which Key's management, together with Merrill Lynch and Key's legal advisors, updated the Key board of directors on the proposed transaction and related matters, including the strategic and business considerations relating to the transaction, the ongoing diligence review and the status of discussions between the parties. Following discussion, the Key board of directors authorized Key's management and its advisors to continue discussions regarding the proposed transaction. The Key board of directors also directed Mr. Korus to continue previously initiated discussions with A.G. Edwards & Sons, Inc. regarding the possible adoption of a shareholder rights plan.

        On December 12, 2001, representatives of Merrill Lynch met with representatives of Petrie Parkman to discuss the status of the due diligence reviews and the potential terms of the proposed transaction. Key had authorized Merrill Lynch to discuss with Petrie Parkman at the December 12, 2001 meeting a merger transaction with Cimarex in which the Key stockholders would own approximately 37.5% to 38.0% of the combined entity, subject to satisfactory completion of due diligence and acceptable modification of certain portions of the merger agreement proposed by Helmerich & Payne. With respect to the draft merger agreement, Merrill Lynch indicated that Key wanted, among other changes, to eliminate proposed fiduciary termination provisions for Helmerich & Payne and to add a provision whereby Helmerich & Payne would indemnify Cimarex for any potential federal income tax liabilities relating to periods prior to closing of the proposed merger.

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Representatives of Petrie Parkman indicated that Helmerich & Payne had authorized Petrie Parkman to discuss with Merrill Lynch a merger transaction involving Cimarex in which Key stockholders would own 32.0% to 33.0% of the combined entity, also subject to satisfactory completion of due diligence and negotiation of the other terms of their merger agreement.

        On January 4, 2002, representatives of Merrill Lynch and representatives of Petrie Parkman held additional discussions regarding the financial and legal terms of the proposed transaction. In these discussions, representatives of Merrill Lynch indicated that after further consideration and due diligence analysis, and subject to satisfactory resolution of all remaining contractual issues, Key would be willing to consider a merger transaction with Cimarex in which Key stockholders would own 36.0% of the combined entity. Representatives of Petrie Parkman indicated that Helmerich & Payne viewed a 34.0% ownership of Cimarex by Key stockholders as the appropriate ownership split.

        From January through mid-February, 2002, technical teams from Key and Helmerich & Payne continued with reciprocal due diligence review and valuation analysis of proved reserves, drilling inventory and undeveloped acreage.

        During this period, the parties, together with their respective legal advisors, also negotiated the principal terms of the merger agreement, distribution agreement, and tax sharing agreement, including the conditions to the merger, termination provisions (including fiduciary termination provisions), break up fees, non-solicitation provisions, liability for potential post-closing federal and state income taxes and covenants in respect of the maintenance of working capital within the pre-closing business of Cimarex. The parties, together with their respective legal advisors, also negotiated the composition of the board of directors and executive officers of Cimarex, as well as other employee compensation and benefit matters. The negotiation of the merger agreement, distribution agreement and tax sharing agreement occurred generally among Mr. Steven R. Mackey, Vice President and General Counsel of Helmerich & Payne, Mr. Fears and Mr. Korus, together with their legal and financial advisors.

        On February 11 and 12, 2002, Mr. Helmerich and Mr. Merelli held initial discussions regarding the exchange ratio for the business combination. Based on net asset value and EBITDA contribution analysis, Mr. Helmerich initially proposed a range of ratios whereby the stockholders of Helmerich & Payne would own 65.5%-67% of the diluted shares of common stock of Cimarex. Mr. Merelli, relying principally on a net asset value analysis (adjusted for transaction expenses), initially proposed a range of ratios for Key stockholders of 35%-36.5%, implying a range of 63.5%-65% for Helmerich & Payne stockholders. During ensuing telephonic conversations on February 12, 2002, Messrs. Helmerich and Merelli discussed the bases for their respective proposals. On February 12, 2002, Messrs. Helmerich and Merelli agreed that respective ownership percentages of 65.25% and 34.75% for Helmerich & Payne and Key stockholders would be acceptable, subject to satisfactory resolution by Mr. Fears and Mr. Korus of specific working capital issues and all other remaining legal and business issues.

        On February 13 and 14, 2002, Mr. Fears and Mr. Korus resolved that the proposed distribution agreement between Helmerich & Payne and Cimarex (and of which Key is a third-party beneficiary) would be modified to provide for a $4.8 million positive working capital addition to the September 30, 2001 balance sheet of Cimarex. On February 15, 2002, Messrs. Helmerich and Merelli agreed that the modified financial terms were acceptable and that, subject to the satisfactory resolution of all remaining issues, including the allocation of responsibility for tax liabilities that could arise after completion of the proposed transaction, management employment contracts, certain pre-closing business covenants relating to capital expenditures, and the allocation of transaction expenses, they could recommend a merger transaction in which the stockholders of Helmerich & Payne would own approximately 65.25% of Cimarex and the stockholders of Key would own approximately 34.75% of Cimarex, each on a diluted basis. Thereafter, negotiations with respect to the remaining outstanding issues continued, principally between Mr. Mackey and Mr. Korus and their respective advisors.

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        On February 21, 2002, the board of directors of Key held a special meeting to review the proposed transaction. At the meeting, Key's management, together with Key's financial and legal advisors, apprised the Key board of directors of the status of discussions and reviewed the proposed terms of the transaction. Holme Roberts & Owen and KPMG LLP, Key's accountants, discussed the results of their diligence review, and Shearman & Sterling reviewed the terms of the transaction agreements to be entered into by the parties. Merrill Lynch made a presentation regarding the financial terms of the transaction and its valuation analyses of Key and Cimarex. In addition, Holme Roberts & Owen and A.G. Edwards made a presentation to the Key board of directors regarding a proposed shareholder rights plan. After extended discussion among the directors, the meeting was adjourned until February 23, 2002.

        On February 23, 2002, the Key board of directors reconvened its special meeting. At that meeting, Merrill Lynch delivered to the board its written opinion that, as of that date, based upon and subject to the factors and assumptions set forth in the Merrill Lynch fairness opinion and taking into account the shares of Cimarex common stock to be distributed to Helmerich & Payne stockholders in the spin-off, the exchange ratio in the merger was fair from a financial point of view to the holders of Key common stock. Following discussion, the Key board of directors determined that the merger and the other transactions contemplated by the merger agreement are fair and in the best interests of Key and its stockholders and declared the merger agreement advisable. The Key board of directors approved the merger and the merger agreement and resolved to recommend that Key's stockholders vote to adopt the merger agreement. The Key board of directors also adopted the shareholders' rights plan. Shortly after the Key board of directors meeting, the merger agreement and ancillary documents were executed by all of the parties to each of the agreements.

        On February 25, 2002, Helmerich & Payne and Key issued a joint press release announcing the approval of the transaction by their respective boards of directors and the execution of the merger agreement.


Reasons for the Merger; Recommendation of the Key Board of Directors

        At its February 23, 2002 meeting, the Key board of directors determined the merger was fair to and in the best interests of Key and its stockholders and the merger agreement is advisable. The Key board of directors unanimously approved the merger agreement and resolved to recommend the adoption of the merger agreement by the Key stockholders.

        In reaching its decision, the Key board of directors considered a number of factors, including the following:

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        The Key board of directors also identified and considered some risks and potential disadvantages associated with the merger, including the following:

        In the judgment of the Key board of directors, the potential benefits of the merger outweigh the risks and the potential disadvantages. In view of the variety of factors considered in connection with its evaluation of the proposed merger and the terms of the merger agreement, the Key board of directors did not believe it was practicable to quantify or assign relative weights to the factors considered in reaching its conclusion. Rather, the Key board of directors views its recommendation as being based on the totality of the information presented to and considered by it. In addition, individual Key directors may have given different weights to different factors.

        In considering the recommendation of the Key board of directors with respect to the merger, you should be aware that some officers and directors of Key have interests in the merger that may be different from, or in addition to, the interests of Key stockholders generally. The Key board of directors was aware of these interests and considered them in approving the merger and merger agreement. Please refer to "The Key Special Meeting—Interests of Certain Key and Cimarex Directors and Executive Officers in the Merger" beginning on page     for more information about these interests.

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Opinion of Key's Financial Advisor

        Key retained Merrill Lynch to act as its financial advisor in connection with the merger of Key and Cimarex. On February 23, 2002, Merrill Lynch rendered to the Key board of directors its written opinion that, as of that date, based upon and subject to the factors and assumptions set forth in the Merrill Lynch fairness opinion and taking into account the shares of Cimarex common stock to be distributed to Helmerich & Payne stockholders in the spin-off, the exchange ratio in the merger was fair from a financial point of view to the holders of Key common stock.

        The full text of the Merrill Lynch fairness opinion, which sets forth the assumptions made, matters considered and qualifications and limitations on the review undertaken by Merrill Lynch, is attached as Annex B to this proxy statement/prospectus and is incorporated in this proxy statement/prospectus by reference. Stockholders of Key are urged to read the opinion in its entirety. The Merrill Lynch fairness opinion was provided to Key's board of directors for its information and is directed only to the fairness from a financial point of view of the exchange ratio with respect to holders of Key common stock and does not address the merits of the underlying decision by Key to engage in the merger and does not constitute a recommendation to Key's stockholders as to how the stockholders should vote on the adoption of the merger agreement. Merrill Lynch has not expressed any opinion as to the prices at which shares of Cimarex common stock will trade following the consummation of the merger.

        Merrill Lynch has consented to the use of Annex B, containing the Merrill Lynch fairness opinion, in this proxy statement/prospectus and to the references to Merrill Lynch under the headings "Summary" and "The Merger" in this proxy statement/prospectus. In giving its consent, Merrill Lynch does not admit and hereby disclaims that it comes within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder.

        The preparation of a fairness opinion is a complex and analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, the opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Merrill Lynch did not attribute any particular weight to any analysis or factor considered by it, but, rather, made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering all of its analyses, would create an incomplete view of the process underlying the Merrill Lynch fairness opinion.

        In performing its analyses, numerous assumptions were made with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Merrill Lynch, Helmerich & Payne, Cimarex or Key. Any estimates contained in the analyses performed by Merrill Lynch are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by the analyses. Additionally, estimates of the value of businesses or capital securities do not purport to be appraisals or to reflect the prices at which the businesses or capital securities might actually be sold. Accordingly, the analyses and estimates are inherently subject to substantial uncertainty. In addition, the delivery of the Merrill Lynch fairness opinion was among several factors taken into consideration by Key's board of directors in making its determination to approve the merger agreement and the other transactions contemplated by the merger agreement. Consequently, the Merrill Lynch analyses described below should not be viewed as determinative of the decision of Key's board of directors or Key's management with respect to the fairness of the exchange ratio in the merger or value of Key.

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        In arriving at its opinion, Merrill Lynch, among other things:

        In preparing its opinion, Merrill Lynch assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to Merrill Lynch by Key and Helmerich & Payne, discussed with or reviewed by or for Merrill Lynch, or publicly available. Merrill Lynch did not assume any responsibility for independently verifying such information or undertake an independent evaluation or appraisal of any of the assets or liabilities of Key, Helmerich & Payne, or Cimarex and was not furnished with any such evaluation or appraisal, other than the reserve reports referred to above in clauses (3) and (4). In addition, Merrill Lynch did not assume any obligation to conduct any physical inspection of the properties or facilities of Key, Helmerich & Payne or Cimarex. With respect to the reserve reports, hydrocarbon production forecasts and financial forecast information furnished to or discussed with Merrill Lynch by Key or Helmerich & Payne, Merrill Lynch assumed that they had been

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reasonably prepared and reflected the best available estimates and judgment of Key's or Helmerich & Payne's management as to the expected future financial performance of Key, Helmerich & Payne or Cimarex, as the case may be, and their respective petroleum engineers as to their respective reserves, their future hydrocarbon production volumes and associated costs. Merrill Lynch assumed that the spin-off will be tax-free to Key, Helmerich & Payne, Cimarex and their respective stockholders. Merrill Lynch further assumed that the merger will qualify as a tax-free reorganization for U.S. federal income tax purposes. Merrill Lynch also assumed that the final form of each of the merger agreement, the distribution agreement and the tax sharing agreement would be substantially similar to the last draft reviewed by it.

        Merrill Lynch's opinion was necessarily based upon market, economic and other conditions as they existed and could be evaluated on and on the information made available to Merrill Lynch as of the date of its opinion.

        Key does not expect to obtain an updated fairness opinion from Merrill Lynch regarding the merger.

        The following is a summary of the analyses performed by Merrill Lynch and presented to the Key board of directors at its meeting on February 21, 2002. The February 21, 2002 presentation updated information previously presented by Merrill Lynch to the Key Board of Directors on December 6, 2001. The summary set forth below includes information presented in tabular format. In order to understand fully the financial analyses used by Merrill Lynch, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses, including the methods and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Merrill Lynch.


Financial and Production Forecasts

        Key and Helmerich & Payne provided Merrill Lynch with forecasts of hydrocarbon production from existing proved oil and gas reserves and related financial performance of both Key and Cimarex based upon two uniform commodity price scenarios: (i) the November 19, 2001 price scenario based on commodity strip prices of oil and natural gas as of November 19, 2001 and (ii) the February 19, 2002 price scenario based on commodity spot prices from January 1, 2002 to February 19, 2002 and commodity strip prices of oil and natural gas as of February 19, 2002. Both oil price forecasts were based on the price per barrel (Bbl) for West Texas Intermediate crude and the natural gas price forecasts were based on NYMEX (Henry Hub, Louisiana delivery) natural gas prices per million British Thermal Units (MMBTU). Natural gas pricing assumed a standard heating value of one MMBTU per 1,000 cubic feet (Mcf) of natural gas. Adjustments were made by Merrill Lynch to both the crude oil and natural gas price forecasts to reflect location and quality differentials. The following

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table lists the assumed unadjusted crude oil and natural gas strip prices as of November 19, 2001 and February 19, 2001.

 
  November 19, 2001
Strip Pricing

  February 19, 2002
Strip Pricing

Year
  Oil
($/Bbl)

  Gas
($/MMBTU)

  Oil
($/Bbl)

  Gas
($/MMBTU)

4-Q 2001E   $ 23.41   $ 2.61     N.A.     N.A.
2002E     19.63     3.16   $ 21.02   $ 2.61
2003E     20.63     3.57     21.02     3.12
2004E     21.07     3.70     20.88     3.29
2005E     21.27     3.76     20.53     3.40
2006E     21.30     3.87     20.33     3.49
Thereafter     21.30     3.87     20.33     3.49

        Key and Helmerich & Payne supplied reserve reports as of two dates: September 30, 2001 and December 31, 2001. Key's and Cimarex's September 30, 2001 reserve reports were prepared by Key petroleum engineers and Netherland, Sewell & Associates, respectively, and were adjusted to the November 19, 2001 price scenario by the respective managements. Key's December 31, 2001 reserve report was prepared by Key petroleum engineers and audited by Ryder Scott Company, L.P. and Cimarex's December 31, 2001 reserve report was prepared by Helmerich & Payne petroleum engineers. Both Key's and Cimarex's December 31, 2001 reserve reports were prepared using flat commodity market prices as of year-end 2001 and then-current operating costs, production and ad valorem taxes and future development costs on an unescalated basis. Oil and gas prices for the December 31, 2001 reserve reports were subsequently adjusted to the February 19, 2002 price scenario by Merrill Lynch. Operating expenses and capital expenditures necessary to lift and produce the proved reserves estimated in each of the reserve reports were based on current market conditions.

        Forecast financial and production data for Key and Cimarex were supplied by Key and Helmerich & Payne managements, respectively, and adjusted to the February 19, 2002 price scenario by Merrill Lynch. Merrill Lynch also made certain adjustments to the assumptions underlying Cimarex's 2002 financial and production forecast to make the forecast more comparable to Key's 2002 financial and production forecast. Financial data as of September 30, 2001 and December 31, 2001 and for the twelve months ended September 30, 2001 for Key and Cimarex were supplied by Key and Helmerich & Payne managements, respectively. Oil and gas production data for the twelve months and the quarter ended December 31, 2001 for Key and Cimarex were supplied by the managements of Key and Helmerich & Payne, respectively.


Net Asset Value Analysis

        Using a discounted cash flow analysis, Merrill Lynch calculated the present value of future cash flows that Key and Cimarex could be expected to generate from their existing base of total proved reserves and from their existing base of proved developed reserves (the existing base of proved developed reserves excludes the proved undeveloped reserve classification), based on Key, and Cimarex, reserve reports. These cash flows were discounted at 10% and at 12% based upon a weighted average cost of capital analysis of Key. Merrill Lynch estimated Cimarex's net asset values by adding (i) the discounted cash flows generated by these reserves to, (ii) a range of value determined by Key's management for Helmerich & Payne Energy Services, Inc. (HPESI), (iii) an amount determined by Key's management for working capital and debt and (iv) in the upside adjusted case, the reported book

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value of Cimarex's undeveloped acreage and seismic data. Merrill Lynch estimated Key's net asset values by adding (i) the discounted cash flows generated by these reserves to, (ii) an amount determined by Key's management for working capital and debt and (iii) in the upside adjusted case, the reported book value of undeveloped acreage and seismic data.

        For each of the separate reserve classes that comprise the proved reserves (proved developed producing, proved developed non-producing and proved undeveloped), net cash flow was forecast by Key, generally through December 2020, and discounted back to January 2002. This net cash flow includes all the taxes, capital expenditures and abandonment costs associated with the produced reserves. The cases and results of this analysis are set forth below.

 
   
   
  Key's Implied Equity
Market Value Contribution

 
Case
  Reserves/Debt/
Working Capital/
Upside as of:

  Pricing as of:
  Unadjusted
  Upside Adjusted
 
Proved Reserves—Pre-Tax   September 30, 2001   November 19, 2001   35.8 % 36.1 %
Proved Reserves—After-Tax   September 30, 2001   November 19, 2001   35.7 % 36.1 %
Proved Developed Reserves—Pre-Tax   September 30, 2001   November 19, 2001   36.4 % 36.7 %
Proved Reserves—Pre-Tax   December 31, 2001   February 19, 2001   35.2 % 34.1 %
Proved Reserves—After-Tax   December 31, 2001   February 19, 2001   35.1 % 33.7 %
Proved Developed Reserves—Pre-Tax   December 31, 2001   February 19, 2001   35.3 % 34.3 %
Proved Reserves (No HPESI)—Pre-Tax   December 31, 2001   Year-End 2001   36.8 % 35.3 %
Proved Reserves (w/HPESI)—Pre-Tax   December 31, 2001   Year-End 2001   35.9 % 34.6 %

        Based upon the net asset value analysis performed by Merrill Lynch, an implied Key equity market value contribution of 34.0% to 36.5% was derived, yielding an implied exchange ratio of 0.967 to 1.081.


Contribution Analysis

        Using the financial and operational data described previously for both Cimarex and Key for the years ended September 30, 2001 (actual) and December 31, 2002 (projected), Merrill Lynch compared the relative levels of cash flow from operations (CFFO) and earnings before interest, taxes, depreciation, amortization and exploration expense (EBITDE) for each company during this period, as well as the relative level of proved reserves as of September 30, 2001 and December 31, 2001 and actual production levels for the year ending December 31, 2001 and the quarter ending December 31, 2001.

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        Relative levels of CFFO, EBITDE, proved reserves and production were used to develop implied equity market value contributions after having been, when applicable, leverage adjusted for debt as of December 31, 2001. The results of these analyses are set forth below.

Valuation Basis
  Key's Implied
Equity Market Value
Contribution

 
Financial Metrics (12 Months Ended)      
September 30, 2001 CFFO (actual)   38.3 %
December 31, 2002 CFFO (projected)   35.7 %
September 30, 2001 EBITDE (actual)   32.3 %
December 31, 2002 EBITDE (projected)   32.0 %
Operational Metrics      
Proved Reserves at September 30, 2001   34.0 %
Proved Reserves at December 31, 2001   34.8 %
2001 Production (actual)   32.9 %
4-Q 2001 Production (actual)   35.4 %

        The financial metrics contribution analysis implied a Key equity market value contribution of 32.5% to 37.5% or an implied exchange ratio of 0.902 to 1.129. The operational metrics contribution analysis implied a Key equity market value contribution of 33.0% to 35.5% or an implied exchange ratio of 0.924 to 1.034.


Comparable Company Trading Analysis

        Merrill Lynch reviewed and compared certain financial information, ratios and public market multiples derived from Key's financial projections to corresponding financial information, ratios and public market multiples for eleven publicly traded corporations in the oil and gas exploration, development and production industry:

    ATP Oil & Gas Corporation     The Houston Exploration Company    

 


 

Cabot Oil & Gas Corporation

 


 

Magnum Hunter Resources, Inc.

 

 

 


 

Comstock Resources, Inc.

 


 

The Meridian Resource Corporation

 

 

 


 

EEX Corporation

 


 

Remington Oil & Gas Corporation

 

 

 


 

Evergreen Resources, Inc.

 


 

St. Mary Land & Exploration Company

 

 

 

 

 

 

 


 

Swift Energy Company

 

 

        The selected companies were chosen because they are publicly traded companies with financial and operating characteristics which Merrill Lynch deemed to be similar to those of Key and Cimarex, including, among other things, equity market capitalization and natural gas bias. Merrill Lynch calculated various financial ratios for the selected companies and subsequently selected relevant trading ranges for Key and Cimarex. The ratios for the selected companies were based on publicly available

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information, including estimates provided by Merrill Lynch research and other street research. Merrill Lynch calculated the following financial ratios:

        The following table shows the mean and median calculations for the selected companies, as well as the relevant ranges for Key and Cimarex. The only exception to the mean and median calculations for the selected companies was the calculation of enterprise value as a multiple of 2002 estimated daily production. For this metric, the mean and median calculations excluded the relevant multiples for Comstock Resources, Inc., The Meridian Resource Corporation and St. Mary Land & Exploration Company due to the lack of available 2002 production estimates.

 
  Selected Companies
  Relevant Range
Key and Cimarex Business
Financial/Operating Measure

  Mean
  Median
  Key
  Cimarex Business
2002 CFFO (projected)   4.7x   3.9x   4.25x - 5.25x   4.50x - 5.50x
2001 EBITDE (projected)   4.7x   4.2x   3.25x - 4.25x   3.50x - 4.50x
2002 EBITDE (projected)   6.0x   5.5x   4.75x - 5.25x   5.00x - 5.50x
December 31, 2001 Reserves ($/Mcfe)   $1.34   $1.12   $1.20 - $1.60   $1.25 - $1.65
2002 Daily Production ($/Mcfepd)   $4,419   $4,031   $3,500 - $4,500   $3,750 - $4,750

        From the enterprise value ranges implied by these multiple ranges, Merrill Lynch determined a composite enterprise value range for Cimarex under this method of $400 million to $500 million, as well as an equity market value range of $400 million to $500 million. Merrill Lynch determined a composite enterprise value range for Key under this method of $225 million to $300 million or an equity market value range of $200 million to $275 million. The comparable company trading analysis implied a Key equity market value contribution of 32.0% to 34.5% or an implied exchange ratio of 0.882 to 0.989.

        None of the selected companies is identical to Key or Cimarex. Accordingly, an analysis of the results of the foregoing is not purely mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of the comparable companies or company to which they are being compared.


Summary

        The following table is a summary of Key's implied ownership percentage in the new company and the implied exchange ratio derived from the net asset value analysis, contribution analysis and the comparable company trading analysis. This table should be read together with the more detailed descriptions set forth above. In particular, in applying the various valuation methodologies to the

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particular businesses and operations of Key and Cimarex and the particular circumstances of the merger between Key and Cimarex, Merrill Lynch made qualitative judgments as to the significance and relevance of each analysis. Accordingly, the methodologies and the implied exchange ratios derived therefrom set forth in the table must be considered as a whole and in the context of the narrative description of the financial analyses, including the assumptions underlying these analyses. Considering the implied exchange ratios set forth in the table without considering the full narrative description of the financial analyses, including the assumptions underlying these analyses, could create a misleading or incomplete view of the process underlying and conclusions represented by Merrill Lynch's opinion.

 
  Key's Relevant Range
Financial Measure
  Implied Ownership Percentage
  Implied Exchange Ratio
Net Asset Value Analysis   34.0% - 36.5 % 0.967 - 1.081
Contribution Analysis (Financial Metrics)   32.5% - 37.5 % 0.902 - 1.129
Contribution Analysis (Operational Metrics)   33.0% - 35.5 % 0.924 - 1.034
Comparable Company Trading Analysis   32.0% - 34.5 % 0.882 - 0.989


Merrill Lynch Financial Advisor Fee

        Pursuant to an engagement letter dated January 16, 2001, Key retained Merrill Lynch to act as its financial advisor in connection with the merger. Pursuant to the engagement letter, Key has agreed to pay Merrill Lynch a fee of $50,000 as of the date of the engagement letter and an additional fee of $2,950,000, payable upon closing for services rendered in connection with the merger. Additionally, in the event that Key (including any Key affiliate) receives or becomes entitled to receive any fee or reimbursement of expenses resulting from, or as a result of, the termination of the merger agreement, Key has agreed to pay Merrill Lynch 25% of such fee or reimbursement of expenses, subject to a maximum payment of $2,000,000, payable immediately in cash following receipt by Key of such fee or reimbursement of expenses.

        Key also has agreed to reimburse Merrill Lynch for the expenses reasonably incurred by Merrill Lynch entering into and performing services in connection with its engagement (including reasonable counsel fees) and to indemnify Merrill Lynch and its affiliates and their respective officers, directors, employees, agents and controlling persons against certain expenses, losses, claims, damages or liabilities in connection with its services performed in connection with its engagement, including liabilities under federal securities laws.

        Key retained Merrill Lynch based upon Merrill Lynch's experience and expertise. Merrill Lynch is an internationally recognized investment banking and advisory firm. Merrill Lynch, as part of its investment banking business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Merrill Lynch may, in the future, provide financial advisory and financing services to Key, Helmerich & Payne and Cimarex and/or their affiliates and may receive fees for the rendering of such services. In addition, in the ordinary course of our business, Merrill Lynch may actively trade shares of Key common stock and other securities of Key, shares of Helmerich & Payne common stock and other securities of Helmerich & Payne, as well as the common stock of Cimarex and other securities of Cimarex, for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.

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Stock Exchange Listing

        Cimarex will apply to list its common stock on the New York Stock Exchange.


Material United States Federal Income Tax Consequences of the Merger

        The following constitutes the opinion of Shearman & Sterling, counsel to Key, subject to the qualifications set forth below and contained herein, as to the material United States federal income tax consequences of the merger to Key and the Key stockholders. Such opinion is not binding on the Internal Revenue Service or any court. It is assumed for purposes of this discussion that the shares of Key common stock are held as "capital assets" within the meaning of section 1221 of the Internal Revenue Code. The tax consequences to each Key stockholder will depend in part upon such stockholder's particular situation. Special tax consequences not described herein may be applicable to particular classes of taxpayers, such as financial institutions, insurance companies, tax-exempt organizations, broker-dealers, traders in securities that elect to mark to market, persons that hold Key common stock as part of a straddle or conversion transaction, persons who are not citizens or residents of the United States and stockholders who acquired their shares of Key common stock through the exercise of an employee stock option or otherwise as compensation. The following is a summary of material tax consequences and is based upon the Internal Revenue Code, its legislative history, existing and proposed regulations thereunder, published rulings and decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Tax consequences under state, local and foreign laws are not addressed herein. Key stockholders are urged to consult with their own tax advisors as to the specific tax consequences to them of the merger and the spin-off, including the application and effect of federal, state, local and foreign income and other tax laws.

        Helmerich & Payne has obtained a private letter ruling from the Internal Revenue Service to the effect that the spin-off will be tax-free to Helmerich & Payne and its stockholders for U.S. federal income tax purposes by reason of its qualification under sections 355 and 368 of the Internal Revenue Code. The merger is conditioned on the receipt and continued validity of the private letter ruling. See "The Merger Agreement—Conditions to the Completion of the Merger" beginning on page    . The private letter ruling, while generally binding on the Internal Revenue Service, is based on certain factual representations and assumptions described in the ruling and set forth in the ruling request. If any assumptions or representations are incorrect or untrue in any material respect, the private letter ruling may be rendered invalid with retroactive effect. Under the Tax Sharing Agreement, all, or a portion, of any tax liability resulting from the spin-off being taxable to Helmerich & Payne may be allocated to Cimarex to the extent resulting from certain actions or omissions by Cimarex or its stockholders. If the liability for any such tax is incurred by Cimarex, the amount of such tax would be expected to be material.

        In addition, it is a condition to the consummation of the merger that (i) Key receive an opinion from Shearman & Sterling, counsel to Key, dated as of the effective date of the merger, to the effect that the merger will qualify as a reorganization within the meaning of section 368(a) of the Internal Revenue Code and (ii) Helmerich & Payne and Cimarex receive an opinion from Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Helmerich & Payne, dated as of the effective date of the merger, to the effect that the merger will qualify as a reorganization within the meaning of section 368(a) of the Internal Revenue Code. The conditions relating to the receipt of the tax opinions may not be waived by Key or Helmerich & Payne after receipt of the Key stockholder approval unless further stockholder approval is obtained with appropriate disclosure. If the conditions relating to the receipt of the tax opinions are waived, Key will recirculate the proxy statement/prospectus and will resolicit the vote of the Key stockholders if there is a material change in the tax consequences of the merger to Key or the Key stockholders. The opinions will be based on customary assumptions and customary representations made by, among others, Key, Helmerich & Payne and Cimarex. An opinion of counsel represents counsel's best legal judgment and is not binding on the Internal Revenue Service or any court.

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Accordingly, there can be no assurance that the Internal Revenue Service will agree with the conclusions set forth in the opinion letter, and it is possible that the Internal Revenue Service or another tax authority could assert a position contrary to one or all of those conclusions and that a court could sustain that contrary position.

        Assuming the merger qualifies as a reorganization within the meaning of section 368(a) of the Internal Revenue Code, as described above, holders of Key common stock who exchange their Key common stock solely for Cimarex common stock in the merger will not recognize gain or loss for United States federal income tax purposes, except with respect to cash, if any, they receive in lieu of a fractional share of Cimarex common stock. Each holder's aggregate tax basis in the Cimarex common stock received in the merger will be the same as his or her aggregate tax basis in the Key common stock surrendered in the merger, decreased by the amount of any tax basis allocable to any fractional share interest for which cash is received. The holding period of the Cimarex common stock received in the merger by a holder of Key common stock will include the holding period of Key common stock that he or she surrendered in the merger.

        A holder of Key common stock who receives cash in lieu of a fractional share of Cimarex common stock will recognize gain or loss equal to the difference between the amount of cash received and his or her tax basis in the Cimarex common stock that is allocable to the fractional share. That gain or loss generally will constitute capital gain or loss. In the case of an individual stockholder, any such capital gain generally will be subject to a maximum United States federal income tax rate of 20% if the individual has held his or her Key common stock for more than 12 months on the date of the merger. The deductibility of capital losses is subject to limitations for both individuals and corporations.

        Thus, Key stockholders are urged to consult their own tax advisors as to the specific tax consequences to them of the merger, including tax return reporting requirements, the applicability and effect of federal, state, local, and other applicable tax laws and the effect of any proposed changes in the tax laws.


Federal Securities Laws Consequences of the Merger

        The merger agreement requires Key to use all commercially reasonable efforts to cause each of its affiliates to execute a written agreement, substantially in the form attached as an exhibit to the merger agreement, to the effect that such affiliate will not sell, assign, transfer or otherwise dispose of any of the shares of Cimarex common stock issued to such affiliate in exchange for Key common stock in the merger except:


        All shares of Cimarex common stock received by Key stockholders in the merger will be freely transferable, except that shares of Cimarex common stock received by persons who are deemed to be "affiliates" of Key under the Securities Act may resell such stock only in transactions permitted by Rule 145 under the Securities Act, or as otherwise permitted under the Securities Act. Persons who may be affiliates of Key for those purposes generally include individuals or entities that control, are controlled by, or are under common control with, Key, but would not include stockholders who are not officers, directors or principal stockholders of Key.

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Accounting Treatment

        The acquisition of Key by Cimarex would be accounted for under the purchase method of accounting under U.S. generally accepted accounting principles, with Cimarex treated as the acquiror. As a result, the assets and liabilities of the Cimarex business will be recorded at historical amounts, without adjustment to fair values. The assets and liabilities of Key will be recorded at their estimated fair values at the date of merger with the excess of the purchase price over the net amount of such fair values recorded as goodwill. Following completion of the merger, Cimarex plans to change to a December 31st fiscal year end, as opposed to the September 30th fiscal year end presently used by Cimarex.


Regulatory Matters

        Helmerich & Payne has obtained a private letter ruling from the Internal Revenue Service to the effect that the contribution and transfer of the assets and liabilities of the Cimarex business to Cimarex and the spin-off by Helmerich & Payne of all the shares of Cimarex common stock to the holders of Helmerich & Payne common stock generally will be treated as a tax-free transaction for U.S. federal income tax purposes.

        None of the parties is aware of any other material governmental or regulatory approval required for the completion of the merger, other than the effectiveness of the registration statement of which this proxy statement/prospectus is a part and compliance with applicable corporate law of the State of Delaware.


Appraisal and Dissenters' Rights

        In accordance with the Delaware General Corporation Law, there will be no appraisal rights or dissenters' rights available to holders of Key common stock in connection with the merger.


Key Rights Plan

        In connection with the merger, Key entered into a rights agreement with A.G. Edwards & Sons, Inc., as the rights agent. On February 23, 2002, the Key board of directors declared a dividend of one common share purchase right for each outstanding share of Key common stock. The dividend was paid on March 7, 2002 to the stockholders of record on the close of business on that date.

        The rights are not exercisable until the distribution date, which will generally occur upon the earlier of (i) ten business days following (a) a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding shares of Key common stock (subject to certain exceptions) or (b) an earlier date when a majority of the Key board of directors becomes aware of the existence of such acquiring person and (ii) ten business days following the commencement of, or announcement of an intention to commence, a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding shares of common stock (subject to certain exceptions). The rights agreement provides that the spin-off and the merger will not trigger a distribution date; and that none of Helmerich & Payne, Cimarex, or Mountain Acquisition will be deemed to be an acquiring person under the rights agreement. A copy of the rights agreement is incorporated by reference to this proxy statement/prospectus.

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THE KEY SPECIAL MEETING

Purpose, Time and Place

        The Key special meeting will be held on [                        ], 2002 at [            ], Mountain Daylight Time, at [                                    ]. The purpose of the Key special meeting is to consider and vote upon a proposal to approve the merger of Mountain Acquisition with and into Key, with Key being the surviving corporation in the merger and becoming a wholly owned subsidiary of Cimarex, by adopting the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus, and to consider any other matters that may properly come before the meeting. We currently expect that no other matters will be considered at the Key special meeting.


Recommendation of the Key Board of Directors

        The Key board of directors has determined the merger is fair and in the best interests of Key and its stockholders and the merger agreement is advisable. The Key board of directors has unanimously approved the merger agreement and recommends that the Key stockholders vote "for" the adoption of the merger agreement.


Record Date; Stock Entitled to Vote; Quorum

        Stockholders of record of Key common stock at the close of business on [    ], 2002, the record date for the Key special meeting, are entitled to receive notice of and have the right to vote at, the Key special meeting and any adjournment or postponement of the meeting. On the record date, approximately [    ] shares of Key common stock were issued and outstanding. Stockholders of record of shares of Key common stock on the record date are each entitled to one vote per share on the adoption of the merger agreement.

        A quorum of stockholders is necessary to have a valid meeting of stockholders. A majority of the voting power of the outstanding shares of Key common stock entitled to vote at the meeting must be present in person or by proxy at the Key special meeting in order for a quorum to be established.

        Abstentions and broker "non-votes" count as present for establishing a quorum. A broker "non-vote" occurs on an item when a broker is not permitted to vote on that item without instructions from the beneficial owner of the shares and no instructions are given. We expect, in the event that a quorum is not present at the Key special meeting, that the meeting will be adjourned or postponed to solicit additional proxies.


Votes Required

        Adoption of the merger agreement will require the affirmative vote of the holders of a majority of the shares of Key common stock outstanding on the record date. For purposes of the vote on the merger proposal, abstentions will be counted and have the same effect as a vote "against" the proposal. In addition, failing to vote will have the same effect as a vote "against" the proposal.

        Under the applicable rules of the New York Stock Exchange, a bank, broker or other fiduciary who holds shares for customers who are the beneficial owners of those shares is prohibited from giving a proxy to vote those customers' shares with respect to the proposal to be voted on at the Key special meeting in the absence of specific instructions from the customer. Shares held by a broker, bank or other fiduciary which are not voted because the customer has not provided instructions to the broker, bank or other fiduciary will have the same effect as a vote "against" the proposal.

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Voting by Proxy

Submitting Proxies

        Stockholders of record may vote their stock by attending the Key special meeting and voting their stock in person at the meeting, by completing the enclosed proxy card, signing and dating it and mailing it in the enclosed postage pre-paid envelope or by voting via telephone or via the Internet by following the instructions provided on the enclosed proxy card. If a proxy card is signed by a stockholder of record and returned without specific voting instructions, the stock represented by the proxy will be voted "for" the proposal presented at the Key special meeting.

        Stockholders whose shares of Key common stock are held in the name of a bank, broker or other fiduciary must either direct the record holder of their shares of Key common stock as to how to vote their shares of Key common stock or obtain a proxy from the record holder to vote at the Key special meeting.


Revoking Proxies

        Stockholders of record may revoke their proxies at any time prior to the time their proxies are voted at the Key special meeting. Stockholders can revoke their proxies and change their votes by:

        If your shares of Key common stock are held in the name of a bank, broker or other fiduciary and you have directed such person(s) to vote your shares of Key common stock, you should instruct such person(s) to change your vote or obtain a legal proxy to do so yourself.

        Any written notice of a revocation of a proxy should be sent to the following address:


Other Business; Adjournments

        Key is not aware of any other business to be acted upon at the Key special meeting. If, however, other matters are properly brought before the Key special meeting or any adjourned meeting, your proxies will have discretion to act on those matters or to adjourn the meeting, according to their best judgment.


Proxy Solicitation

        The cost of solicitation of proxies from stockholders will be paid by Key. In addition to solicitation by mail, the directors, officers and employees of Key may also solicit proxies from stockholders by telephone, facsimile or in person. Key will also make arrangements with brokerage houses and other

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custodians, nominees and fiduciaries to send the proxy materials to beneficial owners. Upon request, we will reimburse those brokerage houses and custodians for their reasonable expenses in so doing.

        Key has retained The Corporate Governance Group of Strategic Stock Surveillance, LLC to provide advice and to aid with the solicitation of proxies from Key stockholders for the Key special meeting. Strategic Stock Surveillance, LLC will receive a fee of $7,500 plus $3.50 for each supplemental call to individual stockholders (including search and telephone charges) as compensation for its services and reimbursement for its related out-of-pocket expenses.

        Do not send any stock certificate(s) with your proxy cards. After the merger is completed, the exchange agent to be selected by Cimarex will send transmittal forms with instructions for the surrender of stock certificate(s) representing shares of Key common stock to former Key stockholders.


Interests of Certain Key and Cimarex Directors and Executive Officers in the Merger

        In considering the recommendation of the Key board of directors to vote for the proposal to adopt the merger agreement, stockholders of Key should be aware that members of the Key and Cimarex board of directors and executive officers of Key and Cimarex have agreements and arrangements that provide them with interests in the merger that differ from, or are in addition to, those of Key stockholders. The Key board of directors was aware of these agreements and arrangements during its deliberations of the merits of the merger and in determining to recommend to the stockholders of Key that they vote for the proposal to adopt the merger agreement. These agreements and arrangements can be summarized as follows:


        Governance Structure.     Under the terms of the merger agreement, the board of directors of Cimarex after completion of the merger will be comprised of nine individuals, four of whom are current directors of Key, two of whom are current directors of Helmerich & Payne and one of whom is currently a director of Helmerich & Payne and Cimarex.


        Key Employee and Director Stock Options.     At the effective time of the merger, each outstanding Key stock option will be assumed by Cimarex and will be deemed to constitute an option to acquire Cimarex common stock on the same terms and conditions as had been applicable under the historical Key stock option plans. In general, a former Key option holder will be entitled, on exercise of his or her stock option, to purchase that number of shares of Cimarex common stock that could have been purchased under the Key stock option, at an equivalent exercise price per share. Each outstanding option under the Key stock option plans will vest in full upon the effective time of the merger and remain outstanding in accordance with its original terms.


        Helmerich & Payne Stock Options.     At the time of the spin-off, Helmerich & Payne stock options held by Cimarex employees who are former Helmerich & Payne employees (including Steven R. Shaw and other executive officers of Cimarex) will be converted into Cimarex stock options, using a conversion ratio based on a comparison of the trading price of Helmerich & Payne common stock for the five trading days immediately prior to the fifth trading date immediately prior to the record date for the spin-off with the trading price of Cimarex common stock for the first five trading days following the spin-off.


        Helmerich & Payne Restricted Stock.     At the time of the spin-off, restricted shares of Helmerich & Payne stock held by Cimarex employees who are former Helmerich & Payne employees (including Roger G. Burau and Gerald P. McLaughlin) will be converted into restricted shares of Cimarex stock with such adjustments as are appropriate to preserve the value inherent in the restricted stock, provided that any restrictions to which the awards are subject in respect of employment by Helmerich & Payne shall be deemed restrictions in respect of employment by Cimarex, and Cimarex shares distributed in respect of such a restricted share of Helmerich & Payne stock before its conversion shall be subject to the same restrictions that apply to the underlying restricted share.

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        Directors' and Officers' Indemnification.     From and after the effective time of the merger, Cimarex will indemnify any persons who are or were officers or directors of Key prior to the effective time of the merger for losses in connection with any action arising out of or pertaining to acts or omissions, or alleged acts or omissions, by them in their capacities as such, whether commenced, asserted or claimed before or after the effective time of the merger. Cimarex will maintain existing, or provide comparable, directors' and officers' liability insurance policies for a period of six years following the effective time of the merger.


Employment and Severance Agreements and Other Compensation

        Income Continuance Plan.     Each Key executive officer (including Key executive officers who are party to agreements described below) participates in the Key Income Continuance Plan under which each officer is entitled to receive 24 months continuation of his base compensation (as defined in the plan) and health and life insurance benefits if his employment is terminated without cause or he resigns as a result of changed circumstances following the effective time of the merger. The plan may not be terminated during the 30-month period following the effective time of the merger. See "Management of Cimarex—Employment Agreements and Change in Control Agreements with Named Executive Officers" on page    .


Agreements with Employees

        F.H. Merelli.     Key has an employment agreement with F.H. Merelli, the chairman, president and chief executive officer of Key and, following the merger, Cimarex. The agreement will be assumed by Cimarex following the merger. Under the agreement, upon (i) Mr. Merelli's termination of employment without cause or due to his death or disability or (ii) Mr. Merelli's resignation for good reason (each as defined in the agreement), he is entitled to receive his base salary for two years and the maximum incentive compensation payable pursuant to any plan or program established by Cimarex. Mr. Merelli also participates in the Income Continuance Plan. Any payment made to Mr. Merelli pursuant to his employment agreement will be deducted from the benefits to which he is otherwise entitled pursuant to the Income Continuance Plan. See "Management of Cimarex—Employment Agreements and Change in Control Arrangements with Named Executive Officers" on page    .


        Steven R. Shaw.     Mr. Shaw, who will become executive vice president of Cimarex following the spin-off, is party to an agreement with Helmerich & Payne that will be assumed by Cimarex upon the spin-off. The agreement provides that, if Mr. Shaw is terminated by Cimarex within 24 months after the spin-off other than for cause, disability, death or the occurrence of a substantial downturn, or if Mr. Shaw terminates his employment for good reason within 24 months after the spin-off (as such terms are defined in the agreement), (i) Cimarex will pay Mr. Shaw a pro-rated annual bonus and an additional lump-sum payment equal to two times his base salary and annual bonus, (ii) any options granted to Mr. Shaw will become fully exercisable and any restricted stock granted to Mr. Shaw will become nonforfeitable, and (iii) Cimarex will provide Mr. Shaw with 24 months of continued health insurance. In addition, if Mr. Shaw voluntarily terminates his employment during the 30-day period beginning 18 months after the spin-off, any options granted to Mr. Shaw before the spin-off will become fully exercisable and any restricted stock granted to Mr. Shaw before the effective time of the merger will become nonforfeitable. See "Management of Cimarex—Employment Agreements and Change in Control Agreements with Named Executive Officers" on page    .


        Messrs. Korus, Jorden, Albi and Bell.     Cimarex will also assume the employment agreements with Paul Korus, Thomas E. Jorden, Joseph R. Albi and Stephen P. Bell, who will become executive officers of Cimarex following the merger. These agreements provide for a lump-sum payment equal to two times the executive's base salary at the time of the merger if the executive is terminated without cause at any time following the merger (as defined in the agreement). Any payments made to these executives pursuant to these agreements will be deducted from the benefits to which the executive is

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otherwise entitled pursuant to the Income Continuance Plan described above. See "Management of Cimarex—Employment Agreements and Change in Control Agreements with Named Executive Officers" on page    .


        Messrs. Nagel, Burau and McLaughlin.     Each of Messrs. Nagel, Burau and McLaughlin, who will become vice presidents of Cimarex following the spin-off, is party to an agreement with Helmerich & Payne that will be assumed by Cimarex. The agreement provides that, if the executive is terminated by Cimarex within 24 months after the spin-off other than for cause, disability, death or the occurrence of a substantial downturn, or if the executive terminates his employment for good reason within 24 months after the spin-off (as such terms are defined in the agreement), Cimarex will pay the executive a pro-rated annual bonus and an additional lump-sum payment equal to two times his base salary and annual bonus, any options granted to the executive will become fully exercisable and any restricted stock granted to the executive will become nonforfeitable, and Cimarex will provide the executive with 24 months of continued health insurance.


        Restricted Stock Agreement with Paul Korus.     Mr. Korus is party to a restricted stock agreement pursuant to which he received 10,000 restricted shares of Key common stock. At the effective time of the merger, the restricted shares of Key common stock will automatically convert into restricted shares of Cimarex common stock, and Cimarex will assume the restricted stock agreement. The restricted shares generally vest in full on September 20, 2002; however, if Mr. Korus' employment is terminated without cause or he resigns for good reason (each as defined in the agreement) during the six-month period following the effective time of the merger, the restricted shares will immediately vest.


Stock Ownership of Management and Certain Stockholders

        As of the close of business on March 31, 2002, directors and executive officers of Key and their affiliates as a group beneficially owned and were entitled to vote approximately 1,255,181 shares of Key common stock (including options exercisable for shares of common stock), representing approximately 8.44% of the shares of Key common stock outstanding on that date (including shares represented by such options).

        All of the directors and executive officers of Key that are entitled to vote at the Key special meeting have indicated that they intend to vote their shares of Key common stock in favor of adoption of the merger agreement.


Appraisal and Dissenters' Rights

        In accordance with the Delaware General Corporation Law, there will be no appraisal rights or dissenters' rights available to holders of Key common stock in connection with the merger.

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CIMAREX

        Helmerich & Payne, through Cimarex, engages in the following activities:

        For simplicity, we refer also in this section to Cimarex, rather than to Helmerich & Payne's oil and gas exploration and production and gas marketing businesses, as though the historical oil and gas exploration and production and gas marketing business of Helmerich & Payne had always been owned by Cimarex. Cimarex considers itself a medium-sized independent exploration and production company.

        Cimarex was incorporated on February 14, 2002 under the laws of the State of Delaware. It was intended that Cimarex would become the successor to the Cimarex business operated by Helmerich & Payne.

        All of Cimarex's oil and gas operations are conducted in the United States. Most of the current exploration and drilling effort is concentrated in Oklahoma, Kansas, Texas and Louisiana. Cimarex also explores from time to time in New Mexico, Alabama, Michigan, Mississippi and the Rocky Mountain area. Cimarex has varying levels of ownership interests in its oil and gas properties consisting of working, royalty and overriding royalty interests. A summary of Cimarex's gross and net productive wells at September 30, 2001 is set forth under the heading "Productive Wells" on page    .

        Helmerich & Payne reorganized the Cimarex business in 1995. This action resulted in the consolidation or elimination of several management positions and the formation of geographical exploitation/exploration teams comprised of geological, engineering and land personnel. These personnel primarily develop in-house oil and gas prospects as well as review outside prospects and acquisitions for their respective geographical areas. Cimarex believes that this structure allows each team to gain greater expertise in its respective geographical area and reduces risk in the development of prospects.

        Cimarex has been focusing on developing prospects using 3-D seismic technology. Currently, Cimarex is involved in 3-D seismic surveys covering more than 1,480 square miles, of which approximately 1,180 square miles are proprietary. Approximately 1,100 square miles of land covered by such surveys is located near the Texas and Louisiana onshore Gulf Coast. Cimarex's exploration and development program has covered a range of prospects, from shallow "bread and butter" programs to deep, expensive, high risk/high return wells.

        Cimarex continued its drilling program in Oklahoma, Kansas, west Texas, south Texas and south Louisiana, participating in a total of 123 wells during fiscal 2001. Of the 123-well total, 47 wells were development wells drilled in areas where reserves were previously booked and 29 wells were dry holes. Cimarex increased its development of proved undeveloped reserves in fiscal 2001 as the result of high natural gas prices during the last half of calendar 2000. The focus of this drilling was the Redfork play in western Oklahoma, additional development of Ashland Field in southeastern Oklahoma and the Hugoton Field in Kansas, as well as additional drilling in the panhandle of Texas and in southern Louisiana. Cimarex's participation in these 47 development wells resulted in the addition of proved developed reserves of approximately 15.7 Bcf of gas and 75,826 Bbls of oil previously classified as proved undeveloped. Of the remaining 76 wells drilled during the year, 40 were exploratory wells, 20 of which were successfully completed. These drilling efforts resulted in additional net reserves of approximately 12.8 Bcf of gas and 1,145,195 Bbls of oil and condensate.

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        A total of $80,040,769 was spent in Cimarex's exploration and development program during fiscal 2001. This figure includes $7,838,770 of geophysical expense, but is exclusive of expenditures for acreage and acquisition of proved oil and gas reserves. Cimarex's total acquisition cost for acreage in fiscal 2001 was $18,611,957. Cimarex also spent $737,500 for the acquisition of proved oil and gas reserves during fiscal 2001. The reserves associated with these acquisitions were 495,888 Mcf of gas and 434 barrels of oil.

        Cimarex's fiscal 2002 exploration and production budget has been reduced to approximately $50 million due to lower product prices, higher service company costs and ranking of existing prospects after further analysis in order to reduce finding costs. This is a 47.6% reduction from actual exploration and production expenditures in fiscal 2001.


Market for Oil and Gas

        Cimarex does not refine any of its production. The availability of a ready market for such production depends upon a number of factors, including the availability of other domestic production, price, crude oil imports, the proximity and capacity of oil and gas pipelines and general fluctuations in supply and demand. Cimarex does not anticipate any unusual difficulty in contracting to sell its production of crude oil and natural gas to purchasers and end-users at prevailing market prices and under arrangements that are usual and customary in the industry. Cimarex and its subsidiary, Helmerich & Payne Energy Services, Inc., or HPESI, have successfully developed markets with end-users, local distribution companies and natural gas brokers for gas produced from successful exploratory wells and development wells.

        Substantially all of Cimarex's gas production is sold to and resold by HPESI. During fiscal 2001, the price that Cimarex received for the sale of its natural gas has fluctuated. Cimarex's average per Mcf natural gas sales price in fiscal 2001 for each of the first through fourth quarters was $4.73, $6.49, $4.27 and $2.66, respectively.

        Last year's record high natural gas prices spawned an increase of productive capacity and a dramatic increase in drilling. In the long-term, natural gas prices will be impacted by the following factors:

        All these factors will continue to influence the cyclical nature of the supply/demand balance and will continue to occur as drilling activity and productive capacity respond to the changing prices.

        Historically, Cimarex has had no long-term sales contracts for its crude oil and condensate production. Cimarex continues its practice of contracting for the sale of its Kansas, Oklahoma and portions of its west Texas crude oil for terms of six to twelve months in an attempt to assure itself of the best price in the area for crude oil production. During fiscal 2001, the price that Cimarex received for the sale of its crude oil steadily decreased. The average per barrel crude oil sales price received by

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Cimarex in fiscal 2001 for each of the first through fourth quarters was $31.44, $28.09, $26.12 and $25.33, respectively.

        Mid-East tensions, disputes among OPEC and non-OPEC countries over production quotas and sluggish economies have created a continued mixed market in crude oil trading.


Competition

        The oil and gas industry is highly competitive. Competition is particularly intense in the acquisition of prospective oil and gas properties and oil and gas reserves. The principal raw materials and resources necessary for the exploration and development of natural gas and crude oil are leasehold prospects under which gas and oil reserves may be discovered, drilling rigs and related equipment to drill for and produce such reserves and knowledgeable personnel to conduct all phases of gas and oil operations. Our competitive position depends on our geological, geophysical and engineering expertise, our financial resources, and our ability to select, acquire and develop proved reserves. We must compete for such raw materials and resources with both major oil companies and independent operators having larger financial, human and technological resources.

        We also compete with major and independent oil and gas companies in the marketing and sale of oil and gas to transporters, distributors and end users. The oil and gas industry competes with other industries supplying energy and fuel to industrial, commercial and individual consumers. Many of these competitors have financial resources, staffs and facilities substantially larger than those of Cimarex. The effect of these competitive factors on Cimarex cannot be predicted.


Title to Oil and Gas Properties

        Cimarex undertakes title examination and performs curative work at the time properties are acquired. Cimarex believes that title to its oil and gas properties is generally good and defensible in accordance with standards acceptable in the industry. Oil and gas properties in general are subject to customary royalty interests contracted for in connection with the acquisitions of title, liens incident to operating agreements, liens for current taxes and other burdens and minor encumbrances, easements and restrictions.


Governmental Regulation in the Oil and Gas Industry

        Cimarex is affected from time to time in varying degrees by political developments and federal and state laws and regulations. In particular, oil and gas production operations and economics are affected by price control, tax and other laws relating to the petroleum industry; by changes in such laws; and by constantly changing administrative regulations. Most states in which Cimarex conducts or may conduct oil and gas activities regulate the production and sale of oil and natural gas, including regulation of the size of drilling and spacing units or proration units, the density of wells which may be drilled and the unitization or pooling of oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas and impose certain requirements regarding the ratability of production. The effect of these regulations is to limit the amounts of oil and natural gas that Cimarex can produce from its wells and to limit the number of wells or locations at which Cimarex can drill. In addition, legislation affecting the natural gas and oil industry is under constant review. Cimarex believes that compliance with existing federal, state and local laws, rules and regulations will not have a material adverse effect upon its capital expenditures, earnings or competitive position.


Regulatory Controls

        Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated under the Natural Gas Act, or NGA, and related regulations. Furthermore, various states

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have regulated the production of natural gas and the gathering of natural gas, i.e., those activities which are not subject to federal jurisdiction. Specifically, as to sales by Cimarex, under the NGA prior to November 1978, the Federal Power Commission and its successor, the Federal Energy Regulatory Commission, or FERC, established ceiling prices for sales of natural gas for resale in interstate commerce by Cimarex. In November 1978, the U.S. Congress enacted the Natural Gas Policy Act, or NGPA, which adopted certain FERC ceiling prices and established additional price ceiling categories (such ceiling prices called maximum lawful prices or MLPs). In addition, the NGPA provided for a phased removal of certain ceiling prices.

        In 1989, the U.S. Congress enacted the Natural Gas Wellhead Decontrol Act, which provided a process for the phased decontrol of all first sales of natural gas, with complete removal of price ceilings on first sales by January 1, 1993. Since Cimarex believes that all of its sales of natural gas are first sales, such sales are no longer subject to federal regulation. However, there may still be issues of compliance with price ceilings as to prior periods. At this point, the only such issue that Cimarex is aware of relates to Cimarex's collection of reimbursement from certain interstate pipelines of Kansas ad valorem taxes paid by the Cimarex business prior to decontrol.

        Prior to decontrol of first sales, Cimarex made first sales to several interstate pipelines for which it received reimbursement for Kansas ad valorem taxes based upon the understanding (supported by prior agency case law) that such reimbursements were permitted under NGPA Section 110. In September 1997, FERC reversed its prior rulings and found that the Kansas ad valorem tax was not a tax, which was reimbursable under Section 110 of the NGPA. Therefore, FERC found that, to the extent that a producer collected an amount for a first sale in excess of the applicable MLP as a result of reimbursement for Kansas ad valorem taxes, such producer was required to make refunds, with interest, to the interstate pipeline purchaser which had paid the reimbursements. The pipeline was then required to disburse such refunds to its customers. Initially, reports of the affected pipelines listed refund liabilities of Cimarex based upon the total sales from wells which Cimarex operated. Initial claims against Cimarex, as operator, totaled in excess of $13 million. During this period, Cimarex estimated that its share of such refund liability totaled approximately $6.7 million. Subsequently, FERC issued clarifying orders providing that a producer was only responsible for refunds attributable to its own working interest ownership (and the related royalty interests) in production sold. Based upon that clarification, the interstate pipelines subsequently adjusted their refund claims to reflect only the respective producers' working interest share (with related royalty). Subsequently the pipelines made further adjustments to the claims based on corrected data.

        In response to the pipeline claims and prior to FERC's clarification as discussed above, Cimarex paid, under protest, approximately $1,379,000 to four interstate pipelines and placed approximately $6,384,000 in an escrow account pending FERC's and the courts' decisions on various related legal issues and challenges. During calendar years 2000 and 2001, settlement negotiations occurred among the affected pipelines, producers and other interested parties. Settlement agreements resolving the refund claims have been reached in connection with four of the five pipelines which have made claims against Cimarex. Those settlements, with Colorado Interstate Gas Company, Northern Natural Gas Company, Williams Gas Pipelines Central, Inc. and Panhandle Eastern Pipe Line Company, are final and the settlement payments have been made by Cimarex out of the escrow account. Since the aggregate amount of the four settlements were less than the amounts escrowed for such liability, Cimarex, in May of 2001, was refunded approximately $3,240,252 of excess escrowed funds. A settlement in the fifth case, with Kinder Morgan Interstate Gas Transmission, LLC, is being negotiated. Based upon the total potential liability of Cimarex in the Kinder Morgan case, Cimarex believes there are more than sufficient funds remaining in its escrow account to cover any settlement liability therein.

        Commencing in 1992, FERC implemented a requirement that interstate pipelines must provide open access transportation of natural gas. Interstate pipelines have implemented this requirement by modifying their tariffs and implementing new services and rates. These changes have provided Cimarex

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with additional market access and more fairly applied transportation services and rates. FERC continues to review and modify its open access and other regulations applicable to interstate pipelines.

        Under the NGA, natural gas gathering facilities are expressly exempt from FERC jurisdiction; what constitutes "gathering" under the NGA has evolved through FERC decisions and judicial review of such decisions. Cimarex believes that its gathering systems meet the test for non-jurisdictional "gathering" systems under the NGA. Therefore, Cimarex believes that its gathering facilities are not subject to Federal NGA regulation. A number of states have either enacted new laws or are considering the adequacy of existing laws affecting gathering rates and/or services that are not federally regulated under the NGA. Although exempt from federal regulatory oversight, Cimarex's natural gas gathering systems and services may receive regulatory scrutiny by state agencies.

        In addition to using its own gathering facilities, Cimarex may use third-party gathering facilities' services or interstate transmission facilities (owned and operated by interstate pipelines) to ship its gas to markets. Services provided by third-party gatherers would not be regulated by the FERC under the NGA, since they are exempt as described above. Where services were provided by an interstate pipeline, such services would be subject to FERC jurisdiction under the NGA, with a tariff on file publicly describing the terms and conditions of interstate service and the rates subject to FERC approval. However, in the past decade, upon request by certain interstate pipelines, FERC has approved the shift of certain interstate transmission facilities to unregulated gathering through the approval of abandonment of the jurisdictional facilities from regulated interstate service under the NGA. The subsequent owner/operator of the gathering facilities may be an independent entity or an affiliate of the interstate pipeline company. As a result, this recategorization of a facility from a jurisdictional transmission facility to a non-jurisdictional gathering facility could result in that pipeline no longer being subject to its prior tariff provisions or approved rates. Therefore, the recategorization could affect the ability of the unregulated gathering entities to compete more effectively and could result in changes in services and/or rates. It is not possible to predict the ultimate affect of these shifts on Cimarex's own gathering services or on Cimarex's use of third-party gathering/transmission facilities.

        In February 1994, the Kansas Corporation Commission issued an order that modified the annual maximum amount of natural gas that could be produced from wells within the Hugoton Gas Field. This order disproportionately increased the annual production limitations on those units in which two or more wells had been drilled. As a consequence of this order, Cimarex has participated in the drilling of 160 additional wells in the Hugoton Gas Field.

        Additional proposals and proceedings that might affect the oil and gas industry are pending before the U.S. Congress, FERC, state legislatures, state agencies and the courts. Cimarex cannot predict when or whether any such proposals may become effective and what effect they will have on operations of Cimarex. Cimarex does not anticipate that compliance with existing Federal, state and local laws, rules or regulations will have a material adverse effect upon the capital expenditures, earnings or competitive position of Cimarex.


Federal Income Taxation

        Cimarex and the petroleum industry in general, are affected by certain federal income tax laws. Cimarex has considered the effects of such federal income tax laws on its operations and does not anticipate that there will be any material impact on the capital expenditures, earnings or competitive position of Cimarex.


Environmental Laws

        The activities of Cimarex are subject to existing federal and state laws and regulations governing environmental quality and pollution control. Such laws and regulations may substantially increase the costs of exploring, developing or producing oil and gas and may prevent or delay the commencement or

45



continuation of a given operation. In the opinion of Cimarex's management, its operations substantially comply with applicable environmental legislation and regulations. Cimarex believes that compliance with existing federal, state and local laws, rules and regulations regulating the discharge of materials into the environment or otherwise relating to the protection of the environment will not have any material effect upon the capital expenditures, earnings, or competitive position of Cimarex.


Natural Gas Marketing

        Helmerich & Payne Energy Services, Inc., or HPESI, continues its emphasis on the purchase of Cimarex's natural gas production. In addition, HPESI purchases third-party gas for resale and provides compression, gathering services and processing for a fee. During fiscal year 2001, HPESI's sales of third-party gas constituted approximately 28.6% of Cimarex's consolidated revenues. HPESI sells natural gas to markets in the Midwest and Rocky Mountain areas. HPESI's term gas sales contracts are for varied periods ranging from three months to seven years. However, recent contracts have tended toward shorter terms. The remainder of HPESI's gas is sold under spot market contracts having a duration of 30 days or less. For fiscal 2001, HPESI's term gas sales contracts provided for the sale of approximately 17 Bcf of gas at prices which were indexed to market prices. For fiscal 2002, HPESI currently has approximately 7 Bcf contracted for at prices which are indexed to market prices. The balance of HPESI's gas is selling at spot prices or is not yet contracted. HPESI presently intends to fulfill such term sales contracts with a portion of the gas reserves purchased from Cimarex, as well as from its purchases of third-party gas.


Employees

        Helmerich & Payne employed 154 employees in connection with the Cimarex business in fiscal 2001. None of the employees of Cimarex are subject to any collective bargaining agreements.


Properties

        All of Cimarex's operations and holdings are located within the Continental United States.

        Cimarex's net sales of crude oil and condensate for the three fiscal years ended September 30, 1999, 2000 and 2001 are shown below:

Year
  Net Bbls
  Average Sales
Price per Bbl

  Average Lifting
Cost per Bbl

2001   818,356   $ 27.88   $ 7.76
2000   880,304   $ 27.95   $ 6.06
1999   649,370   $ 14.60   $ 7.02

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        Cimarex's net sales of natural and casing head gas for the three fiscal years ended September 30, 1999, 2000 and 2001 are as follows:

Year
  Net Mcf
  Average Sales
Price per Mcf

  Average Lifting
Cost per Mcf

2001   42,386,796   $ 4.55   $ 0.602
2000   46,922,752   $ 2.79   $ 0.370
1999   44,240,332   $ 1.83   $ 0.330

        Following is a summary of the net wells drilled by Cimarex for the three fiscal years ended September 30, 1999, 2000 and 2001:

 
  Exploratory Wells
  Development Wells
 
  2001
  2000
  1999
  2001
  2000
  1999
Productive   9.038   9.735   2.917   43.462   23.862   13.846
Dry   9.962   5.702   2.615   7.003   3.403   4.502

        On March 31, 2002, Cimarex was in the process of drilling or completing 8 gross or 2.41 net wells.

        Cimarex's holdings of acreage under oil and gas leases, as of September 30, 2001, were as follows:

 
  Developed Acreage
  Undeveloped Acreage
 
  Gross
  Net
  Gross
  Net
Arkansas   3,068.23   1,725.11    
Colorado       320.00   160.00
Kansas   119,633.07   84,079.86   13,081.82   12,752.60
Louisiana   3,481.48   1,589.14   80,020.27   23,166.46
Michigan       4,123.64   4,123.64
Montana   1,997.19   377.99   2,708.95   969.73
Nebraska   480.00   168.00    
Nevada       4,864.04   4,864.04
New Mexico   760.00   96.63   121.88   40.22
North Dakota   200.00   11.52    
Oklahoma   123,559.86   49,647.24   27,138.98   16,664.45
Texas   87,692.92   43,885.47   190,421.95   87,554.14
Wyoming       440.00   105.59
   
 
 
 
Total   340,872.75   181,580.96   323,241.53   150,400.87
   
 
 
 

        Acreage is held under leases which expire in the absence of production at the end of a prescribed primary term and is, therefore, subject to fluctuation from year to year as new leases are acquired, old leases expire and other leases are allowed to terminate by failure to pay annual delay rentals. As shown in the above table, Cimarex has a significant portion of its undeveloped acreage in Texas, with nine major project areas accounting for 40,517 net acres. The average minimum remaining term of leases in these nine project areas is approximately 16 months. It is estimated that approximately 10% of the total net acreage in the nine prospects will be drilled prior to expiration.

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        The total gross and net productive wells of Cimarex as of September 30, 2001 were as follows:

Oil Wells
  Gas Wells
Gross
  Net
  Gross
  Net
3,438   168   1,026   493

        Estimates of oil and gas reserves, future net revenues and present value of future net revenues were prepared by Netherland, Sewell & Associates, Inc., 4500 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201. Total oil and gas reserve estimates do not differ by more than 5% from the total reserve estimates filed with any other federal authority or agency.

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Management's Discussion and Analysis of Cimarex

        The following information should be read in connection with the information contained in the financial statements and notes thereto included in this proxy statement/prospectus.

Overview

        Cimarex is an "independent oil and gas producer" actively engaged in the acquisition, exploration, development, production and marketing of oil and gas domestically primarily in the states of Oklahoma, Texas, Kansas, and Louisiana and markets natural gas through Helmerich & Payne Energy Services, Inc.

Results of Operations

Six months ended March 31, 2002 compared to six months ended March 31, 2001

        Oil and gas sales for the six months ended March 31, 2002 were $47.3 million compared to $132.2 million for the same period in fiscal 2001, a decrease of $84.9 million. Natural gas revenues decreased to $39.9 million for the six months ended March 31, 2002 from $119.5 million for the same period in 2001. The $79.6 million decrease in gas revenues was the result of significantly lower gas prices ($75.6 million decrease) and lower gas volumes ($4.0 million decrease). Natural gas prices averaged $2.05 per Mcf and $5.60 per Mcf for the six months ended March 31, 2002 and 2001, respectively. Natural gas volumes averaged 106.4 Mmcf/d and 117.4 Mmcf/d for the same periods. Oil revenues decreased to $7.4 million from $12.7 million for the six months ended March 31, 2002 and 2001, respectively. The $5.3 million decrease was the result of lower prices ($4.3 million) and lower volumes ($1.0 million). Crude oil prices averaged $19.84 and $29.85 per Bbl for the six months ended March 31, 2002 and 2001, respectively. Crude oil volumes averaged 2,055 Bbls/d and 2,343 Bbls/d, for the same periods.

        Production expenses for the six months ended March 31, 2002 were $7.9 million compared to $5.6 million in the same period of 2001. The $2.3 million increase was primarily due to increased well workovers, compression expense, water disposal costs and expenses related to producing properties added in fiscal 2002.

        Depreciation, depletion and amortization for the six months ended March 31, 2002 and 2001 was $17.4 million and $20.9 million, respectively. The decrease is due to a decrease in the depreciable base.

        Production, property and other taxes for the six months ended March 31, 2002 and 2001 were $4.9 million and $10.6 million, respectively. The $5.7 million decrease is the result of lower production taxes due to decreased natural gas prices from historically high levels in the six months ended March 31, 2001.

        Gas marketing revenues for the six months ended March 31, 2002 and 2001 were $24.9 million and $59.6 million respectively. In the six months ended March 31, 2001, spot market prices were very favorable in both November and December 2000 as gas prices were increasing to record levels. In the six months ended March 31, 2002, gas prices were substantially lower with fluctuating prices. Gas marketing purchases for the six months ended March 31, 2002 and 2001 were $23.1 million and $54.9 million, respectively.

        General and administrative expense primarily represents the cost of executive and general support staff of Cimarex and allocations from Helmerich & Payne of certain corporate expenses, including tax and financial accounting, legal, human resources, information technology services, workers' compensation, treasury and other corporate infrastructure costs. The corporate expenses were allocated based on specific identification and, to the extent that such identification was not practical, on the basis of direct labor or other method which management believes to be reasonable. General and administrative expense for the six months ended March 31, 2002 was $5.7 million compared with

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$5.5 million for the same period of 2001. Included in general and administrative expense in the six months ended March 31, 2002 is a $0.9 million bad debt provision in connection with anticipated uncollectible receivables from Enron Corporation. Cimarex has no additional exposure relating to Enron Corporation as all sales to Enron were terminated at November 30, 2001. The bad debt provision was offset by lower labor and burden costs in 2002 compared to 2001.

        Income tax expense for the six months ended March 31, 2002 was $6.4 million compared to $35.4 million for the same period of 2001. The decrease is due to the decrease in income, partially offset by a $1.0 million valuation allowance established to reduce deferred tax assets to an amount that will more likely than not be realized.


2001 compared to 2000

        Oil and gas sales for the year ended September 30, 2001 were $215.8 million compared to $155.7 million for the same period in 2000, an increase of $60.1 million or 39%. Natural gas revenues increased to $193.0 million for the year ended September 30, 2001 from $131.1 million for the same period in 2000, as gas prices increased and volumes declined. The $61.9 million increase in gas revenues is due to higher gas prices ($83.7 million) partially offset by lower gas volumes ($21.8 million). Natural gas prices averaged $4.55 per Mcf and $2.79 per Mcf for the years ended September 30, 2001 and 2000, respectively. Natural gas volumes averaged 116.1 Mmcf/d and 128.2 Mmcf/d for the same periods. Oil revenues decreased to $22.8 million from $24.6 million for the years ended September 30, 2001 and 2000, respectively. Crude oil prices averaged $27.88 and $27.95 per Bbl for the years ended September 30, 2001 and 2000, respectively. The decrease in oil revenues is primarily due to lower volumes ($1.7 million). Crude oil volumes averaged 2,242 Bbls/d and 2,405 Bbls/d for the same periods.

        Production expenses for the year ended September 30, 2001 were $13.1 million compared to $10.7 million in the same period of 2000. The $2.4 million increase was primarily due to increased well workovers and expenses related to producing properties added during 2001 and 2000.

        Depreciation, depletion and amortization for the years ended September 30, 2001 and 2000 was $49.7 million and $41.7 million, respectively. The $8.0 million increase was due to lower gas prices at September 30, 2001, that reduced the estimated proved reserves and an increase in the level of costs subject to amortization in the full cost pool.

        Based on oil and gas prices in effect on September 30, 2001, the unamortized cost of oil and gas properties exceeded the full cost ceiling limitation from proved oil and gas reserves. A charge to earnings for $78.1 million was recognized.

        Production, property and other taxes for the years ended September 30, 2001 and 2000 were $19.0 million and $12.1 million, respectively. Increases in both production and property taxes in 2001 were the result of substantially higher average natural gas prices received in 2001.

        Gas marketing revenues for the years ended September 30, 2001 and 2000 were $99.1 million and $78.9 million, respectively. Gas marketing purchases were $93.8 million and $74.7 million for the years ended September 30, 2001 and 2000, respectively. The change in both sales and purchases is due to significantly higher average gas prices in 2001.

        General and administrative expense for the years ended September 30, 2001 and 2000 was $10.1 million and $7.6 million, respectively. The $2.5 million increase is primarily due to legal and other professional services related to the efforts to establish Cimarex as a separate public entity and increases in labor costs.

        Interest expense for the year ended September 30, 2001 was a negative $1.5 million as a result of the settlement of an ad valorem tax contingency settled for less than originally estimated, resulting in a portion of the interest component of the settlement being reversed.

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        Income tax expense for the year ended September 30, 2001 was $19.6 million compared to $32.7 million for the same period of 2000. The effective tax rate was 35.7 percent and 36.3 percent for the years ended September 30, 2001 and 2000, respectively. The decrease in taxes is due primarily to the decrease in income.


2000 compared to 1999

        Oil and gas sales for the year ended September 30, 2000 were $155.7 million compared to $91.0 million for the same period in 1999, an increase of $64.7 million or 71%. Natural gas revenues increased to $131.1 million for the year ended September 30, 2000 from $81.5 million for the same period in 1999, as both gas prices and volumes increased. Natural gas prices averaged $2.79 per Mcf and $1.83 per Mcf for the years ended September 30, 2000 and 1999, respectively. The $49.6 million increase in gas revenues is the result of higher gas prices ($42.1 million) and increased gas volumes ($7.5 million). Natural gas volumes averaged 128.2 Mmcf/d and 121.2 Mmcf/d for the same periods. Oil revenues increased to $24.6 million from $9.5 million for the years ended September 30, 2000 and 1999, respectively. The increase in oil revenues is the result of higher oil prices ($8.7 million) and higher volumes ($6.4 million). The increase in oil volumes is the result of several new gas wells discovered in fiscal 2000 that produced large quantities of condensate. Crude oil prices averaged $27.95 and $14.60 per Bbl for the years ended September 30, 2000 and 1999, respectively. Crude oil volumes averaged 2,405 Bbls/d and 1,779 Bbls/d for the same periods.

        Production costs were relatively unchanged in 2000 as compared to 1999 despite the increase in revenues. Increased costs associated with new wells were offset by reduced spending associated with workover costs.

        Depreciation, depletion and amortization for the year ended September 30, 2000 was $41.7 million compared to $31.9 million for the same period of 1999. The increase of $9.8 million was due to an increase in production volumes and an increase in the depreciable base.

        Production, property and other taxes for the years ended September 30, 2000 and 1999 were $12.1 million and $8.6 million, respectively. Increases in both production and property taxes were the result of higher oil and natural gas prices in 2000 compared to 1999.

        Gas marketing revenues for the years ended September 30, 2000 and 1999 were $78.9 million and $54.3 million, respectively. Gas marketing purchases were $74.7 million and $50.0 million for the years ended September 30, 2000 and 1999, respectively. The change in both sales and purchases is due to higher average gas prices in 2000.

        General and administrative expense for the years ended September 30, 2000 and 1999 was $7.6 million and $7.3 million, respectively.

        Income tax expense for the year ended September 30, 2000 was $32.7 million compared to $13.4 million for the same period of 1999. The effective tax rate was 36 percent for the years ended September 30, 2000 and 1999. The increase in taxes is due to the increase in income.

Liquidity and Capital Resources

Sources and Uses of Cash

Six months ended March 31, 2002 compared to six months ended March 31, 2001

        Cash flows provided by operations for the six months ended March 31, 2002 were $15.0 million compared to $90.9 million for the same period in fiscal 2001. The substantial decrease in cash flows provided by operations resulted primarily from a $119.2 million decrease in revenues and a $52.4 million decrease in net income due primarily to lower natural gas prices.

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        Cash flows used in investing activities for the six months ended March 31, 2002 were $26.6 million compared to $48.1 million in the same period of fiscal 2001. The $21.5 million decrease was due to a reduced capital expenditure budget in the six months ended March 31, 2002.

        Cash flows provided by financing activities for the six months ended March 31, 2002 were $16.6 million compared to cash flows used in financing activities of $43.2 million in the same period of 2001, an increase of $59.8 million. The increase in cash provided by financing activities resulted primarily from proceeds from the borrowings from Helmerich & Payne and reduced net distributions to Helmerich & Payne during the six months ended March 31, 2002. The borrowings were necessary due to the reduced cash flows in the six month period ended March 31, 2002 as the result of lower commodity prices.


2001 compared to 2000

        Cash flows provided by operations for the year ended September 30, 2001 were $162.4 million compared to $110.0 million for 2000, an increase of $52.4 million or approximately 48%. The increase in cash provided by operations resulted primarily from a $79.6 million increase in revenues and changes in working capital.

        Cash flows used in investing activities for the year ended September 30, 2001 were $101.4 million compared to $72.7 million in the same period of 2000. The $28.7 million increase was due to increased capital expenditures for developmental drilling and acreage purchases.

        Cash flows used in financing activities for the year ended September 30, 2001 were $61.4 million compared to $37.1 million in the same period of 2000. The cash flows used in financing activities for the years ended September 30, 2001 and 2000 represent the net distributions to Helmerich & Payne after giving effect to net earnings of Cimarex and cash distributions to and from Helmerich & Payne. The increase in net distributions to Helmerich & Payne of $24.3 million in 2001 was the result of increased cash flows in the year ended September 30, 2001.


2000 compared to 1999

        Cash flows provided by operations for the year ended September 30, 2000 were $110.0 million compared to $63.3 million for 1999, an increase of $46.7 million or approximately 74%. The increase in cash provided by operations resulted primarily from a $90.6 million increase in revenues and a $33.8 million increase in net income, as well as, changes in working capital.

        Cash flows used in investing activities for the year ended September 30, 2000 were $72.7 million compared to $50.9 million in the same period of 1999. The $21.8 million increase was due to increased capital expenditures for exploratory drilling in several new prospects developed in 1999 and 2000.

        Cash flows used in financing activities for the year ended September 30, 2000 were $37.1 million compared to $12.7 million in the same period of 1999. The cash flows used in financing activities for the years ended September 30, 2000 and 1999 represent the net distributions to Helmerich & Payne after giving effect to net earnings of Cimarex and cash distributions to and from Helmerich & Payne. The increase in net distributions to Helmerich & Payne of $24.4 million in 2000 was the result of increased cash flows in the year ended September 30, 2000.

Sources of Liquidity and Capital Expenditures

        Prior to the merger, the primary sources of liquidity for Cimarex are expected to be cash flows from operating activities and, if necessary, short-term borrowings from Helmerich & Payne. Historically, cash flows from operations have been adequate to fund exploration and development activities. During the six months ended March 31, 2002, Cimarex borrowed $11.8 million from Helmerich & Payne, Inc.

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to help fund its capital expenditure program, as cash flows from operations were lower than anticipated because of decreased natural gas prices.

        Following the merger with Key, the primary sources of liquidity for Cimarex are expected to be cash provided by operating activities, bank financing and access to other public and private markets for either debt or equity capital.

        Cimarex is currently in negotiations with a lead arranger to procure a $400 million secured revolving credit facility. Cimarex management expects that this facility would close shortly following the completion of the merger. Cimarex expects to ask the lead arranger on the revolving credit facility to initially seek commitments of only $200 million. There can be no assurance that this revolving credit facility will be obtained.

        Projected capital expenditures for the year ended September 30, 2002 are $55 million with cash flows from operations estimated at $65 million. Operating cash flows for the remainder of fiscal 2002 will be significantly impacted by prices received by Cimarex for future oil and gas production. If it appears that cash flows will not reach projected levels, capital expenditures could be decreased in the last half of fiscal 2002.

Related Party Transactions

        Prior to October 1, 2001, Cimarex participated in Helmerich & Payne's centralized treasury and cash processes. Cash receipts and disbursements were initially received or paid by Helmerich & Payne and net cash receipts and disbursements were included in Cimarex's net distributions to Helmerich & Payne in the Statements of Shareholder's Equity. On October 1, 2001, Helmerich & Payne advanced Cimarex funds to establish independent cash accounts for cash receipt and cash disbursement activity. Certain administrative expenses and payroll are still disbursed by Helmerich & Payne and charged to Cimarex. These charges are paid as funds are available in Cimarex.

        At March 31, 2002, Cimarex had short-term debt of $11,810,000 to Helmerich & Payne, Inc. related to net cash advances, payroll and allocated administrative services since October 1, 2001. The short-term debt bears interest at an annual rate of 5.38 percent computed on a daily balance. The 5.38 percent is the fixed effective rate Helmerich & Payne is charged on its borrowing facility. The short-term debt balance, if any, will be paid to Helmerich & Payne at the closing date of the merger. Interest expense on the debt in the six months ended March 31, 2002 was approximately $323,000.

        Helmerich & Payne, Inc. also provides contract drilling services through its wholly owned subsidiary, Helmerich & Payne International Drilling Company, for Cimarex. At March 31, 2002, Cimarex owed $212,000 related to such services, which is included in the short-term debt. Amounts paid to Helmerich & Payne International Drilling Company for each of the three years ended September 30, 2001 were $4.5 million, $3.0 million and $2.5 million respectively, while the amounts paid for the six months ended March 31, 2002 and 2001 were $0.5 million and $1.6 million respectively.

Critical Accounting Policies

        In conformity with generally accepted accounting principles, the preparation of Cimarex's financial statements requires management to make estimates and assumptions that affect the amounts reported in Cimarex's financial statements and accompanying notes. Actual results could differ from these estimates.

        Significant estimates with regard to Cimarex's combined financial statements include the estimate of proved oil and gas reserve volumes and related present value of estimated future net cash flows. Proved oil and gas reserve quantities are based on estimates prepared by Netherland, Sewell & Associates, Inc. Amounts at September 30, 1999 were estimated by Helmerich & Payne and reviewed by independent engineers. There are numerous uncertainties inherent in estimating quantities of proved

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reserves, projecting future rates of production and the timing of development expenditures. The estimate of proved oil and gas reserve volumes can affect the charge for depreciation, depletion and amortization, as discussed below.

        Cimarex has adopted the full cost method of accounting for its oil and gas operations under the special exemption for an initial public distribution as outlined in paragraph 29 of APB No. 20. Previously, Helmerich & Payne accounted for these activities using the successful efforts method of accounting. Management of Cimarex believes that the full cost method of accounting is preferable for its exploration and production operations, as it will better reflect the economics associated with its future exploration activities. Previously, Key used the full cost method of accounting for its exploration and production activities. It is anticipated that the strategic direction of combined Cimarex will be consistent with Key's past operations, thus the adoption of the full cost method of accounting is considered preferable. The operating philosophy of Key will carry over to Cimarex as the Chairman, CEO and President of Key will be the Chairman, CEO and President of Cimarex and a majority of the executive officers of Cimarex will be former officers of Key.

        Cimarex management believes that the full cost method of accounting better reflects the economics associated with Cimarex's strategy, which is based primarily on increasing proved reserves and production by exploring for and then developing the oil and gas resources discovered. However, an exploration-oriented strategy inevitably results in the irregular occurrence of dry holes. Management further believes that in evaluating the results of operations, the cost of dry holes should be considered with the cost of successful exploratory wells and other development costs incurred in order to evaluate the economic success of an exploration strategy.

        As prescribed by full cost accounting rules, all costs associated with property acquisition, exploration, and development activities are capitalized. Exploration and development costs include dry hole costs, geological and geophysical costs, direct overhead related to exploration and development activities and other costs incurred for the purpose of finding oil and gas reserves. Salaries and benefits paid to employees directly involved in the exploration and development of oil and gas properties as well as other internal costs that can be specifically identified with acquisition, exploration and development activities are also capitalized.

        The rate of recording depreciation, depletion, and amortization is dependent upon estimates of proved reserves. If the estimates of proved reserves decline, the rate at which depreciation, depletion, and amortization is recorded increases, reducing net income. Such a decline may result from lower market prices, which may make it non-economic to drill for and produce higher cost wells.

        Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (1) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any, and (2) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data.

        In accordance with full cost accounting rules, capitalized costs of proved oil and gas properties, net of accumulated depreciation, depletion and amortization and deferred income taxes, may not exceed the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10 percent, plus the lower of cost or fair value of unproved properties, as adjusted for related tax effects and deferred tax revenues (the "full cost ceiling limitation"). These rules generally require pricing future oil and gas production at the unescalated oil and gas prices in effect at the end of each fiscal quarter and require a write-down if the "ceiling" is exceeded. A full cost ceiling write-down is a

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non-cash charge to earnings. Moreover, the expense may not be reversed in future periods, even if higher oil and gas prices subsequently increase the full cost ceiling limitation.

        Our results of operations are also highly dependent upon the prices we receive for natural gas and crude oil production, and those prices have been volatile and unpredictable in response to changing market forces. Nearly all of our revenue is from the sale of gas and oil, so these fluctuations, positive and negative, can have a significant impact. Cimarex does not utilize financial derivative instruments to hedge its market risks.

Quantitative and Qualitative Disclosures About Market Risk

        Our results of operations are highly dependent upon the prices we receive for natural gas and crude oil production, and those prices are constantly changing in response to market forces.

        Gas and oil price realizations for fiscal 2001 ranged from a monthly low of $2.03 per Mcf and $25.17 per Bbl, and a monthly high of $8.73 per Mcf and $33.29 per Bbl, respectively. It is impossible to predict future oil and gas prices with any degree of certainty.

        Any sustained weakness in gas and oil prices may affect our financial condition and results of operations, and may also reduce the amount of net gas and oil reserves that we can produce economically. Any reduction in reserves, including reductions due to price fluctuations, can have an adverse effect on our ability to obtain capital for our exploration and development activities and could cause us to record a reduction in the carrying value of our oil and gas properties.

New Accounting Standards

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. SFAS No. 41 addresses financial accounting and reporting for business combinations. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001, and for all business combinations accounted for under the purchase method initiated before but completed after June 30, 2001. In addition, in June 2001 the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and applies to all goodwill and other intangibles recognized in the financial statements at that date. The adoption of these standards is not expected to have an impact on the current financial position or results of operations of Cimarex. However, any business combinations initiated in the future, including the merger of Cimarex with Key, will be impacted by these two standards.

        In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, and in October 2001, issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost should be allocated to expense using a systematic and rational method. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. It supersedes, with exceptions, SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and is effective for fiscal years beginning after December 15, 2001. Cimarex is currently assessing the impact of SFAS No. 143 and No. 144; however, at this time Cimarex does not believe the impact of these standards will be material to its financial condition or results of operations. SFAS No. 144 does not alter the calculation of the full cost ceiling limitation described above.

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Forward Looking Information

        In the current price environment, Cimarex anticipates exploration and development expenditures of approximately $55 million in fiscal year 2002 and that the risk profile of the wells drilled will be similar to the historical drilling program of Cimarex. The amount and allocation of future capital expenditures will depend on a number of factors, including the impact of oil and gas prices on investment opportunities and available cash flow, the rate at which potential drilling projects can be evaluated, and the number and size of attractive opportunities. It is also expected that approximately 55 percent of planned 2002 expenditures will occur in the second half of the year. Cimarex plans to fund these expenditures with cash provided by operating activities, supplemented by borrowings.

        On February 23, 2002, Key, Helmerich & Payne, Inc., a Delaware corporation, Helmerich & Payne Exploration and Production Co., a Delaware corporation and a wholly owned subsidiary of Helmerich & Payne, Inc., which has been renamed Cimarex Energy Co., and a wholly owned subsidiary of Cimarex, entered into an agreement and plan of merger. Under the merger agreement and other related transaction documents: (i) Helmerich & Payne transferred to Cimarex assets primarily related to the oil and gas exploration, production, marketing and sales operations of Helmerich & Payne, (ii) Cimarex assumed liabilities primarily related to the oil and gas exploration and production and gas marketing and sales operations of Helmerich & Payne and (iii) Helmerich & Payne will distribute to its stockholders approximately 0.53 shares of Cimarex common stock for each share of Helmerich & Payne common stock. Immediately thereafter, a subsidiary of Cimarex will be merged with and into Key, with Key as the surviving corporation.

        In connection with the merger, the stockholders of Key will receive one share of Cimarex common stock for each share of Key common stock they own immediately prior to the merger, as set forth in the merger agreement (approximately 14.0 million shares). Upon completion of the transaction, holders of Helmerich & Payne, Inc. common stock will own approximately 65.25 percent and Key stockholders will own approximately 34.75 percent of the common stock of Cimarex, in each case on a fully diluted basis.

        The merger agreement has been approved by the respective boards of directors of Key and Helmerich & Payne. The spin-off is subject to, among other things, receipt of a ruling from the Internal Revenue Service to the effect that the spin-off is tax-free. The merger is subject to, among other things, the completion of the spin-off, the approval by the stockholders of Key, and the receipt of opinions of counsel of each Key and Helmerich & Payne to the effect that the merger is tax-free. It is currently anticipated that the merger will occur in the third calendar quarter of 2002.

        Because Helmerich & Payne stockholders will own a majority of the shares of Cimarex after the merger, it is anticipated that the surviving entity for financial reporting purposes will be Cimarex and the merger will be accounted for as a purchase of Key by Cimarex. Although not a condition to the merger, Cimarex plans to change to a fiscal year that ends on December 31 versus the September 30 year-end presently used by Cimarex.

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THE MERGER AGREEMENT

        The following is a summary of the material terms of the merger agreement. This summary is qualified in its entirety by reference to the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus and is incorporated by reference into this proxy statement/prospectus. We urge you to read the merger agreement in its entirety for a more complete description of the terms and conditions of the merger.


The Merger

Structure of the Merger

        At the effective time of the merger, Mountain Acquisition Co., a newly formed, wholly owned subsidiary of Cimarex, will merge with and into Key. Key will remain as the surviving corporation and immediately after the merger will become a wholly owned subsidiary of Cimarex.


Effective Time of the Merger

        The closing of the merger will occur within two business days after the fulfillment or waiver of the conditions described under "The Merger Agreement—Conditions to the Completion of the Merger", on page     , unless Key and Cimarex agree in writing upon another time or date. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such later time as the parties to the merger agreement may agree and as is provided in the certificate of the merger. The filing of the certificate of merger will take place as soon as practicable at or after the time of the closing of the merger.


Merger Consideration

        The merger agreement provides that each share of Key common stock (other than certain shares described under "The Merger Agreement—Cancellation of Certain Shares" on page     ) that is outstanding immediately prior to the effective time of the merger will, at the effective time of the merger, be converted into the right to receive one share of Cimarex common stock as adjusted for any stock split, reverse stock split, stock dividend, subdivision, reclassification, combination, exchange, recapitalization or other similar transaction.


Cancellation of Certain Shares

        Each share of Key common stock owned by Cimarex or any direct or indirect wholly owned subsidiary of Key or Cimarex, in each case immediately prior to the effective time of the merger, will be automatically canceled and no stock or consideration will be delivered in exchange therefor. Neither Helmerich & Payne, nor Cimarex, nor any of their respective subsidiaries currently owns any shares of Key common stock.


Procedure for Surrender of Certificates; Fractional Shares

        Prior to the effective time of the merger, an exchange agent will be appointed to handle the exchange of Key stock certificates for Cimarex stock certificates and the payment of cash for fractional shares. As promptly as practicable after the effective time of the merger, Cimarex will cause the exchange agent to mail or deliver a letter of transmittal, which is to be used to exchange Key stock certificates for Cimarex stock certificates, to each former Key stockholder. The letter of transmittal will contain instructions explaining the procedure for surrendering Key stock certificates. You should not return Key stock certificate(s) with the enclosed proxy card(s).

        Key stockholders who surrender their stock certificates together with a properly completed letter of transmittal and any other required documents will be entitled to receive in exchange therefor a

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certificate representing the number of whole shares of Cimarex common stock into which their shares of Key common stock have been converted in the merger (and cash in lieu of fractional shares of Cimarex common stock and any applicable dividends or distributions). Such Key stock certificates will then be canceled.

        Until properly surrendered, each certificate that previously represented shares of Key common stock will be deemed at any time after the effective time of the merger to represent only the right to receive upon such surrender a certificate representing shares of Cimarex common stock into which those shares of Key common stock have been converted (and cash in lieu of any fractional shares of Cimarex common stock and any applicable dividends or distributions).

        After the merger becomes effective, Key will not register any further transfers of shares of Key common stock. Any certificates that previously represented shares of Key common stock that are presented to Cimarex or the surviving company after the effective time of the merger will be canceled and exchanged for certificates representing shares of Cimarex common stock, into which those shares of Key common stock have been converted in the merger (and cash in lieu of fractional shares of Cimarex common stock and any applicable dividends or distributions).

        Key will not issue certificates representing fractional shares of Cimarex common stock in the merger. Instead, all fractional shares of Cimarex common stock that a Key stockholder would otherwise be entitled to receive as a result of the merger will be aggregated and if a fractional share results from such aggregation, the stockholder will be entitled to receive, in lieu thereof, an amount in cash (without interest) determined by multiplying:

        Alternatively, Cimarex may elect at its option to instruct the exchange agent to aggregate all fractional shares of Cimarex common stock, sell such shares in the public market and distribute to Key stockholders who otherwise would have been entitled to such fractional shares of Cimarex common stock a pro rata portion of the proceeds of such sale.


Treatment of Key Stock Option Plans

        At the effective time of the merger, the right to receive shares of Key common stock pursuant to each outstanding option under the Key stock option plans will be assumed by Cimarex and thereafter deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Key stock option plans immediately before the effective time of the merger, the same number of shares of Cimarex common stock at a price per share equal to the exercise price per share of Key common stock otherwise purchasable pursuant to such Key stock option. Each outstanding option under the Key stock option plans will vest in full upon the effective time of the merger and remain outstanding in accordance with its original terms (except that the option will constitute an option to purchase Cimarex common stock).

        Cimarex will take all actions necessary to reserve for issuance, from and after the effective time of the merger, a sufficient number of shares of Cimarex common stock for delivery under the Key stock options that are deemed to constitute options to purchase shares of Cimarex common stock in accordance with the preceding paragraph, and at or before the effective time of the merger, Cimarex will file with the SEC a registration statement with respect to such Cimarex common stock.

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Treatment of Key Restricted Stock

        At the effective time of the merger each outstanding restricted share of Key common stock will be converted into a restricted share of Cimarex common stock with the same terms and conditions governing the Key restricted share.


Certificate of Incorporation; By-laws; Directors and Officers

        The certificate of incorporation of Key as in effect immediately prior to the effective time of the merger will be the certificate of incorporation of the surviving corporation; until thereafter duly amended in accordance with applicable law and such certificate of incorporation. The by-laws of Key as in effect immediately prior to the effective time of the merger will be the by-laws of the surviving corporation until thereafter duly amended in accordance with applicable law, the certificate of incorporation of the surviving corporation and such by-laws.

        The directors of Key immediately prior to the effective time of the merger will, from and after the effective time of the merger, be the initial directors of the surviving corporation; the officers of Key immediately prior to the effective time of the merger will, from and after the effective time, be the initial officers of the surviving corporation and such directors and officers will serve until their earlier death, resignation or removal in accordance with the surviving corporation's certificate of incorporation and by-laws.


Board of Directors

        The board of directors of Cimarex immediately after the effective time of the merger will consist of nine directors, five of whom will be designated by Helmerich & Payne and four of whom will be designated by Key. The initial board of directors will also appoint committees as appropriate, including an audit committee, a compensation committee and a nominating committee.


Representations and Warranties

        The merger agreement contains certain representations and warranties made by Helmerich & Payne and Cimarex jointly and Key. These representations and warranties, which are generally reciprocal unless otherwise stated below, relate to:

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        Helmerich & Payne, on behalf of itself only, also makes representations and warranties to Key with respect to its:

        The representations and warranties contained in the merger agreement do not survive the effective time of the merger.

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Covenants

        Key, Helmerich & Payne and Cimarex have each undertaken certain covenants in the merger agreement. The following summarizes the material covenants:


No Solicitation

        Key has agreed, following the date of the merger agreement and prior to the earlier of the effective time of the merger or the termination date, not to and will cause its subsidiaries and its subsidiaries' officers, directors, employees, advisors and agents not to, directly or indirectly:

        However, in the event that Key receives an unsolicited "company superior proposal" of the type described below, prior to the adoption of the merger agreement by stockholders of Key, Key's board of directors may engage in any discussions or negotiations with, or provide any non-public information to, any person, if and only to the extent that:

        Also, if Key's board of directors receives a company superior proposal, prior to the adoption of the merger agreement by the stockholders of Key and if it concludes in good faith (after consultation with its legal and financial advisors) that failure to do so might reasonably be deemed to violate its obligations to comply with its fiduciary duties to Key's stockholders under applicable law, Key's board of directors may approve or recommend such company superior proposal. Key's board of directors may also, subject to compliance with the requirements described below under "The Merger Agreement—Termination Fees and Expenses," terminate the merger agreement at a time that is after the third business day following Helmerich & Payne's receipt of written notice from Key, advising Helmerich & Payne that Key's board of directors has received a company superior proposal, specifying the material terms and conditions of such company superior proposal and identifying the person making such company superior proposal.

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        A "company acquisition proposal" is any proposal, other than the merger or as otherwise specifically contemplated by the merger agreement, regarding:

        A "company superior proposal" is any proposal or offer made by a third party to acquire, directly or indirectly, by merger, consolidation or otherwise, for consideration consisting of cash and/or securities, at least a majority of the shares of Key common stock then outstanding and otherwise on terms which Key's board of directors determines in its good faith judgment to be more favorable to Key's stockholders than the merger.


Board of Directors Covenant to Call Stockholders' Meeting and to Recommend the Merger

        As promptly as practicable following the date of the merger agreement and the effectiveness of the registration statements, Key will call a special meeting of its stockholders to be held as promptly as practicable for the purpose of voting upon the adoption of the merger agreement and any related matters and the merger agreement will be submitted for adoption to the stockholders of Key at such Key special meeting. Key will cause the Key special meeting to be held and the vote taken within 60 days following the effectiveness of Cimarex's registration statement. Key will deliver to the stockholders of Key a proxy statement/prospectus in definitive form in connection with the Key special meeting, at the time and in the manner provided by, and will conduct the Key special meeting and the solicitation of proxies in connection with the Key special meeting in accordance with, the applicable provisions of the law of the State of Delaware, the Exchange Act and Key's certificate of incorporation and by-laws. Key's board of directors will recommend that the stockholders of Key adopt the merger agreement.


Operations of Helmerich & Payne (in regard to the Cimarex business), Cimarex and Key Pending Closing

        Helmerich & Payne (in regards to the Cimarex business), Cimarex and Key have each undertaken that, until the earlier of the effective time of the merger or the termination of the merger agreement, each will conduct its business in the ordinary course consistent with past practice and use all commercially reasonable efforts to preserve intact its business organization, maintain its rights and franchises, keep available the securities of its current officers and key employees and preserve its relationships with third parties. Each has further agreed that it will not, without the prior written consent of the other parties, do any of the following:

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        Also, the parties agree to promptly advise the other parties orally and in writing of any change or event having, or that, insofar as can reasonably be foreseen, could have, either individually or together with other changes or events, a material adverse effect.


Commercially Reasonable Efforts, Further Assurances

        Helmerich & Payne and Key have agreed to use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws and regulations to consummate the transactions contemplated by the merger agreement. These actions include providing information and obtaining all necessary exemptions, rulings, consents, authorizations, approvals and waivers to effect all necessary registrations and filings and to lift any injunction or other legal bar to the merger and the other transactions contemplated by the merger agreement as promptly as practicable and taking all other actions necessary to consummate the transactions contemplated by the merger agreement in a manner consistent with applicable law. Helmerich & Payne, Cimarex, Mountain Acquisition and Key also agreed to cooperate and to use their respective commercially reasonable efforts to obtain any government clearances required to consummate the merger and to respond to any government requests for information.


Employee Benefits Plans

        Key and Cimarex agreed in the merger agreement that the employees of Key who remain employed by Key or its affiliates after the effective time of the merger will (i) participate in Cimarex benefit plans (established in accordance with the employee benefits agreement described below) on a basis no less favorable than that applicable to similarly situated employees of Cimarex who remain employed by Cimarex or its affiliates after the spin-off date and (ii) be granted full credit under such plans for prior service with Key (except to the extent necessary to avoid duplication of benefits). At and after the effective time of the merger, no employee of Key will accrue any additional benefits under any of the Key benefit plans, except that Cimarex has agreed to assume Key's Deferred Compensation Plan and the obligation to provide certain transportation benefits, and Cimarex will assume or cause Key to honor employment and change in control agreements to which Key was a party before the effective time of the merger. Helmerich & Payne and Key further agreed to cooperate in good faith and use their reasonable best efforts to assist Cimarex in establishing the plans and to establish additional mutually acceptable arrangements concerning Cimarex employees, compensation and benefit arrangements.


Directors' and Officers' Indemnification

        From and after the effective time of the merger, Cimarex will indemnify any persons who are or were officers or directors of Key prior to the effective time of the merger for losses in connection with any action arising out of or pertaining to acts or omissions, or alleged acts or omissions, by them in their capacities as such, whether commenced, asserted or claimed before or after the effective time of the merger. Cimarex will maintain existing, or provide comparable, directors' and officers' liability insurance policies for a period of six years following the effective time of the merger.

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Additional Covenants

Rights Plans

        Cimarex will issue preferred share purchase rights to Cimarex stockholders as of the spin-off date in accordance with the rights agreement between Cimarex and UMB Bank, N.A. Prior to the earlier of the effective time of the merger and the termination date, Cimarex will not amend the Cimarex rights agreement or redeem the rights issued under such agreement. Key issued common share purchase rights to Key stockholders as of March 7, 2002 in accordance with the rights agreement between Key and A.G. Edwards & Sons, Inc. Prior to the earlier of the effective time of the merger and the termination date, Key will not amend the rights agreement or redeem the rights issued under such agreement.


Transition Services Agreement

        Prior to the effective time of the merger, Helmerich & Payne and Cimarex will enter into a transition services agreement, in a form reasonably satisfactory to Helmerich & Payne and Key, providing for certain transition services by Helmerich & Payne to Cimarex after the effective time of the merger.


Internal Revenue Service Ruling

        In connection with the spin-off, Helmerich & Payne will use its reasonable best efforts in seeking, as promptly as practicable, a private letter ruling from the Internal Revenue Service to the effect that the contribution of assets to Cimarex prior to the spin-off will qualify as a tax-free transaction for Helmerich & Payne, its stockholders and Cimarex.


Litigation Defense

        Each of Helmerich & Payne, Cimarex, Mountain Acquisition and Key will use all commercially reasonable efforts to defend against all actions in which such party is named as a defendant that challenge or otherwise seek to enjoin, restrain or prohibit the transactions contemplated by the merger agreement or seek damages with respect to such transactions.


Accounting Matters

        Each party to the merger agreement will use its commercially reasonable efforts to ensure that, following the effective time of the merger, Cimarex will establish a fiscal year ending on December 31.


Conditions to the Completion of the Merger

        The respective obligations of Helmerich & Payne, Cimarex, Mountain Acquisition and Key to complete the merger are subject to the fulfillment, or the waiver by Helmerich & Payne and Key, of various conditions which include, in addition other customary closing conditions, the following:

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        Additionally, the obligation of Key to complete the merger is subject to the fulfillment or waiver by Key of the following additional conditions:

        "Material adverse effect" is, with respect to any person, any circumstance, change or effect that is or is reasonably likely to be materially adverse to (i) the business, operations, assets, liabilities (including contingent liabilities), results of operations or condition (financial or otherwise) of such person and its subsidiaries, taken as a whole, except for such effects on or changes in general economic or capital market conditions and effects and changes that generally affect the U.S. domestic oil and gas exploration and production business, or (ii) the ability of such person to perform its obligations under the merger agreement or under the other transaction agreements.

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Termination of the Merger Agreement

Right to Terminate

        The merger agreement may be terminated and the transactions contemplated by the merger agreement may be abandoned at any time prior to the effective time of the merger as follows:

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Termination Fees and Expenses

        If either Helmerich & Payne or Key terminates the merger agreement as a result of:

        In addition to the reimbursement of out-of-pocket expenses and fees, Key has agreed to pay Helmerich & Payne a termination fee of $10 million if:

        For purposes of the termination fee, the definition of company acquisition proposal is modified so that the percentage referred to in this definition is 35% rather than 20%.


Amendments and Waiver

        Any provision of the merger agreement may, to the extent legally allowed, be amended or waived at any time prior to the effective time of the merger. However, if a provision of the merger agreement is amended or waived after the Key stockholders adopt the merger agreement, such amendment or waiver will be subject to any necessary stockholder approval. Helmerich & Payne, Cimarex and Key must sign any amendments. Any waiver must be signed by the party against whom the waiver is to be effective.

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THE DISTRIBUTION AGREEMENT

Summary of the Transactions

        In connection with the merger, Helmerich & Payne will contribute its exploration and production and gas marketing business to Cimarex pursuant to the terms and conditions of the distribution agreement summarized below. After the contribution and prior to the merger, Helmerich & Payne will spin-off Cimarex by distributing all of the shares of Cimarex common stock to Helmerich & Payne stockholders on a pro rata basis.


General

        The following is a summary of the material terms of the distribution agreement. This summary is qualified in its entirety by reference to the distribution agreement, a copy of which is attached as Annex C to this proxy statement/prospectus and is incorporated by reference into this proxy statement/prospectus. We urge you to read the distribution agreement in its entirety for a more complete description of the terms and conditions of the spin-off.


Contribution of the Exploration and Production Assets and Assumption of Liabilities

        Under the distribution agreement, prior to the spin-off of Cimarex, Helmerich & Payne will take or cause to be taken all actions necessary to cause transfer to Cimarex or a subsidiary of Cimarex of all of the ownership interest of Helmerich & Payne and its subsidiaries in:

If the amount is negative, the sum of this amount will be paid by Cimarex to Helmerich & Payne.

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        Cimarex will assume all of the liabilities of Helmerich & Payne and its subsidiaries relating to the Cimarex business, including the liabilities of Cimarex under the other agreements entered into in connection with the merger and the spin-off, together with all expenses agreed between the parties to be allocated to Cimarex.

        To the extent that any transfers are not completed before the spin-off, the parties will cooperate to effect any remaining transfers as promptly as practicable following the spin-off.


Spin-off

        After the separation of the exploration and production business from Helmerich & Payne but before the merger, Helmerich & Payne will distribute 26,591,321 shares, which will represent all of the then-outstanding shares of Cimarex common stock, to Helmerich & Payne's stockholders. As a result of the spin-off, Helmerich & Payne and its subsidiaries will own and operate the contract drilling and real estate businesses and Cimarex will be a separate, publicly traded company that will own and operate the exploration and production and gas marketing businesses.


Representations and Warranties

        In the distribution agreement, Helmerich & Payne represents and warrants to Cimarex and to Key that, at the time of the spin-off, the assets transferred to Cimarex and its subsidiaries, together with any services offered by Helmerich & Payne pursuant to the transition services agreement, will be sufficient for the operation of the exploration and production and gas marketing businesses in all material respects as currently conducted by Helmerich & Payne. This representation and warranty will survive the spin-off for a period of six months.


Indemnification

        Cimarex has agreed to defend, indemnify and hold Helmerich & Payne and each of its affiliates and their representatives harmless from and against all losses or liabilities arising out of or related to any liabilities assumed by Cimarex or from Cimarex's failure to perform its obligations under the distribution agreement.

        Helmerich & Payne has agreed to indemnify and hold Cimarex and each of its affiliates and their representatives harmless from and against all losses or liabilities arising out of or related to the failure of Helmerich & Payne or any of its subsidiaries:

        Helmerich & Payne has agreed that it will use commercially reasonable efforts to assist Cimarex in asserting claims relating to the assets transferred to Cimarex or liabilities assumed by Cimarex under Helmerich & Payne's insurance policies, to the extent such claims are based on events prior to the spin-off date or were commenced prior to the spin-off date.

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Conditions to the Spin-off

        The obligations of Helmerich & Payne under the distribution agreement are subject to the fulfillment (or waiver by Helmerich & Payne) at or prior to the spin-off of a number of conditions, including the following:


ANCILLARY AGREEMENTS

        Helmerich & Payne and Cimarex have entered into agreements that will govern the ongoing relationships between Cimarex and Helmerich & Payne and provide for an orderly transition after the spin-off and the merger. These agreements are summarized below.


Tax Sharing Agreement

        In order to allocate the responsibilities for payment of taxes and certain other tax matters Helmerich & Payne and Cimarex have entered into a tax sharing agreement. The following is a summary of the material terms of the tax sharing agreement. This summary is qualified in its entirety by reference to the tax sharing agreement, a copy of which is attached as Annex D to this proxy statement/prospectus and which is filed as an exhibit to this registration statement of which this proxy statement/prospectus is a part. We urge you to read the tax sharing agreement in its entirety for a more complete discussion of the tax matters.


Preparation and Filing of Tax Returns

        Helmerich & Payne will prepare and file all tax returns (including any tax returns reporting the results of Cimarex) for periods ending on or prior to the date of the contribution of assets and liabilities of the Cimarex business to Cimarex, as well as any consolidated or combined returns that include Cimarex or the Cimarex business. Cimarex will be responsible for filing all tax returns with respect to the exploration and production business (other than consolidated or combined returns) for

71



periods beginning on or after the date of the contribution of assets and liabilities of the Cimarex business to Cimarex.


Liability for Taxes

        Each party has agreed to indemnify the other in respect of all taxes for which it is responsible under the tax sharing agreement. Cimarex is responsible for all taxes related to the exploration and production business for all past and future periods, including all taxes arising from the Cimarex business prior to the time that Cimarex was formed, and agrees to hold Helmerich & Payne harmless in respect of those taxes. Cimarex is entitled to receive all refunds and credits of taxes previously paid with respect to the exploration and production business. Helmerich & Payne remains responsible for all taxes related to the businesses of Helmerich & Payne other than the exploration and production business and has agreed to indemnify Cimarex in respect of any liability for any of such taxes.


Distribution Taxes and Deconsolidation

        Helmerich & Payne and Cimarex each agrees to pay, and to hold the other harmless for, any and all liability for taxes payable by Helmerich & Payne as a result of the spin-off of Cimarex failing to qualify as a tax-free transaction to Helmerich & Payne and its stockholders under applicable provisions of the Internal Revenue Code and Treasury regulations. The payment obligation applies to the extent that such taxes result from the actions or omissions of Helmerich & Payne or Cimarex (or their respective stockholders), as the case may be, including certain events occurring after the merger involving the stock or assets of Cimarex or Helmerich & Payne (such as any issuance or acquisition of stock of Cimarex that results in the issuance, in the aggregate, of 50% or more of the common stock of Cimarex (taking into account that 34.75% of Cimarex common stock will be treated as already having been issued in the merger)).

        In addition, Cimarex has agreed to indemnify Helmerich & Payne for 34.75% of any spin-off tax liability not otherwise allocated under the tax sharing agreement, such as distribution taxes attributable to a retroactive change of law, regulation or administrative interpretation, and Helmerich & Payne has agreed to bear 65.25% of any such resulting tax liability.


Continuing Covenants

        Helmerich & Payne agrees that it will not take or fail to take (or permit any affiliate to take or fail to take) any action where such action or failure would be inconsistent with any material information, covenant or representation contained in any ruling documents filed with the Internal Revenue Service. Cimarex also agrees that it will not take or fail to take (or permit any affiliate to take or fail to take) any action where such action or failure would be inconsistent with any material, information, covenant or representation that relates to facts or matters related to Cimarex or within the control of Cimarex and is contained in any ruling documents filed with the Internal Revenue Service.

        Furthermore, Helmerich & Payne and Cimarex each agrees not to take (and each agrees to cause its respective affiliates to refrain from taking) any position on a tax return that will be inconsistent with the treatment of the spin-off and the merger as tax-free transactions under the applicable provisions of the Internal Revenue Code.

        In addition, Cimarex agrees that, during the two-year period following the spin-off, prior to entering into any agreement to take any of certain specified actions, Cimarex will request that Helmerich & Payne obtain a supplemental ruling from the Internal Revenue Service (and Cimarex agrees that it will not take any such specified actions unless Helmerich & Payne receives a supplemental ruling from the Internal Revenue Service and pursuant to the terms and conditions

72



thereof), unless, in any such case, Helmerich & Payne otherwise consents to the taking of the specified actions in writing in advance. The specific actions enumerated in the tax sharing agreement are:

        In addition, Helmerich & Payne and Cimarex have agreed to act in good faith to take all reasonable steps necessary to amend the tax sharing agreement to supplement or reduce the specific actions enumerated therein, in order to reflect any relevant change in law, regulations or administrative interpretation occurring after the effective date of the tax sharing agreement.


Miscellaneous

        The tax sharing agreement also provides that Helmerich & Payne and Cimarex will cooperate with each other and exchange necessary information in connection with tax audits and examinations and the tax sharing agreement contains provisions entitling the appropriate party to control particular tax audits and controversies, as well as the right of the non-controlling party to participate therein.


Employee Benefits Agreement

        In connection with the spin-off, Helmerich & Payne and Cimarex entered into an employee benefits agreement that provides for the transfer of the employees of the Cimarex business to Cimarex, effective upon completion of the spin-off. The Employee Benefits Agreement is filed as an exhibit to this registration statement of which this proxy statement/prospectus is a part.

        The employee benefits agreement also allocates the assets and liabilities under certain existing Helmerich & Payne employee benefit plans and other employment-related liabilities to Helmerich & Payne and Cimarex, respectively. In general, at the time of the spin-off, Cimarex will assume the liabilities relating to the former employees of the Cimarex business and Helmerich & Payne will retain the liabilities relating to its continuing employees. However, Helmerich & Payne will retain all liabilities under its defined benefit, post-retirement medical and executive deferred compensation plans. The employee benefits agreement also:

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        Pursuant to the employee benefits agreement, each of Cimarex and Helmerich & Payne has agreed that, without the prior consent of the other, it will not solicit employees of the other party for two years following the spin-off date.

        Pursuant to the merger agreement, following the merger Key employees will (i) participate in Cimarex benefit plans on a basis no less favorable than that applicable to similarly situated employees of Cimarex who remain employed by Cimarex or its affiliates after the spin-off date and (ii) be granted full credit under such plans for prior service with Key (except to the extent necessary to avoid duplication of benefits).


Transition Services Agreement

        Before the effective time of the merger, Helmerich & Payne and Cimarex will enter into a transition services agreement under which Helmerich & Payne will provide services to Cimarex on an as-needed basis for a period of time after the merger.

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MANAGEMENT OF CIMAREX

Directors and Executive Officers

        The board of directors of Cimarex following the merger will be composed initially of nine directors, five of whom are to be designated by Helmerich & Payne and four of whom are to be designated by Key.

        The following table sets forth the names, ages (as of July 31, 2002) and titles of the individuals who would be the directors and executive officers of Cimarex following the effective time of the merger:

Name

  Age
  Position

F. H. Merelli(1)   66   Chairman of the Board, Chief Executive Officer, President and Director
Steven R. Shaw   51   Executive Vice President
Paul Korus   45   Vice President and Chief Financial Officer
Thomas E. Jorden   44   Vice President, Exploration
Stephen P. Bell   47   Senior Vice President, Business Development and Land
Joseph R. Albi   43   Vice President, Engineering
Barbara L. Schaller   46   General Counsel and Corporate Secretary
Gerald A. Nagel   51   Vice President
Roger Burau   52   Vice President
Gerald P. McLaughlin   41   Vice President
Cortland S. Dietler(1)   80   Director
L. Paul Teague(1)   67   Director
Paul D. Holleman(1)   70   Director
Hans Helmerich(2)   43   Director
Glenn A. Cox(2)   72   Director
David A. Hentschel(2)   68   Director
L.F. Rooney, III(2)   48   Director
Michael J. Sullivan(2)   62   Director

(1)
Key designee.

(2)
Helmerich & Payne designee.

        F. H. Merelli will become the chairman of the board, chief executive officer, president and director of Cimarex following the effective time of the merger. Mr. Merelli has been with Key since September 9, 1992. He is currently the chairman of the board of directors, president and chief executive officer of Key.

        During his tenure at Key, he has continuously held the offices of chairman and chief executive officer. Since March 2002 and prior to September 1999, he also held the office of president. From July 1991 to September 1992, Mr. Merelli was engaged as a private consultant in the oil and gas industry. Mr. Merelli was president and chief operating officer of Apache Corporation and president, chief operating officer and a director of Key from June 1988 to July 1991, at which time he resigned from those positions in both companies. He was president of Terra Resources, Inc. from 1979 to 1988. Mr. Merelli has been a director of Apache Corporation since July 1997.

        Steven R. Shaw will become executive vice president of Cimarex following the effective time of the merger. Mr. Shaw has been with Helmerich & Payne since 1985. In 1996, Mr. Shaw was appointed vice president, exploration and production of Helmerich & Payne. From 1985 to 1996, Mr. Shaw served as its vice president, production.

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        Paul Korus will become the vice president and chief financial officer of Cimarex following the effective time of the merger. Mr. Korus joined Key in September 1999, as its vice president and chief financial officer. He was an equity research analyst with Petrie Parkman & Co., an investment banking firm, from June 1995 to September 1999. Prior to that, Mr. Korus was director of investor relations for Apache Corporation.

        Thomas E. Jorden will become the vice president, exploration of Cimarex following the effective time of the merger. Mr. Jorden has been with Key since November 1993. In September 1999, he was appointed vice president-exploration. He served as chief geophysicist from November 1993 until September 1999. Prior to joining Key, Mr. Jorden was with Union Pacific Resources in Fort Worth, Texas.

        Stephen P. Bell will become the senior vice president, business development and land of Cimarex following the effective time of the merger. Mr. Bell has been with Key since February 1994. In September 1999, he was appointed senior vice president-business development and land. From February 1994 to September 1999, he served as vice president-land. From March 1991 to February 1994, he was president of Concord Reserve, Inc., a privately held independent oil and gas company. He was employed by Pacific Enterprises Oil Company (formerly Terra Resources, Inc.) as mid-continent regional manager from February 1990 to February 1991 and as land manager from August 1985 to January 1990.

        Joseph R. Albi will become vice president, engineering of Cimarex following the effective time of the merger. Mr. Albi has been with Key since June 1994. In September 1999, he was appointed vice president-engineering. He served as manager of engineering from June 1994 to September 1999. He was executive vice president of Black Dome Energy Corporation from 1991 to 1994. Prior to that, Mr. Albi held various engineering positions with Apache Corporation and Nicor Oil and Gas Corporation.

        Barbara L. Schaller will become the general counsel and corporate secretary of Cimarex following the effective time of the merger. Ms. Schaller has been with Key since March 1993. She was appointed general counsel and corporate secretary in September 1999. From March 1993 to September 1999, she served as corporate counsel and assistant secretary. Ms. Schaller has been practicing law since 1982 and is a member of the Denver, Colorado and American Bar Associations.

        Gerald A. Nagel will become vice president of Cimarex following the effective time of the merger. Mr. Nagel has been manager of engineering at Helmerich & Payne since 1990.

        Roger Burau will become vice president of Cimarex following the effective time of the merger. Mr. Burau has been with Helmerich & Payne since 1986. In June 1997, Mr. Burau was appointed manager of drilling. Prior to that time, he was a drilling superintendent.

        Gerald P. McLaughlin will become vice president of Cimarex following the effective time of the merger. Mr. McLaughlin has been manager of gas marketing of Helmerich & Payne since 1996.

        Hans Helmerich will be a member of the Cimarex board of directors. Mr. Helmerich has been a member of the board of directors of Helmerich & Payne since 1987. Mr. Helmerich has served as the president and chief executive officer of Helmerich & Payne since 1989. Mr. Helmerich also serves as a director of Atwood Oceanics, Inc.

        Cortland S. Dietler will be a member of the Cimarex board of directors following the effective time of the merger. Mr. Dietler has been a member of the board of directors of Key since September 9, 1992.

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        He has been the chairman of the board of TransMontaigne, Inc. since April 1995. Mr. Dietler was chief executive officer of TransMontaigne from April 1995 through September 1999. The principal business of TransMontaigne, Inc. (through its various operating subsidiaries) is to provide refined petroleum product, terminaling and storage services, as well as the bulk purchase and sale and wholesale marketing of refined petroleum products. Mr. Dietler was the founder, chairman and chief executive officer of Associated Natural Gas Corporation prior to its 1994 merger with Panhandle Eastern Corporation (now Duke Energy Corporation). He also serves as a director of Hallador Petroleum Company, Forest Oil Corporation and Carbon Energy Corporation. His industry affiliations include: member of the National Petroleum Council; director of the American Petroleum Institute; past director of the Independent Petroleum Association of America; and director, past president and life member of the Rocky Mountain Oil & Gas Association.

        L. Paul Teague will be a member of the Cimarex board of directors following the effective time of the merger. Mr. Teague has been a member of the board of directors of Key since August 20, 1996. He retired in 1994 from his position as vice president, Western Region, Texaco Exploration & Producing Inc. in Denver. Other positions in his 35 years with Texaco included division manager of the New Orleans Division, Eastern Producing Department; vice president, New Orleans Producing Division of Texaco USA; and vice president, Producing Department, Texaco USA in Houston. His industry affiliations include: chairman of the API Executive Committee on Drilling and Production Practices; president of the Colorado Petroleum Association; director and executive committee member of the Rocky Mountain Oil & Gas Association; and executive committee member of the Louisiana Oil & Gas Association.

        Paul D. Holleman will be a member of the Cimarex board of directors following the effective time of the merger. Mr. Holleman has been a member of the board of directors of Key since April 4, 2001. He retired in 2000 from his position as senior partner in Holme Roberts & Owen LLP, a Denver law firm. At Holme Roberts he had served as legal counsel to Key Production and other oil and gas companies. Other positions in his 40 years with Holme Roberts included chairman of the Natural Resources Department and member of the executive committee. He was president of Inter-American Petroleum Corporation in 1970 and 1971 and was a director of Janus Fund in those same years. He is past chairman of the Mineral Law Section of the Colorado Bar Association, past chairman of the Rocky Mountain Mineral Law Institute and past chairman of the American Bar Association Public Lands Committee of the Natural Resources Section.

        Glenn A. Cox will be a member of the Cimarex board of directors following the effective time of the merger. Mr. Cox was President and Chief Operating Officer of Phillips Petroleum Company until his retirement in 1991. Mr. Cox also serves as a director of Helmerich & Payne, Inc.

        David A. Hentschel will be a member of the Cimarex board of directors following the effective time of the merger. Mr. Hentschel served as chairman and chief executive officer of Occidental Oil and Gas Corporation from 1997 until his retirement in 1999, at which time he was retained as a consultant to the company. From 1995 until 1997, Mr. Hentschel served as president and chief executive officer of Canadian Occidental Petroleum Ltd., since renamed Nexen Inc. Mr. Hentschel also serves as a director of Nexen Inc.

        L.F. Rooney, III will be a member of the Cimarex board of directors following the effective time of the merger. Mr. Rooney has been chairman of Manhattan Construction Company since 1994 and President of Rooney Brothers Company since 1984. Mr. Rooney also serves as a director of Helmerich & Payne, Inc., BOK Financial Corp. and Bank of Oklahoma, N.A.

        Michael J. Sullivan will be a member of the Cimarex board of directors following the effective time of the merger. Since 2001, Mr. Sullivan has been Special Counsel with Rothgerber Johnson & Lyons LLP. From 1998 until 2001, Mr. Sullivan served as the United States Ambassador to Ireland. From 1995

77



until 1998, Mr. Sullivan practiced law with the firm of Brown, Drew, Apostolos, Massey & Sullivan. Mr. Sullivan also serves as a director of Allied Irish Bank Group and AllFirst Bank.


Current Directors and Executive Officers of Cimarex

        The board of directors of Cimarex is currently composed of Mr. Helmerich, Douglas E. Fears and Steven R. Mackey. Those individuals, together with Mr. Shaw, also currently serve as the executive officers of Cimarex. Messrs. Mackey and Fears will remain directors of Cimarex until the effective time of the merger, at which time each of them will resign from the board of directors of Cimarex and their respective positions as officers of Cimarex. Mr. Helmerich will remain on the board of directors of Cimarex after the effective time of the merger, but will resign from the position of president and chief executive officer of Cimarex. Mr. Shaw will continue as an executive officer of Cimarex after the effective time of the merger.

        The following table sets forth the names, ages (as of July 31, 2002) and titles of the current directors and executive officers of Cimarex:

Name

  Age
  Position
Hans Helmerich   43   President, Chief Executive Officer and Director
Steven R. Shaw   51   Vice President
Douglas E. Fears   52   Vice President, Treasurer and Director
Steven R. Mackey   50   Vice President, Secretary and Director

        Biographical information for Messrs. Helmerich and Shaw is provided above under "Management of Cimarex—Directors and Executive Officers". Biographical information for Messrs. Fears and Mackey is as follows:

        Douglas E. Fears currently serves as vice president, treasurer and director of Cimarex. Mr. Fears has been vice president, finance of Helmerich & Payne since 1988.

        Steven R. Mackey currently serves as vice president, secretary and director of Cimarex. Mr. Mackey has been vice president and general counsel of Helmerich & Payne since 1988 and secretary of Helmerich & Payne since 1990.


Cimarex Board of Directors

        Under the terms of the merger agreement, the board of directors of Cimarex after completion of the merger will be composed initially of nine individuals, four of whom are current directors of Key and five of whom are designated by Helmerich & Payne. The Cimarex board of directors will be divided into three classes, each class consisting of three directors. The initial terms of the directors will expire on the date of the annual meeting in 2003, 2004 and 2005 depending on the class in which the director is placed.


Committees of the Cimarex Board of Directors

        Upon the completion of the merger, the board of directors of Cimarex initially will have an audit committee, a compensation committee and a nominating committee.


Compensation of Directors

        Upon completion of the merger, the form and amount of the compensation to be paid to non-employee directors of Cimarex will be determined by the compensation committee of the Cimarex board of directors. Key and Helmerich & Payne anticipate that directors who are officers of Cimarex will receive no additional compensation for serving on its board of directors.

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Officer and Director Indemnification

        Cimarex's by-laws will provide for the indemnification of its officers and directors and the advancement to them of expenses in connection with the proceedings and claims, to the fullest extent permitted by applicable law. The by-laws will include related provisions meant to facilitate the indemnitee's receipt of such benefits. These provisions will cover, among other things:

        In addition, Cimarex will obtain insurance coverage for directors' and officers' liability prior to the consummation of the merger.


Executive Compensation

        Cimarex has not yet paid any compensation to any person expected to be an executive officer of Cimarex after the effective time of the merger. The form and amount of the compensation to be paid to each of Cimarex's executive officers in any future period will be determined by the compensation committee of the Cimarex board of directors. Key and Helmerich & Payne anticipate that the annual compensation for each of the executive officers of Cimarex will initially be substantially the same as the compensation paid to such executive officers by Key and Helmerich & Payne, as applicable before the merger.

        Information regarding the compensation of the persons who, after the merger, will serve as the chief executive officer and the five most highly compensated executive officers of Cimarex (collectively, the named executive officers) is set forth below. All compensation set forth below was paid by Key with respect to Messrs. Merelli, Korus, Jorden, Albi and Bell and by Helmerich & Payne with respect to Mr. Shaw.

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        Summary Compensation Table.     The summary compensation table set forth below contains information regarding compensation paid to each of the named executive officers for services rendered to Key and Helmerich & Payne, as applicable, in all capacities during the last three fiscal years.

 
  Annual Compensation
  Long-Term Compensation
   
 
Name and Principal Position

  Year
  Salary(1)
  Bonus
  Other Annual
Compensation ($)

  Restricted
Stock
Awards ($)

  Securities
Underlying
Options

  All Other
Compensation

 
F.H. Merelli,
Chairman, Chief Executive Officer, President
  2001
2000
1999
  $
$
$
306,328
265,041
196,977
  $
$
$
238,537
59,604
26,269
   

   

 
125,000
  $
$
$
8,420
12,838
11,132
(2)


Steven R. Shaw
Executive Vice President

 

2001
2000
1999

 

$
$
$

304,750
286,000
262,753

 

$
$
$

120,000
200,000
45,000

 

$
$
$

543
479
464

(3)


 




 

50,000
50,000
50,000

(4)


$
$
$

8,500
8,500
8,000

(5)


Paul Korus
Vice President and Chief Financial Officer

 

2001
2000
1999

 

$
$
$

178,776
157,750
42,801

 

$
$

141,975
12,840

 

 




 



$



96,875



(9)



120,000

 

$
$
$

6,800
6,277
1,496

(6)


Thomas E. Jorden,
Vice President, Exploration

 

2001
2000
1999

 

$
$
$

168,995
154,833
133,102

 

$
$
$

139,350
39,931
18,165

 

 




 

 




 



80,000

 

$
$
$

12,440
7,758
6,032

(7)


Joseph R. Albi,
Vice President, Engineering

 

2001
2000
1999

 

$
$
$

157,728
144,541
120,601

 

$
$
$

130,087
36,181
15,850

 

 




 

 




 



80,000

 

$
$
$

6,800
7,169
5,440

(6)


Stephen P. Bell
Senior Vice President, Business Development and Land

 

2001
2000
1999

 

$
$
$

157,436
144,541
112,782

 

$
$
$

130,087
34,198
14,515

 

 




 

 




 



80,000

 

$
$
$

11,535
7,169
5,127

(8)


(1)
Includes amounts earned but deferred at the election of the officer, if any.
(2)
Includes Key's matching contribution of $6,800 (made in the form of Key common stock) pursuant to Key's 401(k) plan and the one-year term cost of life insurance provided for Mr. Merelli of $1,620.
(3)
Represents payment of estimated tax liability with respect to company-provided health and retirement benefits.
(4)
Consists of shares underlying options to purchase Helmerich & Payne common stock.
(5)
Consists of Helmerich & Payne's matching contribution of $8,500 pursuant to Helmerich & Payne's 401(k) plan.
(6)
Consists of Key's matching contribution of $6,800 (made in the form of Key common stock) pursuant to Key's 401(k) plan.
(7)
Includes Key's matching contribution of $6,800 (made in the form of Key common stock) pursuant to Key's 401(k) plan and a credit of $5,640 pursuant to Key's deferred compensation plan.
(8)
Includes Key's matching contribution of $6,800 (made in the form of Key common stock) pursuant to Key's 401(k) plan and a credit of $4,735 pursuant to Key's deferred compensation plan.
(9)
Consists of 10,000 restricted shares of Key stock valued at the closing price of $9.6875 per share on the date of grant and which will vest fully on September 20, 2002. The restricted stock agreement provides that, during the vesting period if Key pays a dividend on its common stock, Mr. Korus will be entitled to receive such dividend. Key does not currently pay dividends on its common stock.

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OPTION GRANTS IN LAST FISCAL YEAR

Name

  Number of
Securities
Underlying
Options Granted
(#)(1)

  Percent of Total Options
Granted to Employees
in Fiscal Year

  Exercise or
Base Price
($/share)(2)

  Expiration Date
  Grant Date Present
Value $(3)

F.H. Merelli          
Steven R. Shaw   50,000   .059 (4) 32.125   12/6/10   601,000
Paul Korus          
Thomas E. Jorden          
Joseph R. Albi          
Stephen P. Bell          

(1)
These options to purchase Helmerich & Payne common stock were granted pursuant to the Helmerich & Payne, Inc. 1996 Stock Incentive Plan and are nonqualified stock options which vest annually in 25% increments, beginning one year from the date of grant.

(2)
The exercise price is the fair market value of Helmerich & Payne's common stock on the grant date.

(3)
The hypothetical present values on grant date were calculated under a modified Black-Scholes model, which is a mathematical formula used to value options. This formula considers a number of factors in hypothesizing an option's present value. Factors used to value the options include the stock's expected annual volatility rate (50.00%), risk free rate of return (6.03%), dividend yield (0.93%), term (10 years) and discounts for forfeiture of unvested shares (21.21%) and reduced term on vested shares (18.34%). The ultimate values of these options will depend on the future market price of Cimarex's common stock, which cannot be forecast with reasonable accuracy. The actual value, if any, the optionee will realize will depend on the excess of the market value of Cimarex's common stock over the exercise price on the date of exercise.

(4)
This percentage is based upon the aggregate number of options granted to Helmerich & Payne employees in fiscal year 2001.

81



AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2001
AND FISCAL YEAR 2001 YEAR-END OPTION VALUES

 
   
   
 
Number of Securities
Underlying
Unexercised Options
at 2001 Year End

  Values of Unexercised
In-the-Money Options
at 2001 Year End

 

Name

  Number of Shares
Acquired on
Exercise

  Value Realized
  Exercisable
  Unexercisable

  Exercisable

  Unexercisable

 
F.H. Merelli  
      250,000
41,667
(1)
(3)

83,333

(3)
$
$
1,406,250
153,647
(2)
(2)

$

307,290

(2)

Steven R. Shaw

 

25,000

 

$

1,064,489

 

99,000

(4)

131,000

(5)

$

249,963

(6)

$

283,038

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul Korus

 

5,000

 

$

65,587

 


45,000


(7)


40,000


(7)


$


329,063


(2)


$


292,500


(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thomas E. Jorden

 


 

 


 

32,333

(7)

26,667

(7)

$

236,435

(2)

$

195,002

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joseph R. Albi

 

4,000

 

$

45,390

 


34,833


(7)


26,667


(7)


$


254,716


(2)


$


195,002


(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stephen P. Bell

 


 

 


 

35,833

(7)

26,667

(7)

$

262,029

(2)

$

195,002

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Options to purchase Key common stock were granted on January 26, 1997, and vested at a rate of one-third per year over three years. These options were granted under Key's 1992 Stock Option Plan. Upon the effective time of the merger, each option to purchase Key common stock will be converted to an option to purchase Cimarex common stock on the same terms and conditions as had been applicable under Key's 1992 Stock Option Plan.

(2)
Amount represents the $17.00 closing price of Key's common stock on December 31, 2001 (the last trading day of Key's fiscal year), on the New York Stock Exchange, less the exercise price multiplied by the number of exercisable/unexercisable stock options at December 31, 2001, that had an exercise price less than $17.00.

(3)
Options to purchase Key common stock were granted on May 25, 2000, and vest at a rate of one-third per year over three years. These options were granted under Key's 1992 Stock Option Plan. Upon the effective time of the merger, each option to purchase Key common stock will vest in full and be converted to an option to purchase Cimarex common stock on the same terms and conditions as had been applicable under Key's 1992 Stock Option Plan.

(4)
Options to purchase 24,000 shares of Helmerich & Payne common stock were granted on December 4, 1996 pursuant to Helmerich & Payne's 1990 Stock Option Plan, and vested at a rate of one-fifth per year over five years. Options to purchase the remaining 75,000 shares of Helmerich & Payne common stock were granted pursuant to Helmerich & Payne's 1996 Stock Option Plan as follows: 37,500 options on December 3, 1997, 25,000 on December 2, 1998 and 12,500 on December 1, 1999. Options granted under the 1996 Stock Option Plan vest at a rate of one-fourth per year over four years. Includes 37,500 out-of-the-money options. Upon the effective time of the spin-off, each option to purchase Helmerich & Payne common stock will be converted to an option to purchase Cimarex common stock using a conversion ratio based on a comparison of the trading price of Helmerich & Payne common stock prior to the spin-off with the trading price of Cimarex common stock following the merger. The converted options will have the same terms and conditions as had been applicable under the plan under which the options were issued.

82


(5)
Options to purchase 6,000 shares of Helmerich & Payne common stock were granted on December 4, 1996 pursuant to Helmerich & Payne's 1990 Stock Option Plan, and vest at a rate of one-fifth per year over five years. Options to purchase the remaining 125,000 shares of Helmerich & Payne common stock were granted pursuant to Helmerich & Payne's 1996 Stock Option Plan as follows: 12,500 options on December 3, 1997, 25,000 on December 2, 1998, 37,500 on December 1, 1999 and 50,000 options on December 6, 2000. Options granted under the 1996 Stock Option Plan vest at a rate of one-fourth per year over four years. Includes 62,500 out-of-the-money options. Upon the effective time of the spin-off, each option to purchase Helmerich & Payne common stock will be converted to an option to purchase Cimarex common stock using a conversion ratio based on a comparison of the trading price of Helmerich & Payne common stock prior to the spin-off with the trading price of Cimarex common stock following the merger. The converted options will have the same terms and conditions as had been applicable under the plan under which the options were issued.

(6)
This amount is based on the $26.10 closing price of Helmerich & Payne's common stock on September 30, 2001 (the last trading day of Helmerich & Payne's fiscal year), on the New York Stock Exchange.

(7)
Options to purchase Key common stock were granted on September 7, 1999, and vest at a rate of one-third per year over three years. These options were granted under Key's 1992 Stock Option Plan. Upon the effective time of the merger, each option to purchase Key common stock will vest in full and be converted to an option to purchase Cimarex common stock on the same terms and conditions as had been applicable under Key's 1992 Stock Option Plan.


Employment Agreements and Change in Control Arrangements with Named Executive Officers

        F. H. Merelli.     Mr. Merelli is party to an employment agreement with Key pursuant to which he agreed to serve as the President and Chief Executive Officer of Key for an indefinite term. Following the merger, Cimarex will assume the employment agreement and Mr. Merelli will serve as the President and Chief Executive Officer of Cimarex. Pursuant to the agreement, Mr. Merelli currently receives a base salary of $321,000 annually (effective September 16, 2001) which is subject to annual adjustment by the board of directors and may be increased, but not decreased, on the basis of such review. Mr. Merelli is also entitled to receive an annual incentive bonus under any plan or program implemented for executives. The Company is also obligated to purchase a $500,000 life insurance policy for Mr. Merelli.

        Cimarex may terminate Mr. Merelli's employment at any time for cause (as defined in the agreement) or after 30 days' notice if not for cause, and Mr. Merelli may terminate his employment at any time for any reason. Upon (i) Mr. Merelli's termination of employment by Cimarex without cause or due to his death or disability or (ii) Mr. Merelli's resignation for good reason (as such term is described in the agreement), he will be entitled to receive continuation of his base salary for two years and the maximum incentive compensation payable pursuant to any plan or program established by Cimarex. Mr. Merelli also participates in the Income Continuance Plan described below, which provides for continuation of his salary and benefits upon certain terminations of employment following the merger. Any payment made to Mr. Merelli pursuant to the agreement will be deducted from the benefits to which he is otherwise entitled pursuant to the Income Continuance Plan described below.

        During the period of his employment and for three years thereafter, Mr. Merelli is required under the agreement to keep confidential any information about Cimarex or its business that is not generally available to the public. Cimarex is also obligated under the agreement to indemnify Mr. Merelli to the maximum extent permissible under applicable law governing the indemnification of officers and directors.

83




        Steven R. Shaw.     Mr. Shaw is party to an agreement with Helmerich & Payne that Cimarex has agreed to assume following the spin-off. If Cimarex terminates Mr. Shaw's employment within 24 months after the spin-off other than for cause, disability, death or the occurrence of a substantial downturn, or if Mr. Shaw terminates his employment for good reason within 24 months after the spin-off (as such terms are defined in the agreement), any options or restricted stock granted to Mr. Shaw under a plan adopted by Cimarex will vest in full and Cimarex will be required to pay or provide Mr. Shaw: (i) a lump-sum payment equal to two times his base salary and annual bonus, (ii) 24 months of benefit continuation, (iii) a prorated annual bonus, and (iv) up to $5,000 for outplacement counseling services; provided that the lump-sum payment and prorated annual bonus shall be payable only if Mr. Shaw executes and does not revoke a release of claims in the form attached to the agreement (as it may be modified in respect of changes in law or applicable regulations). In addition, if Mr. Shaw remains employed with Cimarex for 18 months after the spin-off, he may terminate his employment for any reason during the following thirty days and be entitled to full vesting of any options or restricted stock that had been granted to him before the spin-off. In the event that any benefits payable to Mr. Shaw as a result of the spin-off or merger (including without limitation any benefits provided under the agreement) are subject to the "golden parachute" excise tax under Section 4999 of the Internal Revenue Code, Mr. Shaw will be entitled to receive the greater of (i) such benefits reduced by any applicable excise taxes and (ii) a reduction in his benefits so that no excise taxes are applicable. During the period of his employment, Mr. Shaw is prohibited from divulging any confidential information of Helmerich & Payne and Cimarex, and following his termination of employment, he will be permitted to do so only with the prior written consent of Helmerich & Payne and/or Cimarex, as the case may be. Cimarex agrees to indemnify Mr. Shaw in the same manner as any other key management employees and, during the term of the agreement and for the five-year period following his termination of employment, Cimarex agrees to maintain directors and officers liability insurance covering Mr. Shaw, provided that the indemnity and insurance shall be maintained at a level no less than that in effect immediately prior to the spin-off.


        Messrs. Korus, Jorden, Albi and Bell.     Each of Messrs. Korus, Jorden, Albi and Bell entered into an employment agreement with Key that has since expired. However, each agreement provided that, if the executive continues as an employee after the term of the agreement (as each executive has done) and is terminated without cause following a change in control (as those terms are defined in the agreement), the executive will be entitled to a lump-sum payment equal to two times the executive's base salary at the time of the change in control. Cimarex will assume this obligation following the merger. Accordingly, if Cimarex terminates the executive's employment without cause following the merger, Cimarex will be obligated to make a lump-sum payment to the executive equal to two times his base salary at the time of the merger. Any payments made to these executives pursuant to these agreements will be deducted from the benefits to which the executive is otherwise entitled pursuant to the Income Continuance Plan described below.


Income Continuance Plan

        Key maintains an Income Continuance Plan in which the following employees of Key participate:

        Pursuant to the Income Continuance Plan, if, following a change in control of Key, a participating employee is terminated without cause (as such term is described in the plan) or resigns due to changed

84



circumstances (including, without limitation, a significant change in title, duties, authority or compensation or a greater than 50-mile change in the employee's regular work place), the employee will be entitled to the following benefits:

        In general, the benefits paid pursuant to the Income Continuance Plan are in addition to, and not in lieu of, any benefits which the participants are otherwise entitled to pursuant to a plan, program or contract. However, if an employee is entitled to receive a payment based on annual salary pursuant to the terms of an employment agreement, the benefits paid pursuant to the Income Continuance Plan shall be offset by the benefits paid pursuant to the employment agreement.

        The merger will constitute a change in control under the Income Continuance Plan. As a result, each of Messrs. Merelli, Korus, Jorden, Albi and Bell will be entitled to receive continuation of his base compensation and health and life insurance benefits for 24 months if his employment is terminated without cause or he resigns due to changed circumstances following the effective time of the merger. As discussed above, each of Messrs. Merelli, Korus, Jorden, Albi and Bell is also party to an agreement that provides for salary continuation payments upon a termination without cause or (in the case of Mr. Merelli) resignation for good reason following a change in control. Any payment received pursuant to these agreements will be deducted from the payments to which these executives are entitled under the Income Continuance Plan. The Income Continuance Plan may not be amended after the merger and may not be terminated during the thirty-month period following the merger.


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Beneficial Stock Ownership

Five Percent Holders
Of Key Common Stock
(As of March 31, 2002)*

 
   
   
  Dispositive Authority
   
   
 
 
  Voting Authority
   
   
   
   
 
 
   
   
  Total Amount of Beneficial Ownership
   
 
Name and Address

  Sole
  Shared
  Sole
  Shared
  Percent of Class
 
Dimensional Fund Advisors Inc.(1)
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
  835,186     835,186     835,186   5.93 %

*
Calculations based upon 14,080,468 shares outstanding as of March 31, 2002.

(1)
Information from Schedule 13G filed by Dimensional Fund Advisors with the SEC on February 12, 2002.

85


Officer and Director Ownership
of Key Common Stock
(As of March 31, 2002)*

Name

  Shares Beneficially Owned*
  Percent of Class*
 
F. H. Merelli   705,589 (1)(5)(12) 4.88 %
Cortlandt S. Dietler   146,000 (2)(12) 1.03 %
L. Paul Teague   50,837 (3)(12) 0.36 %
Paul D. Holleman   47,000 (4)(12) 0.33 %
Stephen P. Bell   67,044 (6)(12) 0.47 %
Joseph R. Albi   66,811 (7)(12) 0.47 %
Thomas E. Jorden   66,127 (8)(12) 0.47 %
Paul Korus   194,872 (5)(9)(12) 1.38 %
Barbara L. Schaller   9,563 (10)(12) 0.07 %
All directors and executive officers as group (including the above named persons)   1,255,181 (11)(12) 8.44 %

*
Calculated pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934.

(1)
Includes 152,300 shares held in Mr. Merelli's IRA account; options for 375,000 shares (consisting of options for 250,000 shares which are fully vested and options for 125,000 shares, one-third of which vested on May 25, 2001, with an additional one-third vesting on each subsequent anniversary date); and 9,527 shares held in his 401(k) account.

(2)
Includes options for 87,500 shares which are fully vested.

(3)
Includes options for 6,667 shares which are fully vested.

(4)
Includes options for 45,000 shares, one-third of which will vest on April 4, 2002, with an additional one-third vesting on each subsequent anniversary date.

(5)
Includes 98,662 shares held by Messrs. Merelli and Korus as Trustees of Key's 401(k) retirement plan.

(6)
Includes options for 62,500 shares (consisting of options for 35,833 shares which are fully vested and 26,667 shares which will vest on September 7, 2002); and 4,544 shares held in his 401(k) account.

(7)
Includes 800 shares held in Mr. Albi's IRA account; options for 61,500 shares (consisting of options for 34,833 shares which are fully vested and 26,667 shares which will vest on September 7, 2002); and 4,511 shares held in his 401(k) account.

(8)
Includes options for 59,000 shares (consisting of options for 32,333 shares which are fully vested and 26,667 shares which will vest on September 7, 2002); and 5,367 shares held in his 401(k) account.

(9)
Includes options for 85,000 shares (consisting of options for 45,000 shares which are fully vested and 40,000 shares which will vest on September 7, 2002); 10,000 shares of restricted stock; and 1,210 shares held in his 401(k) account.

(10)
Includes options for 6,667 shares (consisting of 3,334 shares which are fully vested and 3,333 shares which will vest on September 7, 2002) and 1,896 shares held in her 401(k) account.

(11)
Includes options for 788,834 shares of common stock, vesting at various dates beginning September 1, 1993. The 98,662 shares held by Messrs. Merelli and Korus, as trustees of Key's 401(k) retirement plan, were only counted once in this calculation.

(12)
Upon completion of the merger, all unvested options will vest.

86



UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION

        The following unaudited pro forma financial information has been prepared to assist you in your analysis of the financial effects of the merger of Key into Cimarex. We derived this information for each of the respective companies as follows:

        The information prepared is only a summary and you should read it in conjunction with the historical financial statements and related notes contained in the annual reports and other information that Key has filed with the Securities and Exchange Commission or is included elsewhere in this proxy statement/prospectus, as well as the historical financial information for Cimarex included beginning on page F-1 of this proxy statement/prospectus.

        You should consider several factors when comparing the historical financial information of Cimarex and Key to the Unaudited Pro Forma Combined Condensed Financial Information, including the following:

        The Unaudited Pro Forma Combined Condensed Financial Information is for illustrative purposes only. The financial results may have been different had Cimarex been an independent company and had the companies always been combined. You should not rely on the Unaudited Pro Forma Combined Condensed Financial Information as being indicative of the historical results that would have been achieved had the merger occurred in the past or the future financial results that the combined company will achieve after the merger.

        In addition, the purchase price allocation is preliminary and will be finalized following the closing of the merger. The final purchase price allocation will be determined after closing based on the actual fair value of current assets, current liabilities, indebtedness, long-term liabilities, proven and unproven

87



oil and gas properties, identifiable intangible assets and the final number of shares of common stock issued for Key's outstanding shares of common stock and for stock options that are outstanding at closing. We are continuing to evaluate all of these items; accordingly, the final purchase price may differ in material respects from that presented in the Unaudited Pro Forma Combined Condensed Balance Sheet.

88



ACQUISITION OF KEY BY CIMAREX

        The following pro forma financial statements are estimates of the Unaudited Combined Condensed Financial Information of Cimarex as of March 31, 2002, the six months ended March 31, 2002 and the year ended September 30, 2001, assuming the acquisition of Key.


UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

As of March 31, 2002

(In Thousands)

 
  Cimarex
Historical

  Key
Historical

  Purchase
Accounting
Adjustments

  Cimarex
Pro Forma
Combined

Assets                        
  Cash and cash equivalents   $ 4,940   $ 394   $   $ 5,334
  Accounts receivable     22,713     14,954         37,667
  Other current assets     8,165     1,816         9,981
   
 
 
 
    Total current assets     35,818     17,164         52,982
   
 
 
 

Property and equipment, net

 

 

216,874

 

 

195,070

 

 

77,062

 (2a)

 

489,006

Other assets

 

 

880

 

 

1,467

 

 

(1,236

)(2a)

 

1,111
Goodwill             55,362  (2a)   55,362
   
 
 
 
    Total assets   $ 253,572   $ 213,701   $ 131,188   $ 598,461
   
 
 
 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 
  Current liabilities   $ 32,914   $ 22,018   $ 4,200  (2a) $ 59,132
  Long-term debt (net of current portion)         26,714         26,714
  Deferred taxes     39,849     31,957     27,853  (2a)   99,659
  Other long term liabilities     1,533     449         1,982
   
 
 
 
    Total liabilities     74,296     81,138     32,053     187,487
Stockholders' equity     179,276     132,563     99,135  (2b)   410,974
   
 
 
 
    Total liabilities and stockholders' equity   $ 253,572   $ 213,701   $ 131,188   $ 598,461
   
 
 
 

See the accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.

89



UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

For the Six Months Ended March 31, 2002

(In Thousands, except per share data)

 
  Cimarex
Historical

  Key
Historical

  Purchase
Accounting
Adjustments

  Cimarex
Pro Forma
Combined

 
Revenues                          
  Oil and gas sales   $ 47,278   $ 34,012   $   $ 81,290  
  Gas marketing     24,908             24,908  
  Other income     1,186     250     24   (2d)   1,460  
   
 
 
 
 
      73,372     34,262     24     107,658  
   
 
 
 
 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 
  Gas marketing purchases     23,087             23,087  
  Production     7,919         7,589   (2d)   15,508  
  Lease operating         8,325     (8,325 )(2d)    
  Depreciation, depletion and amortization     17,350     19,261     (6,366 )(2c)   30,245  
  Reduction to carrying value of oil and gas properties         45,140     (45,140 )(2c)    
  Production, property and other taxes     4,856     2,151     736   (2d)   7,743  
  General and administrative     5,741     7,399         13,140  
  Interest expense     309     672         981  
  Capitalized interest         (290 )       (290 )
  Interest income         (24 )   24   (2d)    
   
 
 
 
 
      59,262     82,634     (51,482 )   90,414  
   
 
 
 
 

Income (loss) before income taxes

 

 

14,110

 

 

(48,372

)

 

51,506

 

 

17,244

 

Income tax provision (benefit)

 

 

6,437

 

 

(17,184

)

 

19,572

  (2e)

 

8,825

 
   
 
 
 
 

Net income (loss)

 

$

7,673

 

$

(31,188

)

$

31,934

 

$

8,419

 
   
 
 
 
 

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic   $ 0.29   $ (2.22 )       $ 0.21  
   
 
       
 
  Diluted   $ 0.29   $ (2.22 )       $ 0.21  
   
 
       
 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic     26,591     14,019         40,610  
   
 
 
 
 
  Diluted     26,591     14,019     260   (2f)   40,870  
   
 
 
 
 

See the accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.

90



UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

For the Year Ended September 30, 2001

(In Thousands, except per share data)

 
  Cimarex
Historical

  Key
Historical

  Purchase
Accounting
Adjustments

  Cimarex
Pro Forma
Combined

 
Revenues                          
  Oil and gas sales   $ 215,777   $ 108,657   $   $ 324,434  
  Gas marketing     99,140             99,140  
  Other income     2,136     228     168   (2d)   2,532  
   
 
 
 
 
      317,053     108,885     168     426,106  
   
 
 
 
 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 
  Gas marketing purchases     93,819             93,819  
  Production     13,091         15,224   (2d)   28,315  
  Lease operating         16,823     (16,823 )(2d)    
  Depreciation, depletion and amortization     49,699     39,612     14,298   (2c)   103,609  
  Reduction to carrying value of oil and gas properties     78,082     45,140     36,547   (2c)   159,769  
  Production, property and other taxes     18,965     6,872     1,599   (2d)   27,436  
  General and administrative     10,068     4,579         14,647  
  Interest expense     (1,509 )   2,005         496  
  Capitalized interest         (1,148 )       (1,148 )
  Interest income         (168 )   168   (2d)    
   
 
 
 
 
      262,215     113,715     51,013     426,943  
   
 
 
 
 

Income (loss) before income taxes

 

 

54,838

 

 

(4,830

)

 

(50,845

)

 

(837

)

Income tax provision (benefit)

 

 

19,585

 

 

(1,213

)

 

(19,321

)(2e)

 

(949

)
   
 
 
 
 

Income (loss) before cumulative effect of change in accounting method

 

$

35,253

 

$

(3,617

)

$

(31,524

)

$

112

 
   
 
 
 
 

Earnings (loss) per share before cumulative effect of change in accounting method

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic   $ 1.33   $ (0.26 )       $  
   
 
       
 
  Diluted   $ 1.33   $ (0.26 )       $  
   
 
       
 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic     26,591     13,974         40,565  
   
 
 
 
 
  Diluted     26,591     13,974     336   (2f)   40,901  
   
 
 
 
 

See the accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.

91



NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION

Note 1—Basis of Presentation

        Cimarex will account for the acquisition of Key as a purchase. In the distribution of Cimarex to stockholders of Helmerich & Payne, 26,591,321 common shares of Cimarex stock will be distributed to the owners of Helmerich & Payne in the pro rata spin off of the oil and gas producing assets and marketing operations owned by Helmerich & Payne. At the closing of the merger, Cimarex will exchange one share of Cimarex common stock for each share of Key common stock outstanding.

        The accompanying Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the acquisition of Key as of March 31, 2002. The accompanying Unaudited Pro Forma Combined Condensed Statement of Operations for the six months ended March 31, 2002 includes historical revenues and expenses of Cimarex and have been adjusted for the pro forma effect of the merger as if it occurred at October 1, 2000. Results of Key for the three month period ended December 31, 2001 are included in the Unaudited Pro Forma Combined Condensed Statements of Operations for both the six-month period ended March 31, 2002 and the year ended December 31, 2001.

        Cimarex's fiscal year ends on September 30 and Key's fiscal year ends on December 31.

        The accompanying Unaudited Pro Forma Combined Condensed Balance Sheet and the Unaudited Pro Forma Combined Condensed Statement of Operations do not include all information and notes required for complete financial statements.

        Earnings per share for the six months ended March 31, 2002 and for the year ended September 30, 2001 for Cimarex have been calculated based on the net income of Cimarex using the number of Cimarex shares expected to be issued to the stockholders of Helmerich & Payne upon the consummation of the distribution of 26,591,321 Cimarex shares. Earnings per share on a combined basis uses the 26,591,321 shares of Cimarex shares to be issued upon consummation of distribution to Helmerich & Payne, Inc. stockholders plus the weighted average shares outstanding for Key adjusted as described below in Note 2(f).

Note 2—Pro Forma Adjustments to Record the Acquisition of Key

        The following adjustments have been made to the Unaudited Pro Forma Combined Condensed Balance Sheet at March 31, 2002 and the Unaudited Pro Forma Combined Condensed Statement of Operations, for the six months ended March 31, 2002 and for the year ended September 30, 2001, respectively.

(a)
The purchase consideration has been based on Cimarex acquiring 100% of the Key shares outstanding based on an exchange ratio of one share of Cimarex common stock for each share of Key common stock. Options to acquire common stock of Key are exchanged for options to acquire common stock of Cimarex with similar terms. The final purchase price allocation will be determined after closing based on the actual fair value of current assets, current liabilities, indebtedness, long-term liabilities, proven and unproven oil and gas properties, identifiable intangible assets and the final number of shares of Cimarex stock issued for Key's outstanding shares of common stock and stock options that are outstanding at closing. Accordingly, the final purchase price may differ in material respects from that presented in the Unaudited Pro Forma Combined Condensed Balance Sheet. The purchase accounting adjustments are an estimate only

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  (In thousands, except
share and per share data)

 
Calculation of preliminary allocation of purchase price:        
Shares of Cimarex common stock to be issued to Key shareholders     14,080,468  
Average Key stock price per share   $ 15.96  
   
 
Fair value of Cimarex common stock issued   $ 224,724  
Plus—Fair value of Key options to be assumed by Cimarex (all of which will be vested)     6,974  
Plus—Estimated direct merger costs to be incurred by Cimarex     4,200  
   
 
Total purchase price     235,898  
Plus—Fair value of liabilities assumed:        
  Current liabilities, including $7,286 of current portion of long-term debt     22,018  
  Long-term debt     26,714  
  Deferred income tax liability     59,810  
  Other long-term liabilities     449  
Less—Fair value of non oil and gas assets:        
  Cash and cash equivalents     (394 )
  Accounts recievable     (14,954 )
  Other current assets     (1,816 )
  Other long term assets     (231 )
Less—Fair value of property and equipment:        
  Proved oil and gas properties     (259,672 )
  Unproved oil and gas properties     (11,224 )
  Furniture, fixtures and equipment (reclassified from other assets)     (1,236 )
   
 
Residual purchase price allocated to non-amortizable goodwill   $ 55,362  
   
 

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(b)
These pro forma adjustments for the acquisition of Key, eliminate the paid-in capital, unearned compensation, retained earnings and treasury stock of Key, and record the fair value of the common stock issued by Cimarex. The pro forma combined stockholders' equity of Cimarex reflects the following:

 
  (in thousands)
Stockholders' equity of Cimarex as of March 31, 2002   $ 179,276
Fair value of common stock issued to acquire Key     224,724
Fair value of Key options to be assumed by Cimarex (all of which will be vested)     6,974
   
Pro forma stockholders' equity after the acquisition of Key   $ 410,974
   
(c)
Adjusts depreciation, depletion and amortization and the reduction to carrying value of oil and gas properties under the ceiling test, to account for the acquisition as if the merger had occurred October 1, 2000 in a manner consistent with the full cost method of accounting for oil and gas producing properties.
(d)
Reclassification of certain Key amounts in the Unaudited Pro Forma Combined Condensed Statements of Operations to conform to the presentation of Cimarex.
(e)
To record for the income tax expense (benefit) of the pro forma adjustments resulting from the impact of the purchase accounting adjustments using Cimarex's expected effective tax rate of the combined companies of 38%, including state taxes.
(f)
Adjustment to the number of weighted average shares for dilution, related to stock options of Key.

Note 3—Cost Savings and Expenses of the Merger

        Expected cost savings resulting from operating synergies and the elimination of merger-related costs have not been reflected as adjustments to the historical data. The cost savings are expected to result from the consolidation of the corporate headquarters of Cimarex and Key and rationalization of capital spending. Cimarex estimates that it will incur approximately $4.2 million in fees and expenses associated with the merger. Key estimates that it will incur fees and expenses of approximately $4.6 million, which are being expensed as incurred by Key. There are no arrangements to have Helmerich & Payne or Cimarex reimburse any of Key's merger-related costs.

Note 4—Selected Pro Forma Supplemental Oil and Gas Information

        The tables set forth below reflect unaudited pro forma disclosures about the combined company's oil and gas activities. The information was prepared from internally generated information and records of Cimarex and Key.

        Production and average sales price information:

 
  Oil (MBbl)
  Gas(MMcfe)
For the twelve months ended December 31, 2001            
Production     2,326     58,463
Average sales prices (per Bbl of oil and per Mcf of gas)   $ 24.20   $ 4.02

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        Productive wells as of December 31, 2001:

 
  Oil
  Gas
 
  Gross
  Net
  Gross
  Net
Area:                
Mid-Continent   3,445   140.2   1,361   354.1
Gulf Coast   206   35.5   227   51.1
Western   684   61.8   164   32.0
Kansas   165   91.0   466   266.0
   
 
 
 
    4,500   328.5   2,218   703.2
   
 
 
 

        Net undeveloped acres as of December 31, 2001:

California   13,307
Colorado   470
Kansas   15,714
Louisiana   27,769
Michigan   4,124
Mississippi   9,234
Montana   5,893
Nevada   4,864
New Mexico   670
North Dakota   277
Oklahoma   32,825
Texas   90,103
Utah   5,794
Wyoming   39,421
   
    250,465
   

        Estimated proved oil and gas reserves and standardized measure as of December 31, 2001:

 
  Cimarex
  Key
  Combined
 
Oil (MBls)     5,309     9,215     14,524  
Gas (MMcf)     213,184     91,978     305,162  
Equivalent (Bcfe)     245.0     147.3     392.3  
Standardized measure of discounted future net cash flows (millions)   $ 187.4   $ 147.1   $ 334.5  
Percentage of proved developed     98.1 %   99.5 %   98.6 %

*
One barrel of oil is the energy equivalent of six Mcf of natural gas.

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DESCRIPTION OF CIMAREX CAPITAL STOCK

Capital Stock

        The Cimarex capital stock is described below. The following statements are subject to the provisions of the certificate of incorporation and by-laws of Cimarex and the relevant provisions of the laws of the State of Delaware.

        Cimarex currently is authorized to issue up to 100,000,000 shares of common stock, par value $.01 per share. Also, Cimarex is authorized to issue up to 15,000,000 shares of preferred stock, par value $.01 per share, in one or more classes or series. Cimarex has not issued any of this preferred stock. If preferred stock is issued, Cimarex's board of directors may fix the designations, preferences and relative, participating, optional or other special rights and qualifications of the shares of each class or series.

        Dividends may be paid on the Cimarex common stock out of assets or funds legally available for dividends, when and if declared by Cimarex's board of directors, subject to, if preferred stock of Cimarex is then outstanding, any preferential rights of such preferred stock.

        If Cimarex is liquidated, dissolved or wound up, the holders of shares of Cimarex common stock will be entitled to receive the assets and funds of Cimarex available for distribution after payments to creditors and to the holders of any preferred stock, in proportion to the number of shares held by them. Each share of Cimarex common stock entitles the holder of record to one vote at all meetings of stockholders and the votes are non-cumulative. The Cimarex common stock has no subscription rights and does not entitle the holder to any preemptive rights.

        [                        ] is the transfer agent and registrar for the Cimarex common stock.


Shareholder Rights Plan

        Cimarex has adopted a shareholder rights plan. Under the terms of the plan, Cimarex declared as a dividend for each share of common stock outstanding the right to purchase certain preferred stock. As a result, one right will be distributed with each share of Cimarex common stock distributed in the spin-off and the merger. Each right will entitle the registered holder to purchase from Cimarex a unit consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock. The following summary description of the rights does not purport to be complete and is qualified in its entirety by reference to the rights agreement between Cimarex and UMB Bank, N.A., which is filed as an exhibit to this registration statement of which this proxy statement/prospectus is a part.

        Initially, the rights will be attached to all common stock certificates representing shares then outstanding and no separate rights certificates will be distributed. Subject to certain exceptions specified in the rights agreement, the rights will separate from the common stock and a rights distribution date will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons, or an acquiring person, has acquired, obtained the right to acquire, or otherwise obtained beneficial ownership of 15% or more of the outstanding shares of common stock, other than as a result of repurchases of stock by Cimarex or certain inadvertent actions by institutional or certain other stockholders or (ii) 10 business days (or such later date as Cimarex's board of directors will determine) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an acquiring person. However, neither Helmerich & Payne, nor any affiliate nor associate of Helmerich & Payne will be an acquiring person by virtue of Helmerich & Payne's being the beneficial owner of common stock at any time prior to ceasing to be the beneficial owner of such common stock in the spin-off of all of the issued and outstanding common stock, together with the associated rights, to the holders of the outstanding common stock of Helmerich & Payne.

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        The rights are not exercisable until the rights distribution date and will expire at 5:00 p.m. (New York City time) on February 22, 2012, unless such date is extended or the rights are earlier redeemed or exchanged by Cimarex as described below.

        If a person becomes an acquiring person, except pursuant to an offer for all outstanding shares of common stock which the independent directors determine to be fair and not inadequate and to otherwise be in the best interests of Cimarex and its stockholders, after receiving advice from one or more investment banking firms, each holder of a right will thereafter have the right to receive, upon exercise, common stock (or, in certain circumstances, cash, property or other securities of Cimarex) having a value equal to two times the exercise price of the right. However, following the occurrence of the event described in this paragraph, all rights that are, or were, beneficially owned by any acquiring person will be null and void. However, rights are not exercisable following the occurrence of the event set forth above until such time as the rights are no longer redeemable by Cimarex as set forth below.

        For example, at an exercise price of $60 per right, each right not owned by an acquiring person following an event set forth in the preceding paragraph would entitle its holder to purchase $120 worth of common stock (or other consideration, as noted above) for $60. Assuming that the common stock had a per share value of $60 at such time, the holder of each valid right would be entitled to purchase two shares of common stock for $60.

        If, at any time following the stock acquisition date (as described above), (i) Cimarex engages in a merger or other business combination transaction in which Cimarex is not the surviving corporation (other than pursuant to an offer for all outstanding shares of common stock which the independent directors determine to be fair and not inadequate and to otherwise be in the best interests of Cimarex and its stockholders, after receiving advice from one or more investment banking firms), (ii) Cimarex engages in a merger or other business combination transaction in which Cimarex is the surviving corporation and the common stock of Cimarex is changed or exchanged, or (iii) 50% or more of Cimarex's assets, cash flow or earning power is sold or transferred, each holder of a right (except rights which have previously been voided as set forth above) will thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the right.

        At any time after a person becomes an acquiring person and prior to the acquisition by such person or group of fifty percent or more of the outstanding common stock, the Cimarex board of directors may exchange the rights (other than the rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of common stock, or one one-hundredth of a share of preferred stock (or of a share of a class or series of Cimarex preferred stock having equivalent rights, preferences and privileges), per right (subject to adjustment in certain events).

        At any time prior to the earlier of (i) ten business days following the stock acquisition date or (ii) February 22, 2012, Cimarex may redeem the rights in whole, but not in part, at a price of $.01 per right (subject to adjustment in certain events and payable in cash, common stock or other consideration deemed appropriate by Cimarex's board of directors). Immediately upon the action of Cimarex's board of directors ordering redemption of the rights, the rights will terminate and the only right of the holders of rights will be to receive the $.01 redemption price.

        Until a right is exercised, the holder thereof, as such, will have no rights as a stockholder of Cimarex, including, without limitation, the right to vote or to receive dividends. While the distribution of the rights will not be taxable to stockholders or to Cimarex, stockholders may, depending upon the circumstances, recognize taxable income in the event that the rights become exercisable for shares of Cimarex common stock (or other consideration) or for common stock of the acquiring company or in the event of the redemption of the rights as described above.

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        Any of the provisions of the rights agreement may be amended by Cimarex's board of directors prior to the rights distribution date. After the rights distribution date, the provisions of the rights agreement may be amended by the board in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of rights, or to shorten or lengthen any time period under the rights agreement.


COMPARISON OF THE RIGHTS OF KEY'S STOCKHOLDERS
BEFORE AND AFTER THE MERGER

        The material differences between Key and Cimarex common stockholders the rights of holders of Key common stock and the rights of holders of shares of Cimarex common stock, resulting from the differences in their governing documents, are summarized below.

        The Amended and Restated Certificate of Incorporation of Cimarex and the Form of Cimarex By-laws are attached to this proxy statement/prospectus as Annex E and F, respectively. Copies of the governing corporate instruments of Key and Cimarex are available, without charge, to any person, including any beneficial owner to whom this proxy statement/prospectus is delivered, by following the instructions under "Where You Can Find More Information" on page            .


Summary of Material Differences Between the Rights of Key Stockholders
and the Rights of Cimarex Stockholders

 
  Key Stockholder Rights
  Cimarex Stockholder Rights
Authorized Capital Stock:   The authorized capital stock of Key currently consists of 65,000,000 shares of capital stock, consisting of (i) 50,000,000 shares of Key common stock, par value $.25 per share and (ii) 15,000,000 shares of preferred stock, par value $.01 per share.   The initial authorized capital stock of Cimarex will consist of 115,000,000 shares of capital stock, consisting of (i) 100,000,000 shares of Cimarex common stock, par value $.01 per share and (ii) 15,000,000 shares of preferred stock, par value $.01 per share.

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Number of Directors; Classified Board:

 

The number of directors on the Key board of directors will be fixed from time to time by resolution of the board of directors. Each director is elected to hold office for a term expiring at the next succeeding annual meeting of stockholders.

 

The number of directors on the Cimarex board of directors will be at least 6 and not more than 9, with the exact number to be fixed by a resolution adopted by a majority of the board of directors. The directors will be divided into three classes, designated Class I, Class II and Class III. Each class will consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire board of directors. The initial division of the board of directors into classes will be made by the decision of the affirmative vote of a majority of the entire board of directors. The term of the initial Class I directors will terminate on the date of the 2003 annual meeting; the term of the initial Class II directors will terminate on the date of the 2004 annual meeting; and the term of the initial Class III directors will terminate on the date of the 2005 annual meeting. At each annual meeting of stockholders beginning in 2003, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term.

Removal of Directors:

 

Any director or the entire board of directors may be removed, with or without cause, by the holders of majority of the shares then entitled to vote at an election of directors.

 

Subject to the rights, if any, of the holders of shares of preferred stock then outstanding, any director or the entire board of directors may be removed from office at a regular or special meeting of the stockholders of Cimarex, but only for cause and only by the affirmative vote of the holders of at least a majority of votes cast on the issue of removal of directors.

Calling a Special Meeting of Stockholders:

 

Special meetings of the Key stockholders may be called by the chairman of the board or the board of directors pursuant to a resolution approved by the affirmative vote of a majority of directors then in office.

 

Special meetings of the Cimarex stockholders may be called by either the chairman of the board of directors, the president, or the board of directors.

 

 

 

 

 

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Stockholder Action by Written Consent:

 

Any action which may be taken at a meeting of stockholders of Key may also be taken by a written consent of the majority of the voting power entitled to vote or by such greater amount as may be required by statute. No such consent is to be valid unless effected within sixty days of the date first executed by a holder of voting power entitled to vote. An execution that is not signed and dated concurrently is to be void.

 

Stockholders of Cimarex may not take any action by written consent in lieu of a meeting.

Amendment of Charter:

 

Key's charter may be amended, altered, or repealed in the manner provided for by the statute. Any amendment, alteration, or repeal of the charter requires approval by stockholders holding a majority of Key's shares that are entitled to vote.

 

Cimarex's charter may be amended, altered, changed or repealed in the manner provided for by the statute in effect at the time of such amendment, alteration, change or repealing. Provisions of the certificate of incorporation relating to the classified board of directors, the elimination of stockholder action by written consent and amendment of the by-laws may only be adopted, amended, altered or repealed by the affirmative vote of at least eighty percent (80%) of the voting power of the shares entitled to vote at an election of directors.

Amendment of By-laws:

 

Key's by-laws may be amended or repealed and new by-laws adopted by the board of directors or by stockholders entitled to vote. Any amendment, alteration, or repeal of the by-laws requires a majority vote of the amending body, whether by the board of directors or the stockholders.

 

Cimarex's by-laws may be adopted, amended, altered or repealed by the affirmative vote of at least a majority of the entire board of directors. The by-laws also may be adopted, amended, altered or repealed by the affirmative vote of at least eighty percent (80%) of the voting power of the shares entitled to vote at an election of directors.

 

 

 

 

 

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Advance notice provisions for board nominations and other stockholder business—annual meeting:

 

A stockholder's notice will be delivered to the secretary not less than 60 days or more than 90 days prior to the first anniversary of the preceding year's annual meeting. However, if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made.

 

A stockholder's notice will be delivered to and received by the secretary not less than 90 days nor more than 100 days prior to the anniversary date of the immediately preceding annual meeting of stockholders. However, if the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.

Advance notice provisions for board nominations and other stockholder business—special meeting:

 

The Key by-laws provide that the only business that can be conducted at special meetings will be the items of business set forth in the notice of special meeting. However, if the corporation calls a special meeting of stockholders for the purpose of electing directors to the board of directors, stockholders may nominate a person or persons for election to such position(s), if the stockholder's notice is delivered to the secretary not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting.

 

The Cimarex by-laws provide that the only business that can be conducted at special meetings will be the items of business set forth in the notice of special meeting.

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EXPERTS

        The consolidated financial statements of Key Production Company, Inc. as of December 31, 2001 and 2000, and for the years then ended, have been incorporated by reference herein and in the registration statement in reliance upon the reports of KPMG LLP, independent accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.

        The financial statements of Key Production Company, Inc. incorporated by reference in this proxy statement/prospectus and elsewhere in the registration statement, to the extent and for the period indicated in their report, have been audited by Arthur Andersen LLP, independent public accountants, and are included herein in reliance upon the authority of said firm as experts in giving said report.

        After reasonable efforts and pursuant to recent SEC guidance to Arthur Andersen LLP, we are unable to obtain the written consent of Arthur Andersen to its being named in this prospectus as having certified our consolidated financial statements as of December 31, 1999 and for the year in the period ended December 31, 1999, as required by Section 7 of the Securities Act. Accordingly, you will not be able to sue Arthur Andersen LLP pursuant to Section 11(a)(4) of the Securities Act of 1933, and therefore your right to recovery under that section may be limited as a result of that lack of consent.

        The consolidated financial statements of Cimarex Energy Co. at September 30, 2001 and 2000 and for each of the three years in the period ended September 30, 2001 included in this proxy statement/prospectus have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere in this proxy statement/prospectus, and are included in reliance upon such report, given on the authority of such firm as experts in accounting and auditing.


LEGAL MATTERS

        The validity of the shares of Cimarex common stock offered pursuant to this proxy statement/prospectus will be passed upon by Skadden, Arps, Slate, Meagher & Flom LLP. It is a condition to the merger that Key and Helmerich & Payne receive opinions from Shearman & Sterling and Skadden, Arps, Slate, Meagher & Flom LLP, respectively, concerning the federal income tax consequences of the merger.


SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS

        If the merger is not consummated, Key will hold a 2002 Annual Meeting of stockholders. If such meeting is held, for a stockholder proposal to be considered for inclusion in Key's proxy statement for the 2002 Annual Meeting, the proposal must have been received at Key's offices no later than [    ], 2002. SEC Rule 14a-8 contains standards as to what stockholder proposals are to be included in a proxy statement.

        If the merger is not consummated and the Key 2002 Annual Meeting is held, if a stockholder intends to present a proposal for consideration or make a nomination for director at the 2002 Annual Meeting outside the processes of SEC Rule 14a-8, the stockholder must meet the requirements of Key's by-laws which require, in general, that notice be delivered to Key not less than 60 days or more than 30 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of (i) the 60th day prior to such annual meeting or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made. You may obtain a copy of the relevant by-law provision by following the instructions under "Where You can Find More Information" on page     .

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GLOSSARY OF OIL AND NATURAL GAS TERMS

        The following are abbreviations and definitions of terms commonly used in the oil and natural gas industry and this proxy statement/prospectus:

        Bbl—One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or NGLs.

        Bbl/d—One stock tank barrel per day, or 42 U.S. gallons liquid volume per day, used in reference to oil or NGLs.

        Bcf—One billion cubic feet of natural gas at standard atmospheric conditions.

        Bcfe—Billion cubic feet equivalent.

        Delay rentals—Fees paid to the owner of the oil and natural gas lease prior to the commencement of production.

        Developed acreage—The number of acres allocated or assignable to producing wells or wells capable of production.

        Development well—A well drilled within or in close proximity to an area of known production targeting existing reservoirs.

        Exploitation—The continuing development of a known producing formation in a previously discovered field. To make complete or maximize the ultimate recovery of oil or natural gas from the field by work including development wells, secondary recovery equipment or other suitable processes and technology.

        Exploration—The search for natural accumulations of oil and natural gas by any geological, geophysical or other suitable means.

        Exploratory well—A well drilled either in search of a new and as yet undiscovered accumulation of oil or natural gas, or with the intent to greatly extend the limits of a pool already partly developed.

        Gross acres—The total acres in which a party has a working interest.

        Mcf—One thousand cubic feet of natural gas.

        Mcfe—One thousand cubic feet equivalent of natural gas, calculated by converting oil to equivalent Mcf at a ratio of 6 Mcf to 1 Bbl of oil.

        Mcfepd—One thousand cubic feet equivalent of natural gas per day, calculated by converting oil to equivalent Mcf at a ratio of 6 Mcf to 1 Bbl of oil.

        Mmcf—One million cubic feet of natural gas.

        Mmcf/d—One million cubic feet of natural gas per day.

        MMBbls—One million barrels (Bbl).

        Mmcfe—One million cubic feet equivalent of natural gas, calculated by converting oil to equivalent Mmcf at a ratio of 6 Mmcf to 1,000 Bbl of oil.

        MBTU—One million British thermal units. One British thermal unit is the amount of heat required to raise the temperature of one pound of water one degree Fahrenheit.

        NGL—Natural gas liquid.

        Net acres—Gross acres multiplied by the percentage working interest owned by a party.

        NYMEX—New York Mercantile Exchange.

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        Operator—The individual or company responsible for the exploration, exploitation and production of an oil or natural gas well or lease.

        Proved developed reserves—Proved oil and gas reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

        Proved reserves—The estimated quantities of oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

        Proved undeveloped reserves—Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

        3-D seismic—The method by which a three-dimensional image of the earth's subsurface is created through the interpretation of reflection seismic data collected over a surface grid. 3-D seismic surveys allow for a more detailed understanding of the subsurface than do conventional surveys and contribute significantly to field appraisal, exploitation and production.


WHERE YOU CAN FIND MORE INFORMATION

        Key files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy this information at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about its public reference facilities.

        The SEC also maintains a public Internet web site that contains reports, proxy and registration statements and other information about issuers, like Key and Helmerich & Payne, who file electronically with the SEC. The address of that site is http://www.sec.gov.

        You may also obtain information about Key and Helmerich & Payne at http://www.keyproduction.com and http://www.hpinc.com, respectively. The information contained on these websites does not form a part of this proxy statement/prospectus.

        You can also inspect reports, proxy and registration statements and other information about Key and Helmerich & Payne at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York, 10005.

        Certain documents are incorporated by reference to this proxy statement/prospectus. These documents are available, without charge, excluding all exhibits unless the exhibit has been specifically incorporated by reference in this proxy statement/prospectus. You can obtain copies of the documents relating to Key by contacting Key at:

        In order to ensure timely delivery of the documents, any requests should be made by [                        ], 2002.

104



INCORPORATION BY REFERENCE

        Cimarex has filed a registration statement on Form S-4 under the Securities Act to register with the SEC the shares of Cimarex common stock to be issued pursuant to the merger agreement. This proxy statement/prospectus is a part of that registration statement. As allowed by SEC rules, this proxy statement/prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement. You may obtain copies of the Form S-4 (and any amendments to those documents) by following the instructions under "Where You can Find More Information" on this page.

        The SEC allows us to "incorporate by reference" information into this proxy statement/prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy statement/prospectus, except for any information superseded by information contained directly in this proxy statement/prospectus or in any proxy statement/prospectus filed after the date of this proxy statement/prospectus by Key with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until the special meeting of Key's stockholders. This proxy statement/prospectus incorporates by reference the documents set forth below that Key has previously filed with the SEC. These documents contain important information about Key and its financial condition.

        The documents Key incorporates by reference are:

        Key incorporates by reference the documents listed above and any additional documents filed by it with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until Key's meeting of stockholders.

        You should rely only on the information contained or incorporated by reference in this proxy statement/prospectus to vote on the adoption of the merger agreement. Neither Key, Cimarex nor Helmerich & Payne has authorized anyone to provide you with information that is different from what is contained in this proxy statement/prospectus. This proxy statement/prospectus is dated as of the date set forth on the cover page. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other that this date and neither the mailing of this proxy statement/prospectus to stockholders nor the delivery of shares of Cimarex common stock pursuant to the merger shall create any implications to the contrary.

105



INDEX TO THE CIMAREX ENERGY CO. CONSOLIDATED FINANCIAL STATEMENTS

 
Report of Independent Auditors

Consolidated Statements of Operations for the six months ended March 31, 2002 and 2001 and for the years ended September 30, 2001, 2000 and 1999

Consolidated Balance Sheets as of March 31, 2002 and September 30, 2001 and 2000

Consolidated Statements of Cash Flows for the six months ended March 31, 2002 and 2001 and for the years ended September 30, 2001, 2000 and 1999

Consolidated Statements of Shareholder's Equity for the six months ended March 31, 2002 and for the years ended September 30, 2001, 2000 and 1999

Notes to Consolidated Financial Statements

F-1



REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Cimarex Energy Co.

        We have audited the accompanying consolidated balance sheets of Cimarex Energy Co., (See Note 1) as of September 30, 2001 and 2000, and the related consolidated statements of operations shareholder's equity and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of Cimarex Energy Co.'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 consolidated financial position of Cimarex Energy Co., (See Note 1) at September 30, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States.

     
     

 

 

ERNST & YOUNG LLP

Tulsa, Oklahoma
May 8, 2002, except as to the first paragraph of Note 1
as to which the date is August     , 2002.

        The foregoing report is in the form that will be signed upon the completion of the recapitalization described in Note 1 to the financial statements.

Tulsa, Oklahoma
August 2, 2002

F-2



CIMAREX ENERGY CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Share Data)

 
  For the Six Months Ended March 31,
  For the Years Ended September 30,
 
  2002
  2001
  2001
  2000
  1999
 
  (Unaudited)

   
   
   
REVENUES:                              
  Oil and gas sales   $ 47,278   $ 132,197   $ 215,777   $ 155,657   $ 91,012
  Gas marketing sales     24,908     59,626     99,140     78,921     54,263
  Other income     1,186     793     2,136     2,906     1,627
   
 
 
 
 
      73,372     192,616     317,053     237,484     146,902
   
 
 
 
 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Gas marketing purchases     23,087     54,903     93,819     74,720     49,950
  Production     7,919     5,632     13,091     10,687     11,031
  Depreciation, depletion, and amortization     17,350     20,882     49,699     41,704     31,939
  Reduction to carrying value of oil and gas properties             78,082        
  Production, property and other taxes     4,856     10,591     18,965     12,092     8,634
  General and administrative     5,741     5,484     10,068     7,598     7,340
  Interest expense     309     (340 )   (1,509 )   618     1,092
   
 
 
 
 
      59,262     97,152     262,215     147,419     109,986
   
 
 
 
 

Income before income taxes

 

 

14,110

 

 

95,464

 

 

54,838

 

 

90,065

 

 

36,916

Provision for income taxes

 

 

6,437

 

 

35,406

 

 

19,585

 

 

32,679

 

 

13,357
   
 
 
 
 
Net income   $ 7,673   $ 60,058   $ 35,253   $ 57,386   $ 23,559
   
 
 
 
 
Basic earnings per share   $ 76,730   $ 600,580   $ 352,530   $ 573,860   $ 235,590
   
 
 
 
 
Weighted average shares outstanding     100     100     100     100     100
   
 
 
 
 
Pro forma earnings per share (unaudited)                              
  Basic   $ 0.29   $ 2.26   $ 1.33   $ 2.16   $ 0.89
   
 
 
 
 
Pro forma weighted average shares outstanding (unaudited)                              
  Basic     26,591,000     26,591,000     26,591,000     26,591,000     26,591,000
   
 
 
 
 

The accompanying notes are an integral part of these financial statements.

F-3



CIMAREX ENERGY CO.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

 
   
  September 30,
 
  March 31,
2002

 
  2001
  2000
 
  (Unaudited)

   
   
ASSETS:                  
Current assets                  
  Cash and cash equivalents   $ 4,940   $   $ 455
  Accounts receivable, less allowances of $1,234, $334 and $339     22,713     30,483     40,141
  Inventories     4,289     5,381     3,387
  Deferred income taxes     861     521     3,272
  Other current assets     3,015     1,012     7,385
   
 
 
    Total current assets     35,818     37,397     54,640
   
 
 
Property and equipment, at cost:                  
  Proved properties     813,555     785,016     681,741
  Unproved properties and properties under development, not being amortized     25,217     28,636     27,913
  Office equipment and other     8,358     7,880     6,834
   
 
 
      847,130     821,532     716,488
  Less: Accumulated depreciation, depletion and amortization     630,256     612,995     485,480
   
 
 
    Net property and equipment     216,874     208,537     231,008
Other assets     880     278     442
   
 
 
    Total assets   $ 253,572   $ 246,212   $ 286,090
   
 
 
LIABILITIES AND SHAREHOLDER'S EQUITY:                  
Current liabilities                  
  Accounts payable   $ 6,703   $ 22,781   $ 13,418
  Accrued liabilities     14,401     22,019     31,389
  Due to Helmerich & Payne, Inc.      11,810        
   
 
 
    Total current liabilities     32,914     44,800     44,807
   
 
 
Noncurrent liabilities                  
  Deferred income taxes     39,849     33,132     47,021
  Other     1,533     1,485     1,290
   
 
 
    Total noncurrent liabilities     41,382     34,617     48,311
   
 
 
Commitments and Contingencies                  
Shareholder's Equity                  
  Preferred stock $.01 par value, no shares issued, 1 million shares authorized; Common stock, $.01 par value, 100 shares issued, 100 million shares authorized            
  Accumulated equity     179,276     166,795     192,972
   
 
 
    Total shareholder's equity     179,276     166,795     192,972
   
 
 
    Total liabilities and shareholder's equity   $ 253,572   $ 246,212   $ 286,090
   
 
 

The accompanying notes are an integral part of these financial statements.

F-4



CIMAREX ENERGY CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 
  For the Six Months
Ended March 31,

  For The Years Ended
September 30,

 
 
  2002
  2001
  2001
  2000
  1999
 
 
  (Unaudited)

   
   
   
 
Operating Activities                                
Net Income   $ 7,673   $ 60,058   $ 35,253   $ 57,386   $ 23,559  
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities—                                
  Depreciation, depletion and amortization     17,350     20,882     49,699     41,704     31,939  
  Reduction to carrying value of oil and gas properties             78,082          
  Gain on sales of property and equipment             (167 )   (51 )    
  Change in assets and liabilities                                
    Accounts receivable     7,770     916     9,658     (18,964 )   409  
    Inventories     1,092     (3,176 )   (1,994 )   (371 )   (425 )
    Other current assets     (2,003 )   2,605     6,373     (110 )   (897 )
    Other assets     (602 )   65     164     (204 )   98  
    Accounts payable     (15,130 )   (1,003 )   5,550     8,876     544  
    Accrued liabilities     (7,618 )   (386 )   (9,370 )   10,090     3,980  
    Deferred income taxes     6,377     10,732     (11,138 )   11,707     4,089  
    Other noncurrent liabilities     48     166     248     (71 )   13  
   
 
 
 
 
 
Net cash provided by operating activities     14,957     90,859     162,368     109,992     63,309  
   
 
 
 
 
 
Investing Activities                                
  Capital expenditures     (26,635 )   (48,136 )   (101,588 )   (72,800 )   (50,891 )
  Proceeds from sale of assets               205     142      
   
 
 
 
 
 
Net cash used in investing activities     (26,635 )   (48,136 )   (101,383 )   (72,658 )   (50,891 )
   
 
 
 
 
 
Financing Activities                                
  Net distributions from (to) Helmerich & Payne, Inc.     4,808     (43,178 )   (61,430 )   (37,078 )   (12,663 )
  Due to Helmerich & Payne, Inc.     11,810                  
   
 
 
 
 
 
Net cash provided by (used in) financing activities     16,618     (43,178 )   (61,430 )   (37,078 )   (12,663 )
   
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents     4,940     (455 )   (455 )   256     (245 )
Cash and cash equivalents, beginning of period         455     455     199     444  
   
 
 
 
 
 
Cash and cash equivalents, end of period   $ 4,940   $   $   $ 455   $ 199  
   
 
 
 
 
 

The accompanying notes are an integral part of these financial statements.

F-5



CIMAREX ENERGY CO.

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

(IN THOUSANDS)

 
  Common Stock
  Accumulated Equity
  Total Shareholder's Equity
 
Balance, September 30, 1998   $   $ 161,768   $ 161,768  
Net income           23,559     23,559  
Net distributions to Helmerich & Payne, Inc           (12,663 )   (12,663 )
   
 
 
 
Balance, September 30, 1999         172,664     172,664  
   
 
 
 
Net income           57,386     57,386  
Net distributions to Helmerich & Payne, Inc           (37,078 )   (37,078 )
   
 
 
 
Balance, September 30, 2000         192,972     192,972  
   
 
 
 
Net income           35,253     35,253  
Net distributions to Helmerich & Payne, Inc           (61,430 )   (61,430 )
   
 
 
 
Balance, September 30, 2001         166,795     166,795  
   
 
 
 
Net income*           7,673     7,673  
Net contributions from Helmerich & Payne, Inc*           4,808     4,808  
   
 
 
 
Balance, March 31, 2002*   $   $ 179,276   $ 179,276  
   
 
 
 

*Amounts for the six months ended March 31, 2002 are unaudited.

The accompanying notes are an integral part of these statements.

F-6



Notes to Consolidated Financial Statements

CIMAREX ENERGY CO.

September 30, 2001, 2000 and 1999 (Information as of
March 31, 2002 and for the six months ended
March 31, 2002 and 2001 is unaudited)

NOTE 1 BASIS OF PRESENTATION

        Cimarex Energy Co. (Cimarex) is a wholly owned subsidiary of Helmerich & Payne, Inc. In July 2002 Helmerich & Payne contributed its oil and gas exploration and production operations and Helmerich & Payne Energy Services, Inc., a wholly owned subsidiary of Helmerich & Payne Inc., involved in natural gas marketing, to Cimarex. Prior to this contribution Cimarex had no operations. The accompanying consolidated financial statements have been retroactively restated to reflect the historical financial position, results of operations, cash flows and shareholder's equity as if the contribution described previously had occurred and Cimarex had operated as a stand alone business throughout the periods presented. This contribution includes all, and only, those assets, liabilities and operations that have historically been managed and reported as the oil and gas production and gas marketing business of Helmerich & Payne, Inc. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. All significant intercompany transactions have been eliminated when preparing these consolidated financial statements. When the financial statements refer to Cimarex, reference includes both Cimarex together with its subsidiary and the assets contributed to the company by Helmerich & Payne, Inc.

        Helmerich & Payne, Inc. provides certain administrative services including but not limited to tax and financial accounting, legal, human resources, information systems, treasury and telecommunications (see Notes 6 and 9). The costs of these services were allocated to Cimarex based on specific identification and, to the extent that such identification was not practical, on the basis of direct labor or other method which management believes to be a reasonable reflection of the utilization of services provided or the benefit received by Cimarex. However, the financial information included herein may not necessarily reflect what the results of operations, cash flows, or financial position would have been had Cimarex been a separate stand-alone entity during the periods presented.

        Because the assets contributed to Cimarex by Helmerich & Payne, Inc. were historically not operated as a separate, stand-alone entity, there are no meaningful historical equity accounts. Accumulated equity represents Helmerich & Payne, Inc.'s contribution of its net investment in the assets as described above after giving effect to net earnings and cash distributions to and from Helmerich & Payne, Inc.

        On February 25, 2002, Key Production Company, Inc. and Cimarex entered into a merger agreement. At the same time Helmerich & Payne, Inc. and Cimarex entered into a distribution agreement that provides for a series of combination transactions which included the transfer of assets and liabilities, as described above, between Helmerich & Payne, Inc. and Cimarex and the distribution of Cimarex stock to Helmerich & Payne, Inc. stockholders on a pro rata basis. After the merger Key will merge with a wholly owned subsidiary of Cimarex and become a new wholly owned subsidiary of Cimarex. Following the distribution and merger Helmerich & Payne, Inc. stockholders will receive 26,591,321 shares (unaudited) of Cimarex common stock and Key stockholders will receive one share of Cimarex common stock for each share of Key common stock. This transaction will be treated as a purchase of Key by Cimarex.

F-7



NOTE 2 DESCRIPTION OF BUSINESS

        Cimarex is an "independent oil and gas producer" actively engaged in the acquisition, exploration, development and production of oil and gas properties. Cimarex explores for and produces oil and gas domestically primarily in the states of Oklahoma, Texas, Kansas, and Louisiana and markets natural gas through Helmerich & Payne Energy Services, Inc.

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES—

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.


INTERIM FINANCIAL INFORMATION—

        The financial information as of March 31, 2002 and for the six months ended March 31, 2002 and 2001 is unaudited but includes all adjustments, consisting of only those of a normal recurring nature, necessary to present fairly the results of the periods presented on a basis consistent with the audited financial statements. Results for the six months ended March 31, 2002 are not necessarily indicative of results to be expected for the full year 2002 or for any future period.


PROPERTY AND EQUIPMENT—

        Cimarex has adopted the full cost method of accounting for its oil and gas operations under the special exemption for an initial public distribution as outlined in paragraph 29 of APB No. 20. Previously, Helmerich & Payne accounted for these activities using the successful efforts method of accounting. Management believes that the full cost method of accounting is preferable because it better reflects the economics associated with its strategy, which is based primarily on increasing proved reserves and production by exploring for and then developing the oil and gas resources discovered. An exploration-oriented strategy inevitably results in the irregular occurrence of dry holes. Management further believes that in evaluating the results of operations, the cost of dry holes should be considered with the cost of successful exploratory wells and other development costs incurred in order to evaluate the economic success of an exploration strategy.

        All costs associated with property acquisition, exploration and development activities are capitalized. Exploration and development costs include dry hole costs, geological and geophysical costs, direct overhead related to exploration and development activities and other costs incurred for the purpose of finding oil and gas reserves. Salaries and benefits paid to employees directly involved in the exploration and development of oil and gas properties as well as other internal costs that can be specifically identified with acquisition, exploration and development activities are also capitalized. Cimarex uses the units-of-production method to amortize capitalized costs.

        In accordance with the full cost accounting rules, capitalized costs of proved oil and gas properties, net of accumulated depreciation, depletion and amortization and deferred income taxes, may not

F-8



exceed the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10 percent, plus the lower of cost or fair value of unproved properties, as adjusted for related tax effects and deferred tax revenues (the "full cost ceiling limitation"). If capitalized costs exceed this limit, the excess must be charged to expense. The expense may not be reversed in future periods, even if higher oil and gas prices subsequently increase the full cost ceiling limitation.

        Based on oil and gas prices in effect at September 30, 2001, the unamortized cost of proved oil and gas properties exceeded the full cost ceiling limitation, resulting in a charge to earnings of $78.1 million or $48.4 million net of income taxes. The costs of certain unevaluated properties are not being amortized. On a quarterly basis, such costs are evaluated for impairments or reductions in value. To the extent that the evaluation indicates these properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized. Abandonments of oil and gas properties are accounted for as adjustments of capitalized costs with no losses recognized.

        Expenditures for maintenance and repairs are charged to operations in the period incurred. Proceeds from the sale of oil and gas properties are credited against capitalized costs, unless such proceeds would significantly alter the amortization base.


CASH AND CASH EQUIVALENTS—

        Cash and cash equivalents consist of cash in banks and investments readily convertible into cash which mature within three months from the date of purchase.


INVENTORIES—

        Inventories, primarily materials and supplies, are valued at the lower of cost (moving average or actual) or market.


REVENUE RECOGNITION—

        Cimarex recognizes revenues from oil and gas sales on the sales method with revenue recognized based on actual volumes of oil and gas sold to purchasers. A liability is recorded for permanent imbalances resulting from gas wells in which Cimarex has sold more production than it is entitled. Natural gas imbalances at March 31, 2002 and at September 30, 2001 and 2000 were not significant. Natural gas marketing revenues are recognized based on actual volumes of gas sold to purchasers.


DERIVATIVES—

        Cimarex does not utilize financial derivative instruments to hedge its market risks.


INCOME TAXES—

        Cimarex operating results historically have been included in consolidated federal and state income tax returns filed by Helmerich & Payne, Inc. A tax sharing agreement exists between Cimarex and

F-9



Helmerich & Payne, Inc. to allocate and settle among themselves the consolidated tax liability on a shared company basis (see Note 4).

        Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of Cimarex's assets and liabilities. Valuation allowances are established to reduce deferred tax assets to an amount that more likely than not will be realized.


EARNINGS PER SHARE—

        Earnings per share are based on the common shares outstanding for all periods presented as there are no dilutive securities related to Cimarex stock for the periods presented. The pro forma earnings per share is based on 26,591,321 Cimarex common shares to be issued upon completion of the distribution of Cimarex stock to Helmerich & Payne, Inc. stockholders as described in Note 1.


FAIR VALUE OF FINANCIAL INSTRUMENTS—

        The carrying amounts of Cimarex's cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.


COMPREHENSIVE INCOME—

        Cimarex applies the provisions of SFAS No. 130 "Reporting Comprehensive Income." However, there was no other comprehensive income during the periods presented.


TRANSPORTATION AND STORAGE—

        Transportation and storage costs are included in production expenses for all periods presented.

NOTE 4 INCOME TAXES

        The operations of Cimarex are included in the Helmerich & Payne, Inc. consolidated tax return. A tax sharing agreement exists between the two entities under which the amount of income taxes allocated to Cimarex is determined as though Cimarex were filing a separate consolidated income tax return, except that under the terms of the tax sharing agreement, Cimarex will not receive the benefit of any loss or similar tax attribute arising during the time that losses from Cimarex are included in the Helmerich & Payne Inc. consolidated federal income tax return. Similar concepts apply to allocate the state unitary, combined or consolidated income tax liability.

        Cimarex must reimburse Helmerich & Payne, Inc. for all taxes paid and is entitled to receive all refunds and credits of taxes previously paid related to past results of Cimarex.

F-10



        The components of the provision (benefit) for income taxes are as follows (in thousands):

 
  Six Months Ended
March 31,

  Years Ended September 30,
 
  2002
  2001
  2001
  2000
  1999
 
  (Unaudited)

   
   
   
CURRENT:                              
  Federal   $   $ 22,214   $ 27,219   $ 19,085   $ 8,039
  State     60     2,460     3,504     1,887     1,229
   
 
 
 
 
      60     24,674     30,723     20,972     9,268
   
 
 
 
 
DEFERRED:                              
  Federal     5,691     9,985     (10,263 )   10,783     3,766
  State     686     847     (875 )   924     323
   
 
 
 
 
      6,377     10,732     (11,138 )   11,707     4,089
   
 
 
 
 
TOTAL PROVISION:   $ 6,437   $ 35,406   $ 19,585   $ 32,679   $ 13,357
   
 
 
 
 

        Reconciliations from the provision for income taxes from continuing operations at the federal statutory rate to the provision for income taxes are as follows (in thousands):

 
  Six Months Ended
March 31,

  Years Ended September 30,
 
 
  2002
  2001
  2001
  2000
  1999
 
 
  (Unaudited)

   
   
   
 
Provision at statutory rate   $ 4,939   $ 33,412   $ 19,193   $ 31,523   $ 12,921  
Effect of state taxes     725     2,446     1,024     2,190     1,159  
Non-conventional fuel source credits utilized     (166 )   (190 )   (367 )   (379 )   (456 )
Excess statutory depletion     (128 )   (274 )   (323 )   (556 )   (212 )
Net operating loss valuation allowance     1,000                  
Other     67     12     58     (99 )   (55 )
   
 
 
 
 
 
Provision for income taxes   $ 6,437   $ 35,406   $ 19,585   $ 32,679   $ 13,357  
   
 
 
 
 
 

        For the six months ended March 31, 2002 Cimarex generated tax net operating losses which are not expected to be realized under the terms of the tax sharing agreement with Helmerich & Payne, Inc. Therefore, a valuation allowance was established to reduce deferred tax assets to an amount that will more likely than not be realized. If Cimarex had filed separate federal income tax returns for all periods presented, provision for income taxes would have decreased by $1 million to $5,437,000 for the six months ended March 31, 2002, and would have remained the same for all other periods presented.

F-11



        The components of Cimarex's net deferred tax liabilities are as follows (in thousands):

 
   
  September 30,
 
  March 31,
2002

 
  2001
  2000
 
  (Unaudited)

   
   
DEFERRED TAX LIABILITIES:                  
  Property, plant and equipment   $ 43,550   $ 34,507   $ 47,346
DEFERRED TAX ASSETS:                  
  Financial accruals     861     521     3,272
  Net operating loss carryforward     3,318        
  Other     1,383     1,375     325
   
 
 
    Gross deferred tax assets     5,562     1,896     3,597
    Valuation allowance     (1,000 )      
   
 
 
    Net deferred tax assets     4,562     1,896     3,597
   
 
 
NET DEFERRED TAX LIABILITIES   $ 38,988   $ 32,611   $ 43,749
   
 
 

NOTE 5 SHAREHOLDER'S EQUITY

        Cimarex does not issue stock options or restricted stock. Employees of Cimarex receive such awards from plans of Helmerich & Payne, Inc. providing for common-stock based compensation to employees. Helmerich & Payne, Inc. applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for its stock option plans. The plans permit the granting of various types of awards including stock options and restricted stock. Awards may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than the market price of the underlying stock on the date of grant. As a result, no compensation cost has been recognized for stock options. Stock options expire 10 years after grant. Options granted under the various plans vest over a four to seven year period. Had compensation cost for the Helmerich & Payne, Inc. plans been determined based on the fair value at the grant dates for awards to employees of Cimarex under these plans, consistent with the methodology of SFAS 123, "Accounting for Stock-Based Compensation", Cimarex's net income would have been the pro forma amounts indicated below (in thousands):

Years Ended September 30,

  2001
  2000
  1999
Net income:                  
  As reported   $ 35,253   $ 57,386   $ 23,559
  Pro forma     33,983     56,550     22,981

        As required by SFAS 123, the above pro forma data reflect the effect of stock option grants to employees of Cimarex beginning with employee stock-based awards in 1997. These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years.

F-12



        The weighted-average fair values of the Helmerich & Payne, Inc. stock options granted to employees of Cimarex at their grant date during 2001, 2000 and 1999 were $13.01, $10.80, and $6.81, respectively. The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. The following summarizes the weighted-average assumptions used in the model:

 
  2001
  2000
  1999
 
Expected years until exercise   4.5   5.5   5.5  
Expected stock volatility   43 % 41 % 38 %
Dividend yield   .8 % .8 % 1.2 %
Risk-free interest rate   5.2 % 6.0 % 6.0 %

        The following summary reflects the status of Helmerich & Payne, Inc.'s stock options granted to employees of Cimarex as of September 30, 2001, 2000 and 1999, and changes during the years ending on those dates (shares in thousands):

 
  2001
  2000
  1999
 
  Options
  Weighted-
Average
Exercise Price

  Options
  Weighted-
Average
Exercise Price

  Options
  Weighted-
Average
Exercise Price

Outstanding at October 1,   698   $ 23.69   628   $ 21.95   479   $ 23.18
Granted   237     32.46   198     24.75   218     16.81
Exercised   (210 )   20.42   (120 )   16.39   (67 )   14.20
Forfeited/Expired   (6 )   27.11   (8 )   24.83   (2 )   13.63
   
 
 
 
 
 
Outstanding on September 30,   719   $ 26.78   698   $ 23.69   628   $ 21.95
   
 
 
 
 
 
Exercisable on September 30,   167   $ 25.92   201   $ 24.64   166   $ 21.27
   
 
 
 
 
 

        In the six months ended March 31, 2002, there were 209,000 Helmerich & Payne, Inc. options granted to Cimarex employees (unaudited).

        The following table summarizes information about Helmerich & Payne, Inc. stock options held by employees of Cimarex at September 30, 2001 (shares in thousands):

 
  Outstanding Stock Options
  Exercisable Stock Options
Range of Exercise Prices
  Options
  Weighted-Average Remaining
Contractual Life

  Weighted-Average
Exercise Price

  Options
  Weighted-Average
Exercise Price

$ 12.00 To $16.50   35   3.1 years   $ 13.56   20   $ 13.45
$ 16.51 To $26.50   357   7.4 years   $ 21.70   89   $ 21.65
$ 26.51 To $38.13   327   8.3 years   $ 33.71   58   $ 36.88
$ 12.00 To $38.13   719   7.6 years   $ 26.78   167   $ 25.92

F-13


        Cimarex has adopted a shareholder rights plan. Under the terms of the plan, Cimarex declared as a dividend for each share of common stock outstanding the right to purchase certain preferred stock. As a result, one right will be distributed with each share of Cimarex common stock distributed in the spin-off and merger with Key. Each right will entitle the registered holder to purchase from Cimarex a unit consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock. The exercise price and the number of units of Preferred Stock issuable on exercise of the rights are subject to adjustment in certain cases to prevent dilution. The rights will be attached to the common stock certificates and are not exercisable or transferrable apart from the common stock, until ten business days after a person acquires 15% or more of the outstanding common stock or ten business days following the commencement of a tender offer or exchange offer that would result in a person owning 15% or more of the outstanding common stock. In the event the Company is acquired in a merger or certain other business combination transactions (including one in which the Company is the surviving corporation), or more than 50% of the Company's assets or earning power is sold or transferred, each holder of a right shall have the right to receive, upon exercise of the right, common stock of the acquiring company having a value equal to two times the exercise price of the right. The rights are redeemable under certain circumstances at $0.01 per right and will expire, unless earlier redeemed, on February 22, 2012.

NOTE 6 EMPLOYEE BENEFIT PLANS

        Helmerich & Payne, Inc. maintains and sponsors noncontributory defined benefit pension plans, contributory health care plans and a contributory 401(k) plan. Cimarex employees participate in these plans and costs related to these plans of $606,000 and $528,000 in the six months ended March 31, 2002 and 2001 (unaudited), respectively, and $1,138,000, $992,000 and $828,000 in 2001, 2000 and 1999, respectively, were charged to Cimarex.

NOTE 7 RISK FACTORS

CONCENTRATION OF CREDIT—

        Financial instruments which potentially subject Cimarex to concentrations of credit risk consist primarily of trade receivables. Trade receivables are primarily with companies in the oil and gas industry. Cimarex normally does not require collateral except for certain receivables of customers in its natural gas marketing operations.


OIL AND GAS OPERATIONS—

        In estimating future cash flows attributable to Cimarex's exploration and production assets, certain assumptions are made with regard to discount rates, commodity prices received and costs incurred. Due to the volatility of commodity prices and cost estimates, it is possible that the assumptions used in estimating future cash flows for exploration and production assets may change in the near term.

F-14




RESERVES—

        Proved oil and gas reserves are based on estimates prepared by independent engineers. There are numerous uncertainties inherent in estimating quantities of proved reserves, projecting future rates of production and the timing of development expenditures. The estimate of proved oil and gas reserves can materially effect the charge for depreciation, depletion and amortization. In addition, a decline in proved reserve estimates may impact the outcome of Cimarex's full cost ceiling limitation calculations.

NOTE 8 ACCRUED LIABILITIES

        Accrued liabilities consist of the following (in thousands):

 
   
  September 30,
 
  March 31,
2002

 
  2001
  2000
 
  (Unaudited)

   
   
Royalties payable   $ 8,839   $ 13,527   $ 18,918
Taxes payable—operations     3,366     4,873     3,478
Ad valorem tax     267     354     7,783
Gas purchases     261     1,400     585
Other     1,668     1,865     625
   
 
 
    $ 14,401   $ 22,019   $ 31,389
   
 
 

NOTE 9 RELATED PARTY TRANSACTIONS

        Prior to October 1, 2001, Cimarex participated in Helmerich & Payne, Inc.'s centralized treasury and cash processes. Cash receipts and disbursements were initially received or paid by Helmerich & Payne, Inc. and through September 30, 2001 were included in Cimarex's distribution to Helmerich & Payne, Inc. in the Statements of Shareholder's Equity. Effective October 1, 2001, cash receipts and disbursements were included in the amounts due to or from Helmerich & Payne, Inc. At March 31, 2002, Cimarex had short-term debt of $11,810,000 to Helmerich & Payne, Inc. related to net cash advances, payroll and allocated administrative services since October 1, 2001. The short-term debt bears interest at an annual rate of 5.38 percent computed on a daily balance. The 5.38 percent is the fixed effective rate Helmerich & Payne, Inc. is charged on its borrowing facility. The short-term debt balance, if any, will be paid to Helmerich & Payne, Inc. at the closing date of the merger. Interest expense on the debt in the six months ended March 31, 2002 was approximately $323,000.

        Helmerich & Payne, Inc. also provides contract drilling services through its wholly-owned subsidiary, Helmerich & Payne International Drilling Company, for Cimarex. Drilling costs of approximately $4.5 million, $3.0 million, and $2.5 million were incurred by Cimarex related to such services in 2001, 2000, and 1999, respectively. Drilling costs of approximately $0.5 million and $1.6 million were incurred related to such services in the six months ended March 31, 2002 and 2001, respectively (unaudited).

F-15


        The consolidated financial statements include allocations of certain corporate expenses, including tax and financial accounting, legal, human resources, information technology services, workers' compensation, treasury and other corporate infrastructure costs. The costs of these services were allocated to Cimarex based on specific identification and, to the extent that such identification was not practical, on the basis of direct labor or other method which management believes to be reasonable. These allocations resulted in charges of $3.8 million, $2.9 million and $3.2 million being recorded in General and Administrative Expense in Cimarex's results of operations for 2001, 2000, and 1999, respectively. In the first six months of March 31, 2002 and 2001, these allocations resulted in charges of $1.9 million and $2.0 million, respectively (unaudited).

NOTE 10 SEGMENT INFORMATION

        Cimarex operates in the oil and gas industry, and is comprised of an Exploration and Production segment and a Natural Gas Marketing segment. Exploration and production activities include the exploration for and development of productive oil and gas properties located primarily in Oklahoma, Texas, Kansas and Louisiana. The Natural Gas Marketing segment markets most of the natural gas produced by the Exploration and Production segment retaining a market based fee from the sale of such production, as well as natural gas produced by third parties. Each reportable segment is a strategic business unit which is managed separately as an autonomous business.

        The segments are evaluated based upon operating profit or loss from operations before income taxes which includes all revenues, costs and expenses except as described below. The accounting policies of the segments are the same as those described in Note 3, Summary of Accounting Policies.

F-16


        Summarized financial information of Cimarex's reportable segments for the six months ended March 31, 2002 and 2001 and each of the years ended September 30, 2001, 2000, and 1999, respectively, is shown in the following table:

(in thousands)

  External
Sales

  Operating
Profit

  Depreciation,
Depletion,
Amortization &
Impairments of
Producing
Properties

  Total
Assets

  Additions
to Long-Lived
Assets

March 31, 2002 (Unaudited):                              
  Exploration and Production   $ 47,438   $ 14,726   $ 17,258   $ 242,064   $ 26,377
  Natural Gas Marketing     25,802     1,439     92     11,508     258
   
 
 
 
 
    Total   $ 73,240   $ 16,165   $ 17,350   $ 253,572   $ 26,635
   
 
 
 
 
March 31, 2001 (Unaudited):                              
  Exploration and Production   $ 132,394   $ 92,397   $ 20,799   $ 284,667   $ 47,986
  Natural Gas Marketing     60,014     4,527     83     26,021     150
   
 
 
 
 
    Total   $ 192,408   $ 96,924   $ 20,882   $ 310,688   $ 48,136
   
 
 
 
 
September 30, 2001:                              
  Exploration and Production   $ 216,667   $ 51,638   $ 127,611   $ 231,606   $ 101,319
  Natural Gas Marketing     100,111     5,254     170     14,606     269
   
 
 
 
 
    Total   $ 316,778   $ 56,892   $ 127,781   $ 246,212   $ 101,588
   
 
 
 
 
September 30, 2000:                              
  Exploration and Production   $ 156,114   $ 87,889   $ 41,540   $ 264,763   $ 72,625
  Natural Gas Marketing     80,907     5,271     164     21,327     175
   
 
 
 
 
    Total   $ 237,021   $ 93,160   $ 41,704   $ 286,090   $ 72,800
   
 
 
 
 
September 30, 1999:                              
  Exploration and Production   $ 91,263   $ 36,444   $ 31,765   $ 220,234   $ 50,630
  Natural Gas Marketing     55,259     4,418     174     14,695     261
   
 
 
 
 
    Total   $ 146,522   $ 40,862   $ 31,939   $ 234,929   $ 50,891
   
 
 
 
 

F-17


        The following table reconciles segment operating profit per the above table to income before taxes as reported on the Consolidated Statements of Operations (in thousands).

 
  Six months ended March 31,
  Years ended September 30,
 
 
  2002
  2001
  2001
  2000
  1999
 
 
  (Unaudited)

   
   
   
 
Segment operating profit   $ 16,165   $ 96,924   $ 56,892   $ 93,160   $ 40,862  
Unallocated amounts:                                
  Interest income     132     208     275     463     380  
  General and administrative expense allocated from Helmerich & Payne, Inc.     (1,878 )   (2,008 )   (3,838 )   (2,940 )   (3,234 )
  Interest expense     (309 )   340     1,509     (618 )   (1,092 )
   
 
 
 
 
 
    Total unallocated amounts     (2,055 )   (1,460 )   (2,054 )   (3,095 )   (3,946 )
   
 
 
 
 
 
Income before income taxes   $ 14,110   $ 95,464   $ 54,838   $ 90,065   $ 36,916  
   
 
 
 
 
 

        The following table reconciles segment total sales per the above table to total revenues as reported on the Consolidated Statements of Operations (in thousands).

 
  Six months ended March 31,
  Years ended September 30,
 
  2001
  2000
  2001
  2000
  1999
 
  (Unaudited)

   
   
   
Segment total sales   $ 73,240   $ 192,408   $ 316,778   $ 237,021   $ 146,522
Interest income     132     208     275     463     380
   
 
 
 
 
Total revenues   $ 73,372   $ 192,616   $ 317,053   $ 237,484   $ 146,902
   
 
 
 
 

NOTE 11 COMMITMENTS AND CONTINGENCIES

KANSAS AD VALOREM SETTLEMENT—

        In fiscal 1997, Cimarex was assessed with approximately $6.7 million of Kansas ad valorem taxes which had been reimbursed to Cimarex for the period from October 1983 through June 1988 by interstate pipelines transporting natural gas to end users. In fiscal 1997, based on the assessment, natural gas revenues were reduced by $2.7 million and interest expense was increased by $4.0 million. In March 1998, approximately $6.1 million of the unpaid assessment was placed in an escrow account pending resolution of this matter. Since March 1998, the escrow account and the related liability continued to accrue interest income and interest expense of approximately $1.0 million.

        The Federal Energy Regulatory Commission approved settlements between Cimarex and three of the pipelines. The last of these settlements was finalized in May 2001. Cimarex paid approximately $3.9 million out of its escrow account for the settlement of all three pipeline proceedings. The three

F-18



settlements were approximately $3.1 million less than the amount Cimarex accrued for this liability. The impact of these settlements in the third quarter of fiscal 2001 was to increase natural gas revenues by approximately $1.1 million, reduce interest expense by approximately $2.0 million and reduce the liability by $3.1 million. At September 30, 2001, Cimarex had an escrow balance of approximately $337,000 to cover the reimbursement liability in the remaining two pipeline proceedings. In the six months ended March 31, 2002, Cimarex settled with one of the two remaining pipelines. The escrow balance at March 31, 2002 is approximately $280,000. In May 2002, a settlement was finalized with the remaining pipeline. The escrow account has now been closed and pre-tax income of approximately $267,000 will be recorded in the quarter ended June 30, 2002.


LITIGATION—

        Cimarex is a defendant to claims of drainage of gas from two properties that it operates. The royalty owner plaintiffs have filed suit on behalf of themselves and a class of similarly situated royalty owners in two 640 acre spacing units. The plaintiffs allege that the two units have suffered approximately 12 billion cubic feet of gross gas drainage. Although the plaintiffs have not specified in their pleadings the amount of damages alleged, the plaintiffs have orally stated that the royalty owner class has sustained actual damages of approximately $6.2 million exclusive of interest and costs. Cimarex estimates that the share of such alleged damages attributable to its working interest ownership would total approximately $1.0 million exclusive of interests and costs. Plaintiffs further allege that, as a former operator, Cimarex is liable for all damages attributable to the drainage. Cimarex believes that it is liable only for its working interest share of any actual damages attributable to the alleged drainage. In the event that the Cimarex is held liable for the full amount of any actual damages, Cimarex will seek contribution, indemnification and/or other appropriate relief from all other working interest owners for their portion of the alleged drainage that is attributable to the interest of those other owners.


LEASES—

        Cimarex has a noncancelable operating lease for office space expiring May 31, 2003. Rental expense for the operating lease totaled $334,000, $327,000 and $320,000 for the years ended September 30, 2001, 2000 and 1999, respectively. The minimum rental commitment under the noncancelable lease is: $341,000 in 2002 and $230,600 in 2003.

NOTE 12 CASH FLOW SUPPLEMENTAL INFORMATION

 
  Six months ended
March 31,

   
   
   
 
  Years ended September 30,
(in thousands)

  2002
  2001
  2001
  2000
  1999
 
  (Unaudited)

   
   
   
Cash payments:                              
Interest   $ 737   $ 7   $ 3,538   $ 15   $ 23
Income taxes   $ 60   $ 24,673   $ 30,670   $ 20,972   $ 9,268

F-19


NOTE 13 NEW ACCOUNTING STANDARDS

        Effective October 1, 2000, Cimarex adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities", as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133, as amended, requires that all derivatives be recorded on the balance sheet at fair value. Upon adoption at October 1, 2000, there was no effect in complying with SFAS 133, as amended, to Cimarex's results of operations and financial position.

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. SFAS No. 141 addresses financial accounting and reporting for business combinations. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001, and for all business combinations accounted for under the purchase method initiated before but completed after June 30, 2001. In addition, in June 2001 the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and applies to all goodwill and other intangibles recognized in the financial statements at that date. The adoption of these standards is not expected to have an impact on Cimarex's current financial position or results of operations. However, any business combinations initiated from this point forward will be impacted by these two standards.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and amends FASB Statement No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies." The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. The Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The effect of this standard on Cimarex's results of operations and financial position is being evaluated.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and amends Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The Statement retains the basic framework of SFAS No. 121, resolves certain implementation issues of SFAS No. 121, extends applicability to discontinued operations, and broadens the presentation of discontinued operations to include a component of an entity. The Statement will be applied prospectively and is effective for financial statements issued for fiscal years beginning after December 15, 2001. Adoption of the Statement is being evaluated but is not expected to have any initial impact on Cimarex's results of operations or financial position.

F-20



NOTE 14 SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS ACTIVITIES

        All of Cimarex's oil and gas producing activities are located in the United States.


Results of Operations from Oil and Gas Producing Activities—

Years ended September 30,

  2001
  2000
  1999
 
  (in thousands)

Revenues   $ 216,667   $ 156,114   $ 91,263
Production costs     32,056     22,779     19,665
Valuation provisions     78,082        
Depreciation, depletion and amortization     48,931     40,955     31,209
Income tax expense     20,574     33,515     14,613
   
 
 
  Total cost and expenses     179,643     97,249     65,487
   
 
 
Results of operations (excluding corporate overhead and interest costs)   $ 37,024   $ 58,865   $ 25,776
   
 
 


Capitalized Costs—

 
  September 30,
 
  2001
  2000
 
  (in thousands)

Proved properties   $ 785,016   $ 681,741
Unproved properties and properties under development, not being amortized     28,636     27,913
   
 
  Total costs     813,652     709,654
Less—Accumulated depreciation, depletion and amortization     608,889     481,885
   
 
Net   $ 204,763   $ 227,769
   
 


Costs Incurred Relating to Oil and Gas Producing Activities—

 
  Years ended September 30,
 
  2001
  2000
  1999
 
  (in thousands)

Property acquisition:                  
  Proved   $ 738   $ 105   $ 89
  Unproved     18,612     11,040     14,385
Exploration     44,166     43,833     22,292
Development     41,459     18,843     19,167
   
 
 
    Total   $ 104,975   $ 73,821   $ 55,933
   
 
 
Amortization rate per equivalent McF   $ 0.97   $ 1.27   $ 1.54
   
 
 

F-21



Costs not being Amortized—

        The following table summarizes oil and gas property costs not being amortized at September 30, 2001 by year that the costs were incurred. All of the costs are exploration costs.

2001   $ 14,837
2000     9,270
1999     1,578
1998 and prior     2,951
   
    $ 28,636
   

        Cimarex expects the majority of these costs to be evaluated and become subject to amortization within the next five years.


Estimated Quantities of Proved Oil and Gas Reserves (Unaudited)—

        Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. The following is an analysis of proved oil and gas reserves as estimated by Netherland, Sewell & Associates, Inc. at September 30, 2001 and 2000. There are numerous uncertainties inherent in estimating quantities of proved reserves, projecting future rates of production

F-22



and the timing of development expenditures. Amounts at September 30, 1999 were estimated by Cimarex and reviewed by independent engineers.

 
  OIL (Bbls)
  GAS (Mmcf)
 
Proved reserves at September 30, 1998   4,761,313   251,626  
Revisions of previous estimates   570,126   11,771  
Extensions, discoveries and other additions   151,829   22,491  
Production   (649,370 ) (44,240 )
Purchases of reserves-in-place     77  
Sales of reserves-in-place     (2,105 )
   
 
 
Proved reserves at September 30, 1999   4,833,898   239,620  
Revisions of previous estimates   1,316,714   17,363  
Extensions, discoveries and other additions   1,119,314   52,569  
Production   (880,304 ) (46,923 )
Purchases of reserves-in-place   1,502   242  
Sales of reserves-in-place   (85,987 ) (373 )
   
 
 
Proved reserves at September 30, 2000   6,305,137   262,498  
Revisions of previous estimates   (700,329 ) (17,018 )
Extensions, discoveries and other additions   1,144,709   12,748  
Production   (818,356 ) (42,387 )
Purchases of reserves-in-place   434   496  
   
 
 
Proved reserves at September 30, 2001   5,931,595   216,337  
   
 
 
Proved developed reserves at:          
  September 30, 1999   4,828,071   229,765  
   
 
 
  September 30, 2000   6,068,480   229,992  
   
 
 
  September 30, 2001   5,212,666   213,931  
   
 
 


Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves (Unaudited)—

        The "Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement under Financial Accounting Standards Board Statement No. 69 "Disclosures About Oil and Gas Producing Activities". The Standardized Measure does not purport to present the fair market value of a company's proved oil and gas reserves. This would require consideration of expected future economic and operating conditions, which are not taken into account in calculating the Standardized Measure.

        Under the Standardized Measure, future cash inflows were estimated by applying year-end prices to the estimated future production of year-end proved reserves. Future cash inflows were reduced by

F-23


estimated future production and development costs based on year-end costs to determine pre-tax cash inflows. Future income taxes were computed by applying the statutory tax rate to the excess of pre-tax cash inflows over Cimarex's tax basis in the associated proved oil and gas properties. Tax credits and permanent differences were also considered in the future income tax calculation. Future net cash inflows after income taxes were discounted using a ten percent annual discount rate to arrive at the Standardized Measure.

 
  At September 30,
 
 
  2001
  2000
  1999
 
 
  (in thousands)

 
Future cash inflows   $ 467,886   $ 1,377,922   $ 688,766  
Future costs—                    
  Future production and development costs     (174,703 )   (317,898 )   (188,579 )
  Future income tax expense     (81,253 )   (331,672 )   (135,763 )
   
 
 
 
Future net cash flows     211,930     728,352     364,424  
10% annual discount for estimated timing of cash flows     (67,891 )   (240,281 )   (131,806 )
   
 
 
 
Standardized measure of discounted future net cash flows   $ 144,039   $ 488,071   $ 232,618  
   
 
 
 


Changes in Standardized Measure Relating to Proved Oil and Gas Reserves (Unaudited)—

 
  Years ended September 30,
 
 
  2001
  2000
  1999
 
 
  (in thousands)

 
Standardized Measure—Beginning of year   $ 488,071   $ 232,618   $ 125,927  
Increases (decreases)—                    
  Sales, net of production costs     (179,776 )   (130,898 )   (72,895 )
  Net change in sales prices, net of production costs     (400,679 )   261,926     142,970  
  Discoveries and extensions, net of related future development and production costs     29,387     156,840     38,164  
  Changes in estimated future development costs     10,667     (36,994 )   (11,095 )
  Development costs incurred     17,311     13,587     16,558  
  Revisions of previous quantity estimates     (15,298 )   57,730     17,713  
  Accretion of discount     68,021     30,951     16,700  
  Net change in income taxes     160,776     (114,762 )   (40,671 )
  Purchases of reserves-in-place     619     542     96  
  Sales of reserves-in-place         (700 )   (1,390 )
  Changes in production rates and other     (35,060 )   17,231     541  
   
 
 
 
Standardized Measure—End of year   $ 144,039   $ 488,071   $ 232,618  
   
 
 
 

F-24


        The following prices were used in determining the standardized measure for the years ended September 30, 2001, 2000 and 1999:

Price per Bbl   $ 20.25   $ 30.83   $ 21.56
Price per Mcf   $ 1.90   $ 5.13   $ 2.45

F-25



ANNEX A

Agreement of Plan and Merger

A-1



AGREEMENT AND PLAN OF MERGER

DATED AS OF FEBRUARY 23, 2002

AMONG

HELMERICH & PAYNE, INC.,

HELMERICH & PAYNE EXPLORATION AND PRODUCTION CO.,

MOUNTAIN ACQUISITION CO.

AND

KEY PRODUCTION COMPANY, INC.

A-2


TABLE OF CONTENTS

ARTICLE 1 DEFINITIONS
ARTICLE 2 THE MERGER
  2.1   Distribution and Merger.
  2.2   Effect on Capital Stock.
  2.3   Cancellation of Stock.
  2.4   Stockholders Meeting.
  2.5   Closing.
  2.6   Effective Time.
  2.7   Closing of Transfer Books.
  2.8   Exchange of Certificates.
  2.9   Company Employee Stock Options, Restricted Stock and Related Matters.
  2.10   Spinco Rights Plan.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF HP CO.
  3.1   Organization; Qualification.
  3.2   Corporate Authority; No Violation.
  3.3   Information Supplied.
  3.4   Brokers or Finders.
  3.5   HP Co. Rights Plan.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF HP CO. AND SPINCO
  4.1   Organization, Qualification.
  4.2   Capital Stock and Other Matters.
  4.3   Corporate Authority; No Violation.
  4.4   Spinco Financial Statements; Liabilities.
  4.5   Absence of Certain Changes or Events.
  4.6   Investigations; Litigation.
  4.7   Licenses; Compliance with Laws.
  4.8   Proxy Statement/Prospectus; Registration Statements.
  4.9   Information Supplied.
  4.10   Environmental Matters.
  4.11   Tax Matters.
  4.12   Benefit Plans.
  4.13   Labor Matters.
  4.14   Intellectual Property Matters.
  4.15   Material Contracts.
  4.16   Brokers or Finders.
  4.17   Certain Board Findings.
  4.18   Vote Required.
  4.19   Stockholder Approval.
  4.20   Certain Payments.
  4.21   Assets.
  4.22   Loans.
  4.23   Oil and Gas Reserves.
  4.24   Derivative Transactions.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
  5.1   Organization, Qualification.
  5.2   Capital Stock and Other Matters.
  5.3   Corporate Authority; No Violation.
  5.4   Company Reports and Financial Statements; Liabilities.
  5.5   Absence of Certain Changes or Events.

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  5.6   Investigations; Litigation.
  5.7   Licenses; Compliance with Laws.
  5.8   Proxy Statement/Prospectus; Registration Statements.
  5.9   Information Supplied.
  5.10   Environmental Matters.
  5.11   Tax Matters.
  5.12   Benefit Plans.
  5.13   Labor Matters.
  5.14   Intellectual Property Matters.
  5.15   Material Contracts.
  5.16   Opinion of Company Financial Advisor.
  5.17   Brokers or Finders.
  5.18   Takeover Statutes.
  5.19   Certain Board Findings.
  5.20   Vote Required.
  5.21   Certain Payments.
  5.22   Assets.
  5.23   Loans.
  5.24   Oil and Gas Reserves.
  5.25   Derivative Transactions.
ARTICLE 6 COVENANTS AND AGREEMENTS
  6.1   Conduct of Business by the Company Pending the Merger.
  6.2   Conduct of Business by Spinco and HP Co. Pending the Merger.
  6.3   Proxy Statement/Prospectus.
  6.4   Cooperation.
  6.5   Letter of Spinco's Accountants.
  6.6   Letter of the Company's Accountants.
  6.7   HP Co./Spinco Employee Stock Options, Incentive and Benefit Plans.
  6.8   Employee Benefit Plans.
  6.9   Investigation.
  6.10   Reasonable Efforts; Further Assurances.
  6.11   No Solicitation by the Company.
  6.12   Director and Officer Indemnification; Insurance.
  6.13   Rule 145 Affiliates.
  6.14   Public Announcements.
  6.15   Defense of Litigation.
  6.16   Notification.
  6.17   Obligations of Merger Sub.
  6.18   Conveyance Taxes.
  6.19   Accounting Matters.
  6.20   Rights Plans.
  6.21   Transition Services Agreement.
ARTICLE 7 CONDITIONS TO THE MERGER
  7.1   Conditions to the Obligations of Spinco, HP Co., Merger Sub and the Company to Effect the Merger.
  7.2   Additional Conditions to the Obligations of HP Co., Spinco and Merger Sub.
  7.3   Additional Conditions to the Obligations of the Company.
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVERS
  8.1   Termination.
  8.2   Effect of Termination.
  8.3   Termination Fee; Expenses.

A-4


  8.4   Amendment.
  8.5   Waivers.
ARTICLE 9 MISCELLANEOUS
  9.1   Survival of Representations, Warranties and Agreements; Indemnification.
  9.2   Expenses.
  9.3   Notices.
  9.4   Certain Construction Rules.
  9.5   Severability.
  9.6   Assignment; Binding Effect.
  9.7   No Third Party Beneficiaries.
  9.8   Limited Liability.
  9.9   Entire Agreement.
  9.10   Governing Law.
  9.11   Counterparts.
  9.12   Specific Performance.
  9.13   Waiver of Jury Trial.

A-5



AGREEMENT AND PLAN OF MERGER

        THIS AGREEMENT AND PLAN OF MERGER, dated as of February 23, 2002, is among Helmerich & Payne, Inc., a Delaware corporation ("HP Co."), Helmerich & Payne Exploration and Production Co., a Delaware corporation and a wholly owned subsidiary of HP Co. ("Spinco"), Mountain Acquisition Co., a Delaware corporation and a wholly owned subsidiary of Spinco ("Merger Sub"), and Key Production Company, Inc., a Delaware corporation (the "Company").

        WHEREAS, prior to the Distribution Date (as such term and other capitalized terms are defined in Article 1 hereof), and subject to the terms and conditions set forth in the Distribution Agreement of even date herewith by and between HP Co. and Spinco, in the form attached hereto as Exhibit A (the "Distribution Agreement"), HP Co. intends to transfer or cause to be transferred to Spinco or a Spinco Subsidiary all of the Spinco Assets, and Spinco intends to assume all of the Spinco Liabilities, as contemplated by the Distribution Agreement (the "Contribution");

        WHEREAS, subject to the conditions set forth in the Distribution Agreement, on the Distribution Date, HP Co. intends to distribute all of the issued and outstanding shares of Spinco Common Stock on a pro rata basis to the holders as of the Record Date (as defined in the Distribution Agreement) of the outstanding HP Co. Common Stock (the "Distribution");

        WHEREAS, at the Effective Time, the parties intend to effect a merger of Merger Sub with and into the Company, with the Company being the surviving corporation of the Merger;

        WHEREAS, the Board of Directors of the Company (i) has determined that the Merger is fair to, and in the best interests of, the Company and its shareholders and has approved and adopted this Agreement and the Merger and (ii) has recommended the adoption of this Agreement by the shareholders of the Company;

        WHEREAS, the Board of Directors of HP Co. (i) has approved this Agreement and the Distribution Agreement and the transactions contemplated hereby and thereby, including the Contribution, the Distribution and the Merger and (ii) has determined that the Merger is fair to, and in the best interests of, HP Co. and its stockholders;

        WHEREAS, the Board of Directors of Spinco has approved this Agreement and the Distribution Agreement and the transactions contemplated hereby and thereby, including the Contribution, the Distribution and the Merger, and Spinco, as the sole stockholder of Merger Sub, has adopted the Merger Agreement;

        WHEREAS, the Board of Directors of Merger Sub has approved this Agreement and the transactions contemplated hereby, including the Merger; and

        WHEREAS, the parties to this Agreement intend that the Contribution and the Distribution qualify under Sections 368 and 355 of the Code, respectively, that the Merger qualify under Section 368 of the Code, and that no gain or loss for federal income tax purposes be recognized as a result of the transactions described herein or in the Transaction Agreements.

        NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

ARTICLE 1

DEFINITIONS

        "Action" shall mean any litigation, claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority.

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        "Affiliate" shall mean, with respect to any specified Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with, such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided, however, that for purposes of this Agreement, from and after the Distribution Date, no member of either Group shall be deemed an Affiliate of any member of the other Group.

        "Agreement" shall mean this Agreement and Plan of Merger.

        "Approved for Listing" shall mean, with respect to shares of Spinco Common Stock, that such shares have been approved for listing on the NYSE, subject to official notice of issuance.

        "Certificate of Merger" shall have the meaning specified in Section 2.6.

        "Certificates" shall have the meaning specified in Section 2.3.

        "Closing" shall have the meaning specified in Section 2.5.

        "Code" shall mean the Internal Revenue Code of 1986, as amended.

        "Company" shall have the meaning specified in the preamble hereof.

        "Company Acquisition" shall mean, in each case other than the Merger or as otherwise specifically contemplated by this Agreement, (i) any merger, consolidation, share exchange, business combination, recapitalization or other similar transaction or series of related transactions involving the Company; (ii) other than product sales in the ordinary course of business, any sale, lease, exchange, transfer or other disposition of the assets of the Company constituting 20% or more of the total assets of the Company or accounting for 20% or more of the total revenues of the Company in any one transaction or in a series of transactions; or (iii) any acquisition by any Person or "group" of Persons (within the meaning of Section 13(d)(3) of the Exchange Act) of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of Company Common Stock that represents or following the acquisition would represent 20% or more of the total outstanding Company Common Stock, including by tender offer, exchange offer, acquisition from the Company, or any similar transaction or series of related transactions.

        "Company Acquisition Proposal" shall mean any proposal regarding a Company Acquisition.

        "Company Benefit Plans" shall have the meaning set forth in Section 5.12(a).

        "Company Common Stock" shall mean the common stock, par value $.25 per share, of Company.

        "Company Consent" shall mean the consent of the Company.

        "Company Disclosure Schedule" shall mean the schedule prepared and delivered by Company to HP Co. and Spinco as of the date of this Agreement, setting forth, among other things, certain information that, to the extent provided herein, qualifies certain representations, warranties and agreements of the Company made in this Agreement.

        "Company Employees" shall have the meaning set forth in Section 5.12(a).

        "Company Preferred Stock" shall mean the Preferred Stock, par value $.01 per share, of the Company.

        "Company Reserve Report" shall have the meaning specified in Section 5.24.

        "Company Rights" shall have the meaning set forth in Section 6.20(b).

        "Company Rights Agreement" shall have the meaning set forth in Section 6.20(b).

A-7



        "Company SEC Documents" shall have the meaning specified in Section 5.4(e).

        "Company Stock Options" shall have the meaning set forth in Section 2.9(a).

        "Company Stock Plans" shall mean the Key Production Company, Inc. 1992 Stock Option Plan, the Key Production Company, Inc. Stock Option Plan for Non-Employee Directors and the Key Production Company, Inc. 2001 Equity Incentive Plan.

        "Company Stockholders Meeting" shall have the meaning specified in Section 2.4(a).

        "Company Subsidiaries" shall mean all direct and indirect Subsidiaries of Company.

        "Company Superior Proposal" shall have the meaning specified in Section 6.11(b).

        "Company Voting Debt" shall have the meaning specified in Section 5.2.

        "Confidentiality Agreement" shall mean the Confidentiality Agreement, dated as of November 2, 2001, between HP Co. and the Company.

        "Continuing Company Employees" shall have the meaning set forth in Section 6.8(a).

        "Continuing Spinco Employees" shall have the meaning set forth in Section 6.8(a).

        "Contract" shall mean any loan or credit agreement, note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument or other binding agreement, obligation, arrangement, commitment or understanding (whether oral or written).

        "Contribution" shall have the meaning set forth in the Recitals hereto.

        "Controlling Person" shall have the meaning specified in Section 9.1(b).

        "Derivative Transaction" shall mean a derivative transaction within the coverage of Statement of Financial Accounting Standards No. 133, including any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, credit-related events or conditions or any indexes, or any other similar transaction (including any option with respect to any of such transactions) or combination of any of such transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral, transportation or other similar arrangements or agreements related to such transactions.

        "DGCL" shall mean the General Corporation Law of the State of Delaware.

        "Disclosure Schedules" shall mean, collectively, the HP Co. Disclosure Schedule, the Spinco Disclosure Schedule and the Company Disclosure Schedule.

        "Distribution" shall have the meaning set forth in the Recitals hereto.

        "Distribution Agreement" shall have the meaning set forth in the Recitals hereto.

        "Distribution Date" shall mean the date and time that the Distribution shall become effective.

        "Effective Time" shall have the meaning specified in Section 2.6.

        "Employee Benefits Agreement" shall mean the Employee Benefits Agreement of even date herewith between HP Co. and Spinco, in the form attached to the Distribution Agreement.

        "Environmental Laws" shall mean any and all foreign, federal, state or local statute, rule, regulation or ordinance, and any judicial or administrative interpretation thereof, including any guidance document, cleanup standard, Order or determination issued, promulgated, approved or entered thereunder by any Governmental Authority, including requirements of common law, relating to

A-8



pollution or the protection, cleanup or restoration of the environment, or to human health, safety or natural resources, including the Federal Clean Air Act, the Federal Oil Pollution Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act, the Federal Comprehensive Environmental Response, Compensation, and Liability Act and the Federal Toxic Substances Control Act.

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

        "ERISA Affiliate" shall mean, with respect to any Person, any other Person or any trade or business, whether or not incorporated, that, together with such first Person would be deemed a "single employer" within the meaning of section 4001(b) of ERISA.

        "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, together with the rules and regulations of the SEC promulgated thereunder.

        "Exchange Agent" shall have the meaning specified in Section 2.8(a).

        "Exchange Fund" shall have the meaning specified in Section 2.8(a).

        "Financial Statements" shall have the meaning specified in Section 4.4.

        "GAAP" shall mean United States generally accepted accounting principles.

        "Governmental Authority" shall mean any foreign, federal, state or local court, administrative agency, board, bureau or commission or other governmental department, authority or instrumentality or any subdivision, agency, commission or authority thereof.

        "Group" shall mean the HP Co. Group or the Spinco Group, as the case may be.

        "Hazardous Material" shall mean any substance, material or waste regulated under Environmental Laws, and includes without limitation petroleum and any derivative thereof.

        "HP Co." shall have the meaning specified in the preamble hereof.

        "HP Co. Common Stock" shall mean the common stock, par value $.10 per share, of HP Co.

        "HP Co. Disclosure Schedule" shall mean the schedule prepared and delivered by HP Co. to the Company as of the date of this Agreement, setting forth, among other things, certain information that, to the extent provided herein, qualifies certain representations, warranties and agreements of HP Co. made in this Agreement.

        "HP Co. Group" shall mean HP Co. and the HP Co. Subsidiaries.

        "HP Co. Rights" shall mean the common stock purchase rights issued pursuant to the Rights Agreement, dated as of January 8, 1996, by and between Helmerich & Payne, Inc. and Liberty Bank and Trust Company of Oklahoma City, N.A.

        "HP Co. Subsidiaries" shall mean all direct and indirect Subsidiaries of HP Co. immediately after the Distribution Date.

        "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

        "HSR Agencies" shall mean the Federal Trade Commission and the Antitrust Division of the Department of Justice.

        "Indemnified Party" shall have the meaning set forth in Section 6.12(a).

        "IRS" shall mean the United States Internal Revenue Service or any successor thereto, including, but not limited to its agents, representatives and attorneys.

A-9



        "IRS Rulings" shall have the meaning set forth in Section 6.4(e).

        "Licenses" shall mean any license, authorization, permit, certificate, variance, exemption, Order, franchise or approval from any Governmental Authority, domestic or foreign.

        "Liens" has the meaning set forth in Section 4.21.

        "Losses" shall have the meaning set forth in Section 9.1(b).

        "Material Adverse Effect," with respect to any Person, shall mean any circumstance, change or effect that is or is reasonably likely to be materially adverse to (i) the business, operations, assets, liabilities (including contingent liabilities), results of operations or condition (financial or otherwise) of such Person and its Subsidiaries, taken as a whole, except for such effects on or changes in general economic or capital market conditions and effects and changes that generally affect the U.S. domestic oil and gas exploration and production business, or (ii) the ability of such Person to perform its obligations hereunder or under the other Transaction Agreements.

        "Merger" shall have the meaning specified in Section 2.1(b).

        "Merger Consideration" shall mean the number of shares of Spinco Common Stock issuable at the Effective Time in exchange for one share of Company Common Stock in accordance with the provisions of Section 2.2(a).

        "Merger Sub" shall have the meaning specified in the preamble hereto.

        "NYSE" shall mean the New York Stock Exchange, Inc.

        "Order" shall mean any decree, judgment, injunction, writ, rule or other order of any Governmental Authority.

        "PBGC" shall mean the U.S. Pension Benefit Guaranty Corporation.

        "Person" or "person" shall mean a natural person, corporation, company, partnership, limited partnership, limited liability company or other entity, including a Governmental Authority.

        "Proxy Statement/Prospectus" shall mean the proxy statement/prospectus to be distributed to the stockholders of the Company in connection with the Merger and the transactions contemplated by this Agreement, including any preliminary proxy statement/prospectus or definitive proxy statement/prospectus filed with the SEC in accordance with the terms and provisions hereof. The Proxy Statement/Prospectus shall constitute a part of the Registration Statement on Form S-4.

        "Registration Statements" shall mean the Registration Statement on Form S-4 to be filed by Spinco with the SEC to effect the registration under the Securities Act of the issuance of the shares of Spinco Common Stock into which shares of Company Common Stock will be converted pursuant to the Merger and the registration statement on Form 10 (or, if such form is not appropriate, the appropriate form pursuant to the Exchange Act) to be filed by Spinco with the SEC to effect the registration under the Exchange Act of Spinco Common Stock in connection with the Distribution.

        "Requisite Approval" shall have the meaning specified in Section 5.20.

        "Rule 145 Affiliate" shall have the meaning specified in Section 6.13.

        "Rule 145 Affiliate Agreement" shall have the meaning specified in Section 6.13.

        "SEC" shall mean the U.S. Securities and Exchange Commission.

        "Securities Act" shall mean the Securities Act of 1933, as amended, together with the rules and regulations of the SEC promulgated thereunder.

A-10



        "Significant Subsidiary" shall have the meaning set forth in Rule 1-02 of Regulation S-X of the Exchange Act.

        "Spinco" shall have the meaning specified in the preamble hereof.

        "Spinco Assets" shall have the meaning specified in the Distribution Agreement.

        "Spinco Benefit Plans" shall have the meaning specified in Section 4.12(a).

        "Spinco Business" shall have the meaning specified in the Distribution Agreement.

        "Spinco Common Stock" shall mean the Common Stock, par value $.01 per share, of Spinco.

        "Spinco Disclosure Schedule" shall mean the schedule prepared and delivered by Spinco to the Company as of the date of this Agreement, setting forth, among other things, certain information that, to the extent provided herein, qualifies certain representations, warranties and agreements of HP Co. and Spinco made in this Agreement.

        "Spinco Employee" shall have the meaning specified in Section 4.12(a).

        "Spinco Group" shall mean Spinco and the Spinco Subsidiaries.

        "Spinco Liabilities" shall have the meaning specified in the Distribution Agreement.

        "Spinco Plan" shall mean the 2002 Stock Incentive Plan, as further described in the Employee Benefits Agreement.

        "Spinco Preferred Stock" shall mean the Preferred Stock, par value $.01 per share, of Spinco.

        "Spinco Reserve Report" shall have the meaning specified in Section 4.23.

        "Spinco Rights" shall have the meaning set forth in Section 6.20(a).

        "Spinco Rights Agreement" shall have the meaning set forth in Section 6.20(a).

        "Spinco Subsidiaries" shall mean all direct and indirect Subsidiaries of Spinco immediately after the Distribution Date.

        "Spinco Welfare Plans" shall have the meaning set forth in Section 6.8(c).

        "Spinco Voting Debt" shall have the meaning specified in Section 4.2.

        "Subsidiary" shall mean, with respect to any Person, a corporation, partnership, limited liability company or other entity in which such Person, a Subsidiary of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, has either (i) a majority ownership in the equity thereof, (ii) the power, under ordinary circumstances, to elect, or to direct the election of, a majority of the board of directors or other governing body of such entity, or (iii) the title or function of general partner or manager, or the right to designate the Person having such title or function.

        "Surviving Corporation" shall have the meaning set forth in Section 2.1(b).

        "Surviving Corporation Benefit Plans" shall have the meaning set forth in Section 6.8(a).

        "Taxes" shall mean all taxes, charges, fees, duties, levies, imposts, rates or other assessments imposed by any federal, state, local or foreign Taxing Authority, including, but not limited to, income, gross receipts, excise, property, sales, use, license, capital stock, transfer, franchise, payroll, withholding, social security, value added or other taxes (including any interest, penalties or additions attributable thereto) and a "Tax" shall mean any one of such Taxes.

        "Tax Return" means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, amended tax return, claim for refund or declaration of estimated tax) required to be supplied

A-11



to, or filed with, a Taxing Authority in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax.

        "Tax Sharing Agreement" shall mean the Tax Sharing Agreement of even date herewith between HP Co. and its affiliates and Spinco and its affiliates in the form attached to the Distribution Agreement.

        "Taxing Authority" means any Governmental Authority or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).

        "Termination Date" shall mean the date, if any, on which this Agreement is terminated pursuant to Section 8.1.

        "Termination Fee" shall have the meaning specified in Section 8.3(b).

        "Third Party Provisions" shall have the meaning specified in Section 9.7.

        "Transaction Agreements" shall mean this Agreement, the Distribution Agreement, the Employee Benefits Agreement, the Transition Services Agreement and the Tax Sharing Agreement.

        "Transition Services Agreement" shall mean the Transition Services Agreement to be entered into by and between HP Co. and Spinco pursuant to Section 6.21 hereof.

        "2001 Financial Statements" shall have the meaning set forth in Section 4.4.


ARTICLE 2

THE MERGER

        2.1    Distribution and Merger.     

A-12



        2.2
    Effect on Capital Stock.     At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, the Company or any holder of any Company Common Stock:


        2.3
    Cancellation of Stock.     Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time, when converted in accordance with Section 2.2, shall no longer be outstanding and shall automatically be canceled and shall cease to exist. Each holder of a certificate that, immediately prior to the Effective Time, represented outstanding shares of Company Common Stock (collectively, the "Certificates") shall cease to have any rights with respect thereto, except the right to receive, upon the surrender of any such Certificate, a certificate representing the shares of Spinco Common Stock to which such holder is entitled pursuant to Section 2.2, cash in lieu of fractional shares of Spinco Common Stock to which such holder is entitled pursuant to Section 2.8(e) and any dividends or other distributions to which such holder is entitled pursuant to Section 2.8(c).


        2.4
    Stockholders Meeting.     As promptly as practicable following the date hereof and the effectiveness of the Registration Statements, the Company, subject to Section 6.11, shall call a special meeting of its stockholders (the "Company Stockholders Meeting") to be held as promptly as practicable for the purpose of voting upon (i) the adoption of this Agreement and (ii) any related matters. Subject to Section 6.11, this Agreement shall be submitted for adoption to the stockholders of

A-13


the Company at such special meeting. Without limiting the generality of the foregoing, the Company shall cause the Company Stockholders Meeting to be held and such vote taken within 60 days following the effectiveness of Spinco's Registration Statement on Form S-4. Subject to Section 6.11, the Company shall deliver to the Company's stockholders the Proxy Statement/Prospectus in definitive form in connection with the Company Stockholders Meeting at the time and in the manner provided by the applicable provisions of the DGCL, the Exchange Act and the Company's Certificate of Incorporation and Bylaws and shall conduct the Company Stockholders Meeting and the solicitation of proxies in connection therewith in compliance with such statutes, charter and bylaws.


        2.5
    Closing.     Unless the transactions herein contemplated shall have been abandoned and this Agreement terminated pursuant to Section 8.1, the closing of the Merger and the other transactions contemplated hereby (the "Closing") shall take place at the offices of Crowe & Dunlevy, in Tulsa, Oklahoma at 10:00 a.m., Eastern time, as promptly as practicable and in no event later than the second business day following the satisfaction or, if permissible, waiver of the conditions set forth in Article 7 (except for those conditions that, by the express terms thereof, are not capable of being satisfied until the Effective Time), or at such other time and place as Spinco and the Company shall agree in writing.


        2.6
    Effective Time.     Upon the terms and subject to the conditions of this Agreement, as soon as practicable at or after the Closing, a certificate of merger shall be filed with the Secretary of State of the State of Delaware with respect to the Merger (the "Certificate of Merger"), in such form as is required by, and executed in accordance with, the applicable provisions of the DGCL. The Merger shall become effective at the time of filing of the Certificate of Merger or at such later time as the parties hereto may agree and as is provided in the Certificate of Merger. The date and time at which the Merger shall become so effective is herein referred to as the "Effective Time."


        2.7
    Closing of Transfer Books.     From and after the Effective Time, the stock transfer books of the Company shall be closed and no transfer shall be made of any shares of capital stock of the Company that were outstanding immediately prior to the Effective Time.


        2.8
    Exchange of Certificates.     

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        2.9
    Company Employee Stock Options, Restricted Stock and Related Matters.     Not later than immediately before the Effective Time, the Company shall take such actions as may be required to

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provide that each option outstanding under the Company Stock Plans to acquire shares of Company Common Stock (the "Company Stock Options") shall be assumed by Spinco as of the Effective Time and shall thereafter be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Company Stock Option immediately before the Effective Time (including the provisions providing for accelerated vesting of the Company Stock Options at the Effective Time), the number of shares of Spinco Common Stock determined by multiplying the number of shares of Company Common Stock subject to such Company Stock Option immediately before the Effective Time by the Merger Consideration, at a price per share (rounded to the nearest whole cent) equal to the exercise price per share of Company Common Stock otherwise purchasable pursuant to such Company Stock Option divided by the Merger Consideration; provided, however, that such substitution shall be effected in accordance with Section 424(a) of the Code.


        2.10
    Spinco Rights Plan.     Each person entitled to receive shares of Spinco Common Stock pursuant to this Article 2 shall receive together with such shares of Spinco Common Stock the number of Spinco Rights per share of Spinco Common Stock equal to the number of Spinco Rights associated with one share of Spinco Common Stock at the Effective Time.


ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF HP CO.

        HP Co. represents and warrants to the Company as follows:


        3.1
    Organization; Qualification.     HP Co. is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

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        3.2
    Corporate Authority; No Violation.     HP Co. has the corporate power and authority to enter into this Agreement and each other Transaction Agreement and to carry out its obligations hereunder and thereunder. The execution, delivery and performance by HP Co. of this Agreement and each other Transaction Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of HP Co. and no other corporate proceedings on the part of HP Co. are necessary to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by HP Co. and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding agreement of HP Co., enforceable against HP Co. in accordance with its terms (except insofar as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). As of the Distribution Date, each other Transaction Agreement will have been duly executed and delivered by HP Co. and, assuming the due authorization, execution and delivery by the other parties thereto, will constitute a legal, valid and binding agreement of HP Co., enforceable against HP Co. in accordance with its terms (except insofar as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). Except as set forth in Section 3.2 of the HP Co. Disclosure Schedule and except for such matters described in clauses (b), (c) and (d) below as would not, individually or in the aggregate, have a Material Adverse Effect on the Spinco Business or Spinco, neither the execution and delivery by HP Co. of this Agreement and each other Transaction Agreement, nor the consummation by HP Co. of the transactions contemplated hereby or thereby and the performance by HP Co. of this Agreement and each other Transaction Agreement will (a) violate or conflict with any provisions of HP Co.'s Certificate of Incorporation or Bylaws; (b) require any consent, approval, authorization or permit of, registration, declaration or filing with, or notification to, any Governmental Authority or any other Person; (c) result in any breach of or constitute a default (or an event that, with notice or lapse of time or both, would become a default) under, or give to others any right of termination, cancellation, amendment or acceleration of any obligation or the loss of any benefit under, any Contract to which HP Co. or any of its Subsidiaries is a party or by which HP Co. or any of its Subsidiaries is bound or affected; (d) result in the creation of a lien, pledge, security interest, claim or other encumbrance on any of the issued and outstanding shares of Spinco Common Stock, capital stock of any Spinco Subsidiary or on any of the Spinco Assets pursuant to any Contract to which HP Co. or any of its Subsidiaries (including Spinco and its Subsidiaries) is a party or by which HP Co. or its Subsidiaries is bound or affected; or (e) violate or conflict with any Order, law, ordinance, rule or regulation applicable to HP Co. or any of its Subsidiaries (including Spinco and its Subsidiaries), or any of the properties, business or assets of any of the foregoing. Section 3.2 of the HP Co. Disclosure Schedule identifies all material consents, approvals and authorizations of any Governmental Authority that are legally required to be obtained by HP Co. for the consummation of the transactions contemplated by the Transaction Agreements.


        3.3
    Information Supplied.     All documents that HP Co. is responsible for filing with any Governmental Authority in connection with the transactions contemplated hereby and by each other Transaction Agreement will comply in all material respects with the provisions of applicable law.


        3.4
    Brokers or Finders.     Except as set forth in Section 3.4 of the HP Co. Disclosure Schedule, no agent, broker, investment banker, financial advisor or other similar Person is or will be entitled, by reason of any agreement, act or statement by HP Co. or any of its Subsidiaries, directors, officers or employees, to any financial advisory, broker's, finder's or similar fee or commission, to reimbursement of expenses or to indemnification or contribution, in each case, by Spinco or any of its Subsidiaries, in connection with any of the transactions contemplated by this Agreement or the other Transaction Agreements. HP Co. has heretofore made available to the Company a complete and correct copy of all

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agreements between HP Co. and Petrie Parkman & Co. pursuant to which such firm would be entitled to any payment relating to the Merger or the other transactions contemplated hereby.


        3.5
    HP Co. Rights Plan.     

        HP Co. has taken all action necessary, if any, to render the HP Co. Rights inapplicable to this Agreement, the Distribution Agreement and the transactions contemplated hereby and thereby.


ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF HP CO. AND SPINCO

        HP Co. and Spinco, jointly and severally, represent and warrant to the Company as follows:


        4.1
    Organization, Qualification.     Each of Spinco, Merger Sub and each of their respective Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each of Spinco and its Subsidiaries has all requisite power and authority to own, lease and operate its properties and assets and to carry on the Spinco Business as presently conducted and as proposed to be conducted and at the Distribution Date and the Effective Time will be duly qualified and licensed to do business and in good standing in each jurisdiction in which the ownership or leasing of its property or the conduct of the Spinco Business, as presently conducted and as proposed to be conducted, requires such qualification, except for jurisdictions in which the failure to be so qualified or to be in good standing, individually or in the aggregate, would not have a Material Adverse Effect on the Spinco Business or Spinco. The copies of the Spinco Certificate of Incorporation and Bylaws in existence on the date hereof are included as part of Section 4.1 of the Spinco Disclosure Schedule and are complete and correct and in full force and effect on the date hereof. Spinco is not in violation of any of the provisions of its Certificate of Incorporation or Bylaws. All of the Subsidiaries of Spinco and their respective jurisdictions of incorporation or organization (together with a designation of those Subsidiaries constituting Significant Subsidiaries of Spinco) are identified in Section 4.1 of the Spinco Disclosure Schedule. Merger Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted its operations only as contemplated by this Agreement.


        4.2
    Capital Stock and Other Matters.     The authorized capital stock of Spinco consists of 100,000,000 shares of Spinco Common Stock and 1,000,000 shares of Spinco Preferred Stock. At the Distribution Date, (i) there will be issued and outstanding 26,591,321 shares of Spinco Common Stock; (ii) no shares of Spinco Common Stock will be held by Spinco in its treasury; (iii) no shares of Spinco Preferred Stock will be issued and outstanding; and (iv) no bonds, debentures, notes or other indebtedness of Spinco or any of its Subsidiaries having the right to vote (or convertible into securities having the right to vote) on any matters on which holders of shares of capital stock of Spinco (including Spinco Common Stock) may vote ("Spinco Voting Debt") will be issued or outstanding. None of such shares of Spinco Common Stock will be subject to preemptive rights. All of the issued and outstanding shares of Spinco Common Stock at the Distribution Date will be validly issued, fully paid and nonassessable. Except as set forth in this Section 4.2 and except for the Spinco Rights Agreement and the Spinco Rights, there are not outstanding, (i) any shares of capital stock of Spinco, Spinco Voting Debt or other voting securities of Spinco, (ii) any securities of Spinco or any of its Subsidiaries convertible into or exchangeable for shares of capital stock of Spinco, Spinco Voting Debt or other voting securities of Spinco or Spinco Common Stock or (iii) except as specified in Section 2.9, the Employee Benefits Agreement or Section 4.2 of the Spinco Disclosure Schedule, any options, warrants, calls, rights (including preemptive rights), commitments or other Contracts to which Spinco or any of its Subsidiaries is a party or by which Spinco or any of its Subsidiaries will be bound obligating Spinco or any of its Subsidiaries to issue, deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed or acquired, or otherwise relating to, shares of capital stock of Spinco or any Spinco Voting Debt or other voting securities of Spinco or any of its

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Subsidiaries or obligating Spinco or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right, commitment or Contract. There are no stockholder agreements, voting trusts or other Contracts (other than the Distribution Agreement) to which Spinco is a party or by which it is bound relating to the voting or transfer of any shares of capital stock of Spinco. The authorized capital stock of Merger Sub consists of 100 shares of common stock, par value $.01 per share, all of which are owned by Spinco. Each outstanding share of capital stock of Merger Sub and each other Spinco Subsidiary is duly authorized, validly issued, fully paid and nonassessable and each such share owned by Spinco or another Spinco Subsidiary is free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on the voting rights of Spinco or such Spinco Subsidiary, charges and other encumbrances of any nature whatsoever.


        4.3
    Corporate Authority; No Violation.     Spinco has the corporate power and authority to enter into this Agreement and each other Transaction Agreement and to carry out its obligations hereunder and thereunder. The execution, delivery and performance by Spinco of this Agreement and each other Transaction Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Spinco. Merger Sub has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. This Agreement has been duly authorized by all requisite corporate action on the part of Merger Sub. This Agreement has been duly executed and delivered by Merger Sub and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding agreement of Merger Sub, enforceable against Merger Sub in accordance with its terms (except insofar as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). This Agreement has been duly executed and delivered by Spinco and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding agreement of Spinco, enforceable against Spinco in accordance with its terms (except insofar as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). As of the Distribution Date, each other Transaction Agreement will have been duly executed and delivered by Spinco and, assuming the due authorization, execution and delivery by the other parties thereto, will constitute a legal, valid and binding agreement of Spinco, enforceable against Spinco in accordance with its terms (except insofar as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). Merger Sub is not a party to any Contract except this Agreement, and has no obligations or liabilities except under this Agreement and costs incidental to its incorporation in the State of Delaware. Except as set forth in Section 4.3 of the Spinco Disclosure Schedule and except for such matters described in clauses (b), (c) and (d) below as would not, individually or in the aggregate, have a Material Adverse Effect on the Spinco Business or Spinco, neither the execution and delivery by Spinco and Merger Sub of this Agreement and each other Transaction Agreement, nor the consummation by Spinco and Merger Sub of the transactions contemplated hereby or thereby and the performance by Spinco and Merger Sub of this Agreement and each other Transaction Agreement will (a) violate or conflict with any provision of Spinco's Certificate of Incorporation or Bylaws or any provision of Merger Sub's Certificate of Incorporation or Bylaws; (b) require any consent, approval, authorization or permit of, registration, declaration or filing with, or notification to, any Governmental Authority or any other Person; (c) result in any breach of or constitute a default (or an event that, with notice or lapse of time or both, would become a default) under, or give to others any right of termination, buy-out, cancellation, amendment or acceleration of any obligation or the loss of any benefit under any Contract to which Spinco or any of its Subsidiaries is a party or by which Spinco or any of its Subsidiaries or any of the Spinco Assets is bound or affected; (d) result in the creation of a lien, pledge, security interest, claim or other encumbrance on any of the issued and outstanding shares of Spinco Common Stock or capital stock of any Spinco

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Subsidiaries or on any of the Spinco Assets pursuant to any Contract to which Spinco or any of its Subsidiaries is a party or by which Spinco or any of its Subsidiaries or any of the Spinco Assets is bound or affected; or (e) violate or conflict with any Order, law, ordinance, rule or regulation applicable to Spinco or any of its Subsidiaries, or any of the properties, businesses or assets of any of the foregoing. Section 4.3 of the Spinco Disclosure Schedule identifies all material consents, approvals and authorizations of any Governmental Authority that are legally required to be obtained by Spinco for the consummation of the transactions contemplated by the Transaction Agreements.


        4.4
    Spinco Financial Statements; Liabilities.     HP Co. and Spinco have previously made available to the Company complete and correct copies of audited combined financial statements for the Spinco Business, as of and for the periods ended September 30, 2001 (including any related notes and schedules thereto, the "2001 Financial Statements"), September 30, 2000 and September 30, 1999 (together with the 2001 Financial Statements, the "Financial Statements"), and HP Co. and Spinco have made or will make available to the Company any and all other financial statements for the Spinco Business required to be included by Regulation S-X of the Exchange Act in the Registration Statements and the Proxy Statement/Prospectus. The Financial Statements fairly present in all material respects, on the basis set forth therein, and any other financial statements prepared in accordance with this Section 4.4 will fairly present in all material respects, on the basis set forth therein, the financial position of the Spinco Business as of the respective dates thereof, and the results of operations and changes in financial position or other information included therein for the respective periods or as of the respective dates then ended, in each case except as otherwise noted therein and subject, where appropriate, to normal year-end audit adjustments. The Financial Statements and such other financial statements have been or will be prepared in accordance with past practice and GAAP, and on a consistent basis, except as otherwise noted therein. Except as set forth in the 2001 Financial Statements or as set forth in Section 4.4 of the Spinco Disclosure Schedule, the Spinco Business does not have any liability or obligation (whether accrued, absolute, contingent or otherwise) of a nature or character required to be reflected in the balance sheet of the Spinco Business or in the footnotes thereto, in each case prepared in conformity with GAAP, other than (i) liabilities incurred in the ordinary course of business since September 30, 2001 that, individually or in the aggregate, would not have a Material Adverse Effect on the Spinco Business or Spinco and (ii) liabilities and obligations under the Transaction Agreements. Spinco does not have any liabilities as of the date hereof and, as of the Effective Time, will have no liabilities other than the Spinco Liabilities.


        4.5
    Absence of Certain Changes or Events.     Except as specifically contemplated by this Agreement or the other Transaction Agreements or as set forth in Section 4.5 of the Spinco Disclosure Schedule, since September 30, 2001, the Spinco Business has been conducted only in the ordinary course and in a manner consistent with past practice and, since such date, (i) there has not been, occurred or arisen any change, or any event (including any damage, destruction or loss whether or not covered by insurance), condition or state of facts of any character that, individually or in the aggregate, would have a Material Adverse Effect on the Spinco Business or Spinco, whether or not arising in the ordinary course of business, and (ii) none of HP Co., Spinco or any of their respective Subsidiaries has taken or failed to take any action the taking of which or failure of which to take, as the case may be, would have caused Spinco to have violated the provisions of Section 6.2 if they had then been applicable to Spinco and its Subsidiaries during such period.


        4.6
    Investigations; Litigation.     

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        4.7
    Licenses; Compliance with Laws.     At the Distribution Date and the Effective Time, Spinco and its Subsidiaries will hold all Licenses that are required for the conduct of the Spinco Business, as presently conducted and as proposed to be conducted, except such Licenses for which the failure to so hold, individually or in the aggregate, would not have a Material Adverse Effect on the Spinco Business or Spinco. Spinco and its Subsidiaries are in compliance with the terms of all such Licenses so held, except where the failure so to comply, individually or in the aggregate, would not have a Material Adverse Effect on the Spinco Business or Spinco. No suspension or cancellation of any of Spinco's Licenses is pending or, to the best of HP Co.'s or Spinco's knowledge, threatened, except where the failure to have, or the suspension or cancellation of, any of Spinco's Licenses would not have a Material Adverse Effect on the Spinco Business or Spinco. Spinco and its Subsidiaries are in compliance with all, and have received no notice of any violation (as yet unremedied) of any laws, ordinances or regulations of any Governmental Authority applicable to any of them or their respective operations the noncompliance with which, individually or in the aggregate, would have a Material Adverse Effect on the Spinco Business or Spinco.


        4.8
    Proxy Statement/Prospectus; Registration Statements.     None of the information regarding HP Co. or its Subsidiaries or Spinco or its Subsidiaries or the transactions contemplated by this Agreement or any other Transaction Agreement provided by HP Co. or Spinco specifically for inclusion in, or incorporation by reference into, the Proxy Statement/Prospectus or the Registration Statements will, in the case of the definitive Proxy Statement/Prospectus or any amendment or supplement thereto, at the time of the mailing of the definitive Proxy Statement/Prospectus and any amendment or supplement thereto and at the time of the Company Stockholders Meeting, or, in the case of each Registration Statement, at the time it becomes effective, at the time of the Company Stockholders Meeting, at the Distribution Date and at the Effective Time contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Registration Statements will comply in all material respects with the provisions of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations thereunder, except that no representation is made by HP Co. or Spinco with respect to information provided by the Company specifically for inclusion in, or incorporation by reference into, the Registration Statements.


        4.9
    Information Supplied.     All documents that Spinco or HP Co. is responsible for filing with any Governmental Authority in connection with the transactions contemplated hereby or by any other Transaction Agreement will comply in all material respects with the provisions of applicable law.


        4.10
    Environmental Matters.     Except as set forth in Section 4.10 of the Spinco Disclosure Schedule and except as would not, individually or in the aggregate, have a Material Adverse Effect on the Spinco Business or Spinco:

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        4.11
    Tax Matters.     Except as set forth in Section 4.11 of the Spinco Disclosure Schedule, (i) all material Tax Returns relating to Spinco, the Spinco Subsidiaries and the Spinco Business required to be filed have been duly and timely filed, (ii) all such Tax Returns are true, correct and complete in all material respects, (iii) all Taxes shown as due and payable on such Tax Returns, and all material amounts of Taxes (whether or not reflected on such Tax Returns) relating to Spinco, any of the Spinco

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Subsidiaries or the Spinco Business required to be paid, have been duly and timely paid, (iv) no adjustment relating to such Tax Returns has been proposed formally or informally by any Governmental Authority (insofar as either (x) relates to the activities or income of Spinco, the Spinco Subsidiaries or the Spinco Business or (y) could result in liability for Spinco or any Spinco Subsidiary or with respect to the Spinco Business on the basis of joint and/or several liability) and, to the best of HP Co.'s and Spinco's knowledge, no basis exists for any such adjustment to be made, (v) all material Taxes relating to Spinco, any of the Spinco Subsidiaries or the Spinco Business for any taxable period (or a portion thereof) beginning on or prior to the date of the Closing (which are not yet due and payable) have been properly reserved for in the 2001 Financial Statements whether or not shown as being due on any Tax Returns and (vi) all material Taxes required to be withheld by or with respect to Spinco, the Spinco Subsidiaries and the Spinco Business have been withheld and such withheld Taxes have been either duly and timely paid to the proper Governmental Authority or properly set aside in accounts for such purpose and will be duly and timely paid to the proper Governmental Authority.

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        4.12
    Benefit Plans.     

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        4.13
    Labor Matters.     Except as set forth in Section 4.13 of the Spinco Disclosure Schedule, none of HP Co., Spinco or any of their respective Subsidiaries is a party to, or bound by, any collective bargaining agreement or other Contract with a labor union or labor organization that would affect the Spinco Business and no collective bargaining agreement is being negotiated by HP Co., Spinco or any of their respective Subsidiaries that would affect the Spinco Business. None of HP Co., Spinco or any of their respective Subsidiaries is the subject of any proceeding asserting that it has committed an unfair labor practice or is seeking to compel it to bargain with any labor organization as to wages or conditions of employment nor is there any strike, work stoppage or other labor dispute involving HP Co., Spinco or any of their respective Subsidiaries or the Spinco Business pending or, to the best of Spinco's or HP Co.'s knowledge, threatened, that, individually or in the aggregate, would have a Material Adverse Effect on the Spinco Business or Spinco. There are no labor controversies pending or, to the best of Spinco's or HP Co.'s knowledge, threatened against HP Co., Spinco or any of their respective Subsidiaries that, individually or in the aggregate, would have a Material Adverse Effect on the Spinco Business or Spinco. Except as set forth in Section 4.13 of the Spinco Disclosure Schedule, there have been no claims initiated by any labor organization to represent any Spinco Employees not currently represented by a labor organization.


        4.14
    Intellectual Property Matters.     At the Distribution Date and the Effective Time, Spinco and its Subsidiaries will own or possess adequate licenses or other valid rights to use all patents, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights, service marks, trade secrets, applications for trademarks and service marks, know-how and other proprietary rights and information used or held for use in connection with the Spinco Business as currently conducted or as proposed to be conducted immediately after the Effective Time (including in connection with services provided by Spinco and its Subsidiaries to third parties), except where the failure to own or possess such items, individually or in the aggregate, would not have a Material Adverse Effect on the Spinco Business or Spinco. To the best of HP Co.'s or Spinco's knowledge, there is no assertion or claim challenging the validity of any of the foregoing that, individually or in the aggregate, would have a Material Adverse Effect on the Spinco Business or Spinco. The conduct of the Spinco Business as currently conducted and as proposed to be conducted immediately after the Effective Time does not and will not conflict in any way with any patent, patent right, license, trademark, trademark right, trade name, trade name right, copyright, service mark, trade secret, know-how or other proprietary rights or information of any third party that, individually or in the aggregate, would have a Material Adverse Effect on the Spinco Business or Spinco. To the best of HP Co.'s or Spinco's knowledge, there are no infringements of any proprietary rights owned by or licensed by or to Spinco or any Spinco Subsidiary that, individually or in the aggregate, would have a Material Adverse Effect on the Spinco Business or Spinco.

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        4.15
    Material Contracts.     


        4.16
    Brokers or Finders.     Except as set forth in Section 4.16 of the Spinco Disclosure Schedule, no agent, broker, investment banker, financial advisor or other similar Person is or will be entitled, by reason of any agreement, act or statement by HP Co., Spinco or any of their respective Subsidiaries, directors, officers or employees, to any financial advisory, broker's, finder's or similar fee or commission, to reimbursement of expenses or to indemnification or contribution in connection with any of the transactions contemplated by this Agreement or any other Transaction Agreement. Spinco has heretofore made available to the Company a complete and correct copy of all agreements between Spinco and Petrie Parkman & Co. pursuant to which such firm would be entitled to any payment relating to the Merger or the other transactions contemplated hereby.


        4.17
    Certain Board Findings.     The Board of Directors of Spinco, by unanimous written consent or at a meeting duly called and held, (i) has approved this Agreement and each other Transaction Agreement and (ii) has determined that the Transaction Agreements and the transactions contemplated hereby and thereby, taken together, are fair to, and in the best interests of, Spinco and the holder of its capital stock.


        4.18
    Vote Required.     The only vote of stockholders of HP Co. or Spinco required under any of the DGCL, the NYSE rules, HP Co.'s Certificate of Incorporation or Bylaws or Spinco's Certificate of Incorporation or Bylaws to approve the transactions contemplated by this Agreement and each other Transaction Agreement, including, without limitation, to issue Spinco Common Stock to the stockholders of the Company pursuant to the Merger and to amend the Certificate of Incorporation of Spinco to change the name of Spinco, is the affirmative vote of the sole holder of the outstanding shares of Spinco Common Stock prior to the Distribution Date.

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        4.19
    Stockholder Approval.     As of the date hereof, the sole stockholder of Spinco is HP Co. Immediately after execution of this Agreement, HP Co. will deliver to Spinco a written consent of Spinco's sole stockholder in compliance with Section 228 of the DGCL with respect to all aspects of this Agreement and the other Transaction Agreements and the transactions contemplated hereby and thereby which require the consent of Spinco's stockholders under the DGCL, the NYSE rules, Spinco's Certificate of Incorporation or Spinco's Bylaws. The approval of HP Co.'s stockholders is not required to effect the transactions contemplated by the Distribution Agreement, this Agreement or any other Transaction Agreement. Upon delivery of such written consent, the approval of Spinco's stockholders after the Distribution Date will not be required to effect the transactions contemplated by this Agreement, including the Merger, unless this Agreement is amended in accordance with Section 251(d) of the DGCL after the Distribution Date and such approval is required, solely as a result of such amendment, under the DGCL, the NYSE rules, Spinco's Certificate of Incorporation or Spinco's Bylaws or by the IRS.


        4.20
    Certain Payments.     Except as disclosed in Section 4.20 of the Spinco Disclosure Schedule and except as contemplated by the other Transaction Agreements, no Spinco Benefit Plan or employment arrangement, no similar plan or arrangement sponsored or maintained by HP Co. in which any Spinco Employee is a participant and no contractual arrangement between Spinco and any third party exists that could result in the payment to any current, former or future director, officer, shareholder or employee of Spinco or any of its Subsidiaries, or of any entity the assets or capital stock of which have been acquired by Spinco or a Spinco Subsidiary, of any money or other property or rights or accelerate or provide any other rights or benefits to any such individual as a result of the consummation of the transactions contemplated by the Transaction Agreements (including the Distribution), whether or not (a) such payment, acceleration or provision would constitute a "parachute payment" (within the meaning of Section 280G of the Code) or (b) some other subsequent action or event would be required to cause such payment, acceleration or provision to be triggered.


        4.21
    Assets.     As of the date hereof, HP Co., an HP Co. Subsidiary, Spinco or a Spinco Subsidiary has, and as of the Effective Time, Spinco or a Spinco Subsidiary will have, good and defensible title to all oil and gas properties forming the basis for the reserves reflected in the Spinco Reserve Report as attributable to interests owned by Spinco or any Spinco Subsidiary and, as of the date hereof, HP Co., an HP Co. Subsidiary, Spinco or a Spinco Subsidiary has, and as of the Effective Time, Spinco or a Spinco Subsidiary will have, good and marketable title to all other Spinco Assets, in each case, free and clear of all mortgages, deeds of trust, liens, security interests, pledges, leases, conditional sale contracts, claims, charges, liabilities, obligations, privileges, easements, rights of way, limitations, reservations, restrictions, options, rights of first refusal and other encumbrances of every kind ("Liens") except for (i) defects or irregularities of title or encumbrances of a nature that would not, individually or in the aggregate, have a Material Adverse Effect on the Spinco Business or Spinco, (ii) Liens that secure obligations not yet due and payable, (iii) Liens associated with obligations reflected in the Spinco Reserve Report, and (iv) Liens disclosed in Section 4.21 of the Spinco Disclosure Schedule. Except as disclosed in Section 4.21 of the Spinco Disclosure Schedule, the oil and gas leases and other agreements that provide HP Co. and its Subsidiaries, and that as of the Effective Time will provide Spinco and its Subsidiaries, with operating rights in the oil and gas properties reflected in the Spinco Reserve Report are legal, valid and binding and in full force and effect, the rentals, royalties and other payments due thereunder have been properly paid and, to the best of HP Co.'s and Spinco's knowledge, there is no existing default (or event that, with notice or lapse of time or both, would become a default) under any of such oil and gas leases or other agreements, except as would not, individually or in the aggregate, have a Material Adverse Effect on the Spinco Business or Spinco. Section 4.21 of the Spinco Disclosure Schedule lists all services to be provided to Spinco or any Spinco Subsidiary by HP Co. or any of its Affiliates at the Distribution Date. Each of Spinco and HP Co. and their respective Subsidiaries (as the case may be) has maintained all the Spinco Assets in working order and operating condition, subject only to ordinary wear and tear. The Spinco Assets constitute all the

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assets, properties and rights related to or required for the conduct of the Spinco Business as currently conducted, except for the services to be provided pursuant to the Transition Services Agreement.


        4.22
    Loans.     Section 4.22 of the Spinco Disclosure Schedule sets forth each currently outstanding loan exceeding $500,000 in principal amount made to any Person by HP Co., Spinco or any of their respective Subsidiaries that is or will be a Spinco Asset.


        4.23
    Oil and Gas Reserves.     HP Co. has furnished to the Company a copy of an independent reserve report prepared by Netherland, Sewell & Associates containing estimates of the oil and gas reserves, as of September 30, 2001 (the "Spinco Reserve Report"), that will be owned by Spinco and the Spinco Subsidiaries upon completion of the Contribution. Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Spinco Business or Spinco, the factual non-interpretative data provided by HP Co. to such engineering firm on which the Spinco Reserve Report was based for purposes of estimating the oil and gas reserves set forth in the Spinco Reserve Report was accurate as of September 30, 2001 and incorporates the following: (i) the interests owned by HP Co. and its Subsidiaries, and that will be owned by Spinco and the Spinco Subsidiaries upon completion of the Contribution, as of such date, (ii) the historic costs of operating the properties, (iii) all historic production and cost data adjusted for all oil and/or gas imbalances due, (iv) all tests and operations on the properties of which HP Co. was aware as of such date, (v) all capital costs reasonably expected by HP Co. as of such date to be necessary to operate, develop and plug and abandon the properties, and (vi) HP Co.'s reasonable good faith estimates of future operating costs with respect to the properties.


        4.24
    Derivative Transactions.     Except as set forth in Section 4.24 of the Spinco Disclosure Schedule, neither HP Co. nor Spinco nor any of their respective Subsidiaries has entered into any material Derivative Transaction pursuant to which Spinco, any Spinco Subsidiary or the Spinco Business has or will have a continuing financial liability or obligation. All Derivative Transactions entered into by HP Co., Spinco or any of their respective Subsidiaries that are currently open and pursuant to which Spinco, any Spinco Subsidiary or the Spinco Business has or will have a continuing financial liability or obligation were entered into in material compliance with applicable rules, regulations and policies of all regulatory authorities.


ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

        The Company represents and warrants to HP Co. and Spinco as follows:


        5.1
    Organization, Qualification.     The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has all requisite power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted and is duly qualified and licensed to do business and is in good standing in each jurisdiction in which the ownership or leasing of its property or the conduct of its business requires such qualification, except for jurisdictions in which the failure to be so qualified or to be in good standing, individually or in the aggregate, would not have a Material Adverse Effect on the Company. The copies of the Company Certificate of Incorporation and Bylaws included as part of Section 5.1 of the Company Disclosure Schedule are complete and correct and in full force and effect on the date hereof. The Company is not in violation of any of the provisions of its Certificate of Incorporation or Bylaws. All of the Company Subsidiaries and their respective jurisdictions of incorporation or organization (together with a designation of those Subsidiaries constituting Significant Subsidiaries of the Company) are identified in Section 5.1 of the Company Disclosure Schedule.


        5.2
    Capital Stock and Other Matters.     The authorized capital stock of the Company consists of 50,000,000 shares of Company Common Stock and 15,000,000 shares of Company Preferred Stock. At

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the close of business on February 15, 2002 (i) 14,046,252 shares of Company Common Stock were issued and outstanding and options to purchase 828,834 shares of Company Common Stock were outstanding, (ii) no shares of Company Common Stock were held by the Company in its treasury or by its Subsidiaries; (iii) no shares of Company Preferred Stock were issued and outstanding; and (iv) no bonds, debentures, notes or other indebtedness of the Company or any of its Subsidiaries having the right to vote (or convertible into securities having the right to vote) on any matters on which holders of shares of capital stock of the Company may vote ("Company Voting Debt") were issued or outstanding. All of the issued and outstanding shares of Company Common Stock are validly issued, fully paid and nonassessable and are not subject to preemptive rights. Except as set forth in this Section 5.2 and except for the Company Rights Agreement and the Company Rights, there are not outstanding (i) any shares of Company Common Stock, Company Voting Debt or other voting securities of the Company, (ii) any securities of the Company or any of its Subsidiaries convertible into or exchangeable for shares of capital stock, Company Voting Debt or other voting securities of the Company or (iii) except as specified in Section 5.2 of the Company Disclosure Schedule, any options, warrants, calls, rights (including preemptive rights), commitments or other Contracts (other than certain Transaction Agreements) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound obligating the Company or any of its Subsidiaries to issue, deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed or acquired, or otherwise relating to, shares of capital stock of the Company or any of its Subsidiaries or any Company Voting Debt or other voting securities of the Company or any of its Subsidiaries or obligating the Company or any Company Subsidiary to grant, extend or enter into any such option, warrant, call, right, commitment or Contract. Except as set forth in Section 5.2 of the Company Disclosure Schedule, there are no stockholder agreements, voting trusts or other Contracts to which the Company is a party or by which it is bound relating to the voting or transfer of any shares of capital stock of the Company.


        5.3
    Corporate Authority; No Violation.     The Company has the corporate power and authority to enter into this Agreement and, subject to obtaining the Requisite Approval, to carry out its obligations hereunder. The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Company, subject to obtaining the Requisite Approval. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by HP Co., Spinco and Merger Sub, constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (except insofar as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, or by principles governing the availability of equitable remedies). Except as set forth in Section 5.3 of the Company Disclosure Schedule and except for such matters described in clauses (b), (c) and (d) below as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, neither the execution and delivery by the Company of this Agreement, nor the consummation by the Company of the transactions contemplated hereby and the performance by the Company of this Agreement will (a) violate or conflict with any provision of the Company's Certificate of Incorporation or Bylaws; (b) require any consent, approval, authorization or permit of, registration, declaration or filing with, or notification to, any Governmental Authority or any other Person; (c) result in any breach of or constitute a default (or an event that, with notice or lapse of time or both, would become a default) under, or give to others any right of termination, buy-out, cancellation, amendment or acceleration of any obligation or the loss of any benefit under any Contract to which the Company or any of its Subsidiaries is a party, or by which the Company or any of its Subsidiaries or any of their respective assets or properties is bound or affected; (d) result in the creation of a lien, pledge, security interest, claim or other encumbrance on any of the issued and outstanding shares of Company Common Stock or on any of the assets of the Company or its Subsidiaries pursuant to any Contract to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any

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of the assets of the Company or its Subsidiaries is bound or affected; or (e) violate or conflict with any Order, law, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, or any of the properties, businesses or assets of any of the foregoing. Section 5.3 of the Company Disclosure Schedule identifies all material consents, approvals and authorizations of any Governmental Authority that are legally required to be obtained by the Company for the consummation of the transactions contemplated by this Agreement.


        5.4
    Company Reports and Financial Statements; Liabilities.     The Company has previously made available to Spinco complete and correct copies of:


        5.5
    Absence of Certain Changes or Events.     Except as specifically contemplated by this Agreement or as set forth in Section 5.5 of the Company Disclosure Schedule, since September 30, 2001, each of the Company and its Subsidiaries has conducted its business only in the ordinary course and in a manner consistent with past practice, and, since such date, (a) there has not been, occurred or arisen any change, or any event (including any damage, destruction or loss whether or not covered by

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insurance), condition or state of facts of any character that, individually or in the aggregate, would have a Material Adverse Effect on the Company, whether or not arising in the ordinary course of business, and (b) neither the Company nor any of its Subsidiaries has taken or failed to take any action the taking of which or failure of which to take, as the case may be, would have violated the provisions of Section 6.1 if they had then been applicable to the Company and its Subsidiaries during such period.


        5.6
    Investigations; Litigation.     To the best of the Company's knowledge, no investigation or review by any Governmental Authority with respect to the Company or any of its Subsidiaries is pending or threatened, nor has any Governmental Authority indicated to the Company or any of its Subsidiaries an intention to conduct the same, except as set forth in Section 5.6(a) of the Company Disclosure Schedule.


        5.7
    Licenses; Compliance with Laws.     The Company and its Subsidiaries hold all Licenses that are required for the conduct of the businesses of the Company and its Subsidiaries, taken as a whole, as presently conducted and as proposed to be conducted, except such Licenses for which the failure to so hold, individually or in the aggregate, would not have a Material Adverse Effect on the Company. The Company and its Subsidiaries are in compliance with the terms of all such Licenses so held, except where the failure so to comply, individually or in the aggregate, would not have a Material Adverse Effect on the Company. No suspension or cancellation of any of the Company's Licenses is pending or, to the best of the Company's knowledge, threatened, except where the failure to have, or the suspension or cancellation of, any of the Company's Licenses would not have a Material Adverse Effect on the Company. The Company and its Subsidiaries are in compliance with all, and have received no notice of any violation (as yet unremedied) of any, laws, ordinances or regulations of any Governmental Authority applicable to any of them or their respective operations the noncompliance with which, individually or in the aggregate, would have a Material Adverse Effect on the Company.


        5.8
    Proxy Statement/Prospectus; Registration Statements.     None of the information regarding the Company or its Subsidiaries or the transactions contemplated by this Agreement provided by the Company specifically for inclusion in, or incorporation by reference into, the Proxy Statement/Prospectus or the Registration Statements will, in the case of the definitive Proxy Statement/Prospectus or any amendment or supplement thereto, at the time of the mailing of the definitive Proxy Statement/Prospectus and any amendment or supplement thereto and at the time of the Company Stockholders Meeting, or, in the case of each Registration Statement, at the time it becomes effective, at the time of the Company Stockholders Meeting, at the Distribution Date and at the Effective Time, contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.


        5.9
    Information Supplied.     All documents that the Company is responsible for filing with any Governmental Authority in connection with the transactions contemplated hereby or by any other Transaction Agreement will comply in all material respects with the provisions of applicable law.

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        5.10
    Environmental Matters.     Except as set forth in Section 5.10 of the Company Disclosure Schedule and except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company:

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        5.11
    Tax Matters.     

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        5.12
    Benefit Plans.     

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        5.13
    Labor Matters.     Except as set forth in Section 5.13 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement or other Contract with a labor union or labor organization and no collective bargaining agreement is being negotiated by the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is the subject of any proceeding asserting that the Company or any of its Subsidiaries has committed an unfair labor practice or is seeking to compel it to bargain with any labor organization as to wages or conditions of employment nor is there any strike, work stoppage or other labor dispute involving the Company or any of its Subsidiaries pending or, to the best of the Company's knowledge, threatened, that, individually or in the aggregate, would have a Material Adverse Effect on the Company. There are no labor controversies pending or, to the best of the Company's knowledge, threatened against the Company or any of its Subsidiaries that, individually or in the aggregate, would have a Material Adverse Effect on the Company. Except as set forth in Section 5.13 of the Company Disclosure Schedule, there have been no claims initiated by any labor organization to represent any Company Employees not currently represented by a labor organization.


        5.14
    Intellectual Property Matters.     The Company and its Subsidiaries own or possess adequate licenses or other valid rights to use all patents, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights, service marks, trade secrets, applications for trademarks and service marks, know-how and other proprietary rights and information used or held for use in connection with the business of the Company and its Subsidiaries as currently conducted or as proposed to be conducted immediately after the Effective Time (including in connection with services provided by the Company and its Subsidiaries to third parties), except where the failure to own or possess such items, individually or in the aggregate, would not have a Material Adverse Effect on the Company. To the best of the Company's knowledge, there is no assertion or claim challenging the validity of any of the foregoing that, individually or in the aggregate, would have a Material Adverse Effect on the Company. The conduct of the business of the Company and its Subsidiaries as currently conducted and as proposed to be conducted immediately after the Effective Time does not and will not conflict in any way with any patent, patent right, license, trademark, trademark right, trade name, trade name right, copyright, service mark, trade secret, know-how or other proprietary rights or information of any third party that, individually or in the aggregate, would have a Material Adverse Effect on the

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Company. To the best of the Company's knowledge, there are no infringements of any proprietary rights owned by or licensed by or to the Company or any Company Subsidiary that, individually or in the aggregate, would have a Material Adverse Effect on the Company.


        5.15
    Material Contracts.     


        5.16
    Opinion of Company Financial Advisor.     The Company has received the written opinion of Merrill Lynch & Co., to the effect that, as of the date of such opinion, the Exchange Ratio (as defined in such opinion) is fair, from a financial point of view, to holders of Company Common Stock. The Company has previously delivered a complete copy of such opinion to HP Co.


        5.17
    Brokers or Finders.     Except as set forth in Section 5.17 of the Company Disclosure Schedule, no agent, broker, investment banker, financial advisor or other similar Person is or will be entitled, by reason of any agreement, act or statement by the Company, or any of its Subsidiaries, directors, officers or employees, to any financial advisory, broker's, finder's or similar fee or commission, to reimbursement of expenses or to indemnification or contribution in connection with any of the transactions contemplated by this Agreement or any other Transaction Agreement. The Company has heretofore made available to HP Co. a complete and correct copy of all agreements between the Company and Merrill Lynch & Co. pursuant to which such firm would be entitled to any payment relating to the Merger or the other transactions contemplated hereby.


        5.18
    Takeover Statutes.     No "fair price," "moratorium," "control share acquisition," "business combination," "shareholder protection" or other similar antitakeover statute or regulation enacted under Delaware law, or to the knowledge of the Company, under the law of any other jurisdiction, will apply to this Agreement, the Merger or the transactions contemplated hereby.

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        5.19
    Certain Board Findings.     The Board of Directors of the Company, at a meeting duly called and held, (i) has determined that the Merger is fair to, and in the best interests of, the Company and its shareholders and (ii) has resolved, subject to Section 6.11, to recommend the adoption of this Agreement by the shareholders of the Company.


        5.20
    Vote Required.     The only vote of the stockholders of the Company required under any of the DGCL, the NYSE rules or the Company's Certificate of Incorporation for adoption of this Agreement and the approval of the transactions contemplated by this Agreement is the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock entitled to vote (sometimes referred to herein as the "Requisite Approval").


        5.21
    Certain Payments.     Except as disclosed in Section 5.21 of the Company Disclosure Schedule, no Company Benefit Plan or employment arrangement, and no contractual arrangements between the Company or any of its Subsidiaries and any third party, exists that could result in the payment to any current, former or future director, officer, shareholder or employee of the Company or any of its Subsidiaries, or of any entity the assets or capital stock of which have been acquired by the Company or a Company Subsidiary, of any money or other property or rights or accelerate or provide any other rights or benefits to any such individual as a result of the consummation of the transactions contemplated by the Transaction Agreements whether or not (a) such payment, acceleration or provision would constitute a "parachute payment" (within the meaning of Section 280G of the Code) or (b) some other subsequent action or event would be required to cause such payment, acceleration or provision to be triggered.


        5.22
    Assets.     The Company has good and defensible title to all oil and gas properties forming the basis for the reserves reflected in the Company Reserve Report as attributable to interests owned by the Company or any Company Subsidiary and has good and marketable title to all other Company assets, in each case, free and clear of all Liens except for (i) defects or irregularities of title or encumbrances of a nature that would not, individually or in the aggregate, have a Material Adverse Effect on the Company, (ii) Liens that secure obligations not yet due and payable, (iii) Liens associated with obligations reflected in the Company Reserve Report, and (iv) Liens disclosed in Section 5.22 of the Company Disclosure Schedule. Except as disclosed in Section 5.22 of the Company Disclosure Schedule, the oil and gas leases and other agreements that provide the Company and its Subsidiaries with operating rights in the oil and gas properties reflected in the Company Reserve Report are legal, valid and binding and in full force and effect, the rentals, royalties and other payments due thereunder have been properly paid and, to the best of the Company's knowledge, there is no existing default (or event that, with notice or lapse of time or both, would become a default) under any of such oil and gas leases or other agreements, except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The Company and its Subsidiaries (as the case may be) have maintained all of their respective assets in working order and operating condition, subject only to ordinary wear and tear.


        5.23
    Loans.     Section 5.23 of the Company Disclosure Schedule sets forth each currently outstanding loan exceeding $500,000 in principal amount made by the Company or any of its Subsidiaries to any Person.


        5.24
    Oil and Gas Reserves.     The Company has furnished to HP Co. a copy of a reserve report prepared by the Company containing estimates of the oil and gas reserves, as of September 30, 2001 (the "Company Reserve Report"), that are owned by the Company or any of its Subsidiaries. Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, the factual non-interpretative data on which the Company Reserve Report was based for purposes of estimating the oil and gas reserves set forth in the Company Reserve Report was accurate as of September 30, 2001 and incorporates the following: (i) the interests owned by the Company and its Subsidiaries as of such date, (ii) the historic costs of operating the properties, (iii) all historic

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production and cost data adjusted for all oil and/or gas imbalances due, (iv) all tests and operations on the properties of which the Company was aware as of such date, (v) all capital costs reasonably expected by the Company as of such date to be necessary to operate, develop and plug and abandon the properties, and (vi) the Company's reasonable good faith estimates of future operating costs with respect to the properties.


        5.25
    Derivative Transactions.     Except as set forth in Section 5.25 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has entered into any material Derivative Transaction pursuant to which it has a continuing financial liability or obligation. All Derivative Transactions entered into by the Company or any of its Subsidiaries that are currently open were entered into in material compliance with applicable rules, regulations and policies of all regulatory authorities.


ARTICLE 6

COVENANTS AND AGREEMENTS


        6.1
    Conduct of Business by the Company Pending the Merger.     Following the date of this Agreement and prior to the earlier of the Effective Time and the Termination Date, except as specifically contemplated or permitted by this Agreement or the other Transaction Agreements or described in Section 6.1 of the Company Disclosure Schedule or to the extent that HP Co. shall otherwise consent in writing (such consent not to be unreasonably withheld or delayed), the Company agrees as to itself and its Subsidiaries as follows:

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        6.2
    Conduct of Business by Spinco and HP Co. Pending the Merger.     Following the date of this Agreement and prior to the earlier of the Effective Time and the Termination Date, except as specifically contemplated or permitted by this Agreement or the other Transaction Agreements or described in Section 6.2 of the Spinco Disclosure Schedule or to the extent that the Company shall otherwise consent in writing (such consent not to be unreasonably withheld or delayed), HP Co. and Spinco severally agree as follows:

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        6.3
    Proxy Statement/Prospectus.     

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        6.4
    Cooperation.     HP Co., Spinco and the Company shall together, or pursuant to the allocation of responsibility set forth below or otherwise to be agreed upon between them, take action as follows:


        6.5
    Letter of Spinco's Accountants.     In connection with the information regarding Spinco or its Subsidiaries or the transactions contemplated by this Agreement provided by Spinco specifically for inclusion in, or incorporation by reference into, the Proxy Statement/Prospectus and the Registration Statements, Spinco shall use all commercially reasonable efforts to cause to be delivered to the Company a letter of Ernst & Young, LLP, dated the date on which the Registration Statement on Form S-4 shall become effective and as of the Effective Time and addressed to the Company, in form and substance reasonably satisfactory to the Company and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Registration Statement on Form S-4.


        6.6
    Letter of the Company's Accountants.     In connection with the information regarding the Company or its Subsidiaries or the transactions contemplated by this Agreement provided by the Company specifically for inclusion in, or incorporation by reference into, the Proxy Statement/

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Prospectus and the Registration Statements, the Company shall use all commercially reasonable efforts to cause to be delivered to Spinco a letter of KPMG LLP, dated the date on which the Registration Statement on Form S-4 shall become effective and as of the Effective Time and addressed to HP Co. and Spinco, in form and substance reasonably satisfactory to HP Co. and Spinco and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Registration Statement on Form S-4.


        6.7
    HP Co./Spinco Employee Stock Options, Incentive and Benefit Plans.     Spinco and the Company shall take all such steps as may be required to cause any dispositions of Company Common Stock (including derivative securities with respect to Company Common Stock) and any acquisitions of Spinco Common Stock, as the case may be, resulting from the transactions contemplated by this Agreement by each officer or director of the Company or Spinco who is subject to the reporting requirements of Section 16(a) of the Exchange Act to be exempt under Rule 16b-3 promulgated under the Exchange Act, such steps to be taken in accordance with the No-Action Letter, dated January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher & Flom LLP.


        6.8
    Employee Benefit Plans.     Spinco and the Company shall take all acts necessary to cause the Company Employees who remain employed by the Company or its Affiliates after the Effective Time ("Continuing Company Employees") to participate in the benefit plans maintained by Spinco as of the Effective Time (the "Surviving Corporation Benefit Plans") on a basis no less favorable than that applicable to similarly situated Spinco Employees who remain employed by Spinco or its Affiliates after the Distribution Date (the "Continuing Spinco Employees"). The Company shall take all acts necessary to provide that, except as otherwise provided in subsection (d) below, no person shall accrue any additional benefit under any Company Benefit Plan on or after the Closing Date.

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        6.9
    Investigation.     Upon reasonable notice, each of HP Co., Spinco, Merger Sub and the Company shall afford to each other and to its respective officers, employees, accountants, counsel and other authorized representatives, reasonable access during normal business hours, throughout the period prior to the earlier of the Effective Time or the Termination Date, to its and its Subsidiaries' plants, properties, Contracts, commitments, books, records (including Tax returns) and any report, schedule or other document filed or received by it pursuant to the requirements of the federal or state securities laws, and shall use all commercially reasonable efforts to cause its respective representatives to furnish promptly to the other such additional financial and operating data and other information, including environmental information, as to its and its Subsidiaries' respective businesses and properties as the other or its duly authorized representatives, as the case may be, may reasonably request. The parties hereby agree that the provisions of the Confidentiality Agreement shall apply to all information and material furnished by any party or its representatives thereunder and hereunder. No investigation made at any time by or on behalf of any of the Company, HP Co., Spinco or Merger Sub shall affect the representations and warranties of the parties hereto.


        6.10
    Reasonable Efforts; Further Assurances.     

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        6.11
    No Solicitation by the Company.     

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        6.12
    Director and Officer Indemnification; Insurance.     

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        6.13
    Rule 145 Affiliates.     The Company shall, at least 10 days prior to the Effective Time, cause to be delivered to Spinco a list, reviewed by its counsel, identifying all persons who are, in its reasonable judgment, at the time of the Company Stockholders Meeting, "affiliates" of the Company for purposes of Rule 145 promulgated by the SEC under the Securities Act (each, a "Rule 145 Affiliate"). The Company shall furnish such information and documents as Spinco may reasonably request for the purpose of reviewing such list. The Company shall use all commercially reasonable efforts to cause each person who is identified as a Rule 145 Affiliate in the list furnished pursuant to this Section 6.13 to execute a written agreement (each, a "Rule 145 Affiliate Agreement"), substantially in the form of Exhibit E to this Agreement, at or prior to the Effective Time.


        6.14
    Public Announcements.     HP Co. and the Company shall consult with each other and shall mutually agree upon any press release or public announcement relating to the transactions contemplated by this Agreement and neither of them shall issue any such press release or make any such public announcement prior to such consultation and agreement, except as may be required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange, in which case the party proposing to issue such press release or make such public announcement shall

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use all commercially reasonable efforts to consult in good faith with the other party before issuing any such press release or making any such public announcement.


        6.15
    Defense of Litigation.     Each of HP Co., Spinco, Merger Sub and the Company shall use all commercially reasonable efforts to defend against all Actions in which such party is named as a defendant that challenge or otherwise seek to enjoin, restrain or prohibit the transactions contemplated by this Agreement or seek damages with respect to such transactions. None of HP Co., Spinco, Merger Sub or the Company shall settle any such Action or fail to perfect on a timely basis any right to appeal any judgment rendered or order entered against such party therein without having previously consulted with the other parties. Each of HP Co., Spinco and the Company shall use all commercially reasonable efforts to cause each of its Affiliates, directors and officers to use all commercially reasonable efforts to defend any such Action in which such Affiliate, director or officer is named as a defendant and which seeks any such relief to comply with this Section 6.15 to the same extent as if such Person was a party.


        6.16
    Notification.     


        6.17
    Obligations of Merger Sub.     Each of HP Co. and Spinco shall take all action necessary to cause Merger Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and subject to the conditions set forth in this Agreement.


        6.18
    Conveyance Taxes.     Spinco and the Company shall be liable for and shall hold the holders of shares of Company Common Stock who are holders of shares of Company Common Stock immediately prior to the Effective Time harmless against any real property transfer or gains, sales, use, transfer, value added, stock transfer or stamp taxes, any transfer, recording, registration, and other fees, and any similar Taxes which become payable in connection with the transactions contemplated by this

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Agreement. The parties acknowledge that this Section 6.18 is specifically intended to benefit the holders of shares of the Company Common Stock who are holders of shares of Company Common Stock immediately prior to the Effective Time.


        6.19
    Accounting Matters.     The parties will use their commercially reasonable efforts to ensure that, following the Effective Time, Spinco will establish a fiscal year ending on December 31.


        6.20
    Rights Plans.     


        6.21
    Transition Services Agreement.     Promptly following the date hereof, HP Co. and the Company will discuss the scope, nature, term and pricing of the transition services to be provided by HP Co. to Spinco following the Effective Time pursuant to the Transition Services Agreement. HP Co. and the Company will negotiate in good faith with respect thereto and prior to the Effective Time HP Co. and Spinco will enter into the Transition Services Agreement in a form reasonably satisfactory to HP Co. and the Company.


ARTICLE 7

CONDITIONS TO THE MERGER


        7.1
    Conditions to the Obligations of Spinco, HP Co., Merger Sub and the Company to Effect the Merger.     The respective obligations of Spinco, HP Co., Merger Sub and the Company to consummate the Merger shall be subject to the fulfillment (or waiver by HP Co. and the Company) at or prior to the Effective Time of the following conditions:

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        7.2
    Additional Conditions to the Obligations of HP Co., Spinco and Merger Sub.     The obligation of HP Co., Spinco and Merger Sub to consummate the Merger shall be subject to the fulfillment (or waiver by HP Co.) at or prior to the Effective Time of the following additional conditions:

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        7.3
    Additional Conditions to the Obligations of the Company.     The obligation of the Company to consummate the Merger shall be subject to the fulfillment (or waiver by the Company) at or prior to the Effective Time of the following additional conditions:


ARTICLE 8

TERMINATION, AMENDMENT AND WAIVERS


        8.1
    Termination.     This Agreement may be terminated and the transactions contemplated hereby may be abandoned prior to the Effective Time (notwithstanding the Requisite Approval, except in the case of Section 8.1(g)) as follows:

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        8.2
    Effect of Termination.     In the event of termination of this Agreement pursuant to Section 8.1, this Agreement shall terminate (except to the extent set forth in the last sentence of Section 9.1(a) and in Section 9.2), without any liability on the part of any party or its directors, officers or stockholders

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except as set forth in Section 8.3; provided, that nothing in this Agreement shall relieve any party of liability for breach of this Agreement or prejudice the ability of the non-breaching party to seek damages from any other party for any breach of this Agreement, including attorneys' fees and the right to pursue any remedy at law or in equity.


        8.3
    Termination Fee; Expenses.     Expenses Payable upon Breach. If this Agreement is terminated pursuant to one (but not both) of Section 8.1(d) or Section 8.1(e), then the breaching party shall promptly (but not later than five (5) business days after receipt of notice of the amount due from the other party) pay to the terminating party an amount equal to all documented out-of-pocket expenses and fees incurred by such terminating party (including fees and expenses payable to all legal, accounting, financial, public relations and other professional advisors arising out of, in connection with or related to the transactions contemplated by this Agreement and the Transaction Documents) not to exceed $2 million in the aggregate ("Out-of-Pocket Expenses").

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        8.4
    Amendment.     This Agreement may be amended by HP Co., Spinco, Merger Sub and the Company at any time before or after adoption of this Agreement by the stockholders of the Company; provided, however, that after such adoption, no amendment shall be made that by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed by HP Co., Spinco and the Company


        8.5
    Waivers.     At any time prior to the Effective Time, HP Co., Spinco and the Company may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or acts of the other party; (ii) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant to this Agreement; and (iii) waive compliance with any of the agreements or conditions of the other party contained herein; provided, however, that no failure or delay by HP Co., Spinco or the Company in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder. Any agreement on the part of HP Co., Spinco or the Company to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.


ARTICLE 9

MISCELLANEOUS


        9.1
    Survival of Representations, Warranties and Agreements; Indemnification.     The covenants and agreements in this Agreement or in any certificate or instrument delivered pursuant to this Agreement shall survive the Effective Time in accordance with their respective terms. None of the representations or warranties in this Agreement or in any certificate or instrument delivered pursuant to this Agreement shall survive the Effective Time. The Confidentiality Agreement shall survive the execution and delivery of this Agreement and any termination of this Agreement, and the provisions of the Confidentiality Agreement shall apply to all information and material furnished by any party or its representatives thereunder or hereunder.

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        9.2
    Expenses.     Except as otherwise provided in the Distribution Agreement or in Section 8.3, whether or not the Merger or the other transactions contemplated by this Agreement are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses, except that the Company and HP Co. each shall pay one-half of all expenses relating to printing, filing and mailing the Registration Statements and the Proxy Statement/Prospectus and all SEC and other regulatory filing fees incurred in connection with the Registration Statements and the Proxy Statement/Prospectus.


        9.3
    Notices.     All notices and other communications required or permitted to be given hereunder shall be in writing and shall be deemed given upon (a) a transmitter's confirmation of a receipt of a facsimile transmission (but only if followed by confirmed delivery of a standard overnight courier the following business day or if delivered by hand the following business day), (b) confirmed delivery of a standard overnight courier or when delivered by hand or (c) the expiration of five business days after the date mailed by certified or registered mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice):

        If to Spinco (prior to the Effective Time) or HP Co., to:

        with a copy to (which shall not constitute effective notice) to:

        If to Spinco (following the Effective Time), to:

        with a copy (which shall not constitute effective notice) to:

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        and to:

        with a copy (which shall not constitute effective notice) to:

        and to:


        9.4
    Certain Construction Rules.     The article and section 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. As used in this Agreement, unless otherwise provided to the contrary, (a) all references to days or months shall be deemed references to calendar days or months and (b) any reference to a "Section," "Article," "Exhibit" or "Schedule" shall be deemed to refer to a section or article of this Agreement or an exhibit or schedule to this Agreement. The words "hereof," "herein" and "hereunder" and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Unless otherwise specifically provided for herein, the term "or" shall not be deemed to be exclusive. Any matter disclosed in any particular Section or Subsection of the Spinco Disclosure Schedule, the HP Co. Disclosure Schedule or the Company Disclosure Schedule shall be deemed to have been disclosed in any other Section or Subsection of Articles 3, 4, 5 or 6 of this Agreement, as applicable, with respect to which such matter is relevant so long as the applicability of such matter to such Section or Subsection is reasonably apparent. For avoidance of doubt, "consistent with past practice" when used with respect to Spinco or any of its Subsidiaries shall mean the past practice of HP Co.

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        9.5
    Severability.     If any provision of this Agreement or the application of any such provision to any Person or circumstance, shall be declared judicially to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, it being the intent and agreement of Spinco, HP Co., Merger Sub and the Company that this Agreement shall be deemed amended by modifying such provision to the extent necessary to render it valid, legal and enforceable while preserving its intent or, if such modification is not possible, by substituting therefor another provision that is legal and enforceable and that achieves the same objective.


        9.6
    Assignment; Binding Effect.     Neither this Agreement nor any of the rights, benefits or obligations hereunder may be assigned by Spinco, HP Co., Merger Sub or the Company (whether by operation of law or otherwise) without the prior written consent of all of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by Spinco, HP Co., Merger Sub and the Company and their respective successors and permitted assigns.


        9.7
    No Third Party Beneficiaries.     Except as provided in Sections 2.2, 2.8, 2.10, 6.12 and 6.18 (collectively, the "Third Party Provisions"), nothing in this Agreement, express or implied, is intended to or shall confer upon any Person (other than HP Co., Spinco and the Company and their respective successors and permitted assigns) any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, and no Person (other than as so specified) shall be deemed a third party beneficiary under or by reason of this Agreement. The Third Party Provisions may be enforced by the beneficiaries thereof after the Effective Time. Subject to Section 6.12, Spinco shall reimburse all expenses, including reasonable attorneys' fees, that are incurred by any Person who prevails in any litigation or other proceeding required to enforce the obligations of the Surviving Corporation and Spinco under the Third Party Provisions.


        9.8
    Limited Liability.     Notwithstanding any other provision of this Agreement, no stockholder, director, officer, Affiliate, agent or representative of Spinco, HP Co., Merger Sub or the Company, in its capacity as such, shall have any liability in respect of or relating to the covenants, obligations, representations or warranties of such party under this Agreement or in respect of any certificate delivered with respect hereto or thereto and, to the fullest extent legally permissible, each of Spinco, HP Co., Merger Sub and the Company, for itself and its stockholders, directors, officers and Affiliates, waives and agrees not to seek to assert or enforce any such liability that any such Person otherwise might have pursuant to applicable law.


        9.9
    Entire Agreement.     This Agreement (together with the other Transaction Agreements, the Confidentiality Agreement, the exhibits and the Disclosure Schedules and the other documents delivered pursuant hereto) constitutes the entire agreement of all the parties hereto and supersedes all prior and contemporaneous agreements and understandings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof. All exhibits attached to this Agreement and the Disclosure Schedules are expressly made a part of, and incorporated by reference into, this Agreement. Each section of the Company Disclosure Schedule, the HP Co. Disclosure Schedule and the Spinco Disclosure Schedule qualifies the corresponding numbered representation and warranty or covenant to the extent specified therein, and any other representation, warranty or covenant to which such matter is relevant so long as the applicability of such matter to any such representation, warranty or covenant is reasonably apparent.


        9.10
    Governing Law.     This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware without giving effect to the conflicts of law principles thereof. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO THE EXTENT

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SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH PARTY'S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND (iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY WITHIN THE STATE OF DELAWARE.


        9.11
    Counterparts.     This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one agreement binding on Spinco, HP Co., Merger Sub and the Company, notwithstanding that not all parties are signatories to the original or the same counterpart.


        9.12
    Specific Performance.     The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity.


        9.13
    Waiver of Jury Trial.     Each of the parties hereto irrevocably and unconditionally waives all right to trial by jury in any Action or counterclaim (whether based in contract, tort or otherwise) arising out of or relating to this Agreement or the actions of the parties hereto in the negotiation, administration, performance and enforcement thereof.

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        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

    HELMERICH & PAYNE, INC.

 

 

By:

 

/s/  
HANS HELMERICH      
    Name:   Hans Helmerich
    Title:   President and Chief Executive Officer

 

 

HELMERICH & PAYNE EXPLORATION AND PRODUCTION CO.

 

 

By:

 

/s/  
STEVEN R. MACKEY      
    Name:   Steven R. Mackey
    Title:   Vice President

 

 

MOUNTAIN ACQUISITION CO.

 

 

By:

 

/s/  
STEVEN R. MACKEY      
    Name:   Steven R. Mackey
    Title:   Vice President

 

 

KEY PRODUCTION COMPANY, INC.

 

 

By:

 

/s/  
F.H. MERELLI      
    Name:   F.H. Merelli
    Title:   Chairman and CEO

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ANNEX B

Merrill Lynch & Co. Fairness Opinion to the Key Board of Directors

B-1



[MERRILL LYNCH LETTERHEAD]

February 23, 2002

Board of Directors
Key Production Company, Inc.
707 Seventeenth Street
Suite 3300
Denver, Colorado 80202

Members of the Board:

        Helmerich & Payne, Inc. (the "Parent"), Helmerich & Payne Exploration and Production Co., a newly formed wholly owned subsidiary of the Parent ("Spinco"), Mountain Acquisition Co., a newly formed wholly owned subsidiary of Spinco ("Acquisition Sub"), and Key Production Company, Inc. (the "Company"), propose to enter into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Acquisition Sub will be merged with and into the Company (the "Merger"). Prior to the Merger, the Parent will contribute all of the assets of its oil and gas exploration, production, marketing and sales operations (collectively, the "Business") to Spinco, Spinco will assume all of the liabilities predominately relating to or arising from the Business, and the Parent will then distribute 26,591,321 shares (the "Distributed Share Amount") of the common stock, par value $.01 per share, of Spinco (the "Spinco Common Stock"), constituting 100% of the then outstanding Spinco Common Stock, to the shareholders of the Parent (the "Spin-off"). Following the Spin-off and pursuant to the Merger Agreement, each outstanding share of the Company's common stock, par value $.25 per share (the "Company Common Stock"), will be converted into the right to receive one share (the "Exchange Ratio") of Spinco Common Stock. After the Merger, the Company will be a wholly owned subsidiary of Spinco.

        You have asked us whether, in our opinion and taking into account the Distributed Share Amount, the Exchange Ratio is fair from a financial point of view to the holders of the Company Common Stock.

        In arriving at the opinion set forth below, we have, among other things:

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        In preparing our opinion, we have assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to us by the Company and the Parent, discussed with or reviewed by or for us, or publicly available, and we have not assumed any responsibility for independently verifying such information or undertaken an independent evaluation or appraisal of any of the assets or liabilities of the Company, the Parent, or Spinco or been furnished with any such evaluation or appraisal, other than the reserve reports referred to above in clauses (3) and (4). In addition, we have not assumed any obligation to conduct any physical inspection of the properties or facilities of the Company, the Parent, or Spinco. With respect to the reserve reports, hydrocarbon production forecasts and financial forecast information furnished to or discussed with us by the Company or the Parent, we have assumed that they have been reasonably prepared and reflect the best currently available estimates and judgment of the Company's or the Parent's management as to the expected future financial performance of the Company, the Parent, the Business or Spinco, as the case may be, and their respective petroleum engineers as to their respective reserves, their future hydrocarbon production volumes and associated costs. We have assumed that the Spin-off will be tax free to the Company, the Parent, Spinco and their respective shareholders. We have further assumed that the Merger will qualify as a tax-free reorganization for U.S. federal income tax purposes. We have also assumed that the final form of each of the Merger Agreement, the distribution agreement and the tax sharing agreement will be substantially similar to the last draft reviewed by us.

        Our opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated on, and on the information made available to us as of, the date hereof.

        We are acting as financial advisor to the Company in connection with the Merger and will receive a fee from the Company for our services, a significant portion of which is contingent upon the consummation of the Merger. In addition, the Company has agreed to indemnify us for certain liabilities arising out of our engagement. We may, in the future, provide financial advisory and financing services to the Company and the Parent and/or their affiliates, and may receive fees for the rendering of such services. In addition, in the ordinary course of our business, we may actively trade the Company Common Stock and other securities of the Company, as well as the common stock of the Parent and other securities of the Parent, for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.

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        This opinion is for the use and benefit of the Board of Directors of the Company. Our opinion does not address the merits of the underlying decision by the Company to engage in the Merger and does not constitute a recommendation to any shareholder as to how such shareholder should vote on the proposed Merger.

        We are not expressing any opinion herein as to the prices at which the Company Common Stock or the Spinco Common Stock will trade following the announcement or consummation of the Merger.

        On the basis of and subject to the foregoing, we are of the opinion that, as of the date hereof and taking into account the Distributed Share Amount, the Exchange Ratio is fair from a financial point of view to the holders of the Company Common Stock.

  Very truly yours,

 

MERRILL LYNCH, PIERCE, FENNER & SMITH
    INCORPORATED

 

/s/ Merrill Lynch, Pierce, Fenner & Smith Incorporated

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ANNEX C

Distribution Agreement

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DISTRIBUTION AGREEMENT

DATED AS OF FEBRUARY 23, 2002

BETWEEN

HELMERICH & PAYNE, INC.

AND

HELMERICH & PAYNE EXPLORATION AND PRODUCTION CO.

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TABLE OF CONTENTS

ARTICLE I—DEFINITIONS
    Section 1.1   General
    Section 1.2   References to Time

ARTICLE II—PRELIMINARY TRANSACTIONS
    Section 2.1   Business Separation
    Section 2.2   Conveyancing and Assumption Agreements
    Section 2.3   Certificate of Incorporation; By-laws
    Section 2.4   Issuance of Stock
    Section 2.5   Other Agreements
    Section 2.6   Transfers Not Effected Prior to the Distribution; Transfers Deemed Effective as of the Distribution Date

ARTICLE III—THE DISTRIBUTION
    Section 3.1   Record Date and Distribution Date
    Section 3.2   The Agent
    Section 3.3   Delivery of Share Certificates to the Agent
    Section 3.4   The Distribution

ARTICLE IV—CASH AMOUNT
    Section 4.1   Cash Amount Statement
    Section 4.2   Review of the Actual Cash Amount
    Section 4.3   Dispute Resolution Procedure
    Section 4.4   Payment of Cash Amount

ARTICLE V—SURVIVAL AND INDEMNIFICATION
    Section 5.1   Survival of Agreements
    Section 5.2   Indemnification
    Section 5.3   Procedures for Indemnification for Third-Party Claims
    Section 5.4   Reductions for Insurance Proceeds and Other Recoveries
    Section 5.5   Remedies Cumulative
    Section 5.6   Survival of Indemnities

ARTICLE VI—CERTAIN ADDITIONAL COVENANTS
    Section 6.1   Notices to Third Parties
    Section 6.2   Licenses and Permits
    Section 6.3   Intercompany Agreements
    Section 6.4   Further Assurances
    Section 6.5   Guarantee Obligations and Liens
    Section 6.6   Insurance

ARTICLE VII—ACCESS TO INFORMATION
    Section 7.1   Provision of Corporate Records
    Section 7.2   Access to Information
    Section 7.3   Production of Witnesses
    Section 7.4   Retention of Records
    Section 7.5   Confidentiality
    Section 7.6   Cooperation with Respect to Government Reports and Filings
    Section 7.7   Tax Sharing Agreement

ARTICLE VIII—NO REPRESENTATIONS OR WARRANTIES
    Section 8.1   No Representations or Warranties

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ARTICLE IX—MISCELLANEOUS
    Section 9.1   Conditions to the Distribution
    Section 9.2   Complete Agreement
    Section 9.3   Expenses
    Section 9.4   Governing Law
    Section 9.5   Notices
    Section 9.6   Amendment and Modification
    Section 9.7   Successors and Assigns; No Third-Party Beneficiaries
    Section 9.8   Counterparts
    Section 9.9   Interpretation
    Section 9.10   Severability
    Section 9.11   References; Construction
    Section 9.12   Termination
    Section 9.13   Consent to Jurisdiction and Service of Process
    Section 9.14   Waivers
    Section 9.15   Specific Performance
    Section 9.16   Waiver of Jury Trial

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DISTRIBUTION AGREEMENT

        This DISTRIBUTION AGREEMENT (this "Agreement"), dated as of February 23, 2002, by and between Helmerich & Payne, Inc., a Delaware corporation ("HP Co."), and Helmerich & Payne Exploration and Production Co., a Delaware corporation and a wholly owned subsidiary of HP Co. ("Spinco").

RECITALS

        A.    The Merger Agreement. HP Co., Spinco, Key Production Company, Inc., a Delaware corporation (the "Company"), and Mountain Acquisition Co., a Delaware corporation and wholly owned subsidiary of Spinco ("Merger Sub") have entered into an Agreement and Plan of Merger, dated as of February 23, 2002 (the "Merger Agreement"), pursuant to which, at the Effective Time (as defined herein), Merger Sub will merge with and into the Company, with the Company being the surviving corporation, and the Company becoming a wholly owned subsidiary of Spinco (the "Merger").

        B.    The Transaction Agreements. This Agreement and the other Transaction Agreements (as defined herein) set forth certain transactions that are conditions to consummation of the Merger.

        C.    Business Separation. Prior to the Distribution Date (as defined herein), and subject to the terms and conditions set forth herein, HP Co. intends to transfer or cause to be transferred to Spinco or a Spinco Subsidiary (as defined herein) all of the Spinco Assets (as defined herein), and Spinco intends to assume all of the Spinco Liabilities (as defined herein), as contemplated by this Agreement (the "Contribution").

        E.    The Distribution. Subject to the conditions set forth in this Agreement, all of the issued and outstanding shares of common stock of Spinco, par value $.01 per share ("Spinco Common Stock"), will be distributed on a pro rata basis (the "Distribution") to the holders as of the Record Date (as defined herein) of the outstanding common stock of HP Co., par value $0.10 per share ("HP Co. Common Stock").

        F.    Intended Tax Consequences. The parties to this Agreement intend that the Contribution and the Distribution qualify under Sections 355 and 368 of the Internal Revenue Code of 1986, as amended (the "Code"), that the Merger qualify under Section 368 of the Code, and that no gain or loss for federal income tax purposes be recognized as a result of the transactions described herein.

        NOW, THEREFORE, in consideration of the promises, and of the representations, warranties, covenants and agreements set forth herein, the parties hereto hereby agree as follows:


ARTICLE I

DEFINITIONS

        Section 1.1 General. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):


        Actual Cash Amount:     as defined in Section 4.1 of this Agreement.


        Affiliate:     with respect to any specified Person, any other Person that directly or indirectly, controls, is controlled by or is under common control with, such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided, however, that

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for purposes of this Agreement, from and after the Distribution Date, no member of either Group shall be deemed an Affiliate of any member of the other Group.


        Agent:     the distribution agent to be appointed by HP Co., with a Company Consent, to distribute the shares of Spinco Common Stock pursuant to the Distribution.


        Agreement:     as defined in the preamble to this Agreement.


        Asset:     any and all assets and properties, tangible or intangible, including the following: (i) cash, notes and accounts and notes receivable (whether current or non-current); (ii) certificates of deposit, banker's acceptances, stock, debentures, evidences of indebtedness, certificates of interest or participation in profit-sharing agreements, collateral-trust certificates, preorganization certificates or subscriptions, transferable shares, investment contracts, voting-trust certificates, fractional undivided interests in oil, gas or other mineral rights, puts, calls, straddles, options and other securities of any kind; (iii) intangible property rights, inventions, discoveries, know-how, United States and foreign patents and patent applications, trade secrets, confidential information, registered and unregistered trademarks, service marks, service names, trade styles and trade names and associated goodwill; statutory, common law and registered copyrights; applications for any of the foregoing, rights to use the foregoing and other rights in, to and under the foregoing; (iv) rights under leases, contracts, licenses, permits, distribution arrangements, sales and purchase agreements, joint operating agreements, drilling contracts, farm-in and farm-out agreements, other agreements and business arrangements; (v) real estate and buildings and other improvements thereon, easements and rights-of-way; (vi) leasehold improvements, fixtures, trade fixtures, machinery, equipment (including oil and gas, transportation and office equipment), tools, dies and furniture; (vii) office supplies, production supplies, spare parts, other miscellaneous supplies and other tangible property of any kind; (viii) computer equipment and software; (ix) raw materials, work-in-process, finished goods, consigned goods and other inventories; (x) prepayments or prepaid expenses; (xi) claims, causes of action, rights under express or implied warranties, rights of recovery and rights of setoff of any kind; (xii) the right to receive mail, payments on accounts receivable and other communications; (xiii) lists of customers, records pertaining to customers and accounts, personnel records, lists and records pertaining to customers, suppliers and agents, and books, ledgers, files and business records of every kind; (xiv) advertising materials and other printed or written materials; (xv) goodwill as a going concern and other intangible properties; (xvi) employee contracts, including any rights thereunder to restrict an employee from competing in certain respects; and (xvii) licenses and authorizations issued by any governmental authority.


        Business:     the Spinco Business or the HP Co. Business, as the case may be.


        Business Day:     any day other than a Saturday, Sunday or a day on which banking institutions in the City of New York are authorized or obligated by law or executive order to close.


        Cash Amount:     an amount calculated as follows:

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        Claims Administration:     the processing of claims made under the Policies, including the reporting of claims to the insurance carrier, management and defense of claims, and providing for appropriate releases upon settlement of claims.


        Claims Made Policies:     has the meaning set forth in Section 6.6(a) of this Agreement.


        Code:     as defined in the Recitals to this Agreement.


        Company:     as defined in the Recitals to this Agreement.


        Company Consent:     as defined in the Merger Agreement.


        Contribution:     as defined in the Recitals to this Agreement.


        Disclosure Schedule:     the schedule prepared and delivered by HP Co. to Spinco as of the date of this Agreement.


        Dispute Notification:     as defined in Section 4.3 of this Agreement.


        Distribution:     as defined in the Recitals to this Agreement.


        Distribution Date:     the date and time that the Distribution shall become effective.


        Effective Time:     as defined in the Merger Agreement.


        Employee Benefits Agreement:     the Employee Benefits Agreement of even date herewith between HP Co. and Spinco, in the form of Exhibit A hereto.


        Exchange Act:     the Securities Exchange Act of 1934, as amended, together with the rules and regulations of the SEC promulgated thereunder.


        GAAP:     as defined in the Merger Agreement.


        Governmental Authority:     as defined in the Merger Agreement.


        Group:     the HP Co. Group or the Spinco Group, as the case may be.


        HP Co.:     as defined in the preamble to this Agreement.


        HP Co. Assets:     collectively: (i) all of the right, title and interest of HP Co. and HP Co. Subsidiaries in all Assets other than the Spinco Assets, (ii) the rights to use shared Assets as provided in Article II hereof, (iii) all other Assets of HP Co. and HP Co. Subsidiaries to the extent specifically assigned to or retained by any member of the HP Co. Group pursuant to this Agreement or any other Transaction Agreement, (iv) the capital stock of each HP Co. Subsidiary other than Helmerich & Payne

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Energy Services, Inc., (v) all rights of HP Co. under the Transaction Agreements and (vi) any additional Assets set forth on Section 1.1(a) of the Disclosure Schedule.


        HP Co. Business:     all of the businesses and operations conducted by HP Co. and the HP Co. Subsidiaries (other than the Spinco Business) at any time, whether prior to, on or after the Distribution Date.


        HP Co. Common Stock:     as defined in the Recitals to this Agreement.


        HP Co. Group:     HP Co. and the HP Co. Subsidiaries.


        HP Co. Indemnitees:     HP Co., each Affiliate of HP Co. immediately after the Distribution Date and each of their respective present and former Representatives and each of the heirs, executors, successors and assigns of any of the foregoing.


        HP Co. Liabilities:     collectively, (i) all Liabilities of HP Co. and all Liabilities of the HP Co. Subsidiaries, including the Liabilities of HP Co. under the Transaction Agreements, (ii) all Liabilities set forth on Section 1.1(b) of the Disclosure Schedule, and (iii) all expenses allocated to HP Co. on Section 9.3 of the Disclosure Schedule; provided that HP Co. Liabilities shall not include the Spinco Liabilities.


        HP Co. Subsidiaries:     all direct and indirect Subsidiaries of HP Co. immediately after the Distribution Date.


        Indemnifiable Losses:     all Losses, Liabilities, damages, claims, demands, judgments or settlements of any nature or kind, including all reasonable costs and expenses (legal, accounting or otherwise as such costs are incurred) relating thereto, suffered by an Indemnitee, including any reasonable costs or expenses of enforcing any indemnity hereunder.


        Indemnifying Party:     a Person that is obligated under this Agreement to provide indemnification.


        Indemnitee:     a Person that may seek indemnification under this Agreement.


        Independent Accounting Firm:     an independent accounting firm of international reputation mutually acceptable to HP Co. and Spinco (or, if HP Co. and Spinco are unable to agree upon such a firm, then either party shall select one such firm and those two firms shall select a third firm, in which event "Independent Accounting Firm" shall mean such third firm.)


        Information:     all records, books, contracts, instruments, computer data and other data and information.


        IRS Rulings:     as defined in the Merger Agreement.


        Liability or Liabilities:     all debts, liabilities and obligations whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and whether or not the same would properly be reflected on a balance sheet.


        Litigation Matters:     actual, threatened or future litigation, investigations, claims or other legal matters that have been or may be asserted against, or otherwise adversely affect, HP Co. and/or Spinco (or members of either Group).


        Losses:     as defined in the Merger Agreement.


        Material Adverse Effect:     as defined in the Merger Agreement.


        Measurement Period:     the period from October 1, 2001 through the Distribution Date.

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        Merger:     as defined in the Recitals to this Agreement.


        Merger Agreement:     as defined in the Recitals to this Agreement.


        Occurrence Basis Policies:     has the meaning set forth in Section 6.6(a) of this Agreement.


        Person or person:     a natural person, corporation, company, partnership, limited partnership, limited liability company, or any other entity, including a Governmental Authority.


        Policies:     all insurance policies, insurance contracts and claim administration contracts of any kind of HP Co. and its Subsidiaries (including members of the Spinco Group) and their predecessors which were or are in effect at any time at or prior to the Distribution Date, including primary, excess and umbrella, commercial general liability, fiduciary liability, product liability, automobile, aircraft, property and casualty, business interruption, directors and officers liability, employment practices liability, workers' compensation, crime, errors and omissions, special accident, cargo, employee dishonesty and operator's extra expense insurance policies and captive insurance company arrangements, together with all rights, benefits and privileges thereunder.


        Privileged Information:     with respect to either Group, Information regarding a member of such Group, or any of its operations, Assets or Liabilities (whether in documents or stored in any other form or known to its employees or agents) that is or may be protected from disclosure pursuant to the attorney-client privilege, the work product doctrine or another applicable privilege, that a member of the other Group may come into possession of or obtain access to pursuant to this Agreement or otherwise.


        Reconciliation Statement:     as defined in Section 4.2 of this Agreement.


        Record Date:     the close of business on the date to be determined by the Board of Directors of HP Co. as the record date for determining stockholders of HP Co. entitled to receive the Distribution, which date shall be a business day preceding the day of the Effective Time.


        Registration Statements:     the Registration Statement on Form 10 (or, if such form is not appropriate, the appropriate form pursuant to the Exchange Act) to be filed by Spinco with the SEC to effect the registration of the Spinco Common Stock pursuant to the Exchange Act in connection with the Distribution and the Registration Statement on Form S-4 to be filed by Spinco with the SEC to effect the registration under the Securities Act of the issuance of the shares of Spinco Common Stock into which shares of the common stock, par value $.25 per share, of the Company will be converted pursuant to the Merger.


        Representative:     with respect to any Person, any of such Person's directors, officers, employees, agents, consultants, advisors, accountants, attorneys and representatives.


        Requisite Approval:     as defined in the Merger Agreement.


        Review Period:     as defined in Section 4.2 of this Agreement.


        SEC:     the U.S. Securities and Exchange Commission.


        Securities Act:     the Securities Act of 1933, as amended, together with the rules and regulations of the SEC promulgated thereunder.


        Spinco:     as defined in the preamble to this Agreement.


        Spinco Assets:     collectively, (i) all of the right, title and interest of HP Co. and the HP Co. Subsidiaries in all Assets that are predominantly used or held for use in, or predominantly relating to or arising from, the Spinco Business, (ii) the rights to use shared Assets as provided in Article II

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hereof, (iii) all other Assets of Spinco and the Spinco Subsidiaries to the extent specifically assigned to or retained by any member of the Spinco Group pursuant to this Agreement or any other Transaction Agreement, (iv) the capital stock of each Spinco Subsidiary, (v) all rights of Spinco under the Transaction Agreements and (vi) all non-cash proceeds received by HP Co., Spinco or any Spinco Subsidiary from the sale of property, plant and equipment predominantly related to the Spinco Business during the Measurement Period and (vii) any additional Assets set forth on Section 1.1(c) of the Disclosure Schedule.


        Spinco Business:     the business conducted by HP Co. and its Subsidiaries engaged in oil and gas exploration, production, marketing and sale operations, including what is referred to in HP Co.'s Form 10-K for the fiscal year ended September 30, 2001 as the E&P Division of HP Co., but excluding, for avoidance of doubt, the contract drilling business and all other businesses conducted by HP Co. and its Subsidiaries.


        Spinco Common Stock:     as defined in the Recitals to this Agreement.


        Spinco Group:     Spinco and the Spinco Subsidiaries.


        Spinco Indemnitees:     Spinco, the Company, each Affiliate of Spinco and the Company immediately after the Distribution Date and each of their respective present and former Representatives and each of the heirs, executors, successors and assigns of any of the foregoing.


        Spinco Liabilities:     collectively: (i) all Liabilities of HP Co. or any of the HP Co. Subsidiaries predominantly relating to or arising from the Spinco Business, including the liabilities of Spinco under the Transaction Agreements, (ii) all Liabilities set forth on Schedule 1.1(d) of the Disclosure Schedule, and (iii) all expenses allocated to Spinco on Section 9.3 of the Disclosure Schedule.


        Spinco Subsidiaries:     all direct and indirect Subsidiaries of Spinco immediately after the Distribution Date.


        Subsidiary:     as defined in the Merger Agreement.


        Taxes:     all taxes, charges, fees, duties, levies, imposts, rates or other assessments imposed by any federal, state, local or foreign Taxing Authority, including, but not limited to, income, gross receipts, excise, property, sales, use, license, capital stock, transfer, franchise, payroll, withholding, social security, value added or other taxes (including any interest, penalties or additions attributable thereto); and Tax: any of such Taxes.


        Tax Sharing Agreement:     the Tax Sharing Agreement of even date herewith between HP Co. and its affiliates and Spinco and its affiliates, in the form of Exhibit B hereto.


        Taxing Authority:     any Governmental Authority or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the United States Internal Revenue Service or any successor thereto, including, but not limited to its agents, representatives and attorneys).


        Third-Party Claim:     any claim, suit, derivative suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal asserted by a Person who or which is neither a party hereto nor an Affiliate of a party hereto.


        Transaction Agreements:     this Agreement, the Employee Benefits Agreement, the Merger Agreement, the Tax Sharing Agreement and the Transition Services Agreement.


        Transition Services Agreement:     the Transition Services Agreement to be entered into by and between HP Co. and Spinco pursuant to Section 6.21 of the Merger Agreement.

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        Section 1.2 References to Time. All references in this Agreement to times of the day shall be to New York City time.


ARTICLE II

PRELIMINARY TRANSACTIONS

        Section 2.1 Business Separation.

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        Section 2.2 Conveyancing and Assumption Agreements. In connection with the transfer of the Spinco Assets and the assumption of the Spinco Liabilities contemplated by Section 2.1, HP Co. and Spinco shall execute, or cause to be executed by the appropriate entities, conveyancing and assumption instruments in such forms as shall be reasonably acceptable to HP Co., Spinco and the Company.

        Section 2.3 Certificate of Incorporation; By-laws. The Certificate of Incorporation and Bylaws of Spinco immediately prior to the Distribution Date will be in the forms attached as Exhibits C and D, respectively.

        Section 2.4 Issuance of Stock. Prior to the Distribution Date, the parties hereto shall take all steps necessary so that the number of shares of Spinco Common Stock outstanding and held by HP Co. shall equal 26,591,321.

        Section 2.5 Other Agreements. Each of HP Co. and Spinco shall, prior to the Distribution Date, enter into, or cause the appropriate members of the Group of which it is a member to enter into, the other Transaction Agreements.

        Section 2.6 Transfers Not Effected Prior to the Distribution; Transfers Deemed Effective as of the Distribution Date. Subject to Section 2.1(d), to the extent that any transfers contemplated by this Article II shall not have been consummated on or prior to the Distribution Date, the parties shall cooperate to effect such transfers as promptly following the Distribution Date as shall be practicable. Nothing herein shall be deemed to require the transfer of any Assets or the assumption of any Liabilities which by their terms or operation of law cannot be transferred or assumed; provided, however, that HP Co. and Spinco shall and shall cause their respective Subsidiaries to cooperate to obtain any necessary consents or approvals for the transfer of all Assets and the assumption of all Liabilities contemplated to be transferred or assumed pursuant to this Article II. Subject to Section 2.1(d), in the event that any such transfer of Assets or assumption of Liabilities has not been consummated, effective on or before the Distribution Date, the party retaining such Asset or Liability shall thereafter hold such Asset in trust for the use and benefit of the party entitled thereto (at the expense of the party entitled thereto) and retain such Liability for the account of the party by whom such Liability is to be assumed pursuant hereto, and take such other action as may be reasonably requested by the party to which such Asset is to be transferred, or by whom such Liability is to be assumed, as the case may be, in order to place such party, insofar as reasonably possible, in the same position as would have existed had such Asset or Liability been transferred or assumed as contemplated hereby. As and when any such Asset becomes transferable or such Liability can be assumed, such transfer or assumption shall be effected forthwith. Subject to the foregoing and to Section 2.1(d), the parties agree that, as of the Distribution Date (or such earlier time as any such Asset may have been acquired or Liability assumed), each party hereto shall be deemed to have acquired complete and sole beneficial ownership over all of the Assets, together with all rights, powers and privileges incident thereto, and shall be deemed to have assumed in accordance with the terms of this Agreement all of the Liabilities, and all duties, obligations and responsibilities incident thereto, which such party is entitled to acquire or required to assume pursuant to the terms of this Agreement.


ARTICLE III

THE DISTRIBUTION

        Section 3.1 Record Date and Distribution Date. Subject to the satisfaction of the conditions set forth in Section 9.1, the Board of Directors of HP Co., consistent with the Merger Agreement and

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Delaware law, shall establish the Record Date and the Distribution Date and any appropriate procedures in connection with the Distribution.

        Section 3.2 The Agent. Prior to the Distribution Date, HP Co. shall enter into an agreement with the Agent providing for, among other things, the Distribution to the holders of HP Co. Common Stock in accordance with this Article III.

        Section 3.3 Delivery of Share Certificates to the Agent. Prior to the Distribution Date, HP Co. shall deliver to the Agent a share certificate representing (or authorize the related book-entry transfer of) all of the outstanding shares of Spinco Common Stock to be distributed in connection with the Distribution. After the Distribution Date, upon the request of the Agent, Spinco shall provide all certificates for shares (or book-entry transfer authorizations) of Spinco Common Stock that the Agent shall require in order to effect the Distribution.

        Section 3.4 The Distribution.


ARTICLE IV

CASH AMOUNT

        Section 4.1 Cash Amount Statement. Not more than thirty (30) calendar days after the Distribution Date, HP Co. shall prepare in good faith and deliver to the Company a calculation of the Cash Amount (the "Actual Cash Amount"), together with a statement setting forth in reasonable detail the basis and calculation thereof. In preparing the Actual Cash Amount, HP Co. shall consult with the Company and its Representatives. In the event that the Actual Cash Amount is a negative amount, such amount shall be deemed a loan to Spinco and payable by Spinco to HP Co. no later than three (3) Business Days after delivery of the Actual Cash Amount statement to Spinco, and in the event the Actual Cash Amount is a positive amount, such amount shall be payable by HP Co. to Spinco no later than three (3) Business Days after delivery of the Actual Cash Amount statement to Spinco, in either case in cash by wire transfer in immediately available funds to a bank previously designated by HP Co. or Spinco, as the case may be.

        Section 4.2 Review of the Actual Cash Amount. During the thirty (30) calendar days after receipt by Spinco of the Actual Cash Amount statement (the "Review Period"), Spinco shall review the Actual Cash Amount statement in order to determine whether the Cash Amount set forth in the Actual Cash Amount statement should be adjusted. If Spinco so determines, Spinco shall, within five (5) Business Days after the end of the Review Period, deliver to HP Co. a reconciliation of the calculation of the

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Cash Amount (the "Reconciliation Statement"), together with a statement setting forth in reasonable detail the basis of its calculation. Unless HP Co. delivers the Dispute Notification referred to in Section 4.3 below, the Reconciliation Statement shall be deemed to be final, binding and conclusive on the parties hereto.

        Section 4.3 Dispute Resolution Procedure. Within five (5) Business Days after receipt of the Reconciliation Statement, HP Co. shall notify Spinco of any dispute thereof, specifying the amount in dispute thereof and, in reasonable detail, the basis for and its calculation thereof (the "Dispute Notification"). Thereafter, HP Co. and Spinco shall attempt to resolve the dispute, and any such resolution shall be final, binding and conclusive on the parties hereto. If HP Co. and Spinco are unable to reach a resolution within twenty (20) Business Days after the receipt by Spinco of the Dispute Notification, HP Co. and Spinco shall submit the items remaining in dispute for resolution to the Independent Accounting Firm. The Independent Accounting Firm shall, within thirty (30) Business Days after such submission, determine and report to HP Co. and Spinco upon such remaining disputed items, and such report shall be final, binding and conclusive on the parties hereto. The fees and disbursement of the Independent Accounting Firm shall be allocated between HP Co. and Spinco in the same proportion that the aggregate amount of such remaining disputed items so submitted to the Independent Accounting Firm that is unsuccessfully disputed by each such party (as finally determined by the Independent Accounting Firm) bears to the total amount of such remaining disputed items so submitted.

        Section 4.4 Payment of Cash Amount. Not later than three (3) Business Days following the date on which the Cash Amount is deemed to be final, binding and conclusive, (a) if the Cash Amount exceeds the Actual Cash Amount, then HP Co. shall pay to Spinco an amount equal to such difference, and (b) if the Cash Amount is less than the Actual Cash Amount, then Spinco shall pay to HP Co. an amount equal to such difference, in either case in cash by wire transfer in immediately available funds to a bank previously designated by HP Co. or Spinco, as the case may be.


ARTICLE V

SURVIVAL AND INDEMNIFICATION

        Section 5.1 Survival of Agreements. All representations, warranties, covenants and agreements of the parties hereto contained in this Agreement shall survive the Distribution Date.

        Section 5.2 Indemnification.

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        Section 5.3 Procedures for Indemnification for Third-Party Claims.

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        Section 5.4 Reductions for Insurance Proceeds and Other Recoveries. The amount that any Indemnifying Party is or may be required to pay to any Indemnitee pursuant to this Article V shall be reduced (retroactively or prospectively) by any insurance proceeds or other amounts actually recovered from third parties by or on behalf of such Indemnitee in respect of the related Indemnifiable Losses. The existence of a claim by an Indemnitee for insurance or against a third party in respect of any Indemnifiable Loss shall not, however, delay or reduce any payment pursuant to the indemnification provisions contained herein and otherwise determined to be due and owing by an Indemnifying Party. Rather the Indemnifying Party shall make payment in full of such amount so determined to be due and owing by it and, if, and to the extent that, there exists a claim against any third party (other than an insurer) in respect of such Indemnifiable Loss, the Indemnitee shall assign such claim against such third party to the Indemnifying Party. Notwithstanding any other provisions of this Agreement, it is the intention of the parties hereto that no insurer or any other third party shall be (i) entitled to a benefit it would not be entitled to receive in the absence of the foregoing indemnification provisions or (ii) relieved of the responsibility to pay any claims for which it is obligated. If an Indemnitee shall have received the payment required by this Agreement from an Indemnifying Party in respect of any Indemnifiable Losses and shall subsequently actually receive insurance proceeds or other amounts in respect of such Indemnifiable Losses, then such Indemnitee shall hold such insurance proceeds in trust for the benefit of such Indemnifying Party and shall pay to such Indemnifying Party a sum equal to the amount of such insurance proceeds or other amounts actually received, up to the aggregate amount of any payments received from such Indemnifying Party pursuant to this Agreement in respect of such Indemnifiable Losses.

        Section 5.5 Remedies Cumulative. The remedies provided in this Article IV shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any other remedies against any Indemnifying Party. However, the procedures set forth in Section 5.3 shall be the exclusive procedures governing any indemnity action brought under this Agreement, except as otherwise specifically provided in any of the other Transaction Agreements.

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        Section 5.6 Survival of Indemnities. The obligations of each of HP Co. and Spinco under this Article V shall survive the sale or other transfer by it of any of its Assets or Business or the assignment by it of any of its Liabilities, with respect to any Indemnifiable Loss of the other related to such Assets, Business or Liabilities.


ARTICLE VI

CERTAIN ADDITIONAL COVENANTS

        Section 6.1 Notices to Third Parties. In addition to the actions described in Section 6.2, the members of the HP Co. Group and the members of the Spinco Group shall cooperate to make all other filings and give notice to and obtain consents from all third parties that may reasonably be required to consummate the transactions contemplated by this Agreement and the other Transaction Agreements.

        Section 6.2 Licenses and Permits. Each party hereto shall cause the appropriate members of its Group to prepare and file with the appropriate licensing and permitting authorities applications for the transfer or issuance, as may be necessary or advisable in connection with the transactions contemplated by this Agreement and the other Transaction Agreements, to its Group of all material governmental licenses and permits required for the members of its Group to operate its Business after the Distribution Date. The members of the Spinco Group and the members of the HP Co. Group shall cooperate and use all commercially reasonable efforts to secure the transfer or issuance of the licenses and permits.

        Section 6.3 Intercompany Agreements. Except as set forth on Section 6.3 of the Disclosure Schedule, all contracts, licenses, agreements, commitments and other arrangements, formal and informal, between any member of the HP Co. Group, on the one hand, and any member of the Spinco Group, on the other hand, in existence as of the Distribution Date, pursuant to which any member of either Group makes payments in respect of taxes to any member of the other Group or provides to any member of the other Group goods or services (including management, administrative, legal, financial, accounting, data processing, insurance and technical support), or the use of any Assets of any member of the other Group, or the secondment of any employee, or pursuant to which rights, privileges or benefits are afforded to members of either Group as Affiliates of the other Group, shall terminate as of the close of business on the day prior to the Distribution Date, except as specifically provided herein or in the other Transaction Agreements. From and after the Distribution Date, no member of either Group shall have any rights under any such contract, license, agreement, commitment or arrangement with any member of the other Group, except as specifically provided herein or in the other Transaction Agreements.

        Section 6.4 Further Assurances. In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the other Transaction Agreements. Without limiting the foregoing, each party hereto shall cooperate with the other party, and execute and deliver, or use its commercially reasonable efforts to cause to be executed and delivered, all instruments, and to make all filings with, and to obtain all consents, approvals or authorizations of, any governmental or regulatory authority or any other Person under any permit, license, agreement, indenture or other instrument, and take all such other actions as such party may reasonably be requested to take by any other party hereto from time to time, consistent with the terms of this Agreement and the other Transaction Agreements, in order to effectuate the provisions and purposes of this Agreement.

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        Section 6.5 Guarantee Obligations and Liens.

        Section 6.6 Insurance.

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ARTICLE VII

ACCESS TO INFORMATION

        Section 7.1 Provision of Corporate Records. Prior to or as promptly as practicable after the Distribution Date, HP Co. shall deliver or make available to Spinco all corporate books and records of the Spinco Group in its possession and complete and accurate copies of all relevant portions of all corporate books and records of the HP Co. Group relating directly and predominantly to the Spinco Assets, the Spinco Business, or the Spinco Liabilities, including, in each case, all active agreements, active litigation files, government filings and returns or reports relating to Taxes for all open periods. HP Co. may retain complete and accurate copies of such books and records. From and after the Distribution Date, all such books, records and copies shall be the property of Spinco. Prior to or as promptly as practicable after the Distribution Date, Spinco shall deliver or make available to HP Co., all corporate books and records of the HP Co. Group in its possession and complete and accurate copies of all relevant portions of all corporate books and records of the Spinco Group relating directly and predominantly to the HP Co. Assets, the HP Co. Business, or the HP Co. Liabilities, including, in each case, all active agreements, active litigation files, government filings and returns or reports relating to Taxes for all open periods. Spinco may retain complete and accurate copies of such books and records. From and after the Distribution Date, all such books, records and copies shall be the property of HP Co. The costs and expenses incurred in the provision of records or other information to a party shall be paid for (including reimbursement of costs incurred by the receiving party) by the delivering party.

        Section 7.2 Access to Information. From and after the Distribution Date, each of HP Co. and Spinco shall afford to the other and to the other's Representatives reasonable access and duplicating rights during normal business hours to all Information within the possession or control of such party's Group relating to the other party's Group's pre-Distribution business, Assets or Liabilities or relating to or arising in connection with the relationship between the Groups on or prior to the Distribution Date, insofar as such access is reasonably required for a reasonable purpose (including, without limitation, for the purpose of calculating the Cash Amount pursuant to Article IV of this Agreement), subject to the provisions below regarding Privileged Information. Without limiting the foregoing, Information may be requested under this Section 7.2 for audit, accounting, regulatory, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations.

        In furtherance of the foregoing:

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        Section 7.3 Production of Witnesses. Subject to Section 7.2, after the Distribution Date, each of HP Co. and Spinco shall, and shall cause each member of its respective Group to make available to Spinco or HP Co. or any member of the Spinco Group or of the HP Co. Group, as the case may be, upon written request, such Group's directors, officers, employees and agents as witnesses to the extent that any such Person may reasonably be required in connection with any Litigation Matters, administrative or other proceedings in which the requesting party may from time to time be involved and relating to the pre-Distribution business of the HP Co. Group or the Spinco Group or relating to or in connection with the relationship between the Groups on or prior to the Distribution Date. The costs and expenses incurred in the provision of such witnesses shall be paid by the party requesting the availability of such persons.

        Section 7.4 Retention of Records. Except as otherwise agreed in writing, or as otherwise provided in the other Transaction Agreements, each of HP Co. and Spinco shall, and shall cause the members of the Group of which it is a member to, retain all Information in such party's Group's possession or under its control, relating directly and predominantly to the pre-Distribution business, Assets or Liabilities of the other party's Group until such Information is at least ten years old or until such later date as may be required by law, except that if, prior to the expiration of such period, any member of either party's Group wishes to destroy or dispose of any such Information that is at least three years old, prior to destroying or disposing of any of such Information, (a) the party whose Group is proposing to dispose of or destroy any such Information shall provide no less than 30 days' prior written notice to the other party, specifying the Information proposed to be destroyed or disposed of,

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and (b) if, prior to the scheduled date for such destruction or disposal, the other party requests in writing that any of the Information proposed to be destroyed or disposed of be delivered to such other party, the party whose Group is proposing to dispose of or destroy such Information promptly shall arrange for the delivery of the requested Information to a location specified by, and at the expense of, the requesting party.

        Section 7.5 Confidentiality. Subject to Section 7.2, which shall govern Privileged Information, from and after the Distribution Date, each of HP Co. and Spinco shall hold, and shall use commercially reasonable efforts to cause its Affiliates and Representatives to hold, in strict confidence all Information concerning the other party's Group obtained by it prior to the Distribution Date or furnished to it by such other party's Group pursuant to this Agreement or the other Transaction Agreements and shall not release or disclose such Information to any other Person, except its Affiliates and Representatives, who shall be advised of the provisions of this Section 7.5, and each party shall be responsible for a breach by any of its Affiliates or Representatives; provided, however, that any member of the HP Co. Group or the Spinco Group may disclose such Information to the extent that (a) disclosure is compelled by judicial or administrative process or, based on advice of such Person's counsel, by other requirements of law, or (b) such party can show that such Information was (i) in the public domain through no fault of such Person or (ii) lawfully acquired by such Person from another source after the time that it was furnished to such Person by the other party's Group, and not acquired from such source subject to any confidentiality obligation on the part of such source known to the acquiror. Notwithstanding the foregoing, each of HP Co. and Spinco shall be deemed to have satisfied its obligations under this Section 7.5 with respect to any Information (other than Privileged Information) if it exercises the same care with regard to such Information as it takes to preserve confidentiality for its own similar Information.

        Section 7.6 Cooperation with Respect to Government Reports and Filings. HP Co., on behalf of itself and each member of the HP Co. Group, agrees to provide any member of the Spinco Group, and Spinco, on behalf of itself and each member of the Spinco Group, agrees to provide any member of the HP Co. Group, with such cooperation and Information as may be reasonably requested by the other in connection with the preparation or filing of any government report or other government filing contemplated by this Agreement or in conducting any other government proceeding relating to the pre-Distribution business of the HP Co. Group or the Spinco Group, Assets or Liabilities of either Group or relating to or in connection with the relationship between the Groups on or prior to the Distribution Date. Such cooperation and Information shall include promptly forwarding copies of appropriate notices, forms and other communications received from or sent to any government authority which relate to the HP Co. Group, in the case of the Spinco Group, or the Spinco Group, in the case of the HP Co. Group. Each party shall make its employees and facilities available during normal business hours and on reasonable prior notice to provide explanation of any documents or Information provided hereunder.

        Section 7.7 Tax Sharing Agreement. None of the provisions of this Article VII are intended to supercede any provision in the Tax Sharing Agreement with respect to matters related to Taxes.


ARTICLE VIII

NO REPRESENTATIONS OR WARRANTIES

        Section 8.1 No Representations or Warranties. Except as expressly set forth herein or in any other Transaction Agreement, Spinco and HP Co. understand and agree that no member of the HP Co. Group is representing or warranting to Spinco or any member of the Spinco Group in any way as to the Spinco Assets, the Spinco Business or the Spinco Liabilities. Except as expressly set forth herein or in any other Transaction Agreement, HP Co. and Spinco understand and agree that no member of the Spinco Group is representing or warranting to HP Co. or any member of the HP Co. Group in any way as to the HP Co. Assets, the HP Co. Business or the HP Co. Liabilities.

C-22



ARTICLE IX

MISCELLANEOUS

        Section 9.1 Conditions to the Distribution. The obligations of HP Co. pursuant to this Agreement to effect the Distribution shall be subject to the fulfillment (or waiver by HP Co.) at or prior to the Distribution Date of the following conditions:

C-23


        Section 9.2 Complete Agreement. This Agreement, the Exhibits and the Disclosure Schedule hereto, the other Transaction Agreements and other documents referred to herein shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. The Disclosure Schedule delivered pursuant hereto is expressly made a part of, and incorporated by reference into, this Agreement. In the case of any conflict between the terms of this Agreement and the terms of any other Transaction Agreement, the terms of such other Transaction Agreement shall be applicable.

        Section 9.3 Expenses. Except as set forth in Section 9.3 of the Disclosure Schedule, and except as otherwise set forth herein or in the Merger Agreement, whether or not the Distribution or the other transactions contemplated by this Agreement are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including costs and expenses attributable to the separation of the Assets as contemplated herein) shall be paid by the party incurring such costs or expenses.

        Section 9.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to its conflicts of laws principles.

        Section 9.5 Notices. All notices and other communications required or permitted to be given hereunder shall be in writing and shall be deemed given upon (a) a transmitter's confirmation of a receipt of a facsimile transmission (but only if followed by confirmed delivery of a standard overnight courier the following business day or if delivered by hand the following business day), (b) confirmed delivery of a standard overnight courier or when delivered by hand or (c) the expiration of five business days after the date mailed by certified or registered mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice):

        If to HP Co. or any member of the HP Co. Group, to:

        with a copy (which shall not constitute effective notice) to:

C-24


        If to Spinco or any member of the Spinco Group prior to the Distribution Date, to:

        If to Spinco or any member of the Spinco Group after the Distribution Date, to:

        with a copy (which shall not constitute effective notice) to:

        Section 9.6 Amendment and Modification. This Agreement may be amended, modified or supplemented only by a written agreement signed by all of the parties hereto, with a Company Consent.

        Section 9.7 Successors and Assigns; No Third-Party Beneficiaries. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns, but neither this Agreement nor any of the rights, interests and obligations hereunder shall be assigned by any party hereto without the prior written consent of the other parties and a Company Consent. Except for the provisions of Sections 5.2 and 5.3 relating to indemnities, which are also for the benefit of the Indemnitees, this Agreement is solely for the benefit of HP Co., Spinco and the Company and their respective Subsidiaries and Affiliates and is not intended to confer upon any other Persons any rights or remedies hereunder.

        Section 9.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

        Section 9.9 Interpretation. The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties hereto and shall not in any way affect the meaning or interpretation of this Agreement.

C-25


        Section 9.10 Severability. If any provision of this Agreement or the application thereof to any person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party.

        Section 9.11 References; Construction. References to any "Article," "Exhibit," "Schedule" or "Section," without more, are to Articles, Exhibits, Schedules and Sections to or of this Agreement. Unless otherwise expressly stated, clauses beginning with the term "including" or similar words set forth examples only and in no way limit the generality of the matters thus exemplified.

        Section 9.12 Termination. Notwithstanding any provision hereof, following termination of the Merger Agreement, this Agreement may be terminated and the Distribution abandoned at any time prior to the Distribution Date by and in the sole discretion of the Board of Directors of HP Co. In the event of such termination, no party hereto or to any other Transaction Agreement (other than the Merger Agreement) shall have any Liability to any Person by reason of this Agreement or any other Transaction Agreement (other than the Merger Agreement).

        Section 9.13 Consent to Jurisdiction and Service of Process. Each of the parties to this Agreement hereby irrevocably and unconditionally (i) agrees to be subject to, and hereby consent and submits to, the jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware, (ii) to the extent such party is not otherwise subject to service of process in the State of Delaware, hereby appoints the Corporation Trust Company as such party's agent in the State of Delaware for acceptance of legal process and (iii) agrees that service made on any such agent set forth in (ii) above shall have the same legal force and effect as if served upon such party personally within the State of Delaware.

        Section 9.14 Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder.

        Section 9.15 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity.

        Section 9.16 Waiver of Jury Trial. Each of the parties hereto irrevocably and unconditionally waives all right to trial by jury in any litigation, claim, action, suit, arbitration, inquiry, proceeding, investigation or counterclaim (whether based in contract, tort or otherwise) arising out of or relating to this Agreement or the actions of the parties hereto in the negotiation, administration, performance and enforcement thereof.

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        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.


 

 

HELMERICH & PAYNE, INC.

 

 

By:

 

/s/  
HANS HELMERICH      
    Name:   Hans Helmerich
    Title:   President and Chief Executive Officer

 

 

HELMERICH & PAYNE EXPLORATION AND PRODUCTION CO.

 

 

By:

 

/s/  
STEVEN R. MACKEY      
    Name:   Steven R. Mackey
    Title:   Vice President

C-27



ANNEX D

Tax Sharing Agreement

D-1



TAX SHARING AGREEMENT

by and among

HELMERICH & PAYNE, INC.

AND ITS AFFILIATES,

and

HELMERICH & PAYNE
EXPLORATION AND PRODUCTION CO.

AND ITS AFFILIATES,

Dated

February 23, 2002

D-2


TABLE OF CONTENTS

 
   
Section 1.   Definitions

Section 2.

 

Preparation and Filing of Tax Returns
  2.01.   HP Co.'s Responsibility
  2.02.   Spinco's Responsibility
  2.03.   Agent
  2.04.   Manner of Tax Return Preparation

Section 3.

 

Liability for Taxes
  3.01.   Spinco's Liability for Taxes
  3.02.   HP Co.'s Liability for Taxes
  3.03.   Taxes, Refunds and Credits
  3.04.   Payment of Tax Liability
  3.05.   Computation

Section 4.

 

Distribution Taxes and Deconsolidation
  4.01.   Distribution Taxes
  4.02.   Private Letter Rulings
  4.03.   Carrybacks
  4.04.   Allocation of Tax Items
  4.05.   Continuing Covenants
  4.06.   Allocation of Tax Assets

Section 5.

 

Tax Reporting
  5.01.   Employee Wages

Section 6.

 

Indemnification
  6.01.   Generally
  6.02.   Inaccurate or Incomplete Information
  6.03.   No Indemnification for Tax Items

Section 7.

 

Payments
  7.01.   Estimated Tax Payments
  7.02.   True-Up Payments
  7.03.   Redetermination Amounts
  7.04.   Payments of Refunds and Credits
  7.05.   Payments Under This Agreement

Section 8.

 

Tax Proceedings
  8.01.   In General
  8.02.   Participation of non-Filing Party
  8.03.   Notice
  8.04.   Control of Distribution Tax Proceedings

D-3



Section 9.

 

Miscellaneous Provisions
  9.01.   Effectiveness
  9.02.   Cooperation and Exchange of Information
  9.03.   Dispute Resolution
  9.04   Notices
  9.05   Changes in Law
  9.06   Confidentiality
  9.07.   Successors
  9.08.   Affiliates
  9.09.   Authorization, Etc
  9.10.   Entire Agreement
  9.11.   Applicable Laws; Jurisdiction
  9.12.   Counterparts
  9.13.   Severability
  9.14.   No Third Party Beneficiaries
  9.15.   Waivers, Etc
  9.16.   Setoff
  9.17.   Other Remedies
  9.18.   Amendment and Modification
  9.19.   Waiver of Jury Trial

D-4


TAX SHARING AGREEMENT

        THIS TAX SHARING AGREEMENT (this "Agreement") dated as of February 23, 2002, by and among Helmerich & Payne, Inc., a Delaware corporation ("HP Co."), each HP Co. Affiliate (as defined below), Helmerich & Payne Exploration and Production Co., a Delaware corporation and currently a direct, wholly-owned subsidiary of HP Co. ("Spinco"), and each Spinco Affiliate (as defined below) is entered into in connection with the Distribution (as defined below).

RECITALS

        WHEREAS, as of the date hereof, HP Co. and its direct and indirect domestic subsidiaries are members of an Affiliated Group (as defined below), of which HP Co. is the common parent;

        WHEREAS, Spinco and Key Production Company, Inc., a Delaware corporation (the "Company") are entering into an Agreement and Plan of Merger (the "Merger Agreement"), dated as of the date hereof, providing for the merger of Merger Sub, a Delaware corporation and a wholly-owned subsidiary of Spinco, with and into the Company (the "Merger");

        WHEREAS, it is a condition to the consummation of the Merger that HP Co. effect the Distribution (as defined below) and certain related transactions pursuant to the Distribution Agreement (as defined below);

        WHEREAS, as set forth in the Distribution Agreement by and between HP Co. and Spinco, dated as of the date hereof (the "Distribution Agreement"), and subject to the terms and conditions thereof, HP Co. will transfer or caused to be transferred to Spinco or a Spinco Subsidiary (as defined in the Merger Agreement) all of the Spinco Assets (as defined below), and Spinco will assume all of the Spinco liabilities (as defined below), as contemplated by the Distribution Agreement (the "Contribution");

        WHEREAS, as set forth in the Distribution Agreement, and subject to the terms and conditions thereof, HP Co. intends to distribute all of the issued and outstanding shares of Spinco common stock to the HP Co. shareholders on a pro rata basis with respect to its outstanding shares of HP Co. common stock (the "Distribution");

        WHEREAS, the Contribution and the Distribution are intended to qualify as a tax-free reorganization and distribution under sections 368(a)(1)(D) and 355 of the Code (as defined below);

        WHEREAS, the Merger is intended to qualify as a tax-free reorganization under section 368(a) of the Code (as defined below); and

        WHEREAS, in contemplation of the Distribution pursuant to which Spinco (and its direct and indirect domestic subsidiaries) will cease to be members of the HP Co. Group (as defined below) the parties hereto have determined to enter into this Agreement, setting forth their agreement with respect to certain tax matters.

D-5



AGREEMENT

        NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto (each on behalf of itself, each of its subsidiaries as of the Contribution, and its future subsidiaries) hereby agree as follows:

Section 1.    Definitions.

        As used in this Agreement, capitalized terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined):

        "Affiliated Group" means an affiliated group of corporations within the meaning of section 1504(a)(1) of the Code that files a Consolidated Return.

        "After Tax Amount" means any additional amount necessary to reflect the hypothetical Tax consequences of the receipt or accrual of any payment required to be made under this Agreement (including payment of an additional amount or amounts hereunder and the effect of the deductions available for interest paid or accrued and for Taxes such as state and local Income Taxes), determined by using the highest applicable statutory corporate Income Tax rate (or rates, in the case of an item that affects more than one Tax) for the relevant taxable period (or portion thereof).

        "Agreement" has the meaning set forth in the preamble hereto.

        "Audit" means any audit, assessment of Taxes, other examination by any Tax Authority, proceeding, or appeal of such a proceeding relating to Taxes, whether administrative or judicial, including proceedings relating to competent authority determinations.

        "Base Calculation"    has the meaning set forth in Section 4.05(e).

        "Carryback Period" has the meaning set forth in Section 4.03.

        "Code" means the Internal Revenue Code of 1986, as amended.

        "Combined Return" means any Tax Return, other than with respect to United States federal Income Taxes, filed on a consolidated, combined (including nexus combination, worldwide combination, domestic combination, line of business combination or any other form of combination) or unitary basis wherein Spinco or one or more Spinco Affiliates join in the filing of such Tax Return (for any taxable period or portion thereof) with HP Co. or one or more HP Co. Affiliates.

        "Company" has the meaning set forth in the preamble hereto.

        "Company Affiliate" means any corporation or other entity directly or indirectly controlled by the Company at the time in question where "control" means the ownership of 50 percent of the ownership interests of such corporation or other entity (by vote or value) or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other entity.

        "Consolidated Return" means any Tax Return with respect to United States federal Income Taxes filed on a consolidated basis wherein Spinco or one or more Spinco Affiliates join in the filing of such Tax Return (for any taxable period or portion thereof) with HP Co. or one or more HP Co. Affiliates.

        "Contribution" has the meaning set forth in the recitals to this Agreement.

        "Contribution Date" means the date on which the Contribution begins under the Distribution Agreement, as provided by HP Co. to Spinco in writing.

        "Distribution" has the meaning set forth in the recitals to this Agreement.

        "Distribution Agreement" has the meaning set forth in the recitals to this Agreement.

D-6



        "Distribution Date" means the close of business on the date which the Distribution is effected.

        "Distribution Taxes" means any Taxes imposed on, or increase in Taxes incurred by, HP Co. or any HP Co. Affiliate, and any Taxes of an HP Co. shareholder that are required to be paid or reimbursed by HP Co. or any HP Co. Affiliate pursuant to a legal determination, provided that HP Co. shall have vigorously defended itself in any legal proceeding involving Taxes of an HP Co. shareholder, (without regard to whether such Taxes are offset or reduced by any Tax Asset, Tax Item, or otherwise) resulting from, or arising in connection with, the failure of the Distribution to qualify as a tax-free transaction under sections 355 and section 368(a)(1)(D) of the Code (including, without limitation, any Tax resulting from the application of section 355(d) or section 355(e) of the Code to the Distribution) or corresponding provisions of the laws of any other jurisdictions. Any Income Tax referred to in the immediately preceding sentence shall be determined using the highest applicable statutory corporate Income Tax rate for the relevant taxable period (or portion thereof).

        "Estimated Tax Installment Date" means, with respect to United States federal Income Taxes, the estimated Tax installment due dates prescribed in section 6655(c) of the Code and, in the case of any other Tax, means any other date on which an installment payment of an estimated amount of such Tax is required to be made.

        "Filing Party" has the meaning set forth in Section 8.01.

        "Final Determination" shall mean the final resolution of liability for any Tax for any taxable period, by or as a result of: (i) a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; (ii) a final settlement with the IRS, a closing agreement or accepted offer in compromise under Code sections 7121 or 7122, or a comparable agreement under the laws of other jurisdictions, which resolves the entire Tax liability for any taxable period; (iii) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered by the jurisdiction imposing the Tax; or (iv) any other final disposition, including by reason of the expiration of the applicable statute of limitations.

        "HP Co." has the meaning set forth in the preamble hereto.

        "HP Co. Affiliate" means any corporation or other entity directly or indirectly "controlled" by HP Co. where "control" means the ownership of 50 percent of the ownership interests of such corporation or other entity (by vote or value) or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other entity, but at all times excluding Spinco or any Spinco Affiliate.

        "HP Co. Business"    means all of the businesses and operations conducted by HP Co. and the HP Co. Subsidiaries (as defined in the Merger Agreement), excluding the Spinco Business, as defined below, at any time, whether prior to, or after the Distribution Date.

        "HP Co. Employee" means an employee of HP Co. or any HP Co. Affiliate immediately after the Distribution.

        "HP Co. Group" means the Affiliated Group, or similar group of entities as defined under corresponding provisions of the laws of other jurisdictions, of which HP Co. is the common parent corporation, and any corporation or other entity which may be, may have been or may become a member of such group from time to time, but excluding any member of the Spinco Group.

        "Income Tax" shall mean any federal, state, local or foreign Tax determined by reference to net income, net worth, gross receipts or capital, or any such Taxes imposed in lieu of such a Tax. For the avoidance of doubt, the term "Income Tax" includes any franchise Tax, net worth, gross receipts, capital or any such Taxes imposed in lieu of such a Tax.

        "Independent Accountant" has the meaning set forth in Section 2.04(b).

D-7



        "Independent Firm" has the meaning set forth in Section 9.03.

        "Initial Ruling" means any private letter ruling issued by the IRS in connection with the Distribution in response to HP Co.'s request for such a letter ruling filed on or before March 15, 2002.

        "Interim Period" means a taxable period beginning on or after the Contribution Date but before the Distribution Date.

        "IRS" means the United States Internal Revenue Service or any successor thereto, including, but not limited to its agents, representatives, and attorneys.

        "Joint Responsibility Item" means any Tax Item for which the non-Filing Party's responsibility under this Agreement could exceed 500,000 dollars, but not a Sole Responsibility Item.

        "Merger" has the meaning set forth in the recitals to this Agreement.

        "Merger Agreement" has the meaning set forth in the recitals to this Agreement.

        "Non-Income Tax Return" means any Tax Return relating to any Tax other than an Income Tax.

        "Owed Party" has the meaning set forth in Section 7.05.

        "Owing Party" has the meaning set forth in Section 7.05.

        "Payment Period" has the meaning set forth in Section 7.05(e).

        "Post-Distribution Period"    means a taxable period beginning after the Distribution Date.

        "Pre-Contribution Period" means any taxable period beginning before the Contribution Date.

        "Pre-Distribution Period" means any Pre-Contribution Period and/or Interim Period.

        "Ruling Documents" means (1) the request for a private letter ruling under section 355 and various other sections of the Code, filed with the IRS on or before March 15, 2002, together with any supplemental filings or ruling requests or other materials subsequently submitted on behalf of HP Co., its subsidiaries and shareholders to the IRS, the appendices and exhibits thereto, and any rulings issued by the IRS to HP Co. (or any HP Co. Affiliate) in connection with the Distribution and (2) any similar filings submitted to, or rulings issued by, any other Taxing Authority in connection with the Distribution.

        "Sole Responsibility Item" means any Tax Item for which the non-Filing Party has the entire economic liability under this Agreement.

        "Spinco" has the meaning set forth in the preamble hereto.

        "Spinco Affiliate" means any corporation or other entity directly or indirectly "controlled" by Spinco at the time in question, where "control" means the ownership of 50 percent of the ownership interests of such corporation or other entity (by vote or value) or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other entity and after the Merger shall include the Company.

        "Spinco Business" means the business conducted by HP Co. and its Subsidiaries engaged in oil and gas exploration, production, marketing and sale operations, including what is referred to in HP Co.'s Form 10K for the fiscal year ended September 30, 2001 as the E&P Division of HP Co., but excluding, for avoidance of doubt, the contract drilling business and all other businesses conducted by HP Co. and its Subsidiaries.

        "Spinco Business Records" has the meaning set forth in Section 9.02(b).

        "Spinco Employee" means an employee of Spinco or any Spinco Affiliate immediately after the Distribution.

D-8



        "Spinco Group" means the Affiliated Group, or similar group of entities as defined under corresponding provisions of the laws of other jurisdictions, of which Spinco will be the common parent corporation immediately after the Distribution or Merger, as the case may be, and including any corporation or other entity which may become a member of such group from time to time.

        "Spinco Separate Tax Liability" means an amount equal to the Tax liability that Spinco and each Spinco Affiliate would have incurred if they had filed a consolidated return, combined return or a separate return, as the case may be, separate from the members of the HP Co. Group, for the relevant Tax period, and such amount shall be computed by HP Co. in a manner consistent with (i) general Tax accounting principles, (ii) the Code and the Treasury regulations promulgated thereunder, and (iii) past practice, if any.

        "Supplemental Ruling" means (1) any ruling issued by the IRS in connection with the Distribution other than a ruling in response to HP Co.'s request for a private letter ruling filed on or before March 15, 2002, and (2) any similar ruling issued by any other Taxing Authority addressing the application of a provision of the laws of another jurisdiction to the Distribution.

        "Supplemental Ruling Documents" means (1) the request for a Supplemental Ruling and any materials, appendices and exhibits submitted or filed therewith and any Supplemental Rulings issued by the IRS to HP Co. and (2) any similar filings submitted to, or rulings issued by, any other Taxing Authority in connection with the Distribution.

        "Taxes" means all federal, state, local or foreign taxes, charges, fees, duties, levies, imposts, rates or other assessments, including, but not limited to, income, gross receipts, excise, property, sales, use, license, capital stock, transfer, franchise, payroll, withholding, social security, value added or other taxes, (including any interest, penalties or additions attributable thereto) and a "Tax" shall mean any one of such Taxes.

        "Tax Asset" means any Tax Item that has accrued for Tax purposes, but has not been used during the taxable period in which it has accrued, and that could reduce a Tax in another taxable period, including a net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or credit related to alternative minimum tax or any other Tax credit.

        "Tax Benefit" means a reduction in the Tax liability (or increase in refund or credit or any item of deduction or expense) of a taxpayer (or of the Affiliated Group of which it is a member) for any taxable period. Except as otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been realized or received from a Tax Item in a taxable period only if and to the extent that the Tax liability of the taxpayer (or of the Affiliated Group of which it is a member) for such period, after taking into account the effect of the Tax Item on the Tax liability of such taxpayer in the current period and all prior periods, is less than it would have been had such Tax liability been determined without regard to such Tax Item.

        "Tax Detriment" means an increase in the Tax liability (or reduction in refund or credit or any item of deduction or expense) of a taxpayer (or of the Affiliated Group of which it is a member) for any taxable period. Except as otherwise provided in this Agreement, a Tax Detriment shall be deemed to have been realized or received from a Tax Item in a taxable period only if and to the extent that the Tax liability of the taxpayer (or of the Affiliated Group of which it is a member) for such period, after taking into account the effect of the Tax Item on the Tax liability of such taxpayer in the current period and all prior periods, is more than it would have been had such Tax liability been determined without regard to such Tax Item.

        "Tax Item" means any item of income, gain, loss, deduction, expense or credit, or other attribute that may have the effect of increasing or decreasing any Tax.

D-9



        "Tax Return" means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, amended tax return, claim for refund or declaration of estimated Tax) required to be supplied to, or filed with, a Taxing Authority in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax.

        "Taxing Authority" means any governmental authority or any subdivision, agency, commission or authority thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).

Section 2.    Preparation and Filing of Tax Returns.

        2.01.    HP Co.'s Responsibility.     Subject to the other applicable provisions of this Agreement, HP Co. shall have sole and exclusive responsibility for the preparation and filing of:


        2.02
    Spinco's Responsibility.     Spinco shall have sole and exclusive responsibility for the preparation and filing of:


        2.03
    Agent.     Subject to the other applicable provisions of this Agreement, Spinco hereby irrevocably designates, and agrees to cause each Spinco Affiliate to so designate, HP Co. as its sole and exclusive agent and attorney-in-fact to take such action (including execution of documents) as HP Co., in its sole discretion, may deem appropriate in any and all matters (including Audits) relating to any Tax Return described in Section 2.01 of this Agreement.

D-10



        2.04.
    Manner of Tax Return Preparation.     

D-11



Section 3.    Liability for Taxes.

        3.01    Spinco's Liability for Taxes.     Spinco and each Spinco Affiliate shall be jointly and severally liable for the following Taxes, and shall be entitled to receive and retain all refunds of Taxes previously incurred by Spinco or the Spinco Business with respect to such Taxes:


        3.02
    HP Co.'s Liability for Taxes.     HP Co. shall be liable for the following Taxes, and shall be entitled to receive and retain all refunds of Taxes previously incurred by HP Co. with respect to such Taxes:


        3.03
    Taxes, Refunds and Credits.     Notwithstanding Sections 3.01 and 3.02 of this Agreement, (i) HP Co. shall be liable for all Taxes incurred by any person with respect to the HP Co. Business for all periods and shall be entitled to all refunds and credits of Taxes previously incurred by any person with respect to such Taxes, and (ii) Spinco and each Spinco Affiliate shall be jointly and severally liable for all Taxes incurred by any person with respect to the Spinco Business for all periods and shall be entitled to all refunds and credits of Taxes previously incurred by any person with respect to such Taxes. Nothing in this Agreement shall be construed as to require compensation, by payment, credit, offset or otherwise, by HP Co. (or any HP Co. Affiliate) to Spinco (or any Spinco Affiliate) for any loss, deduction, credit or other Tax attribute arising in connection with, or related to, Spinco, any Spinco Affiliate, or the Spinco Business, that are shown on, or otherwise reflected with respect to, any Tax Return described in Section 2.01.


        3.04
    Payment of Tax Liability.     If one party is liable or responsible for Taxes, under Sections 3.01 through 3.03 of this Agreement, with respect to Tax Returns for which another party is responsible for preparing and filing, or with respect to Taxes that are paid by another party, then the liable or responsible party shall pay the Taxes (or a reimbursement of such Taxes) to the other party pursuant to Section 7.05 of this Agreement.

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        3.05
    Computation.     HP Co. shall provide Spinco with a written calculation in reasonable detail (including copies of all work sheets and other materials used in preparation thereof) setting forth the amount of any Spinco Separate Tax Liability or estimated Spinco Separate Tax Liability (for purposes of Section 7.01 of this Agreement) and any Taxes related to the Spinco Business. Spinco shall have the right to review and comment on such calculation. Any dispute with respect to such calculation shall be resolved pursuant to Section 9.03 of this Agreement, provided, however, that, notwithstanding any dispute with respect to any such calculation, in no event shall any payment attributable to the amount of any Spinco Separate Tax Liability or estimated Spinco Separate Tax Liability be paid later than the date provided in Section 7 of this Agreement.


Section 4.    Distribution Taxes and Deconsolidation.

        4.01.    Distribution Taxes.     

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        4.02.
    Private Letter Rulings.     

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        4.03
    Carrybacks.     

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        4.04
    Allocation of Tax Items.     All Tax computations for (1) any Interim Periods ending on the Distribution Date and (2) the immediately following taxable period of Spinco or any Spinco Affiliate, shall be made pursuant to the principles of section 1.1502-76(b) of the Treasury Regulations or of a corresponding provision under the laws of other jurisdictions, as reasonably determined by HP Co., taking into account all reasonable suggestions made by Spinco with respect thereto.


        4.05
    Continuing Covenants.     

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        4.06
    Allocation of Tax Assets.     


Section 5.    Tax Reporting

        5.01.    Employee Wages.     At HP Co.'s Request, Spinco shall assume the Form W-2 and Form W-3 reporting obligations (including the filing of all forms necessary to comply with magnetic media reporting requirements) of HP Co. with respect to any employee of the Spinco Business that Spinco employs during the calendar year which includes the Distribution Date consistent with the procedures set forth in Section 5 of Rev. Proc. 96-60, 1996-2 C.B. 399.


Section 6.    Indemnification

        6.01.    Generally.     The HP Co. Group shall jointly and severally indemnify Spinco, each Spinco Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any and all Taxes for which HP Co. or any HP Co. Affiliate is liable under this Agreement and any loss, cost, damage or expense, including reasonable attorneys' fees and costs, that is attributable to, or results from, the failure of HP Co., any HP Co. Affiliate or any director, officer or employee to make any payment required to be made under this Agreement. Spinco and each member of the Spinco Group shall jointly and severally indemnify HP Co., each HP Co. Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any and all Taxes for which Spinco or any Spinco Affiliate is liable under this Agreement and any loss, cost, damage or expense, including reasonable attorneys' fees and costs, that is attributable to, or results from, the failure of Spinco, any Spinco Affiliate or any director, officer or employee to make any payment required to be made under this Agreement.


        6.02.
    Inaccurate or Incomplete Information.     The HP Co. Group shall jointly and severally indemnify Spinco, each Spinco Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any cost, fine, penalty, or other expense of any kind attributable to the failure of HP Co. or any HP Co. Affiliate in supplying Spinco or any Spinco Affiliate with inaccurate or incomplete information, in connection with the preparation of any Tax Return. The Spinco Group shall jointly and severally indemnify HP Co., each HP Co. Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any cost, fine, penalty, or other expenses of any kind attributable to the failure of Spinco or any Spinco Affiliate in supplying HP Co.

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or any HP Co. Affiliate with inaccurate or incomplete information, in connection with the preparation of any Tax Return.


        6.03.
    No Indemnification for Tax Items.     Nothing in this Agreement shall be construed as a guarantee of the existence or amount of any loss, credit, carryforward, basis or other Tax Item, whether past, present or future, of HP Co., any HP Co. Affiliate, Spinco or any Spinco Affiliate. In addition, for the avoidance of doubt, nothing in this Agreement shall be construed to require compensation by either party hereto in respect of any financial accounting deferred tax assets or liabilities or other financial accounting items.


Section 7.    Payments.

        7.01.    Estimated Tax Payments.     Not later than ten (10) business days prior to each Estimated Tax Installment Date with respect to a taxable period for which a Consolidated Return or a Combined Return including Spinco will be filed, Spinco shall pay to HP Co. on behalf of the Spinco Group an amount equal to the amount of any estimated Spinco Separate Tax Liability that Spinco otherwise would have been required to pay to a Taxing Authority on such Estimated Tax Installment Date.


        7.02.
    True-Up Payments.     Not later than ten (10) business days after completion of a Tax Return, Spinco shall pay to HP Co., or HP Co. shall pay to Spinco, as appropriate, an amount equal to the difference, if any, between the Spinco Separate Tax Liability and the aggregate amount paid by Spinco with respect to such period under Section 7.01 of this Agreement.


        7.03.
    Redetermination Amounts.     In the event of a redetermination of any Tax Item of any member of a Consolidated Group or Combined Group (other than Tax Items relating to Distribution Taxes), as a result of a refund of Taxes paid, a Final Determination or any settlement or compromise with any Taxing Authority which in any such case would affect the Spinco Separate Tax Liability, HP Co. shall prepare a revised pro forma Tax Return in accordance with Section 2.04(b) of this Agreement for the relevant taxable period reflecting the redetermination of such Tax Item as a result of such refund, Final Determination, settlement or compromise. Spinco shall pay to HP Co., or HP Co. shall pay to Spinco, as appropriate, an amount equal to the difference, if any, between the Spinco Separate Tax liability reflected on such revised pro forma Tax Return and the Spinco Separate Tax liability for such period as originally computed pursuant to this Agreement.


        7.04.
    Payments of Refunds and Credits.     If one party receives a refund or credit of any Tax to which the other party is entitled pursuant to Section 3.03 of this Agreement, the party receiving such refund or credit shall pay to the other party the amount of such refund or credit pursuant to Section 7.05 of this Agreement.


        7.05.
    Payments Under This Agreement.     In the event that one party (the "Owing Party") is required to make a payment to another party (the "Owed Party") pursuant to this Agreement, then such payments shall be made according to this Section 7.05.

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Section 8.    Tax Proceedings.

        8.01.    In General.     Except as otherwise provided in this Agreement, the party responsible for preparing and filing a Tax Return pursuant to Section 2 of this Agreement (the "Filing Party") shall have the exclusive right, in its sole discretion, to control, contest, and represent the interests of HP Co., any HP Co. Affiliate, Spinco, and any Spinco Affiliate in any Audit relating to such Tax Return and to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Audit. The Filing Party's rights shall extend to any matter pertaining to the management and control of an Audit, including execution of waivers, choice of forum, scheduling of conferences and the resolution of any Tax Item. Any costs incurred in handling, settling, or contesting an Audit shall be borne by the Filing Party.


        8.02.
    Participation of non-Filing Party.     The non-Filing Party shall have control over decisions to resolve, settle or otherwise agree to any deficiency, claim or adjustment with respect to any Sole Responsibility Item. The Filing Party and the non-Filing Party shall have joint control over decisions to resolve, settle or otherwise agree to any deficiency, claim or adjustment with respect to any Joint Responsibility Item. The Filing Party shall not settle any Audit it controls concerning a Tax Item on a basis that would reasonably be expected to adversely affect the non-Filing Party by at least 250,000 dollars without obtaining such non-Filing Party's consent, which consent shall not be unreasonably withheld if failure to consent would adversely affect the Filing Party.


        8.03.
    Notice.     Within ten (10) days after a party becomes aware of the existence of a Tax issue that may give rise to an indemnification obligation under this Agreement, such party shall give prompt notice to the other party of such issue (such notice shall contain factual information, to the extent known, describing any asserted tax liability in reasonable detail), and shall promptly forward to the other party copies of all notices and material communications with any Taxing Authority relating to such issue. Notwithstanding any provision in Section 9.15 to the contrary, if a party to this Agreement fails to provide the other party notice as required by this Section 8.03, and the failure results in a

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detriment to the other party then any amount which the other party is otherwise required to pay pursuant to this Agreement shall be reduced by the amount of such detriment.


        8.04.
    Control of Distribution Tax Proceedings.     HP Co. shall have the exclusive right, in its sole discretion, to control, contest, and represent the interests of HP Co., any HP Co. Affiliate, Spinco, and any Spinco Affiliate in any Audits relating to Distribution Taxes and to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Audit; provided however, that HP Co. shall not settle any such audit with respect to Distribution Taxes with a Taxing Authority in exchange for a settlement on an issue or issues unrelated to such Distribution Taxes that would reasonably be expected to result in a material Tax cost to Spinco or any Spinco Affiliate, without the prior consent of Spinco, which consent shall not be unreasonably withheld. HP Co.'s rights shall extend to any matter pertaining to the management and control of such Audit, including execution of waivers, choice of forum, scheduling of conferences and the resolution of any Tax Item; provided however, to the extent that Spinco is obligated to bear at least 50% of the liability for any Distribution Taxes under Section 4.01(b), HP Co. and Spinco shall have joint control over decisions to resolve, settle or otherwise agree to any deficiency, claim or adjustment. Spinco may assume sole control of any Audits relating to Distribution Taxes if it acknowledges in writing that it has sole liability for any Distribution Taxes under Section 4.01(b) that might arise in such Audit and can demonstrate to the reasonable satisfaction of HP Co. that it can satisfy its liability for any such Distribution Taxes. If Spinco is unable to demonstrate to the reasonable satisfaction of HP Co. that it will be able to satisfy its liability for such Distribution Taxes, but acknowledges in writing that it has sole liability for any Distribution Taxes under Section 4.01(b), Spinco and HP Co. shall have joint control over the Audit.


Section 9    Miscellaneous Provisions.

        9.01.    Effectiveness.     This Agreement shall become effective upon execution by the parties hereto.


        9.02.
    Cooperation and Exchange of Information.     

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        9.03.
    Dispute Resolution.     In the event that HP Co. and Spinco disagree as to the amount or calculation of any payment to be made under this Agreement, or the interpretation or application of any provision under this Agreement, the parties shall attempt in good faith to resolve such dispute. If such dispute is not resolved within sixty (60) business days following the commencement of the dispute, HP Co. and Spinco shall jointly retain a nationally recognized law or accounting firm, which firm is independent of both parties (the "Independent Firm"), to resolve the dispute. The Independent Firm shall act as an arbitrator to resolve all points of disagreement and its decision shall be final and binding upon all parties involved. Following the decision of the Independent Firm, HP Co. and Spinco shall each take or cause to be taken any action necessary to implement the decision of the Independent Firm. The fees and expenses relating to the Independent Firm shall be borne equally by HP Co. and Spinco, except that if the Independent Firm determines that the position advanced by either party is frivolous, has not been asserted in good faith or for which there is not substantial authority, 100% of the fees and expenses of the Independent Firm shall be borne by such party. Notwithstanding anything in this Agreement to the contrary, the dispute resolution provisions set forth in this Section 9.03 shall not be applicable to any disagreement between the parties relating to Distribution Taxes and any such dispute shall be settled in a court of law or as otherwise agreed to by the parties.


        9.04.
    Notices.     All notices and other communications required or permitted to be given hereunder shall be in writing and shall be deemed given upon (a) a transmitter's confirmation of a receipt of a facsimile transmission (but only if followed by confirmed delivery of a standard overnight courier the following business day or if delivered by hand the following business day), (b) confirmed delivery of a standard overnight courier or when delivered by hand or (c) the expiration of five business days after the date mailed by certified or registered mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice):

        If to HP Co. or any HP Co. Affiliate, to the Director of Corporate Tax of HP Co., with a copy to the General Counsel of HP Co., at:

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Either party may, be written notice to the other parties, change the address or the party to which any notice, request, instruction or other documents is to be delivered.


        9.05.
    Changes in Law.     


        9.06.
    Confidentiality.     Each party shall hold and cause its directors, officers, employees, advisors and consultants to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information (other than any such information relating solely to the business or affairs of such party) concerning the other parties hereto furnished it by such other party or its representatives pursuant to this Agreement (except to the extent that such information can be shown to have been (1) in the public domain through no fault of such party or (2) later lawfully acquired from other sources not under a duty of confidentiality by the party to which it was furnished), and each party shall not release or disclose such information to any other person, except its directors, officers, employees, auditors, attorneys, financial advisors, bankers and other consultants who shall be advised of and agree to be bound by the provisions of this Section 9.06. Each party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality for its own similar information.


        9.07.
    Successors.     This Agreement shall be binding on and inure to the benefit and detriment of any successor, by merger, acquisition of assets or otherwise, to any of the parties hereto, to the same extent as if such successor had been an original party.


        9.08.
    Affiliates.     HP Co. shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any HP Co. Affiliate, and Spinco shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Spinco Affiliate; provided, however, that (1) if it

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is contemplated that a Spinco Affiliate may cease to be a Spinco Affiliate as a result of a transfer of its stock or other ownership interests to a third party in exchange for consideration in an amount approximately equal to the fair market value of the stock or other ownership interests transferred and such consideration is not distributed outside of the Spinco Group to the shareholders of Spinco then (a) Spinco shall request in writing no later than thirty (30) days prior to such cessation that HP Co. execute a release of such Spinco Affiliate from its obligations under this Agreement effective as of such transfer provided that Spinco shall have confirmed in writing its obligations and the obligations of its remaining Spinco Affiliates with respect to their own obligations and those of the departing Spinco Affiliate and that such departing Spinco Affiliate shall have executed a release of any rights it may have against HP Co. or any HP Co. Affiliate by reason of this Agreement, or (b) Spinco shall acknowledge in writing no later than thirty (30) days prior to such cessation that it shall bear 100 percent of the liability for the obligations of Spinco and each Spinco Affiliate (including the departing Spinco Affiliate) under this Agreement and (2) if it is contemplated that a HP Co. Affiliate may cease to be a HP Co. Affiliate as a result of a transfer of its stock or other ownership interests to a third party in exchange for consideration in an amount approximately equal to the fair market value of the stock or other ownership interests transferred and such consideration is not distributed outside of the HP Co. Group to the shareholders of HP Co. then (a) HP Co. shall request in writing no later than thirty (30) days prior to such cessation that Spinco execute a release of such HP Co. Affiliate from its obligations under this Agreement effective as of such transfer provided that HP Co. shall have confirmed in writing its obligations and the obligations of its remaining HP Co. Affiliates with respect to their own obligations and the obligations of the departing HP Co. Affiliate and that such departing HP Co. Affiliate shall have executed a release of any rights it may have against Spinco or any Spinco Affiliate by reason of this Agreement, or (b) HP Co. shall acknowledge in writing no later than thirty (30) days prior to such cessation that it shall bear 100 percent of the liability for the obligations of HP Co. and each HP Co. Affiliate (including the departing HP Co. Affiliate) under this Agreement.


        9.09.
    Authorization, Etc.     Each of the parties hereto hereby represents and warrants that it has the power and authority to execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all necessary corporate action on the part of such party, that this Agreement constitutes a legal, valid and binding obligation of each such party and that the execution, delivery and performance of this Agreement by such party does not contravene or conflict with any provision of law or of its charter or bylaws or any agreement, instrument or order binding on such party.


        9.10.
    Entire Agreement.     This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes any prior tax sharing agreements between HP Co. (or any HP Co. Affiliate) and Spinco (or any Spinco Affiliate) and such prior tax sharing agreements shall have no further force and effect. If, and to the extent, the provisions of this Agreement conflict with the Distribution Agreement or any other agreement entered into in connection with the Distribution, the provisions of this Agreement shall control.


        9.11.
    Applicable Law; Jurisdiction.     EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH PARTY'S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND (iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY WITHIN THE STATE OF DELAWARE.

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        9.12.
    Counterparts.     This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.


        9.13.
    Severability.     If any term, provision, covenant, or restriction of this Agreement is held by a court of competent jurisdiction (or an arbitrator or arbitration panel) to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants, and restrictions set forth herein shall remain in full force and effect, and shall in no way be affected, impaired, or invalidated. In the event that any such term, provision, covenant or restriction is held to be invalid, void or unenforceable, the parties hereto shall use their best efforts to find and employ an alternate means to achieve the same or substantially the same result as that contemplated by such terms, provisions, covenant, or restriction.


        9.14.
    No Third Party Beneficiaries.     This Agreement is solely for the benefit of HP Co., the HP Co. Affiliates, Spinco and the Spinco Affiliates. This Agreement should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, cause of action or other rights in excess of those existing without this Agreement.


        9.15.
    Waivers, Etc.     No failure or delay on the part of a party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by the parties therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.


        9.16.
    Setoff.     All payments to be made by any party under this Agreement may be netted against payments due to such party under this Agreement, but otherwise shall be made without setoff, counterclaim or withholding, all of which are hereby expressly waived.


        9.17.
    Other Remedies.     Spinco recognizes that any failure by it or any Spinco Affiliate to comply with its obligations under Section 4 of this Agreement would result in Distribution Taxes that would cause irreparable harm to HP Co., HP Affiliates, and their stockholders. Accordingly, HP Co. shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which HP Co. is entitled at law or in equity.

        9.18    Amendment and Modification.    This Agreement may be amended, modified or supplemented only by a written agreement signed by all of the parties hereto, and with the written consent of the Company.

        9.19    Waiver of Jury Trial.    Each of the parties hereto irrevocably and unconditionally waives all right to trial by jury in any litigation, claim, action, suit, arbitration, inquiry, proceeding, investigation or counterclaim (whether based in contract, tort or otherwise) arising out of or relating to this Agreement or the actions of the parties hereto in the negotiation, administration, performance and enforcement thereof.

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        IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by a duly authorized officer as of the date first above written.

    HELMERICH & PAYNE, INC.
on behalf of itself and the HP Co. Affiliates

 

 

 

 

 
    By   /s/  HANS HELMERICH      
    Name:   Hans Helmerich
    Title:   President and Chief Executive Officer

 

 

 

 

 
    HELMERICH & PAYNE
EXPLORATION AND PRODUCTION CO.
on behalf of itself and the Spinco Affiliates

 

 

 

 

 
    By   /s/  STEVEN R. MACKEY      
    Name:   Steven R. Mackey
    Title:   Vice President

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ANNEX E

Amended and Restated Certificate of Incorporation of Cimarex Energy Co.

E-1



AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

CIMAREX ENERGY CO.

FIRST: The name of the Corporation is Cimarex Energy Co. (formerly known as Helmerich & Payne Exploration and Production Co. (hereinafter the "Corporation").

SECOND: The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at that address is The Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the "GCL").

FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is One Hundred Fifteen Million (115,000,000) shares of capital stock, consisting of (i) One Hundred Million (100,000,000) shares of common stock, par value $.01 per share (the "Common Stock"), and (ii) Fifteen Million (15,000,000) shares of preferred stock, par value $.01 per share (the "Preferred Stock").


        a.
    Common Stock.     The powers, preferences and rights, and the qualifications, limitations and restrictions, of the Common Stock are as follows:


        (1)
    Voting.     Except as otherwise expressly required by law or provided in this Certificate of Incorporation, and subject to any voting rights provided to holders of Preferred Stock at any time outstanding, at each annual or special meeting of stockholders, each holder of record of shares of Common Stock on the relevant record date shall be entitled to cast one vote in person or by proxy for each share of the Common Stock standing in such holder's name on the stock transfer records of the Corporation. Holders of shares of Common Stock shall not have cumulative voting rights.


        (2)
    Dividends.     Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Certificate of Incorporation, as it may be amended from time to time, holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Corporation when, as and if declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor.


        (3)
    Liquidation, Dissolution, etc.     In the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Corporation, the holders of shares of Common Stock shall be entitled to receive the assets and funds of the Corporation available for distribution after payments to creditors and to the holders of any Preferred Stock of the Corporation that may at the time be outstanding, in proportion to the number of shares held by them.


        (4)
    No Preemptive or Subscription Rights.     No holder of shares of Common Stock shall be entitled to preemptive or subscription rights.


        b.
    Preferred Stock.     The Board of Directors is hereby expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at

E-2


such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions.


        c.
    Power to Sell and Purchase Shares.     Subject to the requirements of applicable law, the Corporation shall have the power to issue and sell all or any part of any shares of any class of stock herein or hereafter authorized to such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not greater consideration could be received upon the issue or sale of the same number of shares of another class, and as otherwise permitted by law. Subject to the requirements of applicable law, the Corporation shall have the power to purchase any shares of any class of stock herein or hereafter authorized from such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not less consideration could be paid upon the purchase of the same number of shares of another class, and as otherwise permitted by law.

FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

        (1)  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

        (2)  The directors shall have concurrent power with the stockholders to make, alter, amend, change, add to or repeal the By-Laws of the Corporation.

        (3)  (a) The number of directors of the Corporation shall be at least six and not more than nine, with the exact number to be from time to time fixed by resolution adopted by a majority of the entire Board of Directors. Election of directors need not be by written ballot unless the By-Laws so provide. 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. The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the entire Board of Directors. The term of the initial Class I directors shall terminate on the date of the 2003 annual meeting; the term of the initial Class II directors shall terminate on the date of the 2004 annual meeting; and the term of the initial Class III directors shall terminate on the date of the 2005 annual meeting. At each annual meeting of stockholders beginning in 2003, 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. Notwithstanding any other provision of this Certificate of Incorporation (and in addition to any other vote that may be required by law), the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the shares entitled to vote at an election of directors shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Certificate of Incorporation inconsistent with the purpose and intent of this Article FIFTH.

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        (4)  No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the GCL as the same exists or may hereafter be amended. If the GCL is amended hereafter to authorize further elimination or limitation of liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the GCL, as so amended. Any repeal or modification of this Article FIFTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.

        (5)  In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the GCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted.

SIXTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation.

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SEVENTH: The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors. The right to indemnification conferred by this Article SEVENTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition.

        The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article SEVENTH to directors and officers of the Corporation.

        The rights to indemnification and to the advance of expenses conferred in this Article SEVENTH shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation, the By-Laws of the Corporation, any statute, agreement, vote of stockholders or disinterested directors or otherwise.

        Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.

EIGHTH: No action by shareholders shall be valid unless taken at a duly constituted meeting pursuant to the terms of the By-Laws of the Corporation and no action may be taken by stockholders by written consent without a meeting. Notwithstanding any other provision of this Certificate of Incorporation (and in addition to any other vote that may be required by law), the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the shares entitled to vote at an election of directors shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Certificate of Incorporation inconsistent with the purpose and intent of this Article EIGHTH.

NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power to adopt, amend, alter or repeal the Corporation's By-Laws. The affirmative vote of at least a majority of the entire Board of Directors shall be required to adopt, amend, alter or repeal the Corporation's By-Laws. The Corporation's By-Laws also may be adopted, amended, altered or repealed by the affirmative vote of at least eighty percent (80%) of the voting power of the shares entitled to vote at an election of directors. Notwithstanding any other provision of this Certificate of Incorporation (and in addition to any other vote that may be required by law), the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the shares entitled to vote at an election of directors shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Certificate of Incorporation inconsistent with the purpose and intent of this Article NINTH.

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        IN WITNESS WHEREOF, Cimarex Energy Co. has caused this Certificate to be duly executed in its corporate name as of this            day of            , 2002.

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ANNEX F

Form of Cimarex Energy Co. By-Laws

F-1



FORM OF

BY-LAWS

of

CIMAREX ENERGY CO.

A Delaware Corporation

Effective [                        ], 2002

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TABLE OF CONTENTS

 
   
ARTICLE I—OFFICES
  Section 1.   Registered Office
  Section 2.   Other Offices

ARTICLE II—MEETINGS OF STOCKHOLDERS
  Section 1.   Place of Meetings
  Section 2.   Annual Meetings
  Section 3.   Special Meetings
  Section 4.   Quorum
  Section 5.   Proxies
  Section 6.   Voting
  Section 7.   Nature of Business at Meetings of Stockholders
  Section 8.   List of Stockholders Entitled to Vote
  Section 9.   Stock Ledger
  Section 10.   Record Date.
  Section 11.   Inspectors of Election

ARTICLE III—DIRECTORS
  Section 1.   Number and Election of Directors
  Section 2.   Nomination of Directors
  Section 3.   Vacancies
  Section 4.   Duties and Powers
  Section 5.   Organization
  Section 6.   Resignations and Removals of Directors
  Section 7.   Meetings
  Section 8.   Quorum
  Section 9.   Actions of Board
  Section 10.   Meetings by Means of Conference Telephone
  Section 11.   Committees
  Section 12.   Compensation
  Section 13.   Interested Directors

ARTICLE IV—OFFICERS
  Section 1.   General
  Section 2.   Election
  Section 3.   Voting Securities Owned by the Corporation
  Section 4.   Chairman of the Board of Directors
  Section 5.   President
  Section 6.   Vice Presidents
  Section 7.   Secretary
  Section 8.   Treasurer
  Section 9.   Assistant Secretaries
  Section 10.   Assistant Treasurers
  Section 11.   Other Officers

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ARTICLE V—STOCK
  Section 1.   Form of Certificates
  Section 2.   Signatures
  Section 3.   Lost, Destroyed, Stolen or Mutilated Certificates
  Section 4.   Transfers
  Section 5.   Transfer and Registry Agents.
  Section 6.   Beneficial Owners

ARTICLE VI—NOTICES
  Section 1.   Notices
  Section 2.   Waivers of Notice

ARTICLE VII—GENERAL PROVISIONS
  Section 1.   Dividends
  Section 2.   Disbursements
  Section 3.   Fiscal Year
  Section 4.   Corporate Seal

ARTICLE VIII—INDEMNIFICATION
  Section 1.   Power to Indemnify in Actions, Suits or Proceedings Other than Those by or in the Right of the Corporation
  Section 2.   Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation
  Section 3.   Authorization of Indemnification
  Section 4.   Good Faith Defined
  Section 5.   Indemnification by a Court
  Section 6.   Expenses Payable in Advance
  Section 7.   Nonexclusivity of Indemnification and Advancement of Expenses
  Section 8.   Insurance
  Section 9.   Certain Definitions
  Section 10.   Survival of Indemnification and Advancement of Expenses
  Section 11.   Limitation on Indemnification
  Section 12.   Indemnification of Employees and Agents

ARTICLE IX—AMENDMENTS
  Section 1.   Amendments
  Section 2.   Entire Board of Directors

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FORM OF

BY-LAWS

OF

CIMAREX ENERGY CO.

(hereinafter called the "Corporation")

ARTICLE I

OFFICES


        Section 1. Registered Office.     The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware.


        Section 2. Other Offices.     The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine.

ARTICLE II

MEETINGS OF STOCKHOLDERS

        Section 1. Place of Meetings.     Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.


        Section 2. Annual Meetings.     The annual meetings of stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect directors, and transact such other business as may properly be brought before the meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting.


        Section 3. Special Meetings.     Unless otherwise prescribed by law or by the certificate of incorporation of the Corporation, as amended and restated from time to time (the "Certificate of Incorporation"), special meetings of stockholders, for any purpose or purposes, may be called by either (i) the Chairman of the Board of Directors, (ii) the President, or (iii) the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. At a special meeting of the stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.


        Section 4. Quorum.     Except as otherwise required by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At

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such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting not less than ten nor more than sixty days before the date of the meeting.


        Section 5. Proxies.     Any stockholder entitled to vote may do so in person or by his or her proxy appointed by an instrument in writing subscribed by such stockholder or by his or her attorney thereunto authorized, delivered to the Secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date, unless said proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for him or her as proxy, either of the following shall constitute a valid means by which a stockholder may grant such authority:

Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.


        Section 6. Voting.     At all meetings of the stockholders at which a quorum is present, except as otherwise required by law, the Certificate of Incorporation or these By-Laws, any question brought before any meeting of stockholders shall be decided by the affirmative vote of the holders of a majority of the total number of votes of the capital stock present in person or represented by proxy and entitled to vote on such question, voting as a single class. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot.


        Section 7. Nature of Business at Meetings of Stockholders.     No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 7.

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        In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

        To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred (100) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.

        To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

        No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 7, provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 7 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.


        Section 8. List of Stockholders Entitled to Vote.     The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.


        Section 9. Stock Ledger.     The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 8 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.


        Section 10. Record Date.     In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other

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lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall not be more than sixty nor less than ten days before the date of such meeting; and (2) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.


        Section 11. Inspectors of Election.     In advance of any meeting of stockholders, the Board by resolution or the Chairman or President shall appoint one or more inspectors of election to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is present, ready and willing to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law.

ARTICLE III

DIRECTORS

        Section 1. Number and Election of Directors.     The Board of Directors shall consist of not less than six nor more than nine members, the exact number of which shall be determined from time to time by resolution adopted by the Board of Directors. Except as provided in Section 3 of this Article III, directors shall be elected by the stockholders at the annual meetings of stockholders, and each director so elected shall hold office until such director's successor is duly elected and qualified, or until such director's death, or until such director's earlier resignation or removal. Directors need not be stockholders.


        Section 2. Nomination of Directors.     Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 2.

        In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

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        To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than ninety (90) days nor more than one hundred (100) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.

        To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

        No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.


        Section 3. Vacancies.     Subject to the terms of any one or more classes or series of Preferred Stock, 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 Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class shall hold office for a term that shall coincide with the remaining term of that class. 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, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of the Corporation's then outstanding capital stock entitled to vote at an

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election of directors. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Corporation's Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to the Corporation's Certificate of Incorporation unless expressly provided by such terms.


        Section 4. Duties and Powers.     The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders.


        Section 5. Organization.     At each meeting of the Board of Directors, the Chairman of the Board of Directors, or, in his or her absence, a director chosen by a majority of the directors present, shall act as Chairman. The Secretary of the Corporation shall act as Secretary at each meeting of the Board of Directors. In case the Secretary shall be absent from any meeting of the Board of Directors, an Assistant Secretary shall perform the duties of Secretary at such meeting; and in the absence from any such meeting of the Secretary and all the Assistant Secretaries, the Chairman of the meeting may appoint any person to act as Secretary of the meeting.


        Section 6. Resignations and Removals of Directors.     Any director of the Corporation may resign at any time, by giving written notice to the Chairman of the Board of Directors, the President or the Secretary of the Corporation. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Except as otherwise required by law and subject to the rights, if any, of the holders of shares 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, and only by the affirmative vote of the holders of at least a majority of the votes cast on the issue.


        Section 7. Meetings.     The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held at such time and at such place as may from time to time be determined by the Board of Directors and, unless required by resolution of the Board of Directors, without notice. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the Vice Chairman, if there be one, or a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, facsimile or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.


        Section 8. Quorum.     Except as may be otherwise required by law, the Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.


        Section 9. Actions of Board.     Unless otherwise provided by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of

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Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.


        Section 10. Meetings by Means of Conference Telephone.     Unless otherwise provided by the Certificate of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 10 shall constitute presence in person at such meeting.


        Section 11. Committees.     The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required.


        Section 12. Compensation.     The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary, or such other emoluments as the Board of Directors shall from time to time determine. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.


        Section 13. Interested Directors.     No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because such person's or their votes are counted for such purpose if (i) the material facts as to such person's or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to such person's or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

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ARTICLE IV

OFFICERS

        Section 1. General.     The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation.


        Section 2. Election.     The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors.


        Section 3. Voting Securities Owned by the Corporation.     Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.


        Section 4. Chairman of the Board of Directors.     The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall be the Chief Executive Officer of the Corporation, and except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors.


        Section 5. President.     The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. If there be no Chairman of the Board of Directors, the President shall be the Chief Executive Officer of the

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Corporation. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors.


        Section 6. Vice Presidents.     At the request of the President or in his or her absence or in the event of his or her inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.


        Section 7. Secretary.     The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.


        Section 8. Treasurer.     The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Treasurer and for the restoration to the Corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer's possession or under control of the Treasurer belonging to the Corporation.


        Section 9. Assistant Secretaries.     Except as may be otherwise provided in these By-Laws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.

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        Section 10. Assistant Treasurers.     Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer's disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer's possession or under control of the Assistant Treasurer belonging to the Corporation.


        Section 11. Other Officers.     Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.


ARTICLE V

STOCK

        Section 1. Form of Certificates.     Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation, (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such holder of stock in the Corporation.


        Section 2. Signatures.     Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.


        Section 3. Lost, Destroyed, Stolen or Mutilated Certificates.     The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such person's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.


        Section 4. Transfers.     Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, properly endorsed for transfer and payment of all necessary transfer taxes; provided, however, that such surrender and endorsement or payment of taxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or Assistant Secretary of the Corporation or the transfer agent thereof. No transfer of stock shall be valid as against the Corporation for any

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purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.


        Section 5. Transfer and Registry Agents.     The Corporation may from time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors.


        Section 6. Beneficial Owners.     The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.


ARTICLE VI

NOTICES

        Section 1. Notices.     Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, facsimile, telex or cable.


        Section 2. Waivers of Notice     


ARTICLE VII

GENERAL PROVISIONS

        Section 1. Dividends.     Subject to the requirements of the GCL and the provisions of the Certificate of Incorporation, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors, and may be paid in cash, in property, or in shares of the Corporation's capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for purchasing any of the shares of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any other proper purpose, and the Board of Directors may modify or abolish any such reserve.

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        Section 2. Disbursements.     All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.


        Section 3. Fiscal Year.     The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.


        Section 4. Corporate Seal.     The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.


ARTICLE VIII

INDEMNIFICATION

        Section 1. Power to Indemnify in Actions, Suits or Proceedings Other than Those by or in the Right of the Corporation.     Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.


        Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation.     Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.


        Section 3. Authorization of Indemnification.     Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because

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such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.


        Section 4. Good Faith Defined.     For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his or her conduct was unlawful, if such person's action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.


        Section 5. Indemnification by a Court.     Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.


        Section 6. Expenses Payable in Advance.     Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII.


        Section 7. Nonexclusivity of Indemnification and Advancement of Expenses.     The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation or any By-Law, agreement, contract, vote of

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stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Section 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the GCL, or otherwise.


        Section 8. Insurance.     The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII.


        Section 9. Certain Definitions.     For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII.


        Section 10. Survival of Indemnification and Advancement of Expenses.     The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.


        Section 11. Limitation on Indemnification.     Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.


        Section 12. Indemnification of Employees and Agents.     The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.

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ARTICLE IX

AMENDMENTS

        Section 1. Amendments.     These By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the Board of Directors or by the stockholders as provided in the Certificate of Incorporation.


        Section 2. Entire Board of Directors.     As used in this Article IX and in these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies.

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PART II—INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers

        Section 145 of the Delaware General Corporation Law (the "DGCL") provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation—a "derivative action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe their conduct was unlawful.

        A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's charter, by-laws, disinterested director vote, stockholder vote, agreement or otherwise.

        Article V of Cimarex Energy Co.'s Certificate of Incorporation, as amended, eliminates director liability for monetary damages arising from any breach of the director's duty of care.

        Article VIII of Cimarex Energy Co.'s By-laws generally provides that, subject to certain limitations, each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer or employee of Cimarex Energy Co. or is or was a director, officer or employee of Cimarex Energy Co. or a direct or indirect wholly owned subsidiary of Cimarex Energy Co. or is or was serving at the request of the corporation as a director, officer, employee or agent of any such subsidiary or another company, savings and loan association, partnership, joint venture, trust, employee benefit plan or other enterprise, shall be indemnified and held harmless by the corporation, to the full extent authorized by the DGCL, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection therewith, provided that such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of Cimarex Energy Co. (and with respect to a criminal action, had no reason to believe his conduct was unlawful); except that with respect to actions brought by or in the right of Cimarex Energy Co., no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudicated to be liable to Cimarex Energy Co., unless and only to the extent that the applicable court determines, upon application, that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses. Such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. Article VIII provides that Cimarex Energy Co. may pay the expenses incurred in defending any such proceeding in advance of its final disposition upon delivery to Cimarex Energy Co. of an undertaking, by or on behalf of such director, officer, employee or agent to repay such amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified under Article VIII.

        Both the DGCL and Article VIII of Cimarex Energy Co.'s By-laws specifically state that their indemnification provisions shall not be deemed exclusive of any other indemnity rights a director may have.

        Section 145 of the DGCL permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability

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asserted against him and incurred by him in any such capacity, or arising out of his status as such. Under an insurance policy maintained by Cimarex Energy Co., Cimarex Energy Co. is insured for certain amounts that it may be obligated to pay directors and officers by way of indemnity and each such director and officer is insured against certain losses that he may incur by reason of his being a director or officer and for which he is not indemnified by Cimarex Energy Co.


Item 21. Exhibits and Financial Statement Schedules

a)
Exhibits

Exhibit Number

  Description of Exhibits
  2.1+   Agreement and Plan of Merger, dated as of February 23, 2002, among Helmerich & Payne, Inc., Cimarex Energy Co., Mountain Acquisition Co. and Key Production Company, Inc.

  3.1+

 

Certificate of Incorporation of Cimarex Energy Co.

  3.2+

 

By-laws of Cimarex Energy Co.

  4.1+

 

Specimen Certificate of Cimarex common stock

  4.2+

 

Rights Agreement, dated as of February 23, 2002, by and between Cimarex Energy Co. and UMB Bank, N.A.

  5.1+

 

Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the validity of the common stock being registered hereby

  8.1

 

Form of opinion of Shearman & Sterling regarding certain federal income tax consequences of the merger

10.1+

 

Distribution Agreement, dated as of February 23, 2002, by and between Helmerich & Payne, Inc. and Cimarex Energy Co.

10.2+

 

Tax Sharing Agreement, dated as of February 23, 2002, by and between Helmerich & Payne, Inc. and Cimarex Energy Co.

10.3+

 

Employee Benefits Agreement, dated as of February 23, 2002, by and between Helmerich & Payne, Inc. and Cimarex Energy Co.

10.3.1

 

First Amendment to Employee Benefits Agreement, dated August 2, 2002, by and among Helmerich & Payne, Inc., Cimarex Energy Co. and Key Production Company, Inc.

10.4+

 

Rights Agreement, dated February 25, 2002, between Key Production Company, Inc. and A.G. Edwards & Sons, Inc. (incorporated herein by reference to Exhibit 4.1 of Key Production Company, Inc.'s current report on Form 8-K filed on February 25, 2002)

10.5+

 

Employment Agreement, dated September 1, 1992, by and between F.H. Merelli and Key Production Company, Inc.

10.6+

 

Employment Agreement, dated September 7, 1999, by and between Paul Korus and Key Production Company, Inc.

10.7+

 

Employment Agreement, dated October 25, 1993, by and between Thomas E. Jorden and Key Production Company, Inc.

10.8+

 

Employment Agreement, dated February 2, 1994, by and between Stephen P. Bell and Key Production Company, Inc.

 

 

 

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10.9+

 

Employment Agreement, dated March 11, 1994, by and between Joseph R. Albi and Key Production Company, Inc.

10.10+

 

Change of Control Agreement, dated April 11, 2002, by and between Steven R. Shaw and Helmerich & Payne, Inc.

10.11+

 

Key Production Company, Inc. Income Continuance Plan, dated effective June 1, 1994 (incorporated by reference to Exhibit 10.18 to Key Production Company, Inc.'s Form 10-K for the fiscal year ended December 31, 1992, file no. 0-17162).

10.12+

 

Employment Agreement, dated March 20, 2002, by and between David Honeyfield and Key Production Company, Inc.

21.1+

 

Subsidiaries of the Registrant

23.1

 

Consent of Ernst & Young LLP related to the audited financial statements of Cimarex Energy Co.

23.2

 

Consent of KMPG LLP related to the audited financial statements of Key Production Company, Inc.

23.3

 

Consent of Merrill Lynch & Co.

23.4

 

Consent of Netherland, Sewell & Associates, Inc.

23.5

 

Consent of Ryder Scott Company, L.P.

23.6+

 

Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in opinion filed as Exhibit 5.1 and incorporated herein by reference)

23.7

 

Consent of Shearman & Sterling (included in form of opinion filed as Exhibit 8.2 and incorporated herein by reference)

24.1+

 

Power of Attorney of Directors and Officers of Cimarex Energy Co. (included in the signature pages to this Registration Statement on Form S-4)

99.1

 

Form of proxy of Key Production Company, Inc.

99.2+

 

Consents of Persons Being Named as Directors of the Combined Company

+ Previously filed.


Item 22. Undertakings

        (a)  The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

        (b)  The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus that is a part of this registration statement, by a person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called

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for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

        (c)  The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

        (d)  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

        (e)  The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

        (f)    The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction and Key Production being acquired involved therein, that was not subject of and included in the registration statement when it became effective.

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SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tulsa, State of Oklahoma, on August 2, 2002.

    CIMAREX ENERGY CO.



 

 

 

 
    By:   /s/  STEVEN R. MACKEY      
    Name:   Steven R. Mackey
    Title:   Vice President, Secretary and Director

        Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature
  Title
  Date

 

 

 

 

 
*
Hans Helmerich
  President and Chief Executive Officer and Director   August 2, 2002

*

Douglas E. Fears

 

Vice President and Treasurer and Director

 

August 2, 2002

/s/  
STEVEN R. MACKEY      
Steven R. Mackey

 

Vice President and Secretary and Director

 

August 2, 2002

*

Steven R. Shaw

 

Vice President

 

August 2, 2002

*By/s/  
STEVEN R. MACKEY      
Attorney in fact

 

 

 

 

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